Industry Committee on June 18th, 2020

[Lloyd Longfield, Liberal, Guelph, ON]

Thank you, Madam Chair. We could do with a few more hours, with all these witnesses.

Thank you, all, for coming today with all your expertise.

I'd like to start off with Mr. Houlden and then follow up with a question about trade with Mr. Glossop.

Mr. Houlden, when we talk about the acquisition of a long-term care facility, part of the conditions have to be cross-jurisdictional with the provinces, which have full jurisdiction over long-term care and whether it's a viable business, and doing an evaluation. We had testimony earlier in this study that just briefly mentioned cross-jurisdictional matters. Could you expand on that for 30 seconds or so, please?

[Prof. Gordon Houlden]

Absolutely. Very quickly, there is provision within the act for input from provinces, and that's absolutely critical. Again, there's a political dimension in provinces as well, but there are also health issues and management of sectors, as you suggest. Where provinces have the responsibility, they need to be brought in and allowed to provide their opinions before an investment goes forward.

[Lloyd Longfield, Liberal, Guelph, ON]

Fortunately, or unfortunately, a lot of that is confidential, so the public doesn't see it happening.

[Prof. Gordon Houlden]

That is one of the challenges. If they don't see it, they may not believe it happens, and that is a fair point.

[Lloyd Longfield, Liberal, Guelph, ON]

Yes. Thank you.

I think we saw in our first panel, too, that a lot of these matters are confidential.

Mr. Glossop, I'm not coming from a legal background; I'm coming more from a multinational business background, with the importance of having predictable standards, so when you make decisions at board meetings that may not get implemented for a few quarters, you know that nothing has moved around too much in your due diligence and how you make your decisions.

We did have a jump that was flagged in terms of the number of review cases, which went from 1% to 9% in the fiscal year 2018-19, up from 4% in previous years. There was a change there, a jump. Do you know the background of why we're doing more reviews?

[Peter Glossop]

I'm not sure there was necessarily a jump. There has generally been a decline in the number of net benefit reviews over time, because the thresholds have risen. I believe the CBA brief cited nine cases reviewed in the annual report for that fiscal year. Interestingly, however, there has been an increase in the number of national security reviews, so I think you'll find an equal number of both in the annual report.

[Lloyd Longfield, Liberal, Guelph, ON]

Right, and the value was part of the change as well. The amount of dollars exchanging was higher, if I remember the report.

[Peter Glossop]

Yes. Thresholds go up each year. They're not that significant. It depends very much on the flow of transactions from year to year. If there's a decline in the number of transactions overall, there may well be a decline in the number of reviews. Here we're only talking about very significant transactions that cross these thresholds.

[Lloyd Longfield, Liberal, Guelph, ON]

The retrospective review, if there is one.... The last discussion we just had was about a transaction that really didn't end up in Canada's interest. I've asked this in a few different ways with other witnesses. Looking at critical infrastructure and technology, is there a means for us to look at the fact that what was acceptable in 2020 may not be acceptable in 2025, if environmental regulations, for instance, take a jump or if we introduce some type of social benefit that needs to be included in the way businesses operate? Is there something where you have to go back and say that business likes stability? If you change some legislation or regulations in terms of investments, do you ever go back and look at that to see whether it would still meet your current criteria?

[Peter Glossop]

In practical terms, probably not. The reality is that most undertakings given by investors are for a period of three years. For that period of time, people are operating under a set of laws and regulations they assume will be relatively constant. One thing—

[Lloyd Longfield, Liberal, Guelph, ON]

Okay. If I can interrupt, in terms of trade agreements, it's very important that we stay constant because of the agreements we have in place.

[Peter Glossop]

Absolutely. Our trade partners trust us to provide a stable framework for them to invest, and likewise for us to invest in their countries.

[Lloyd Longfield, Liberal, Guelph, ON]

Thank you.

Thank you, Madam Chair, for giving me three extra seconds.

[The Chair, Liberal, Sherry Romanado]

Thank you very much.

Our next round of questions goes to MP Lemire.

Mr. Lemire, you have the floor for two and a half minutes.

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

Thank you, Madam Chair.

My first question is for you, Ms. Travis. In your speech you asked a question, and I'd like you to answer it.

You asked whether the government rigorously assesses Canada's net benefits. You noted the transparency of the triggers and possible remedies.

Do you feel that this rigorous evaluation is being done and that our law has enough bite?

