How Canada's largest corporations won the Competition Act battle
Former MP and consumer advocate says he faced the "Praetorian Guard of those who had an interest for major companies"
On February 6, 2009, with a potential recession looming, Stephen Harper’s federal government tabled Bill C-10, a budget implementation bill and urgent stimulus package.
But it was not just that. Tucked within its over 500 pages was an unrelated but consequential legislative overhaul: "the most significant amendments to the Competition Act since 1986,” according to Davies Ward Phillips & Vineberg.
Many MPs and senators were upset by this omnibus inclusion, and chief among the concerned was then Liberal MP and longtime competition reform advocate Dan McTeague.
This was set to be the greatest competition law overhaul in a generation, McTeague declared on the House of Commons floor, but it was “done without great consultation.”
Bill C-10 received royal assent on March 12, 2009 and its iteration of the Competition Act has remained largely untouched.
Competition laws – which seek to optimize the mysterious forces of the markets – are aggressively technical. Notwithstanding their profound impact on the size and power of Big Business, most people have neither the time nor the inclination to dive in.
But a careful analysis of Bill C-10 suggests that its amendments to the Competition Act were the product of a federal review process rife with corporate involvement, and the changes further entrenched a Canadian approach to competition policy which encourages corporate concentration.
This was, arguably, a massive win for Canada’s largest corporations, many of which had already achieved market dominance amidst the country’s relatively permissive competition laws.
This process, and the ways in which industry has involved itself in Canadian competition policy, are matters that few are more qualified to comment on than Dan McTeague, who for years tried to strengthen enforcement of the Competition Act amidst what he recalls was heavy opposition.
“I had the Praetorian Guard of those who had an interest for major companies stand in the way to protect and to prevent any changes, no matter how important, how rational, how necessary they were,” McTeague told me in an interview.
“My enemies were legion.”
Efficiencies and Concentration
Essentially, Canada’s competition laws are there to get Canadians the best bang for their buck out of the markets.
There are different proposed strategies for how to do exactly that, and there has been much debate about which strategy represents the best choice for Canadians.
But one thing is for sure: today’s markets have gotten a lot of people to think very hard about how Canada should regulate competition. Starting with the Competition Act, which is the foundational statute of Canada’s competition policy.
The Act empowers and is largely enforced by the Competition Bureau.
The Bureau can do things like contest market shifting corporate mergers, as it did in its so-far-unsuccessful attempt to block Rogers from acquiring Shaw, or investigate particular corporate conduct, like its ongoing probe into alleged bread price-fixing among grocery chains.
Naturally, gigantic corporations often display a keen interest in the form and enforcement of competition policy.
The core of the debate has always been about whether Canada’s policy should prioritize economic efficiency over the protection of smaller businesses and consumers. And for most part, efficiency has won out.
This has meant that the country’s competition policy has largely focused on private wealth generation while showing a relative lack of interest in wealth inequality and consumer protection. By design.
As University of Toronto professor and competition law expert Edward Iacobucci recently wrote in a blog post, “efficiency analysis declines to judge who is a more worthy recipient of a dollar, a consumer or producer, but rather focuses on the creation of that dollar and its distribution to someone.”
In practice, this preference for efficiency informs how tightly Canada regulates mergers and acquisitions. See, efficiencies can be gained by merging corporations. The thought is that the combined entity will operate more efficiently than the two that existed before, and the benefits of that will trickle down.
That said, mergers can lead to greater corporate concentration and reduced market competition. And Canada’s major industries are quite concentrated.
Andrew Coyne, in a Globe and Mail column, neatly did the math for us:
“Just three cellphone companies, Rogers, Bell and Telus, control 90 per cent of the market in Canada. Two large airlines, Air Canada and WestJet, control 80 per cent of the air-travel market. The big five banks control 85 per cent of the market for financial services in Canada (by comparison, in the U.S., the five largest banks account for just over a third of the market).”
Critics of this status quo rail against the downward market effects of allowing such corporate concentration.
But proponents say that the efficiencies generated by allowing more mergers leads to a healthier and more robust Canadian economy – a bigger economic pie from which citizens can extract a higher standard of living.
They further argue that Canada’s need for efficiencies and concentration within its corporate sector has only grown as the world economy has globalized.
Canada has a relatively small population and economy, and in a marketplace full of big international players, Canadian companies better bulk up or risk getting swallowed whole, the argument goes.
These points have been, to put it lightly, contested. Especially of late.
