INDY Committee Meeting

STANDING COMMITTEE ON INDUSTRY

COMITÉ PERMANENT DE L'INDUSTRIE

EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, April 15, 1999

• 0911

[English]

The Chair (Ms. Susan Whelan (Essex, Lib.)): I call the meeting to order pursuant to an order of reference of the House, dated Tuesday, October 10, 1998, consideration of 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 morning we have two different sets of witnesses. First we will hear from Mr. McTeague and his barrister and solicitor, Mr. Kelen. Then we'll hear from the Competition Bureau and proceed to clause-by-clause.

Mr. McTeague, do you have an opening statement as well as Mr. Kelen?

Mr. Dan McTeague (Pickering—Ajax—Uxbridge, Lib.): We'll be sharing our time of five minutes, Madam Whelan.

The Chair: Okay.

Mr. Dan McTeague: Madam Chair, committee members, I'm honoured to be here once again. I hope in the past five days of deliberations

[Translation]

of this committee, you've had an opportunity to reflect upon the prevailing circumstances in today's economy.

[English]

If you have even had a glimpse in the past five days of the problems inherent in the structure of competition in this country, you will have a pretty good idea of what I have learned and gleaned over the past three years.

It's not often that a member of Parliament is given the opportunity to gather research and information and challenge the conventional wisdom on those who seemingly bear a monopoly on what is right and the tools of competition in this country. I have tried to do so, and in the process I hope I have created enough doubt in your mind as to the validity of the current act, as it is written.

Bill C-235 is only a very small change in the act, but I believe it is a starting point. It is a necessary starting point if we, as a committee of legislators, are going to be serious about the idea of trying to protect small business in an environment that is being increasingly dominated, and a landscape that is being increasingly dominated, by one or two players by sector.

Other nations have their own way of looking at competition. Our way of looking at competition, I would submit, under this bill and as given by the evidence here of the many bodies you have been witness to—and that's really only a fraction of what is out there—speaks volumes about the inadequacy of our current act.

We can choose today to decide whether or not this act is valid, and we can put it aside. We can talk about maybe studying it further at some point down the road. The reality is that day in and day out, the yoke of being small business in this country gets heavier and heavier.

I note that people are concerned about the question of taxation and access to capital, but nobody takes into consideration the fact that if the level playing field at the retail level is skewed against you, you will not survive.

[Translation]

This bill, which was recommended by the Liberal committee on gasoline pricing in which 50 members were involved, is based on the conviction that the Competition Act as it is presently worded is ineffective. The individuals asking that the bill be adopted are unable to come to the aid of small business.

• 0915

[English]

Madam Chair, before I pass my comments to Mr. Kelen, I want to remind people where we started when I first gave my review about the appalling statistics. As Peter C. Newman put it on page 155 of his book, Titans, the current Competition Act “was written by the very people it was meant to police”. It is really an anomaly in terms of what has happened around the world. Very few western nations have allowed this to happen.

We have heard a lot of questions about whether this is price regulation. It is not. This is not about assuming that at some point the bill will in some way force an inefficiency in the marketplace. Rather, it deals with the current reality where efficient players are being eliminated, as the Bloomberg Oil Buyer's Guide has suggested, and the Fred Wades of this world are suggesting.

More openly, when you are concerned or when you have heard those who speak of what this might do, I hope this committee will not deal with hypotheticals but will deal with the actual reality. The tombstones of thousands of small businesses in this country litter this nation. This would not be acceptable south of the border.

I think enough evidence has been given here to demonstrate that those who have come before you with the power of the Competition Bureau—which, by the way, has been working overtime to try to kill this bill—and with the heavy players in this country.... I'm simply asking this committee to consider giving David the stone he needs in his sling to slay Goliath.

I will now turn my comments over to Michael Kelen for the remaining portion.

Mr. Michael Kelen (Barrister and Solicitor): Thank you, Mr. McTeague, Madam Chair, honourable members of this committee, ladies and gentlemen.

This important public hearing has uncovered a major competition problem in Canada, and that's the lessening of competition due to predatory pricing and the inability of the Competition Act to enforce its criminal law against predatory pricing in these circumstances. The evidence is demonstrated in at least two sectors, the gas and the grocery industries, that independent competition is dying. The competition watchdog is either asleep or ineffective, because the present law, which is paragraph 50(1)(b) of the Competition Act against predatory pricing, is unenforceable.

The purpose of this bill is simply to fill a gap in the present competition law. The purpose of this bill is to protect competition; it's not to regulate prices. It's to protect competition in this area where there is a gap in the present law.

I have circulated a closing submission, which I will not read, but it reviews the evidence from some of the witnesses. For example, Fred Wade, the independent grocer who appeared before the committee two days ago from the Annapolis Valley in Nova Scotia, said he is the corpse to prove the point. He said, before the Canadian Federation of Independent Grocers, that they are handcuffed by the major grocers who control them. The Canadian Federation of Independent Grocers' representative was not able to contradict that.

We heard from the independent gasoline retailers, who have been driven out of business by predatory pricing practised by vertically integrated suppliers.

So the conclusion with respect to all of the evidence is very clear: vertically integrated companies are driving out, or taking over, independents with predatory pricing. We heard from a very eloquent competition law lawyer from Washington yesterday, Mr. Tim Columbus, how independent retailers are the real source of price competition. They don't compete with brands, they don't compete with advertising; they compete with price. Of course, the integrated retailers and wholesalers want to remove them.

The bill is necessary. There are a number of red herrings that have been dragged across your trail at this committee hearing. One of them is whether this will affect the right of companies to give volume discounts. This bill does not affect the law against discriminatory pricing. Volume rebates can still be given at wholesale. This does not apply at retail, since it's at a different trade level. So the law against discriminatory pricing, section 50 and section 51 of the Competition Act, will still apply.

On the question of refusal to supply product, they say the wholesalers will stop providing the independent retailers with product. Section 61 of the Competition Act makes it a criminal offence if a company refuses to supply a product because of the low pricing policy of a particular person. Section 75 makes it a civil law offence for refusing to deal with a particular supplier.

• 0920

So there have been many red herrings dragged across the trail in trying to lead the committee off the trail Dan is taking them down, which is to fill an important missing area of the Competition Act in this area of predatory pricing.

This act is not rocket science. This act is not going to change the world. This act is filling an obvious gap in the law, and I hope the committee will pass it.

The Chair: Mr. McTeague.

Mr. Dan McTeague: Madam Chair, I want to thank the committee as well for its work. I know it has very difficult decisions ahead. I want the committee to know that despite the language in this bill, there is no language in this bill that is different from other sections of the Competition Act. The bill itself is a model by which we have, as you heard yesterday, proceeded with a reality that exists within this country, that if you're small you will not survive if you're a supplier or your feudal landlord wants to put you out of business.

Yesterday it was clear the threat in the United States of H.R. 2966 in the American Congress was sufficient to rediscipline the marketplace. Equivalent laws have made it so there is not the kind of threat to small business, and there is flourishing there that simply doesn't exist in Canada.

Thank you, Madam Chair.

The Chair: Thank you, Mr. McTeague.

I'm not sure how many members have questions. Mr. Jaffer, do you have any questions?

Mr. Rahim Jaffer (Edmonton—Strathcona, Ref.): I have just two quick questions, if possible. Throughout the time I've been listening to witnesses, there are two things I haven't been convinced of. Maybe you can give it one last shot.

First, this bill in fact would not be positive for consumers. We've heard a number of witnesses say that in the long run prices will go up, and it doesn't do anything to protect competition with pricing and future competition, especially with pricing for consumers. In fact, prices would go up.

There is another thing you could clarify. I see an evolution in business cycles. Without this legislation coming in, we will have competition normally taking place, whether it's bigger players or smaller players. Even with one player in the market you often have competition, as we talked about with the witnesses yesterday.

It's admirable to try to protect small business and that's very important; however, there are natural cycles. Some businesses will survive and some businesses won't, or they will reposition themselves, whether they're small or competing against vertically integrated companies, and so on. I don't know if you're taking those cycles into account.

Mr. Dan McTeague: Those are excellent questions, Mr. Jaffer. Let me deal with the last one first.

Most people now who are more advanced in their understanding of economic theory as it impacts the marketplace are concerned not so much about size but about dominance in the marketplace. That is made very clear in the article I submitted to all members here at the outset. It's very interesting, because in the United States the various models of the past, such as the so-called Chicago theory, are being challenged.

You don't need to go very far to understand what will happen to people who put themselves in a position of trying to compete against their suppliers, and their suppliers don't want them in the business, over a protracted period of time. This is certainly true of the gasoline industry. It's now becoming evident in the grocery industry, as we heard from some of the evidence here, but we certainly didn't have time to deal with all of that.

The question of leading to higher prices is an interesting point. There are two ways of looking at that with the question of predation. In one article I would like to read to you, it suggests economists have concluded that matters are different if a firm has already gained a dominant position in a market. In that case, predation may strengthen the dominant company's position and generate more profits at the consumers' expense. That was from last year in The Economist.

It is now understood that if you are successful in predation and knocking somebody out, having complete control of the wholesale market and now the retail market, you may not necessarily throw the price up. But as Mr. Columbus said yesterday, the competition will occur at 70¢ a litre as opposed to where it should be today, at 45¢ a litre.

