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BANC - Standing Committee

Banking, Commerce and the Economy



OTTAWA, Thursday, February 8, 2024

The Standing Senate Committee on Banking, Commerce and the Economy met with videoconference this day at 11:30 a.m. [ET] for the consideration of Bill C-34, An Act to amend the Investment Canada Act.

Senator Pamela Wallin (Chair) in the chair.


The Chair: Hello to everyone. Welcome to this meeting of the Standing Senate Committee on Banking, Commerce and the Economy. My name is Pamela Wallin, and I serve as the chair of this committee.

Let me introduce other members who are with us today: Senator Loffreda, our deputy chair; Senator Deacon, Nova Scotia; Senator Audette, who is here for Senator Gignac today; Senator Marshall; Senator Martin; Senator Massicotte; Senator Miville-Dechêne; Senator Petten; Senator Ringuette; and also joining us today is Senator Carignan, who is the critic of the bill. Welcome.

We will begin our examination of Bill C-34, an act to amend the Investment Canada Act.

We have the pleasure of welcoming officials from the Department of Innovation, Science and Economic Development Canada. We have with us in the room: James Burns, Senior Director in the Policy, Foreign Investment Review and Economic Security Branch; Mehmet Karman, Senior Policy Analyst in the Foreign Investment Review and Economic Security Branch; Jamieson McKay, Director General in the Foreign Investment Review and Economic Security Branch; and one of the regulars with us here at the Banking Committee, Mark Schaan, Senior Assistant Deputy Minister in the Strategic Innovation Policy Sector.

We welcome you all. Thank you for joining us here today. We will begin with your opening statement, which — let me guess — comes from Mr. Schaan.


Mark Schaan, Senior Assistant Deputy Minister, Strategic Innovation Policy Sector, Department of Industry, Innovation, Science and Economic Development Canada: Thank you, Mr. Chair and esteemed senators, for the opportunity to speak to Bill C-34, An Act to amend the Investment Canada Act.

As you know, Canada is one of the world’s leading foreign investment destinations. Every day, our government works hand‑in-hand with businesses of all sizes to attract even more investment and create better economic opportunities for all Canadians.

Canada remains an open economy, but our country is also, increasingly, the target of hostile actors who seek to acquire goods, technology and intellectual property to achieve their strategic aims, which threatens both our national security and our prosperity. We must therefore ensure that we evolve our tools to better defend against today’s threats.

To protect our interests, to secure our assets and to keep Canadians safe, we are updating the legal tools currently at our disposal. Last year, Minister Champagne introduced Bill C-34: An Act to amend the Investment Canada Act to update one of those legal tools.


With a collaborative spirit across party lines, members of the Standing Committee on Industry and Technology engaged with experts and worked tirelessly this year to further refine the bill that is before you today. The committee focused on making sure the amendments included in the bill are balanced so that hey can protect Canada’s national security without chilling beneficial foreign investments.

I’d like to briefly outline some of the key amendments, which fall into three groupings.

First, there are several amendments that will improve the efficiency and effectiveness of the national security review process. These amendments include updated ministerial authorities to extend national security reviews, to order interim conditions during a review and to accept binding undertakings to mitigate the risk of national security injury from the investor. In addition, a new filing requirement for investors prior to the implementation will provide additional visibility for the government over transactions in sensitive sectors.

The second group of amendments focus on enhancing transparency. These, for example, clarify the jurisdiction over asset sales for national security reviews and improve transparency by facilitating information disclosure and adding a reporting requirement to parliamentarians, including senators, through the National Security and Intelligence Committee of Parliamentarians.

The third group of amendments reflect the Parliamentary committee’s focus on net benefit reviews. These amendments ensure investments involving state-owned enterprises may be subject to net benefit review if in the public interest, regardless of the value of the transaction. Further amendments include clarifying the factors taken into account during the net benefit review, with particular attention to intellectual property rights developed with government funding and the use and protection of Canadians’ personal information.

Taken together, this new legislation represents the most significant update to the Investment Canada Act since 2009. These targeted legislative amendments will enhance the visibility of Canada’s investments, improve transparency and help provide greater certainty for investors as well as ensure that Canada has significant powers to take action quickly and when necessary.


The Investment Canada Act provides broad authorities to intercede and address national security risks that can arise in foreign investment. These amendments to the act build on a strong foundation and broad authorities, and improve on the mechanics of the process around the national security reviews of investments.

These legislative changes will help Canada better benefit from foreign investment while strengthening our ability to act quickly and decisively to reduce national security and economic risks.

Thank you for your attention.


The Chair: Thank you very much, Mr. Schaan.

As you know, Senator Gignac is the sponsor of this bill, but he had to be in Washington today. He has left a couple of questions with me. I will just begin with one.

The minister has explained that this new bill will extend national security reviews — as you have just mentioned here — but that it will provide additional flexibility for the mitigation of national security by removing the need for a Governor-in-Council order. How does that make it more efficient?

Mr. Schaan: Currently, under the process for the stepwise approach to national security reviews, essentially the initial test is whether or not there are any national security concerns raised by the prospective investment. That begins an initial discussion and dialogue with the national security equities about the nature of the investment. At that point, it is necessitated for the government to initiate a process under 25.1 of the review to actually extend and begin a national security review with a normal request for information.

The next step is whether or not it gives rise to the prospect that the investment could be injurious to national security and provokes another 90 days of further deepening in with the national security equities about the nature of the investment.

