INDU Committee Meeting

STANDING COMMITTEE ON INDUSTRY

COMITÉ PERMANENT DE L'INDUSTRIE

EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, April 13, 2000

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[English]

The Chair (Ms. Susan Whelan (Essex, Lib.)): I now call the meeting to order, pursuant to the committee's mandate under Standing Order 108(2), a review of the Competition Act.

We're very pleased to welcome here today the Commissioner of Competition, Mr. Konrad von Finckenstein. With him is the senior deputy commissioner of competition, Mr. Gaston Jorré, as well as the assistant deputy commissioner, Mr. Don Mercer.

We're very pleased to welcome you. We would prefer to hear your opening statement before we move into questions.

Mr. Konrad von Finckenstein (Commissioner of Competition, Competition Bureau, Department of Industry): Thank you thank you for inviting me to speak to you.

You will recall that I appeared here on November 25, 1999, to table the results of the independent study on the pricing provision of the Competition Act and the bureau's enforcement procedures. That study was conducted by Professor Anthony VanDuzer of the University of Ottawa. His task was to examine the act's anti-competitive pricing provisions and their adequacy in the light of today's economic forces. The study was intended to contribute toward your own review that followed your study of Mr. McTeague's Bill C-235. At that time, I gave you my preliminary views on the findings of Mr. VanDuzer and Mr. Paquet.

Having listened to the witnesses who have appeared before you and having followed developments, I've come to the following conclusion.

The real problem with the pricing provisions is their complexity. I don't believe amendments are needed, but a better explanation of how they work would be helpful.

[Translation]

Firstly, the Bureau is revising its predatory pricing guidelines. These are intended to clarify the Bureau's enforcement policy and help the public understand the circumstances which may lead to an investigation under the act.

Secondly, the Bureau is developing guidelines for its abuse of dominance provisions. Abuse of dominance is a civil matter, intended to prevent a dominant player from stifling competition in a market. These can be used to deal with anti-competitive pricing as well as other conduct. I expect to release these guidelines very soon.

Finally, as soon as these guidelines have been finalized, we will review our selection criteria for assigning priorities to cases.

[English]

You also asked me, before I appeared here today, to comment on the Competition Act's effectiveness in face of the global economy. This is an extremely important question, given that the Competition Act deals with competition in the marketplace and in a market that is undergoing remarkable transition due to globalization and rapid technological change.

In the short term, we need some legislative changes to address two trends. First, we need to recognize the scope of the marketplace that's affected by globalization, by North American integration in particular. Businesses increasingly operate across borders, and this adds new challenges to enforcing our competition law. We need to be able to exchange information with our trading partners to enforce our respective competition law. We also need to encourage strategic alliances so that Canadian firms can compete in the global marketplace by allying themselves with other firms.

Secondly, we need to recognize the impact of technology and globalization on market structure and business operations. In today's innovative economies, speed is absolutely paramount. This really presents new challenges for law enforcement. Business needs direct access to a dispute resolution process to deal quickly with their own disputes, and the dispute resolution process itself needs to be quick and efficient, which really calls for substantial improvements to the current Competition Tribunal process.

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We also need to come to grips with the impact of electronic commerce and the Internet. We are expecting an enormous transformation of how businesses conduct their transactions, not only in the retail and distribution sectors, but also in production and services. That really poses the question: What kinds of changes will we need to make sure the Competition Act can deal with a borderless world of footloose firms in an electronic age? That seems to me where we are going.

Frankly, we don't know the answer to that question yet. It is too early to say what the challenges will be and how we will address them. But we will come back to you on this when the time is right. In the meantime, we will monitor developments carefully.

Let me outline briefly our response to the short-term challenges. It seems to me two topics need to be addressed: the changing structure of the market, and the need for speed.

First, on the changing structure of the market,

[Translation]

the changing structure of markets truly calls for mutual cooperation. In global markets, the effects of anti-competitive conduct are not limited by borders. This is a pressing problem for enforcing our competition laws, especially in the North American market where Canada conducts most of its trade.

Canada has measures in place to allow enforcement agencies in different countries to exchange information on criminal matters but not on civil matters. And yet civil competition matters, such as merger review and abuse of dominance, are enormously important in the global economy. One only need to look at the trend towards international mega-mergers or the mergence of dominant players like Microsoft.

The solution is to introduce enabling legislation which would allow us to enter into mutual cooperation agreements with other enforcement agencies, particularly in the United States and the European Union. The agreements would allow us to exchange evidence on civil competition matters.

