Industry Committee on May 23rd, 2013

[Mark Rowlinson]

Employment levels at Vale facilities in Sudbury have been dropping steadily since they purchased the operation, both before and after the year-long strike that was provoked by the company. I don't have the exact employment levels, but roughly a thousand or so people have lost their jobs, and the community has certainly not benefited from the foreign investment from Vale.

[Brian Masse, NDP, Windsor West, ON]

Go ahead.

[Dan Harris, NDP, Scarborough Southwest, ON]

We're tagging in.

Ms. Campbell, you just mentioned that you believe the Investment Canada Act should be changed rarely and with careful consideration. Do you believe that one public meeting with one round of witnesses would constitute careful consideration?

[Ailish Campbell]

I would invite parliamentarians to answer that question.

[Dan Harris, NDP, Scarborough Southwest, ON]

That was a very political answer.

Now, Mr. Rowlinson, thank you for proposing some amendments, but are you aware that this committee actually has no ability to make any amendments to this bill?

[Mark Rowlinson]

I am now.

What we're proposing is a broad review of the Investment Canada Act. If I can echo what Jim Stanford has said, we don't disagree that the test for foreign investments should ultimately be of the net benefit to Canada and to Canadian communities. The problem we have is with the manner in which that has been enforced and the lack of transparency with respect to the process. What needs to happen, in our view, is a broad review of the operation and implementation of the Investment Canada Act. Clearly, that is not what is contemplated by the very modest amendments found in this legislation.

[Dan Harris, NDP, Scarborough Southwest, ON]

Thank you very much.

Mr. Stanford, you mentioned the takeover of Electro-Motive Diesel by Caterpillar. Caterpillar has also recently shut down a tunnel-boring manufacturer in Toronto, Lovat, one of the world leaders. That's really a move to take away the intellectual property that exists and to move the production elsewhere.

I want to go back to MacDonald Dettwiler, the one instance where a sale was blocked. We have a problem in Canada where anytime a company is getting to a sufficient size, oftentimes that's when it gets taken over. The sale of MDA was blocked. A few years later, MDA actually went and bought a U.S. company, Space Systems/Loral.

Perhaps you could comment about the positive impact for Canadian businesses when they remain Canadian and are given the chance to actually grow and succeed.

[The Chair, Conservative, David Sweet]

Please make that comment very briefly.

[Jim Stanford]

I agree, sir, that we have a structural problem in our ability to nurture companies beyond the start-up phase through to the medium and larger size of firm, which is so important in order to reach export markets, invest in innovation, and so on. I think the ease of foreign takeovers—especially of the smaller firm, which now under these regulations is under a billion dollars, and that is quite a significant firm—is one of the factors in why Canada has a dearth of globally oriented, successful, medium-sized exporters.

[The Chair, Conservative, David Sweet]

Thank you very much, Mr. Stanford.

We'll now go on to Mr. Carmichael for seven minutes.

[John Carmichael, Conservative, Don Valley West, ON]

Thank you, Chair.

Thank you to our witnesses.

Clearly, to your comments, the day we live in is much different from the day of 2008, prior to the recession. We would all agree that much has changed.

To the CBA, I appreciate the thoughtfulness of your letter and your presentation. I'd like to ask questions on all three of your points, but I don't have time.

Let me address the first one, Mr. Facey, and I'll read it for the record:

The definition of state-owned enterprise (SOE) is unclear and, in conjunction with new powers that allow the Minister to deem an entity an SOE, make it difficult to ascertain whether an entity will be treated as an SOE under the ICA. As drafted, even Canadian companies could be subject to the SOE review provisions. The broad reach of the SOE definition engenders uncertainty for all investors.

I wonder if you could speak to your point on the broad range of the definitions. We've heard previous testimony that would suggest that the definition is fairly tight. Just discuss the uncertainty portion of that and how you feel that impacts our thoughts.

[Brian Facey]

Thank you, sir. That's an excellent question. I appreciate your comments on the CBA letter.

