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I call the meeting to order.
Good afternoon, ladies and gentlemen. Welcome to meeting 60 of the Standing Committee on Industry, Science and Technology.
We have five witnesses before us and two panels of witnesses, so we need to be expeditious today in our business beforehand.
I'll introduce our guests right now. From the Canadian Bar Association, we have Oliver Borgers and Anthony Baldanza. From the Communications, Energy and Paperworkers Union of Canada, we have David Coles and Guy Caron. We also have Calvin Goldman, who is a partner at Blake, Cassels and Graydon.
I'll start from my left to right for opening remarks. It'll be by organization, with five minutes each for opening remarks. I'm going to stick to that pretty closely, particularly because we only have one hour for this panel, but first we have a bit of business to clear up.
Mr. Rota, you gave notice of a motion. You may speak to the motion now.
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The next one after that would be on the 24th. There's a week in our constituencies between that.
Just for the committee's knowledge, there's also a meeting removed on the private member's bill, because the budget day is the 22nd. Both are set back, for different reasons: one is for the supplementary estimates, and the other is for the budget.
On what we have conceptually in front of us, on the 10th will be supplementary estimates, on the 22nd will be the Minister of Finance's budget, and on the 24th will be ICA.
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So it will be on the 24th.
In January we moved a motion, which everybody supported, to have an immediate study. Now we're on our third meeting, two months later, at the end of March. I just want to clarify that for the record. It seems as though....
The supplementary estimates are obviously important, but the committee might want to consider moving the study of the private member's bill on the census, which isn't really due to be finished until May. We may want to put that at the end of the Investment Canada Act review, which we all seem to talk about as being important, but only one party seems to treat it as being important.
I'm just throwing that out there.
:
Mr. Chair and honourable members, good afternoon.
My name is Oliver Borgers. I am a partner in the competition law group of McCarthy Tétrault in Toronto. I am here today as the chair of the foreign investment review committee, also known as FIRC. The committee focuses on the Investment Canada Act, which is part of the national competition law section of the Canadian Bar Association.
I am appearing with my vice-chair and friend, Tony Baldanza. Tony is chair of the antitrust, competition, and marketing law group of Fasken Martineau DuMoulin LLP. Both Tony and I are regularly involved in providing legal advice in relation to major transactions that are subject to the Investment Canada Act.
The CBA, as you probably know, is a national association that represents some 37,000 lawyers, judges, notaries, law professors, and law students from across Canada. The CBA’s primary objectives include improvement in the law and in the administration of justice.
We thank the committee for inviting the CBA to appear before you and hope that we can be of assistance. We understand that you are undertaking a study of the Investment Canada Act to determine potential approaches to three issues.
In this opening statement we will briefly address each of those three points. Then we would welcome any questions that you might have.
Your first question is whether restrictions on the public disclosure of the rationale behind decisions to approve or reject an application under the act serve Canada’s interest, and what form that disclosure might take.
We are of the view that transparency and predictability are very important elements in the proper and fair administration of the Investment Canada Act. It is therefore in the interest of Canada and future potential investors to learn of the rationale behind a minister’s decision to approve, and particularly reject, an investment.
The goal of transparency and predictability should not, however, result in any disclosure of an investor’s or a target’s confidential or competitively sensitive information--unless, of course, they consent. The minister should also not be required to reveal reasons that might be based on national security concerns.
We believe that public disclosure of a minister’s rationale on a general level would suffice to build an inventory of decisions that would give future investors and their advisers direction and guidance. As an additional note, we submit that the minister should have an obligation to disclose his or her rationale if a decision is made in the first instance, even if the investor subsequently withdraws the application.
You have also asked whether the act provides for effective enforcement mechanisms and how they could be improved.
The enforcement mechanisms in part VII of the Investment Canada Act are robust and do not, in our view, need improvement at this time. To date we do not have many examples of the government’s enforcement activity in relation to the Investment Canada Act. There is therefore no basis to conclude that the current mechanisms are insufficient. The discretion of the enforcement officials determines how often the provisions are utilized, of which there have only been a few to date. In our respectful view, only once there is a body of decisions under part VII of the Investment Canada Act would we be able to assess whether they are sufficient.
We would remind the committee that the current provisions provide for the court to make any order as, in its opinion, the circumstances require under subsection 40(2), including divestment, injunctions, directing an investor to comply with an undertaking, and penalties of $10,000 for each day of contravention. These enforcement mechanisms are, as we said, robust and are likely adequate to ensure adherence to the act.
You have also asked whether consultation with provinces affected by a decision would serve Canada’s interest and what form those consultations might take.
It is our understanding that the government divisions that administer the review of investments--the investment review division of Industry Canada and the cultural sector investment review division of Canadian Heritage--do currently consult with all affected provinces in respect to any investment that is subject to review under the Investment Canada Act, consistent with the investment review factors set out in paragraph 20(e) of the act.
We are of the view that the confidential consultation process currently in place is appropriate. The competition law section would not advocate public consultations. We would suggest, however, that the feedback received by the government in the consultations be communicated to the investor, which is currently not the practice.
We hope that our brief opening statement was helpful. As indicated, we would be pleased to respond to any questions you might have.
Thank you.
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We're going to split it, sir. I will present for two and a half minutes in English, and then Mr. Caron will do it
en français.
