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 interprovincial 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
A. 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.
- 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).
C. 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.
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
- 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.
- 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).
C. 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.
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 fasttracking 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.
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.