Advocates for reform argue that the slices of the “bigger pie” are rarely divided fairly and efficiencies do not offset the consequences of industry concentration borne by consumers and smaller businesses.
Put another way, they argue that the monopolies and oligopolies that arise under the traditional approach weed out smaller competitors, leaving consumers with few choices and elevated prices.
In my interview with University of Ottawa professor and competition law expert Jennifer Quaid, she explained that much of the intellectual foundation for an efficiency-forward competition policy lacks support.
“Part of the vision, [that] in order for Canada to compete abroad we should allow concentration at home – that isn't panning out," said Professor Quaid.
One problem, Quaid told me, is that a lot of these efficiencies prized by Canadian competition policy are illusory. Quaid explained that the attractiveness of efficiency as an overarching organizing principle for competition is that it feels accurate and objective. The approach produces clean numbers and clean numbers can be comforting.
“I guess the lie to that,” Quaid said, “is yeah, those efficiencies that they calculate turn out to almost never happen.”
Yet the primacy of efficiency in Canadian competition policy has held steady. In fact, there are still those that argue that efficiency should be the only objective of Canadian competition policy. But the tides may be turning.
In this moment of economic turbulence, criticisms of the traditional Canadian approach have found a political foothold. The rising prices of everyday goods and services, along with some high profile mergers within already concentrated industries, have placed our concentration heavy competition policy into the national spotlight.
Canadians will only suffer telecom rates 1000 times more expensive than Finland for so long.
The response from the Trudeau Government has been to launch the first formal review of the Competition Act since the one that birthed Bill C-10.
So far, the federal government’s messaging focus has been on the better protection of small to medium-sized enterprises and consumers – a stark diversion from the traditional Canadian competition philosophy.
In a February 2022 interview with the Toronto Star, Minister of Innovation, Science and Industry François-Philippe Champagne said that the “comprehensive” review will include an examination of the merger review system.
Champagne also cited “record high inflation” and issues of affordability in his November 17, 2022 announcement launching the review.
Competition Commissioner Matthew Boswell has been even more explicit, releasing a myriad of recommendations with respect to the Competition Act and conducting interviews about what he sees as particular deficiencies.
As head of the Competition Bureau, Boswell is not a member of Trudeau’s administration.
Broadly, the talk leading up to and surrounding the current review has been about “modernizing” the Competition Act. This framing makes sense as the pro-concentration status quo has basically maintained itself since the 1980s, and the disruptive nature of the digital economy is good reason to reexamine decades-old policy.
However, if you were to read the governmental materials related to the ongoing review, or the general coverage of this topic, you may be left with the sense that there has been little if any substantive pushback against a pro-concentration competition policy until very recently.
But that is not exactly true.
Killed on the Senate floor
In 2002, the Organisation for Economic Co-operation and Development (OECD) reported on the state of Canada’s competition laws. The report noted that while competition policy in Canada had largely prioritized producer interests for many years, the terms of the debate appeared to be shifting.
“Increasing attention is drawn to how restraints on competition affect the interests of Canadian consumers,” the report continued.
If anyone could be accused of drawing attention to Canadian competition policy, it was Dan McTeague.
As he will tell you, the “Harper Review” of 2007-2008 was actually the culmination of an embittered, decade-long battle over competition reform that arose in the late 1990s.
McTeague himself made several attempts to amend The Act, first to address what he saw as deficiencies in its anti-competitive conduct provisions, and second to neutralize the controversial “efficiencies defence,” which allows for some anti-competitive mergers to pass through the system.
One of McTeague’s bills actually had broad, multi-party support in the House of Commons, only to die quietly on the Senate floor.
And though these Bills were less ambitious in scale than Commissioner Boswell’s current recommendations, McTeague says that his efforts faced sustained opposition from individuals within the federal government, as well as industry lawyers and representatives.
In the end, they outlasted him.
McTeague told me that they simply had deeper pockets and more time.
The Harper Review effected some of his policy suggestions, but it shut the door on his broader efforts to fundamentally reform how Canada regulates competition.
McTeague is now the president of the group Canadians for Affordable Energy and is quoted regularly by the media as a gas price expert. It makes sense, then, that some of his first forays into competition reform were motivated by oil and gas prices.
In the mid-to-late 1990s, McTeague took up the plight of Canada’s dwindling independent gas retailers. Canada’s large oil and gas companies controlled much of the supply to these independent retailers. But the large companies were also vertically integrated on the retail side, meaning they owned their own retailers.
