Industry Committee on Jan. 26th, 2022

[Bernard Généreux, Conservative, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

For Mr. Wark.

[The Chair, Liberal, Joël Lightbound]

Go ahead, Mr. Wark.

[Dr. Wesley Wark]

Thank you, Chair. I'll just answer very briefly.

I'm not an economist, but I think what you've heard from other witnesses today is that Canada, like many other countries, has been slow to think about the value chain involved in critical minerals and the transition to a green economy. We are, hopefully, trying to catch up.

Part of the business of catching up is to create a made-in-Canada capacity to identify critical mineral source locations, to extract minerals, to process them and to feed them into global supply chains, but at the moment we are nowhere near that with regard to lithium, which is regarded by many as a critical mineral. We have other strengths in other more traditional mineral extraction, but we haven't yet headed in the direction of being able to create that made-in-Canada capacity that can feed into a global marketplace to Canada's benefit.

Allowing a junior miner with a significant experimental project in Argentina, I'll call it, to slip into the hands of the Chinese seems to me to be an indication of a legacy policy whereby we have not properly thought about our capacity to build made-in-Canada knowledge and capabilities in the new economy when it comes to critical minerals. That is the direction in which we need to go. Whenever we see a critical minerals strategy being produced by Natural Resources Canada, that should be an important question directed at that strategy. Hopefully it is going to be embedded very strongly in it, but we haven't seen that critical minerals strategy yet.

[Bernard Généreux, Conservative, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

Thank you, Mr. Wark.

Mr. Wark, I would like to ask you another question.

In your presentation, you were very critical of the government, which, in your opinion, should have conducted a much more comprehensive review of the Investment Canada Act.

In your opinion, the government could have evaluated the impact of the acquisition of the Neo Lithium mine by a Chinese company. You seem to be saying that, because of the election, the ball slipped through the government's legs. Canadians did not want an election but we had one anyway.

The news came out on October 12, and the minister was appointed on October 25. The government would therefore have had 45 days to conduct the review, but none was done.

In your opinion, why did the government not take that opportunity to conduct the review?

I'm sorry. I speak really fast.

[Dr. Wesley Wark]

Mr. Généreux, thank you again.

Chair, I'll answer as quickly as I can.

I believe that the political transition period we were in probably had an impact on the kind of attention that we should have been giving, particularly at the political level, to this transaction.

I would also say that one of the reasons I think we need to do more national security reviews, or at least do reviews of sensitive acquisitions using the full 90-day period provided by the Investment Canada Act, is that the acquisition of information and intelligence, the analysis of it, the consulting with allies and coming up with proper judgments is a difficult, complex and time-consuming business. We need to have the resources and the talent to do that business, and we need to give it time.

Really, to be honest, I'm afraid I'm dumbfounded by the fact that the government was so confident about its conclusions within that 45-day period from the original announcement of the acquisition in October through to early December that it felt it didn't even have to do any more. I think we just have to reflect on this acquisition and not rush to judgment on these matters, which clearly involve a strategic issue, sensitivities and Canada's future economic security. We must take our time to do this, and I'm afraid we didn't take the proper time.

I'm not trying to prejudge what a national security review conclusion might have been. I'm just saying we needed to take more time and give this much more serious attention than was done, and the kinds of explanations that have been offered by the government to date I find wholly unsatisfactory and very narrowly focused.

[The Chair, Liberal, Joël Lightbound]

Thank you, Mr. Wark.

Thank you, Mr. Généreux. That is all the time you had.

Mr. Erskine‑Smith, you have the floor now, for five minutes.

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

Thanks, Joël.

I'm sympathetic, Mr. Kucharski, to what you said about state-owned enterprises. Last session the committee unanimously recommended that when a state-owned or state-controlled enterprise was involved, there would be an automatic security review. I'm also sympathetic to this idea of a broader strategy rather than taking it case by case. I'm certainly sympathetic to the idea that we have to be especially cautious in the case of countries that have weaponized trade in the past.

When I get to the nuts and bolts of this one, I just want to be clear on the details.

Mr. Volpe, just so I'm clear on what your testimony was, you said that location matters. You said, “Local, local, local.” Is that correct?

[Flavio Volpe]

That is 100% correct, and let me just expand on this.

We're doing a lot of navel-gazing, I think, on the potential for the use of lithium from Argentina. I practise this every day. I was part of the CUSMA rewrite. We cannot use lithium from Argentina in the production of vehicles in Canada, the U.S. or Mexico and still meet compliance with the CUSMA-USMCA rules of origin. We're talking about a hypothetical use here that in practice would never happen—

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

I appreciate that. I'm sorry, but I have limited time.

Just to build off of that, location matters, and the kind of lithium matters too?

[Flavio Volpe]

Absolutely, the type of lithium matters.

All auto companies and parts suppliers are in the business of who can build the longest-lasting and longest-range battery, so the chemistry is important and the specific recipe by each company is important to listen to. If the companies say they won't use it, they're not going to use it.

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

I appreciate that.

Mr. Wark, it's good to see you again. The last time we engaged with one another, I think we were setting up a national security committee, which, unfortunately, was recently deconstructed.

When we look at this particular transaction, I'm not so sure, based on what Mr. Volpe has said, that it clearly touches our economic security. It depends, really, on what the critical minerals strategy is, I think, and it depends upon location. It depends upon the kind of lithium and it depends upon how we can add value, to Mr. Tsafos's point, into the supply chain, and what role Canada is going to play. It may well be the case—and I do take the point—that there is a need for a broader strategy.

