Industry Committee on March 3rd, 2011

[Guy Caron, Director, Special Projects, Communications, Energy and Paperworkers Union of Canada]

I will make this short.

Telecommunications is an interesting case. You know very well that Minister Clement announced his intention to open this industry up soon to foreign investment. We also know that the three large companies that are currently sharing the market are not very popular and that people see this decision as a positive one. However, we should keep in mind that, over the last two years, Canada has gone from 4 to 11 mobile network operators. We are the second country in terms of mobile network operators. Other countries, with the exception of four countries that include Canada, have a maximum of four mobile network operators. So, even though they allow foreign ownership, those countries don't have more than four mobile network operators.

What I'm trying to say is that, if we allow foreign ownership, it is obvious that the easiest solution for companies like AT&T, Vodafone or others that want to integrate the market is not setting up a parallel structure, but rather acquiring existing companies. When all is said and done, the result will not necessarily be more competition.

In this case, if such a transaction is brought before Industry Canada, the issue will consist in determining whether, though it does not involve natural resources, for instance, the transaction will be assessed to determine if it is to the benefit of Canada and what this benefit is based on. There is currently no way to know this. We think that this will not be the case, but transparency is a glaring issue here. The brief I submitted also talks about our concerns regarding tar sands and the mining sector. We see the transparency issue as a key one.

[David Coles]

In conclusion, sir, and panel members, one issue that I think is important to all of us and to investors is that there be a clear definition of the term “net benefit to Canada”. What is it? What does it mean, and can both Canadians and investors understand it?

As well, our issue around enforcement is that it doesn't appear to be working at all. If you look at all of what we believe to be infractions of promises made by Vale Inco and others, it doesn't appear that enforcement was any deterrent.

We do not support blind protectionism--that's not in the best interest of Canada--nor do we support total laissez-faire and leaving it up to the market. I've never been introduced to this guy named “the market”, and politicians can't get hold of the rationale for the market, so we think that you have to attempt to find some middle ground.

Thank you very much.

[The Chair, Conservative, David Sweet]

Thank you, Mr. Coles.

Mr. Goldman is next.

[Calvin Goldman, Partner, Blake, Cassels and Graydon LLP , As an Individual]

Thank you, Mr. Chair, and honourable members.

My name is Cal Goldman and I'm a partner at Blake, Cassels and Graydon, based in Toronto, where I co-chair the competition, anti-trust, and foreign investment group. I'm here today at the invitation of the committee, which I appreciate. I'm speaking in my personal capacity.

Like my colleagues from the Canadian Bar Association, I've been regularly involved in providing legal advice on major transactions that have been the subject of review under the Investment Canada Act. I've been doing this since the late 1980s, at which time I was in the public sector as head of the Canadian Competition Bureau. Since the early nineties, I've been a counsel in the private sector. I hope my opening remarks will assist the committee.

Let me start by saying that I agree with and support the comments made earlier by my colleagues from the Canadian Bar Association with respect to the three specific topics being addressed on a primary basis by this committee.

First, transparency and predictability are important elements in the proper administration of the Investment Canada Act, subject to important considerations regarding the protection of competitively sensitive or confidential information, as provided for in section 36 of the act.

I have one suggestion. It may enhance both the transparency and predictability of the process if the minister, upon making a decision, could consider issuing more detailed backgrounders, as is done with decisions on major merger cases in Competition Act proceedings, subject to confidentiality and protection of competitively sensitive information. Some backgrounders run three or four pages or more.

Second, as to the enforcement mechanisms in the act, in my respectful view, they do not require statutory amendment.

Third, the consultations process set out in the Investment Canada Act does not require amendment either. The statute is clear that the decisions under the act by the minister are to be made by the minister with consultative input from affected provinces rendered and with the net benefit of Canada in mind.

I have a few more suggestions that I'd like to put on the table. If time doesn't permit now, I'm happy to amplify upon them if the committee would like me to address them. They go to the fundamental principle that to make informed decisions on whether to invest in Canada, investors need to know with reasonable certainty and predictability the governing principles applicable to foreign investment decisions. To Canada we want to attract proper, sound investments for the benefit of the Canadian market, as determined by the minister, with the net benefit test applicable to such investments.

In that regard, I would suggest that any continued discussion that has appeared in media and otherwise about the use of terms such as “strategic acquisition” or “strategic resource” in considering a particular transaction raises considerable additional issues of uncertainty. The concept of a strategic asset, as was discussed by the assistant deputy minister and deputy director of investments Marie-Josée Thivierge in her statements of February 17, is not in the statute. Since those words are not in the statute, the discussion of them in media in relation to possible transactions, in my respectful view, based on what I've heard from colleagues at the bar and business people both in Canada and abroad, serves to generate uncertainty. I want to flag that for the committee's benefit. It's a subjective term, “strategic”. It assumes different meanings in the eyes of different stakeholders.

The second suggestion that I'd make is to provide enhanced summaries. These would result in greater transparency and a deeper stakeholder understanding of the reasons behind the minister's decision.

