Industry Committee on May 15th, 2023

[Subrata Bhattacharjee]

That's a very good question.

When we refer to the situation we have now, we have to cut ourselves a bit of slack. I think the reason the government wanted those technologies and areas to be taken broadly was that we had to look at all of the potential relevance of that to determine whether there was a national security issue.

The problem is that once you put in a system that requires investors to do something in advance, with the risk of sanctions if they fail to comply, you have to spell it out a bit more clearly so that they know what they're responding to, where they might have an issue and where they might need to engage the government. Although I take the point that spelling it out in detail may exclude things, I think, on balance, if you're mandating people to come in before and engage with the government, you have to have that clarity so they know what to do.

[Tony Van Bynen, Liberal, Newmarket—Aurora, ON]

I believe it was Mr. Hersh who referenced concerns about the skill sets that were in the innovation group.

[Chris Hersh]

I'm not suggesting that the folks employed by or who staff the IRD are not very qualified. What I think is that they have a particular skill set. To make the IRD more effective, if the IRD is going to have a bigger role in assessing national security issues, you have to ensure that additional capacity and capabilities are brought to the IRD.

I believe the question was whether it should be multi-agency or IRD. I think the key is that there should be a group of people who can assess this who are housed under the same organization or working in tandem, perhaps, more so than they are today.

[Tony Van Bynen, Liberal, Newmarket—Aurora, ON]

Should the minister be required to consult with other stakeholders such as the Canadian Security Intelligence Service, the Royal Canadian Mounted Police or the Communications Security Establishment in the national review of process?

[Chris Hersh]

The minister is already required to consult with the national security apparatus in assessing whether a transaction could raise issues. The issue is that right now—and this is the perception, because I'm not an insider—sometimes there is a bit of a disjoint or disconnection between the two and that perhaps the process, because of that, is not as efficient as it could be. Again, that is an outsider's view based on perception as opposed to how the system works in reality.

[Tony Van Bynen, Liberal, Newmarket—Aurora, ON]

The skill set of the agency should be there.

I would like to come back to the U.K.'s model one more time.

You indicated that it also reflected acquisitions internally. What were the criteria for that? To what extent would that benefit Canada? Should that fit inside this legislation?

[Subrata Bhattacharjee]

Thank you for letting me correct my view that the process was wacky. It is not wacky. It is a choice that the U.K. legislature has made because they believe, I believe, that national security issues can arise in the review of domestic transactions.

I'm not really aware of the other circumstances for why they have done that, but it is a very different approach than what we've chosen to do here in Canada.

[Tony Van Bynen, Liberal, Newmarket—Aurora, ON]

Would there be concerns about industry concentration and those types of things that could be created internally?

[Subrata Bhattacharjee]

I can't comment further on the thinking of the U.K. government on that.

[Tony Van Bynen, Liberal, Newmarket—Aurora, ON]

Okay.

Have any other countries amended their foreign investment regulations in recent years? What could we learn from them, in addition to what you've highlighted? Is there anything you'd like to add to your comments?

[Subrata Bhattacharjee]

If I can follow up on that, one jurisdiction that I think gets a lot of attention in Canada for regulatory policy is Australia. Like Canada, Australia was fairly early in the game in examining inbound investment from an economic screen and then later from more of a national interest or national security screen. I'm sure the experience of our Australian colleagues under their FIRB regime no doubt was taken into account by folks both proposing the bill and probably within industry.

[Tony Van Bynen, Liberal, Newmarket—Aurora, ON]

I have one more question for all members here.

Would the amendments in Bill C-34 adequately protect us regarding intangible assets such as intellectual property as well as from foreign investments that could be injurious to national security? If not, what recommendations would you make to compensate for that?

[The Vice-Chair, Conservative, Rick Perkins]

Does anyone want to answer? It's your choice.

[Tony Van Bynen, Liberal, Newmarket—Aurora, ON]

I'll ask Mr. Bhattacharjee.

[Subrata Bhattacharjee]

I think it's a step.

If you take a look at how we approached this pre-2009, that stuff was clearly not covered by the review requirements. We have added a test that is designed to allow more flexibility in the type of investments that the government is allowed to scrutinize.

At the moment, I think it is still the case, as I read the bill, that it requires certain threshold structures to be in existence before the review requirement can kick in. It may be the case that certain types of intangibles are not caught by the bill, but I don't know. I haven't thought about that carefully. However, I would also urge the committee, again, not to think that the Investment Canada Act is the only way we can look at or address those concerns. We have other federal mechanisms in various areas that allow for some degree of scrutiny.

I don't think we have to pack it all into the Investment Canada Act. Even if it isn't there, we may have other ways to deploy this to protect those interests.

[The Vice-Chair, Conservative, Rick Perkins]

Thank you. We've gone a little over the time.

Go ahead, Mr. Lemire.

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

Thank you, Mr. Chair.

Thank you for asserting your authority, that's important for the committee.

Joking aside, I have a question for Mr. Bhattacharjee. I would like to go back to transparency and accountability, which ministers are asking for in transactions, as part of the Investment Canada Act.

With respect to national security and net benefits, should this bill go a bit further?

[Subrata Bhattacharjee]

First of all, I'm going to focus my comments on national security, not on net benefit, because the amendments that we're really talking about here are focused on the national security test.

I think you raise a very good question. Actually, the question, for example, with respect to Quebec's own significant involvement in the EV chain and critical minerals means that Quebeckers have an interest, as they should, in ensuring that foreign investment rules apply so as not to scare away legitimate investment and to protect the position of the Quebec entities that are involved.

I know this is funny. You have four lawyers here talking about technical stuff in the act, and almost all of us are talking about very procedural sorts of things. However, it is exactly the procedural issues we have raised that will help provide a bit more transparency, certainty and stability, and will allow, at the same time, the government to step in where it believes it is necessary.

I chose to talk about sectors. The sectors are important because we need to know what the government will get an advanced look at. My colleagues have talked about other changes that may increase transparency and a judicial review function. All of those things combined mean that you have a better balance between encouraging investment and, if you get the procedure right, making sure people feel that if the national security process is being deployed, it's done in a way that's appropriate and doesn't scare away legitimate inbound investment.

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

Thank you very much, Mr. Bhattacharjee.

I'll stop here, Mr. Chair, and wait for the third round of questions.

[The Vice-Chair, Conservative, Rick Perkins]

Okay.

Mr. Green, you're next.

[Matthew Green, NDP, Hamilton Centre, ON]

Thank you very much.

Mr. Joneja, in your opinion, based on your understanding of this bill, if a Canadian company is taken over by a foreign investor and is approved by ISED, and if that foreign company is then taken over by a state-owned company, would the new reforms in the bill allow the minister to force divestment or any further undertakings afterwards?

[Navin Joneja]

They would. They would allow the minister to review that investment and, if the process unfolded that way, to conduct a national security review. The specific enforcement measures that the act allows for could then be deployed.

[Matthew Green, NDP, Hamilton Centre, ON]

In your opinion, is this robust enough to protect against any potential takeovers from a foreign state actor?

[Navin Joneja]

It is a positive step forward in terms of strengthening the national security review process as it relates to a variety of types of investments, including the example you mentioned.

[Matthew Green, NDP, Hamilton Centre, ON]

Mr. Krane, in your opinion, if a takeover is proposed for a Canadian company that has received government funding to develop technology, would these reforms allow the minister to claw back that intellectual property?