Honourable senators, I’m pleased to speak at second reading on Bill C-34, An Act to amend the Investment Canada Act.

Let me start by thanking Senator Gignac for his speech in his capacity as sponsor of the bill and Senator Gold for his contribution to the debate.

This bill passed the House of Commons unanimously, which is both a signal of its importance to our colleagues in the other place as well as a red flag on the possibility of groupthink due to the emotive content of the bill. By this, I am referring to the fundamental purpose of the bill, which is to modernize the Investment Canada Act in terms of its national security provisions. The alternative title of the bill, after all, is the “National Security Review of Investments Modernization Act.”

In a world that is riven with deadly conflict and where geostrategic rivalry has seeped into all corners of society, the need for national security vigilance is great. It is fit and proper that we look afresh at sources of threats to the lives and livelihoods of Canadians, to our social fabric and to our standing in the world.

We should do so not for the sake of satisfying the primal instinct of magnifying external threats for political and other less edifying purposes, but to, in fact, improve our sense of security in all domains of our lives — that is to say, in the spaces around us as well as the spaces within us.

We should not be naive about security threats to Canada — threats that come from both the oversecuritization of Canadian society as well as inadequate protections against external threats. This is also true of the Investment Canada Act and this bill to modernize it. I support the national security provisions of the act and agree that we need to continually update our understanding of how to apply them for the protection of Canada and Canadians.

I published a paper a decade ago arguing that the best way to deal with the review of state-owned enterprise, or SOE, investment was not to single it out for special review but to subject it to national security scrutiny when needed. I also said in that paper that I was not arguing:

. . . for a more liberal use of the national security provision, which in some jurisdictions has been applied as a pretext for protectionism or as an excuse for jingoism. . . .

Herein lies my concern with Bill C-34. An appeal to national security is the last refuge of harmful economic nationalism and protectionism. We already see this kind of appeal in both like‑minded and non-like-minded jurisdictions around the world. Indeed, we were on the receiving end of an American national security challenge to our steel and aluminum exports during the Trump administration.

I would point out that the Biden administration has not only continued with this kind of national security action against certain countries but also rejected four World Trade Organization, or WTO, dispute settlement panels that clearly ruled against the United States. The same is happening in the People’s Republic of China and other big powers that are using their economic and political clout to do so.

We are not one of those big powers. Hence, it is both unrealistic and unwise for us to use national security as a way of gaining economic advantage. I am not saying that this bill tries to do that, but I worry that our new-found enthusiasm for national security in the screening of foreign investment could, in fact, disadvantage our economic prospects.

The context for my concern is that Canada is not universally seen as an attractive investment destination, and the Investment Canada Act, or ICA, is one of the reasons why we are lagging some of our peer group. The FDI Regulatory Restrictiveness Index of the Organisation for Economic Co-operation and Development, or OECD, in 2020 put Canada at the bottom of our G7 cohort. Based on an index of zero to one — with one being the most restrictive — Canada came in at the highest compared with Germany, the United Kingdom, France, Italy, Japan and the United States.

Looking more broadly across the OECD, Canada is fourth from the bottom in terms of investment regulatory restrictiveness out of 30 countries. This data, of course, does not capture the impact of changes proposed under Bill C-34, but I would be surprised if our ranking improves as a result of this bill.

It might help at this point to provide a brief review of investment screening in Canada, which started with the Foreign Investment Review Act of 1974. FIRA, as it was called, was enacted in response to nationalist sentiment amongst Canadians along with fears about the long-term negative repercussions of foreign ownership of Canadian industry. FIRA was in force between 1974 and 1985, and it reflected a skeptical — if not hostile — attitude toward foreign investment.

Under prime minister Brian Mulroney, FIRA was repealed and replaced by the Investment Canada Act. The ICA was also a mechanism to assess the merits of foreign investment for Canada. Unlike its predecessor, it was premised on foreign investment as a desirable policy objective. In keeping with this new emphasis, the overarching criterion for approval was changed from the concept of “significant benefit” to “net benefit” for Canada.