These agreements would not be open-ended. There would necessarily be restrictions to provide the right balance between maintaining confidentiality and a meaningful reciprocal exchange between antitrust agencies.

[English]

As well, we need to deal with the area of strategic alliances and the conspiracy provisions of the Competition Act.

Presently, Canadian businesses are doing their best to compete more effectively in these global markets. Some are developing close ties with other firms to gain access to technologies, to cooperate in research and development, and to achieve economies in marketing and supplier arrangements in new markets.

The challenge here comes from the conspiracy provisions of the act, which prohibit agreements that lessen competition unduly. The problem is that strategic alliances often involve agreements among competitors. Certainly the criminal sanctions against conspiracy may discourage business from entering into strategic alliances. They may, in effect, bring a chill on business in order to enter into such an alliance. It's a problem Mr. VanDuzer raised, that criminal law is not well suited to distinguish between truly anti-competitive conduct and conduct that is in fact a manifestation of healthy competition.

In our view, the Competition Act would be strengthened if you drew a clear line between egregious criminal behaviour, such as price-fixing, to which conspiracy provisions should apply, and behaviour that is really an arrangement among competitors to compete more effectively, and which, if it has any anti-competitive aspects, would be assessed under civil law rather than criminal law.

Secondly, there's a need for speed in today's global economy. Currently, access to the Competition Tribunal is restricted to the Commissioner of Competition. If the commissioner decides not to take a case, for whatever reason, then the complainant cannot take it up on his own behalf. This is with regard to the civil provisions. In respect of the criminal provisions, a private party who feels they are a victim of a criminal activity does have the right to sue.

In our view, private action would be a good complement to public enforcement. It would increase the deterrent effect of the law, and it would help build up a much-needed body of jurisprudence.

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In our view, private rights of access to the Competition Tribunal would work very well in conduct that is essentially a private matter between buyers and sellers, which does not warrant public intervention. The provisions that come to mind are section 75, refusal to deal, and section 77, tied selling, market restrictions, and exclusive dealings.

In previous discussions about the merits of private access—and we've had many—stakeholders have expressed concerns about the need for safeguards against strategic litigation. Private access should be introduced with safeguards such as leave from the tribunal to bring an action and cost awards. Certainly it should not provide for damages.

If private access is developed along those lines, in our view, it's a feasible option. It would provide a quicker review process and it would allow business to deal with matters that are essentially private disputes between them in an efficient way.

[Translation]

Tribunal procedures also need to be improved and broadened. The current Tribunal review process can be slow and onerous. In today's innovative economy, speed counts and a complainant may well have gone out of business before a case can be heard and a remedy ordered.

Several procedural changes would improve the dispute resolution system. References would allow key issues on which a case hinges to be resolved early; the discretion to award costs would give the Competition Tribunal a lever to discipline delay tactics and strategic litigation; summary dispositions would allow the Tribunal to bring a case to a quick close if the evidence on either side appeared to have no merit; and finally, new cease and desist powers would allow the Commissioner to put a temporary stop to the abuse of dominance in all sectors. This would be similar to the powers already introduced for airlines.

[English]

Most of these ideas are already before you by way of private members' bills. You have before you Mrs. Jennings' Bill C-471, which would provide for international cooperation between competition authorities on civil matters and would also introduce the whole idea of references to the Competition Tribunal. Mr. McTeague's Bill C-472 deals with strategic alliances, private access, cost awards, and summary dispositions, and it also would introduce new cease and desist powers. Those are the principal ideas I just spoke about in the aims the bureau has in terms of amendments to the act.

Consumer protection is another area affected by competition law. There are two other private members' bills also before you, aimed at improving the Competition Act. There is Mr. McTeague's Bill C-402, which deals with the abuse of dominance in the retail sector, responding to consumer concerns about markets dominated by a few big players. There's Mrs. Redmond's Bill C-438, which prohibits deceptive contests sent through the mail, a measure you have recently endorsed and which really parallels the provisions that are already in the bill regarding deceptive telemarketing.

In short, our agenda for improving the Competition Act largely coincides with the four private members' bills before you. You've heard the Minister of Industry, the Honourable John Manley, say to you that he agrees in principle with these bills and that he is contemplating rolling them into a government bill. Before that can be done, he wants to hear from all stakeholders. He wants to ensure that there are wide-ranging discussions and that the views of all parties concerned are heard. Given that the act is an act of general application and affects all parts of the Canadian economy, it's important that all possible ramifications are considered.

