Finance Committee on April 30th, 2024

[Ryan Turnbull, Liberal, Whitby, ON]

My understanding is that in the United States, the FTC merger guidelines include “does not result in harm to competition”, which is not to say no change to competition. Those are not equivalent. Is that correct?

[Martin Simard]

Again, that would be my understanding of it. The commissioner came here and testified that in his view in the U.S., the authorities considered that it's zero harm to competition. At the same time, when you look at the text and the guidelines and so on, it never talks about zero competition. It talks about remedying the problem and remedying the harm. That's, to your point, a very technical area of law.

What I think we feel more comfortable saying is that in the Canadian context, because we're not experts on all the laws of competition around the world, it seems that it would create a different standard for a challenge and for the remedies. That is something we feel.

[Ryan Turnbull, Liberal, Whitby, ON]

What ultimate impact would that have, then? We often talk about interoperability. In our conversations in the INDU committee, for sure, that has come up a lot. I'm sure here it's the same.

What challenges does that create in terms of having a different test or standard for both challenge and remedy?

[Martin Simard]

I will let my colleague answer that.

[Samir Chhabra]

I think it's not so much of a question of interoperability in this case from a technological perspective, or from a rules-based perspective, but it does speak to an inconsistency that could be created such that mergers that do not meet the threshold of creating a substantial lessening or prevention of competition could continue to move through because they could not necessarily be challenged by the commissioner in front of the tribunal.

However, those that do reach that threshold of substantial lessening or prevention of competition are taken to tribunal and are then forced to be remediated to a point where they are bringing back the competition playing field to what is considered to be a zero change to the competition or concentration effects that would have prevailed otherwise.

What we're talking about here is a bit of an inconsistency potentially, whereby some mergers could move through without tripping that SLPC threshold, but those that do trip that threshold would then need to be remediated all the way back down to zero. That's where the inconsistencies hold.

I think Mr. Simard's point earlier as well is that there could be a scenario in which a firm or firms propose a merger that it is determined to trip the SLPC threshold, the commissioner takes the case forward, and then the parties simply withdraw that proposed merger and resubmit a merger that just skirts under the wire.

There are some potential logistical challenges in how this would operate in practice that we're proposing the committee consider.

[Ryan Turnbull, Liberal, Whitby, ON]

Is it an over-remediation then for anything that trips that SLPC standard and is challenged? I'm trying to simplify a bit and understand what the impact would be.

Maybe an example would be helpful. I don't know if you have an example that you could use to illustrate the point. It would be helpful for us—certainly for me. I have studied this and talked about it, and even debated it with colleagues, and still I'm trying to make sure we understand the impact. I'm just trying to be thorough here, folks.

[Martin Simard]

Let's try a theoretical situation very quickly. Imagine four companies in the same sector, which we'll call the retail sector—we have four retailers. Two merge, and they are just under the threshold of substantial lessening of competition; therefore, they're allowed to go ahead. Then the other two merge and are deemed to trip over the threshold, and they're challenged. They are not allowed to go ahead. In the sector, you have a bit of unfairness here: The first two were able to merge, because they were just under, but the other ones, because they were above, get a remedy, and they're forced not to merge at all, for example, so they've been treated differently even though they're in the same sector.

I think what the commissioner would say is, “Yes, but the two others should have known better when they tripped the SLPC threshold, and that's an incentive for them to never trip that threshold.” However, in practice, that can be very hard for businesses to foresee. The process is supposed to be what allows the right outcome to occur.

[Ryan Turnbull, Liberal, Whitby, ON]

That was very helpful. Thank you.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Turnbull.

I have Ms. Dzerowicz and then Mr. Chambers.

[Julie Dzerowicz, Liberal, Davenport, ON]

First, thank you for being here and for answering all these questions.

