In our seventh episode of the podcast, Phil Harwood, Partner at Longview Communications and Public Affairs, joins us to share his perspectives on important developments relating to the national security review provisions of the Investment Canada Act, including significant proposed amendments currently before Parliament.
In the fourth quarter of 2022, Canada’s federal government proposed significant amendments to the Investment Canada Act’s national security review powers, including mandatory pre-closing notification for some control and non-control level acquisitions, implemented a new critical minerals policy, ordered three Chinese companies to divest critical minerals investments and, departing from past practice, announced that it will publicly name parties subject to national security reviews in certain circumstances, all during a time of heightened tensions with China. In our seventh episode of the podcast, Phil Harwood, Partner at Longview Communications and Public Affairs, joins us to share his perspectives on these important developments.
00:00
Welcome to Counterfactual, the podcast brought to you by the Competition Law and Foreign Investment Review Section of the Canadian Bar Association. Counterfactual takes a fresh look at issues relevant to business competition and related areas of regulation, and explores the real and hypothetical worlds to gain practical insights and debate policy. Hope you enjoy the show.
00:29
Hello, and welcome to Counterfactual, the podcast produced by the Competition Law and Foreign Investment Review section of the Canadian Bar Association. My name is Ian Macdonald, and in this episode, I'll be speaking with Phil Harwood form Longview Communications about the ongoing evolution of the Investment Canada Act or ICA’s national security review powers, both in terms of their substance and in terms of how they are applied. Before we get started, a few words about our guest. Phil Harwood is an Ottawa based partner with Longview Communications. He helps lead Longview’s foreign investment practice, which specializes in navigating Investment Canada Act reviews, including national security reviews, and has advised clients on more than 30 reviews in the past four years. In addition to other high profile roles, Phil served from 2012 to 2015 as the policy advisor for fiscal and economic affairs to the Prime Minister, helping manage some of the most important priorities for the Government of Canada, including budget planning, tax policy, economic and industrial policy, telecom policy, government wide operations, foreign direct investment, and cybersecurity. During his time in the Prime Minister's Office, Phil was involved in a large number of Investment Canada processes and national security reviews, where he dealt with key players across the machinery of government.
02:14
Hello, and welcome to Counterfactual. We're so glad you could join us. Between the recent and significant changes the government has made and is in the process of making to the ICA and the way it will administer the ICA and the current state of geopolitics, including the relationship between Canada and China in particular, this is an extremely exciting time to be an Investment Canada Act practitioner. In fact, it seems that almost every day, there's something in the news that could potentially influence the government's approach to the administration of the Investment Canada Act in relation to Chinese investment in particular, be it surveillance balloons, the banning of Tik Tok on federal and now some provincial devices, or foreign interference in our elections to name just a few. In this regard, I almost feel a duty to know that today is March 10, 2023. In case important developments occur between now and when our listeners listen to this episode. Phil, as a preliminary matter, while many even most of our listeners will likely have a high degree of familiarity with the ICA and the NSR provisions, some may not. So could you please start with a brief overview of what the ICA is? And what the what is NSR powers involved?
03:33
Yeah, happy to and thank you again for having me. Joining us this morning. Hello to everybody who's listening. So so the Investment Canada Act, as, as many of you will know, very well, originally was intended as an economic tool. And so that the net benefit review which looks at economic factors had been the only thing that the act was focused on, I shouldn't say that there was cultural views, but primarily, it was an economic tool until 2009, when the national security review was added. And I think it's always important to go back to why it was added, which is that at the time, the government of the day did not want to try to twist an economic review into accomplishing national security objectives. That had happened in other jurisdictions and was viewed as not a best practice from public policy perspective. So the national security review, which was meant to look at those, those mergers and acquisitions or acquisitions of control or indirect control, as well as establishment of new businesses, was was instituted and it was a few years after that amendment that that it began to be put into use. So if you dealt with all at all with the national security review there is there's really three possible paths, you can you can have a green light to proceed with the new business or the acquisition. With no conditions, you can, you can be told no and have that block or a divestiture ordered if the if the transaction implodes, or it can be allowed to permit with conditions. So there may be mitigation measures that are put in place to address whatever the the government's national security concerns are. So those are really the three potential outcomes.
05:30
wondering if you could please give us a brief summary of the evolution of the use of the NSR powers from their inception in 2009, until the end of the third quarter of 2022.
