THE STANDING SENATE COMMITTEE ON BANKING, COMMERCE AND THE ECONOMY
EVIDENCE
OTTAWA, Wednesday, March 20, 2024
The Standing Senate Committee on Banking, Commerce and the Economy met with videoconference this day at 4:15 p.m. [ET], to examine Bill C-34, An Act to amend the Investment Canada Act; and, in camera, for consideration of a draft agenda (future business).
Senator Pamela Wallin (Chair) in the chair.
[English]
The Chair: Senators, we have just a few pieces of business before we start. The minister is here with us, and he may have to vote any moment now, which they do electronically. We may pause at that moment. I’m just giving you a little warning.
We will have our first hour with the minister and Mr. Schaan. We have one more witness to hear on this bill who has been rescheduled several times due to the Senate sittings. We will hear from him and then save the last 15 minutes of the meeting to talk about preparations for clause-by-clause consideration tomorrow. That’s how things will run today.
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, first, the members the committee: Senator Loffreda, our deputy chair; Senator Bellemare; Senator C. Deacon; Senator Gignac; Senator Marshall; Senator Carignan is here today; Senator Massicotte; Senator Galvez is with us; Senator Petten and Senator Ringuette. We also have Senator McBean joining us today, observing, but you can participate if you will.
Today, we continue our examination of Bill C-34, An Act to amend the Investment Canada Act. On our very first panel today, we have the pleasure of welcoming the Honourable François‑Philippe Champagne, Minister of Innovation, Science and Industry. He is accompanied by officials from the Department of Innovation. Mark Schaan is here. He’s here every second week, I think. Thank you, minister, for sending him over here so regularly.
Welcome and thank you for joining us. Whenever you have to vote, you just let us know. Why don’t you just begin with your opening remarks, if you will?
Hon. François-Philippe Champagne, P.C., M.P., Minister of Innovation, Science and Industry: Thank you, Madam Chair. It is a real pleasure and a real honour to be with you. I think we are looking at one of the most important pieces of legislation, I can say, as industry minister for a number of years now. The work we will be doing together is essential. I’m delighted to be here. Thank you again.
I’m here with Mark Schaan. As you said, he’s a known figure. I always remind him where his other office is; it’s very close by.
Thank you, Madam Chair and esteemed senators, for allowing me to speak. It’s always a pleasure to come back to this committee. Thank you for the opportunity to speak on Bill C-34, An Act to amend the Investment Canada Act.
[Translation]
As you know, Canada is among the world’s leading destinations for foreign investment. According to the OECD, Canada now ranks third in the world when it comes to attracting foreign investment, and that’s certainly thanks to our government’s hard work and the talents of the country’s workers.
Every day, we work with companies of all sizes to attract even more investment and create opportunities for all Canadians.
Canada remains an open economy, but we mustn’t be naive about current geopolitical conditions. Increasingly, our country is the target of hostile actors seeking to acquire goods, technologies and intellectual property to achieve their own strategic objectives, threatening both our national security and our prosperity, of course.
[English]
So, in essence, what we need are new tools.
[Translation]
We must therefore ensure that we further develop the tools we have to better defend Canada’s economic interests, given current and future threats.
[English]
To protect our interests, to secure our assets and to keep Canadians safe, we are updating the legal tools currently at our disposal. That’s why I introduced Bill C-34, An Act to amend the Investment Canada Act. This bill will update one of those legal tools to protect Canadian industries and, I would say even more, Canadian prosperity.
With a collaborative spirit across party lines, members of the Standing Committee on Industry and Technology engaged with experts, and I would say they worked tirelessly to further refine the bill that is before you today as senators.
I’m also pleased to highlight that Bill C-34 received unanimous support at every step. I’ve been, what, almost 10 years in this place. I do not see that often these days. It received unanimous support at every step in the House of Commons, including at the committee stage — a testament that our economic security should remain a non-partisan issue.
The committee focused on making sure the amendments included in the bill are balanced so they can protect Canada’s national security but are chilling beneficial foreign investments across the country.
[Translation]
This new bill provides the most significant update to the Investment Canada Act since 2009.
The last update was over 15 years ago. Imagine how much the economic context and geopolitical situation have evolved. Obviously, we need new tools so we can be better equipped to face the challenges of foreign investment in the country.
Targeted legislative changes will enhance the visibility of Canada’s investments, improve transparency and help provide greater certainty for investors, while ensuring that Canada has strong powers to take action quickly and when required.
[English]
The Investment Canada Act provides broad authorities to intercede on and address national security risks that can arise in foreign investments. These amendments to the act build on a strong foundation and targeted authorities improve on the mechanics of the process around the national security reviews of investment. I’m pleased to share my personal experience because, having had to live with the current act for a number of years now, I can tell you what it is in practice.
[Translation]
In closing, all these legislative amendments will help Canada reap greater benefits from foreign investment, while strengthening our ability to act quickly and decisively to reduce national security and economic security risks.
Senators, I invite you to work with us to approve and pass this important bill as quickly as possible, to give Canada the powers it needs to prosper in a changing economic and geopolitical environment.
With that, I’d like to thank you once again for inviting me.
[English]
The Chair: Thank you very much, minister. I’ll just say to senators, we have very limited time today, so please keep your questions really short and sharp. We’ve heard a lot of testimony on this, and this is our chance to hear from the minister.
We will begin with our deputy chair, Senator Loffreda.
[Translation]
Senator Loffreda: Thank you, Minister, for joining us today.
My question pertains to the powers that will now be granted to the Minister of Industry rather than the Governor in Council.
Some of the experts who testified before our committee expressed concern over this issue, suggesting that too much discretion is being given to a single minister for the purposes of reviewing foreign investments for national security. I know that the Minister of Public Safety and Emergency Preparedness must also be consulted, but are you comfortable with the authority you will be granted?
You mentioned the last update, which took place in 2009. We’ll be living with this bill for a long time, and eventually ministers change portfolios. Will you trust whomever succeeds you one day to make these decisions in your stead?
Mr. Champagne: That is an excellent question. I would say that there are two new powers: one that transfers powers from the Governor in Council to the Minister of Innovation and Industry, and one regarding extension. As you know, when the national security analysis begins, it includes an extension mechanism. In practice, I’m not aware of a single case where the Minister has requested an extension that was refused by the Governor in Council. The aim is to make the process more efficient, because we want to give our intelligence agencies as much time as possible. Eighteen government agencies are involved in the national security review. So the aim is to give them as much time as possible to do their job. You’ll agree that Cabinet meetings are scheduled in advance; the flexibility we need, in consultation with the Minister of Public Safety, provides us with a more efficient process.
