Industry Committee on June 8th, 2020

[Dr. Charles Burton]

I don't think we are adequately on top of this because of essentially the nature of the Chinese state investment. Other countries that are doing studies comparable to our own, such as the U.K., the U.S., India and Australia, all mention China in their mandates.

I think that when we look at Chinese investment, we have to be aware that typically the investment is often for strategic purposes rather than for profit necessarily. Of course they want to make money, but often they don't, and you can look at the CNOOC-Nexen deal as an example. In fact, when you look at the thresholds for investment, often the Chinese state firms use multiple firms with multiple investments to get under the wire of our thresholds, but they actually violate what I would regard as the intention of our act.

We don't have any process that I'm aware of that looks at people who are planning to come to Canada for investment purposes. In the—

[Michelle Rempel, Conservative, Calgary Nose Hill, AB]

I have only a few minutes left.

I think that's a really good point when we're talking about what a strategic Canadian industry is. We know for a fact that some authoritarian countries definitely have their strategic priorities with regard to FDI, foreign direct investment, laid out with regard to our country. I think that's important to note as well.

I do take to heart the testimony that any major changes or overhauls to the system would take time. In the meantime, I will ask two questions, Dr. Burton.

Do you believe that in the short term a moratorium should be placed on SOEs from authoritarian countries? Do you think that it is incumbent upon Parliament to do a more comprehensive review of our FDI investment framework, given the changes in the global context?

[Dr. Charles Burton]

Yes, I do. I do support the idea of a temporary moratorium pending further investigation by Parliament and the setting of clearer criteria for these kinds of investments. We need more awareness of how this works, where the Canadian interest lies and more clarity on the idea of net benefit.

I'd like to see a more open and transparent process that would give us more awareness of the basis for government decision-making in this regard. The Canadian people should be more aware of what's going on and how our government is responding to it.

[Michelle Rempel, Conservative, Calgary Nose Hill, AB]

With the time I have left, Mr. Schwanen, could you give us a sense of the total investment profile right now? What is the investment profile for FDI in Canada right now from authoritarian SOEs? Are we primarily attracting FDI from authoritarian SOEs?

[Daniel Schwanen]

No, it depends on the sectors. I can see that some governments with strategic objectives would want to come in here, whether they're authoritarian or not, take over a Canadian company, and then not act in Canada's interest. To me, that really is the question. That's the key thing for me.

I can see how that would be the case in sectors like mining and resources. I would just say our regime is currently able to deal with those as is, almost.

[The Chair, Liberal, Sherry Romanado]

Thank you very much

Our next round of questions will go to MP Lambropoulos. You have the floor for six minutes.

[Emmanuella Lambropoulos, Liberal, Saint-Laurent, QC]

Thank you, Madam Chair.

I'd like to thank all of our witnesses for being here in order to help us with this study today to answer our questions.

I understand that FDI is great and good for Canada, generally speaking. If we're able to attract foreign investment, obviously the economy is better, and the value of our country goes up. As FDI decreased globally in recent years, in Canada it's been on the rise, which is great for Canada.

Mr. Schwanen, you mentioned that we should discourage Canadian companies from panic selling in order to make sure that Canada and Canadian-owned enterprises remain and that we stay strong. If we're not going to scrutinize further foreign investment during this period, and if we don't make the act stronger, what are the ways you think we can discourage companies from panic selling during a time of crisis such as the one we're in right now? How can we make sure that Canadians don't sell their businesses to foreign investors while still receiving some help from them, if it's needed?

[Daniel Schwanen]

Thank you very much for that question.

I'll go straight to the heart of what I was trying to say. I lost track of my text there for a minute.

As you know, any investment can be scrutinized for national security reasons. What I was saying is that in the current context, those reasons can be expanded. We have guidelines that the government publishes. Let's maybe publish expanded guidelines. This is what we—at least in the current context, but maybe going forward—consider to be national security: the food supply chain and the medical supply chain. Frankly, that's the deal with some of the concerns from SOEs as well. Are you threatening to steal Canadian technology, for example? These sorts of considerations we can deal with right now by expanding those guidelines. That's really what I was saying.

