Generally higher Canadian (compared to U.S.) retail prices have from time to time been a concern for Canadian consumers. This concern appeared to become more acute over the course of the last decade as the Canadian dollar moved more or less to parity with the U.S. dollar (although more recently the Canadian dollar has dipped to an almost 10% discount to the US greenback) without, it appeared, corresponding changes in retail prices. Canadian retailers have shared consumers’ concerns as the price differential results in cross-border shopping whereby Canadians, the vast majority of whom live within a relatively short drive of the Canada – U.S. border, travel to the U.S. to make purchases.
In its 2014 budget plan, The Road to Balance: Creating Jobs and Opportunities, released on February 11, 2014, the Canadian federal government announced that it intended to introduce legislation “to prohibit unjustified cross-border price discrimination to reduce the gap between consumer prices in Canada and the United States”.
We have yet to see the proposed legislation. The current budget bill, C-31, Economic Action Plan 2014 Act, No.1, does not contain the cross-border price discrimination provisions. It is likely they will be in a separate bill, Economic Action Plan 2014 Act, No.2, that has yet to be introduced. Based on recent history, that may occur in October 2014.
We note, however, that the budget plan focuses on what it calls “country pricing strategies – that is, when companies use their market power to charge higher prices in Canada that are not reflective of legitimate higher costs…”. Setting aside the question of whether there is a problem that needs fixing, there is no question that this provocative statement gives rise to a number of questions and concerns. For instance,
- The Act contains criminal and civil review provisions and also allows for private actions for damages for conduct contrary to the criminal provisions. What form will the amendments take?
- Given the recent decriminalization of pricing laws in the Competition Act, including those pertaining to geographic price discrimination, it is hard to imagine that the proposed amendments will involve criminal sanctions.
- Rather, the provisions will more likely take the form of civilly reviewable conduct (perhaps as part of the abuse of dominance provision), with or without administrative monetary penalties. Accordingly, a private right of action for damages seems unlikely. This all but eliminates the likelihood of effective private enforcement.
- Will private complainants be able to bring applications to the Competition Tribunal or the courts? Or will only the Commissioner of Competition have the legislative authority to do so?
- There may be significant jurisdictional issues as it is often the case that sales in Canada are made through a different entity than sales in the United States, even if within the same corporate group. While the Competition Act already contains a provision respecting foreign directives whereby the Canadian subsidiary is in effect held responsible for the conduct of its foreign parent in certain instances, the constitutionality of such provision is open to question.
- Will the law be confined to Canada-US geographic price discrimination? While this seems unlikely, if it were so confined the law would likely offend trade agreements to which Canada is a party. Also, if the regulation of prices will affect companies trading into Canada to such an extent that it causes them to reduce their commercial presence in Canada, such price regulation may be considered a non-tariff barrier that may violate the NAFTA and other applicable trade agreements.
- Given that the proscribed conduct is cast in the budget plan as an abuse of market power, will the legislative amendment be limited to those situations where the country pricing prevents or lessens competition in a relevant Canadian market?
- Will pricing strategies that discriminate amongst regions within Canada be captured?
- The budget plan targets prices in Canada that are not reflective of “legitimate higher costs”. This will, in the case of a Canada-US comparison, necessitate a comparison of Canadian and US costs having regard to factors such as currency exchange rates, transportation costs, tariffs, safety standards and other regulatory costs. This, in turn, will impose a significant burden on both companies seeking to comply and on the Competition Bureau, which will have the task of enforcing the law. To date, the Competition Act, the Competition Bureau and the Competition Tribunal have studiously avoided regulating prices. By way of example, the Competition Bureau has explicitly rejected the notion of attacking what in Europe is referred to as “exploitative pricing”; i.e. exercise of market power through supra-normal pricing. Rather, the Competition Act, the Competition Bureau and the Competition Tribunal have focussed on prohibiting anti-competitive conduct that may in turn give rise to supra-competitive prices.