We are not going to bore you with all the details in our written presentations. I think they're in both languages. I'll make some remarks on the highlights.
Who are we? We are a national union that represents industrial and private sector workers in many of the key sectors of our economy, from the bitumen sands to potash to telecommunications and so forth.
We see a number of problems with the current legislation. One is transparency. There were approximately 18,000 foreign investments made, of which 14,000 were takeover bids and 1,600 were reviewed. The question has to be, “Why?”
We suspect the reason is that the thresholds are too high. Since 1985 or thereabouts, approximately $1 trillion in foreign investment has been made, of which only $21.5 billion has not been for takeovers. Foreign investment means, with a few exceptions, foreign takeovers.
Why should we care? The answer is that 50% of all investment was for takeovers of resource-based primary industries in Canada: oil and gas, mining, and primary metals. We find that problematic when those are, in fact, the key sectors of our economy, which we believe should be under the control of Canadian companies for a whole series of reasons. A strategic investment strategy based on our own resources, controlled by our own companies, has to be a cornerstore of that strategy and of our economy.
I'll now turn it over to Guy Caron to talk about telecommunications.
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I will make this short.
Telecommunications is an interesting case. You know very well that Minister announced his intention to open this industry up soon to foreign investment. We also know that the three large companies that are currently sharing the market are not very popular and that people see this decision as a positive one. However, we should keep in mind that, over the last two years, Canada has gone from 4 to 11 mobile network operators. We are the second country in terms of mobile network operators. Other countries, with the exception of four countries that include Canada, have a maximum of four mobile network operators. So, even though they allow foreign ownership, those countries don't have more than four mobile network operators.
What I'm trying to say is that, if we allow foreign ownership, it is obvious that the easiest solution for companies like AT&T, Vodafone or others that want to integrate the market is not setting up a parallel structure, but rather acquiring existing companies. When all is said and done, the result will not necessarily be more competition.
In this case, if such a transaction is brought before Industry Canada, the issue will consist in determining whether, though it does not involve natural resources, for instance, the transaction will be assessed to determine if it is to the benefit of Canada and what this benefit is based on. There is currently no way to know this. We think that this will not be the case, but transparency is a glaring issue here. The brief I submitted also talks about our concerns regarding tar sands and the mining sector. We see the transparency issue as a key one.
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Thank you, Mr. Chair, and honourable members.
My name is Cal Goldman and I'm a partner at Blake, Cassels and Graydon, based in Toronto, where I co-chair the competition, anti-trust, and foreign investment group. I'm here today at the invitation of the committee, which I appreciate. I'm speaking in my personal capacity.
Like my colleagues from the Canadian Bar Association, I've been regularly involved in providing legal advice on major transactions that have been the subject of review under the Investment Canada Act. I've been doing this since the late 1980s, at which time I was in the public sector as head of the Canadian Competition Bureau. Since the early nineties, I've been a counsel in the private sector. I hope my opening remarks will assist the committee.
Let me start by saying that I agree with and support the comments made earlier by my colleagues from the Canadian Bar Association with respect to the three specific topics being addressed on a primary basis by this committee.
First, transparency and predictability are important elements in the proper administration of the Investment Canada Act, subject to important considerations regarding the protection of competitively sensitive or confidential information, as provided for in section 36 of the act.
I have one suggestion. It may enhance both the transparency and predictability of the process if the minister, upon making a decision, could consider issuing more detailed backgrounders, as is done with decisions on major merger cases in Competition Act proceedings, subject to confidentiality and protection of competitively sensitive information. Some backgrounders run three or four pages or more.
Second, as to the enforcement mechanisms in the act, in my respectful view, they do not require statutory amendment.
Third, the consultations process set out in the Investment Canada Act does not require amendment either. The statute is clear that the decisions under the act by the minister are to be made by the minister with consultative input from affected provinces rendered and with the net benefit of Canada in mind.
I have a few more suggestions that I'd like to put on the table. If time doesn't permit now, I'm happy to amplify upon them if the committee would like me to address them. They go to the fundamental principle that to make informed decisions on whether to invest in Canada, investors need to know with reasonable certainty and predictability the governing principles applicable to foreign investment decisions. To Canada we want to attract proper, sound investments for the benefit of the Canadian market, as determined by the minister, with the net benefit test applicable to such investments.
In that regard, I would suggest that any continued discussion that has appeared in media and otherwise about the use of terms such as “strategic acquisition” or “strategic resource” in considering a particular transaction raises considerable additional issues of uncertainty. The concept of a strategic asset, as was discussed by the assistant deputy minister and deputy director of investments Marie-Josée Thivierge in her statements of February 17, is not in the statute. Since those words are not in the statute, the discussion of them in media in relation to possible transactions, in my respectful view, based on what I've heard from colleagues at the bar and business people both in Canada and abroad, serves to generate uncertainty. I want to flag that for the committee's benefit. It's a subjective term, “strategic”. It assumes different meanings in the eyes of different stakeholders.
The second suggestion that I'd make is to provide enhanced summaries. These would result in greater transparency and a deeper stakeholder understanding of the reasons behind the minister's decision.
A third initial suggestion is greater use and encouragement of confidential guidance. This is already provided for in the administrative guidelines in the act, but it can be the subject of greater awareness to the business community in considering possible transactions. It works under the Competition Act, and I think it could be made to work even more so under this act.
