Published in the 10 May 2005 issue of Competition Law Insight
The Canadian government has tabled draft amendments to the Canada Transportation Act that would introduce a new "public interest review process" for mergers and acquisitions involving federally regulated "transportation undertakings." These proposed amendments, contained in Bill C-44, form part of a larger package of changes to the Canada Transportation Act that are designed, in the words of the Canadian Minister of Transport, to "improve the efficiency of the rail and air sectors, enhance competition, help protect the environment and provide a stable framework for investment."
Under the current regime, acquisitions involving the transport sector are generally subject to the standard merger review process under the Competition Act. The one exception is for mergers in the airline industry, which were made subject to a special merger review process under the Transportation Act following Air Canada’s acquisition of Canadian Airlines in 2000.
The proposed amendments would expand the special treatment now accorded to airline mergers to all acquisitions involving transportation undertakings under federal jurisdiction.
Summary of proposed amendments
Under Bill C-44, the Minister will have to be notified of any transaction involving a transportation undertaking that is subject to notification under the Competition Act. The notification of the Minister would include all the information contained in the filings submitted to the Competition Bureau together with "the information with respect to the public interest as it relates to national transportation" as defined under guidelines to be issued.
The Minister will have 42 days following receipt of the notification to decide if the proposed transaction raises "public interest" issues. If it does not, that ends the matter inasfar as review under the Transportation Act is concerned.
If, however, the Minister is of the view that public interest issues are at stake, he is to refer the proposed transaction for further review to the Canadian Transportation Agency or to such other person as he may designate. The Agency, or the designated person, will then have 150 days, subject to extension, to report to the Minister on whether the proposed transaction is in the public interest.
The Bureau’s review of the transaction under the Competition Act is intended to run parallel to and in tandem with any review under the Canada Transportation Act. However, in lieu of the normal review process, the Bureau will have 150 days following notification, and any extension, to report to the Minister on whether it has any concerns regarding a "potential prevention or lessening of competition that may occur as a result of the proposed transaction." The Bureau’s report is to be made public after it has been provided to the Minister.
Once both reports have been issued, the parties to the transaction will be given the opportunity to address any concerns that have been raised, either with the Minister if the concerns relate to public interest matters, or with the Bureau if they relate to competition matters.
Based on these consultations, and any terms, conditions or undertakings that may be agreed to as a result with the Minister or the Bureau, the Minister will then decide whether or not to recommend to the federal Cabinet – the Governorin- Council – that the proposed transaction be allowed to proceed. No transaction governed by this process will be allowed to close without the Governor-in-Council’s approval.
The proposed amendments in Bill C-44 are very similar to those that were tabled in an earlier draft Bill that was introduced in February 2003 but did not proceed due to an intervening federal election.
A number of concerns were expressed about the proposed merger review process contained in that earlier Bill. These concerns do not seem to have been addressed or remedied by Bill C-44.
For example, there is still no definition of the term "transportation undertaking" in Bill C-44, which makes it difficult to say with any certainty how broadly the new merger regime might extend. Based on previous case law, it seems clear that a transportation undertaking for this purpose would include businesses such as interprovincial or international railways and bus companies, airlines, pipelines and trucking and shipping firms.
However, the term could also be broad enough to encompass businesses that provide ancillary services to transport businesses even if they do not themselves transport goods or passengers across a provincial or international border, such as stevedores.
And what, for example, if a retailer operates its own trucking fleet for internal use? Will an acquisition of that retailer "involve a transportation undertaking" for the purposes of this legislation?
Another problem is the standard that the Bureau is to apply when reviewing a proposed transaction, i.e. does the transaction give rise to concerns regarding a "potential prevention or lessening of competition"? This standard is different from – and arguably more lenient than – the generally applicable standard under the Competition Act’s merger review provisions, namely whether the merger would "substantially prevent or lessen competition." It is not clear why mergers involving transportation undertakings should be evaluated according to a different test from all other mergers.
More generally, no convincing justification has been provided for establishing a separate review process for mergers in the transport sector, particularly one that may give precedence to political considerations over more objective competition analysis.
The concern is that this will undermine the Competition Act’s status as "framework" legislation that applies equally across all sectors. Indeed, Bill C-44 seems contrary in spirit to proposed amendments to the Competition Act, also currently under consideration, that would rescind the special abuse of dominance provisions targeted at the airline industry. This latter amendment has been applauded precisely because it is consistent with the Competition Act’s framework status. Bill C-44, unfortunately, seems to be travelling in the opposite direction.
Bill C-44, An Act to Amend the Canada Transportation Act and the Railway Safety Act, to enact the VIA Rail Canada Act and to make consequential amendments to other Acts www.parl.gc.ca/38/1/parlbus/chambus/house/bills/government/C-44/ C-44_1/C-44_cover-E.html
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