Why you should care about the amendment to Canada's foreign investment act?
SPEECH: U.S. Ambassador David Cohen talks up Canada in critical minerals supply chain
Dear China watchers, you can’t discuss U.S.-Canada relations without talking about China. and you can’t examine U.S.-Canada-China relations without talking about critical minerals. U.S. Ambassador to Canada David Cohen’s speech on Tuesday is such a testament to that argument. In his 20-minute speech, the beloved ambassador managed to walk back his unintentional jab at Ottawa’s carbon tax system, demonstrate his deep affinity for the Canadian people, and most importantly, underscore Canada’s unique value proposition in the global critical mineral supply chain as democratic allies struggle to diverge away from China. Cohen’s remarks, which we will take a closer look at in this newsletter, captured what I consider the age-defining theme for China-Canada relations in the coming decade: critical minerals.
On the hill in Ottawa, a foreign investment bill that should pique the interest of my fellow China watchers is taking shape. With a focus on safeguarding national security, especially in the critical minerals sector, the principle of the Canadian Investment Act Amendment bill has enjoyed the support of the House so far. But it’s still too early to tell whether the bill will make a positive impact or how it will do so as Ottawa navigates a new chapter of Canada-China relations.
In this week’s edition, we look at
U.S. Ambassador David Cohen’s speech
Canada Investment Act Amendment/Bill C-34
Other news in the media
Foreign Minister Melanie Joly’s on Canadian diplomacy
Out of the four stages of the intricate process of chip manufacturing: sourcing raw materials, chip design, aligning the design with manufacturing capabilities, and large-scale production, China has unequivocally garnered dominance in the first stage. And Canada, which sits on a critical minerals mother lode, wants to establish itself as an ethical alternative to China, as we’ve discussed before.
With that clarity in mind, let’s look at the key quotes from Cohen’s remarks.
On non-reliable countries in the supply chain
“We're too reliant on too few geopolitically unreliable countries. I don't need to remind you of what happens when the supply chain breaks down. We lived through that during the pandemic, and nobody wants to live through that again. But this problem is not just about supply chains, it's also about security.”
On China’s dominance in critical minerals
“As it stands today, China plays an outsized role in the critical minerals industry at every step along the supply chain. This is particularly true when it comes to mining and refining. According to a 2022 Brookings Institution report, China refines 68 per cent of all nickel globally 40 per cent of copper 59 per cent of lithium and 73 per cent of cobalt. China also accounts for more global production of mineral-rich components for battery cells. Most significantly, China holds 78 per cent of the world's cell manufacturing capacities for electric vehicle batteries, which are essential for transition to electric batteries as we try and wean ourselves off of fossil fuels.”
On U.S.-Canada relations
“And I would add a choice that we will continue to make working together to improve our people's lives in Canada and the United States and to preserve and grow principles of democracy throughout the world. We are tied together by trade….More importantly, we're bound together by our shared democratic values, and our commitments to continental security, and of course, to NATO. ”
On moving the supply chain back to North America
“Given the current state of play, the status quo will not provide the energy security that Canada, the United States, or our democratic friends and allies need for our cleaner energy future….Simply put, we need to help each other to make this possible to drive demand for electric vehicles, to help fund critical mineral mining, and to move manufacturing, refining and mining back to North America in a responsible way. ”
On Canada can also benefit from U.S. funding
“Canadian companies are directly benefiting from these funding and investment opportunities…..At least three Canadian companies stand to benefit from the announced funding with Enbridge participating in the mid-Atlantic hub which is centred in my hometown of Philadelphia…..So our two countries have built a partnership that is an incredible advantage to both our nations. Whether you're referring to our continuing economic advancements or long-standing cooperation, to defend the democratic rights and freedoms we share or the numerous other ways in which we work together. The U.S.-Canada partnership benefits not only our people, but also the rest of the world and by working together, there is nothing we cannot achieve.”
I will send the full speech to our Substack channel. Here’s how to join me there.
Canada Investment Act Amendment
On Monday, Canadian lawmakers had their first report stage debate on Bill C-34. A bill that was hailed by the government as the most significant update to the country's foreign direct investment laws in a decade: the Canada Investment Act. And all China watchers, no matter where you are, should watch the updates closely. Though China isn't explicitly named in the amendment, nearly every Conservative MP who took the floor on Monday cited examples of Chinese critical mineral companies making inroads into the Canadian market in their arguments.
It's no surprise that China has been put under the spotlight here since the amendment came right in the midst of all the buzz about Chinese state-owned companies snapping up Canadian critical mineral firms.
