Good morning, everyone. I now call this meeting to order.
Welcome to meeting number 22 of the House of Commons Standing Committee on Industry, Science and Technology. Pursuant to Standing Order 108(2) and the motion adopted by the committee on Monday, June 1, 2020, the committee is meeting to study the Investment Canada Act.
Today's meeting is taking place by video conference, and the proceedings will be made available via the House of Commons website.
I would like to remind members and witnesses that, before speaking, please wait until I recognize you by name. When you are ready to speak, please unmute your microphone and then return to mute when you are finished speaking. When speaking, please speak slowly and clearly so that the translators can do their work.
As is my normal practice, I will hold up a yellow card when you have 30 seconds left in your intervention, and I will hold up a red card when your time for questions has expired.
I would like to now welcome our witnesses.
With us today we have Mr. Charles Burton, senior fellow, Centre for Advancing Canada's Interests Abroad, from the Macdonald-Laurier Institute.
Mr. Patrick Leblond is associate professor, public and international affairs, faculty of social sciences at the University of Ottawa.
From the C.D. Howe Institute, we have Mr. Daniel Schwanen, vice-president, research.
Mr. Willie Gagnon is the director of Mouvement d'éducation et de défense des actionnaires.
Each witness will present for eight minutes followed by rounds of questions.
We will start with Mr. Burton.
You have the floor for eight minutes.
I would like to speak to the aspect of your study on determining whether Canada should place a temporary moratorium on acquisitions from state-owned enterprises of authoritarian countries. My area of expertise is China, so I'll talk about Chinese state-owned enterprises in this regard.
I had a look at the Investment Canada Act, and I see that the definition of “state-owned enterprise” is “an entity that is controlled or influenced, directly or indirectly, by a government or agency” or by “an individual who is acting under the direction of a government or agency” or “who is acting under the influence, directly or indirectly, of such a government or agency”.
In this regard I would point out that pursuant to the requirements of the company law of the People's Republic of China, a Chinese Communist Party committee led by its party secretary is required to be at the top of the management pyramid of People's Republic of China enterprises. According to our definition, while, for example, the firm Huawei does not self-identify as a People's Republic of China state enterprise, it is without question ultimately directed by Huawei’s Chinese Communist Party branch general secretary, Zhou Daiqi, who is required under party discipline to comply with direction from Beijing. This discipline would apply to all the party members of Huawei, including the CEO, Ren Zhengfei. I would say that Huawei and indeed all enterprises from China meet the Canadian definition of state-owned enterprise for the purposes of the Investment Canada Act.
Just to supplement that, I would point out that the career paths of leaders in major Chinese state enterprises are determined by the Chinese Communist Party central committee's organization department. Typically a leader in a state enterprise may be transferred by the party to work as a governor or party secretary of a province, and then back to a senior role in another PRC state business entity.
I would very much agree with the government’s recent policy statement on foreign investment review and COVID-19 that “Some investments into Canada by state-owned enterprises may be motivated by non-commercial imperatives that could harm Canada's economic or national security interests, a risk that is amplified in the current context.”
I think it's clear that there is a strong integration of Chinese state enterprises into the political and strategic goals of China’s Communist Party state. I note that Prime Minister ’s former senior policy adviser for global affairs and defence, Roland Paris, indicated in an article last week that the PRC “uses state-directed firms and targeted economic rewards and punishments to gain political leverage over other countries.” This seems to be a generally accepted view.
We have seen this applied with regard to China’s arbitrary violation of canola seed contracts with Canadian enterprises. There are many other examples that I would be happy to outline in the question period if asked.
Furthermore, looking at this aspect of the enterprises not being like corporate entities in democratic countries, if you look at the PRC's much touted belt and road initiative to restructure global infrastructure in China’s favour, many of the belt and road projects funded by China are in fact money losers, but serve the People's Republic of China's geostrategic interests all the same, and we see this phenomenon of “debt trap diplomacy” in which China has acquired ports in repayment for high levels of debt incurred by these money-losing unfeasible projects.
