Canada's 40th Parliament opened on Wednesday, November 19, 2008 with the traditional Speech from the Throne, outlining the government's legislative priorities. In keeping with the turbulent economic times and with calls for greater supervision of business, the throne speech promised to "proceed with legislation to modernize our competition and investment laws, implementing many of the recommendations of the Competition Policy Review Panel."
Given the apparent trend toward the significant strengthening of competition law enforcement in Canada, as well as the loosening of the foreign investment review regime (while at the same time, in all likelihood, empowering the government to reject foreign investments on "national security" grounds), the business and legal communities in Canada and abroad will be keenly interested in future legislative announcements.
Competition Act Reforms:
The throne speech was short on specifics, but as previously reported in this newsletter, the Competition Policy Review Panel's report, Compete to Win, recommended several important amendments to the Competition Act, including:
- Replacing the conspiracy (cartel) provisions with a per se criminal offence for so-called "hard core" cartels such as price-fixing and market-sharing agreements, with no need to show anti-competitive effects (and subjecting them to increased maximum fines); as well as introducing a second, civil track for review by the Competition Tribunal of other anti-competitive agreements between competitors;
- Repealing the criminal price discrimination, promotional allowance and predatory pricing provisions (leaving such practices to be dealt with, as potential aspects of a civil "abuse of dominance" case); and
- De-criminalizing resale price maintenance (currently a per se criminal offence in Canada), and permitting private parties as well as the Commissioner of Competition to bring actions before the Competition Tribunal in respect of price maintenance with substantial anti-competitive effects.
- Empowering the Competition Tribunal to impose administrative monetary penalties (i.e., fines) of up to $5 million for abuses of a dominant position (currently, a civilly reviewable practice that is not liable to fines, damages or enforcement proceedings other than by the Commissioner of Competition).
- Harmonizing Canada's merger review procedures with those of the United States under the Hart-Scott-Rodino Antitrust Improvement Act of 1976 (HSR), with an initial review period of 30 days (most non-controversial mergers are currently cleared by the Competition Bureau in 14 days or less) and the discretion, on the part of the Commissioner of Competition, to initiate an indeterminate "second stage" review period that would end 30 days after the merging parties comply with a "second request" for documents and information (merging parties are currently free to close even problematic transactions as early as 42 days after filing long-form notification materials); and
- Increasing the financial thresholds for merger notification.
Legislation to create a per se offence for hard core cartels (without requiring the Crown to prove an anti-competitive effect) has been widely expected, but remains controversial. Similarly, giving the Tribunal the power to issue fines for abuse of dominance has been opposed by some, but was the subject of several bills in the past few years, and has been popular among all major political parties. Combined with the proposed indeterminate second-stage review procedure for difficult mergers, and the removal of the Federal Court from its role as the gatekeeper of Competition Bureau information demands in the merger review process, the Panel's intention to strengthen the Competition Bureau's hand in all aspects of competition law enforcement was evident.
The precise timing and scope of amendments is unclear, but draft legislation seems imminent, and opposition parties are likely to seek only to further strengthen government legislation. Of note, the Conservative party platform mentioned reforms to the cartel provisions as well as fines for abuse of dominance, but made no mention of the Panel's proposal to adopt US-style merger review procedures.
Investment Canada Act Reforms:
The Competition Policy Review Panel report also recommended several important changes to Canada's foreign investment review regime, some of which were also mentioned in the Conservative party election platform:
- Increasing the minimum threshold for Ministerial review and approval of foreign acquisitions of control of Canadian businesses (to C$1 billion based on the as-yet-undefined "enterprise value" of the business, from the current C$295 million test based on book value of assets);
- Shifting the onus to the Minister to find that the proposed investment would be "contrary to Canada's national interest" (the current onus is on the purchaser to satisfy the Minister that the acquisition will be of "net benefit" to Canada);
- Eliminating the lower review thresholds for the "sensitive" sectors of financial services, transportation services and uranium mining (currently, virtually all such businesses will meet the C$5 million asset threshold for direct acquisitions), leaving only "cultural businesses" subject to such low thresholds and to special review by Heritage Canada; and
- Eliminating the requirement to notify the government of non-reviewable foreign acquisitions of Canadian businesses.
Of note, the federal government already issued guidelines (in December, 2007) regarding the review of investments by foreign state-owned enterprises (SOEs), but has yet to implement a national security test for foreign review (Canada's answer to the review implemented in the United States under the aegis of the Committee on Foreign Investment in the United States, or CFIUS, post-9/11). But the throne speech did mention the need to "safeguard. national security" in the same breath as the need to "expand the opportunities for Canadian firms to benefit from foreign investment", and a national security test is widely anticipated in any upcoming legislation.
Other nuggets from the throne speech:
The throne speech also hinted at other noteworthy changes to several of Canada's regulatory regimes. Highlights include:
- "Ensuring freedom of choice for grain marketing in Western Canada" (this could mean significant changes for the Canadian Wheat Board);
- Modernizing Canada's copyright laws and ensuring stronger protection for intellectual property (somewhat controversial amendments to the Copyright Act, including measures to protect digital rights management, were before Parliament when the election was called);
- "The reduction of regulatory and other barriers" to extending Canada's natural gas pipeline network in the North, and support for new nuclear power initiatives;
- Working with the provinces to remove barriers to internal trade, investment and labour mobility by 2010 (Canadian provinces often have higher trade barriers between each other than Canada has with other countries);
- Working to develop a North American cap and trade system for greenhouse gas emissions.
To quote Bob Dylan (1963): "The Times They Are a-Changin".