05:42
Yeah, well, it's, it's very similar to when a large boulder started rolling downhill, start slowly, and then it picks up speed. And it seems like that the how the the national security review in particular is evolving, and not just in Canada, but globally. So as I mentioned, the first few years, the national security review, never really used and then it was launched into it's the public example of it being used in the early days. And in system, the internally, the government had to begin to work out how it was going to do this. So how do you how do you decide what you're going to review? What gets flagged for the various layers of screening? And ultimately, what goes to a full national spirit review? And then how do you decide internally? What kind of risk you can live with? versus what's the level of risk that you can, you can mitigate down to if you're going to say something can proceed. So there were some tweaks over the years in I believe, 2013, and 2014. In, in some omnibus budget legislation that was making adjustments to the act, and those were important, but not really warranting their own bills. So the ability, for example, for the Minister of Industry at the time to be able to communicate on if he or she has has approved something to go proceed, but has put conditions with the support of cabinet, then can the minister explain what those are. And I felt that that would be important to be able to say, that's just an example. There were some other we'll call them loopholes. At least that's how we viewed from a public policy perspective just to tighten up in the act. But it operated as black box, I think that's it still does operate as a black box, but it was at its most opaque during those early years. And there was a push, I think many of you will have lived there, there was a push to give more information from the government side to help people understand what transactions are going to be told absolutely not, versus what have a chance. And when there was a change in government that push continued in in 2016, I believe it was the now current government started to pay more. And so there were reports put out with some statistics, you could start to discern probably what was obvious the most about which countries were were the most concerning from a national security perspective. Then there were guidelines that were released. And those were intended to give some, some trajectory, some sense, some ability to stay Okay, well, these types of things would be of concern. That first version was very general, there were some things in the national national security guidelines, which would be almost all encompassing. So, you know, again, it was it was giving some guidance, but not a roadmap. And, and there has been evolution, obviously, on those that the government has given some more precision as to which industries are going to be a particular concern. And then, and then COVID happened. And I think one of the things that is important to note about COVID Is there was a lot. There were a lot of issues that were never really national security issues, but not least not as people thought about them. And a great example would be masks and gloves. Nobody really thought that there was the national security issue. Suddenly, everybody every country in the world was scrambling around trying to find these so that their healthcare systems didn't shut down. And it became a national security issue. And so new things bubbled to the surface. There were some concerns about opportunistic foreign investors coming in on distressed Canadian assets that otherwise have strong underlying value that just were facing the distress that happened. It was March April 2020. And so there were some guidelines released policies about enhanced scrutiny longer timeframes, which were really for the review to be conducted, which were really a function of the fact that the Government of Canada was shifting to remote work for those years and And then Russia invades Ukraine. And so obviously that gets built in explicitly, I think there probably wasn't necessarily a need for an explicit policy. But there's certainly no, no downside to communicating proactively, and now updated national security guidelines for adding more precision around state critical minerals, for example, have evolved for people to better understand what the government is thinking and, and then some significant amendments about the voluntary notice. regime that was brought in, I think, was last year and now C-34, which, which brings in some really important structural changes to how the national security review is going to be conducted once those passes.
10:48
Right. Thank you for that. Industry of the evolution, the fourth quarter of 2022 see multiple significant developments, including the critical minerals policy, three divestiture orders involving critical minerals, investments, and a new policy of naming names when a national security review concludes with a Cabinet order. And of course, the proposed amendments. Please tell us a little bit about each of these developments. Yeah,
11:17
okay. Well, those, there's probably a lot to say, about each of them. You know, where to start? Let's start with the critical minerals, policy. And I think, you know, it was no secret that the government cared about critical minerals, they had released their critical minerals list and statements about the importance of these things long before, but I think it was the just permission for the acquisition of Neo lithium was maybe sending mixed signals externally, and certainly garnered a lot of attention in Parliament, and put the Minister I think, on the defensive. So you can imagine then the internal push within the government to tighten up how they're going to approach these things. And if you're going to tighten these things up, then you're going to need to provide some more clarity, the divestiture orders, which, depending on where you're sitting, you might say they were no surprise, or they were very surprising. You know, I think some of the things to note about them is they were very small amounts. So in terms of quantum, it wasn't as though these were billion dollar transactions. And the location of the assets were we're not, in some cases, we're not on Canadian soil. So the stake, the percentages of of ownership are very low. And then, of course, the naming of names, and, and a declaration that we will continue to do this from the government perspective, anytime that there was a Cabinet order. And I think that, you know, everything was significant about those series of decisions. I think the decision to name names really does up the stakes. However, for proponents of these who are involved in these deals, because, you know, it's one thing if you're told, Okay, listen, we're not okay, we're not comfortable with EU foreign investor having a 5% stake or a 15% stake in this Canadian company. So exit, it's another thing to say and we're going to put out a press release saying that we don't like you, and I'm just putting these in really plain terms, but we don't like to you we think you're a national security risk and that's going to be available for the entire world to see. That's a that's a challenging, challenging prospect. If it's not managed carefully, and then the the amendments in currently before Parliament, those which I think came pretty run pretty close on the heels of all those other changes are really interesting, because they get at what in my personal opinion is one of the challenges with the national security review, that if you discussed with the investment review division and ultimately with the minister, potential mitigation on on a on a deal, or the establishment of a new business, it's not doesn't actually matter which one it is. And, you know, the investor feels okay, I can live with those and their signals that it sounds like the investment review division and hopefully the minister are comfortable with that and then the minister goes to cabinet and then suddenly a cabinet is not happy with it. Then all of that careful work and calibration can just be tossed out the window because it's now a blocking order or divestiture order. And that's a that's a difficult way to get around national security risk. To say, no the status quo forever, because anything else with too risky is challenging. So I think the some of the changes that are in that bill are going to are going to allow for a more fulsome discussion on mitigation through the process. And I think that's going to be really, it is going to be valuable in the sense that there's no point in having a discussion that feels like a negotiation, only just a deal of No, there was no chance because there's 30, odd numbered other cabinet ministers who only get 20 or 30 minutes, think about this file, and they're going to read a frightening security analysis, and then they're going to be told to make a decision. And of course, they're going to default to what feels safest. And which is makes it easy to say no. So I think, though, what's in C-34 will be really important in that regard. And the other thing to know on those with the sort of mandatory notification now, and that's, they're going to have to designate which sectors are going to be participating in this mandatory notification, I think that'll be really interesting to see which sectors they identify, and then what happens on that first, sort of a pre closing filing, and then you've got to, you've got to wait. And there can be these interim orders. And you can see the government is trying to take some of the perhaps best practices that they see in other jurisdictions and try to apply them now in Canada, to and out the act.
