Evidence of meeting #71 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 bruce.
A recording is available from Parliament.
5:50 p.m.
Liberal
The Chair Liberal Joël Lightbound
Thank you, Ms. Lapointe.
I will now turn the floor over to Mr. Lawrence for five minutes.
5:50 p.m.
Conservative
Philip Lawrence Conservative Northumberland—Peterborough South, ON
Thank you very much.
My questions are with respect to some of the definition issues and the “to come” regulations. I would certainly give the government this much grace: This is not an easy area in which to draft legislation. I think we all have to be aware of that. I would put that at the outset of my comments.
I think there are a number of definitional issues that will cause considerable struggles going forward, and without having the prescribed regulations in front of us, it will make it even more challenging. Some of the ideas that are weakly defined include “business activity” and “material assets”, among others. I have another definitional issue, but maybe I'll start there.
Maybe you can give me some assurance and say, “No, Mr. Lawrence, this is completely clear”, or maybe, if you share any of these issues, you can expand upon them. I'd welcome comments from any or all of the panellists.
5:50 p.m.
Associate Professor, Sprott School of Business, Carleton University, As an Individual
Can I jump in on that very quickly?
Dr. Leblond brought this up earlier and I was really itching to jump in. He brought up something very important that he talked about in his last appearance, and I'm going to use slightly different language to say the same thing.
What he was talking about was the phenomenon of the past 20 to 25 years of the unbundling of the corporation or the unbundling of the value chain. Ronald Coase won a Nobel Prize at the University of Chicago asking why firms exist. He said they're a bundle of value-creating activities. What we've learned, because of the incredible power of IT, is that corporations today in their corporate strategies can bundle, rebundle, unbundle and sell off this asset without shutting down the firm or selling the firm out in an IPO.
As your committee starts to go down that rabbit hole of saying, not only do we want to regulate the corporate entity, which I do understand.... When you start saying, I want to regulate the IP of the entity and maybe this mine of it, you're getting deep into the value chain and the corporate and business strategic decision-making of individual corporations.
First, I don't think that's your role as parliamentarians, and second, even if you decide it's your role, I think you're going to have hell on earth trying to become such a macro-micro regulator. You're getting deep into the corporate and business strategic decisions of what assets they need to maximize value creation. When you start getting down to that, I understand your motives and I understand your intent, but I just think you're talking about very large numbers of companies. They're very complex and they're very sophisticated, and I think you're going to find it devilishly difficult.
5:55 p.m.
Associate Professor, Graduate School of Public and International Affairs, Faculty of Social Sciences, University of Ottawa, As an Individual
Thank you.
My opening remarks and subsequent answers to questions obviously raised the issue of what business activity is in relation to material assets or technical information.
As I mentioned at the outset, focusing on business activity and separating it to some extent from the assets and the technical information I find is problematic in the current bill. This is because, in a way, if the focus to trigger a notification is a business activity and the acquisition of the business activity or an entity, then what happens, as I said, if a foreign investor buys the assets directly or the information?
5:55 p.m.
Conservative
Philip Lawrence Conservative Northumberland—Peterborough South, ON
I'm curious because you did mention that before, and there was a question that came to mind. I'm asking you to state the other side of the argument, which might be difficult for you.
Why do you think they chose the entity level as opposed to the asset level?
5:55 p.m.
Associate Professor, Graduate School of Public and International Affairs, Faculty of Social Sciences, University of Ottawa, As an Individual
I don't know. You would have to ask the drafters.
I think in part this is how the Investment Canada Act is built. It's focused on the entity and the business activity, and not so much on assets—except that now it's no longer just about an investor buying into a company or an enterprise. We're talking in terms of national security. The enterprise itself is not the problem in terms of national security. It's what we do with those assets or what potentially a foreign investor could do with those assets in threatening national security. It's the same thing with technical information.
5:55 p.m.
Conservative
Philip Lawrence Conservative Northumberland—Peterborough South, ON
That's a great segue, actually.
My other definitional issue is with respect to national security. It's easy for a politician to write down those words, but as we've seen just recently with one of our own MPs and his family being threatened, the breadth of national security can be quite wide.
An example is a predatory regime. If they get a lead in AI that could be a national security issue for us going forward. In fact, I would challenge Mr. Bruce.
You said something about working with perhaps the regime in Beijing, and if we give them access to our economy we'll be friends with them. To me that just strikes of naïveté and dangerously so. Should we not be separating, or at least having some discussion in terms of there being a difference there from the United States of America, a democracy that, by and large, lives by the rule of law as opposed to authoritarian, dictatorial regimes?