The best defence is to keep the Canadian economy strong and the valuation of Canadian firms fair. I think that some of the policies that we've seen in place and the support by the Bank of Canada and our banking system in general really help companies navigate without being undervalued unfairly.

The last point is that sometimes a Canadian company will need to find investors to stay afloat and keep jobs in Canada. We don't want to close the door to what would be a perfectly good foreign investment, if we can avoid that.

Those are my main points.

[Emmanuella Lambropoulos, Liberal, Saint-Laurent, QC]

All right. Thank you.

Professor Leblond, you spoke along pretty much the same lines as Mr. Schwanen. You also mentioned that we should be more clear about what we mean when we say “strategic”. Do you have any recommendations on how to make this clearer, if we're going to be changing anything?

[Patrick Leblond]

Yes. Obviously, the issue of trying to define what is strategic is that, in my view, most of what we would consider strategic probably falls under national security, whether, as Daniel mentioned, it's technology or whether it's infrastructure, and we can think about energy, ports, roads, telecommunications, the media and culture. In terms of society and our economy, these are all things that we would think of as being strategic.

Within the broad definition of national security, and even the issue of threatening sovereignty, I agree with Daniel that we can potentially expand the guidelines to make them clearer, but we don't need to change the law per se. There is sufficient flexibility right now to address these issues. If we think, for instance, about having some kind of control or sovereignty over the production of medical equipment, personal protective equipment or these kinds of things, well, this is a national security issue, right? Health is a national security issue. If it's cybersecurity in terms of technology or dual-use technology, it's the same thing.

I think we have the means under national security to address the issue of what is meant by “strategic”. Otherwise, the danger with trying to define what is strategic is that it will vary from region to region across this country. Ultimately, it will be devoid of any meaning. It will be used solely for political reasons. People will be asking why this or that company or industry is protected and not theirs. In other cases, you'll have people saying they don't want to be protected. As a shareholder, they want to be able to sell to a company in a way that maximizes their value, and as a result of deeming their industry or company strategic, they'll actually be losing money or realizing less value.

I think we have to be very careful in using the term “strategic”. Often what we mean is “national security”, and we have that now in the law. I think that's really important.

[Emmanuella Lambropoulos, Liberal, Saint-Laurent, QC]

This is for either you or Mr. Schwanen. Would you say that currently the Investment Canada Act has enough teeth in it to protect national security and Canadian national interests?

[Patrick Leblond]

I would say so. I think maybe we can revise the guidelines. Maybe, again, companies like transparency; I agree with the idea that we should be as transparent as possible in our decisions and also in our guidelines—i.e., “Here are the expectations.”

Now, if we want to stipulate clearly that we consider some industries or some sectors or some issues to be of a national security concern, then we should say so, and investors will be very clear about it. If we think state-owned enterprises, especially from totalitarian governments, potentially pose a national security threat, we should say so. Then at least we have the leeway to deal with that.

[Emmanuella Lambropoulos, Liberal, Saint-Laurent, QC]

Thank you.

[The Chair, Liberal, Sherry Romanado]

Thank you very much.

We will now begin our next round of questions.

Mr. Savard-Tremblay, you have the floor for six minutes.

[Simon-Pierre Savard-Tremblay, Bloc, Saint-Hyacinthe—Bagot, QC]

Thank you, Madam Chair.

I would like to thank all the witnesses for their presence and presentations.

My question is for Mr. Gagnon.

First, let me commend the Mouvement d'éducation et de défense des actionnaires, MÉDAC, for what it has accomplished since it was established. Shareholders' rights are often violated, and I would like to thank you for the work you have been doing for quite a few years. How long have you been doing this work? It must be more than 15 years.

[Willie Gagnon]

It's been 25 years. Our organization was founded in 1995.

[Simon-Pierre Savard-Tremblay, Bloc, Saint-Hyacinthe—Bagot, QC]

It was founded in 1995 by a great Quebecker, I might add. Thank you for taking over for him.

