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UNCLAS SECTION 01 OF 05 OTTAWA 001115 
 
SIPDIS 
 
STATE PASS FOR USTR 
PARIS PASS FOR USMISSION OECD 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV ETRD CA
SUBJECT: RESPONSES TO CANADA'S COMPETITION POLICY REVIEW 
PANEL AND THE LIKELY RESULTS FOR CANADA'S ECONOMY 
 
¶1. (U) Summary: On June 26, the government-appointed 
Competition Policy Review Panel released its final report 
entitled &Compete to Win.8  The Panel was created in July 
of 2007 and tasked with reviewing Canada's competition and 
foreign investment policies in order to issue recommendations 
to the Minister of Industry on how to increase Canada's 
global competitiveness.  The five member panel found that 
greater competition in Canada's domestic market will boost 
economic performance and lead to a higher standard of living 
for Canadians.  The report included 65 broad recommendations 
to which the government has yet to issue a detailed response. 
 Many reports addressing similar issues of competitiveness 
have appeared in the past and although most were met with 
approval, they have, with one exception, created few tangible 
results.  In light of these past reports and the broad-based 
nature of the current report, it seems unlikely that many of 
the recommendations will translate into direct policy 
changes.  Many critics contend that even if the report's 
recommendations are adopted, they will do little to change 
what has been described as the ingrained Canadian distaste 
for competition.  End Summary. 
 
&Compete to Win8: Recommendations 
--------------------------------- 
¶2. (U) The Competition Policy Review Panel was created on 
July 12, 2007 by the federal Ministers of Industry and 
Finance and charged with producing a report by June of 2008 
examining Canada's global competitiveness based on panel 
research and consultations.  The government formed the panel 
after a string of foreign takeovers in 2006 and 2007 raised 
questions about Canada's ability to maintain ownership of its 
economic base.  For example, Hudsons Bay Company, Canada's 
oldest and most iconic retailer, was bought by South Carolina 
billionaire Jerry Zucker in 2006;  in the biggest foreign 
takeover in Canadian history, aluminum giant Alcan was sold 
to British mining conglomerate Rio Tinto in 2007; and also in 
2007, The Four Seasons hotel chain was purchased by Prince 
Alwaleed of Saudi Arabia.  The panel received input from 
approximately 300 businesses, law firms, governments, 
individuals, academics, unions, and cultural and public 
interest groups in Canada, as well as others from abroad.  In 
addition, the members conducted research studies on various 
subjects and reviewed best practices with officials from the 
U.S., Australia, EU, and OECD.  While the majority of 
recommendations are aimed at government and business, the 
panel hopes the report will be read by all Canadians so as to 
foster a renewed national competitive mindset.  The Panel 
includes members from diverse regions of Canada with 
experiences in a variety of industries and is chaired by L.R. 
"Red" Wilson, a senior executive with both public and private 
sector experience and former CEO of Bell Canada Enterprises 
Inc. 
 
¶3. (U) The final report's overarching proposition is that 
being open to competition is in Canada's national interest. 
To accomplish this, the report recommends the removal of 
legal, regulatory, and policy barriers to competition as well 
as the adoption of conditions to create a business 
Qas the adoption of conditions to create a business 
environment that allows Canadian companies to compete 
globally.  Some of the Panel's major recommendations to 
remove these barriers include raising the dollar threshold 
for takeover bids requiring federal approval; lower and 
&smarter8 taxes; easier entry for foreign firms into 
certain sectors; and removing the ban on bank, insurance, and 
cross-pillar mergers in the financial services industry.  The 
report proposes that the responsibility placed on the bidding 
firm to prove that a foreign takeover is of net benefit to 
Canada be shifted to the government to show why the deal is 
contrary to the national interest.  As evidence of the 
&everything but the kitchen sink8 approach taken by the 
Panel, the report also extends its recommendations to 
streamlining immigration policy, improving the post-secondary 
education system, increasing innovation and R & D funding, 
and harmonizing provincial and federal regulations.  For 
example, by hastening the immigration process for skilled 
foreign workers and producing more university graduates with 
advanced degrees in specialized fields, the report asserts 
that Canada will have the advantage of a highly educated, 
skilled, and flexible workforce crucial to attracting 
investment. 
 