We have therefore hired the Public Policy Forum to conduct consultation to make sure there's the widest possible discussion of these bills. The consultation will be on the basis of a discussion paper, which will have annexed to it the four bills. There will be a call for submissions from interested stakeholders. Finally, there will be seven discussion fora in different cities across Canada.

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Hopefully, as a result of this extensive consultation there will emerge a consensus on changes that are needed to the Competition Act, which will lay the foundation for a government bill that will allow us to deal with the challenges of enforcing competition law in a global economy. If indeed such a consensus should emerge, we would anticipate that the minister will introduce a government bill along the lines I mentioned. This undoubtedly will make for a more effective competition enforcement.

Thank you very much. I'll be glad to answer any of your questions.

The Chair: Thank you very much, Commissioner.

We're now going to begin with Mr. Penson.

Mr. Charlie Penson (Peace River, Canadian Alliance): Thank you.

Welcome, Mr. von Finckenstein and officials. I notice that you have dealt with the issue of your rating in the paper this morning, the National Post, so I won't go into that in any detail. I do have a couple of questions.

Regarding increase in workload, in the last three years I see it's up from about 1,400 or 1,500 per year to 10,000. That would be my first question. What's the genesis of that?

Regarding the proposed legislation, you talked about Bill C-402, Mr. McTeague's bill, and having this act sort of encompass the private member's bill. What is the problem that needs to be addressed? What do you see as lack of legislation right now to deal with the market dominance issue that Mr. McTeague's bill raises?

I know you've been here before and said that.... In the case of gasoline, for example, which is one of the hot ones that always seems to hit, you have looked at that on several occasions and basically found it wanting for lack of evidence. There's a problem. Yet there is the call for tougher legislation to deal with market dominance. What is lacking now? Why do you feel it's necessary to increase legislation to deal with that?

Mr. Konrad von Finckenstein: First, on the question of workload, I think we're going through an unprecedented merger wave around the world, and of course in Canada also. The number of mergers has increased dramatically. That adds enormously to our workload. We have also seen the emergence of international conspiracies on a scale we haven't seen before. For instance, there was the vitamin conspiracy, where all the major producers of vitamin A around the world kept together and systematically conspired to share markets and to fix prices. That increases our workload.

Generally, of course, we are also seeing the North American integration of the economies as a result of NAFTA, and therefore much bigger players emerging. Problems are more complex because you have to deal with several jurisdictions. You have to coordinate the activities with your partner.

Are we straining? Yes. Could we use more resources? Absolutely. I will be going forward to Treasury Board to ask for those resources. Will I get some? We shall see. It is a problem that is worldwide. All my colleagues in other antitrust agencies have the same problem. Nobody has ever seen quite the merger wave that we have, the number of cases and the complexity of the cases.

In terms of dominance, the legislation amendments that I envision, which are partly reflected in those private members' bills and which will be discussed in the consultation I just announced, will hopefully pull up two things that should be helpful. One is private access. There are a lot of disputes in terms of competition, which really do not involve such overwhelming issues. They should involve or can involve us, and that's in effect where the state shall interfere.

Refusal to deal is a perfect example. If you are a small retailer and you want a certain product and the wholesaler, for whatever reason, is not willing to sell it to you, if it's essential to your business and unless you have a credit problem, you should have the right to purchase it. Right now you have to petition the commissioner and we will then go to the board. What we are suggesting is that if this is the problem, you should have the ability to deal with it yourself.

Mr. Charlie Penson: Mr. von Finckenstein, I just need to interject to ask something. Does our legislation lack something as compared to legislation in the United States in this particular area? Can you give us an assessment of the two in terms of that specific issue?

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Mr. Konrad von Finckenstein: In terms of private access in the U.S., you go to the other extreme. You can sue on your own. When you sue you are not facing a penalty in terms of costs, as you do in Canada. And secondly, you have class action, you have contingency fees, etc. So they have really gone to the other extreme. Suing has become a strategic tool, which is very often used in order to up the advantage you have.

What we are suggesting is let's not go there. Let's not make the same mistake as the Americans. On the other hand, having no private access at all is not enough.

What we want is a limited private access in those areas where it would be helpful to competitors, but no damages. So you're not going to sue in order to hope to hit a jackpot. If you sue and you're successful, you're going to get an injunction or a mandatory order, that's all.

