Industry Committee on Feb. 17th, 2011

[Marie-Josée Thivierge]

I will say that in terms of the net benefit determination, the factors are set in the act. The transaction that is subject to review will be reviewed using the six factors in the act.

The six factors are the following: effect of the investment on the level and nature of economic activity in Canada; the degree and significance of participation by Canadians in the Canadian business; the effect of the investment on productivity, industrial efficiency, technological development, product innovation, and product variety in Canada; the effect of the investment on competition, and on this, as I mentioned earlier, we consult with the Competition Bureau; the compatibility of the investment with national industrial, economic, and cultural policies that are in place; and whether or not it contributes to Canada's ability to compete in world markets.

That being said, I will note that the Investment Canada Act was very much recognized as part of some of our international treaties. In that context, what I could do is turn to Richard Saillant if he wants to speak to that.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

Sure.

[Richard Saillant]

With regard to the specific application of the factors, Madame Thivierge just listed them clearly. There has been, in the context of negotiating NAFTA--that's more than 15 years ago--a general lifting of and an increase in the review threshold as a measure that was put for NAFTA investors and then subsequently applied to WTO investors.

But pertaining to your question, I think Madame Thivierge answered in terms of what the factors are.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

Just to be clear, though, let's say a company investment takes place abroad into Canada to buy an industry but not necessarily control it. Does that affect the nomenclature of the act as to how it is perceived, how it is interpreted? If I want to buy 49.999% of a company, with the other 50.1% still controlled by Canadians, to what extent is the ICA not triggered?

[Richard Saillant]

On the net benefit side, for acquisitions of control of Canadian businesses, what the ICA does is provide for the review by the Minister of Industry strictly of acquisitions of control of Canadian businesses. Control is generally defined as involving a majority of the voting interests in the company. In the context of companies that are widely held, there is a rebuttable presumption that control may be acquired once you have one third or more of the shares.

So that's the rebuttable presumption--

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

Right.

[Richard Saillant]

Maybe a final point is that you can also acquire a Canadian business if you acquire the assets, or substantially all of the assets, and not necessarily a voting interest. For instance, a mine or anything like that--

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

Sure.

[Richard Saillant]

But to answer your question regarding control, if you are buying a voting interest that is less than control, it is not reviewable for likely net benefit under the act.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

What happens in the circumstance where a company does and acquires by creep a year later, two years later, or four years later...? It has not gone through the test as stated here. but a year later it purchases that extra per cent that gives it effective control some time after.

Is there a way to circumvent the act as it is now worded?

[Richard Saillant]

The obligation of the investor under the act is not to implement the transaction if it is reviewable before the minister determines whether it is likely to be of net benefit to Canada.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

Thank you.

How much time do I have?

[The Chair, Conservative, David Sweet]

Be very brief.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

For my final one, perhaps, it says in the definition here as it relates to the consideration of provinces--and I'm just going to go back to the words you've used--where there is consultation with provinces as it relates to state or provincial policy, “the stated policies of the provinces”. This is not a loaded question, but I think it deserves some fleshing out.

If a provincial government that has some authority over a particular regulated industry--and I'm not referring to the TSX, I'm not--assuming that in a perfect world it had control or authority over a particular market in a regulated way, and it is not a stated priority, but it does develop that as a policy on the fly because it is perhaps analogous to Minmetals many years ago, when we had a very similar situation with SOEs.... Are there provisions in the undertaking or the consideration of the minister to consider the fact that regulations or concerns by a province might suddenly appear out of the blue given a particular unique transaction that was hitherto unfathomable or unthought of?

[Marie-Josée Thivierge]

I will answer by saying that paragraph 20(e) clearly says that, for the minister, one of the factors is “the compatibility of the investment with national industrial, economic and cultural policies, taking into consideration industrial, economic and cultural policy objectives enunciated by the government or legislature of any province likely to be significantly affected by the investment”.

So one of the factors is to the extent that it is enunciated by a province.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

Thank you. I think you know where my concern lies.

Thank you, Chair.

[The Chair, Conservative, David Sweet]

Is it clear now? Good.

Our final questioner will be Mr. Wallace.

[Mike Wallace, Conservative, Burlington, ON]

Thank you, Mr. Chair.

Thank you for coming today. You are an excellent example of the quality of public servants that Canada has. I appreciated the presentation today. It was very good.

I' have one question from my riding that I wanted to ask you about that someone came to me with recently. You may or may not be able to answer this question about the changeover in 1985 from one piece of legislation to another, from the FIRA. The vision of this person was that the FIRA legislation was much tougher on foreign investment than the new investment act is.

Could you give me a response to that so I can get back to them? Is that an accurate statement? Or did it do different things in the new act from what it did in 1985?

[Marie-Josée Thivierge]

On this one as well, I would be tempted to turn to Pierre, who knows the FIRA legislation very well.

[Pierre Legault]

FIRA indeed was a more severe piece of legislation. For example, right now we have the net benefit test. At the time under FIRA, we had to have some substantial benefit, which meant that the bar was much higher.

Also, pretty much all transactions were reviewed at the time. So if somebody was selling his mom-and-pop corner store, it was captured by the act. Pretty much all economic activity and all transactions were reviewed. Under this act, starting in 1985, not all transactions were reviewed.

So there were some differences like that.

[Mike Wallace, Conservative, Burlington, ON]

Here is another very naive question. I own a company—I don't, but if I did—that was at this level, but I own all the shares. It's private. What act is it that triggers me to let the government know that I'm selling it to whoever I want to and that it's reviewable? Is it this act or is it the Corporations Act? How do you even know that I'm selling a private company?

[Richard Saillant]

Well, the first consideration is that I'm assuming that if your company is worth $312 million in assets, you would have good lawyers and--

[Voices]

Oh, oh!

[Richard Saillant]

--they will be in touch with people on Bay Street who, when it involves sales to foreigners, know the legislation very well. They will advise you very well as to your obligations under the Investment Canada Act.

[Mike Wallace, Conservative, Burlington, ON]

So it's in the law, even on a private corporation, that if I'm selling to a foreign entity, I have to inform the government of that exchange.