INDY Committee Meeting

STANDING COMMITTEE ON INDUSTRY

COMITÉ PERMANENT DE L'INDUSTRIE

EVIDENCE

[Recorded by Electronic Apparatus]

Wednesday, March 24, 1999

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[English]

The Chair (Ms. Susan Whelan (Essex, Lib.)): I'm going to call the meeting to order, please.

Pursuant to an order of reference of the House dated Tuesday, October 20, 1998, we are considering Bill C-235, an act to amend the Competition Act, protection of those who purchase products from vertically integrated suppliers who compete with them at retail.

This afternoon we have a couple of things on the agenda. From 3.30 p.m. to 4.30 p.m. we have Mr. Dan McTeague and his barrister and solicitor, Mr. Michael Kelen. Then from 4.30 p.m. to 5.30 p.m., or thereabouts, we have representatives from the Competition Bureau to speak to C-235. Then at 5.30 p.m., we have clause-by-clause. It's scheduled till 7.30 p.m., but we're quite a way through most of the amendments on that bill, so I don't anticipate it will take that long.

Mr. Jim Jones (Markham, PC): I have a point of order.

The Chair: Mr. Jones.

Mr. Jim Jones: I do not plan on being here past 5.30 p.m., so I'm not prepared to go clause-by-clause after 5.30 myself. I'll let the Reform and the Bloc state what they're going to do, but I do not plan on being here past 5.30 p.m.

The Chair: Mr. Jones, that's your choice.

Mr. David Chatters (Athabasca, Ref.): I don't plan to be here after 5.30 p.m.

The Chair: Again, that's your choice. If we don't have quorum, I guess we can't proceed. We'll just note that on the record and we'll deal with it tomorrow. However, we may have quorum. There may be another member who will join us. We still have the NDP as well.

That being said, I'm going to deal with—

An hon. member: They haven't been here yet.

The Chair: They're coming today.

I'm going to deal with the gentlemen in front of us. We have Mr. Dan McTeague and Mr. Michael Kelen. I welcome your opening statements, please.

Mr. Dan McTeague (Pickering—Ajax—Uxbridge, Lib.): Thank you, Madam Chair. It is indeed a delight to be here. It's a very long process for Bill C-235. As many of you know, it's been a bill before the House for some time. It's good to see it's before the committee.

I would like to quickly introduce my associate, who will be representing me in his capacity as lawyer. Michael Kelen is an Ottawa-based lawyer specializing in federal laws, including the Competition Act. He's agreed to provide me with legal advice with respect to this very bill, and in particular to address the concerns raised by the Minister of Industry with respect to parts of the bill. He will be making comments following my comments here.

Madam Chair, Bill C-235 is the product of an in-depth look at the oil industry in Canada in particular and a timely response to the rise in market power acquired in recent times by several dominant players. While the genesis of Bill C-235 stems from an extensive examination of the oil industry, the bill is applicable to all industries. The main focus of the bill is to improve the Competition Act with respect to combating the anti-competitive act of predatory pricing in the marketplace. The bill is therefore aimed at eliminating predatory pricing in all industries operating in Canada. It attempts to do this by strengthening the provisions of the Competition Act that deal with this illegal activity.

The bill is the first acknowledgement by interested parties other than the traditional voices of the Competition Bureau and industry lobbyists to signal a need to review and strengthen our competition law in the face of dramatic changes gripping the marketplace.

The conventional wisdom in Canada has been to avoid interfering with or regulating industry and thereby treat as heresy any attempt to question the efficacy of our competition laws. The reality, however, is a growing belief that Canada lags behind sophisticated business strategies and the regulatory prowess of our largest trading partner, the U.S., certainly when it comes to the very mandate of our competition policy, namely the maintenance and enhancement of competition.

Moreover, there is frustration that the failure by our regulators to prevent, let alone acknowledge, the undermining of otherwise efficient business from existence has contributed to the eradication of true competition, consumer choice, and ultimately, fair prices.

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In Canada, the absence of an effective competition law has destroyed thousands of small businesses in the retail gasoline sector alone. But it doesn't stop there. Compliments of the indifference of Canada's competition police, Internet service providers, cement companies, travel agents, general grocery stores—virtually anyone who stands in the way of the drive by large market players to dominate the marketplace—are currently at risk. For these businesses, the turning of the blind federal competition eye means bankruptcy and, yes, financial ruin. For consumers it means higher prices and less choice in the marketplace.

Why is this the case? Why does the current Competition Act and those mandated to execute its provisions, the Competition Bureau, consistently fail in providing adequate protection? Perhaps one reason can be found in the remarks made by my colleague, the member for Regina-Lumsden-Lake Centre, in his speech during second reading debate on Bill C-235. The member's remarks represent a succinct observation about the state of Canada's competition law. In comparing our competition law to the U.S., the member stated:

In the act there is a very small section outlining predatory pricing. None of the people who have been charged under this clause have been found guilty by the courts. The reason is that the definition is so narrow and so precise that it really does not provide any flexibility to gather evidence to prove the charges laid.

The member went on to say:

Compare that to the United States of America, the most capitalistic society...in our world. They have pages and pages in their legislation on predatory pricing and other anti-competitive acts.

I think we're all familiar with several of them here.

Our colleague has stated the facts quite succinctly. Canada does provide the protection that the federal and state governments do for business, competition, and consumers located south of the border.

I recommend the committee members examine—and some of you may be familiar with that here—chapter 8 of the report of the Liberal committee on gasoline pricing. There is a copy that is being circulated to all of you here. I'm tabling a copy of this report in both official languages with the committee for its perusal.

Chapter 8 provides a comparative analysis of the Canadian-U.S. government involvement in their respective oil industries and competition laws. Madam Chair, I wish to table this report.

What is extremely troubling to me is that when the Competition Bureau appears before this committee, and I base this on the previous opinion of Bill C-235, they may actually just say that everything is fine here in Canada. The bureau may say that the Competition Act does not require any improvement, that there is really no need for legislation like Bill C-235, and they may actually argue that there is already sufficient protection and safeguards in the act and that they can use the current provisions to get the job done.

Well, that may sound good, but let's really examine what kind of job is being done here. If we take a look at the results obtained by the bureau, we will see that it does not have a very good track record at all. According to the Library of Parliament, from January 1, 1994 to March 10, 1999, there have been a total of 462 complaints filed with the Competition Bureau under paragraphs 50(1)(b) and 50(1)(c), the provisions concerning predatory pricing. I'll leave this for the committee's perusal, and I would like to also deposit these stats with the committee. They may want to apprise themselves of this information.

According to the information provided, of the 462 complaints lodged, a grand total of two resulted in court cases involving convictions under these sections. With so much smoke, how can there be so little fire? With just two convictions out of 462 complaints, should we assume that the remaining 460 cases dealt with trivial matters? Of the two successful prosecutions, one dealt with a driving school and the other involved a pharmaceutical company over the drug Valium.

Given this extremely poor showing, one is tempted to say that either the bureau or the Competition Act itself is on Valium when it comes to protecting Canadian businesses, consumers, and true competition in the marketplace.

How can we honestly believe that large domestic and multinational firms operating in Canada, some of whom are conducting business in a manner that, in certain instances, would be illegal in the United States, are actually being such fine corporate citizens? Bear in mind the massive legislation that exists south of the border. How can we actually believe that there is virtually no anti-competitive activity at all going on in the Canadian marketplace?

This is the picture the Competition Bureau seems to want us to believe. This is the picture the conviction rates indicate. However, I don't think this is indeed the real picture. Either this rosy scenario is true in Canada or the bureau simply does not have the necessary tools under the current Competition Act to do a better job at protecting and fostering true competition. It's becoming clear that the Competition Act is unable to prevent anti-competitive activities from either occurring or being detected, let alone successfully prosecuted.

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The select committee on gasoline pricing in New Brunswick saw through the guise of the current Competition Act and how it is working. In its report, this all-party committee recommended the Government of New Brunswick urge the federal government to undertake a fundamental review and assessment of the Competition Act to determine whether its criminal model effectively serves to prevent discriminatory or predatory pricing, which substantially lessens competition.

I believe it's truly an indication of the sorrowful state of our federal competition law when the New Brunswick select committee went so far as to state—and here I'm quoting from that committee—that “the Competition Act has little effect in preventing discriminatory pricing or predatory pricing”. Colleagues, this is not Dan McTeague saying this; this is an all-party committee of the New Brunswick legislative assembly.

Much as I would like to think that all Canadian businesses operate on a fair and level playing field, it is not the case. Bill C-235 is therefore a step in the right direction in trying to correct part of the act's failings. We have seen clear evidence in the past, both in the oil industry and in other industries, that some of the practices carried out by vertically integrated suppliers have been less than above board.

You will hear about some of these activities from individuals involved in the oil and telecommunications and travel industries. However, there are other industries that, regrettably, you'll not hear from, because some of the smaller businesses and independent retailers are terrified of angering their larger, vertically integrated suppliers. Independent retailers in the grocery and construction industries, just to name two, like some retailers in the oil industry, fear they will be penalized in some way by their vertically integrated suppliers, that they will no longer be able to receive product from them.

I want to take this opportunity to read into the record a letter that I received from an individual involved in the cement sector of the construction industry. The letter itself is unsigned, but I can tell you this. I did talk to the individual, and I'm depositing this letter with this committee:

Dear Sir:

The accompanying news article caught my eye, you sir are to be praised for the attempt to bring this tragedy...

—it's in reference to Suny's going bankrupt and reads very quickly—

I am involved in the Ready Mix Concrete business in Ontario, and if any industry needs to be investigated this is the one. The 4 large cement companies are all Vertically Integrated, and now have several joint ventures on the go. These Cement Companies now control the entire Ready Mix Industry in the Province, and virtually all the necessary components of its manufacture. (i.e., cement powder, cementatious additives, most aggregate sources, etc.) Plus all of these Companies are now totally owned by OFF SHORE EUROPEAN HOLDINGS.

We as independent Ready Mix Producers are forced to not only compete with these Conglomerates, but now also to purchase all of our raw materials from them. This gives the Cement Companies the advantage of KNOWING OUR COSTS of production almost to the penny. Being Independent & entrepreneurial we sometimes still prevail, however over the past 2-3 years the big 4 have become even more greedy and now continually price work at prices that we cannot even begin to compete with. Predatory pricing you tell me??

I would not presume that you take my word alone, please, pick up the phone and call any Independent Ready-Mix producer in the Province of Ontario.... We have many times tried to get the combines investigation people to do something, they always seem to make some noise then it all disappears and goes away with no changes at all. It would seem to us that the long arm of the BIG CEMENT COMPANIES is attached to a fist full of cash reaching deep into Queen's Park, and probably Ottawa as well!!!