According to McTeague, these companies were using their market position to at once charge an inflated wholesale price to the independent retailers and then turn around and undercut them, by selling to consumers at a lower price through their own retailers. McTeague put forward a private member’s Bill attempting to strengthen the Act against that particular anti-competitive practice.
He says that it created quite a stir.
“I had suddenly everybody and their brother showing up from other industries, telecom, groceries, you take your pick. Because they didn't want it to affect them,” McTeague told me.
That Bill did not become law. And neither did any of his other Bills to amend various parts of the Competition Act. But in one instance, he got pretty close.
McTeague launched his crusade to neutralize the so-called “efficiencies defence” in October of 2000.
This defence made headlines over the last few years as experts wondered whether its application would ultimately determine the viability of the Roger-Shaw merger.
The way in which the efficiencies defence has been applied in Canada is quite unique, in that it works as a kind-of trump card for businesses trying to push anti-competitive mergers through the system.
Over time, it has become a lightning rod – an emblematic point of debate between those pushing an efficiency-forward competition policy and status quo critics.
It is no surprise that the need for the defence’s elimination has been a central talking point of Competition Commissioner Boswell’s reform campaign.
Under the Competition Act, the Commissioner can contest certain proposed or completed mergers out of competition concerns by making an application to the Competition Tribunal, whose final decision can be appealed up the Court system.
If the Tribunal or court concludes that a merger has anti-competitive effects, they can block or dilute the merger. But under the efficiencies defence, if the efficiencies likely to be generated from the merger are greater than and offset its anti-competitive effects, the merger must be allowed.
This determination is both complex and costly, because Canadian case law has put a heavy emphasis on quantification.
The Competition Bureau and the merging party generally hire economic experts to model the anti-competitive effects and efficiencies, which the Tribunal or court weighs against one another in making its determination.
Oftentimes, efficiencies come in the form of staff layoffs, per principal economist at Vivic Research, Robin Shaban.
And how has this weighing of efficiencies versus anti-competitive effects been conducted historically? Inaccurately, according to Professor Quaid.
“A lot of these efficiencies are never realized. And there's no retroactive evaluation of whether or not they're realized,” Quaid explained to me.
“So they put a bunch of promises on the table that are weighed against a very difficult task of trying to quantify potential future anti-competitive effects. And if those promises are bigger than that, then there's no checking to see if the promises are actually realized.”
Not to mention, consumers do not have to benefit directly from the efficiencies for the efficiencies defence to apply, according to the case law.
This means that merging entities have been able to use the efficiencies gained exclusively by the combined entity as a defence for mergers that we know will hurt consumers.
Criticisms of the defence reached a crescendo during Superior Propane’s acquisition of ICG Propane in the early 2000s.
According to Quaid, the concern at the time was that the merger would establish a monopoly in northern Canada — where propane was used for heating — and result in “possibly monopoly level prices being charged in a market where there were high barriers to entry, for something that was essentially necessary for survival.”
But when the Bureau tried to contest the merger, the Tribunal allowed it under the efficiencies defence.
This holding, which survived the appeal process, prompted Dan McTeague to try and amend the defence, and a version of his proposed amendments passed through the House of Commons in 2003 with a vote of 175 to 29.
This Bill would have removed the mandatory language from the defence and made efficiencies just one of several factors in the consideration of a merger.
It also would have required the Tribunal or courts to only consider efficiencies that “provide benefits to consumers.”
Essentially, it would have cut the defence off at its knees, massively reducing its power to shield anti-competitive mergers from governmental intervention. All McTeague needed was the stamp of the Senate.
But it never came.
“I had gone to caucus and said this thing has to be passed. I'm not fooling around Prime Minister. This is good legislation. It passed the House of Commons. I passed the acid test,” McTeague recalls.
“And I had senators come up and say ‘Nah, we're not going to let it pass. We don't like it.’”
McTeague told me that one of those senators actually sat on the board of a large energy company and when McTeague confronted the senator about the fact, the senator just smiled.
“You son of a bitch,” McTeague reportedly said in response.
The Bill did not pass when it was first referred to the Senate in 2003. It was reinstated in the next year, but it died on the Senate floor once again upon the dissolution of Parliament in May 2004.
The Interests of Industry – lobbying, lobbying and more lobbying
Prior to the lobbying registration regime coming into force on July 2, 2008, lobbyists were not required to log specific meetings, but were required to submit returns which detailed the subject matter of their lobbying efforts over a period of time.
