Industry Committee on May 29th, 2023

[Laura Black]

I'm sorry. Do I think what would have repercussions?

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

Has this change had repercussions on investment in the United States or on how investors perceive the U.S.?

[Laura Black]

Do you mean if CFIUS were to revise its—

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

Could the review, as implemented, affect the reputation of the United States?

[Laura Black]

I suppose that expanding CFIUS's jurisdiction would cause more transactions to come under its review.

I guess I'm not exactly sure what the question is. Is the question what view CFIUS has if it doesn't cover these kinds of greenfield transactions?

I suppose on the Hill there are a lot of discussions related to China-specific restrictions. For example, there are a few acts in Congress. There are acts in the state legislatures that would further restrict Chinese investment into real estate or critical minerals, so we may see some of them moving forward.

From what I've seen, the concern is more a domestic concern about control of those supply chains or critical minerals, from what I've heard in talking to counterparts. I spent several years doing an international engagement function for CFIUS, and this wasn't something I was hearing. I was hearing mostly domestic concern about whether there need to be more restrictions or review rather than concern about foreign partners.

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

Thank you very much.

[The Chair, Liberal, Joël Lightbound]

Thank you, Mr. Lemire.

Mr. Masse, you have the floor for six minutes.

[Brian Masse, NDP, Windsor West, ON]

Thank you, Mr. Chair.

Thank you to the witnesses for being here.

I'll start with Ms. Black. Just in continuation with regard to the United States process, how well has it been received by, say, the Five Eyes with regard to security and modernization? Are the other countries also kind of in the same place for a review like this?

[Laura Black]

Based on my interactions, the Five Eyes have generally seen risks similarly. I also worked quite a bit with European allies. I'd say that, if you look at five years ago, the U.S., Canada and a handful of other countries were the ones that had broader review mechanisms.

In recent years, there has been a recognition that certain foreign investment does raise national security risks. We sometimes hear from foreign investors—and this is a point Ms. McNeece was making—that CFIUS does share more information. We do sometimes hear that CFIUS should share more information to allow parties to decide when to file and make better decisions on that.

Generally speaking, countries have come more toward Canada's and U.S.'s perspective on investment screening rather than hearing a lot of concerns about going back in this area.

[Brian Masse, NDP, Windsor West, ON]

Yes. I think things have really changed. For example—and this first came up at the industry committee when I raised it a while ago—it's interesting that Canada used to have its own Petro-Canada, owned as a state gasoline enterprise. In fact, it was divested by Canada at a time when we were letting the Chinese Communist government buy our oil and gas industry. It was okay for the Chinese government to own our oil assets, but not for Canadians. In fact, we ended up losing out significantly when we sold the asset.

If we don't do anything here in Parliament right now, it's not likely to come back in this Parliament. The best-case scenario is that if we pass this bill now and it goes to the Senate, we're looking at probably the fall for them to look at it and then either approve it or amend it and send it back to us. If we don't do that, then we could be out of step for a couple of years.

What do you think it would say about our country with regard to this issue if we stayed status quo for another year or two years?

[Laura Black]

As I mentioned before, Canada does have rather broad authority after the fact to review transactions—in Canada, more blocking than mitigation, for reasons that have been discussed today. Canada, I think, was one of the earlier countries to actually take action.

I do think, looking at the U.S. experience, that we closed what we thought was a loophole, particularly with respect to high-risk technology, to be able to review those preclosing. I think it's important to have authority to review at least some of those transactions before the foreign persons of concern actually have the ability to access the technology or the data, but I will say that, as I mentioned before, there's a pretty broad scope in terms of how much is being required preclosing. I think you almost always see dual use in high tech. Some countries include agriculture. Japan has leather goods. You see variations there, but I think some ability to review the transactions before closing is important.

[Brian Masse, NDP, Windsor West, ON]

I have one last quick question for you. I was just in Washington, and I was fortunate to have Dick Durbin at our lunch table. He was doing the hearings with regard to artificial intelligence. Do you think, given the emergence of that significant issue, that there's a general assumption, or at least an appreciation, that CFIUS is...? You did your updating, and that's going on now. Would it be an even greater concern if you didn't do it and AI is now in the equation under the old rules?

That's one of the things I'm also looking at in terms of the reasons. If we had to go back and deal with this, things could be totally different. We're just starting our AI stuff now. We're not even going to get to it until the fall, if we're lucky. We're even further behind.

