Industry Committee on Jan. 26th, 2022

[The Chair, Liberal, Joël Lightbound]

Mr. Lemire, I cannot see Mr. Saint‑Jacques on the screen anymore. Perhaps he had some connection problems, I'm not sure.

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

I see that too.

In that case, Mr. Chair, let me put my question to another witness.

Can anyone answer this question: is China working towards a business goal or to a geostrategic one?

[Dr. Wesley Wark]

Mr. Chair, I'm happy to answer quickly, if that's appropriate, and other witnesses may have their own views.

[The Chair, Liberal, Joël Lightbound]

Sure. Be brief, though, because we're almost out of time.

[Dr. Wesley Wark]

Okay.

Very quickly, I would say that in the Chinese context, it's important to understand that it's almost impossible to distinguish purely business calculations from state strategy and state policy. China's economy and political structure are very different from those of western capitalist societies. You can probe the details of what is strategic and what is economic in its investments and policies, but it's very difficult to distinguish broadly between the two.

[The Chair, Liberal, Joël Lightbound]

Thank you, Mr. Wark.

Now the floor goes to Brian Masse for 2.5 minutes.

[Brian Masse, NDP, Windsor West, ON]

Thank you, Mr. Chair.

To Mr. Volpe again, just yesterday General Motors announced another $4 billion for plants in Orion. I can get in my car here and drive for an hour from here to Lansing, Michigan, where they're getting a new battery plant with a $2.6-billion investment. They also did $150 million recently in New York state for electric parts.

We're getting our lunch eaten. This is really bad in terms of the investment decisions. How do we turn this around using our critical minerals to make sure that we actually do get the value added here? It's been very robust for Michigan, and Detroit in particular, over the last several years. How do we turn that around so we don't become as susceptible to losing, not only within Argentina, which as you've shown is not connected to this at all, but for other manufacturing we see on the doorstep right next to me?

[Flavio Volpe]

Brian, you're certainly a champion for your region. We've always spent time agreeing on a lot of things.

I will recast your question by asking what you think they were thinking in Michigan the year before, when we landed $6 billion of investments in electric vehicles and battery manufacturing in Windsor, Oakville and Woodstock.

I think you're right: We are competing with Michigan more than we're competing with anything south of the equator. We do have to be vigilant on pieces like that. Part of the Canadian equation and part of the reason those companies committed to manufacturing those vehicles here is that they see that the long-term strategy includes real resources that are extractable and processable here in Canada.

As you said, if we don't stay on it as we have been on it, the American industrial policy and the Biden administration's dedicated investment of almost $200 billion into the space will lead to our losing more than we win.

I will remind you also that any vehicle assembled in Michigan also includes 30% to 40% parts made in Ontario. It's not always a binary announcement for Canadian parts suppliers.

[Brian Masse, NDP, Windsor West, ON]

No, I know, and they do actually go back and forth, so I don't disagree with that, but let's be real here. Detroit has over-performed all of Canada for auto investment over the last number of years. Those are just the raw numbers. Especially in OEM manufacturing, our trade numbers are disproportionately dropping for the cells.

You're right that there's some really good news and there's some stuff happening, but I want more.

[Flavio Volpe]

I'll agree with you there. I want more too.

[Brian Masse, NDP, Windsor West, ON]

Fair enough. Thank you.

[The Chair, Liberal, Joël Lightbound]

We'll end on that note of agreement. Thank you, Mr. Volpe and Mr. Masse.

We'll turn for five minutes to Mr. Fast.

[Ed Fast, Conservative, Abbotsford, BC]

Thank you very much.

I want to return to a comment that Mr. Fillmore made, reinforced by Mr. Nathaniel Erskine-Smith, that somehow lithium carbonate is effectively useless for the EV battery industry. That's just patently false. If it's battery grade, it is highly useful, so much so that a Chinese company is paying a billion dollars for it.

I would note that Benchmark Mineral Intelligence, which is the world's leading reporting agency and market intelligence publisher for the lithium ion battery industry, said this, as it was reported in Reuters: “Prices of lithium carbonate in China jumped to a record high...in December driven by strong demand from manufacturers of the batteries that power electric vehicles”.

That's from BMI, the industry reporting agency. It's pretty clear that the Chinese knew what they were picking up.

Dr. Wark, I was intrigued by the comment you made that government explanations for not doing a national security review are “wholly unsatisfactory”. I hope I got that quote right. Could you expand on that?

[Dr. Wesley Wark]

Mr. Fast, I'll quickly provide an answer and hopefully accurately reflect on what the parliamentary secretary said to the committee yesterday; presumably, you'll hear more of the same tomorrow from the minister and his officials.

First of all, the point was made that this was lithium carbonate production in the pilot project that Neo Lithium was running in Argentina, not lithium hydroxide, and so it was irrelevant, which has been very much contested, including in your remarks and in remarks by other experts.

