I call this meeting to order.
Welcome to meeting 25 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 June 1, we are 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.
As a reminder to members and witnesses, before speaking, please wait until I recognize you by name. When you are ready to speak, please unmute your microphone and return it to mute when you are finished. When speaking, please speak slowly and clearly so the interpreters can do their work. Please make sure that you are on the language you will be speaking on the Zoom app.
As is my normal practice, I will hold up a yellow card when you have 30 seconds left in your intervention and a red card when your time is up.
We have two panels today. The first panel will be from 3:00 p.m. to 4:00 p.m. We will take a break at 4:00 p.m. so we can switch out the witnesses and have a little health break, because we will then go into a two-hour meeting for the second panel.
I'm not going to read out all of your titles again, as I did that last week, but I want to welcome back Mr. Hahlweg, from the Canadian Security Intelligence Service; Mr. Davies, from the Department of Industry; and Mr. Dominic Rochon, from the Department of Public Safety and Emergency Preparedness.
You will each have five minutes to testify, followed by the rounds of questions.
I will start with Mr. Hahlweg.
Mr. Hahlweg, you have the floor for five minutes.
Thank you, Madam Chair and members of the committee. Good afternoon.
I'm currently the assistant director of requirements at the Canadian Security Intelligence Service. Among other things, my directorate is responsible for the analysis of intelligence that CSIS collects on threats to the security of Canada. Our intelligence assessments and the advice are provided to the government to inform decision-making.
I want to thank you for the invitation today to participate in the committee's study of the Investment Canada Act.
I want to begin by briefly outlining CSIS's mandate, which is to investigate activities suspected of constituting a threat to the security of Canada, to advise the Government of Canada on these threats, and to take measures to reduce these threats. The threats to the security of Canada are defined in section 2 of the CSIS Act as espionage or sabotage, foreign-influenced activities, terrorism and subversion of government through violence.
As discussed in our recent public report, state-sponsored economic espionage activities in Canada continue to increase in breadth, depth and potential economic impact. In order to fulfill their national economic, intelligence and military interests, some foreign states engage in espionage activities. Foreign espionage has significant economic ramifications for Canada, including lost jobs, intellectual property, and corporate and tax revenues, as well as competitive advantages.
With our economic prosperity and our open academic and research communities, Canada offers attractive prospects to foreign investors. Although foreign investment is a key driver of Canada's economic prosperity, it also has the potential, in certain cases, to adversely affect our national security. The acquisition of sensitive intellectual property, technology, or vast amounts of Canadian citizens' private data for foreign use, or with foreign-state control, can threaten national security. While the vast majority of the foreign investment in Canada is carried out in an open and transparent manner, some state-owned enterprises and private firms with suspected or known ties to their government and/or intelligence services can pursue corporate acquisition bids in Canada or other economic activities on a non-commercial basis for their own strategic objectives.
Foreign states have engaged in espionage and foreign interference targeting Canada for years. This is not a new activity. CSIS director Vigneault has spoken publicly about the impact of these threats to Canada's economy and national interests, including the threats posed by China and Russia. In its 2019 review of foreign interference and public report, the National Security and Intelligence Committee of Parliamentarians also reflects that these, among other states, are of concern.
While I cannot speak in detail about any operational matters, I can assure you that CSIS is actively investigating all suspected threats of foreign interference and espionage, and we engage with your NSICOP colleagues on these important matters in a classified space.
These threats pose particular concerns during the COVID-19 pandemic, which has created economic vulnerabilities for Canadian companies upon which foreign threat actors may seek to capitalize.
To assess such impacts, the ICA authorizes the government to review foreign investments on national security grounds. CSIS is a prescribed investigative body under the national security provisions of the ICA. As such, the service conducts investigative efforts related to national security concerns arising from foreign investments linked to foreign government entities. CSIS obviously works with other government departments and agencies—these include Innovation, Science and Economic Development Canada, the Department of National Defence, the Communications Security Establishment and the RCMP—to provide advice in support of the national security review process.
While I cannot comment publicly on any specific advice that CSIS has provided, or on any specific ICA transactions, I would note that it's ultimately within the prerogative of the Governor in Council to allow, disallow or impose mitigation measures on investments that would be injurious to Canada's national security.
Corporate acquisition is not the only way through which hostile actors can threaten Canada's economic security. Threat actors can also access proprietary government information through cyber-attacks, espionage and insider threats. Insiders are individuals with direct access to the systems and intellectual property in corporate and research environments. This could potentially include business people, scientists and researchers. Put another way, today's spies also wear lab coats, not just trench coats.
CSIS observes that technology or know-how particularly in academia and small to medium-sized enterprises is often less protected and more vulnerable to state-sponsored espionage.
Thank you very much. That ends my opening comments.
Thank you, Madam Chair, for this opportunity to discuss the Investment Canada Act as related to the committee's study.
I'm the senior assistant deputy minister of the industry sector for Innovation, Science and Economic Development Canada and the deputy director of investments, responsible for supporting the director of investments and advising the on the Investment Canada Act.
In my brief opening remarks, I would like to provide background to the committee on how we administer the act, including in the current context shaped by COVID-19.
As has been widely recognized, foreign direct investment, or FDI, plays an important role in the development of Canada's economy, contributing to productivity and providing vital links to global value chains. It fuels innovation and creates well-paying jobs. FDI will be an important component as the economy recovers from the effects of the pandemic. At the same time, the government has a responsibility to ensure that FDI benefits Canada and to protect Canadians against national security threats that can arise through foreign investment.
With respect to how the authorities in the act are administered, information about decisions is made public through an annual report on the ICA, including disclosure of summary statistics on the operation of the net benefit and national security review processes.
The government's net benefit review authorities are based on the value of the Canadian business. Based on the recommendations of a blue-ribbon panel in 2008, successive governments have raised the net economic benefit review threshold for private, WTO and trade agreement investors. The threshold now stands at $1.613 billion in enterprise value for private investors from Canada's trade agreement partners and $1.075 billion for private investors from other WTO investors, while it is at $428 million in asset value for state-owned WTO investors. These amounts are updated each calendar year in accordance with changes in nominal GDP.
The top three source countries or regions of investors by number of ICA filings were the United States, at 59%; the European Union, at 24%; and China, as a third, at 4%. The United States and the European Union have been historically Canada's largest investors under the act. Additionally, all foreign investments—regardless of value, regardless of the investor or country of origin—are subject to review under the act's national security review process.
Threats to national security are complex and evolving. Accordingly, the ICA and its associated regulations do not define national security. However, to provide transparency for investors and Canadian businesses, the government published national security review guidelines in December 2016. These guidelines are complementary to the national security provisions of the act.