This is going on not just in the development world. PRC-associated companies’ acquisition of Chinese-language news media here in Canada and PRC-controlled social media applications such as WeChat actually enforce the People's Republic of China Communist Party’s propaganda department censorship norms over communications taking place on the soil of Canada. WeChat is censored out of Beijing even though the communications may occur entirely in Canada, say, between an MP and constituents via this app. I find this highly disturbing and a threat to our democracy.
Ultimately, I believe we should apply the principle of reciprocity in our assessment of Chinese state investment in Canada. For example, the Government of China forbids foreign firms from acquiring Chinese mines and other natural resources, under the Chinese constitution, on Chinese national security grounds. The same would apply for high-tech acquisitions in telecommunications. This is not reciprocal here in Canada. They're able to acquire things in Canada that we would not be able to acquire in China.
Let me conclude by suggesting that the principles of reciprocity and fairness are what our trade and investment policies should reflect. We need to stand up for the international rules-based order by our actions and not just by our rhetoric.
Thank you very much. I look forward to your questions and challenges later on in this event.
Thank you, Madam Chair.
I want to thank you, committee members, for inviting me here today. I'd like to discuss three topics related to today's meeting. The first has to do with the stability of the Investment Canada Act. The second topic is the definition of a strategic Canadian industry. What does “strategic” mean? The third topic has to do with takeovers by state-owned enterprises of authoritarian countries.
I'd like to start by talking about the stability of the Investment Canada Act. In principle, the act should not be amended in response to a pandemic, such as the COVID-19 pandemic, or any other one-time event. In principle, the act should be robust and stand the test of time. It should be amended only in response to structural changes, over the medium and long term, within the Canadian and global economies.
The act has a dual purpose. First, it encourages investment in Canada, which in turn promotes economic growth and job creation. Second, it seeks to protect national security. This is a more recent development.
It's important to note that the act can only achieve its first objective if the rules remain unchanged. If the act is amended every time there is a recession or pandemic—situations that can be considered temporary—things get a lot more complicated, given the uncertainty facing foreign investors and local businesses that might want to potentially attract Canadian or foreign investment.
If the rules of the game are constantly changing, do we not risk missing out on potential investors and undermining competitiveness? Doing so might not only hurt economic growth and job creation, but also devalue our businesses. When there are fewer buyers and investors in Canada, then there is less capital, which could then drive down the value of Canadian companies.
And so, we need to be very careful not to amend an act every time a temporary situation arises. In theory, the act should be able to address these changes on a case-by-case basis. That is the first point I wished to raise.
My second point has to do with the definition of a “strategic Canadian industry”, as it appears in the statement. We have to ask ourselves what a strategic industry actually is. Is it an industry that is essential to the health of the economy and society as a whole?
Mr. Burton raised issues related to competition and issues related to democracy, for example. What is essential? The problem is that every person can have their definition of what is essential.
In coastal regions, be it the Atlantic or the Pacific coast, the fishing industry is probably considered essential. And yet, that doesn't mean that it is essential to the health of the Canadian economy as a whole or to society. People in Toronto can just as easily eat Maine lobster rather than lobster from Nova Scotia or the Magdalen Islands, even if the latter are better than those from Maine.
The same can be said of the mining industry in Quebec, the oil and gas industry in Alberta or the forestry industry in British Columbia. Are these industries essential to the health of the Canadian economy? From a regional perspective, the answer is yes. From a business perspective, they're indeed essential. From a job creation standpoint, they're essential. And yet, if that's true, could it not be argued that the value of what is deemed essential is diminished?
Who decides which industries are essential and which are not? Will that be up to individual MPs, or rather public servants? Who will be in a position to assess the differences between industries? What criteria will we use? The list of strategic Canadian industries could end up being quite long, since everyone will want their industry to be deemed strategic.
In Quebec, hardware stores suddenly became a strategic industry for the Quebec economy when it was announced that Rona would be sold to Lowe's. In France, for example, the yoghurt industry is a strategic industry. The French government indicated that it could not allow Danone to be sold.
Industries that, at first glance, don't appear to be entirely strategic from an economic standpoint can quickly become strategic for political reasons. It could then be argued that if every industry becomes strategic, then no industry is actually strategic.
We have to wonder whether it's worth having a list of so-called strategic industries. This could have some repercussions, in that each potential transaction would have to be reviewed. Is it necessary to set thresholds for a strategic industry? This could be a very cumbersome process.