The second power transferred from the Governor in Council to the Minister is that of binding commitments. This is done with the agreement of the Minister of Public Safety, not in consultation. There are two key aspects to accepting binding commitments. I can tell you from experience, because I’ve had to do this in several cases: the goal is to adjust contractual commitments as situations evolve. Once a decision is made by the Governor in Council, you’ll agree that it’s very difficult to change that decision for a company that might evolve in one type of activity, sell or add a division. This adds flexibility to the tools we require.
It’s important to remember that along with greater efficiency comes greater accountability. Now, under the new law — if it’s approved, honourable senators — the minister will also be accountable to two oversight committees that didn’t previously exist. There’s the National Security and Intelligence Committee of Parliamentarians (NSICOP), which is a bipartisan, non-partisan committee, with one MP on each side, but there’s also the National Security and Intelligence Review Office. Both these entities will be reviewing the Minister’s work using these powers.
I would suggest to you that this provides flexibility and transparency, because when you approve this bill, there will be more transparency than there is today. I think the two-key system is effective; it’s been used in several other pieces of legislation, and that’s what will give us the agility to deal with the scenarios we face, in my opinion.
Senator Loffreda: Thank you for your response. It has been suggested that Canada should create a committee similar to the Committee on Foreign Investment in the United States (CFIUS) to support the Minister in his assessment. Is this an option you considered? Why did you grant the powers only to the Minister of Industry instead? Please reassure us. Surely the department can draw on the expertise of many civil servants and interdepartmental collaboration?
Mr. Champagne: I’m quite familiar with the CFIUS process in the United States. I was at the G7 from Thursday to Saturday, and I could tell you about an initiative that Canada has put forward with G7 countries to ensure better coordination. We shouldn’t be looking at the tree; we should be looking at the forest. An announcement will likely be made soon.
I’ve proposed a new working committee in which the various agencies could work together within the G7 — and even a G7+. In this case, it’s very similar to what CFIUS does. Under the regulations, there are 18 government agencies that consult each other to provide the Minister of Public Safety with a recommendation, which is then forwarded to the Minister of Innovation, Science and Economic Development, who then makes a decision. What’s more, the Governor in Council always holds the power. Let me be clear to all senators: the Governor in Council makes the final decision to block or divest an investment in Canada.
[English]
Senator C. Deacon: Thank you for being with us, minister and Mr. Schaan. We did a report last June that I think you both know about. We focused on the intangibles sector and Canada’s lacklustre business in the intangibles sector. One of the things we noted from witness testimony was that value tends to migrate out of the country when there is foreign investment in the intangibles business. If the intellectual property, or IP, migrates, the high‑value activities migrate.
One of the questions that I have — we need more global exporters at scale in the intangible services sector in Canada. There’s no question we need that. We’re good at start-up, but we’re not as good at scale up and we’re not as good at getting them to the global exporter stage.
Is there something we need to look at in the net benefit review element where we actually do better at prioritizing not just the commercial value as a threshold trigger in a business but the less valued components of the business, like IP and data and the strategic value of those? Should that perhaps trigger a lower threshold for triggering a net benefit review?
Mr. Champagne: That’s a very good point, senator. I like that because, as you know, the intangible economy or the digital assets are very valuable. One day, on the balance sheet, you may even have an item for the value of data, as you go forward.
I can tell you that when it comes to national security — I’ll talk about the net benefit — I’ve been a hawk on these things because there’s no threshold. Any investment in Canada is subject to the national security review, which makes us one of the most comprehensive regimes. Greenfield investments are not necessarily covered by other legislation. They are in our case.
I think we’ve put a lot into it. You will be pleased. I can tell you — you should have seen the reaction at the G7 when we announced that we have a new policy, for example, on video games. All the colleagues looked at me and commented on how ahead of the game we are because video games are touching hundreds of millions — if not billions — of people.
We’re seeing a trend there. That’s why I said that we’ve seen a number of foreign actors trying to buy one company after another. I put a stop to that. I said, “Let’s pause.” Let’s look at the forest because, individually, these things may look okay. Then I even challenged my colleagues at the G7 and said that not only should we do that as Canada, but we should do that collectively so that when we make decisions, we look at the forest.
We’re talking about the resiliency of the supply chain, foreign interference and people trying — you’ve seen in the U.S. the legislation around TikTok. There are a lot of things going on. However, I can tell you that colleagues around the table look at Canada as the leader when it comes to these things. I can even say the chair of the Senate intelligence committee in the United States praised Canada when I blocked the three potential takeovers of Canadian mining companies by Chinese companies. We were even praised publicly about how we are doing what’s right and how we want to protect these national assets.
When it comes to the net benefit test, obviously we are always laser focused on that to make sure we give the proper valuation to that because, you’re right, it is subject to threshold. I am very cognizant of that. I can tell you that with Mr. Schaan and the team, we are always making sure we assign proper value and are focused on that.
If I may, the interim undertakings are also going to be key. We have very precious companies. I think about quantum. If you approve the bill today, senators, the law does not allow us — although I’ve found a way to somehow get voluntary commitment, but now we’ll be able to have binding undertakings while we do the review. Because the danger is that someone could come, step into the business and steal the assets. Even if we say no at the time, the harm will be done.
That’s why I say this is time sensitive because if you want to protect IP, I need to have a legal tool to have interim undertakings to say to a potential acquirer that they’re not going to come close to the business or have access to the IP until we finalize our review.
Senator C. Deacon: So the threshold can include strategic —
The Chair: You have less than a minute. You’re good with that? Okay, thank you.
[Translation]
Senator Bellemare: I’d like to steer you to a different area. I get frustrated when I read certain things and when witnesses tell us that prosperity in Canada is being undermined, that productivity is falling, that we need domestic investment and foreign investment. At the same time, the geopolitical situation is such that we must be very cautious.
I’d like you to explain in greater detail how Bill C-34 will ensure a better balance without harming foreign investment by having clear provisions, because we receive letters telling us that it’s imperative that the bill provide reasonable, predictable and transparent guidelines for companies considering investing. At the same time, we are aware of our geopolitical situation, and we must be very careful.
