Industry Committee on March 3rd, 2011

[Oliver Borgers]

I'm really not in a position to comment on any particular transaction. The investors would, no doubt, have made an application to the minister and supplied all the information required and requested, and I think there's no doubt that they all would have entered into lengthy and detailed written commitments in respect of those investments.

The reasons for enforcing some but not others rests with the administration and the minister. I think we here have insufficient details to understand the differences because of a very important element, which is the protection of confidential and competitively sensitive information. I think investors would find it difficult if that were put out in the marketplace, because of the competitive disadvantages that it would cause.

[The Chair, Conservative, David Sweet]

Thank you, Mr. Borgers.

Madam Coady is next, for five minutes.

[Siobhan Coady, Liberal, St. John's South—Mount Pearl, NL]

Thank you very much for being here today. I certainly appreciate not only your time but also your intelligent and well-researched comments.

I've been listening to you today as you've talked about the need for guidelines and backgrounders, greater transparency, and those types of issues. I hearken back to the 2008 Red Wilson report, “Compete to Win”. It talked about greater transparency. I think it talked about predictability and timeliness. I happen to have a copy of it here. I'll just read a couple of lines from it. I'd like to know from Mr. Goldman, Mr. Borgers, and maybe Mr. Coles if this is what we're talking about when we're talking about transparency.

It says in the report that they recommend requiring ministers to report publicly on the disallowance of any individual transaction, and in so doing giving reasons for the disallowance, and that their annual report should provide information on the development of any new policies or guidelines as an overview of all transactions related to the ICA and undertakings provided by foreign investors. Then further down the page it talks about how the government should also make increased use of guidelines and other advisory materials to provide information concerning the review process.

This was two years ago, in the “Compete to Win” report by Red Wilson.

Mr. Goldman, are you familiar with the report? Is this what you're talking about when you're asking about using guidelines, backgrounders, greater transparency?

[Calvin Goldman]

Yes, indeed. That report has a number of very well thought through and well-considered recommendations. I was one of a number of individuals and stakeholders who appeared before the panel.

The recommendations for additional guidelines are certainly in the same direction that we're talking about today. I'd add one supplement.

There are other laws in Canada, the U.S., and elsewhere such that, as Mr. McTeague indicated, guidelines have been used to add flesh to the framework, to give both investors--parties that may be considering mergers or acquisitions--and the public and interested parties--that is, stakeholders across the marketplace--much more appreciation of the particular statutory provisions that are listed. For example, the key factors in section 20 will be applied with more specificity by the enforcement body, by the investment review division, and ultimately by the minister.

That has been done in merger reviews. It is currently the subject of further consideration--which Mr. Borgers and Mr. Baldanza are participating in--by the Competition Bureau.

[Siobhan Coady, Liberal, St. John's South—Mount Pearl, NL]

Mr. Borgers, you did mention Australia and New Zealand.

First of all, before I finish with the Red Wilson report, Mr. Goldman, what I'm hearing from you is an urge to have government implement the recommendations.

[Calvin Goldman]

I only want to be taken as suggesting that it's an area that does warrant further consideration and study.

[Oliver Borgers]

I echo my colleague's remarks. In terms of the Red Wilson report, amendments were made to the law that require the minister to give reasons for disallowance, so that was implemented. I understand the investment review division is working on an annual report, so that also appears to be in the works, and while we strongly encourage more guidelines from the investment review division and the cultural sector investment review, Heritage Canada is right now working on a new and more detailed book distribution policy as well, so some of that definitely seems to be in the works.

Tony, do you have any elaboration?

[Anthony Baldanza]

I would concur with what Oliver Borgers has just said. There are steps being taken with respect to transparency. In many ways--and this echoes a sentiment expressed by Cal Goldman--the Competition Bureau and its practices might be viewed as a bit of a template or model for proceeding in respect of transparency. There are lots of guidelines, there are backgrounders, and there's a fairly high level of predictability that decisions are made on a principles-based system. That's something that can assist in this regard.

