Evidence of meeting #76 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 cfius.
A recording is available from Parliament.
Conservative
Ed Fast Conservative Abbotsford, BC
Essentially, it's having a reasonable threshold that will continue to act as a magnet for investment from abroad to make sure that our start-ups remain viable and are successful.
Liberal
The Chair Liberal Joël Lightbound
Thank you very much.
Mr. Gaheer, you have the floor for five minutes.
Liberal
Iqwinder Gaheer Liberal Mississauga—Malton, ON
Thank you, Mr. Chair.
Thank you to all the witnesses for making time for the committee and for their testimony.
My questions are also for Ms. Black. It think it's very interesting to compare the Canadian regime with the American one.
In your opening testimony, you mentioned five points. I think a lot of them show that what Bill C-34 proposes, actually, brings the ICA in line with what the U.S. does. For example, Bill C-34 would “authorize the Minister of Industry, after consultation with the Minister of Public Safety...to impose interim conditions [on] investments in order to prevent” a potential national security injury from taking place “during the review”. Would you say that that's in line with the interim measures that CFIUS has?
Liberal
Iqwinder Gaheer Liberal Mississauga—Malton, ON
There's also the improved information sharing among international counterparts. This act would facilitate smoother international co-operation and information exchange so that Canada can consult with allies on potentially common national security threats resulting from transactions that are both in Canada and in other jurisdictions. Would you say that that's in line with the explicit confidentiality exception that you mentioned CFIUS has?
Senior Counsel, As an Individual
Yes, it's very similar, although CFIUS uses it quite sparingly and also ensures that if it shares information, it will be protected. However, yes, it's very much in line with the CFIUS provision.
Liberal
Iqwinder Gaheer Liberal Mississauga—Malton, ON
Thank you.
In your opening testimony, you also mentioned that filing is voluntary in the U.S. unless government authorization is required to export U.S. technology. Then you mentioned that other jurisdictions take a broader approach. Why do you think the U.S. has a more narrow catch?
Senior Counsel, As an Individual
I think this is a judgment call in the U.S.
Originally, we had a pilot program for mandatory filings for critical technology, and it was based on export control but on sectors. CFIUS was seeing a significant number of lower-risk transactions from countries that wouldn't cause concern, so there was a decision to focus it on when an authorization would be required for a specific country, to align it more with risk.
CFIUS's view has been that it would rather see fewer mandatory transactions and have broader voluntary jurisdiction. It will devote more resources to those higher-risk transactions and let the majority of transactions flow without filing. We also, at CFIUS, when I was there, set up an office whose function was to look at non-notified transactions to bring in transactions. Perhaps here CFIUS came down a bit more on the open investment side than some other jurisdictions did.
Going back to an earlier point, I'll also say that, with the mandatory filing, we tried to carefully scope that because 30 or 45 days can be quite difficult timing for private equity or venture capital funds. For normal M&A, that may just be part of a longer process with competition filings. We heard a number of concerns from PE funds and VC funds about moving at the speed of business, as well.
Liberal
Iqwinder Gaheer Liberal Mississauga—Malton, ON
Thank you.
You also mentioned that everyone is subject to CFIUS. Would you be in favour of a potential exception for certain nations where there is no concern? Could that speed up certain transactions, or do you agree that everyone should be subject to it?
Senior Counsel, As an Individual
In the United States, we do have the excepted foreign state concept, where certain investors with very tight ties to Five Eyes countries aren't subject to the non-controlling jurisdiction. All countries are still subject to the controlling jurisdiction. When you have mandatory filings, to the extent that you can focus on higher-risk transactions, I think that's the right approach.
I would be reticent to wholesale give up jurisdiction over control for all countries, because one of the things CFIUS is also looking at is third party ties. Perhaps a company comes from a jurisdiction that's not of concern but has extensive ties, for example, to a foreign government. That's something CFIUS could consider. Again, this is some balancing and line drawing.
Liberal
Iqwinder Gaheer Liberal Mississauga—Malton, ON
That totally makes sense.
You mentioned that you're not entirely familiar with Bill C-34, the ICA. However, in your time at CFIUS looking at the development of foreign investment controls, investment security, and foreign investment review mechanisms, is there anything else that maybe the U.S. isn't doing but other nations are doing and that Canada could learn from?
Senior Counsel, As an Individual
I will say one thing. CFIUS is not covering our research contracts with universities that can provide parties of concern access to technology that's being developed. That was a decision in the United States not to subject that to CFIUS, but some other countries, like Denmark and I believe the U.K., are considering that. There are some jurisdictions that are more expansive.