You said at the beginning of your presentation that it was pretty clear that the Investment Canada Act is essential and that any country that is the least bit evolved will protect certain sectors, try to prevent head offices from moving away and provide some oversight for its most valued sectors.

More recent aspects of Quebec history have very clearly demonstrated the importance of having policy levers and institutions that work in partnership with private companies, while always maintaining a state-level strategy. This is less obvious in Canada's case. With respect to the Investment Canada Act, you said that it's fine, but it's clearly not enough.

Since you gave some examples of what's happening in other countries, particularly Great Britain, it really made me want to ask the following: Should Canada be looking at what's happening in the United States, this bastion of the free market?

[Willie Gagnon]

Let me repeat that this legislation is a measure of last resort. It's really at the end of the road when we need it. We're saying that a number of measures are already on the table and that they need to be implemented. The challenge we're facing right now basically has to do with harmonization. When it comes time to implement certain measures, the problem is the hybrid regime that exists here in Canada. Certain corporations are registered at the federal level and others at the provincial level, but neither level can act alone in every area.

The most significant progress in that regard is the result of cooperation amongst the provinces, specifically through the work of the Canadian Securities Administrators, currently chaired by the president of the Autorité des marchés financiers. That association can take several initiatives. Corporate management culture in Canada has changed in many ways, for example, because of TSX rules. TSX imposes rules on companies that the legislation does not necessarily impose.

It's high time we had a national network to deal with all the problems associated with harmonization. We should be reviewing all of that, and we need to establish several steps that would help protect Canadian businesses, not only through legislation like this one, but some kind of atomic bomb. On a side note, the thresholds set for a company to be able to benefit from protection under this act are starting to get a little high for some companies. Take Bombardier for example. The company has about 2.5 billion shares, each worth about $0.50, but it just barely meets the threshold to be eligible for the protection mechanisms under the act. If someone wanted to purchase Bombardier tomorrow, it would be impossible to protect the company under this legislation.

[Simon-Pierre Savard-Tremblay, Bloc, Saint-Hyacinthe—Bagot, QC]

I can see things going from bad to worse for Bombardier, but in the coming months, the act—

[The Chair, Liberal, Sherry Romanado]

Mr. Savard-Tremblay, we can't hear you very well.

[Simon-Pierre Savard-Tremblay, Bloc, Saint-Hyacinthe—Bagot, QC]

I was just commenting on Mr. Gagnon's remarks to say that things might go from bad to worse for Bombardier. It's possible that, in the short term, the law may no longer protect Bombardier.

[Willie Gagnon]

Bombardier's situation is not due to the current crisis. The stock price fell to a level that would make Bombardier ineligible.

The act should be amended to protect major corporations like Bombardier. There's a whole list of companies that won't benefit from the protective mechanisms in the act. We also need to look at issues like the creation of Restaurant Brands International, which owns Tim Hortons and Burger King. Its head office is in Canada for tax reasons. They're Canadian companies, but they serve foreign interests, which is not in Canada's interest.

We need to ask questions about all kinds of things. We can conceive of a system with different steps and all levels of government responsible for a number of measures. These are complex issues that won't be resolved by waving a magic wand. This law of last resort is not nearly good enough. There's one aspect in particular we mustn't forget: once a company is eligible, the process for deciding whether or not it can be protected is essentially opaque.

[Simon-Pierre Savard-Tremblay, Bloc, Saint-Hyacinthe—Bagot, QC]

I'd like to get back to my first question about American policies.

Could you tell us a bit about that?

[Willie Gagnon]

I went over that in my presentation. There are basically five possible measures, but I won't have time to list them all. The one that interests us most is enshrining in law a corporate fiduciary duty to respect the interests of all stakeholders. We've been fighting this fight for years, and it's a very good policy that would have a profound effect on the economy as a whole. Every province should have this law on its books, and it should be part of Canadian law too because it would impact the Canada Business Corporations Act in a number of ways. The Canadian Securities Administrators would benefit from studying this, and they would have the power to suggest it.

[The Chair, Liberal, Sherry Romanado]

Thank you very much.

Our next round of questions goes to MP Masse.

You have the floor for six minutes.