The act, as it stands, sets out an approach for thresholds: regular thresholds; thresholds for state-owned enterprises; or cases in which thresholds do not apply, for example when national security is involved. In my opinion, the act, as it stands, is sufficient to deal with so-called strategic industries. National security is what is strategic. We're not talking about job creation or economic growth, because that would raise the notion of net benefit, which the minister will of course have to define for any acquisition.
In conclusion, I'd like to touch on acquisitions by state-owned enterprises of authoritarian countries. Again, what is the objective here? Mr. Burton spoke about reciprocity. That could be an objective, but I think it comes back to national security.
What's the difference between a state-owned enterprise and a private enterprise? Is it a matter of economic performance? In most cases, studies show that there is not really much difference in performance or operations when comparing a private enterprise and a state-owned enterprise. If it's not a matter of national security, is there a difference between a state-owned enterprise of an authoritarian country or a democratic country? Again, I think that the act, as it stands, is sufficient and simply needs some guidelines for enforcement.
Thank you for your time, and I'm happy to take your questions.
Thank you, Chair. Thanks to the committee for this invitation.
The question of whether companies within strategic industries have been devalued or have lost value would be easier to answer if we had a clearer idea of what constituted a “strategic” industry, and there, let me pick up where Patrick Leblond left off.
Also in the same vein as what Patrick was saying, we already have provisions—let's not forget that—for scrutinizing foreign investments of any size, for any national security concerns. We already have a lower threshold and different ways of calculating value for scrutinizing foreign state-owned or influenced enterprises, as Mr. Burton was saying, than we do for non-SOE investments. We already have, of course, restrictions in place in a number of sectors that we obviously consider strategic, whether it's culture industries, telecommunications, transportation and others. That's already our current regime, so when we say “strategic”, we need to have a new definition in mind that means more than that. In fact, in light of the COVID-19 crisis, I would agree that we see that the supply of goods that Canadians rely on for their security and safety—for example, medical or food supplies—is more fragile than perhaps we had realized, and enabling Canadians to scrutinize investments that threaten those supplies would have to be properly seen as a strategic matter in my view.
Canadians also sense that new technologies will be at the forefront of our recovery from this crisis. Governments that have supported the development of new technologies via subsidies and the development of ecosystems that allow these technologies to be commercialized from a Canadian base, which is really ultimately the goal of policy, might want to discourage any panic selling by those firms or technologies in the current context, which might jeopardize this policy goal.
We can think of other strategic firms or sectors whose disappearance might trigger a really catastrophic loss of Canadian production capabilities in a number of sectors. The auto sector has often been mentioned in this respect. I would urge the following consideration. The loss of this kind of economic activity is not the same thing as selling a firm operating in these sectors to a foreign entity. FDI, in general, has been very good for the Canadian economy as long as foreign-owned firms, state-owned or otherwise, follow Canadian rules and regulations. To me, that's really the crux of the matter.
Having said this, I do not see generalized panic selling, and the market, as we've seen, has rebounded. What I hear is that, in general, government support measures and lenders that use liquidities, which are in turn supported by governments, of course, and the Bank of Canada, do, by and large, support their clients and provide the bridges, the lifelines, that allow companies some room to breathe and to continue operating through the emergency closures and a temporarily reduced demand.
Of course, some companies will not survive the crisis in their current form or will survive it only if they are allowed to restructure and refinance or become more sustainable under changed business models reflecting changes in demand and safety requirements, and in general, a different perceived risk return profile on the part of investors for different industries. I'm thinking of the airline industry, for example. As companies contemplate their future and seek more secure financing, or seek to restructure in some cases, foreign investment can again be a very useful way of providing capital to these companies or to channels through which capital is provided. I would again be careful of any knee-jerk reaction against FDI per se.
The other thing is that the changes these companies are going through are really a global phenomenon. It would be one thing if one Canadian airline company was alone in suffering, but all the airlines around the world are suffering, so it's not necessarily the case that competitors have the means to come in and pounce on Canadian firms. Again, I would be worried about imposing some new restrictions. Everybody is struggling, and while some investors will see opportunities for consolidation and perhaps even bargains, it's not necessarily such a bad thing to attract capital, including foreign capital, into these firms as they restructure, as long as this does not jeopardize public policy goals.