16:34
There's a lot to unpack there. So maybe let's, let's dig in. Yeah. Let's talk about mitigation in particular, I mean, in theory, it's one of the potential outcomes is the red light green light, yellow eyed example earlier, but in reality, it hasn't really been used that much to date. Do you think that the amendments, in particular will allow more deals to proceed on a condition basis as opposed to a binary? Yes, no outcome that we've seen earlier? Yeah,
17:09
I think so. And I don't think I'm being overly optimistic. It, it looks from the outside, like the purpose of these is really to get around the internal challenge that any minister who's in that role has. And and it is, as I mentioned, so if you can, you know, there's, by the time you get to a mitigation discussion, you're you're well into 100, plus days of back and forth, and you're answering questions that come from the government. And there are people involved in this. And obviously the with the interlocutors being the investment review division, we're going to have spent a significant amount of time, whether it's many, many hours or days at a time thinking about this file, and they're going to have looked at the concerns they're going to have considered them, we're going to look at the answers to questions and consider them. And then when you get to a mitigation discussion, then they're going to be thinking carefully about can these concerns really be mitigated by x, y, and z? When it goes to cabinet, these your you've got people around the table who, you know, and this isn't the, this isn't the dig on cabinet ministers who work very hard, but they all have different portfolios, and they have not spent hours and hours and days and days thinking about that particular file. So they're looking at the distillation of all of that work. But you know, if you're, if you're the sitting around that table, as a decision maker, you're going to be you're going to want and you're gonna expect that you're being given at least a full picture. So, you know, it's not going to suffice to say, just trust me, you know, ministers around the table, this thing could have been injurious to national security, but we're good with it now. Just agree to these six things, and it will be fine. Reasonable people would say, well, but hold on, what exactly were those national security concerns and let them practice so in these materials that they would receive it would articulate here the concerns and why and, and those can sound very disconcerting when you're reading them. And if you only get, as I mentioned before, you only get 20 minutes, 30 minutes to think about it. Or maybe laugh depending on what how the day is unfolding. You know, you're you're being asked to compress the amount of the timeframe for consideration that other people in in in ISED and, and other departments have had the we'll call it the luxury but I mean, they're incredibly busy, but at least they've had time to devote to this. So I think allowing the ministers Minister of innovation, Science and Industry and Public Safety to if they're the ones who are who are really digging in on all the information and the considerations It actually is not a terrible idea that they would be able to, in some cases, negotiate the undertakings that deal with national security concerns. Now, I expect there's still obviously the option for to take something to cabinet. And for various reasons, ministers may want to go back to cabinet because of the high profile nature of it. And maybe it's a really, really, really tough call, whether it can be, you don't want to be the one minister looking at a coin, making a judgment call somebody right, backing the cabinet, if it's going to be really tricky. But, you know, but at least if you're once these amendments are enforced, I think it'll allow IRD a little bit more freedom to be able to have conversations with the minister along the way, have a sense of whether this would get to a place where mitigation solves the concerns? And then and then if it does it, like if the if the mitigation measures viewed solve the concerns that they're gonna feel more confident that when they send this up for final sign off, that it's gonna get signed off, rather than, you know, again, it's a bit of a gamble, when you're going in front of 30 plus other people who haven't had that time to think about it. It makes a lot of sense.
21:22
Earlier, you refer to high level statistics on completed reviews. One country in particular stands out in those statistics. And the investors in the three divestiture orders and as of November, we're also from that country, do you typically advise clients that have ties to China, or another country that would generally be perceived by the Canadian government as non democratic, such as Russia, that they need to approach ICA national security risk differently than investors from other countries such as the US the UK or the EU?
