Industry Committee on Feb. 17th, 2011

[Peter Stoffer, NDP, Sackville—Eastern Shore, NS]

I'm thinking of an incident in the United States. One of my concerns is that you may have unintended consequences in terms of security.

As you all are aware, when a company in Dubai wanted to take over the security aspects of the seaports in the United States, they were legally allowed to do it until Congress got really upset about it. They were worried about security and, basically, the image of this. They were going to move forward a bill, but apparently Mr. Bush said at the time that they would veto anything. It didn't turn out that way. The buyer just backed off.

One of my concerns is that you don't have the “I don't like you clause” in here. I'm just thinking of someone like Hugo Chavez of Venezuela wanting to invest in a $400-million company here in Canada to get his foot in the door and then spreading whatever he wanted to from there. Is there not a factor in terms of security concerns in this regard?

I have another question that links with that. When you review a company or its investment, do you check its board of directors, the history of the company, its practices in other countries, its human rights record, and its environmental record? Does any of that come into play?

You talked about state-owned enterprises as well. China has a lot of state-owned enterprises that are trying to purchase anything they can in raw materials and so on. But their human rights record--and everything else--is sometimes questioned. Is there not a fear that you can have unintended consequences by raising that limit and not doing a thorough check in terms of security, human rights records, environmental records, and so on?

Finally, are there any other countries in the world that have systems similar to what we have when it comes to foreign investment? The reason I ask is that the government is involved in a lot of free trade negotiations right now, such as the FTA with the Americas, the Canada-EU talks, and Canada and Japan. Investment rules and changes would have to be part of those discussions, I would assume. What role do the trade deals play in what happens with your work?

Thank you very much for coming today. Take all the time you want. We have until 5:30, by the way.

[Marie-Josée Thivierge]

I will--

[Peter Stoffer, NDP, Sackville—Eastern Shore, NS]

I'm just kidding, by the way.

[Marie-Josée Thivierge]

I will make two comments and then turn it over to my colleague, Richard Saillant.

Under the Investment Canada Act, as a result of the last round of changes to the statute in 2009, there are two tests. There's a likely net benefit test, and there is the national security provision, which is a new part under the act. It's part IV.1. Essentially those are the two reviews that can take place under the act.

[Peter Stoffer, NDP, Sackville—Eastern Shore, NS]

But if I may say so, once it gets to the billion-dollar threshold, anything under that amount, like a $400-million or $500-million company, would not be covered by that review.

[Marie-Josée Thivierge]

I'll come to that in a minute.

Section 25.1 of the act actually “applies in respect of an investment, implemented or proposed, by a non-Canadian”. The threshold does not apply. The tests apply to any transaction that is to take place. This lists establishing a new Canadian business, acquiring control of a Canadian business, and acquiring in whole or in part a Canadian business or the assets of a Canadian business. All the scenarios are provided for under section 25.1.

These are the two tests. In terms of how Canada compares to other countries in our trade obligations, I will turn to Richard.

[Richard Saillant]

Thank you.

The first thing I would say before I get to the comparison of Canada with other countries is that in regard to the test under national security under the act, the words “national security” are not defined, and that's to take into account the evolving nature of national security threats and the inability to draw a bright line somewhere.

However, the government has international trade obligations, and under its international trade obligations--WTO and NAFTA--there is an exception for measures that allow governments to treat parties that are non-nationals differently than they treat individuals domestically. It's under those provisions that you can have measures to protect national security. These trade agreements do define “national security”, so there are limitations, and the government has to be mindful to apply the act in a way that is consistent with the definitions under the acts.

With regard to the practices in other countries, there are two main points to consider here. Canada is one of the few countries that has a formal review mechanism of general applicability that extends to matters that are primarily economic in nature. That doesn't mean that in other countries there are no other laws or other instruments by which mergers may or may not be easier. I'm not going into other things related to crossover ownership of institutional banks and companies or anything like that. I won't go into that.

I think only two other countries in the world have similar mechanisms: laws of general applicability that apply across sectors. That being said, there are a lot of other countries that do have review mechanisms for transactions that are reviewed on the basis of national security. In fact, before the amendments to the act in 2009, Canada was the only one of the G-7 countries that did not have some form of mechanism that provided them with the authority to review transactions on national security grounds. So in that sense, it was more common on national security grounds.

[Peter Stoffer, NDP, Sackville—Eastern Shore, NS]

Okay.

The last one, of course, is that it's one of the concerns of money laundering and how people can move money fairly quickly around the world. What investigative techniques do you have in terms of determining whether the finances that a particular company wishes to invest into Canada, the money or the investment they have, is actually clean money and not something that came from, I would say, criminal activity?

As you know, the drug trade is into the billions of dollars, and it's easy to set up companies that look legitimate and then invest in Canada under particular provisions and be able to operate freely in order to launder their money. Is that taken into any consideration at all?