What can you tell us about that?
Mr. Champagne: I would say that Canada is first and foremost one of the preferred locations for foreign investment. Stability, predictability, the rule of law… Demand is high and supply is low in today’s world, which is why you saw Canada… I don’t know if the honourable senators are aware, but Canada now ranks third in the world for foreign investment, behind the United States and Brazil. In fact, Canada leads the world per capita in attracting foreign investment.
In the battery and electric vehicle ecosystem, Bloomberg said a few months ago that Canada was the world’s leading ecosystem, ahead of China, for the next 30 years. I didn’t even give them an interview. Their analysis concluded that Canada has now surpassed China in the battery ecosystem.
We launched all this 24 to 36 months ago and now Canada is ranked number one in the world. I think this is due to having clear rules and predictable tools. We also set very clear policies. For example, in terms of the type of foreign investment we would pay particular attention to, I think foreign investors understand, when we’re talking about data, like personal data, or when we’re talking about strategic technology, that we’ll pay particular attention to certain aspects. But among our jurisdictions, we see how prized Canada is internationally, because it’s seen not only as a welcoming place for people, but also as a phenomenal place to invest.
Senator Bellemare: Do you think we’ll be able to increase productivity with these investments? As minister, should you have an approach that stimulates more domestic investment? Foreign investment is all well and good, but Canadians also invest a great deal abroad.
Mr. Champagne: You have to do both, Senator. You’re absolutely right, and I agree with you: we must do both. Speaking of productivity, a few days ago, at the G7, there were discussions with experts on the power of artificial intelligence to increase productivity, robotics and the digital aspect that we need to focus on small and medium-sized businesses.
Canada will assume the G7 presidency in 2025, and we were discussing these very themes. I’d like to see the digital economy geared more towards SMEs; in the future, we need to focus these tools on SMEs, which represent 98% of the Canadian economy. It’s all very well for large companies to adopt artificial intelligence, but if we want to reap the real benefits of artificial intelligence… If you’d been with me over the weekend, you’d have seen that people are looking at us and saying that Canada subscribes to this; it will be part of our 2025 proposal when we take over the presidency. We want to promote the adoption of these tools by SMEs to increase productivity in this country.
Senator Bellemare: Thank you, Minister.
[English]
Senator Petten: Minister, thank you for being here today.
My question has to do with penalties. Patrick Leblond, Associate Professor of the University of Ottawa’s Graduate School of Public and International Affairs said:
. . . In the bill, there is a maximum monetary penalty of $500,000. Otherwise, it could also, in some cases, lead to a penalty of up to $25,000 per year.
I must admit that it seems small to me. It may look like a lot, but overall, when talking about businesses or millionaire or billionaire investors, $500,000 is a drop in the bucket. . . .
Are the monetary penalties in Bill C-34 really going to be a sufficient deterrent?
Because I may not get a chance for my supplementary, I’m going to ask another question. Minister, Bill C-27 — the Digital Charter Implementation Act — had much higher penalties. Why not mirror those penalties in this legislation?
Mr. Champagne: Senator, I’m happy you asked me that question. It allows me to clarify the record. There might have been some misunderstandings.
There are two sets. First, for contravention, it’s $25,000 per day per contravention. For a violation — for example, a failure to notify — it’s $500,000 or the greater of what could be put in regulation. You see where I’m going with that. The regulation can impose a far higher threshold, and it’s the greater of the two. So it’s not $500,000. It’s $500,000 or something else that could be put in legislation and would be the greater. You should see the $500,000 as the floor, not as the ceiling.
We did it this way — to your point — because the last time Parliament amended the legislation was 15 years ago. So we want to remain current with whatever threshold we need to be at. With that, we’re always informed with best practice with our G7 partners and Five Eyes partners to make sure that — as you said, I’m very much one who believes in laws but also enforcement. It’s great to have laws on the books, but we also need enforcement mechanisms and to have real power. I can tell you that as Minister of Industry, when it came to telecom, some of the actions you have seen are because we have real power to cause things to happen.
You should read that this way. There might have been a misunderstanding. I understood from the officials that it might have been a misunderstanding. Let’s be clear for the record. It’s $500,000 or the greater of what would be put in regulation.
The Chair: Thank you very much for that.
[Translation]
Senator Massicotte: Thank you, Minister, for joining us again. I have two questions. There’s a worldwide trend opposing free trade; everyone is quite fearful, and many companies are isolating themselves and have their own battlegrounds. How can we deal with this? It’s not a positive trend. We really must resist this trend, but it is popular among all our major partners.
My other comment relates to the draconian, negative testimony we’ve heard about all the possible risks, with witnesses perceiving significant risks as a result. These are highly exaggerated in my opinion, but I’d like to hear your comments on that.
Mr. Champagne: Thank you for the question; it’s an interesting one.
I spent a week in the U.S. before attending the G7, and I can tell you that the major issues I heard raised by CEOs, various speakers, U.S. senators, some state governors I met, my G7 colleagues… You know, supply chain resilience has become critical. We’re seeing a realignment; global chains are now regional, and there’s a great deal of emphasis on resilience.
It shows why Canada is in such demand around the world. Take critical minerals, for instance, which are essential for semiconductors and batteries, though the same is true in biomanufacturing. When we look at supply chains in strategic areas like electric vehicles, obviously, what we’re doing with our G7 colleagues… I agree with you: we need to harmonize. We’re all well aware that we won’t be able to produce all the goods we need in our respective countries, of course. However, I would say that there is a trend towards aligning supply chains with values. We’re seeing that countries like Canada — which are stable and predictable, and governed by rules on the environment, labour law, and the rule of law — are the ones that attract investment. That’s no accident.
Here’s a concrete example: I met with the governor of South Carolina, which has a BMW plant. I said to him: “Governor, do you realize that your South Carolina plant relies on the Rio Tinto smelter in Saguenay? All the green aluminum used in your plant comes from Quebec.”
So, Senator, I try to discuss such strategic issues, but I think we need a long conversation within the G7 and even beyond — I see the Chair looking at me, because I could go on and on about this — to see how we can better align our supply chains to achieve greater resilience and avoid what we experienced during the COVID crisis or when several industries ran out of semiconductors.
Senator Massicotte: Are the negative, frightening stories relevant or serious?