21:57
To person differently? Actually, I say no, it's just some of the concerns. It's a little bit more obvious, perhaps, if the investors from I think the term that the Canadian government likes is a non like-minded country. So if they're from a non-likeminded country, then there's going to be sort of another layer, right? If you've got no, you know, if you look through the statistics, there's some countries on there that people might find surprising are some EU countries, there's some, you know, I think there's, there's one or two references to the UK, there's, you know, they're they're different. They're different countries that are not just China and Russia. So, you know, there, you have to be really thoughtful and careful about looking at potential investments or new businesses in the way that the security apparatus, the all the agencies that are concerned about security matters within the government of Canada, you have to think about what are they going to be thinking about? And so, you know, one of the things that's that's emerging in many practitioners will run into this is private equity. Right? So you can have a private equity firm based in London. Great, but is that make it okay? Well, you're the government is going to want to know what's behind that. Where's the who's who are the who are the LPs? Where's the money coming from? What are the are there are the rights that are associated with the investors in this fun like it, they're going to want to know more information. It's not they're not going to say okay, well, the person who showed up aim on a British passport with okay. They're going to want to dig in a little more, a little more deeply. And I think, I think that'll be true. More often, quite frankly, as things evolve their story, actually, earlier this week about how you there's a number of Chinese firms listing in Switzerland, like that's sort of their their place, because it's getting tricky in other spots. Well, then, what does that mean for Swiss companies right to? Does that mean that they're actually from Switzerland or they're really a Swiss subsidiary of a Chinese company or subject the influence, etcetera, etcetera, you can just see how it's a very dynamic, I think, which I think is the best word to describe. It's a very dynamic field, which I think as you say, it's an exciting time to be practicing in that field. Certainly never boring. And there'll be an there'll be more dynamism to come, I think,
24:34
on the word, your use of the word non like minded. The press releases and statements by government representatives account accompany ICA national security review developments since 2009, has tended to be careful to also stress that Canada remains open for business and welcomes foreign investment, the announcements and some of the political rhetoric surrounding the q4 2022 have elements in particular have included terms like friends shoring, like minded democracies, authoritarian regimes or non like minded countries. Do you think the developments of q4 2022 are likely to have a chilling effect? Or to discourage foreign investment investment in Canada generally are from certain countries and or certain sectors.
25:21
I mean, there was a lot. So you mentioned it's March 10. Today. So last week in the beginning of this week was the PDAC conference. And, and and that's always has always been a big event. And Canada's been a destination for mining investment for a long time. But there, there's been a lot of ink spilt on concern around what does this? What did the developments at the end of last year mean for, you know, Junior companies that were listing in Canada or that had just their headquarters here? And so will there be a chilling effect? I think anything the government does carries that risk? Will it have a chilling effect in the long term? Is that will time will tell on that one. And then another question, which I think is always important to keep in mind, since, you know, probably all of us here are outside of government who are listening to this is that the government's considerations are actually very different than the rest of the country. And that vein, from an economic perspective, and I'll give an example of not not a national security related issue, but really closely adjacent, and it was the policy on state owned enterprises relating to oil and gas investments from 2012. And that one, when when that policy came out, which then we're going to prove at the time is the CNOOC transaction and progress, controlling this transaction. And so it was the these big, big, big foreign investment files, and they were allowed to proceed, but there was the blind drawn in the sand, so to speak, the foreign no more, and it will only be approved on an exceptional basis going forward. And if you look actually at that oil and gas policy and some of the language around, it will only be proved on an exceptional basis. And then you look at the critical minerals policy that came up more recently, there's a lot of congruence. And I think the logic is the same, but it wasn't because of national security at the time, 11 years ago, was actually an economic basis. And so the concern was that it was going to chill investment in, in Canada's oil and gas sector. And, of course, the 2014 crash in crude prices, did more to chill investment, than than any FDI policy change on the part of the government. But, you know, as you look back did, was that fatal in any way to Canada's oil and gas sector? Do you look at them in that, in my view, if you look at the macro trends that have been happening in the last 10 years, though, there's other things that are far more influential on whether capitalism is poured into the sector or not, that have nothing to do with whether the government is going to permit state owned enterprises to, to to invest, but at the time there was this question looms large, what will happen? Will there be a chilling impact? And, and at the time, the government was quite comfortable, explicitly that they were fine with a chilling impact. We're telling you, we're not going to approve these except on an exceptional basis going forward. And so by design, this is intended to kill that type of investment. We don't want any more of it. So a long winded answer today, maybe, probably, but we'll see what the long term. You know,
29:00
you mentioned the political controversy following the decision. Do you know to what extent do you think that the politics as opposed to pure national security concerns influenced the critical minerals policy that followed that? Yeah,
29:17
it's great question. I mean, I think the the policy, it, so I think the policy was probably going to be the policy regardless of what was happening in the political space. The timing of it, maybe some of the framing around it, was it influenced by what was happening politically? Yeah, I'm gonna say yes. Because it's not, you know, these are not hermetically sealed things, right. When public policy is rolled out, it's rolled out into context where politics plays plays out. So, you know, there was certainly at the time, the government had come out with that critical mineral strategy in its early form, and it was and it said we care deeply All these things and and we're going to be, you know, we see there's a problem that China has such market dominance globally and certain minerals that are going to be essential. And then the happened. And I think there was people saying, Oh, hold on, you gotta just, you announced the policy fairly recently, on the one hand, and it seems like you're pretty casual about this, on the other hand, and so there was the political noise around that I suspect just focused some people's minds to say, Okay, we need to, we need to really wrangle this in a way that we can start acting, you know, consistently across government. And if we're going to do something that's going to appear different than we'd better start telling people and showing people that we're doing things that are different than than what you've done in the past. So I think they're intertwined. But I think the politics still would have been the policy if the political controversy would have happened, we just may maybe would have been delayed and maybe would have been framed a little bit more mushy in terms of the language but
31:08
Do you think it's possible or likely that some of Canada's allies such as the US privately expressed views to the Canadian government that may have influenced the critical minerals policy? For example, some US politicians publicly expressed their displeasure with Canada not using the national security review powers more aggressively in relation to the Northside High Terra deal a number of years earlier?