Recognizing the unique challenges brought about by COVID-19, the issued a policy statement on April 18, 2020, which indicates that the government will apply “enhanced scrutiny” under both the net benefit and national security provisions of the ICA to foreign investments related to “public health or...in the supply of critical goods and services”.
In addition, given that “investments into Canada by state-owned enterprises may be motivated by non-commercial imperatives that could harm Canada's economic or national security interests”, the statement indicates that all foreign investments by state-owned investors will be subject to “enhanced scrutiny” under the ICA. Enhanced scrutiny could involve the minister requesting additional information during the course of a review or extended review timelines in order to ensure the government can fully assess these investments.
The goal of the statement was to inform foreign investors that we would exercise these authorities to their utmost, with a focus to preserve net benefits to Canada of proposed investments and to protect Canada's national security. In particular, the review processes would consider closely the effect of proposed transactions on potential risks to the supply of critical goods and services during the period of the pandemic.
This approach under the ICA, including as articulated in the COVID-19 policy statement, is consistent with general intelligence assessments shared by the national security departments and agencies. I am pleased that my colleagues from Public Safety Canada and the Canadian Security Intelligence Service are with me here today to speak to the important roles their organizations play in the administration of the national security provisions of the act.
Thank you, Madam Chair. I'm happy to answer any questions the members may have.
I should note that I am unable to speak to or respond to questions with respect to specific investment reviews due to the strict confidentiality provisions of the act.
Thank you, Madam Chair, for this opportunity to discuss the Investment Canada Act. Good afternoon, everyone.
I am the senior assistant deputy minister of the national and cyber security branch here at Public Safety Canada, responsible, among other things, for advising the on the national security dimensions of the ICA. My remarks will focus on the national security provisions under the ICA, which is administered by the , as we just heard, who consults with the Minister of Public Safety and Emergency Preparedness as part of his deliberations.
The national security provisions of the ICA are broad by design and enable Canada to assess all inbound foreign investments, including the establishment of a new Canadian business or an entity carrying on operations in Canada, the acquisition of control of a Canadian business of any dollar value, and the acquisition of all or part of an entity carrying on operations in Canada.
National security is not explicitly defined within the ICA, as this allows the government to remain nimble in response to the ever-changing threat environment. Public Safety Canada manages a national security review process in collaboration with 18 departments and agencies. As we heard Mr. Hahlweg point out, this ranges from CSIS, the Communications Security Establishment, the Department of National Defence, the RCMP and Global Affairs Canada to Natural Resources Canada, the Public Health Agency and the Department of Finance. This whole-of-government approach brings the relevant expertise to bear as we assess the national security risks of each transaction.
The review takes into account a variety of factors, including the potential effects on Canada’s defence capabilities and interests; the potential effects on the transfer of sensitive technology or know-how outside of Canada; involvement in the research, manufacture or sale of goods or technology important to Canada’s national defence; the potential impact on the security of Canada’s critical infrastructure; the potential to enable foreign surveillance and espionage; the potential to hinder current or future intelligence or law enforcement operations; the potential impact on Canada’s international interests, including foreign relationships; and the potential to involve or facilitate the activities of illicit actors, such as terrorists, terrorist organizations or organized crime.
In light of COVID-19, we have also applied increased scrutiny to all foreign direct investments in Canadian businesses that are vital to public health and the security of supply of critical goods.
The national security review is rigorous, with multiple steps and thresholds that must be met before taking action. Unlike many countries, Canada has a mandatory notification scheme where an investor must let the Department of Innovation, Science and Economic Development know when they establish or take control of a company.
The process begins once we become aware of a transaction, with a preliminary assessment of all filings and information sharing among partners. If there are reasonable grounds to believe that the investment could be injurious to national security, the process moves into a notice period, with a 45-day window for the community to investigate concerns. If, after this period, concerns remain that the transaction could be injurious to national security, a national security review is ordered by the Governor in Council on the recommendation of the , after consultation with the .
The national security review period provides Canada with another 45 calendar days, with an optional 45-day extension, to investigate whether this investment would be injurious to national security. In total, from receipt of notification to recommendation to cabinet, the process can take up to 200 days. Further extensions, of course, may also be granted with the investor’s consent.
At the end of the national security review period, the government has three options. If it is determined that the investment does not meet the threshold of “would be injurious to national security”, the investment is allowed to proceed. If the government determines that an investment meets the threshold, then it may decide to either allow it, subject to the imposition of mitigation measures to address residual risk, or order that the investment be blocked, if it hasn’t been implemented yet, or divested, if it has been implemented.
To conclude, the national security review process is a robust one, involving a multitude of investigative bodies that work collaboratively to ensure that Canada is safeguarded against national security threats that can arise through foreign direct investment.
Madam Chair, I would be pleased to now answer questions that members may have. I'll offer up the same disclaimer as my colleague from ISED, in that I may be unable to speak to, or respond to, questions related to specific investment reviews that are currently under way or that have taken place.
I've just made clear that, with regard to the national security review provisions, we're talking about a very broad set of provisions where there is no dollar value. The definition of “national security” is left to the discretion of the government to assess based on the evolution of events, taking full account of current circumstances, which is an integral part of the act.
The other thing is that it's really on a case-by-case basis. The notification process also provides for information to come into our system on all new businesses that are established and all control takeovers that are initiated. Then we can also reach out and look into any investment that may well be under the scope of the act and pull those investments in for scrutiny.
It's quite a broad base. In fact, a number of countries are moving towards this model, which provides quite a wide aperture in order to screen investments across a range of different types of investments. There's no sectoral restriction in this regard. It's wide open in that sense.
In general, I would describe the process as providing.... That depends on the net benefit or the national security process in the act, because the state-owned enterprise guidelines apply to both, but of course there are also different considerations.
In terms of net benefit, the matter that is looked at is the corporate practices, the transparency and the commercial orientation of the businesses. That can be assessed in cases where we're looking at net benefit to Canada for the economy. If an investment is allowed to proceed and the minister wishes to allow it, we can secure commitments, and then those are enforceable.
In terms of national security, of course, it is much broader in the degree to which different considerations are brought to bear. Those investments, if they are allowed—and this is the question—could be allowed on the basis of a variety of mitigating measures that would be enforceable on the investor on an ongoing basis. The act provides for the upfront process of review and engagement with the investor, and then also subsequent processes to follow up on adherence to commitments, if commitments have been accepted as part of the process.
Thank you, Madam Chair.
I'd also like to thank the witnesses for being with us. As a new member of Parliament, I must say that I found their presentations very informative and the exercise very interesting. I also took a lot of notes.
Mr. Davies, you first reviewed the thresholds, and then added that governments have raised those trigger levels over the years.
I am concerned about the value of our businesses in the current context of the COVID-19 pandemic. If there were a decline in the value of companies at current thresholds, would our companies be at greater risk?
