Investments in Canadian assets by authoritarian states should trigger national security review: Commons committee

The industry minister’s decision not to launch a formal national security review into the sale of neo-lithium to China sparked controversy in January

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Canada should launch a full security review for every investment by a public company from an “authoritarian state”, according to a parliamentary committee.

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On Tuesday, the House of Commons Industry Committee released its report on the acquisition of Canadian mining company Neo-Lithium by a Chinese company. He said “all investments by state-owned authoritarian states” meet the Investment Canada Act threshold of being potentially “injurious to national security.”

The committee recommended that the industry minister invoke section 25.3 of the act – launching a formal national security review – in “all such cases”.

The choice of Industry Minister François-Philippe Champagne not to do so on the sale of Neo-Lithium caused controversy in January. Neo-Lithium, which owns a lithium mine in Argentina, announced that it would be acquired by Zijin Mining Group in October 2021 for $960 million. The deal was completed on January 26.

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Lithium is classified as a critical mineral by the Canadian government. That’s important because it’s used in batteries, which are increasingly important globally as industries such as automakers move towards electrification.

During its study of the acquisition, the Commons committee heard from experts that because the mine is in Argentina, there is no way to ensure that the lithium actually ends up in Canada, and the sale may not raise national security concerns – but they also cautioned the acquisition of Neo-Lithium is part of an industrial strategy by China to become dominant in tech manufacturing.

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In its report, the committee said it “remains concerned about investments in Canada by state-owned enterprises that may be undertaken for reasons other than economics.”

MPs heard “compelling evidence that the industrial policies of some authoritarian regimes are not always compatible with Canada’s national security, and that investments by state-owned enterprises in these countries deserve serious national security reviews” , says the report. “This is especially true for investments in sensitive sectors like critical minerals.”

During his appearance before the committee, Champagne argued that the deal had been properly reviewed by the government, even though it had not launched a national security review under Article 25.3. He said the government did not trigger this thorough review because “there was sufficient information to determine ‘at an earlier stage in the review process’ that no harm to national security could result from this transaction. “.

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Champagne told the committee that “Neo-Lithium has been reviewed by government and national security experts. Complete stop.”

But the committee said in its report on Tuesday that the review process was not transparent enough. He said he was “concerned by the inability of government officials to provide details regarding the decision-making process in the acquisition of Neo-Lithium.”

The report states that “the process described by government officials, by which various government departments contribute to national security reviews, falls largely outside the formal review process set out in the Investment Canada Act, its regulations and its guidelines.

The recommendations do not bind the government.

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Testimony from government officials indicated that the decision about which ministries to consult and how much weight to give their advice can vary depending on the type of investment, the report notes. The committee said that “such an informal process is not suited to a decision-making framework that the Minister has described as quasi-judicial.”

The report adds that the committee is concerned that the process is being led by Innovation Canada, a department that has no national security expertise.

The committee said the government should implement a “formal and transparent process” through which government agencies advise on decisions made under the Investment Canada Act. “For national security review decisions, the process should be led by Canada’s national security agencies before they report to Innovation, Science and Economic Development Canada.

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The report also called on the government to release a comprehensive strategy on critical minerals “in a timely manner”.

“Investments in sectors considered priorities by the government, such as critical minerals, should be assessed in the context of Canada’s strategic interests in the sector,” the report said.

During an appearance before the committee, Jeff Kucharski, senior fellow at the Macdonald-Laurier Institute and adjunct professor at Royal Roads University, said Canada was missing the big picture by looking at each transaction separately.

“How can Canada build a supply chain for lithium or any other critical mineral for that matter, when it allows the acquisition of the assets of Canadian companies by a country that seeks to consolidate its dominance in this sector? ? ” he said.

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