31:32
Yeah, I think it's, I think it's very likely that that our allies to the south through whatever channels those may have been, probably solid six, can you please explain this one, because we're not following. You know, especially if you what you've seen, has been the real conservative push for moving kind of arm and arm with the US in particular and other allies, right, Germany and UK and, and Australia. And, and yet, at the same time, we're we also compete with the US for investment and jobs in these kinds of things. So it's, it's, you know, perhaps always how it has been, but, but there's been a real concerted effort to say, you know, especially from Canada’s perspective, Canada is not going to rival China, in terms of economic clout, right, we just do not have the hit the size to do it. So, you know, if we're going to do something, we need to do something in coordination with partners, and we're going to figure out as partners are going to be in that particular topic, pretty obvious who the partners are, will be for Canada.
32:45
Many mining companies that are listed on the TSX Venture Exchange have a tenuous link to Canada, for example, the mine properties are in South America. And the only link to Canada is the TSX V listing, essentially, the companies listed on that exchange, because it and Canada are viewed as an attractive jurisdiction in which to raise capital. And this is the only thing that triggers ICA, national security review jurisdiction. So what extent do you think the critical minerals policy will make the TSX V less attractive jurisdiction for future companies that have not had that have yet to choose the jurisdiction on which to list? Yeah, I,
33:26
you know, this is a tough one. And mainly because not ever having run a company and listed on on an exchange, I've never really had to live the decision making process. But I can certainly appreciate, especially as we would have seen last weekend when the mining world came to Toronto, but it Yeah, it looms large, but I guess let me I would say this. And I say it to anybody who's very interested in in listening, what Canada's doing on critical minerals, right? Is is notable for because, of course, Canada, the country has a lot of the mineral and trying to figure out how to extract them in an economic way. We've always had a significant role in the mining world, and want to continue to build on that. But we are not as a country. We are not the only one with a national security review. And in fact, it's becoming table stakes. Right? If you look, there's there's FDI regime with the national security aspect popping up across the EU in the countries there. And a year ago, I think it was that the UK turned on their new national security and Investment Act, which is has a lot of similarities to the Investment Canada Act here simply because obviously they have a similar government architecture like Westminster democracy so it makes a lot of sense but The US has had the CFIUS in place for for decades. And so there's the question of what would I just go list somewhere else? It's not as though I think an important thing to remember is, Canada is not unique in having a policy on these things. And Canada's not unique and having tools that enable them to enable the government to look at acquisition and investments. And I think any jurisdictions that don't have one that are, you know, in sort of the, the Western sphere, use it just a blanket term, are there standing them up? And any that haven't stood them up already are likely going to be standing them up soon? So you know, it's going to it's it? I'm not sure it's going to Canada is going to be the outlier on on those things. But for right now, then yeah, perfectly understandable that it's a really tricky decision making process.
36:01
Right. Yeah, that applies not only to countries that are already here, sir, that are thinking of coming here. But the companies that are already on the TSX V and may have be thinking of continuing into another Israel's jurisdiction to escape ICA jurisdiction, it sounds like the floor is moving in other jurisdictions as well. And they may face the same issue somewhere else.