Wouldn't it be appropriate, in the current context, to revise these thresholds downward to ensure that the interests of Canadian businesses are protected?
My next question is for Mr. Davies, firstly.
Mr. Davies, in the context of the review of the act, I think it would be beneficial to strengthen the stakeholder aspect of the act by including shareholders, employees, suppliers, creditors, consumers, government and the environment.
At the last meeting, Mr. Jim Balsillie raised an interesting point about the importance of also including a framework for patents, innovation and strategic technologies, since he believes that today's economy is based on intellectual property and data.
What mechanisms could we insert in this legislation to ensure that we protect the modern economy of Canada and Quebec?
Thank you, Madam Chair.
In reference to the question and the earlier testimony, which we did note, I think it's important to take into consideration the changes made under the Investment Canada Act, after a previous review changed the basis for evaluation to “enterprise value”. What that does is capture the market value of the intellectual property of the business. Previously, an asset-based threshold only would not capture that. Now, in fact, the type of enterprise that is largely valued-based on its IP...that obviously, then, can see that there's a net benefit review conducted in certain circumstances where the threshold is exceeded.
In terms of national security, of course, all matters that might relate to important intellectual property and any national security-related risks around that can be assessed by the investigative agencies as part of a review, notwithstanding the extent of the investment or the dollar value.
Thank you, Madam Chair.
I'm hoping that this microphone is good for our interpreters. Thank you to the House of Commons services, as quick as they are.
My first question is for CSIS.
With regard to investments in Canada, we have a good chart here from our researchers, which shows that the vast majority comes from the United States, then the Netherlands. Luxembourg is third on the list, and there are a few others. I'm curious as to whether any screening is done in general about where the investment is coming from—and I have a subsequent question to that—but do you look at nation-states as well?
I'm surprised that Luxembourg is third. I'm wondering whether there's also a lens beyond the person, as to where they come from, in terms of the company.
Thank you very much for the question.
I can tell you that regardless of where it comes from, if there's any security threat or any suspected impact on our national security, then we will review it in that lens and bring all of our investigative efforts to bear on that. It really doesn't matter where the investment comes from. For us, as one of the investigative bodies, it's the potential injurious impact of that threat actor.
I can tell you that in the foreign interference space and economic espionage space, I'm often quoted as saying that our best defence is education. That's why I'm super proud of the service and our outreach efforts, especially in the pandemic space. We're getting out there and being proactive with companies in the biopharmaceutical space and the health sciences space. We're actually giving them information on what threat actors might come at them so they can put their own mitigation efforts in place. That's been very successful.
As a matter of fact, I think it was two weeks ago that we had a talk with BIOTECanada, which represents a lot of the biopharma industry. That was very well received. We will continue with those outreach efforts as much as we can.
That kind of answers my question, but there's still a little more to it.
If we go down the list a little further, we have the United Kingdom, Switzerland, Japan, Hong Kong, China, Bermuda and Brazil. Given what's taking place in Hong Kong and China right now.... They are respectively sixth and seventh on the list, but if you add them together, they move up. Would there be further work done...? Say, for example, an investment is coming from Hong Kong. With the state of affairs there, would there be extra analysis? The second-largest after that is China. That would cause me concern. Is there fieldwork or anything you can highlight?
Bermuda is really interesting. I'm willing to bet that we're getting a lot of Bermuda money coming in because it's a tax haven. That's aside from Hong Kong. With respect to Hong Kong, perhaps you could answer that.
Madam Chair, I'll take that question.
I think, and I'm going to refer back, I can't overemphasize the importance of awareness. This act is meant to be used as a reserve instrument when, perhaps, measures haven't been taken by the parties involved that might take into account Canada's interests, particularly in the area of security. The more parties are able to take that into account in their planning, the more they're going to follow investment transactions that they can actually see through. To encounter a review and a notice from us, or to have a review process that disallows an investment, is very disruptive.
In other words, society has to take this on board. We actually need to have an increased general awareness so that the transactions that are going on, which are obviously rewarding and helpful for those businesses, also respect national security interests, which are very important as well.
Awareness is not a minor matter. It may not necessarily be a question of the nature of the law; it's actually what happens before you encounter the law.
Thank you, Madam Chair.
I'll put this question out. Mr. Davies, I think you might be the best to respond, but anybody else can answer too.
Under the current laws we have now, if a foreign investor comes in and buys a company, they have a footprint here. Later on, if their operations are taken over by China, by a state-owned operation, or by some other type of equity form or something else, is there a review done? The ownership de facto changes in our country as a result of that company being bought internationally.
Do the current powers that we have under ISED, CSIS, Public Safety or even the minister warrant a divestment to protect Canadians? Can we issue an order of divestment?
My apologies, but we cannot have unanimous consent in these virtual meetings. We must have a recorded vote, so unfortunately we have to go through the recorded vote.
I will turn to the clerk.
(Amendment agreed to: yeas 11; nays 0 [See Minutes of Proceedings])
We will now do a recorded vote on the motion, as amended.
(Motion as amended agreed to: yeas 11; nays 0 [See Minutes of Proceedings])
With that, we will now move to our witnesses.
Witnesses, thank you very much for your patience.
As we are running a little late on time, I'm going to give you a quick heads-up, as a reminder. Please make sure that you are on the correct channel for the language that you will be speaking. When you see this yellow card, you have 30 seconds remaining in your intervention. The red card means there is no more time for your intervention. Each witness group will be given five minutes to present, after which we will go through rounds of questions.
I'm going to introduce the witnesses when they speak so we can save some time.
We will start with Mr. Houlden.
You have the floor for five minutes.
Thank you very much, honourable committee members, for this opportunity to speak to you today.
The China Institute, which I head since leaving government, is the only think tank in Canada focused solely on China. Others cover all of Asia or other issues. We cover economy, social issues, political issues and bilateral relations.
Frustrated when I went to the China Institute as it's first director about the lack of good data on foreign and Chinese investment in Canada, we created, at a considerable expense of our own, a comprehensive database. It tracks right back to the parent Chinese company, be it in Hong Kong or on the mainland.
For example, Statistics Canada counts less than $20 billion CAD of Chinese investment, and the Chinese Ministry of Commerce is similarly flawed. There are flaws at both. They have their own utilities.
We have collated over $93 billion CAD of Chinese investment in this country. We sell a subscription. I'm not here to advertise it, but our subscribers include the Library of Parliament, Public Safety Canada, GAC, ISED, Natural Resources Canada, the U.S. embassy and USTR. We have many subscribers also from law firms and private business.
We use very smart Ph.D. students, largely. Using a range of logarithms and databases in Canada, Europe, the United States and China, we pull together all of this information.