I don't think many of us in this room need a lesson in what happens when an industry controls a supply to the extent it does as we see—save and except in your province, Mr. Jaffer—with the question of gasoline on the long weekends. Taxes have nothing to do with that. The fact that there is no competition there has probably everything to do with it. Margins in my region in Toronto were 1¢ or less than 0.5¢ a litre because, from testimony given here, the major integrated suppliers could operate on less than 1¢ a litre, even though they had $2 million sites. They are now enjoying 10¢ a litre retail margins because there's no one there to contest at the real price.

• 0925

When you control the price structure, when you control the product, you can necessarily control the consumer. And, more importantly, if necessary, given the great measure of sunk cost it takes to get into the marketplace if you want to compete with somebody who has these large margins, a smart creditor, according to this article and according to some of the testimony here, will drop the price to the point where it becomes impossible for you to recover your sunk cost to go in and compete.

You have the anomaly...and I'm sorry I can't answer so precisely and so succinctly as your question was put, but it is a very complex issue. The reality is that until now this committee would never have understood that point. I think it's really incumbent on the committee not just to study the whole Competition Act but also to modernize its thinking on the state of competition in this country.

Do you have anything to add, Mr. Kelen?

Mr. Michael Kelen: Yes, thank you very much. I would like to speak to the first question as to whether this bill, while it may be laudable to protect independent business, will protect the consumer or will prices go up.

In fact, I had to ensure that my assistance to Mr. McTeague was not inconsistent with my acting as counsel for the Consumers' Association of Canada in opposing the two mergers in the grocery industry. In fact, the consumers will be protected by this bill because independent business is what keeps the price low. If independent business is driven out of the market by these larger firms, the oligopoly, then the oligopoly acts in a way that is called conscious parallelism. One follows the other. There is no breach of the Competition Act. They don't phone each other and decide to jack the price up by 3¢.

As you've heard in a lot of the evidence before this committee, that's why gasoline prices seem to go up uniformly at all four of the major petroleum companies. They act with conscious parallelism because they don't have enough independent business to be competitive. This bill is extremely important for the consumer because it protects prices. As Mr. Wade testified, in his area after he was knocked out by Loblaws and after the other independents in the Annapolis Valley were taken over by the big Sobey's and Loblaws, you have two competitors left. They will increase prices. They will be happy to share the market between themselves, he testified. They will be happy to let prices go up and not compete with each other on prices.

The United Kingdom has just ordered an investigation of the grocery retailing business on April 8, because the four big companies that control grocery retailing have been found to not be price competitive. There's no more competition in price. So Mr. McTeague's bill with respect to protecting the independent business is really protecting the consumer and it's really protecting price competition. That's what this bill is all about.

Mr. Dan McTeague: Madam Chair, one of the comments that I did provide was in the Bloomberg Oil Buyer's Guide. It was that when the oil industry began its process of rationalization, in their own evidence and by Bloomberg, it was because the independents were efficient operators that they found their margins squeezed. That's significant in terms of what you're looking for, Mr. Jaffer.

The Chair: Thank you.

Mr. Peric, you had a question?

Mr. Janko Peric (Cambridge, Lib.): It's for the second round of witnesses, Madam Chair.

The Chair: I apologize.

Ms. Jennings.

Ms. Marlene Jennings (Notre-Dame-de-Grâce—Lachine, Lib.): Thank you very much for your presentation.

There was evidence tabled before this committee from the representatives of the telecommunications industry. My understanding of the testimony was that in the new technologies at times the cost of the technology is so high that the company that has developed the new technology is prepared to subsidize the cost to the customer at the retail level, in the hope that by gaining a significant market share they'll be able to bring the cost of technology down. And this particular legislation, even with the amendments, would in fact impair that.

I would like you to address that.

Mr. Dan McTeague: Madame Jennings, by its own implications, to suggest that you had to put out a lot of money in order to bring a new technology, but suddenly decide that you can go to zero sum or not recover any money at all, is something that no shareholder in any country would accept. They would not accept that you can do this, unless of course you're driving for market share, which itself demonstrates palpably the flaws in the current legislation as it relates to predatory pricing.

• 0930

If you can't get a reasonable return on your investment.... I'm thinking for instance if you're Peter Lynch of the Fidelity Investors' Magellan Fund in the United States. If you have a breakfast or a lunch with him and you tell him, “We're going to spend millions of dollars to bring this new technology on, and by the way, we're going to have to sustain at least a period in which we're going to lose a lot of money”, you won't be able to do it, because you will find very quickly that they'll pull the rug right from under you.

In a normal free market competitive environment, which I submit is an example that does not exist in Canada in this circumstance, what you are basically saying is that it's okay for us to break the rules of the game. It's okay for us to crush the little independents. It's okay for us to skew the fact to our shareholders and cross-subsidize, as you see with Bell Canada. Yet in terms of the question put, I believe, by Madame Lalonde a little while ago about the position of AOL, it turns out that this morning's National Post is very interesting. While AOL is the largest Internet service provider in the United States, it is number two in Canada behind Sympatico, the ISP brand of Canada's major telephone companies.

My point to you is, do we have to engage in what a reasonable person would see as an illegal act, something that defies market common sense and something that shareholders in a real free market would consider unorthodox, in order to justify recovering those costs? I think it's better to say that if you've been given a 25- or 30-year monopoly, as the cable industry and Bell Canada have been given, there should be a level playing field at the retail level, and that's all this bill is trying to do.

Ms. Marlene Jennings: Mr. Kelen, do you have any comments on that?

Mr. Michael Kelen: I won't add to Mr. McTeague's comments. I think that's complete. Thank you.

Ms. Marlene Jennings: Thank you. That was my only question.

[Translation]

The Chair: Do you have any questions, Mrs. Lalonde?

Mrs. Francine Lalonde (Mercier, BQ): Mr. McTeague, you stated in your presentation that in today's changing market economy, large and small businesses are locked in a ferocious battle and that your bill will help small business. I don't believe that to be the case. This is an important consideration. Independent retailers can be quite large and may not be subject to the same rules as integrated suppliers. In my view, this puts small retailers in a difficult position.

I've considerable empathy and admiration for you for taking on this challenge, one that must be pursued. However, I'm not certain that this bill is the appropriate instrument.

Mr. Dan McTeague: Mrs. Lalonde, this bill would simply be a starting point. Without it, those who want the status quo as far as competition goes will be able to claim victory.

Canada is recognized as a country where businesses have the freedom to do just about anything they want. If an entrepreneur or large company has enough money to control the price infrastructure, then that company will control not only the agents with whom it does business, but also elements that affect consumers. To my mind, this is not a concern with large and small independents.

Several weeks ago, I began my presentation by saying that when someone singlehandedly controls the way a product or service is delivered, as is the case with Canada's petroleum industry and its monopoly position, it's clear the existing Competition Act is inadequate when it comes to identifying unfair competitive practices. We also have to remember that with all of the mergers taking place today, cases of controlling the market and abuses are commonplace.

• 0935

I don't think the Competition Bureau is in a position to resolve these matters, unless we exert some political pressure, as we did in response to the proposed bank mergers and when we made recommendations several months ago concerning Petro-Canada and Ultramar.

I'm concerned that two things are happening at once: the economy is changing and parts of the economic landscape are being dominated by one or two players. This phenomenon doesn't have the intensity... I believe it was this committee that received documents showing that the biggest mergers of all time occurred in 1998. Perhaps it wasn't this committee. In any case, the fact remains that the timing of this bill is crucial.

Mrs. Francine Lalonde: Thank you.

[English]

The Chair: Thank you very much, Madame Lalonde.

Mr. Jones, do you have any questions?

Mr. Solomon?

Mr. John Solomon (Regina—Lumsden—Lake Centre, NDP): We've heard testimony from both industry and individuals. We've heard from some industry representatives, for example, the Canadian Bar Association lawyer yesterday who helped prepare the draft from the bar association. In the draft this lawyer said things opposite to what you said, Mr. Kelen, with regard to this bill; they said there would not be any benefit to consumers. The Canadian Bar Association represents clients in the oil industry, so I'm not sure how benign that individual's representation was.

But my question to you would be this. I'm not sure if you had a look at that Canadian Bar Association brief, but there are two different views here, yours and the bar association's. How do we decide which one is the accurate view, or the view that best reflects protection for consumers?

Mr. Michael Kelen: I was here yesterday for that evidence, and I was also quite disappointed and surprised because the representative of the Canadian Bar Association, a competition lawyer from Edmonton, did not seem to appreciate the role of this bill in protecting independent business and then in recognizing that independent business is necessary to provide price competition with the major companies in an industry that is dominated by vertically controlled suppliers.

So it just didn't seem to him to be there to protect the consumer, whereas from my perspective as counsel for the Canadian Consumers' Association with respect to the issue of grocery mergers, I'm very acutely aware of what is necessary to protect the interest of consumers. I don't think the representative of the Canadian Bar Association had the advantage of seeing the witnesses from the independent gasoline retailers or Fred Wade, an independent grocer. I think he would have better appreciated the fact that this bill will protect competition, first of all, but by protecting competition it protects price competition, and by protecting price competition it protects the consumer, as well as protecting independent business.

Mr. John Solomon: Thank you.

The Chair: Thank you, Mr. Solomon.

I have no more questioners on my list.

I want to thank you very much, Mr. McTeague, for your presentation this morning and for putting the bill forward and your participation at the hearings. We'll wait to see how things how develop throughout the day, but I hope we've all learned a lot from this whole process and from the witnesses who have come before us.

