Evidence of meeting #83 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 amendment.
A recording is available from Parliament.
Conservative
Liberal
Conservative
Brad Vis Conservative Mission—Matsqui—Fraser Canyon, BC
Thank you, Mr. Chair.
Under part III of the act, “Investments subject to notification”, in the case of our amendment and the subamendment, the amendment says, “issues an order for the review within 21 days”. The subamendment says, “within 45 days”. It was stated by Mr. Gaheer that changing the notification time from 21 days to 45 days would prevent lawsuits.
Why would the change of time or a condition by the Government of Canada...? If you want to clarify that for me, that's great.
Liberal
Iqwinder Gaheer Liberal Mississauga—Malton, ON
It's a conjunction of all three. The lawsuits are mainly related to the final point, where we are narrowing that CPC-2 to be applied to SOEs that we don't have trade agreements with. It is mainly—
Conservative
Brad Vis Conservative Mission—Matsqui—Fraser Canyon, BC
Yes, it's related to SOEs. That's one point.
Conservative
Brad Vis Conservative Mission—Matsqui—Fraser Canyon, BC
Yes, it's SOEs we don't have trade agreements with.
Liberal
Iqwinder Gaheer Liberal Mississauga—Malton, ON
The second one was to add a section to make sure that the investors actually get notified that they'll face this review.
Conservative
Brad Vis Conservative Mission—Matsqui—Fraser Canyon, BC
Investors who are subject to the review are notified. Okay.
Liberal
Iqwinder Gaheer Liberal Mississauga—Malton, ON
Yes.
We're going in reverse order now, but the first one was changing it from “21 days” to “45 days”. The officials, I think, have testified multiple times to the fact that 21 days just isn't realistic, and 45 days will make it more in line with the rest of the review periods in the act.
Conservative
Brad Vis Conservative Mission—Matsqui—Fraser Canyon, BC
That's right. The “21 days” applies to state-owned enterprises that we don't have a trade agreement with, and the “21 days” to “45 days” for notification.... What I'm concerned about is the incomplete notice, when there is a condition that a state-owned enterprise, in this case, would be subject to, in their notification to the Government of Canada....
Is that correct? What do they actually have to tell the Government of Canada when they notify them of establishing either a Canadian business or an investment to acquire control of a Canadian business?
Senior Assistant Deputy Minister, Strategy and Innovation Policy Sector, Department of Industry
The form that is included at the time of notification has multiple fields. It includes information related to the investor and information related to the investment and the nature of the investment. All of that is provided at the time of application.
Conservative
Brad Vis Conservative Mission—Matsqui—Fraser Canyon, BC
Okay. My question is that section 13 also has subsection 13(2). I always get my language screwed up on this. On page 10 of the act, it talks about an “Incomplete notice”. Do we need to consider the application of either the 21 or the 45 days—which I think there's all agreement that we're going to accept—in respect to an incomplete notice. Do we need to look at changing an incomplete notice as well, and should we associate a time frame with that subsection as well?
Senior Assistant Deputy Minister, Strategy and Innovation Policy Sector, Department of Industry
The timeline for an application begins at the time of certification, and certification constitutes a completed application. An incomplete application would not be considered certified.
Conservative
Brad Vis Conservative Mission—Matsqui—Fraser Canyon, BC
If the application is deemed incomplete, the timeline would be irrelevant.
Senior Assistant Deputy Minister, Strategy and Innovation Policy Sector, Department of Industry
That is correct. Certification prompts the 45 days.
Conservative
Rick Perkins Conservative South Shore—St. Margarets, NS
Thank you, Mr. Chair.
I'm going to take a bit of time here to talk about my main concern.
I want to make sure that all those who are watching understand why we're spending so much time on CPC-2 and this amendment. It's because of my concern about China's growing influence. It's not only military. The main threat we're seeing in western countries is an economic takeover. In some ways it is more powerful to try to take over assets and find the wiggle room in our rules. We're a generous and open country, as are most western countries. We like to play fair and by the rules.
In our meeting 71 on May 3, Dr. Patrick Leblond, the associate professor at the graduate school of public and international affairs at the faculty of social sciences at the University of Ottawa, appeared as an individual. He said, “Any state-owned enterprise, regardless of where it's from in the world, should notify an acquisition to the minister. The minister should then decide whether this flies or not, and again be able to justify, if there is a decision, to not investigate” it.
With our amendment and the subamendment we're quite narrowing it. There are lots of countries—most countries, I suspect—that have some form of state-owned enterprise, either at a national or subnational level. Some of them get and make acquisitions extraterritorially. I'm not aware that our state-owned enterprises in Canada have done any.
I assume by the way this bill was drafted and the government's proposed amendments that the government doesn't believe that we should be reviewing all state-owned enterprises for net benefit and what the motivation might be, regardless of where they are. Is that correct?
Senior Assistant Deputy Minister, Strategy and Innovation Policy Sector, Department of Industry
I would suggest that the Investment Canada Act balances a number of very critical public policy priorities. One of these is the continued free exchange of investment between global trading nations and ensuring that we allow Canadian enterprises to be able to participate in the global economy with the same degree of frictionless access—or minimized friction—as possible while at the same time preserving the legitimate right of states to be able to ensure that investments into their jurisdictions are in fact of both net benefit and non-injury to the national security of their people and country.
The various aspects of the act strike an attempt to try to ensure that we are preserving all of the capacities to the greatest degree against those various objectives. Hence, the rationale for which we have maintained thresholds under which investments will not be subject to net benefit reviews, thereby corresponding with the global marketplace but still allowing all investments to be reviewed under national security provisions.