We went back as far as 1993, when Chinese investment was almost non-existent. The big acceleration took place in this century, in 2003-04, when China began to make investments of $2 billion to $3 billion, largely in the energy sector but also in mines. Then there was the blockbuster deal of 2013, the acquisition of Nexen by CNOOC. That was, at the time, the largest Chinese investment ever abroad. There have been much larger ones since.
Chinese investment peaked in that year, reaching $21 billion of investment. It dropped in 2018-19 to between $2 billion and $4 billion. We expect this decrease to continue in 2020 due to three reasons: the global economic recession, the bilateral difficulties in the Canada-China relationship and also China's own stricter rules about who can take money out and what they can buy. For example, Anbang has been told, “Don't be buying retirement homes. Stick to your core business, which is insurance.”
From my perspective, maximum market intervention is not a good thing. Foreign investment has, for centuries, quite literally, helped this country develop, as it has the United States. Traditionally that capital has come from Europe and the United States, but as the centre of gravity moves towards Asia, it has changed. It is important, particularly in capital-intensive resource industries. We have lots of them. They do need capital.
Foreign investment can bring much needed innovation, and it also can bring inclusion in supply chains, but there is always a risk involved, and in China—I can be frank as I'm no longer in government—state-owned enterprises are not independent actors. Even private firms can be state-controlled. Not all SOEs are created equal. There are almost 300,000 of them. Some of them might be state-owned enterprises focused on food production in a small municipality in China, which are low risk.
I'm more nervous, quite frankly, about a private Chinese company buying a high-tech firm for $20 million, where the IP can either be carried away in a briefcase or go down a fibre optic cable. I'm more nervous about that than I am about a $100-million investment in a coal mine, where everything is up and visible on the surface, China is taking the product, Parliament is supreme, and in extremis they can stop that exit. IP, once it's gone, is gone. That, to me, is the risk. You need a more sophisticated analysis than just looking at SOEs versus private companies, which isn't to say that SOEs can't perform badly.
In Africa, where I have some experience looking at Chinese investment, sometimes the SOEs have better practices, more environmentally sustainable and better labour practices, than some of the pirate firms, which behave very badly indeed. It's not a one-size-fits-all thing.
Greenfield investment is generally better in my view. I know of a wire wool manufacturer in a community with very high percentage of African Americans in the American south. It went bankrupt. China came in, bought the firm and rehabilitated it with a lot of money of its own. The mayor of that town is very happy, and unemployment has gone down. Similarly I'd argue, in a Canadian example, Feihe International put $225 million into a greenfield investment to produce infant formula. That's a company that started off as an SOE and then was privatized.
It's not easy, even when you look hard, to tell sometimes what is an SOE and what isn't—
Thank you, Madam Chair and committee members. I very much appreciate your invitation to take part in these consultations on the Investment Canada Act, ICA.
The Business Council of Canada represents CEOs of 160 leading Canadian companies, and we're represented across the country in every sector and region. Our members employ around 1.7 million Canadians and account for about half the value of the TSX.
I would like to begin by underlining the critical importance of foreign investment to the Canadian economy. Prior to COVID-19 and the associated economic downturn, advanced countries around the world were already experiencing slower growth prospects, largely driven by demographic forces and weak productivity growth. In addition to those challenges, though, Canada faced heightened trade uncertainty, ongoing tensions with China, crippling rail blockades and a deteriorating investment climate due to regulatory uncertainty.
The already weak outlook for the economy pre-pandemic has now reached previously unthinkable lows. According to the PBO's analysis released just today, the economy is expected to shrink by 6.8% this year, and that is the weakest on record since the series began in 1961.
As we start to think about economic recovery, trade and investment absolutely have to play a central role. We are a trading nation. We depend on open access to the world. Foreign investment not only produces jobs, it enables technology adoption, promotes new management techniques and creates market access opportunities. We have a clear interest in creating stability, transparency, predictability, non-discrimination and protection for Canadian companies that invest abroad, but also for foreign investors wishing to invest in Canada. We need to ensure that any changes to the rules governing investment in Canada are as consistent and stable as possible. We absolutely cannot afford, as a country, to be perceived as a difficult place to invest.
Unfortunately, I believe that Canada could do better when it comes to attracting investment. Global FDI stocks have increased dramatically over the past 25 years, but Canada's share of global investment has been on the decline. Looking at the 2018 data, our share of total world inward investment stocks fell to 2.8%, which is the lowest level in about 20 years. Meanwhile, countries with more competitive business environments have witnessed an increasing share of global inward investment stocks. We must do better.
Turning to the ICA specifically, we support the government's recent policy statement of April 18 enhancing scrutiny under the ICA, given the extraordinary circumstances we find ourselves in. The pandemic and the associated economic fallout could create opportunities for acquisitions by companies that are motivated by non-commercial factors. That could put Canadian interests at risk. However, because we depend on trade and investment, we believe that the government should be very careful not to discourage commercially motivated foreign investment activity, and given that markets have rebounded somewhat since the depths of the crisis, the opportunity for predatory acquisitions by SOEs, for example, is diminishing. We think that these measures should be temporary in nature.
Finally, on the question of strategic industries and the ICA, the legislation clearly provides provisions to protect Canadian national security and absolutely must continue to do so, but I do think what requires a bit more thinking is identifying exactly what industries should be considered strategic and make sure that we have the economic framework in place to support those sectors.
For example, I think what we've witnessed throughout this pandemic is the importance of a strong—
Thank you. I'll just set the stage here.
Good afternoon, Madam Chair and members of the committee.
I am a staff lawyer with the Canadian Bar Association, and we're very pleased to be part of your study.
The Canadian Bar Association, or CBA, is a national association of more than 36,000 lawyers across the country.
The CBA's primary objective is the improvement of the law and the administration of justice. It is with this goal in mind that we are here today on behalf of the Competition Law Section of the CBA.
Our written brief was prepared by the competition law section of the CBA, namely, experts from the foreign investment review committee. With me today are Debbie Salzberger and Michael Kilby, chair and vice-chair of that committee.
I now turn it over to Michael and Debbie to address the main points of our submission.
Thank you to the committee and to the chair.
On behalf of the Canadian Bar Association's foreign investment review committee, we offer two primary conclusions in respect of the reform proposals put forward in the context of the current pandemic.
I will speak to the first conclusion relating to national security reviews, and my colleague Michael Kilby will speak to the second conclusion, which relates to national benefit reviews.
Our first conclusion is that the government has no practical need to adjust the ICA's national security review regime in response to the COVID-19 crisis, given the tremendous powers already available to the government under that regime and the April 18, 2020 policy statement articulating its intention to utilize its existing powers to more closely scrutinize certain investments under the ICA.
The ICA authorizes the government to review any foreign investment by a non-Canadian involving a Canadian business on national security grounds where the government believes that an investment may be injurious to national security.
