:
Good afternoon and thank you, Mr. Chair.
I would also like to thank the members of the Standing Committee on Industry, Science and Technology for this opportunity to explain how the Investment Canada Act works.
[Translation]
I am the Deputy Director of Investments, and as such am responsible for providing the Director of Investments with information he provides to the Minister of Industry to advise him in the administration and enforcement of the Act.
[English]
I would like to introduce my colleagues who are here with me today. Richard Saillant is the director general of the investment review and strategic planning branch. Pierre Legault is the assistant deputy minister, business and regulatory law portfolio, Department of Justice.
At the outset, I would like to note that as the deputy director of investments, I have experience with respect to the administration of the act and its processes. I am here today to explain how the act currently works and how it is administered.
[Translation]
In support of this discussion, a deck presentation has been sent to the clerk of the committee, a copy of which I understand has been sent to all members of the committee. This deck provides an overview of the act and its administration. Given time constraints, I will not go through this deck slide-by-slide. Rather, I thought I would offer a few introductory remarks to provide some context and touch on some of the highlights of the deck.
[English]
Let me start with some general context for the act. The act is Canada's primary mechanism for the review of foreign investments. It came into force on June 30, 1985, replacing the Foreign Investment Review Act, often referred to as FIRA. Although it contains many provisions that are similar to those of FIRA, the adoption of the Investment Canada Act was intended by Parliament to make Canada a more welcoming destination for foreign investment, as has been captured in the purpose section of the act.
The act provides for the review of significant foreign investments for their likely net benefit to Canada. While much of the public focus is on transactions that are reviewed for their likely net benefit, the range of transactions covered by the act is actually much broader.
In fact, under the act, any foreign investor who proposes to establish a new business in Canada must notify the Minister of Industry. The same applies to any foreign investor--or “non-Canadian“, in the language of the act--who acquires control of a Canadian business with assets below the established threshold for review.
If the assets of the Canadian business that an investor proposes to acquire exceed the relevant threshold, the proposed transaction is reviewable for likely net benefit. For 2011, the threshold that applies to investments by WTO member investors is $312 million.
[Translation]
Where a proposed investment is subject to a net benefit review under the act, the investor cannot implement the transaction without the approval of the Minister responsible. Under the act, the Minister of Industry is responsible for determining the likely net benefit in all sectors except when it involves the acquisition of cultural businesses, which fall under the responsibility of the Minister of Heritage.
Let me say a few words about the strict confidentiality provisions of the act. It is important to understand their role in the review process.
[English]
The act contains, under section 36, confidentiality provisions that were adopted by Parliament to protect the information provided by investors during the review process. These provisions reflect the fact that much of the information shared by investors is commercially sensitive and, if disclosed, could move markets and harm their competitive position and that of the Canadian business that they are proposing to acquire.
Without assurances that their commercially sensitive information will be protected, investors will be reluctant to share with the minister the essential information he needs to do his work under the act. All information obtained about an investor and a Canadian business in the course of administering the act is privileged, and anyone who knowingly discloses privileged information is committing an offence punishable on summary conviction.
Although there are limited exceptions under section 36 to the confidentiality provisions of the act, before releasing information under these exceptions, the minister must be convinced that the disclosure is necessary for the administration of the act and that releasing the information would not be prejudicial to the investor or the Canadian business. This is why today my colleagues and I are constrained in regard to what we can say about any particular transaction under the act.
Moving to the net benefit test, the net benefit review begins when a complete application is received from the foreign investor.
[Translation]
The act provides the Minister an initial 45 days to complete the review of a proposed investment and to make a determination of net benefit. The Minister may extend the review period, if necessary, by 30 days. The review period can be extended further if both the investor and the Minister agree.
[English]
Under the act, the minister approves a proposed investment only if he is satisfied that it is likely to be of net benefit to Canada. In making his determination, the minister must consider the factors listed in section 20 of the act. These are the only factors the minister may consider in making his determination.
The factors include: the effect of an investment on the level and nature of economic activity in Canada; the degree and significance of participation by Canadians in the Canadian business; the effect of the investment on productivity, industrial efficiency, technological development, product innovation, and product variety in Canada; the effect of the investment on competition within an industry in Canada; the compatibility of the investment with national, industrial, economic, and cultural policies, taking into consideration the stated policies of the provinces that are affected by the acquisition proposal; and the contribution of the investment to Canada's ability to compete in world markets.
In reaching a decision on likely net benefit, the minister considers the effect of an investment--both positive and negative--with respect to each of these factors where relevant. The results for all factors are then aggregated for the minister's consideration.
[Translation]
Unless the Minister is satisfied that the net effect is positive and, therefore, the investment is likely to be of net benefit, the transaction cannot proceed. The review process under the act is designed to ensure that the Minister has all the information he needs to make an informed decision whether to allow an investment.
[English]
It achieves this by allowing for constructive dialogue with investors as well as consultations with ministers and officials at both levels of government, and by protecting the commercially sensitive information of investors, without which the minister could not do his work effectively.
Investment review division officials engage with investors at various stages throughout the review process. They typically work with them to explain any aspects of the review process that may not be fully understood. Officials also discuss the details of investment proposals with investors to fully understand the various aspects.
