Industry Committee on June 7th, 2023

[Mark Schaan]

I don't want to focus on one case or another. I simply prefer to describe the minister's overall record and the act as regards prevention as well as the way the minister uses the act to block foreign investments or to mitigate the risk they present.

That includes investments by state-owned enterprises and organizations that the department views as state-owned enterprises, even those that aren't included in the statutory definition.

[Bernard Généreux, Conservative, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

If my understanding is correct, you don't think this change is necessary.

Do you think the present definition in the act is enough to reach the objective my colleague wants to achieve?

Do you think there might be another way to phrase the definition of “state-owned enterprise” that would improve it?

[Mark Schaan]

Once again, I want to emphasize how important it is for the department to have a definition that's broad enough to include many types of harmful behaviours without having to name them all. It's important for the minister to be able to consider all behaviours and measures in order to make effective and fair decisions.

In addition, certain provisions of the act enable the minister to include an organization in the state-owned enterprise class if he wishes to do so.

The department feels that a definition that is more open and less specific than the one proposed in the amendment would be more effective in achieving the objects of the act.

[The Chair, Liberal, Joël Lightbound]

Thank you very much, Mr. Généreux.

Mr. Fast.

[Ed Fast, Conservative, Abbotsford, BC]

Well, Mr. Chair, here's the problem as I see it. Once an investment decision has been approved by the Government of Canada, our ability to enforce behaviour that is compliant with what Canadians would accept as Canadian values is effectively removed. We do have laws within Canada that have to be complied with, but my big concern is that as investments are reviewed we want to make sure that the actors who will be operating within our marketplace have a clear commitment and a track record of having lived up to democratic principles.

My first question for you is this. If we don't put this provision in the ICA, is there any other place in the ICA where democratic principles, rights and freedoms are articulated in any way as a condition of investment?

[Mark Schaan]

Mr. Chair, I would note two important factors. One is that the wide definition and the standardized definition of SOE currently within the act allow for a consideration of a number of questions of importance that the member has raised under the existing definition of state-owned enterprise as a function of the act, and thereby allow the minister the capacity to be able to consider that.

With respect to a decision post, let's imagine that all factors have been protectively assuaged and appropriately mitigated to allow for an investment to continue. Not this provision, but other provisions that the committee will hear about today include the capacity for binding undertakings under the national security provisions of the act. Undertakings have been routinely used under the act to ensure that a number of factors of import are actually brought to bear, including the Canadian makeup of a board and the Canadian makeup of a management team.

The investments require a number of those elements that I think underscore what is at the heart of the comments I heard, which is that there needs to be a binding mechanism by which the investment can be held to account. We believe that is the case under the undertaking provisions that now exist under the net benefit clauses and that will now apply, should Bill C-34 pass, under the national security provisions of the act.

[Ed Fast, Conservative, Abbotsford, BC]

What you're suggesting is there's broad discretion for the minister. He's allowed to take to into account a broad range of considerations. He can impose conditions, but there's nothing that requires him to do so. There's nothing that compels him to do so.

My colleague Mr. Vis just raised the examples of companies that have abused their privilege of operating within Canada. Anbang was one of the companies he was referencing. HD Mining is another classic one that brought in Chinese workers, instead of employing Canadians in its operations.

I think Canadians are sick and tired...they're fed up with Canada being a soft touch when it comes to foreign investors abusing their privileges within Canada.

The clause we have here is simply adding as part of the definition of a state-owned enterprise “an entity that has its headquarters in a foreign state in which basic democratic rights and freedoms are not recognized”. That is foundational, I believe, for the investments we want to see in Canada. It's a clear commitment to the values that Canadians hold dear.

By the way, I understand the concern about what this might do in terms of our obligations at the World Trade Organization. I understand that. However, I think you will have noticed that many of these countries that may be problematic as state-owned enterprises and investors in Canada are habitual abusers of WTO rules. I saw that personally over four and a half years, when I was the minister responsible for trade. You see this happening all the time. It's a wilful flouting of WTO rules, because these countries know they can get away with it.

