On June 26, 2008, the Competition Policy Review Panel released "Compete To Win," its highly anticipated report on recommended policy changes to enhance Canada's competitiveness. Appointed by the Minister of Industry in July 2007 and chaired by L.R. "Red" Wilson, the Panel conducted consultations based on a discussion paper issued in October 2007.
The Panel recommends many important policy changes to improve Canada's productivity. These include changes to tax policy, measures to attract and retain talent, removal of inter-provincial trade barriers and measures to remedy the "thickening" of the Canada/US border.
In this summary, we will focus on the Panel's key recommendations for change to Canada's competition, investment and immigration laws:
I. Competition Act
-
Reform Of Criminal Provisions
- Per Se Conspiracy Offence
— The Panel proposes amending the conspiracy
provisions of the Competition Act to make
"hard core" cartel activity, such as price
fixing, illegal per se, i.e., without proof of a negative
effect on competition. Other agreements between
competitors would be civilly reviewable, but not subject
to criminal sanction. This would move Canadian law closer
to the US approach, and would make it easier for the
Crown to successfully prosecute price-fixing cartels. It
may also make it easier for civil plaintiffs to prove
liability in follow-on class actions. This proposal is
controversial, but not new. Similar recommendations in
the past have foundered on an inability to develop
legislative language that would clearly distinguish
"hard core" cartels from other potentially
pro-competitive agreements among competitors.
- Decriminalizing Pricing Offences
— The Panel recommends decriminalizing price
maintenance, price discrimination, promotional allowances
and predatory pricing. These activities would be
addressed under the Act's civil abuse of dominance
provisions, or new stand-alone civil provisions. These
recommendations are generally not controversial.
- Per Se Conspiracy Offence
— The Panel proposes amending the conspiracy
provisions of the Competition Act to make
"hard core" cartel activity, such as price
fixing, illegal per se, i.e., without proof of a negative
effect on competition. Other agreements between
competitors would be civilly reviewable, but not subject
to criminal sanction. This would move Canadian law closer
to the US approach, and would make it easier for the
Crown to successfully prosecute price-fixing cartels. It
may also make it easier for civil plaintiffs to prove
liability in follow-on class actions. This proposal is
controversial, but not new. Similar recommendations in
the past have foundered on an inability to develop
legislative language that would clearly distinguish
"hard core" cartels from other potentially
pro-competitive agreements among competitors.
-
Mergers
- Adopting US Merger Review Model
— The Panel endorses Canada's substantive
merger provisions, but recommends changing Canada's
merger review process to closely resemble the US
"second request" model. Under this model, the
Competition Bureau would have an initial 30-day period to
review a merger, following which the parties could close
the proposed transaction unless the Bureau issued a
"second request" for additional information.
This would trigger a second 30-day waiting period that
would only begin after the parties had satisfied the
Bureau's information request. It would be a
significant change to the existing process, where the
Bureau has 42 days to review a merger, following which
the parties are free to close (subject to a possible
post-closing challenge) unless the Bureau obtains an
Order from the Competition Tribunal prohibiting them from
doing so. The Panel's proposal would likely result in
more lengthy reviews for complex mergers.
- One-Year Challenge Window —
The recommendations also include reducing the limitation
period within which the Bureau may bring a substantial
challenge to a merger from three years to one year from
the date of closing.
- Increase In Pre-Notification
Thresholds — The Panel recommends
increasing the thresholds for merger pre-notification
(although it does not recommend the proposed amounts for
the new thresholds).
- Adopting US Merger Review Model
— The Panel endorses Canada's substantive
merger provisions, but recommends changing Canada's
merger review process to closely resemble the US
"second request" model. Under this model, the
Competition Bureau would have an initial 30-day period to
review a merger, following which the parties could close
the proposed transaction unless the Bureau issued a
"second request" for additional information.
This would trigger a second 30-day waiting period that
would only begin after the parties had satisfied the
Bureau's information request. It would be a
significant change to the existing process, where the
Bureau has 42 days to review a merger, following which
the parties are free to close (subject to a possible
post-closing challenge) unless the Bureau obtains an
Order from the Competition Tribunal prohibiting them from
doing so. The Panel's proposal would likely result in
more lengthy reviews for complex mergers.
-
Abuse Of Dominant Position
- $5-Million Fines for Abuse Cases
— The recommendations include permitting the
Competition Tribunal to impose "modest"
administrative monetary penalties (AMPs) of up to $5
million for abuse of dominant position. The Act currently
provides for AMPs of up to $15 million, but only against
dominant air carriers. This would be superseded by a new
provision of general application.
- $5-Million Fines for Abuse Cases
— The recommendations include permitting the
Competition Tribunal to impose "modest"
administrative monetary penalties (AMPs) of up to $5
million for abuse of dominant position. The Act currently
provides for AMPs of up to $15 million, but only against
dominant air carriers. This would be superseded by a new
provision of general application.
II. Investment Canada Act
- Change From "Net Benefit" Test
— The Panel recommends changing the test for rejecting
an investment. Currently, the foreign investor must
demonstrate that the investment is of "net benefit to
Canada." Under the recommended approach, the Minister
could only reject an investment that is "contrary to
Canada's national interest." The Report suggests
that the onus should be shifted from the applicant to the
Minister, but does not provide details on how this would work
in practice.