The last stage is at 25.3, which is that it would be injurious to national security and gives rise to the prospect for final determination by cabinet as to whether to block or potentially wind up the investment.

The middle stage of that process right now does require that the extension of the process actually go through a cabinet process as opposed to just being a determination by the minister that, in fact, the test for national security concerns gives rise to the extension of the process. By allowing that to be done by the minister himself as opposed to having to go to cabinet to do it, we essentially ensure that the process can seamlessly continue.

The Chair: I will come back to that issue.

We go now to our deputy chair, Senator Loffreda, to begin our questioning.

Senator Loffreda: Thank you for being here this morning.

As we all know, it is very important in any bill to consult with major stakeholders, especially prime stakeholders. How many stakeholders have you consulted with? How many are in favour? Have any major or prime stakeholders expressed concern over this bill?

Mr. Schaan: I would note a few zones of import. Obviously, we are in regular touch with both the investment community and the legal community as it relates to the functioning of the Investment Canada Act. We have regular points of engagement with the Canadian Bar Association as well as with major industrial organizations as it relates to investment in Canada. The product of Bill C-34 is through the ongoing work. The process by which Bill C-34 was arrived at was a product of that ongoing dialogue with industrial groups, academics and civil society as well as with the legal community.

The number one piece of feedback we have heard as to the regime is that it must be precise, and it must be predictable. It must provide the kind of certainty that investors are looking for while — you will excuse me because I will probably end up using this aphorism multiple times today — creating small yards and high fences for those who actually need to be within that constraint. Let’s be clear about who is within the scope of concern and make sure the review of that is well-known in advance of the potential investment.

By and large, we have consulted widely. The feedback has been generally positive. The desire from the investment community in particular has been to make sure we are providing more certainty rather than less as it relates.

Senator Loffreda: Are you satisfied — going back to your words — that it is precise and predictable, a small yard with high fences?

Mr. Schaan: We are.

Senator Loffreda: And the major stakeholders are fully satisfied that that is the case?

Mr. Schaan: We are. By codifying a number of the elements of the current regime in the legislative process, for instance on binding undertakings, I think that we are actually providing a much greater degree of certainty and predictability because there is a mechanism by which we can mitigate national security risks formally through the process as opposed to the current process which does not allow for those binding undertakings.

There will also be the capacity for regulatory amendments that will follow from this legislation. They will have the capacity to be further consulted to ensure that the precision, particularly as it relates to a number of the specific elements of areas of concern, benefit from the consultative capacity of those impacted.

Senator Loffreda: Thank you.

Senator C. Deacon: Thank you to the witnesses for being with us today.

I want to look at the bigger picture specifically around the net benefit reviews.

You may remember our report, Needed: An Innovation Strategy for the Data-Driven Economy. In it, we observed that we’re not keeping up in the change to an intangible economy. We further state that:

Without coordinated policy changes that adapt to the realities of the intangible economy, Canada will continue to see an erosion in both direct and foreign investment …

The concern around net benefit reviews is this: Do we sufficiently take into consideration the high value of intangibles in the value needed to hit a threshold? We don’t value data in Canada sufficiently. We don’t value IP sufficiently in Canada. It is easy at a resource company to say, “Here, this is tangible,” but we do not have that same structure and format. The threshold levels worry me. If I look at last year, there were 1,000 security reviews and 8 net benefit reviews. Are our thresholds sufficient to deal with this massive global change that we’re slow to catch on to in a shift to the intangibles economy?

Mr. Schaan: Yes. It is worth noting that there is a demarcation within the threshold set for net benefit reviews between those that come from organizations and countries for which we have a trade agreement, those that are WTO members and those that are state-owned enterprises. The gradation within those are agreed upon at international norms to allow for the free flow of investment between like-minded nations and generally to reduce the overall level of friction where there is an assumption that the investment is generally good. Canada benefits from that enormously in the sense that when our companies make investments abroad, they also benefit from the same capacity to be able to make those investments in countries abroad with the same sort of treatment for the nature of that investment like they do under the net benefit regime.

To the broad point about whether or not the thresholds are appropriate, we’ve set those in international accordance, so they are done on the basis of our WTO commitments. However, for state-owned enterprises, this bill makes a delineation. This was an amendment proposed at committee level where, if a country for which we do not have a trade agreement has a state-owned enterprise, we can provoke a net benefit review regardless of the transaction size. Where we have concerns about the potential for that investment to potentially be injurious to the net benefit of Canada, we’ll have the capacity to be able to review those.

Generally, on the first point, which is whether the thresholds are right, the thresholds are internationally set and are part of our overall commitments to seeking investment and seeing the free flow of capital across the global economy.

On the intangibles piece, though, I have two answers to your question. First, we have the capacity to review, in whole or in part, asset sales to foreign investors within the Canadian economy — all of them for national security concerns and those that meet the test for the net benefit side. If there is a national security concern as it relates to whole or in part of an asset, including intangible assets, we have the capacity to do a national security review. As you can see from the numbers, we do that. In fact, without disclosing confidential information related to the ICA, I can say that we have had cases that circled and centred around intangible assets as the primary mechanism for concern as it related to the transfer of assets.

Do I think that the overall financial system has done a reasonable job yet of getting to appropriate valuation of intangible assets? On that, I would say there is work to be done, but it needs to be collectively done in the sense that, right now, wearing my broad hat, which includes IP and insolvency, the value of data assets — not necessarily as what contributes to the market value of a corporation but their potential usage — is not yet actuarially fully defined in a way that I think meets the realities of the intangible economy.

