Canada: Sharpening Canada´s Competitive Edge

Competition Policy Review Panel Releases Consultation Paper

On October 30, 2007 the federal government's Competition Policy Review Panel (CPRP) issued its consultation paper "Sharpening Canada's Competitive Edge" (the Consultation Paper). The government established the CPRP in the Spring of 2007 to undertake a review of Canada's competition policies and its framework for foreign investment policy. The government's objective is to ensure that Canada's policies keep pace with changes in the global economy (including the opening of national markets, the increase in global investments and the orientation of production around global supply chains) in order to create a highly competitive national economy and help create more and better jobs for Canadians.

The Consultation Paper is thoughtful, well written and comprehensive. It is designed to facilitate discussion that will enable the CPRP to provide recommendations to the government on how to enhance Canadian productivity and competitiveness. It notes that the CPRP will no longer consider issues related to state-owned enterprises and national security as the government has indicated its intent to provide more immediate attention to these issues.

Some of the more notable observations in the Consultation Paper are as follows:

  • from 2001 to 2005, Canada's productivity growth was only 21st in the world and second lowest in the G-7 (only Italy was lower);
  • in 2006, Canadian labour productivity per hour worked had fallen to 81% of U.S. levels (down from 87% only 5 years earlier);
  • Canada dropped from 3rd in global competitiveness rankings in 2001, to 16th in 2006;
  • Canadians are worried about the "hollowing out" of the Canadian economy due to perceived losses of head-office functions and related economic spin-offs;
  • there are mixed results in the number of global firms that are based in Canada - leading firms are being lost to foreign buyers but new Canadian global leaders are also being created;
  • total stock of inbound foreign direct investment ("FDI") reached 31.4% of GDP in 2006, far higher than the U.S., and annual inbound FDI averaged a fairly strong 2.2% of GDP over the period 2001 - 2005;
  • inbound M&A FDI was 5.2% of world M&A activity (which is high compared to Canada's 3.2% share of the global economy); and
  • since the mid-1990s, Canadians have built a larger stock of investments abroad than foreign investors have in Canada.

Although the impacts of FDI appear to be clearly positive for Canada, the Consultation Paper addresses whether our current inbound investment regime is optimal. It notes that all 1529 reviews by the Minister of Industry since the old Foreign Investment Review Act was replaced by the Investment Canada Act have been approved. Of the 101 reviews by the Minister of Heritage (regarding cultural businesses), 98 have been approved. The CPRP will consider whether Canada's apparent overall success in attracting foreign investment has raised concerns regarding domestic control of our economy. It will also consider whether having company headquarters in Canada is important for Canada's economic prospects and the impact of investment policies on Canada's competitiveness for investments and growth. It mentions the now-standard practice of binding investor undertakings being given to the government regarding future operations of acquired businesses (and, in our view, understates the onerous nature of such undertakings).

The Consultation Paper considers the sector-specific foreign investment restrictions in telecommunications, broadcasting, cultural industries, transportation services and uranium production, as well as the general (not foreign) ownership restrictions in financial services. The CPRP will consider whether there are alternate effective but less restrictive regimes that would have less impact on Canada's competitiveness.

The CPRP will also address whether there are changes to Canada's competition regime that would enhance the ability of Canadian firms to compete in the global marketplace. It will also consider whether the merger control regime strikes the right balance between consumers' interests and the creation of an environment where Canadian firms can grow to become global competitors.

With respect to Canadian investment in other countries, the panel notes the focus of Canadian investors has been in the US, the UK, a few other European countries and the Caribbean. It notes the lack of Canadian investment in rapidly developing markets such as China, India and Brazil. The panel will examine domestic and foreign barriers to outbound investment and whether potential government policies could promote such investment. It will also consider the particular challenges faced by small and medium-sized enterprises as they seek to become global competitors and/or participants in global value chains.

The CPRP will also consider ways generally to promote Canada as a destination for talent, capital and innovation, as well as how to promote Canada as a point of entry for the North American market.

As is evident from the forgoing, the CPRP has set an ambitious agenda. It is eagerly seeking written comments on the Consultation Paper.

Copies of the Consultation Paper are available at Persons wishing to submit written comments on the Consultation Paper to the CPRP must do so by January 11, 2008.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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