I would open the floor to Mr. Bruce on that.
5:55 p.m.
Chief Executive Officer, Edmonton Global
Thank you.
First of all, I didn't say “friends”. What I said was, the engagement with China is something we will continue to do unless we sever all ties with them. As I indicated, we had a 17% growth in our bilateral trade with them last year. It's now at $100 billion. We are engaging with China, so the question is this: Do we want to be in the driver's seat, or do we want to be driven by that relationship?
I'm saying to you that we have opportunities to continue engagement—and dialogue is important. People forget you're in the coldest of the cold wars. Thirty per cent of western Europe's energy needs were met by the U.S.S.R. When they were building the wall around Berlin, we were still talking to the U.S.S.R. The fact that people want to completely cut off these countries, I think is naive.
We need to be able to sit down and have conversations where it's appropriate to do so, in our own national interests. Climate change is a good one, health and life sciences. Look at the work we did on COVID-19 around the world. There are things we can work on together where we mutually agree on the outcome, and I think that's what I was talking about.
6 p.m.
Conservative
Philip Lawrence Conservative Northumberland—Peterborough South, ON
Mr. Leblond, maybe I'll throw it back to you.
The definition of national security isn't just about arms that we might be selling to other countries or to military. Do you share at all my concern that defining national security could be incredibly broad? I think Mr. Bruce even brought up land. To a certain extent, if an authoritarian regime is buying large swaths of our farmland, that to me is also a national security concern.
Do you share any of those concerns, or am I all wet on this one?
6 p.m.
Associate Professor, Graduate School of Public and International Affairs, Faculty of Social Sciences, University of Ottawa, As an Individual
No, you're absolutely right. National security can be defined very broadly. Ultimately, national security is whatever the government says it is. We saw that early during the Trump administration, when all of a sudden tariffs were imposed on our steel and aluminum, because of national security. From our point of view, we were no threat to the United States' national security—on the contrary—but in the mind of Donald Trump we were.
Obviously, we can all agree that it was not national security. It was much more about protectionism, but, yes, national security can be invoked for other purposes. Again, with transparency in mind, obviously national security takes many forms. I'm not sure we can define it in a way that says, okay, this is national security; this is not.
Given the example of land, you can say, if a foreign country buys all our agricultural land and decides that it wants to starve us and decides not to exploit those lands, that's a national security issue. Now, if it exploits it and then exports it somewhere else, maybe too much to our liking to China, but then, if the revenues are taxed here and we can buy other stuff, you might say that's not a national security issue.
Your question is correct, and it reflects the challenges. In a way, to me, if there are decisions that are made on national security grounds, they have to be justified somehow, at a minimum, to Parliament, which ultimately is supposed to hold government to account.
6 p.m.
Conservative
6 p.m.
Liberal
The Chair Liberal Joël Lightbound
Thank you very much, Mr. Lawrence.
Colleagues, I've spoken to you off-line, but instead of going to a formal third round, given that it's already six, I propose that we just open the floor to those of you who have questions. Given that Mr. Perkins just told me he has a pile of questions, I'll go to Mr. Lemire first.
6 p.m.
Voices
Oh, oh!
6 p.m.
Bloc
Sébastien Lemire Bloc Abitibi—Témiscamingue, QC
Thank you, Mr. Chair.
I am going to start by doing what Brian Masse did and table a motion, as I undertook to do at the Standing Committee on Canadian Heritage this week. I am going to essentially repeat the following motion here at the committee, which was tabled in the other committee by my Conservative colleague, Rachael Thomas:
That, considering the Auditor General report tabled on Monday, March 27th titled “the Progress on access to high-speed Internet and mobile cellular services lags behind for rural and remote communities and First Nations reserves”, the committee invite Karen Hogan, Auditor General of Canada, to testify before committee as soon as possible for no less than 2 hours.
We agree that given our committee's workload, “as soon as possible” will probably be in the fall. However, I thought it worthwhile for this motion to be included in the committee's discussions, because Liberal Chris Bittle had raised the fact that it was maybe more up to the Standing Committee on Industry and Technology to debate it. In my opinion, it is important for this motion to be included in our discussions at some point, so I am giving notice today, without debating it.
I will now come back to the witnesses and the question of transparency, which is important.
Mr. Lee, foreign investments funds obviously have to be able to continue doing business. However, the global situation can change. For a country, some nations may be allies one minute, but become enemies or non-allies the next. We can agree that the situation with China and Russia has evolved very rapidly over the last five years alone.