Again, there are the questions of human rights, environmental rights, and labour rights for particular state-owned enterprises that wish to invest in companies. Are those given any consideration at all prior to the approval or disapproval of an investment in Canada?

[The Chair, Conservative, David Sweet]

Be as brief as possible, please.

[Marie-Josée Thivierge]

Again, I would say that under the net benefit test, the economic test under the act, the factors that can be considered are very clearly laid out. There are six factors and those are the factors the minister can consider.

Under national security, what the provision calls for is that after consulting with the Minister of Public Safety and Emergency Preparedness, if the minister thinks that a transaction might be injurious to national security, then the minister can go to the Governor in Council and have the Governor in Council make a determination as to whether the transaction should be reviewed.

So there are two steps and they're very much in consultation. I cannot elaborate, because there's no definition of national security and what the factors are under national security, contrary to what is under the net benefit test, where the factors are clearly laid out.

[The Chair, Conservative, David Sweet]

Thank you, Madame Thivierge.

Mr. Rota, for five minutes.

[Anthony Rota, Liberal, Nipissing—Timiskaming, ON]

Thank you, Mr. Chair.

We've had a couple of pretty high-profile refusals over the last couple of years. How many refusals have we had since 1985? Am I missing something? There hasn't been that many. Is there a number of how many have actually been turned down?

[Marie-Josée Thivierge]

Under the responsibility of the Minister of Industry, there has been one. I am not aware of how many there have been under the review of the Minister of Canadian Heritage.

[Anthony Rota, Liberal, Nipissing—Timiskaming, ON]

Okay, very good. That's pretty well what I expected.

One of the things that I'm hearing about as well is withdrawals. We hear that corporations withdraw. Since 1985, how many have actually withdrawn after having applied? Or is there an average per year?

[Marie-Josée Thivierge]

There are not many transactions where withdrawals take place. I don't have the exact number.

Richard, do you have that?

[Richard Saillant]

I'm being told by Richard Lajeunesse, my manager, who is here, that there are four.

[Anthony Rota, Liberal, Nipissing—Timiskaming, ON]

In total?

[Richard Saillant]

In total, but my understanding is that this has to be taken carefully, because there are instances where transactions do not proceed for a variety of reasons that have nothing to do with the Investment Canada Act. It could simply be because they no longer wish to proceed with the transaction, so we have to be careful about that.

[Anthony Rota, Liberal, Nipissing—Timiskaming, ON]

That's where my next question was going. I guess it's difficult to say, in those four cases, whether it was discussions that started with the minister's office and that then, seeing that it wasn't worth going ahead with, they pulled out. Is the act maybe a way of discussing with the corporation, of saying that this isn't going to get approved and maybe they should withdraw?

Now, there were only four in the history of the act. Is that correct?

[Richard Saillant]

Yes. There were actually four following what we call the issuance of a notice under section 23(1), which is the minister sending a notice that he's not satisfied that the transaction is likely to be of net benefit and giving 30 days to give further representations.

It's following an initial decision, let's call it. The minister doesn't make a decision; he sends a notice. There are four instances where the investor has withdrawn after that, but we cannot provide information or speculate as to the reasons.

[Anthony Rota, Liberal, Nipissing—Timiskaming, ON]

No, and I'm not expecting one in particular; I'm just trying to get a feel for how it works and whether it's after consultation with the minister's office that people withdraw, or whether the act has some influence on that.

I'll go on to something else, if you don't mind. In broad terms, what are the principal difficulties that Industry Canada identifies through the process of enforcing undertakings?

[Marie-Josée Thivierge]

Would you mind repeating that, please?

[Anthony Rota, Liberal, Nipissing—Timiskaming, ON]

Sure. What are the principal difficulties that Industry Canada has identified through the process of enforcing undertakings? What are the obstacles? Is there anything that stands out? I'm trying to get a feel for what there is.

[Marie-Josée Thivierge]

The act is pretty clear in terms of the powers that are given to the minister and the administrators in terms of enforcement.

I think I went through that in great detail earlier on. As part of the application, investors have to submit detailed plans. Investors have to provide information. Again, I can turn very briefly to slide 5 in the deck that was provided to committee members.

When you look at the receipt of an application that is called for under section 17 of the act, you see that an investor has to submit detailed plans on the proposed investment, annual reports, and purchase and sales agreements. So there's essentially a great deal of information available to the people who are reviewing the transaction and ultimately to the minister who will make the decision. This is informed also, as you see, through the process that is laid out for “discussions of undertakings”. Undertakings are legally enforceable. You have the basis to then use sections 39 and 40, should the minister wish to go there.

As I indicated earlier, section 39.1 also provides the minster with the ability to request additional undertakings should something change in the transaction and how it's being implemented.

Those are the instruments available. I wouldn't want to comment any further on that.

[Anthony Rota, Liberal, Nipissing—Timiskaming, ON]

I was wondering if there was anything--