- Increase In Thresholds For Investment
Review — The Panel recommends significantly
increasing the threshold for Ministerial review of a proposed
transaction to $1 billion from $295 million (with the
exception of cultural businesses, where a low threshold will
remain in place).
- Removal Of Most Sector-Specific
Thresholds — The Panel also recommends
removing lower investment thresholds for the foreign
acquisition of control of a transportation, uranium or
financial services business (although other sector specific
investment requirements will continue to apply in the air
transport
and uranium mining fields).
- No More Post-Closing Notifications
— The recommendations also include removing the
investor's obligation to file a post-closing notification
for investments that are under the relevant threshold for
review.
- Improvements To Transparency And
Predictability — The Panel noted that the
administrative provisions need improvement, including
increased use of guidelines and exemptions, greater clarity
on exemptions for de minimis cultural activities,
and more timely issuance of advisory opinions.
III. Sectoral Investment Policies
-
Telecommunications
- Two-Step Liberalization Of Foreign-Ownership
Restrictions — The Panel criticizes
existing foreign ownership restrictions that disadvantage
both new entrants (by increasing their costs) and
incumbents (by removing competitive pressures to
eliminate inefficiencies). It recommends that
foreign-ownership restrictions be eliminated for new
telecom entrants or acquisitions of incumbent telecom
operators with a less-than-10% market share. In five
years, following further policy review, liberalization
would be extended in a manner that is competitively
neutral as between telecom companies and cable companies.
These recommendations mirror those advanced in 2006 by
the Telecommunications Policy Review Panel.
- Two-Step Liberalization Of Foreign-Ownership
Restrictions — The Panel criticizes
existing foreign ownership restrictions that disadvantage
both new entrants (by increasing their costs) and
incumbents (by removing competitive pressures to
eliminate inefficiencies). It recommends that
foreign-ownership restrictions be eliminated for new
telecom entrants or acquisitions of incumbent telecom
operators with a less-than-10% market share. In five
years, following further policy review, liberalization
would be extended in a manner that is competitively
neutral as between telecom companies and cable companies.
These recommendations mirror those advanced in 2006 by
the Telecommunications Policy Review Panel.
-
Airlines
- Modest Changes And More Study
— Although the Panel recognizes that greater
liberalization could increase competition and
productivity in the industry, it makes only modest
recommendations for improvement. It recommends increasing
the foreign ownership of voting shares from 25% to 49%
(but only on a bilaterally negotiated basis), completing
negotiations for an open-skies treaty with the EU, and
urging Transport Canada to decide by December 2009, after
further consultation, whether foreign ownership rules
should be eliminated for domestic-only carriers (as is
the case in Australia).
- Modest Changes And More Study
— Although the Panel recognizes that greater
liberalization could increase competition and
productivity in the industry, it makes only modest
recommendations for improvement. It recommends increasing
the foreign ownership of voting shares from 25% to 49%
(but only on a bilaterally negotiated basis), completing
negotiations for an open-skies treaty with the EU, and
urging Transport Canada to decide by December 2009, after
further consultation, whether foreign ownership rules
should be eliminated for domestic-only carriers (as is
the case in Australia).
-
Financial Services
- Mergers Should Be Permitted —
The Panel calls for the end of the de facto
prohibition of mergers among large financial
institutions, subject to appropriate regulatory
safeguards.
- Mergers Should Be Permitted —
The Panel calls for the end of the de facto
prohibition of mergers among large financial
institutions, subject to appropriate regulatory
safeguards.
IV. Role Of Corporate Directors In Mergers
- The Panel considered whether aspects of Canadian
corporate and securities law tilt the legal playing field
inappropriately in favour of acquirors. It concluded that
intervention by securities regulators in relation to poison
pills and other target defensive measures might be having
this effect. The Panel recommends the repeal of the National
Policy on Defensive Tactics followed by provincial securities
regulators and more deference by securities regulators to the
courts in respect of the discharge of directors' duties,
including whether and when shareholder rights plans should be
terminated.
V. Immigration Reforms
The Panel recommends the following immigration reforms, some of which were proposed in the last Federal Budget, and are already in the process of being implemented:
- reforms should place emphasis on immigration as an
economic tool to meet Canadian labour market needs, becoming
more selective in responses in addressing labour shortages
across the skill spectrum.
- Canada's immigration system should develop service
standards related to applications for student visas and
temporary foreign workers, and should be more responsible to
private employers and student needs by fast-tracking
processing and providing greater certainty regarding the
length of time required to process applications.
- in order to ensure Canada is able to attract and retain
top international talent, and able to respond more
effectively to private employers, Canada's immigration
system should fast-track processing of applications for
permanent residency under the Canadian experience class for
skilled temporary foreign workers and foreign students with
Canadian credentials and work experience.
VI. Conclusion
The Panel has made a wide-ranging series of recommendations. Some are likely to have broad support, while others are more controversial. It remains to be seen how many of the Panel's recommendations will be adopted by the Government, and when.
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