OTTAWA 00001115  002 OF 005 
 
 
 
¶4. (U) The panel stresses that the recommendations of the 
report are not meant to solve short-term economic issues, but 
rather to ensure Canada remains competitive into the future. 
To this end, the report also suggests implementing a 
long-term Competitiveness Agenda for Canada.  As part of this 
agenda, the panel proposes the creation of a Canadian 
Competitiveness Council under the Minister of Industry that 
would monitor and ensure the country's progress and make a 
yearly report to Parliament. 
 
&Compete to Win8: Reactions 
--------------------------- 
¶5. (U) The majority of initial reactions to the Panel's 
report have been positive.  According to Ailish Johnson, 
Senior Director of Competition Panel Response at Industry 
Canada, the report was well-received by Prime Minister Harper 
and Minister of Industry Prentice.  Prentice is currently 
studying the report, and the government is expected to issue 
a formal response in the near future, although there is no 
definite timeline for its release. 
 
¶6. (U) A broad coalition of business groups issued a 
statement applauding the report.  Thomas D,Aquino, President 
of the Canadian Council of Chief Executives, praised its 
&comprehensive, deep, and far reaching8 nature and agreed 
that the best way to address concerns about increased foreign 
acquisitions is by encouraging Canadian companies to compete 
globally rather than by intensifying protectionism.  The 
Canadian Manufacturers and Exporters support the recommended 
regulatory changes, but like many of the business 
organizations, think that the responsibility and mechanisms 
to increase competitiveness lie squarely in the hands of 
policymakers, referring to the report mainly as a &call to 
action8 for governments.  In addition to these two groups, 
the coalition included the Air Transport Association of 
Canada, the Canada-China Business Council, the Canada-India 
Business Council, the Canadian Association of Petroleum 
Producers, the Canadian Bankers Association, The Canadian 
Chamber of Commerce, Canada's Chemical Producers, the 
Federation des chambers de commerce du Quebec, the Forest 
Products Association of Canada, the Insurance Bureau of 
Canada, and Canada's Research-Based Pharmaceutical Companies. 
 
 
¶7. (U) Academics and think tanks are also overwhelmingly 
supportive of the recommendations outlined by the panel, as 
the call for increased Canadian competitiveness has been one 
that many of these groups have been making for years.  Anne 
Golden, President and CEO of the Conference Board of Canada, 
sees the report as an &important contribution to what must 
be a nationwide effort to make our country a more creative 
and successful competitor in the world8 and says that the 
report's proposals are fully consistent with the Conference 
Board's past decade of research on the subject.  Finn 
Poschmann, Director of Research at the C.D. Howe Institute 
(Canada's preeminent economic think tank), agrees with the 
implementation of the panel's recommendations and even urges 
the government to step beyond them in some areas. 
 
¶8. (U) Among those expressing dissatisfaction with the report 
were members of the opposition parties in Parliament and 
Qwere members of the opposition parties in Parliament and 
consumer groups.  President of the Canadian Labor Congress, 
Ken Georgetti, called the report &a waste of time8 that 
reflects only business interests and not what would benefit 
all Canadians.  The New Democratic Party's industry critic, 
Peggy Nash, said the report neglects the real issues 
affecting citizens and firms, such as the high dollar, rising 
fuel prices, and deteriorating infrastructure, and &seems 
like a wish list from the Canadian Chamber of Commerce and 
Council of Chief Executives taken off the shelf.8  The 
Canadian Federation of Independent Businesses, while 
supporting the need for a comprehensive competition policy, 
criticized the recommendation to allow mergers in the 
financial sector, and said that this, along with a focus on 
large corporations, would harm SME growth. 
 