I think part of the reason it's so important, at least for me, is, one, we have made some really amazing progress on and generational change to our competition law, and when the commissioner came, he acknowledged that. Then he also said he felt there were two really important additions we also needed to consider for C-59. My ears did perk up at that, because I think he was very happy with C-56, C-19 and, now, the changes around competition here in C-59. However, he then very deliberately said there are two things he really feels we need to have right now. I believe, if I'm correct, the amendment that's before us.... It was when he was talking about merger reviews that he said:

Merger review is our first line of defence for protecting competition. However, when we find that a merger is anti-competitive, the law does not require strong remedies.

That's this one that we're referring to.

Then he said:

The Supreme Court held that the goal of a merger remedy is simply to mitigate the harm from a merger so that it is no longer substantial, and to do so in the least intrusive way. As a result, we sometimes end up with merger remedies that take a strong competitor in a market and replace it with a weaker one.

Do you agree with his assessment on that? Do you agree with those statements?

[Martin Simard]

It's asking us to opine on the decisions the tribunal has taken over the years.

I think the tidbit about the “least intrusive” remedy is fairly universal. If you look at all the merger guidelines around the world, there's a network of enforcers, and they have this part. I think the notion is you want to stop the harm, but you want to keep, if you can, the benefits of a merger, like efficiencies and so on. I don't think Canada is unique in taking the least intrusive remedy that fixes the problem. I think that's the important caveat.

I agree with you that those were the two things the commissioner highlighted, and he clearly feels that the decisions over time have been too timid and the tribunal should be constrained by the act to be more aggressive. It is also perhaps worth replacing this in the overall reforms of C-56 and C-59, which generally really strengthen...so, no efficiencies defence and stronger abuse of dominance. There's a lot that has been changed.

We were also going to talk about the potentially structural remedies just after this, and there's already the ability now for the tribunal to take into account market share alone, so there's a lot that has been done. Even if the diagnostic is that it was too weak before, there has already been a lot of change to strengthen this, and whether this one is needed or not is a question for the committee.

[Julie Dzerowicz, Liberal, Davenport, ON]

I have two more questions, if that's okay.

I forgot to say in my preamble the other reason this is really of great interest to me. If you look, overall, at the various different sectors in Canada, what you'll see is that we have high concentrations of very few players. We also have very little business investment for really long periods of time, even before the pandemic, when we had 10 years of low interest. There are so many different factors that actually led you to believe that our competition law really needed to be upgraded. You're right. We've made so many changes, and again, that was lauded by our competition commissioner. From what I recall, he said that it just brings us to where everybody else is. I think he was saying that if we really want to be competitive and want to make sure we have a competitive marketplace, these were two other additional ones he really felt we needed to have.

Then he did go in.... I know you talked a bit about this when you were answering some of Ryan's questions. The commissioner talked about the U.S., the European Union and the United Kingdom. He said:

The U.S. accepts only merger remedies that fully maintain competition, reflecting, once again, a common-sense view that the public should not bear the cost of a risky remedy.

In the European Union, merger remedies have to eliminate the competition concerns entirely, and have to be comprehensive and effective from all points of view.

In the United Kingdom, the objective is to ensure that competition, following the remedy, is as effective as pre-merger competition.

Is all of that in each of the countries? You might not know this, because it's technical. Is this legislation that each of these countries has, or is it regulation? What I'm trying to say is that if we don't exactly put this into our own legislation, do we have a chance of putting it in regulations or some sort of set of rules that doesn't require it to be in the laws?

It's a two-part question. Is that all legislation in the U.S., the European Union and the U.K.? That's part one. Part two is this: Does that require us to put this into our legislation, or do we have a chance, moving forward, to find a way to address this concern or this recommendation that the commissioner has come up with in a way that doesn't need to have this included in the legislation?

[Martin Simard]

I will take the first one.

In every jurisdiction that we're aware of, it's typically a combination of the statute and then enforcement guidelines. At least, that's the case for the U.S., which we're more familiar with and which is very similar to us. In the statute, they don't have the substantial lessening of competition, but it has to substantially lessen competition or tend toward monopolization. You can see that there is, similarly, a high-level test. Then it's in the FTC guidelines on mergers that give the colour of what they mean by that. I think that is what the commissioner has quoted. Their intention is to restore...to completely resolve the harm caused by a merger. That is the stated intention of the enforcement agency.