These suggestions do not require statutory amendments and can be effected by administrative process through the direction of the minister. Parliamentarians may decide that the act needs to be amended; in my respectful opinion, however, no such amendments are necessary at this time.
I recognize that this is in Parliament's mandate, not mine. I'm just offering my views.
Those are my initial remarks, and I'd be pleased to respond to any questions.
Thank you.
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Thank you, Chair, and thank you for being here, witnesses. To those I've known for a good part of my life, Mr. Borgers, and to Mr. Goldman, whom I've known for a good part of my political life, it's great to have you here, as well as members of the CEP.
I want to start with you, Mr. Goldman. You've offered something here in the way of an alternative. You've suggested, on the question of transparency and predictability, putting together a backgrounder that would amplify and give light to the reasons. I'm not suggesting building case law, but at least it would give greater understanding and certainty.
I wonder, Mr. Goldman, if you've had an opportunity as an individual to discuss this idea with Mr. Borgers of the Canadian Bar Association. Perhaps I could also canvass their ideas as to whether they've looked at this at all or if they'd care to give a comment.
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Thank you, Mr. McTeague.
I haven't discussed it with my colleagues from the Canadian Bar Association in advance of presenting this today. The overriding and balancing consideration at all times, in my respectful submission, must be section 36 of the act and the parallel need to protect competitively sensitive information, as is done with backgrounders under the Competition Act.
I say it's overriding and fundamental because not only does the statute currently require such protection for privileged information under the terms of section 36, but in attracting investments to Canada the principles of fairness in a competitive marketplace, which you and your colleagues are certainly very, very familiar with, necessitate that an investor—an entity taking on a position in a business in Canada—not face unfair disadvantages.
Those disadvantages would arise if a highly sensitive competitive plan for specific capital expenditures, for example, or other such strategic investments or plans were the subject of public disclosure, which their competitors could see, while the competitors did not have to disclose. In my respectful submission, issuing broader and more detailed backgrounders can be done, as is done in the Competition Act, while balanced at all times with the need to protect the kind of information that has a long history of being protected in the competition reviews.
It can be done. It takes considerable time, and I'm not suggesting that the minister and his officials aren't prepared to devote that time. It's an example of an area that does achieve some more informed discussion and helps businesses going forward. It also helps the public in understanding and appreciating the reasons for the decisions.
:
That's very thorough. Thank you, Mr. Goldman.
I know that you, Mr. Goldman, and Mr. Borgers and Mr. Baldanza have all had extensive experience in competition law, and I wonder whether you would advocate or consider—not necessarily advocate—guidelines very similar to what you have in the Competition Act. I realize that all transactions are not one-size-fits-all, but at least to provide against or repel the perception of decisions based on whim, might that be considered a second step? We already have, if you will, some background, some understanding of how those kinds of transactions take place on a domestic basis. Could we transpose that to have an effect when it comes to ministerial decisions?
We understand there are limits in terms of security. We've seen this in the past in terms of certain jurisprudence. I think we all understand the importance of keeping information in such a way that it does not harm the parties that are there, offering—as the Canadian Bar Association has suggested—that advice be given or concerns be raised with the potential investor, but I'm wondering if there is a more precise way of doing this—in other words, perhaps an issue of reciprocity. What are the international best practices in this area? Have we gone beyond simply the question of saying we'll have a little bit of transparency? Are guidelines a possibility, are international best practices a possibility, and what about the implications of reciprocity?
Mr. Borgers, I'd love to hear from you.
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Certainly, Mr. McTeague. It's my pleasure.
In answer to your earlier question, while we've not discussed Mr. Goldman's suggestion of backgrounders, without a doubt the Canadian Bar Association supports disclosure information, subject to concerns of confidentiality, from the minister's office and the Industry Canada divisions that administer this law.
The act currently allows the minister to give reasons for decisions for approvals and requires the minister to give reasons for rejections. Whether you call those reasons or backgrounders, I think the concept is fundamentally the same. We want some information, some guidance, that allows for that transparency and predictability and that allows advisers and investors to understand what might be coming from those types of decisions.
In terms of international practices, Canada is relatively unique in this kind of law. Unless you're looking to Australia or New Zealand, you probably won't find an international standard, because it is a law that is somewhat unique to Canada. In terms of guidelines, the divisions right now that administer this law for Canadian Heritage and Industry Canada do issue guidelines in certain subject areas--for instance, state-owned enterprises and cultural investments that are of concern--and we would, of course, encourage those divisions to continue to issue many more of those guidelines to assist all stakeholders.
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I will answer together with Mr. Coles, the Union President.
An example that comes to mind is that of Vale Inco. Vale had acquired Inco, and certain conditions were involved in the purchase. Those conditions were related to employment and were not complied with, as we later learned.
Clearly, we are talking about possibilities that are covered by the legislation, but these conditions must be applied and used to impose the government's will on those who do not comply with the terms of the legislation or of their agreements.
The Vale issue was actually of critical importance, especially in Sudbury's case. We are currently witnessing the same thing in Thompson.
What bothers us somewhat, when it comes to the lack of transparency, is the fact that people are not always aware of the conditions involved, except for those that are published or reported publicly.
