Industry Committee on May 3rd, 2023

[Dr. Patrick Leblond]

I think we should. Obviously, there is the Competition Bureau, which is the agency responsible for these things.

However, if we're looking at foreign acquisition, competition should be part of the analysis. Certainly, it is in some sectors, such as the financial sector. If we had a major international bank or other investors, that would be one of the concerns we might have. In some cases, it might lead to more competition. In others, it might not.

If the idea is to attract investments but also to stimulate more competition to ultimately create more investments—not just foreign ones but Canadian ones—I think it's one of the considerations.

As I said, I don't know what the process is. I don't know when there is an investment where, on the one side, you have the investment Canada team looking at and reviewing a transaction and, on the other, you have the Competition Bureau. Do they talk to each other? Do they exchange information? I have no idea.

[Ryan Williams, Conservative, Bay of Quinte, ON]

I want to get into the other thing you were talking about earlier, which was the critical technology list that CFIUS has. Maybe I'll ask this of some of the other witnesses here.

In Canada, we seem to have an investment review division that's part of ISED. What CFIUS says is that it's multi-agency. I think Mr. Masse mentioned about 15 different agencies. They're on their own.

I agree that we shouldn't have a list that's embedded or baked into legislation, because it can take 15 years sometimes to undo that, but is the investment review division sufficient? To any of the witnesses, instead of being baked into just ISED, should it be across many agencies?

I'll start with Mr. Leblond.

[Dr. Patrick Leblond]

Thank you for your question.

I think so. The fact is that now we're not just talking about buying stuff. We're talking about buying, sometimes, very sophisticated technology—

[Ryan Williams, Conservative, Bay of Quinte, ON]

To interrupt, I think the term you have not said once but are alluding to is “intellectual property”. You've talked about data stuff, but the thing we've studied in other committees and talked about here is commercializing IP or protecting IP.

We're looking at the ICA. Would you agree it's IP that we're evidently trying to protect for Canada?

[Dr. Patrick Leblond]

In a way, I'm using the terms that are set in the bill. Obviously, “intellectual property” covers a lot of ground.

Ultimately, what matters is that.... Again, if we're talking about national security, it should involve the investment review people, but they should certainly talk to the people at CSIS. Maybe they should talk to the people at Global Affairs Canada, who might have certain knowledge about a company or where it comes from and about the investors themselves.

Where is that expertise, whether it's in terms of the technology or the person acquiring it?

To me, it should be much more of a whole-of-government approach, since national security is a whole-of-government issue, even on the net benefit, which, to me, is separate from the national security one. More and more it seems that, as I just mentioned, co-operating with the Competition Bureau would be a good idea.

[Ryan Williams, Conservative, Bay of Quinte, ON]

I think you have some good ideas.

I want to go to Dr. Lee and Mr. Bruce on this too. One of the big ones we have is FINTRAC. FINTRAC is an organization. Again, sometimes they work...but they are different legal entities. They work separately.

Dr. Lee and Mr. Bruce, can you answer that from your perspective as well? Answer really quickly, if you can.

[Dr. Ian Lee]

I'll be very quick.

I have to respectfully disagree with Dr. Leblond. I agree on the national security side—I'm not going to go there—but when I hear that you want to start looking now at the protection of Canadian IP and at the competitiveness, however you're going to measure that in industries that are very dynamic....

I want to give a quick “for instance”. Last November, I had never really heard of ChatGPT, and now I've decided, after a two-hour seminar I watched two days ago by Dr. Tony Bailetti in his technology innovation program, that I'm going to spend the entire summer getting up to speed to embed it in my course. This is in the space of four months. This is how quickly things are moving.

However, the language of various members of the committee suggests that in the commercial sphere—and I'm not talking about the Chinese or threats to national security—we can somehow fix it. We'll say, “Okay, Rona, you're going to do all these things for the next five years,” which implicitly suggests that there's no change in the markets.

The markets are just far too dynamic. I don't think you can go down that road.

[Malcolm Bruce]

I tend to agree.