Senator C. Deacon: About 15 years ago, I was a part of the sale of a company that sold for 400 times its physical asset value. We are not making progress. In coordination with this, I would love to see some thoughts relayed to us about what is being done — that is, tangible ways to make sure we do start to make progress — because we do not value our data, and our data is some of the most valuable in the world. Strategically, I think that we are missing the mark there.

Mr. Schaan: First, the transaction size factors into the net benefit review test. It’s not just the assets under question; it’s the transaction size itself. If the transaction is above the net benefit review, it comes in for net benefit review, regardless of whether or not the assets on hand necessarily correspond to the threshold.

Second, we have done a couple of things that I think are valuable. For example, the changes we have under way for privacy modernization will, in many ways, pay further attention to the costs and the benefits of moving data around the economy, which I think will start to put price to some of those transactions.

A material impact was the government itself getting involved in IP-backed lending. Intangibles-backed lending through the BDC is a helpful way for us to start to lead the charge to the financial community and say, “If you can lend on the basis of intangible assets, we would get to a clearer sense of valuation,” which is currently the real problem.

Senator Marshall: In your opening remarks, you referenced the regulations. Have the regulations been gazetted? Where are they?

Mr. Schaan: No. The regulation making authority will flow from the legislation. That process begins once the legislation has received Royal Assent.

Senator Marshall: Historically, government brings forward the legislation and we do not see the regulations until quite a time after. The good details are in the regulations. When do you expect to have them gazetted? When will we see them? How long will we have to wait for them?

Mr. Schaan: If I reference my Treasury Board colleagues, they would say that the gold standard for regulatory process is 18–36 months for regulation making. I would say that we will be much quicker in this particular regard because we are well prepared. Dependent upon the movement of this committee and when this bill actually receives Royal Assent, we have already begun putting our minds toward the regulation-making process.

Senator Marshall: That is disappointing. We have the legislation, but the good details are in the regulations and we have no idea of what is going to be in that.

Picking up from something that Senator Deacon asked, is the net benefit calculation a formula, or does that change depending on the business? Is it something that is a defined formula and does not change, or does it move?

Mr. Schaan: It changes on an annual basis but is not set by sector, other than the fact that there is a net benefit review for cultural products. Cultural industries have a separate net benefit threshold that’s set out in the act, and that’s adjudicated by my colleagues at Canadian Heritage.

Senator Marshall: Is that a defined formula? Is that something that we can ask to see the formula for?

Mr. Schaan: Yes. I’m happy to provide the net benefit and the way it moves on an annual basis.

Senator Marshall: Okay. Does this apply to American companies also?

Mr. Schaan: Yes.

Senator Marshall: I know that you are differentiating. You’re saying that if there are trade agreements or whatever, it would be different, but who is exempt? Is anyone exempt, or everyone?

Mr. Schaan: No one is exempt from a national security review.

Senator Marshall: Okay.

Mr. Schaan: Everyone is subject to the net benefit test, depending upon where they find themselves in the formula. Are they a country with whom we have a trade agreement, are they a WTO member or are they a state-owned enterprise? Those are the three categories.

The Chair: In case you missed Senator Marshall’s point, we say this regularly: We know that the regulations are the meat on the bone. It is always frustrating when we are trying to assess legislation when we can’t deal with the nitty-gritty. You can pass that along on our behalf as well.

Senator Petten: Can you explain what is meant by “prescribed business activity” as will be reflected in section 11(c)(i) of the amended Investment Canada Act? Do you have any examples you can give the committee? Can you explain the process of deciding what would be caught under that label?

Mr. Schaan: I can give you examples. A non-exhaustive list of technology areas that may be considered sensitive for the purposes of review under the national security revisions would include advanced materials and manufacturing; advanced ocean technologies; advanced sensing and surveillance; advanced weapons; aerospace; artificial intelligence; biotechnology; energy generation, storage and transmission; medical technology; neurotechnology and human-machine integration; next-generation computing and digital infrastructure; position, navigation and timing; quantum science; robotics and autonomous systems; and space technology — as a non-exhaustive list.

Senator Petten: It keeps adding on. You just make it up as you go, depending on what the circumstances are.

Mr. Schaan: The goal is to provide that certainty but to allow ourselves the capacity to evolve. If we had written this list and bound it in legislation ten years ago, quantum science probably would not have been there, nor might advanced ocean technology. Obviously, we want to keep up with the actual realities of the industry while providing that kind of clarity.

Senator Ringuette: Thank you to the witnesses for your comments.

This is a follow-up to a previous question. This committee is very concerned about the fact that foreign entities are purchasing our research, patents and I.P. However, there is no way in this legislation that we can have any kind of form of control. My first question is this: Is there another piece of legislation that could be enacted from your department in regard to that, or should we be looking at this legislation in regard to having an eye on foreign purchases of our research and patents and so forth? Most Canadian taxpayers contribute to these, particularly the research.


Mr. Schaan: To begin with, it’s important to note that economic security isn’t the only tool that can protect Canadians. We must use all the tools in this field to protect economic security in the broadest of terms.