Also, the court should have the ability to award costs against you if you are unsuccessful. Since you are very worried about strategic litigation, it seems to us, perhaps it would make sense if you have to go to the court to get leave first of all. You have to show that you are indeed someone who's truly affected by this anti-competitive action; you are not just suing in order to create a competitive advantage.

So that's one of the things, I think, to deal with dominance. The other one is the cease and desist powers. We have asked for it in the airlines. It is in Mr. McTeague's bill. It's something I think should be explored.

The problem with abuse of dominance is the process takes a long time. Very often by the time we've finished our investigation and we've taken court action, the company that is suffering from the abuse of dominance may be out of the market or may be sufficiently disciplined or chastised that they basically say this isn't worth it. They don't want a two-year lawsuit. So they abide by the rules the dominant player is trying to impose.

Mr. Charlie Penson: Perhaps we can just use the analogy for a minute of the gasoline industry. For example, in the United States my understanding is that about 80% of the market is supplied by independent small companies, 20% by the majors. Basically, it's just the reverse here, and it's a reflection that we have different types of economies. But that's another method of getting there, isn't it?

If there was increased competition, the need for having competition law in this area wouldn't need to be quite as much if we had a different marketplace. I guess where I'm going, Mr. von Finckenstein, is the line that's needed in ensuring that there's healthy competition and yet not going too far. And I see some of these private member's bills, and we've dealt with a couple here on scratch and win. Where is that line where people have to take some responsibility themselves, as opposed to regulation?

Mr. Konrad von Finckenstein: First of all, let me answer your first point on the U.S.

In many U.S. states you have legislation that in effect prohibits integrated oil companies from retailing. In some ways that may be part of the explanation of why you have such a.... We don't have such legislation. In Canada you can be an integrated oil company. You drill the stuff, you refine it, you sell it, you retail it. In some of the states that's prohibited. We don't advocate that.

Mr. Charlie Penson: It is prohibited.

Mr. Konrad von Finckenstein: It is prohibited, yes. We don't advocate such a prohibition. And anyway, that would be provincial legislation if you did that.

We suggest, in effect, that if private access companies, like retailers, feel they have a complaint with a dominant oil firm that deals with some of the issues I mentioned, such as refusal to deal or so forth, they should have the ability to take it to court if we feel it's not a case we will pursue because we don't think it's either justified or it doesn't have enough of an anti-competitive effect to warrant taking it.

Secondly, the line between what is anti-competitive and what is vigorous competition is very difficult to draw. That's why we are suggesting this criminal law is not the right tool to apply. It should be civil.

Essentially, what you're trying to do is scratch and win, and you mentioned it. Have as many scratch-and-win contests as you want, but don't do it in a way that is misleading so that the average person looking at it gets the wrong impression. You scratch four times and you get four zeros—aha, I have won. You need a loop to see the fine print at the bottom, which says you will win if you now call. It's a 1-900 call, which will be charged to your account, and you have to pay $25 for each call. All it does, in effect, is allow you to be eligible to compete, rather than say that you have won something.

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Mr. Charlie Penson: Is your agency the right vehicle to use in a case like that?

Mr. Konrad von Finckenstein: We don't want to prescribe how you run scratch-and-win contests. We just say that it should not be generally misleading. We issue them guidelines on what we consider misleading. Our basic philosophical approach is that we're not there to regulate business. We're basically telling business, “These are the boundary lines. Stay within them, and you can do what you want. If you step beyond this boundary, then we will come after you, because we believe this is anti-competitive.”

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

Mr. McTeague, please.

Mr. Dan McTeague (Pickering—Ajax—Uxbridge, Lib.): Thank you, Madam Chair.

I want to follow up on the initial comments Mr. Penson made with regard to this wonderful report called the Global Competition Review.

I've followed this issue for some time, and I'm pleased to see that we're finally getting somewhere on some of the initiatives. I'm pleased to see that we've been consulting much more widely on a number of issues that have fallen out from my initial views in terms of Bill C-235—which is now Bill C-201—Bill C-402, and now Bill C-472.

Like yourself, Mr. von Finckenstein, I think I was a little surprised to see it reported in most papers that the bureau gets a poor grade. At first, because of my concerns in the past over how quickly you were rushing mergers and concerns I had about concentration.... Particularly in the press, and it's not surprising that I see stories from the National Post on several occasions.... I'll leave that to the imagination of my colleagues here. I also notice that in the grocery industry, the gas industry, the forestry industry, the propane industry potentially.... I thought that the review perhaps had something to do with concerns about the impact that mergers and the key issues of independence and transparency have with regard to the Canadian economy in general.

