Industry Committee on June 8th, 2020

[Ali Ehsassi, Liberal, Willowdale, ON]

Specifically, how does that relate to the Investment Canada Act?

[Willie Gagnon]

This legislation does not go far enough and would be unnecessary if these measures were applied like we are suggesting. We wouldn't need legislation like this if the other laws could be amended in such a way as to help protect corporations.

[Ali Ehsassi, Liberal, Willowdale, ON]

Thank you.

[The Chair, Liberal, Sherry Romanado]

Thank you.

Our next round of questions goes to MP Patzer. You have five minutes.

[Jeremy Patzer, Conservative, Cypress Hills—Grasslands, SK]

Thank you, Madam Chair. My questions will be for Dr. Burton.

Dr. Burton, there's a question I think we need to ask when talking about state-owned enterprises buying up Canadian assets. If it weren't for these SOEs, who else would be in the field and looking to buy up these assets? I think that's one question people want an answer to. If not for SOEs, who else is in the playing field?

[Dr. Charles Burton]

I must say that this is not really my area of expertise, but my assumption is that if you have a failing Canadian asset, unless it's going to be viable and profitable, then only states that have a geostrategic interest in acquiring that asset will make the investment. My concern is that China will be able to use the fact that there's unemployment and economic distress in a certain sector to acquire assets, and then use that as leverage to achieve other of its geostrategic goals. The state has the resources to do that. If China feels that it's a national geostrategic priority, they will do so.

We do know that China has already engaged in extensive investments, mergers, acquisitions and outbound investments since January of 2020 in a wide variety of countries and regions—the U.S., the U.K., Germany, France, Canada, India, Hong Kong, South Korea and Australia—so clearly the Chinese state has the capacity to coordinate of its geostrategic interests and can go in there at a moment of economic weakness and engage in investment activities that we might regard as predatory.

[Jeremy Patzer, Conservative, Cypress Hills—Grasslands, SK]

If Canada were to continue directly or indirectly making investments in other countries' projects and industries, how would that impact our domestic industries or infrastructure projects here?

[Dr. Charles Burton]

I presume that any investment that Canada makes abroad is made because we wish to attain profitability, not because we wish to impose a political, non-democratic agenda on the country involved. I'm not suggesting that we should restrict Canadian firms from making investments abroad because we need to preserve that capacity inside Canada, but this kind of question I would defer to my colleagues, who are more knowledgeable about international economics.

[Jeremy Patzer, Conservative, Cypress Hills—Grasslands, SK]

I have just one other quick question for you, Dr. Burton.

What role do foreign investment banks, such as the Asian Infrastructure Investment Bank, have in the acquisition of enterprises around the world, whether in Canada or abroad? Are there any high-profile natural resource development projects that have been acquired by these sorts of firms?

[Dr. Charles Burton]

The Asian Infrastructure Investment Bank is a Chinese-controlled investment bank alternative to the World Bank and the Japanese-dominated Asian Development Bank. It seems primarily to serve the interests of China's geostrategic program of the belt and road. There are no projects in, say, Canada, but we have made a substantial contribution to that Asian investment bank, which I believe would serve China's interests more than those of Canada in the investments they're undertaking in Asia.

[Jeremy Patzer, Conservative, Cypress Hills—Grasslands, SK]

Thank you for that.

I'm going to switch over to the C.D. Howe Institute. The C.D. Howe Institute has called for significant reforms to the foreign direct investment review process. You've previously said that we need to be taking technological or policy changes into account as well.

With huge technology changes such as 5G on the way, along with the recent COVID-19 restrictions, would you modify your proposals in any way, especially from a national security standpoint?

[Daniel Schwanen]

I do think national security should be the focus.

One of the things we also said, though, is that as we use that national security lens to look at proposed investments, which by the way could be an investment of any size—it could be one dollar by anybody, so that takes care of a lot of potential situations—we have guidelines explaining what we mean by “national security”, “critical infrastructure” and so on. We could expand those guidelines and get the authority we need, if you like, or give foreign investors the clarity they need in terms of what we mean by “national security”. That could cover a lot of situations.