Mr. Champagne: There are vulnerabilities, and I think Canada… We’ve been strategic, because we’ve strategically integrated into supply chains.
Here’s an example: 80% of all semiconductors produced in North America are assembled and tested in Bromont, Quebec. Eighty percent of all semiconductors. Do you see what I mean? President Biden said so himself when he addressed the House of Commons.
What we’ve achieved in terms of biomanufacturing is that Moderna has set up shop here. We’re in the process of building chains like that one. I mentioned the Bromont-Albany corridor, for instance, to echo what we’ve done with the Detroit-Windsor corridor. That’s one of the world’s most thriving economic corridors. What I’m trying to develop are corridors of this kind with our strategic partners, to increase our resilience and reduce our dependence on markets under authoritarian regimes that present significant risks. That’s why Canada stands out in an industry like this. That’s why we’re seeing so much investment in our country.
Senator Massicotte: Thank you.
[English]
Senator Yussuff: Thank you, minister. One of the issues that came up here in the committee with a number of witnesses is in regard to transparency when a decision is made. As you know, Canadians recognize that national security issues are top of mind lately.
We have more adversaries who are attacking the values of what we stand for. When we are reviewing foreign investment in the context of Canada’s long-term interests and strategic and political interests in the world, Canadians want to know more about when we make a decision not to allow foreign investment. Why is there so little transparency in what the public is able to find out when a decision is made and why the decision is made? This will strengthen the country and give citizens more confidence that the government is protecting vital investments and, equally, we are encouraging investments at the same time.
Can you speak to that? How can we make this more supportive for our country in regard to this legislation?
Mr. Champagne: Thank you, senator. I think I have been the most transparent Minister of Industry because we have even disclosed things that were not disclosed before in terms of announcing decisions, which, as you may recall, some of them were not announced. I have been forthcoming. Think about the potential takeover of Canadian mines by Chinese interests that I said no to. Historically, those were not made public.
We need to strike the right balance. You said it well. It’s national security and you want transparency. In the annual report, we publicize information on the source of the investment, the sector and the result of the investigation. I believe in transparency. I think that the regime that we’re proposing now — also, with two committees that can review the activities of the minister, you have additional checks and balances in the system. I heard that from senators who were saying that we trust you but we need to make sure this law will provide the outcome we want.
What we have been focusing on is making sure you have the best process possible because the speed of these things matter. Based on my experience, we go more in extended review than before. These things are complex. When people are trying to enter the Canadian economy and they have non-legitimate interests, they are not usually forthcoming, so the type of investigation, the type of intelligence you need to gather, the collaboration you need from other agencies. Some of these investors — most of them — by definition are foreign investors so they have different shareholders. When you try to find all that information, it takes a lot of time and we need to rely on sources sometimes that come from our Five Eyes partners and beyond.
I go back to the forest as opposed to the tree. You need an overview of these things, but at the same time, I believe the annual report is providing that. With the two committees — the National Security and Intelligence Committee of Parliamentarians, or NSICOP, in particular — parliamentarians will be able to review what we do, how we do it and make sure there are safeguards in the system.
The Chair: Thank you for that.
[Translation]
Senator Carignan: Minister, I know you well. I know you pay attention to the work done by senators and that you consider their importance in the legislative process. However, I have a practice when I’m the critic for a bill: my team automatically sends a request for access to the Minister’s briefing notes and to the questions and answers prepared for him, so that we can prepare properly and identify potential issues. We did so in your case. The response I received was that it would take 660 days to send them to me. I was disappointed. Since your notes are now in front of you, would it be possible to obtain them more quickly and have a colleague make a copy?
Mr. Champagne: First of all, Senator, I know you well too and have enormous respect for you. Such delays are unacceptable; you’re right. I can tell you that my notes are rather concise. The rest you see is often legislation. Believe me: these officials know me and, for all these years, I’ve known my files and potentially the answers to questions, so my notes are quite brief.
Senator Carignan: That’s why I was surprised that it would take 660 days to send me your notes.
Mr. Champagne: It’s probably because there are a lot of my own handwritten notes; you can see those. I would say that, fundamentally, this is unacceptable. We can try to give you access to the information you need, and I will ask officials. Honestly, I can tell you that the process was truly non-partisan; consent was unanimous at all stages and in the House. We’re defending our national interest and economic security.
Senator Carignan: You’ll understand that, coming from the Minister of Innovation, it seemed funny to need 660 days to send briefing notes.
Mr. Champagne: We can do better, Senator. Duly noted.
Senator Carignan: I assume we’ll receive them soon.
Mr. Champagne: Yes, we’ll arrange to get those to you. In any case, my testimony is entirely in line with…
Senator Carignan: It corresponds to your notes.
Mr. Champagne: In a way, I think my notes correspond to my testimony; it’s more the other way around.
Senator Carignan: I’m somewhat concerned about how the law can be circumvented. You know, these are people with malicious intentions, and they will examine the legislation. We talk about foreign investors, but what happens if a foreigner simply incorporates, invests an amount of money in a shell company, then a few months or years later, acquires the company?
You run the risk of losing control; I’m referring to iTerra, an authorized subsidiary that suddenly starts buying technical components that are more dangerous. What do you plan to do in those situations?
Mr. Champagne: That’s why I’m suggesting that both Senators and MPs review this law periodically. This is too important to wait 15 years for the right tools. We need to work with our G7 and Five Eyes partners to make sure we always do. In fact, the new committee being proposed to the G7 could make that possible.
Senator Carignan: Thank you.
[English]
Senator Marshall: I understand what you are trying to do in the legislation, but you have to attract investments in order to apply the amendments you are proposing. When you responded to Senator Bellemare, you talked about all the investments that came in a certain period last year. But the outflows in the same period exceeded the inflows, and your government is known as being anti-business. You have this cloud over you.
How will you attract foreign investment and how will you attract investment within Canada given the situation? Right now, the data is showing that we’re not doing very well. You’re going to need to encourage investment so that you can apply the new amendments.
Mr. Champagne: I would say, senator, let me give you two examples. BHP in the Jansen potash project. Phase one was the largest investment in 120 years of BHP; phase 2 was the second largest in BHP’s history. If you talk to Mike Henry, the CEO of BHP, BHP invested $21.1 billion in Saskatchewan. I know because I presented to the board, all of whom are Americans. Talk to Jim Fitterling, the CEO of Dow Chemical — the largest investment in Dow’s history, a U.S. company, has been made in Fort Saskatchewan in Alberta. When you talk to global CEOs, senator, you see that they have a different perspective because when they have a choice — talk to Mike Henry of BHP; talk to Dow Chemical; talk to the CEO of Rio Tinto — they have all chosen Canada as opposed to other jurisdictions.
