In the federal government’s most recent budget, there is a sub-heading in the chapter detailing tax changes entitled “Requiring Financial Institutions to Help Pay for the Recovery”. The measure announced under the sub-heading is modest – a sleight increase in the Corporate Tax rate paid by Canada’s largest banks and insurance companies. However modest the actual measure, the wording of the sub-heading is seen by Corporate Canada as “anti-business” and further proof that their current conflicts with the Trudeau government are not modest differences limited to a few isolated policy items, but rather, a fundamental ideological gap between it and the government on a wide rage of issues.
What is also spooking business is that the 2022 budget is just the first of four budgets that will be introduced under the Liberal/NDP confidence and supply agreement agreed to by both parties in March. In business’s eyes, this suggests that the Liberal government will be more concerned with what the NDP wants in the next three budgets than what it wants. This may or may not turn out to be the case, but nevertheless, that is what business believes in May, 2022 and they are not happy.
In conversations with business groups, eleven policy areas emerged as current or potential areas of disagreement between Corporate Canada and the Trudeau government. Let’s take a look at each policy area to sketch out a broad outline of the perceived differences. We’ll start with a close look at competition policy. Subsequent posts will go into the following ten policy areas also cited by business as areas of concern:
- the drivers of innovation
- internet regulation
- corporate tax policy
- the underlying factors in Canada’s crisis of housing affordability
- foreign investment
- fiscal policy and the Canadian welfare state
- global warming
- labour market regulation
- the drivers of inflation; and
- financial crime
The Competition Act – the big picture
On May 9, Canada’s Competition Bureau requested an order from the Competition Tribunal blocking Rogers Communications Inc.’s $26-billion takeover of Shaw Communications Inc., arguing that the deal would substantially lessen competition by eliminating Rogers’ closest competitor in the wireless sector.
At the same time, Canada’s competition watchdog also requested an injunction to stop the cable companies from closing the deal until the application can be heard.
Matthew Boswell, Commissioner of Competition, said the Bureau reached its conclusions after a “rigorous investigation.”
“Eliminating Shaw would remove a strong, independent competitor in Canada’s wireless market – one that has driven down prices, made data more accessible, and offered innovative services to its customers. We are taking action to block this merger to preserve competition and choice for an essential service that Canadians expect to be affordable and high quality,” Mr. Boswell said in a statement.
Rogers and Shaw said in a press release over the weekend following the announcement that they have offered to address the Bureau’s concerns by proposing to sell all of Freedom Mobile, Shaw’s wireless business which has roughly 2 million customers in Ontario, Alberta and B.C. The companies are currently engaged in a sale process for Freedom. The Globe previously reported that Quebecor Inc. has been invited to join the talks.
The Competition Bureau said its investigation found that since entering the wireless business in 2016 by acquiring Wind Mobile, Shaw has established itself as a disruptive fourth competitor in the wireless sector.
The wireless carrier, which was rebranded Freedom Mobile, has increased its market share by making improvements to its network and wooing customers with aggressive pricing, larger data buckets and innovative services, the competition watchdog said in a press release Monday afternoon.
Data obtained by the Bureau indicates that there is a high level of wireless customer switching between Rogers and Shaw, making the two companies close competitors, the watchdog said.
In challenging the Rogers/Shaw merger, the Competition Bureau appears to be joining a growing body of opinion arguing that Canada must directly challenge large firms that may be exploiting their market power. For example, many commentators responded to Loblaw’s recent quarterly profit numbers by raising the question as to whether Canadian grocers may be passing on price increases masquerading as inflation while increasing their profit margins. It should also be noted that the NDP has been making similar arguments about the oil and gas sector.
Historically, Canada has justified an economic model that favours corporate concentration, scale and alleged efficiencies over consumers, workers and small businesses by pointing to our vast geography and modest population. In other words, the argument has been that Canadian corporations need scale in order to compete and in a small country like Canada, scale requires relatively few companies in any given industry.
That remains the position of corporate Canada and of the powerful lobby that has been the dominant player in competition policy for the past forty years: The Competition Law and Foreign Investment Review Section of the Canadian Bar Association.
But for others, corporate concentration at a level where corporations can fatten their profit margins at a time of galloping inflation would seem to be exactly the time for the government to use the Competition Act to lessen corporate concentration and reduce corporate pricing power.
The problem is that the Competition Act as it is currently written may not be up to accomplishing such objectives. This has forced the Trudeau government into waters it has been hesitant to enter up until now.
