By Martha Hall Findlay
Published in the Globe and Mail

December 24, 2019


What do the wireless telecommunications and energy industries have in common? Over all, not much. In Canada, both are subject to significant regulatory oversight. That’s not a bad thing: Good, independent, expert regulation is important to protect health, safety, security and the environment. But Canada’s regulatory system is falling behind – and taking our economic prospects with it.

In the 2019 World Economic Forum Global Competitiveness Index, Canada dropped again, to 14th from 12th place. We now rank 38th out of 141 countries on “Burden of Government Regulation” – behind countries such as Finland (7), United States (14) and Germany (15). In terms of government ensuring a stable policy environment for doing business, Canada ranks 26th, after countries such as Azerbaijan (11), Rwanda (12) and Chile (23). In the annual World Bank study on regulatory burden on business, Canada dropped to 23rd place in 2019, from fourth in 2006.

In 2018, the Canadian government commissioned a set of Economic Strategy Tables to support economic growth in six key sectors: advanced manufacturing, agri-food, clean technology, digital industries, health/bio-sciences and resources of the future. One conclusion of the reports was unanimous: Our regulatory environment drastically needs improvement.

The federal government responded by creating the External Advisory Committee on Regulatory Competitiveness. That committee recommended two key opportunities: (i) achieving short-term improvements by reducing irritants and inefficiencies that add unnecessary cost, duplication and delay; and (ii) modernizing Canada’s regulatory system to accelerate innovation.

All sounds great. We need to modernize our regulatory system for the 21st century, encourage innovation and reduce burden and duplication without sacrificing the regulatory role of protecting health, safety, security and the environment.

But there is a critical problem this work misses: the worrisome rise of political and government interference in regulatory processes and outcomes. Both telecom and energy are key targets.

In telecom, Canada continues to have political flip-flopping decisions. In 2009, cabinet overruled the regulator – the Canadian Radio-television and Telecommunications Commission – on foreign-ownership rules to approve the investment by Orascom in Wind Mobile. Not long thereafter, the cabinet refused (on undisclosed national-security grounds) to allow Accelero, controlled by the same interests as Orascom, to acquire MTS Allstream.

The decision was a surprise, not because of the importance of national-security issues, but because Canadian politicians had recently been so welcoming to investment by the same interests, in the same sector. There were no clear criteria used by an independent regulator – these decisions were political.

As recently as the past federal election, the soon-to-be-re-elected Liberal Party promised to force telecoms to reduce cellphone bills by 25 per cent. They also promised to force companies that have invested in expensive infrastructure to lease capacity to those that have not – Mobile Virtual Network Operators (MVNOs) – so that the MVNOs can resell wireless service at reduced retail prices.

This is not how regulation works – at least not in a way that provides predictability that investment requires. Why invest in needed expensive wireless infrastructure if politicians, on a whim, force you to reduce your prices (even as evidence shows they are already falling – the CRTC recently confirmed that wireless-plan prices have dropped roughly 28 per cent from 2016 to 2018)? Or politicians force you to sell access to what you have built, only to then be undercut by your new competitors?

The Competition Bureau recently recommended to the CRTC that the emphasis on increasing competition be on those wireless companies that do invest in infrastructure, citing concern about the potential negative effect on investment. We can only hope politicians take heed.

Energy, too, has experienced politically motivated flip-flops.

Northern Gateway, the proposed pipeline project from Alberta to the Pacific Coast, was approved by the joint review panel of the National Energy Board and Ministry of the Environment in 2014 – after more than four years of detailed scientific, environmental and economic study and hearings, and conditional on the project meeting 209 conditions. The Federal Court of Appeal then called for Ottawa to conduct significantly more robust consultations with Indigenous communities.

Even as the new government promised to engage more fully with Indigenous communities, the cabinet overturned the project approval and ignored the court’s requirement on further consultation. This became, in effect, the largest uncompensated expropriation in Canadian history. Canada’s reputation as a reliable place to invest in energy was shattered.

Then, the regulatory process for TransCanada’s Energy East pipeline project to carry oil to the East Coast was overrun by political considerations and changing requirements – and eventually the proponents gave up.

Political interference in regulatory decision-making has only become more entrenched.

The Harper government amended the Canadian Environmental Assessment Act (CEAA) in 2012 by downgrading National Energy Board decisions to “recommendations,” and giving cabinet the right to refuse them and make its own decision. Clearly problematic. Despite criticism from the then-Liberal opposition that this change permitted too much political discretion, the legislation replacing CEAA 2012,the Impact Assessment Act (formerly Bill C-69), includes far more ministerial discretion and cabinet decision-making.

Both the global and domestic investment communities look at recent Canadian politicization of regulatory decisions – and at new legislation that is rife with political discretion – and, rightly, worry about predictability. Without predictability, there is no investment.

A strong, effective regulatory system in a democracy must protect health, safety, security and the environment. It must also implement policies of our elected governments. Once those policies are determined, a functioning system relies on independent, expert regulators to get things done – without political interference or the fear of same.

The federal government must change tack in its approach to regulation and remove political interference from regulatory decisions: When we let politics trump decisions reached through regulatory processes, we tell the world that we are unreliable.

In telecom, the government should allow the CRTC to do its job and make decisions based on the evidence – and not interfere as “promised” in the election campaign.

In energy, the government must recognize the almost total chill on investment caused by the extraordinary level of political discretion enshrined in the Impact Assessment Act, and amend the legislation accordingly.

Investors need to comply with properly established Canadian rules. But they also need certainty. Unless they are able to count on the rules of engagement, they will, as they are increasingly doing, go elsewhere.

– Martha Hall Findlay is the President and CEO of the Canada West Foundation