INDU Committee Report

Better Protecting Our Companies

Bloc Québécois Supplementary Opinion

The industry committee’s report is an important and welcome change in terms of foreign investment control. The Bloc Québécois welcomes this shift after a decade of inaction, but we would have liked the committee to go even further.

In our opinion, the report should have suggested that the government bring the review threshold for foreign investments down to a reasonable level so that it can determine which investments are truly beneficial. Hence this supplementary opinion.

Floundering on foreign investments

The federal government’s foreign investment policy these past years can be summarized in two words: deregulation and permissiveness.

The policy provides for increased scrutiny when national security is at stake, and ongoing oversight when investors are foreign countries. The fear of China is real.

However, the floodgates are open for all other foreign investments, which are approved automatically and without review. Statutory review mechanisms, which the government readily insists on protecting in every trade agreement that it signs, are essentially rendered ineffective for foreign investments.

In 2013, the Conservatives set the tone by announcing that they would raise the review threshold used by the federal government to determine whether foreign investments are truly beneficial. From 2015 on, the Liberals have been doubling down on this change.

Between 2015 and 2020, the threshold applicable to “private sector trade agreement investments” increased from $369 million to $1.613 billion. The result is striking: the share of reviewed foreign investments fell from 10% in 2009 to 1% in 2019.

You read that right: under the current rules, 99% of foreign investments are now approved automatically and without review.

This lack of oversight comes at a bad time. Over the past 30 years, the nature of foreign investment in OECD countries has changed. New investments are down, while investments in the form of mergers and acquisitions of existing companies are up.

Between 2010 and 2015, only 54% of foreign investments in Canada went toward new entities, while the remaining 46% went toward mergers and acquisitions, where foreign investors took over a number of our companies, either in part or in full.

Canada is doing significantly worse than other industrialized countries in this regard. New entities receive 72% of foreign investment in the U.S. and 78% in France, compared to only 54% in Canada. And the trend continues to this day: from 2018 to 2020, mergers and acquisitions accounted for $90 billion of the $244 billion in foreign investments in Canada.

Simply put, over the past three years, foreign companies have invested $90 billion to take over a number of Canadian companies in part or in full. This $90 billion in takeovers led to the downfall of head offices and turned them into regional offices with little power.

“We do not condemn the rising tide; we build levees”

Quebec has gained significant economic and financial leverage since the Quiet Revolution, enabling it to pursue a policy of economic nationalism—the intensity of which varies from one government to the next—that gives Quebeckers greater control over their economy.

Our economic nationalism has two components.

On the one hand, we are open to foreign investment as a driver of growth and development. On the other hand, we invest in Quebec companies to keep them intact and fuel their growth. And we protect our head offices because we know how important they are as decision makers.

Quebec does not, however, want to shut the door to foreign investment. Our economy is and will always be open to the world, and openness toward foreign investment is essential for enabling Quebec to access major trade networks, which is crucial for guaranteeing the prosperity of our relatively small‑scale economy.

As Jacques Parizeau wrote in 2001, even before China joined the World Trade Organization, “we do not condemn the rising tide; we build levees to protect ourselves.”

Unfortunately, weakening the Investment Canada Act has caused those levees to break.

Quebec and Ottawa: Two conflicting policies

One striking realisation is that the federal foreign investment legislation was being gutted at a time when Quebec was becoming concerned about foreign takeovers and the collapse of our companies’ head offices.

In 2013, the same year that Ottawa announced that it would raise the threshold for reviews under the Investment Canada Act, Quebec went in the opposite direction and established the Task Force on the Protection of Québec Businesses.

The task force was established by a Parti Québécois government, co-chaired by a former Liberal finance minister and composed mostly of businesspeople. It reflected Quebec’s consensus for protecting our businesses.

The task force began by noting that Quebec’s 578 head offices provide 50,000 jobs that pay twice the average salary in Quebec, in addition to 20,000 jobs for specialized service (accounting, legal, financial and IT) providers.

In addition, Quebec companies tend to favour Quebec suppliers, while foreign companies with a foothold here rely more on global supply chains, which has an obvious impact on our SMEs, particularly in rural Quebec. As we have seen during the pandemic, global supply chains are fragile and make us entirely dependent on foreign entities.

Furthermore, head offices are essential for Montreal’s financial sector, which is in turn essential for SMEs across Quebec, since it gives them the financial tools needed to spur their development. Quebec’s financial sector is responsible for 150,000 jobs and generates $20 billion, or 6.3%, of its GDP. A large part (close to 100,000) of these jobs are in Montreal, which ranks 13th among the world’s financial centres according to the Global Financial Centres Index.

Lastly, companies tend to concentrate their strategic planning, scientific research and technological development where their head office is. In other words, a subsidiary economy is a less innovative economy.

The task force’s recommendations were mainly addressed to the Quebec government: make more equity investments in companies, facilitate the distribution of employee shares and better equip boards of directors against hostile takeovers.

However, the power to legally regulate foreign takeovers to ensure that they are beneficial for the economy and society is in Ottawa’s hands. And at a time when Quebec was concerned about foreign takeovers of its key economic assets, the federal government chose to relinquish its power to keep foreign investments in check.

Quebec and Canada: Two contrasting economies

While Quebec upholds economic nationalism, Canada focuses on deregulation. That is because our economies are different.

Quebec’s economic nationalism encourages Quebec companies to grow. However, Canada’s economy is largely based on major foreign companies’ subsidiaries. Whether in the automobile (Ford Canada, GM Canada and so on) or oil (Shell Canada and Imperial Oil) industries, Canada has had a subsidiary economy for a long time.

As for Canada’s large companies, they operate in industries that are protected against foreign takeovers by federal law, such as finance, rail and telecommunications.

Canada, unlike Quebec, cares very little about protecting head offices because it does not believe that doing so is in its national interest. Nevertheless, Canada’s stance is informed by policy difference, not contempt for Quebec’s interests.

A welcome albeit incomplete shift

A new wave of major investments from companies linked to the Chinese government has been a game changer. Canada is starting to realize that it needs to better control foreign investments and make sure that they are in fact beneficial before greenlighting them.

The Bloc Québécois is pleased that this issue has finally surfaced in the context of a study and in the committee’s report.

The report suggests that the government should tighten restrictions on investments from foreign governments and investments that could impact national security; better protect strategic sectors of the economy; better protect intellectual property to ensure that China cannot access our technology; and increase the transparency of the government’s net benefit review process.

The Bloc Québécois fully supports all of these proposals.

However, the committee did not take the next step needed to protect our economy, businesses and head offices, namely, lowering the review threshold. Hence this supplementary opinion, in which the Bloc Québécois speaks on behalf of a broad consensus of Quebeckers.

Even if the committee did not adopt our proposal, we hope that it will provide the government with some food for thought. After all, the pandemic has shown us that global supply chains are fragile and that it is unwise to be completely dependent on foreign decision-makers. All the more reason to protect our companies here at home.