The trick is to give us the tools to quickly sift through investments that are potentially inimical to Canadian interests while retaining the door as wide open as we can to others. In the ordinary course of business, takeovers should be allowed, particularly as boards of public companies have more leeway now under provincial securities regulations to consider alternatives to a proposed takeover. This is something fairly recent.
What should this committee consider or recommend? It should think about clarity of criteria regarding any additional security over and above what we already have. This clarity could be obtained through examples or guidelines of what investment or investor might be considered problematic for Canada at the current juncture or going forward. It doesn't necessarily have to be rigid definitions that provide this clarity. It can be enhanced national security guidelines, for example.
I would also recommend swiftness of decisions on proposed acquisitions, with very clear guidelines. Swiftness of decisions is key to maintaining the balance between remaining open to foreign direct investment, with the benefits that FDI brings, and ensuring that the public interest is protected.
Having said this, my understanding is that it would be very difficult—certainly not easy—to change, in a timely fashion, the current thresholds that trigger the net benefit test. In this context, the key tool we can wield is expanding, in effect, the guidelines in the national security review to include matters that concern strategic questions of security and safety of supply and of potential systemic loss of otherwise competitive Canadian economic activity, as I fairly narrowly defined.
Last, we're thinking here about temporary changes, but I'm not exactly sure, to the extent we actually go through these changes, that they should be temporary. We could make them permanent. I think that would be very helpful to policy, going forward.
I'd like to start by saying that we believe the Investment Canada Act is legislation that is absolutely essential in any nation, no matter how democratic, but that it clearly does not go far enough. This act is the final link in a chain of provisions that should be much longer than it is. It's the culmination of a whole suite of measures, two of which are primarily aimed at protecting head offices in this country.
The two measures I'm referring to are multiple voting shares and the 66% takeover threshold. Everyone knows that under Quebec and Canadian law, when a company has a Canadian charter, it can't be acquired unless two-thirds of its shareholders vote in favour. This means that a takeover bid can be blocked by a shareholder who holds 40% of the shares but isn't a controlling shareholder, as is the case with Saputo.
The other measure is multiple voting shares. With multiple voting shares, it's possible for one shareholder, whether minority or otherwise, to hold the majority of a company's voting rights, which means—
This means that if a company has multiple voting shares, a controlling shareholder with multiple voting shares can block a takeover bid. The protection of the company rests on the shoulders of a single shareholder, who is generally the company founder.
We long ago adopted the conclusions of the report entitled “The Maintenance and Development of Head Offices in Québec” that was published in 2014 by the Task Force on the Protection of Québec Businesses. This report contains numerous recommendations that could also be useful for the country as a whole.
The report relied mainly on a brief submitted by Mr. Martel, an attorney who had researched safeguards already in place in certain U.S. states that we should import here to protect our businesses. For example, the buyer's voting rights can be temporarily withdrawn for a given period, and transactions, or business combinations, with the buyer can be restricted. I should also mention poison pills, which everyone has heard of. They involve diluting the buyer's shares by allowing other shareholders to buy shares at a certain price. In addition, fiduciary duties could be enshrined in corporate law in favour of stakeholders. Staggering directors' terms means the process for replacing all the members of a board of directors is spread out over a period of several years. This complicates the takeover process, because it takes more than a year to replace the entire board. That can sometimes deter potential buyers from attempting a takeover.
We focused particularly on the fiduciary duties of company directors, especially with regard to the treatment of stakeholders. As you may already know, British law sets out all of the fiduciary duties towards stakeholders, along with a list of all stakeholders. Allow me to quote directly from the United Kingdom Companies Act 2006:
A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to—
(a) the likely consequences of any decision in the long term,
(b) the interests of the company's employees,
(c) the need to foster the company's business relationships with suppliers, customers and others,
(d) the impact of the company's operations on the community and the environment,
(e) the desirability of the company maintaining a reputation for high standards of business conduct, and
(f) the need to act fairly as between members of the company.