To break that down, I’d say the Investment Canada Act plays a fundamental and important role as one part of our defences on economic security. It, by its very nature, reviews inbound investment — foreign investment — of Canadian companies or assets of a company to a foreigner. That is its prescribed mandate. It allows for us to be able to review inbound foreign investment where a Canadian asset or company is in question. But it is a partially ex ante and partially ex post regime in the sense that some are notifiable and some we review mid-transaction because of the nature of the thresholds that are in place. It is an important piece that plays a role. However, it is not, by any stretch, the only piece by which we need to continue to work these through.

I would layer in other aspects that are fundamental to that overall protection of Canadians. It begins with some of our regulatory colleagues at provincial, municipal, territorial and federal levels who set out the regulatory structures for their very particular sectors. They set rules for who can enter and play in a marketplace on the basis of a number of functions.

There are, for instance, rules that I am responsible for as the regulator as part of the process of setting telecommunications policy — of who can and cannot play in telecommunications. We have clear rationales for what can and cannot be done in the telecommunication space for the purposes of preserving economic security.

Senator Ringuette: I understand. That is one stream of what this legislation is supposed to do, but the other stream is to protect Canadian interests. That is quite broad. Because it is so broad, I restate my concern. This group voiced in a previous report the fact that we see research being done in Canada with Canadian investment — Canadian taxpayer investment — that is then bought up by foreign entities. All the potential of that research is no longer in Canada.

Mr. Schaan: I would note on that point specifically the important efforts that are being made. Research is not generally held by a corporation. Our statute concerns corporations and their assets that are purchased by foreigners. Research is often held by individual researchers or within an institutional context. Efforts are under way on our broader efforts on research security, including the most recent identifiable list of institutions for which no public funding will flow, so any collaboration between a Canadian institution and one of the institutions on the entities list.

I would note that the national security considerations and reviews that go in through our largest industrial application program under the Natural Sciences and Engineering Research Council of Canada — which now has a vetting process for all of its industrial collaborations under its largest program for national security considerations — are important commitments on the research security side, recognizing that it is outside the purview of the Investment Canada Act, because the ICA’s function is to look at corporations and their assets and their purchase by foreigners.

Regarding your generalized point that research needs its own set of economic security, that is why the research security agenda is well under way.

The last thing I would say is that amendments that were made at committee further underscore that when Canadian-funded research does end up in a corporate that is ultimately acquired by a foreign national, we have specific obligations to ensure that we’ve contemplated the national security considerations as it relates to its potential sale.

The Chair: We will have to come back to this in second round. We are past our time here.


Senator Miville-Dechêne: I want to ask you about transparency. I understand — and I want you to confirm this — that the minister will be able to make the names of the companies public once the final determination has been issued.

My question is broader. When you start the investigation, are you going to announce publicly who you are investigating first so that those who know that company can inform you, or do you wait until a determination is made? Do you release the name of the company involved if there is a negative determination or only if it’s a positive one?

All this could have an effect on the evidence available to you or what clues you can find on those companies.

Mr. Schaan: Thank you for the question. I’ll start with the first part of the question. If there’s an investigation into a foreign investment in Canada, it remains confidential as part of the department’s investment review process, because it’s not clear that the investment involved is also part of a private discussion between the department and the company.

On the other hand, thanks to this bill, whether the investment receives a positive or negative determination, the minister can make the outcome of the investigation public, along with the company’s undertakings, to ensure the investment is secured. In most cases, if it’s a positive determination, it includes the company’s undertakings.

Senator Miville-Dechêne: I’m sorry, what do you mean by undertakings?

Mr. Schaan: Undertakings are a company’s commitments with respect to its operations in Canada. This bill confirms that the minister is able to make them public.

Senator Miville-Dechêne: However, as you noted, it’s an option; names are not automatically made public. Am I mistaken? Is it solely the minister who decides if they want to make them public or not?

Mr. Schaan: That’s true.

Senator Miville-Dechêne: Why is that?

Mr. Schaan: It’s because from time to time it may not be to the public’s advantage to have access to the private information in a transaction.


There are often times when the transaction won’t take place for some time. For instance, you are required to file with the Investment Canada Act to establish enterprises in Canada. Sometimes, those enterprises will be established and not result ultimately in the project being undertaken. In those cases, it would potentially be injurious to the company to publish the notion that they are looking into investing in Canada if the project that they are ultimately pursuing doesn’t come to pass.


Senator Miville-Dechêne: How would you qualify this new Canadian legislation, which obviously has more teeth than what other countries are doing, like Europe nations or the United States? Are we catching up with or surpassing the others in terms of severity?

Mr. Schaan: It’s really hard to compare regulations because they are so different in terms of their capacity and powers they give to government. Basically, we really use the same approach as our allies, including the regime of CFIUS, or the Committee on Foreign Investment in the United States. In most cases, the same powers —


In fact, in some cases, we have further capacity, particularly as it relates to the net benefit reviews of state-owned enterprises. In some cases, we have a greater capacity to review than some of our allies.


Senator Massicotte: Thank you all for being with us this morning.

Mr. Schaan, you refer to the bar and other professional orders supporting these amendments and the bill. I’m looking through my notes, but I don’t believe we’ve received a copy of that review or the comments from other stakeholders. Am I wrong in saying that we don’t have a copy?

Do we need to take your word for it that they all agree? Is there nothing more substantial?

Mr. Schaan: We really get a sense of it when talking to the stakeholders, but these opinions about the bill are expressed in the House of Commons parliamentary committee’s deliberations. It’s published in the Hansard.

Senator Massicotte: Don’t you have anything more specific?

Mr. Schaan: I have no quotes or numbers.