It is a shame to see another small business man go down at any time, but to have it happen because of the David & Goliath scenario is becoming all too prevalent in our Province. Dan, unless something is done to establish an even working & playing field in our industry I fear many of my peers will also make the forced decision to sell to the BIG GUYS or be forced out of business as SUNY'S gas bars were. If you people allow the demise of the Independent R/M Producer, give some thought to what the price of Concrete might be then when we will be all gone.... READY-MIX PRICES are LOWER than they have been in 25 years, our list price has remained constant over the last 3 years but the price of Cement Powder continues to rise,—-we have already received notice of yet another increase in the cost of our Cement Powder effective January 99.

MR. MCTEAGUE on behalf of my colleagues & our futures I challenge you (or the proper authorities) to look into our Industry, and if once again it would only be a phony half hearted attempt, then please don't even bother to start. For reasons that should be obvious to you I am unable to sign my name, as the repercussions could be deadly, suffice it to say I'm a citizen of Ontario, and would like it to again be, Mine To Discover, and A Place To Grow!!!

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With respect to the grocery industry—I would like to table this as well, Madam Clerk—I would also like to provide a letter to the committee of Mr. Fred Wade, from Nova Scotia, and I won't read this. Mr. Wade is not shy about giving the committee his views as to how his business was destroyed. Some of you may recall that this is the individual who was forced under as a result of predatory pricing in the Atlantic provinces, compliments of a wholesaler's vertically integrated suppliers.

Individuals like those I have referred to—and I would like to deposit this one as well; I'm sorry about this—have every reason to fear retaliation for speaking about what goes on in their industries. Aside from threats, either implied or actual, there is evidence to suggest that large, vertically integrated companies have indeed set out on protracted and deliberate strategies to punish or even eliminate independent competitors.

I want to enter into the record an article that appeared in the May 4, 1992 edition of Bloomberg Oil Buyers' Guide. I am, as well, tabling this article to the committee. According to the Bloomberg article, two studies have indicated, and I quote here.

Major Canadian oil companies are using price wars, new credit terms and the strategic closure of service stations and refineries to squeeze independent retailers out of the market in central Canada.

In the article, Scotia McLeod analyst Robert Robinson further states:

“To set the stage for a better downstream environment, beginning in 1993, it is our opinion that Imperial Oil Ltd. has put a strategy in place in 1992 to discipline the retail markets, with the aim directed at the independents”....

Mr. Robinson adds that:

“...Imperial has implemented a very aggressive pricing policy which has created intense pressure on retail markets and, accordingly, profitability”....

Madam Chair, I'm sure committee members will agree that these examples are hardly indicative of open, healthy, and unfettered competition. I will table this as well. In fact, they represent deliberate and wilful acts by large, vertically integrated companies to eradicate small and product-dependent competitors. One would think that the Competition Act and the Competition Bureau would be very interested in examining this sort of behaviour in the marketplace. Yet, it is truly amazing that even in cases where, to a reasonable person, there is sufficient evidence for the bureau to dig further, nothing ever happens.

As one person in the oil industry told me, we've gone well beyond having to give the bureau a smoking gun. In their view—and this is mirrored by many others—the bureau appears uninterested in their cases. As well, to many independent retailers the act itself is a toothless tiger that simply cannot offer them any realistic protection. Unfortunately, as a result of the bureau's reluctance or inability to adequately address predatory pricing and other anti-competitive activity due to limitations in the act, small business, independent retailers, and consumers across Canada are left being the victims with no competent avenue for redress.

What will then be the position of the vertically integrated suppliers about the act, indeed Bill C-235? In all likelihood, each and every one of them scheduled to come before this committee may echo the bureau's view that everything is fine with the present act and that the Competition Bureau is doing a marvellous job. They may hasten to add that Bill C-235 is completely unnecessary. Some may even say that the bill will have a serious impact on their ability to conduct business. I want the committee to be aware that contrary to the popular belief of certain individuals, Bill C-235 is not—and I stress not—revolutionary. It will not grind the wheels of big business in Canada to a halt. Bill C-235 is not out to punish companies that are working within the law. Simply put, the bill is out to combat the anti-competitive act of predatory pricing. Let's be realistic here. The bill merely makes clearer the law against predatory pricing.

With the amendments I am proposing today to Bill C-235 I would now like to give the committee my view as to the bill's objectives. I wish to formally table these changes.

With the amendments I am proposing to the bill, proposed paragraph 50.1(2)(a) makes it a simple straightforward offence if a vertically integrated retailer charges a retail price less than the price charged the non-affiliated purchaser at the wholesale level, i.e., at the refinery gate in the case of the oil industry. This makes it per se a criminal offence for an oil company, for example, to charge a lower retail price than the amount charged at the refinery gate to the independent retailer. In the original bill, paragraph 50.1(2)(a) would require the courts to measure “reasonable profit” and marketing expenses.

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In retrospect, I weighed Industry Minister Manley's concern that this would be a form of price regulation, which in the ministry's own words is neither practical nor appropriate. Hence I've put forward an amendment to address this concern. Of course, it would be better for the provinces to use their jurisdiction with respect to the sale of goods to establish more equitable margins for retailers in order to provide greater fairness in pricing, as is currently being sought under the leadership of the Government of Quebec under Bill C-50, since that is its proper jurisdiction.

Proposed paragraph 50.1(2)(b) of the bill remains unchanged and would make it a clear offence for a vertically integrated supplier-retailer to charge an independent purchaser a higher price than that charged to an affiliated retailer. To assist in the preservation of true competition in Canada, Bill C-235 as amended makes it a straightforward offence for a vertically integrated retailer to sell at retail below the price charged by the same company at wholesale to independent retail customers.

The bill would also make it an offence to charge a different price to an affiliated purchaser than to an independent purchaser. Once again, I must stress that, simply put, the bill just makes clearer the law against predatory pricing.

The industry minister's concern, and one that was raised by the Competition Bureau, that is that the bill will impact on every industry in Canada, is now no longer a valid one. This will be the case because the bill will be amended to delete references to marketing costs and reasonable returns. Of course, Bill C-235 will apply to all industries. Why would we want the Competition Act to address predatory pricing only in one industry? Why would we want the Competition Act to single out only one industry, aside from the fact that it would likely be obviously unconstitutional to do so? We certainly would want to prohibit predatory pricing in every industry that operates in Canada. Committee members, this is a matter of fundamental fairness, pure and simple.

With the amendments I am proposing, we will simply have a competition law offence for vertically integrated retailer suppliers that discriminate in such a manner. I suppose the bill could be viewed as a clarification, a price discrimination, that is prohibited in section 50 of the act, the provision directly before the one Bill C-235 would create.

The proposal in Bill C-235 to amend section 78 of the Competition Act is not objectionable. It is the same as 61(1), the “Price Maintenance” provision that states that no person can attempt to influence upward or discourage the reduction of the price or refuse to supply a product because of the low-pricing policy of another person. While section 61 is a criminal offence, the amendment to section 78 contained in Bill C-235 would give the director the power to refer to the Competition Tribunal.

In passing, I hope that in the near future section 79 of the act will also be strengthened so that the director would have more teeth to take action against such anti-competitive acts.

So why then has Bill C-235 raised such concern among some large companies, when all it really actually tries to do is strengthen the act to prevent illegal activity? Why should there be any concern with giving Canada's Competition Act more tools to preserve through competition?

I believe there were some valid concerns with the bill prior to the amendments I'm proposing today. These concerns were dealt with by the removal of the objectionable terms of the bill, such as marketing costs and reasonable return. I believe these concerns have now been adequately addressed.

I am, however, personally saddened by the amount of effort some companies have gone to in order to discredit the intent of the objectives of Bill C-235. I'm equally saddened by having to fight the Competition Bureau every step of the way in this bill. I believe we could have channelled our resources and time in a better manner to use Bill C-235 as a precursor to making meaningful improvements to the Competition Act.

I note that the Business Council on National Issues is scheduled to come before this committee next month. I know many members may find this to be an interesting occasion indeed to obtain the BCNI's opinion on Bill C-235. I myself look forward to their appearance. However, I'm concerned about the linkage being drawn by some to the close association the BCNI is believed to have had with the former Conservative government with respect to the drafting of the Competition Act.

In his book entitled Titans, respected Canadian author Peter C. Newman contends that the BCNI had a very instrumental role in creating the Competition Act. The revelation has caused some concern given that the act supposedly has as its raison d'être the protection of competition, consumers, and all forms of businesses. If the act was designed to police the rules of competition, one hopes that the business community alone is not writing all the rules.

We should be able to agree that the personal interest of certain players should not interfere with or control the content of our laws, which were supposedly designed to protect every business and every single Canadian consumer. If one group were to have influence over the creation of Canada's competition law, such a situation would be untenable. It would render these laws suspect, ineffectual, and prone to failure in doing the job they were designed to do.

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In conclusion, Madam Chair, it is my hope that Bill C-235 will be able to provide the protection that the current Competition Act cannot. I ask the committee's assistance while the bill is before you in making sure that Bill C-235 will do just that. That being said, I've concluded my opening remarks, and I look forward to the committee's deliberations on this bill.

I now turn this over, with your indulgence, Madam Chair, to Mr. Kelen for brief comments, at which point we will certainly be in your hands for questions.

The Chair: Mr. Kelen.

Mr. Michael Kelen (Individual Presentation): Thank you, Madam Chair and hon. members of the industry committee. As an Ottawa lawyer who has specialized in federal laws for the past 25 years, it's my pleasure to be able to assist Mr. McTeague in legal matters with respect to his bill. I appreciate that the competition law is very dry and very technical and that predatory pricing is a very specialized offence.

I don't think we have to spend too much time in understanding predatory pricing, because Parliament has already enacted a section of the Competition Act that makes predatory pricing a criminal offence. The problem is that Mr. McTeague, who conducted an outstanding investigation of unfair gasoline pricing and led a Liberal caucus committee of 47 members of Parliament who conducted hearings across Canada, uncovered many victims of what can only be called predatory pricing. They are victims of pricing set by the four major oil companies who operate in Canada as an oligopoly. These four companies have a practice of one of them establishing a price and the others following it within minutes every day.

So what this Bill C-235 does is it tries to rectify—and I think it does—a defect in the current law with respect to predatory pricing. For that reason the purpose of the bill is very important. It fills a big gap in the Competition Act, and as a result it will help small business, it will help job creation, and it will help consumers. Having said that, when I was contacted by Mr. McTeague, I recommended several significant deletions from the bill to address legitimate concerns raised by the Minister of Industry with respect to the bill. Mr. McTeague has already made reference to those.

I've prepared a statement that I will not be reading in full. I think it has been distributed by the clerk. Attached to the statement is a copy of an article from The Economist magazine. That article deals with antitrust law and it's entitled “Trust in antitrust”. It explains why Canada's and the world's antitrust laws are so important to keep the free market economy working properly.

Looking at the present Competition Act, paragraph 50(1)(c) makes predatory pricing a criminal offence. However, it's virtually impossible to enforce because it's necessary to prove that the policy of selling products at unreasonably low prices is intended to have the effect of eliminating a competitor. Bill C-235 introduces a new section, proposed section 50.1, which is a cleaner definition of predatory pricing. In this way the bill rectifies the defect in the current act.