The national security provisions of the ICA do not specify threshold requirements based on the size of the target, the transaction nor the extent of the interest being acquired by the foreign investor, nor is the scope of activities that may implicate national security defined. This means that the ICA's national security provisions apply to an extremely broad array of investments, including minority investments across a wide variety of industries at the government's discretion.
The April 18 policy statement amplifies the existing discretion and the latitude available to the government to assess transactions that may be injurious to Canada's national security and explicitly includes opportunistic investments such as investments in public health-related businesses, investments in businesses that supply critical goods or services, none of which is defined, and investments by state-owned enterprises or private investors influenced by state-owned enterprises.
Under the current legislation, the government can issue a notice initiating a national security review process at any time from when it becomes aware of an investment until 45 days after receipt of the investor's filing under the Investment Canada Act, or 45 days after it learns of the investment if no filing is required under the legislation. In sum, the current legislation provides the government and its intelligence partners a significant amount of time to determine whether the investment raises potential concerns, and in such cases, has broad discretion to extend its review and ultimately mitigate any identified risk or block the investment altogether.
The April 18 policy statement articulates the government's intention to utilize these tools fully in the COVID-19 environment.
For these reasons, there is no practical need for any immediate adjustment to the ICA in response to the potential threats arising out of the current environment.
I will now turn it over to Mike to talk about our conclusion with respect to net benefit reviews.
I'll be very brief.
Our second conclusion is that the government's ability to adjust the ICA net benefit thresholds in response to the crisis may be significantly limited by Canada's international trade obligations and, in any event, any such adjustment may result in an unintended chilling of desirable foreign investment in Canada.
I see I just have a minute, so I'll be very quick.
The net benefit thresholds are set out in our submission. You're probably also aware of them from other testimony provided. They have been increased substantially since 2015. This has been a policy choice of successive governments. The very high nature of the thresholds means that very few transactions are subject to that benefit review. Approximately nine were subject to review last year.
I see I have a red card, so I will stop there. I want to respect the time.
Thank you, Madam Chair.
Distinguished members of the Standing Committee on Industry, Science and Technology, thank you for having us here today. My name is Marc-André Viau, and I am the director of government relations at Équiterre. I will be sharing my time with Ms. Tzeporah Berman, from Stand.earth.
We are here today as part of this committee's study on foreign investment, following the adoption of the motion. Our contribution to the work of this committee is to present to you the results of a study that my colleague conducted, and with which Équiterre has partnered, on foreign ownership of the oil sands.
This is a report that shows that 70% of the oil sands are foreign-owned. So we're wondering if it's really still a Canadian resource.
If profits are increasingly going into the pockets of foreign investors, then the question arises as to who benefits from this operation. Is it Canadians, who have to foot the cleanup bill? My colleague will talk more about this in a few minutes.
Now, with respect to the motion passed and the specifics of the study, our report provides some answers as to the extent to which firms in strategic Canadian industries have depreciated as a result of the COVID-19 crisis.
As you will see, the loss in the value of oil sands companies predates the pandemic, and we invite the committee members to consider the reasons for this devaluation.
In addition, if the phenomenon predates the pandemic, committee members are invited to consider a second element of the motion, namely whether Canada should impose a temporary moratorium on acquisitions by the state-owned enterprises of totalitarian countries, in connection with the COVID-19 pandemic.
We also invite committee members to comment on why such a moratorium is more relevant now than it was in 2012 when the government approved CNOOC's purchase of Nexen. This raises the question of whether the nature of the political regime from which the investment is made is significant and whether this could be correlated with the devaluation.
Finally, the assessment thresholds in the Investment Canada Act are appropriate for a net benefit review. We support a review of the net benefit criteria as defined in section 20.
We invite elected officials to review paragraph 20(e), which deals with the compatibility of investments with national industrial, economic and cultural policies.
Considering that industrial, economic and cultural policies are increasingly linked to environmental policies, and considering Canada's progressive trade agenda, I think it would be good to include the concept of environmental compatibility in section 20 so that we can really talk about net benefits to Canada.
I now give the floor to my colleague Tzeporah Berman.
Madam Chair, thank you very much for having me here today.
I've been asked to speak briefly on the results of our investigative study of ownership and financial benefits from the oil sands.
I will say a quick word on methodology. This report is based on data from Statistics Canada, the oil companies' annual and quarterly reports, and data obtained from the Bloomberg terminal.
The global COVID-19 pandemic has devastated the global economy and plunged the price of oil to record lows.
I will provide a bit of context as to why we did this particular research. Even before the world was turned upside down by the first global pandemic in a century, as my colleague noted, the oil and gas industry in Canada, despite rising production levels, was cutting jobs, paying less in royalties, while demanding higher and higher subsidies. To be specific, despite increasing oil sands production, the number of jobs created by the oil and gas sector has continued to decline.
Since 2014, the industry has shed 53,000 jobs. In addition, reclamation of the oil sands, conventional oil and gas wells and pipelines in Alberta is now estimated to cost at least $260 billion in liabilities. There is increasing concern that taxpayers, not polluters, will be left holding the bill for the cleanup of this massive toxic liability.
Finally, in addition, using WTO definitions, ISED studies are showing us that the federal government is subsidizing the industry with billions of dollars to producers, not consumers, providing disproportionate advantage to fossil fuel producers over renewable energy.
For many years, industry lobbyists and spokespeople have argued that increased support and greater subsidies were fair because we all benefit from the oil and gas industry. While Canada has enjoyed many benefits of the oil and gas industry, this investigation reveals that the majority of profits from the industry are leaving the country.
We now know that most oil sands production is not owned by Canadians. Ten of the 14 publicly traded companies invested in the oil sands are headquartered in Canada, but only two of those are majority owned by Canadians.
Thank you, Madam Chair and honourable members of the committee, for inviting me to speak today. My comments are personal and do not necessarily reflect the views of my firm or clients.
I've been advising clients on the Investment Canada Act for over 30 years. During that time, I've seen the structure of the act evolve. In my early years of practice, the review thresholds were extremely low. Too many foreign investments were reviewed. The act didn't address state-owned investors or national security concerns. In contrast, today the act permits review only of significant investments and of all investments that could injure national security.
Because of COVID-19, administration of the act needs some temporary fine-tuning, but no significant changes.
I support careful scrutiny of state-owned investment and the application of national security considerations to all investments, as set out in the ministerial policy statement of April 18. I do not support lower review thresholds or a moratorium on state-owned investments from authoritarian countries, along the lines of the June 1 motion.
Lowering the thresholds runs counter to the trend in Canada's trade agreements for the last 30 years. If we adopt this change, Canada will send a strong signal that it is not open to foreign investment. It would reduce the options for Canadian business owners at a time of great financial distress, and it would call into question Canada's adherence to its international obligations.