Should the way Canada accepts foreign investments change? What options do we have for remaining open to allowing these funds in, but also protecting our national security? Does the current Investment Canada Act protect Canada well, given the growing hegemony of certain countries?
May 3rd, 2023 / 6:05 p.m.
Associate Professor, Sprott School of Business, Carleton University, As an Individual
Thank you, Mr. Lemire. I was glad you asked that question, because I'm obviously a lot older than you are, so I have memories going back to the Cold War.
I'm bringing that up because I'm in this debate group with some friends of mine, and academia out in the business world is debating and saying that the U.S. dollar is in decline as the foreign reserve currency, yet when you look back over the last 100 years, right up to today, I don't see big changes in our allies and our enemies. There was a bloc called the Warsaw Pact, or the U.S.S.R. and its satellites, that worked under its own currency, which was ruble-dominated. They were the “enemies”. There is a bloc emerging today. China is pushing this BRIC-issued currency.
To answer your question, I went and looked up World Bank data. It's very easy to access. I looked up the allies, the OECD countries that are really under the U.S. partnership or umbrella. The GDP of these countries—I'm talking about the OECD, so it's 35 or 36 countries, including France, Germany, Italy and Canada—is about two-thirds, or $65 trillion, of the world GDP of $100 trillion.
The developed countries—and I'm not being ethnocentric, because I've taught in many developing countries—the high-income countries, to use the World Bank classification, are two-thirds of the world. They are growing much more quickly. As The Economist cover story showed just last week, the United States is growing and outperforming everybody. It seems to me that the coalition of partners is very stable, all the way from 1917 and the Russian revolution to today. It's just that China, if you will, has taken the place of the Soviet Union. You have two very clear blocs emerging again.
I don't disagree with Mr. Bruce. I'm not suggesting we should stop dealing with China. I'm saying we can deal with China, to put it simplistically and crudely, with low-technology products, shipping them fish, wheat or barley. I understand the believable and serious concern with much more sophisticated products, for which there are issues of technology that we don't want to transfer.
I think we can look at the world through that prism of two blocs. There's the OECD bloc, the high-income bloc or the U.S.-led bloc—whatever word we want. There's another bloc led by China, but it's much smaller. It's only a third of the world's GDP. By the way, the lion's share of that is China.
If you look at it through that lens, I think you can look at the national security.... I know who the allies of Canada are. They are next door. They are the U.S., Germany, France, Italy, the U.K. and so forth. I don't worry about that, because I have a clear idea.
I'm saying this as somebody who has taught in China for 25 years, year after year. I love going there. There are wonderful people at the student level, but at the same time, it's a very different bloc with very different values and a very different legal system. We have a good sense of who the two camps or the two blocs are and what countries are in each one.
6:05 p.m.
Bloc
Sébastien Lemire Bloc Abitibi—Témiscamingue, QC
It is important to be both rigid, flexible and agile when it comes to the Investment Canada Act. One approach will maybe be to do it by a list of regulations.
This is particularly true in relation to protecting critical and strategic minerals. Do you feel that the present list is complete? Is this the right way to protect our investments in what is obviously the foundation of the 21st century economy?
6:05 p.m.
Associate Professor, Sprott School of Business, Carleton University, As an Individual
If you're asking me, I will be very quick, because I know the other two and I want to hear them.
I'm not worried about protecting critical minerals from the Germans or the Americans. I'm not. I keep saying there are two animals in this bill. There's the national security animal, which is very important. I think that's much more important. You're going in the right direction, it seems to me.
On the net benefit, I think you're going in the wrong direction. You're trying to micromanage companies and foreign investment from reliable partners like the U.S., Switzerland, Germany or France, when we should have a lighter hand and less regulation. That's where the lion's share of foreign direct investment is coming from, and I don't see them as a threat to national security.
People who are far more learned in national security may disagree with me on that.
6:10 p.m.
Bloc
Sébastien Lemire Bloc Abitibi—Témiscamingue, QC
Mr. Chair, before turning the floor over to Mr. Perkins, I will let the other two witnesses give us their opinion on protecting critical and strategic minerals using the Investment Canada Act.
6:10 p.m.
Associate Professor, Graduate School of Public and International Affairs, Faculty of Social Sciences, University of Ottawa, As an Individual
As far as I'm concerned, as I have already said, I wonder whether critical minerals represent a threat to national security. It isn't clear. If we compare a mine owned by Chinese interests to a mine owned by German interests, does it pose a threat to national security? That isn't necessarily the case. A German business might very well decide to sell its entire production to Germany to produce electric vehicles in Germany, while a Chinese business might simply sell its minerals to the highest bidder, and vice versa, of course.
