Industry Committee on June 14th, 2023

[The Chair, Liberal, Joël Lightbound]

Friends and colleagues, I call this meeting to order.

Welcome to meeting No. 81 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’s meeting is taking place in a hybrid format, pursuant to the House order of June 23, 2022. Members are attending in person in the room and remotely using the Zoom application. Having said that, I can see that no one is attending the meeting remotely.

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

No one is participating using the Zoom app today.

[The Chair, Liberal, Joël Lightbound]

Yes, Mr. Vis, no one is participating remotely in this meeting.

I would like to make a few comments for the benefit of the witnesses and members.

First, please wait until I recognize you by name before speaking. For those participating by videoconference, click on the microphone icon to activate your mike and please mute yourself when you are not speaking.

Although this room is equipped with a powerful audio system, feedback events can occur. These can be extremely harmful to interpreters and cause serious injuries. The most common cause of sound feedback is an earpiece which is too close to a microphone. Please be cautious when handling the earpieces, especially when your microphone or your neighbour's microphone is turned on. In order to prevent incidents and safeguard the hearing health of the interpreters, please ensure that you speak into the microphone to which your headset is plugged in and please avoid manipulating the earpiece by placing it on the table, away from the microphone, when it is not in use.

Lastly, a reminder to address all comments to the chair as much as possible, but not necessarily.

Now, I would like to greet three regulars, who are here to discuss Bill C‑34. We therefore welcome Mark Schaan, senior assistant deputy minister, strategy and innovation; James Burns, senior director, investment review branch; and Mehmet Karman, senior policy analyst, investment review branch. Thank you for joining us once again.

(On clause 7)

We are now ready to resume the clause-by-clause. We left off at clause 7. If I'm not mistaken, Mr. Perkins had moved amendment CPC‑2. We will therefore resume where we left off, which is to say at amendment CPC‑2.

Go ahead, Mr. Williams.

[Ryan Williams, Conservative, Bay of Quinte, ON]

Thank you, Mr. Chair.

Yes, this is on clause 7, proposed subsection 15(2). The version with amendment would have:

15(1) An investment subject to notification under Part III—other than an investment referred to in paragraph 11(1)(c)—that would not otherwise be reviewable is reviewable under this Part if

(a) it falls within a prescribed specific type of business activity that, in the opinion of the Governor in Council, is related to Canada's cultural heritage or national identity; and

(b) within twenty-one days after the certified date referred to in paragraph 13(1)(a)

(i) the Governor in Council, where the Governor in Council considers it in the public interest on the recommendation of the Minister, issues an order for the review of the investment, and

(ii) the Director sends a non-Canadian making the investment a notice for review.

Adding proposed subsection 15(2) would be:

(2) Despite the limits set out in subsections 14(3), 14.1(1) and (1.1) and 14.11(1) and (2), an investment is reviewable under this Part [regardless of its value] if

(a) the non-Canadian making the investment is a state-owned enterprise or is controlled by a state-owned enterprise;

(b) the Governor in Council, on the recommendation of the Minister, is of the opinion that a review of the investment is in the public interest; and

(c) the Governor in Council issues an order for the review within 21 days after the day on which the non-Canadian gives notice of the investment to the Director.

Mr. Chair, this is really to look after what we deem to be, at this point in time, threats from state-owned actors into foreign direct investment, really to look at the threshold as a whole.

We had testimony, specifically from Dr. Burton, that really spelled out this whole part. He said:

all Chinese global enterprises are fully integrated into the PRC party, state, corporate, military and security apparatus, because, as party General Secretary Xi Jinping put it, “Party, government, military, civilian, and academic, east, west, south, north, and center, the party leads everything.”

There are no Chinese industrial enterprises existing independently from China's party-state. Huawei, for example, does not self-identify as a Chinese state-owned enterprise, but, like all PRC institutions, its org chart suggests that Huawei's Chinese Communist Party branch takes precedence over the Huawei board of directors in corporate decision-making.

He also talked about how:

Chinese law requires that all companies and individuals co-operate with their intelligence establishment and hide that co-operation. That, combined with the Chinese regime's unrelenting cyber and human-source spying on our Parliament, political parties, government departments, universities and businesses, is reason enough to conclude that foreign investment from China must be subject to the most stringent national security test, regardless of what sector or industry the proposed investment may target.