Equally concerning is the proposed moratorium on acquisitions by state-owned enterprises, or SOEs, from authoritarian countries. How would “authoritarian” be defined? Not all SOEs are just government proxies. Some SOEs are legitimate investors, with corporate governance and a commercial orientation. Some SOEs are listed on a stock exchange and are accountable to their public shareholders.
The act already contains tools to carefully assess SOE investments on a case-by-case basis. All SOE investments are subject to review at a much lower threshold, based on book value. More of them tend to be captured relative to private sector investments. The definition of SOE captures a wide range of state-owned and state-influenced investors. The minister has the power to determine who is an SOE and whether an acquisition of control by an SOE has occurred. In a reviewable investment, an SOE must satisfy the normal net benefit to Canada criteria. The SOE investor also must satisfy additional criteria concerning good corporate governance and adherence to free market principles.
Problematic SOE investment from authoritarian countries can also be reviewed for national security reasons. Investments of any size can be reviewed on these grounds. The timelines in the act allow for a lengthy, careful review for national security. If enacted, Bill would enable the minister to extend these timelines further. Security review applies even when the investor does not acquire a complete Canadian business, and there are guidelines that list a full range of factors to be considered in the assessment. Using these powers, the government can block an investment, order a divestiture or allow it to proceed conditionally.
In conclusion, the review thresholds for private sector and SOE investments are set at appropriate levels. The existing review process for SOE investments is sufficiently thorough, and there is a robust national security review process.
Thank you for your time. I would be pleased to answer your questions.
My name is Michelle Travis, and I am the research director of Unite Here Local 40, which represents hospitality workers across B.C. and is affiliated with our national union, which represents workers across Canada and the U.S.
Thank you for giving me the opportunity to speak to you today about the ICA.
In the context of COVID, the committee is studying the adequacy of the current ICA evaluation thresholds and whether to place a temporary moratorium on certain state-owned enterprises. In April, the minister announced that certain foreign direct investments in Canadian businesses will receive enhanced scrutiny. These measures will be in place until the economy recovers from the pandemic. We think enhanced scrutiny is needed; however, the real concern to us is the broader ICA review process.
There should be greater scrutiny of all deals reviewed by Ottawa, and that should not stop once we are on the other side of the pandemic. The valuation threshold for non-state-owned enterprises jumped significantly to $1 billion in 2017 and is now adjusted annually. That was a huge increase, and the higher threshold suggests that fewer transactions involving foreign direct investment will be reviewed for their impact on Canadians.
While a temporary moratorium may be worth consideration for state-owned enterprises of authoritarian countries, we also ask if this will apply to companies that are not officially state owned, but may have deep ties with authoritarian governments. We urge the committee to focus more broadly on the rigour of the ICA review process itself.
We ask the committee to consider these questions: How rigorously does the government assess the net economic benefit of certain transactions, and how can the review be made more transparent? What due diligence review is conducted on the ultimate beneficial owners seeking to invest in Canadian businesses? What heightened privacy protocols are foreign buyers expected to adopt when undergoing ICA review? What would trigger a new security review for transactions already approved under the ICA? What recourse is there to publicly review the undertakings and commitments made by foreign investors?
The average Canadian hotel worker may appear to be far removed from these issues, yet some of them work for companies acquired by opaque corporate entities in transactions approved under the ICA. In 2016, B.C.'s public pension fund, BCI, sold its hotel management company, SilverBirch, and a portfolio of 26 hotels to Leadon Investment for over a billion dollars.
The ultimate ownership of Leadon remains opaque. The Vancouver Sun tried to learn more about Leadon at the time and found only a downtown Vancouver-based law firm's mailing address and one director who listed his address in suburban New York. The Hong Kong connection was not obvious.
That same year, in 2016, Beijing-based Anbang initiated negotiations to acquire InnVest Real Estate Investment Trust, one of Canada's largest hotel owners, but backed out suddenly. The Financial Post reported that Anbang did not want to be named as the buyer and when that was met with objections, their representative, Lydia Chen, said she was representing a new pool of capital based in Hong Kong called Bluesky, which acquired InnVest for over $2 billion approved under the ICA review process.
Anbang was reportedly also under examination by China's insurance regulator at the time. They have denied any connection to Bluesky, but Anbang's former representative, Ms. Chen, is now the CEO of Bluesky and InnVest. Their ultimate beneficial ownership is unclear. Records from Hong Kong's corporate registry trace Bluesky to a shell company in the British Virgin Islands.
Questions about Bluesky's ownership bring us to Anbang, which underwent ICA review when it acquired Retirement Concepts for approximately $1 billion in 2017. Retirement Concepts is British Columbia's largest private senior care chain with 21 facilities and others in Alberta and Quebec. The facilities continue to be operated by an affiliate of Retirement Concepts. We don't represent workers at these facilities, but do represent workers in U.S. hotels owned by Anbang, as well as those who work in a hotel owned by an affiliate of Retirement Concepts.
Critics of the takeover raised concerns about Anbang's murky ownership and its CEO's ties to the Chinese state. Others questioned whether Anbang would adequately maintain staffing levels and quality of care. One year after Anbang received approval under the ICA, it was seized by Chinese authorities; its CEO was sentenced to 18 years in prison for fraud and embezzlement, and the Chinese government took a 98% stake in Anbang. Notably, the B.C. government has since taken temporary control of four of its seniors homes that were reportedly failing to provide proper care to residents.
Despite murky ownership and other concerns, the Leadon, Bluesky and Anbang transactions appear to have moved relatively quickly through the ICA review process. We wonder what criteria was used to determine the net benefit of these transactions.
Then there's the larger political context to consider, at least in the case of Anbang. Prior to our heightened tensions with China, there were already concerns about China's efforts to obtain sensitive information through economic espionage and direct investments. This has not been limited to so-called strategic sectors.
In 2018, the Marriott hotel chain revealed that it was the target of a massive cyber-attack that compromised the personal information of over 300 million Starwood guests over a four-year period. The attack was reportedly traced to hackers working for China's Ministry of State Security.
In conclusion, if the point of the ICA review process is to ensure that foreign investments benefit all Canadians, we think that a more rigorous and transparent net benefit analysis and security review should demand more of foreign investors, regardless of their countries of origin.
Thank you, Madam Chair.
I'll start with Professor Houlden.
You came to speak to the Sherwood Park Rotary Club, which I was a part of eight or nine years ago. You probably don't remember, but I want to thank you for being engaged with our community back in my constituency.
I want to probe a little bit some of the distinctions you made. I found it quite interesting that right now the Investment Canada Act looks at dollar value and generally at state-owned enterprises. However, you made the point, I think quite well, that we might distinguish between state-owned enterprises that are of a certain scale and that we also might want to be particularly cautious about private but state-affiliated companies.
