THE STANDING SENATE COMMITTEE ON BANKING, COMMERCE AND THE ECONOMY
EVIDENCE
OTTAWA, Thursday, February 15, 2024
The Standing Senate Committee on Banking, Commerce and the Economy met with videoconference this day at 11:29 a.m. [ET] to study Bill C-34, An Act to amend the Investment Canada Act.
Senator Pamela Wallin (Chair) in the chair.
[English]
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. I serve as the chair of this committee.
I will introduce members of the committee here with us today. We have Senator Bellemare; Senator Loffreda, who is our deputy chair; Senator Gignac; Senator Marshall; Senator Miville-Dechêne; Senator Petten; Senator Ringuette and Senator Yussuff. Welcome to you all.
This is a timely set of testimony that we will hear today relevant to the foreign-interference issues that are front and centre now, and also in response to the report of this committee entitled Needed: An Innovation Strategy for the Data-Driven Economy. These issues are extremely timely.
We have the pleasure of welcoming Bob Fay, Former Managing Director, Centre for International Governance Innovation; and Mr. Charles Burton, Senior Fellow at the Macdonald-Laurier Institute. We welcome you both today. Thank you for your time and being with us in person. We will begin with your opening statements. Thank you.
Bob Fay, Former Managing Director, Centre for International Governance Innovation, as an individual: Thank you. Chair, honourable members, thank you for this opportunity to testify today.
My remarks relate directly to a recommendation made by this committee in its excellent report, Needed: An Innovation Strategy for the Data-Driven Economy.
That the federal government develop a national data strategy and data governance legislative framework that provides clear rules regarding the use, sharing and storage of data, protects privacy and promotes data literacy.
Against that background, please allow me to make three comments related to Bill C-34.
First, intangible assets — and particularly data — have changed the nature of economic growth and thus require a new lens and a renewed focus on the benefits and harms that may come from foreign direct investment.
First mover advantages, economies of scale and scope, and asymmetric information derived from data, may lead to greater economic concentration that can leave Canada beholden to foreign firms where they are the first movers. Further, foreign direct investment may be used to capture Canadian intellectual property and data that can bolster such impacts.
Data is not mentioned anywhere as a strategic asset, yet acquiring data can not only allow an investor to ring fence a particular market, it could also allow investors to bolster their intellectual property and to move into other sectors that may be sensitive and not anticipated with the initial investment.
For example, the capture of data can create national security issues across sectors and not just within a specific market. Thus, one needs to consider how data may be used across the list of sensitive technology areas and not just within the specific areas. Monetary thresholds for investment and potential takeovers may not capture these links because data is not valued explicitly in a transaction and thus may not be captured under “enterprise or asset” value.
On its own, taking into consideration the value of data would — and should — create greater scrutiny of foreign investments. Nevertheless, how to value data is an ongoing issue that requires further research and an area where the Centre for International Governance Innovation, or CIGI, has been active.
Second, data creates geopolitical issues that touch upon national security. Countries and firms are strategically setting rules around the uses of data, particularly personal data, on the basis of vested firm and state interests that can give rise to both economic and national security concerns and have a direct impact on Canada.
Third, data creates a value chain and thus requires a whole-of-government approach to its governance, as well as new forms of governance.
Although it is important to take a national security perspective to foreign investments, it also requires that considerations in other policy areas are taken into account at the same time, including intellectual property, privacy, data governance, competition and consumer protection, public safety, trade. The list goes on.
Some examples: Investment could lead to greater economic concentration and make our economy less resilient — this is linked to competition policy and consumer protection; digital platforms can take personal data and combine it with other data to reveal patterns of behaviour that can be used to create social tensions and undermine our institutions and democracy — this is linked to privacy, data and AI governance, public safety and national security.
Intellectual property may be captured by foreign entities in different ways, for example, via research collaborations in Canada or via mergers and takeovers; this is linked to policies related to intellectual property, or IP, retention, our R&D policies, et cetera.
What can we do? In an op-ed related to data governance that I was honoured to co-author with one of your colleagues, Senator Colin Deacon, we sketch out some ways forward that I believe are relevant to this topic.
First, we need to update and adapt our regulatory structures. For example, foreign direct investment raises concerns that are multifaceted. We need greater collaboration among our regulators.
In this regard, Canada has recently created the Canadian Digital Regulators Forum, bringing together the Canadian Radio‑television and Telecommunications Commission, or CRTC, the Competition Bureau and the Office of the Privacy Commissioner of Canada, or OPC, to strengthen information sharing and collaboration on matters that relate to digital markets and platforms. This is a good start.
In the context of an Investment Canada Act review, the forum could play an important role by coordinating across various policy areas which would also help to streamline the review process. Nevertheless, there would likely still be regulatory gaps. At this point, there is no mechanism in place to capture and assess those gaps.
Other jurisdictions have expanded this type of digital governance framework to include financial regulators and online harm regulators. It may also require the consideration of the creation of a new regulatory structure.
Second, Canada needs to update its digital governance tool kit. Strong laws and appropriate regulations are essential, but they are not keeping pace with technological change, creating national security and public safety risks in addition to regulatory gaps. One way to close this gap is to update the Statutory Instruments Act so that it recognizes standards as an effective instrument to streamline and accelerate digital rule-making.
Standards, set in a transparent, multi-stakeholder and representative manner can introduce the agility necessary to quickly adapt to changes in technology and thus should be considered a valuable tool in the governance tool kit.