During McTeague’s reformist efforts, as well as during the lead-up to the Bill C-10 Competition Act amendments, many large corporations lobbied specifically and consistently about competition policy.
Imperial Oil Limited, one of the largest oil companies in Canada, logged at least 34 registration entries which detailed competition policy lobbying between 1996 and 2009.
Telecom giants also made their voices heard.
BCE Inc. and related entities logged at least 103 entries between 1997 and 2009 which detail lobbying efforts related to competition policy, with at least 12 entries specifically mentioning the Harper government’s competition policy review.
Rogers Communications Inc. and related entities logged at least 17 entries which mention competition between 1997 and 2008.
In tech, Microsoft Canada logged at least 17 entries which mentioned competition policy between 2007 and 2010, and registered a July 21, 2008 meeting with Sheridan Scott, then Commissioner of the Competition Bureau.
The Canadian Council of Grocery Distributors – a now dissolved not-for-profit organization with membership that included Loblaw Companies, Sobeys, Walmart Canada, Metro and Canada Safeway – logged at least 22 entries between 1999 and 2009 detailing lobbying on competition issues.
Several entries between 1999 and 2005 detailed specific lobbying about one of McTeague’s bills, C-472. The Council also logged at least 4 meetings with Competition Bureau officials in January of 2009, which were reportedly about credit card fees.
Canada’s large banks entered the fray as well. TD Bank, for instance, logged at least 38 entries between 1998 and 2008 which mention lobbying about competition or competition related policies.
None of the above mentioned businesses responded to requests for comment.
I asked Dan McTeague about the competition lobbying of major industries during that time.
“It was pervasive,” he told me.
As the years went by, McTeague’s priorities in government began to shift as he took on more responsibilities. Stephen Harper’s election in 2004 also slowed his competition-related efforts.
Still, McTeague continued to push for reform. And other MPs attempted to pass their own Competition Act amendments.
Some of their proposals made their way into the Harper Review of 2007-2008.
But the review excluded any reforms which would impede Canada’s active encouragement of industry concentration. The trump card of the merger review process, the efficiencies defence, stood unchallenged.
And as it turns out, every member appointed to the expert panel for the Harper Review happens to be connected to some of Canada’s most concentrated industries.
Next in Part Two — 15 years later: Competition revisited. Does the Trudeau Government have the stomach for reform?
Adin Wagner is a freelance journalist trained in commercial litigation.
Competition Timeline
March 10th, 1997
Dan McTeague tables Bill C-381 in an attempt to prevent anti-competitive conduct from vertically integrated suppliers
August 30, 2000
Competition Tribunal allows Superior Propane’s merger with ICG Propane based on the efficiencies defence
October 17th, 2000
MP Dan McTeague introduces Bill C-509, first attempt to amend the efficiencies defence
February 7, 2001
McTeague’s second attempt to amend the efficiencies defence via Bill C-248
October 24, 2002
Bill C-248 reinstated as Bill C-249 in the House of Commons
May 13, 2003
Bill C-249 passes through the House of Commons with a vote of 175-29
November 6, 2003
Bill C-249 does not complete committee stage of Senate consideration
February 2, 2004
Bill C-249 reinstated in House of Commons
May 23, 2004
Parliament dissolved prior to the 2004 Election. Bill C-249 dies once again during Senate committee stage
February 6, 2006
Stephen Harper sworn in as Prime Minister
July 12, 2007
Harper Government announces the creation of the Competition Policy Review Panel
Jun 26, 2008
Release of the Competition Policy Review Panel’s “Compete to Win” Report
February 6, 2009
Tabling of Bill C-10, which includes “the most significant amendments to the Competition Act since 1986”
March 12, 2009
Bill C-10 receives Royal Assent
Brilliant! Thank you. Let’s see just how “progressive” Trudeau’s govt is on meat and potatoes stuff like corporate concentration.
I bought Wilful Blindness for my son, a busy entrepreneur with a family who hasn’t time to dig into things. He was shocked. He’s moving to London in a few weeks. While arranging payment on rent for a flat because it was above a certain threshold he was required to prove that he wasn’t using laundered money. He said he did an eye roll when the realtor informed him of that. But after he read your book, he understood why. He also thinks the reason Canada wasn’t invited into the Australia-UK-US partnership on Nuclear Powered Submarines may be because we’re a security threat. At least he is thinking. So, thank you.