Industry Committee on June 15th, 2020

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

We're struggling with that in Canada as well. I'm hearing the lexicon change more toward state influenced. It seems to be a definition that could be more tightly defined and used.

I guess I would also switch to your knowledge of enforcement best practices. Broadly speaking, in Canada, without going into technical specificity, if there are conditions put on an approval of a takeover, there's really limited enforcement capability within our legislative framework right now. I think it might encourage bad actors or, basically, “So what?” might be the outcome.

Could you speak at all of anything you know in terms of best practices on tightening enforcement if there are conditions placed on investment, and if there are any other jurisdictions in the world that we should be looking to in terms of best practices to strengthen that aspect of our legislative framework?

[Christopher Balding]

I think most of the European countries that I have dealt with, with regard to Chinese investment, are probably at a very similar point. Most of them are reviewing their investment practices. This is debated in Europe.

In the United States where we see that there have been a couple of transactions, for instance, in which Chinese purchasers either made or began to make the acquisition and it's debatable whether or not they expected it to fall apart, but they got access to sensitive technologies and then walked away or decided not to submit in one case. Then in another case there was a forced divestment because of the gay dating app Grindr, which basically exposed users around the world to Chinese government users.

These are questions that I think, honestly, everybody is dealing with. For these specific issues there are no best practices that I know of, because they are still relatively new issues globally.

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

Thank you.

[The Chair, Liberal, Sherry Romanado]

Thank you very much.

Our next round of questions goes to MP Longfield.

You have the floor for five minutes.

[Lloyd Longfield, Liberal, Guelph, ON]

Thank you, Madam Chair.

Thank you to the witnesses for the testimony today.

I want to start off my questioning, Mr. Krane, on the theme of trade. I'm very interested in your testimony around the need for international trade and investment. Do you have any comments on the idea of having a moratorium or a temporary moratorium on SOEs, and what that might mean with regard to the signals we're giving in terms of wanting to be a trading nation?

[Joshua Krane]

I do. Thank you very much, Mr. Longfield.

One of the risks of having blanket rules is that we don't always see what the unintended consequences of those rules might be. For example, Canada is still quite reliant on other countries for PPE, and we are co-operating with other nations to develop vaccines and treatments for COVID-19, which is affecting not just Canadians but citizens from around the world. I will note that the government did announce a research partnership with a Chinese company to work on developing the COVID-19 vaccine in Canada. My concern is that if we impose blanket restrictions on investment, maybe we don't benefit from those opportunities, and we impact our ability to work co-operatively with other countries on goals that are mutually shared.

I don't disagree with Mr. Balsillie that there are areas where we need to have heightened scrutiny and where we should be focused on protecting critical industries and critical technologies, but having blanket restrictions does send the wrong message to the world: that Canada is not open for business. We need to collaborate with other nations to achieve common goals.

[Lloyd Longfield, Liberal, Guelph, ON]

Thank you.

I had a Zoom meeting earlier this morning with the all-party health research caucus, in which we had scientists from across Canada talking about the importance of sharing information in order for us to attack a global pandemic together and how there will be a global recovery we have to attack together. I think we're much more connected than we even realized through the unintended consequences.

As a quick follow-up on that, in our act right now, we have a national security review, of course, and at this point it's open to interpretation, which gives us some flexibility, and then we have the net benefit review. Do you see any need to change either of those portions within the act?

[Joshua Krane]

It's a great question.

The Investment Canada Act is actually working quite well at the moment. It does cover, at least on the national security side, the vast, vast majority of investments in Canada. I do agree there are situations that may not be covered by the Investment Canada Act, but even situations in which a company would acquire an important piece of technology could be considered a reviewable national security investment under the right circumstance if that asset was important and an important part of a company's business. The act does cover that.

To another point that was raised earlier, there is no evidence that companies are avoiding filing notifications under the Investment Canada Act. Foreign investors who come to Canada don't know the rules here and will work closely with legal counsel and with advisers to make sure when they do invest here they're given guidance on how to comply with Canadian law. In my experience, investors are actually quite cautious about making sure they do comply with the law. In my experience, investors will submit filings to the government to advise them on a transaction. Where the government has expressed concerns, they don't hesitate to let us know. That commences quite a lengthy and detailed investigative process that, as I mentioned, can take upwards of 200 days to complete, which is twice as long as the process in the United States.

[Lloyd Longfield, Liberal, Guelph, ON]

Great.

Under the companion legislation, the corporations act, you still have to follow the law even after investment, and there are ways of handling that if you don't.

[Joshua Krane]

That's correct. The Investment Canada Act also provides extensive penalties for investors who do not comply. They can be forced to sell their investment at no minimum price. There are fines of $10,000 per day for each violation, and that's in addition to all of the other provincial and federal rules that investors are required to comply with when they come to Canada.

