Canada: Canadian Parliament Promises Competition And Foreign Investment Amendments

Copyright 2009, Blake, Cassels & Graydon LLP

Originally published in Blakes Bulletin on Competition, Antitrust & Foreign Investment, January 2009

On January 27, 2009, The Honourable James Flaherty, Minister of Finance, introduced the Conservative Government's 2009 Budget, entitled Canada's Economic Action Plan, promising to implement sweeping changes to the Competition Act and the Investment Canada Act (ICA). At page 178 of the 360-page Budget document, which is largely aimed at stimulating the economy, is the government's commitment to implement the recommendations of the Competition Policy Review Panel (CPRP):

"In 2007, the Government convened a panel of experts to review Canada's laws and policies governing competition and investment matters . . . The panel's June 2008 report proposed a number of changes to modernize Canada's competition and investment regimes.

Based on the panel's recommendations, the Government will implement improvements to Canada's competition and investment laws and policies. The Government will encourage new foreign investment but will also add protections to make sure that these new investments cannot jeopardize Canada's national security. In addition, new provisions will be added to the Competition Act to protect consumers from anti-competitive behaviour as well as unscrupulous business practices."

The recommendations of the CPRP relating to competition law and foreign investment are attached as an Appendix to this Bulletin.

Of greatest significance to the Competition Act, are the following recommendations:

(a) align the merger notification process under the Competition Act more closely with the merger review process in the United States, including the "second request" process used to gather information and delay closing in the United States;

(b) repeal the price discrimination, promotional allowances and predatory pricing provisions;

(c) repeal the existing conspiracy provisions and replace them with a per se criminal offence to address hardcore cartels and a civil provision to deal with other types of agreements between competitors that have anti-competitive effects;

(d) repeal the existing resale price maintenance provisions and replace them with a new civil provision to address this practice when it has an anti-competitive effect. This new provision should be subject to the private access rights before the Competition Tribunal;

(e) grant the Competition Tribunal the power to order an administrative monetary penalty of up to C$5‑million for violations of the abuse of dominant position provisions; and

(f) repeal the amendments that created special abuse of dominant position rules and penalties for a dominant air passenger service.

Of greatest significance to the ICA, the government has acknowledged that it will seek to encourage new foreign investment but will also add protections to make sure that these new investments cannot jeopardize Canada's national security. In this regard, the following CPRP recommendations are likely to be on the legislative agenda:

(a) raise the ICA review threshold to C$1-billion, replace gross assets as the standard of measurement with enterprise value of the acquired business, and continue to index this threshold for inflation in accordance with the current WTO formula;

(b) raise the threshold for the review of foreign investment in the transportation sector (including pipelines), non-federally regulated financial services and uranium mining from C$5-million to the C$1-billion threshold recommended above;

(c) change the applicable review standard and reverse the onus within the ICA, which currently requires applicants to demonstrate "net benefit to Canada," to require the relevant minister to be satisfied that consummation of the proposed transaction would be contrary to Canada's national interest, before disallowing the transaction; (d) remove the obligation under the ICA to notify Industry Canada with regard to an acquisition that falls below the threshold for review or for the establishment of any new business;

(e) state that neither recommendation (a), (b) nor (d) above would apply to the administration or enforcement of the ICA as they relate to cultural businesses; and

(f) revise the ICA's purpose clause (section 2) to remove Industry Canada's responsibilities to promote foreign investment in Canada.

Behind the scenes, many companies and industry associations are watching and developing positions in relation to these developments. Some of these amendments are less controversial than others. For example, the changes to the ICA, and the repeal of certain archaic pricing provisions are long overdue; however, changes to the merger notification regime and to the conspiracy provisions are likely to be more controversial.

Blakes Tops Again According to London-Based Global Competition Review

The 9th edition of the GCR 100 has ranked Blakes as among Canada's elite competition practices. The independent report notes that Blakes "top-notch" competition team, led by its Chair Cal Goldman, a former head of the Competition Bureau, and Partner Brian Facey, is "arguably the best-equipped competition practice in the country, and has, in the past year, taken on cases that made an indelible mark on the country's antitrust landscape . . . [including] in Labatt's C$204 million takeover of rival Lakeport - a hotly contested merger that led to the most significant section 11 subpoena court decision in the country's history." [emphasis added]

Amongst other accolades, last year Partner Jason Gudofsky was ranked as a Top 40 Under 40 by GCR (and also by the Canadian publication, Lexpert magazine) and Cal Goldman, Neil Finkelstein and Brian Facey are included in the 2009 Lexpert Guide to the Leading 500 Lawyers in Canada.

