Making the Competition Act Work for the Benefit of Canadian Jobs and Growth

December 2, 2004

Thank you for the opportunity to appear before the newly formed Standing Committee on Industry, Natural Resources and Science and Technology.  Your Committee has a broad and very important mandate, and we look forward to working with you in fostering policies that can enhance Canadian advantage in manufacturing, resource industries and science and technology, to the benefit of all Canadians.

The pace of change in the marketplace is accelerating. Competition law, along with other economic framework policies, must keep pace if Canada is to continue to be an attractive location for investment and offer a sound foundation from which businesses can compete internationally.  Indeed, to enable companies to succeed in this dynamic international arena such policies must support their ability to maintain and increase their pace of innovation. 

In particular, changes to the Competition Act should facilitate rather than inhibit the kind of strategic alliances and new business arrangements that companies need to operate effectively in the global marketplace.  Needless to say, dynamic firms operating from a Canadian base are the best way to ensure jobs and other social benefits for Canadians and to provide Canadian consumers with useful and competitively priced products.  

As we have stated to predecessors of this Committee in the past, we believe that on the whole Canada’s competition law is working quite well.  The Council has participated in an important way in virtually every stage of reform that this legislation has undergone, and certainly in the past we have supported the Bureau’s incremental approach to review and reform of the legislation.

There is also a downside to this incremental approach, however.  It may miss the larger realities of global trade and commerce and trends that, although largely happening outside our borders, very much have an influence on the competitiveness and growth of Canadian firms and on their ability to attract capital and employ Canadians.

We believe, therefore, that it may be time for the Committee to ask a broader question: Is the current Competition Act likely to assist or hinder Canadian firms in their quest to become more dynamic enterprises capable of competing on the global stage? 

The reality is that the size of the Canadian market and the nature of the competition in today’s global marketplace mean that a fair degree of concentration in some sectors is not only inevitable but desirable. Canadian firms must have the size, skills, efficiencies and capacity to compete effectively against larger multinational competitors. 

Most of Canada’s largest firms, but even indeed many small and medium-sized enterprises, no longer compete solely against other domestic businesses, or even those based in the United States.  Rather, they must go head-to-head with companies from Europe, Japan, Mexico, Korea and Russia, as well as such emerging market players as China, India and Brazil. 

Many sectors important to the Canadian economy are now dominated by a few large global players, and increasingly Canadian firms need the scale and market depth to compete at that level. 

How is Canada’s competition policy dealing with that challenge?  I am afraid the current evidence is not heartening. 

Much attention has been generated by the recent proposal for a takeover of one of Canada’s largest mining companies by a Chinese state mining company, and by a Russian steel firm interested in acquiring part of a significant Canadian steel-maker.  Yet how would the competition authorities respond if another large Canadian firm in the same sector were interested in acquiring these companies? 

It seems unlikely such mergers would be approved due to the tendency to focus on a limited definition of competition in the Canadian marketplace.  This certainly has been the experience to date of the banking sector.  Yet mergers among Canadian companies may be the best way for our firms to prosper in the international marketplace.  They also may be the best way to protect Canadian jobs, especially the high-value-added jobs associated with head offices.

We would urge you to think about the Competition Act in this context as you conduct your larger review of Canadian industrial strategy.

Turning to the specific provisions of Bill C-19, we support two of the proposals to update the Competition Act in light of today’s marketplace realities.  The repeal of the criminal pricing provisions and replacement with a civil regime is acknowledged by nearly all stakeholders as overdue, while the removal of the airline specific provisions will make clear that the law is one of general application and that all players are to be judged on an equal footing.

More troubling is the proposal to institute administrative monetary penalties for anti-competitive acts under section 79, or the so-called abuse of dominant position.  It is important to remember that section 79 is part of the civil regime of reviewable practices.  This regime was put in place several years ago precisely because many of these actions are not inherently anti-competitive, and can even be pro-competitive.

As well, this is a determination that is made after the fact by the Competition Tribunal, having considered all of the evidence, including whether the firm was indeed in a dominant position and whether the actions of the firm taken together constitute abuse of dominance. 

In addition to the power of the Tribunal to order a stop to these practices and the undertaking of remedial measures, Bill C-19 would grant the Tribunal the authority to impose a significant penalty, up to $10 million.  This additional penalty is in our view excessive; indeed it goes beyond the penalties that could be imposed under the relevant criminal provisions of the Act.  Equally important, adding such a provision is unlikely to achieve the stated purpose of deterrence, since as noted above, a determination of abuse of dominance is something that is made only post facto by the Tribunal. 

Bill C-19 also would provide authority for the Commissioner of Competition to seek restitution for consumer loss resulting from false or misleading representations.  We support the idea of restitution where there has been outright fraud committed on consumers.  However, what may constitute a “misleading” representation is a grey area, and if the government intends to proceed with this amendment, we believe at the very least the language should make it clear that restitution should only be available where a clear case of fraud has been committed against an identifiable class of consumers.

I would like to register our concerns with respect to two other matters which have been raised in the past by some advocates of reform, options that were featured in the government’s 2003 discussion paper and which were the subject of consultations undertaken last year by the Public Policy Forum.  I refer specifically to section 45, dealing with criminal conspiracies, and the question of the role of the efficiency defence in mergers.

Both of these issues are the subject of ongoing consultations by the Competition Bureau, and the question of efficiency in the Competition Act was the subject of a private member’s bill, C-249, in the last Parliament.

Fundamentally, the Competition Act should not establish unnecessary impediments to innovative business arrangements that could actually improve competition in the Canadian marketplace as well as secure a stronger basis for Canadian firms to compete internationally.

As was noted in the report of the Public Policy Forum, opinion is sharply divided, among both the competition law experts and organizations that would be directly affected, as to whether reform of section 45 is warranted.  While the criminal conspiracy provisions are clearly intended to capture hard-core cartel conduct, it is not at all clear that it would be easy to find wording that would enable parties who wish to enter into strategic business arrangements to be confident that they would not run afoul of a new civil regime. 

More importantly, the idea that joint ventures and other such business arrangements, when undertaken amongst competitors or potential competitors, would trigger some form of pre-screening and review mechanism is very likely to have the opposite effect of what was intended.  Indeed, it could easily cast a chill on the kind of innovative strategic alliances that increasingly are being used by Canadian firms to undertake pre-competitive research, to develop new products or to secure markets in other countries.

As well, any proposal to compromise the efficiency defence would be a retrograde step.  Of course, efficiency gains to be realized by the merged firm would be only one of several considerations in determining the overall impact of the merger.  But in today’s highly competitive global environment, Canadian firms must be able to seek productivity enhancing strategies, including through mergers to form world-scale competitors.  Such gains in efficiency are one of the best ways to ensure products and services for the Canadian market at competitive prices. 

As noted at the outset, we believe that Canada’s competition law has worked well to date and has some unique aspects that have served Canadian businesses and Canadian consumers well.  Going forward, it is not clear that our competition policy will be as adept at responding to new challenges faced by Canadian firms. 

At the very least, we should not be pushing reforms that would merely reinforce an inward focus on the Canadian marketplace.  Rather, the goal should be to foster policies that will enhance the ability of firms of all sizes to grow and compete more effectively in the global arena.

Thank you, Mr. Chairman, and I look forward to the Committee’s comments and questions.