I think, for national security, the answer is yes. In everything else.... The reality is that 90% of all our businesses are small and medium-size enterprises, and they're ripe for the taking. M and A is occurring regularly among our technologies and other things. This is just the reality of the way our ecosystem and the world ecosystem are working right now.

What we need to do is focus on the outcomes we want to create, and then make sure this legislation is creating outcomes that will help us achieve them. Thank you.

[Ryan Williams, Conservative, Bay of Quinte, ON]

Thank you.

I'll focus on one last subject I want to talk about, which is looking at China itself.

Obviously, we've had testimony. I'm sure it isn't any surprise that any company—it doesn't matter who it is—operating within China is a state-owned industry. Somehow, in some way, those companies are all embedded with the state itself.

Mr. Leblond, would you support that, for any company that's state-owned, we do an automatic review?

[Dr. Patrick Leblond]

Right now, certainly, for a lot of transactions, my understanding is that it is automatic. I think, again, it depends on what the nature of the acquisition is.

For instance, a state-owned company that buys a mine.... It's in the ground. You can't easily move it outside Canada. Now, if there is a fear this Chinese company—state-owned or not—would take what's in the ground and move it abroad for its own purpose, with no benefit to Canada, then again, to me, in this case, it's not so much the type of ownership; it's what the risks are. Commitments could be required or regulations could be done. Again, we have to look at what the risks we're talking about are. In some cases, ownership doesn't matter—whether it's state-owned or not.

Should we just talk about China? I'm not sure. I think one has to look at the governments, obviously, in various countries. We might have worries that they can gain access that could ultimately threaten Canada's national security. That could be part of the economy.

We talk a lot about China, access to data and all these things, but we never question the fact that, in the United States, the government also has access, through the Patriot Act and other things, to a lot of data and companies. Because the U.S. is obviously an ally, we don't worry about that. However, the same kind of access the U.S. government has.... A lot of governments, even in democracies, have the same thing. Now, should we be concerned about that? In some cases, we have been. We have said, “No, we can't allow this kind of data to go to the U.S. because it has actually hurt Canadians.”

Just saying, “Everything Chinese is bad” or “Everything this is bad”.... I think we have to look at what the risks are. Is the Chinese acquisition of a piece of land a problem? If so, why is it a problem? That land cannot be easily moved. There are other things, such as IP, that can be easily moved. What would it mean if it were moved from the Canadian economy? Mining is another thing—critical minerals. Yes, if they are moved and serve only Chinese companies, that could be a problem.

Again, it's not so much about the ownership. It might be more about what.... A Canadian company could also sell everything to China, because China would pay more for critical minerals. Maybe we need a separate approach focused on a percentage of what comes out of the ground, so that some stays in Canada or goes to the U.S., for instance, for our consumption. The rest, you can sell to whomever you want at whatever price you want.

I'm just saying it's not always a question of ownership creating the risk.

[Ryan Williams, Conservative, Bay of Quinte, ON]

Thank you, sir.

[The Chair, Liberal, Joël Lightbound]

Thank you.

Mr. Gaheer, the floor is yours.

[Iqwinder Gaheer, Liberal, Mississauga—Malton, ON]

Thank you, Mr. Chair.

Thank you to the witnesses for appearing before the committee.

I'd like to ask questions of Mr. Bruce and Dr. Lee about the provisions in the act itself.

In the act, we know there's an amendment to create a new filing requirement prior to the implementation of investments in prescribed business sectors. Some colleagues, I think, would rather the act require pre-implementation filing for all investments and not just for key sectors.

My personal view is that requiring the investments to undergo this filing for all sectors would create more red tape for investors. However, the targeted pre-implementation filing measure would achieve the objective of protecting national security while also limiting the economic harm.

I want to get your views on that.

[Malcolm Bruce]

I'm happy to start.

The problem is that I don't know what those pre-filing conditions will be, because they have not been outlined in regulation yet. It's really hard to make a qualified answer to the conditions.

To follow on Mr. Lee's point, anything we do that's going to add to the regulatory burden of companies' trying to invest here will be a disincentive, not an incentive, to people.

Again, I can't give you a better answer than that because I don't know what those pre-filing conditions are going to be.