36:27
Yeah, right. Exactly. Or at least, you know, even if they don't today, right, if you were to look at where all the different regimes stand, I'll just pick the EU because I, you know, I know it's another, there's such a variety there. But, you know, maybe today, they don't have something that's that seems as robust or, or challenging as the Investment Canada Act. But that doesn't mean by four months from now that they won't trade it's their this the sort of the global, as you say that the ground is shifting and and that's happening, you know, all over the world. So
37:04
and do you think it's fair to assume and then made this to be a guess, here an educated one, but that the US and is pushing pretty hard on other jurisdictions to make sure that they're, it's, they have their regimes in place pretty quickly, so that there, there's it's hard to avoid? by foreign shopping? Yeah, I
37:25
mean, I, so they, the US actually, officials, they're pretty open, they constantly are sharing best practices, in part because CFIUS with such a long history to draw on of, you know, here's how your Soviets work your the way we've approached this, but yeah, it actually, you know, it's in defense of the United States. And it would be true for Canada, too, and doesn't make a lot of sense to say, Okay, well, we we see, an emerging technology, or legacy technology, or critical minerals is sort of an existential threat. And so we're going to take action, only to have your allies perhaps, unknowingly urged by it, because then they haven't been focused on it say, Well, we're just going to, we'll do the exact thing that you said you wouldn't do. If perhaps, there needs to be good, better coordination, or at least conflict and coordination, because likely their national security interests are not misaligned with Canada to the United States. So yeah, there's conversation. You know, they've been open, the US has been open, they're having them talk to each country to decide what they're going to do. But if you're standing up a new FDI regime, or if you're, you're going to amend yours to be better. Probably you, it's not a bad idea to call up, Canada, US and others who have a little bit more track record and say, tell us about how you do it. What works, what doesn't? What are your areas of concern, and critical minerals are not like that area have to go back to that topic. But critical minerals is not an area of concern that's unique to Canada, and it's not unique to the United States, like it's in Germany is doing a lot of work, trying to secure agreements around the world. And I think the Chancellor was down in South America a few weeks ago, transplant agreements there. So as the as the energy economy and sector evolves, it's going to become more and more important for more and more countries. Again, my two cents, right in 10 years from now, if I'm wrong, you can call me up and say you got it all wrong.
39:33
I suspect I won't be calling you to say that. But well, maybe this may be a time where we switch gears because we like to include in our episodes, a segment that we call overtime.
39:49
And overtime is where we take ourselves out of regulation play and explore some additional lesser known dimensions as to our guests, including their personal interests and and pursuits. in compliance with NHL shootout format, in our Overtime segment, we'd say three shots and getting to know our guests a little better. So here goes Phil, what's the most interesting country you visited?
40:13
I'm gonna go with I'm gonna go with France only because there's, it's just you go to the one corner. It's amazing. You go to a different corner. It's amazing for totally different reasons. The food, the wine, it's beautiful.
40:26
Nice question, two. What's your favorite recent book or TV series on related to politics?
40:33
Unrelated to politics. I don't know if this one count, actually, because it's cool wasn't related bollocks anyway, but the Apple TV has series, Low Horses, and it was a surprisingly, really great theory to watch kind of the spy world. So I don't know. It's politics adjacent maybe.
40:52
Interesting. Last question. What's the most memorable summer job you've ever had?
40:57
memorable, it would be tree planting, which I did for many years. And it's, it's an extreme job, it was a wet. You see a lot of things and you experience a lot of weather. And you learn a lot about yourself.
41:11
Thank you. Coming back to the ICA, are you seeing a lot more national security scrutiny of certain types of investors and investments in terms of requests for information, extremely detailed requests for information, notices of extended initial review and notices a full review that you did not see even a few months ago?
41:31
I'm not sure I'm not sure months would be the timeframe, because I was actually in the in the Prime Minister's Office looking at these from years ago, I will say, if you actually rewind the clock, sort of 8-10 years, they're certainly far, far more reviews that are initiated at the various the various stages, and the requested information, I think have gotten a lot. In some cases, they probably have a template for different sectors. But they've gotten a lot more detailed. So you can tell the government that the learning that goes along? What question that needs to be asking
42:08
sensitive personal data is one of the factors identified in the revised 2021 guidelines. Many Canadian businesses hold some degree of personal data. So what extent are you seeing more scrutiny and our concern around personal data in particular?
42:24
Yeah, so that's a great one I often in anytime I'm speaking about this. So when I was on a panel, I, I use data as an example of how national security concerns evolve over time, I think in in 2012, Uber had been subjected to an acquisition from a non like minded country, you know, would have been viewed at the time as, oh, that they're the taxi disruptor. And now, it would 100% be reviewed and blocked as far as an acquisition. Because we've learned how valuable and important data is and what can be done with it. So if you know that, if I know that Ian is going from his office, to the dry cleaner to the grocery store, and then home on an Uber big deal, right, like I'm not that we don't care about whether you're getting home safely, but but if I know that the, you know, some future Prime Minister’s senior advisor is going from the office to perhaps a place where he or she shouldn't or where it would be embarrassing to be found out whether it's whatever that may be. That becomes very, very valuable data if I'm, you know, a foreign actor now, and that's one really simple set relating to Uber. You know, nowadays with these large data sets with the race on artificial intelligence, which needs reams and reams of data to feed the machine learning these things. There's so many more considerations around it and can anonymous dataset be anonymous, or because in many cases, they there's a I won't say it's easy because I don't know how to do it. But people who know how to do this apparently, it's not terribly difficult to de-anonymize data if you have enough. And so it becomes a huge consideration for for the government.