Finally, Canada needs to be actively engaged internationally in setting digital governance. Since Canada can be held accountable under international rules, and judged by its adequacy to those rules, Canada should also assess other countries on the prospective uses of Canadian data and whether they meet Canadian values, including those related to national security. In this regard, CIGI has proposed a framework for international collaboration that we call a Digital Stability Board.
Thank you. I look forward to your questions.
The Chair: Thank you. That was helpful.
Mr. Burton, thank you. Please go ahead.
Charles Burton, Senior Fellow, Macdonald-Laurier Institute, as an individual: Thank you, Madam Chair.
My area of expertise is China’s domestic politics and foreign policy. As I understand it, Bill C-34 is, to a large extent, about how to prevent the Chinese regime from employing foreign investments in Canada to enable espionage operations and transferring technologies that could be used in hybrid warfare or kinetic military action.
Worry about potential sabotage of critical infrastructure here in Canada, if Canada was drawn into a conflict with China, has also informed Canada’s banning of Huawei and ZTE 5G and preventing the acquisition of our construction concern, Aecon, by the Chinese regime.
We have identified critical areas where acquisition by, as the Investment Canada Act puts it, “an entity that is controlled or influenced, directly or indirectly, by a government” would threaten Canada’s national security.
We prevented the Chinese state firm Shandong Gold from acquiring TMAC’s Doris gold mine because of concerns about the mine being located just 100 kilometres from a NORAD radar station in Cambridge Bay, and also because the Doris Mine is located close to a narrow point of the Northwest Passage, a strategic shipping route connecting the Atlantic Ocean to the Pacific Ocean.
Our concerns in this case were more about China’s long-term potential strategic threat to Canada than simply a strategic competitor’s acquisition of a critical technology.
A major issue in drafting country agnostic national security language into the Investment Canada Act is the incompatibility of Canada’s constitutional separation of a civil space, a state space and a societal space with China’s system whereby all Chinese domestic and global enterprises are fully integrated into the People’s Republic of China, or PRC, Communist Party’s state, corporate, military and security apparatus, because, as Chinese Communist Party General Secretary Xi Jinping put it:
Party, government, army, society and education — east and west, south and north, the party leads on everything.
Intellectual property that any Chinese concern becomes privy to through its foreign investment in a Canadian partner is, as a matter of course, going to be covertly transferred through Chinese Communist Party channels to whatever elements of China’s Communist Party regime can apply the Canadian proprietary technology or manufacturing process to further China’s overall diverse regime interests. Chinese law requires that all Chinese companies and Chinese individuals cooperate with their intelligence establishment and hide that cooperation.
That, combined with the Chinese regime’s unrelenting cyber- and human-source spying on our Parliament, political parties, government departments, universities and businesses, is reason enough to conclude that foreign investment from China must be subject to the most stringent national security test, regardless of the sector or industry that the proposed investment may target.
Let me conclude with three concerns relating to the language in the bill. First, regarding the provisions mentioning the WTO, let me simply point out that China does not understand its obligations to abide by the terms of the WTO the way that we do.
Second, regarding the definition of “non-Canadian,” there are also issues in the Chinese regime’s expectations that persons of Chinese origin who acquire Canadian citizenship should remain beholden and loyal to the People’s Republic of China and the transnational reach of the Chinese Communist Party. For example, China refers to the 300,000 Canadian citizens resident in Hong Kong as “Canadian passport holders,” not foreign nationals, as they clearly are in international law.
Hopefully, the ongoing Foreign Influence Commission will help us come to terms with protecting our loyal Canadians of Chinese ethnicity from coercion by a foreign state. But it does raise very knotty issues regarding the definition of “non‑Canadian” investment in Canada. These are very sensitive matters that impinge upon Charter issues.
Finally, I have concerns about giving too much discretion over national security reviews based on a single minister of the Crown’s interpretation of top secret sources that cannot be shared publicly. Since last year, there have been very disturbing allegations that government has not been responding well to serious concerns expressed in the top secret intelligence assessments sent to them by our security agencies and those of our intelligence-sharing partners. I strongly believe that Canada needs to adopt measures that will ensure there is much more accountability in addressing national security threats, so I urge you look at the relevant provisions in your review of Bill C34.
Thank you, Madam Chair.
The Chair: Thank you both very much.
I have a question before we begin. Are either one of you proposing that this bill, as it stands, be changed or amended, or are these cautions and the things you are suggesting things that we should consider as we go forward?
Mr. Burton: I would like to see much stronger language specifically directed toward these concerns regarding China. I mentioned this to the Industry Committee when it came up before the House of Commons: I would like to see more of an indication of reciprocity in our foreign investment review with that of China. As a former diplomat, the principle of reciprocity is pretty key in foreign relations. Right now, we allow much more latitude for the Chinese to invest in Canada than they allow for us in terms of acquiring mines and other critical areas.
I realize it’s late in the game, but that’s my feeling.
The Chair: I was just asking for clarification.
Mr. Burton: I’m not happy with the language not being rigorous enough.
Mr. Fay: Going back to your report, I would like to see greater recognition of the value and the protection of our intangible assets. Data is what drives all new technologies, so something specific around that as well.
The Chair: Thank you very much.
Senator Loffreda: Thank you, gentlemen, for being here this morning. Those were interesting introductory comments.
