Industry Committee on June 18th, 2020

[Mitch Davies]

Madam Chair, I would simply say that the law encompasses the national security review process and obviously a net benefit review. Of course, it's one statute. There are many statutes, as well as the Income Tax Act, which of course is directly aimed at the question of collecting the revenues that are due and payable to the Government of Canada. Any measures taken to contravene that are a matter under another law.

I guess that would be the most straightforward answer to the question of the member.

[The Chair, Liberal, Sherry Romanado]

Thank you very much.

That is a little over the time, but I wanted to make sure that you had a chance to answer.

We'll now to go MP Masse for two and a half minutes.

[Brian Masse, NDP, Windsor West, ON]

Thank you, Madam Chair.

I'll put this question out. Mr. Davies, I think you might be the best to respond, but anybody else can answer too.

Under the current laws we have now, if a foreign investor comes in and buys a company, they have a footprint here. Later on, if their operations are taken over by China, by a state-owned operation, or by some other type of equity form or something else, is there a review done? The ownership de facto changes in our country as a result of that company being bought internationally.

Do the current powers that we have under ISED, CSIS, Public Safety or even the minister warrant a divestment to protect Canadians? Can we issue an order of divestment?

[Mitch Davies]

Madam Chair, the question is, if there were to be a subsequent takeover in another country that could affect a Canadian business that's been part of a foreign-held enterprise, is that investment something that can be reviewed under the national security provisions of the Investment Canada Act. I mean, there is no simple answer. Of course, each of these—

[Brian Masse, NDP, Windsor West, ON]

I just want to know if we can do it, so there is a simple answer. We either can or can't do it. Can we order divestment?

[Mitch Davies]

The question would be, can we order a review and is it lawful to have a review of that investment? Then, in a case where there can be an order for review, obviously divestiture could be an outcome of such a review. There would be a question at the beginning as to whether there's jurisdiction in the act, and you'd have to look at the facts. I would say that I'm not trying to evade it; I think it's just a question legally.

In fact, there would be members of the bar who would be arguing this question as to whether an investment has occurred, but if there's a Canadian business where the control is taken over, that's a control change, and if it's a foreign controller, then it could well be something that we could review under the act. I could go that far, sir.

[Brian Masse, NDP, Windsor West, ON]

So we can order a divestment at the end of the day. That is a possibility under our current laws.

[Mitch Davies]

Madam Chair, it could be an outcome, but again, I would say that the fact circumstance from the point of view of the law would have to be taken into account—

[Brian Masse, NDP, Windsor West, ON]

Fair enough.

[Mitch Davies]

—but the Canadian business being bought is something that could well be under the scope of the act, for certain.

[Brian Masse, NDP, Windsor West, ON]

Thank you.

I know my time is up. Thank you, Madam Chair, and thank you to the witnesses.

[The Chair, Liberal, Sherry Romanado]

Thank you very much.

With that, we end our first panel.

On behalf of the INDU committee, I want to thank our three witnesses today. It is public service week, and I want to thank you again for joining us, for your excellent testimony and for helping us in this study.

With that, we will suspend for a few minutes so we can switch over for the next panel. We'll be starting momentarily.

[The Chair, Liberal, Sherry Romanado]

We will continue, and I'm going to yield the floor to MP Erskine-Smith.

Go ahead, MP Erskine-Smith.

[Nathaniel Erskine-Smith, Liberal, Beaches—East York, ON]

Thanks, Madam Chair.

Consistent with the notice of motion that I provided to the committee on Monday, I move that our committee invite senior executives from Loblaw, Empire and Metro to testify to our committee and explain their decision to cancel, on the same day, pandemic pay for essential workers in the middle of the pandemic, and explain to this committee and the Canadian public how that decision is consistent with competition laws.

[The Chair, Liberal, Sherry Romanado]

Thank you very much, MP Erskine-Smith. The motion is in order.

With that, I open the floor for debate.

[Brian Masse, NDP, Windsor West, ON]

Madam Chair, I would like to add witnesses. I want organized labour to present in front of the committee as well so that the workers are represented through their organized labour associations, like Unifor and others. There are just a few.

I hope that would be taken as a friendly amendment. I support the motion and thank the member for bringing it forward.

[The Chair, Liberal, Sherry Romanado]

We have a friendly amendment on the floor.

Is there any debate on the friendly amendment?

[Nathaniel Erskine-Smith, Liberal, Beaches—East York, ON]

Madam Chair, perhaps for simplicity we could simply say “and other witnesses”. Monday we have an in camera meeting to discuss committee business. We could discuss who those other witnesses might be and could flesh out a list.

I'm perfectly comfortable with this. I think we should have the workers' representatives attend. It's worthwhile to discuss in camera which witnesses should attend and speak on behalf of workers at our committee.

[Brian Masse, NDP, Windsor West, ON]

Sure. That's very good.

[The Chair, Liberal, Sherry Romanado]

Thank you very much.

Is there further debate on the amendment?

I'm going to turn it over to the clerk for a recorded vote on the amendment.

[Garnett Genuis, Conservative, Sherwood Park—Fort Saskatchewan, AB]

I have a point of order, Madam Chair. If there's unanimous consent, we can deem the amendment and the motion adopted so that we can get on with the study that we're scheduled to do today. We would be comfortable with proceeding in that fashion.

