Industry Committee on May 15th, 2023

[Joshua Krane]

Quite possibly, Mr. Green. That is one of the conditions the minister might be able to impose on a foreign buyer. We've recently seen that universities are also being much more prudent about the contracting practices they're engaging in, as has the government.

There are opportunities in those contracts to put in change of control provisions that would allow the government or a university to exercise its rights over intellectual property prior to a takeover transaction. There are also other commercial ways that Canada and our universities can protect our intellectual property in the event of a foreign takeover.

[Matthew Green, NDP, Hamilton Centre, ON]

I'm sorry. Just so that I'm clear, am I to understand that it should be in the contract, or would the minister have the ability to claw it back?

[Joshua Krane]

I'm saying both options are available, Mr. Green. The minister has that prerogative under the new statute, but universities and the Government of Canada could also ensure that in their funding contracts, they have the commercial rights available to them to make sure they own the IP that has been jointly developed, or to ensure they receive the payout of funding, either prior to closing or before closing.

Actually, I want to address one more point you raised earlier—because I think we left it hanging—on the acquisition of small tech companies. There are other government bodies that review those transactions or could review those transactions. The Competition Bureau does have jurisdiction to review takeovers of small businesses, and there is a consultation process under way to look at changes to the Competition Act that may address some of the concerns you raised in your questions. If this committee convenes a session on Competition Act reform, those are some of the topics you may wish to raise there.

[Matthew Green, NDP, Hamilton Centre, ON]

Thank you.

[The Vice-Chair, Conservative, Rick Perkins]

Thank you, Mr. Green.

Mr. Vis, you're next.

[Brad Vis, Conservative, Mission—Matsqui—Fraser Canyon, BC]

Thank you, Mr. Chair.

Mr. Bhattacharjee, a recent Borden Ladner Gervais article that you co-authored, “Investment Canada Act aims to protect national security: How to enhance foreign M&A success”, states, “Mergers and acquisitions are now much more likely to be blocked by the Canadian government if they seem to impinge on Canada’s ‘national integrity’ and may be blocked simply because of the potential buyer’s country of origin.” Further down it notes that with the proposed legislation, Canada “will also likely target big data, artificial intelligence, significant intellectual property and other strategic industries.”

Can you provide some examples of cases where the country of origin might be the deciding factor?

[Subrata Bhattacharjee]

The guidance on this has already come from the federal government, so we already have a policy that basically restricts, if not prohibits, inbound investment from Russian entities, at least under the Investment Canada Act rules.

There are a bunch of other sanction regimes that also govern that, but Russia is an immediate example. That's just one example that comes to mind.

[Brad Vis, Conservative, Mission—Matsqui—Fraser Canyon, BC]

The same article says, “investors, company management teams and boards are finding it difficult to properly assess the risks of a deal and are subsequently being subjected to government rejections with little, if any, explanation.”

First, do you think there needs to be greater transparency when deals are rejected? Second, how does Canada's approach to providing explanations compare to those of other jurisdictions?

[Subrata Bhattacharjee]

I will answer your questions in reverse order.

Although we have had this process since 2009, I would say that, in comparison to the U.S., for example, at least in my experience—and my colleagues may feel differently—our process is probably a bit more black box in terms of communicating concerns. That is reflective of how we have set up the process and how we have set up the consultation with Public Safety Canada.

That may just be a decision we have made. I think that in some areas we are probably not as detailed, but in others.... We talked about the U.K. as an example. I am led to understand that when you apply under this process in the U.K., you can just do it through an anonymous box.

I just think that each jurisdiction seems to have its own approach. In some aspects of dealing with a review, we are more black box than others.

[Brad Vis, Conservative, Mission—Matsqui—Fraser Canyon, BC]

Okay, thank you.

How much time do I have left, Mr. Chair?

[The Vice-Chair, Conservative, Rick Perkins]

You have two and a half minutes.

[Brad Vis, Conservative, Mission—Matsqui—Fraser Canyon, BC]

Okay.

This question is open to anyone.

