International Trade Committee on Oct. 28th, 2024

[Luke de Pulford]

Thank you very much for the question.

Human rights due diligence is exceptionally important, particularly as we move toward an increasingly interconnected global economy. Unfortunately, in China, any due diligence, let alone human rights due diligence, is very difficult to perform. In fact, the consensus of human rights experts is that human rights due diligence in the Uyghur region is impossible to perform, for the simple reason that it isn't possible to take somebody who is Uyghur out of a factory and interview them freely with them speaking freely. In fact, they would probably suffer reprisals if they were to tell you about the conditions in the factory.

Basic human rights due diligence simply isn't possible in the Uyghur region, yet many big, multinational companies continue to source from that region knowing that human rights due diligence is not possible. I think what this tells us is that our human rights due diligence protocols are not up to scratch. They don't work.

You can see from a number of examples recently of companies withdrawing from Xinjiang that there is an acknowledgement that it's becoming more and more difficult. Here's one very good example, although it doesn't have to do with human rights. Staff from a German due diligence firm were imprisoned just the other day. They were imprisoned because China had accused them of espionage, which is something that happens routinely. The reality is that China didn't like them digging around in the details. Well, that's the job of people doing due diligence. If they're not able to do it in China, we need to ask ourselves some very serious questions about how we can continue to source from that region.

[The Chair, Liberal, Judy Sgro]

You have 40 seconds remaining.

[Simon-Pierre Savard-Tremblay, Bloc, Saint-Hyacinthe—Bagot, QC]

You mentioned espionage. This will allow me to segue into my next question.

The committee received Mr. Charles Burton, professor and specialist in Chinese affairs. He argued that Chinese electric vehicles could facilitate Beijing's foreign interference; Beijing's tendency to collect data is well known.

Meanwhile, Mr. Daniel Breton, of Electric Mobility Canada, said he had it on good authority that industrial espionage had taken place in Canadian research centres.

Can you tell us more about these concerns?

[Luke de Pulford]

One of the most important things is to ensure that we don't end up stigmatizing all Chinese people because of the behaviour of the Chinese state. That would be a mistake, and we don't want to lurch into McCarthyism around this.

However, it is true that through the United Front Work Department and through many other overseas Chinese organizations, there is penetration and infiltration of many layers of our economies, and that includes the Canadian economy. It has been well demonstrated by your inquiry into interference. Very unfortunately, I think we are at a stage now where we have to take our due diligence extremely seriously and where we would recommend that it is not safe, sadly, to allow certain nationals to participate in sensitive research projects.

[The Chair, Liberal, Judy Sgro]

Thank you very much.

You have six minutes, Mr. Desjarlais.

[Blake Desjarlais, NDP, Edmonton Griesbach, AB]

Thank very much, Madam Chair.

I want to thank the witnesses for being present with us today. The work you're doing is incredibly important.

I think Canadians, right now in particular, are in a position where they're combatting the reality that we have a severe vulnerability in our supply chain management. We saw that particularly throughout COVID, but now we're seeing it manifested across the globe. We're finding ourselves a stage back—maybe a place behind—particularly when it comes to some of the extreme dependencies mentioned by Mr. de Pulford.

Mr. Bickett, we reviewed your report, and there are some serious and extreme instances here that I think Canadians and our committee would do well to understand more. One of the key findings you discovered, according to your report, relates to this issue. I may be oversimplifying it, but please correct me if I'm wrong. Let's say Russia wants Canadian goods. Let's say they're parts of weapons and important, critical components. Hong Kong is being used as a particular port of entry for these markets, even against sanctions that would prohibit these particular goods that Canadians make from entering these kinds of illicit regimes.

Can you walk us through how something like that could take place, given Canada's existing sanctions regime?

[Samuel Bickett]

There are a number of ways that this can happen. It's important to state that there are different types of goods here. There's been a lot of press around, say, a company like Texas Instruments, which has very cheap calculator parts. They're important for military goods, but they're very difficult to control.

There's a separate category, one that I spoke about in the introduction, like Vectrawave, which makes highly specialized and very expensive chips, or something more in the middle, like Nvidia, which makes relatively expensive chips that are relatively rare. They're very important for these advanced types of machines. Those more specialized categories are the ones that it is best to focus on.

What's happening is that you're not shipping these things directly to Russia from Canada, the United States or Europe. They're being shipped elsewhere, and often not actually to Hong Kong. Hong Kong doesn't release its customs records, and there's no way to access them, so we don't know exactly where they're coming from. They might be in several different places going around the world. What's important here is that certain companies have made it clear that unless governments crack down on them and, essentially, take steps to deter and enforce regulations against them, they're not going to do anything.