I just want to talk, really briefly, too, about this bill. I think it's been great, Mr. Chair. As we switch from one bill to another in clause-by-clause very quickly, I want to talk about just how important this bill is in a larger strategy around foreign direct investment. We've gone through a lot of different instances of how important it is to look at foreign direct investment in tangible assets and also intangible assets. We're looking at this in broad scope.

This is an important bill. I think everyone in this committee understands that. I think everyone here wants to make it great. We've had some really incredible testimony, but this isn't a slam-dunk yet. When we look through amendments, we're really trying to make sure that we're looking at each aspect of this to the fullest, and that we ask the right questions. Then we can ensure that, when this bill is passed, it is not only a bill that acts on its own but also a bill that's going to work in a strategy for foreign direct investment in tangible assets, and investment as a whole.

One point that was made is that we need to modernize this act to ensure that it tackles economic security as well as national security. I know it was mentioned that this bill does not do that. It only tackles national security. We're missing that extra component. A stat that was bandied around was that only 1% of acquisitions from 2009 to 2019 have been reviewed by the departments at this point.

One part was that small and medium enterprises are essential to Canada, growing them but also protecting them. How are we protecting our SMEs and ensuring that all our small enterprises stay and grow in Canada? Is this looking only at one aspect, which is tangible assets, and not the intangible assets?

My colleague, Mr. Lemire, mentioned an example, the acquisition of Rona, which is really important. The minister had set conditions, but in the end, five years later, there was not much left of the company in Quebec. I think the example there was a company called Garant, with shovels that can't always be found in Rona stores anymore. There was also the example of Osisko Mining, which sold half of its Lac Windfall project to a South African mining company, Gold Fields, for $600 million, of which 50% formed a joint venture. It may not have been looked at as a whole.

It's bigger than just FDI and tangible industries. It's now mostly about intangible industries, and we're losing, as with Sidewalk Labs in Toronto or Dalhousie University, which has had Tesla investment but all of that IP left Dalhousie, left Canada and went to the U.S. Money goes to invest in Canada and Canada says, “Come and take our best stuff.”

One phenomenon of the last 25 years has been that corporations can unbundle parts of the value chain. We've learned that, because of their incredible power, corporations today, in their corporate strategies, can bundle, rebundle, unbundle and sell off an asset without shutting down the firm, and they're selling the firm out in an IPO.

One of the questions we'll ask as part of this amendment is, are we protecting that when we look at reviews of state-owned organizations? Maybe I'll start with the officials with one question on that. When it comes to a review of all state-owned organizations and understanding the significance of that, one of the first questions I have is, how are we looking not only at tangibles in FDI, in that investment, but also at intangible investment in Canada and protecting the IP?

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

Thank you, Mr. Chair, for the question.

As noted in previous testimony, foreign direct investments from state-owned enterprises are subject to review under the national security provisions of the act. They are also subject to net benefit if they meet the threshold test. This amendment obviously seeks to look at that threshold.

With regard to intangible assets, it's worth noting that the act already allows us to look at the investment in the company and its assets, and that has actually been understood to include intangible assets. In fact, without being able to speak to specific cases, I can tell you that we have reviewed transactions that were specifically related to the intangible assets of an entity, and that is part of what makes up our review, including on national security considerations.

[Ryan Williams, Conservative, Bay of Quinte, ON]

If companies are able to unbundle portions of.... This is what has happened with certain companies. They take some of the IP, unbundle it and sell just that aspect or that one part of the company to a foreign direct investment, and then, after that sale is done, they rebundle it.

I know that one of the arguments for the minister's having the power himself to do reviews outside of an order in council would be that it's quick and we're operating at the speed of business. Perhaps also one of the conditions was that employees of those companies couldn't talk for 30 days or 45 days about the ideas that are part of that company, but companies are still able to unbundle parts of that.

Is that something the department has looked at, how companies are getting around the rules that are set in place? Even though this amendment might have a zero threshold, are there still ways in which companies, as we've heard from testimony, are getting around that through the intangible assets and the ability to sell them off, as we've seen in Quebec and elsewhere?

[Mark Schaan]

I would compartmentalize the question into two parts.

One, investments into Canada from foreign actors are reviewable under the national security provisions regardless of threshold. There is no threshold. This also includes, as I noted, intangible assets and a portion of a given entity or organization. I am aware that we have actually utilized that power in the past.