According to the law, corporate directors in the United Kingdom have a duty to consider the interests and rights of all stakeholders, including the state and the environment. Therefore, all the issues raised previously by all the other speakers concerning the acquisition of a corporation, whether by a foreign state that is a dictatorship or a state where there is little respect for human rights, would be part of the legal, judicial and fiduciary responsibilities of corporate directors if we had such provisions in Canada. These issues would not have to percolate until addressed by provisions such as those of the Investment Canada Act. Due to the current situation in the country, considerations concerning the fiduciary duties of corporate directors is left to case law.
I would refer you to the 2008 ruling in BCE Inc. v. 1976 Debentureholders.
...it may also be appropriate, although not mandatory, [for the board of directors] to consider...shareholders, employees, suppliers, creditors, consumers, governments and the environment.
Here, in Canada, it is not mandatory and it is left to case law. We would be well served by going beyond the reflections of this committee on these issues, beyond the Investment Canada Act, and see what is happening upstream to cause files to be subject to this law.
There is also the 2016 study by Mr. Allaire on the head offices of major corporations in Quebec. This study lists corporations at risk of being taken over. In Quebec, they do not have the protections already in place, that is they do not have multiple voting shares or a group of shareholders holding more than 40% of shares. The study lists 16 firms at risk of takeover, including Metro, Gildan, SNC-Lavalin, Dollarama, Valeant and TransForce. You can have a look at the list.
One of the problems with the act in its current form is that the department determines whether the transaction is of net benefit to Canada, but it does not have to disclose the reasons why that is the case. In our opinion, there should be more transparency in that regard.
Thank you, Madam Chair.
As just some broad comments based on the witness testimony, I went into this study with a fairly open mind because of the amount of coverage that has been placed on this issue in recent months and weeks, and I would give two observations.
First of all, I believe Dr. Leblond stated some good points with regard to our having to have consistency within our regulatory framework in order to attract investment, yet on the other hand, we also have to ensure that we're not literally selling Canada for the sake of short-term gain. It's getting that balance that I think is what's at stake here.
As the world changes, it's incumbent upon Parliament to see if we actually do have that balance struck within our legislative and regulatory framework, and that I'm not convinced of right now.
I believe it was Dr. Leblond as well who talked about the fact that while there's no definition of “strategic industry”, the premise was therefore made, “Well, if everything is strategic, nothing is strategic.” I would argue that a strategic industry would be one that, if sold or if majority control were given to an authoritarian country, the sale or shift in control would threaten Canadian sovereignty. That would be a strategic industry in and of itself. I'm not sure that the ICA right now gets to the core of that, so perhaps I'll start with that premise.
My question is to Dr. Burton.
We have in Canada right now a process in place for visas and for deciding whether Canada requires a visa. It's a visa framework review. We have a set of criteria through which we decide whether citizens of a certain country can come to Canada on a visa status or a visa-free status.
Is there anything similar to that type of a framework within our current law whereby we look at a country—let's say it's an authoritarian country—and say certain criteria have either been met or not met, and review all the investments coming in from a certain country based on those criteria? Is there anything in our current framework that takes that type of approach?
I have only a few minutes left.
I think that's a really good point when we're talking about what a strategic Canadian industry is. We know for a fact that some authoritarian countries definitely have their strategic priorities with regard to FDI, foreign direct investment, laid out with regard to our country. I think that's important to note as well.
I do take to heart the testimony that any major changes or overhauls to the system would take time. In the meantime, I will ask two questions, Dr. Burton.
Do you believe that in the short term a moratorium should be placed on SOEs from authoritarian countries? Do you think that it is incumbent upon Parliament to do a more comprehensive review of our FDI investment framework, given the changes in the global context?
Thank you, Madam Chair.
I'd like to thank all of our witnesses for being here in order to help us with this study today to answer our questions.
I understand that FDI is great and good for Canada, generally speaking. If we're able to attract foreign investment, obviously the economy is better, and the value of our country goes up. As FDI decreased globally in recent years, in Canada it's been on the rise, which is great for Canada.
Mr. Schwanen, you mentioned that we should discourage Canadian companies from panic selling in order to make sure that Canada and Canadian-owned enterprises remain and that we stay strong. If we're not going to scrutinize further foreign investment during this period, and if we don't make the act stronger, what are the ways you think we can discourage companies from panic selling during a time of crisis such as the one we're in right now? How can we make sure that Canadians don't sell their businesses to foreign investors while still receiving some help from them, if it's needed?
