Evidence of meeting #4 for Industry, Science and Technology in the 44th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was transaction.
A video is available from Parliament.
6:35 p.m.
Liberal
6:35 p.m.
Conservative
Tracy Gray Conservative Kelowna—Lake Country, BC
Thank you, Mr. Chair.
Thank you to the officials for being here today. I'll leave it up to you to decide who would be best to answer my questions today.
When determining whether an enhanced security review of these types of transactions would take place when a corporation is acquired by a state-owned enterprise, are you or your departments instructed by the government to provide analysis of potential intellectual property being transferred?
6:35 p.m.
Simon Kennedy Deputy Minister, Department of Industry
Thank you, Mr. Chair.
I'm Simon Kennedy, the deputy at the Department of Innovation, Science and Economic Development. We administer the process, so I can field some of the questions.
Yes, absolutely, intellectual property considerations are certainly something that does get looked at pretty carefully, depending on the transaction and the nature of the transaction. Obviously a transfer of IP can be very sensitive. There could be security implications. That is something that is part and parcel of the work we do and our dealings with our colleagues in the security community.
6:35 p.m.
Conservative
Tracy Gray Conservative Kelowna—Lake Country, BC
Thank you.
In these types of transactions, are you or your departments instructed by the federal government to analyze major shareholders of a corporation being acquired with respect to security implications? What would the analysis of those major shareholders look like with regard to potential connections to foreign state-owned enterprises?
6:35 p.m.
Deputy Minister, Department of Industry
Mr. Chair, I would say that when we do these reviews, we are interested in any and all aspects that could pose a potential threat to Canada's national security.
If you look at the threshold in the legislation for going to the Governor in Council-mandated step, it is that something could pose a risk to national security. It's not “would”; it's “could”. We're interested in anything that could pose a potential risk, and that could include individuals associated with an organization or issues around corporate governance. It's not like there's a short list and anything that's not on the list doesn't get looked at. We're actually interested in any and all possible threats, and if something that looks problematic is detected, we zoom in on it.
6:35 p.m.
Conservative
Tracy Gray Conservative Kelowna—Lake Country, BC
That's great. Thank you very much.
In the acquisition of companies by state-owned enterprises, have your departments been instructed by the federal government to provide analysis on potential effects to the critical mineral supply chains of Canada that might be affected as part of this deal?
6:35 p.m.
Deputy Minister, Department of Industry
What I would say, just briefly, if I could, is that critical minerals are one of the areas that we look at very carefully, for all the reasons the minister has already enumerated, such as their importance and so on.
In addition, as is laid out in the guidelines that accompany the act, we also take special care when state-owned enterprises are involved. Whether a state-owned enterprise is involved with a critical mineral asset or whether they're involved in something completely different, that's also an area we look at, and the guidelines lay out the reasons why that's the case.
For example, there are some state-owned enterprises that can act in ways that are not economic, and if they were operating a business in Canada in ways that were not really market-driven, it might be distortionary. It might not be efficient and it might cause all kinds of problems. That would be one example, but we certainly look at both the SOE dimension of investments and the critical minerals dimension.
6:40 p.m.
Conservative
Tracy Gray Conservative Kelowna—Lake Country, BC
Great. Thank you.
Would you say that some of the enhanced measures have made a difference? How would that analysis be different?
6:40 p.m.
Deputy Minister, Department of Industry
I would certainly say there's a variety of ways it has made a difference. I can enumerate a couple of them quickly; I don't want to take too much time. Certainly there is a professional bar. There are law firms and advisers who advise potential investors looking to buy Canadian companies, and the fact that we have these policies around enhanced review and that we've published them means that, when investors come, they know they can expect to get a deeper analysis. That would be one example.
Another would be that it gives us some guidance on areas where we want to drill down and maybe put additional attention in a review.
The last would be—which the minister noted and which will be in our annual report coming out soon—the sheer tempo in terms of the number of national security reviews that have been done. The number of blocks has certainly risen quite dramatically in the last couple of years relative to the historical baseline. There's just more activity going on, in terms of deeper and more frequent reviews in this space, than there might have been in the past.
6:40 p.m.
Conservative
Tracy Gray Conservative Kelowna—Lake Country, BC
Thank you for that.
Do you have certain metrics or a rubric that you're using?
6:40 p.m.
Liberal
The Chair Liberal Joël Lightbound
Mrs. Gray, I'm sorry, but you have only five seconds left. We'll have to move on to our next questioner.
Mr. Fillmore, go ahead for five minutes.
6:40 p.m.
Liberal
Andy Fillmore Liberal Halifax, NS
Thank you, Chair.
Thank you very much to the officials who are here. Thank you for your hard work and your service. I know that every member of this committee is very grateful to you for your work.
I'll start by directing this question to Mr. Kennedy, but if any of the other panellists hear something they would like to respond to, I encourage them to follow up. I would appreciate it very much.
We heard in testimony at yesterday's committee meeting that acquiring raw materials from overseas isn't really the issue, but rather the issue is that China dominates the market for processing the minerals, the materials, and for the production of batteries. I wonder if you could talk to us a little bit about how Canada is developing its own processing and manufacturing capacity. Let's bring it back to the auto industry for a moment. Why is that important to our domestic auto industry?
6:40 p.m.
Deputy Minister, Department of Industry
I could speak briefly and then maybe turn to Mr. Labonté from NRCan, whose ministry is doing a lot of work in this space.