Recently, Nvidia's leadership gave an example that if the speed limit is 75 and they're going at 65, they're not breaking the law, and they're going to do it. That was in reference to them sending extremely advanced GPUs to China. China is then using those to advance its AI. That's the attitude you're getting from many businesses in North America and Europe. They are saying, “If you guys don't stop us from doing this, we're going to do it to the extent that we're able to do it.”

Right now, Canadian and American companies can send their goods to different places. They can do a few check marks. There was a great example we talked about in our report of a New York company that asked, through email, a man, a Russian citizen who was based in Hong Kong, to confirm that he didn't plan to send its advanced technology to Russia. He wrote in an email, “I will not send this to Russia.” He was sent a bunch of OLED displays that can be used in scopes for weapons.

There's that kind of example. They're going to do the minimum. Increases are needed on due diligence requirements, and enforcement against those who sort of put their heads in the sand like ostriches and don't do what they're supposed to do when it comes to really making sure their supply chains and distributors are doing what they're supposed to do.

[Blake Desjarlais, NDP, Edmonton Griesbach, AB]

That's part of the issue that you're describing here. It's this network. It's this massive and quite sophisticated network, I'd suggest, that relies on the prior infrastructure that Hong Kong and many western democratic states really included, supported or created. Has this familiarity perhaps created some vulnerability?

[Samuel Bickett]

I think that's right. Hong Kong is not the only place in the world that's like this, but in Hong Kong, you can create a company in 24-48 hours. You can dissolve a company almost as quickly. That's what's happening here. As I emphasized in the introduction, a big problem here with western sanctions is the speed at which they're done. When it takes months to investigate and sanction a company, by the time a company gets sanctioned—and we've seen it multiple times—that company no longer exists, because it has already switched over to something else. Sanctions are way too slow.

[Blake Desjarlais, NDP, Edmonton Griesbach, AB]

It's like trying to dodge a truck coming from a hundred miles away.

[Samuel Bickett]

Before Hong Kong went rogue and moved away from the west.... It has always been a place where you could do that, but it was a lot more focused on criminal organizations and things like that. That infrastructure, which was friendly towards criminal organizations that wanted to hide their assets, is now being used for a more political purpose.

[Blake Desjarlais, NDP, Edmonton Griesbach, AB]

Have you sent this report, in particular, to any government officials in Canada, and how have they responded?

[Samuel Bickett]

I wasn't up here, but some members of our team from The Committee for Freedom in Hong Kong Foundation did come up to speak to officials here. That led to this hearing. We understand it was received very well by all parties and from all sides of the debate. There is concern in Canada, and we appreciate that. We're happy to work with the government and this Parliament on trying to implement some of these things.

[The Chair, Liberal, Judy Sgro]

Thank you very much.

Next, we have Mr. Baldinelli for five minutes, please.

[Tony Baldinelli, Conservative, Niagara Falls, ON]

Thank you, Madam Chair, and thank you to the witnesses for being with us today.

I want to build on what my colleague was speaking about with Mr. Bickett.

Mr. Bickett, you mentioned in your testimony that the administration of Hong Kong has essentially gone rogue now on using the territory to flout the sanctions. You've prepared this report. Do we have any Canada-specific numbers as to how much these sanctions, a dollar total, are being circumvented by essentially being sent through places like Hong Kong?

[Samuel Bickett]

Do you mean for Canadian companies that are exporting and their goods ending up...? We don't have numbers for that. That's not public information, because if it goes through these multiple different countries.... Interestingly, one reason that we can do a lot of this work on Russia is that Russia releases a lot more customs information than most places do. That's why we have what ultimately arrives in Russia.

What we do know about Canada is that it's pretty high on the list of suspicious activity reports from financial firms for Russia's sanction evasion, which suggests that there is some need to do more enforcement and more investigation into numbers that we don't have.

[Tony Baldinelli, Conservative, Niagara Falls, ON]

I was going to follow up on that notion. You speak of secondary sanctions and the concern about Canada being high on these lists now in terms of sanction evaders. You speak to the need for quicker investigative methods and that right now sanctions are too slow. How can we improve our investigative methods to bring about a quicker resolution? You're saying that sometimes, by the time government acts, these companies are already closed. Is it CBSA? Is it the RCMP? Is it FINTRAC? Are they working together?

How can we get a coordinated approach to tackle this issue of sanction evasion?

[Samuel Bickett]

Part of what we've done, particularly since releasing this report, is meet with investigative agencies. We hear routinely that there's a need to strip away bureaucracy. You need to have approvals and you need to reach a certain level of evidentiary standards, but there's a need to make sure that this stays with people who are able to do this quickly and understand what's going on. That comes down to really letting these agencies do their job without having this get held up in a lot of review and things like that.

