Federal Budget Signals a Potentially Dramatic Shift in
Canadian Competition Policy
On February 11, 2014, the Canadian government included in its
federal budget a proposed amendment to the Competition Act
to prohibit unjustified price discrimination to reduce the gap
between consumer prices in Canada and the United States. The
Minister of Finance made clear that the Commissioner of
Competition, the head of Canada's Competition Bureau, would
have the power to enforce the new rules. More details are to be
provided in the coming months.
If enacted, this amendment could introduce considerable
uncertainty and risk for multinational suppliers or retailers that
sell products in Canada. For example, such firms may now be
required to ensure that any difference in the prices paid by
Canadian and foreign customers is fully justified based on
differences in the costs of manufacturing or distributing the
product in each jurisdiction. Such an analysis would likely involve
a complex cross-border comparison of prices and operating costs
over a sustained period, including differences in currency rates,
tariffs, transportation costs and labour costs. The inherent
volatility in exchange rates could make complying with this
requirement especially daunting. (It is not yet clear whether the
legislation would apply only to price discrimination between Canada
and the United States.)
The 2014 federal budget in which the amendment is announced
refers to companies with market power charging higher prices in
Canada that are not reflective of legitimate higher costs.
Accordingly, it is possible that the new legislation may apply only
to suppliers that possess market power.
In any event, this amendment signals a potentially dramatic
shift in Canadian competition policy to broaden the types of
conduct that are considered to be anti-competitive. The
Competition Act is generally focused on conduct that harms
the competitive process and does not purport to regulate
This point was made by officials at the Competition Bureau who
testified in 2012 before a committee of the Canadian Senate that
was examining an alleged "Canada-USA Price Gap". As
highlighted in the committee's final report, the officials
underscored that the Bureau is "not a price regulator",
"high prices in themselves do not mean that a particular
market is uncompetitive" and, under the current
Competition Act, "Canadian businesses are free to set
their own prices at whatever levels the market will bear, provided
that these high prices are not the result of anti-competitive
conduct such as price-fixing or abuse of a dominant
The proposed amendment also appears to reverse direction from
the 2009 amendments to the Competition Act that repealed a
price discrimination offence in recognition that price
discrimination is often efficient and may simply reflect different
demand conditions in different markets.
An assessment of the full scope and implications of the proposed
amendment to the Competition Act will have to await
release of the actual proposed legislation. Both the definition of
a cross-border price discrepancy and any exemptions or defences
will need to be studied closely. That said, all indications are
that the Canadian government intends to require at least certain
multinational suppliers to provide detailed cost justification of
cross-border differentials resulting in higher prices in
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The HR Guidelines focus attention on an area that is not typically regarded as an antitrust "hot spot" but has been the subject of several high-profile proceedings in recent years in the United States.
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