Could you talk about those private state-affiliated companies in the Chinese context? We know that virtually all private companies of a certain scale are expected to have party committees that are central to the decision-making of those companies, and that those companies are expected to be gathering IP that is useful to the military and partnering with the military on an ongoing basis. There really isn't the state-owned enterprise and the private sector distinction that we would see in other economies; there's a centralization of power and control. Maybe we should make other kinds of distinctions around whether IP is involved or not.
Could you speak about possible changes that we could make to the act that would bring in this concept of private state-affiliated companies?
I'll speak to any community organization at any time—that's a policy—and I'm delighted to have that connection.
I think you're quite right. Not all SOEs are created equal. There are 300,000 of them; some pose a lower risk and some a higher risk. In general, an SOE with a more direct connection in sensitive sectors is more risky, but if you're, let's say, in China's Ministry of Science and Technology or China's Ministry of National Defense and you're interested in a potential dual-use technology, you may well want to approach that acquisition through a private company.
If you look at our dataset, we divide SOEs and private enterprises in the investment in Canada. One of my researchers just came last year and said, “Look, there's about 5% we can't even figure out because there are, it looks like, historical tendencies, some connections there.” I said, “Do we put it in one or the other, or divide it?” He said, “No, leave it as an unknown because it makes the point that you can't always even determine if it is an SOE or not.”
I would say this: Don't focus on the big, lumbering coal miner where we know where the product is going, which is probably to China—the firm may need a market; the province may need a market. Look at the high-tech—and we don't have enough of it—innovative companies. That's where I would focus maximum effort. Public safety and the intelligence capacity of this country are not unlimited. There's one company in Edmonton, for example, that produces pot stickers and ships them to Japan, the U.S. and Canada. That's not the focus. It is a state enterprise, but it's harmless, in my view. Go for where the risk is greatest, and that's innovation, IP threat. Focus on that to the degree necessary. That, to me, is even more important than the threshold issue: focusing on the best targets.
Sure. I guess there are two ways to answer that.
One way is the fact that it is undefined by definition, for non-definition means that there is very broad discretion within the act to cover evolving threats, current threats and so on, across a variety of industries, including technology, IP and so on. That's been a topic of discussion, I think, of this committee over the last few days.
The Investment Canada Act guidelines also make reference to public safety commentary on the types of issues that might be covered or concerns that might be covered under the national security provisions of the Investment Canada Act. For those who aren't as familiar with the guidelines, there's a laundry list of potential effects of the investment that are covered. They include not only defence-related capabilities, transfer of sensitive technologies and know-how, things that you might expect, but given the April 18, 2020, statement, we also understand, and it has been emphasized, that the guidance covers things like supply of critical goods and things that are covered under government contracts.
To sum up, I think it's quite broad. I don't know if that answers your specific question.
The Investment Canada process works in the context of an acquisition of control. An acquisition of control by any foreigner of a Canadian business requires the submission of a notification or an application for review to the investment review division.
The statement in respect of our submission speaks to the fact that the national security review provisions of the Investment Canada Act extend beyond notifiable investments, i.e., beyond acquisitions of control, and could include, within the jurisdiction of the government, to review investments that are minority investments which otherwise are not notifiable.
I think your question is on potentially how those investments would come to the attention of the government.
Mr. Ali Ehsassi: Yes, exactly.
Ms. Debbie Salzberger: There are various ways. It's possible that they may be through public disclosure. As well, as I think you heard earlier from our friends at CSIS and Public Safety, our understanding is that there are avenues through which there is monitoring. That is outside of the scope of the Investment Canada Act, in the sense of non-notifiability, but not out of the scope in the sense of jurisdiction.
Thank you, Madam Chair.
Mr. Viau, thank you for your presentation on behalf of Équiterre.
You mentioned in your report that a major part of the oil sands industry was foreign-owned. I would be curious to have the figures as well as the trend because, in 2016, I read a text by Mr. Daniel Breton, Quebec Minister of Sustainable Development, Environment, Wildlife and Parks in 2012, in which he stated that fewer and fewer foreign companies were interested in the oil sector. I should point out that this was about the oil sector in general, not just the oil sands. That may be the difference; you may or may not confirm it, since you are the expert.
Mr. Breton indicated that, in the end, there were fewer and fewer royalties, and that the large and growing share was in fact pension funds. In other words, the pensions of Canadians and Quebeckers were at risk. In fact, the Caisse de dépôt et placement du Québec jumped into this for a while. We were putting pensions at risk for this sector which, in the end, was anything but interesting in the long term.
I'd like to get your comments on that.
You are right that there has been a major flight of IOCs from the oil sands. Over the last five years, we've seen about $30 billion to $50 billion from major international oil companies pulling out of the oil sands, companies like Statoil, Total, etc. We've also seen major investment houses and insurance houses make statements saying they will no longer insure oil sands or related activities, and they will no longer invest in oil sands or related activities, because of the high-carbon nature of our oil, some because of concerns relative to indigenous rights as well.
Despite foreign ownership pulling out of the oil sands directly, the ownership of the existing companies, the investors in the existing companies, still tops 70%. This is because of increased investment by Chinese national oil companies, which now control 5.2% of oil sands production, which is 3.5 times more than the majority of Canadian-owned companies. American interests now own more than 52% of oil sands production, more than twice the number of Canadian shareholders, and more than all other non-U.S. investors combined.
We looked at each company, and looked at their percentage that was Canadian-owned. If you look at the average Canadian ownership within the eight largest Canadian companies, it's only 18.8%.
Thank you, Madam Chair.
Ms. Travis, with regard to Anbang, it really brings to light the real results of this. People often think of foreign investment in Canada as something that's basically product-driven, or it's the oil sands, or manufacturing, where they might see some product at the end of the day. However, here, our product is our own citizens and our people, who, at the end of the day, needed help and British Columbia had to step in.
Maybe you can highlight a little bit the work that's been going on there, because this is not an unknown factor, the problem that came about. There were a series of warning signs along the way.
Lastly, what are your thoughts with regard to divestment of some of these facilities? It seems odd that we'd have the Chinese government owning and controlling, at the end of the day, the future of our seniors, and the facilities that it operates, and it can't even do that within the law.
I think, when looking at the Anbang deal—and again, we don't represent the workers at those facilities but have been watching Anbang for some time because of their involvement in the hotel industry—what's striking to us is that there were questions raised about Anbang prior to the review under the ICA and during the review, and it was surprising that the deal went through.
Given what's happened since the approval, the takeover and the dismemberment, basically, of the company by the Chinese government, it's not clear what happens next. Seeing what's happened in terms of the conditions at the long-term care homes.... The unions representing those workers raised issues about staffing problems and quality of care, and that prompted the B.C. government to take over several of those homes. I don't know what happens next; it's temporary.