Bulletin Appendix

Recommendations of the Competition Policy Review Panel Regarding the Competition Act and the Investment Canada Act:

Competition Act Recommendations (from page 60):

The Panel recommends that:

  • The Minister of Industry should introduce amendments to the Competition Act as follows:

(a) align the merger notification process under the Competition Act more closely with the merger review process in the United States; the initial review period should be set at 30 days, and the Commissioner of Competition should be empowered, in its discretion, to initiate a "second stage" review that would extend the review period for an additional period ending 30 days following full compliance with a "second request" for information;

(b) reduce to one year the three-year period within which the Commissioner of Competition currently may challenge a completed merger;

(c) repeal the price discrimination, promotional allowances and predatory pricing provisions;

(d) repeal the existing conspiracy provisions and replace them with a per se criminal offence to address hardcore cartels and a civil provision to deal with other types of agreements between competitors that have anti-competitive effects;

(e) repeal the existing resale price maintenance provisions and replace them with a new civil provision to address this practice when it has an anti-competitive effect. This new provision should be subject to the private access rights before the Competition Tribunal;

(f) grant the Competition Tribunal the power to order an administrative monetary penalty of up to C$5-million for violations of the abuse of dominant position provisions; and

(g) repeal the "Air Canada" amendments that created special abuse of dominant position rules and penalties for a dominant air passenger service.

  • The Minister of Industry should examine whether to increase the financial thresholds that trigger an obligation to notify a merger transaction as well as whether to create additional classes of transactions that are exempt from the merger notification provisions of the Competition Act.
  • The responsibility for competition advocacy should be vested in the proposed Canadian Competitiveness Council. The power to undertake interventions before regulatory boards and tribunals under sections 125 and 126 of the Competition Act should remain with the Commissioner of Competition, unless and until such powers are granted to the proposed Council.
  • The Competition Bureau should reinforce its commitment to giving timely decisions, strengthen its economic analysis capabilities, give appropriate weight to the realities of the global marketplace and, where possible, provide "advance rulings" and other less formal advice to parties concerning prospective transactions and other arrangements on a timely basis to ensure compliance with the Competition Act.

Investment Canada Act Recommendations (from page 36):

The Panel recommends that:

  • The Minister of Industry should introduce amendments to the Investment Canada Act as follows:

(a) raise the review threshold to C$1-billion, replace gross assets as the standard of measurement with enterprise value of the acquired business, and continue to index this threshold for inflation in accordance with the current NAFTA formula;

(b) raise the threshold for the review of foreign investment in the transportation sector (including pipelines), non-federally regulated financial services and uranium mining from C$5-million to the $1-billion threshold recommended above;

(c) change the applicable review standard and reverse the onus within the ICA, which currently requires applicants to demonstrate "net benefit to Canada," to require the relevant minister to be satisfied that consummation of the proposed transaction would be contrary to Canada's national interest, before disallowing the transaction;

(d) remove the obligation under the ICA to notify Industry Canada with regard to an acquisition that falls below the threshold for review or for the establishment of any new business;

(e) state that neither recommendation (a), (b) nor (d) above would apply to the administration or enforcement of the ICA as they relate to cultural businesses; and (f) revise the ICA's purpose clause (section 2) to remove Industry Canada's responsibilities to promote foreign investment in Canada.

  • The Minister of Industry and the Minister of Canadian " Heritage should increase the use of guidelines and other advisory materials to provide information to the public concerning the review process, the basis for making decisions under the ICA, and interpretations by Industry Canada and the Department of Canadian Heritage regarding the application of the ICA. Additionally, amendments to the ICA should require the Ministers to:

(a) report publicly on the disallowance of any individual transaction under the ICA, giving reasons for such action being taken; and

(b) table an annual report to Parliament on the operation of the ICA.

  • The Minister of Canadian Heritage should establish " and make public a de minimis exemption clarifying that the acquisition of a business with cultural business activities that are ancillary to its core business would not be considered a separate cultural business nor be subject to mandatory review by the Department of Canadian Heritage. For the purpose of applying this exemption, the cultural business activities would be considered de minimis if the revenues from cultural business activities are less than the lesser of C$10-million or 10% of gross revenues of the overall business.
  • Consistent with recommendations for other sectors, " the Minister of Canadian Heritage, with advice from stakeholders and other interested parties, should conduct a review every five years of cultural industry policies, including foreign investment restrictions. The first such review should be launched in 2008. As a matter of priority, the first review should consider:

(a) increasing and revising the threshold for the review of acquisitions of cultural businesses; and

(b) the desirability of the Minister of Canadian Heritage continuing to have the right to require the review and approval under the ICA of any new cultural business establishments by foreign investors.

  • In administering the ICA, the ministers of Industry and Canadian Heritage should act expeditiously and give appropriate weight to the realities of the global marketplace and, in appropriate cases, the ministers should provide binding opinions and other less formal advice to parties concerning prospective transactions on a timely basis to ensure compliance with the ICA.

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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