Also, as part of the review process, officials consult widely with the federal government departments with policy responsibility for industrial sectors involved in the proposed acquisition, with the Competition Bureau, and with the provinces in which the Canadian business has substantial activities or assets.
[Translation]
The purpose of the consultation is to engage sector specialists at both the federal and provincial level to identify any policies that should be considered in the review, and to obtain the views and concerns of the consulted parties relating to the acquisition. If any areas of concern are identified through the analysis and consultation process, investment review officials will discuss them with the investor. Typically, they will seek legally enforceable undertakings to address them.
[English]
Although the minister cannot share information obtained through the administration of the act with third parties, he may accept third party representations and take these into account in his determination.
Once all of this is done, the director of investments, whose role is to support the minister in carrying out his duties under the act, provides the minister with the information he requires in making his net benefit determination. The act requires that the director of investments provide specific information to the minister.
Included in those documents are the investor's plans, undertakings, and other representations, and the representations from the provinces, as well as results of consultations held with other consulted federal government departments. It is on the basis of this information and the net benefit factors listed in section 20 of the act that the minister determines whether an investment is likely to be of net benefit to Canada.
Let me speak for a moment about monitoring and enforcement.
Investors who have implemented investments that are subject to review under the act must submit information required by investment review officials to determine whether the investment is being carried out in accordance with the application. An evaluation of an investor's performance in implementing its plans and undertakings under the act is ordinarily performed 18 months after the implementation of the investment. Additional monitoring may be conducted depending on the results of the initial evaluation and the duration of the undertakings.
Where the minister believes that an investor has failed to implement a written undertaking or that the investment has been implemented on terms and conditions that vary materially from those contained in the application, the minister may issue a demand letter under section 39 of the act requiring the investor to cease the contravention, remedy the default, show cause why there is no contravention, or, in the case of undertakings, justify any non-compliance with the undertakings. This is the first stage in the enforcement process.
Where the investor fails to comply with a demand, the minister may apply for a court order to seek remedies from an investor. This is the next stage in the enforcement process. The court may order any remedies it sees appropriate, including directing the divestment of control of the Canadian business, directing the investor to comply with an undertaking, imposing a financial penalty, or directing the disposition of any voting interests or any assets acquired.
Let me speak very briefly about recent policy changes that were made to the Investment Canada Act.
There have been a number of changes to the Investment Canada Act in recent years. In December 2007, the Minister of Industry issued new guidelines for the review of investments by state-owned enterprises. These guidelines essentially make it clear that the commercial orientation and corporate governance, including transparent reporting practices, are taken into account by the minister in assessing the net benefit factors under the act where a state-owned enterprise investor is involved.
On February 6, 2009, responding to the core recommendations of the competition policy review panel, the Government of Canada introduced legislation to amend the act as part of the Budget Implementation Act, 2009. The amendments reform the net benefit review process by doing a number of things.
First, they change the basis for the general review threshold from the book value of assets to enterprise value.
Second, they raise the general review threshold to $1 billion in enterprise value over a four-year period. In 2011, the threshold is $312 million in gross assets.
Third, they eliminate the application of the lower review threshold in the transportation services, financial services, and uranium production sectors, previously set at $5 million for direct investments and $50 million for indirect acquisitions.
The 2009 amendments also contained provisions to enhance transparency. Prior to these amendments being in place, the minister had some limited exceptions available to him to disclose information obtained through the administration of the act.
He could, one, disclose information to other ministers or officials for the purpose of administering the act; two, disclose information where an investor had provided written instructions to do so; three, disclose information contained in undertakings provided that, before doing so, the minister was convinced that the disclosure was necessary for the administration of the act and that releasing the information would not be prejudicial to the investor or the Canadian business; and four, disclose information contained in some of the notices he sends under the act, such as decisions to allow or disallow an application or a certificate of notification.
The 2009 amendments provided the minister the ability to do a number of other things: first, to disclose the reasons for decisions under the act, provided he is satisfied that it does not prejudice the investor or the Canadian business; second, to disclose the fact that an application has been filed and the stage of a transaction in the review process, again provided, though, that he is satisfied it does not prejudice the investor or the Canadian business; and third, publish an annual report on the administration of the act.
All of these amendments are now in effect, except for the shift to the enterprise value as the basis for the general review threshold and its progressive increase to $1 billion. These amendments are not yet in force, as regulations are necessary for their implementation, and these have not been yet been adopted.
Before I conclude, I want to say a few words on national security. The 2009 amendments to the act also included a new part on national security. This amendment provides the Government of Canada with the authority to review foreign investments that could be injurious to national security.
Under this new part, a review is triggered by the Governor in Council. For the Governor in Council to order a review, the Minister of Industry must have reasonable grounds to believe, after consulting with the Minister of Public Safety and Emergency Preparedness, that a foreign investment could be injurious to national security, and the Minister of Industry must make a recommendation to the Governor in Council for a review. In addition to ordering a review, the Governor in Council has the authority to take any measure in respect of an investment that it considers advisable to protect national security.
That, Mr. Chair, concludes my introductory remarks. With my earlier caveat about confidentiality pertaining to the act, I would be happy to take questions from the committee members, whatever questions they may have regarding how the act operates and works.