Thank you very much.
Good morning, everyone. Thank you for asking me to appear before the committee. I am delighted to be here.
Let me begin my remarks by saying that I think the present foreign investment review regime works well in connection with its review of acquisitions of Canadian businesses. I do not think it's necessary to lower Investment Canada Act review thresholds. I do not think it's necessary or desirable to place a temporary moratorium on acquisitions by state-owned enterprises.
In my view, the act and the government's current enforcement practices already provide sufficient means to address foreign investment concerns, even during the COVID-19 crisis. There are a number of reasons for this.
First, in terms of process, the government already has broad powers to review virtually any acquisition of any Canadian business. In particular, all foreign investors are subject to potential national security reviews, regardless of the value of the Canadian business, so that's regardless of whether the business has been devalued as a result of the COVID-19 crisis.
Moreover, investors that are SOEs are also subject to net benefit reviews based on thresholds that are much lower than the thresholds for private sector investors. Importantly, the special low threshold for state-owned enterprise investors is based on the book value of the assets of the Canadian business. In many cases, temporary devaluations as a result of the COVID-19 crisis should not affect whether a review is required.
Second, in terms of substance, the government already has broad enforcement powers to protect Canadian interests and to do so on a case-by-case basis. In the case of national security reviews, the government can take, and I quote from the legislation, “any measures” considered “advisable to protect national security”. That includes blocking a deal, requiring a divestiture or imposing any conditions whatsoever on the investment.
In the case of SOE investments, there are also special requirements that SOE investors must meet in order to secure a net benefit approval. SOE investors must agree to adhere to Canadian standards of corporate governance and they must operate the Canadian business on a commercial basis. These commitments are perpetual. They apply for the lifetime of the investment and they are actively monitored by the government. In other words, there is a special rigour and scrutiny applied to state-owned enterprise investments to ensure that they operate in the same way as private actors.
In my view, it's highly preferable to continue to review investments in a nuanced and fact-specific way rather than having some type of blanket ban. With a case-by-case approach, investments that are problematic can be blocked or restructured. Investments that are not problematic can be approved to proceed.
There would also be at least three substantial practical risks and hurdles to lowering review thresholds or imposing a moratorium on certain investments.
First, as a general matter, lower thresholds or a moratorium may deter the injections of capital that foreign investment can bring. That could impede our economic reopening and harm Canadians. For example, the alternative for some distressed businesses may not be the status quo or it may not be acquisitions by Canadian buyers; it may be insolvency.
Second, an across-the-board moratorium may be controversial to implement. Labelling certain countries as “authoritarian” could exacerbate existing diplomatic tensions or create new ones.
Finally, and perhaps most significantly, there may be complex legal impediments to changing the Investment Canada Act's net benefit thresholds. That's because certain free trade agreements, such as the Canada-U.S.-Mexico Agreement, have carve-outs for the current thresholds that were negotiated terms of those agreements. In other words, I believe at least some of our trade agreements may have the effect of requiring the government to maintain the current net benefit thresholds, so a potential amendment to the Investment Canada Act in this regard may have unintended knock-on effects that would have to be carefully considered.
In sum, I believe the current regime is well calibrated to capture and deal with potentially problematic acquisitions of Canadian businesses. That's not to say there's no room for improvement. Incremental changes to the Investment Canada Act regime and its administration could be desirable. However, I see these steps as ones that are desirable in the long term and not urgently needed to address the COVID-19 crisis.
To name a few, the government should ensure that the investment review division and its sister agencies receive adequate funding to ensure net benefit and national security reviews are conducted with speed and efficiency. Second, there may be merit in providing additional case-specific guidance on national security reviews. Third, there may be merit in requiring or permitting investors to file notification forms where there are acquisitions of material minority interests, not where there are acquisitions of control, or as Mr. Balsillie has said, to give the government broader jurisdiction over transactions that do not involve acquisitions of control or acquisitions of ownership interests in Canadian companies.
With that, I conclude my remarks. I'm pleased to answer any questions that you might have.
Thank you very much.