Industry Committee on May 21st, 2013

[Matthew Dooley]

I don't think they're numbered in the bill.

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

Is it 20 or something like that, or 18?

Could we take some time to walk through them? I don't know if we'll get to clause-by-clause in this case. As a committee I don't think we will look at this. Maybe we could just walk through the different sections in order and you could explain the changes to help us understand.

[Paul Halucha]

Absolutely. Matt will take the lead on that.

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

I'll just throw the ball to you because I'm sure that will take up my time.

[The Chair, Conservative, David Sweet]

Try to do that in four minutes.

[Matthew Dooley]

What I will do then is stick to the substantive amendments. If I don't mention a clause or a subclause, it's because there were a number of changes that were simply technical changes, French-English concordance, that sort of thing.

The definition of “state-owned enterprise” was added in subclause 136(2). I think Mr. Halucha mentioned it earlier, that this captures foreign governments or agencies, entities controlled or influenced by foreign governments, and individuals acting on behalf of or influenced by a foreign government.

Subclauses 137(1) and (2) create the new threshold that we're talking about. In 2009 there was a commitment to increase the threshold from the current $344 million up to $1 billion.

These subclauses do two things. One, they reintroduce that increase in threshold, but they separate out the private sector investors from WTO countries and the SOE investors from WTO countries. Essentially there will be two separate thresholds for private sector companies under subclause 137(1). It will eventually increase to $1 billion before transactions are reviewed. For SOEs from WTO countries, it will maintain its current level at $344 million of asset value, indexed to inflation going forward.

Clause 138 is quite long. I believe it's two or three pages. It's essentially a technical amendment. It was discussed earlier. After a national security review has been completed, the minister has only five days to finish the net benefit review. We're increasing that to 30 days to ensure they have time to solve any problems that may have arisen, or finalize any undertakings, etc.

The reason it is such a long clause is simply that it captures the various scenarios in which a national security review can go forward, from the initial stage, where there's a pre-review and a notice is sent to the investor, all the way through the multiple stages, where finally a Governor in Council order is given demanding that certain actions be taken by the investor. As I say, there are a number of stages that happen through there, and each one had to be covered off to ensure that this 5-day to 30-day period will occur in each one of those scenarios.

Clause 139 is similar. Simply, it's the case where the net benefit review has been extended from 45 days to 75 days, so it captures that period as well.

Subclauses 141(1) and (2) as well as clause 142 create the authority for the Minister of Industry to prescribe the periods upon which the national security review process can be extended. It gives legislative authority for regulations to be created to prescribe periods to extend the national security review period and the Governor in Council decision period.

Clauses 143 and 144 deal with the de facto control provisions we were speaking about. Clause 143 deals with the Canadian status of an entity. In this case it is a matter of whether a company that appears to be Canadian controlled is in fact de facto controlled by a state-owned enterprise.

Clause 144 permits the minister to review whether an acquisition by a clearly state-owned enterprise of a Canadian business—although it doesn't mean the de jure or legal control as set out in the act, the thresholds—is still in fact an acquisition for control based on the de facto factors we discussed earlier.

Clause 145 goes to the Canadian status we spoke about earlier. Currently the Minister of Canadian Heritage and the Minister of Industry must provide a written opinion as to whether a company is Canadian controlled or not.

This is important in the cultural sector, we understand from our colleagues at Heritage Canada, because whether a company is Canadian or not will provide it with access to different government programs at the federal level. It's important to them to have the ability to receive a written opinion from the government that they are in fact Canadian. This will be maintained, so they will still have the right to go to the Minister of Canadian Heritage and get that legal written opinion.

On the other hand, for the Minister of Industry, it simply gives him the flexibility to decide on the facts, on the case, whether it's appropriate for him to provide a written opinion as to whether a company is Canadian controlled or not.

Finally, skipping a few sections here, the transitionals, etc., this is important because it seems to have been missed by some of the legal community commentary. We talked about de facto control. The minister will be able to go back to the date that the bill was tabled in the House, which I believe was April 29. From April 29 to the day the bill receives royal assent, for any transaction or investment that has occurred, the minister will have the right to reach back and check those transactions for whether there was de facto control transferred or acquired at that time, but this reach-back ability is limited. The minister must send a notice within 60 days of royal assent.

The purpose here is simply to ensure that there's no gaming of the system. They rush a transaction through knowing that they are acquiring de facto control simply to avoid the application of the new provisions before the government can bring them into force.

[The Chair, Conservative, David Sweet]

Ms. May.

[Elizabeth May, Green, Saanich—Gulf Islands, BC]

Thank you, Mr. Chair.

Thanks to members of the committee for allowing me a chance to ask questions.

Do I have a five-minute time limit, Mr. Chair?

[The Chair, Conservative, David Sweet]

Five minutes, that's correct, Ms. May.

[Hélène LeBlanc, NDP, LaSalle—Émard, QC]

Mr. Chair, can we make sure that the time allocated for the opposition is not used for this and that we would still have our time to....