Mr. Fay, you mentioned mergers and acquisitions. I would like to bring your attention to a new report from the Canadian Federation of Independent Business, or CFIB, that found that 76% of Canadian owners of small and medium-sized enterprises, or SMEs, with between 1 and 499 employees plan to exit their businesses in the next decade. Some 56% of SME owners aim to exit in the next five years, and about three quarters of these soon‑to-be-former businesspeople are looking to retire completely. Many of our SMEs are having a difficult time post-pandemic.
Would implementation of Bill C-34 have any particular impacts, either positive or negative, on small- and medium-sized businesses that employ most Canadians?
Mr. Fay: I have not had a chance to read the report that you cite, but clearly that is demographics in action.
One of the reasons I said that maybe we can use this new digital regulatory forum as part of the review process is — if what I said were fully taken on board, I think the argument would be, “You’re putting obstacles in the way of Canadian businesses to do what they want.” Of course, that’s not what we want to do.
The issue with our small business community — and I take the point that most of our jobs are there — is that we know they have issues around trying to value and monetize their intellectual property. We know there are programs in place to help. However, from a public policy perspective, not enough attention has been given to the value of assets that they might hold.
So my perspective is that we don’t want to stand in the way of letting them carry out their business, but we also want to make sure they understand the value of the intangible assets and make sure there is a framework in place in Canada that helps them monetize and protect those assets.
Senator Loffreda: Thank you.
Senator Marshall: Thank you very much for being here.
You outlined your concerns, so I will not go over those again, but I would be very interested for you to talk about whether you participated in the consultation, if we have time for that.
My question is around a more general issue. I find within government, they’re always bringing in legislation that seems to be not well thought out and not well planned. It seems like they’re trying to do something in response to whatever problem.
When we had the officials here last week, they told us that the regulations would take about 18 to 24 months. We have the bill, you’ve seen the bill and you’ve got concerns about it, but nobody has seen the regulations. We don’t know what will be in them.
Can you comment on that? You can look at the bill and have some concerns, but you haven’t seen the regulations. You might be really concerned when you see them. Could you address that? If your response is going to be short, I would be interested in hearing whether you participated in any consultation processes on the bill, given the concerns that you outlined earlier.
Mr. Burton: I wasn’t involved in a consultation process.
But I agree with you: I think the devil is in the details with regard to regulations. In general, I would like to see Parliament much more involved in determining what those regulations are and I’d like to see much more transparency in the security agency’s assessments that are sent to the minister and ultimately to the cabinet for review.
I think that in terms of the overall net benefit to Canada, we’re erring too much on the side of caution. Certainly, I can understand that Canadian businesses and universities don’t have a mandate for national security. There is an enormous cost to saying — when Shandong Gold wasn’t able to buy the TMAC mine. That is a money-losing mine that they really wanted to unload to the Chinese, but it would have been a grave mistake.
We have to be more aware of these concerns and take them much more seriously. Last week, the FBI director told a U.S. committee that something called Volt Typhoon was the defining threat of our generation. What they’re defining is that the Chinese regime is pre-positioning itself to sabotage critical infrastructure in a time of conflict. This stuff is very serious for Canada, maybe not in the short term of the length of a government, but in terms of our overall sovereignty and security, I think we have to get much more with the program and we need to have the debate more publicly put together to be frank about the nature of that regime and the threat it presents to us.
Senator Marshall: It seems like the government is not looking at it in a comprehensive manner. The China problem has risen up in the last two or three years and they’re just now responding to that, and it’s not well thought out or well coordinated.
Mr. Fay, I would be interested in hearing your comments.
Mr. Fay: I did not participate in any consultations, although I presented similar remarks to the INDU committee. There is the bill and the regs, and that will take two years, let’s say. By that time, the regs will probably be out of date. That’s why the point I made about standard setting and making sure we can keep our regs up to date is tremendously important.
One thing I will add around China is that they are well aware of this because China is very active in standard setting around digital technologies. It’s something that is flying below the radar for many, but they realize the importance of getting involved and setting standards, because the standards are not just technical — I think the committee has heard this before — they’re also the values around which the technologies are used. It is tremendously important that Canada be very active in making sure that our values are embedded in those standards.
Mr. Burton: Perhaps I should correct myself. If you mean by “consultations” whether I was called to speak at the INDU committee of the House of Commons, yes, I was.
The Chair: I think that was a different question Senator Marshall was asking. Thank you. We’ll now go to the sponsor of the bill in the Senate, Senator Gignac.
Senator Gignac: Welcome to our witnesses. I know that you have testified at the House of Commons committee. My first question was exactly the one the chair asked you about what you see in the bill.
The Senate has the ability to amend if it is necessary. That bill was presented a year ago, more or less. I think it’s not too late, but we need serious documentation to amend. Maybe you have something in mind.
Mr. Burton, you suggest that maybe we should talk about reciprocity. It’s a significant shift if we go down that route. Without going as far, do you have any idea how we could improve the bill, or do you have any amendment in your mind to be more specific? We give a lot of power to the bureaucrats because the prescribed sectors are not defined, so we let the officials decide which sectors are sensitive. Is there any area where you would propose to upgrade or modify our bill?
Mr. Burton: I heard last week the discussion of — if I understand correctly — putting more discretion into the hands of the minister. I’m concerned about this. I’d like to see a process that involves more decision makers than the minister. As I say, I’d really like to see much more openness in these decisions than we’re seeing at present. We just don’t know enough about when cabinet decides whether or not a Chinese state firm can acquire a construction company, a mine or a company that has technology that is potentially relevant to laser-directed weaponry, and what the basis of that decision was.
