Federal Budget Suggests Competition Law Changes 

publication 

February 2014

Competition Bulletin
On Tuesday February 11, 2014, Canada's Federal Finance Minister, Jim Flaherty, released Canada's 2014 Annual Federal Budget – The Road to Balance: Creating Jobs and Opportunities. Budgets, not surprisingly, typically deal largely with fiscal matters, not with competition law – nor do they often make changes to framework legislation. Of course, famously, in Canada's 2009 Stimulus Budget, the Competition Act received its largest makeover in over 20 years. The 2014 Budget does not do that, but it does contain a number of measures relevant to competition law.

Geographic Price Discrimination

As signalled in the Government's Fall 2013 Speech from the Throne, the Budget seeks to reduce or eliminate what the Government calls "unjustified cross-border price discrimination". It notes that in its 2013 Budget the Government lowered tariffs on certain consumer goods and is monitoring the effectiveness of that initiative. The 2014 Budget indicated an intention to approach the matter somewhat more prescriptively:

Economic Action Plan 2014 proposes to address another source of the price gap identified by the Senate Committee: country pricing strategies – that is, when companies use their market power to charge higher prices in Canada that are not reflective of legitimate higher costs. Evidence suggests that some companies charge higher prices in Canada than the U.S. for the same goods, beyond what could be justified by higher operating costs. Higher prices brought on by excessive market power hurt Canadian consumers.

The Government intends to introduce legislation to address price discrimination that is not justified by higher operating costs in Canada, and to empower the Commissioner of Competition to enforce the new framework. Details will be announced in the coming months.

This is an interesting development, as provisions which had made some forms of differential pricing between regions of Canada a criminal offence had been removed by the 2009 Budget amendments to the Competition Act.

The above quote raises serious questions as to how such rules will work, whether only those companies who have market power will be subject to this new framework and, more fundamentally, whether amendments to the Competition Act are contemplated which would make use, rather than abuse, of market power subject to challenge under the Act. Whether the new proposals, when drafted, will have very much to do with competition law, how the Competition Bureau will administer them, or how effective they will be, all remain to be seen. Details of this new framework are expected to be provided in the coming months.

Credit Card Fees

The debate respecting the appropriateness of rules and arrangements to make credit card systems work, and particularly the so called "honour all cards" and "no surcharge" rules, as well as the setting of system default interchange rates, have been the subject of regulatory and antitrust consideration around the world. In Canada, the Competition Bureau brought a case against MasterCard and Visa before the Competition Tribunal, alleging that the rules constituted price maintenance.1 It lost the case.

The 2014 Budget referred to aspects of the Competition Tribunal's reasons, although not to its conclusion. It then provided a somewhat cryptic statement that "the Government will work with stakeholders to promote fair and transparent practices and to help lower credit card acceptance costs for merchants, while encouraging merchants to lower prices to consumers." The Budget also indicates that the Government plans to strengthen the Code of Conduct for the Credit and Debit Card Industry in Canada, in consultation with stakeholders. Exactly what changes are planned is not yet clear.

Other Consumer Measures

Perhaps unsurprisingly, in light of the high profile of mobile communications, some of the 2014 Budget's consumer measures focus on the telecommunications sector. The Budget states that the Government will amend the Telecommunications Act to cap wholesale domestic wireless roaming rates (until the CRTC reaches a decision on the roaming rates issue), preventing wireless providers from charging other telecommunications companies more than they charge their own customers. The proposed amendment would also allow the CRTC and Industry Canada to impose penalties for violating applicable rules.

The Budget indicates that the Government also intends to address competition in the financial services industry, and in particular the ability of new entrants and smaller banks to compete. While these proposals appear to be in the early stages, proposed initiatives include: reviewing and streamlining the approval process for the establishment of new banks and the transfer of provincial credit unions to Federal regulation; improving the ability of smaller banks to obtain funding from Canada Mortgage and Housing Corporation; and, more vaguely, a commitment to "study and consult on other measures to encourage competitive financial services." The Budget also pledges to continue raising consumer awareness about other financial products such as payday lending and collateral charge mortgages. It is not evident that these Budget proposals will have a direct impact on competition law, but they signal the Government's continued focus on areas perceived to be relevant to consumers.

===========================

The 2014 Budget's proposed changes to competition law do not come close to the order of magnitude of those enacted by the 2009 Budget. However, they may have significant impact. The provisions with respect to geographic price discrimination are likely to prove complex to administer and enforce. They do not appear, on their face, to be matters most appropriately addressed by competition law. Similarly, one might question whether the credit card issues – found by the Competition Tribunal not to be violations of the Competition Act – are appropriately the subject of regulatory intervention. Nevertheless both of these matters have found a way into the Budget.

By way of a larger potential concern, insofar as the 2014 Budget suggests that use, rather than abuse of market power – that is, dominant firms charging higher prices if the market will bear higher prices – may be challenged under the Competition Act, that could suggest a very significant shift in the approach to competition law in Canada, and could put us significantly out of step with our largest trading partner. Instead of a system designed to promote aggressive competition and innovation, it may suggest a more regulatory mindset. Beyond these specifics, the broader concern is that competition law may be being asked to do more than it should. There is always a risk in extending antitrust doctrines beyond their natural province, such that they may lose coherence. It is to be hoped that that will not be the case here.

by James Musgrove and Jun Chao Meng

1 The Commissioner of Competition v. Visa Canada Corporation and MasterCard International Incorporated, 2013 Comp. Trib. 10. One of the authors represented MasterCard in the proceedings before the Competition Tribunal.

a cautionary note

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2014