James Musgrove, McMillan LLP, Canada

On Tuesday February 11, 2014, Canada’s Federal Finance Minister, Jim Flaherty, released Canada’s 2014 Annual Federal Budget, “The Road to Balance:  Creating Jobs and Opportunities”.  Budgets, not surprisingly, typically deal largely with fiscal matters, not with antitrust law – nor do they often make changes to framework legislation. Of course famously (for Canadian antitrust lawyers, anyway) in the 2009 Federal Budget the Competition Act received its largest makeover in over 20 years.  The 2014 Budget does not do that, but it does contain a number of measures relevant to competition law, one of which is the subject of this note.

The most significant, and problematic, of the competition law proposals in the 2014 Budget is a suggestion that the Government will seek to advance its consumer agenda by providing Canadians with some sort of international price equivalency protection.  Canadians sometimes resent paying more for the same products than do those living south of the border.  This protection would apparently be effected by amending the Competition Act to in some way reduce or remove pricing differences between the two countries. 

As signalled in the Government’s Fall 2013 Speech from the Throne, the Budget seeks to reduce or eliminate geographic price discrimination – particularly with respect to prices between Canada and the United States.  The Government announced its intention to introduce new legislation addressing what it calls “unjustified cross-border price discrimination”.  It noted that in its 2013 Budget the Government lowered tariffs on certain consumer goods and is monitoring the effectiveness of that initiative.  The 2014 Budget indicated the Government’s intention to approach the matter somewhat more prescriptively:

Economic Action Plan 2014 proposes to address another source of the price gap identified by the Senate Committee:  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.  Evidence suggests that some companies charge higher prices in Canada than the U.S. for the same goods, beyond what could be justified by higher operating costs.  Higher prices brought on by excessive market power hurt Canadian consumers.

The Government intends to introduce legislation to address price discrimination that is not justified by higher operating costs in Canada, and to empower the Commissioner of Competition to enforce the new framework.  Details will be announced in the coming months.

This is an interesting development, as provisions which had made some forms of differential pricing between regions of Canada a criminal offence had been removed by the 2009 Budget amendments to the Competition Act.  The above quote raises questions of how such rules will work, whether only those companies who have market power will be subject to this new framework, and more fundamentally, whether amendments to the Competition Act are contemplated which would make use, rather than abuse of market power subject to challenge under the Act.  Whether the new proposals, when drafted, will have very much to do with competition law, how the Competition Bureau will administer them, or how effective they will be, all remain to be seen.  Details of this new framework are expected to be provided in the coming months. 

Insofar as the 2014 Budget suggests that so called exploitative abuse – that is, dominant firms charging higher prices if the market will bear higher prices – may be challenged under theCompetition Act, that would suggest a very significant change to the approach to competition law issues in Canada, and would be significantly out of step with U.S. law in this area.  Instead of rules designed to promote a competitive system, with the benefits to flow to the winners in the system, it may suggest a more regulatory mindset.  Beyond these specifics, the broader concern is that competition law may be being asked to do more than it should.  There is always a risk in extending antitrust doctrines beyond their natural province, such that they may lose coherence.  It is to be hoped that that will not be the case here.

The 2014 Budget’s proposed changes to competition law do not come close to the order of magnitude of those enacted by the 2009 Budget.  However, they may have some real impact on competition law in Canada.  The provisions with respect to geographic price discrimination do not appear, on their face, to be matters most appropriately addressed by antitrust law, which has generally left above cost pricing to the marketplace.  As one economic expert, Sir Michael Philip Jagger, late of the London School of Economics, has been known to explain in relation to the allegedly high price of his concert tickets, “same as fish – market price”.  The Canadian government’s economic experts in relation to this matter may not be as learned, or sensible, as Sir Mick.

James Musgrove can be contacted at james.musgrove@mcmillan.ca.