I have some national security background. I worked in the Communications Security Establishment, or CSE. I just feel there is no justification for them being so unforthcoming about what these reasons are. The Chinese already know the intelligence. I would like to see more involvement of Parliament in understanding why we decide to approve or not approve one just so the Canadian public can have a greater reassurance that our government is doing the right thing.
Senator Gignac: If I may, what do you have in mind? Initially, it was a cabinet minister and now it would be the Minister of Justice. Do you have in mind an independent expert committee? Do you have in mind to have the Minister of Global Affairs involved with the Minister of Justice? What do you have in mind? Is it independent, outside government, or just a change inside government?
Mr. Burton: What I would like to have is more information about what the intelligence agencies are telling our government that forms the basis for their decisions. Of course, if there was a committee, it’s all very well, but I don’t see any point in a committee where everyone is cleared to top secret and can’t tell you what went on there. That’s my concern.
We’re increasingly aware that there’s just too much being held back, and Canadians want to know. I’m not convinced by the arguments that the top-secret stuff cannot be presented to the people in ways that don’t betray methods of gathering intelligence or sources. In the case of this, in particular, whether a Chinese acquisition of a Canadian company is to the net benefit of Canada or presents a national security threat, that stuff is not as sensitive as figuring out who is a spy in Canada. It’s information that we should know.
The Chair: Mr. Fay, this is maybe to the same point, because you were asking about specific language, but I think the point you were making was about the inclusion of data.
Mr. Fay: Yes, there is that. I fully agree with Mr. Burton, but I would add — this is the point I was trying to make — that we need to think about these intangible assets and their implications differently from how we’ve treated tangible assets.
It can’t just be one minister here. There has to be more than one minister in the room. But it’s not just the ministers, I fully agree that the public — there are groups that are more effective than others. Civil society should be involved in these discussions and so should industry, especially when one comes up with a list of sensitive sectors. I don’t think anyone understands those sectors better than industry themselves. They’re going to have one perspective, and civil society is going to have another. I think we have to have broader engagement than what we’ve seen so far.
[Translation]
Senator Miville-Dechêne: I am pleased to hear you talk about transparency. I had some questions about that for the officials last week. I was told that the only thing in the bill is that the minister may decide — and has full discretion to do so — whether or not to publish the names and the conclusions reached about any given company.
To pick up on what my colleagues asked, would you change that rule? You talk about increasing transparency, you say that governments must be able to disclose information about companies that are trying to take over our companies. What are you suggesting, specifically? I was told that those are company secrets and that we can’t say anything about that.
[English]
Mr. Burton: I think that national security does trump this idea that there are company secrets that we can’t reveal. It’s just too serious a matter to hide behind corporate competitive concerns in this regard. I’m inclined to think that there should be a lot more turning down of acquisitions than we’ve seen so far. Similar to my previous answer — and certainly I think that you have the knowledge and authority to determine this. I just think we ought to have more involvement than simply one minister, and there should be a requirement for some degree of transparency rather than a decision made in a black box, which I think is basically how it’s gone. We never received the details about the TMAC turndown. Me suggesting it was because of the proximity to the NORAD station and because it could allow China to potentially develop an outlet into the Northwest Passage is speculation on my part. I think that’s why they decided it. I’d like to see the evidence as to whether that is true.
I just feel that national security is something that should demand that we know and that those other corporate concerns, which are important — and corporations have a close connection to government because they promote prosperity in our country — but I think that we have to do more.
Regarding Mr. Schaan’s evidence last week when he suggests that, basically, we’re doing it as well as the Brits and the Australians, I’m not entirely convinced by that. I think there is more openness in what Britain, Australia and particularly the United States allow to go into the public space with regard to these decisions. That’s just my subjective assessment.
I was very impressed with everything he said.
Mr. Fay: Again, I agree with what I’ve heard.
One example that I touched upon here is that there are different ways to think about the security implications. There is national security as our intelligence agencies would define it, and then there is what I called economic resiliency. For instance, what is the implication of a takeover in Canada in terms of our market structures? That is where the Competition Bureau would get involved and do an assessment.
I’d like to see much better coordination among the different facets of how a review would take place and greater information sharing. I’m not an intelligence expert, so I will defer to our intelligence agencies, but I do think there will always be elements of a review that can be released to the public. I would think a competition review would be one of them.
I didn’t say it here, but I did tell the House of Commons Standing Committee on Industry and Technology, or INDU, that it would be nice if, while the national security review is taking place and the Competition Bureau might also be looking at the competitive effects of a takeover, they coordinated with each other when they come to a final decision.
Senator Miville-Dechêne: You are of the opinion that there should be more than one minister in charge. We were told last week that we shouldn’t worry, he would consult, it would be brought to the cabinet and everybody would be around.
Isn’t there also a danger that, if many ministers are responsible, no one is responsible and that we would lose some of it through the fact that, with a group, you can always say that it’s your neighbour that’s responsible?
Mr. Burton: That is a good point. I am just concerned that it is possible that political factors specific to a minister’s own riding or interests could colour the minister’s interpretation of the information. I like the idea of there being more ears on it than the one pair, but I do take your observation. My understanding is, for example, our new Indo-Pacific strategy is currently being considered by 17 deputy and assistant deputy ministers, and maybe that’s why we haven’t heard too much about it lately. So I think you raised an important fact there.
