Natural Resources Committee on June 2nd, 2023

[The Chair, Liberal, John Aldag]

Good morning, everyone. I call this meeting to order.

Welcome to meeting number 66 of the House of Commons Standing Committee on Natural Resources.

Pursuant to Standing Order 108(2), the committee is meeting on the Canadian pulp and paper industry.

Today's meeting is taking place in a hybrid format. All of the members are online. You know the drill, so I'm not going to go into the details.

Welcome to our guests who are here in person today. We have for witnesses representatives from Industry Canada. They are Mark Schaan, senior assistant deputy minister, strategy and innovation policy sector, and DeNeige Dojack, director, investment review division. From Natural Resources, we have Greg Smith, director, economic analysis division, Canadian forest service. From Public Safety Canada, we have Richard Bilodeau, director general.

Two of the departments have five-minute opening statements. I use a handy card system. I'll give you the yellow card, which means 30 seconds are left, and the red card means wrap it up, but don't stop mid-sentence. Then we'll get into our rounds of questions, which starts off with six minutes for each and then shorter ones after that.

Let's go to our Industry Canada representatives first, and get right into it today.

You'll have five minutes on the clock.

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

Thank you, Mr. Chair.

Mr. Chair and members of the committee, good afternoon. My name is Mark Schaan, and I have recently been named the deputy director of investments, where I'm responsible for assisting the director of investments and advising the Minister of Innovation, Science and Industry on reviews conducted under the Investment Canada Act, or the ICA.

I'm accompanied by DeNeige Dojack, director of operations of the investment review division, or IRD. Among other things, the IRD is responsible for administering the ICA on behalf of the Government of Canada.

Thank you for the invitation to participate in the committee's study of the Canadian pulp and paper industry.

I understand not everyone is familiar with how the ICA works. So let me provide a general overview.

Foreign investment plays an important part in the Canadian economy, bringing new capital, technology and practices that can increase the productivity and competitiveness of Canadian firms. The ICA provides for the review of significant acquisitions of control of Canadian businesses by non-Canadians for their overall net economic benefit to Canada. The ICA also provides for the review of all foreign investments on national security grounds.

Under the ICA, a non-Canadian seeking to directly acquire control of a Canadian business valued at or above the relevant net benefit threshold must submit an application for review. The minister carefully considers each transaction subject to net benefit review on its own merit and approves foreign investments only if they are likely to be of net benefit to Canada according to the factors set out in the ICA.

It is worth noting that as a result of Canada's international commitments, indirect acquisitions by World Trade Organization investors, that is to say, where the Canadian business is acquired as the result of an acquisition of a corporation incorporated outside of Canada, are not reviewable under the net benefit provisions of the ICA.

The ICA also provides for a review of investments that may be injurious to Canada's national security. All foreign investments are subject to the national security review process set out in the ICA, regardless of value. The national security provisions set out a multistep process that involves numerous departments and agencies that have responsibility for protecting Canada's national security.

Through this process, the government is able to consider all the relevant facts and make a determination of whether an investment would be injurious to national security. Rest assured, the government does not put Canada's national security at risk for the sake of foreign investment. It should be noted here that the ICA is just one tool among many to ensure the protection of Canada's national security, including sector-specific tools.

National security reviews under the ICA are multistep processes, with strict deadlines and different legal thresholds for action at each step. From day one, national security experts, principally the Department of Public Safety and Canada's security and intelligence agencies, are fully engaged. To ensure that all security dimensions are considered, it also involves departments and agencies with specific expertise in the sector or industry in question, such as Natural Resources Canada. If the transaction does not meet the legal threshold to extend the review, meaning that the minister finds it not to be injurious to Canada's national security, then the national security review process ends.

As with all foreign investments, there was a thorough review of each of Paper Excellence’s investments involving the responsible government departments and their subject matter experts, and Canada’s security and intelligence community. In light of the information obtained with respect to each investment by Paper Excellence, no action was taken under the national security provisions of the act.

I am aware of media reports on Paper Excellence and its recent investments in Canada. While the ICA restricts our ability to provide details about the review, we can note that each investment is reviewed on its own merits and that this information has been taken into account as part of this process.

Canadians should know that our government is proactive in protecting their national security interests. The government does not hesitate to take decisive action, and our assessment of risk keeps pace with evolving economic and geopolitical circumstances.

Thank you, Mr. Chair. I'm happy to answer questions members may have.

[The Chair, Liberal, John Aldag]

Thank you.

We will now move to Natural Resources with Mr. Smith. You will have five minutes for your opening statement.