The Chair: I want to stay focused on our legislation.
Senator Marshall: The investment is still down, so isolated cases don’t show the complete picture.
Mr. Champagne: They are pretty good. We should celebrate sometimes as Canadians.
Senator Galvez: Sometimes we learn better with examples, so I am looking at the value of data in our relations with the new powers on transparency and national security. I think of the two examples of Ontario and Quebec trying to sell medical data. Can you just explain to me the mechanism by which these amendments are going to improve the situation in terms of transparency and security?
Mr. Champagne: Foreign investment, obviously, when it comes to sensitive areas there will be pre-notification. As you know, today, there is no requirement. There is a voluntary process which I have put a guideline saying that if you are going to invest in sensitive areas, including personal data, for example, currently — before senators will hopefully vote on this bill — there is a voluntary pre-notification. What would protect what you are saying, for example, which is very key, is the interim undertakings. Today, under the regime, someone can file after the transaction has been done, but all the data in the IP — even if I were to say, “No” — that could have been siphoned to the other company. As the senator was saying before, it’s almost like you want to do the right thing, but you don’t achieve the right outcome.
Today, I would say that we want to have a pre-notification requirement in sensitive areas. I can impose, for example, interim undertakings, so if people want to buy a quantum company, before they have access to anything, I can say, “Hold on, you will not come close to the premises until we have finalized our national security review.” If we decide so, we can then move the interim undertaking to a permanent one. I would say that the regime is providing far more than what we have today.
[Translation]
Senator Gignac: Minister, as you said, the other place heard from several witnesses, as did we. One of the witnesses mentioned that this bill doesn’t go far enough. In fact, it was put to us that perhaps some countries should be banned outright; Iran, China and Russia were mentioned.
What would you say to that? What would be the impact of going so far as to ban countries whose intentions are at times less than legitimate? How would you respond?
Mr. Champagne: In a case like that, we have all the tools we need. The legislation is agnostic as far as countries are concerned, but I think we need to be extremely vigilant. You saw this when I recently issued a directive on critical minerals and digital media. We’re taking all the necessary measures, and I can tell you that our G7 colleagues are observing us and saying that Canada is leading the way and that what we’ve done is remarkable.
The best way to protect ourselves against this is to have the right tools. It’s already much more than what we have. The last time we proposed amendments to the law was 15 years ago. We should review this legislation on a more regular basis — even with a Senate committee — and ask ourselves, every 5 or 10 years, whether we really have the tools we need. Technology evolves quickly, and so do foreign actors who may have harmful intentions towards Canada. There’s a fast-moving geopolitical context right now. Rather than including it in the legislation, we need vigilance and tools. That’s what we’re doing now, and that’s what will enable us to defend Canada’s economic interests.
Senator Gignac: The idea would be to review the law periodically to take stock every three or five years? Would you be open to that idea?
Mr. Champagne: It’s a good idea to ask questions periodically. This law has served us well for 15 years, and things are changing quickly. If the working group proposed at the G7 comes to fruition, it would be a good thing, because we’d really get the big picture with our colleagues.
One thing has always worried me: when we carry out these analyses, they are one-offs and focus on a particular transaction. When I decided to create new rules for digital media, it was because I could already see a trend emerging. I said: “Wait a minute: individually, it might not be worrying, but if you take 10 of them together… There are 10 in Germany, 5 in the U.S., 3 in Japan and 7 in Italy, so you start to see things that you need to be aware of and guard against, to the extent that you have the right tools.” I think that’s what we need. The tools will help us a great deal. Just look at our provisional commitments: today, we were able to make them contractually, but I don’t have the legal power to impose them as minister. We need these tools to protect intellectual property.
Senator Gignac: Thank you.
[English]
The Chair: I know, minister, that you have to go, so if there are any final comments you have, and I will ask Mr. Schaan to do the same or perhaps he can stay longer.
Mr. Champagne: Madam Chair, first of all, I want to say thank you to all the senators for the feedback. I think this is how it should be, in my view, Madam Chair: a discussion. We are all trying to do what is right for Canadians.
[Translation]
I believe this bill will give us tools. What I can tell you, as a minister who had to apply this law over the past few years, is that these tools will help us enormously in protecting the country’s economic security. Today, economic security is national security. These tools will give us what we need to continue to defend the country’s interests. I thank the Senators for the opportunity to be here today.
[English]
The Chair: Thank you very much, minister. Mr. Schaan, is there anything heard today in terms of the questions you want to clarify?
Mark Schaan, Senior Assistant Deputy Minister, Strategic Innovation Policy Sector, Department of Industry, Innovation, Science and Economic Development Canada: I have nothing to clarify. I think we have the right answers on the record.
The Chair: Okay, that’s wonderful. Thank you, both, and I appreciate your time today. Thank you, minister.
Senator Galvez: Can I respectfully inquire about when are we taking the study of Bill S-243?
The Chair: We’re actually in the middle of a meeting here, so we’re going to come back to that discussion. Thank you, minister, very much.
I know that was a rushed session. We were told the minister had one hour, so we tried our best to do that.
For our second panel today, we welcome back Dan Ciuriak, Senior Fellow, Centre for International Governance Innovation. Our apologies for the times that we have had to reschedule you because of what goes on in the Senate Chamber itself. Thanks for joining us today.
We’ll let you begin with your opening remarks. You’ve heard the minister and some of the questions, and that’s what we will question you on in just a moment. Please go ahead.
Dan Ciuriak, Senior Fellow, Centre for International Governance Innovation, as an individual: Thank you, Madam Chair. Yes, the minister is a tough act to follow, so please bear with me.
The minister mentioned defending Canada’s interests and he mentioned having the tools to do so. What I’d like to focus on at the beginning is just to review how our interests have changed. There’s a saying that a country has no permanent friends but only permanent interests. However, in the changing technological environment we have faced for the last 40 or 50 years, our interests have changed dramatically over that time.
