Industry Committee on June 15th, 2020

[Jim Balsillie]

Yes, the stakeholders are Canadians, so the most important thing is to understand what we need to be prosperous and sovereign in a changed world.

That's why I talked about public goods versus private interests. You have externalities or spillovers that aren't priced in an individual's decision, and that's why I mentioned the computer engineer who may take a job with an SOE in Germany, and that's good for him because he or she gets a raise, but it hurts the country overall.

I know very directly that those who are administering these policies are looking for political direction on this, so it has to be a lens of the country, not a specific sector, because they'll just look after the narrow private interests, not the broader externalities or spillovers.

[Brian Masse, NDP, Windsor West, ON]

Just quickly to Mr. Krane, Mr. Wakil and Mr. Balding, were you consulted at all during the 2013 changes? Could you just say yes or no? I know my time is up after this.

[Joshua Krane]

Yes. In fact, I appeared before this very committee in 2013 to discuss the changes to the SOE—

[Brian Masse, NDP, Windsor West, ON]

That was in the context of the budget bill, yes.

[The Chair, Liberal, Sherry Romanado]

Thank you very much.

We will now start our third round.

The first questions go to MP Rempel Garner.

You have the floor for five minutes.

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

Thank you, Madam Chair.

First, I will put on the record that the Conservatives are supportive of the motion that Mr. Erskine-Smith moved. We are particularly interested in the context in which that decision was made, given that the Liberal government allocated $12 million to Loblaws for refrigerators in the last Parliament, I believe, or earlier this year.

We're also interested in the working conditions front-line workers would have been subjected to during the COVID crisis. It will be a great conversation. We hope we will also have representation from the workers with regard to that study, so we will be supporting that motion.

Mr. Balding, I'm going to start by directing some questions to you. I'll give you two pieces of context for this study that I as a legislator have found to be interesting.

First, Canada is unique, as all countries are, but we don't have the same level of large-scale capital that other countries might have access to, broadly speaking, in terms of being able to capitalize up big, let's say, natural resource plays, so often we look to FDI for that type of investment.

The second piece of context was my experience in trying to find witnesses for the study. I think among five different areas there may be conflict or a desire to keep the status quo. The first would be when I think about the amount of money that comes from mergers and acquisitions related to state-owned or state-influenced enterprises for authoritarian countries. That's a big piece of business in the Canadian legal community, as well as in the Canadian banking community.

I also think about Canadian universities, where there is a propensity for the university administration to attract students from authoritarian countries, given that as international students, they pay our universities a lot of money to go there. Also, my background is in parapolitics, intellectual property management and sponsored research at various Canadian universities, and there is a push to participate in various sponsored research contracts with either authoritarian governments or state-owned or state-influenced enterprises from those countries.

Then, of course, our government right now is in the middle of a very significant push to secure a UN Security Council seat, which has its own politics associated with it, so I find there's this propensity to not talk about this. It's like, let's just ignore everything and hope that the status quo continues.

Given that you sort of sit outside those baskets of potential conflict, I'm wondering if you could point us, as legislators, to other countries or perhaps other witnesses who might not be tainted by those particular glasses and might help us with our deliberations on how to move forward.

[Christopher Balding]

The question, as I understand it, is which witnesses I could refer you to who would not be tainted by those glasses, specifically—

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

Sure, or what are some best practices internationally that we could be deliberating upon?

[Christopher Balding]

Absolutely, I'd be more than happy to get you a list of people who would be able to speak to that and who have experience with countries like Canada and some of the unique characteristics. I think I can refer you to some people. I'd be more than happy to exchange emails or something like that and come up with a list of people who I think would be able to answer that specific set of questions—as you said, people who were not in those specific boxes or weren't hindered by them.

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

Thank you.

With the last few seconds I have left, I'll turn to Mr. Balsillie.

I want to go back to the point I made about Canadian universities. We have wonderful universities here, but this is kind of a touchy taboo topic. How much do you think Canadian universities are compromised by a desire to attract international students and R and D funding, sponsored research funding from authoritarian countries?

[Jim Balsillie]

In my experience, the consideration is getting their research advanced and getting their work published. The lens of national security or national prosperity is not their responsibility. It's the responsibility of the funder, which is the government, to provide guidance on that, and currently that's absent.

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

You're saying that the marriage point there is looking at this from the perspective of the government's fiduciary responsibility and allocating tax dollars to universities that might be in this situation.

[Jim Balsillie]

That's correct.

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

Thank you.

[The Chair, Liberal, Sherry Romanado]

Thank you very much.

This is just a message to Professor Balding with respect to the list requested by MP Rempel Garner. If you could forward that list to the clerk, he'll make sure it is distributed. Thank you so much.

With that, we'll move to MP Lambropoulos.

You have the floor for five minutes.

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

Thank you, Madam Chair.

Thank you to all of our witnesses for being here with us today to answer our questions.

My first question is going to go to Mr. Wakil.