[Siobhan Coady, Liberal, St. John's South—Mount Pearl, NL]

Thank you.

I have one final question to Mr. Coles. I have only a few moments.

You spoke about clear definition of net benefit. Then we heard a little bit later from another person about how a strategic asset or resource is not really in the statute. Would you care to clarify or give a little bit more of your rationale regarding the clarity around net benefit? Do you have any suggestions or thoughts, or just a direction for us, to clarify that?

[David Coles]

Very briefly, it's a request for direction. I'll argue with you on whether you got it right or wrong, as long as there is a definition. With any foreign investor I've been dealing with, one of the first questions they ask is what it means. For them to have a fair footing, there has to be some form of definition.

[The Chair, Conservative, David Sweet]

Thank you very much, Mr. Coles.

We will move on to Mr. Van Kesteren for five minutes.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Thank you, Mr. Chair.

Thank you, panel, for appearing before us.

We obviously have some difficulties. We have some areas that we certainly would like to have changed, and every one of you has a different idea about that.

I'm of the firm conviction that what we always should do is look outside Canada. We're not unique. Our circumstances are not unique in terms of our resources, our people, and our system. I would suspect that other jurisdictions have struggled with the same things.

Is there another jurisdiction out there about which we can say these guys have it right or have just about got it right, and they just need to tweak this or that?

I'm going to leave that open.

I'll start with Mr. Goldman. Is there somewhere we should be looking to, one of the other countries?

[Calvin Goldman]

Respectfully, in my experience in various international forums and in bilateral communications both from experience in the public sector and for many years in the private sector—for example, last week I was at the OECD, where many nations are in dialogue—I don't think we can suggest there is any one model which has it in a significantly more effective manner.

The law in Canada in this area, unlike competition law, is unique to Canada. Coupled with our net benefit test, which isn't exactly the same as any other law, we have now, since the Red Wilson report and the amendments of Parliament, we have the national security provisions. This is a very challenging statute. It is trying to address consultation with provinces and various policies in our federal structure in the unique dynamics within Canada.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Does the fact that provinces have jurisdiction over their own resources make it a little bit tougher? Is that one of the hurdles we're trying to jump over?

[Calvin Goldman]

One of the unique hurdles that Canada is facing now, in my respectful submission, is to provide more clarity on one of the issues you have before you, which is the consultative process with provinces, by clarifying that under the act, no one province has in effect a de facto veto, but rather has important input, with the federal decision being made for the net benefit of Canada. This would go some distance in enhancing reasonable predictability and certainty, but these are issues unique to Canada in the current environment.

I hope I am answering your question.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

I will go to a few others, but I want to ask you one other question. Are we getting the reputation that we're closed to investment?

[Calvin Goldman]

From various discussions I've had and colleagues I know have had with other counsel and business persons, I don't think we've reached the point where we're getting that reputation. What we do have are questions about what the guiding principles really are when one drills down today in a high-profile matter that raises a host of issues. There are a series of questions from the one I touched on, such as whether there is a de facto veto in a province or whether there is special treatment to be given to a strategic asset. These are in the media. They're apparent to all of us, and because of the great media coverage that has occurred in recent months related to this act, those questions are the ones that are being asked both in Canada and abroad.

That is the way I prefer to answer. I don't think we've crossed the bridge to the level that you were asking about. We just have questions.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Does anybody from the Bar Association want to jump into that one briefly?

[Oliver Borgers]

We know of no evidence to date that would suggest Canada is closed for business resulting from the administration of this act.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Do you look at another jurisdiction and say we've got to make some changes here, based on these guidelines?

[Oliver Borgers]

There's no other jurisdiction that I would prefer have implemented here in Canada. I think the act does have its benefits for Canada. It's designed for the benefit of Canada. We would like more transparency and predictability so that when non-Canadian investors come here, they have an understanding of what needs to be overcome to secure that investment.