The argument you've been suggesting is that we want to make sure that we're squeaky clean, and if there's any chance this could be challenged, because it's not as clear-cut as we might like it to be.... I think we cheat Canadians when we don't articulate clearly the basic democratic principles that we expect foreign investors to comply with and live by. I'm encouraging my colleagues here at the table to really take that seriously.

I don't believe the proposal that you have before you today is one that we should be overly concerned about in how it will be characterized at the World Trade Organization.

I would also suggest that your reference to wanting avoid subjective measures can go so far, and then we have to say, “You know what? We're going to try this on for size. We're going to include it.” Investors have a chance to challenge this, either under our free trade agreements or under the World Trade Organization rules, but for us to simply go scrambling and hiding every time there's something that may or may not be enforceable or allowable at the World Trade Organization, again, I think cheats Canadians.

I believe it's worthwhile for us to include this provision as an amendment to the bill that the government has brought forward. I hope my colleagues here are going to give appropriate consideration to that request.

[The Chair, Liberal, Joël Lightbound]

Thank you, Mr. Fast.

I'm not entirely sure there was a question in there, but Mr. Schaan, I'll give you a chance.

[Mark Schaan]

I just want to make sure that.... One thing I articulated was understood, which was not that the subjectivity itself was potentially a cause for concern in terms of the value or the sentiment it expresses.

What I was expressing was that the current definition—“an entity that is controlled or influenced, directly or indirectly, by a government or agency referred to in paragraph (a)”, which goes back to the definition—is sufficiently broad for the contemplation of the act, and the provisions in question are to define what an SOE is for the purposes of the contemplation of the act. It actually has no bearing, then, on the potential actions that must be taken in those cases, other than the fact that they're understood as one.

This definition, and what I was trying to underscore, is actually very broad, and it allows us to be able to contemplate all of those of comportments and behaviours, and that's why we felt comfortable with the fact that this definition is quite broad.

[Ed Fast, Conservative, Abbotsford, BC]

Mr. Schaan, my point is that there's nothing in the current definition that actually compels or directs the decision-makers within ISED, or whoever does these reviews and makes the final approvals, which ultimately would be the minister. There's nothing directing them to take democratic principles into account as that decision is made. This particular amendment actually bakes that into the legislation, so there's absolutely no doubt what Canadians believe should be applied as a standard before companies invest.

[The Chair, Liberal, Joël Lightbound]

Thank you, Mr. Fast.

We'll now turn to Mr. Perkins and then Mr. Vis.

Mr. Perkins.

[Rick Perkins, Conservative, South Shore—St. Margarets, NS]

Thank you, Mr. Chair.

Just for those watching to understand, I will say that Mr. Fast was international trade minister and was the minister who negotiated the European free trade deal, so he understands these deals inside and out.

Mr. Schaan, I appreciate what you're saying—that the government thinks that the current provisions are fine then. We're not going to spend this much time on every one of the amendments. However, there's sort of the issue of what a state-owned enterprise is. This is fundamental, in terms of the minister's power—to me—in a couple of the other amendments that we put forward, including the threshold and changing the wording from “may” to “shall”. Mr. Fast indicated that. I just want to ask you because you referenced the trade agreements.

The National People's Congress of China passed a national intelligence law in 2017—which I'm sure you're aware of—to compel all Chinese nationals, at home and abroad, to collaborate with agents of the Chinese state, on request, to further Chinese state interests by purloining and obtaining confidential data and engaging in the compromising of infrastructure around the world. That is a fundamental element that compels you, whether you're a technically state-owned enterprise or a company that's operating in China, that's China headquartered, to do the things that have led to the charges that we've seen around the world.

Has any other country in the trade agreements that Canada has signed through the various governments—because that's one of the things where you say we're in compliance of those agreements—passed a law compelling their corporations, whether they're state-owned or privately-owned, to spy on and steal technology in the countries in which they operate outside of their home country?

[Mark Schaan]

Mr. Chair, I'm not in a position to furnish the committee with specifics on all of the trade practices of the WTO. I would simply note again that an entity that is controlled or influenced directly or indirectly by a government or agency referred to in the act would include such provisions.