44:27
Alright, so let's talk a little bit about transparency and predictability. When a new client comes to you at or near the outset of a potential deal or new establishment, do you generally think you have a good sense as to whether the investment is going to be allowed to proceed?
44:44
I mean, I so we asked a lot of questions. So I just wanna you know, this is this will sound like I'm talking long book, which I guess I am in some ways, but we asked a lot of questions in part because so from my time in government was one of my colleagues who was the the I handled all those files under Navdeep Bains when he was the minister of responsible for ISED, and John Knubley, who was the director of investments for seven years, the Deputy Minister of Industry Canada, and then and then ISED when it was renamed. We've We've all seen a lot. And so understanding how the government thinks, and we ask a lot of questions in that process, we generally have, we think a very good sense of how the review is, is likely to unfold what you can never per day, because it would be I think, it's tempting, but it's just not. You know, I don't think it's a it's a good practice to say, Okay, well, yeah, you're, you're for sure getting through no problem, right? Because you don't know what's going to happen. In terms of events, geopolitics, for example, or personalities might change, right? If you if you have a minister, like the one minister, Champagne has been in this role now for several years, and probably feels like he's got a good amount of experience looking at these files under his belt. What if he resigns tomorrow? Right, and you have a new minister has never seen a national security review file, right? The dynamic changes, because you've got somebody in this room, this is going to be a completely new experience, same thing, the deputy minister, Simon Kennedy has been there for many years. And as people change, right, that this was the system that we talked Ottawa is comprised of people, so those things can have an impact. So I never I never get into the, you know, what the percentage likelihood of success? As tempting as that is. But we have a, we have a very good sense of where are the concerns gonna lie? And how can those be addressed? And what's the best way to go about getting the government to agree to address them?
46:56
Right. And when a national security review is ordered, and a summary of concerns is provided, do you think that the government generally provides sufficient detail for the investor to address the concern? Or could they legitimately provide more without jeopardizing national security when doing so?
47:14
Yeah, yeah, the state that so the statement of concerns that's I think, probably for people who practice in this area is it's just one of the most frustrating things, right? Because you can sometimes get your, you know, this general thing that the most like the shortest most general line, and I think that's how they used to be and the government has tried to do to say more words. But in using more words, they don't always give better insight where their constraints lie. And, and I recognize there that to your question. So do they give enough information, they'll never give enough information for the people who are on the receiving end of it? Right. And if they did give all the information, if there was a world where that could happen, probably a lot of the time, and you spent arguing whether that information is valid and legitimate, or that concerns, you know, real. But but the reality isn't appreciate this practical limitation they have, there's information the government has, when they just cannot say they have, and because doing so would reveal too much about how they have it. And like tradecraft, you know, if you're looking talking about foreign investors, so. So if they say, you know, we're concerned about, I don't know, something to do with, with with an individual, they might talk to an individual, but they may have information about that individual that they actually don't want. They don't want that person or anybody that they're associated with knowing they know. So it is, it's tricky. It's a balance. And, and as a rule, they have to err, I think a little bit on the side of caution and in their eyes. But it can be very difficult, then if you're on the outside to say, Okay, well, you say you're concerned about this general thing, but it could be any one of a dozen different specific aspects of it. So what is it? You know, and, and that's where the, you know, the the art meets the science, I think and trying to navigate through it.
49:13
Thanks. To what extent if at all, to net benefit economic factors influence national security review outcomes, particularly in borderline cases, for example, if there was a deal that would involve around obtaining sensitive nuclear technology, I think it's safe to say that economic benefits would not have any effect on the outcome. But that's a pretty extreme example. What about cases where there's a weak or even theoretical national security concern, but very strong and tangible economic benefits?
49:43
Yeah. So. So if you've heard like the, at any point throughout the years IRD speak about this, they will say and they're right that the national security review is about national security issues. And so economic considerations are not the focus of national security view. And that is true. However, you know, the government is often is accused of being silent, but they're not that silent. So it does matter in the final in the final calculation as to what happened. And I'll use an example, actually from one where it's in the public domain for many years ago, because the proponent decided to speak fairly freely about this within their local media. But there was a look at the year wrong, I think it was 2013 2014, there was a Chinese firm that wanted to manufacture fire alarms, and they wanted to set up a factory or the facility to manufacture these things in Quebec, and they had, their location was actually recommended to them from local officials. And it was right next to the Canada Space Agency, but it was considered not good. So and this was all again, they did they just local, if they were while we were told we can't be here, because we're too close to the to the space agency, and we have to find another location. Now there's, in that situation, the government would have considered say, well, we can just say, No, you can't establish this business, because they're going to employ people and they're going to export these fire alarms. Apparently, they're being exported back to China. So, you know, if you can find a location where you're okay with that, and is that really all so bad? Like if they wanted to go to Gaspé? Is that a bad deal? Is that a bad thing? Like in though? You know, in the end, I actually end truthfully, I don't know, I assume they did find a spot? I think they did and got that up, you know, a while later, but the economic piece, truthfully, the economic piece does factor into that consideration, because it has to, right? Otherwise, it's otherwise you would just say no to everything. Like if you really purely looked only at the national security risk, the least risky thing is the status quo. So why would you ever say yes to anything, if not, for the benefit of whatever this thing is supposed to be this new economic activity or use of capital into a Canadian business, whatever it happens to be? The benefit is always economic. But yes, the concerns and the concerns about national security have to be addressed. So you can't just say, Well, yeah, they're gonna, I don't know, they're gonna be next to the building next to CSIS, and they're gonna be sharing the server room, but boy, they're really going to put a lot of money in the student, you know, in a lapse, like, that's not going to definitely gonna cut it, you know, you need to, you need to really address the national security issue. So that whatever the economic benefit happened to be, and the rationale for being there, for making the investment or the new business, you know, that that'll matter, but only once you strip away or address those pure concerns.