[The Chair, Liberal, Sherry Romanado]

My apologies, but we cannot have unanimous consent in these virtual meetings. We must have a recorded vote, so unfortunately we have to go through the recorded vote.

I will turn to the clerk.

(Amendment agreed to: yeas 11; nays 0 [See Minutes of Proceedings])

We will now do a recorded vote on the motion, as amended.

(Motion as amended agreed to: yeas 11; nays 0 [See Minutes of Proceedings])

With that, we will now move to our witnesses.

Witnesses, thank you very much for your patience.

As we are running a little late on time, I'm going to give you a quick heads-up, as a reminder. Please make sure that you are on the correct channel for the language that you will be speaking. When you see this yellow card, you have 30 seconds remaining in your intervention. The red card means there is no more time for your intervention. Each witness group will be given five minutes to present, after which we will go through rounds of questions.

I'm going to introduce the witnesses when they speak so we can save some time.

We will start with Mr. Houlden.

You have the floor for five minutes.

[Professor Gordon Houlden, Director, China Institute, University of Alberta, As an Individual]

Thank you very much, honourable committee members, for this opportunity to speak to you today.

The China Institute, which I head since leaving government, is the only think tank in Canada focused solely on China. Others cover all of Asia or other issues. We cover economy, social issues, political issues and bilateral relations.

Frustrated when I went to the China Institute as it's first director about the lack of good data on foreign and Chinese investment in Canada, we created, at a considerable expense of our own, a comprehensive database. It tracks right back to the parent Chinese company, be it in Hong Kong or on the mainland.

For example, Statistics Canada counts less than $20 billion CAD of Chinese investment, and the Chinese Ministry of Commerce is similarly flawed. There are flaws at both. They have their own utilities.

We have collated over $93 billion CAD of Chinese investment in this country. We sell a subscription. I'm not here to advertise it, but our subscribers include the Library of Parliament, Public Safety Canada, GAC, ISED, Natural Resources Canada, the U.S. embassy and USTR. We have many subscribers also from law firms and private business.

We use very smart Ph.D. students, largely. Using a range of logarithms and databases in Canada, Europe, the United States and China, we pull together all of this information.

We went back as far as 1993, when Chinese investment was almost non-existent. The big acceleration took place in this century, in 2003-04, when China began to make investments of $2 billion to $3 billion, largely in the energy sector but also in mines. Then there was the blockbuster deal of 2013, the acquisition of Nexen by CNOOC. That was, at the time, the largest Chinese investment ever abroad. There have been much larger ones since.

Chinese investment peaked in that year, reaching $21 billion of investment. It dropped in 2018-19 to between $2 billion and $4 billion. We expect this decrease to continue in 2020 due to three reasons: the global economic recession, the bilateral difficulties in the Canada-China relationship and also China's own stricter rules about who can take money out and what they can buy. For example, Anbang has been told, “Don't be buying retirement homes. Stick to your core business, which is insurance.”

From my perspective, maximum market intervention is not a good thing. Foreign investment has, for centuries, quite literally, helped this country develop, as it has the United States. Traditionally that capital has come from Europe and the United States, but as the centre of gravity moves towards Asia, it has changed. It is important, particularly in capital-intensive resource industries. We have lots of them. They do need capital.

Foreign investment can bring much needed innovation, and it also can bring inclusion in supply chains, but there is always a risk involved, and in China—I can be frank as I'm no longer in government—state-owned enterprises are not independent actors. Even private firms can be state-controlled. Not all SOEs are created equal. There are almost 300,000 of them. Some of them might be state-owned enterprises focused on food production in a small municipality in China, which are low risk.

I'm more nervous, quite frankly, about a private Chinese company buying a high-tech firm for $20 million, where the IP can either be carried away in a briefcase or go down a fibre optic cable. I'm more nervous about that than I am about a $100-million investment in a coal mine, where everything is up and visible on the surface, China is taking the product, Parliament is supreme, and in extremis they can stop that exit. IP, once it's gone, is gone. That, to me, is the risk. You need a more sophisticated analysis than just looking at SOEs versus private companies, which isn't to say that SOEs can't perform badly.

In Africa, where I have some experience looking at Chinese investment, sometimes the SOEs have better practices, more environmentally sustainable and better labour practices, than some of the pirate firms, which behave very badly indeed. It's not a one-size-fits-all thing.

Greenfield investment is generally better in my view. I know of a wire wool manufacturer in a community with very high percentage of African Americans in the American south. It went bankrupt. China came in, bought the firm and rehabilitated it with a lot of money of its own. The mayor of that town is very happy, and unemployment has gone down. Similarly I'd argue, in a Canadian example, Feihe International put $225 million into a greenfield investment to produce infant formula. That's a company that started off as an SOE and then was privatized.

It's not easy, even when you look hard, to tell sometimes what is an SOE and what isn't—

[The Chair, Liberal, Sherry Romanado]

Unfortunately, Mr. Houlden, that's your five minutes, so I'll have to stop you there. My apologies.

[Prof. Gordon Houlden]

No, don't apologize.

Thank you.