Thank you, Madam Chair, for this opportunity to discuss the Investment Canada Act as related to the committee's study.
I'm the senior assistant deputy minister of the industry sector for Innovation, Science and Economic Development Canada and the deputy director of investments, responsible for supporting the director of investments and advising the Minister of Innovation, Science and Industry on the Investment Canada Act.
In my brief opening remarks, I would like to provide background to the committee on how we administer the act, including in the current context shaped by COVID-19.
As has been widely recognized, foreign direct investment, or FDI, plays an important role in the development of Canada's economy, contributing to productivity and providing vital links to global value chains. It fuels innovation and creates well-paying jobs. FDI will be an important component as the economy recovers from the effects of the pandemic. At the same time, the government has a responsibility to ensure that FDI benefits Canada and to protect Canadians against national security threats that can arise through foreign investment.
With respect to how the authorities in the act are administered, information about decisions is made public through an annual report on the ICA, including disclosure of summary statistics on the operation of the net benefit and national security review processes.
The government's net benefit review authorities are based on the value of the Canadian business. Based on the recommendations of a blue-ribbon panel in 2008, successive governments have raised the net economic benefit review threshold for private, WTO and trade agreement investors. The threshold now stands at $1.613 billion in enterprise value for private investors from Canada's trade agreement partners and $1.075 billion for private investors from other WTO investors, while it is at $428 million in asset value for state-owned WTO investors. These amounts are updated each calendar year in accordance with changes in nominal GDP.
The top three source countries or regions of investors by number of ICA filings were the United States, at 59%; the European Union, at 24%; and China, as a third, at 4%. The United States and the European Union have been historically Canada's largest investors under the act. Additionally, all foreign investments—regardless of value, regardless of the investor or country of origin—are subject to review under the act's national security review process.
Threats to national security are complex and evolving. Accordingly, the ICA and its associated regulations do not define national security. However, to provide transparency for investors and Canadian businesses, the government published national security review guidelines in December 2016. These guidelines are complementary to the national security provisions of the act.
Recognizing the unique challenges brought about by COVID-19, the minister issued a policy statement on April 18, 2020, which indicates that the government will apply “enhanced scrutiny” under both the net benefit and national security provisions of the ICA to foreign investments related to “public health or...in the supply of critical goods and services”.
In addition, given that “investments into Canada by state-owned enterprises may be motivated by non-commercial imperatives that could harm Canada's economic or national security interests”, the statement indicates that all foreign investments by state-owned investors will be subject to “enhanced scrutiny” under the ICA. Enhanced scrutiny could involve the minister requesting additional information during the course of a review or extended review timelines in order to ensure the government can fully assess these investments.
The goal of the statement was to inform foreign investors that we would exercise these authorities to their utmost, with a focus to preserve net benefits to Canada of proposed investments and to protect Canada's national security. In particular, the review processes would consider closely the effect of proposed transactions on potential risks to the supply of critical goods and services during the period of the pandemic.
This approach under the ICA, including as articulated in the COVID-19 policy statement, is consistent with general intelligence assessments shared by the national security departments and agencies. I am pleased that my colleagues from Public Safety Canada and the Canadian Security Intelligence Service are with me here today to speak to the important roles their organizations play in the administration of the national security provisions of the act.
Thank you, Madam Chair. I'm happy to answer any questions the members may have.
I should note that I am unable to speak to or respond to questions with respect to specific investment reviews due to the strict confidentiality provisions of the act.
Thank you.