53:04
Got it? Thanks. In its Indo Pacific strategy released last year, the government contemplates strengthening relations with countries other than China, in that region. But in the in the each of the last five years, China has been in the top five, often the top three countries of origin for investment in Canada measured by number of investments, if the government discourages certain investments from China, How easy do you think it will be to fill the void with investments from other countries?
53:35
Yeah. Good question. I mean, it'll, it would depend, like I it's I, you know, I actually don't know how to answer that question. Well, and and they say that because China is not the only country to invest in Canada. And in fact, many investments from other jurisdictions don't garner any attention. So it'll always look lopsided. When you look at the at the stats in terms of countries where they're showing up and then in the annual report for the Investment Canada Act, but if you get a billion dollar transaction, or a billion dollar investment, every month coming out of the United States, just does that offset. Well, $10 million deals that got blocked in when they were coming from China, it's like, well, clearly, right? I mean, it was like it the number then the actual frequency of files. It's tough to measure it just off that count, because you can have these huge investments coming in one fell swoop from GM or, I mean, they've announced a whole lot sort of in the EV space over the past 12 months, from, you know, kind of household names in that in that area. So do those off that the three divestiture orders from those the critical minerals files that we were talking about earlier the ones in the fall. Probably most people say yeah, those both would but they're they're totally different things right. It's the will, will those three Canadian firms that had the divestiture orders apply to them? Will they find new investors? I think, if I'm if I'm correct, at least two of the three have, or at least publicly, you know, they've announced that there's been other investments that have come in to replace the Chinese investment. So it seems like that case, Will it always be that way? You know, all cases? Possibly not.
55:38
Thanks. Back to the proposed amendments to the ICA, it certainly doesn't appear that they're going to be rubber stamped, as the bill makes its way through Parliament. Do you anticipate that the amendments will ultimately pass and do you anticipate at any significant revisions will be incorporated along the way?
55:55
Yeah, I do think that they will ultimately pass. I don't think that there'll be significant revisions. And, you know, credit where credit's due, they they look pretty good. Like they look like they were drafted, fairly thoughtfully, it didn't seem like there was sort of that sometimes you get just an obvious oversight or something that's going to become a flashpoint. I'm not sure what that is the debates around it. So far. I mean, debates are funny things in Parliament, because there's, you got to fill the time. And so sometimes you get people talking about really legitimate things like we're where we see this as a deficiency of this bill, and we're going to focus on it, and others other situations. They've been told you got to get up and speak for eight minutes go and so that they're doing their best and you can you can discern a little bit as to how much there is there. And I don't think there was a lot of substantive areas of concern, at least that have cropped up so far. I think they will get through and largely in the form that they are, maybe there might be some tweaks here or there, but
57:05
Great last question. And I'll send you a bottle of wine if your answer turns out to be accurate within one month plus or minus any views on when the amendments may be passed?
57:16
Oh, boy, do you mean when they're passed by the House or when they get royal assent?
57:22
Oh, let's go with when they come into force royal assent.
57:26
Okay. I'm okay. Then I'll say December of this year. I'm going to be ambitious.
57:32
All right. Well, I'll make a note of that. And yeah, see if I have to pay up. Well Phil. This has been very interesting. There are so many more issues and nuances that we'd love to discuss and more deeply, and we could go on for hours. But we've taken up enough of your time, I suspect. I'd like to thank you for sharing your knowledge and insights with the Counterfactual podcast. We'll look forward to hopefully catching up with you again soon. Thank you, Phil,
57:59
Thank you so much. Take care.
58:01
Thank you for listening. Counterfactual is produced and distributed by the Competition Law and Foreign Investment Review section of the Canadian Bar Association. The opinions expressed by the participants in this podcast are their own and do not necessarily represent those of their employer or other organizations. If you enjoyed this podcast or would like to join the Canadian Bar Association, please visit www.cba.org/sections/competition-law