Senator Massicotte: My concern is that when you look at the supply system and the trade system, we’re very dependent on trade with other countries, enormously so. It accounts for a huge percentage of our GDP. We also have a democratic system where politicians like to please their supporters and the people. So they often tend to exaggerate a little. When there’s a bit of conflict or something bothering them a little, they stop doing things or cause delays.

However, we must allow them do that in our basic system. There are too many implications and benefits for us to have a system that allows free trade, it’s fundamental. The fear I have, and I often see this when there’s a bit of heat or resistance, is that the politicians back down somewhat and they don’t make the same commitments anymore.

We mustn’t forget buyers and sellers are waiting for results and confirmation. If we cause delays, we won’t like them doing that to us as a result. I don’t like that — we trust in things, but there are too many cases, it’s too fundamental to our system.

We need to find something more solid and secure, perhaps more transparent determinations if we can comment, but I’m a little concerned about this.

Mr. Schaan: We agree on the importance and role of foreign investment in the Canadian economy. We are a small country with an open economy that relies on foreign investment. Our laws provide for as much transparency and certainty as possible within capacity, to truly protect national security and benefits for Canadians.

That’s why the act prescribes or requires a highly regulated process, with dates and deadlines at every stage, to ensure that investors trust in the process and the criteria the department applies to investment.

I think it might be better to have a list of everything needed or required to invest in Canada, but the economy is bigger and more complex. To really consider or note each point, it’s better to have principles enshrined in law, a specific list, clear dates and deadlines and a process that truly allows them to be considered.

Senator Massicotte: We’re talking about Canadian business and Canadian companies. Who’s more important: the private individual or the individual controlling the entity that determines if the company is Canadian or not? We’re talking about companies and private individuals. Which is being defined as Canadian?

Mr. Schaan: A Canadian company is by definition controlled by a Canadian, and it has Canadian assets and employees. A few criteria are used to define what a Canadian company is and determine whether or not a company is Canadian. The law requires a connection to Canada for there to be an opportunity to apply to invest in Canada.

Senator Massicotte: Is that the same definition as the one used for taxation?

Mr. Schaan: That is not a tax-related definition.

Senator Massicotte: Thank you.


The Chair: We go now to Senator Carignan, who is the critic of this bill in the Senate.


Senator Carignan: Will there still be financial thresholds to trigger audits?

Mr. Schaan: Could you please repeat the question?

Senator Carignan: Will there still be financial thresholds to trigger audits? What are the thresholds?

Mr. Schaan: The thresholds only apply to net benefit reviews. They don’t apply to national security reviews or to the thresholds for applying the national security review.

Senator Carignan: So for national security, there are no financial thresholds whatsoever.

Mr. Schaan: All investments in Canada by an individual or a company are included in the national security review.

Senator Carignan: How are you going to track this? How can you know that a $500,000 transaction is going to go through and be authorized as a result of an application? Will you find out later on? Will law firms be telling you “I think there may be a national security risk and I believe I’m required to notify you”? How will that work?

Mr. Schaan: There are two streams in the process. The first is the notification process. If the investment relates to one of the sectors covered by our guidelines, we require that the department be notified so it can assess that investment. If the investment doesn’t relate to the sectors covered in the department’s guidelines, the department team will continue to search for investments in Canada to take into account the potential for activities that could be harmful for Canada’s economy and national security.

Senator Carignan: I’m going to go with the mining claims example. I heard of a case where Russians were making claims in the Northwest Territories, among other places. So technically, these are not covered, they are excluded and not in a sector like that.

Then they discover products that might be covered under the law, but they are already there and they already have their permit. What do we do with them?

Mr. Schaan: That’s one of the things that — as I said in my response to Senator Ringuette — it’s one of many tools that allows the government to take that into consideration. The mining regulations take precedence.


For precision, I will answer in English because I know the technical terminology better.

Mining claims, like fishing claims or logging rights, are not necessarily in and of themselves a company or an asset of a Canadian company by the definition of the Investment Canada Act because they are a future promissory note in some cases and are not attached necessarily to a company and are not yet an asset. They are a future potential in some ways.

This is where we rely on the full continuum of actors across the entirety of the economic security chain to say, for the regulators, what roles are they putting in place for whom they offer claims, rights or prospecting licenses to, because they have a role to play too in ensuring that they are not granting rights, claims or prospecting opportunities to those for whom we would have a national security consideration. Insofar as that entity ultimately turns up to cash in that right and begin the process of establishing a corporation for the purposes of exploitation and excavation, they then fall under the Investment Canada Act because they then are a Canadian entity that wants to potentially engage in the Canadian activity. This is where we continue to work collaboratively across the sectors, particularly those of concern, to ensure that all actors are taking the right approaches to ensuring the national security of Canada.

The limitations of the Investment Canada Act are limitations insofar as it’s an act concerned with foreign direct investment in companies and their assets, and it’s not necessarily the only tool to rout out the possibility for national security concerns in a given sector.


Senator Carignan: It concerns me that Innovation, Science and Industry Canada is handling national security. We saw this in another Sinclair transaction, where the minister authorized Hytera, among other things. We were caught with a security issue in the Norsat transaction.

Why withdraw that from the cabinet, where there are many heads, many points of view, where they can question the minister, rather than leave it to a single minister whose mandate is to ensure investment in Canada, not national security?

Mr. Schaan: To clarify, the minister required that the Minister of Public Safety be consulted, and that they then consult with all investigative agencies and national security assets, including the Royal Canadian Mounted Police, the Canadian Security Intelligence Service and the Communications Security Establishment with regard to the national security risk.