Turning to the second paragraph on page 2, it's to be remembered that this bill has just been reintroduced after 47 Liberal members of Parliament conducted extensive hearings across Canada with respect to unfair gasoline pricing. The bill is rooted in an important and universally accepted problem with gasoline prices.

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As Mr. Roy Cullen said in the House of Commons on May 25, 1998, with regard to the bill, and the quote is on page 2 of my statement:

The problem is that the wholesale market is very much a homogeneous market. It is controlled by three or four major companies: Petro-Canada, Shell, Esso and Ultramar. There is really only one wholesale price that is driven by what they call the rack price.

There really are not many choices, so it is imperative that the independents are charged the same price as the branded dealers.

This problem in the gasoline industry is also a problem in many other industries. You heard about the cement industry and the grocery industry. It's a problem in all industries where there are oligopolies operating—i.e, a few large companies control the market—and where they are vertically integrated. They use their oligopolistic power to engage in predatory pricing. However, predatory pricing, as it is defined under the current Competition Act, is virtually unenforceable unless the Competition Bureau can find a smoking gun, such as a memo written by a major company saying it is setting its price below cost for the purpose of driving a particular competitor out of the market. If you don't find that smoking gun, you cannot get a conviction, and these smoking guns are not just lying around for the Competition Bureau to use as evidence.

The Economist magazine I referred to said in its editorial entitled “Trust in antitrust”:

A vigorous competition policy is vital to a free-market economy.... Competition enforcement is vital to the success of a free-market economy.

When companies become too large, smaller companies cannot compete, especially if they are dependent upon those bigger companies for supplies. Without the forces of competition, consumers pay more than they otherwise would.

In that same editorial, The Economist set out an interesting insight with regard to predatory pricing. It said:

Seemingly consumer-friendly policies, such as giving a product away, may in fact have a chilling effect on competition.

This is exactly the reason Bill C-235 is before Parliament. Unreasonably low prices, which may seem to be consumer friendly, in fact hurt competition so that in the medium term consumers will pay more for goods than they would otherwise.

I happen to act as legal counsel for the Consumers' Association of Canada in opposing the mergers amongst the major grocery retailers. I don't act for them for any other purpose, but I've been retained for that purpose. I know the Consumers' Association is against unreasonably low pricing, because it knows that consumers inevitably pay much more for goods as a result of unreasonably low pricing.

What Bill C-235 makes illegal are two types of pricing. The first is focused on retail. I don't want to choose any company or identify them as the culprit, but just for purposes of illustration, let's say it's Esso. If Esso, which is one of the four companies that operate major refineries, is selling its gasoline to independent retailers and is also selling at retail, this bill would make it illegal for Esso to charge less at retail than it charges at wholesale to the independent retailer. You might look at us and say, well, that's obvious, they would never do that. But in the back of the room there are many independent gasoline retailers, who you will be hearing from, and they will tell you that's exactly what the big oil companies have done and that's exactly what has caused them in some cases to be driven out of business.

So, first, what Bill C-235 does is make it illegal for a vertically integrated supplier to sell at retail at a lower price than its wholesale price to an independent competitor. That's retail versus wholesale.

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When a vertically integrated supplier—again, let's pick another company such as Petro-Canada—charges a higher wholesale price to an independent retailer than it does to an affiliated gas station, the independent gas station cannot compete with one of the Petro-Canada stations because it's paying more. You might say that's already against the law under the Competition Act in the section involving discriminatory pricing, but that's a criminal section, and you have to have criminal intent. It's virtually unenforceable.

In too many cases the Competition Bureau has been called a toothless tiger, and it's because the onus of proof that's required to get convictions on things such as predatory pricing and discriminatory pricing is just too high. What Bill C-235 does is make it a lot simpler, a lot cleaner.

I'm turning to the top of page 5.

Big business will obviously be an opponent of the bill. Big business likes being big. It likes to dominate and it likes to abuse small competitors. It likes to control the market. It likes to control prices. Accordingly, the more big companies oppose this bill, the more it will be clear to the sponsor of the bill that this bill makes sense.

The Minister of Industry, the Honourable John Manley, raised two concerns with the bill, while at the same time advising Mr. McTeague that he supports the goal of the bill, in other words, a level playing field for independent gasoline retailers. The first concern was that by prescribing measurements such as reasonable profit, the bill suggests a form of price regulation. This was contained in the bill under proposed paragraph 50.1(2)(a). The amendments that have been filed just now by Mr. McTeague propose the deletion of any reference to the proposed section dealing with calculating the marketing costs at retail and the supplier's reasonable return on the retail sale, so that all that part that was offensive has been removed.

In terms of doing the calculation as to whether the pricing is contrary to the law proposed by Bill C-235, the court will not have to determine anything in terms of reasonable profit or the cost of marketing. It will be just as straightforward as I described it, comparing the prices in the market.

With these amendments the bill is cleaner and simpler.

The fact that the bill applies to the marketplace as a whole is very good. While it may have been precipitated by unfair gasoline pricing, the same problem exists in the grocery trade and several other industries. There is no harm in having this law apply in general in Canada. There was a concern about this bill, which emanated from the problems with gasoline pricing, being made to apply to all industries. But in fact when you have oligopolies operating with vertically integrated companies and independent companies are dependent upon their own competitors, this bill becomes even more important. It effectively rectifies a gap in the Canadian law. Parliament has decided already that predatory pricing is a criminal act. Unfortunately, the act as it's now written is unenforceable. What Bill C-235 does is rectify a gap in this law so that predatory pricing can be legally enforced.

I've attached to the statement what I hope will be a simple illustration of the two types of unfair pricing that Bill C-235 would make illegal.

I will just conclude my remarks by bringing to your attention another proposed subsection that has been deleted by Mr. McTeague in the amendments. It is proposed subsection 50.1(3) of the bill, which deals with “No lower return for supplier”. So that addressed the final concern. I think the bill as it's now presented to the committee has effectively answered many of the critics.

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Thank you.

The Chair: Thank you very much for those opening comments.

It looks like we have some time problems already. I'm going to remind committee members that we have five-minute rounds for questions and answers, and for our witnesses as well, and that we should try to be as succinct as possible.

We've had several members indicate that they cannot stay past 5.30. So to try to facilitate the witnesses, I would appreciate it if everyone would keep that in mind.

We're going to begin with Mr. Chatters. Do you have any questions, Mr. Chatters?

Mr. David Chatters: Yes. Thank you, Madam Chairman.

I have some real concerns with this whole process that's been going on here. Certainly I and my party agreed to support this bill to committee, to essentially listen to the expert witnesses who would come before the committee and debate the issue back and forth.

This whole process started as a result of a search for collusion and price-fixing in the gasoline industry a couple of summers ago in Toronto. When we weren't able to expose that, we went to Bill C-235. Now, with these amendments, you have substantially changed the whole thrust of the bill. The amendments, when you put them into the bill, change the bill from what consisted of an attempt at price regulation, which I think you acknowledged was undesirable and I think unconstitutional, in that you're invading provincial jurisdiction by doing that. And now, with these amendments, you seem to be focusing on turning what currently amounts to what's called questionable practices in the Competition Act into a criminal offence in this new act.

I would first suggest that these amendments are unacceptable, in that they change the entire intent of the bill. I would be concerned with that. And certainly knowing only the gas industry and not being familiar with many of the other industries that are directly affected by this bill, I can't agree with some of the assumptions you're making—that in fact there isn't good competition in the gasoline retail industry and that there needs to be some attempt made to fix that perceived problem on your part.

I would suggest that in fact there is very tough competition in the retail gasoline market. And while that competition may be hurting a certain sector of the industry, namely the local mom-and-pop independent on the corner, those independent gas retailers are being replaced by a new breed of competition in the industry, namely the large supermarket chains that in fact are engaging in some vicious competition by selling gasoline below their wholesale costs to attract customers.

So I think the competition is there and it's healthy and alive. I guess I'll just let that go for my comments for now.

Mr. Dan McTeague: Thank you, Mr. Chatters. I can't thank you enough for those questions, because I know they've come up in the House of Commons, and I haven't had a chance to rebut them.

Let me make perfectly clear to this committee that I have never advocated nor believed that my concern dealt with price-fixing or collusion. In fact Bill C-235's precursor was in the last Parliament. I can't remember the name of the bill right now, but in the last days of the Parliament, long before the Liberal committee on gasoline pricing had struck out to find out what the problems were as a result of the frustration the public had, we constantly were told it must be a question of price-fixing or collusion. My colleague Mac Harb went to the sixth-man routine.

I probably should bring to the next meeting a copy of a letter to the editor I wrote to many papers, and which was published, which said “looking in all the wrong places for the problem attendant to higher gasoline prices”. The reason I say that is because there seems to be some misinterpretation. I want to put that right immediately. Never once have I gone on the belief that price-fixing and collusion was the problem. Indeed, it's because so many people, including the Competition Bureau, were giving the impression that price-fixing and collusion was the area where we should look. It was really, I think, taking advantage of the public's belief that because prices rise up uniformly, there must be some kind of conspiracy between little gasoline mom-and-pop stations right across this country.

• 1615

Mr. Chatters, what's happened is that well over half of the gas retailers in this country have gone under, most of them independents, because the ability for them to compete was really one based on the margin that was made available to them.

I think what the Liberal committee on gasoline pricing did was to effectively turn away the tired and rather bothersome question of constantly relating to price-fixing and collusion and deal with the real question of whether the current laws on abuse of dominant predatory pricing are sufficient to protect retailers from competing head to head on a level playing field.

I believe you're a member from either Alberta or British Columbia. If you go south of the border, you'll find that the States have various and sundry acts, not just at the national level, the federal level, but also at the state level, that outlaw below-cost selling. They create a firewall between the wholesaler and the retailer precisely because, as you described, this fierce competition the consumer sees, and to which we alluded a little earlier as being such a great thing, in fact has a devastating effect.

In the short term, as we've seen in Atlantic Canada, prices in places like Newfoundland and New Brunswick back three, four, five years ago were ridiculously low, and below wholesale in many respects. Once the predator was successful, given the blind eye of the Competition Act and the Competition Bureau, they were effectively able to remove the pesky little retailers who turned around on a dime and could live on a margin of maybe two cents a litre, whereas the large vertically integrated suppliers required much more.

You now have a situation and scenario where in eastern Canada, and this morning I understand in Nova Scotia and New Brunswick, the price of gasoline just rose eight cents a litre.

My point here is let's not look at price-fixing and collusion. That's not the intent certainly of the bill, nor of the committee, nor was it the intent of the bill prior to the committee being struck. We probably have a problem in terms of our definition of competition.

The Chair: I'm going to ask you to wrap up on this point.

Mr. Dan McTeague: Does he have another question?