A third initial suggestion is greater use and encouragement of confidential guidance. This is already provided for in the administrative guidelines in the act, but it can be the subject of greater awareness to the business community in considering possible transactions. It works under the Competition Act, and I think it could be made to work even more so under this act.

These suggestions do not require statutory amendments and can be effected by administrative process through the direction of the minister. Parliamentarians may decide that the act needs to be amended; in my respectful opinion, however, no such amendments are necessary at this time.

I recognize that this is in Parliament's mandate, not mine. I'm just offering my views.

Those are my initial remarks, and I'd be pleased to respond to any questions.

Thank you.

[The Chair, Conservative, David Sweet]

Thank you very much, Mr. Goldman.

[Mike Wallace, Conservative, Burlington, ON]

Do you have notes of your speech that you could submit to the committee?

[Calvin Goldman]

Yes, I do. I've given a copy—

[Mike Wallace, Conservative, Burlington, ON]

Is it in both languages?

[The Chair, Conservative, David Sweet]

It's okay; we'll have them translated, and they'll be distributed.

[Calvin Goldman]

I didn't have time. I got the invitation a week ago.

[The Chair, Conservative, David Sweet]

That's quite all right, sir.

We're going to move on to questions now, and because we have another panel and a limited amount of time, we'll go with five minutes each.

We'll go first to Mr. McTeague. You have five minutes.

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

Thank you, Chair, and thank you for being here, witnesses. To those I've known for a good part of my life, Mr. Borgers, and to Mr. Goldman, whom I've known for a good part of my political life, it's great to have you here, as well as members of the CEP.

I want to start with you, Mr. Goldman. You've offered something here in the way of an alternative. You've suggested, on the question of transparency and predictability, putting together a backgrounder that would amplify and give light to the reasons. I'm not suggesting building case law, but at least it would give greater understanding and certainty.

I wonder, Mr. Goldman, if you've had an opportunity as an individual to discuss this idea with Mr. Borgers of the Canadian Bar Association. Perhaps I could also canvass their ideas as to whether they've looked at this at all or if they'd care to give a comment.

[Calvin Goldman]

Thank you, Mr. McTeague.

I haven't discussed it with my colleagues from the Canadian Bar Association in advance of presenting this today. The overriding and balancing consideration at all times, in my respectful submission, must be section 36 of the act and the parallel need to protect competitively sensitive information, as is done with backgrounders under the Competition Act.

I say it's overriding and fundamental because not only does the statute currently require such protection for privileged information under the terms of section 36, but in attracting investments to Canada the principles of fairness in a competitive marketplace, which you and your colleagues are certainly very, very familiar with, necessitate that an investor—an entity taking on a position in a business in Canada—not face unfair disadvantages.

Those disadvantages would arise if a highly sensitive competitive plan for specific capital expenditures, for example, or other such strategic investments or plans were the subject of public disclosure, which their competitors could see, while the competitors did not have to disclose. In my respectful submission, issuing broader and more detailed backgrounders can be done, as is done in the Competition Act, while balanced at all times with the need to protect the kind of information that has a long history of being protected in the competition reviews.

It can be done. It takes considerable time, and I'm not suggesting that the minister and his officials aren't prepared to devote that time. It's an example of an area that does achieve some more informed discussion and helps businesses going forward. It also helps the public in understanding and appreciating the reasons for the decisions.

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

That's very thorough. Thank you, Mr. Goldman.

I know that you, Mr. Goldman, and Mr. Borgers and Mr. Baldanza have all had extensive experience in competition law, and I wonder whether you would advocate or consider—not necessarily advocate—guidelines very similar to what you have in the Competition Act. I realize that all transactions are not one-size-fits-all, but at least to provide against or repel the perception of decisions based on whim, might that be considered a second step? We already have, if you will, some background, some understanding of how those kinds of transactions take place on a domestic basis. Could we transpose that to have an effect when it comes to ministerial decisions?

We understand there are limits in terms of security. We've seen this in the past in terms of certain jurisprudence. I think we all understand the importance of keeping information in such a way that it does not harm the parties that are there, offering—as the Canadian Bar Association has suggested—that advice be given or concerns be raised with the potential investor, but I'm wondering if there is a more precise way of doing this—in other words, perhaps an issue of reciprocity. What are the international best practices in this area? Have we gone beyond simply the question of saying we'll have a little bit of transparency? Are guidelines a possibility, are international best practices a possibility, and what about the implications of reciprocity?

Mr. Borgers, I'd love to hear from you.

[Oliver Borgers]

Certainly, Mr. McTeague. It's my pleasure.

In answer to your earlier question, while we've not discussed Mr. Goldman's suggestion of backgrounders, without a doubt the Canadian Bar Association supports disclosure information, subject to concerns of confidentiality, from the minister's office and the Industry Canada divisions that administer this law.