[Gregory Smith, Director, Economic Analysis Division, Canadian Forest Service, Department of Natural Resources]

Wonderful. Thank you very much, Mr. Chair.

Good morning, committee members. I would like to begin by recognizing that we are on the ancestral land of the Algonquin Anishinabe people.

I'm Greg Smith. I'm the director of the economic analysis division of Natural Resources Canada's Canadian Forest Service. I'm here representing the trade, economics and industry branch in the Canadian Forest Service. Thank you for inviting me.

Canada is a steward of a vast forest resource. Our 367 million hectares represent 9% of the world's forests.

From harvesting trees to producing everyday essential goods, the forestry sector is a key pillar of the Canadian economy. Contributing approximately $33 billion to GDP, it directly employs over 200,000 people, including 11,000 indigenous people.

The forestry sector is particularly important in many rural, remote, and indigenous communities, where it is often a primary source of jobs and income. Forests also sustain over 1,400 indigenous businesses and joint ventures across the country.

Nearly 90% of Canada's forests are owned by provincial and territorial governments that have jurisdiction over the management of these forests.

Canada's forest laws are among the strictest in the world. The provinces and territories develop and enforce laws and policies that protect our forests, and ensure that sustainable forest management practices are followed across the country. They manage forests for multiple public policy objectives, including conservation, water, soil quality, biodiversity, socio-economic benefits and climate resilience. In fact, nearly 160 million hectares, or about 70% of our managed forests, are third party certified.

These certifications complement Canada's comprehensive and rigorous forest management laws and regulations and provide assurance that a forest company is operating legally, sustainably and in compliance with world-recognized standards. A certification is issued only after a thorough review by a third party auditor determines that, among other things, the long-term harvests are sustainable and there is no unauthorized or illegal logging, wildlife habitat is preserved, and soil quality is maintained.

Canada harvests over 700,000 hectares of forest area each year, about 0.2% of our total forest area. In comparison—and we worked on this comparison for a while—that's roughly the size of a smartphone on a ping-pong table.

The pulp and paper industry is a key segment in Canada's forestry sector supply chain, consuming residual material from sawmills to create pulp and paper products. Across Canada, there are over 80 operating pulp and paper mills and facilities. Quebec houses the lion's share of these facilities, with about 43%. Quebec has also been a leader in developing its bioeconomy by exploring innovative uses of forest biomass and supporting the development of higher value-added products from harvested wood.

Part of managing a forest sustainably means adjusting annual harvest levels over time to account for changes in the forest, such as disturbances from forest pests and wildland fire. Over the last decade, these natural disturbances have had a significant impact on sustainable harvest levels and, consequently, on the wood fibre available to make forest products. This challenge has urged Canada's forestry industry to increase the value it receives from what is harvested. Obtaining more value for every cubic metre harvested allows Canada to position itself as a leader in a growing global bioeconomy and enhance its economic resilience in the forestry sector.

At Natural Resources Canada, we work with provinces, territories and industry stakeholders to ensure that Canada's forestry sector has the support it needs to take advantage of the opportunities presented by the growing bioeconomy, and to continue to support workers and communities across the country.

One of our objectives is to develop strategies to help strengthen competitiveness and the overall health of Canada's forest sector, and to support the future livelihoods of workers in their communities in a transition to a low-carbon global economy.

Budget 2023 proposes to provide $368 million over three years, starting in 2023-24, to renew and update forestry sector support, including for research and development, indigenous and international leadership, and data.

Thank you for inviting me. I would be happy to answer any questions about the forestry sector and its management in Canada.

[The Chair, Liberal, John Aldag]

Everybody is tight with their opening comments this morning. That's appreciated.

I would like to welcome Mr. Michael Kram and Mr. Dan Albas to our committee this morning, along with all of the regular members.

We're going to get right into our first round of questions, which is six minutes each.

Mr. Ted Falk is joining us online. It's over to you for your six-minute opening round.

[Ted Falk, Conservative, Provencher, MB]

Thank you, Mr. Chair, and thank you to our witnesses for attending the committee this morning. I appreciate that very much. I'm sorry I'm not there in person.

I'd like to start off by asking if they could briefly identify for the record what the process is for a foreign entity to buy a natural resource company in Canada.

[Mark Schaan]

I'm happy to start.

It would depend a little on the nature of the transaction. If the transaction met the threshold for a notifiable investment into Canada from a foreign buyer, that would require a notification to the investment review division. Then it would depend a little on the nature of the investment.

As I noted, indirect investments via the acquisition of a company that has Canadian assets but is not domiciled in Canada are considered indirect transactions. Under our trade agreements under the WTO, those are not reviewable on a net benefit basis. They are, however, reviewable on a national security basis.