When I downloaded the information about the Global Competition Review, I was a little startled to find out that the simple question of who did the rating is always very important. For the record, Madam Chair, and for yourself, Mr. von Finckenstein, I was interested to note in the introductory remarks that:

Rating the Regulators started life in nurturing surroundings, at an International Bar Association seminar in Italy. The idea was sparked at the European University Institute in Fiesole over lunch among GCR staff, former senior regulators and leading members of the international competition bar. The general sentiment was that, at a time when competition regimes are proliferating, it would be helpful to identify those regulators providing exemplary service so that they could act as a benchmark for other authorities.

There has been a failing, in my view, with that kind of statement. I get this idea of people sipping Perrier with a little bit of lemon in it and perhaps eating canapes and making decisions about why they don't like the current competition regimes.

As you know, I have been rather critical of your department in the past in not moving these mergers in a way that reflects to the extent possible the wider public interest.

It seems to me that in reading in this report about who the organization recommends as decent law firms.... For instance, for Davies, Ward & Beck, their best man there is Cal Goldman, who is, I believe, a person who was formerly in your position and who litigated the Exxon merger with Mobil and litigated Superior Propane. I go down and look at another name, William J. Rowley, Q.C.; IBA section, business law with McMillan Binch. Rowley is the man who contributed vastly to the writing of the act in 1986, which I've been very critical of. I go down further and I read names like Francine Matte and others who are involved generally with companies associated with pushing the merger issue in Canada and, I suspect, around the world.

If individuals are going to rate you based on self-interest or what is perceived—and I mean no disrespect here—to be their own interest in not getting their mergers approved quickly enough, or you somehow have difficulty with them because you're advocating the public interest, how is it possible for us to have an objective opinion of what your organization is when those who are offering the opinion are themselves suspect and indeed are individuals who I think would prefer to look after their clients?

That would probably lead to my second question. If the United States received a four-star rating and its bar is different, as Mr. Penson has suggested, as a result of the fact that much of their litigation is pro-antitrust as opposed to pro-client, do you not see a perception of bias? Perhaps that's not as fair a question as it should be, but I have a concern that the people who are rating you are in fact rating you for other reasons.

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Mr. Konrad von Finckenstein: As you know, I was not pleased with the report, and I issued a public statement on it.

Let me say at the outset that I think the idea of rating international antitrust agencies is excellent. I see us moving into a globalized world. We are making a lot of effort at the WTO and the OECD to bring about uniformity of standards and procedures in antitrust matters. I think that's a worthwhile goal. Part of that also means that you benchmark one agency against another, and you compare them. So I applaud them for the effort they have taken.

I think their methodology is seriously flawed, and I pointed that out. I also find that the style of reporting in citing an individual person's remarks in an anecdotal fashion and thereby giving the impression that reflects an entire bar is an unfair way of proceeding.

That being said, I have written to them and told them that I would be prepared to work with them in order to help them perfect their methodology and the way of going forward because I think it's a worthwhile endeavour.

In fairness to them, they do state—if anybody bothers to read the caveats, and there are six of them—for instance:

Lawyers in some jurisdictions may tend to favour the status quo over innovation in doctrine or policy. In such jurisdictions, there is the possibility that fewer lawyers will be receptive to recent developments in, for example, economic analysis. More generally, it may be that authorities most heavily criticized are the authorities that are demanding the most from their bars.

You wonder whether you want to come out good or bad in this report, because their key measurement seems to be the speed at which you approve mergers. I'm not too sure that's really the best way to look at an antitrust agency, because it is the quality of what you do in terms of merger review, not whether or not you did it quickly. If it was quickly, then somebody who rubber-stamps every single merger should get five stars.

Mr. Dan McTeague: In the era of merger mania, I look at some websites, and Canoe and others will have this whole section on how we are seeing a very different world but in particular a very different Canada.

The BCNI talks about its concern that executives are leaving Canada, but it doesn't ask the simple question as to whether they're wholly owned by or merged with companies from offshore in other countries and perhaps the executives are simply heading to those countries, as opposed to staying here.

As you know, I've been very critical in the past of how we handle mergers, and there will probably be more to say on this.

I was interested in one thing they didn't say, but their statistics reflect it. It again deals with questions that have already been raised. According to GCR—maybe they could be helpful in this fashion—your annual budget is about $17 million U.S. I then went to the antitrust division of the U.S. Department of Justice and the U.S. Federal Trade Commission, and I found that theirs is about $240 million U.S. A rough calculation, that's 14 times greater than what we have in Canada, in an environment where there's probably a greater intensification in terms of mergers.