[Rick Perkins, Conservative, South Shore—St. Margarets, NS]

That doesn't answer the question. I'll give you a more specific example, because you would have been present in the department, I assume, for some of these decisions that have been made. That gives the power, but, as Mr. Fast said, it doesn't compel the minister to actually do anything.

As we know, Sinclair Technologies was bought by Norsat in Vancouver in 2011, and then Sinclair was subsequently taken over by Hytera. On that transaction in 2019, two years after this law was passed, the minister of ISED had the power in the existing act to do a full national security review—not a superficial one, but the full one—and to call on the Minister of Public Safety to do that review. That essentially state-owned Chinese company is banned in the U.S, because they're in the telecommunications business and they've been spying. From that full and detailed.... Yet, Minister Bains chose not to do that and allowed this to go ahead with a very superficial, “Oh, it's okay”. While the power is there in that definition, and subsequent definitions, it's not being used. The subsequent exposure of our industries to them, including the RCMP and the Canada Border Services Agency, which subsequently bought equipment from them, is a result of that lack of usage of the existing section. That's why we're arguing for strengthening both the definition of “state-owned enterprise” and some of the other provisions.

Why—and you may say it's a cabinet confidence, or whatever—if the power is there, is it not being used in that case? There are others, of course. The Tanco mine in Manitoba, Canada's only lithium-producing company, was bought by Sinomine without any.... The same minister chose not to have the national state-owned enterprise, Sinomine of China, which was acquiring our only lithium mine that was producing, go through a detailed public security. I would argue as well that in that benefit test under the act, ministers are choosing not to do this.

[Mark Schaan]

Mr. Chair, thank you for the question. I will not be in a position to speak to specific decisions on specific cases, given both the national security information at play as well as the fact that, as the member noted, they are cabinet confidences.

The broader point I would make, however, is that while there's much consideration in many cases about whether or not a case proceeds from sections 25.1 to 25.2 to 25.3, it should be noted that all cases are subject to national security review. Some cases do proceed through the maximum allowable timeline associated with that national security review, including the move from “could” to “would”, which is the important stuff in section 25.2 and section 25.3, but all cases are subject to a national security review.

[Rick Perkins, Conservative, South Shore—St. Margarets, NS]

Can you give me a recent example in the last couple of years where that's actually happened by a Chinese state-owned enterprise, where that isn't about divesting, as the minister has said under his new guidelines? Three companies were forced to divest their mining assets after the fact when they were bought. Is there anything other than that?

[Mark Schaan]

A public example would be Aecon. I would also just point to our annual report which notes the number of state-owned enterprises that have been subject to investment reviews.

[The Chair, Liberal, Joël Lightbound]

Thank you, Mr. Schaan.

Mr. Fast.

[Ed Fast, Conservative, Abbotsford, BC]

I just want to seek some clarity here. State-owned enterprises are companies that are effectively controlled by a foreign state. Broadly speaking that's what these companies are—they're not private companies.

[Mark Schaan]

The definition in the act says, “an entity that is controlled or influenced, directly or indirectly, by a government or agency”.

[Ed Fast, Conservative, Abbotsford, BC]

For the sake of those who might be watching, very simply it's basically a company that is owned directly or indirectly by a foreign state that is now to make an investment in Canada. It does not capture any private companies. As my colleagues have noted, private companies that are not owned by the state is what I'm referring to.

[Mark Schaan]

The definition extends to influence.

[Ed Fast, Conservative, Abbotsford, BC]

But it doesn't include influenced under the national security law of China, does it?

[Mark Schaan]

It is not that specific. It is broadly understood as influence.

[Ed Fast, Conservative, Abbotsford, BC]

Exactly, and that's the problem. Every single company in China is compelled to act as an agent of the state under that national security law.

What we're doing here is including an amendment that would broaden the definition to effectively include any company looking to make an investment in Canada that is domiciled in a country where basic democratic rights and freedoms are not respected. Did I get that wrong?