[Lloyd Longfield, Liberal, Guelph, ON]

Thank you for your balanced testimony. I really appreciate it. I think it's very good for our report to have both sides of the argument. I'm on your side, by the way.

[Joshua Krane]

Thank you very much, Mr. Longfield.

[Lloyd Longfield, Liberal, Guelph, ON]

Thank you, Madam Chair. I'll hand the floor back over to you.

[The Chair, Liberal, Sherry Romanado]

Thank you.

Our next round of questions goes to MP Lemire.

Mr. Lemire, you have two and a half minutes.

[Sébastien Lemire, Bloc, Abitibi—Témiscamingue, QC]

Thank you, Madam Chair.

Mr. Balsillie, frankly, your comments have been among the most relevant we have heard in this committee. I would like to take things a bit further and hear your comments on the notion of stakeholders in the act. Last week, a witness said that the act should include shareholders, employees, suppliers, creditors, consumers, the government and the environment.

Do you agree with the idea of amending the act and integrating those stakeholders into it?

In light of your testimony today, patents and innovations should also be enshrined in the act, as should strategic technologies.

[Jim Balsillie]

I'll try to answer that.

The first thing I'd like to say is that Mr. Krane was characterizing my testimony as a blanket thing for all investments, and I was talking about a particular lens for the nature of the externalities and spillovers from technology, which is absent from the contemporary economy.

For MP Longfield, I'm for Canada here. When we look at these things, we've learned that technologies affect our health, affect our security and affect our economy, so when you interview stakeholders, the most important thing is that this is supposed to be a public good, a net benefit test, in which you look at the overarching effects of these things. You should interview many stakeholders, but ultimately, you need experts to measure these various effects. I've had considerable interplay with those who administer the ICA, and Huawei is considered a Canadian company because it has a Canadian subsidiary. They ask us to voluntarily bring forward things if we're taking investment because there might just be a problem, and I'm deeply involved with a number of technology companies.

People are making decisions based on their narrow and specific interests, and it's up to our policy community to make sure that these are in our national interests.

[Sébastien Lemire, Bloc, Abitibi—Témiscamingue, QC]

Would you agree with the fact that the Minister of Innovation, Science and Industry should be more transparent and be accountable in terms of his decisions, which must always be to Canada's net benefit?

[Jim Balsillie]

I can't comment on the benefit calculation. What I do know is that the overwhelming majority of consequential transactions never cross his desk.

[The Chair, Liberal, Sherry Romanado]

Thank you very much.

Our next round of questions goes to MP Masse.

You have the floor for two and a half minutes.

[Brian Masse, NDP, Windsor West, ON]

Thank you, Madam Chair.

I don't know who said it, but I know I just won a bet with the “not open for business” slogan. I had predicted with my staff that I would hear that today, so I've won a coffee from Tim Hortons, which is now going to benefit 3G Capital, which has, in essence, allowed Canada's iconic coffee maker to drop from 13th to 67th in Canada's reputable companies, representing the biggest slide in history for that.

At any rate, I do want to ask Professor Balding a question here. Even private equity firms are unknown investment options in terms of a review as well. Should that also be a concern? There are a couple of factors we need to consider here. Canadians, through either corporate tax cuts or direct subsidies municipally, provincially or federally to acquire jobs or even research and development grants and waivers of costs, contribute to the economic growth and development of some of these companies through the jobs. When they are taken over, whether it be by China or other non-democratic governments, we don't know what we're getting into.

Is there a benefit to reviewing ownership that might come through another model?

[Christopher Balding]

It would be reasonable to take in some of those third party investors, like B.C.'s Intech, or private equity, maybe more established firms, because that is clearly something that we've seen Chinese firms do, work through some of those third party beneficiaries to disguise asset transactions. I think that would be a reasonable step in some way, whether it required changing legislation or just making a regulatory change.

[Brian Masse, NDP, Windsor West, ON]

Yes, and that's where we see perhaps some other kingdoms and others involved in investments. I think it's reasonable that when they go against some of our subsidized, even global initiatives, our investments undermine our own practices.

Do you think that's significant enough to warrant a review as well?

[Christopher Balding]

Yes, and I think we've seen some of the changing practices by companies like this in how China is changing, through their investments and other practices, the overall conversation.

[Brian Masse, NDP, Windsor West, ON]

Thank you, Madam Chair.

[The Chair, Liberal, Sherry Romanado]

That is the end of our third round and we do have time to begin a fourth round. I understand that the Conservatives will split their time equally between the Bloc Québécois and the NDP.

Mr. Savard-Tremblay, you have two and a half minutes.