Mr. Fay: One of the things that Senator Deacon and I talked about in our article for The Hill Times is that we have very good examples in Canada of regulatory structures that work, particularly in the financial sector. They are partly based upon really good information sharing among agencies. What’s critical here is very good information sharing among the people who are making the decisions as opposed to having decisions made by one, let’s say, minister without getting input and other perspectives from other ministers.
I take your point, but I think we have examples of structures that work. Critical to that is your point on transparency and information sharing.
Senator Miville-Dechêne: Thank you.
The Chair: Thank you. I am just going to follow up for a moment with you, Mr. Burton.
Publicly stating proximity to a NORAD station shouldn’t be a violation of any international security agreement. I think that’s a pretty obvious statement. It is not in breach of anything that you can think of.
Mr. Burton: No. Its location near the Northwest Passage and the NORAD station — I brought these up in the press. It’s just that I would have liked to have heard it just to confirm it. I’m just speculating here.
The Chair: No, I’m just asking this: What would the pushback be on that? “Oh, we couldn’t possibly ever say that out loud because.” Is there a “because”?
Mr. Burton: It’s because the Chinese embassy would not be happy —
The Chair: It’s just that.
Mr. Burton: — and we don’t want them to be unhappy. It’s similar to Minister Champagne and Minister Freeland talking about decoupling and friendshoring back in October 2022. They say it in the United States, but I don’t think they said it to the Chinese diplomats here in Ottawa.
Senator Ringuette: Thank you very much for your presentation. It’s very interesting.
Last week, I asked Mr. [Technical difficulties] especially the issue of investment purchasing in regard to our research, patents, IP and data — that I didn’t see any of those in the current legislation. His answer was, “Well, it’s not meant to be to this,” so my follow-up was this: “Where should it be?” There was a big pause.
Mr. Fay, what I’m hearing from you is that research investment, the patents, purchasing, IP purchasing, access to data and whatever they do once it’s outside of Canada, it’s no longer under Canadian jurisdiction — you’re saying those items I just mentioned should be part and parcel of this legislation.
Mr. Fay: Yes, that’s short and sweet. Yes, exactly.
Senator Ringuette: Then I guess we would need your help and your expertise in regard to how we can amend this bill to provide the inclusion of these four elements.
The Chair: Are you asking for language, Senator Ringuette? What do you mean?
Senator Ringuette: Yes. I’m not an expert, and I see Mr. Fay as being a pretty good expert in regard to —
The Chair: Is that something you want to engage in?
Mr. Fay: It wouldn’t come from me, specifically, because I think you do need someone with a legal background as opposed to an economist like me. But we do have fellows, and one of them, of course, has testified before you in the past.
The Chair: Okay.
Senator Ringuette: So you’re saying, yes?
Mr. Fay: I’m saying yes, there should be some acknowledgement of intangible assets, which is what you brought up, and there are many different types.
The Chair: If people wanted to draft an amendment, they could reach out to you for guidance on language; is that what you’re saying? Well, not you.
Mr. Fay: I would probably volunteer one of my colleagues. I assume they would be happy to help.
The Chair: Does that satisfy you, Senator Ringuette?
Senator Ringuette: Then I’m making it an official request.
Mr. Fay: If my colleague Jim Hinton is listening?
The Chair: We have his number.
Mr. Fay: Yes, you have his number.
The Chair: Thank you.
Senator Bellemare: Thank you.
I have many concerns with this bill, but I am not an expert. The concern I have is about the power it gives to the minister and its secrecy, in a sense, but my comment will be larger. Maybe this bill is better than nothing, but it doesn’t acknowledge the big changes that we have had in our economy, such as the passage from a tangible to an intangible economy and the fact that the technology that comes with it is very perverse, in a sense, because it’s invasive. It’s in houses, it can hear what you say and it can guess what you will write because they write it before you can.
In this kind of economy, as you said very eloquently, Mr. Burton, in China, the top down is superb because they can control everything. We live in a free and democratic world, though, and the free and democratic world in the passage of tangible to intangible economy is something very scary. We don’t yet have in Canada the institution that you’re talking about that I think relies on bigger, durable institutions of social dialogue between economic actors, such as having economic councils. In the United States, they have these kinds of boards at different levels.
In Canada, we don’t. Maybe it’s because of the Constitution, I don’t know.
But what can we do to cope with this passage from a tangible and an intangible economy while protecting ourselves but also promoting those kinds of boards or where you share real information — not statistical information but real information about intent and what is happening on the field?
Mr. Burton: I agree with you that this is something that requires modernization, not only of this particular bill but all sorts of aspects of government. When you look at something like Global Affairs’ G7 Rapid Response Mechanism, it’s a very important institution to detect disinformation and theft of personal data from people, but it’s grossly under-resourced because it’s hard to change to keep up with the changes in times of economic constraints.
I do think there has to be a global change in our understanding of these threats to Canada, and I don’t think that we really get it yet in terms of how China is able to download massive quantities of data, put it into supercomputers and use it for purposes of espionage and surveillance in ways that are very much counter to our own, as you say, culture of freedom and the protection of privacy.
It’s not just this bill, in other words, but I am looking forward to Mr. Fay helping you with this aspect, because it is extremely important and we’re still behind the curve on it.
Mr. Fay: You’re right that we’re behind the curve. Even as I mentioned this new Canadian Digital Regulators Forum, some countries have had this in place for many years. The U.K. has had this in place for many years. Australia set one up quite recently, but they acknowledge that it’s very broad. That’s when they brought in their online harms regulator, which they have set up. Canada is still talking about what we do in that area.
