Industry Committee on May 1st, 2023

[The Chair, Liberal, Joël Lightbound]

Thank you very much.

Mr. Baker.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

Thank you, Mr. Chair, and thank you to all the witnesses for being with us today. It's a fascinating discussion, and I have a lot of questions.

I'm going to focus my questions on you, Mr. Balsillie.

You've spoken a lot about exfiltration. First of all, I want to take this opportunity to say that over the course of years, I would say you've tried to exfiltrate an NHL hockey team from the U.S. to Canada, if I'm not mistaken. I know you haven't had success with that yet. I'd like you to know that I'm fully in support of that, regardless of the business case behind it. I hope you keep that up.

You've spoken quite a number of times during your discussion about the need to bring in expertise to help ensure that we have the expertise to inform government decisions in the areas we've been discussing.

There a couple of points that I want to make.

First of all, my understanding is that some of the things that we have spoken about—not necessarily you, but some of the other folks on the panel—like research security or IP protections, are covered in many cases under other regulations or other legislation. There was just a discussion about the protection of children and privacy laws. We've had a bill introduced in January on that matter.

What I'm trying to do is highlight that this bill isn't meant to solve all the problems that have been discussed today, but it's meant to solve some of them. Some of the other problems are being tackled to some degree or another in other bills.

I want to come back to your point about expertise, because you've repeated it several times. I hear you. You've talked about the different components of the value chain and how easy it is—especially in the digital space or in AI—for the value to leak, or exfiltrate, as you said.

One thing I want to ask you is this. If the minister had the expertise that you believe he needs to have at his disposal—whatever that is—do you believe this bill would allow us to achieve the goal of preventing that exfiltration that you've been talking about?

[Jim Balsillie]

It would take us a long way there.

It's most important to understand that the world changed about 30 years ago. We liberalized the tangible production economy, and Canada stopped there. We took on neoliberalism all the way. The intangible economy works opposite. It's a very hands-on world with expertise.

We disassembled our economic council in this era, when the rest of the world was doubling down on their equivalent economic councils. We've lost a capacity gap. We didn't have it there.

To be very specific, yes, we need this expertise in the industry, but we need it cutting across all ministries, because every one of these issues touches multiple ministers at the same time.

If you want to make Industry the super ministry on top of all others, that's fine—reorganize government. Or, you may want to make this a core competency that you feed into the cabinet and into the civil service. That's an organizational thing, which I've had considerable engagement in.

I think we just go back and restart a bit what we had before, akin to what I've seen in other nations, which is some deep level of expertise to advise into these kinds of realms. It's been absent. It's so needed.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

I appreciate that.

I used to be a management consultant with BCG, and we used to spend a lot of time looking at various countries around the world and how they manage some of their sensitive industries, at least for economic value. I heard your point about the 10¢ and the $1—that point that you made earlier—and battery technology, etc.

That expertise that you're talking about—whether it's within one ministry or across ministries, however we would structure that—is that something you would see legislating in this bill? Is that a change to this bill or is that a suggestion to government to act on to make sure that, when this bill is passed in whatever form it is passed in, we have the expertise to be able to effectively enforce what's in this bill?

[Jim Balsillie]

I think you need both. The expertise is a needed piece, but I think you need to pair it with the kind of agency that would look at this and feed into any kinds of decisions.

It has to be pulled out and dealt with as its own being, and you need to have expert analysis for all of these crosscutting files. I've mentioned many of them before. The intangibles economy works on legal frameworks, and it's a hands-on economy as opposed to a neo-liberal, hands-off, tangible production economy, so it's a completely different tool kit. I think we have to build the capacity broadly, narrowly and specifically, and we have to create the kind of legislative and agency powers to deal with this.

Yes, if you build this capacity so that wherever this resides in the government, it has to reference it, that's a step forward. If you expand the scope of this to deal with the broader kinds of places that I've mentioned, including having the reverse ability of partnerships, that's great, too, but I've seen so many things like ISED's financing Huawei through granting agencies. People adored Sidewalk Toronto. They let the Tesla battery technology go. Money goes to Invest in Canada to say, “Come take our best stuff,” so this whole system makes me very, very nervous. We have to break with the past.