The Chair: He doesn't have any more time. Five minutes is five minutes.

Mr. Dan McTeague: I hope that answers part of your question, Mr. Chatters.

The Chair: Thank you very much, Mr. Chatters and Mr. McTeague.

Mr. Shepherd.

Mr. Alex Shepherd (Durham, Lib.): Thank you.

I guess first of all I should say I have a conflict of interest, in that I served on the very committee Mr. McTeague is talking about.

A voice: Next.

Mr. Alex Shepherd: There's one thing, Mr. Kelen, you could describe to me. I just want to know, by the way you're talking about changing the Competition Act, how would it address the issue of volume? In other words, I sell to this gas station because they're only consuming 500,000 litres a year, but I sell to my own because they're selling 100,000 litres a year, and I want to sell at the higher volume at a lower price. Does that address that issue somehow?

Mr. Michael Kelen: That's a very good question.

In the Competition Act, with respect to discriminatory pricing, they make a point of ensuring that the price that's charged in terms of being a fair price is the same price for the same volume at the same grade level. That would have to be taken into account with respect to the new section 50.1. But when you're looking at an independent gas station buying a tank car of gas or two—what do they call them, truckload—

Mr. Dan McTeague: Tanker.

Mr. Michael Kelen: Tanker. How many tankers would he buy?

Mr. Dan McTeague: Well, a trailer wagon, or whatever the case may be. He buys from the wholesaler or jobber.

Mr. Michael Kelen: You're really just buying the same quantity, per tanker, so that problem doesn't come up. It's not like where Loblaws is buying a breakfast cereal and they're buying 100,000 cases a year versus a small grocer that's buying 1,000 cases. Obviously Loblaws will get a volume discount. That's not the case with gasoline.

Mr. Alex Shepherd: Although your act would also apply to the grocery store chains.

Mr. Michael Kelen: Yes, it does. And the volume would have to be taken into account. You're right.

Mr. Alex Shepherd: I think you addressed that, though. You said that was in the current Competition Act. We are comparing apples to apples, not apples to oranges.

• 1620

Mr. Michael Kelen: That's right.

Mr. Alex Shepherd: You have to take into consideration the concept of volume.

Why have you proceeded to use a Criminal Code provision with this, as opposed to a civil...?

Mr. Michael Kelen: Because it's also provided for under sections 78 and 79 of the Competition Act, which are the civil remedies. But predatory pricing is under the criminal section as well as under the civil section. This amendment to the predatory pricing provision is the amendment to the criminal one, so the criminal section has some effect. The civil one has had no effect. That's the subject of another day: Why do sections 78 and 79, which are the civil remedies, not work? They don't work. But we're just focusing on section 50, which is predatory pricing, which happens to come under the criminal section of the act.

Mr. Alex Shepherd: This is a wider-based question. It's sort of Economics 101. If there are such things as oligopolies, why then are there also independents?

Mr. Dan McTeague: Alex, one of the things we have discovered with respect to the question of oligopolies is we all know that there is a rack price that is available in the case of gasoline. That price is very public. It is very rarely.... There will be people speaking to this in the future, obviously, who have more expertise and who are intimately connected to this industry. The wholesale price, irrespective of volume, is always the wholesale price and is always known as the rack price. It could be whatever. There is very little differentiation between regions of the country. The independents really only have one alternative, unless they want to import Exxon Valdez-style tankers into Canada, which cost millions of dollars and which they can't afford. The only price they can fight with and the only margin they can fight with is the wholesale price given to them by the four majors, who basically control the country.

Mr. Alex Shepherd: I guess the point I was making is if they were really oligopolies, why haven't we run them all out of business by now anyway?

Mr. Dan McTeague: That's a good question. The entry barriers to getting into this business are so high that no one has dared come in, with the exception of ARCO, because it has a refinery very close, in Seattle. But throughout the entirety of Canada the story has been closing refineries, closing access to supply, and 100% control of the distribution and therefore the price mechanisms.

The Chair: Thank you very much, Mr. Shepherd.

[Translation]

Mr. Dubé, please.

Mr. Antoine Dubé (Lévis-et-Chutes-de-la-Chaudière, BQ): Ms. Lalonde may also wish to say something.

I find it rather unfortunate that this morning's documents are mostly in English.

Mr. Dan McTeague: I apologize, but I didn't have enough time to finish everything up. I was not able to get the translations is in time. I don't have the authority of a committee.

Mr. Antoine Dubé: I wish to talk about the price issue. The matter that everyone is concerned about right now is that of the price of gas. In our study of the bill, we must also take into account other sectors, because nowhere here is there mention of gas. These are therefore rules that apply to all sectors.

It isn't only in the area of gas that there is integration. The same thing is found in agriculture. There is also integration in other sectors.

I am looking at your amendment. The price cannot be higher than the vertically integrated supplier's own retail price in the same market area. It seems to me that this could vary from one company to another. We are talking about four major companies. How can you say that it is the same price? You were saying earlier that the wholesale price is the same. These major companies don't necessarily have the same production costs. Explain this to me, because I am having difficulty understanding.

Mr. Dan McTeague: In the work of your committee, we noted that in the case of oil companies—but the same also applies in the case of supermarket mergers—the wholesale price and the gross price don't vary from one region to another. Such cases are a rarity. It is always the same price.

It is a fact that ten years ago, there was a lot of competition in Quebec, in Ontario and in the eastern provinces. There were ten or so suppliers who were in competition with each other. Once in a while, there was a surplus and they sold it.

• 1625

We know that for the last twelve years or so there has been a minimum, a floor price, that has only very rarely varied. We see that in Ottawa and in Toronto, for example, prices rise and fall now and then.

Mr. Chatters asked why, if there is competition, prices rise and fall in this way. People's reaction is often to think there is collusion, price fixing. That isn't the case. There is no competition between the four. It has never been proven that Imperial Oil, Petro-Canada, Sunoco and the others were competing at the gross price level. Some experts will nevertheless talk about those two aspects of the issue.

Mr. Antoine Dubé: That is for gas. For the other categories, how would the government be able to observe what you are observing as far as the sale of gas is concerned?

Mr. Dan McTeague: I must admit, as other MPs have done so, that in Canada we are entering into an era of mergers between various companies in various sectors of our economy, such as propane gas or even grocery stores. For example, we are constantly seeing agreements being reached in the area of telecommunications. We have arrived at a crossroads where we must recognize that the dynamics of our economy have greatly changed and that our tools, namely the Competition Act, don't give proper protection to consumers and small or medium-size companies.

The Chair: Thank you, Mr. Dubé.

Ms. Jennings.

Ms. Marlene Jennings (Notre-Dame-de-Grâce—Lachine, Lib.): Thank you, Mr. McTeague and Mr. Kelen.

I have a question for you, Mr. Kelen, and one for Mr. McTeague. I will begin with you, Mr. Kelen.

An article in the weekly publication The Economist*—and I'm not talking about your brief—states that in the United States, the theory of the Chicago school is today losing ground, that it is discredited and that another theory is emerging, that of predatory pricing. The article also states that today, with technology, certain computer software programs are capable of very rapidly processing millions and millions of data and that American officials have realized that even if one doesn't intend to eliminate competition, certain practices have that effect.

In Canada, do our agents at the Competition Bureau use the same type of software. They used the example, in the United States, of scanners at the cash.

[English]

A voice: Bar codes.

Ms. Marlene Jennings: Yes, the bar codes. Are we using the same technologies? I understand that here you have to prove intent, and that's beyond a reasonable doubt because of the criminal standards of proof. But are we using the same kind of technologies?

Ms. Michael Kelen: I thank you very much for the question, and it shows you're a quick read to have digested that Economist article, because it's complex. But it's an excellent three-page summary of a change in thinking. So I will answer your question and I'll start at the beginning.

You referred to what they call the Chicago school of economic thinking, which was to leave the marketplace alone and the marketplace would sort itself out with these mergers. But what they've discovered is that with these mergers, as the companies get bigger and bigger, they gobble up the competition and you're left with a number of large companies that have control of the market, and then the potential competitors cannot afford the “sunk costs”, as they call it, to come in to be competitive with the large companies.

So in order to preserve the free market, in order to make the marketplace work as it should, government regulators, the trust busters, have a more important role now than they ever did in the 1980s.

• 1630

The current thinking is trust in anti-trust. That's what The Economist says: Trust in our Competition Bureau to move in to block the mergers, because if you don't stop the big guys from getting bigger, then the new potential entrants cannot afford the investment necessary to be competitive. When a few big companies control the market, then they act as the oil companies do in Canada; without any breach of the Competition Act, they act in lockstep with each other. They call it conscious parallelism. One follows the other without anybody picking up the phone and saying they're going to increase gasoline prices by two cents today, or food prices. That's why the Consumers' Association is opposing the mergers amongst the major grocery retailers.

Now, that article in terms of the computer capabilities to analyse the millions of pieces of data from the scanners, for example at the grocery stores.... This is relevant not to predatory pricing but to deciding whether a merger will in fact lessen competition. And yes, I believe our Competition Bureau is using that, although not to the same extent as they are in the United States. There was a very interesting case—

A voice: There's a five-minute rule, by the way.

Mr. Michael Kelen: I'll leave the answer at that. Thank you for the questions.

Ms. Marlene Jennings: Thank you.

I have one question for you, Dan. Congratulations on this bill.

It's going to be very brief, Madam Chair.

You allege in your brief that there are pricing practices going on right now in industries in Canada that in the United States are illegal. Can you give me one specific example? I don't know, why don't we take the oil industry, the gas industry? Give me an example.

Mr. Dan McTeague: Sure. There are several states in the U.S. that.... Actually, thank you very much. It was a nice segue.

Below-cost selling is out of sync. If that's not enough, if you manage to be able to beat Clayton, Robinson-Patman, all these federal statutes, and have their justice department.... By the way, that is the weight of the justice department in the case of Microsoft and others. You would then have to go to the state level, where of course they don't allow any particular player to dominate, both at the wholesale and at the retail...sometimes 10%, 15%, 20%, depending on the state. The Americans are very jealous of the notion that competition must be enforced vigilantly, not to have anyone say we're going to be boy scouts in the international marketplace and say it's open season on small business. They realize there's a very important element, at which point the government has a role to step in to protect the marketplace from killing itself off.

The Chair: Thank you very much, Madam Jennings.

Mr. Solomon, please.

Mr. John Solomon (Regina—Lumsden—Lake Centre, NDP): Thank you, Madam Chair. I just want to make a couple of comments and raise a couple of questions, if I might.

With respect to the book written by Peter Newman, called Titans, it refers to Mr. Thomas d'Aquino and the Business Council on National Issues being taped. He goes on to say that the Minister of Consumer and Corporate Affairs, André Ouellet, had a meeting with him, and that he suggested to the minister that he get rid of the combines investigation branch and “put somebody in there who would be more constructive”. And Mr. Ouellet indicated, “You've got a deal”.