I think the key point on uncertainty is that there are a number of new phrases introduced. Whether a company is influenced or directed by a foreign state is a new concept; it's not defined. I think that means there is just a little bit more uncertainty. I can tell you that we get calls from foreign investors, and from Canadian investors who would like to partner with foreign investors, asking what it will mean for them, if the transaction is going to be okay. I think that's where we get back to the point that it would be helpful if there were some way of getting certainty from the investment review division of Industry Canada.

The downside of it is not huge, in my submission. The fact is that there are just a few of these transactions that do get blocked, but there is a very large number of these transactions that we get questions about and that investment bankers get questions about.

The short answer to your question is that it would be helpful if there were even a non-binding mechanism, which would not require an amendment, to provide that kind of certainty in a transaction.

[John Carmichael, Conservative, Don Valley West, ON]

I'm going to move on from those. I may come back to them if we have time.

Recently we heard testimony that suggested transactions can be structured to circumvent the guidelines. Obviously, we want to do the best we can in making our recommendations.

In a bloomberg.com article on May 9, a lawyer with a Toronto law firm suggested, “People can structure things in a very clever fashion to make them look like a minority, but really they're not...”, and the quote went on.

Could you talk about—and maybe Ms. Campbell could jump in on this as well—what we mean about “in a clever fashion”? Can you give us some examples of how we can use our opportunity here to recommend to the minister and to the act how we can best qualify some of these opportunities?

[Brian Facey]

I won't give away all the company secrets about how to restructure transactions.

You're quite right. Every time there's a law, there's always a host of lawyers trying to figure out ways to structure things, whether it's tax, competition, investment, different kinds of laws.

This law is pretty difficult to get around. There's actually an anti-avoidance provision in the Investment Canada Act, so it's very hard to structure things around the legislation and the intent of it.

The new provision makes that tougher. It is harder to structure around something if you have the control-in-fact test, because it's not simply looking at a structural basis. This does move the law and make it tougher to structure around the application of the law. I think this amendment does that.

[John Carmichael, Conservative, Don Valley West, ON]

Do you have nothing else you want to give away today?

[Brian Facey]

No. I usually charge for that.

[Voices]

Oh, oh!

[John Carmichael, Conservative, Don Valley West, ON]

Ms. Campbell, did you want to jump in on that?

[Ailish Campbell]

I think you've just heard...speaking as an economist, economists are smart, but lawyers are clever.

[Voices]

Oh, oh!

[Ailish Campbell]

The key provision is this control in fact, which is unclear because it's a new facet to the Investment Canada Act. What you're hearing is that businesses want predictability and clarity. I think it's fair enough to say there are always surprises in life, but people don't want to be shocked.

Some work to help perhaps this idea of guidance or opinions, non-binding ones, could help flesh out some of this stuff. So those of us who are only smart and not terribly clever could have the benefit of the Minister of Industry's guidance.

[John Carmichael, Conservative, Don Valley West, ON]

I have a follow-up to that. Do you think the proposed amendments protect the integrity of the policy statement that was made on December 7, 2012? In order to maintain the integrity of the policy intent, would these amendments be necessary? Otherwise there is a deficiency in the legislation that allows for loopholes or ways to circumvent the policy.

[Brian Facey]

I'm not so sure the law, as it was, created a whole lot of loopholes.

As I said, there is this anti-avoidance section that prevents you from structuring around the entire act. I do think this amendment makes that even more clear. In that sense, I do think it makes it more difficult.

I would only say that I don't think I've ever had a client who wanted to buy a Canadian business to shut it down. Generally, people are coming into Canada to invest. It's quite a process to negotiate undertakings. You have to commit the capital expenditures, commit to employment levels. You have to do all sorts of things—share technology from global operations with Canada. Those transactions are usually motivated by quite good intentions.

[John Carmichael, Conservative, Don Valley West, ON]

Thank you.

What's my time, Chair?

[The Chair, Conservative, David Sweet]

You have 20 seconds.