In terms of divestment, that's something that Ottawa really should be taking a closer look at.
I also want to comment on a comment that was raised by a couple of the witnesses about the tools that are available under the ICA right now. It does sound like the government currently has at its disposal the tools to really scrutinize these investments. I think the question is, what happened in 2017 during that review process that allowed that deal to move forward? How rigorous was the due diligence?
To us, that's reflected in the approval of these other deals that involve the hotel sector, where we still don't know who owns these hotels. That's problematic. It's strange to be in a situation where you have hotel workers who don't know who owns the hotels they work in, and when we ask questions, we don't get a firm response.
I think it does call into question the nature of the review process. How do we make those processes more rigorous? I think it's good that the government wants to heighten scrutiny, particularly with regard to investments in those sectors, but that should have been the case all along.
The majority of said enterprises we can determine, and we have 20 people strong in our think tank. In the majority of those cases, it can be fish or fowl. We sort that out.
However, there's a minority, about 5% of the Chinese investment in Canada, where some of the senior executives appear to come from SOE and the capital appears to come from a state bank or maybe from an SOE that existed before. Some SOEs are privatized, but it's not really clear in what way they've changed, other than that they're issuing shares.
It's a minority, but it's still a significant minority of investment that we've decided, on my instruction, to keep uncertain rather than divide in half, as one of our researchers suggested, because it makes clear the fuzziness of some of the data regarding state enterprise.
Conceivably, I suppose. For that 5%, let's imagine that the Canadian review authorities look at that and determine that it's not an SOE, but in reality it may be. So yes, it would be a small minority, but potentially, yes.
An SOE is not necessarily masquerading. In some of these cases, managers—as has happened in the former Soviet Union—have migrated with capital and then may appear as a private enterprise. Or they may have left their former SOE, but somehow, oops, they got funding that came from the SOE, the same people. There would be some cases like that. I would like to think that, again, with really capable analysts in our agencies of various sorts, we'd be able to sort that out.
We can do so quite well. When we see investments that appear to have Chinese dimensions coming in from Barbados or Cayman Islands, heavens. If you look at the amount of money coming from Cayman Islands, every man, woman and child would have to be investing $5 million in Canada. We sort that out. The Chinese data...they go for the first destination. It's all Hong Kong; 80% of the investment appears to go to Hong Kong, but then it diversifies into other places where there are tax advantages, and it's coming in from some of those other destinations. It's not always nefarious, but you need to push back that screen to find out where it actually originated.
This is such a difficult question. I wish you would pose easier questions.
The truth is, yes, China does misbehave. It does look at targets of influence. It's the job of our security agencies to detect and deal with that. Quite frankly, I'm of the school that naming and shaming helps. Americans do a better job. At any given time, there are usually about 30 different cases before the courts in the United States. We often request the person to quietly leave.
It would be painful in the bilateral relationship, but it's better sometimes. We've done it on a few occasions, where there was actually a court proceeding or it was clear, even if the persons had fled, what they had done.
The principal targets tend to be—and here they need our help—Canadians of Chinese ethnic origin. They are the primary targets. The Chinese, for a bunch of historical reasons, are afraid of that group.
You raise a very important point. I think even the Chinese government, quite frankly, had cracked down hard on Anbang. It began to realize there was capital flight. SOEs were investing in things that had nothing to do with their core business.
I would argue that from the ICA perspective—this is in retrospect, which is not really the way one wants to be looking at it—yes, this question might have been raised. Does this company have the capacity, the experience and the know-how to be looking after aged people across the Pacific? That's a question, looking back. At the time, I didn't think [Technical difficulty—Editor], but it's probably crystal clear now that it was out of their area of expertise.
That would mean changing the way in which the review process is done. You'd have to look at the qualitative capacity of the incoming company to manage something sensitively. I can see where it also might need to be done in environmental terms. Can this company manage an environmentally delicate space in, let's say, the Arctic? Are they up to it?
Those are the sorts of broad questions that I wouldn't want to see abused, but they're the sorts of questions that might well be posed if you're looking at the full effect of that FDI.
Thank you, Madam Chair. We could do with a few more hours, with all these witnesses.
Thank you, all, for coming today with all your expertise.
I'd like to start off with Mr. Houlden and then follow up with a question about trade with Mr. Glossop.
Mr. Houlden, when we talk about the acquisition of a long-term care facility, part of the conditions have to be cross-jurisdictional with the provinces, which have full jurisdiction over long-term care and whether it's a viable business, and doing an evaluation. We had testimony earlier in this study that just briefly mentioned cross-jurisdictional matters. Could you expand on that for 30 seconds or so, please?
I think we saw in our first panel, too, that a lot of these matters are confidential.
Mr. Glossop, I'm not coming from a legal background; I'm coming more from a multinational business background, with the importance of having predictable standards, so when you make decisions at board meetings that may not get implemented for a few quarters, you know that nothing has moved around too much in your due diligence and how you make your decisions.
We did have a jump that was flagged in terms of the number of review cases, which went from 1% to 9% in the fiscal year 2018-19, up from 4% in previous years. There was a change there, a jump. Do you know the background of why we're doing more reviews?
Thank you, Madam Chair.
Ms. Travis, I want to return to the hotel and the cyber-attack.
I think there are a couple of things with the cyber-attacks that are taking place. We don't really have.... We've had some good testimony before that some of those that are cyber-attacked right now are settling behind the scenes, with no accountability as to the data that's been breached, and they're doing payouts. Others are public institutions that have had cyber-attacks. They have made settlements as well. Some have brought in the police; some have not. This has been the feedback that we've gotten.
My question to you is with regard to this one that took place, and even further in the future. If the hotel ownership is the state government of the Chinese, then if a cyber-attack takes place, we may never know the full exposure or what they do about it, whether it's an internal problem that led to something that's far more spectacular than we would think or whether it's something that they let pass because they have other national interests.
The national security review can be applied in any instance, even for small transactions. That's where I think some of the real dangers appear. With a mine—let's put aside all other environmental issues—you know where the product is, what it is and where it's going. It's very well understood. These small companies, often led by a brilliant individual who's come up with a great innovation, don't often know that much necessarily about business internationally, let alone about China. They are vulnerable. Or you may have someone who's just looking at dollar signs and saying, “I'm going to sell this out.”
A similar challenge is a professor coming up with a great agreement. Maybe he's been working in collaboration with a Chinese firm. Where are they going to manufacture that widget or that thing? With all due respect to my home town of Calgary, it's not going to be Calgary, Edmonton or Prince George. It's going to be Hangzhou, Ningbo or Guangzhou, where there is already an ecosystem for manufacturing.
That is a challenge, even for academic collaboration, as well as for those small companies that are looking for joint ventures.