On a per capita basis, would it not suggest, then, that Canada is lacking in funding your agency so that it can do its job in terms of ensuring that above all the public interest is protected, as opposed to the interests of the odd individuals who represent GCR internationally and obviously more locally here at home?

Mr. Konrad von Finckenstein: Needless to say, what you're saying is music to my ears.

Mr. Dan McTeague: It's not meant to be. I think the—

Mr. Konrad von Finckenstein: In terms of the analysis we do, we are underfunded. There are two problems, I think. Partially it's underfunding, and there's also program review, which is a government-wide issue. In order to get the deficit down, the government had to cut very badly all across the government. Therefore, every government agency feels the strain these days.

Also, as part of the deregulation and liberalization of part of our economy, such as transport, telecom, and now energy, the responsibility of the bureau has actually increased. To the extent that there are areas that are deregulated and not subject to a specific regulator any more, it becomes our responsibility, and we look at it. Unfortunately, there has been no increase in funding with the increased mandate we have. As I mentioned earlier, we will make our submission to Treasury Board. We definitely feel that our funding needs to be increased considerably in order to allow us to do our task.

Mr. Dan McTeague: All kidding aside, I know that there will be some people in this world, like the Terence Corcorans or the Andrew Coynes, who will suggest that you and I have discussed this issue in advance of our meeting this morning.

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I've come to very similar conclusions. I find it very scandalous that this organization has taken great liberties and has not said much about itself, certainly in terms of what's happened.

You and I have never, nor has anyone in your department, to your knowledge, had this discussion before about this global review, have we?

Mr. Konrad von Finckenstein: No.

Mr. Dan McTeague: I wanted that on the record, Madam Chair, because I'm sure it will be in the papers in the next few days.

Mr. Konrad von Finckenstein: I can tell you more. I didn't know until Monday that this review was being conducted. That's when I found out about it.

The Chair: Mr. McTeague, I appreciate that. There was a report in the paper yesterday that said our recommendations were similar to BCNI's, and our report was done over two weeks before BCNI's was issued.

Anyhow, Mr. Brien,

[Translation]

please.

Mr. Pierre Brien (Témiscamingue, BQ): I'm surprised to hear Mr. McTeague spring to the defence of the Competition Bureau as he has done this morning. As a rule, people pan studies when they don't like the results. I see that you're not so different. Among other things, you would have us believe that the study undertaken puts a considerable amount of emphasis on the approval process or on the speed of the merger approval process.

So that everyone, even those who haven't read the study, has a clear understanding of this issue, I would say that it sets out five other measurements, namely: the time required for processing cases other than mergers; the technical expertise of the agency; operating procedures; independence; and leadership.

Therefore, I disagree with the contention that the sole variable to take into consideration is the speed with which the merger process is approved. Having said this, the variable I'm most concerned about is the independence of the agency, an issue of which some people have been critical. Recently, I was surprised to hear the Industry Minister defend his decision to ask the Conference Board of Canada to undertake a study of gasoline markets, stating that he wanted the investigation to be conducted by a body that is independent of government. That's what he said in his press release and in his public statements.

Could you explain to me why the Competition Bureau would not have been able to conduct an independent study? The minister chose to ask another organization to undertake this task, pointing to its independent status. Now we have an outside agency criticizing your independence. That's the second time this issue has surfaced in a short period of time. That worries me.

Mr. Konrad von Finckenstein: First of all, I said that speed was a key measurement. I didn't say that it was the only criterion.

For example, with respect to another measurement, namely confidentiality, we get a two-and-a-half-star rating, and a three- star rating for important cases. Argentina received a three-star rating. However, the reports say that Argentina fails to make the grade on the confidentiality issue. I can't explain it. If you undertake a merger review, the key is to keep the data collected confidential, because it's very important for companies to be able to trust the agency, to know that it can disclose even the most confidential of information to it. Yet, apparently Argentina cannot guarantee confidentiality, but we can. We have considerable expertise in the area of mergers, considerably technical expertise, that is, and yet we received a two-and-a- half-star rating, while Argentina gets a three-star rating.

That's why I have a problem with this survey. As I said, I support this initiative. I think a comparison of agencies was warranted, but I disagree with the methodology employed.