I can certainly say, as the deputy minister at ISED, that we have extensive work under way, including with our colleagues at Natural Resources Canada, on the mines to mobility strategy. There is frankly a full-court press to try to support the Canadian industry in shifting towards battery electric vehicle production. Part and parcel of that is to work to bring the battery supply chain and all of the various components to Canada. We're in active discussions with mining companies, cathode active material manufacturers, battery assembly players and parties who are interested in building gigafactories in Canada to support the assembly operations that are here. There's a very extensive package of work going on right now to build out the Canadian mining, processing and battery production supply chain.
I can turn to Mr. Labonté. He may wish to add some expert advice from NRCan.
6:40 p.m.
Jeff Labonté Assistant Deputy Minister, Lands and Minerals Sector, Department of Natural Resources
Thank you very much.
It's a good question around the processing. When we look at the minerals that come out of the ground and from source, obviously they're not in a form that can be used for things like battery manufacturing or the production of silicon panels, or anything of that nature. We do have a fairly sophisticated processing capacity in Canada. There are 27 different mineral-processing facilities across the country.
One of the issues is of course supply and demand. For example, there are no large-scale battery cell manufacturing companies in Canada yet. The demand for the processed materials that go into them is following where that demand exists, and that demand today is in China and growing everywhere. As Deputy Kennedy said, Canada is growing its importance in bringing in partners and bringing in companies such that those two things will fit together.
The other issue is that processing minerals is very unique in many different ways, and there is of course research and development. In the last budget of 2021, there was about $50 million allocated to NRCan to upscale and do more research and to support research on the processing side to get ahead and continue to develop the ability for Canada to be in a position to continue to develop its processing capabilities.
6:45 p.m.
Liberal
Andy Fillmore Liberal Halifax, NS
Okay. Thank you.
Let's stick with the batteries themselves and battery production for a moment here. It strikes me that for a country as large as Canada, longer-range, more energy-dense and more lightweight batteries are going to be needed to help us transition away from fossil fuels.
I wonder if you could talk a bit about how Canada's critical mineral supply is going to help us achieve that, and how the government is going to help Canada's mineral supply achieve that. As a planner, I'll just say that I would love to hear if there are any connections you'd care to draw between those energy-dense batteries and electrified public transit or electrified active transportation.
6:45 p.m.
Deputy Minister, Department of Industry
Mr. Chair, I would say that certainly in our discussions with both the automotive OEMs and the battery supply chain players it's quite clear that quality energy density, the ability of the battery to actually supply that level of power, is a critical consideration.
Perhaps Mr. Labonté could speak with a bit more authority on some of the details around lithium and the different kinds of minerals that go into the battery production, but our experience in talking to the companies is that they're looking to build a higher-end supply chain here for the auto industry.
6:45 p.m.
Liberal
The Chair Liberal Joël Lightbound
Time is unfortunately up. You may have an opportunity to continue your answer later on.
Mr. Lemire, you have two and a half minutes.
6:45 p.m.
Bloc
Sébastien Lemire Bloc Abitibi—Témiscamingue, QC
Thank you, Mr. Chair.
I think Mr. Kennedy will be able to answer my question, but anyone else who wants to answer it can go ahead.
Minister Champagne said that, in March 2021, he reviewed the Investment Canada Act review process guidelines and that he added an additional process.
Do those guidelines and that additional process enable you to assure us that the Chinese company involved in this transaction has not managed to get its hands on expertise and intellectual property?
6:45 p.m.
Deputy Minister, Department of Industry
I can assure you that we definitely conduct a more stringent review when the business in question is involved in an industry like this one. If we conclude that there is no problem or threat, we do not ask cabinet to undertake a broader review.
In this case, officials and experts from various departments concluded that there was no problem. That is why the transaction was permitted.
6:45 p.m.
Bloc
Sébastien Lemire Bloc Abitibi—Témiscamingue, QC
You talked about a more thorough analysis. If the acquiring company is from China or is a state-owned enterprise, does that trigger a more thorough analysis process or does it not change anything?
6:45 p.m.
Deputy Minister, Department of Industry
When it comes to state-owned enterprises—be they Chinese, Russian, Middle Eastern, or other—that is an important factor in our review.
In fact, some state-owned enterprises have more commercial goals. We know that the trend is reversed in certain countries, meaning that the companies are a tool used by the state to advance its objectives. That is certainly part of our review. If a government agency is involved, that is an indication for us to carry out a more thorough review.
6:45 p.m.
Bloc
Sébastien Lemire Bloc Abitibi—Témiscamingue, QC
Did the minister try to determine whether there were transactions involving the buying and selling of shares, stock option obligations and the exercise of those options by insiders? Was information requested about the consequences of this transaction?
6:45 p.m.
Deputy Minister, Department of Industry
As I told your colleague earlier, we examine any facts that lead us to believe there may be an issue in terms of national security.
I cannot give you specific details related to your question, but I can say that we definitely examine anything indicative of a problem. That includes shareholder situations, for example.
6:45 p.m.
Liberal
The Chair Liberal Joël Lightbound
Thank you Mr. Kennedy and Mr. Lemire.
Mr. Masse, you have two and a half minutes.
6:45 p.m.
NDP
Brian Masse NDP Windsor West, ON
Thank you, Mr. Chair.
Thank you to our guests for being here tonight.
With regard to the current departments that are consulted, is there a mandate to go through every single department and check in on that? For example, I'm also on the international trade committee, and we'll be looking at how Canada is looking at other trade options in Asia, partly to create less dependency on China. Are those types of discussions and analyses taking place with regard to what could be at stake?