In a case like that, the question that arises is where the risk lies, and what the threat is. Is there really a threat to national security? Maybe not, unless the minerals are used to manufacture military equipment, for example. At that point, we might need to debate it. Again, there is the issue of the identity of the owner. In addition, since the owner always has the option of buying the asset but not operating it, would we have ways of requiring that the owner operate it, for example by telling the owner that it will lose its investment if the asset is not operated?
There may be other avenues to explore that are not limited solely to agreeing or not agreeing to the investment. In some cases, foreign investors are prepared to pay dearly to get our assets. So do we want to deprive ourselves of that? We have to ask ourselves why they want to pay so much, and what economic risks and, potentially, national security risks there are. However, whether the investors are Chinese, German or American is not necessarily going to determine the risk. A more thorough and somewhat more nuanced analysis has to be done.
6:10 p.m.
Bloc
6:10 p.m.
Chief Executive Officer, Edmonton Global
The only thing I would love to add is that supply chains are very integrated on a global scale.
There will be some resiliency and reshoring of certain supply chains around national interests, but think about the iPhone, which many of you hold. It's built primarily by a Taiwanese company called Foxconn. They have a million employees in mainland China. In fact, the phone is being made in China. Tesla's batteries for their vehicles, by and large, are made in mainland China, because they have the capacity to scale and the technology to be able to do that.
I think you have to look at a supply chain issue when it comes to certain outcomes you're looking for and understand where all that integration occurs. Again, I think we need to have a more mature and very methodical look at what these things look like, because we can't prescribe one action that is going to cover all these other bases we have.
I think flexibility and agility in the legislation are going to be key.
6:10 p.m.
Conservative
Rick Perkins Conservative South Shore—St. Margarets, NS
Thank you, Mr. Chair.
Thank you, witnesses.
I think I'd like to take us away from the issue of trade, because this bill is not about trade, and we've had a lot of discussion here about trade. This bill is about when a foreign company buys a Canadian company. The Investment Canada Act, which replaced FIRA in the 1980s, exists to deal with that issue. I'd like to focus my questions and the responses on that issue.
I'll start with Dr. Leblond.
The Investment Canada Act has a formula for when a foreign takeover allows the minister to start a review. Right now, this year, it's at $1.3 billion, so any foreign takeover of a Canadian company—not asset—of more than $1.3 billion then allows ISED Canada and the minister to take a look at it. There is nothing in the Investment Canada Act that compels them to do a national security review or a net benefit review.
How do we know that? In the last few years, we've seen the takeover of Tancomine, a lithium-producing mine in Manitoba, by a large, Chinese, state-owned resources company, and it had no national security review. The minister of the day, Navdeep Bains, decided not to do a national security review. We know that Norsat, which owns Sinclair Technologies—Norsat was a Vancouver telecommunications company and Sinclair was a Toronto-based company—was acquired in 2019 by Hytera, which is a Chinese state-owned company. Again, the minister of the day chose not to do a national security review, so there's nothing in there that requires that.
Earlier you mentioned that you thought it was automatic. It's not. Right now that flexibility applies to a state-owned enterprise that acquires something that's over $415 million. If it's under $415 million.... China is buying a lot of assets in Canada under $400 million. In my part of the world, they're paying five times the price every quarter for at least three to four lobster buyers. I know it seems small, but they're paying $10 million for $2-million businesses. They've bought the supply chain. They've bought the control of the freight-forwarding company that exports all of that lobster out of Nova Scotia. Now, if you're not a Chinese state-owned buyer in Nova Scotia, your lobster has to go to New York or Chicago to fly to Asia, and the Halifax airport live lobster control is now being controlled by the freight forwarder owned by China.
There are supply chain issues here of takeovers, but when you're below $415 million, there's an issue. Even when you are over $415 million, there's no guarantee.
What I'm suggesting is that the state-owned enterprise takeover needs to be automatic. The minister doesn't get the option to choose not to do a national security review, which has happened quite frequently in the last few years.
I'd like your comments on that issue, please.
6:15 p.m.
Associate Professor, Graduate School of Public and International Affairs, Faculty of Social Sciences, University of Ottawa, As an Individual
The example you gave of the lobster could have happened with a non-state-owned enterprise. Ultimately, it's a competition issue. You basically have a company that has bought a bunch of companies and taken control of the supply chain and now somehow is managing a section of it in terms of a monopoly for its own benefit. To me, again, it's not really a question of whether it's ownership or not. This is really behaviour.