The Canadian Competition Policy Review Panel recently released a report that sets out a number of recommendations aimed at improving the competitiveness and economic performance of the Canadian economy. If implemented, these recommendations would have significant implications for U.S. (and other foreign) businesses operating in Canada or seeking to invest in Canada.
These recommendations target several aspects of the Competition Act including: aligning the Canadian merger notification process with its U.S. counterpart; decriminalizing the price maintenance provision; repealing the price discrimination, promotional allowance and predatory pricing provisions; and modifying the existing conspiracy provisions.
The Panel’s report also recommends raising the review threshold for non-cultural industries and placing the onus on the federal government to demonstrate that a proposed transaction would be contrary to Canada’s national interests before blocking the transaction under the Investment Canada Act.
The first recommendation would see changes made to the merger regime under the Competition Act to provide for a U.S.-style, two-stage review process. Following the filing of notification of a proposed transaction, there would be a 30-day review period during which time most reviews would be expected to be completed and effectively cleared.
There would be a discretionary “second stage” review period for cases not cleared in the initial 30-day period which would be triggered by the Competition Bureau’s issuance of a “second request” for information. If the Bureau did not take steps to challenge the transaction within 30 days of receipt of the “second request” materials, the transaction could proceed.
The timing of the merger review process under the current regime can be highly uncertain, particularly in cases raising difficult substantive issues. Given the degree to which the Canadian and U.S. economies are integrated,
embracing a more predictable, two-stage review process makes good business sense. Harmoniz- ation of the two regimes should eliminate needless procedural differences, and provide symmetry and timing certainty for proposed transactions that involve both jurisdictions.
Modified Pricing Practices
In a move to modernize Canada’s treatment of pricing practices, the Panel recommends replacing the per se criminal price maintenance provision with a new civil provision. The Panel also recommends repealing the criminal price discrimination, promotional allowance and predatory pricing provisions under the Competition Act.
In addition, the Panel proposes replacing the existing conspiracy provisions with a per se criminal offence in cases of hardcore cartels and a civil provision to deal with other types of anti-competitive agreements.
Most of these outdated provisions have rarely been (successfully) enforced, although some of them have been relied on by individual companies in private actions for damages.
Increased Review Threshold
Another important recommen-dation contained in the Panel’s report is the raising of the Investment Canada threshold for review in non-cultural industries. The current threshold is $295 million, based on gross assets. The proposed change would raise that threshold to $1 billion, based on the enterprise value of the acquired business. Ultimately, this higher review threshold would result in fewer proposed transactions being subject to review.
The Panel’s report also outlines a significant proposed change to the Investment Canada Act that would shift the onus to the government to demonstrate that a proposed transaction would be contrary to Canada’s national interests before disallowing the transaction. Currently, the onus is on foreign investors to demonstrate that a proposed transaction is of “net benefit” to Canada.
While it would not likely alter the outcome for tough cases with big issues, this recommendation would change the investment review process significantly. It would mean that a transaction presumptively would be allowed, unless the government took steps to block it.
This proposal also could have the effect of decreasing the financial burden on investors, who would no longer (as a matter of course) have to devote resources to satisfy the “net benefit” test. The burden would fall to the government, in its administrative discretion, to decide whether to marshal the necessary resources to demonstrate that a proposed transaction would be contrary to national interests.
The recommended shift in onus represents an important development for U.S. clients looking to do business in Canada, sending the message that Canada is welcoming to foreign investment while retaining its ability to safeguard its national interests.
By recommending these changes to the Canadian merger review and foreign investment review regimes, the Panel is attempting to streamline the regulatory review process, reassure international investors that Canada is open for business and facilitate U.S. (and other international) investment in Canada.