In three years the BCNI marshalled 25 lawyers and in 1985 produced a 235-page master plan, which became Canada's new competition law. It included no provisions for class action suits, conspiracies were just about impossible to prove, and prosecutions moved from criminal to civil court. Mr. Newman concludes:

It was the only time in the history of capitalism that any country allowed its anti-monopoly legislation to be written by the very people it was meant to police.

This act was amended in 1985, with the support of the Liberals at that time. Actually, the groundwork was done by the Liberals and it was passed by the Conservative Party.

But that's just what Mr. Newman has indicated in his book. Whether it's true or not remains open to interpretation.

But with respect to this issue, Mr. Kelen has indicated that predatory pricing, as it exists in the Competition Act, is virtually unenforceable and that with these amendments there will be some additional tools to make it more enforceable. I agree with that.

• 1635

My question with respect to this particular matter is this. With regard to price fixing or price maintenance, which seems to be, in Saskatchewan's experience and in other parts of the country, virtually unenforceable as well, what tools would you require in the Competition Act to make it enforceable?

Mr. Michael Kelen: That's a big question, and I can't give you an answer to that off the top of my head. The price maintenance sections, which make it against the law for someone to try to influence a retailer, for example, to keep the price up, don't work as well as they should. We haven't focused on that in this bill at all, I agree, but that is another problem.

Mr. John Solomon: Okay, thank you.

With respect to Mr. McTeague's bill and predatory pricing, Saskatchewan is actually the biggest loser. Just so members of the committee would know, I'll recite some statistics.

From 1992 to 1998, the decline in independent market share in Saskatchewan was 61%, which is the highest of all provinces by a long shot. What has resulted in Saskatchewan's example is that since the fall of 1997 until just February of this year, which is about 17 or 18 months, the price of gasoline in Saskatchewan has been between 4¢ a litre and 16¢ a litre higher than the price in every other jurisdiction with the same tax regime in the country. This is a very serious situation. The Competition Bureau is currently preparing a report after investigating this particular predatory pricing request of yours truly and others.

I am wondering whether or not I should be hopeful, Mr. Kelen, that the Competition Bureau will actually be able to find something under the existing legislation, or do we have to have this reviewed again when this bill is passed through the House in order to get some sort of fairness for our particular citizens in Saskatchewan?

Mr. Michael Kelen: I wouldn't be optimistic under the current act, and I think that's why this bill rectifies the defect in the current act. The Competition Bureau has a very hard job and they're not to be faulted, but before they file a criminal charge of predatory pricing, they have to have criminal evidence of intent to drive a competitor out of business. Just because Esso and other three major oil companies are selling at such a low price.... They can be saying, well, we're just trying to buy market share; we have this reason or that reason for doing it. Unless we can find, as they say, a smoking gun, actual evidence that they were actually doing that to drive a competitor out of business, then the Competition Bureau will probably not lay criminal charges.

Mr. John Solomon: So would the Competition Bureau look favourably in terms of trying to prove some of these cases if they had authority to actually obtain files, to go into a company with a subpoena if there's some suspicion of price fixing—I mean, it's pretty easy to determine whether there's suspicion—to obtain those files without having to have this smoking gun, which everyone knows doesn't exist?

Mr. Dan McTeague: I think there's an easier answer, and that's to create a standard of predation, which this bill is trying to do. It simply says, look, this is now the new standard. If you're above that, you're fine. If you're below that, you're going to go before court. And the person who has been the victim has a stake; they actually can come before the court, and the court can apply whatever relief it seeks, to stop, desist, create fines, which is what this bill does. That's exactly where we're heading, Madam Chair and Mr. Solomon.

Mr. John Solomon: Thank you.

The Chair: Thank you very much, Mr. Solomon.

I'm going to entertain two more questioners and then we have to move on to our second group of witnesses. I have Mr. Bellemare and then Mr. Jones.

[Translation]

Mr. Eugène Bellemare (Carleton—Gloucester, Lib.): Is it true, Mr. McTeague, that as far as gas and oil are concerned, everything that is bought or sold in Eastern Canada, namely from Ottawa to Halifax, comes from the Middle East, and that everything that is bought or sold west of Ottawa comes from Western Canada?

Mr. Dan McTeague: Not necessarily. It depends on the location of the refineries. I know that in Quebec as well as in Saint John, New Brunswick, or even Come By Chance, Newfoundland, it depends on the origin of the product. The product may come from Europe, the United States, or even Russia or Finland. There is no demarcation line.

I believe there was an agreement, decades ago, the Ottawa agreement or the Ottawa Valley agreement, by virtue of which there was a division whereby the oil sold in Ontario came from the West, so as to promote western industry. That is now history and this division no longer exists in reality.

• 1640

Mr. Eugène Bellemare: Often, the explanations provided by the large oil companies infer that a major portion of the price of oil—in Ottawa, for example, we pay 53.4 cents a litre on average—is made up of federal, provincial and even local taxes. My belief however is that it is mostly provincial and federal. Once these taxes are removed, is it possible to calculate the true price of oil or gas?

Mr. Dan McTeague: You are right, Mr. Bellemare. Furthermore, we don't see, during long weekends, prices suddenly go up or down. I don't have the numbers in front of me, but overall, in the Ottawa area, a major portion of the price of oil is made up of taxes.

The entire Canadian market is controlled by four refineries, and it is to the advantage of these companies to not complain too strongly about taxes. Indeed, they use these taxes to buy treasury bills that they keep for 45 days. However, they often ask retailers to put... That is what the Bloomberg Oil Buyer's Guide I mentioned earlier says.

[English]

Mr. Eugène Bellemare: Do you believe, perhaps to resolve this problem, that we should prevent organizations from being the explorer, right up to the retailer; that the industry should be broken up? You'd have the explorer at one end and perhaps the refiners or refineries would be another company or another group of companies, or another industry, if you want to call it that, and retailers would be absolutely differently oriented.

Mr. Dan McTeague: Mr. Bellemare, if this bill is not implemented—and again, I'm not saying this is the be-all and end-all, but if we're not prepared to even provide a minimum standard of engaging this industry, there won't be any independence in many sectors to worry about and the question of breakup will be really a moot point, because where we have some option of preserving competition is at the retail level.

Mr. Eugène Bellemare: Not a breakup.

Mr. Dan McTeague: Not yet, not at this point. This bill would help that.

The Chair: This is your last question, Mr. Bellemare.

Mr. Eugène Bellemare: On volume, I understand that if the very same large container picks up gasoline in January as opposed to August, or in Sarnia as opposed to Labrador City, the volume of the gas is very different.

Mr. Dan McTeague: You're referring to temperature compensation, and yes, in Canada we have accepted a regulation that most other countries would not accept. The climate in Canada is never 15 degrees. So when people are buying 70 litres of gasoline, they really only get 74, and that's really a chemical rip-off. But that's another matter.

I will say on the question of volume that you must understand that a company that sells a lot of gasoline has a really expensive site, and it's going to cost them three times as much as a less marginal site. So all things being considered equal, on the whole question of selling by volume and somehow getting a big discount, make no mistake, if I'm here in Ottawa, or downtown Toronto, or somewhere in downtown Regina, it's going to cost me more in my taxes, I have to have a bigger site, it's a lot more maintenance, and that has to be found in the cost. So don't accept the argument that the volume might somehow permit some people to give discounts and make it look like, if they're large vertically integrated suppliers, they can actually beat the independents. That's a false argument, and you're going to hear that from experts.

The Chair: Thank you, Mr. Bellemare.

Mr. Jones, please.

Mr. Jim Jones: Thank you, Madam Chair.

Dan, at least you believe in what you believe in, and I respect you for that and the work you've done. But there are a lot of things that I have a lot of problems with in what you've said today and the accusations you've made. Some of the things that you say are bad are maybe just the market working, like the reduction in the number of gas stations.

You say the independents can't afford, or probably can't afford, to reconfigure the gas stations to what the big gas stations are doing, and that's probably part of the problem, because I have to believe that gas itself doesn't contribute to a lot of the revenue stream, as some of these bigger gas stations have car washes, grocery stores, and all those types of things. So the only way they can get them in there, to sort of drive up their profit and revenue, is to change the prices.

• 1645

The second point I have is, what obligation? If you do this, tell me how you're going to guarantee lower prices or maintain the same prices to the customer. What obligation do these big four or five gas companies have to even sell to independents? Maybe they'll just go it alone and use their own existing stores, and so on. That could drive the people out of business.

Further, there are things that are changing in the retail marketplace. Yesterday there was the small clothing store, the small retail store; now you have the big-box concept, the Home Depots, the Computer Cities, the Future Shops, Chapters, and all that. They're playing havoc in the retail industry, and I don't see you doing anything about that. But then, tomorrow, those guys with Internet shopping and things like that are going to play havoc on these places. The grocery stores had to get bigger to survive. Now they're going to shop from home. So I'm not so sure what you're accomplishing here.

Also, my understanding is that this stuff is already in the Competition Act. It could possibly be that the Competition Bureau is not enforcing it. You said below-cost selling. I'm aware that's sort of like anti-dumping, and a lot of companies are not allowed to do that. So I don't understanding where you're going with this whole thing.

Mr. Dan McTeague: Mr. Jones, you're a neighbour of mine, and I want to answer that. There are four points I'd like to make here.

Number one, on the question of car washes and grocery stores, all those are wonderful ideas. The irony is that it's the independent gas retailers who invented those, and of course this is one of their ways of gaining revenues.

You must understand that when the wholesale price is controlled by the person you're supplying, you cannot make the analogy of a Home Depot versus a Home Hardware, or whatever you want. Home Depot does not sell to Home Hardware, and there is a completely different set of circumstances, and I'm sure there are provisions in the Competition Act, among other things, that regulate that.

I'm more concerned about the question you've brought in terms of those who have the belief that somehow there are all these protections in the Competition Act. Let me tell you about the abuse of dominant section, where there is talk about squeezing a vertically integrated supplier. That's fine if you want to go for a civil remedy, but I don't think most members around the committee here understand that this civil remedy is on a case-by-case basis.

There is no general injunctive relief. There is no opprobrium. There is no way in which an individual can say...as an example, company A, ESSO, or Petro-Canada, take your pick, has sold to you as an independent and they've also sold to that person. You've put me out through predatory pricing or the margin squeeze. I can go to the bureau, the bureau will find there's a problem, and I'm probably out of business by then, as so many of these independents are, but it doesn't apply to him even though the practice continues. We are not sending a message to the business community with the existing framework of legislation.

I would prefer to have a real civil remedy in the act, such as in the Clayton Act, where there is an injunctive, in general, in rem effect, and that's an important consideration, but it's beyond the scope of this bill. I would have thought, perhaps, considering that the Competition Act has some problems...those are not accusations; those are learned studies that we have come up with, and it's frustration that's shared in the public.

Every weekend, Mr. Jones, you and I share a constituency where people are saying, why are all these people disappearing at the same time and the price of gasoline tends to go up uniformly?