[Laura Black]

As part of the amendments in 2018, which came into effect in 2020, CFIUS was able to close a jurisdictional gap. Previously, CFIUS had jurisdiction over transactions that could result in control over U.S. business. CFIUS was given authority to cover minority non-controlling investments in companies with critical technologies, such as artificial intelligence. We were seeing that some investors were coming in at lower levels where they didn't have control but they did have access to material non-public technical information. They had substantive decision-making over how that information was stored and cybersecurity protocols that could be violated.

I think for us, having additional jurisdiction to get to certain rights and access, short of control, was important for the U.S.

[Brian Masse, NDP, Windsor West, ON]

Great. Thank you.

I think that's all my time, Mr. Chair. Am I right?

[The Chair, Liberal, Joël Lightbound]

You are correct, Mr. Masse.

I'll now turn to Mr. Fast.

[Ed Fast, Conservative, Abbotsford, BC]

Thank you, Mr. Chair.

Thank you to all our witnesses. I'll try to ask as many of you questions as I can, but I'll start with my former colleague, Mr. Christian Paradis.

It's nice to see you again, Mr. Paradis. When you were in cabinet and you were the industry minister, you had to address the issue of thresholds and when specific mandatory investment reviews had to take place. In your testimony today, you gave us very little indication, if any, as to whether you feel those thresholds should be reviewed, not only given inflation but given some of the evolving geopolitical risks that our country faces.

Do you have any views on the nature and adequacy of the threshold that we presently have in place within the ICA?

[Christian Paradis]

Back in the day, we reviewed the threshold because there were two things we were very concerned about. One was what I described earlier about national security dealing with state-owned enterprise with capacity in terms of governments. At the same time, we were of the opinion that it was time to also review the threshold. It was time to go back, because the thresholds had not been reviewed for a while. Concerning the threshold with markets, we didn't have the right calibrations. We didn't want to look like we're closing the markets. On the contrary, we wanted to send the signal that, on both sides, we're open for business, so we reviewed the threshold, but, at the same time, not at any cost. This is when it was important to review the rules, as we did with the state-owned enterprise.

I don't know if it answers your question, but that was our mind back in the day.

[Ed Fast, Conservative, Abbotsford, BC]

Just to understand, do you feel that the thresholds are still adequate today?

[Christian Paradis]

I checked the threshold. I see that there was some increase with some breakdowns. I would say that's hard for me; I'm not an expert in the area, but I certainly think that the threshold has to be.... You need to make sure that the other question is still there. Frankly, I cannot give you an expert opinion on that.

[Ed Fast, Conservative, Abbotsford, BC]

Thank you.

I have a question for you, Mr. Fay, since you're an expert in governance.

Much of the power is being shifted to the minister from the Governor in Council. The ICA is going to move to greater power vested in the ministry to make certain decisions regarding investments and investment reviews. Do you have any views on whether that's appropriate or whether cabinet should continue to play a significant role in undertaking these reviews?

[Christian Paradis]

Yes, this is where I think striking the balance is of the essence. As I said earlier, if the legal framework is too rigid, then you are stuck with some stuff that is difficult to change. On the other hand, if you go with only some directives that can be changed by ministers and their successors, that sends funny signals in the market. You need to find the balance.

This is also why I checked with a lot of attention what the Canadian Bar Association said—that, when it comes to defining what the sectors are, what you want to regulate and why you want to do it, you have to send the appropriate signal and have the appropriate debate. If you want to go with regulations, you can have a larger discussion. If you concentrate everything in the hands of the minister, you will create some uncertainty.

[Ed Fast, Conservative, Abbotsford, BC]

Thank you.

Mr. Fay, could I get your views on that?

[Bob Fay]

I would say that I'm not necessarily an expert in this particular area, but what I would say is that, clearly, one would want transparency over how decisions are being made. I think that, no matter what mechanism is used to approve a decision, one would want to know how that decision was made and what factors were considered when that decision was made.

If I may go back to your previous question, one of the points that I raised in my testimony was that the value of data is not considered in mergers. I think that's a really important thing to keep in mind. That can be inferred through market caps and stuff like that, but it's not there.

[Ed Fast, Conservative, Abbotsford, BC]

Believe me, I took note of that comment. Thank you for pointing that out.

Mr. Gilbert, I'll go very quickly to you. You mentioned safe harbours. I didn't quite understand specifically what you were referring to. Is it about data protection and privacy, or is it a broader application to investment reviews?

[Tim Gilbert]

The Canadian Bar Association talked about de minimis investments of up to $5 million or something like that. Certainly, the first million dollars seem hard money for a lot of smaller entities to get. It's not going to move the needle nationally, but those types of investments are critical for smaller entities.