Industry Committee on June 7th, 2023

[The Chair, Liberal, Joël Lightbound]

I call this meeting to order.

Welcome to meeting No. 79 of the House of Commons Standing Committee on Industry and Technology.

Pursuant to the order of reference of Monday, April 17, 2023, we are continuing our study of Bill C‑34, An Act to amend the Investment Canada Act. Today we are proceeding to clause‑by‑clause consideration.

Today's meeting is taking place in a hybrid format, pursuant to the House order of Thursday, June 23, 2022.

We have with us today Mark Schaan, Senior Assistant Deputy Minister, Strategy and Innovation Policy Sector, at Innovation, Science and Economic Development Canada; Jamieson McKay, Director General, Strategy and Innovation Policy, from the Department of Industry; and Mehmet Karman, Senior Policy Analyst, also from the Department of Industry.

Thanks to the three of you for being here today.

I'd like to call new clause 1.1, as consideration of clause 1 is postponed.

Mr. Perkins.

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

I'm just trying to get my papers organized.

[The Chair, Liberal, Joël Lightbound]

On CPC-1, Mr. Perkins, please.

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

Thank you, Mr. Chair. I will introduce this amendment, CPC-1.

CPC-1 is an amendment to this bill, which in its current form proposes no changes to the Investment Canada Act, as I understand it, with regard to the current definition of “state-owned enterprise”. The rationale for this amendment is that the current definition, in my view and in our view, for “state-owned enterprise” is too vague. Companies operating in authoritarian states like China are often beholden to the requests made by the Communist Party of China, even if they are not directly controlled by the state.

This concern is supported by much of the evidence presented at this committee during meetings with witnesses. For example, Dr. Charles Burton noted that no Chinese individual enterprises exist independently from China's one-party state structure. Burton argued that while companies like Huawei do not self-identify as Chinese state-owned enterprises, they do operate similarly to the PRC institutions. Huawei's organization chart suggests that the company's CCP branch takes precedence over Huawei's board of directors in the corporate decision-making and that the company's reasons for existing are not just about economic profitability, but also to serve other PRC regime geostrategic purposes, which threaten Canada's national security.

Because of these concerns, the current definition of a state-owned enterprise, in our view, should be expanded to include any company or entity headquartered in authoritarian states such as China.

With that, I would like to ask the officials a question, if I could. I'm not sure who is the most appropriate official to ask.

Do you agree that this proposed definition would provide the minister with more tools in scrutinizing proposed takeovers by companies based in China, not only as the traditional definition of state-owned enterprise falls under this act but as it falls under international trade law?

The issue brings up China's national security and intelligence act, which China passed, I believe, in 2019. It requires that all companies in China act in the interests of China, including stealing technology, and espionage is possible. That's why companies such as Hytera were banned by the United States from doing business and were actually charged with espionage. Although when you look at the Hytera's disclosures to the stock exchanges in China you will see that it purports itself to be an independent company, as we think of companies, in reality, it has been an effective tool for providing for Chinese espionage and theft of technology in open and democratic countries.

[Mark Schaan, Senior Assistant Deputy Minister, Strategy and Innovation Policy Sector, Department of Industry]

Thank you, Mr. Chair, for the question and for offering the opportunity to raise some considerations that are highlighted through the amendment.

I would raise two sets of considerations specific to this amendment for the contemplation of the committee. One is that the existing definition of state-owned enterprises within the Investment Canada Act already allows the government to review investments that involve state-owned enterprises that would be headquartered in a country such as the one the member describes, without setting out parameters—arguably subjective—that would raise a number of concerns with respect to our trade obligations.

Furthermore, the act also already allows the minister to deem an investor a state-owned enterprise, even if it does not self-identify as such. In section 26 and section 28 of the existing Investment Canada Act, the minister has the authority to deem an investor to be a state-owned enterprise, notwithstanding the fact that an investor might not purport as such.

The second consideration I would note is that the current foundational element of the act is that it is technologically neutral and geographically neutral, allowing the minister the capacity to fully consider state-owned enterprises and not encumber potential trade irritants or look to be prejudicial to a particular geography, which would be in violation of our international accords. A definition that would introduce such parameters could be viewed as such and would potentially give rise to concerns for Canada in the international arena.

Those would be the considerations that I'd flag.