We have certain people in this country who actually believe you can shop around. I've driven from Burlington to Clarington, the great breadth of the City of Toronto, and there's one-tenth of a difference in the price of gasoline. The disappearance of the retail competitor is important to the long-term viability of competition.

Mr. Jim Jones: Okay. On what you're saying about the gasoline pricing fluctuating, there are no independents involved in our area, right?

Mr. Dan McTeague: No, there aren't, you're right. They've been snuffed out. But you've driving at a point.

If you speak to some of the people when our committee undertook, very close to your riding, its first deliberation, they will tell you that for many years people used to drive to Sunys Gas or the independents. Why? Because they're always a half a penny or two pennies or three pennies cheaper. For ordinary constituents in your riding and mine, that makes a hell of a difference when they can save $5 on a tankful of gas. When we led the cable revolt years ago it was over 30 cents a month. So $5 means a lot.

The independent is there to compete, but if the price at which they compete is simply the wholesale price plus the margin and you use your powers as a refinery or as a supplier to undercut that, that's not cricket; that's not fair. That's all this bill is trying to do. It's setting a minimum.

• 1650

I don't think industries, particularly those that are U.S. based, like Imperial, should argue with this, because they're doing in Canada what they're not allowed to do in the United States. We're not thumb-sucking dolts on the international scene, Madam Chair.

Thank you, Mr. Jones.

The Chair: Thank you very much, Mr. McTeague.

I want to thank Mr. McTeague and Mr. Kelen for their presentation, and I want to thank the members of the committee for their questions. We'll be meeting Mr. McTeague again, at the end of the witnesses, while we're at clause-by-clause. I'm sure if you have any other questions, you can approach Mr. McTeague at any time.

I'm going to ask our next group of witnesses to trade places. If we can do this without breaking, that would be better, because we're already short on time.

We have representatives from the Competition Bureau whom I'd ask to join us at the table. I would prefer any other conversations take place outside.

Mr. Jones, I'm trying to maintain order while we change witnesses. It was a long night last night.

Do all members have in front of them a statement from the Competition Bureau? You should also have received by now, I believe, a package of four reports.

On behalf of the committee, I'm very pleased to welcome our second group of witnesses here. We have, from the Competition Bureau, Mr. Harry Chandler, the deputy director of investigation and research, criminal matters branch.

We are also very pleased to welcome Mr. Don Mercer, the head of the amendments unit, and Mr. Marcel Morin, the commerce officer from the amendments unit. We have Mr. Richard Taylor, the assistant deputy commissioner of competition, civil matters, and I believe Ms. Sandra Fraser is as well in the audience, the general counsel, competition and consumer law division, Industry Canada. We're very pleased to welcome you here today. I believe Mr. Chandler is going to do the statement.

Mr. Chandler.

[Translation]

Mr. Harry Chandler (Deputy Director of Investigation and Research, Criminal Matters Branch, Competition Bureau): Thank you, Madam Chair. We appreciate the opportunity to participate in your study of Bill C-235. This is the first time that representatives of the Competition Bureau appearing before a parliamentary committee are able to use the title "commissioner", thanks to the work of the committee and to the enforcement of Bill C-20 last week.

I am accompanied by key members of the Bureau's team that examined Bill C-235, namely Richard Taylor, the Assistant Deputy Commissioner of Competition, Civil Matters; Don Mercer, Deputy Commissioner, Amendments Unit; and Marcel Morin, Commerce Officer, Amendments Unit.

[English]

I will be very brief. You've asked that we be brief. There's a statement. Perhaps we could take it as read and I will just treat the highlights of that statement.

First of all, let me say that we appreciate the interest in the committee in reviewing the Competition Act as an important framework law in the country. I think it's important to say that those in the Competition Bureau whose job it is to enforce the Competition Act see that really as not just a job, but a responsibility, and a responsibility that they take very seriously indeed. We work very hard to ensure there is effective competition in the country within the framework of the Competition Act.

• 1655

Of course the Competition Act provides the general rules of the game that promote an effective and growing economy. Bill C-235, of course, is really directed at gasoline retailing, and we have done a lot of work in the retail gas industry over the past 10 years, I would say. We have, of course, received a number of complaints, many from you and your constituents. Those complaints are followed up carefully. Virtually every one of them is replied to, with contact with the complainant to understand the issue, because the key for us is to understand the facts and what kind of evidence is available.

We've also done a lot of work in terms of education, explaining how the Competition Act works, producing pamphlets on gas pricing and the Competition Act, and making available our 1-800 number and our web site right across the country. In the course of investigating the industry and these issues that have come to our attention over the years, we've made available studies, once again to try to be transparent so we can better understand the complex goings on in this particular industry—retail gasoline.

Let me just very briefly highlight the preoccupations we have with Bill C-235.

[Translation]

First of all, the Competition Bureau believes that having recourse to criminal provisions is an unfortunate choice. We believe that this will translate into regulations that will most probably bring about an increase in prices throughout Canada. The choice to resort to criminal provisions or civil provisions should only be made after an in-depth study. When we appeared before the committee during its examination of Bill C-20, we brought up this very important issue.

[English]

You will recall when we were dealing with Bill C-20 that we were talking about telemarketing, the fraud actors, the bad actors who were taking advantage of consumers and citizens across the country. Clearly we wanted a strong criminal provision to deal with that kind of behaviour, and I think it's an important distinction to make.

We have difficulty with the reasonable rate of return. This kind of concept was in the first version of Bill C-235. I'm not able to deal with the amendments. Unfortunately they're coming too quickly for us to deal with, but the reasonable rate of return issue does also, to our way of thinking, inject this possibility of price regulation.

Clause 2 of Bill C-235, in our view, undermines a very effective section that already exists in the Competition Act, section 61—a criminal law provision, price maintenance. It has been referred to earlier. I would draw members' attention to the statement where we refer to one of the leading judgments in retail gasoline as an important precedent that I think is well known in the industry.

Finally, let me close by saying that I make reference to expert reports that the Competition Bureau commissioned for the purpose of providing a better factual basis for committees and their deliberation of Bill C-235 that examines some of the core issues, some of the factual assertions that have been made. There are two studies in the United States on the impact of similar legislation to Bill C-235, to the extent that it exists in the United States at the federal level or state level. There is a study on market shares of 12 major cities right across the country over the period 1988 to 1997 that looks at the independent market share.

• 1700

There is an Econometrics study that tests the question of the effect of the presence of independence on retail prices, once again looking at real data in 11 cities over the period 1991 to 1998.

I'm not going to get into those studies. I would encourage the committee, if it feels it's appropriate, to call the experts who prepared these studies. I think they are relevant and important to your deliberations.

Finally, let me say that we appreciate the opportunity to talk about the Competition Act. Mr. McTeague has said he's had to battle us every step of the way. I certainly wouldn't characterize it that way. I think we disagree with the premise and some of the assertions he's made. I think that really is a question of the facts and the evidence.

Thank you, Madam Chairman.

The Chair: Thank you very much, Mr. Chandler. I appreciate you being brief. We're going to begin with Mr. Chatters. Do you have any questions, Mr. Chatters?

Mr. David Chatters: Thank you, Madam Chairman.

Again, I can see you're struggling with the same thing I'm struggling with, and that's the fact that we were addressing the original bill and now we're addressing something that's entirely different from what we started out with.

I'd like to ask you simply, in view of the fact that when we look at gas prices across Canada in today's market, when you take the price tax-exempt, we're probably looking at some of the lowest gasoline prices consumers have experienced in the last 40 years. There must be something working in the marketplace reasonably well, in spite of the Friday afternoon price fight everybody talks about and how that's involved. I would suggest that's probably more a result of competition than price collusion. But it seems to me what we're talking about in this bill is kind of odd, when consumers are enjoying very much the fruits of competition. It seems strange to me that's the case now. I'd just like you to comment on that.

Mr. Harry Chandler: It is a fact that gasoline prices in Canada are the lowest in the world, next to the United States.

The Chair: Mr. Peric.

Mr. Janko Peric (Cambridge, Lib.): Thank you, Madam Chair. Mr. Chandler, you mentioned that you receive many complaints from individuals. You mentioned that you studied other cities over seven or eight years. What do you do after you receive complaints? Do you go out and investigate them or do you just register them?

Mr. Harry Chandler: We have a standard procedure we go through to screen complaints and determine whether they are matters we can proceed with to the next level. In view of the volume of complaints we have, obviously we can't have an on-the-spot investigation for every one.

Gasoline has been such an important issue for the Competition Bureau over a number of years that across the bureau in the criminal matters area, the civil matters area, and the mergers branch, there are a considerable number of people who have experience in this industry and who have been out in the field investigating these matters.

• 1705

Mr. Janko Peric: You believe there should be healthy competition in Canada, and I believe in that too. What do you think about 85% of the market in Canada being controlled by four majors when in the United States only 10% is controlled by one major? Do you think competition is healthy? Do you think you have enough proper tools to investigate the problems?

Mr. Harry Chandler: I certainly think we have the tools to investigate competition in this industry and in other industries. Bill C-20 gave us some additional investigative powers, as you know.

Mr. Janko Peric: That's a new bill.

Mr. Harry Chandler: Canada is a different economy from the United States—the size of the economy, the possibility of minimal optimal scale of refineries, etc. That is the reality.

Mr. Janko Peric: Since you believe you have proper tools to investigate, why have the number of independent gas station owners declined drastically?

Mr. Harry Chandler: That's a factual question.

Mr. Janko Peric: No, sorry. Do you know what the problem is? The problem is the four majors are squeezing them out. I don't think you're doing a proper job, sir. When you receive a complaint, you screen the complaint and then you judge if it's proper; if it's legitimate or not. Then if you feel it is, you go out. We heard before, sir, and I was on this Liberal gas caucus committee—

The Chair: Mr. Peric, you asked a question. You didn't allow Mr. Chandler to answer you. You have interrupted—

Mr. Janko Peric: The question is coming.

The Chair: No, I think the question has to be now.

Mr. Janko Peric: Okay. We travelled and we heard from independents. I don't believe, sir, you're doing a proper job. If you don't have the tools, we'll provide you with the tools. This private member's bill is giving you the tools.

Mr. Harry Chandler: Sir, with respect, we do have the proper tools.

Let me make a couple of points. I think you have to distinguish between the number of complaints you receive on any matter, whether it's gasoline pricing or any other matter. Some complaints are misplaced. The mere fact of a high number of complaints, by itself, without investigation to determine whether there is real evidence there.... Whether there is real harm taking place is the important distinction.

Secondly, our concern under the Competition Act is promoting and maintaining the competition, not promoting and maintaining competitors or individual firms. The framework of the Competition Act is to promote competition as a process and promote economic growth through that process.

It may well be that in certain situations, if a competitor is disciplined or put out of business, it will lead to a lessening of competition. But the premise is not always there. You have to investigate each case; you have to determine the facts and determine whether there will be an effect on competition in that marketplace.

