This article originally appeared in the Financial Post.
By Aaron Wudrick, November 30, 2022
The Trudeau government has formally launched a consultation on the future of competition policy in Canada. It follows changes to the Competition Act that were included in the government’s spring budget bill but were little debated by parliamentarians and received almost no attention in the press. That’s unfortunate, given that the revisions represent major changes in Canadian competition law.
The consultation is purportedly to consider whether changing competition law is necessary to address an evolving digital marketplace. But it asks Canadians to consider an entirely new vision of competition policy: a less focused competition law that is a multi-purpose tool for answering wider social challenges. As so often, well-intentioned policy broadening could seriously damage Canada’s economy.
Existing Canadian competition law has clear purposes, articulated in the Act, to “maintain and encourage competition in Canada in order to promote the efficiency … of the Canadian economy” and to “provide consumers with competitive prices and product choices.” This makes clear in unambiguous English that the act has two goals: marketplace efficiency and enhancing consumer welfare.
In assessing recent changes to Canadian competition policy and considering potential future ones, it’s important to evaluate how well they align with these intended purposes. Modifying the act too dramatically could undermine the ends it sought to achieve in the first place.
Although many observers seem to assume that an evolving digital marketplace merits substantial revisions to competition law, this view is not universally held. A 2021 Macdonald-Laurier Institute report concluded the consultation should focus on incremental, not wholesale, reforms — especially given the confusing, haphazard changes introduced this past spring.
Perhaps most controversially, the changes to the Act increase the severity of administrative monetary penalties (AMPs) for companies that abuse their dominant commercial positions. Before June 23, the maximum AMP was $10 million for a first contravention and $15 million for subsequent infringements. Now firms face those penalties or up to triple the benefit they derive from the contravention. If that benefit cannot be reasonably determined, it could be up to three per cent of their gross annual worldwide revenues, a substantial financial blow.
The new AMP structure is riddled with problems. First, the wording is vague. What does three per cent of “annual global revenue” mean? If XYZ Canada (a subsidiary of XYZ Global) abuses its dominant market position, is it liable for three per cent of the worldwide revenue of XYZ Global or only of XYZ Canada? This distinction matters, especially when you’re dealing with millions, if not billions, of dollars.
An AMP is a fine applied without criminal due process, which may raise questions about the constitutionality of such large fines, since they are not intended to be a punitive remedy — their purpose is deterrence. As a practical matter, higher AMPs will deter domestic and foreign investment in Canada, discouraging businesses from setting up shop here. Coupled with the red tape and regulatory burdens companies already face in Canada, this could be a recipe for disaster, especially as we teeter on the brink of a recession.
Finally, there is the act’s perplexing new definition of anti-competitive behaviour: conduct that is “intended to have a predatory, exclusionary or disciplinary negative effect on a competitor, or to have an adverse effect on competition.” But negative effects on competitors do not necessarily harm competition. Indeed, is it really competition if there aren’t negative effects on competitors? Negative effects may well be the natural outcome of a legitimate, healthy competitive process. Conflating harm to competition with harm to competitors demonstrates how these new changes move the act away from its original purpose of protecting competition in the marketplace.
The Competition Act has largely served Canada well because it has been deployed, not as a does-all-jobs Swiss Army knife but as a surgical instrument intended for a specific purpose. However well intentioned, enlisting competition policy in the fight against other societal ills risks rendering it ineffective at what it was designed to do: serve the best interests of Canadian consumers.
Aaron Wudrick is director of the domestic policy program at the Macdonald-Laurier Institute.