For its first 22 years, the ICA did not distinguish between state-owned and private enterprises. In 2007, however, a set of special guidelines was issued, focusing on the governance of state-owned enterprises and the extent to which they operate as commercial entities. These guidelines were not significantly tested until 2012, when two state-owned enterprises sought to make major acquisitions in the Canadian oil and gas sector. PETRONAS of Malaysia sought to acquire Progress Energy Resources Corp., and CNOOC Ltd. of China wanted to buy Nexen Inc.

Both deals were eventually approved, but not without controversy, and the go-ahead came with a set of new guidelines on the review of state-owned enterprises in general and state-owned enterprise investment in the oil sands more specifically. In fact, the government of the day issued a declaration following the PETRONAS and CNOOC deals that there would be no further SOE investment in the oil sands.

The 2012 decision was an inflection point in the way the Investment Canada Act is applied to state-owned enterprises. Since that time, restrictions on SOEs have increased, even as the role of state-owned enterprises, broadly defined, in industrialized and emerging economies has grown. Bill C-34 marks a further ratcheting up of restrictions on inbound investment from state‑owned enterprises, based, to my mind, on very little empirical evidence to support this bias.

Economists in general advocate for regulations that target undesirable behaviour rather than ownership, but the ICA seems to be going in the opposite direction. I would encourage the committee to which this bill is going for further study to take a close look at the case for singling out SOEs for special review beyond what is already an exhaustive net-benefit test.

Even if we are convinced of the need for tighter national security regulations for inbound investment, we should be conscious of the impact — that tighter rules in other countries could have on beneficial Canadian outward foreign direct investment, or FDI.

Canada, after all, is a net outward direct investor, which is reflective of our world-class companies growing up in a relatively small domestic market. The stock of Canadian direct investment abroad in 2022 was nearly $2 trillion, compared with a stock of inbound foreign direct investment in Canada of only $1.3 trillion. I hope the committee reviewing this bill will reflect on FDI as a matter of two-way flows rather than just thinking about the Investment Canada Act as a screening process for inbound investments.

There are a few other aspects of the bill that I hope the committee will probe. The first is the amendment that will allow for improved information sharing with international counterparts, especially to “address common national security threats.”

On the face of it, this amendment is sensible, but I would be more comfortable if the principle behind this amendment is to share information with international counterparts who exhibit best practices in their investment screening procedures rather than, for example, sharing information with counterparts in an echo chamber.

We should not be naive about the interests and motivations of some international counterparts who may not be aligned with Canada’s own interests. For example, a so-called like-minded country that is unable to accept a beneficial foreign investment in its jurisdiction for political reasons may be disinclined to provide information to Canada that will be favourable for the foreign entity.

On national security more specifically, the risk of taking our cues from other countries, including so-called like-minded partners, can be inimical to Canadian interests. Our neighbour to the south, for example, is taking an increasingly extreme view of what it considers to be a national security threat — the most recent example being the suggestion from a U.S. senator who believes that the import of garlic from China falls into that category.

Finally, I’ll share a word on the so-called transparency provisions of Bill C-34: Proposed section 25.7 will be added to introduce new provisions on closed material proceedings, which will allow the use of sensitive information in the judicial review of decisions. That is sensible, but it is a stretch to call this a transparency measure insofar as the public is concerned. I’m not actually calling for the public release of sensitive or confidential information, but there are, in fact, a number of genuine transparency measures that can be taken with respect to publishing the reasons for denying an investment application under all of the Investment Canada Act review categories.

The problem with the net benefit test is that it is so all‑encompassing that an investor cannot know how the individual items in that test will be weighted in the review of their application. A clear explanation by the Minister of Innovation, Science and Industry to explain the reasons for denying an investment will go a long way in improving the transparency of the Investment Canada Act, enhancing confidence in the regime and, I believe, making Canada a more attractive destination for foreign direct investment.

I have given a number of the questions that I hope will be addressed in committee. I support sending this bill to committee. I look forward to a detailed study of its provisions, and I will welcome it back at third reading for further debate. Thank you, colleagues.