The Competition Policy Review Panel appointed by the Conservative Government has in its June 26 Report proposed sweeping changes to Canada's foreign investment and competition laws. This bulletin contains a brief report on this development.
In its long-term economic plan, Advantage Canada, and in its fiscal 2007 Budget, Canada's then new Conservative Government undertook to conduct a review of Canada's competition and foreign investment policies. In this regard, in July 2007 it appointed the Competition Policy Review Panel to conduct the review.
After a year of study and consultation, the Panel submitted its Report, Compete to Win, on June 26 of this year: http://www.ic.gc.ca/epic/site/cprp-gepmc.nsf/en/h_00040e.html.
The context in which the Report was commissioned was the acquisition by foreign-controlled businesses of a number of Canadian business icons, such as Alcan, Falconbridge, Inco and Hudson's Bay, and concerns of declining Canadian competitiveness. Importantly, the Report emphatically rejects a protectionist stance or one devoted to preserving the status quo, and concludes that Canada must rise to the challenge of economic globalization and embrace competition, increase the competitive intensity of industry in Canada and become more productive, more innovative, more willing to go outside Canada to penetrate global markets and more willing to take risks.
In the Report, the Panel advances "one simple proposition": "raising Canada's overall economic performance through greater competition will provide Canadians with a higher standard of living". In this regard, the Report offers numerous recommendations that are collectively presented as a "national Competitiveness Agenda".
In addition to numerous recommendations with respect to the Competition Act and the Investment Canada Act, the Report also makes various recommendations respecting foreign ownership restrictions in relation to various sectors; namely, air transport, uranium mining, telecommunications and broadcasting, and financial services. The Report also offers recommendations in respect of tax policy, post-secondary education and training, immigration selection and integration, head offices and cities, strengthening the role of directors in mergers and acquisitions, improving the Canadian economic union, Canada-U.S. economic ties, international trade and investment, regulation, and innovation and intellectual property.
In this Bulletin, we discuss the recommendations pertaining to the Investment Canada Act and the Competition Act.
Investment Canada Act
The Report offers a number of recommendations in respect of the foreign investment control regime contained in the Investment Canada Act. The recommendations are primarily geared to reducing barriers to foreign investment. Among the more significant are the following:
- the investment review process should be of exceptional
- the minimum review threshold should be increased to
$1 billion of "enterprise value" from the
current level of $295 million in gross book value of
- the low ($5 million) review threshold for so-called
"sensitive" industries should be eliminated
other than for cultural businesses; i.e. – the
review threshold for uranium mining and production,
financial services and transportation services should be
increased to the general level
- other than for acquisitions of cultural businesses,
the obligation to provide notification in respect of
non-reviewable mergers should be eliminated
- the test for clearance for reviewable investments
should be changed from a requirement that the transaction
under review offers "net benefit to Canada" to
a requirement that it not be "contrary to
Canada's national interest"
- rather than requiring investors to demonstrate that
the investment meets the standard for clearance, the Act
should require the applicable Minister to be satisfied
that it does not
- the minimum review threshold should be increased to $1 billion of "enterprise value" from the current level of $295 million in gross book value of assets
- support for a new review requirement for transactions
that raise "national security" concerns, as
announced by the Minister of Industry in the Fall of 2007 and
along the lines of the Committee on Foreign Investment
(CFIUS) regime in the United States
- support for the Minister of Industry's guidelines
concerning the Act's application to investments by
- recommendations for improving the predictability,
timeliness and transparency of the review process, including
public reporting of the disallowance of any individual
transaction along with reasons for such disallowance
- recommendations that a distinct approach for cultural
businesses be preserved but confining the application of
cultural reviews to transactions where the cultural aspect is
significant, and establishing a de minimis
As a general proposition, the Report states that, having regard to the high level of integration of business operations in Canada and the United States, it is desirable to conform Canadian legal requirements with those of the United States, where practically feasible, with a view to minimizing unnecessary differences.
The Report also observes that, in view of Canada's small open economy, the primary focus of Canadian competition law and its administration and enforcement should be on anticompetitive conduct and outcomes more than on concerns about industry concentration. (That said, the Report does not propose dramatic changes to the merger review regime.)
Specific changes to the Competition Act recommended by the Panel include:
- in relation to mergers,
- that Canada convert from its current dual class
waiting period regime with associated "service
standards" to the U.S. regime of an initial filing
with a 30 day waiting period and a second stage triggered
by a "second request" for information for
transactions raising significant issues
- that consideration be given to increasing the
financial thresholds for mandatory pre-merger
notification and to introducing more exemptions for
classes of merger transaction that do not raise
- that the limitation period for challenging mergers on
substantive grounds be reduced from the current three
years following completion of the merger to one
- that Canada convert from its current dual class waiting period regime with associated "service standards" to the U.S. regime of an initial filing with a 30 day waiting period and a second stage triggered by a "second request" for information for transactions raising significant issues
- changes in relation to the criminal provisions:
- the Report states that the criminal law should be
reserved for conduct that is unambiguously harmful to
competition and where clear standards can be applied that
are understandable to the business community
- accordingly, the Panel recommends the
decriminalization of the price discrimination,
promotional allowance and predatory pricing provisions
and that such practices be addressed as civil matters
reviewable by the Competition Tribunal pursuant to the
abuse of dominance provisions
- the Panel also recommends that resale price
maintenance be treated as a civil matter before the
Competition Tribunal and that private access to the
Tribunal be available for this practice
- the Panel recommends the establishment of a per
se conspiracy offence for conduct that is
unambiguously harmful to competition (eg., price fixing,
customer or market allocation and output restrictions)
and civil review of other anti-competitive agreements and
arrangements between competitors, including strategic
- the Report states that the criminal law should be reserved for conduct that is unambiguously harmful to competition and where clear standards can be applied that are understandable to the business community
- strengthening of the civil provisions of the
Competition Act by introducing an administrative
monetary penalty of up to $5 million for conduct contrary to
the abuse of dominance provisions. The Panel declined to
broaden private access to the abuse of dominance provisions
or merger provisions of the Act or to permit damage awards
under any of the other civil review provisions
- the repeal of the "Air Canada" abuse of
dominance provisions of the Competition Act
- the creation of a Competitiveness Council with
responsibility to undertake market studies and competition
Some of the recommended changes were included in Bill C-19, which was introduced into Parliament in 2004 but was not passed into law due to the 2005 federal election.
Importantly, the Report recommends no changes to the much-debated efficiencies defence to anticompetitive mergers, other than observing that the Competition Bureau should review mergers in terms of their impact on efficiencies from the outset, and not merely as a possible defence to an anti-competitive merger.
What Happens Next?
A task force has been appointed to review the Report and assess which of the recommendations should be implemented into legislation. In our view, much of what is in the Report is sensible and ought to be adopted. That said, we are sceptical that the Report will translate into meaningful government action any time soon. (One exception to this may be the introduction of a national security review mechanism to the Investment Canada Act, which we understand to have all-party support in principle.) The minority Conservative Government is just over two years into its mandate and is unlikely to advance controversial legislation at this stage. The conditions for advancing portions of the Report may become more fertile should the governing party secure a majority in Parliament.
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.