Chair and members of the committee, thank you for this opportunity to appear in your important study of the national security review of the acquisition of Neo Lithium by Chinese company Zijin Mining.
I'm going to skip over the timing and details of this transaction. I think they're familiar to the committee, but I'm happy to come back to them in questions.
To cut to the chase, The decision not to conduct a formal Governor in Council-approved national security review of this transaction was, I believe, a mistake. It is worth noting that the minister did not even take advantage of the extra 45-day period of scrutiny allowed under the act to determine whether the Zijin Mining takeover could be injurious to national security.
The decision cannot be undone, but it seems to me that this case offers important lessons for the conduct of national security reviews in the future. I'd like to lean forward to quickly identify four such lessons for the committee.
The first is with regard to strategic vision, which others testifying have referenced. In my view, a national security review needs to be guided by a coherent economic security strategy for Canada. An economic security strategy remains under development, but it is not in place. There is also a promised critical minerals strategy, which is also not ready. The strategy will be important to address Canadian potentialities, especially with regard to northern development; to detail a Canadian approach to joint efforts with the United States; and to account for disturbing trends, which we've heard about, in the global concentration of critical minerals processing, where China has established a very formidable lead, perhaps a near monopoly. The absence of this strategic framework leaves the application of a national security review under the Investment Canada Act in a state of confusion.
The second point I'd make is on translating policy intentions into action. The revised guidelines on a national security review of investments issued on March 24, 2021, state that all foreign investments by state-owned investors will be subject to enhanced scrutiny and that the minister may take into account, “The potential impact of the investment on critical minerals and critical mineral supply chains.” Lithium is included, of course, in the government's list of critical minerals.
The ISED minister's mandate letter, published on December 16, 2021, contains multiple relevant directives, including the use of the Investment Canada Act “to ensure the protection and development of our critical minerals.” It calls for the creation of a critical minerals strategy. It talks about the promotion of economic security, the need to modernize the Investment Canada Act to strengthen national security reviews, and the safeguarding of intellectual property-intensive businesses. However, it seems to me there are significant gaps between these recent policy statements and promises and their implementation. These must be urgently addressed.
The third point is conducting more national security reviews under the section 25.3 provisions of the Investment Canada Act. The latest annual report of the ICA for 2019-20 shows that historically—that is, going back to 2009—less than 1% of investment findings have been subject to an order under the act. They are rare but they shouldn't be, especially given the changing nature of threats to our economic security and the advantages that more in-depth scrutiny brings. Any foreign direct investment with national security sensitivities, such as the Neo Lithium case, should be subject to at least an additional 45-day review period, as provided by section 25.2 of the act, so that a proper determination of the need for a full national security review could be made.
The fourth and final point is enhanced transparency. The national security review process under the ICA is a secretive undertaking. It is rare that Canadians learn anything about the reasons behind national security review decisions at any stage of the process. The explanations provided by the parliamentary secretary to this committee last week were, in my view, unconvincing and deserve to be subject to critical examination. As the Neo Lithium decision suggests, greater transparency leads to contestability—which is valuable—and to the potential avoidance of poor outcomes and wrong thinking in the future. I would also add that greater transparency reporting requirements for decisions on national security reviews would be in keeping with the government's national security transparency commitment announced in 2017.
Finally, in conclusion, a national security review under the ICA urgently needs to be rethought to deliver greater economic security for Canada going forward. I believe the government addressed the Neo Lithium acquisition using too narrow a framework; misjudged its significance to Canadian national and economic security, now and in the future; failed to translate policy promises into action; and was caught up in a protracted period of political transition while the transaction was being reviewed—all of which, I believe, led to a wrong decision.
Thank you.