Mr. Dan McTeague: Madam Chair, I too want to thank you for the professionalism with which this committee has conducted itself, and I wanted to thank each and every member personally. I know it hasn't been very easy. You've been very patient with my issue. I also wanted to thank the House. I hope this is returned to the House. And of course, give Bambi that chance to beat Godzilla.

Thank you.

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

We're now going to change witnesses. We're going to ask the Competition Bureau to join us at the table. We'll suspend for about 60 seconds to allow that to take place.

• 0939

• 0941

The Chair: We're going to resume the hearings.

I'd like to welcome the Competition Bureau here. I'm very pleased to have Mr. Konrad von Finckenstein, the commissioner of competition; Mr. Harry Chandler, the deputy commissioner of competition, criminal matters; and Mr. Don Mercer, head, amendments unit. We're very pleased to have you here.

I'm now going to ask Mr. von Finckenstein to present his opening statements, and then we'll go to questions if there are any. Mr. von Finckenstein.

Mr. Konrad von Finckenstein (Commissioner of Competition, Competition Bureau): Thank you, Madam Chairperson. I am pleased to appear before the committee to give you my closing remarks on Bill C-235.

[Translation]

My last appearance before the committee was in connection with Bill C-20. I'd like to take this opportunity to thank the committee for supporting that legislation, which is now in force, and for giving the Bureau the proper tools with which to carry out its work.

[English]

We at the Competition Bureau have been watching these hearings with great interest and have heard the many witnesses who appeared before you who clearly are troubled by this bill, just as we are. In our view, the ultimate purpose of the bill is very simple: it provides that (a) manufacturers cannot sell to independent retailers at higher prices than to their own affiliates; and (b) it provides that integrated manufacturers cannot sell at a wholesale level to independent retailers at higher prices than their own retail price.

The bill is clearly intended to protect independent retailers, who are perceived to be threatened by integrated manufacturers who supply them. The unstated assumption underlying this bill is that by protecting independent retailers, one enhances competition and thus protects consumers.

We at the bureau fundamentally disagree with this approach and the underlying assumption for the following reasons, and the first is really the key: the Competition Act is there is to protect competition, not competitors. It's to ensure that we have a competitive system. The proposed amendments in Bill C-235 depart from this fundamental principle, and they want to protect one special class of competitors, namely, independent retailers.

Secondly, contrary to the intention underlying these amendments, protecting specific classes of competitors can lead not to lower prices but in fact to higher prices, and you've heard evidence from expert witnesses to that effect.

Another fundamental point is that Bill C-235 assumes that selling at wholesale prices, which are lower than retail prices, is automatically predatory and it must have been done for the purpose of driving competitors out of business. However, as you've heard from many witnesses, there are often valid reasons for selling at such prices. Let me just give you three examples.

One of them is when a new entrant is competing to gain market share. In some mature markets, cutting prices may be the only way to enter and to induce consumers to try a new competing product.

The second example is that when there is an oversupply in the market, when you really have an excess supply in the market, wholesalers may be driven to get rid of stock at exceptionally low prices. After all, there is a cost to holding stock, and this bill would not allow that.

• 0945

A third example is for marketing or promotional reasons. When a new product is being introduced, often retailers offer a special low price or lower prices to react to their competitors' promotion.

These are perfectly legitimate business activities. They have nothing to do with predation. There's no intent here to hurt, injure, or drive somebody out of business. It is just good business. This bill would not allow such conduct.

Cases of true predation, the kind that harm the health of competition in the market, are rare and difficult to prove, the evidence is hard to get, and it's really based all on the recoupment. If you engage in the game of predation, you really have to incur losses up front and hope that at the end your competitor is either driven out of business or has been softened up and hurt so much by the competition that he will be chastised and follow your price lead and, subsequently, you can increase prices to such a degree that you can recoup the losses. That's a dicey proposition at best. There may always be new competitors coming in, and obtaining the evidence is singularly difficult. That was the experience not only in our jurisdiction but also in other jurisdictions.

The Competition Act applies to all industries. Bill C-235 was drafted primarily with gasoline and groceries in mind, but it affects all industry, and not only the goods industry but also the service industry. It may have some very unintended consequences. It is very difficult to predict what they are. But, simply speaking, my point is that the bill is overly broad, and it will catch a lot more things than it was meant to do.

It may also have the unintended side effect of scaring off investments, of foreign competitors looking at that kind of rigid rule and asking, “Do I really want to invest in this country?” It may give the message that big is bad. Just because somebody is an integrated manufacturer does not mean he engages in predation, and it does not mean there's anything wrong. It may just be the reward for a very efficient and well-run company.

It may stop or slow down new development innovations, and this is a point that is of very great concern to us. We are facing daily the growth of the Internet, a phenomenon that wasn't there 10 years ago, which is completely disrupting the existing means of distribution. We are seeing more and more manufacturers attempting to bypass middle-man distributors and retailers and to sell their product directly. You all have seen Amazon, which sells books that way; and Dell, which sells their computers directly over the Internet as well as through stores, etc. There's a whole myriad of distribution mechanisms that will be developed as a result of the Internet. This bill may very well put a stop to them by saying that when you sell directly to consumers, you have to abide by these rules, even though there may be legitimate business reasons that have nothing to do with predation and that would suggest the opposite.

This is a very intrusive bill. It really tells manufacturers how to price their product, and the net effect is to regulate wholesale prices. In our view, regulating prices always hurts the consumer in the end.

Clause 2 of Bill C-235, on which you have heard very little testimony, in effect puts a civil version of the criminal offence of price maintenance into the Competition Act. We at the bureau are not clear why this provision is needed. The existing criminal provisions found in section 61 of the act are quite clear. They work well, they are understood, and they have been applied in the past. Why there is a civil alternative created is unclear to us. In our view, it will just diminish the seriousness of the criminal price provisions and probably alter behaviour accordingly.

In conclusion, Madam Chairman, in our view, the case has not been made that the existing civil and criminal provisions of the act dealing with predatory pricing are insufficient to address the problem when it does occur.

However, I have listened to the witnesses, I have read their testimony, and I see the great concern. I also see concern in the committee. The bureau is certainly willing to look at the guidelines we use for predatory pricing to make sure our approaches are adequate and to update them if needed.

• 0950

As I told you in the past when I appeared before you on Bill C-20, I'm of the view that the Competition Act should be fluid and should react to the dynamic market changes. If changes are needed, we are willing to make them to Bill C-235. What I'm not willing to do is depart from the fundamental concept underlying the act, which is to protect competition, and turn it into an act that protects a single class of competitors, as Bill C-235 does. If this act is enacted, in our view, it would mean a drastic change to the underlying concept and would lead to unforeseeable and potentially huge consequences.

Thank you. I am willing to answer any questions.

The Chair: Thank you very much, Mr. von Finckenstein.

I'm going to turn to questions now. Mr. Jaffer, do you have any questions?

Mr. Rahim Jaffer: No, I think the presentation was straightforward. I'll pass, thank you.

The Chair: Madame Lalonde, do you have any questions?

[Translation]

Mrs. Francine Lalonde: No, thank you.

[English]

The Chair: Mr. Jones?

Mr. Jim Jones (Markham, PC): Yes.

Yesterday, during one of the testimonies, serious allegations were made about your department and the activities that go on in your department, from a gentleman from Montreal, Mr. Bellemare—not related to this one over here. Can you comment on that? You have probably read the....

Mr. Konrad von Finckenstein: Yes, I believe they are primarily related to the engagement of outside counsel. This is obviously a difficult subject, because there's a very small competition bar in Canada.

His particular concern is that we engaged a counsel to help us with a case in Montreal, the merger of CAST, which we were opposing. The lawyer no longer works for us, because the case was closed; a new entry came into Montreal and there's no longer the danger of a potential monopoly. He has since been engaged by other parties—in this case, Loblaws. Loblaws is involved in a merger, and the case is before.... He feels that there's a conflict of interest.

Let me say several things. First of all, I don't engage lawyers; it's the Attorney General who engages the lawyer and makes him available to me. So the Attorney General makes this decision.

Secondly, I am concerned about conflict of interest. I was so concerned about it that when I was appointed, I hired Mr. Colin Campbell, from the law firm Fasken Campbell & Godfrey in Toronto, to give me advice on it. He was the recognized expert on conflict of interest. He has since been appointed to the bench of the Supreme Court of Ontario. He gave me advice as to what we should do, how we should avoid there being a conflict. We consulted with the bar in regard to his opinion, and we issued a directive. We're following the advice that was given to us by Mr. Colin Campbell, which we discussed with the competition section of the Canadian Bar Association. We're sure there's absolutely no conflict of interest.

To say that a lawyer who acted for us in the competition area once therefore cannot act in a totally unrelated case—there's absolutely no relation between the issue of a monopoly in the port of Montreal and groceries—cannot now act for a private party and represent that party in its dealings with the competition law, I just don't accept that.

It is his understanding that we should have only in-house counsel. We use in-house counsel—that is, the members of the Department of Justice—but we also use outsiders when they have the skills set that is required or where there are not sufficient people available in the Department of Justice. It's perfectly ordinary business, and I really do not understand what Mr. Bellemare's concern is.

Mr. Jim Jones: Thank you.

The Chair: Thank you, Mr. Jones.

Mr. Peric.

Mr. Janko Peric: Mr. von Finckenstein, if we were to take the present Competition Act and transfer and implement the same rules in, let's say, a soccer game, you would have two teams, two sets of players, and at the end of 90 minutes you would have broken legs, dead players, broken noses, or what not.

