Industry Committee on March 3rd, 2011

[Charlie Angus, NDP, Timmins—James Bay, ON]

Thank you, Mr. Chair.

When I talk with people in the mining industry who are domestic and working internationally, they talk about something that I think this committee has spoken about many times: we need rules-based decision-making, we need transparency, we need certainty. Any investor who comes into Canada or goes overseas wants to know what the rules are.

I just want to ask you a bit about telecom, because the Globalive decision I think is indicative of a disturbing trend. Any investor coming in knows the CRTC is a semi-judicial body and it adjudicates. You win some, you lose some. There's a set of rules in place. So the CRTC decides if Globalive doesn't meet the test. Then the minister steps in and overrides Globalive. Then the Federal Court steps in and overrides the minister, and then the minister says he doesn't care what the Federal Court says, he'll take it all the way to the Supreme Court. And he's a minister in a minority government. If I were an international investor in telecom, I would stay the hell out of Canada because I wouldn't know who I'm dealing with.

Mr. Campbell, do you think we're sending a very disturbing signal that the minister decides that independent bodies don't have authority, that he can step in on a whim even if the courts overrule him?

[Bruce Campbell]

I think you've put your finger on something that's really important. I think of the importance of transparency, clear rules, and consistency. If you have one arm of government contradicting another and then in turn that being reversed, I think that clearly leads to uncertainty and negatively affects the investment climate overall. This is just in a case where there are limits on foreign direct investment, but I think it affects all areas of investment.

[Charlie Angus, NDP, Timmins—James Bay, ON]

Mr. Bloom, you talked about the need for a more holistic approach, and again I know more about mining than I know about many other sectors. But to develop a mine you could high-grade the deposit. You can take the easy stuff and leave town. That's been done. Many companies have done that. You can take a long-term approach and say we're going to go for some lower-grade ore and use the rich high-grade to make sure the mine life is long, and we're going to have a value-added processing.

So you look at a company like Falconbridge. It had a track record we could see for 90 years. We knew what Falconbridge did. They had excellent metallurgical work. They were known around the world for their processes and their advancement.

Xstrata is a company that comes out of nowhere, and they're riding a peak in the market and they're flush with cash and they basically have a dodgy record. But all being said, all capital is not equal. There is capital that's in there for the short term and capital that has a record that's going to build. So Falconbridge gets taken over by Xstrata, and that leads to Inco being gobbled up by Vale. Our minister at the time said that Vale came to save Sudbury, that Sudbury was in, he said, the “Valley of Death”. That was a pretty bizarre comment to make when Inco and Falconbridge were on the verge of a merger at the height of the biggest metal boom in memory.

So we see the loss not just in terms of what they did to the communities and not just what they did to the copper-refining capacity, but no one has ever talked about the job losses in Toronto in terms of head offices, management, sales, that area of expertise that those companies have developed; that once you are a branch plant you're not in the same game at all in terms of a value to a national economy.

Mr. Bloom, would you have any comments about the effect of what it means to become a branch plant as opposed to a world leader?

[Dr. Michael Bloom]

I can give you some examples of branch plants in Canada that are world leaders in their area. Some of our biggest R and D operations are foreign-owned enterprises. If you go to Xerox or IBM you'll see major investment, and in some of the pharmaceutical firms that are foreign-owned as well.

I don't connect the two parts, but if you want to come back to the first part of your comment about the impacts of a takeover, it is a legitimate point to require investors to meet certain conditions that are in the public interest, if they're transparently in the public interest and the representatives of the public have announced them and people understand what the circumstances are so there's a level playing field.

I have to tell you that we've been doing some work. I have a recent report that we've done on headquarters in Canada, looking at their impact on employment among other things. I do not see any evidence of this decline in jobs coming out of the changes. Toronto doesn't seem to be suffering in any particular way, for example. One has to be careful about making associations between outcomes in one place and another.

That being said, I do think it is a legitimate role for government to have a look at this and to set out and say it wants to explore this and there is some evidence there and there is a basis for setting some rules out, but let's make them clear and consistent and apply them across the board.

[Charlie Angus, NDP, Timmins—James Bay, ON]

Finally, Mr. Campbell, I'll just ask you about this. I asked the previous panel if we are basically trying to look at a coroner's inquest into the train wreck that was Vale, Xstrata, and U.S. Steel. Is that the main problem here?

