Canadian government fast-tracks Competition Act amendments aimed at addressing the cost of living

Prime Minister Justin Trudeau announced Thursday the government is fast-tracking Competition Act amendments aimed at addressing the cost of living in Canada with a focus on the grocery sector¹.

What you need to know

• The proposed amendments would: abolish the efficiencies defence in merger reviews; enhance the Competition Bureau’s information gathering powers in market studies; and limit the use of restrictive covenants in grocery store leases.
• The introduction of these amendments appears to have been expedited by political pressures to attempt to tackle cost of living issues.
• More amendments are expected in the new year covering, among other things, merger reviews.

Background

A process for the review and amendment of the Competition Act has been well underway.

In June of last year, an initial phase of Competition Act amendments was enacted to criminalize naked wage-fixing and no-poach agreements, make it easier for the Competition Bureau (Bureau) to bring and win enforcement actions, expand the scope of private actions, and increase penalties for certain contraventions.

Last November, Innovation, Science and Economic Development Canada (ISED) began public consultations to inform a second phase of amendments to the Competition Act. The scope of the consultations was broad and covered a wide range of competition policy areas, such as: merger review, abuse of dominance, competitor collaborations, effects on labour, deceptive marketing, Bureau enforcement powers, and private recourse. The public submission period closed in March, and ISED received almost 130 submissions from a wide range of stakeholders, including: academic experts; competition law practitioners; labour, consumer and public interest groups; businesses and business associations; and government organizations.

ISED’s Marketplace Framework Policy Branch had planned to review the submissions and publish information about its findings and next steps. Instead, it appears the government pulled these key planned reforms from ISED’s consultation process and is putting them forward on an expedited basis. This is likely due to political pressure to appear proactive in addressing cost of living concerns in Canada.

The proposed amendments

Once passed, the proposed amendments would:

• Abolish the efficiencies defence. The efficiencies defence is a unique feature of Canadian competition law and permits an otherwise anti-competitive merger or agreement where it is likely to bring about gains in efficiency to the broader economy that will be greater than, and will offset, its anti-competitive effects on a particular market. The proposed amendments would abolish this defence.
  
  It is unclear how the removal of the defence will impact food prices. The defence has not featured in any grocery store merger and no such mergers are currently announced or in progress. More broadly, the efficiencies defence has only been relevant in a handful of cases, with few in consumer-facing industries. Rather, the efficiencies defence has featured in transactions involving industries like oilfield waste disposal and industrial chemicals. Notably, the Bureau recently won a major efficiencies case².
• Enhance the Bureau’s information gathering powers in market studies. The Bureau periodically conducts market studies of specific industries to identify competition issues and propose solutions for policy makers. Recent examples include grocery store competition, digital health care services, broadband communications, and financial services. The Bureau currently relies on market participants voluntarily providing information to conduct its market studies. The proposed amendments would allow the Bureau to compel information from market participants.
  
  It is also unclear how these changes will impact food prices. The Bureau’s market studies are not designed to result in enforcement action, and there has been no analysis of whether policy makers would adopt any of the Bureau’s recommendations. More generally, market studies will increase business costs and may contribute to inflationary pressures.
• Limit the use of restrictive covenants in grocery store leases. In its market study on grocery store competition, the Bureau identified property controls (or “restrictive covenants”) limiting the kinds of stores that can open on a property as an inhibitor of competition—and recommended that provincial and territorial governments limit, or even ban, their use. The proposed amendments will “empower the Bureau to take action” against such property controls. The Bureau’s market study noted that peer countries like the United Kingdom, Australia and New Zealand have taken similar action against restrictive covenants in the grocery industry³.
  
  Here, too, it is not clear how this change will impact food prices. A contrary view is that restrictive covenants encourage investments in retail outlets because retailers know that such investments will not be undermined by rivals setting up shop on the same property. In theory, it will allow food retailers to establish locations on the same property as rivals, but it may in fact have the opposite impact by disincentivizing retailers from investing in new stores to the detriment of consumers. It is also not clear that access to retail locations is a material barrier to grocers.

More amendments are expected in the new year, covering merger reviews and at least some of the other areas noted above.