[Iqwinder Gaheer, Liberal, Mississauga—Malton, ON]

Would you at least agree that it should be for key sectors and not for all transactions that go through?

[Malcolm Bruce]

Less is more in this particular case, yes.

[Dr. Ian Lee]

I'll respond to the question you just asked very quickly.

I'm very skeptical, and I've talked before and certainly in my classes for a long time of this idea of strategic industries. Michael Porter has written about this, and I think he's criticized it quite extensively, as have other economists. Dr. Leblond would be very familiar with this.

It's really just to disguise picking winners and losers. If we're worried about certain companies—or certain ownership, as Dr. Leblond put it—fine, we can develop regulations in that respect. Just saying a blanket industry is strategic seems to me to be bordering on tipping over into protectionism, which is going to harm the Canadian economy.

[Iqwinder Gaheer, Liberal, Mississauga—Malton, ON]

My question is again for Mr. Bruce.

We know that companies often hold significant value in IP, intangible assets. The interim conditions that are proposed in Bill C-34 would block access to those assets in order to address the risk of national security injury that could arise during the course of the review of that investment, thereby reducing the threat to national security, while Canadian businesses can continue to operate with minimal impact and continue to review.

Can you talk a little more to the committee about the benefit of having these interim conditions and what sort of interim conditions you'd like to see?

[Malcolm Bruce]

Again, having been in the business of doing business with folks who want to invest in this country, the regulatory environment is a key one. If we are going to lay out conditions that are going to impact, for example, IP, we need to make sure that they're clear and transparent so people understand what those things are going to be when it comes to national security.

The other comment that has been alluded to is the net benefit agreement. The reality is that much of the technology that we're looking at today is going to be able to used for dual purpose. Again, if you're going to be looking at certain sectors and certain technologies, we need to understand. Artificial intelligence, for example, is going to be the defining technology over the next two decades. It's not a vertical. It's a horizontal, which means that it's going to be integrated in virtually every sector in this country, national defence right through to health and life sciences criteria.

How do you protect against the use of that in some other form? I think you're going to have a very challenging set of conditions if you're going to want to list them all. I think you have to look at outcome-based things that are more important to drive what you're looking for in this legislation.

[Iqwinder Gaheer, Liberal, Mississauga—Malton, ON]

We know that Bill C-34 will also amend the ICA to allow Canada to share case-specific information with international counterparts.

Can you talk to the committee about how this step will facilitate international collaboration and information exchange to potentially address areas where there are common national security threats?

[Dr. Ian Lee]

I'll defer to Mr. Bruce on that.

[Malcolm Bruce]

When it comes to an ally, there will be opportunities to speak to them. I think the point has been raised.

Acts like the Patriot Act are a point of interest for many folks who are looking to access the U.S. market. They come to Canada to be able to store their data here but still be able to access the largest market in the world, which is the U.S. They come to Canada because there are advantages to not being in the U.S. jurisdiction because of things like the Patriot Act.

There are going to be times when we can cheer, and there are going to be times when we're not cheering, simply because our own national interests have to take priority over some of our allies, not to mention some of the other folks who are doing it.

I would not do it with China. I would not do it with Thailand or Vietnam, because these types of countries we have agreements with, for their own economic well-being, are the Chinese. Whenever we're dealing with a third party, we need to understand where their linkages are in other parts of the world, because that technology could transfer quite quickly.

[Iqwinder Gaheer, Liberal, Mississauga—Malton, ON]

Great. Thank you.

That's why it will be case by case.

Mr. Chair, that's the end of my questions.

[The Chair, Liberal, Joël Lightbound]

Thank you.

Mr. Lemire, the floor is yours.

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

Thank you, Mr. Chair.

Mr. Leblond, I would like to talk first about acquisitions of foreign Quebec or Canadian entities, but also about the importance of contracts secured by foreign businesses in response to public tenders, particularly in strategic sectors, that may have enormous impacts in terms of national security. I am thinking here of the example of the China Railroad Rolling Stock Corporation. That Chinese business, which was banned in the United States, has been selected as a possible candidate for replacing Toronto's subway cars.

If we want to protect our national security, should the Investment Canada Act not provide measures that would also protect public tenders in strategic sectors?