If we were to go back to the first substantiation of the Investment Canada Act, it was 1973, which responded to what? It responded to a branch plant economy that they scale problems. Those branch plants had no export mandates oftentimes and they had no innovation mandates. We had just opened up the capital account, and we were liberalizing capital accounts and foreign investment was really starting. You can understand why there was a concern about losing the head offices we still had in Canada at the time.
If you fast forward to 1985, the world had changed completely. Technological change including containerization, including the Boeing 747 wide-body jet with a cargo hold for just-in-time delivery. You had RFID technology, and above all, the release of the IBM personal computer in 1981, which enabled supply chain management. The term “supply chain management” was coined in 1982 and the book The Global Factory was written in 1985 — that is, of course, the year of the Investment Canada Act.
We revised the act to adjust to a world where participation in global value chains was critical and in which you had to capture innovation mandates for supply chain, not as part of a finished product.
We now fast forward through the knowledge-based economy which flourished from about 1980 through to the great financial crisis. We did well for a while and we had a thriving tech sector in 2000 — 40% of the Toronto Stock Exchange — but that collapsed over the coming years. We lost our crown jewels Nortel and BlackBerry, and we sold off those patent portfolios.
Now, at that time, the term “freedom to operate” was not on everyone’s lips. Yet we know now that when you sell off your patent portfolios, you’re selling off freedom to operate to foreign companies and you are denying that freedom to operate for your own companies. We were creating negative space for Canadian entrepreneurs at that time.
This was the dawn of the mobile era of data, and we had just lost the companies that were geared to actually enable us to prosper.
In the data-driven economy, things changed completely. It was a world in which the term “unicorn” was coined. These were private companies with billion-dollar valuations, and it’s a completely different world from the world we were contemplating previously. We did not adjust to that either.
Now we’re in the world of artificial intelligence. You will have seen recently in the news that DarwinAI, a Canadian start‑up headed by the Canada research chair in artificial intelligence, was sold off to Apple for probably a few million dollars. They are now all employees of Apple. This was one of the companies in — well, we don’t know how critical, but it certainly was of interest to Apple. It’s the kind of company we need to have in Canada.
If we’re pressed for time, I would end my remarks there and take questions. Simply to say that our interests have changed continuously. As an industrial policy issue, we need to reflect those changes and we haven’t. I will leave it at that.
The Chair: Thank you very much. We are very pressed for time today as everyone knows, so I’m going to be very tough on timing. One question, one answer, and I really want to keep our focus on the legislation. This is our last chance to really look at the legislation, so if I can ask you all to do that. Thank you.
Senator Loffreda: Thank you, Mr. Ciuriak, for being with us. Are you concerned with the scope of the Investment Canada Act? When I refer to the scope, the scope with respect to the acquisition of that and through the use of artificial intelligence and the potential national security risks associated with the collection of that data. We are headed towards a digital economy.
Mr. Ciuriak: Yes, absolutely concerned about the scope of the act, but I would emphasize the fact that the act limits itself to companies that have an investment in Canada, a physical presence in Canada. Data is hoovered up globally. As part of our approach to national security, we have export controls, physical investment and a border with passports, but we don’t have a regime to control operations in Canada on a virtual basis.
The OECD/G20 Inclusive Framework now recognizes that for tax purposes, companies do operate in a country with no physical presence. Data is a massive part of that, and we have absolutely no control over that. That’s the scope part of the act or some other act which would be complementary to it, which I’m concerned about most.
Senator Loffreda: Thank you.
Senator C. Deacon: Great to see you again. Can you keep building on what you were just saying? Because I think it’s a concern around this table — you saw that in our report in June — that we’re not doing enough to protect and monetize Canadian data for the benefit of Canadians. We’re at the wrong end of a data vacuum.
What observation would you particularly make? Is there a specific amendment in the bill to at least alert us to this being a crucial issue?
Mr. Ciuriak: Sure. There’s the national security aspect to the Investment Canada Act, and there’s the industrial policy aspect. Senator Deacon is commenting on the second.
The problem with data is that we do not have a proper evaluation scheme. Statistics Canada and other national statistical agencies are trying to work up the value for it on the basis of the cost to acquire. But we know from the valuation of companies that 90% of the value — for example, of the S&P 500 — are intangibles. Those intangibles are primarily in the form of economic rent. It’s not how much you pay to generate it; it’s the value you capture over and above the cost of creating the data.
We’re valuing the data on a minimalist basis, and we should be focused on economic rent. That is the industrial policy element that I think is missing from our overall approach.
Scaling is oftentimes mentioned in Canada. Data scales immensely. If we don’t have data-rich companies, we will not be seeing the scaling. Also, if you think about the three problems we have — innovation, productivity and scaling — they’re all one and the same problem. Innovation happens inside the firm. Productivity happens inside the firm. They’re both a function of scaling. In the intangible economy, it is all about scaling and it is all, therefore, about monetizing these data assets.
I would simply then add a final point. When Uber had its IPO, it raised $40 billion in Canadian-dollar terms for research and development while we as a country spent $2 billion a year for superclusters in total. One company. This is a scale problem of investment. If we were to float, say, a $300-billion Canadian investment bond to then invest in scaling up companies, we would just put ourselves up to the area where Korea and Israel are as a per cent of GDP. That’s the scale difference in the amount of funding that’s required in this economy. It’s very expensive, and we will either step up to the plate and be part of it or we will be sidelined. Right now, all the statistics say we are being sidelined, Minister Champagne’s optimism notwithstanding.
Senator Marshall: That leads into my question. When you are talking about the history, it sounds really complex. The Investment Canada Act is complex. The amendments are complex. The way some of the amendments were put in — I think the industry committee made 13 amendments. Then the department had so many. Then there were two amendments at report stage. We don’t have the regulations yet. To me, it seems like it’s all done in a very haphazard manner.
Are these good amendments? You referred to the minister’s optimism, and I agree with you on that. Is this good legislation that we’re putting forward here now? Or do you think it’s dated already and we could have done better?
Mr. Ciuriak: I’d say, first of all, that so much has been left to regulations, which remain to be developed, that, yes, we are still not really ahead of the curve in this area. I would emphasize the fact that if you think about the way we are valuing data, even statistically, formally, on a cost basis, that says to me that we are also behind the curve in that area.