With respect to the possibility for organizations to try to sell off a portion and then rebundle that portion, I would say that those transactions are reviewable, particularly at first instance when that foreign investor is actually acquiring that. Should there be a subsequent sale, it would depend on the specifics of the use case, on who was selling it and to whom, as to the interaction with the Investment Canada Act. If that was a subsequent sale that had already been reviewed and was now an indirect transaction, it would still be subject to national security considerations. If it was an indirect sale above threshold, it would not necessarily apply to the net benefit, because the first transaction would have—in the sense that the first transaction, either in whole or in part of an organization, including their intangible assets, would have been subject to the ICA on national security grounds.

[Ryan Williams, Conservative, Bay of Quinte, ON]

Thank you.

Another example that was brought by witnesses was CRRC. It's a Chinese railway sector company that was disqualified for some national security concerns in the U.S. It probably would not have gone through the study here in Canada. However, it got through that because the TTC in Toronto was able to pre-qualify that company through other tenders.

One thing we're going to get into, when we talk about the collaboration of this bill with other bills and with other parts of security in Canada, would be different departments. In terms of ISED and looking at working with other elements of municipalities or provinces in Canada, how do we stop something like that from happening in the future?

We can put a zero-threshold provision in this bill, but is there anything else that stops that kind of activity from happening in the future?

[Mark Schaan]

Mr. Chair, I appreciate the question.

One goal of the continued work on economic security is the heightened knowledge and capacity across the entirety of the ecosystem, including other levels of government that intersect and engage with partners. That's at the root of lots of the work that's under way with research security, trying to ensure there is a much stronger base of knowledge for all parties within the system about the ways in which they're intersecting with foreign investors and with national security and economic security concerns.

Obviously, given the responsibilities set out by various levels of government, we don't have a capacity to cut off things like the ability for other levels of government to contract with entities. What we can do is control the foreign direct investment into Canada in the first place and whether they are an illegal Canadian entity for operations within Canada—and those determinations come through the ICA process—and then obviously the degree to which any subsequent investments by those organizations are actually possible.

I think we need to look at the full tool kit within some of those, because obviously we can't bind municipalities or provinces with regard to what's within their full jurisdiction. What we can do is use our tool kits and our knowledge and capacity building to ensure that everyone is at least aware of the situation and working together toward the same ends, and then use the ICA where it is most useful, which is in reviewing foreign direct investment into the country, including the establishment of operations within the country.

[Ryan Williams, Conservative, Bay of Quinte, ON]

Thank you.

I think you have some of those processes in the investment review division, which is where you operate.

There have been other instances, where the minister, for instance, has banned Huawei from Canada. There are universities still working with Huawei right now. There are, again, intangible assets. Of our applied research funding, 95% goes to our institutions and we still have that threat in those institutions, taking that IP away from Canada. Again, we're not addressing it per se in this act. When we have one amendment, how are we then addressing it in other acts? I think that's really important.

We've had a lot of witnesses talk about the supply chain. The current IRD is not going to shape or dictate the value chain in Canada, or supply chains. One of the biggest issues we had a lot of testimony about was critical minerals. When we look at some of this foreign direct investment and some of the tangible assets, the IRD would certainly look at everything through an Investment Canada Act range. However, when it comes to supply chains, is there anything outside of this amendment, outside of this act, that will allow the IRD to look at supply chains as a whole? Could you maybe answer that with any knowledge you have on the supply chain strategy that Canada has right now?

[Mark Schaan]

I'd offer a couple of comments. One, obviously, is that the current statement and guidance that we have on critical minerals are, in fact, attempting to ensure that the overall approach to the overall development of the industry is cognizant of the national security considerations at play and that it is setting out the broad framework that should guide key decisions in terms of not only the establishment of foreign direct investment but also the overall establishment of the critical minerals value chain within the Canadian context.

That said, there are a number of other actors, and this speaks again to the capacity building that's required across the entirety of the community, because there are sector-specific regulators, including at the provincial level, who have very key tools within their tool kit to be able to establish the guidance that actually sets out the minimum requirements for their sector specifically.