In June 2020, in his testimony before this committee—he also recently appeared—Charles Burton from the Macdonald-Laurier Institute stated that some enterprises controlled or owned by a foreign state “use multiple firms with multiple investments to get under the wire of our thresholds, but they actually violate what I would regard as the intention of our act.”

Do the amendments to the Investment Canada Act address the concerns raised at that meeting, yes or no? Why or why not?

How would the enactment of Bill C-34 affect prospective acquisitions of Canadian businesses by foreign state-owned or state-controlled enterprises?

[The Vice-Chair, Conservative, Rick Perkins]

Whoever wants to go first may do so.

[Joshua Krane]

I'm happy to take a cut at that.

Prior to this bill, a filing was mandatory if there was an acquisition of control. When you're dealing with a target corporation, that threshold can be as low as 33.3%, so you don't actually need to own a majority of the voting shares of an entity to trigger a filing requirement. Even in the case of acquisitions below 33.3%, the government has the ability to call in an investment on national security grounds. In fact, there was a change in the law last year that allows the government to do that for up to a five-year period, unless the investor goes in and files a voluntary form and seeks pre-clearance of that investment.

Really, the problem that Mr. Burton identified was largely fixed in the last round of amendments to the ICA. This particular proposed bill creates a second layer of notification requirements: When you have a minority transaction but it's in a prescribed sector, there will be a mandatory filing. My colleagues have spoken to you about that at length, so I'm not going to reiterate what they have to say.

However, I'll just go back to the point I made earlier. There was no using disparate pieces before. As soon as you had an acquisition of control, you had a mandatory filing. Now we have a voluntary process that allows minority acquisitions to be notified early so that other investments get caught.

[Brad Vis, Conservative, Mission—Matsqui—Fraser Canyon, BC]

Thank you, Mr. Chair.

[The Vice-Chair, Conservative, Rick Perkins]

Go ahead, Mr. Gaheer.

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

Thank you, Mr. Chair.

Thank you to all of the witnesses for making time for the committee and for your testimony.

My first question is a bit of a precursor question and it has two parts. First, what can Canadian companies and non-Canadian investors do to ensure that the investment screening process is as efficient as possible?

I'll ask that one first, and then I'll go to the second part. It's open to anyone.

[Subrata Bhattacharjee]

I'll start.

One of the things the government requires in this process is the provision of information up front in terms of what's required to start the process. However, more importantly, if a transaction is subject to a review, as that continues there is often a back-and-forth between the investor and ISED, for example, where questions are asked and answers have to be given. The amendments sort of formalize that process a bit.

Even if we aren't looking at what's in the bill, most foreign investors who are trying to do this efficiently are those who can answer those questions fully, completely and quickly. They tend to, I think, have a much more productive process in a review than others who don't do it that way.

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

In line with that, with the investment screening process and doing it as efficiently as possible, has the federal government provided sufficient guidance in this regard? Is there additional information the federal government could provide in order to improve this new process?

[Chris Hersh]

I think the government has improved its guidance historically, but I still think there is probably room for further improvement. It's difficult to come up with guidance, but I think if you look at jurisdictions like the U.K., Australia and the U.S, my view is that they have far more and more detailed guidance than has historically been the case with regard to the Investment Canada Act.

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

I think that has been brought up a couple of times, with witnesses pointing to other countries. Can any of the witnesses come up with any specific points on what guidance we're not providing that other countries provide? Are there any examples of that?

[Subrata Bhattacharjee]

Certainly the identification of the sectors.... My initial remarks were really directed at that, so if you're interested, you might want to take a look at it.

[Chris Hersh]

Here is a 33-page national security guidance document from the Australian regulator. It's very detailed guidance—

[The Vice-Chair, Conservative, Rick Perkins]

Perhaps you can table that with the committee, and we can have it for the record.

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

Thank you.

We know that Bill C-34 will also allow the Minister of Innovation, Science and Industry to disclose specific information regarding national security reviews to foreign states.

What are your views on this approach? Do you think it will adequately facilitate collaboration and information sharing between countries to combat national security threats? Would you amend this part of the bill in any way?