If you think about the overall industrial policy that we have in terms of our superclusters, which is a complementary policy to the Investment Canada Act, our procurement policies — which oftentimes actually give out large contracts to foreign companies rather than to try to establish a growth company in Canada to develop those skills the way the U.S. does, say, with the Defense Advanced Research Projects Agency, or DARPA — I would say we’re behind the curve on that as well.
It’s part of a much broader problem of structuring our industrial policy. Of course, the modern economy of artificial intelligence is brand new. There are so many unknowns. Even right now, we have gone through the really big hype phase on ChatGPT, and we’re entering somewhat of a pullback. We really don’t know exactly where the investments will be, but we did lose, as I mentioned, a rather attractive Canadian company to Apple. That’s one other brick in the wall that is missing for us going forward.
Senator Marshall: I like your term “overly optimistic.” Thank you.
Senator Bellemare: My question is about the industrial policy aspect of the bill. In the United States, their approach to screening foreign investment is with a committee. Here, we have an approach with the department, with the minister and the cabinet.
What are the advantages of having a committee? If we had an approach by a committee structure, do you think it would be easier to adapt to all the changes that we have in the economy?
Mr. Ciuriak: I’m not a machinery-of-government expert. My observation on the U.S. approach is that the main factor behind the Committee on Foreign Investment in the United States, or CFIUS, for the last 10 or 15 years has been review of Chinese investment, and it’s been a geopolitical competition to dominate the modern technologies.
The Australian Strategic Policy Institute, or ASPI, is an Australian think tank. They recently wrote that China dominates most of the interesting modern technologies in terms of the number of think tanks and research institutes which populate that.
The containment policy through CFIUS hasn’t necessarily worked, so I would not necessarily aim to follow the American example on that.
Probably, a whole-of-government approach is required to frame Canadian industrial policy, including the investment review, so that we understand where our interests lie. Minister Champagne mentioned defending our interests. We didn’t understand our interests when we were selling off our patent portfolios. The question is, do we understand our interests in the start-up economy of data in AI? If we don’t understand those interests, how are we going to actually defend them?
That would be my concern. Whether you do this through a department, through an economic council — as has been recommended to this committee — or whether you do it through a new CFIUS type of agency, that’s beyond my pay grade, I’m afraid.
The Chair: Thank you for those comments.
Senator Yussuff: Thank you, Mr. Ciuriak, for being here and for putting this in the context of the evolution of the industrial economy to where we’re at today.
Given the legislation before us right now, I’m going to ask you to be very succinct. At least in what you’ve said so far, what could be of more value to this legislation is what comes in regulations. But we don’t know what that is right now.
If you were to make one observation that we could use in terms of our work and our recommendations to the department and the minister, what would you suggest? I am asking specifically in regard to the regulations. What would be helpful to monetize data and to see this as a new frontier? How do we need to look at the new industrial economy in the context of this bill?
Mr. Ciuriak: If I were to make one single recommendation, it would be that we should look at the connectedness of Canadian technology companies within the ecosystem of the Canadian economy. By connectedness, I mean the following. If you think about where innovation comes from, you join two different dots. The word “philosophy” comes from the Latin words philo and sophia which means love of knowledge. That’s how new things happen. Alexander Graham Bell was an ear doctor, and he tinkered with electronics. When he joined the two things, he created the telephone.
Start-ups in AI or data are doing very interesting things. When you connect them, that’s when you create new companies and new products.
What matters to this modern economy is the connectedness of companies. A company that is deeply connected to Canada’s innovation system, if it’s acquired and exfiltrated — like DarwinAI — that creates a big hole in our future innovation potential. That is an interest that goes beyond the private interests of the company that is selling itself to Apple or to whoever. That is a national interest, and that is therefore a rationale for the government to intervene. In which way should it intervene? That is a question for government policy to determine. However, in terms of protecting our interests, the country’s interest starts where private interest stops. Those activities have a public interest aspect to them that we are, at the moment, not actually explicitly taking into account in the way we are framing the legislation.
The Chair: That’s actually very helpful. Thank you very much.
Senator Galvez: Recently, I was at a conference on the knowledge economy, and they were talking about how in developed countries, there is an aging population and we have tons of medical data. This data has enormous economic value.
I asked the minister this. Let’s say somebody wants to invest in this valuable medical data, but we don’t know what they’re going to do with our medical data. He said that he could stop them and take time to pass it through a security. Who is asking the questions? What type of questions are being asked in order to, as you said, connect transparency and security with economic development?
The Chair: Just try to put that answer in the context of the bill, if you can.
Mr. Ciuriak: That is a brilliant question. You can set up a committee or a process to review, but you also have to know what questions to ask. When you are dealing with something in an innovation economy where the innovation has yet to come out, how do you know? How can you estimate the potential value?
We know that companies are bought for the value of their data in the market. You’ll have an acquisition that the press calls a “data play.” One company sees that potential and buys another company for it. So how does the Government of Canada anticipate the value of these data? Most companies in Canada are trying to figure out exactly what the value of their data is. They themselves don’t know. How is the government to tell?
So, yes, we face a very steep hill to climb in terms of understanding this economy. That’s where one of the recommendations — which I have supported — for a new economic council that would actually actively be trying to get on top of these kinds of questions and understanding what questions even to ask would be very helpful to us.
Senator Massicotte: Thank you for being with us today. We’ve heard a lot of stories about disaster — very negative — whereby they even recommend you can take four countries off the planet because we should not deal with them at all. Do you share that concern? Or do you say we can manage it and that it’s a question of balance? What is your perspective on that?
Mr. Ciuriak: The country we have to focus on is China. China started as a knowledge-based economy in about 2010. It became the world’s leading patentor around 2013 to 2014. Around 2016, its international receipts for intellectual property turned up. They were flatlining, and they went up at about a 45% compound annual growth rate per annum. They passed Canada a few years ago, and they are now at least twice what we have in terms of earnings on intellectual property, and they’re growing like that. As ASPI reports, they dominate many of the critical technologies.
When we put up barriers to Chinese investment in Canada, we are also putting up barriers to our connection to the Chinese innovation ecosystem, which is huge. China mints most of the science, technology, engineering and math, or STEM, talent in the world.
There was a math competition — “mathletes” from the U.K., the U.S. and China. The Chinese team won, and their bragging point was that all the members of the Oxford and Harvard teams were Chinese. They said our Chinese beat their Chinese. The point is that they are investing heavily and doing so successfully. They are patenting and participating in standard-setting bodies and ensuring that they are capturing standards-essential patents, which are critical to international earnings and to the freedom to operate for their companies, denying it to others, including ourselves.
