Copyright 2008, Blake, Cassels & Graydon LLP
Originally published in Blakes Bulletin on Competition Law, June 2008
On June 26, 2008, the Competition Policy Review Panel released its Final Report, entitled Compete to Win. The Review Panel, which was established by the federal government on July 12, 2007, was mandated to review Canada's competition and foreign investment policies and to develop recommendations to make Canada more competitive. Blakes understands that the federal government has established an internal task force to consider the Review Panel's recommendations and its next steps.
The Report sets out the Review Panel's recommendations, which are "designed to promote the two-way flow of talent, capital and innovation between Canadian markets and world markets." In particular, the Report contains recommendations regarding potential amendments to, and the administration of, the Investment Canada Act and the Competition Act. The Report also includes recommendations regarding ownership restrictions in a number of specific sectors of the economy, as well as recommendations relating to international trade, intellectual property and take-over defences. The guiding principle behind the Review Panel's recommendations appears to be the belief that "a precursor to succeeding internationally is the need to ensure that domestic markets are healthy and that unnecessary barriers to entry are reduced or eliminated."
The following are a number of significant recommendations from the Report, which will be of interest to both Canadian and international businesses:
- Investment Canada Act. The
Report addresses the misperception that Canada does not
welcome foreign investment by narrowing the scope of the
Investment Canada Act, primarily by increasing the
general financial threshold for the review of foreign
investments from C$295-million to C$1-billion and reversing
the onus in the review process. The Review Panel also
supports the federal government's statements
regarding the creation of a new review requirement for
transactions that raise "national security"
concerns. The Review Panel further recognizes the need for
transparency and predictability and recommends the issuance
of additional guidelines and amending the Investment
Canada Act to provide for public reporting on the
operation of the legislation.
- Competition Act. The Review
Panel recommends repealing certain criminal offences under
the Competition Act and amending the conspiracy
provisions to create a per se criminal offence to
address cartels and a civil provision to deal with other
types of agreements between competitors. The Review Panel
further recommends aligning the Canadian merger review
process with the merger review process in the U.S., by
increasing the initial time period for reviewing a proposed
merger. At the same time, the Review Panel acknowledges that
the Competition Bureau should reinforce its commitment to
giving timely decisions and give appropriate weight to the
realities of the global marketplace.
- Financial Institution Mergers.
The Review Panel recommends the removal of the current policy
prohibition against mergers between large Canadian banks,
large Canadian insurers and cross-pillar mergers involving
different types of large financial institutions, subject to
prudential and competition safeguards enforced and
administered by the Superintendent of Financial Institutions
and the Competition Bureau. The proposal is founded on the
Review Panel's views that: Canadian financial
institutions require scale to compete effectively in
international markets; low costs exist today for banking
services in Canada (compared with international prices),
indicating the existence of robust competition in Canada; and
Canadian banks are slipping in relative size internationally.
The Review Panel hints that such mergers might merit a public
interest review. We note that such a process, depending on
its length and nature, might impose a practical barrier to
the willingness of large institutions to attempt a
merger.
- Financial Institution Ownership
Limits. The current widely-held rule for banks
and demutualized insurers having more than C$8-billion in
equity (which sets absolute ownership limits of 20% of voting
shares and 30% of non-voting shares for each such
institution) is seen as appropriate, in order to deal with
governance and self-dealing concerns. In making the
recommendation to retain this requirement, the Review Panel
notes that most large international financial institutions
are widely held. The Report makes no comment on the fact that
the existing rule has the practical effect of precluding the
takeover of large Canadian institutions by foreign banks or
insurers.
- Intellectual Property. The
Report states that innovation is the driver for productivity
and competition in this century and recognizes intellectual
property as one of four key factors to improving innovation.
However, while recognizing the important role that
intellectual property plays, the Report warns that such
rights must not be so all encompassing as to impede further
innovation and create barriers to new market entrants. In
this respect, the Report recommends that the federal
government ensure that new copyright and patent laws
sufficiently reward creators while, at the same time,
stimulating competition and innovation in the Internet
age.
- International Trade Agreements.
The Report states that Canada needs to improve in its
development of markets outside of the U.S. and recommends
that the federal government set priorities for the
negotiation of new trade agreements. While the Report does
not identify countries that Canada should target as
priorities for potential agreements, it does make reference
to the European Union, South America, Asia, and the BRIC
countries (Brazil, Russia, India, and China). To build
accountability into the negotiation process, the Review Panel
recommends that the Minister of International Trade report at
least annually on trade and investment liberalization
initiatives.
- Canada-U.S. Trade. The Review
Panel recognizes the vital contribution of Canada-U.S. trade
to Canadian prosperity and urges the federal government to
prioritize efforts with the U.S. government to increase the
free movement of people, goods, and services across the
border.
- Telecommunications and
Broadcasting. Consistent with the
Telecommunications Policy Review Panel Final Report,
dated March 2006, the Report recommends that the federal
government adopt a two-phased approach to foreign
participation in the telecommunications and broadcast
industry. During the first phase, which would last for a
period of five years, foreign telecommunications companies
would be permitted to establish a new Canadian business or
acquire an existing telecommunications company with a market
share of up to 10 per cent. The second phase would provide
for even broader liberalization of foreign ownership.
- Take-over Defences. The Report
identifies the involvement of Canadian securities regulators
in the review of defensive tactics adopted by Canadian target
boards as relegating boards to the role of auctioneer.
Specifically, in the case of shareholder rights plans (or
"poison pills"), the Review Panel notes that the
expectation that Canadian regulators will terminate a poison
pill within 40 to 70 days results in limited leverage to a
target board seeking to negotiate with a potential acquirer
as well as, presumably, insufficient time to pursue an
optimal alternative transaction. The Review Panel recommends
the U.S. model of target board action being subject to review
by the courts, and not by the SEC, as one that should be
adopted, given the development of Canadian markets and courts
over the past 20 years. The Report also refers to the
defences available to directors of Delaware companies and
indicates that Canadian directors should be placed on the
same footing. Delaware target boards may adopt poison pills
and other defences that survive court review if they are
within the range of reasonableness and proportionate to the
perceived hostile threat, and not coercive or
preclusive.
The Report is available on Industry Canada's Web site at: www.ic.gc.ca/epic/site/cprp-gepmc.nsf/en/Home.
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.