On Feb. 7, François-Philippe Champagne, Minister of Innovation, Science and Economic Development, announced plans to conduct a broad-based review of Canada’s Competition Act. He also announced that there was some low hanging fruit that he would table legislation on in the short term. That turned out to be the Competition Act amendments contained in the April 28th budget bill that we will delve into later in this post.
Before we get to the Competition Act amendments contained in Bill C-19, it is useful to take a look at the big picture and examine the broad areas where Canada’s anti-trust legislation is falling behind other advanced jurisdictions such as the US and European Union.
Critics point to much that is wrong with the Competition Act but at the heart of their critique is the much-debated “efficiency defense” which has become a loophole of sorts that is invoked by firms (and their competition lawyers) to justify harmful mergers. To critics of the current Act, it’s the get-out-of-jail-free card for large corporate mergers. But the the Competition Bureau was sending signs that it was drifting away from its 40-year defense of the efficiency defense when it recently advised that “efficiencies should not be given primacy in merger review”. Such a comment is a remarkably radical statement from a body historically content with the status quo.
Competition policy is an esoteric policy file that’s historically been restricted to a very small number of lawyers and economists. It is integral to our everyday lives and the vibrancy of our economy, yet ironically it can be fantastically abstract to talk about.
On top of this general inaccessibility, as indicated above, the people who get paid per merger are also by far the most influential lobbyists when it comes to changes in the Competition Act – and the Competition Law and Foreign Investment Review Section of the Canadian Bar Association are tenacious defenders of the status quo. Up until very recently, this inherent conflict was a barrier to catalyzing a common conversation about strengthening the legislative infrastructure that dictates what it means for a firm to abuse its power (“dominance”) ─ what is allowed when it comes to how a business behaves, and why abusing dominance is detrimental to competition.
For example, Amazon and Walmart are often praised for their “efficiency” and low consumer prices (and
Google and Facebook for their apparently “free” services) while harms to workers, privacy, small businesses, and Main Street have been sidelined. By narrowing antitrust down to consumer prices and the internal efficiencies of individual firms, for over 35 years the competition community brushed away a myriad of other threats related to excessive corporate power.
So what happened just over 35 years ago to place efficiency at centre of competition law in Canada?
In 1986, the decision was made to apply a new “aggregate efficiency and total surplus” approach to the design and enforcement of the Competition Act. This approach required competition decision-makers to apply a comparatively narrow and theoretical interpretation of economic efficiency to enforcement and compliance issues and other competition matters.
The focus on this new principle provided little guidance to decision-makers on how the interests and welfare of consumers, workers and small businesses should be considered when investigating corporate mergers, abuse of dominance and other competition matters. The underlying premise was that any competition decision that promoted competition, increased the number of suppliers or improved the overall efficiency of the national economy would more or less automatically advance consumer welfare. At that time, the expectation of many Canadian economists, officials and businesspeople was that this approach would be the wave of the future and would be adopted by many other jurisdictions in the years ahead.
But this wave of the future never materialized, and Canada is now an outlier internationally in taking this approach to competition policy.
The 1986 changes and the jurisprudence that followed, represented a remarkable reversal of the historical tradition of competition policy enforcement and interpretation — for over 35 years Canadian competition lawyers have been turning a blind eye to corporate power and bigness itself. As more and more judges saw competition in terms of low prices, they interpreted the laws more permissively in favor of large corporations.
So that’s the big picture when it comes to Competition law in Canada. Now, let’s focus on a few key amendments tabled in the April 28 budget bill that are particularly spooking business as a sign of things to come.
Covid reveals problems with the Act
On July 10, 2020, senior executives at three major Canadian grocery store chains were summoned to appear before a parliamentary committee to defend simultaneously cutting COVID-19 pay premiums for workers, saying the wage bump was always intended as a short-term measure and was to be withdrawn as pandemic-instigated lockdowns eased across the country.
“It was a temporary program – during the heat of the pandemic – and it was communicated that way,” Michael Medline, chief executive of Empire Company Ltd., which owns Sobeys, told the House of Commons industry committee Friday. He appeared along with executives from Loblaw Cos. and Metro Inc.
Mr. Medline also told MPs his company is prepared to reinstate the pay premium in regions that return to severe lockdown.
“Should this terrible virus rear its ugly head to the degree that provincial authorities in certain regions of a province go back to lockdown like we experienced in March and April, we will put hero pay back into our company stores in those regions or cities,” he said. “That would be the right thing to do.”
The Covid premium amounted to $2-per hour. It was introduced by all of Canada’s large grocery chains in early March, 2020 amid a wave of panic buying of items such as toilet paper, hand sanitizer and flour. Many grocery chains ended the premium in the first half of June, with a number announcing their decision in the same short period.