Thank you very much for that question.
I'll go straight to the heart of what I was trying to say. I lost track of my text there for a minute.
As you know, any investment can be scrutinized for national security reasons. What I was saying is that in the current context, those reasons can be expanded. We have guidelines that the government publishes. Let's maybe publish expanded guidelines. This is what we—at least in the current context, but maybe going forward—consider to be national security: the food supply chain and the medical supply chain. Frankly, that's the deal with some of the concerns from SOEs as well. Are you threatening to steal Canadian technology, for example? These sorts of considerations we can deal with right now by expanding those guidelines. That's really what I was saying.
The best defence is to keep the Canadian economy strong and the valuation of Canadian firms fair. I think that some of the policies that we've seen in place and the support by the Bank of Canada and our banking system in general really help companies navigate without being undervalued unfairly.
The last point is that sometimes a Canadian company will need to find investors to stay afloat and keep jobs in Canada. We don't want to close the door to what would be a perfectly good foreign investment, if we can avoid that.
Those are my main points.
Yes. Obviously, the issue of trying to define what is strategic is that, in my view, most of what we would consider strategic probably falls under national security, whether, as Daniel mentioned, it's technology or whether it's infrastructure, and we can think about energy, ports, roads, telecommunications, the media and culture. In terms of society and our economy, these are all things that we would think of as being strategic.
Within the broad definition of national security, and even the issue of threatening sovereignty, I agree with Daniel that we can potentially expand the guidelines to make them clearer, but we don't need to change the law per se. There is sufficient flexibility right now to address these issues. If we think, for instance, about having some kind of control or sovereignty over the production of medical equipment, personal protective equipment or these kinds of things, well, this is a national security issue, right? Health is a national security issue. If it's cybersecurity in terms of technology or dual-use technology, it's the same thing.
I think we have the means under national security to address the issue of what is meant by “strategic”. Otherwise, the danger with trying to define what is strategic is that it will vary from region to region across this country. Ultimately, it will be devoid of any meaning. It will be used solely for political reasons. People will be asking why this or that company or industry is protected and not theirs. In other cases, you'll have people saying they don't want to be protected. As a shareholder, they want to be able to sell to a company in a way that maximizes their value, and as a result of deeming their industry or company strategic, they'll actually be losing money or realizing less value.
I think we have to be very careful in using the term “strategic”. Often what we mean is “national security”, and we have that now in the law. I think that's really important.
It was founded in 1995 by a great Quebecker, I might add. Thank you for taking over for him.
You said at the beginning of your presentation that it was pretty clear that the Investment Canada Act is essential and that any country that is the least bit evolved will protect certain sectors, try to prevent head offices from moving away and provide some oversight for its most valued sectors.
More recent aspects of Quebec history have very clearly demonstrated the importance of having policy levers and institutions that work in partnership with private companies, while always maintaining a state-level strategy. This is less obvious in Canada's case. With respect to the Investment Canada Act, you said that it's fine, but it's clearly not enough.
Since you gave some examples of what's happening in other countries, particularly Great Britain, it really made me want to ask the following: Should Canada be looking at what's happening in the United States, this bastion of the free market?
Let me repeat that this legislation is a measure of last resort. It's really at the end of the road when we need it. We're saying that a number of measures are already on the table and that they need to be implemented. The challenge we're facing right now basically has to do with harmonization. When it comes time to implement certain measures, the problem is the hybrid regime that exists here in Canada. Certain corporations are registered at the federal level and others at the provincial level, but neither level can act alone in every area.
The most significant progress in that regard is the result of cooperation amongst the provinces, specifically through the work of the Canadian Securities Administrators, currently chaired by the president of the Autorité des marchés financiers. That association can take several initiatives. Corporate management culture in Canada has changed in many ways, for example, because of TSX rules. TSX imposes rules on companies that the legislation does not necessarily impose.