In addition, a lot of time was invested in providing Vale Inco with all the relevant information. Therefore, we can have well-written legislation, whether it is amended or not, but we still have to have the will to enforce it, which didn't happen in this case.
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Good afternoon and welcome, sir.
I view as important the elements of transparency, predictability, enforcement mechanisms that you describe as “robust,” consultations and the need to inform investors of the outcome of those consultations. Last week, if I'm not mistaken, Industry Canada provided us with a document on the Minister's decision that supports the importance of these elements.The document stated the following—and this came from the Minister: “The Minister's decision is an exercise of discretion and final, not subject to appeal. Process may be appealed to the Federal Court.” According to this, transparency is eminently important and mandatory. It enables us to get as much information as possible on issues of safety, competitiveness and confidentiality, of course. I think that these are important elements.
The act is currently before the committee. Which elements do you think it would be important to improve? You talked about what's working well, but what provisions of the act require improvement? Messrs. Caron and Coles also gave us a few suggestions. Competition and investments are vastly different considerations. Therefore, there should be guidelines not only for encouraging takeovers, but also for attracting new investments and encouraging the setting up of new companies. Mr. Caron talked to us about telecommunications, which is an obvious example. A representative of Globalive, a foreign company, actually went to the Federal Court.
What can we do to improve the Investment Canada Act even further and to make sure that net benefits are known and understood in a transparent way?
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I submit that there is no need at this time to change the enforcement provisions because the sections of the act contain multiple provisions with extensive powers that the minister has, including the ability to resort to the Superior Court to make a range of orders from divestiture to compliance to penalties, and so on. The act does have a very strong structure in it following the monitoring process.
In recent years we've seen some issues falling out of the financial crisis, but when you go back and look at the history of this act, since it was first brought in, in 1985, there really haven't been multiple problems in achieving enforcement or compliance with undertakings that had been given across a very wide range of cases. The powers are there.
There are ways in which it can be supplemented, again without need to amend the act. It may be that the minister's office and the investment review division could be given more staff and more support. It may be that in some instances, particularly in sensitive or high-profile matters and only in exceptional cases, that it is possible to look at what is done in other parallel merger reviews, for example under the Competition Act, such that professional bodies, such as a major accounting firm, are brought in to assist with the monitoring. There are these kinds of support vehicles available to ensure that the powers that already exist in the act, which are quite extensive, are implemented as effectively as possible.
:
Thank you, Mr. Chair. It's a fascinating discussion.
I come from Timmins—James Bay, which is part of international mining. My neighbours are on international mining crews, and we're no strangers to investment. We live by investment and we invest elsewhere.
I'd like to talk about four cases in my region, because I think they lay out some of the issues we're dealing with.
We had De Beers, Georgia-Pacific, Xstrata, and Vale.
De Beers came in and set up public meetings. They signed impact benefit agreements with communities. They have basically tried to have, as well as they can as a massive multinational mining company, an open door policy with regional politicians if there were problems with communities, and they invested $1 billion. We have a major economic driver in our region that we might not have had.
Georgia-Pacific came in after Xstrata and Vale, and we will get to those two characters in a minute. They came in to buy up a company.
Mr. Coles, it was one of your locals that had gone into receivership, one of the largest OSB mills in North America, and there were lots of concerns.
We held public meetings. They weren't official public meetings, but people had concerns. The unions came, the community came, and we asked lots of questions. Georgia-Pacific was approved, and they've invested in the mill and are trying to be, as far as we can see, good corporate citizens. We know that CEP supported that. There's another example. We could have had a mill go down or we could have a mill that's reinvested in. As much as we'd like to have it local, c'est la vie.
Then we have Xstrata and Vale. The issue here isn't just that there were bad or rotten corporate citizens, but that we had the opportunity at that time for a plan between Inco and Falconbridge to merge. These were two companies with an incredible track record. The synergies in the Sudbury basin alone would have transformed the base metal mining industry. They had excellent international reputations.
The question at the time wasn't whether to stop the Xstrata takeover, but to give a Canadian company a chance to get through the regulatory hurdles. This government decided that they weren't going to give the Canadian companies the chance. Then they gave the go-ahead to Xstrata, a company with a pretty poor record. Anybody looking at Xstrata would know they were there for the short term, not the long term.
What have we seen? We've seen them high-grading the deposits. They've shut down the copper refining capacity of Ontario. We've seen Vale basically wage war against Sudbury, Voisey's Bay, and Thompson, Manitoba. If you to talk to labour or to anybody in the industry, they'll tell you that it's the equivalent of the Avro Arrow for Canada's mining industry in losing the power that we had with Falconbridge and Inco to these two corporate bandits.
Mr. Coles, your people were involved in one of these takeovers. Is it a failure of the act, or was this just a basic failure of due diligence?
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Thank you very much for being here today. I certainly appreciate not only your time but also your intelligent and well-researched comments.
I've been listening to you today as you've talked about the need for guidelines and backgrounders, greater transparency, and those types of issues. I hearken back to the 2008 Red Wilson report, “Compete to Win”. It talked about greater transparency. I think it talked about predictability and timeliness. I happen to have a copy of it here. I'll just read a couple of lines from it. I'd like to know from Mr. Goldman, Mr. Borgers, and maybe Mr. Coles if this is what we're talking about when we're talking about transparency.
