Industry Committee on Jan. 26th, 2022

[Brian Masse, NDP, Windsor West, ON]

Thank you, Mr. Chair.

I'll go quickly to Mr. Volpe so that he is able to get in on this.

In terms of our minerals as Canadian assets, how do we leverage that for further auto investment? I'm worried about the fact that we haven't had greenfield expansion as others have, and I would like your comments. How do we use this as an opportunity to expand our manufacturing base?

[Flavio Volpe]

By definition, these assets aren't Canadian as the term pertains to how we source parts that are compliant in the trade agreements we have. Nothing we could have brought in—if it was profitable, which it isn't—from this potential mine in Argentina would have furthered that. What we need to do is set our critical minerals strategy around the extraction and processing of those critical minerals here in Canada.

I am the committee chair of the Invest in Canada committee for battery development in the Canadian Automotive Partnership Council. You've been to those council meetings, Brian, over the years. They have the federal government, the provincial governments of Ontario and Quebec, the assemblers, the parts suppliers, academia and labour. This is where we have the big overarching policy discussions and policy creation. Mr. Fast, of course, sat at that table for years.

We have a strategy with regard to critical minerals, battery creation and assembly, and location here in Canada. I'm sorry, but I'm not hearing any of that in the contemplations here about the theoretical national security interests we may have in stuff in the ground in Argentina.

What we need to do is what we are doing, which is pursuing these major investments and creating the future market to draw auto assemblers and battery assemblers, who then have to meet the CUSMA compliance rules of origin and source that stuff in Quebec. We in the industry know that orders are being made for that 18, 36 and 72 months off. At the same time, we're ramping up this production of electric vehicles.

For us in the industry, it's.... We're having this discussion here today about whether we could have had more time and whether we should have done a national security review. It sounds to me like the arguments are about predetermining an outcome. We're invested in the fact that we think this was a national security mistake, but in reality, practically thinking, what is it? Where is it? Could we actually use it? If we could use it, would it be profitable?

There's zero risk there. This is akin to risking a holding penalty on someone who's passed you on offence—maybe the ref will see it or maybe not—just to frustrate the opposition.

We have to do more important things, like working on our mining potential and extraction potential in Canada, especially in Quebec, because it's there.

[Brian Masse, NDP, Windsor West, ON]

Thank you.

Mr. Chair, I know I was over last time, so thank you for that.

[The Chair, Liberal, Joël Lightbound]

You were over again this time, but that's fine.

Thank you, Mr. Volpe. Thank you, Mr. Masse.

The floor now goes to Mrs. Gray, from the Conservative Party.

[Tracy Gray, Conservative, Kelowna—Lake Country, BC]

Thank you very much and thank you to all of the witnesses for being here today.

My first few questions are for Dr. Wark.

You illustrated the timeline of the purchase of Neo Lithium, which was made public in early October 2021. In your remarks, you mentioned that a protracted period of political transition may have played a role in the acquisition not getting the needed scrutiny. By this, are you referring to the recent snap election? Is that what you're referring to in that comment?

[Dr. Wesley Wark]

I would just say we probably all remember the timeline of the recent election, which had been concluded by the time this transaction was announced and notified to ISED.

The problem was in the post-election period, when a new government was creating a new cabinet, when departments and agencies were responding to transition briefings and focusing on transition briefings and when new or returning cabinet ministers were being provided with mandate letters. That is the political transition period I'm really talking about.

How does that detract from a national security review? Departments and agencies continue to do their work, but perhaps their attention couldn't be fully paid to this issue. Perhaps they couldn't fully get the attention of cabinet ministers who had not yet been appointed. Perhaps their attention was elsewhere. They were rushing through, I think entirely unnecessarily, an initial 45-day period without giving any thought to a second 45-day period.

I should say, to explain the technicalities to the committee if it's not familiar with them, to engage in a second 45-day period under the Investment Canada Act requires an exchange of letters between the public safety minister and the ISED minister. It involves them in a clear briefing and consideration of the file, which, given that we didn't go into a second 45-day period, may never have taken place.

It had some kind of impact. It's difficult to know what. The timing, at the very least, was unfortunate for the kind of extended scrutiny that this takeover required.

[Tracy Gray, Conservative, Kelowna—Lake Country, BC]

Great. Thank you. That's good information. Thank you for clarifying that.

This committee studied the Investment Canada Act and potential changes back in the summer of 2021, and it submitted a report with recommendations to Parliament. One recommendation was:

That the Government of Canada introduce legislation amending the Investment Canada Act to reduce the current valuation threshold for prospective acquisition of control by either state-owned or state-controlled enterprises to zero, so that every transaction triggers a review, including a net benefit test and a national security test.

From a security standpoint, should the federal government have implemented such a recommendation?

[Dr. Wesley Wark]

I would just remind the committee that the net benefit test, which has different thresholds depending on the kinds of transactions we're talking about, is quite separate from the national security review process, although perhaps, in an ideal world, they should be more closely combined, and maybe an economic security strategy would think about that. The fact of the matter is that the national security review, at its various phases, is meant to be conducted no matter what the threshold of the investment, and it was conducted in this case.