In this particular case, I think your main criticism was that more time should have been taken and we should have been more thoughtful and clearer about the strategy. I guess my question is, what more did we need to know?

We know the kind of lithium and that it's less strategic. We know that location does matter; that is the evidence from Mr. Volpe. We know that it's a publicly traded company, although a major shareholder is a state-controlled enterprise. What more do we need to know to make this decision? If the national security agency has done an enhanced review and is saying there's no need to proceed further, we'll hear more tomorrow or Friday, I think, on that particular question. Help me to ask those questions when we get the officials in. What more should have been asked? What more should we know?

[Dr. Wesley Wark]

Mr. Erskine-Smith, it's nice to have the opportunity to converse again. It's nice to see you.

Chair, I'll just respond very quickly, in part by addressing Mr. Erskine-Smith's suggestion that we knew all we needed to know and that the government made a decision appropriately on not having a national security review.

I think it's a very contested view that lithium carbonate is a less important derivative of lithium than is lithium hydroxide. It's certainly contested in the Neo Lithium corporate documents. It's contested, certainly, in some of the public expert discussions about the future of lithium carbonate and its uses. I would note that the Neo Lithium pilot plant project in Argentina was producing lithium carbonate at what it described as a 99% purity level for use in batteries. Again, I'm not an expert on this aspect, but I think the black-and-white notion the government has advanced that lithium carbonate is of no strategic value, which I think was the suggestion from Mr. Fillmore, is probably incorrect—

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

I appreciate that. It sounds, though, as if you're bleeding into an argument as to why it ought not to have been approved at all as opposed to this idea of more time. I guess what I am trying to get more clear on is why more time was needed.

[Dr. Wesley Wark]

Yes. So—

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

I apologize. I have limited time.

[Dr. Wesley Wark]

Okay.

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

My last question is for Mr. Tsafos in relation to the broader strategy. We're dealing with this one transaction, but this is a much bigger-picture issue of how Canada and the United States work together with allies to have a more “resilient” supply chain. I think that's the language you used.

What is the advice to this committee if we're going to make recommendations to the government about how Canada can work constructively with our allies, including the Americans, to build out more resilient supply chains, keeping in mind the evidence from Mr. Volpe in particular?

[The Chair, Liberal, Joël Lightbound]

I would ask for a brief answer, Mr. Tsafos.

[Nikos Tsafos]

A brief answer on how to solve this problem.... Thank you, Mr. Chair.

Very quickly, I would say that, one, we need I think a better infrastructure of information.

As you know, when something happens in the oil market and the gas market, we've been doing that for a long time and we know what it means. These are new markets for policy-makers and elected officials. It's not as easy to understand what they mean. I think that's one.

Number two, I think we really need to figure out how we put public money forward to support the supply chains that we want and not just put in money at the final product. That is a key part.

The third thing is that I think we need to have a much more honest conversation on exactly what you're talking about, which is, what is the ultimate threshold at which we say no? If we treat every transaction one by one and say that “this is not going to tilt the thing”, “this is not going to tilt the thing” and “this is not going to tilt the thing”, then you wake up one day and find that China has 80% of the market. We need to take a much more coordinated approach to what we want this thing to look like.

[The Chair, Liberal, Joël Lightbound]

Thank you, Mr. Tsafos.

Thank you, Mr. Erksine‑Smith.

Mr. Lemire now has two and a half minutes.

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

Thank you, Mr. Chair.

My question will be going to Mr. Wark.

First, thank you for your testimony. You stated that only 1% of the acquisitions of Canadian companies by foreign companies have undergone a national security review. That figure seems very low to me.

Does it concern you? Do you have doubts about the effectiveness of the national security review process in Canada?

[Dr. Wesley Wark]

Thank you for your question, Mr. Lemire.

Chair, very quickly, I'll say that I think it's widely regarded that a national security review is an important tool that the government has to try to protect Canada's national security, including its economic security. We haven't quite yet come to a definition of what we mean by “economic security”, which I think is important.

As I said in my testimony, because of changes to geopolitics and because of changes to the global economy, I think there should be a much greater willingness going forward to use the full national security review provisions and to use them in a strategic context so that we're not thinking, as Mr. Tsafos says, in terms of that kind of one-by-one basis and suddenly find that a great deal has slipped away.

I would also say that the notion that we do national security review with a purely local, internal focus is simply wrong. Whatever “local, local, local” might mean to the Canadian parts manufacturing industry, I understand. It has very much less significance to the question of Canadian national security, it seems to me, and I think that needs to be taken into account.

Thank you.

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

In terms of the Investment Canada Act, one of the major issues for me is transparency.

In your view, should the government be more transparent and publicly explain its rationale for proceeding or not proceeding with a national security review?

[Dr. Wesley Wark]

Thank you, Mr. Lemire.

I would just say, Chair, absolutely: I think there is a requirement for greater transparency, and really for two purposes, or three purposes, if you like.

One is the general public interest, so that Canadians better understand how the government is using this tool. One is accountability, particularly on the part of Parliament, and we're seeing this in action now. One is the investor community, and frankly, those in the investment community will say that there's been a lot of complaint and confusion about the guidelines and how they're implemented. I think greater transparency around that would help all of those sectors—parliamentary accountability, public knowledge, the investor community—to better understand what's involved. I see no reason why we couldn't come up with an appropriate degree of greater transparency around these decisions that are made.

Thank you.

[The Chair, Liberal, Joël Lightbound]

Thank you, Mr. Wark.

Thank you, Mr. Lemire.

Mr. Masse, you have two and a half minutes.