While I have the floor, I'll go back to one of the other questions. One of the questions I was asked was what might happen if the bill doesn't pass. I will note that, in my experience, Canada mitigates transactions less frequently than some other countries, particularly within the G7, and perhaps it could be because it's more difficult. In the U.S., for example, CFIUS uses litigation quite frequently to allow the economic benefit while adding terms to the transaction.
I'll also note with respect to that other question that I think it's an important feature of the bill.
Liberal
Sébastien Lemire Bloc Abitibi—Témiscamingue, QC
Thank you, Mr. Chair.
My next question is for Ms. McNeece. I particularly liked her testimony and will no doubt go over it again, especially the bit about accountability on the part of the minister and the notion of transparency.
I'd like to hear you explain the benefits that greater transparency on the part of the minister can have in terms of predictability, but also for the ecosystem in which companies will be able to operate.
Partner, Competition, Antitrust and Foreign Investment, McCarthy Tétrault LLP, As an Individual
That's a great question.
I think one of the major advantages of moving this power to the minister is that there is greater flexibility within the timing of the transaction. The existing power to impose conditions on a transaction is in the final period of the review. The GIC review is only 20 days long, and that happens after 180 days or more, when that's already happened.
I know important work is being done behind the scenes to consider the transaction and assess the national security implications. That is all very important, but moving this mitigation process into the main review gives greater flexibility if a solution is identified and can be agreed to more quickly to get that done efficiently and then allow, as Ms. Black said, the economic benefit to start for Canadians more quickly, while preserving national security.
That being said, it's a real black box when you get to this process. By nature, it's secretive, because we're dealing with important and confidential security concerns. There's very little disclosure to the public or to the investment community as to what type of mitigation measures are imposed.
If you contrast this with the net benefit review process, which is very mature.... It's been happening since the eighties, and there is a set landscape of undertakings that you can expect you'll have to give to the minister in order to get a net benefit review if you fall within the very small number of transactions that exceed those thresholds.
What I'd like to see is additional disclosure, so that we can have that tool box identified to investors. They can understand, when proposing an investment in Canada or evaluating an investment in Canada, what measures might be required from them to protect Canada's national security. That sort of transparency and accountability not only are beneficial for Canada's status as a democratic institution and an open investment institution, but can help the process move much more efficiently.
Liberal
NDP
Brian Masse NDP Windsor West, ON
Thank you, Mr. Chair.
To any of the panellists, do you have any financial or clients' interests, either with a foreign government or a non-democratic government? Have you ever represented any of those entities before?
I'll throw that out to the entire panel and see if anybody has any of those.
Partner, Competition, Antitrust and Foreign Investment, McCarthy Tétrault LLP, As an Individual
I've represented state-owned enterprises in respect of the reviews on the Investment Canada Act, yes.
NDP
Brian Masse NDP Windsor West, ON
Okay.
Are you the only one, Ms. McNeece? I guess the others all.... I'll assume that's it.
With that, Ms. McNeece, if we don't go ahead with some of these changes, what do you think would be the consequence to your clients with regard to uncertainty for the future? I'm wondering whether that factor also plays into it.
Thank you.
Partner, Competition, Antitrust and Foreign Investment, McCarthy Tétrault LLP, As an Individual
One advantage of these amendments would be the institution of the categories of businesses for which preclosing notification will be required. Many of the panellists have discussed in this session and previous sessions the very broad jurisdiction of the ICA to require mandatory filings, but they're not necessarily preclosing.
If you are an investor, perhaps a state-owned enterprise that is aware of the current policy suggesting that investment by state-owned enterprises will receive additional scrutiny, or if you're a private enterprise investing in a Canadian business that may be involved in a potentially sensitive sector, then the calculus for you is that you have to make a filing. It can be made either prior to the closing of the transaction or following the transaction. If you make a filing prior to the transaction, then you have to assess the probability that you'll be called in for a review. You might see a significant delay because the process can be 200-plus days long. It's often this balancing act of the timing for the transaction and the value we're hoping to create for the transaction.
When we're representing Canadian businesses, it's about when they can achieve their return on investment in setting up this company by selling to an investor. Is there going to be a significant delay or potentially a remedy? We enter into this difficult calculus. We all know a filing has to be made and of course that obligation is going to be complied with, but when are we going to make it?
I think setting out a specific number of types of transactions and types of businesses for which that preclosing filing must be made will make that calculus much simpler for a lot of our clients. I think that's one major benefit.
I would observe, though, that this bill doesn't change the jurisdiction or the types of transactions that the minister can ultimately review. It changes the timing and the ease with which the minister can identify those transactions. I think that's a useful change. I don't have the concern that we're suddenly going to be missing a whole category of transactions if this bill doesn't pass. Those will still be covered. It's just about when they come to the attention of the minister and what can be done in that case.