From the Macdonald Laurier Institute

Aaron Wudrick, for Inside Policy

No party wants to be seen as soft on “big business” but that is a bad reason to pass potentially harmful, counterproductive competition policy legislation.

The recent federal budget was widely panned – in particular by the entrepreneurial class – for its proposal to raise the capital gains inclusion rate. As it turns out, “soak the rich” might sound like clever politics (it’s not) but it’s definitely a poor narrative if your goal is to incentivize and encourage risk-taking and investment.

But while this damaging measure in the federal budget has at least drawn plenty of public ire, other harmful legislative changes are afoot that are getting virtually no attention at all. They’re contained in Bill C-59 – the omnibus bill still wending its way through Parliament to enact measures contained in last fall’s economic statement – and consist of major proposed amendments to Canada’s Competition Act. The lack of coverage and debate on these changes is all the more concerning given that, if enacted, they could have a long-term negative impact on our economy comparable to the capital gains inclusion rate hike.

Worst of all, the most potentially damaging changes weren’t even in the original bill, but were brought forward by the NDP at the House of Commons Standing Committee on Finance, and are lifted directly from a previous submission made to the committee by the Commissioner of Competition himself. In effect, they would change competition law to put a new onus on businesses to prove a negative: that having a large market share isn’t harmful to consumers.

MPs on the committee have acknowledged they don’t really understand the changes – they involve a “concentration index” described as “the sum of the squares of the market shares of the suppliers or customers” – but the government itself previously cast doubt on the need for this additional change. It’s obvious that a lot of politics are at play here: no party wants to be seen as soft on “big business.” But this is about much more than “big business.” It’s about whether we want to enshrine in law unfounded, and potentially very harmful, assumptions about how competition operates in the real world.

The changes in question are what are known in legal circles as “structural presumptions” – which, as the name implies, involve creating presumptions in law based on market “structure” – in this case, regarding the concentration level of a given market. Presumptions in law matter, because they determine which side in a competition dispute – the regulatory authority, or the impugned would-be merging parties – bears the burden of proof.

So why is this a bad idea? There are at least three reasons.

First of all, the very premise is faulty: most economists consider concentration measures alone (as opposed to market power) to be a poor proxy for the level of competition that prevails in a given market. In fact, competition for customers often increases concentration.

This may strike most people as counterintuitive. But because robust competition often leads to one company in particular offering lower prices, higher quality, or more innovative products, those who break from the pack tend to attract more customers and increase their market share. In this respect, higher concentration can actually signal more, rather than less, competition.

Second, structural presumptions for mergers are not codified in the US or any other developed country other than Germany (and even then, at a 40 percent combined share rather than 30 percent). In other words, at a time when Canada’s economy is suffering from the significant dual risks of stalled productivity growth and net foreign investment flight, the amendments proposed by the NDP would introduce one of the most onerous competition laws in the world.

There is a crucial distinction between parliamentarians putting such wording into legislation – which bind the courts – and regulatory agencies putting them in enforcement guidelines, which leave courts with a degree of discretion.

Incorporating structural presumptions into legislation surpasses what most advanced economies do and could lead to false negatives (blocking mergers that would, if permitted, actually benefit consumers), chill innovation (as companies seeking to up their game in the hopes of selling or merging are deterred from even bothering), and result in more orphaned Canadian businesses (as companies elect not to acquire Canadian operations on global transactions).

Finally, the impact on merger review will not be a simplification but will likely just fetter the discretion and judgment of the expert and impartial Competition Tribunal in determining which mergers are truly harmful for consumers and give more power to the Competition Bureau, the head of which is appointed by the federal Cabinet. Although the Competition Bureau is considered an independent law enforcement agency, it must still make its case before a court (the Tribunal, in this case).The battleground at the Tribunal will shift from focusing on the likely effect of the merger on consumers to instead entertaining arguments between the Bureau’s and companies’ opposing arguments about defining the relevant market and shares.

Even if, after further study, the government decided that rebuttable structural presumptions are desirable, C-59 already repeals subsection 92(2) of the Competition Act, which allows the Tribunal to develop the relevance of market shares through case law – a far better process than a blanket rule in legislation. Nothing prevents the Bureau from incorporating structural presumptions as an enforcement screen for mergers in its guidelines, which is what the United States has done for decades, rather than putting strict (and therefore inflexible) metrics into statute and regulations.