On page 3, paragraph 1, the purpose of the Competition Act is to protect competition and its imperatives. Now, how can you have competition? How can you have a game? You have rules, you have a game, but there are no players. That's the first thing.

• 0955

Secondly, do you honestly believe the present Competition Act is sufficient to protect a fair game in the business, and do you honestly believe people in the Competition Bureau did an adequate job while the independent grocer was squeezed out by those big ones?

As for my third and last question, you're aware of the report that was submitted by Loretta Mahoney, who was hired by the Competition Bureau. The report was submitted in March 1999. I believe it comes from the same independent source. In your opinion—and I don't know if you've had an opportunity to look at this report—is this report adequate and up to date?

Mr. Konrad von Finckenstein: Let me take your four questions in order.

On your soccer analogy, if you want to compare competition to soccer, in soccer you are not allowed to hurt your competitor. You are allowed to compete with him as much as possible. You are running against him; you are trying to score goals. You're trying to score as many goals as you can. However, if you deliberately hit somebody in the ankle or run them over, and so on, you get a penalty. If it's very bad, you get an 11-yard penalty; if it's an extreme penalty, you get kicked out of the game.

Mr. Janko Peric: Yes.

Mr. Konrad von Finckenstein: That's exactly what happens here. You are allowed to compete as vigorously as you can, but you are not allowed to deliberately hurt. If you do, you will get injunctions, which basically say restrain it. If you continually do it, you get kicked out of the game—that is, you get locked up. The analogy is exactly that.

The question is, where do you draw that? What is the penalty? What is the severity of the penalty? But again, there's a judgment call by the referee: was this just part of the running? When two people run at full speed after a ball, they can run into each other perfectly innocently, or they can deliberately run the other one over. That's a judgment call.

Mr. Janko Peric: I appreciate that. That's exactly what Loblaws did to Wade, and you, as a referee, did not interfere—

Mr. Konrad von Finckenstein: I'm coming to that.

Mr. Janko Peric: —and your bureau did not interfere.

Mr. Konrad von Finckenstein: You have given me four questions. Allow me to answer them.

In the second question, you ask is the Competition Act sufficient to protect the game? In my view, yes, it is. What you have to appreciate is that it's not only a question of the rules, but of the evidence, getting the evidence, bringing it to court. When we're talking about predatory pricing, we're talking about a criminal case that you have to prove beyond a reasonable doubt. It's not a question that you make the case and say, look. You have to make sure there isn't any other explanation that can be possible. If there is, you have raised a reasonable doubt and you can't get a conviction.

You want to know about the Wade case, and you want to know our views on Ms. Mahoney's report. Mr. Mercer was the person who dealt with the Wade case and made the decision not to proceed, so I'll ask Mr. Mercer to explain to you the decision.

Mr. Don Mercer (Head, Amendments Unit, Competition Bureau): Thank you. I'm pleased to have this opportunity to respond to this question.

I think the first thing we should understand is that we take all complaints seriously. This is a predatory pricing complaint, and as Konrad has already indicated, we must prove it beyond a reasonable doubt.

We must also take into account the jurisprudence, for example, in the Consumers' Glass case, and it's noted that this section—that is to say, the predatory section—is not intended to make an offence of price cutting by one or more competitors when they're trying to gain market share, so long as the price cutting was loss minimizing, even if you drive a competitor out of the market. That was the finding in that case.

What we did in this case, because we take it seriously—Mr. Wade had been in contact with us for some time—is assign an officer to the case, and an economist.

Mr. Janko Peric: Were they independent?

Mr. Don Mercer: The officer is an officer of the bureau. The bureau is an independent investigatory agency. The economist is in the employ of the bureau, which, as I say, is an independent agency.

• 1000

What did we find when we did this? Before I do that, I guess I should point out that when we do an investigation, our job is to gather the evidence. We must base all our conclusions not on supposition, not on speculation, not on the assertions of people, but on the evidence. This is the rule of law: what does the evidence say about the situation? That is, of course, what our training is all about. That is what it is to be an independent agency in that sense. We are trained to deal with evidence. Our officers are trained to deal with evidence. We review the evidence. We gather evidence. We do not make out of evidence something that is not there; we cannot do that.

The clear thing is that the facts in this case were consistent with legitimate competition. We could not establish that these prices were unreasonably low in this market. Instead, the facts are consistent, as I say, with legitimate competition.

What you had was a stable market—for a suitable period of time, in fact—in which you had, first of all, Sobey's come into the market, and then ultimately you had Loblaws come into the market. Loblaws came into the market cold, as they say. They wanted to get into this market. How do you get into a stable market? There's only one way you can get into a stable market, unless you're coming in with a new product or an innovation, and that is to deal with your pricing. You have to attract competitors to your store or stores. That is exactly what Loblaws did. They came in and lowered their prices so they could get into this market. That's the only way they could not only get into the market but grow in this market.

That's a factor there—that you have legitimate competition—that would itself call the case into doubt, given that you must prove this case beyond a reasonable doubt.

I would only conclude that what happened later, because was there any possibility...? It's very clear that Mr. Wade disappeared from the market. What has happened in the market subsequently? Have prices gone up? Have they been able to recoup something? No. The evidence today is that this market continues to be competitive. There are prices all over the map. On some of the products that Mr. Wade was talking about the other day prices are up, other prices are down. Some prices have stayed the same. This is an indication of a competitive market. That was our conclusion.

Mr. Janko Peric: Mr. Mercer, you just proved that the present act could not protect Mr. Wade, and this bill would protect Mr. Wade, the jobs, and fair competition.

Mr. Don Mercer: I don't believe this.

Mr. Janko Peric: I hear—

The Chair: Mr. Peric, that was your last question.

Mr. Harry Chandler (Deputy Commissioner of Competition, Criminal Matters Branch, Competition Bureau): To address the issue of the statistics, what we did, Madam Chair, was commission a recognized expert in the area to produce a report for the benefit of the committee that provided comprehensive information on market shares in major cities across the country over a significant period of time. We did that with an independent expert at arm's length, using data from a recognized firm. I think the purpose, again, was to put before the committee the facts, the evidence, with respect to market shares.

I think—I'll be very quick—what Ms. Mahoney's report shows is that on the issue of the presence of independence in the retail gasoline business and the allegation that we're talking about a dying breed here, the picture is very mixed. The independent share is up in some markets, it's the same in others—

Mr. Janko Peric: I'm just asking.... You didn't answer my question.

The Chair: Mr. Peric, I'm sorry—

Mr. Janko Peric: Are this book or the documents up to date, or are they outdated?

Mr. Harry Chandler: They're up to date, sir.

Mr. Janko Peric: One hundred percent?

Mr. Harry Chandler: Yes.

The Chair: Thank you very much.

Mr. Solomon.

• 1005

Mr. John Solomon: Thank you, Madam Chair.

Gentlemen, thanks very much for your presentation. I appreciate it.

There are a couple of things in it that I wanted to raise because I'm not clear on them. Under point 7 on page 7, in your last sentence you say that regulating prices always hurts the consumer in the end. So would you, by that statement, support the statement that deregulation helps consumers in the end?

Mr. Konrad von Finckenstein: You're right, saying that regulation always hurts the consumer in the end sounds very absolute. “As compared to competitive markets” should be there too. If you regulate prices as opposed to having a competitive market, you will hurt the consumers. You then have no part to wring efficiencies out of the system—to innovate and to produce new products. So that sentence should say regulating prices hurts over-competition. I mean that a competitive situation is better than a regulated one.

Mr. John Solomon: So a deregulated situation would be similar to a competitive situation. Would that be—

Mr. Konrad von Finckenstein: Deregulation is a very difficult subject. We're not fanatics saying everything should be deregulated. Certain things clearly require regulation, and we work very closely with other agencies—for example, giving the CRTC advice on how to deregulate.

When you deregulate, you usually have a couple of incumbents who have a huge market share, so you have to put transitional rules in; otherwise, these huge incumbents can just prevent the entry of new ones, etc. So you gradually take down the regulatory barriers, you put in some new transitional rules, hoping you will get to a situation where you only regulate what is absolutely necessary. For instance, in the telecom area, one thing you will have to regulate is the access rules. There's no question about it. But you want to have to compete in other fields.

Mr. John Solomon: The reason I ask that, Madam Chair, is because I'm a former corporate planner in the telecommunications industry. Deregulation of telephony and other communications industries has actually not resulted in cheaper costs for basic services for consumers. In fact, in Saskatchewan's example, which I know best, it has doubled the fixed basic cost for all consumers and has increased by more than 100% areas for basic services outside the major centres of Saskatchewan.

The other example I use is that when I got elected in 1993, to get an air ticket to fly to Ottawa on Air Canada, which is a deregulated industry with Canadian Airlines and other competitors, it cost 50% less—five and a half years ago—than it does now. That means there's been a 50%-plus increase on full-fare tickets. Now there are seat sales, but it's very difficult to get them when you're having to travel every week.

So I'm wondering about your statement with respect to regulation of prices always hurting consumers when, in these two examples that I'm very familiar with, deregulation has punished the basic services. And with telephony, as you know, you either are on the system or you're not, and almost everybody in this country is on the system for basic service. It has reduced some competitive services, but not the basics.

Mr. Konrad von Finckenstein: But let's be fair. Let's talk about telephony, not about local access. If you would just look at long distance, the prices have gone down tremendously. If you look at the various options and services that are being offered in telephony as a result of deregulation, there is a whole variety of services that weren't offered before.