Whether it's within ISED or outside of ISED, that's an important question, but I've seen the quality of Bill C-27, and it's so foundationally flawed that it doesn't give me confidence.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

I think my time is up. I appreciate your time, and I wish you luck with that exfiltration project I was talking about earlier.

[The Chair, Liberal, Joël Lightbound]

Thank you very much, Mr. Baker.

Mr. Lemire, the floor is yours.

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

Thank you, Mr. Chair.

Mr. Balsillie, one last time, I'd like to address with you the issue of inadequate intellectual property protection and Canada's longstanding issues with innovation that can drive technology champions to leave the country or to set up shop abroad. Bill C‑34, An Act to amend the Investment Canada Act, doesn't address the threshold issue.

Do you think it's a mistake to not have minimum acquisition thresholds? What impact does that have on marketing in Canada?

[Jim Balsillie]

I do not think, when something is strategic, that thresholds are the appropriate lens, because everything is dual use, so it's arbitrary.

Something could be $10 million but extraordinarily strategic for its negative consequences on our security of data or our positive security on a critical piece of creating a vaccine, so I do not think a value.... I think you have to go at your strategic technologies comprehensively. I think you have to have expertise to assess these spillovers comprehensively. I think you have to have the ability to unwind things.

I think we can learn a lot from CFIUS. I think we can learn a lot from what the Australians have done. I think we can learn a lot on the expert research capacities, akin to an economic council, as others have done. Then, on how we implement it in the Canadian framework, whether it's through the Investment Canada Act or through a reconfigured agency, the stakes have become much, much higher in this realm and much, much more complex than they used to be.

The simple spillover structures of the past, the C.D. Howe branch plant stuff that served us so well, doesn't serve us the same way anymore. Sometimes a branch plant is positive, and sometimes it's negative, so we have to build the right tools for the state that's at hand. I think what's so critical here is that this realm has crossed over to security much more than it used to. It's also crossed over to social much more than it used to, whether it's weaponizing misinformation, undermining the mental health of our children or polarizing vulnerable communities. We're not governing for this now.

Where does this get looked after in Canada? That's why you're hearing a fair bit of resonance here on the nature of the problem. There are many ways you can approach addressing it, but you have to acknowledge the problem and ask if our approach is sufficient to do that. It could be done within a ministry, or it could be done in different ways—I'm not absolute on it—but I don't see this current approach addressing the problem we have before us.

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

Thank you very much.

Mr. Ciuriak, I believe you'd like to react to what was said. Would you like to comment briefly on the issue?

[Dan Ciuriak]

First of all, in terms of the overall framework, I've mentioned that there is the issue of the incompleteness. We have the basis for starting to develop that framework.

I would note, for example, areas where other countries have kicked out applications because they are inconsistent with their national security concerns. China kicked out Google, for example. If a company is here making money and is actually shaping your culture, we have an area of regulation that deals with culture, but there is a gap. That's one thing.

In terms of the overall business model and in terms of dealing with the regulation, I would point you to the highly detailed operational guidelines that exist in the trade realm. The Canada Border Services Agency and the Canadian International Trade Tribunal have extraordinarily detailed guidelines on how to administer those acts. We are nowhere near having started the development of similar guidelines to deal with data. I would be happy if we had a 200-page-thick document that cited examples of how we dealt with that issue, this issue or whatever issue in order to provide guidance to our civil servants in implementing a data regulatory framework.

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

Thank you very much.

[The Chair, Liberal, Joël Lightbound]

Thank you.

Go ahead, Mr. Masse.

[Brian Masse, NDP, Windsor West, ON]

Thanks, Mr. Chair.

Mr. Balsillie, you mentioned supply chains and their importance. I'll give an example. I know that we're focusing right now on China and other things, but even with the Inflation Reduction Act, in my neck of the woods we've already seen some tool and die mould manufacturers, Canadian companies, having to offshore some work to take advantage of making quota laws in the United States.

If we lose some of these supply chains, it's going to have inner rot. Even though we're looking at China here, what are your thoughts on that issue? I know it's a bit separate, but to me it's like a more mature discussion about the Investment Canada Act. We can't just assume that the U.S. is our friend on these things. I've been enough times...as vice-chair of the Canada-U.S. parliamentary association, with softwood lumber and everything else.

