On June 26, 2008, the Competition Policy Review Panel (the "Panel") released Compete To Win, a report assessing Canada's competitiveness, and in particular Canada's foreign investment and competition policies. The Report provides recommendations to the Minister of Industry to make Canada more competitive in an increasingly global marketplace. The Panel's mandate included identifying legislative reforms that could increase Canada's ability to attract foreign investment and boost productivity. Though the 61 recommendations proposed by the Panel span a wide range of policy areas, including taxation, education, financial services, and international trade, the Report's primary focus is the Investment Canada Act, the Competition Act and sectoral regulatory regimes within the Canadian economy.
THE INVESTMENT CANADA ACT
The Panel is of the view that Canada should retain an investment review process, but calls for substantial reforms to significantly narrow the scope of the Investment Canada Act ("ICA") in order to demonstrate Canada's openness to foreign investment. The Panel believes that the ICA can be brought into line with the investment policies of other industrialized countries which would better position Canada to attract new investment, while maintaining Canada's ability to safeguard its national interest. At the same time, the Panel envisions a review process that would be more predictable, timely and transparent. Principal recommendations include:
- Raise the minimum threshold for reviewable transactions so
that only investments of $1 billion in enterprise value are subject
to review and ministerial approval. This would represent a
significant increase from the current threshold of $295 million in
gross assets. The Panel considers that enterprise value better
reflects the value of service and knowledge businesses as a measure
of investment size.
- Change the standard of review and reverse the onus so that
the base assumption favours allowing the investment unless the
Minister is satisfied that a proposed transaction would be
"contrary to Canada's national interest". The
current test requires foreign acquirers to demonstrate that the
proposed transaction would be of "net benefit" to Canada.
Reversing the onus would signal Canada's openness to foreign
investment. However, the effectiveness of this proposed change
would be limited as there is currently no judicial review to appeal
the Minister's decision.
- Eliminate the special thresholds for certain
industries including non-federally regulated financial
services, transportation services (including pipelines) and uranium
mining. Currently, investments in these sectors exceeding $5
million are reviewable.
- Eliminate the obligation to notify Industry Canada of
investments which fall below the minimum review threshold.
Currently, any acquisition of a Canadian business by a non-Canadian
requires the filing of a notice, even if the transaction is not
The Panel suggests that cultural businesses be exempt from the changes recommended above, but notes that even these businesses could benefit from increased exposure to global markets.
The Panel recommends that the Minister of Industry and the Minister of Canadian Heritage jointly issue guidelines regarding cultural businesses that clarify the relevant factors taken into consideration when decisions under the ICA are made. Additionally, the Report suggests that periodic reviews of cultural industry policies (and foreign investment restrictions in particular) be undertaken by the Minister of Canadian Heritage.
THE COMPETITION ACT
The Panel confirms that Canada's competition policies and institutions are largely in keeping with other major countries and that the Competition Act (the "Act") does not pose an undue burden on the competitiveness of the Canadian marketplace. In order to facilitate the growth of productivity within the Canadian marketplace and bring the Act into line with international best practices, the Panel recommends relatively limited fine-tuning to amend certain outmoded or ineffective provisions with suggested changes to provisions dealing with conspiracies, pricing, mergers and abuse of dominance. The recommendations include:
- Replace the criminal conspiracy provisions with a new
dual-track approach: a "per se" criminal offence to
target hardcore cartels (i.e., conspiracies so inherently
anti-competitive that they are presumed to be illegal without the
need to prove effects on a market, e.g., price-fixing); and civil
liability for all other agreements that lessen competition.
- Harmonize the merger notification process with that of the
United States. This would involve an initial review period of
30 days, followed by a "second stage" review period for
more complex cases which would end 30 days after full compliance
with a "second request" for information. This proposal
will be contentious in Canada considering, among other issues, the
lack of certainty and extreme burden associated with the US second
- Repeal the price discrimination, promotional allowances and
predatory pricing provisions.
- Replace the current resale price maintenance provisions
with civil provisions that are subject to a private right of access
before the Competition Tribunal.
- Allow the Competition Tribunal to order an administrative
monetary penalty of no more than $5 million for violations of the
abuse of dominance provisions. Currently, no monetary penalty
is available under these provisions.
- Consider increasing the financial thresholds which trigger
an obligation to notify a merger transaction from the current $50
million for "size of transaction" and $400 million for
"size of parties", and consider exempting from
notification additional classes of transactions which do not raise
The Panel notes that many of the above recommendations are not new, with several having been suggested in previous proposed amendments to the Act.
CANADIAN COMPETITIVENESS COUNCIL
In keeping with its emphasis on the need for the continual evaluation of our competition and investment policies, the Panel supports the establishment of a Canadian Competitiveness Council, broadly empowered to be "the primary Canadian advocate for competition". The Council would be responsible for assessing the impact of new legislation and regulations on competitiveness and providing the government with recommendations on how best to improve the competitive nature of the marketplace.
The Report repeatedly stresses the importance of evaluating the competitive effects of current and future legislation. Accordingly, it recommends that the policies governing regulated industries undergo a review every five years.
Key recommendations include:
- Increase the limit on foreign ownership of air carriers to
49 percent of voting equity. The Panel encourages the federal
government to use bilateral negotiations with other nations to
obtain these rights on a reciprocal basis. The current limit on
foreign ownership is 25%.
- Liberalize the foreign ownership policies on uranium
mining, subject to national security legislation that will
soon be introduced.
- Allow foreign telecommunications companies to expand into
the Canadian market by establishing new businesses or
acquiring existing companies. Foreign entities would be permitted
to acquire up to 10 percent of the telecommunications market in
Canada. This development would be followed by further
liberalization that would be applied equally to foreign and
- Eliminate the de facto prohibition on mergers between
financial institutions and retain the requirement that financial
institutions be widely held. Such mergers would be subject to
regulatory safeguards overseen by the Office of the Superintendent
of Financial Institutions and the Competition Bureau.
Though the report focuses mainly on changes that should be made to the Investment Canada Act and the Competition Act, it does highlight several other policy areas that impact the competitiveness of the Canadian marketplace. These include taxation, the development of a skilled and knowledgeable workforce, the role of directors in mergers and acquisitions, as well as the importance of strengthening economic ties with the US, furthering international trade agreements and addressing weaknesses in our intellectual property laws.
Compete to Win, as expected, promotes free-market solutions to improve both foreign investment and productivity levels in Canada. It remains to be seen which recommendations the federal government will choose to put forward and the timing of these initiatives.
Click here for the full text of the report.
About Ogilvy Renault
Ogilvy Renault LLP is a full-service law firm with close to 450 lawyers and patent and trade-mark agents practicing in the areas of business, litigation, intellectual property, and employment and labour. Ogilvy Renault has offices in Montréal, Ottawa, Québec, Toronto, and London (England), and serves some of the largest and most successful corporations in Canada and in more than 120 countries worldwide. Find out more at www.ogilvyrenault.com.
Ogilvy Renault is the International Legal Alliance's Canadian Gold Award winner for 2008 in M&A and Corporate Finance.
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.