Is there a problem with the act, or is there a problem with the due diligence that went into allowing those three companies to come in and have a decidedly negative impact for our resource-based sector?

[Bruce Campbell]

It's a bit of both. There's definitely a problem with the act. I don't think the calculus of net benefit and the enforcement...there is probably too much space for the companies concerned to kind of wriggle out. More broadly speaking, in those mining takeovers you mentioned, as well as in the steel industry, which became totally foreign almost overnight, there was a failure to have an industrial policy that identified these strategic resources or these strategic assets and the need to have a policy to nurture and protect and develop those and to develop the value-added and high-technology spinoffs that would come from that. It is a failure both of the broad policy and of the specifics of the industry.

[The Chair, Conservative, David Sweet]

Thank you, Mr. Campbell.

Now we will go on to Madam Coady for five minutes.

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

Thank you very much. I certainly appreciate your taking the time today to be with us to share your expertise. It has been enlightening.

My first question is for Mr. Hart. I've been reviewing a report from the Institute for Research on Public Policy . I'm going to quote from the report. On page 3 it says:

...Canada has been losing its attractiveness, relative to other countries, as a destination for foreign investment. Canada's share of global inward foreign investment has been falling since the mid-1980s, and this result holds true whether we include emerging markets or not. Given the positive benefits that come with foreign investment, including technology transfer and increased domestic competition, this trend has harmed Canada's prosperity.

That was a very interesting point that I found in the IRPP study. I want to ask you, Mr. Hart, if you agree with that statement. Second, do you think it's because we don't have a transparent and predictable system, or is it because of other reasons?

[Prof. Michael Hart]

Our system is not an untransparent system, but there is scope for some serious improvement, because, as other witnesses have already indicated to you, there is a certain lack of predictability. Any time you have an act that gives a minister a significant amount of discretion, it means investors then have to work around that particular set of issues, and you're going to have investors asking if this is the place to do it or if they want to do it elsewhere.

I don't take a lot away from statistics that talk about our share of investment. I don't know what our share of investment is. The important issue is not whether we're getting some kind of a fair share, but whether we are an open economy that welcomes investment and that looks forward to working with investors, just as we want other countries where we invest to be open and transparent and predictable.

We have some room to increase that predictability and that welcome.

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

You mentioned the Red Wilson report in your earlier comment and that you were supportive of the approach. Do you have any concerns about the overall approach this report takes to increased transparency, predictability?

[Prof. Michael Hart]

I had an opportunity to discuss that report a number of times with Mr. Wilson. I think his basic approach is a very sound one. After all, his mandate was not to review the Investment Canada Act, but to look at competition policy in Canada, so he added aspects on the investment dimension. I think if he had had a broader mandate, he would have gone into greater detail, but I think the broader kinds of recommendations he made were right, that we should open the economy and make it more predictable and make the whole question of reviewing takeovers a very narrowly focused activity.

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

Thank you.

I have a question for Mr. Campbell. An earlier panellist talked about defining net benefit, to ensure we are informed when we say the words. An earlier panellist talked about strategic assets or resources not necessarily being in the statute as they are today. Could you comment further on net benefit? Have you looked into the net benefit issue at all?

[Bruce Campbell]

First of all, I think there's some value in identifying or defining what you mean by “strategic”, but I think to do that you have to have a strategy, right? So it has to be strategic within an overall industrial policy strategy, and I think that's lacking.

I think the Red Wilson report, if I remember correctly, wanted to replace the net benefit test with the national interest test, which I think is even vaguer than the net benefit test. I would move in the opposite direction, make it clearer, strengthen it, and make it more precise and make it publicly accessible.

Another aspect of the recommendations of that report was the notion of onus, burden of proof. That committee recommended reversing the burden of proof, so you assume that all investments are good and it's up to the government to determine. I would disagree with that. We've seen this trend in the regulatory field--Mr. Hart knows it well--where, for example, when companies introduce a harmful chemical, the onus is on the regulator to prove it is harmful, rather than on the company to prove it is.

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

I have a quick question, Dr. Bloom, if you'd be so kind. You talked a little earlier about consulting with the provinces, and mechanisms to have that as part of the transparent and predictable process. Could you elaborate on that?