I guess the line I would use is one that the British used to use about the continent. They would say that there’s fog over the channel — a continent cut off. The question is this: If we put up a barrier to China, then who’s cutting off whom? The discontinuing policy has not worked. As you well know, they were blocked out of the International Space Station. They built their own. Their space program went to Mars and has brought stuff back.
All I’m saying is that we need to think about where the world is going beyond the current geopolitical tensions. China is not going to go away, and it will be a major player in this intellectual property, data and artificial intelligence economy.
Senator Massicotte: So what do we do?
Mr. Ciuriak: I think you have to try to maintain your lines of communication and keep them and your ways to participate with that economy open. You have to try to change the narrative on China to reflect that. It’s a very tall order because the narrative has become so poisonous.
Of course, with the various policies that have worked to try to contain China, what did those policies do? They caused China to turn to — the Indo-Pacific is kind of a maritime policy to potentially interdict their access to energy and oil from the Middle East. They went west. What lies west of China? Tehran and Moscow — energy suppliers. That has led to the “no limits” pact between Xi Jinping and Vladimir Putin. It has led to a 25‑year pact with Tehran over energy supply — and others. As well, not perhaps coincidentally, we have war in Europe and war in the Middle East. In terms of the containment policy even at the geopolitical level, it has not worked out. It certainly has not worked out technologically. We need to change things somehow.
If I had to end my comments on one thing, I would say there was a moment in history when the U.S. President went to China. That was Richard Milhous Nixon in 1971. The result of that was to pin the Soviet Union in terms of geopolitics. It led to the American win in the Cold War and American unipolar action. So going to Beijing worked for the Americans back then. It’s radical to think about that right now, but where we are right now is actually possibly the worst of all worlds.
The Chair: Could I get a quick comment before going to Senator Gignac, who is the sponsor here. The testimony from you at an earlier point and from Mr. Balsillie has to do with the focus of this legislation, which is designed around digital economy 2.0. As we sit here tonight, we are already at 4.0 or 5.0.
So whether you have ministers, cabinets or a council of some description responding to this, what would you see as the most quick turnaround structure that you could have where people could bring new information to the table and say, “Look, we approved that takeover six months ago but the circumstances have changed”? Realistically, how could we manage that kind of quick change?
Mr. Ciuriak: I would go back to the connectedness point, Madam Chair. The question is: How do these companies fit together? For example, I understand that Ontario has something like 50 internet security firms. They’re all small. I certainly don’t know who they are, but Ontario should be talking to those firms and seeing how they fit together and seeing whether or not that group of companies can somehow create something that’s large.
This is an industrial policy that medi in Japan championed. It is an industrial policy which China is certainly pushing, if you think about the consolidation of their auto industry from 2,500 firms a decade ago into a handful of global competitors. So it’s partly knowing your ecosystem of firms.
The Chair: But in terms of a structure, you’re saying federal governments have to consult with provincial governments, and they have to feed in. That’s a different structure than a third party council or cabinet itself.
Mr. Ciuriak: Yes, you have to know your firm population and how they fit together. You have to talk to them, and you have to have people who are fully cognizant of the technologies at play and can connect the dots and say, well, this company works with this company, or, these are the sets of technologies that fit together where you have convergence of technologies to create new things. We went from, for example, an automobile industry and a rental car industry into a transportation industry. This is the kind of rapid technological change that is transforming the landscape, and we need to have people who understand that, are talking to our firms and forming those connectedness maps.
Senator Gignac: Thank you for your testimony. I remember your testimony about innovation with the smile curve — better to be at the top of each than at the bottom like Canada industrially — I remember that one, very useful.
Now, we are different. We talk about foreign investment. I am surprised by what you have mentioned about China because it’s probably the opposite of my own thinking. In fact, I remember in Germany people suggesting shutting down the nuclear plant and do business with Russia on natural gas, and whoops, suddenly you screw up, so you are a hostage.
My point is on China. Is it a little bit naive to believe that the world has not changed? We shift from globalization to fragmentation, “friendshoring” and our biggest partner is the U.S. so we have to harmonize with U.S. policy. I noticed recently that even the Chinese electric car could be prohibited in the U.S. because it is a tool — it’s a Trojan horse — according to Americans because of face recognition and a lot of things. Could you go back to what you have mentioned? I thought it’s wrong to prohibit an investment from China, but maybe I have not understood correctly. My English is not as good. Thanks.
Mr. Ciuriak: First of all, on the deglobalization and fragmentation point, globalization was driven by firms that outsourced and then offshored their production. The global integration at the firm level was fragmentation. There is no evidence, right now, that firms are moving from this distributive production framework to restore a vertically integrated production system. In other words, we’re not seeing deglobalization. If there is a statistic which is showing a flattening of trade, it is being driven by other factors than by deglobalization.
The first point I would emphasize is that we will continue to be in a world which features these deeply integrated value chains, including within China because it is a major part of the system. If you think about the chip manufacturers, they include TSMC, which produces the chips; ASML, a Dutch company that produces the lithography; Arm, a British company that produces the design. American companies dominate electronic design automation — EDA — tools, and China dominates packaging, which is assembly. This ecosystem is not going to change very much because there are only a handful of firms, and they can’t spread themselves thin across five different markets.
If there is an electric vehicle which is hoovering up and generating all kinds of data which is then accessible to, at the moment, a hostile foreign party, you probably can’t allow those in your country. It will be eliminated by the Americans through a ban, and, because we are part of their security zone, we will probably have to comply.
That’s not the end of the story. I believe there are hundreds of Canadian firms that have research operations going on in China in Shenzhen and elsewhere in Beijing. How do we navigate that world in a way that we don’t shut off our future contacts with China because it will not go away? Americans aren’t going away either. Our challenge is to straddle, and it’s not an easy one. It’s not a simple question of bar the door.
The Chair: We’re going to be wrestling with that question for quite some time. We really appreciate you coming in again, and our apologies for having rearranged your schedule so many times. It was helpful to hear your context on this tonight.
Our thanks to Dan Ciuriak, Senior Fellow at the Centre for International Governance Innovation, for your testimony and that of your colleagues throughout this process.
We will suspend and go into an in camera session.
(The committee continued in camera.)