[Michelle Travis]

I would argue that it could be more rigorous, based on some of the deals that we've looked at. We would like to see more transparency around the different aspects that are being looked at when undertaking a net benefit review. What level of due diligence is taking place when looking at a transaction? What questions are being asked when looking at how this affects Canadian workers, other stakeholders, customers or anyone who is going to be affected by the transaction? We'd like to see more transparency in the process.

Also, what are the commitments that we are able to get from foreign buyers in terms of living up to the commitments that we expect when they decide to invest in Canadian businesses? How do we have an opportunity to go back and look at those commitments to see if those commitments need to be changed or if they need to be tightened somehow?

I think there has to be some process for being able to look more closely at the deals, for the public to actually look at how these deals are scrutinized, so that we have more tools to be able to say, “That review process didn't make sense, and going forward we need to make some changes to make sure certain aspects of it are tightened.” I think that would be good for the review process long-term.

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

Thank you very much.

I have a brief question for Mr. Kingston.

Mr. Kingston, are your members concerned about the possibility of receiving hostile offers from other countries? Should our legislation be adapted to take into account the abolition of voting rights for acquirers, and should we be more closely aligned with U.S. anti-takeover measures to protect your members?

[Brian Kingston]

Once the pandemic unfolded and the initial economic hit was evident, yes, there was concern as we saw valuations decline. That's why we supported the temporary measures—and it's very important that they're temporary—to make sure that the companies aren't taken over by non-commercial actors.

[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.

Ms. Travis, I want to return to the hotel and the cyber-attack.

I think there are a couple of things with the cyber-attacks that are taking place. We don't really have.... We've had some good testimony before that some of those that are cyber-attacked right now are settling behind the scenes, with no accountability as to the data that's been breached, and they're doing payouts. Others are public institutions that have had cyber-attacks. They have made settlements as well. Some have brought in the police; some have not. This has been the feedback that we've gotten.

My question to you is with regard to this one that took place, and even further in the future. If the hotel ownership is the state government of the Chinese, then if a cyber-attack takes place, we may never know the full exposure or what they do about it, whether it's an internal problem that led to something that's far more spectacular than we would think or whether it's something that they let pass because they have other national interests.

[Michelle Travis]

Yes, at this point, we don't really have any clarity on any of those questions. This is why I think it's so important to understand what kind of privacy protocols Canada expects in the course of a foreign takeover like that.

I would raise another question. Under PIPEDA, there is a business transaction exemption that allows parties to share personal information for due diligence purposes without having to obtain consent for sharing information. If the party that's buying the Canadian company has some ties to the Chinese government or another actor that's problematic, what sort of controls are put in place to make sure that sensitive information isn't shared that shouldn't be shared, and how does the government maintain some sort of ongoing review to make sure that this information is protected on an ongoing basis?

[Brian Masse, NDP, Windsor West, ON]

Great, thank you. I know that I'm out of time.

Thank you, Madam Chair.

Thank you, again, to the witnesses.

[The Chair, Liberal, Sherry Romanado]

Thank you very much.

Our last round of questions will go to MP Van Popta.

You have the floor for five minutes.

[Tako Van Popta, Conservative, Langley—Aldergrove, BC]

Thank you, Madam Chair.

My question is for Professor Houlden.

Professor, you stated that you might be more nervous about the acquisition of a smallish Canadian company that has important IP that would leak out of the country—you used the hypothetical example of its going out in a briefcase, or maybe more realistically on an optical fibre.

Do you think it would be fair to say that the dollar threshold in the Investment Canada Act is maybe not always the appropriate measure?

[Prof. Gordon Houlden]

I would agree.

The national security review can be applied in any instance, even for small transactions. That's where I think some of the real dangers appear. With a mine—let's put aside all other environmental issues—you know where the product is, what it is and where it's going. It's very well understood. These small companies, often led by a brilliant individual who's come up with a great innovation, don't often know that much necessarily about business internationally, let alone about China. They are vulnerable. Or you may have someone who's just looking at dollar signs and saying, “I'm going to sell this out.”

A similar challenge is a professor coming up with a great agreement. Maybe he's been working in collaboration with a Chinese firm. Where are they going to manufacture that widget or that thing? With all due respect to my home town of Calgary, it's not going to be Calgary, Edmonton or Prince George. It's going to be Hangzhou, Ningbo or Guangzhou, where there is already an ecosystem for manufacturing.

That is a challenge, even for academic collaboration, as well as for those small companies that are looking for joint ventures.