As others have pointed out, there may be competitors that leave a market. Others come in to replace them, and you still have consumers benefiting from those low prices. The identities may not be the same, but if you have a vigorous competition taking place, that is not a matter in which we intervene.

The Chair: Thank you, Mr. Peric.

Thank you, Mr. Chandler.

Mr. Dubé or Madame Lalonde.

[Translation]

Ms. Francine Lalonde (Mercier, BQ): I will be first this time. I had hoped that you would be ready to talk to us about the amendment that we received at the same time as you. Would that be possible? Could you not give us your first reaction, subject to subsequent refinement? What is being proposed is a major change.

Mr. Harry Chandler: It would be difficult, Madam Chair, although I may say that the new version of the bill is still missing a test as to the reduction of competition.

• 1710

That is the key element. One must examine the market to determine whether the level of competition is sufficient and this cannot be limited to studying the effect on one company only.

Ms. Francine Lalonde: In other words, your way of assessing a situation doesn't fit in whatsoever with the logic of the bill, that aims to deal with the situation even at the level of the retailer.

Mr. Harry Chandler: That is correct. Our aim is to promote and maintain competition and not necessarily to protect a particular sector of the economy.

Ms. Francine Lalonde: After all, you necessarily base yourselves on the Competition Act. A good portion of those who support movements such as that of small retailers believe that in society, we continue to have a need for small retailers who—at least that is the image being conveyed—provide better service, don't have high production costs, etc. They have a bias, whereas in the Competition Act there is no element to judge that; you don't look at that aspect at all.

Mr. Harry Chandler: I must say that the act aims first and foremost to promote competition. One might say that the Competition Bureau is in one big sphere and that there are numerous other programs and possibilities aimed at protecting and promoting small and medium-size businesses.

Ms. Francine Lalonde: We mustn't forget either that the purpose, in four parts, of the Competition Act that we talked about also fits into the international context and...

Mr. Harry Chandler: We want to create an environment in which small and medium-size businesses can be successful.

Ms. Francine Lalonde: If they can. If they can't, then too bad.

[English]

The Chair: Mr. Dubé, do you have a small question to follow?

[Translation]

Mr. Antoine Dubé: On page 2 of the English version of your brief, you state, regarding the matter of price setting:

If there is no national emergency, the federal government has no constitutional jurisdiction in this matter.

Mr. Harry Chandler: That is very true and I believe this is why Bill C-235 affects all sectors. But in the end, according to the Constitution, the federal government has no power to regulate a sector in particular.

Mr. Antoine Dubé: Even the amendment being proposed would change nothing?

Mr. Harry Chandler: I believe that the amendment is targeted at all sectors.

Mr. Antoine Dubé: Thank you.

[English]

The Chair: Thank you very much, Mr. Dubé.

Mr. Shepherd.

Mr. Alex Shepherd: I can remember doing this when we were dealing with bank mergers. You said something that sort of dumbfounded me then and you just repeated it again today.

You said something to the effect that the lessening of competition was all right, as long as it ended in economic efficiencies. In those days the economic efficiency was less costly banks. In other words, we closed bank branches and so forth. You said that again today, and you also have it in your brief that the objective is not protecting individual competitors, but rather an efficient economy.

It seems to me, when I look at Canadian industry in the forestry sector, gas and oil, mining, refining, and aluminum production, and we know only 100 companies account for something like 85% to 90% of our exports, we are a country typified by high concentration in various sectors.

• 1715

It's not your job to take care of the little guy. In fact, you have become a referee among oligopolies. Is that a fair statement?

Mr. Harry Chandler: I think that's a little too extreme. I wouldn't go that far.

Mr. Alex Shepherd: In other words, because of our economic structure, Canada cannot afford the luxury of true competition among smaller economic forces within it, as the United States is able to do.

Mr. Harry Chandler: I don't agree with that statement.

Mr. Alex Shepherd: Why do our competition laws not reflect those of the United States? Why are there not more similarities?

Mr. Harry Chandler: I think if you have the opportunity—and I know you haven't had an opportunity because they have just been tabled—to look at the reports, you'll see there is very little difference between the competition law treatment in Canada and in the United States.

The Chair: Thank you, Mr. Shepherd.

Mr. Solomon.

Mr. John Solomon: Thank you, Madam Chair. I have a few quick questions.

Regarding your comment about promoting competition, you heard some of my numbers earlier, but I'm wondering if you promoted competition in light of the following statistics related to Saskatchewan. In 1992, independents had about 20.6% of the market share; six years later they had about 8.1% of the market share. That's a loss of 61%. In your view, is that promoting competition?

Mr. Harry Chandler: Once again, that may be the situation in Saskatchewan. I don't have the figures in front of me. One of the reports looks at it across Canada and challenges the view that there was a golden age of independents in the past and that has now changed drastically. In fact, that doesn't seem to be the case. I'm not going to challenge what you're saying about Saskatchewan, but the independents' share has gone up and down. It has gone up in some other provinces and some other major markets.

Mr. John Solomon: On a second example, would you define the following as promoting competition? The price of crude started dropping in late summer 1997. It was at $25 a barrel, and for most of the last 18 months it's been between $11 and $13 a barrel. In Saskatchewan it took 13 months to drop by 3¢ to 4¢. Within 13 hours of the price going back to $14 or $15 a barrel, it went up 2¢. Is that promoting competition, or do you think that's kind of unusual for a market?

Mr. Harry Chandler: I wouldn't want members to have the impression that this is not a concern for us. It's known publicly that you've lodged a complaint with us. You mentioned earlier that we're investigating it. I think I should just leave it there.

Mr. John Solomon: I just want to ask you whether you think that was fulfilling your mandate to promote competition, because you mentioned it.

Mr. Harry Chandler: Our mandate, Mr. Solomon, is to follow up on these matters, investigate them as carefully as we can, try to determine whether there is evidence we can bring forward if there is anti-competitive behaviour, and use the law.

Mr. John Solomon: Thank you, Mr. Chandler. The other questions I have relate to the previous witnesses.

One witness indicated that the predatory pricing aspect of the Competition Act is “virtually unenforceable” in its existing form. Would you agree with that or not?

Mr. Harry Chandler: I would not agree with that.

Mr. John Solomon: You indicated that Canada has the second-lowest gas prices. I assume that's in North America, or is it in the world?

Mr. Harry Chandler: I'm not including Saudi Arabia and countries of that nature, but I'm including western Europe and Australasia.

Mr. John Solomon: Of the net oil exporters, where would we sit?

Mr. Harry Chandler: I don't have that information.

Mr. John Solomon: We sit at the highest price in the world for net exporters, by the way. That's the problem we have. We're the only non-member of OPEC that is a net exporter of oil, which means we produce more oil than we consume and we export the balance, or much of the balance. We're the highest out of all the other countries in world. So out of the net importing countries we are the lowest, but we don't import overall. We import some in the east to make up for exports in the west.

I'm just wondering whether those statistics are available to the Competition Bureau and whether you use those sorts of comparisons as opposed to just the European example, where most countries are net importers. Would you use that information, or do you have that information?

• 1720

Mr. Harry Chandler: That's relevant information. We would have that information. Of course, what we would want to do is look at the local market conditions and try to understand what is going on in a particular market.

Mr. John Solomon: My next question pertains to your not wishing to have any criminal provisions in these amendments. I'm from Saskatchewan. I'm the son of a farmer, and I'm not really up on all of these issues, but perhaps you could advise me. I'm wondering why you think a civil response is more appropriate than a criminal response. You made some reference in your presentation to companies that err on the side of higher prices. It seems to me that if you face a potential criminal conviction, you're not going to err as much as you would with a potential civil conviction. Maybe I'm wrong, but that's my sense after talking to many of my constituents.

Mr. Harry Chandler: There is already a criminal provision in the law. In fact, there is a criminal and a civil provision in the Competition Act as it is now.

Mr. John Solomon: But in the amendments you're saying you don't want to go the route of the criminal provision that's recommended.

Mr. Harry Chandler: Yes, in the way it is framed based on the premise it has. I think that's because many experts in this area have drawn attention to the special situation of predatory pricing and the very fine dividing line between predatory pricing and vigorous competition. That's an important frontier. It's an important distinction to make, because you have to remember that in this case consumers benefit when there is vigorous price competition going on. Our job is to make sure that competition does not have a predatory background to it that results in a longer-run picture where prices rise. That's where we focus our analysis.

The Chair: This will be your last question, Mr. Solomon.

Mr. John Solomon: I'd like to ask you a question similar to the one I asked the previous witness, which you probably heard. Is there something we could give your bureau through legislation that would allow you to obtain more easily the smoking gun in terms of price maintenance or price fixing? Is there some legislation or some amendment that would help you to do your job? I know your job is extremely difficult. I understand that well. That's something I do understand. My sense is that you don't have all of the tools at your disposal.

Mr. Harry Chandler: Mr. Solomon, I think our record in enforcement and price maintenance is a strong one. I think it's strong particularly with regard to gasoline retailing. With regard to the conspiracy provision, price fixing, when our fiscal year comes to an end next week, we will have accounted for $40 million in fines against companies involved in bid rigging conspiracy, foreign directives. That's a fivefold increase compared with last year. I think those figures speak for themselves. I think the law does work. I think we have the tools to investigate matters.

The Chair: Thank you, Mr. Solomon.

Mr. John Solomon: Thank you, Mr. Chandler, and thank you, Madam Chair.

The Chair: Mr. Keyes.

Mr. Stan Keyes (Hamilton West, Lib.): Thank you, Madam Chairman.

Mr. Chandler, I have some questions that you could probably give me a yes or no answer to. Do you agree or disagree that the market is controlled by three or four major companies?

Mr. Harry Chandler: What do you mean by “controlled”?

Mr. Stan Keyes: Are you a lawyer?

Mr. Harry Chandler: No.

Mr. Stan Keyes: Okay. The allegation being made here, and let's not beat around the bush, is that there are three or four major oil companies selling wholesale and retail and they have the corner on the market.

Mr. Harry Chandler: Yes, and I'm not trying to be cute. There's no question that in the sector you're talking about the integrated refiners have market power. We're well aware of that. That's one reason that, for example, when the Petro-Canada-Ultramar merger was reviewed—

Mr. Stan Keyes: Okay, the answer is yes. I didn't ask you about the mergers. So the answer is yes.

Mr. Harry Chandler: —we challenged it and it was stopped.

The Chair: Mr. Keyes, let the witness finish his statement.

Mr. Stan Keyes: No, Madam Chair, it's my time. I'm asking a direct question. I don't need the superfluous answer. I just asked if he agreed or disagreed that the market is controlled by three or four major companies. That was my question and he said yes.

• 1725

The next question is, do you agree or disagree with the statement that there is only one wholesale price?

Mr. Harry Chandler: I don't understand the question.