There are other countries we can look at that I would say are leading in this area. Implicit in these new forums is the ability to share the necessary information upon which to make the decisions. Your point is a very valid one that the nature of the intangible economy creates new opportunities and new risks. The risks that we have seen around disinformation, for example — well, we are living it.
We need to get going sooner than later. We do believe that standards are one way to be much more nimble in all of the areas around governance of these technologies.
The Chair: Just in terms of a model, there is the National Security and Intelligence Committee of Parliamentarians, or NISCOP, where we have senators and members of Parliament who review national security issues. They obviously have superior secrecy status, et cetera.
Are you looking at something like that such that it would be transparent to some? We ask a group to look at that and take their judgment, which would at least be beyond one minister? Is that a forum?
Mr. Burton, maybe you want to comment on that.
Mr. Burton: Of course, I’m concerned about these agencies that are ostensibly supposed to bring the information more into public awareness, and then they complain that their concerns expressed to government are not acted upon. The fact that it’s all secret is a problem.
It’s similar to the ongoing issues with the Foreign Influence Commission. Commissioner Hogue and the lawyers are all cleared to top secret, but they are unable to get the government to be very forthcoming with regard to information. When they requested that 13 documents be looked at, they came back mostly blanked out.
I think this same principle applies. There might be some parliamentarians who are worried as hell about things, but they are not allowed to tell you their concerns because they have to maintain their secrecy, and they maintain it for life. I’m bound for the rest of my life by that act as a result of having worked at the CSE, and I take that seriously, but I would like to see more mechanisms where the government has to indicate that they respond to these concerns and not de-prioritize them and say that having shared it with parliamentarians is enough.
The Chair: Thank you.
Senator Yussuff: I have two questions — two and maybe more for Mr. Burton.
Thank you for all of your comments, but in the context of foreign investment, we have this dilemma where we get criticized as a country because we have put up all kinds of obstacles to attract foreign investment. We hear that from the business community consistently. Yet, on the other hand, if we want to safeguard the security of the country, we have to put up some mechanisms to screen out some investments that are not desirable in terms of the greater interests of the country.
The balancing act is always there to try to figure out where we make the right decisions or the wrong decisions.
At the end of the day, the public want to ensure their elected leaders are doing the right thing for the greater good of the country in the long run, but we also have actors at a national stage who have constantly been — they don’t have any regard to whether China should invest in areas sensitive in the economy. We know these are very influential people. They have think-tanks, and they are very active in the sphere.
How is the public supposed to discern what is a national security threat and where it should allow real investment to happen to create jobs and prosperity for the country? How do we balance that?
We hear your views, and then we hear a whole lot of other people who come to this committee and say that we don’t attract enough foreign investment because we have all this regulatory and legislative biases that prevent it from happening.
Mr. Burton: National security has to trump economic benefit. The most important thing is protecting Canada’s security and government.
Then, there’s the other complicated issue that I alluded to in my opening statement, which is that if we are focused on China, then elements that are sympathetic to that regime or who might have conflicts of interest because they receive benefits from that regime, will accuse us of anti-Asian racism. It becomes toxic to talk about these things in terms of one particular country that’s identified wrongly with an ethnic group in our nation. In other words, the word “Chinese” means “from the People’s Republic of China,” but unfortunately, we don’t refer to people of Chinese origin as “Han Chinese.” We refer to them as “Chinese,” and it leads to a conflation of those concepts, so as soon as I criticize China, certain elements, including elements within our Senate, will accuse us of fomenting bringing back the Chinese Exclusion Act of 1923 and so on.
It is tricky, but I do think we have to err on the side of security over prosperity, because if we don’t, it will really come back to haunt us in years ahead. But these decisions are always being made because of the nature of our system. Unlike that of the Chinese Communist Party, our governments are short term and want to foment prosperity while they are in power. The Chinese government is able to look very long term and, gradually over time, like a game of weiqi or go, set down the tiles until they have us in a position where we are subject to the coercion or manipulation.
Xi Jinping’s overall foreign strategy of “the community is the common destiny of mankind” is about that. It’s about dismantling the rules-based international order based on those liberal institutions, like the WTO and the UN, and replacing them with other institutions that suit the autocratic regime doctrine of China and Russia and Iran; and the Belt and Road Initiative, which is about investment and development, is the economic part that supplements this audacious overall scheme. Whether it can be fulfilled is very much in question, but that is what he says China plans to do, and they hope to achieve domination of global politics by the year 2050 because they think the United States and its allies are in terminal decline and new forums will come to the fore.
I’m very worried about this because I think the rules-based international order is very important to maintaining the values of humanity and citizenship, and therefore, we have to do everything we can to ensure that it’s not debased by hostile foreign actors.
Senator Yussuff: In regard to the review system right now for investment, it’s not just one minister, to be fair. More than one minister is involved. The Minister of Public Safety, who is responsible for national security, is involved. The Minister of Foreign Affairs is involved, and there is a combination of data that’s gathered from very different sources.
The point is that one minister will ultimately make the decision on behalf of the nation in this regard. You are saying that the public should at least have some degree of hearing a little bit more rather than, “We don’t allow the investment in the country.” But to be fair, it’s not just one minister who makes this decision in the cabinet. It’s combined with all of the sources of information that actually determines the greater good of the investment for the country.