It says in the report that they recommend requiring ministers to report publicly on the disallowance of any individual transaction, and in so doing giving reasons for the disallowance, and that their annual report should provide information on the development of any new policies or guidelines as an overview of all transactions related to the ICA and undertakings provided by foreign investors. Then further down the page it talks about how the government should also make increased use of guidelines and other advisory materials to provide information concerning the review process.
This was two years ago, in the “Compete to Win” report by Red Wilson.
Mr. Goldman, are you familiar with the report? Is this what you're talking about when you're asking about using guidelines, backgrounders, greater transparency?
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Yes, indeed. That report has a number of very well thought through and well-considered recommendations. I was one of a number of individuals and stakeholders who appeared before the panel.
The recommendations for additional guidelines are certainly in the same direction that we're talking about today. I'd add one supplement.
There are other laws in Canada, the U.S., and elsewhere such that, as Mr. McTeague indicated, guidelines have been used to add flesh to the framework, to give both investors--parties that may be considering mergers or acquisitions--and the public and interested parties--that is, stakeholders across the marketplace--much more appreciation of the particular statutory provisions that are listed. For example, the key factors in section 20 will be applied with more specificity by the enforcement body, by the investment review division, and ultimately by the minister.
That has been done in merger reviews. It is currently the subject of further consideration--which Mr. Borgers and Mr. Baldanza are participating in--by the Competition Bureau.
Thank you, panel, for appearing before us.
We obviously have some difficulties. We have some areas that we certainly would like to have changed, and every one of you has a different idea about that.
I'm of the firm conviction that what we always should do is look outside Canada. We're not unique. Our circumstances are not unique in terms of our resources, our people, and our system. I would suspect that other jurisdictions have struggled with the same things.
Is there another jurisdiction out there about which we can say these guys have it right or have just about got it right, and they just need to tweak this or that?
I'm going to leave that open.
I'll start with Mr. Goldman. Is there somewhere we should be looking to, one of the other countries?
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Thank you, Mr. Borgers.
Thank you, Mr. Van Kesteren. I'm sorry about the time, sir. We've pretty well run out, and another panel is waiting.
Thank you very much, gentlemen, for your testimony.
We're going to suspend for a couple of minutes so that we can change names and bring in the other witnesses, and then we'll begin again with panel number two.
:
We're now resuming our meeting, ladies and gentlemen.
We have three new witnesses before us. From the Conference Board of Canada, we have Michael Bloom, vice-president, organizational effectiveness and learning; from the Canadian Centre for Policy Alternatives, we have Bruce Campbell, executive director; we also have Michael Hart, Simon Reisman chair in trade policy, Norman Paterson School of International Affairs, who is testifying as an individual.
I'm going to follow the order that is in front of you, so I'm going to ask Mr. Bloom to go first.
I'll keep you very close to five minutes for your opening statement, and then we'll get on to questions.
Go ahead, Mr. Bloom, for five minutes, please.
I think it's important, as we reflect on the Investment Canada Act, to consider that there are several strategic concerns here. One is that it's important to provide a positive investment environment to sustain capital flow into Canada.
Second, it's important that we ensure that investments are transparently economically based rather than political or governmental in original. We should at least be clear about whether or not they are.
Third, it's important to sustain the confidence of the international business investment community in fairness and openness when it comes to opportunities in this country.
We have done some work on the issues. We did a report on PotashCorp for the Government of Saskatchewan last fall. We've done some other work on corporate takeovers, mergers, and acquisitions. Our findings, through our work, are that they are net mildly beneficial and that there are certainly lots of opportunities through the existing legislation rules to ensure that benefits are obtained for the country. But the issues that seem to be coming up more and more are how we understand the issue, how we reasonably and fairly assess it, and how we communicate that to ourselves and to people outside the country.
In our work we came up with a typology of takeover effects for acquisitions. We looked at shareholders, governance, management, operations, capital, people, and community effects. We used that typology in our potash study, which was not intended to draw the recommendation of the Government of Saskatchewan but rather was for analyzing scenarios for takeovers and options.
Out of that, I have come up with some recommendations, which I think would be useful. First of all, and you may have heard some of this, consider a set of criteria and metrics to apply to all reviewed mergers and acquisitions. Again, the Competition Act may be a bit of a model.
Second, if you do it, have a typology that covers the full range of benefits. Get beyond the narrowly financial and look at the full range of benefits and costs as a basis for assessment.
Third, make these criteria and metrics well known to the investment community in Canada and abroad so that people know the rules of the game.
Fourth, consider the term “strategic asset” or “strategic resource”, and either explicitly reject it as a part of this or, if you accept it, provide a definition and associated tests that would make it understandable in the real world of potential takeovers.
Fifth, consider making the results from the reviews known publicly, either in summary form or in full form, so that markets gain a clear understanding of the decision-making process. The next time people are considering an opportunity, they will be able to gauge a priority and whether it is likely to work.
Sixth, clarify the criteria for mergers and acquisitions by state-owned enterprises. Are there some no-go sectors, beyond what we already have, that we really aren't interested in having people come into, such as some kinds of resources? What about a state-owned enterprise that is partnered with Canadian organizations? What relationships would be allowable there? Is there a standard for control, and so on?
Seventh, similarly for sovereign wealth funds.