If the transaction of a natural resource asset was made by a foreign buyer, was notifiable and was a direct transaction, that would proceed to both a net benefit review and then also a national security review. In the case where it was not a direct transaction, it would proceed only to a national security review process.

All foreign investments that are made into Canada are subject to the national security review process. The processes are undertaken in consultation with the Minister of Public Safety and Canada's national security and intelligence agencies. Each stage of the processing is engaged. A national security review can last 200 days or longer, with the consent of the minister and the investor. Just by way of example, in 2021-22 there were 1,255 investment filings, as well as additional investments not subject to filing requirement that were reviewed under that process.

I'm happy to get into more detail if the member is interested. Broadly speaking, that is the nature of how a transaction would be assessed.

[Ted Falk, Conservative, Provencher, MB]

Okay. Thank you.

In particular, with Paper Excellence, which is what we're studying here this morning, did you do a review on some of their purchases?

[Mark Schaan]

There have been a number of investments by Paper Excellence in Canada over the past few years. These include the acquisition of Catalyst in 2019, of Domtar in 2021, and then of Resolute in 2023. While none of the Paper Excellence investments have qualified for a net benefit review, all of its investments in Canada were reviewed under the national security provisions of the ICA.

[Ted Falk, Conservative, Provencher, MB]

Okay.

The reason you say they didn't qualify for the net benefit is that they were purchased by a Canadian entity in the sense that it was a registered Canadian corporation.

[Mark Schaan]

No. They're an indirect transaction. Maybe, just for ease, essentially when a Canadian asset is first acquired.... Let's imagine we have a Canadian company that has Canadian assets. The first time a foreign transaction occurs, that is subject to a net benefit review. That company and that transaction proceed, and then there's a subsequent acquisition down the road, where Canadian company A, with Canadian forest pulp and paper assets, gets bought by American company B. If a third transaction happens with an American company that buys American company B, that's not subject to net benefit because essentially the Canadian transaction has already been reviewed under the net benefit, which was the very first transaction for the Canadian assets in question.

In this particular case, Paper Excellence, it was an indirect transaction. Paper Excellence bought Resolute, and Resolute had already bought the Canadian assets, which was a transaction that had previously been considered.

[Ted Falk, Conservative, Provencher, MB]

Okay.

When you've looked at the ownership structure of Paper Excellence, have you been able to determine the beneficial owners?

[Mark Schaan]

A mandatory field under the mandatory filings when they submit for an investment review is to provide us with the ultimate controller or “controller in fact” for the asset. It is required under our processes that we understand the beneficial owner of the firm.

[Ted Falk, Conservative, Provencher, MB]

Okay, so the answer to that would be, in the case of Paper Excellence, that you've been able to determine who the beneficial owner would be.

[Mark Schaan]

That's correct.

[Ted Falk, Conservative, Provencher, MB]

Who would that be?

[Mark Schaan]

The natural person? DeNeige, do you want to weigh in?

[DeNeige Dojack, Director, Investment Review Division, Department of Industry]

Yes. In this instance, the beneficial owner is Mr. Jackson Wijaya Limantara.

[Ted Falk, Conservative, Provencher, MB]

Okay. Would he own 100%, or does he have shareholders?

[DeNeige Dojack]

Unfortunately, the details of the ownership structure are subject to the confidentiality provisions of the Investment Canada Act. While we are provided with detailed information about the ownership structure all the way through the various holding companies and the relative equity shares, in order for the government to be able to continue to get this information from investors, we promise investors that we will not disclose this information without their consent. Therefore, the details of that ownership structure are subject to the confidentiality provisions under the Investment Canada Act.

[The Chair, Liberal, John Aldag]

We're out of time on those first questions.

We're going to go next to Mr. Blois, who will have six minutes on his clock.

The floor is yours, Mr. Blois.

[Kody Blois, Liberal, Kings—Hants, NS]

Thank you very much, Mr. Chair.

I'll start my questions with Mr. Schaan.

Mr. Schaan, it was a good exercise for me to go and actually look through the ICA in detail to see the different thresholds. Can you help describe to me what a WTO investment is? Of course, there's delineation under the act about what a WTO investment is versus what it isn't. Just quickly, for the benefit of this committee, what is a WTO investment versus what it is not?

[Mark Schaan]

I'll turn to my colleague for that.

[DeNeige Dojack]

A WTO investment is an investment where the ultimate controller is based out of a country that is a WTO member.

[Kody Blois, Liberal, Kings—Hants, NS]

How many WTO members are there around the world? Most of the world would be covered by that provision, would it not?