Canada: Report Of Competition Policy Review Panel, July 2008

On June 26, 2008, the Competition Policy Review Panel delivered its 134-page report entitled Compete to Win to the Honourable Jim Prentice, the federal Industry Minister. The contents of the Report are thorough - the recommendations in the Report are far-reaching. If the Canadian government has the political will to enact these recommendations, the results will seek to raise Canada's overall economic performance through greater competition [which] will provide Canadians with a higher standard of living.

BACKGROUND

Canada's position in a competitive world has been slipping. In the last ten years or so, Canada's true competitive performance has been masked by strong economic performance measured by budget surpluses, falling unemployment, significant job creation, low rates of inflation, falling interest rates and the like. Yet, Canadians have been worried about the current economic outlook and, on balance, are less confident about the future.

Against this backdrop, the so-called Competition Policy Review Panel was created on July 12, 2007 by the federal Ministers of Industry and Finance. The Panel, formed by five prominent members of Canada's business community, was instructed to review Canada's competition and foreign investment policies and to make recommendations to the Industry Minister with a view to making Canada more competitive in the global marketplace. The panel distributed a consultation paper entitled Sharpening Canada's Competitive Edge in October 2007 in which many questions were posed and to which submissions were invited. The Panel received in excess of 150 submissions and reviewed international best practices with officials of the United States, Australia, the Organisation for Economic Co-operation and Development and the European Union. In addition, leading officials from many stakeholders met with the Panel during the first quarter of 2008. The Report synthesizes the views of many Canadians and draws upon the considerable experience of the Panel members.

RECOMMENDATIONS FOR LEGISLATIVE CHANGE

The Report contains 65 recommendations for change. A number of these recommendations deal with removing legislative barriers contained within the Investment Canada Act (the "IC Act") and the Competition Act (Canada) (the "Competition Act").

IC Act

By way of background, the Foreign Investment Review Act (Canada) ("FIRA") is federal legislation which was enacted in part on the premise that the control of Canada industry, trade and commerce ...acquired by [non-] Canadians ...is a matter of national concern. FIRA came into force in 1974 during the Trudeau government, the economic policies of which favoured protectionism as a paternalistic umbrella to foster economic growth. FIRA was replaced by the IC Act in 1985 following years of arbitrary and lack of transparent decision-making by the Canadian Cabinet with respect to proposals by foreign investors to acquire Canadian businesses or to establish new Canadian businesses. While the IC Act heralded change, change was gradual and dependent in part in the succeeding years on the adoption by Canada of the Free Trade Agreement with the United States (1989), the North American Free Trade Agreement with the United States and Mexico (1993) and the adherence to the principles of the World Trade Organization (1994). Still, the claim that Canada was open for business was profoundly criticized by foreign investors and the OECD alike.

Further changes to the IC Act are coming. The Industry Minister announced on October 9, 2007 that the IC Act will be amended to create a review for transactions that raise national security concerns. This change will reintroduce the national security concept which first appeared in Bill C-59 (June 20, 2005), legislation which died when Parliament was later prorogued. The Report builds on this proposal and recommends a further set of changes to the IC Act which will further reduce barriers to foreign investment by:

  • easing the review threshold (currently set at $295 million respecting a target's gross assets) to an enterprise value test beginning at $1 billion, with further indexation to account for inflation;

  • treating the transportation sector, non-federally regulated financial services and the uranium mining sector in the same fashion as other Canadian businesses (to date, these sectors have been protected by lower thresholds under the IC Act);

  • changing the review standard from net benefit to Canada by shifting the onus to the relevant minister to prove that a transaction would be contrary to Canada's national interest before disallowing any transaction;

  • no longer requiring a notification process to Industry Canada for non-reviewable investments;

  • while cultural businesses would generally not receive the benefit of the proposed changes, allowing cultural business activities that are ancillary to a core business (revenues equal to the lesser of $10 million or 10% of gross revenues of the overall business) not be considered as a separate cultural business to be subjected to mandatory review by the Department of Canadian Heritage.

Competition Act

In 1986, Canada welcomed the Competition Act as an overhaul to the Combines Investigation Act, many of the provisions of which had their origins in the Criminal Code. The then legislative change recognized that, in a modern economy, many business behaviours were better handled through a civil, review process rather than by enforcing criminal sanctions to all such behaviour. Gone were the criminal sanctions attaching to monopolies and mergers. The cornerstones of the new legislation became conspiracy, mergers and abuse of dominance, the latter two provisions of which would be handled in a civil fashion. In 1987, a merger notification regime was adopted, a process which currently allows the Commissioner of Competition and the Competition Bureau to be given sufficient opportunity to consider the anti-competitive effects of various classes of large transactions. A number of changes have been made since 1986 and 1987 which have further modernized the Competition Act. However, concern has been expressed about the barriers which the size and time parameters of the notification process create for businesses to effect transactions, especially against the backdrop of how other countries deal with the same issues. In addition, there have been widespread views expressed that the criminal provisions of the Competition Act dealing with conspiracies and pricing issues should be further modernized to bring Canada's response to these issues more into line with those of the U.S. and other countries.

As a result, the Report recommends changes to the Competition Act including the following:

  • changing the time process for merger notification to require the Competition Bureau to review any notified merger within 30 days or, at worst, within a second stage 30-day period following the submission of second request information, not unlike the U.S. process;

  • changing the post-closing limitation period from 3 years to 1 year within which the Commissioner may challenge a completed merger;

  • repealing the current criminal provisions relating to price discrimination, promotional allowances and predatory pricing (as was proposed by Bill C-19 introduced on November 2, 2004, which legislation died when Parliament was prorogued);

  • replacing the existing conspiracy sections which contain a competitive effects test (unduly preventing or lessening competition) with a per se criminal test to deal with hard core cartels (as originally recommended in April 2002 by the House of Commons Standing Committee in a report entitled A Plan to Modernize Canada's Competition Regime);

  • replacing the existing criminally sanctioned resale price maintenance provisions with a civil, reviewable process;

  • allowing the Competition Tribunal to order administrative monetary penalties not exceeding $5 million for violations of the abuse of dominant position provisions;

  • requesting that the Industry Minister should examine whether to increase the financial thresholds requiring merger notification;

  • requesting that the Industry Minister should examine the creation of additional classes of transactions to be exempt from merger notification.

CONCLUSION

The above recommendations by the Panel represent good suggestions for change. Clearly Canada must continue to reduce legislative and non-legislative barriers alike to allow business to flourish in a more competitive landscape. The true test however will follow: does Canada's minority government have the political will to effect these much-needed changes?

Time will tell.

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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