[The Chair, Conservative, David Sweet]

That's correct.

[Hélène LeBlanc, NDP, LaSalle—Émard, QC]

Thank you very much.

[The Chair, Conservative, David Sweet]

That said, that means I'll have to stick very tight now to the five minutes. So for the questions and the answers, I'm going to have to stick a lot tighter because we only have 27 minutes left.

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

Just to clarify, where are we with questions?

[The Chair, Conservative, David Sweet]

After Ms. May is done, we'll go to our third round. It will be Conservative, NDP, Conservative, Liberal.

Ms. May.

[Elizabeth May, Green, Saanich—Gulf Islands, BC]

Thank you, Mr. Chair. I'll attempt to use my time efficiently.

Thank you, witnesses.

I want to go back to the competition policy review panel and their advice before the amendments were tabled in 2009. I'm going to ask questions specifically around the fact that these amendments through Bill C-60 are attempting, as I see it, to bring greater clarity around certain concepts and to extend timelines for national security reviews.

What I want to know is whether within Industry Canada, you received advice that it would be helpful to review and clarify the term “national security”, which currently isn't defined within the act.

[Paul Halucha]

It has been something that has been mentioned by, I would say, think tanks and certain legal firms that represent foreign investors. In their efforts to have a maximum certainty, they wanted to have a prescribed definition of it, or a list, the way that some other countries do, like the United States.

[Elizabeth May, Green, Saanich—Gulf Islands, BC]

Yes, I think it's the United States, the U.K., China, Japan, and Germany that would have reviews that would be triggered by an actually defined term of national security.

What I'm wondering is whether at Industry Canada you're aware of any studies in the Canadian context. As you've said, think tanks have recommended this. It's in the Canada Gazette, from when the 2009 amendments were accepted, that there were recommendations at the time that the term “national security” should be “explicitly defined and national security reviews should take place according to concrete, objective, and transparent criteria”.

Are you aware of any empirically designed studies that would in any way question the benefit of having such defined terms and such transparent reviews?

[Paul Halucha]

I'm not. We're not aware of any studies on that. I'd clarify that it was a policy decision by the government to not have a prescribed definition for national security on the basis that the types of threats that Canada could face from period to period can change. Given the evolving nature of threats, you wouldn't want to have a definition of national security that precluded you from considering certain specific types of threats.

[Elizabeth May, Green, Saanich—Gulf Islands, BC]

But you'd agree with me that other countries haven't found a defined term to be an impediment to applying their investment tests in relation to national security.

[Matthew Dooley]

I would point out that the United States, as a clear example, has an non-exhaustive list. It's exhaustive in that it's very long, but it's non-exhaustive in that they can add more to it if they want to. I would argue that they don't have a clearly defined definition for “national security”. What they have done is list their sensitive industries or sectors that they're going to be concerned about. If another sector comes up, as Mr. Halucha said, the threats change and they'll add that to the list.

[Elizabeth May, Green, Saanich—Gulf Islands, BC]

Yes, Mr. Dooley, you may find their list exhausting but it's not exhaustive. In any case, it might be a model we can look at.

Those are all of my questions. Thank you.

[The Chair, Conservative, David Sweet]

Thank you very much, Ms. May.

Now on to the Conservative Party. I don't have a speakers list here.

Mr. McColeman.

[Phil McColeman, Conservative, Brant, ON]

Thank you, Chair.

Paul, on your original answers to the questions from the Bar Association, you touched on.... I'd like a little more explanation and I'll put it this way. Can you explain what factors would be considered in evaluating influence? I think in the context of your original answer to question one by the Bar Association, you were explaining influence in that answer, but I really wasn't understanding the context as well as I'd like to on that factor and how it plays into these changes.

[Paul Halucha]

Influence is determined, as we noted earlier, on a case-by-case basis. It only presents an issue where there is indirect or direct control.

In a case where a state-owned enterprise has direct or indirect control influence it becomes a tertiary concept because you already have damage-rated control in the first two points.

They review the process. Investors are expected to address in their plans and undertakings the inherent characteristics of SOEs, specifically whether they are susceptible to state influence. Investors also have to demonstrate their strong commitment to transparent and commercial operations. In terms of some of the types of factors that we talked about that could be influenced but don't get caught by direct or indirect control, I would note the following examples.

There's the ownership of special shares of a corporation, often called golden shares. If a foreign state has 5% golden share, that carries with it certain negative covenants, which they often do. That would be considered in an evaluation of influence.

There's the track record of the company, for example, the evidence of other SOEs from the same state and how they've operated and how they've conducted themselves in other jurisdictions. That would be considered.

There's the state's ability to nominate or replace board members, appoint senior management.

There's any authority under foreign law or corporations governing documents permitting the foreign state to direct the affairs of a business.

Those are some examples, and we talked earlier about some of the de facto control ones as well.