Mr. Stan Keyes: The allegation again by Mr. McTeague—you sat here and listed to his whole presentation—was that in fact there is really only one wholesale price by the major oil companies when it comes to selling their product.

Mr. Harry Chandler: I think I'd need more information before I can usefully respond to that question.

Mr. Stan Keyes: Do you disagree or agree with the statement that when companies become too large, smaller companies cannot compete?

Mr. Harry Chandler: That's a difficult question to answer. In some cases, yes; in some cases, no. It depends on a factual analysis of the marketing issue.

Mr. Stan Keyes: Are larger companies, such as Esso, charging a higher wholesale price to independent retailers than its wholesale price to an affiliate, such as another Esso gas station? Have you ever had any complaints or done any investigation along that line?

Mr. Harry Chandler: Yes, we have had complaints of that nature, and we have investigated those instances.

Mr. Stan Keyes: Do Petro-Canada, Shell, Esso, and Ultramar sell at the retail and wholesale levels?

Mr. Harry Chandler: Yes.

Mr. Stan Keyes: Have you received complaints or investigated allegations that Petro-Canada, Shell, Esso, or Ultramar sell their gasoline at a retail price that is lower than the wholesale price they sell their product for to an independent competitor?

Mr. Harry Chandler: Yes.

Mr. Stan Keyes: What has been the result of that investigation?

Mr. Harry Chandler: I suppose the most recent would have been the investigation in 1996-97 involving the Ultramar value pricing campaign. Once again, we made the findings public and released the experts' reports. We basically concluded that with the change in marketing approach, particularly in the Quebec market, there had been a very vigorous period of price competition, which some characterized as price wars. In those kinds of situations you sometimes have price inversions. But based on the information we had, which was fairly exhaustive, there was not harm to competition in the market.

Mr. Stan Keyes: There was what?

Mr. Harry Chandler: There was not harm to competition in the market.

The Chair: This will be your last question, Mr. Keyes.

Mr. Stan Keyes: All right. I don't doubt for a moment that the Competition Bureau isn't doing the best job it can do with the tools it has. The Competition Act has to deal with the issues and complaints that come before it within its legislative or regulatory parameters. Given the understanding of what Bill C-235 is attempting to accomplish, would you say that given the legislation and regulations you have to work with, you can't address the issues being put forward in Bill C-235?

Mr. Harry Chandler: No, I think we can address the issue of vigorous competition and squeezing. The tools are there. The civil provision, the abuse of dominant position provision, for example, explicitly has a provision that talks about squeezing that would allow us to address the situation.

The problem we have with the bill as it is, is the premise on which it is based, and that is that in all situations where a squeeze occurs, there is a lessening of competition. We don't accept that premise. We feel that when those situations occur, as they do not all that frequently but from time to time, then we have to investigate and determine the impact on competition in the market, not the impact on a particular competitor.

Mr. Stan Keyes: Thanks, Mr. Chandler. Thanks, Madam Chair.

The Chair: Thank you very much, Mr. Keyes.

Mr. Jones, please.

Mr. Jim Jones: Thank you very much, Madam Chair.

I liked your comment that you're in the business to ensure competition, not to ensure competitors. What would Mr. McTeague's bill ensure? Competition? Or is it trying to ensure competitors?

Mr. Harry Chandler: The way I read it, the logic behind it is that if you protect independent competitors, then you are protecting competition ipso facto. It's a direct deduction, and that's the premise we don't accept.

• 1730

Mr. Jim Jones: Okay. Can you elaborate on why you feel prices would be higher if this bill were implemented? I believe they would be higher.

Mr. Harry Chandler: Well, I'm sure the committee will have other witnesses that can speak to this issue. The concern we have is whether, when you have a criminal provision like this, it will lead the integrated suppliers to decide, for example, just not to bear the risk of supplying independents. They would not have to supply independents. And if we accept that the presence of the independent sector is an ingredient in competition, then that would be unfortunate. Or alternatively, they may want to be very conservative in their pricing just to avoid offending this law. Both of which, I think, would have the effect of raising prices to consumers and motorists.

Mr. Jim Jones: The other thing is that you mention the number of complaints you get on a yearly basis in this area. Is that information available in some type of report and analysis that we could look at?

Mr. Harry Chandler: Sure.

Mr. Jim Jones: Okay. And is this bill only applicable to the gas companies?

Mr. Harry Chandler: I don't believe it is. I believe, as Mr. McTeague said before me, it applies to all sectors of the economy.

Mr. Jim Jones: I'd just like to make a comment. I remember a few years ago under the Liberals when they formed Petro-Canada and tried to run a government-owned gas company. I think they lost money, and prices were never as low as they are right now. So I don't think government should get into the free-market economy and—

Mr. Stan Keyes: Neither did we get rid of Petro-Canada.

The Chair: Let's not have side conversations, Mr. Keyes.

An hon. member: We got rid of Petro-Canada.

Mr. Stan Keyes: What else do you want us to get rid of?

The Chair: Mr. Keyes, please.

Was there a question, Mr. Jones? Did you have another question?

Mr. Jim Jones: No, I think we do have the competition here. The other thing that is happening out there is the change in the marketplace, in the gasoline industry. But I could give you the same scenario of the rapid changes gone through, say, in the technology industry. The thing is, it's going to be that the fit will survive.

I think what we've seen here earlier is.... I think the real problem is the independents. They can't afford the money to reconfigure their storefronts to keep up with modern times. I don't think it's bad that we've gone from 21,000 gas stations to 13,000. That type of scenario is happening in every marketplace in every sector of retail.

An hon. member: Gates and Microsoft...[Editor's Note: Inaudible]

Mr. Jim Jones: Well, that's where I think—

Mr. Harry Chandler: I have a very quick comment. Certainly there is structural change taking place in this industry, as is occurring in other industries. But if you look at the expert report, I think you'll find the share of the market controlled by the independent is not declining. It has not declined over time.

The Chair: Thank you.

Madam Jennings.

Ms. Marlene Jennings: I don't have any questions for the Competition Bureau. I'll share my time with Mr. Keyes.

The Chair: Mr. Keyes.

Mr. Stan Keyes: Thank you. I don't disagree with what Mr. Jones is saying. In fact this government, the Liberal government that he spoke of earlier, is probably doing a heck of a lot more in getting out of the business of running business than the Tories ever did. And there's proof of that.

That aside, gentlemen, here's a simple example—and you've probably got complaints up the ying yang for this. I had a non-Canadian family come to Canada, become Canadian citizens, and run a gas station downtown. Every time I went in there for gasoline that retailer would look at me and say, “You know what really bothers me? I just paid 49.5¢ a litre to buy my gasoline from that gas station.” Just two blocks up the street from him is the same gas station that he bought the gasoline from, selling it at the pump for 45¢. You've probably had complaints like that, haven't you?

Mr. Harry Chandler: We have complaints of that nature.

Mr. Stan Keyes: You told me the only investigation you ever did was an Ultramar complaint. Was it the only one you ever did in 1996-97 on this type of thing?

Mr. Harry Chandler: No. What I said was that was the most recent example.

• 1735

Mr. Stan Keyes: Okay. How many cases have you investigated along that line, where the mom and pop, as Mr. McTeague calls them, is trying to sell gasoline and would have to pay 49¢ to these big guys, and then they sell it for 45¢ up the street?

Mr. Harry Chandler: I don't know.

Mr. Stan Keyes: Can you give me a ballpark figure?

Mr. Don Mercer (Head, Amendments Unit, Competition Bureau): I could perhaps give a different kind of answer to that.

Mr. Stan Keyes: Can you answer my question?

Mr. Don Mercer: There has been a lot of inquiry work.

This issue has been around for probably 20 or 30 years. There was a major inquiry that started in 1973 and ended in 1986, with the old Restrictive Trade Practices Commission, which did not find that there was a problem in this industry. We've subsequently dealt with, of course, other complaints, and then we came to the major complaints that were done in 1996 and 1997. That was the major thing.

There have been lots of other complaints. We have vigorously investigated those complaints. We had eleven sets of inquiries following that petroleum inquiry, and in nine of them we got convictions. Some of them were on price maintenance.

Mr. Stan Keyes: Okay. Because I only have five minutes, Madam Chair, can I make a request?

The Chair: What's your request?

Mr. Stan Keyes: My request is that we be supplied with information on these basic questions: How many complaints have there been in the last five years—I'll limit it to five years—on what I've just asked you about, on the alleged point about having to pay more and watching the big guy down the street sell it for less? How many have been investigated? How many led to criminal charges? And how many criminal prosecutions led to convictions? Can we have that information in a timely fashion so that we can have a more thorough and thoughtful examination of this bill before we hand it back to the House?

The Chair: I'm not sure if that's possible.

Is that possible, Mr. Chandler?

Just so you're aware, the House is not sitting for two weeks after this week. So there is at least a two-week period before we come back.

Mr. Richard Taylor (Assistant Deputy Commissioner of Competition, Civil Matters, Competition Bureau): Madam Chair, this may be helpful in the interim. I represent the civil branch, and it has been mentioned today on two or three occasions that the civil provisions, particularly the abuse of dominance provision, the monopolization provision, if you will, also has a section dealing with squeezing and a section dealing with predation, both of which inversion could be looked at.

I currently have three ongoing examinations. We've already mentioned the one in Saskatchewan, and there are two more in Ontario relating to exactly that point.

I don't have the numbers as to others we've looked at, but there have been others.

Mr. Stan Keyes: I don't understand his answer. I just asked him a question about the number of complaints, investigations, criminal prosecutions, and it could be very helpful to this committee if it weren't just in the gasoline area, but maybe also in the food supermarket area, if there are any of those you have, if you could pass along that information as well.

Mr. Harry Chandler: We'll do our best.

The Chair: Thank you very much, Mr. Keyes.

I want to thank the Competition Bureau for being with us.

I want to let members know that we have to make a decision on clause-by-clause. I want to explain the rules so that everyone is aware of the process.

With nine members on the committee—it could be all government members. We can continue to go clause by clause without any opposition members present. However, that would not be my preference, which means I would like some direction from the government members that tomorrow when we begin clause-by-clause, after our witnesses, we will continue, I would hope, until we are finished, and hopefully we will have the cooperation of the opposition tomorrow.

Mr. Lastewka.

Mr. Walt Lastewka (St. Catharines, Lib.): My suggestion is that we meet tomorrow at 9 a.m., and we have some witnesses—

The Chair: We have witnesses scheduled until approximately 11.30 a.m.

Mr. Walt Lastewka: —and then we proceed to Bill C-54 on clause-by-clause.

The Chair: Mr. Dubé, are you in agreement with that, if we do clause-by-clause tomorrow, after the witnesses?

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[Translation]

Mr. Antoine Dubé: If you ask us to attend.

[English]

The Chair: You're okay?

Mr. Antoine Dubé: Yes.

The Chair: Okay, we'll do it tomorrow then.

The meeting is adjourned.