[The Chair, Conservative, David Sweet]

Thank you, Mr. Borgers.

Thank you, Mr. Van Kesteren. I'm sorry about the time, sir. We've pretty well run out, and another panel is waiting.

Thank you very much, gentlemen, for your testimony.

We're going to suspend for a couple of minutes so that we can change names and bring in the other witnesses, and then we'll begin again with panel number two.

[The Chair, Conservative, David Sweet]

We're now resuming our meeting, ladies and gentlemen.

We have three new witnesses before us. From the Conference Board of Canada, we have Michael Bloom, vice-president, organizational effectiveness and learning; from the Canadian Centre for Policy Alternatives, we have Bruce Campbell, executive director; we also have Michael Hart, Simon Reisman chair in trade policy, Norman Paterson School of International Affairs, who is testifying as an individual.

I'm going to follow the order that is in front of you, so I'm going to ask Mr. Bloom to go first.

I'll keep you very close to five minutes for your opening statement, and then we'll get on to questions.

Go ahead, Mr. Bloom, for five minutes, please.

[Dr. Michael Bloom, Vice-President, Organizational Effectiveness and Learning, Conference Board of Canada]

Thanks, Mr. Chairman.

I think it's important, as we reflect on the Investment Canada Act, to consider that there are several strategic concerns here. One is that it's important to provide a positive investment environment to sustain capital flow into Canada.

Second, it's important that we ensure that investments are transparently economically based rather than political or governmental in original. We should at least be clear about whether or not they are.

Third, it's important to sustain the confidence of the international business investment community in fairness and openness when it comes to opportunities in this country.

We have done some work on the issues. We did a report on PotashCorp for the Government of Saskatchewan last fall. We've done some other work on corporate takeovers, mergers, and acquisitions. Our findings, through our work, are that they are net mildly beneficial and that there are certainly lots of opportunities through the existing legislation rules to ensure that benefits are obtained for the country. But the issues that seem to be coming up more and more are how we understand the issue, how we reasonably and fairly assess it, and how we communicate that to ourselves and to people outside the country.

In our work we came up with a typology of takeover effects for acquisitions. We looked at shareholders, governance, management, operations, capital, people, and community effects. We used that typology in our potash study, which was not intended to draw the recommendation of the Government of Saskatchewan but rather was for analyzing scenarios for takeovers and options.

Out of that, I have come up with some recommendations, which I think would be useful. First of all, and you may have heard some of this, consider a set of criteria and metrics to apply to all reviewed mergers and acquisitions. Again, the Competition Act may be a bit of a model.

Second, if you do it, have a typology that covers the full range of benefits. Get beyond the narrowly financial and look at the full range of benefits and costs as a basis for assessment.

Third, make these criteria and metrics well known to the investment community in Canada and abroad so that people know the rules of the game.

Fourth, consider the term “strategic asset” or “strategic resource”, and either explicitly reject it as a part of this or, if you accept it, provide a definition and associated tests that would make it understandable in the real world of potential takeovers.

Fifth, consider making the results from the reviews known publicly, either in summary form or in full form, so that markets gain a clear understanding of the decision-making process. The next time people are considering an opportunity, they will be able to gauge a priority and whether it is likely to work.

Sixth, clarify the criteria for mergers and acquisitions by state-owned enterprises. Are there some no-go sectors, beyond what we already have, that we really aren't interested in having people come into, such as some kinds of resources? What about a state-owned enterprise that is partnered with Canadian organizations? What relationships would be allowable there? Is there a standard for control, and so on?

Seventh, similarly for sovereign wealth funds.

Finally, clarify the role of provinces. Do they have anything more than an advisory role, de facto or de jure? Should they? How can that be set out for understanding the federal-provincial relationship?

I'll stop there.

[The Chair, Conservative, David Sweet]

Thank you very much, Mr. Bloom.

We'll move on to Mr. Campbell for five minutes, please.