That’s an opinion of the Minister of Public Safety filed with the Minister of Innovation, Science and Industry to inform his decision on whether or not to continue with the national security review process and confirm an investment.

Should the minister wish to block or reduce an investment for national security reasons, that requires a conversation in the cabinet, and a cabinet decision.

Senator Bellemare: Sort of in the same vein as my colleague, I, too, am a little concerned. That gives a lot of power to the minister. We can’t help but question that.

Have other countries had any experience doing things differently to ensure more secure foreign investment that we could have drawn on?

Mr. Schaan: Thanks for the question. There’s something important to note in the process. The minister has the option of getting a decision confirmed on a net benefit investment. That’s the minister’s only role. If an investment raises national security concerns, the Minister of Public Safety and all investigative bodies in the Government of Canada’s national security system are required to make a decision about an investment that poses a national security risk, and confirm that decision with their cabinet colleagues. That doesn’t give the minister the power alone to make a decision about national security to block an investment. A single minister certainly doesn’t have the power to do that.

A few other countries have the same kind of model. Australia’s process is similar to the Canadian system, but there are differences between the scope and decision-making power. In Canada, that power is greater than in the Australian system.

England has a system similar to Canada’s, which has the same process with respect to the roles of the national security agencies and makes a minister responsible for investment decisions.


The Chair: I would follow up on that with a question that Senator Gignac raised. How do we compare with the Five Eyes, not our trading partners but our security partners? Are we tougher or more lenient? How do we play?

Mr. Schaan: By and large, Canada holds a similar regime for investment review to our Five Eyes partners. We work extraordinarily closely with our Five Eyes partners on security reviews, in part because we often deal with the same security reviews because we have multinational firms, or others, who are potentially pursuing the same types of efforts. We have a Five Eyes group amongst us that continues to meet, compare notes and make sure we are working in tandem. There is a G7 working track as well to ensure that, among our G7 colleagues, we are also comparing notes on economic security. I would say the general provisions of the Investment Canada Act afford us similar, if not greater, capacity to be able to review incoming investment into the country than our Five Eyes colleagues.

The Chair: Without being a disincentive?

Mr. Schaan: Without being a disincentive.

Senator Yussuff: From time to time, the minister announces that a country cannot invest in a certain sector. Critical minerals is one of those. The minister made a decision that China’s investment in critical minerals is something we are not going to accept. How is that decision arrived at? Sometimes it gets changed. At one time, Chinese investment was in critical minerals in Canada. We wake up one morning and find out that that is no longer acceptable. What are the criteria for making the determination, and how is that shared with the public?

Mr. Schaan: I would note a few things. The Investment Canada Act remains country- and sector-agnostic insofar as it reviews all investments and has made no determinations about the welcome nature of a particular country or not. Even in the decisions that have been taken about particular investments that relate back to an individual, they were fact- and case-specific and indicated there were generalities of concern that would heighten the consideration of the government as it relates to those investments.

The critical minerals guidance that was produced by the government as it relates to the relationship between critical minerals and the Investment Canada Act is clear that there are a number of areas — including things like state-owned enterprises, the relationship between entities and their governments — that would give rise to the national security considerations and result in heightened review.

The only time we’ve made a very specific, country-specific notion or public announcement was in the Russia-Ukraine illegal war where we were clear we would be reviewing all investments for Russian entities as it relates to the continued function.

Generally, we aim to be country-agnostic, except that we have principles or conditions that warrant heightened national security considerations, including things like the state-owned enterprise nature of the company, the degree to which it corresponds back to their governments and the degree to which that government is actively involved in the potential for harm. Those determinations are made in conjunction with our national security partners based on credible evidence and what we believe to be the current structure.

The guidance that we currently have on critical minerals related to the ICA was informed deeply by our national security colleagues and, again, is country-agnostic but heightens the security considerations for types of investments, many of which may relate to a particular geography or a particular arrangement.

Senator Yussuff: In the context where investments have already happened and you are now saying, “Wait a minute; we are putting in rules,” how do those investments take place in an orderly way to protect the country’s interests while, at the same time, you have investors whose portfolio is now diminished as a result of decisions we make?

Mr. Schaan: We have a period of jurisdiction over an investment which essentially provides a certain amount of certainty to investors. We also have a sort of double-jeopardy rule in the sense that we can’t review the same investment twice. Once we’ve made a determination on an investment, unless it is a materially different investment than that which was originally considered, the investment advice holds. That provides a certainty to investors that there’s a time frame in which the investment can be reviewed and there is no capacity for us to come back and re-review our own decisions because administrative due process and justice suggest that you should get one kick at the can.

In a couple of cases where there was a failure to notify the government about the establishment of an entity or an ongoing investment in Canada — and this is required under the act for a net benefit review, particularly above a certain threshold — we then have the capacity, because the investors didn’t follow the appropriate structures, to ensure that they got the necessary clearance before the establishment of the enterprise.

Senator Martin: I have one question focused on small- and medium-sized businesses in Canada. I know we are talking about foreign direct investment but, with the implementation of Bill C-34, would you speak to the impact — both positive and perhaps challenging or negative — on small- and medium-sized businesses in Canada? They are part of every sector.

Mr. Schaan: They are indeed part of every sector. Part of what helps small- and medium-sized enterprises grow is to have a functioning economy that has both a role for foreign direct investment and a clear capacity to be able to draw in capital from a variety of sources.