Finally, clarify the role of provinces. Do they have anything more than an advisory role, de facto or de jure? Should they? How can that be set out for understanding the federal-provincial relationship?
I'll stop there.
:
Thank you, Mr. Chairman.
I'm going to start by making a number of observations. First, all of the major recipient countries of foreign direct investment limit it in key or strategic sectors, and all have review or screening mechanisms. These do not appear to significantly affect overall FDI flows.
Brazil, for example, has foreign investment limits on mine assets. In certain areas, only majority-owned Brazilian companies can operate. It's interesting that the takeover of Inco by the Brazilian company Vale, had it been the other way around, would have almost certainly been rejected. The government holds golden shares that protect Vale from unwanted foreign takeover.
In the case of Australia, which has rules similar to our own, the regulator has indicated a clear preference for foreign investments in its large companies to be kept below 15%. The takeover of Alcan by Rio Tinto, an Australian company, would likely have been rejected had it been the other way around.
The U.S. screens foreign direct investment. The main tool is the national security clause, which is notoriously undefined. You know that it has been used. It was used in the United Arab Emirates company Dubai Ports World in its purchase of the U.S. company that ran the U.S. ports system. It forced it to sell off its U.S. operations. It was also invoked in 2005. The Chinese state-owned oil company was forced to drop its bid for the U.S. oil company, Unocal.
My second observation is the obvious: that Canada is open to FDI and can't be accused of not being so. You know the figures on the approvals of takeovers by Investment Canada, and it only reviews 10% of takeovers. Foreign-controlled corporations held 56.4% of manufacturing assets in 2008--those numbers just came out today. And foreign-controlled companies held 45% of operating revenues in the oil and gas sector. In 2006, foreign control over Canada's mining sector assets rose, in the wake of takeovers, to 47.4%, and in the case of operating revenues, to 66%. So Canada is definitely open.
We know there are problems. We've heard about some of them today. I listened to part of the last panel and the issues of transparency. The minister himself has indicated that his government wants to compel foreign investors to make their undertakings public on jobs, local processing, technology transfers, etc.
I'm sure you're also aware of some of the high-profile examples where the process broke down. In the case of Vale Inco, amongst its undertakings were no layoffs for three years and employment not to fall below 85%. It cut 463 jobs in 2009, and in the face of really stringent concessions, it forced a long and bitter strike in Sudbury and elsewhere. It finally announced last fall that it was closing its operations in Thompson, throwing 500 people out of work--and that's 40% of the city's workforce.
With the Australian company, Rio Tinto, and Alcan, commitments were made and they weren't lived up to.
The final example is the steel industry, which in the space of a few years was pretty much sold off.
I would say that in revisiting the foreign investment review policy, it should be part of a broader industrial policy. This would include a plan for protecting, nurturing, and developing strategic natural resources, strategic technologies, and strategic sectors.
:
Thank you, Mr. Chairman.
I'm here as a private individual, a former official, and currently as a professor of public policy, so I can stand back and take a broad look at this.
When you put this into the context of broader Canadian interests, over the last 60 or 70 years, Canada has participated actively in efforts to reduce impediments to international exchange, whether that be of goods or services or capital.
In the earlier panel one of the members asked where Canada stood compared to others. My view would be, unlike Mr. Campbell, that Canada is an outlier. Among OECD countries, Canada is an outlier along with Australia.
I take the view that we have come a long way since the foreign investment review act. When it was passed in 1984, the Investment Canada Act, served a very useful purpose as a transition instrument. But I think in the world we live in today, decisions about what to buy, whom to buy it from, and where to invest should largely be left up to private sector interests, whether they be consumers or investors.
From that perspective, I thought the report that Red Wilson did for the government a little over two years ago on competition policy in Canada, and which also looked at investment issues, was spot on. I was one of the witnesses for that committee. Let me quote his advice:
...that any restrictions on foreign investment should be rare, narrowly conceived, limited to very large takeovers, and grounded in concerns about national security.
If I were sitting in your chairs, I would be looking seriously at scrapping the Investment Canada Act and replacing it with a narrowly conceived national security act. Foreign investment restrictions are a very poor instrument for dealing with the issues that people try to use it for.
If your objective is to deal with corporate behaviour, for instance, then you should do that through the Competition Act or the corporations act. If you're trying to deal with fiduciary issues, deal with them through the Financial Administration Act and similar kinds of acts.
Using foreign ownership restrictions almost always has perverse effects. It devalues the assets held by Canadians, reduces the opportunity for Canadians to benefit from foreign capital and expertise, and it reduces entrepreneurship in this country.
I cannot think of any public policy purpose that would be served by foreign ownership restrictions, except in those rare circumstances when the foreign investor is masquerading as a private investor but it is really a government that is investing. When governments invest, whichever vehicles they may use, they have other objectives than private investors. Other than that, I think the decision as to where to invest and how to invest should be made by the private investor.
There is a mistaken idea in Canada that when we have a foreign takeover of an existing Canadian corporation, that is a net loss to Canadians. I think that's a very big mistake to make. In effect, all that means is that a group of investors outside of Canada have a view that a particular asset can be used more effectively than the current investors are using it. They're willing to take that chance. In return, they provide capital to the former investors who can then invest it in whatever venture they think would be more profitable. The result of that is a better functioning Canadian economy.