We are also in the infancy of having competition at the local level. As we have more and more competition in terms of local service providers through cable, through wireless, etc., we will see price impact too. It takes a totality of the telephony world. When you say that consumers haven't benefited, I don't agree with you. It is an industry that's still very much in transition. We don't know where it will come out.

Mr. John Solomon: For the optional service, I agree. The optional services have gone down. But the basic services have skyrocketed, and everybody uses basic, but not everybody uses the optional. I guess that's my point. I don't want—

Mr. Konrad von Finckenstein: No, no, I hear your point. Clearly, there are downsides to deregulation. I'm not suggesting that it's all nirvana.

Mr. John Solomon: The other issue I wanted to raise, Mr. von Finckenstein, was regarding your statement on page 3, that the purpose of the Competition Act is to protect competition and not competitors. I'm wondering if you would please explain what has happened in Saskatchewan with respect to gasoline marketing.

The Chair: This is your last question.

• 1010

Mr. John Solomon: For my last question, the background is this. You're aware that the price of crude oil has declined from about $25 a barrel from the summer of 1997 through the fall of 1997, to about $10 to $13 a barrel averaged over a fifteen-month period. The price of gasoline throughout the country actually followed that not within a heartbeat, but within a few weeks of the decline. In Saskatchewan's situation with respect to competition, the prices dropped marginally throughout that whole period of the previous sixteen or eighteen months. When the oil prices were low, gasoline prices in Saskatchewan were between 4¢ and 20¢ a litre more than every other jurisdiction.

I could understand that situation if this was northern Ontario, but we produce it, we pump it out of the ground, and we refine it in our province. There's not a lot of extra cost to doing it. We have the lowest costs next to Alberta, yet consumers were not given the advantages of these low prices. It took fifteen months to drop the price about 5¢ a litre, but it took about fifteen hours after the prices started going back up not to $25 a barrel but to $14 or $15 a barrel.

So in this statement with respect to competition, I'm wondering how the Competition Act has protected our million consumers in Saskatchewan with respect to gasoline marketing in this example.

Mr. Harry Chandler: Madam Chair, with respect to gasoline pricing, I think we've said before that it inevitably comes down to a situation of local market conditions and the particular circumstances that exist there. When I was before the committee a couple of weeks ago, I mentioned that Mr. Solomon's complaint is before us. We're investigating it, we're looking at it, and I don't think it would be appropriate to go any further.

Mr. John Solomon: Thank you very much, gentleman, and thank you, Madam Chair.

The Chair: Madam Barnes.

Mrs. Sue Barnes (London West, Lib.): Thank you, Madam Chair.

Gentlemen, I thank you for your testimony. I think it's very appropriate that you've returned to the committee. Even though you weren't here every day, I'm sure you've read every line, so I will take it that you have the knowledge of what was said.

There have been some important messages for your situation and for your organization. Although I'm sure there's a lot more behind the testimony of Mr. Bellemare from the Centre of Study for Regulated Industries, I heard more than the message about conflict of interest. I heard differences on levels of complaints and numbers of convictions, especially in predatory pricing.

Maybe I'll start by just laying some groundwork. Let's say Mr. McTeague's bill is in place right now and we have his criminal sanction there. Mr. Mercer, is the burden of proof any different from what it is right now under your sections?

Mr. Don Mercer: It's a criminal sanction, which is proof beyond a reasonable doubt.

Mrs. Sue Barnes: So the difficulty in bringing forward a conviction would be the same whether or not this bill was in place.

Mr. Konrad von Finckenstein: I assume you're talking about the bill with the amendment introduced by Mr. McTeague.

Mrs. Sue Barnes: I'm talking about the bill as we would have to vote on it today.

Mr. Konrad von Finckenstein: Well, you do a price comparison under the bill.

Mrs. Sue Barnes: I'm talking about the burden of proof.

Mr. Konrad von Finckenstein: I'm saying that the burden of proof is the same, but you'd have to establish at what prices they have been sold, beyond a reasonable doubt, and that's all.

Mrs. Sue Barnes: What I'm getting at, Mr. Mercer, is the difficulty of establishing burden of proof. Would it be as onerous in that circumstance under the current legislation as it would be under any other criminal sanction, no matter how it's drafted?

Mr. Don Mercer: It's the same burden of proof.

Mrs. Sue Barnes: I'm trying to explain this to the non-lawyers who have to understand this.

When was the last time the guidelines were looked at?

Mr. Don Mercer: These guidelines came out in March 1992.

Mrs. Sue Barnes: Whether you agree with them or not, there were messages heard around this table, Mr. Mercer. Because you're in charge of amendments and upcoming amendments, it would help me if you would put on the record what the messages were that you heard throughout this week and a half of testimony, what the concerns were. At the end of the day, regardless of what you heard, we're going to be voting on the evidence before us today, but I'd like to at least have on the record what you heard as concerns.

• 1015

Mr. Konrad von Finckenstein: As I mentioned in my opening statement, you are clearly concerned and industry is concerned that there is an underenforcement of the predatory pricing provisions, and that independent retailers are not sufficiently protected by the act or by the way the act is being administered. I think that's the overall message that comes through loud and clear. It's something that concerns us greatly, not only in terms of perception but in terms of the reality that people are being hurt and feel they're being hurt and feel we are not doing enough.

As the head of this agency, I'm not pleased by seeing that Canadians feel the Competition Act does not give them adequate protection. It doesn't give me any joy, it gives me a great deal of concern. As I mentioned in the closing remarks, it is clear that we should look at our guidelines to see whether they are still applicable or whether we have to alter our approach in light of changes in the economy and changes in technology, etc. I think that message is being heard loud and clear.

Mrs. Sue Barnes: Thank you very much for putting that on the record.

The Chair: Thank you, Mrs. Barnes.

Mr. Bellemare, did you have a question?

Mr. Eugène Bellemare (Carleton—Gloucester, Lib.): Oui, madame.

The Chair: Is it a brief question?

Mr. Eugène Bellemare: Cinq minutes.

In regard to this bill, you would certainly agree that it affects other industries. You mention this in your presentation. We have the Loblaw-Provigo case and that of Oshawa Group and Sobey's. In the case of the Loblaw-Provigo merger, the newly merged entity will be controlling roughly 75% to 80% of the food retailing market in Ottawa-Carleton. So these merger proposals deserve careful study, because they have the potential to seriously affect consumer interest.

Does the Competition Bureau automatically review these types of mergers? What sorts of factors will be looked at? Any answers or general information you can provide to these questions on how your office would normally treat these types of merger proposals would be appreciated, obviously.

You are the commissioner of the Competition Bureau, which I believe reports to the Department of Industry and to this, the industry committee. I suppose you would assist the industry committee in its deliberations and so on, so why is it that I, as a vice-chair of this committee, who wrote you on November 17, exactly five months ago, have yet to receive an answer from you?

Mr. Konrad von Finckenstein: Mr. Bellemare, if you haven't received an answer, I apologize. I was unaware of that. That clearly should not happen. There's no excuse for it.

In terms of the Loblaw-Provigo merger, it is still under consideration. As you know, they have to pre-notify a merger that is worth over $400 million. This one clearly is, and we are in active discussions with them. As we do in all mergers, we are trying to examine what the market is, what the competition is, what the concentration levels will be post-merger, and what the remedies are that should be applied if those levels are unacceptable.

In this merger, as in others of this type, we get what's called a hold separate agreement. While Loblaw has bought Provigo, the two companies are run as separate ones, and there's management in place for the whole procedure. In effect, there are two separate companies with one common owner, while we finish our investigation. If and when we finish it, we then sit down with them and point out where we see competitive problems, and they try to resolve them. If they can resolve them to our satisfaction, then the necessary steps will take place. If not, we take it to the Competition Tribunal and ask it to undo this merger, to make Loblaw sell Provigo or parts of Provigo, because that will lead to competition.

To show you that we mean business, I would point to the time when Ultramar and Petro-Canada tried to merge their gasoline operations in Quebec. That was an $8 billion merger, and we said no categorically. Because we said no, they discontinued that merger. That merger would have led to a near monopoly at the wholesale level, and we felt the independent gas retailers had no chance in such an environment. We went out to protect them.

It's the same thing in groceries. We will look at the grocery merger very carefully. We are in the process of doing so. I have a whole bunch of colleagues working on it, and we will sit down with Loblaws to make sure that if the merger is allowed, it's allowed on such chance that it does not lead to a substantial lessening of competition.

• 1020

The Chair: This will be your last question.

Mr. Eugène Bellemare: Will I be getting an answer to my letter, or would the answer given today be the answer to my letter that I should be getting?

You also point out that the bureau is willing to look at its guidelines to see if you need to revise your approaches and to determine, for example, whether or not they need to be updated. You also say that you're willing to review the Competition Act. Would you welcome that?

Mr. Konrad von Finckenstein: Yes, I—

Mr. Eugène Bellemare: Would that suggest that there is a need for it?

Mr. Konrad von Finckenstein: There's always a need to look at framework laws such as the Competition Act to make sure they're up to date. I was before this very committee just a month ago trying to have the amendments of Bill C-20 enacted because I thought they were necessary to deal with telemarketing, which is a crime we didn't know about five years ago but which is now very rampant. So clearly it needs to be updated.

