The Competition Policy Review Panel’s recent report has commendable objectives, but those hoping for innovative proposals for real reform have been badly let down. The panel wants to reduce restrictions on foreign investment, align the Canadian antitrust regime with the U.S. and make Canadian business more competitive. Unfortunately, the specific recommendations it makes to achieve these objectives are of uneven quality: although some are welcome, many are uninspired and unoriginal; several simply have no merit.
The government-commissioned panel’s main task was to assess two key statutes — the Investment Canada Act and the Competition Act.
The Investment Canada Act establishes a regulatory framework for the review of foreign investments in Canadian businesses. There are a number of important issues addressed in the report related to this Act:
- A welcome proposal is the recommendation that the threshold for the review of most foreign investments in Canada should be increased to $1 billion. Currently, the thresholds are complex and too low, and only acquisitions of very large Canadian businesses should be subject to government approval. However, the panel also recommended that the threshold be based on the “enterprise value” of the target (which is price to be paid for the equity of an acquired business and the assumption of liabilities on its balance sheet minus its current cash assets) rather than the book value of its assets. The move to an enterprisevalue threshold may better reflect the value of a Canadian business than its asset-value, but the benefit of an asset-value threshold is that it is usually easy for investors to know whether they are under or over the threshold.
- The onus of the review test ought to be reversed, says the panel, to require the government to be satisfied that the transaction would be “contrary to Canada’s national interest,” instead of requiring investors to prove that an investment is of “net benefit to Canada.” In theory, this would be a positive change since it would reduce the burden on foreign investors. But in reality, both tests are highly subjective and investors will likely still feel they should satisfy the government that an investment ought to be approved.
- Enforcement officials are also encouraged to increase transparency and predictability through guidelines and other advisory materials, and by publicly announcing reasons for disallowing any particular transaction. Increased transparency is highly desirable, and several of these suggestions could (and should) be implemented quickly without legislative change.
- The panel recommended further study of investments in the cultural sector as well as the creation of an exemption for the acquisitions of businesses whose cultural activities are small relative to the overall size of the business. The adoption of such a de minimis exemption is long overdue, but the recommendation for even more study of cultural sector investments is disappointing, given that the panel considered the issue for a year. The current regime results in expensive and time-consuming government reviews of a wide range of investments in businesses that most Canadians would probably not consider to be part of the country’s cultural heritage. This needs to change.
The second statute, the Competition Act, establishes the legal and institutional framework for competition law in Canada. The report addresses the following issues on this Act:
- For mergers, the panel recommended aligning the notification and review process with the U.S. by establishing an initial 30 day review period and empowering the Competition Bureau to initiate a secondstage review to extend the review period after full compliance with a second request for information. These changes are neither necessary nor desirable. In practice, the Bureau completes its review of most non-complex mergers within two weeks and in cross-border mergers, the current Canadian system is sufficiently flexible to align review timelines across multiple jurisdictions. Surprisingly, the panel also recommended the burdensome, costly and much-criticized secondrequest document production process, which would dramatically increase the cost of complex merger review in Canada. This is the only really original proposal in the Competition Act section of the report, and it is not a good one.
- The panel recommended replacing the existing conspiracy provisions with a “per se” offence for hard core cartel conduct, such as price-fixing arrangements between competitors, and a civil provision to deal with other types of agreements between competitors that may have anticompetitive effects. Under the proposed new criminal provision, the Crown would not have to prove that the conduct adversely affected competition. These kinds of proposals are highly controversial and have already been widely debated. The main difficulty has been developing a specific proposal that does not criminalize legitimate business conduct; the panel report offers no solution to that problem.
- The panel advocated for major changes to the provisions in the Act that criminalize certain sorts of pricing arrangements between suppliers and their customers. The panel would repeal the price discrimination, promotional allowances and predatory pricing offences and replace the current price maintenance offence with a new civil provision. The current offences, some of which were enacted in the 1930s, are out of step with modern economic thinking. Quickly enacting these changes would receive widespread support from the legal and business communities.
- • For unilateral conduct, the panel recommended that the Competition Tribunal be authorized to order penalties of up to $5 million for conduct found to be an abuse of dominance. Monetary penalties for abuse of dominance have been controversial, with no consensus on their effectiveness. It is often difficult to distinguish between vigorous competition (which may harm inefficient competitors) and abuse of dominance.
A task force has been established within the Industry Department to review the panel report and consider legislative amendments. However, with a minority government, a possible general election before the end of the year and several controversial policy recommendations, it is not at all certain that the panel’s report will — or should — lead to the overhaul of Canada’s key economic legislation in the near future.