¶9. (U) Indeed, many reactions focused specifically on the 
recommendation to allow mergers of financial services 
companies.  While financial industry players call the 
 
OTTAWA 00001115  003 OF 005 
 
 
proposal &realistic and practical8 and cite domestic 
mergers as key for corporations with a small home market to 
succeed globally, consumer advocates say this would lead to a 
drop in domestic competition, higher fees, and less customer 
service for average Canadians.  For his part, Finance 
Minister Flaherty has noted that lowering the bar to allow 
bank mergers is not a priority for the government. 
 
Background: The Canadian Economic Environment and Past 
Reports Addressing its Shortcomings 
--------------------------------------------- --------- 
¶10. (U) The Canadian problem of lackluster competitiveness is 
not new, and neither are reports that attempt to solve it. 
In her book &Why Mexicans don't Drink Molson: Rescuing 
Canadian Business from the Suds of Global Obscurity,8 
business writer Andrea Mandel-Campbell attributes the 
beginnings of Canada's penchant for government protectionism 
to Sir John A. Macdonald,s National Policy of 1879.  As 
Canada's first prime minister, Macdonald sought to nurture 
Canada's &infant industries8 by enacting high protective 
tariffs, a plan which Mandel-Campbell asserts, &(encouraged) 
the creation of coddled state-sanctioned monopolies while 
entrenching a clique of well-connected businessmen trained to 
seek government favor.8  However, she says that what really 
embedded the National Policy into the Canadian way of 
thinking was &its ability to equate the protection of vested 
interests with a nationalistic endeavor to protect the 
Canadian identity.8  This paved the way for the 
highly-regulated and government-dependent business 
environment as well as the prevalent supply management 
regimes existent today.  Farmers in the dairy and poultry 
industries must participate in the supply management system 
by buying quota in order to be able to produce and sell their 
product.  Those who grow wheat must sell it to the 
monopsonistic Canadian Wheat Board, which defends its 
necessity by saying that without the Board, farmers would be 
unable to get a competitive price for their crop.  Both 
systems, their critics argue, ensure that demand always 
exceeds supply and consequently, consumers pay higher prices. 
 Furthermore, supply management provides no incentive for 
farmers to increase innovation or efficiency. 
 
¶11. (U) While government intervention is still present in 
many sectors of industry, in the recent past Canada has taken 
steps to privatize some of its state-owned enterprises. 
Former federal entities include the Canadian National 
Railroad (privatized in 1995), Air Canada (privatized in 
1988), Canadair Aerospace (privatized in 1986), and 
Petro-Canada (privatized in 1991). 
 
¶12. (U) Although the current Panel's report is the most 
broad-based review yet undertaken of competition policy and 
its effect on the Canadian economy, many reports addressing 
related issues have been produced in the past by both 
government appointed panels and think tanks.  The 1982 Royal 
Commission on the Economic Union and Development Prospects 
for Canada, also known as the MacDonald Royal Commission, was 
the first and clearly the most significant blue-ribbon 
committee to explicitly address competition issues.  The 
Qcommittee to explicitly address competition issues.  The 
panel was appointed by Prime Minister Trudeau due to concerns 
about a slowing economy and a political process which seemed 
ill-equipped to generate effective policy solutions. 
Released in September of 1985, the final report recommended a 
shift from government intervention to market forces and 
greater social equality while maintaining the welfare state, 
along with the implementation of a free-trade agreement with 
the U.S.  While no government consensus was ever reached to 
act upon the other recommendations, the report was 
instrumental in building momentum for the eventual 
U.S.-Canada Free Trade Agreement of 1988 and set a precedent 
for successive overarching reviews of Canadian economic 
performance. 
 