Secondly, on the subject of independence, I've done some studies on the gasoline issue. The results can be viewed on our Web site. We have explained many times the results of our research on the markets in Ontario, Quebec, Saskatchewan and British Columbia. All of this information is available on our Web site.

Now, the Industry Minister is asking the Conference Board of Canada to conduct a study and to hold public hearings in various municipalities across Canada to give everyone - members of the public, wholesalers and producers - an opportunity to be heard.

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We're going to have a public debate. The research that I carried out is confidential. We have the power to ask the industry to supply us with data, to conduct investigations and so forth. The findings are public, but the process, by law, is confidential. The Minister wanted the Conference Board's study to be the focus of a public debate, to provide a forum in which all could express their opinions. The results will be there for all to see. Should the government necessarily be looking at other areas of this industry? Thus far, it has opted to... [Editor's note: inaudible] As I see it, this has nothing to do with the independence of my office.

If you have any doubts as to the independent status of my office, I would urge you to look at the airline industry merger issue. I've made my position on this matter known and yesterday, I reiterated my views on the merger policy and stated clearly that the solution was to open the market up to competition. That's not the government's policy. Right now, it's not moving to open up the market. If I were not independent, how could I support a policy that differs from that of the Transport Minister? Frankly, I resent the criticism.

Mr. Pierre Brien: Getting back to my question about gasoline, you say that you have done some studies and that rarely have you found problems to exist. Generally, you've found that practices in this industry were not out of the ordinary. Is the Minister in fact disallowing your findings by referring the matter to another body for study?

Mr. Konrad von Finckenstein: When we receive complaints, we launch an investigation. If we find evidence of a problem, we take the necessary corrective action. In eleven instances, we found evidence of a regional or local conspiracy, and we have looked at other cases. Currently, we are examining a case in Sherbrooke, Quebec, where we have evidence of local price collusion. We'll have to wait and see how the courts dispose of this matter.

We've never found any evidence of a conspiracy on a national scale between the refiners, the wholesalers and so forth. If any evidence does come to light, we will take action against these parties. As Commissioner, I'm responsible for implementing the provisions of the act and the act clearly states that we need to have evidence. We haven't found any, even though we have all of the tools we need to gather data.

Mr. Pierre Brien: Are you not concerned about this? I can quote you two sources. Two sets of numbers caught my attention. In a study conducted by Liberal members using data collected by the International Energy Agency, a sampling was done - I'm not sure of the extent of the sample done by Liberal members using natural resources date - and when a number of US and Canadian markets were compared, a difference of a few cents in the duty free price was noted. I believe the difference was 5 cents in the Liberal study. Looking at a ten-year period, we found a difference of 3.7 cents in markets which were quite similar in certain respects. When we consider the heavy concentration in the country and the power of refiners-distributors, which are integrated businesses, we're left with the impression that through various businesses practices, they end up having a dominant position on the market. This isn't healthy for competition.

The Liberals were the ones who conducted this study. We arrived a more or less the same conclusions. You won't necessarily receive a complaint from a consumer about this situation. Why aren't you able to study this facet of the industry and explain the price gap, which has continued to average about three, four or even five cents a litre over a period of ten years? Do you not feel that the industry has a problem?

Mr. Konrad von Finckenstein: My job is not to say whether I believe the industry has a problem. If you ask me whether all is well with the gas market, I won't give you an answer one way or another. That's not my job. My job is to conduct investigations and to determine if the terms of the Competition Act have been violated. If that's the case, then I take action against the guilty parties. That's what I do. When complaints are lodged and when someone suspects a party of wrongdoing, I can launch an investigation and take action. There may be any number of reasons why prices are too high or very volatile. It's not necessarily because the Competition Act has been contravened. When that happens, yes, it's my job to investigate.

• 0950

Moreover, as you know, OPEC is responsible for overall price increases. Ultimately, we're dealing with international collusion, that is with a matter completely outside the purview of the Competition Act. We do not have the means to respond. Neither the US nor other countries for that matter can do anything to counter OPEC's actions. We realize that complaints have been filed. We realize that the aim is to increase prices, but there's nothing we can do. Our job is clear: to ensure compliance with the Competition Act and to prosecute those guilty of civil or criminal offences. When evidence is presented to us, we act accordingly.

The Chair: Thank you sir. Thank you, Mr. Brien.

[English]

Mr. Cannis, please.

Mr. John Cannis (Scarborough Centre, Lib.): Thank you, Madam Chair.

Mr. von Finckenstein and panel, good morning.

