CCA Bulletin 22/08

Ottawa, Thursday, July 3, 2008

“Compete to Win”– Competition Policy Review Panel Tables Final Report

On June 26, 2008, the Competition Policy Review Panel tabled its final report entitled "Compete to Win”. In July 2007, then Minister of Industry Maxime Bernier had given the Panel the mandate

“…to make recommendations to the government on ways to establish the domestic conditions that both encourage Canadian firms to be active and aggressive investors at home and abroad, and maximize Canada's attractiveness as a destination for new investment and talent.”

The Panel acknowledges the need to preserve a distinct approach for cultural businesses and states that “the review of foreign investment related to cultural businesses should continue to be administered separately by the Department of Canadian Heritage. At the same time, the Panel believes that greater openness to two-way trade, foreign investment and talent would increase competitive intensity and ultimately ensure the long-term vitality of Canadian cultural businesses.” As we will see, this approach is likely to raise concerns with regards to the telecommunications and broadcasting industries.

The report notes what it qualifies as an “overreach of the review process to activities and transactions of minimal cultural significance, a lack of clarity on what constitutes cultural products, perverse incentives and outcomes, and adverse impacts on the ability to raise capital and on competition.” According to the authors, business activities currently prescribed under the Investment Canada Act as being related to Canada’s cultural heritage or national identity should be clarified.

The Panel looked at the current foreign investment policy for book publishing, which prohibits the direct acquisition of Canadian publishing companies by foreign investors and “questions the necessity to apply this prohibition so broadly as to capture even those companies that publish virtually no Canadian authors, sell the vast majority of their books outside Canada, and have no printing and distribution activities in Canada. This is likely to have the unintended consequence of driving investment, opportunity and talent outside Canada.”

The authors of the report further state that “investment review requirements ought to be eliminated in cases where other government policies actively encourage foreign investment in a specific cultural industry. This is the case in the film production industry, where tax incentives encourage foreign investment in specific film projects.”

Noting that the Internet is undermining business models and creating new markets and competitive pressures, the report asserts that “maintaining a ‘closed’ regulatory system for the creation, distribution and consumption of cultural products is no longer feasible in the Internet age. Accordingly, Canadian cultural policies require urgent and systematic review in light of the changes wrought by new technology.”

In its fourth recommendation, the Panel proposes that

“Consistent with recommendations for other sectors, the Minister of Canadian Heritage, with advice from stakeholders and other interested parties, should conduct a review every five years of cultural industry policies, including foreign investment restrictions. The first such review should be launched in 2008. As a matter of priority, the first review should consider:

a) increasing and revising the threshold for the review of acquisitions of cultural businesses; and

b) the desirability of the Minister of Canadian Heritage continuing to have the right to require the review and approval under the ICA of any new cultural business establishments by foreign investors.”

Most likely, the area of greatest interest for the cultural sector is the recommendation dealing with telecommunications and broadcasting because of the impact it may have on the crucial cultural objectives included in the current Broadcasting Act. The Panel echoes some of the remarks of the Telecommunications Policy Review Panel in noting that today’s two track legislative and regulatory system, based on the Broadcasting Act and Telecommunications Act, is more reflective of the past than of the current environment. The authors of the report state that with telecommunications and broadcasters bringing many of the same products and services into the marketplace, the different approaches to legislating and regulating these two industries must be revisited.

In its eleventh recommendation, the Panel states that:

“11. Consistent with the Telecommunications Policy Review Panel Final Report 2006, the federal government should adopt a two-phased approach to foreign participation in the telecommunications and broadcast industry. In the first phase, the Minister of Industry should seek an amendment to the Telecommunications Act to allow foreign companies to establish a new telecommunications business in Canada or to acquire an existing telecommunications company with a market share of up to 10 percent of the telecommunications market in Canada. In the second phase, following a review of broadcasting and cultural policies including foreign investment, telecommunications and broadcasting foreign investment restrictions should be liberalized in a manner that is competitively neutral for telecommunications and broadcasting companies.”

The Report does not make it clear who should be responsible for the review of broadcasting and cultural policies but this vagueness was also found in the Federal Telecommunications Review Panel Report. In any case, the recommended review is not likely to be imminent, the terms of the review that the Panel has recommended has the potential to fundamentally alter keystone policies on ownership restrictions and a refocusing of government attention on content. This appears to be an important part of the agenda of the next government no matter which party wins the next election.The Panel also recommends more energy be invested in the negotiation of bilateral and multilateral trade agreements. This would be easier to achieve with a lighter regulatory framework in almost all areas of Canadian economic activity.

The CCA will watch for the formal government response to the Report and will follow closely any related review of broadcasting and cultural policies.

Who was on the Panel?

The Panel consisted of:

• Lynton Ronald “Red” Wilson – Former CEO of Bell Canada Enterprises and many other private and public sector interests.
• Isabelle Hudon –Current President of the Montreal Metropolitan Board of Trade
• P. Thomas Jenkins  - Executive Chairman and Chief Strategy Officer of the Open Text Corporation, Waterloo, Ontario
• Brian Levitt – Co-chair of Osler, Hoskins and Harcourt LLP, Montreal
• N. Murray Edwards – Owner and Chairman of Edco Financial Holdings Ltd., Calgary, Alberta.