From that perspective, I'm going to take a much more root-and-branch view than I think some of your other witnesses have. Rather than tinkering with the act, I suggest you rethink the act.
Thank you.
:
Thank you very much, Mr. Chair.
And thank you all for being here.
It was interesting. In listening to the presentations, it seems that Canada would be more similar to Australia or New Zealand, or some other countries that have a large number of natural resources. When I look at foreign investment, I look at what it will bring to the country as far as jobs, technology, and innovation. That applies to the natural resource sector as well.
But when I'm looking at foreign investment, it's money coming in and actually growing something, as opposed to a natural resource, where it's coming in, taking a raw material out of the country, and maybe creating a few jobs.
Could I get some comments on that? Could you differentiate, if you can, between a foreign investment and an acquisition of a natural resource?
Mr. Campbell, would you like to start off?
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I'll take the example of the potash deal, which I've spent some time thinking about. It was an opportunity to bring capital into the country. It may turn out, as it does in so many deals, that the capital comes anyway, because BHP is still considering the Jansen Lake mine and the $12 billion investment.
I think it's very important to note that if you looked at the analysis up to 2030 of that potential takeover, you would find that there would have been more than 1,000 jobs created in the Jansen Lake mine for the building of it and in connection with all the ancillary infrastructure required for a big mine. Then there would have been a large number of jobs in the mine and then direct and indirect and induced effects on the economy.
So you can actually get, in the case of a resource, depending on what the resource is and how it's used, very substantial investment in jobs and communities out of it with foreign capital coming in--depending on the resources.
In the case of potash, it can't be stored out of the ground for long periods of time, and the market for it is international.
:
I'll just cut in there, because we are limited in time.
I'll go to Mr. Hart. I don't want him to feel left out on this one.
There is a term that's come up quite often, and I've heard it again today, and I'm hearing it more and more from constituents, and that is reciprocity. Why are we allowing countries to come and invest in Canada if they will not allow us to invest in their country? I'm not saying that's the way to go, but it is becoming a stronger and stronger voice. I'm not sure if it's protectionism as much as it is a question of saying if it's going to be free trade, then let's make it free trade. Let's not let others come in and buy us out if we cannot then go into their countries.
What effect would reciprocity have on the Canadian economy? I'd like to hear from Mr. Hart and then Mr. Campbell, if they don't mind.
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I'm not privy to all the proceedings of that relationship and review. But I do know that in the case of Rio Tinto certain undertakings were made, certain commitments, and those commitments were not fulfilled, it would seem.
They made commitments to capital spending, which they did not uphold. On the major upgrades in their plants in Saguenay and in Kitimat in B.C., those capital investments weren't made. They closed the plant in Beauharnois. They reduced production in Vaudreuil. They cut head office jobs by almost 20%. I think it was 1,100 jobs in all. That's the estimate of the jobs loss.
It seems to me that under the act, if you're going to have criteria for measuring net benefit, you have to be able to monitor and you have to be able to enforce. That enforcement should include sanctions up to and including revoking the transaction, the takeover.
:
What I would definitely say is that I would be very skeptical of raising those thresholds from the current levels. I know there have been recommendations that they be raised to a billion, in some cases, and to weaken the net benefit tests.
I think before making a judgment as to whether...they should be reviewed beforehand. Under the national security clause they can be reviewed, even if they're smaller, and in sectors like culture, of course.
But for others we have a track record. We have a history of Investment Canada reviewing or at least giving notification, so we have the record of those transactions. There are something like 13,000 of them. It would be really interesting to do a report or a study of those, or a sample of those, underneath the threshold and what has happened, in fact. Before considering whether to raise or lower the threshold, I think it would be important to actually review just what the history has been with respect to those takeovers. Have the companies thrived or not thrived in the wake of those takeovers?
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The balance is that we should accept that it's private capital and therefore the decisions of a private investor should be the primary consideration. I do not see why it is a matter of public policy what one group of investors thinks compared to another group of investors. I think in a mature economy that's the way it ought to be.
The fact is, in the kind of world in which we live, companies—in order to succeed in whatever line of business they're in—need to have an international focus; they need to be part of much larger value chains and supply chains. They need to have relationships with customers and suppliers around the world that may involve investment in some cases, and in other cases, other kinds of relationships.
I would not suggest that the government should be interfering in those kinds of decisions, that we should charge a group of civil servants in the Department of Industry to second-guess the decision of investors.
Having been a civil servant, I am painfully aware of the inability of civil servants to make those kinds of analyses and decisions. My view is that this should be left to the wisdom of investors who stand to lose or to gain.
When I talk with people in the mining industry who are domestic and working internationally, they talk about something that I think this committee has spoken about many times: we need rules-based decision-making, we need transparency, we need certainty. Any investor who comes into Canada or goes overseas wants to know what the rules are.
I just want to ask you a bit about telecom, because the Globalive decision I think is indicative of a disturbing trend. Any investor coming in knows the CRTC is a semi-judicial body and it adjudicates. You win some, you lose some. There's a set of rules in place. So the CRTC decides if Globalive doesn't meet the test. Then the minister steps in and overrides Globalive. Then the Federal Court steps in and overrides the minister, and then the minister says he doesn't care what the Federal Court says, he'll take it all the way to the Supreme Court. And he's a minister in a minority government. If I were an international investor in telecom, I would stay the hell out of Canada because I wouldn't know who I'm dealing with.
