On June 26, 2008, the Competition Policy Review Panel released "Compete To Win," its highly anticipated report on recommended policy changes to enhance Canada's competitiveness. Appointed by the Minister of Industry in July 2007 and chaired by L.R. "Red" Wilson, the Panel conducted consultations based on a discussion paper issued in October 2007.
The Panel recommends many important policy changes to improve Canada's productivity. These include changes to tax policy, measures to attract and retain talent, removal of inter-provincial trade barriers and measures to remedy the "thickening" of the Canada/US border.
In this summary, we will focus on the Panel's key recommendations for change to Canada's competition, investment and immigration laws:
I. COMPETITION ACT
A. Reform Of Criminal Provisions
- Per Se Conspiracy Offence
– The Panel proposes amending the
conspiracy provisions of the Competition Act to make
"hard core" cartel activity, such as price fixing,
illegal per se, i.e., without proof of a negative
effect on competition. Other agreements between competitors
would be civilly reviewable, but not subject to criminal
sanction. This would move Canadian law closer to the US
approach, and would make it easier for the Crown to
successfully prosecute price-fixing cartels. It may also make
it easier for civil plaintiffs to prove liability in
follow-on class actions. This proposal is controversial, but
not new. Similar recommendations in the past have foundered
on an inability to develop legislative language that would
clearly distinguish "hard core" cartels from other
potentially pro-competitive agreements among
competitors.
- Decriminalizing Pricing Offences
– The Panel recommends decriminalizing
price maintenance, price discrimination, promotional
allowances and predatory pricing. These activities would be
addressed under the Act's civil abuse of dominance
provisions, or new stand-alone civil provisions. These
recommendations are generally not controversial.
B. Mergers
- Adopting US Merger Review Model
– The Panel endorses Canada's
substantive merger provisions, but recommends changing
Canada's merger review process to closely resemble
the US "second request" model. Under this model,
the Competition Bureau would have an initial 30-day period to
review a merger, following which the parties could close the
proposed transaction unless the Bureau issued a "second
request" for additional information. This would trigger
a second 30-day waiting period that would only begin after
the parties had satisfied the Bureau's information
request. It would be a significant change to the existing
process, where the Bureau has 42 days to review a merger,
following which the parties are free to close (subject to a
possible post-closing challenge) unless the Bureau obtains an
Order from the Competition Tribunal prohibiting them from
doing so. The Panel's proposal would likely result in
more lengthy reviews for complex mergers.
- One-Year Challenge Window –
The recommendations also include reducing the limitation
period within which the Bureau may bring a substantial
challenge to a merger from three years to one year from the
date of closing.
- Increase In Pre-Notification Thresholds
– The Panel recommends increasing the
thresholds for merger pre-notification (although it does not
recommend the proposed amounts for the new thresholds).
C. Abuse Of Dominant Position
- $5-Million Fines For Abuse Cases
– The recommendations include permitting
the Competition Tribunal to impose "modest"
administrative monetary penalties (AMPs) of up to $5 million
for abuse of dominant position. The Act currently provides
for AMPs of up to $15 million, but only against dominant air
carriers. This would be superseded by a new provision of
general application.
II. INVESTMENT CANADA ACT
- Change From "Net Benefit" Test
– The Panel recommends changing the test
for rejecting an investment. Currently, the foreign investor
must demonstrate that the investment is of "net benefit
to Canada." Under the recommended approach, the Minister
could only reject an investment that is "contrary to
Canada's national interest." The Report suggests
that the onus should be shifted from the applicant to the
Minister, but does not provide details on how this would work
in practice.
- Increase In Thresholds For Investment Review
– The Panel recommends significantly
increasing the threshold for Ministerial review of a proposed
transaction to $1 billion from $295 million (with the
exception of cultural businesses, where a low threshold will
remain in place).
- Removal Of Most Sector-Specific Thresholds
– The Panel also recommends removing lower
investment thresholds for the foreign acquisition of control
of a transportation, uranium or financial services business
(although other sector specific investment requirements will
continue to apply in the air transport and uranium mining
fields).
- No More Post-Closing Notifications
– The recommendations also include
removing the investor's obligation to file a
post-closing notification for investments that are under the
relevant threshold for review.
- Improvements To Transparency And Predictability
– The Panel noted that the administrative
provisions need improvement, including increased use of
guidelines and exemptions, greater clarity on exemptions for
de minimis cultural activities, and more timely
issuance of advisory opinions.
III. SECTORAL INVESTMENT POLICIES
A. Telecommunications
- Two-Step Liberalization Of Foreign-Ownership
Restrictions – The Panel criticizes
existing foreign ownership restrictions that disadvantage
both new entrants (by increasing their costs) and incumbents
(by removing competitive pressures to eliminate
inefficiencies). It recommends that foreign-ownership
restrictions be eliminated for new telecom entrants or
acquisitions of incumbent telecom operators with a
less-than-10% market share. In five years, following further
policy review, liberalization would be extended in a manner
that is competitively neutral as between telecom companies
and cable companies. These recommendations mirror those
advanced in 2006 by the Telecommunications Policy Review
Panel.
B. Airlines
- Modest Changes And More Study
– Although the Panel recognizes that
greater liberalization could increase competition and
productivity in the industry, it makes only modest
recommendations for improvement. It recommends increasing the
foreign ownership of voting shares from 25% to 49% (but only
on a bilaterally negotiated basis), completing negotiations
for an open-skies treaty with the EU, and urging Transport
Canada to decide by December 2009, after further
consultation, whether foreign ownership rules should be
eliminated for domestic-only carriers (as is the case in
Australia).
C. Financial Services
- Mergers Should Be Permitted –
The Panel calls for the end of the de facto
prohibition of mergers among large financial institutions,
subject to appropriate regulatory safeguards.
IV. ROLE OF CORPORATE DIRECTORS IN MERGERS
- The Panel considered whether aspects of Canadian
corporate and securities law tilt the legal playing field
inappropriately in favour of acquirors. It concluded that
intervention by securities regulators in relation to poison
pills and other target defensive measures might be having
this effect. The Panel recommends the repeal of the National
Policy on Defensive Tactics followed by provincial securities
regulators and more deference by securities regulators to the
courts in respect of the discharge of directors'
duties, including whether and when shareholder rights plans
should be terminated.
V. IMMIGRATION REFORMS
The Panel recommends the following immigration reforms, some of which were proposed in the last Federal Budget, and are already in the process of being implemented:
- reforms should place emphasis on immigration as an
economic tool to meet Canadian labour market needs, becoming
more selective in responses in addressing labour shortages
across the skill spectrum.
- Canada's immigration system should develop
service standards related to applications for student visas
and temporary foreign workers, and should be more responsible
to private employers and student needs by fast-tracking
processing and providing greater certainty regarding the
length of time required to process applications.
- in order to ensure Canada is able to attract and retain
top international talent, and able to respond more
effectively to private employers, Canada's
immigration system should fast-track processing of
applications for permanent residency under the Canadian
experience class for skilled temporary foreign workers and
foreign students with Canadian credentials and work
experience.
VI. CONCLUSION
The Panel has made a wide-ranging series of recommendations. Some are likely to have broad support, while others are more controversial. It remains to be seen how many of the Panel's recommendations will be adopted by the Government, and when.
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