Mr. Burton: I agree. I wouldn’t want to besmirch the reputation of distinguished senior members of the government, although I do feel that the role of ministers does seem to be more and more subordinate to determinations from the Prime Minister’s Office, and that’s not just about this current government. It’s a trend which has probably been happening since our current Prime Minister’s father.
The role of parliamentarians is not as vigorous as it should be. I would really like to see members of Parliament being taken more seriously and cabinet ministers having more responsibility for their portfolios than appears to be the case when there does seem to be so much control from the centre by forces that are sort of murky to us because they are not as fully transparent as Parliament, and that’s a larger question.
Senator Loffreda: This has been a very interesting discussion. I do agree we must put security over prosperity, and most democratic governments do focus more on short term rather than long term. Your comments on the fact that our government is not responding well in certain areas is concerning and needs to be corrected.
That being said, when it comes to national security threats, international cooperation and collaboration, it’s extremely important.
To what extent does Bill C-34 facilitate this international cooperation? Does it do anything for an information exchange to address some of those national security interests? If it does not, could we correct some of those issues through this bill?
Mr. Burton: I think Mr. Schaan did talk about this, that there is an exchange of information with like-minded countries who may face investments by the identical Chinese actors who are attempting to take control of certain economic elements in our own country. Of course it’s important that we strongly collaborate with our allies.
There are issues there with regard to recent leaks of sensitive information with regard to China that have appeared in the press, which I think reduced the confidence of our allies in terms of sharing information, and our role in the Five Eyes does seem to be less than it was. It seems to be largely Britain, the United States and Australia when you look at the AUKUS or other institutions where we seem to be no longer at the table in the same way as we were before.
These are all part and parcel of the same process, but obviously we want to be sharing information as much as possible, and we have to give our allies confidence that we will maintain the integrity of that information. There is a balance there. I would like to see us being as forthcoming as the Australians and the British and the Americans in this regard, and quite frankly we’re not.
In recent parliamentary hearings, the head of our CSE and CSIS has acknowledged that we are not as forthcoming as other countries, and also some of the former heads of those institutions have spoken about this. Beyond noting it, I don’t have any confidence that we’re actually addressing this because it seems the culture of curating secret information and sharing it with our allies rather than revealing it to Parliament so that parliamentarians can assess it is not happening yet.
The Chair: Okay.
Senator Loffreda: Mr. Fay, did you have a comment on that?
Mr. Fay: Yes, if I may, and then maybe it will follow up on Senator Yussuff’s question as well. Maybe we’ve been a bit hard on Canada here, but in fact Canada hasn’t quite recognized the value of intangible assets in our frameworks. We need to upgrade our frameworks to incorporate intangible assets and the implications of them. If we have those frameworks in place, then at least when decisions are made a minister can say, “These are the frameworks; this is why we made a decision,” against the frameworks that recognize the role of intangible assets.
However, we also need international rules of the game around intangible assets that don’t exist, and this is where I was talking about we have vested state and corporate interests. Tech companies in the United States have an agenda. Fair enough. I can understand why they do. Countries like China have an agenda that they are pursuing.
I would think democratic countries can get together and come up with frameworks wherein we agree to recognize how intangible assets are affecting data, every policy and almost every domain in which we live. That’s where CIGI’s notion of a digital stability board to allow those discussions to take place could happen.
The G20 was the venue where some of these discussions were taking place, but of course, we see that the G20 is not overly functional at the moment, I think, for obvious reasons.
[Translation]
Senator Miville-Dechêne: I want to thank the analysts for pointing out that clause 19 pertains to the transparency or lack of transparency of the process. I know these are very sensitive matters. Before commenting on this, would one of you know how this could be worded to allow for greater transparency, even if the information is made anonymous? I don’t know what would be needed to protect the information.
[English]
The Chair: I’m not sure we can ask them to do that when we are sitting here, if you’re asking for specific language.
Senator Miville-Dechêne: I’m not asking that right now. I’m asking for that information to come to us by way of the clerk.
[Translation]
If I was not clear, in your respective organizations — and I know, Mr. Fay, you said that you might have legal counsel in your group — with regard to disclosing information, as you said, could clause 19 be made more transparent without causing more serious national security problems by releasing too much information?
[English]
Mr. Burton: You would like more information about what we think about section 19, if I understand you correctly.
Senator Miville-Dechêne: Not only that, but how would you change it specifically, considering you’ve been quite vocal on this question? Maybe not now but at a further date.
Mr. Burton: I would be honoured, of course, to try and advise you on that, and I’m sure Mr. Fay can give even better information.
Mr. Fay: I will re-engage with my colleagues, yes.
The Chair: Thank you.
Senator Yussuff: Mr. Fay, I think you said this very explicitly, we are playing catch up in how we regulate in this sphere of digital evolution of the country with regard to its use and its monetization. I think we are the school kid wanting to grow up and be mature adults in university, and it takes a while. In the meantime, there is a tremendous loss to the country as well as to investors who were heavily investing in this sphere.
In the context of what’s been proposed in the Canadian Digital Regulators Forum, you see this as a way to move us forward in a faster regime; and second, in the broader context of that, how do we change the culture of the country because that requires some catching up? Because I think some Canadians are not explicitly understanding what we’re losing and, more importantly, what the benefits are to the nation in this regard. Senator Deacon and others have been raising this. A lot of witnesses have come before the committee and have testified telling us about this.
How do you see us evolving this not only in the regulatory regime, but also how do we raise the consciousness in the country about what this represents for the future?
