Thank you, Mr. Chair, and members of the committee.
My name is Paul Halucha, and I'm the director general of the marketplace framework policy branch at Industry Canada. I'm here with Matthew Dooley, who is the acting director of the investment, insolvency, competition and corporate policy directorate at Industry Canada.
We are here to speak to Division 6 of Bill C-60, Economic Action Plan 2013 Act, No. 1, which would amend the Investment Canada Act, or ICA, for two reasons. The first is to clarify how proposed investments in Canada by foreign state-owned enterprises, or SOEs, and World Trade Organization, or WTO, investors will be assessed. The second is to allow for the extension, when necessary, of timelines associated with national security reviews.
The proposed amendments to the ICA are being advanced within the broader context of Canada's commitment to an open foreign investment and trade environment. Canada welcomes foreign investment and is an important contributor to economic growth that brings new ideas, capital, and jobs, as well as access to new markets and global supply chains. At the same time, Canada is committed to maintaining marketplace framework laws that are up to date and effective.
Since 2006, in response to the changing economic and global circumstances, the government has advanced several changes to Canada's foreign investment review framework. In 2007 the government introduced guidelines to clarify the application of the net benefit factors in the review of proposed SOE, state-owned enterprise, investments.
In 2009, the government introduced amendments to the ICA. They included a commitment to incrementally increase the net benefit review threshold to $1 billion in enterprise value for WTO investors, transparency provisions and a national security review process.
In 2012 the government introduced additional transparency amendments to the ICA. The government also introduced new enforcement provisions to promote investor compliance with undertakings. Finally, the government published information on the administration of the Investment Canada Act.
These recent changes to the ICA framework have updated Canada's foreign investment review process, the purpose of which is to review significant investments in Canada by non-Canadians to determine whether they are likely to be of net benefit to Canada, and to provide for the review of investments that could be injurious to national security.
Each investment is examined on a case-by-case basis. An investment is either notifiable or reviewable, depending on what size it is, whether it involves a WTO investor, whether it is direct or indirect and whether it could pose a national security threat.
Where an investment is subject to a net benefit review, the Minister of Industry considers the plans, undertakings, and other information submitted by the investor in light of the six net benefit factors listed in section 20 of the Investment Canada Act.
On December 7, 2012, following the approval of two significant foreign investment transactions—CNOOC's acquisition of Nexen and Petronas’ acquisition of Progress Energy—the government provided clarification. The Prime Minister and the Minister of Industry issued statements clarifying the foreign investment review process, with a particular focus on SOEs and potential concerns about their non-commercial objectives.
Statements stress that while foreign investment is crucial to Canada's economic growth and prosperity, the government clarified that going forward, investments by foreign state-owned enterprises resulting in the acquisition of a Canadian oil sands business would be found to be of net benefit only on an exceptional basis, and that SOE transactions will be carefully monitored throughout the Canadian economy.
The government also updated the SOE guidelines to emphasize the importance of good corporate governance, free enterprise principles and industrial efficiency. Another reason for that update was to address concerns surrounding the potential influence of foreign states on commercial activities in Canada.
In addition, the government announced plans to retain the current net benefit review threshold for WTO SOE investors. Meanwhile, the government continued with its plans to progressively increase the net benefit review threshold for private sector WTO investors to $1 billion in enterprise value.
Lastly, the government announced its intention to allow for the extension of the timelines associated with the national security review process. These extensions will provide the government with additional time, if needed, to thoroughly review transactions that are potentially injurious to the security of Canadians.
Division 6 of Bill C-60 includes amendments to the Investment Canada Act needed to implement key components of the government's December 7 announcement. The amendments can be grouped into three principal areas.
First, section 137 establishes distinct net benefit review thresholds for WTO private sector and SOE investors, apart from those in the cultural sector.
With direct reference to the amendments passed by Parliament in 2009, the thresholds for WTO private sector investors will incrementally increase to $1 billion in enterprise value over four years. Related regulatory amendments that define the methodology for enterprise value will be required to bring these changes into force.
The current asset value threshold of $344 million will be maintained for WTO SOE investors. As is currently the case, the threshold will be annually indexed to account for inflation, i.e., changes in nominal GDP.
Second, provisions in clauses 138 to 142 concern timelines associated with national security reviews. Clauses 138 and 139 increase the amount of time the minister has to deliver a final net benefit decision once a national security review process has been concluded from five days to 30 days. Clauses 140 to 142 support the extension of related timelines under the national security review process. The government intends to prescribe the length of some of the related timelines through subsequent amendments to the national security review of investments regulations. The Minister of Industry intends to use these extensions when addressing complex national security issues, which can involve multiple jurisdictions.
Third, provisions in clauses 143 to 145 permit the Minister of Industry to determine or declare that an entity is controlled in fact by a state-owned enterprise. These provisions support the government's commitment to carefully scrutinize SOE activity across the Canadian economy. The control in fact provisions mirror those powers already contained in the cultural and national security sections of the Investment Canada Act. Following parliamentary approval, the government intends to publish the necessary related regulatory amendments required to bring certain changes into force.
We are happy to answer any questions you may have on the proposed amendments.