What I'm worried about now is Canadian companies getting hollowed out from within because they have to offshore some contracts to the United States to actually be capable of selling their products into the United States in general.

[Jim Balsillie]

I think the U.S. is mercantilist in its trade policies. I know several companies that have had to move to the United States from Canada because they cannot access the programs they want. Also, the U.S. has become mercantilist in its tax policy for IP, creating patent boxes. Companies are saying maybe they'll just move their IP from Canada to the U.S., because it's half the tax rate or something like that. A board has to look at that.

Yes, this has become a mercantilist world, and we have to assess, but if you have a product where you control a piece of value chain, and it's hard to move it if you own something that cannot be replicated, then you have leverage in the game. We have to start thinking much more strategically about that, or look at places where we can defend. Some of them we can't.

It's a much more dangerous world. I don't believe in this frame of “friendshoring”. It sounds nice, but it's reshoring in the U.S. and we're trying to pretend it's friendshoring. There are no friends in value chains.

[Brian Masse, NDP, Windsor West, ON]

It's even worse that that. I'm running out of time, but I'll give you and the committee a quick example.

Windsor Salt was bought by an American hedge fund. Our own natural resources right now are locked out through a strike, because their union buster, Canyon Industries, has also bought an Alberta firm and closed it down. It has also monopolized the salt market in the United States. It's a serious issue.

Thank you, Mr. Chair.

[The Chair, Liberal, Joël Lightbound]

Thank you, Mr. Masse.

We'll conclude this discussion the way we started it, with Mr. Perkins for five minutes.

[Rick Perkins, Conservative, South Shore—St. Margarets, NS]

Thank you, Mr. Chair. I'll try to keep this short.

Dr. Burton, Bill C-34 does not propose any change to the definition of “state-owned enterprise” in the Investment Canada Act. Should that be tightened up or expanded or improved?

[Dr. Charles Burton]

The Investment Canada Act refers to “acting under the influence, directly or indirectly, of such a government or agency”. I feel that covers what I'm talking about.

You yourself referred to a firm as partly state-owned. None of those firms that are associated with China are outside the Chinese regime. There has to be a recognition that when you're dealing with countries that have that particular system, which is utterly incompatible with our own in terms of a civil space and a state space and a societal space, they all should be considered state-owned. Maybe we should change the definition to—

[Rick Perkins, Conservative, South Shore—St. Margarets, NS]

Even the 11 subsidiaries of Glencore that operate in China as investment vehicles into Africa...?

[Dr. Charles Burton]

I'd be concerned about that. I think I'd be concerned about anything that touches on the Chinese regime. In general, we just need to be more aware of national security implications for all sorts of things. Children are not aware of and don't have any concern for national security with regard to TikTok, but maybe Mr. Balsillie has some good thoughts on that. Universities want to do the dissemination and creation of knowledge, and they don't regard national security as within their mandate.

This has to change. It's an awareness question. When you talk about changing the language, yes, I think, change the language, but what we really need to do is what Jim has been saying, which is change the awareness of the seriousness of these matters and address them accordingly.

[Rick Perkins, Conservative, South Shore—St. Margarets, NS]

That's a good segue.

Mr. Balsillie, one thing the bill does not do is it does not propose automatic reviews of acquisitions of company assets, plants, mines, land, IP or data by a company that is owned by a state-owned enterprise.

Should that be put in the bill as a restriction?

[Jim Balsillie]

Yes, everything should.... You have to think of these things much more strategically. I also said that the counter-party may not be a dangerous counter-party, but what's being exfiltrated is strategic to the country.

We could lose control of a vaccine ingredient to a friendly country, but if we lose our sovereignty.... The security lens is not just the adversarialness of the other party, although that's a material aspect. The security lens is broader than that, which is what I've been saying and I think others have been trying to say.

[Rick Perkins, Conservative, South Shore—St. Margarets, NS]

The Investment Canada Act, though, doesn't contemplate review of any portion of an asset, only companies—

[Jim Balsillie]

That's correct, yes.