In terms of your letter, yes, you will get an answer. As I say, I apologize. I don't understand what happened. You should have got an answer. I have a specific procedure to make sure that representatives of the people, such as you, do get a speedy turnaround in terms of their reply, and I just don't know what happened in this instance.

Mr. Eugène Bellemare: Thank you.

The Chair: Mr. Keyes.

Mr. Stan Keyes (Hamilton West, Lib.): Can I ask a short supplementary question following up on what Mr. Bellemare asked?

The Chair: No, I have other questioners on the list. You'll have to take your—

Mr. Stan Keyes: I just wanted to ask if the bureau would also welcome that review.

The Chair: You'll have to take your turn, Mr. Keyes.

I'm just going to raise that with the committee. We have witnesses before us this morning. I was trying to give equal time to the witnesses. This witness has now gone over the time I had originally allowed. I'll continue on with questions, but I'm going to remind members of that point and of the timeframe we have this morning, which is until 11 a.m.

Madam Jennings.

[Translation]

Ms. Marlene Jennings: Mr. von Finckenstein, thank you very much for your presentation. I was very pleased to hear you say that you take the committee's concerns about the Competition Bureau's handling of complaints seriously, that you are prepared to review the investigative principles guide, and so forth.

I'd like you to comment further on the fourth paragraph of your statement which begins with the following words:

Cases of true or successful predation—the kind that harms the health of competition in the market—are rare and difficult because evidence is hard to come by and because of the unlikelihood of recoupment.

You've certainly heard the allegations made yesterday by Mr. Daniel Martin Bellemare. I'm not referring specifically to the case you cited this morning, but he contends that lawyers are frequently contracted by the Justice Department to act on behalf of the Competition Bureau. Depending on the nature of their own private practice, these lawyers could face an apparent conflict of interest. You skilfully and succinctly explained how, with the help of an expert, you developed principles and guidelines respecting conflicts of interest.

My question for you is as follows. Given that the Justice Department hires individuals to act on its behalf, does it abide by your guidelines? Even if that's the case, if, during the course of an investigation, you discover that a particular lawyer is or does not appear to be impartial, do you have the requisite authority to order him to cease acting on your behalf? Do you have the authority to terminate contracts, obviously for cause?

[English]

Mr. Konrad von Finckenstein: The Department of Justice has their own conflict of interest rules. When they engage a lawyer to act for the Competition Bureau, they will apply those as well as our rules that are specific to that. If somebody is engaged and a conflict of interest or the appearance of a conflict of interest arises, it would be in his or her proper interest to resign first anyway, because it's not very good for a practice to have such allegations. I would be very surprised if I had to fire that person.

• 1025

But assuming the situation you posited would pertain, yes, I would meet with the Department of Justice and say “Because of the following factors, I think we can no longer use this person, because there's an appearance....” The Department of Justice, being very sensitive about this, would immediately terminate the contract. There's no problem with that.

[Translation]

Ms. Marlene Jennings: What happens when your assessment of the situation differs from that of the Justice Department? I'm trying to determine who has the final authority, the Competition Bureau or the Justice Department, when someone has been hired and an evaluation of some kind is done and there is an appearance of impartiality, if not necessarily a conflict of interest. Who has the ultimate authority to order that individual to cease acting on behalf of the Competition Bureau?

[English]

Mr. Konrad von Finckenstein: That situation has never arisen. I can't imagine it arising. But just for argument's sake, if it does, I would say, first, I would not pay for him any more, because I reimburse Justice for the cost, which presumably would end this story; and second, I would say that I'd refuse to meet with that person and this person would no longer be entering my bureau, and that would be the end of the story. But as I say, I cannot possibly imagine that would ever arise.

The Chair: Thank you.

[Translation]

The Chair: Go ahead, Mrs. Lalonde.

Mrs. Francine Lalonde: My question is directed to anyone who wishes to answer it.

I'm sure you're all quite familiar with the Quebec legislation governing unfair practices in the gasoline and fuel retail industry. If Mr. McTeague's bill were to pass, the application of the two laws could produce different results. In Quebec, all businesses are subject to the same retail pricing conditions. Under the federal legislation, the same conditions would not apply to all players. For example, large independent retailers could claim that they are not bound by this legislation and are free to charge whatever price they want.

Is there established jurisprudence in this area? Could one argue that the federal enactment amounts to price fixing and therefore does not apply? In other words, could this give rise to a legal challenge?

[English]

Mr. Konrad von Finckenstein: Do you want to take a stab at it?

Mr. Harry Chandler: Madam Chair, there is well-established jurisprudence called the regulated conduct defence, which goes to the issue of conflict between regulation and the Competition Act. It has often been the case that the jurisprudence talks about provincial regulation, which says that if there is an effective regulatory regime in place, the Competition Act is blocked. So that is an open question if the bill proceeds. If there is a conflict between the regime in Quebec and this provision, that is an open question that would have to be decided in the courts.

Mr. Konrad von Finckenstein: Under current jurisprudence, to the extent that the provincial regime regulates such jurisdiction and sets it down specifically, to that extent, clearly the Competition Act would not apply. There wouldn't be any doubt about that.

[Translation]

Mrs. Francine Lalonde: None at all?

[English]

Mr. Konrad von Finckenstein: You have to look at the Quebec act and see what it encompasses and then look at what the activities are that the régie actually took. With regard to the activity that it took, there's no question. With regard to competence they have and have not used or have not exerted, that's where the open question arises, as Mr. Chandler reported.

• 1030

[Translation]

Mrs. Francine Lalonde: The law could, however, be challenged.

Mr. Konrad von Finckenstein: That's always a possibility.

Mrs. Francine Lalonde: By those who have a stake in the game. Thank you.

[English]

The Chair: I have Mr. Pillitteri and then Mr. Keyes for a supplemental, and then that's it.

Mr. Gary Pillitteri (Niagara Falls, Lib.): Thank you very much, Madam Chair.

I acknowledge that you're talking about business protection and protecting the small business, but I want to bring something forward to you. I don't know if you'll be able to answer this.

I know an industry I am very familiar with, which has two groups that control 84% of the total manufactured product in the province of Ontario. Yet there are some 50 independents who are operating, and presently the 50 independents operating in Ontario are doing quite well and they source a product from a producer. Yet if these 50 individuals are not able to pay a bonus or pay higher prices, they will not be able to get their product and therefore they would not be in business.

The 50 independents, who only have 14% of the business, employ more individuals than the two groups. They're not breaking any laws, and most of these small businesses are producers, processors and retailers, the three combined. If this bill were to pass and those 50 independent business people were not able to pay a bonus or higher prices than the negotiated price, they would be going out of business.

Tell me, if this legislation were to be brought in, these 50 individuals who are producers, processors and retailers, if they cannot sell at a different price, wouldn't they be in contravention of this law? I'm talking about agriculture here.

Mr. Harry Chandler: Are they wholesalers?

Mr. Gary Pillitteri: They're wholesalers, they're retailers, and they are processors, the three combined.

Mr. Harry Chandler: Madam Chair, I think that Bill C-235, as I understand it, is directed at the supplier, a manufacturer selling. So it's not clear to me in the example that you posited—

Mr. Gary Pillitteri: These 50 businesses are all three of them. They are processors. They are producers of a product, retailers of a product, and wholesalers of the product; and if they cannot change the prices of what they're selling, would they be in contravention of this act?

Mr. Konrad von Finckenstein: They could very well be. I cannot give you a definite answer without knowing more of the facts about what are the markets in which they are selling, who are the others in that market, and what are the prices, etc.

Mr. Gary Pillitteri: They are competing internationally into our own marketplace. They are competing against imports. They are competing against manufactured products in Ontario and in Canada, and they are also exporting outside of Canada.

A voice: Is it wine?

Mr. Gary Pillitteri: I'll tell you. It's wine, and I have a winery, sir.

Mr. Konrad von Finckenstein: Now you have mentioned another fact, that it's wine. The sale of wine is regulated in some aspects and not in others. You sell wine through the LCBO or through wine stores, or you can sell it directly at your winery.

Mr. Gary Pillitteri: Yes. I sell it directly at the winery, I sell it through the Liquor Control Board, I sell it to export, I sell it to private groups. I sell it all over.

Mr. Konrad von Finckenstein: You are just making the point that I made in my presentation.

Mr. Gary Pillitteri: I just wanted some explanation, Madam Chair.

The Chair: Mr. Pillitteri, if you let him finish, he's just making the point he made in his opening presentation.

Mr. Gary Pillitteri: I see.

• 1035

Mr. Konrad von Finckenstein: The bill applies to every product and it imposes a very rigid regime. Whether it applies in your specific case or not, it may have a lot of very unintended but very harsh consequences because of its breadth. That was the point I was making, and by your example you're just underlining it.

Mr. Gary Pillitteri: Thank you very much.

The Chair: Thank you, Mr. Pillitteri.

I want to thank the witnesses for being with us this morning. It's been a very interesting discussion, and you should know there's actually a motion before the committee now, which will be voted on not today but at our next meeting, about reviewing the Competition Act. We'll probably be meeting with you again if that motion goes ahead, if that's part of our future business.

That being said, we're going to excuse our witnesses and we're going to proceed to clause-by-clause.

Mr. von Finckenstein, I thank you and your colleagues for being with us.

Mr. Konrad von Finckenstein: Thank you.

(On clause 1)

The Chair: We have in front of us Bill C-235. Mr. McTeague had presented two proposed amendments to clause 1. Those amendments need to be formally moved by a member of this committee if they're to be proceeded with.