It's high time we had a national network to deal with all the problems associated with harmonization. We should be reviewing all of that, and we need to establish several steps that would help protect Canadian businesses, not only through legislation like this one, but some kind of atomic bomb. On a side note, the thresholds set for a company to be able to benefit from protection under this act are starting to get a little high for some companies. Take Bombardier for example. The company has about 2.5 billion shares, each worth about $0.50, but it just barely meets the threshold to be eligible for the protection mechanisms under the act. If someone wanted to purchase Bombardier tomorrow, it would be impossible to protect the company under this legislation.
Thank you, Madam Chair, and thank you to our witnesses for being here.
It's an interesting topic. It's something the industry committee first delved into back in 2002-2004 with China Minmetals. We had no national security screen at that time with regard to oversight of the Investment Canada Act. In fact, there were over 9,000 files, and not one had actually been reviewed or taken down from the acquisition process at that time.
Today, we have this discussion. We need to actually characterize what people can relate to. There was Rona. There you go. How well did that work out for Canada? Lowe's took it over and closed stores, so there was less competition for consumers.
We had Zellers as a retail operation. Target came in from the United States. Zellers was actually making a profit and paid its workers more than its competition. Then Target withdrew from Canada, closed Zellers, and we had less competition.
Eaton's was taken over by Sears. We know how Sears ended up in Canada, actually committing pension fraud against workers, which to this day the government has not addressed, as this unfunded liability has been borne basically by working-class people at their expense. Again, that was allowed to take place under the Investment Canada Act.
Others were Alcan, Inco, Falconbridge, Stelco and Electro-Motive in London. There were issues related to MacDonald, Dettwiler, and we fought and stopped that. Even the Aecon construction company in Canada was proposed to be taken over by Chinese construction firms at that time.
Ironically, where I am, where I've been fighting since 1998 for a new border crossing, Aecon would have been denied building the new Gordie Howe International Bridge because the United States didn't want the Chinese government involved. We are actually building that crossing right now, which is responsible in my area for 40% of the daily trade between Canada and the United States, about $1 billion and about 10,000 trucks per day.
Had Aecon been taken over by the Chinese at that time, it would have made the project or bid null and void, reducing it to basically a competitive process of one bidding agent left over from the three that were tendered. Again, competition at the expense....
I think about the fact that we have our Canada Pension Plan as well when we talk about not being able to say no to anything because it's a laissez-faire market and we have no real interest in determining winners or losers. I've heard that terminology before, and it hasn't really worked out very well for Canadians.
I think about our Canada Pension Plan, which has invested in private health care facilities in Ontario for seniors, making a profit at a time when we needed the military to come in and clean up things there. I think about British Columbia, where right now Anbang, which the Chinese state government really owns, is treating and caring for our seniors because Canadians can't afford to do so ourselves, or we've left it open to them to decide as to those practices.
I find this discussion void of the real consequences in the employment aspect and also the statutory importance of having a strategy to go along with competing in the world.
It is interesting, because Canada is one of the few states that doesn't' have sectoral strategies. If you look at Kia Motors, which competes here in Canada, and Volkswagen and others in the automotive sector where I come from, you see that they are heavily subsidized by state governments, either through direct investment or through their pensions, and there are also industrial strategies. In fact, even Mexico, which recently signed an agreement with the United States, and you could even argue Trump with regard to his behaviour concerning re-industrialization, have moved national strategies and resources, and somehow we're supposed to just forget all of that and look at the part coming in.
I do want to pose one question with regard to this discussion, though, and it is to any of the witnesses who have come before us here today. We are talking about China in particular, but what about private equity firms? Is there an interest out there to actually have some public disclosure when Canadians invest? Should there not be public disclosure by municipalities, provinces and federal governments? In particular, with regard to ownership, tax deductions, credits for innovation and research, as well as direct subsidies, and that includes reducing corporate taxes, do we not have an interest to guarantee that those companies at least have some domestic control, and shouldn't we provide that screen for private equity firms as well as the state of China?
If anybody wants to answer, I'd be happy to listen. If not, then I can continue this, because this is simply unacceptable. It's absurd that we are the only country, I think, in the industrialized world that has this type of a laissez-faire policy in place and we basically say, “Good luck. It's too complicated. You sort it out.”
I wish to say that focusing on foreign ownership per se is not exactly the issue. We've had lots of Canadian investments that went bust all by themselves, including in foreign countries. We have a long list of those.
