Prime Minister Justin Trudeau announced Thursday the government is fast-tracking Competition Act amendments aimed at addressing the cost of living in Canada with a focus on the grocery sector1.
What you need to know
- The proposed amendments would: abolish the efficiencies defence in merger reviews; enhance the Competition Bureau's information gathering powers in market studies; and limit the use of restrictive covenants in grocery store leases.
- The introduction of these amendments appears to have been expedited by political pressures to attempt to tackle cost of living issues.
- More amendments are expected in the new year covering, among other things, merger reviews.
Background
A process for the review and amendment of the Competition Act has been well underway.
In June of last year, an initial phase of Competition Act amendments was enacted to criminalize naked wage-fixing and no-poach agreements, make it easier for the Competition Bureau (Bureau) to bring and win enforcement actions, expand the scope of private actions, and increase penalties for certain contraventions.
Last November, Innovation, Science and Economic Development Canada (ISED) began public consultations to inform a second phase of amendments to the Competition Act. The scope of the consultations was broad and covered a wide range of competition policy areas, such as: merger review, abuse of dominance, competitor collaborations, effects on labour, deceptive marketing, Bureau enforcement powers, and private recourse. The public submission period closed in March, and ISED received almost 130 submissions from a wide range of stakeholders, including: academic experts; competition law practitioners; labour, consumer and public interest groups; businesses and business associations; and government organizations.
ISED's Marketplace Framework Policy Branch had planned to review the submissions and publish information about its findings and next steps. Instead, it appears the government pulled these key planned reforms from ISED's consultation process and is putting them forward on an expedited basis. This is likely due to political pressure to appear proactive in addressing cost of living concerns in Canada.
The proposed amendments
Once passed, the proposed amendments would:
- Abolish the efficiencies defence. The
efficiencies defence is a unique feature of Canadian competition
law and permits an otherwise anti-competitive merger or agreement
where it is likely to bring about gains in efficiency to the
broader economy that will be greater than, and will offset, its
anti-competitive effects on a particular market. The proposed
amendments would abolish this defence.
It is unclear how the removal of the defence will impact food prices. The defence has not featured in any grocery store merger and no such mergers are currently announced or in progress. More broadly, the efficiencies defence has only been relevant in a handful of cases, with few in consumer-facing industries. Rather, the efficiencies defence has featured in transactions involving industries like oilfield waste disposal and industrial chemicals. Notably, the Bureau recently won a major efficiencies case2. - Enhance the Bureau's information gathering powers
in market studies. The Bureau periodically conducts market
studies of specific industries to identify competition issues and
propose solutions for policy makers. Recent examples include
grocery store competition, digital health care services, broadband
communications, and financial services. The Bureau currently relies
on market participants voluntarily providing information to conduct
its market studies. The proposed amendments would allow the Bureau
to compel information from market participants.
It is also unclear how these changes will impact food prices. The Bureau's market studies are not designed to result in enforcement action, and there has been no analysis of whether policy makers would adopt any of the Bureau's recommendations. More generally, market studies will increase business costs and may contribute to inflationary pressures. - Limit the use of restrictive covenants in grocery store
leases. In its market study on grocery store competition,
the Bureau identified property controls (or "restrictive
covenants") limiting the kinds of stores that can open on a
property as an inhibitor of competition—and recommended that
provincial and territorial governments limit, or even ban, their
use. The proposed amendments will "empower the Bureau to take
action" against such property controls. The Bureau's
market study noted that peer countries like the United Kingdom,
Australia and New Zealand have taken similar action against
restrictive covenants in the grocery industry3.
Here, too, it is not clear how this change will impact food prices. A contrary view is that restrictive covenants encourage investments in retail outlets because retailers know that such investments will not be undermined by rivals setting up shop on the same property. In theory, it will allow food retailers to establish locations on the same property as rivals, but it may in fact have the opposite impact by disincentivizing retailers from investing in new stores to the detriment of consumers. It is also not clear that access to retail locations is a material barrier to grocers.
More amendments are expected in the new year, covering merger reviews and at least some of the other areas noted above.
Footnotes
1. See https://www.pm.gc.ca/en/news/news-releases/2023/09/14/fighting-for-the-middle-class.
2. Secure Energy Services Inc. v. Canada (Commissioner of Competition), 2023 FCA 172, aff'g 2023 Comp Trib 02.
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