There's also just a need, frankly, for more budget and more people to be able to investigate these things. At this point, we've done more work with the U.S. government on this than the Canadian government, with understanding the weeds of that. To give an example here from the U.S. side on Russian sanctions evasions, the organization BIS, which is responsible for investigating these things, only has a very small number of people who are able to investigate this. Having done this ourselves in a private capacity outside of the government, it takes many months to pull together even a few names and pull together the evidence on them.

It shouldn't be two, three or four people who are in the government investigating these things. It should be dozens or more. There are hundreds of companies in Hong Kong alone, much less China or the Middle East and autocracies there, that have filled up these holes, filling the void and reshipping these things.

[Tony Baldinelli, Conservative, Niagara Falls, ON]

I want to go to Mr. de Pulford.

You talked about a coordinated approach in responding to China. What changes in trade agreements or policies would most effectively counteract China's unethical practices, such as forced labour and environmentally harmful waste disposal?

[Luke de Pulford]

Thank you very much indeed for the question.

I think that what we can do, and what we have yet to do in a really meaningful way, is ensure that plurilateral trade agreements have very meaningful commitments to human rights due diligence.

I'll give you an example. Right now, the CPTPP does contain quite extensive provisions around labour. It has quite high labour standards, but in practice, they don't mean very much because you can more or less join that agreement if the members say you can. The assumption had always been that China would never be able to join the CPTPP. Their labour standards are way too low. The reality is realpolitik. They'll be able to join if the members say they can.

I think that ensuring that there are non-negotiable principles around shared values, human rights and due diligence in supply chains would be a very good start.

There's much more that we can do. I think there should be a coordinated reduction of dependency upon China, not just unilaterally—not just Canada saying that it's too dependent. We need democratic nations to come together and say, we have this common problem, so let's find a common solution. If it requires us to pool our resources in order to seed alternative markets, for example, let's do that. It's going to be much easier dealt with together than on our own.

[The Chair, Liberal, Judy Sgro]

Thank you very much.

Mrs. Fortier, you have five minutes, please.

[Mona Fortier, Liberal, Ottawa—Vanier, ON]

Thank you, Madam Chair.

Thank you to the witnesses for joining us and supporting us on this study, which is very important, both to the committee and to the government.

My first question is for both witnesses.

You alluded to it in your opening remarks, and I would like you to share your opinion with us a bit more directly. How does the importation of electric vehicles made in China and containing Chinese technology threaten Canada's national security and Canadians' privacy and personal data?

[Luke de Pulford]

I would say, in two ways. First would be through what people call cellular modules or CIMs, which are susceptible to remote manipulation because they require software updates from the manufacturers. There have been a number of reports, sadly, about remote access and remote manipulation of Chinese-made cellular modules in electric vehicles, including one in the United Kingdom. It was in a ministerial car, which was bugged as a result, so these are really very important national security implications around this.

In addition to that, a key point about data transfer is that we have, in the European Union, the general data protection regulation, GDPR, but the reality of that situation is that it doesn't really save us when it comes to data transfer to China. The reason is that it's still possible for any company to transfer to any partner company in China if they have contracts with each other and there are certain clauses in those contracts. Those clauses say that they will, of course, protect people's data. However, they don't, and they can't. The reason that they can't is that, in China, the intelligence security law of 2017 and a number of other pieces of legislation require every Chinese company to hand over data upon request and to deny that such a request has happened if they are asked. So, from a data protection point of view, that means that your data can be legally transferred to China, that the state may have access to it, that you will never know, and that the company is not permitted to tell you by law.

[Mona Fortier, Liberal, Ottawa—Vanier, ON]

Thank you.

Mr. Bickett, did you wish to add anything to your opening remarks?

[Samuel Bickett]

Sure.

I'll really emphasize here that you'll hear Chinese companies—and we even see this with companies like TikTok, which are technically based in Singapore—assuring you that they don't want to turn over Canadians' information, that they don't want to violate people's privacy, that they want to work with you on these things. Frankly, a lot of the time they're telling the truth. These are guys who are capitalists, and they want to make money. However, what they won't tell you is that they don't have a choice in the matter. If they are operating out of China, if they are a Chinese company or if they have connections to China even if they're officially based internationally, if they are asked for personal information, they will provide it. If they are told in a dispute, in a war or anything like that to trigger problems with their technology across the world to attack infrastructure, they will have to do it.

All of these things are major national security concerns. I think that Canada and the west have long benefited from free markets, and that has been a very helpful thing to the world. However, we can't do that at the expense of national security. There needs to be a much clearer-eyed view of what's going on here.