In Canada, it's the same. We have the statute, and then we have the enforcement authorities that issue guidelines on how they go about it. Then we have the ultimate arbiter, which is the tribunal and the courts if there's judicial review. It's a bit of a feedback loop, because when the tribunal adjudicates something, it gets integrated into the guidelines and so on. With regard to your question, there is no regulation-making power in the law about what is defining a substantial lessening of competition. It is a statutory threshold that has been interpreted by the guidelines of the enforcers and then through the courts.

[Julie Dzerowicz, Liberal, Davenport, ON]

We don't need to include entire legislation to be able to put this into effect for the commissioner's recommendation. That's my question.

[Martin Simard]

If the intention is to follow the commissioner, we need to amend the legislation. There is no other regulatory mechanism, for example, to give instructions to the tribunal about what is a substantial lessening of competition.

[Julie Dzerowicz, Liberal, Davenport, ON]

I have just one more question. I'm almost embarrassed to ask you this, but I'm going to ask anyway, because I feel I should know it. It's a process question. The commissioner made some recommendations, and you guys are part of, I think, probably a big group or team of experts who advise our government. If there were recommendations from the commissioner, wouldn't you be meeting with him from time to time? It would be to sort of say, “Oh, you've made these recommendations. Here's what we're thinking. Here's what you're thinking.” Have you had a chance to have that discussion around this?

[Samir Chhabra]

Indeed, there's a good, effective dialogue on policy and enforcement matters that we engage in routinely with our Competition Bureau colleagues. On these issues, we have had engagements and discussions, and it comes down to a very similar issue that we raised earlier. It's about where the appropriate balance point is between the ease of enforcement versus the compliance burden or the impacts to business. In this case, our view is simply that it was important to raise to the committee's attention that this could have potential effects in terms of the impact on fairness, as Mr. Simard pointed out earlier, and in terms of the equity with which all the proposed mergers would be treated.

Then, also, there is the issue whereby a merger could, in fact, be proposed, withdrawn and then reproposed, with a slightly different formulation that would allow it to slip underneath. That's the reason we wanted to raised these for consideration.

[The Chair, Liberal, Peter Fonseca]

Thank you, Ms. Dzerowicz.

I have Mr. Chambers, Mr. Turnbull and then Mr. Ste-Marie.

[Adam Chambers, Conservative, Simcoe North, ON]

I would be very interested to hear what Mr. Ste-Marie has to say on this so we may find out where some others sit.

It's hard to follow. This is a simple question—well, it's maybe not simple. Would this amendment or any of the other number of amendments that you mentioned that have come to the Competition Act have provided the government or the Competition Bureau with additional powers to look at the RBC and HSBC merger, as an example?

[Samir Chhabra]

I am avoiding the fact specifics of that particular case or example, in the sense that there are a number of important changes to the Competition Act that have been proposed—there's Bill C-56, which has received royal assent, and then again there are changes being proposed here through Bill C-59. I think the key piece to recognize is that on mergers in certain federally regulated sectors, including in finance and including in transport, for example, there's a two-key system. There's the Competition Bureau making its assessment and providing analysis and advice, and then there's also an opportunity for a ministerial decision to be taken. Nothing that's being proposed here or in Bill C-56 specifically changed those ministerial engagements.

[Adam Chambers, Conservative, Simcoe North, ON]

It changed the Competition Bureau's powers, though. Is that correct?

[Martin Simard]

If memory serves me a little, I think the bureau reviewed that merger and didn't find that it reached the threshold of a substantial lessening of competition. Here we're talking about remedies, so I don't think it would have had a bearing on it.

[Adam Chambers, Conservative, Simcoe North, ON]

Thank you very much for clarifying that.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Chambers.

I have Mr. Turnbull and then Mr. Ste-Marie.

[Ryan Turnbull, Liberal, Whitby, ON]

I have a quick one for clarification.

Will the amendment proposed, NDP-12, give Canada a stricter framework than the U.S. and potentially affect our productivity?