Ms. Jennings?

Ms. Marlene Jennings: Yes.

The Chair: And you have Mr. McTeague's permission to do that?

Ms. Marlene Jennings: Yes.

The Chair: We have clause 1 before us and we are dealing with amendments to clause 1 that Madam Jennings has just moved.

I assume we'll deal with the amendments separately. This would be the best way to do it. The amendment to clause 1 that Madam Jennings just moved is the one you'll see. You should have two pages of amendments. We'll call it amendment 1.

Ms. Jennings, do you have any comments on that amendment?

Ms. Marlene Jennings: No.

The Chair: No discussion on that amendment?

Mrs. Sue Barnes: Could you, just for clarification, read it out so that I can make sure I have the right paper in my hands.

The Chair: Okay. The amendment is that Bill C-235, in clause 1, be amended by replacing lines one to nine on page 2 with the following:

(a) the vertically integrated supplier's own retail price in the same market area, or

That's the amendment we're now dealing with.

Mr. Solomon.

Mr. John Solomon: I have it here. Could the mover or somebody explain exactly what this means in their own words, please.

The Chair: Ms. Jennings.

Ms. Marlene Jennings: Thank you.

My understanding is that when Bill C-235 was tabled in the House and was sent to committee, the minister had some concerns about clause 1 as it was drafted in Bill C-235, and this amendment is in direct response to the concerns that the minister had raised about the original clause 1. So this amendment was specifically to address the minister's concern on clause 1.

The Chair: Mr. Lastewka.

Mr. Walt Lastewka (St. Catharines, Lib.): If we go back to the gas report that was made by Mr. McTeague in the committee, there were a number of things the minister was not in favour of and he did reply to the member. This does not satisfy his concerns.

Maybe I should share that part of the answer to the committee was because of information...how could I put it? We heard it here a number of times. We've heard so-called data, we've heard misrepresentation, we've heard tie-in with everybody. The minister recommended at the time that a total review of the Canadian retail petroleum sector be done. And he requested that all associations, whether it be independents, whether it be petroleum, whether it be deliverers, whether it be the association in Quebec, whether it be anyone tied into the wholesale-retail network....

At the same time we asked for all provinces to be part of the steering committee. All provinces have joined the steering committee except Saskatchewan, and the member from Saskatchewan and I are trying to resolve that item. And there are also members from the various areas in government that this touches.

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The objective was to do a study that would have the agreement of all the parties. It would be done especially for that group of the steering committee, in order to not have confusion in terms of whose information is right, whose is wrong, and so forth. That's where the minister was going in order to get that study done, and then that study would tell us what we have and don't have, what should be recommended, and where we should go forward.

I've been trying to make sure we had all the provinces on-board, and Mr. Solomon and I will work on that to make sure it happens, with the objective that this be done as a cross-Canada study, completely, in detail. That study would be brought forward to this committee, and we could then take a look at the data and wouldn't be arguing about who was slanted, who belonged to whom, or misrepresentation. It would be a study by everybody. That's where the minister is coming from, and I support that, especially with all the testimony we've heard in the last while, and the confusing data. There are always rebuttals, but that's where the minister is going.

The Chair: Thank you, Mr. Lastewka.

Are there any other comments on the amendment? Madame Lalonde.

[Translation]

Mrs. Francine Lalonde: Our reservations about this bill stem from the fact that it is restricted to integrated suppliers. As I stated earlier to the representatives of the Competition Bureau, it could be invoked in Quebec in an attempt to undue the work of the Régie de l'énergie in the petroleum sector. This matter is still under consideration by the board.

Obviously, we are sympathetic to the aims of this bill. We need to continue working to ensure that there is genuine competition in Quebec and in Canada. However, in order for this to happen, there must, on the one hand, be some consideration for the conditions encountered by SMEs, and on the other hand, no distinction must be drawn between integrated suppliers and large retailers. As far as we're concerned, that's the problem.

We have tried to propose an amendment. Quite frankly, we're having trouble coming up with something appropriate. We sincerely hope that we can pursue this study. Yesterday, I heard a motion that I had been thinking about proposing myself, one in which the Competition Bureau had also expressed an interest.

I think we would be better off doing a study, instead of defeating in the House a motion that had not been sufficiently considered, in so far as it affects other sectors.

While I do congratulate Mr. McTeague for the work he has done and for initiating some debate on the subject which the full committee needs to pursue, I would have to say that at this stage, we oppose the bill.

Mr. Antoine Dubé (Lévis-et-Chutes-de-la-Chaudière, BQ): Madam Chair, at Tuesday's meeting when Mr. Bellemare testified, I had suggested that we get our hands on certain documents because representatives of the Canadian Council of Grocery Distributors and the Canadian Federation of Independent Grocers had been unable to answers some questions about the market share held by integrated suppliers and independents.

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Clearly, there are two classes of independents: independents who are franchisees and those who are true independents. It's important to make that distinction. I'd like some information about their share of the market and so forth. That information must be available somewhere, from Statistics Canada or some other source. Thank you.

[English]

The Chair: Thank you.

Seeing no other comments, all those in favour of the amendment...?

Mr. Jim Jones: I'd like a recorded vote.

(Amendment negatived: nays 12; yeas 3)

The Chair: You had a second amendment, Madam Jennings.

Ms. Marlene Jennings: Are we going to the amendments before going to the—

The Chair: No, it's the second amendment on the same clause. The two amendments are both on clause 1. We deal with all the amendments, and then we deal with the clause. That would be the better way to do it, I'd think.

Ms. Marlene Jennings: Okay, then I move the second amendment to clause 1.

The Chair: Just so there's no confusion, that amendment is that Bill C-235, in clause 1, be amended by deleting lines 21 to 29 on page 2. Is there any discussion on that amendment?

Mr. Jim Jones: I'd like a recorded vote.

The Chair: Mr. Jones would like a recorded vote.

(Amendment negatived: nays 10; yeas 5)

The Chair: Seeing no further amendments, and being unaware of any further amendments, shall clause 1 carry?

An hon. member: I'd like a recorded vote, please.

The Chair: It will be a recorded vote.

(Clause 1 negatived: nays 10; yeas 5)

• 1050

The Chair: Shall clause 2 carry? Do you want a recorded vote again, Mr. Jones?

Mr. Jim Jones: I want a recorded vote on all of them.

The Chair: You want a recorded vote on them all. That will save me some time in terms of asking that question.

Mr. Jones, can we apply the vote? Would everyone be in agreement that we apply the vote that was just taken?

Mr. Jim Jones: Agreed.

Some hon. members: Agreed.

The Chair: It's agreed.

(Clause 2 negatived—See Minutes of Proceedings)

The Chair: Shall the title carry? Can we apply the previous vote?

Mr. Jim Jones: Yes.

(Title negatived—See Minutes of Proceedings)

The Chair: Walt.

Mr. Walt Lastewka: Thank you, Madam Chair.

Having defeated the clauses and title, I need to get additional clarification from the clerk on the options that we have.

The Chair: I'm sorry, you were looking at me. Everyone was looking at me.

Mr. Walt Lastewka: Yes, Madam Chair. You are the leader.

The Chair: That's my job.

Just so you know, since we've deleted the title and the clauses, one option we have is to report the bill back to the House, and then there would be a report stage and the possibility of motions to restore the title and the clauses. The other option we have is to pass a motion that the bill not be proceeded with any further, which would mean there would be no report stage. The report could still be debated under motions, by which we would do the committee report. So you could pass the motion now that the bill not be further proceeded with, we would report that back to the House, and it could be debated in the House at that stage.

Mr. Walt Lastewka: That clicks into the House?

The Chair: In regular routine proceedings, there's a time period when there's tabling of committee reports. We would still prepare a report saying that the bill did not proceed at this committee, and that could be debated at that time.

Mr. Walt Lastewka: And then that goes into the House. Okay.

The Chair: At that point, it could be debated in the House.

Mr. Jones.

Mr. Jim Jones: I just have a point of order. Why can't we just carry on with the last two?

The Chair: This is for the next one, when I ask, “Shall the bill carry?” We have to deal with how we want to word that, because this is a new process. We have a new process in place now for private members' bills. We're just the second committee that's done this, so I felt the necessity to explain it here. This is a new procedure. There were a lot of different processes before, and there was a tendency not to have private members' bills get to this stage. Now that we have this new process in place, we have options available to us.

Mr. Lastewka.

Mr. Walt Lastewka: I understand that we're going under this new procedure and so forth, so I'll move that the bill not be proceeded with.

The Chair: For what reason?

Mr. Walt Lastewka: Due to the non-confidence of the standing committee.

The Chair: Is there any discussion on that?

Mr. Jones.

Mr. Jim Jones: Madam Chair, on a point of order, I don't agree. I think we should just continue on and report this bill to the House.

The Chair: You're not following my explanation, Mr. Jones. We are going to report the bill back to the House, but what will happen is that we'll report it back in terms of what is happened in the committee. There are different variations as to what happens in terms of how we report it back.

Mr. Jim Jones: Okay, so the motion is to—

The Chair: The motion will be that the bill not be further proceeded with. If that motion is successful, I will report that we, as a committee, say that the bill should not be proceeded with any further. When I do that, when that is reported in the House, there are routine proceedings at that time. That's when it could be debated as a motion. Otherwise, if you delete the title and the clauses, it goes all the way through report stage in the House and it has different options.

