The Canadian government is determined to remedy what it (and many Canadians) regard as an unjustified gap between US and Canadian prices for the same goods. In particular, the government has focussed on what it perceives to be unjustified “country pricing” or “cross-border price discrimination”, ie, businesses charging more for goods sold in Canada than in the US beyond what might be justified by the allegedly higher costs of doing business in Canada.
The government’s interest in this issue followed a report by the Canadian Senate in February 2013 which tentatively concluded that the segmentation of the Canadian and US markets “reduces competition and allows some manufacturers – even some Canadian ones – to practice country pricing between the Canadian and American markets, which may contribute to the price discrepancies between the two countries”.
The government’s first proposal to deal with the cross-border pricing issue was made public in February 2014. Although lacking in detail, the government revealed its intention to amend Canada’s Competition Act to prohibit companies with “market power” from charging higher prices in Canada than in the US where those higher prices were not reflective of “legitimate” higher costs of operating in Canada.
Interestingly, although the Canadian Senate had offered several suggestions for remedying the Canada/US price gap in its 2013 report, it had not included competition law enforcement as a possible solution to consider. Indeed, representatives of the Bureau who testified before the Senate had essentially stated that the solution for any such problem lay elsewhere, underscoring in their remarks that the Bureau is “not a price regulator” and that “high prices in themselves do not mean that a particular market is uncompetitive”.
The government’s proposal to use the Competition Act to tackle cross-border price discrimination met with considerable protest. Opponents argued that enforcing the proposed prohibition would be impractical and costly given that any analysis of cross-border price differences would require a complex comparison of prices and operating costs over a sustained period of time. Echoing the Bureau’s comments before the Canadian Senate, opponents also argued that the government’s proposal would require the Bureau to assume a regulatory role for which it is not qualified. Finally, opponents claimed that other measures, such as tariff reductions and elimination of government supply management of a number of staple agricultural products, would likely be far more effective in reducing any Canada-U.S. price gap.
Notwithstanding these criticisms, the Canadian government has now forged ahead with its plans, albeit in a modified form. Thus, on December 9, 2014, the Canadian government released Bill C-49, the Price Transparency Act, to amend the Competition Act so as to authorize the Commissioner of Competition, the head of Canada’s Competition Bureau, to inquire into whether the selling price of a product or class of products is or was higher in Canada than the selling price of that (or a similar) product or class of products in the United States. The Commissioner may inquire into both the extent of the difference between the selling prices and the reasons for the difference, and issue a publicly accessible report of his conclusions within one year of receiving such information.
In other words, the proposed legislation does not actually prohibit unjustified cross-border price discrimination or prescribe sanctions for such conduct; it only authorizes the Competition Bureau to, in the words of Canada’s Minister of Industry, “investigate price discrimination and expose it”. In that regard, Bill C-49 would also give the Commissioner expanded authority to compel the production of information from entities operating outside of Canada.
Although it can be presumed that the government’s intention was to address at least some of the criticisms levelled against its February 2014 proposal, as is so often the case, the current proposal simply raises new questions and concerns of its own. As an example:
(i) How will the Commissioner decide which companies and products to investigate, particularly as there is no market power requirement?
(ii) Without any legislative standards, how will the Commissioner decide if differences between a company’s Canadian and US prices are discriminatory or not?
(iii) What rights will parties subject to investigation have to dispute or respond to the Commissioner’s negative findings before a report is issued?
(iv) In the absence of penalties or other enforcement measures, is the prospect of a potentially negative report being issued by the Commissioner enough to persuade companies to change their Canada/US pricing conduct?
More fundamentally, Bill C-49 represents a departure from the traditional approach of Canadian competition policy, which is to limit enforcement action to cases where a party has engaged in conduct that contravenes specific prohibitions in the Competition Act. For that reason, the Competition Bureau does not have broad powers to simply inquire into markets or to regulate conduct outside of targeted enforcement action. In attempting to deal with the issue of cross-border price discrimination, however, the government seems to have decided that a departure from these traditional norms is justified.
ORIGINALLY PUBLISHED IN THE 20 JANUARY 2015 ISSUE OF COMPETITION LAW INSIGHT
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This is all very good, but any action that does come about is solely focused on Products. What about the gouging that is going on in the services sector? As an example look at professional indemnity insurance (otherwise known as E&O). The U.S. is far more litigious than Canada, yet E&O Insurgence profession to profession is nearly double here in Canada than it is in the U.S. When the insurance companies in Canada are approached to explain why the huge difference they cite “complaints” increases, but refuse to offer accurate loss-run ratios. One could expect some increase in premiums in this sector due to our heavy regulation of the finance sector, especially in Ontario, but double? The government however is unlikely to act on this,as Canada is essential a service provider, having lost most of it’s manufacturing capability. Limiting the profit of the Service sector would no doubt create havoc for balancing the books, and likely end up in Politicians losing their jobs as the service sector bails on support of the political parties. So here we are, stuck North of the border with nothing but platitudes and rhetoric from those we elect, no doubt more promises of action and delivery of nothing.