Mr. Campbell, do you think we're sending a very disturbing signal that the minister decides that independent bodies don't have authority, that he can step in on a whim even if the courts overrule him?
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Mr. Bloom, you talked about the need for a more holistic approach, and again I know more about mining than I know about many other sectors. But to develop a mine you could high-grade the deposit. You can take the easy stuff and leave town. That's been done. Many companies have done that. You can take a long-term approach and say we're going to go for some lower-grade ore and use the rich high-grade to make sure the mine life is long, and we're going to have a value-added processing.
So you look at a company like Falconbridge. It had a track record we could see for 90 years. We knew what Falconbridge did. They had excellent metallurgical work. They were known around the world for their processes and their advancement.
Xstrata is a company that comes out of nowhere, and they're riding a peak in the market and they're flush with cash and they basically have a dodgy record. But all being said, all capital is not equal. There is capital that's in there for the short term and capital that has a record that's going to build. So Falconbridge gets taken over by Xstrata, and that leads to Inco being gobbled up by Vale. Our minister at the time said that Vale came to save Sudbury, that Sudbury was in, he said, the “Valley of Death”. That was a pretty bizarre comment to make when Inco and Falconbridge were on the verge of a merger at the height of the biggest metal boom in memory.
So we see the loss not just in terms of what they did to the communities and not just what they did to the copper-refining capacity, but no one has ever talked about the job losses in Toronto in terms of head offices, management, sales, that area of expertise that those companies have developed; that once you are a branch plant you're not in the same game at all in terms of a value to a national economy.
Mr. Bloom, would you have any comments about the effect of what it means to become a branch plant as opposed to a world leader?
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I can give you some examples of branch plants in Canada that are world leaders in their area. Some of our biggest R and D operations are foreign-owned enterprises. If you go to Xerox or IBM you'll see major investment, and in some of the pharmaceutical firms that are foreign-owned as well.
I don't connect the two parts, but if you want to come back to the first part of your comment about the impacts of a takeover, it is a legitimate point to require investors to meet certain conditions that are in the public interest, if they're transparently in the public interest and the representatives of the public have announced them and people understand what the circumstances are so there's a level playing field.
I have to tell you that we've been doing some work. I have a recent report that we've done on headquarters in Canada, looking at their impact on employment among other things. I do not see any evidence of this decline in jobs coming out of the changes. Toronto doesn't seem to be suffering in any particular way, for example. One has to be careful about making associations between outcomes in one place and another.
That being said, I do think it is a legitimate role for government to have a look at this and to set out and say it wants to explore this and there is some evidence there and there is a basis for setting some rules out, but let's make them clear and consistent and apply them across the board.
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First of all, I think there's some value in identifying or defining what you mean by “strategic”, but I think to do that you have to have a strategy, right? So it has to be strategic within an overall industrial policy strategy, and I think that's lacking.
I think the Red Wilson report, if I remember correctly, wanted to replace the net benefit test with the national interest test, which I think is even vaguer than the net benefit test. I would move in the opposite direction, make it clearer, strengthen it, and make it more precise and make it publicly accessible.
Another aspect of the recommendations of that report was the notion of onus, burden of proof. That committee recommended reversing the burden of proof, so you assume that all investments are good and it's up to the government to determine. I would disagree with that. We've seen this trend in the regulatory field--Mr. Hart knows it well--where, for example, when companies introduce a harmful chemical, the onus is on the regulator to prove it is harmful, rather than on the company to prove it is.
:
On a more serious note, this topic is interesting to me. I'm from Burlington, the riding across the bay from both the former Stelco, now U.S. Steel, and the former Dofasco, now ArcelorMittal Dofasco, which kept the name. We have two steel companies right on the same street, with two different experiences.
Mittal is investing, and things are going well. There is foreign investment there, takeover, I guess you would call it. Unfortunately, it's not going quite as well with U.S. Steel, and we're taking them to court as a government. Even Mr. Angus in the previous panel gave four examples, two that worked and two that did not—or were not working the way he expected.
Based on what I've been hearing thus far, it's difficult to pick who's going to win.
Mr. Hart, you said if you were sitting in our chair, this is what you would do. The one thing I think you're missing in that equation is that, like it or not, we are politicians and there's a political aspect to everything we do, so it might not be quite as easy to do as you think.
With respect to the study, one of the questions has to do with increasing the ability of the minister to comment afterwards on whether something had a net benefit, why the decisions were made, and the criteria that went into making the decision. Are you supportive of that change? Let's assume the act is going to stay as it exists, not as you're recommending. Are you in favour of that? Are there limits to it, or do you think that will make any difference?
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Thank you very much. I really appreciate getting them on the record.
In terms of strengthening net benefit, I'll mention three.
First is binding commitments with regard to production and employment levels, existing worker contracts, new investments in fixed capital and technology, and expansion of Canadian content in supply contracts and inputs.
Lower levels of government, community stakeholders, and workers' organizations should be allowed input into the process of evaluating and reviewing proposed foreign takeovers.
All commitments should be made public, and this should be obligatory, not discretionary. They should be effectively monitored to ensure compliance. Failure to live up to the commitments should incur sanctions up to and including retroactive revocation of the takeover.
So those are a few.