In the Investment Canada Act, the concept of national security is not explicitly defined so as to give some leeway to the Minister of Innovation, Science and Industry in consultation with the public safety minister to flag or review any investments that seem to be a threat to Canadian security and that seem to be injurious to Canada.

Given this, do you think that the flexibility and the fact that it's not clearly defined have some negative consequences on our security? Do you think there should be at least some lower limits that people need to guide themselves by, considering governments change and different ministers are responsible at different times?

[Omar Wakil]

I think it's important to have flexibility, and I think it's difficult to balance the need for flexibility with the need for certainty. I think the government has tried to do a good job in balancing that over the last couple of years since the national security review regime was introduced.

The act, as you say, doesn't have a definition of national security. It's issued guidelines with respect to what national security can include. It's provided disclosure in its annual reports about the sorts of cases that it's reviewed under the national security review regime, the countries of origin of the investors, the industry sectors that it's investigated, and that sort of disclosure is good, helpful and useful to us, but I think that incremental change would be better. Incremental change would be useful. That is to say, enhanced disclosure of specific cases and more disclosure along the lines that we have as the government gets more experience with the national security review regime would be helpful and desirable.

Do I think wholesale change is needed? No, I don't. I don't think the government should say, “Here's the list of 10 things that are national security and will always be national security”. That's an exhaustive list. I think it should continue along the path that it's on, and just continue down that path.

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

You mentioned in your testimony that you are quite happy with the way the act is written and with how the government is handling it as it stands.

Would there be any recommendations that you think would strengthen the security while still allowing us to benefit from foreign investments?

[Omar Wakil]

Yes, I do think the act is, generally speaking, well written. It covers a lot of transactions, a lot of foreign investment acquisitions—virtually all. Where I think there is a potential gap is in some of the areas that Mr. Balsillie has been talking about, which is with respect to technology transfers.

For example, if you acquire a company with sensitive IP, that is subject to review. If that company enters into an agreement with a foreign entity to transfer that IP to the foreign entity, that's not subject to review. The effect is the same—the foreign buyer, the foreign entity, has control of the IP or has access to the IP—but one type of commercial arrangement is subject to review and scrutiny, and the other type of commercial transaction, commercial arrangement, is not subject to review and scrutiny.

I think it would be prudent to look at the legislation to see whether or not there are gaps that can be filled, like the one that I just gave by way of example.

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

Thank you very much.

Mr. Balsillie, I think you've made your point clearly on what changes you believe need to be made, but do you think, by imposing the changes that you have, we would not necessarily be benefiting and we would be, perhaps, alienating foreign investors and not allowing them to be attracted to Canada?

[Jim Balsillie]

They're not the kind of investors you want, because FDI in tech is principally extractive. That's why our productivity in innovation has declined or stayed flat for the last 20 years while the rest of the world has soared. We're manufacturing our own decline. We don't want that kind of investment, so absolutely not.

It is very important to draw a distinction. Somebody said that Canada needs FDI for a strong economic recovery. Certain kinds of FDI will erode our recovery, so you have to draw a distinction as to the nature of it. There needs to be that basic nuance.

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

That's my time, I believe.

Thank you very much to our witnesses, once again.

[The Chair, Liberal, Sherry Romanado]

Thank you very much.

Our next round of questions goes to MP Rempel Garner. You have the floor for five minutes.

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

Thank you, Madam Chair.

During testimony today, some witnesses have alluded to the fact that we really don't have a timely way of knowing if takeovers are happening unless a publicly traded company has had to tell its investors or until the takeover is finalized, so that's a feature that's somewhat unique to the Canadian system, I would think.

I'm just wondering, Professor Balding, if you want to speak at all to the principle of transparency in terms of any sort of review framework that countries around the world have implemented to have some public awareness of what is happening with regard to state-owned enterprises or state-influenced enterprises' investments into countries, and particularly if you want to speak to best practices.

[Christopher Balding]

I think there are two specific issues. The United States was addressing these very same issues roughly, I think, one or two years ago, 18 months maybe. They basically found themselves at a very similar point where they had discovered a significant number of transactions either in minority states or, as Mr. Balsillie has alluded to, and I believe Mr. Wakil also alluded to, technology licensing, various things like that which were designed to avoid review.

Even in the United States, it was basically on the honour system, so that foreign investments were submitted by the acquirer for review. They basically reviewed that system, found a lot of the same gaps that I'm hearing about today and tightened up in a lot of the same way, so whether it was licensing of sensitive technologies, whether it was minority stakes or whether it was through things like venture capital funds that would take stakes through third parties. I would agree with the previous witnesses, Mr. Balsillie and Mr. Wakil. I think there are probably gaps and tightening that should be used.

I think specifically in the case of China, we need to make sure that it's not simply state-owned enterprises but whether the state has a stake or whether it's a state-linked firm like Huawei, which is not technically state owned but is in reality state owned. There are a lot of definitional issues around what exactly is state owned.