As interesting as the suggestion from the committee might have been, I don't think it really applies to the national security review.

[Tracy Gray, Conservative, Kelowna—Lake Country, BC]

Great. Thank you.

Just for clarification, we know that on the Investment Canada Act, the recommendations were brought to Parliament in 2021 but the actual work was done back in 2020.

The government is using language saying that security screening is being done, but no comprehensive review. Can you explain the difference between security screening and a review? Would a screening be sufficient, based on your expertise, Doctor?

[Dr. Wesley Wark]

I would just say, really to try to put the Investment Canada Act process in a nutshell, that there are three phases. There's an initial phase of national security review, which must take place within 45 days of notification of the investment. Following that initial phase, questions, such as whether an investment poses any potential national security risk, can be raised. The language the government officials use is to ask whether this investment could be “injurious to national security”.

After that initial 45-day period, the Investment Canada Act allows for an additional 45-day period, to continue to scrutinize an investment under that same kind of heading of whether it could be “injurious to national security”. What triggers that, under section 25.2, is an exchange of letters between the public safety minister and the ISED minister.

At the end of that potential two-phase process, the ISED minister, in consultation with the public safety minister, needs to decide whether to go to a full national security review, which can provide the agencies with much greater time to scrutinize an investment and ultimately come up with a determination of whether an investment would be injurious to national security.

I hope that is helpful. There is a could-be-injurious phase and there is a would-be-injurious phase, which is ultimately determined through a formal national security review.

[The Chair, Liberal, Joël Lightbound]

Thank you, Mr. Wark. Thank you, Madam Gray. That's all the time we have.

I'll turn to Mr. Dong for five minutes.

[Han Dong, Liberal, Don Valley North, ON]

Thank you very much, Chair. I want to thank all of the witnesses for coming today.

My first question is for Mr. Volpe.

Listening to your testimony, I'm a little surprised to find that currently in Canada we don't have any auto manufacturers that are producing EV batteries. You said it's going to take another 18 to 36 months.

[Flavio Volpe]

That's right. It's also about the demand to date. Regardless of our ambitions, the market demand is about 3%, and those production decisions are made by Japanese and American companies that make vehicles here in Canada.

[Han Dong, Liberal, Don Valley North, ON]

What kinds of recommendations can this committee give to the government so we can ensure that the industry is leading in some specific technology or is ready to take a significant share of the market?

[Flavio Volpe]

We have an enviable volume of critical minerals in the ground here in Canada. We have upstream companies that could do the battery assembly, such as Martinrea, which has done a joint venture with a company called NanoXplore to form a battery company, VoltaXplore, in Quebec. They need processing help.

We need to address directly the Canadian mining industry. Who owns the mines? Who owns the resources here for extraction? What's missing—

[Han Dong, Liberal, Don Valley North, ON]

But we have a lot of resources here, and a lot of—

[Flavio Volpe]

We have a lot of resources here. We don't have the capital—

[Han Dong, Liberal, Don Valley North, ON]

Okay.

[Flavio Volpe]

—currently deployed to take those resources, process them and turn them into cells. We're currently working with governments at both levels, in Quebec and Ontario, on deploying that capital or developing that capital strategy to get there.

[Han Dong, Liberal, Don Valley North, ON]

Thank you.

Mr. Tsafos, we have experts in the lithium market who suggest that the lithium supply for the North American market will trend toward North American mines and plants. What are the security and supply chain benefits for North American sources over a dependency on foreign sources?

[Nikos Tsafos]

As a student of energy security, I would say that we've learned over many years that local supply chains and local production have certain advantages over international supply chains. There are fewer linkages. There is less exposure to effects that may happen far, far away. However, to be intellectually honest, I would say that concentration in one place at home is also a risky thing. Really, resilience is the objective; it's not just domestic supply. If you produced everything at home but it all came from one part of the country that could be subject to something happening, then you'd be out of production.

There's a benefit to domestic production. You control it. You know what's happening. You have rules and regulations. You have oversight. You have tools to incentivize more supply. All these things are great benefits, but the solution, as we've learned from history, is really diversification, resilience and redundancy. If you have that, domestic supply is an added benefit, I think, but it's not a cure-all.

[Han Dong, Liberal, Don Valley North, ON]

Thank you.

Chair, how much time do I have left?

[The Chair, Liberal, Joël Lightbound]

You have a minute and a half.

[Han Dong, Liberal, Don Valley North, ON]

That's great.

Professor Kucharski, with the minerals for electric batteries being so critical, should we stop, as you said, all transactions or most transactions, regardless of the types of mineral deposits and the roles in critical Canadian supply chain and the nature of Canadian business and the actual location of the mining deposits? Should we stop all transactions?

[Dr. Jeffrey B. Kucharski]

No, I'm not saying at all that we should stop all transactions. I'm saying that I believe a proposed acquisition by a state-owned or state-controlled company should automatically trigger a national security review. I'm not saying anything about what the end result of that review would or should be. I'm just saying that I think we need to review the review process and ensure that state-owned enterprises are given due scrutiny over such transactions.