Second, there was the notion that this was really an Argentinian mine. It was an offshore resource, and so it was hard for the government to see its relevance to Canadian national security. Those kinds of considerations, it seems to me, were also raised by Mr. Volpe in his remarks. I would just reference the fact that I think everyone involved in this conversation about critical minerals in particular is in agreement that Canada needs to up its game in terms of creating a critical mineral industry capacity and a lithium capacity in Canada, which we currently don't have. It's very hard to see how you're going to do that by allowing a Chinese company to take over a very promising development by a Canadian company in terms of technology know-how and intellectual property.

Who knows what the future might be? I think Mr. Volpe himself mentioned the word “potential”. It seems to me that this has to be part of any national security review. It seems we didn't, I don't think, give any consideration to the future potentiality of this company in terms of its previous track record and how that might apply to Mr. Volpe's determination that the only thing that matters is local, local, local. Well, we don't know what the future of Neo Lithium might be in terms of its future ability and its future activities in Canada, but apparently we just ruled that out because at that moment it had an overseas asset.

I think those were the main points the parliamentary secretary made, to my understanding. I just find it hard to believe that they really hold water unless we had engaged in a much fuller review and consideration, including.... As I said, Mr. Fast, I think it's very important to think strategically, to think long term, to understand the complexities of these transactions, and also to apply what I call a “net assessment” approach—that is, you take what your interests are and you consider them, and you take what the interests of foreign direct investment might be as a strategic calculation, and you combine both. I don't think we gave sufficient thought to why it mattered that a Chinese SOE was acquiring this asset.

[Ed Fast, Conservative, Abbotsford, BC]

Thank you.

How much time do I have, Mr. Chair?

[The Chair, Liberal, Joël Lightbound]

You have 45 seconds, Mr. Fast.

[Ed Fast, Conservative, Abbotsford, BC]

I have a quick question for Mr. Tsafos. How much lithium is being produced in the United States today? Do you know?

[Nikos Tsafos]

I do not know the answer to that question off of the top of my head. I'm sorry.

[Ed Fast, Conservative, Abbotsford, BC]

It's my understanding that there's not a lot of lithium being mined in the U.S. There's none being mined in Canada yet. Mr. Volpe is suggesting that because we would source it outside of the CUSMA partners, it's somehow going to be offside with our rules of origin. He and I can probably contest that, but I don't want to spend more time on it.

You also asked what the ultimate threshold is at which we say no. It was your rhetorical question: “What is the ultimate threshold at which we say no?” Do you have an answer to your own question?

[The Chair, Liberal, Joël Lightbound]

Answer very briefly, Mr. Tsafos.

[Nikos Tsafos]

By the way, very briefly, I looked it up while you asked. The U.S. does not publish the number for lithium. It's withheld for confidentially reasons, but it's very small.

For the threshold, the way I would think of it is we have a lot of well-established tools that we've used in other industries about industry concentration, diversification and measuring the share of the top three and the top five suppliers. We have a lot of different ways to think of criticality in this sector, especially as we look to a rapidly growing sector. You can't look at a resource today and say, “Well, it's not material”, because frankly, every resource that we have is going to have to expand tremendously over the next 10 to 20 years.

We need to apply a bit more imagination to visualize what this world is going to look like. We can't just look at 2022 and prejudge too much the importance of these assets for the future.

[The Chair, Liberal, Joël Lightbound]

Thank you, Mr. Tsafos. That's all the time that we have.

For our last questioner, we have Mr. Gaheer.

[Iqwinder Gaheer, Liberal, Mississauga—Malton, ON]

Thank you, Chair.

My questions are for Mr. Volpe.

First, Neo Lithium's own November 2021 feasibility study observed that battery cell manufacturers are planning capacity investments closer to where the automotive manufacturers are located within North America and Europe.

Is it preferred by the Canadian industry that battery cell manufacturers are planning to stay close to auto manufacturers?

[Flavio Volpe]

It's just the function of the way the business runs. You don't increase costs by putting your biggest components so far away that you'd eat your profits in transporting them.

Mr. Fast plays fast and loose with rules of origin, but he and I spent a lot of time around the table at the TPP in those negotiations, and those rules of origins are in place for a reason. They define what that asset is in terms of tariff eligibility, and you want it close, Mr. Gaheer, because it then becomes defined as North American and you don't have to charge a tariff as you try to sell that vehicle in a really tough market.

[Iqwinder Gaheer, Liberal, Mississauga—Malton, ON]

In line with what you're saying, the same study suggests that local lithium sources in North America are preferred by manufacturers because they cut down on lead time and freight costs and minimize default risk. These are increasingly important, given the limited shelf life of lithium hydroxide.

Do you agree with the assessment that local lithium hydroxide from hardrock resources is what will be critical to North American manufacturers and battery manufacturers?