Does everybody understand that? I'm not avoiding the question, “Shall the bill carry?” I'm explaining that we have to do it differently, because we've defeated things previously. We have two different options to us available now.

Mr. Jaffer.

Mr. Rahim Jaffer: I'd just like one further clarification. I understand what's going to happen if we go the route of the motion that was just made. What was the other option? You said something about just allowing it to proceed to the House. What happens if we go down this route?

• 1055

The Chair: If we just delete the title and the clauses and don't put forward a motion that the bill not be further proceeded with, then there would be a report stage, and my understanding from the clerk is that there could be motions then to restore both the title and the clauses of the bill.

Mr. Jim Jones: Would it be debated in the House when it's reported to the House?

The Chair: Under the motion that's before us right now, if that motion passes, when we go through routine proceedings it can be taken up and debated under motions. It can.

Mr. Rahim Jaffer: Not necessarily.

The Chair: I imagine it will be.

Madam Jennings.

Ms. Marlene Jennings: If this committee proceeds with the motion that has just been tabled by Mr. Lastewka and you report to the House and at that point there can be a debate, through that procedure, can this legislation again be restored through a motion during that debate?

The Chair: Maybe the procedural clerk can explain that.

Ms. Marlene Jennings: The question I have is, if it cannot, what's the point of having a debate? That's what I'm trying to find out.

The Chair: You're not going to like this answer.

Ms. Marlene Jennings: I'll try to be impartial.

The Chair: The clerk has just told me that it has been so long since that has happened, it will probably puzzle the table officers as well.

Ms. Marlene Jennings: In other words, there is no clear answer as to what can come out—

The Chair: It will be up to the Speaker. It's a new process—

Ms. Marlene Jennings: I understand.

The Chair: —a new procedure. New precedents are going to be set.

Ms. Marlene Jennings: So there's no clear answer.

The Chair: I apologize if I'm incorrect. As to the advice right now in front of us, because of my age I'm not familiar with what may have taken place before in the House, and I'll rely on my aides for this one.

Mr. Keyes.

Mr. Stan Keyes: I understand fully the debate that might be going on if this motion is voted for and it goes to the House. At the report stage of the bill, there's a motion put forward and it can be debated. I think I stand on solid ground when I say there's no possible way it could be reincarnated at that debate during that stage.

Conversely, I'd like to know about the other aspect—if this is defeated. This bill is reported back to the House as Bill C-235 without a title, without clauses, and then at report stage.... This sounds kind of funny, but at report stage, am I given to understand that on the bill and its clauses and its title, there can be, what, motions or votes put?

The Chair: There can be motions to restore the title and the clauses.

Mr. Stan Keyes: I know you're an expert on a lot of things, but I want to hear from the clerk at the table.

Thanks.

The Chair: The clerk has informed me that there can be motions made at that time to restore the title and the clauses. My understanding is that there already is a motion like that, so....

Mr. Stan Keyes: Sorry, I don't understand.

The Chair: There have been motions like that for other bills received in the past.

Mr. Stan Keyes: But this is a new process. How can there be other...?

The Chair: There is one other committee. I said we were the second committee. With Ms. Guarnieri's bill, there is already a process in place.

Mr. Stan Keyes: Yes, but that bill was reported empty, and she didn't have a chance to.... Didn't she do that at the report stage?

The Chair: I'm only following the advice I'm getting here. What I'm being told is that she will be able to move these motions at report stage.

I have Madam Lalonde, and then Ms. Barnes.

[Translation]

Mrs. Francine Lalonde: If the bill is not referred back to the House, then there won't be a debate in the House. That's pretty obvious. The question is whether we want to pursue this matter in the House.

[English]

The Chair: No, that's not clear at all. You're not understanding what I'm saying.

[Translation]

Mrs. Francine Lalonde: Could you explain that to me again? Usually I'm a quick study.

[English]

Mr. Stan Keyes: [Editor's Note: Inaudible] ...this bill and just have it reported, and then nothing happens, or—

The Chair: No, I said very clearly that if this motion is successful, when it is reported in the House, there is an opportunity at that time for it to be taken up and debated under motions.

Mr. Stan Keyes: Right.

The Chair: But not at report stage.

Mr. Stan Keyes: Right.

The Chair: I'm trying to explain this. There is an opportunity for it to be further debated in the House. So it's not correct that it would not be debated in the House.

• 1100

Mr. Stan Keyes: We have to wait five minutes and get clarification, because I'm not voting on it when I don't know what the hell the clerk's talking about here. Let's get somebody who knows what he's talking about over there.

Mr. Jim Pankiw (Saskatoon—Humboldt, Ref.): What you said is right, the way you described it.

Mr. Stan Keyes: I thought it was, but the clerk is confused.

The Chair: Just a second, I'm getting clarification here. We're going to suspend for 60 seconds while the clerk gets clarification.

• 1101

• 1104

The Chair: Order, please.

Mr. Lastewka.

Mr. Walt Lastewka: Madam Chair, I didn't know that I was going to confuse things here. I was trying to accelerate the process.

Mr. Stan Keyes: For whom?

Mr. Walt Lastewka: I'd be glad to withdraw the motion if there is a mechanism by which we just report the bill back to the House. I don't know how you report no title and no body, but I'm sure you could work that out between now and then.

• 1105

The Chair: No, there is a mechanism and it has already been used. There's a precedent from a previous committee where it reported back with no title and no clauses.

Mr. Walt Lastewka: Do we need a motion for that, then?

The Chair: Yes. Shall I report the bill to the House?

Just a second. Mr. Keyes.

Mr. Stan Keyes: Because that now has been withdrawn by Mr. Lastewka, I'll speak to the motion of “Shall I report the bill to the House?”

The Chair: Wait a second, before that I have the motion to ask, shall the bill be carried?

Mr. Stan Keyes: Okay. Let's defeat that first, and then we'll speak to the next part.

The Chair: We don't do that now because we've defeated all the clauses, so there's nothing to carry. So we'll move on to the next motion.

Shall I report the bill to the House? Mr. Keyes.

Mr. Stan Keyes: Getting back to the motion of shall I report the bill to the House, from what we've been able to learn from the information that has been provided to us...and I'm still a little foggy on it, to tell you the truth. But that aside, from my perspective Mr. McTeague, who has worked very hard on this bill, has had the opportunity to bring this bill to this committee.

We all had our reasons for voting for or against his particular bill. I think it should now follow the process and go back to the House of Commons, where it is reported to the House of Commons. Then Mr. McTeague can provide additional information and further clarification and do whatever he can to present his private member's bill. And I'm going to stress that: it's not a government bill, not somebody else's, but his own bill. If he can do that in the House of Commons, then God bless him and good luck to him. If he can't and other members of the House of Commons aren't convinced, as I wasn't at this committee because we only had two weeks to work on a file that Mr. McTeague has become an expert in over three years of work, then we'll have our votes in the House of Commons.

The Chair: Mr. Keyes, I just want to clarify what information I do have and what information I gave the committee.

I was informed by the clerk that the report may be taken up and debated under motions and committee reports. I was unable to reach Mr. Marleau. I reached the government House leader's office, and they informed me that with regard to Mr. Lastewka's motion, they did not believe that would be the case if the bill was reported. Mr. Lastewka then agreed to withdraw his motion. So I just want to point that out. I apologize if there was false information. It's the advice I was given by our procedural clerk, and that does not seem to be what the House leader's office, for our side at least, was able to tell us.

Due to the fact that it's a new process, I was unaware until I arrived here this morning that this could be a possibility. I did not mean to cause any problems for anyone at the committee. I agree wholeheartedly with you that there's a process for private member's bills and that we should follow it.

Madam Jennings.

Ms. Marlene Jennings: First of all, I appreciate the clarification.

Before all of this stops, I want to commend you on the excellent work you have done in presiding over these hearings and other hearings. I think you've demonstrated great patience, forbearance, and good humour in times that have been very difficult. I'm speaking for myself, but I think I can probably safely say I'm speaking on behalf of all of the committee members.

Mr. Stan Keyes: Hear, hear!

Mr. Janko Peric: No, no, no.

The Chair: Mr. Peric, I knew I could count on you.

Some hon. members: Oh, oh!

Ms. Marlene Jennings: I want to state that I will be supporting reporting the bill back to the House. The reason I'm doing so is because the House of Commons—if we take away the Senate, because the Senate has a role—is the supreme institution in Canada for governance. We are elected there. I agree with Mr. Keyes, and I would have a difficult time vacating, aborting, or emasculating a piece of legislation where the members of the House do not have the opportunity to discuss it and to make a decision as a House.

I also want to take this time to commend my colleague Mr. McTeague. Mr. McTeague has invested a great deal of energy, heart, and soul in this legislation.

For me, as a new member of Parliament who has only been here since the 1997 election, I have to say that you have served as an example of the kind of work and dedication Canadians have a right to expect from their members of Parliament, regardless of partisanship or political affiliation. I have learned a great deal from you.

The Chair: Madam Jennings, I have to apologize—

Ms. Marlene Jennings: I'm finished.

The Chair: —but we are over our time. We have to finish this, or we will have to come back at 3.30 p.m. We have a committee waiting to come into this room.

• 1110

Shall I report the bill back to the House?

Mr. Jim Jones: As amended.

The Chair: There were no amendments.

A voice: This counts as an amendment.

The Chair: It counts as an amendment. Shall I report the bill as amended back to the House?

Some hon. members: Agreed.

The Chair: The meeting is adjourned.