📖 The Canadian Invest Act Amendment, i.e. Bill C-34, is a public bill, or to be more specific a government bill (most public bills are). It was proposed by Francois-Philippe Champagne, Minister of Innovation, Science and Industry.
screenshot of the Canadian government website
The bill is set to empower the government, specifically the Minister of Industry in consultation with the Minister of Public Safety and Emergency, with the necessary information *and* time to review a foreign acquisition before it happens. Here’s the government press release from a year ago when the bill was first proposed. For those well-versed in legal language, here's the comprehensive legislative summary.
As you all know, passing a federal bill in Canada takes time. Usually, the process looks like the flowchart below.
* Here are some videos explaining the process if you’d like.
For now, here is where the bill is after deliberations at the industry and technology committee:
Reducing the threshold to trigger a national security review to zero dollars for all state-owned enterprise investments.
An automatic national security review is conducted whenever a company has previously been convicted of corruption charges.
The scope of items subject to the national security reviews includes the acquisition of any assets by state-owned enterprises.
The minister is not just empowered but required to conduct a review.
The striking point: As we arrive at the report stage this week and MPs are sparing over the first group of motions, the Conservative Party is aiming to strike down the clause that delineates power to conduct the review down to the Minister of Industry and the Minister of Public Safety.
From Conservative MP Ryan Williams: “Finally, we believe that decisions need to be made that would allow the cabinet, not one minister alone, to make those important decisions as to what should be reviewed and what should not.”
Drawing from the approach of the two superpowers, Williams continued: “The one thing that the Americans and the U.K. do differently with national security reviews is utilize all of their federal departments in the process. The U.S.A. uses CFIUS, an international committee authorized to review certain transactions involving foreign investment. The U.S.A. gives the criteria that CFIUS considers, oftentimes directed by the President of the United States.”
It's a little too early to predict the fate or final form of bill C-34 at this stage but the general principle of the bill has gained great support across party lines. It sailed through the second reading in the Spring with zero objections and 315 votes in favour in the commons.
But again, we're only halfway there with competing interests in the bill across party lines. The NDP is watching out for indigenous people's rights, while the Bloc focuses on the economic impact on Quebec.
Here's what the NDP and Bloc Québécois had to say about the bill on Monday.
Bloc MP Maxime Blanchette-Joncas:
“The Bloc Québécois strives to be a constructive partner, and as such, it has suggested three types of tangible changes for the government to focus on. The first is to lower the review threshold so that the government has the power to review more investment projects……The second is to pay special attention to strategic sectors of the economy, such as leading-edge sectors, land ownership or control over natural resources. The third is to develop a tighter process for transactions involving control over intellectual property patents.”
NDP Lori Idlout from Nunavut:
“What we need to do is make sure that there is free, prior and informed consent so that indigenous peoples can and will have a say in ensuring that legislation, such as the Investment Canada Act, can have a positive impact on them.”
Business
WeChat ban; Canada Goose; Americas Partnership for Economic Prosperity Leaders' Summit
As Australia mulls over a ban on WeChat, Canada prohibits WeChat and Russia’s Kaspersky applications on federal government devices, citing concerns about excessive data collection. China's Foreign Ministry Spokesperson, Wang Wenbin, dismissed Ottawa's concerns during a press conference the following day, stating that the app is a "privately-run social media platform." Canada's claim lacked supporting evidence, and The Globe and Mail reported on a letter from China reiterating a similar stance. The complete answer is here. Enforcing a society-wide ban on popular Chinese social media platforms such as WeChat and TikTok, has proved to be quite a challenge for many (except for India which implemented a comprehensive ban on the apps). But simply restricting their use on government devices has become a no-brainer in recent years, it seems, as all Five Eyes countries have barred TikTok on federal government devices.
Canada Goose cut its annual sales outlook on Wednesday expecting a slowdown in the previously resurgent Chinese market. Although demand has gone upward in the last two quarters in China, the prospects for a sustained recovery of the market remain uncertain. The Toronto-based apparel company also announced key leadership changes in the Asia-Pacific (APAC) region. Starting from January 1, 2024, Neil Bowden, currently the Deputy Finance Chief, will step up as the new Chief Financial Officer. Bowden will take over from Jonathan Sinclair, who will transition into the role of President for APAC. Larry Li, the man behind Canada Goose's major expansion in China, will take on the position of Chief Operating Officer for APAC. Job alert: they are looking for a new President for Mainland China. The financial statements are here.
On Friday, Justin Trudeau was in D.C. for the inaugural Americas Partnership for Economic Prosperity Leaders' Summit where U.S. President Joe Biden and Latin American leaders discussed bolstering the Western Hemisphere's supply chains. (*whispering* an obvious countermeasure to China.) Biden emphasized the importance of providing alternatives to debt-trap diplomacy and promoting transparent infrastructure among neighbouring countries. Biden’s full remarks at the summit are here. But for now, here are some numbers.
