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Competitiveness Agenda: The Legal Foundations

The Investment Canada Act

1.  The Minister of Industry should introduce amendments to the Investment Canada Act as follows:

  1. raise the review threshold to $1 billion, replace gross assets as the standard of measurement with enterprise value of the acquired business, and continue to index this threshold for inflation in accordance with the current NAFTA formula;
  2. raise the threshold for the review of foreign investment in the transportation sector (including pipelines), non-federally regulated financial services and uranium mining from $5 million to the $1 billion threshold recommended above;
  3. change the applicable review standard and reverse the onus within the ICA, which currently requires applicants to demonstrate “net benefit to Canada,” to require the relevant minister to be satisfied that consummation of the proposed transaction would be contrary to Canada’s national interest, before disallowing the transaction;
  4. remove the obligation under the ICA to notify Industry Canada with regard to an acquisition that falls below the threshold for review or for the establishment of any new business;
  5. state that neither recommendation 1.a, 1.b nor 1.d would apply to the administration or enforcement of the ICA as they relate to cultural businesses; and
  6. revise the ICA’s purpose clause (section 2) to remove Industry Canada’s responsibilities to promote foreign investment in Canada.

2.  The Minister of Industry and the Minister of Canadian Heritage should increase the use of guidelines and other advisory materials to provide information to the public concerning the review process, the basis for making decisions under the ICA, and interpretations by Industry Canada and the Department of Canadian Heritage regarding the application of the ICA. Additionally, amendments to the ICA should require the Ministers to:

  1. report publicly on the disallowance of any individual transaction under the ICA, giving reasons for such action being taken; and
  2. table an annual report to Parliament on the operation of the ICA.

3.  The Minister of Canadian Heritage should establish and make public a de minimis exemption clarifying that the acquisition of a business with cultural business activities that are ancillary to its core business would not be considered a separate cultural business nor be subject to mandatory review by the Department of Canadian Heritage. For the purpose of applying this exemption, the cultural business activities would be considered de minimis if the revenues from cultural business activities are less than the lesser of $10 million or 10 percent of gross revenues of the overall business.

4.  Consistent with recommendations for other sectors, the Minister of Canadian Heritage, with advice from stakeholders and other interested parties, should conduct a review every five years of cultural industry policies, including foreign investment restrictions. The first such review should be launched in 2008. As a matter of priority, the first review should consider:

  1. increasing and revising the threshold for the review of acquisitions of cultural businesses; and
  2. the desirability of the Minister of Canadian Heritage continuing to have the right to require the review and approval under the ICA of any new cultural business establishments by foreign investors.

5.  In administering the ICA, the ministers of Industry and Canadian Heritage should act expeditiously and give appropriate weight to the realities of the global marketplace and, in appropriate cases, the ministers should provide binding opinions and other less formal advice to parties concerning prospective transactions on a timely basis to ensure compliance with the ICA.

Sectoral Regimes

6.  Individual ministers responsible for the sectors addressed in this report should be required to conduct a periodic review of the sectoral regulatory regime with a view to minimizing impediments to competition as well as updating and adapting the regulatory regime to reflect the changing circumstances, needs and goals of Canada. This review should be modelled on the Bank Act process and should occur on a five-year cycle. Ownership restrictions should be reviewed on the basis of:

  1. a statement of policy goals that reflect the current Canadian reality;
  2. an understanding that limitations on competition and investment may be required to address a market failure, a paramount social policy or a security objective;
  3. an understanding of the costs and benefits of any such restriction on competitive intensity; and
  4. an evaluation of whether existing restrictions — or alternative approaches
    — are the optimal means of achieving the stated policy goals.

Air Transport

7.  The Minister of Transport should increase the limit on foreign ownership of air carriers to 49 percent of voting equity on a reciprocal basis through bilateral negotiation.

8.  The Minister of Transport should complete Open Skies negotiations with the European Union as quickly as possible.

9.  The Minister of Transport, on the basis of public consultations, should issue a policy statement by December 2009 on whether foreign investors should be permitted to establish separate Canadian-incorporated domestic air carriers using Canadian facilities and labour.

Uranium Mining

10.  The Minister of Natural Resources should issue a policy directive to liberalize the non-resident ownership policy on uranium mining, subject to new national security legislation coming into force and Canada securing commensurate market access benefits allowing for Canadian participation in the development of uranium resources outside Canada or access to uranium processing technologies used for the production of nuclear fuel for nuclear power plants.
Telecommunications and Broadcasting

11.  Consistent with the Telecommunications Policy Review Panel Final Report 2006, the federal government should adopt a two-phased approach to foreign participation in the telecommunications and broadcast industry. In the first phase, the Minister of Industry should seek an amendment to the Telecommunications Act to allow foreign companies to establish a new telecommunications business in Canada or to acquire an existing telecommunications company with a market share of up to 10 percent of the telecommunications market in Canada. In the second phase, following a review of broadcasting and cultural policies including foreign investment, telecommunications and broadcasting foreign investment restrictions should be liberalized in a manner that is competitively neutral for telecommunications and broadcasting companies.

Financial Services

12.  The “widely held” rule applicable to large financial institutions should be retained.

13.  The Minister of Finance should remove the de facto prohibition on bank, insurance and cross-pillar mergers of large financial institutions subject to regulatory safeguards, enforced and administered by the Office of the Superintendent of Financial Institutions and the Competition Bureau.

The Competition Act

14.  The Minister of Industry should introduce amendments to the Competition Act as follows:

  1. align the merger notification process under the Competition Act more closely with the merger review process in the United States; the initial review period should be set at 30 days, and the Commissioner of Competition should be empowered, in its discretion, to initiate a “second stage” review that would extend the review period for an additional period ending 30 days following full compliance with a “second request” for information;
  2. reduce to one year the three-year period within which the Commissioner of Competition currently may challenge a completed merger;
  3. repeal the price discrimination, promotional allowances and predatory pricing provisions;
  4. repeal the existing conspiracy provisions and replace them with a per se criminal offence to address hardcore cartels and a civil provision to deal with other types of agreements between competitors that have anti-competitive effects;
  5. repeal the existing resale price maintenance provisions and replace them with a new civil provision to address this practice when it has an anti-competitive effect. This new provision should be subject to the private access rights before the Competition Tribunal;
  6. grant the Competition Tribunal the power to order an administrative monetary penalty of up to $5 million for violations of the abuse of dominant position provisions; and
  7. repeal the “Air Canada” amendments that created special abuse of dominant position rules and penalties for a dominant air passenger service.

15.  The Minister of Industry should examine whether to increase the financial thresholds that trigger an obligation to notify a merger transaction as well as whether to create additional classes of transactions that are exempt from the merger notification provisions of the Competition Act.

16.  The responsibility for competition advocacy should be vested in the proposed Canadian Competitiveness Council. The power to undertake interventions before regulatory boards and tribunals under sections 125 and 126 of the Competition Act should remain with the Commissioner of Competition, unless and until such powers are granted to the proposed Council.

17.  The Competition Bureau should reinforce its commitment to giving timely decisions, strengthen its economic analysis capabilities, give appropriate weight to the realities of the global marketplace and, where possible, provide “advance rulings” and other less formal advice to parties concerning prospective transactions and other arrangements on a timely basis to ensure compliance with the Competition Act.