¶13. (U) The most comprehensive study released prior to 
2008,s &Compete to Win8  came out of &Canada's Innovation 
Strategy8 that was pursued by the Liberal government from 
2001 to 2005 and generated the paper entitled &Achieving 
Excellence: Investing in People, Knowledge and Opportunity.8 
 This, along with its accompanying report &Knowledge 
Matters: Skills and Learning for Canadians,8 concentrated on 
 
OTTAWA 00001115  004 OF 005 
 
 
ways to increase innovation in the Canadian economy by 
investing in continuous education and training for Canadian 
people.  The House of Commons Standing Committee on Industry, 
Natural Resources, Science and Technology held meetings with 
witnesses from a variety of sectors during this time to 
gather different views on the reports.  The Innovation 
Strategy was already gathering dust when Parliament was 
dissolved in November of 2005, and was effectively aborted 
when the Conservative government took power in February of 
¶2006.  In addition, think tanks and the Conference Board of 
Canada have released various papers on the benefits to the 
Canadian economy of increased competition. 
 
¶14. (U) While the reactions to these previous reports were 
also generally positive, in hindsight, they were largely 
academic exercises, as few tangible policy changes or 
increases in the global competitiveness of Canadian companies 
resulted from their publication.  The 2001 "Achieving 
Excellence" report was criticized for being too broad, which 
was cited as a primary reason for its failure to instigate 
any real change.  While those who undertake the studies 
believe, or come to believe, in the benefits of competition, 
there is no actual momentum from outside the primarily 
academic or policy communities to increase Canadian 
competitiveness.  Furthermore, the business leaders that are 
part of this community of supporters see it as the 
government's job to foster competition policy and have not 
made significant changes to the way they do business. 
 
Likely Results of &Compete to Win8: What (if anything) will 
it do for Canada's economy? 
--------------------------------------------- -------------- 
¶15. (U) Although the Conservatives have stated that they will 
take the panel's report seriously, it will likely take much 
more than just the support of the current government to bring 
forth the changes necessary to make Canadian companies into 
global players.  To increase Canadian competitiveness, the 
country will need the cooperation and initiative of 
provincial and federal governments, business, and the 
Canadian public.  However, as Mandel-Campbell points out, at 
the heart of the issue is a Canadian ideology that is 
indifferent, if not adverse, to competition; a problem which 
the panel touches on briefly, but whose reversal is truly the 
key to unlocking Canadian competitiveness and paving the way 
for the full thrust of the report to be realized.  Jeffrey 
Simpson, The Globe and Mail's national affairs columnist, 
agrees with Mandel-Campbell, saying that, &the prime answer. 
. . is the Canadian mindset.8 
 
¶16. (U) While the general public has yet to realize that it 
even plays a role in stimulating Canadian competitiveness, 
businesses, for the most part, simply refuse to recognize 
theirs.  Business leaders use the lack of government movement 
on competition policy reform as an excuse for why their 
companies are not competitive abroad.  Roger Martin, dean of 
the Rotman School of Management at the University of Toronto 
and chair of the Institute for Competitiveness and 
Prosperity, says, &too many of our business leaders and 
QProsperity, says, &too many of our business leaders and 
government polices are aimed at preserving what we have 
rather than playing to win.8  Mandel-Campbell makes the case 
that instead of finding ways to compete globally in spite of 
government regulation, many rely on the government both as an 
explanation of why they are not global players and as a 
source of protection from foreign corporations who are 
increasingly competitive in the global marketplace.  With 
some Canadian firms lobbying for the government to increase 
competitiveness and others wanting to remain under its 
protectionist policies, in the absence of a strong public 
opinion outside of academic circles, the government is stuck 
between the lobbies of industry with no incentive to 
decisively choose between the two. 
 
¶17. (SBU) Comment: With such a broad report and no strong 
public impetus to move forward with competition policy, it is 
difficult to see how government policymakers managing 
important but only indirectly related areas addressed by the 
panel, such as higher education and immigration, will be 
inclined to make reforms solely with the goal of increasing 
competition.  While in the short-term, Canada's place in the 
North American economy is unlikely to change drastically, a 
 
OTTAWA 00001115  005 OF 005 
 
 
failure to address the various non-competitive facets of the 
domestic market will position Canada at a disadvantage for 
the future and will be increasingly more difficult to correct 
as the global marketplace expands.  End Comment. 
 
Visit Canada,s Economy and Environment Forum at 
http://www.intelink.gov/communities/state/can ada 
 
WILKINS