You raised the telecommunications sector. Obviously, that's exactly what is proposed in Bill C‑26. It is to actually establish the specific guidance in a sector that we have federal jurisdiction over to say that these are the minimum requirements in this sector for how we're going to continue to ensure that security is contemplated and that we have very specific guidelines about high-risk vendors. Those same types of approaches can, and should, in many cases, be mimicked in other sectors to ensure that where we actually have jurisdiction, we are following through.

The goal of the ICA is to set the macro around foreign direct investment with the levers that it has, and then look at other mechanisms. As I said, where we actually have those levers, we've done that. In Bill C‑26, that is very much exactly what we've set out, and then, with the critical cyber systems protection act, we will extend that as well into other sectors to ensure that there are minimum requirements as it relates to the cyber-readiness and the posture of those sectors.

[Ryan Williams, Conservative, Bay of Quinte, ON]

We have the—

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

I have a point of order, Mr. Chair.

[The Chair, Liberal, Joël Lightbound]

Just one moment, Mr. Williams.

Mr. Gaheer, go ahead.

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

I think the member opposite will find support for this amendment, actually.

I do have a subamendment that I'd like to move, if the member will allow me, but again, it's on friendly terms.

[The Chair, Liberal, Joël Lightbound]

From what I understand, MP Gaheer, you have a subamendment, but Mr. Williams had the floor, so I'll defer to him.

[Ryan Williams, Conservative, Bay of Quinte, ON]

I'm happy to hear you're going to support our amendment. That's great.

I don't have too much more time. I'm just trying to get a background for certain things. If you have a subamendment, that's great. As soon as I am done with the floor, we can go to the subamendment. That would be fine.

[The Chair, Liberal, Joël Lightbound]

You were next on my list, Mr. Gaheer. You are after Mr. Williams.

Then I have Mr. Masse, Mr. Lawrence and Mr. Vis.

Mr. Williams, the floor is yours.

[Ryan Williams, Conservative, Bay of Quinte, ON]

Thank you. I do appreciate that.

I think this is a really good discussion. We started with the minister and the officials. I reread Hansard last night, and we had really good testimony from all over on this.

My point from the beginning was just to get a background. I think a lot of the committee members had the same concerns, and a lot of witnesses said the same. This does one thing, but we need bills that supplement this; we need strategies to supplement this. We could pass this bill as parliamentarians, and a year from now we would still have all these things happening and we're going to ask why. I think the public and anyone watching, and all of us here, need to understand that this is one aspect, and now we need to move from this to other aspects of what this does and what this does not do. I think that's been really important.

Because this came afterwards, I just wanted to get your opinion. The C.D. Howe Institute proposed a national security amicus or intermediary, which was a review. It's more on the transparency aspect of this bill, but it allowed a review that.... It was almost like CFIUS, where they have different public members and a few judges who would review certain forms of direct investment.

Was that something your department looked at? Did you look at that briefing and see anything around that?

[Mark Schaan]

We have taken a look at the report. I think the goal of that particular function in the CFIUS regime is to provide heightened transparency for the purposes of the investor in terms of the degree to which the process is understood from their perspective. Our regime doesn't exactly mimic CFIUS in many ways, but I would say there are a number of transparency measures we have put in place, including annual reporting that has been continuously improved in terms of both the degree and the understanding of what we're reporting on.

I believe, later today, we'll also consider some further measures with respect to the transparency of the process, including some oversight of the national security information that's provided within the process.

[Ryan Williams, Conservative, Bay of Quinte, ON]

I have one last question, and then we'll go to the next amendment.

CFIUS, in its program and how it operates, has a lot of involuntary submissions for FDI. Do we have any of that in Canada? Do we see any involuntary—

[Mark Schaan]

Involuntary or voluntary?

[Ryan Williams, Conservative, Bay of Quinte, ON]

I'm sorry. I meant voluntary. That's very different.

[Mark Schaan]

We just put in place the mechanism in August, so we don't have enough span of time yet to be able to determine that.

Obviously, the pre-notification measures that are placed within this bill heighten a number of those we would hope to necessarily see as voluntary and actually make them mandatory.

There are a number of things we are moving out of the camp of.... That's for the dual purpose that a voluntary regime would have. You're trying to provide the investor with certainty and also, for the purpose of the foreign direct investment review, you're actually reviewing the stuff that you really want to review. You're telling people “This is the stuff we want to see” and you're actually mandating it and they're coming through.

[Ryan Williams, Conservative, Bay of Quinte, ON]

Thank you.