Mr. Fay: That’s a big question. To take the first part, the Digital Regulators Forum is just an information-sharing exercise which is good. It’s a good place to start. As I said, it needs to go beyond where it is and there are other countries we could look at. That’s one way.
Another way which I mentioned earlier is standard setting. Standards bring different connotations to different people. Standards can be China dominating a particular working group and setting the values around, for example, the uses of facial-recognition technology. But standard setting can be viewed very differently on how it is being done in Canada where you do get that multi-stakeholder input if it’s done properly into how technologies should be used. It is a way to bring different elements of society together — it’s business, it’s civil society, it could be people off the street, it could be me — that can get involved that will, as I say, put some governance around technologies and their uses and it can be done quickly and at will.
For example, the proposal to update the Statutory Instruments Act is a mechanism where the minister could say, “hey, the regs are out of date. We need to act quickly to this new threat from technology, so let’s get this standard-setting exercise under way.”
Senator Yussuff: We do have a standards body, so it is a good mechanism that brings multiple stakeholders together to do so. Would that be a mechanism for us to use to set a standard, especially that this is a new regime that would bring all the key players together?
Mr. Fay: It’s one mechanism. It’s not the only one, it’s one mechanism. As we’ve heard, another mechanism is to ensure that there is good consultation around proposed bills that allow people to come before different committees. That’s another mechanism.
Fundamentally, awareness that the drivers of economic growth have changed is something that has still not caught on. For example, we have tremendous wealth in our country in our natural resources, and the wealth that we can derive from those natural resources is going to continue to promote welfare in this country. Yet, what is going to drive growth going forward is the digitalization of those sectors and how we use the data. That discussion is still going on. How do we promote it further? I don’t want to just say it’s just education and training; that’s part of it. Part of it is to make sure we update, once again, our frameworks that recognize this. The work that Canada is doing on intellectual property, both at the national and the provincial level, to help firms understand the nature of IP and how it can be a factor that drives growth, is a factor to access financing, et cetera, to use those mechanisms as well to help the business community understand it.
One would think the business community would understand it. This goes back to the question earlier on SMEs; I don’t think they do understand.
Senator Gignac: Mr. Burton, I very much enjoyed your testimony. I tend to agree with you that national security is about economics, but the fact is that China is big, integrated. You mentioned in early January — I think in The Globe and Mail — that Canada must face the facts. China is now closed for business, you mentioned. This is what you mentioned. In fact, we have a lot of Canadian firms operating in China. We even have our biggest Canadian pension fund in Canada — the Canadian Pension Plan Investment Board, or CPPIB — that told us that have more than 12% of the assets now in China. Guess what, that’s huge.
I heard you, and I’m the sponsor, but I can only do my best to influence. At the end of the day if we go too far — because we do not identify China in the bill, basically we just mention “state-controlled companies” and these kinds of things — and are very transparent, if China has concerns they could retaliate. We need a balance here because even if I agree with you that national security is about economics, if we go too far with too much transparency and regulation we could have a huge backlash from Canadian corporations. You know what I mean.
Maybe elaborate on that. We have to find the right balance basically.
Mr. Burton: Yes, if we’re concerned about Chinese economic coercion, if we don’t agree to some of the things that they would like, we shouldn’t give in to that. When China imposed completely unreasonable restrictions on the export of Canadian canola seeds because of our maintaining our treaty commitment to the United States with regard to an extradition case, and they also did some things to Quebec meat, I really don’t think that we should respond to that in any kind of way. I mean, it only emboldens them to do more of it.
I would say overall I hear you about these concerns, but only about 4% of our commodities trade goes to China at present. Of course, it’s mostly going to the United States. What will happen if Mr. Trump comes into power is another story. Most of what we sell to China are agricultural commodities and minerals, in other words, things that have a global market.
China’s attempt to coerce Australia over their demand that there be more transparency about the origins of COVID-19 and some other Australian actions, the Australians were fairly nimble in being able to mitigate the negative impacts on the Australian economy of those things. I don’t think we should be intimidated by them.
With regard to the CPP, as Minister Champagne said, I would like us to decouple in that regard. I’m inclined to think that we have to stand by our principles and not consider these compromises so much.
I hear you about the reality of the world, but the lines are being drawn in the global struggle between China, Iran, Russia and the rest of us, and I think we have to stand strongly in support of the existing world system and not be cowed by Chinese intimidation or threats, even though this may cost us.
Senator Gignac: If I understand, in one way we’re closer with our Five Eyes because we are quite small compared to China. But if we come closer and harmonize with best practices from the Five Eyes regarding foreign direct investment, is this a way to mitigate this kind of retaliation?
Mr. Burton: In my view, Australia has been much more effective in this regard. Let’s bear in mind that 30% of their commodities trade — iron ore and so on — is going to China. I regard Australia’s policies as being better in terms of maintaining the rules-based international order than Canada which has a considerably lesser stake in China and is, in my view, lagging behind quite seriously.
Senator Gignac: So maybe it’s a way to check a bit more as a reference, the Australian legislation. This is what I heard.
Mr. Burton: As I say, I heard what Mr. Schaan said, and I feel that you should maybe double-check that this is, in fact, exactly the way it is.
The Chair: That’s something we could maybe hear testimony on as well.
Gentlemen, thank you very much for your testimony and direction today to help us look into some of the questions that you have raised for us. It is much appreciated. As you heard, you will likely hear from us with some follow-up requests.
(The committee adjourned.)