Canada is pitching in another $10M to the Inter-American Development Bank (IDB) Grant Facility program in addition to its previous $6M contribution in 2022. The program aims to support countries of the Americas that are most impacted by migration. The U.S., Canada, the Republic of Korea, and Spain are contributing a combined $89M.
The Americas Partnership Fund, introduced by D.C., is a fresh initiative at the IDB aimed at kickstarting investments in creative climate financing solutions. This includes options like debt-for-nature swaps and blue/green bonds, all geared towards safeguarding biodiversity, cutting carbon emissions, and generating job opportunities. The U.S. is set to provide $10M to get the fund rolling, and Ottawa is on board to coordinate financing through its newly established Nature-Based Solutions Program at the IDB.
The United States Agency for International Development (USAID) is launching a multi-year accelerator program to support emerging entrepreneurs from the Americas. USAID is initially investing $5M, with an additional C$3M commitment from Canada. The fact sheet from the U.S. government is here. It’s worth skimming through.
Military
This week, the Canadian government revealed to the public a not-so-friendly encounter between the Canadian Armed Forces and Chinese military jets in the South China Sea that happened last week. Canadian Defense Minister Bill Blair hosted a press conference in Ottawa and Royal Canadian Navy air officer Maj. Rob Millen sat down for an exclusive interview with CNN, disclosing that a Chinese warplane fired flares in front of a Canadian military helicopter over the South China Sea's international waters last Sunday. The two had similar talking points and here’s a breakdown:
The intercepts occurred near the Paracel Islands, outside China's and other countries' territorial limits. The CH-148 Cyclone helicopter, operating from the HMCS Ottawa, is part of Canada's Indo-Pacific strategy.
While the first encounter with Chinese jets was safe, two subsequent encounters on that day were deemed unsafe. The initial instance involved a J-11 Chinese fighter jet flying closely, causing turbulence. Then, another J-11 jet from China fired flares into the path of the same helicopter. The pilot had to take evasive action to avoid the flares, preventing them from entering the helicopter's rotor or air intakes. Fortunately, the helicopter and crew remained unharmed.
These developments mark the second time in two weeks that Canada has accused China's air force of unsafe behaviour. In mid-October, Blair reported another incident in which a Chinese jet came within five meters of a surveillance plane involved in a U.N. operation to enforce sanctions against North Korea.
Canadian diplomacy reset
Joly’s speech on Canadian diplomacy at the Economic Club of Canada was much anticipated. So much so that it was postponed from the original Oct. 11 date to buy more time, according to Playbook. Joly talked about a “‘fracturing” stability and touched on foreign interference, the Arctic, and the Indo-Pacific region.
Foreign interference
“We will protect our people from all forms of foreign interference. We will not tolerate it in our elections, in our media or in social media. Not among our students, nor in our society. Foreign interference is not new. We are not the only country facing the issue. But it is evolving. And so must our approach. We have created independent panels to monitor elections and established a foreign interference public inquiry. We are establishing a Foreign Actor Registry to protect communities that are often targeted. And, as I have made very clear, any foreign diplomat who engages in this type of activity will be sent packing.”
The Arctic
“Turning North -- Canada’s true north is what makes us unique. And we cannot understate the importance of safeguarding the Canadian Arctic. With climate change redrawing maritime routes, more countries are turning their eyes north. The Arctic is becoming more accessible, more attractive to those who want to research the region and do business through it. This is true for Russia. It is certainly true for China, which is now calling itself a near-Arctic state. Exercising our sovereignty on Canadian Arctic land and waters is a fundamental priority for Canada. This includes safeguarding the Northwest Passage, which serves as the gateway to the Arctic. We will make the investments necessary to reinforce our Northern security and critical infrastructure. We will also invest in economic development in the region, in partnership with Indigenous peoples. We will partner with the United States. And we will invest diplomatically in our relationships with Northern European countries - Iceland, Norway, Denmark, Sweden, and Finland - who also believe that the Arctic is a region where the rule of law should prevail.”
Indo-Pacific
“As we look West -great power competition is deepening in the Indo-Pacific region. Inter-state tensions, many with historical roots, are flaring or re-emerging. Stepping up as a reliable partner that concretely contributes to peace and security in the region means increasing our military capabilities. Investing in border and cyber security. Increasing our intelligence capacity. As we look to the future, I believe that we should be as close to Japan and South Korea, as we are to the UK, France, Germany, and Italy. And we should invest in our relationship with ASEAN, just as we have with the European Union.”
Thank you for reading. Till next week.