No one disputes that Canada needs a healthy dose of competition in a wide range of sectors. But codifying dubious rules around mergers risks doing more harm than good. In asking for structural presumptions to be codified, the Competition Bureau is missing the mark. Most proposed mergers that will get caught by these changes should in fact be permitted on the basis that consumers would be better off – and the uncertainty of being an extreme outlier on the global stage in terms of competition policy will create yet another disincentive to start and grow businesses in Canada.

This is the opposite of what Canada needs right now. Rather than looking for ill-advised shortcuts that entangle more companies in litigation and punt disputes about market definition rather than effects to the Tribunal, the Bureau should be focusing on doing its existing job better: building evidence-backed cases against mergers that would actually harm Canadians.

Aaron Wudrick is the domestic policy director at the Macdonald-Laurier Institute. 

From the Daily Caller News Foundation

By JASON HOPKINS

The United States government is not appropriately addressing the threat posed by growing Chinese ownership of American land, according to a report released by the Heritage Foundation Thursday.

The federal government is woefully ill-equipped to track Chinese-owned real estate in the country, despite the serious threat these Chinese Communist Party-affiliated entities can pose to critical U.S. infrastructure, according to the report. The report calls on federal and state leaders to take action, such as increasing transparency and conducting more critical reviews of land purchases.

“China’s ownership of American land is nontransparent and unscrutinized, and the federal government has failed to address potential threats even as Chinese ownership of U.S. real estate increases,” Bryan Burack, a senior policy advisor for the Heritage Foundation and author of the study, told the Daily Caller News Foundation.

The federal government lacks an adequate system in place to broadly monitor Chinese ownership of U.S. real estate, due to ownership of real estate being overseen by state and local governments, the report notes. For this reason, the U.S. government has no clear picture on China’s total land holdings in the country.

“The United States should be watching land and real estate transactions from our top adversary, not ignoring them,” Burack said.

The Daily Caller News Foundation has reported extensively on Chinese companies’ land purchases in the U.S. For instance, the parent company of  battery maker Gotion, which plans to build factories in Michigan and Illinois, participated in Chinese Communist Party (CCP) programs that acquire technology for China’s military, the DCNF reported. The DCNF also exposed the CCP ties of companies attempting to set up shop near military bases in Kansas.

Smithfield Foods, America’s largest pork producer, is owned by a Chinese firm and exported massive quantities of pork to its China-based “sister company” as that company stockpiled food for the Chinese military, the DCNF exclusively reported.

Chinese entities have spent over $100 billion acquiring American companies since 2010, with many of these businesses owning real estate across the country, according to the report. In 2020, the National Association of Realtors confirmed that China was the top foreign buyer of American real estate.

The Agricultural Foreign Investment Disclosure Act (AFIDA) does give some insight into the amount of agricultural land being purchased by foreign entities. The latest AFIDA report indicates that Chinese investors own a relatively small fraction of the country’s privately held agricultural land, holding only 346,915 acres, or roughly one percent, of foreign-held acres of private land, as of December 31, 2022.

However, Chinese-owned agricultural acreage grew over five-fold between 2011 and 2021, the report found.

This trend is worrisome because the Chinese government has made numerous, well-publicized attempts to gain access to key locations within the U.S.

Examples the report highlights include China’s attempt to equip a pagoda with signal collection technology and gift it in Washington, D.C., an attempt by a Chinese billionaire to build a wind development project near Laughlin Air Force Base in Val Verde County, Texas, and an attempt by a Chinese agribusiness to develop a cornmeal project just 12 miles from Grand Forks Air Base.

“In both the Val Verde and Grand Forks cases, existing federal government mechanisms proved manifestly unable to contend with threats that were clearly perceivable to the Americans living nearby — as well as, seemingly, to the Defense Department itself,” the report says. “Frighteningly, China’s threat to U.S. military infrastructure only continues to evolve.”

The Heritage Foundation recommended the federal government and state lawmakers enact laws to better equip the country for this growing threat.

“The threat posed by Chinese entities purchasing real estate in the U.S. and using it for malign purposes is real,” the report concludes. “As China presents the United States’ greatest national security threat and has a history of particular threats to real estate and agricultural land, measures to counter those threats must be a priority.”