Then, what this modernization does is ensure that we actually have additional mechanisms in place under the act to allow for that to be as thorough and as considered as possible, including the capacity for the minister to reach undertakings and for ensuring that the process is complete.
Conservative
Rick Perkins Conservative South Shore—St. Margarets, NS
Thank you. That's helpful.
I'd just like to add a little colour. I am—as I've said before in previous meetings on clause-by-clause on this act—just concerned. I'd like to make sure that the minister has both the suspenders and the belt as we go through it, to make sure there's certainty.
When was the last time this act was reviewed?
Senior Assistant Deputy Minister, Strategy and Innovation Policy Sector, Department of Industry
There were amendments to the act in 2016, but the most substantial amendments would have dated back to 2009.
Conservative
Rick Perkins Conservative South Shore—St. Margarets, NS
Right, so it's been quite a while. I don't know if any of us will be in Parliament. Some are younger. Mr. Gaheer, probably—
Conservative
Rick Perkins Conservative South Shore—St. Margarets, NS
The beard was a different colour then. I don't know if Mr. Masse and I will be here in another 15 years or so, when the next big review might go through, so we have to get this right.
I'm concerned because, as I've said before, I don't believe that government, with all of the flexibility it's had—and I'm not seeing that some of this is doing what we need it to do—is enabling the protection of our assets.
For example, we know that in 2017, when Norsat was bought by Hytera—and I'm going to speak in a few minutes about Hytera—and Vancouver-based Norsat bought Sinclair Technologies in 2011.... These are important telecommunications companies for which a national security review and, obviously, a net benefit review weren't done.
We know that there have been contracts. I know that doesn't directly relate to this, although we had some testimony from some witnesses who were concerned that, for example, in 2020, the Department of Foreign Affairs awarded a contract to China-based Nuctech—which was founded by the son of the Chinese Communist Party's former secretary general—to provide X-ray equipment in our embassies and consulates.
We've talked before about Neo Lithium. Neo Lithium was bought by a state-owned enterprise without a national security review, and the minister hasn't been given the power to go back, even though I've asked him if he would. He said, “I can't.” I won't go over the fact that some of those amendments that would have allowed him to were not accepted by the committee. I still think it's a power that the minister should be trying to have.
However, the minister was able to get more recent ones—the three divestitures through policy recently. We also know the RCMP awarded contracts, as did the Canada Border Services Agency, to Hytera, which was approved by this government, Minister Bains and the Governor in Council to go forward. Hytera, which is headquartered in Shenzhen, China, is partially owned by the People's Republic of China.
Specifically, I'd like to talk a bit about it. The Internet's a wonderful thing. Hytera is a supposedly a publicly traded company in China. When I go through the financials that are available—which they post, as a publicly traded company in China; it's available on the Wall Street Journal's website—I see a company that doesn't make money. It has a lot of sales, but it doesn't make money. It has $6 billion of sales and has gone between net income loss in most years to fairly anemic profits of, say $95 million on $6 billion of revenue.
That is a basic EPS, earnings per share, loss—based on its last year—of almost 800% on a company that is clearly able to continue to exist in China without actually having profits. One has to think that these companies.... It took two minutes for me to find this out, and I'm not privy to all of the national security apparatus that the minister has at his disposal. The publicly available information says that their EBIT, earnings before interest and taxes, growth was down 48%, then down 8%, and the year before that it was down 40%.
Their sales are stable, but they're spending more and more money to get those sales and losing more and more money every year. I would think in a net benefit review—which is what this subamendment and amendment are about—we'd be looking at the financials of these companies to understand whether or not, as we would normally assume, they win the contracts and get access to companies in Canada by underbidding on a government contract or by overpaying in an acquisition for a Canadian company.
They have a motivation that obviously is different from ours, because any acquisition that would be made by a Canadian company or, I'll say, a G7 company, of an asset in Canada is usually done based on sound business principles and a rate of return and a rate of capital return for investors.
They are not. They are losing more and more money every year, yet we don't seem to see that the government, with its power, is looking at it in the same way that I would if I were lucky enough to be in the position of the minister. When you look at Sinclair, it makes a lot of high-end telecommunications equipment that gets installed within Canada. Norsat, the Vancouver-based company, makes a lot of essentially satellite communications. In this world where—just look around this table—we're all connected, and everyone is looking at their phones and trying to do things, access to that data, access to the hardware of our country, our industries and our security system, when it comes to the RCMP or the Canada Border Services Agency, isn't just about the technical access.
The Minister of Public Safety was here on this issue and said—good news—the radio frequency filters that Sinclair was installing in their Hytera, Chinese owned devices were not connected to the database, but now China has access to the knowledge of where all those key communications points for the RCMP are and where the hardware is across the country. They obviously have the ability, to my mind, to know where it is and to figure out how to disrupt them, if they are not. I don't have access to all of those things.
When I look at national security, I look not only at whatever the intelligence agencies are telling us. I also look at the question of whether or not the net benefit review looks at things such as whether this is a credible purchase, based on sound competitive business practices, from a company that is actually driven by the profit motive and driven by the same things that our companies would be driven by, on which we would say, “Hey, that's okay.” Even in a case where you narrow it down to the trade agreement companies, state-owned enterprises only being under review under $512 million, those companies would also be looked at in terms of what the national motivation would be and whether that motivation would fit with our net benefit interest, which is to develop increasingly competitive companies with strong IP.
I am wondering if you could tell me whether or not, in the net benefit review, we looked at those kinds of things, or we said, “Do you know what? That's a company that doesn't have a huge market share, and we're not overly dependent on it, so it doesn't really matter what the motivation of the acquiring company is.”