While the Investment Canada Act dedicates a large amount of energy to large-scale, foreign direct investments because they meet our net benefit test, or investments of any size that provoke national security concerns, I think that kind of certainty about what will or will not engender the government’s concerns as it relates to foreign direct investments fuels a broader economy and an environment for continued investment. It allows for things like ongoing investments in small- and medium sized enterprises which will never meet our threshold and engender no national security concerns to continue without abatement.

The other reality, as I noted, is part of the reason that Canada conforms to the net benefit threshold is because we have come to agreements with our international partners about the frictionless movement of investment between like-minded countries to allow for that free flow of capital. Because we have agreed to those net benefit thresholds and agreed that we want our countries to continue to exchange, it provides a marketable opportunity for our small- and medium-sized enterprises to have export opportunities and investment capital that doesn’t necessarily just originate in Canada. That has to be paired with a whole bunch of other environmental things that we do like trade agreements and export promotions that aren’t the subject of today’s discussion but feed into the SME growth story.

Senator Martin: Thank you.

The Chair: On relations with the Five Eyes partners, where do our penalties, the financial deterrents, fit in? Where do we rank?

Mr. Schaan: In foreign direct investment, our greatest lever is less penalties because our greatest penalty is the blocking of the transaction or the unwinding of the investment. As it relates to penalties, we have the same capacity as our Five Eyes partners to be able to block or mitigate investments as it relates to the concerns either that they don’t generate sufficient benefits for Canadians or that they raise national security concerns.

The Chair: Thank you.

Senator Marshall: Can you provide more clarity to the discussion that you had with several of my colleagues regarding to the role of the minister and the role of the cabinet? Before decisions are made by either the minister or cabinet, there must be some sort of due process that involves a variety of players. Is it well defined? For example, I am an accountant. If you are doing an audit, you have to do A, B, C and D. You have to tick them off. It is very structured. Is it the same for these reviews? You talked about conversations and discussions and meetings, but I didn’t get the impression that it is a structured process. Can you elaborate on that?

Mr. Schaan: It depends on whether or not we are discussing net benefit reviews or national security reviews. They are quite different in nature. The net benefit review is a process by which the factors are outlined in the act. The minister is allowed to contemplate as to whether or not the investment provokes benefits to Canadians.

Senator Marshall: There is a formula for that? I get the impression that is well defined.

Mr. Schaan: There are principles in the act that the minister should contemplate when considering the net benefit. We engage with investors on the degree to which those factors are present.

Senator Marshall: So it is not that defined. Carry on.

Mr. Schaan: They make representations to us, and then we analyze them to a degree and often place them into a broader context of the degree to which this is beneficial to the net economy of Canada.

Senator Marshall: And what about as it relates to security?

Mr. Schaan: On national security concerns, as I noted, it’s a stepwise process that moves along a gradation of the degree of concern provoked. That’s in concert with our national security colleagues.

Senator Marshall: Is that well defined? When you spoke, it sounded like, “We had conversations and some meetings and some discussions.” The impression that you left is that it is not well structured, and I think it should be —

Mr. Schaan: When I talked about 25.1 versus 25.2 or 25.3, those are extraordinarily established processes with a particular test. The initial concern is does this provoke any national security concerns? The second legal test is does this provoke concerns that could be injurious to the national security of Canadians? The third legal test is does this provoke national security concerns that would be injurious to the national security of Canadians?

Senator Marshall: Okay. And those are carried out by whom? Are there different groups? It’s not the minister or the cabinet, is it? It must be somewhere in the public service or CSIS, or whatever. There are defined roles.

Mr. Schaan: There is a defined governance process that works through the national security equities who inform a decision by the Minister of Public Safety who then provides that determination to the Minister of Innovation, Science and Economic Development Canada for consideration into the ultimate investment decision. That is then put to the cabinet.

Senator Marshall: Where is that process defined? Is that going to be in the regulations, or is it already somewhere else?

Mr. Schaan: That’s in the act. This is not brand new piece of legislation. These are amendments to the existing ICA which already has these processes in place. You won’t find there what the public service has as a governance mechanism, so the Assistant Deputy Minister Committee on National Security, which works through these kinds of policy issues, and then the specific governance of the Investment Canada Act decision making.

Senator Loffreda: I heard our current prime minister state in a press conference with respect to attracting foreign investment into our country that we are third in the world. Does that include mergers and acquisitions? Is that still the case today? How will this bill affect our ranking and affect competition, which is more and more of a concern in Canada?

Mr. Schaan: That statistic was related to the last six months of 2023, where Canada ranked third in the world for drawing the greatest amount of inbound investment. I believe that was a wide degree of investment. I think it included mergers and acquisitions as well as direct investment. We ranked third the world over. Obviously, that takes into account a number of critical areas that the government has emphasized, including the battery ecosystem in a number of the broader critical minerals plays.

I think this bill helps to ensure that we don’t get in the way of that record. I think it provides certainty to investors so that they will know when and how they will engender the concerns of the Investment Canada Act as it relates to net benefit or to national security. We have to be clear, though, that — and we have sent increasing signals on this — national security considerations will not be tolerated in foreign direct investment into Canada. That comes with the notion that certain types of transactions will not receive the approval of the government. I don’t say that because I think we’re going to go down in the rankings. However, it is an important consideration that by shutting off particular types of transactions, you actually mean that there are parts of the world that will continue to be comfortable with entities and countries of concern, and Canada will make it clear that that’s not the case.