[Dr. Michael Bloom]

Yes, I think there are some sectors where there is a great sensitivity in the provinces, in the resource sector, for example, where some provinces feel very deeply about this. Currently, depending on the particular industry, the province has no role officially, but it has a political role. I think being clear about how that's working, is that playing in? Is it an advisory capacity? Being up front about that would be helpful to everybody to understand. Then you'd know whether or not all the provinces were operating in the same way, and that would shed light for the investors.

[The Chair, Conservative, David Sweet]

Thank you very much, Dr. Bloom and Madam Coady.

Now on to Mr. Wallace for five minutes.

[Mike Wallace, Conservative, Burlington, ON]

Thank you, Mr. Chair, and I thank our guests for coming this afternoon.

I'm hoping for some leadership from the chair. Mr. Chair, we've heard from panel after panel about the OECD, and I think it's time this committee makes a visit over there to see them.

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

Mr. Wallace, I second that motion.

[Mike Wallace, Conservative, Burlington, ON]

On a more serious note, this topic is interesting to me. I'm from Burlington, the riding across the bay from both the former Stelco, now U.S. Steel, and the former Dofasco, now ArcelorMittal Dofasco, which kept the name. We have two steel companies right on the same street, with two different experiences.

Mittal is investing, and things are going well. There is foreign investment there, takeover, I guess you would call it. Unfortunately, it's not going quite as well with U.S. Steel, and we're taking them to court as a government. Even Mr. Angus in the previous panel gave four examples, two that worked and two that did not—or were not working the way he expected.

Based on what I've been hearing thus far, it's difficult to pick who's going to win.

Mr. Hart, you said if you were sitting in our chair, this is what you would do. The one thing I think you're missing in that equation is that, like it or not, we are politicians and there's a political aspect to everything we do, so it might not be quite as easy to do as you think.

With respect to the study, one of the questions has to do with increasing the ability of the minister to comment afterwards on whether something had a net benefit, why the decisions were made, and the criteria that went into making the decision. Are you supportive of that change? Let's assume the act is going to stay as it exists, not as you're recommending. Are you in favour of that? Are there limits to it, or do you think that will make any difference?

[Prof. Michael Hart]

There is an advantage in the minister's being required to publicly explain his or her decision. That transparency in and of itself will force the minister and his public servants to look carefully at what they're doing in justifying these decisions. I would have been interested, for example, in seeing the current minister justify the decision in the case of Potash, and he was spared that difficult task.

I'm convinced that the minister made the opposite decision before the Prime Minister's Office changed his mind. He had to convince his officials that all the work they had done should be turned upside down. It would have been an interesting exercise, and I would like to have seen the results.

But the real point to make is this: it is good public policy to narrow the scope for discretion. The more discretion a minister has, the more opportunity there is for political finagling. So I think it is in the interest of government and politicians alike to have a narrowly conceived area of discretion rather than a vague and wide one. If it's vague and wide, it is hard to deal with lobbying efforts.

[Mike Wallace, Conservative, Burlington, ON]

Mr. Bloom, I have used your study to push back a little bit. Often, as a local member, I'll get a call: how do you as a government let so-and-so buy so-and-so? You're selling Canada down the river, blah, blah, blah. I push back a little bit by saying no, there have been studies, including one from the Conference Board of Canada, which is pretty neutral, that this is not really the case. In fact, Canadian investors are doing more outside the country than what's come in. I don't get into the details, but that's it.

What investments and activities are you doing to make Canadians invest more in Canada in Canadian companies? Does the Conference Board have any position on what the government of the day could be doing to make sure that the investment environment is better for Canadians wanting to invest in Canadian companies?

[Dr. Michael Bloom]

That's a thoughtful and interesting question. We are starting some work on a centre for business innovation. One of the issues tied to this propensity to invest is access to capital. Another is the expertise and attitude about investment that Canadians have. We seem to be more conservative than some others. Arguably, that stood us in good stead with the banks in recent days, but there's a challenge there.

I've talked to a number of CEOs about this, and I don't think people feel there's a problem with the tax regime. I think they feel it's pretty reasonable. I think the bigger issue is developing a culture that sees certain, measured risks as worth taking. That is easier to state than to actually make happen.

[The Chair, Conservative, David Sweet]

I'm sorry, Mr. Wallace, that's all the time we have.

[Mike Wallace, Conservative, Burlington, ON]

He had three solutions he wanted to put on the table. I don't remember him doing that.

[Bruce Campbell]

I didn't.