The question is whether the Canadian or foreign investor follows Canadian policies, follows Canadian regulations and follows Canadian laws. We all have the same interests in a thriving economy. The question is whether being a foreign investor by itself—because of who controls foreign investors, for example—is really threatening that ability, that sovereignty of Canada to be able to enforce its own rules, regulations, labour laws, etc., over its own territory.
If it doesn't threaten it, then I think foreign investment should be welcome. All investments can do very well, but a lot don't do well, and that applies to whether they're Canadian-owned or not.
That's an excellent question.
I do think that the pre-existing economic leverage that China has in Canada—important Canadian firms that have extensive business dealings with Chinese Communist networks and at the same time have influence over decision-makers, particularly, let's say, in the Prime Minister’s Office—has inhibited our ability to properly review whether Chinese investments in Canada are in the net benefit of Canada. This particularly leads to the kind of thing that Professor Paris referred to as economic leverage.
The situation in Britain now is that the British government is considering not using Huawei in its 5G after all, and the Chinese embassy has threatened Chinese investments in the British nuclear sector. When the Australians suggested that there should be an independent study of the origins and nature of China's response to COVID-19, the Chinese government threatened to limit exports to China of Australian wine. It's already limited barley and meat, is threatening coal and is suggesting that Chinese tourists and students would be less inclined to go to Australia.
When you have a situation in which, unlike other state investors, the Chinese government apparently directly uses the economic leverage of its existing investment in Canada to further its political aims, we have a problem in terms of our sovereignty. I think that includes further investments or the review process of whether we should be transferring high-tech technologies with potential military applications to China.
The Chinese government has set up very many conditions to Canada, by implication or directly, to suggest that if we don't go along with what the Chinese government wants in pursuing its interests in Canada, we will lose the Chinese investment, which means threatening employment and prosperity in Canada. It's very dangerous to deal with them, frankly.
I do think national security should be the focus.
One of the things we also said, though, is that as we use that national security lens to look at proposed investments, which by the way could be an investment of any size—it could be one dollar by anybody, so that takes care of a lot of potential situations—we have guidelines explaining what we mean by “national security”, “critical infrastructure” and so on. We could expand those guidelines and get the authority we need, if you like, or give foreign investors the clarity they need in terms of what we mean by “national security”. That could cover a lot of situations.
That explains why we're focusing on national security and, more generally speaking, on the ability of the Canadian government, the Canadian governments—including provincial governments—to make sure that foreign investors follow Canadian laws, regulations and policies the same way that Canadian investors do. That's really the focus of our policy recommendations.
I sat on several international boards of companies operating in Canada. I was the Canadian director, so I was there to say what you could do in Canada, what you couldn't do in Canada, how Canada might differ from European or Asian countries in terms of how we implement policy. Often the board would just say, “Okay, that's a Canadian thing, we get it, but in order to do our overall...how could we work within the Canadian context?”
So far today, we've talked about a lot of things dealing with the Canada Business Corporations Act versus the Investment Canada Act. We actually do have laws in place to protect Canadian businesses from doing things that would be illegal in Canada. Could you make a brief distinction between the corporations act and the investment act and how they might work together?
The Huawei company has quite a strong connection to the Chinese military; its CEO is a former military man. There are concerns as to why the Chinese government is so resistant to the Huawei CFO's being sent to the United States, out of perhaps fear she would provide evidence to the U.S. government about Huawei's connection to the Chinese military and security apparatus.
We have concerns that Huawei could get knowledge of key Canadian infrastructure in the course of its installation of a system or would be able to use it for purposes of data collection and cyber espionage, as we've seen with the Chinese government's previous hacks into the NRC and, before that, the Treasury Board and other agencies. It's a big concern, and I certainly wouldn't like to see Rogers renamed Huawei.
The other problem is that, even when you have these large takeovers, it's difficult to get the state companies to abide by their commitments. As seen in Nexen, there was a commitment to maintain the existing Nexen management, but after a while, we saw the Canadians were removed and the management was assumed by Chinese communist officials, so it's highly problematic.
With regard to your question of whether we should allow Huawei to take over a major Canadian telecommunications provider, I would like to say a capital no with several exclamation marks.