[The Chair, Liberal, Joël Lightbound]

Thank you very much.

Mr. Vis.

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

Thank you, Mr. Chair.

I'll just note, as a British Columbian, that there have been a number of really horrible examples of the role of state-owned enterprises in my province. I think the former premier Christy Clark at one point.... At some point in Canadian history, we were welcoming with open arms all forms of foreign investment from state-owned enterprises or those affiliated with the Beijing regime in China.

What I'm concerned about, as a British Columbian, and where I think in good faith we can get somewhere.... We had a warehouse in Surrey that was flagged as part of the belt and road initiative. That warehouse wouldn't fall under any of the provisions in this act. That's why our party believes so strongly that we need to include a higher degree of ministerial discretion to avoid state actors pursuing objectives that are contrary to the well-being of Canada and our strategic interests.

I want to give the minister, in this context, irrespective of what political party is in power, the ability to counter the negative impact that state-owned enterprises have had in my province.

The other example I'll give is that a company affiliated with the Beijing regime operated care homes in my province, and with horrible consequences. They were eventually taken over by the health authorities because they were so darn bad.

Thirdly, we need more ministerial discretion as it relates to state-owned enterprises because strategic agricultural land in British Columbia is being bought up accordingly.

I don't see how Canada taking a stronger stance against state-owned enterprises is going to challenge us, or that we would be in conflict with our WTO obligations.

Maybe the officials today can say whether China has ever taken action against Canada at the WTO. Has the Chinese government ever taken action against the Province of Saskatchewan—as I raised in our last meeting on this matter—as related to some of the things it has put in place to prevent state-owned enterprises or foreign actors from buying agricultural land in that province specifically? Are there any cases that you can point to there?

[Mark Schaan]

Thank you, Mr. Chair.

I would raise a few additional considerations and one to maybe reiterate.

Currently, already under the act, as I noted, in sections 28 and 26, the minister has the capacity to deem an investor a state-owned enterprise, notwithstanding the fact that they don't self-identify as such. The definition of state-owned enterprise that is already comprised within the act, which is jurisdictionally neutral, does allow for us to continue to identify state-owned enterprises and subject them to the SOE provisions of the act. That is why SOE investments are routinely reviewed under the act and are done so at a higher rate, actually, than are private investors.

With respect to issues of international prejudice against potential geographies, I would note two things. One is that in many cases with respect to a state-owned enterprise, or as it relates to cases before the ICA, it's an affiliation with an investor who was actually not from said SOE. In fact, the investor we often see that is the potential party to a Canadian transaction is actually a member in good standing of the WTO and a respected trading partner, an ally, who potentially has an affiliation with respect to an SOE as part of a broader set of investments.

We do need to be wary of the degree to which highlighting or specifically calling out a country in the act, as opposed to allowing the existing discretion to the minister, may actually deem us to be prejudicial to an investor. There have been a number of cases in which retaliatory action has been taken by countries with respect to investment decisions as well as broader actions against them within their economy.

[The Chair, Liberal, Joël Lightbound]

Thank you very much, Mr. Vis—

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

Can you give us any specific examples of China challenging Canada at the WTO as it relates to this act or as I asked in my question?

[Mark Schaan]

Specific to the ICA, I'm not in a position to furnish the committee with examples of China calling this into question, in part because our existing act is actually geographically neutral and has been interpreted as such. Our definition as it currently stands within the act does not call out a specific country, notwithstanding the fact that we use it routinely in cases incorporating specific geographies.

[The Chair, Liberal, Joël Lightbound]

Thank you.

Mr. Vis, are you done with your line of questioning?

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

I'm almost done.

Just to be clear, this doesn't call into question the neutrality. It's just broadening the definition of state-owned enterprises and the discretion of the minister. I was using solely China as an example because there have been so many geopolitical issues in my province specifically.

Thank you.

[The Chair, Liberal, Joël Lightbound]

Thank you, Mr. Vis.

Next is Mr. Fillmore.

[Andy Fillmore, Liberal, Halifax, NS]

Thank you, Chair.

Thank you to the team here for your instructive and very helpful comments so far.

I'd like to focus on a particular element of this proposed amendment, which proposes a definition of “a foreign state in which democratic rights and freedoms are not recognized”.