Senator Loffreda: There is no impact on the general competition in our economy per se or any sectors that will be negatively affected or others that will be favoured by this bill?

Mr. Schaan: We think, in general, with the guidance we provided, this bill allows us to be clear about what those sectors of concern are and to provide the certainty for that ongoing investment, while also being clear about that which we will not accept, which is particular types of investment that invoke either entities or countries of concern.

The Chair: I think we heard yesterday from the chief statistician that we are third on some rankings but we are thirty‑ninth on others, depending on how many people you put in the group and on what basis. We have to be careful on that.

Senator Bellemare: I will be very quick.


My question is about the fact that we very often have labour shortages. During a labour shortage, could foreign investors bring their workers with them? If they did, what does this bill provide to ensure security and compliance with provincial laws in this area for workers who accompany foreign investors?

Mr. Schaan: This is a single jurisdiction act, and it governs foreign investment that comes into Canada through a business. As for workers who come here, that’s a separate process. That’s up to my colleagues in the provincial and territorial governments, and at Immigration, Refugees and Citizenship Canada.

Taking into account how we treat actors is perhaps a factor that would be important in determining an investment’s net benefit for Canada. The vetting process for workers related to the investment is really a matter for Immigration, Refugees and Citizenship Canada and labour laws.

Senator Bellemare: Thank you.


Senator Petten: I just have a quick question. Some of the amendments to the Investment Canada Act address penalties for non-compliance. Of course, it is an update, as you said before. In your opinion, are those penalties strong enough? Are they enough of a deterrent? They seem to be small, even from the first, from the beginning, to the second.

Mr. Schaan: Thank you for the question.

We still feel the penalties for non-compliance are sufficient to be able to ensure appropriate behaviour, recognizing, of course, as I noted, that the most significant penalty we can offer is that an investment or a transaction will not be approved in Canada. Non-compliance is something on which we’ve touched to ensure that people can’t simply ignore a finding of the Investment Canada Act, but we very much believe that the fundamental process is still one that incents the right behaviour.

I will also note, though it’s probably not welcome to the ears of Senator Marshall, that we can adjust the penalties now because they will be in the regulations as opposed to having to come back before you to adjust them, but I promise they will be gazetted when we do.

Senator Petten: Was there any thought that maybe you could take back the shares or do something even stronger?

Mr. Schaan: I will take back that question, but I would say, in general, the view is that we have quite strong penalties in terms of what we can do with respect to the transaction itself.

The Chair: Now you know one of our hobbyhorses. You keep hearing it and so we’ll keep sending it.

Senator C. Deacon: Thanks again for being with us.

Our June 2023 report on the data-driven economy identified many of the challenges that must be overcome if we are to really maximize our growth in the intangible economy, but it needs a whole-of-government response. I am concerned that sufficient priority is not being given to the really tough whole-of-government changes that are needed to encourage more investment and to maximize the growth of our data-rich, IP-rich companies in Canada versus going for multinational exit. This concern comes from the fact that the Strategic Innovation Fund, which was designed to build IP investments in Canada, is, in the majority, being directed towards foreign companies investing in Canada. We are still moving in a branch-plant direction versus the growth of domestic businesses. I am worried that the whole-of-government work is not being prioritized, and we keep subsidizing it with foreign investment versus catalyzing Canadian investment. Can you speak to that?

Mr. Schaan: Yes. Growing firms to scale in Canada as anchor firms and as market-dominant players within their given verticals or sectors remains an extraordinary priority. It is something that I, personally, in my gig, spend an awful lot of time thinking about.

We have, through our focus on an industrial policy rooted in “green, digital and resilient,” tried to ensure that we were addressing the headwinds that face our global economy while also seizing the opportunities through a combination of things like the National Intellectual Property Strategy, the continued ability for IP-backed lending and other forces through the Business Development Bank of Canada, or BDC. I would note the current open-ended consultation from my colleagues at Finance on the review of scientific research and experimental development, with the acronym SR&ED, and the tax credit and the secondary consultation on a patent box. We have continued to think about various other means that would allow for that growth to scale and that market-dominant position for our domestic firms.

This act recognizes that foreign direct investment does play an important role in fuelling the overall economy but, to your point, I think it’s only one piece of a much bigger puzzle that needs to include how we actually grow a Canada that will see itself succeed in an increasingly digital global economy.

Senator C. Deacon: I will finish off by saying that we will keep watching. This was a top priority in our committee last year. We are still looking for the evidence that action is really being taken relative to the old path of the tangible economy and what was needed to grow the intangible economy. We are not making all of the changes yet on the intangible. Thank you.

The Chair: Senator Deacon, that does wrap up where we have been, where we’re going and what the signals are.

Senator Massicotte: After this discussion, are there any other witnesses?

The Chair: Yes, on other dates.

I thank you all for being here today. If anything you’ve heard has inspired you to send us a note giving more clarification, or if something you heard twigged you, please, do that. We will hear witnesses over the next couple of days and then wrap up this discussion with the minister towards the end of the month. We will see where it goes from there. If there is anything else you think we might need for that discussion as well, please feel free to send it along. Our thanks to Mr. Burns, Mr. Karman, Mr. McKay and, of course, Mr. Schaan, who is always here to discuss these issues.

Ladies and gentlemen, thank you all for your participation.

(The committee adjourned.)

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