The current economic climate has the potential to reshape traditional norms and patterns for regulatory reviews under the Competition Act and the Investment Canada Act (ICA).
Merging parties need to undertake more advanced planning for Competition Act and ICA reviews, including analyses of relevant markets, competitive landscapes and geopolitical factors, which account for changes caused by trade tensions. Companies doing business in Canada also need to ensure their regulatory compliance strategies are up to date to take into account these factors.
Key Considerations for Canadian Competition Law
Under the Competition Act, mergers are reviewed to determine whether they are likely to substantially prevent or lessen competition. Traditionally, the nationality of the merging parties was not a relevant consideration, and the presence of actual or potential foreign competitors suggested more robust competition. However, the imposition of tariffs and other trade measures has the potential to significantly impact this analysis and may lead to more protracted reviews.
Tariffs May Reduce the Number of Competitors in a Market
Tariffs on goods imported into Canada may cause foreign competitors to reduce or terminate supply to Canada, increasing concentration levels. Among the questions that the Competition Bureau (Bureau) will grapple with are:
- How long are tariffs expected to remain in place?
- What are the likely knock-on effects of tariffs imposed by other countries?
- Will Canadian competitors be likely to sell more products domestically?
The implication of potential shifts in trade flows is amplified by recent amendments to the Competition Act’s merger provisions, which provisionally deem a merger to be anti-competitive if specific market share and concentration thresholds are met (see our bulletin: The Evolving Landscape of Merger Review: Understanding Canada’s Competition Act Amendments and Forthcoming Revisions to Merger Enforcement Guidelines).
Key Takeaway: Parties’ merger analyses need to account for the effects of existing or potential trade measures. Further, merging parties should carefully consider how the anticipated impact of trade measures is referenced in their ordinary course documents, as they may be disclosable.
“Buy Canadian” Could Change Customer Preferences
If Canadian customers or businesses prefer to buy Canadian products, such as by limiting procurement processes to Canadian suppliers, the range of competitive alternatives may be narrowed, shifting market shares and increasing scrutiny of the merger.
Key Takeaway: Merging parties should anticipate that the Bureau will probe the extent to which foreign competitors should be included in the competitive set, given trade considerations.
Even More Focus on Pricing Decisions
The Bureau is likely to increasingly focus on parties’ pricing decisions and related conduct in the face of tariffs and trade measures, including in non-merger contexts.
A party’s pricing decisions in response to tariffs (or increased prices that remain after the removal of tariffs) may be evaluated as “excessive pricing” under the Competition Act’s abuse of dominance provision. As well, parties working jointly in the context of responding to trade measures may have their conduct called into question, especially if information sharing or other forms of coordinated conduct (aside from lobbying) are involved.
Key Takeaway: Businesses should ensure that their competition law compliance programs are up to date to take into account new economic realities associated with tariffs and trade tensions.
Key Considerations for Foreign Investment Reviews
Though Canada remains keen to attract foreign investment, recent developments may increase the workload of ICA officials, perhaps involving closer reviews of United States-based investments and investments from countries with a limited history of investing in Canada. Investors may also need to consider more comprehensive government and public relations strategies given the increased risk that an investment becomes politicized.
Notably, the Liberal Party of Canada platform, on which Prime Minister Mark Carney was elected in late April, pledged “strengthening the ICA” by “making more transactions reviewable” and targeting “manipulative transaction models.”
Potentially Greater Scrutiny of Investments
Canada’s deep and active military and intelligence cooperation with traditional allies, including the U.S. and the United Kingdom, has meant minimal national security issues with investments from such countries. While we expect this approach to continue, there is some uncertainty in the current economic climate, especially given the pre-existing trend towards greater scrutiny (see our guide: Investment Canada Act: A New Era for Foreign Investment Reviews).
Key Takeaway: Merging parties can expect greater scrutiny — including pre-closing review requirements — of a broader range of investments in Canada by non-Canadians.
“Economic Security” as a Factor in National Security Reviews
On March 5, 2025, the Canadian government updated its Guidelines on the National Security Review of Investments to include a new assessment factor: whether an investment would “undermine Canada’s economic security through the enhanced integration of the Canadian business with the economy, or any sector of it, of a foreign state” (see our bulletin: Canada Revises its National Security Review Guidelines for Investments).
Key Takeaway: In explicitly recognizing “economic security” as a factor in national security reviews, the Canadian government is signalling that even smaller investments with an economic impact on Canada or Canadian communities may be subject to more in-depth reviews.
Ministerial Statement Regarding “Opportunistic or Predatory” Foreign Investment
Upon releasing the Guidelines, the then Minister of Innovation, Science and Industry warned that trade conditions could make Canadian businesses “susceptible to opportunistic or predatory investment behaviour,” which “would run counter to Canada’s interests,” suggesting the government may use its discretion in this area more broadly.
Key Takeaway: In the current economic environment, foreign investments in Canada may face greater scrutiny to determine whether the investor’s conduct is opportunistic or predatory.
For more information on these developments, please contact any member of our Competition & Antitrust and Foreign Investment groups.