The amendment seeks to modify the existing definition in the act. The concern is that lack of clarity can follow from that. I wonder if you might shine some light on that for us and on the risk of that particular element of the amendment.

[Mark Schaan]

Thank you, Mr. Chair.

The existing definition of state-owned enterprises in the ICA, as I noted, already allows the government to review investments that involve SOEs that would be headquartered in such a country, without setting out subjective parameters.

Obviously, one can imagine that when one sets out parameters like “democratic rights and freedoms are not recognized”, there is a degree of subjectivity, to which recognition or non-recognition may be called into question. The degree to which that recognition and the determinations about a geography on the basis of that recognition may actually be seen as potentially prejudicial or discretionary. As such, again, that could set out concerns from others about the degree to which, potentially, the act is not actually geographically neutral.

[Andy Fillmore, Liberal, Halifax, NS]

Whereas there is a fairly clear definition of an SOE, a state-owned enterprise, that perhaps we should be cleaving to...?

[Mark Schaan]

We believe that the current definition of “state-owned enterprise” in the act is sufficiently broad to capture the kinds of corporations in question. In fact, that's why they get reviewed at such a much higher rate than other investors.

[Andy Fillmore, Liberal, Halifax, NS]

Thank you.

[The Chair, Liberal, Joël Lightbound]

Thank you very much, Mr. Fillmore.

Mr. Généreux.

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

Thank you, Mr. Chair.

If sections 26 and 28 of the act are so well drafted as they stand, can you cite us any examples where the minister had to interpret and apply them? Can you also give us some examples where the minister had the necessary authority to assert that a business came from a country unfavourable to Canada? Do you have any specific examples of that?

In recent years, we've seen many instances of Canadian businesses, particularly in the telecommunications and technology sectors, that have been excluded from business dealings in the United States. Is there a discrepancy between our present act and American legislation, for example? Would that be because the minister didn't want to apply sections 26 or 28 and to make his own decision without the definition of “state-owned enterprise” being changed? A change to that definition is in fact being proposed as we speak in order to improve it or at least to include in it something we consider is an improvement. That's my first question.

My second question concerns the entity. As we interpret its definition in this bill, an entity is a business that has its headquarters in a foreign state in which basic democratic rights and freedoms are not recognized. Do you consider that problematic? Could it give the minister a reason to decide whether that entity or business could or couldn't do business in Canada?

[Mark Schaan]

Thank you for those questions.

Two or three important aspects should be considered here.

First, the member has referred to efforts by other countries to exclude organizations or corporations in a specific sector. It's important to note that these legislative measures, including England's Telecommunications Act and the approach of telecommunications in Canada, are geographically neutral. Consequently, they allow governments to exclude actors that are high-risk suppliers, as does the definition of “state-owned enterprise” in the Investment Canada Act, which is both technologically and geographically neutral.

Second, the definition of “state-owned enterprise” set forth in the Investment Canada Act is broad enough to allow the minister to use the provisions, now that they exist, to exclude or allow investments made by state-owned enterprises. This doesn't require the application of sections 26 and 28 given the leeway that the definition provided in the act affords. The problem caused by the inclusion of aspects that may be subjective or are defined in a non-standard manner puts Canada at risk of being perceived by other countries as harbouring prejudices. That's why the definition remains broad and states no specific geography. It doesn't mention any non-standard aspects, such as harmful behaviours, because they are now defined in the act.

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

Can you cite any examples from the past few years in which the minister chose to construe the present definition as providing that certain foreign businesses weren't welcome in Canada?

[Mark Schaan]

It's hard to give you any examples because the act has been applied in a national security context. It's impossible for me to cite you a specific case.

I would note that the minister has taken steps to oppose investments by state-owned enterprises or businesses that didn't identify themselves as state-owned enterprises. That includes Investment Canada exclusions.

Just to be absolutely specific and make sure I'm precise, the minister has taken multiple actions against state-owned actors over the last number of years, including those who do not define themselves as such. I can't speak to specific cases given the operating environment of the act, but I can say specifically that there have been a number of cases in which state-owned actors' investments have been subject either to mitigating orders or to blocks.

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

There have nevertheless been highly publicized cases in recent years where one can imagine that the minister opted to exercise his authority under the present definition. I wouldn't dare name any businesses either, but some cases are now public, and we've heard about them in the past few years.

My understanding is that you don't want to discuss specific cases.