The act currently allows the minister to give reasons for decisions for approvals and requires the minister to give reasons for rejections. Whether you call those reasons or backgrounders, I think the concept is fundamentally the same. We want some information, some guidance, that allows for that transparency and predictability and that allows advisers and investors to understand what might be coming from those types of decisions.

In terms of international practices, Canada is relatively unique in this kind of law. Unless you're looking to Australia or New Zealand, you probably won't find an international standard, because it is a law that is somewhat unique to Canada. In terms of guidelines, the divisions right now that administer this law for Canadian Heritage and Industry Canada do issue guidelines in certain subject areas--for instance, state-owned enterprises and cultural investments that are of concern--and we would, of course, encourage those divisions to continue to issue many more of those guidelines to assist all stakeholders.

[The Chair, Conservative, David Sweet]

Thank you very much, Mr. Borgers. That's all the time we have for that round.

We'll go on now to the Bloc Québécois and Monsieur Bouchard.

You have five minutes.

[Robert Bouchard, Bloc, Chicoutimi—Le Fjord, QC]

Thank you, Mr. Chair. I will share my time with my colleague Mr. Cardin.

[Serge Cardin, Bloc, Sherbrooke, QC]

If there is any time left.

[Robert Bouchard, Bloc, Chicoutimi—Le Fjord, QC]

Good afternoon, gentlemen. Thank you for coming to testify. My first question is for Mr. Caron.

Mr. Caron, you know that the Investment Canada Act enables the Minister to set certain conditions when assessing a foreign investment. Given that this has been the case for several years, I would like to know whether foreign investors have a solid record in this regard and whether they have complied with the set conditions related to, for instance, minimum employee levels at the head office.

[Guy Caron]

I will answer together with Mr. Coles, the Union President.

An example that comes to mind is that of Vale Inco. Vale had acquired Inco, and certain conditions were involved in the purchase. Those conditions were related to employment and were not complied with, as we later learned.

Clearly, we are talking about possibilities that are covered by the legislation, but these conditions must be applied and used to impose the government's will on those who do not comply with the terms of the legislation or of their agreements.

The Vale issue was actually of critical importance, especially in Sudbury's case. We are currently witnessing the same thing in Thompson.

What bothers us somewhat, when it comes to the lack of transparency, is the fact that people are not always aware of the conditions involved, except for those that are published or reported publicly.

In addition, a lot of time was invested in providing Vale Inco with all the relevant information. Therefore, we can have well-written legislation, whether it is amended or not, but we still have to have the will to enforce it, which didn't happen in this case.

[David Coles]

The additional modern example--and there are a number--would be the U.S. steel situation in which, once again, transparency is the issue, because we don't know all that was promised. What is public knowledge is that they did not live up to their commitment with regard to employment and operating certain portions of their operation in Canada.

Those are the two most modern we're aware of, but there are others that have taken place. Without knowing exactly what the conditions were, it's very difficult to see what else was violated.

[Serge Cardin, Bloc, Sherbrooke, QC]

Good afternoon and welcome, sir.

I view as important the elements of transparency, predictability, enforcement mechanisms that you describe as “robust,” consultations and the need to inform investors of the outcome of those consultations. Last week, if I'm not mistaken, Industry Canada provided us with a document on the Minister's decision that supports the importance of these elements.The document stated the following—and this came from the Minister: “The Minister's decision is an exercise of discretion and final, not subject to appeal. Process may be appealed to the Federal Court.” According to this, transparency is eminently important and mandatory. It enables us to get as much information as possible on issues of safety, competitiveness and confidentiality, of course. I think that these are important elements.

The act is currently before the committee. Which elements do you think it would be important to improve? You talked about what's working well, but what provisions of the act require improvement? Messrs. Caron and Coles also gave us a few suggestions. Competition and investments are vastly different considerations. Therefore, there should be guidelines not only for encouraging takeovers, but also for attracting new investments and encouraging the setting up of new companies. Mr. Caron talked to us about telecommunications, which is an obvious example. A representative of Globalive, a foreign company, actually went to the Federal Court.

What can we do to improve the Investment Canada Act even further and to make sure that net benefits are known and understood in a transparent way?

[The Chair, Conservative, David Sweet]

Monsieur Cardin, you are way over the time limit on your question, so we'll have to leave that with the witnesses, and if they want, they can to try fit it in at another time. Excusez-moi, monsieur. I'm sorry. We're way over.

Keep that question in mind, if you want to try to fit it into one of your answers.

Now we go to the Conservative Party. Mr. Lake, you have five minutes, please.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

Thank you, Mr. Chair.

Thank you to the witnesses for coming today.

Mr. Coles, you've been pretty clear: you made the statement that more investments should be reviewed. What specifically should be the threshold for review, in your view?

[David Coles]

My own personal experience of late has actually had to do with the transparency of what's required and what would make the test of net benefit to Canada.

I'm in a strange situation for a trade union leader: I have been around the world trying to market pulp and paper mills to foreign companies. I have to find commercial lawyers for them to talk to, and it always comes back to questions like the net benefit to Canada and what they mean by that.

That's one area, but I think that—