That explains why we're focusing on national security and, more generally speaking, on the ability of the Canadian government, the Canadian governments—including provincial governments—to make sure that foreign investors follow Canadian laws, regulations and policies the same way that Canadian investors do. That's really the focus of our policy recommendations.

[Jeremy Patzer, Conservative, Cypress Hills—Grasslands, SK]

Thank you.

[The Chair, Liberal, Sherry Romanado]

Thank you very much.

Our next round of questions goes to MP Erskine-Smith. You have the floor for five minutes.

[Nathaniel Erskine-Smith, Liberal, Beaches—East York, ON]

Thanks very much.

Mr. Burton, I take it that it is your view that any state-owned enterprise investment from China should be barred at the moment. There should be a moratorium on any investment whatsoever.

[Dr. Charles Burton]

Yes, I am saying even enterprises that may not identify as Chinese state enterprises—and I mentioned the Huawei company—

[Nathaniel Erskine-Smith, Liberal, Beaches—East York, ON]

State-owned or affiliated, I understood that.

[Dr. Charles Burton]

That would be my position.

[Nathaniel Erskine-Smith, Liberal, Beaches—East York, ON]

How does that view square with the 2012 agreement that the previous Conservative government under Stephen Harper signed, the foreign investment promotion and protection agreement with China, which presumably said, eight years ago, that we're open for business?

[Dr. Charles Burton]

There is a cause for concern that the Government of China would engage in legal action against the Government of Canada if we decide to restrict Chinese state investment in Canada. I believe that is a strong possibility.

[Nathaniel Erskine-Smith, Liberal, Beaches—East York, ON]

This question is for the C.D. Howe Institute.

You indicated in your comments that the policy statement from the investment review division of ISED was sensible. Is it your view, then, that we expand upon that policy statement by way of guidelines that expand and provide greater detail?

[Daniel Schwanen]

That's correct, yes. It's to give more specificity to the guidelines, which may also include being more welcoming. Right now the statement, I believe, mentions food security and medical, and that's quite understandable, but it also leaves the door open to more scrutiny of pretty much anything under the national security guise.

I agree that national security is the right lens and we should define it and that should include strategic industries, but we should be more specific about what we mean by that. That is the gist of my comments.

Also, if I may, we shouldn't necessarily leave this to national security specialists. In other words, national security specialists, who really do often prevail in these kinds of arguments—and rightly so, they're the specialists—should explain what kinds of mitigation measures a foreign investor might propose to the government or might be willing to undertake to make sure that any national security risk is mitigated. That's what I meant: Can we be more specific and open while upgrading our ability to protect the Canadian economy?

[Nathaniel Erskine-Smith, Liberal, Beaches—East York, ON]

For those who have not turned their minds to that policy statement, the government, as of mid-April, has stated very explicitly that all state-owned enterprises or private investors assessed as being closely tied or subject to direction from foreign governments will be subject to enhanced scrutiny under the act.

I take your point, though. It may well be a recommendation from this committee that there ought to be greater specificity, and we could expand upon those general principles, but I take it you think the government is on the right track on that front.

[Daniel Schwanen]

Yes, for sure. I think it was mentioned that other countries are on that track as well, but they are being more specific, and we're not. That's why a lot of my comments are about whether we can be clearer about what we need.

[Nathaniel Erskine-Smith, Liberal, Beaches—East York, ON]

That makes sense.

In some ways enhanced trade makes a good deal of sense. It's been brought to my attention that we don't have a significant solar industry here in Canada, but we do have businesses that want to be a part of solar installations, including one of the biggest solar installations in Alberta. We have a tariff, though, on solar panels from China that undermine some of those Canadian efforts to undertake these big installations.

You've previously said it would be a big mistake not to engage further with China, Mr. Schwanen. Would you support eliminating tariffs along those lines?