By Aaron Wudrick, November 27, 2023
The Trudeau government introduced Bill C-56 at the start of the soon-to-be wrapped up fall legislative sitting. The government bill signaled (at the time) a major overhaul of Canadian competition law, proposing over a dozen amendments to the Competition Act. While the government continues to assert that these amendments are necessary to foster greater competition in the marketplace, a closer examination of the bill reveals potential pitfalls that could undermine competition, stifle innovation, and result in harm to consumers and economic growth.
The biggest issue with the legislation reflects the government’s backroom deal with the NDP to revise the legal test for abuse of dominance. Any proposal that weakens or removes the Competition Bureau’s obligation to prove that alleged business conduct has resulted in anti-competitive effects in a relevant market would not only mark a seismic shift in the burden of proof; it would also be detrimental to competition. This is because the existing “effects test” requires the government or private litigants prove that the business conduct in question substantially harms competition and consumers through increased prices, reduced quality, and/or reduced innovation.
Existing law requires the Bureau to weigh the pro-competitive impact against the anti-competitive effect of business activities in its assessment of complaints. This is crucial because it incentivizes companies to compete aggressively to the benefit of consumers. The upsetting of this balance could therein result in higher prices, lower quality, less innovation and less variety – once again, the polar opposite of the intended purpose of Bill C-56.
The effects test grounds competition law in a careful, fact-based economic analysis, preventing the use of our competition law as a political weapon and safeguarding against enforcement that might (counterproductively) discourage pro-competitive behavior. Deeming potentially pro-competitive conduct as inherently harmful would create a more hostile business environment likely to dissuade companies from innovating and competing vigorously to provide consumers with more and better products and services at lower prices. It could even deter foreign investment. This overcorrection risks stifling economic growth, leaving Canada bereft of scale, efficiencies, and consumer choice.
Equally troubling is the potential increase in private litigation over alleged abuses of dominance. Weakening or removing the requirement to prove harmful conduct, coupled with higher penalties for firms found to be in violation of the provision, could cause companies to retreat from competing vigorously for consumers out of an abundance of caution.
More to the point, diluting the threshold required to prove abuse of dominance is discriminatory to larger competitors who leverage their market position to better meet the needs of customers. While it is entirely appropriate for the Competition Bureau to keep a close eye on major players to ensure their conduct is above-board, it’s ill-advised to impose the equivalent of a reverse-onus on businesses based solely on their size.
Such a change would represent a step backward from the Competition Bureau’s current recognition that conduct falling under the scope of abuse of dominance is not inherently undesirable and can often be pro-competitive and efficiency-enhancing. Such conduct, when subject to overly broad regulations, risks chilling or deterring pro-competitive and efficiency-enhancing behavior, undermining the central objectives of the Competition Act.
While it is reasonable to amend legislation to adapt to evolving market dynamics, portions of C-56 – and, in particular, the changes it proposes to the effects test – are misguided. To maintain a robust and effective competition law, it is crucial to approach legislative changes with a clear understanding of their potential impact (both positive and negative) and a commitment to preserving the delicate balance that underpins fair and open markets. Accordingly, the government should preserve the effects test and recognize the considerable risks of altering abuse of dominance enforcement guidelines.
It may be politically appealing to be seen attacking large businesses, but if the result is demonstrable harm to consumers, the Trudeau government should think twice.
Aaron Wudrick is the domestic policy director at the Macdonald-Laurier Institute.