The hearings, prompted by a motion by Liberal MP Nathaniel Erskine-Smith, raised questions about the timing of the pay premium reduction and whether companies co-ordinated their decision to end the wage bump. Mr. Erskine-Smith said he wanted to ensure there was no collusion, meaning the illegal (but not criminal) practice of companies making secret agreements to work together to influence a market (in this case, wages).
All three executives were emphatic that their decision to cut the premiums in early June were taken independently and not co-ordinated.
But the House of Commons Industry Committee didn’t agree with the food industry executives and tabled a report recommending that the federal government amend the Competition Act to add wage-fixing to the list of behaviours that can be prosecuted as a criminal offence.
Colluding to keep wages low becomes a criminal offence with jail time of up 14 years
That was 2021. Then, on April 28 of this year the government implemented the Committee’s recommendations (and more) in its budget bill.
If passed, the new amendments would make no-poach and wage-fixing agreements between employers unlawful under the criminal cartel provisions of the Act, including groups of unaffiliated franchisees. Currently, only agreements between competitors over the production or supply of products or services can lead to criminal sanctions and follow on class actions. With the proposed changes, employers that engage in no-poach and wage fixing agreements may be subject to up to 14 years imprisonment, a fine in the discretion of the court (previously the maximum fine was capped at CAD $25 million), or both.
Moreover, there need not be any direct evidence of wage collusion. Circumstantial evidence will suffice.
The government moves to broaden the Abuse of Dominance Provision
The budget bill also included Competition Act changes seeking to ensure that conduct designed to impede the entry of, or otherwise exclude, competitors – including nascent competitors – from the marketplace could infringe upon the abuse of dominance provision in the act.
For example, Bill C-19 would introduce as an “anti-competitive act” a dominant firm engaging in a selective or discriminatory response to an actual or potential competitor in order to impede its entry or expansion, or to eliminate it from the marketplace entirely. In assessing the extent to which the impugned practice lessens or prevents competition substantially, the Tribunal would also now be able to consider the impact on barriers to entry (including network effects), on price and non-price competition (including quality, choice and consumer privacy), and the extent and relevance of innovation in the market.
False and Misleading Advertising—Drip Pricing Explicitly Prohibited
The proposed amendments would also explicitly recognize “drip pricing” as anti-competitive conduct prohibited under both the criminal and civil false and misleading advertising provisions. Drip pricing is the practice of offering or advertising unattainable headline prices to attract consumers while adding or burying additional fixed obligatory charges or fees in the final price, making the initial headline price unobtainable. These amendments would align the Bureau’s recent enforcement approach against drip pricing practices under the existing false and misleading advertising provisions, and arguably make it easier for the Bureau to challenge drip pricing.
Where the business community fears the Trudeau government is going with the Competition Act
On October 27, 2021, Senator Howard Wetston issued a consultation invitation intended to inform future parliamentary consideration of the Act, particularly its fitness for the digital era, contextualized by a paper he commissioned from Professor Edward Iacobucci of the University of Toronto, which made some suggestions for reform. The consultation garnered 23 responses. While some of these responses advocated for the status quo, others advocated for limited to wide ranging reform proposals with a varying likelihood of adoption. According to a Toronto Star article, the government is considering Senator Wetston’s findings
Perhaps the best indicator of where the Trudeau government may be going with its own review, is the Competition Bureau’s submission to the Wetston consultation. While the Bureau’s submission is entitled Examining the Canadian Competition Act in the Digital Era, most of its recommendations are not directly related to ensuring the Act’s effectiveness in addressing anti-competitive behaviour in the digital economy. Rather, the Bureau’s recommendations reflect a desire to make a sea change to virtually all aspects of Canadian competition law from both a substantive and procedural perspective. In fact, the Bureau’s recommendations are similar in many ways to proposals for reform in the US, UK, EU, among other jurisdictions.
While the Bureau’s comments are made in the context of a Senate consultation process, they provide a clear picture as to the type of competition enforcement regime that the Bureau will advocate for during the federal government review of the Act. Looked at holistically, the Bureau is seeking to create a competition regime in which it has much more power and a much bigger stick. And the Bureau is very clear on the efficiency defense – it wants it gone.
And of course, the Government must have the support of the NDP to get its Competition Act changes through. To get a sense of the kind of recommendations the NDP may be pushing, it might be useful to take a look at “Study of Competition Issues in Data-Driven Markets in Canada” prepared for the Ministry of Innovation, Science and Economic Development. The recommendations in this paper are far more sweeping than even the Competition Bureau’s “sea change” recommendations.
No, Bay St. is not happy.
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