I had a different question, but I want to follow along what Mr. Brien just said. You mentioned in your statement earlier that integrated pricing is a provincial jurisdiction, that producers can refine it and sell it. That being the case, can we make sure this process is indeed competitive with respect to the country as a whole?

Mr. Konrad von Finckenstein: You see, the Competition Act is a law of general application. It doesn't apply to a specific industry. If you tried to make it apply to a specific industry, you would be stepping on provincial jurisdiction.

We are trying to make sure we have a pro-competitive market where the forces in the market play against each other and thereby produce the maximum efficiencies, provide choice to consumers, and produce innovation.

If you imposed rules in the Competition Act generally on behaviour—what you can do, the degree to which you can be a retailer, a wholesaler, etc.—you'd have to do it across all industries, not only gasoline. There would be a tremendous overhead burden on the economy, and you'd have all sorts of effects you may not want to have.

Mr. John Cannis: I didn't really want to focus on gasoline.

As you know, the privacy bill is before the House. You referred in your presentation to how things are moving internationally now, the speed, new technology, etc., and the mad e-commerce and the things that are with us today and are expanding by leaps and bounds almost on a daily basis. I want your comments on this privacy legislation.

Last night I was watching CPAC and I was listening to the policy proposals being brought forward by the Conservative Party. They're against this. They're saying we should not regulate, we should not interfere; we should just let the industry regulate itself. I want your view on self-regulating.

You also talked about cross-borders in your presentation. With Ms. Redman's bill on deceptive marketing, Bill C-438, there have been examples of more than just a scratch-and-win. Something occurs in the trade shows in Canada—in Toronto, Montreal, and what have you—where somebody fills out a form, and then a week or two later the individual gets a call and is told he's won a trip to Florida, for example, and “Just give us your Visa card for confirmation.” Then a couple of days later $1,000 U.S. is put on their Visa account. This actually happened a couple of weeks ago, and until that person noticed it and was able to get on the phone and in essence threaten what they were going to do, they weren't prepared to pull it back.

This cross-border activity or international activity, as you referred to in your presentation, has a global effect. Can this piece of legislation we have before the House do anything to address some of these concerns, in your view?

Mr. Konrad von Finckenstein: The privacy bill? I thought it had just received royal assent. Are you talking about another bill than Bill C-6?

Mr. John Cannis: No, Bill C-6.

Mr. Konrad von Finckenstein: Bill C-6 deals with protection of privacy. In this modern age of the Internet, there's a worry that you should be able to control certain information and protect a person. That really has nothing to do with competition. We are talking here about in effect basic rights of citizens that need to be safeguarded.

• 0955

A perfect example is health data. To what extent should it be available, and to what extent should it be protected? You don't want people to be able to access the data when they decide whether to hire you or not.

The e-commerce, as such, is the thing that worries me and worries others, in terms of the impact and how we enforce our laws. Very often the corporation may be in a foreign jurisdiction. That's why we support Ms. Jennings' bill or the idea of further cooperation with antitrust agencies, because in effect that's the only way you will get at these things, by having agreements with other nations.

They will probably be on the basis that there's a problem here with fraudulent sales over the Internet, and so on. The site is in your jurisdiction, but the victims are here. I'll give you the evidence, and you prosecute, and we'll do this in reverse if the site happens to be in Canada. Arrangements of that nature will have to be worked out.

The enforcement is going to be very difficult. The other question is where is the crime being committed? Where does the transaction take place if that site is in one country, the product is in a second one, the delivery is in a third, and so on? All these issues will have to be worked out.

As I say, I don't think anybody quite has their head around what the implications are. We see the first negative aspects in terms of misleading advertising, and credit-card theft and misuse. We asked Parliament to enact the telemarketing provisions, which you did, in order to deal with it.

Since long-distance charges are so low right now, most of the telemarketing is done across borders. There were all sorts of shops in Canada that were targeting U.S. citizens, and vice versa. Hopefully those provisions will allow us to deal with it.

But it is a worrisome problem, and I think the answer is international cooperation, and also, to some extent, standardization, making sure there are similar laws in both countries so that regardless of where you are, this activity is illegal and can be pursued.

Mr. John Cannis: From your experience, are you receiving that cooperation?

Mr. Konrad von Finckenstein: Yes, we're working very much on it. I spend every three months in Paris at the OECD working with other antitrust agencies to evolve common standards as to what is misleading, what a cartel is, what an anti-competitive merger is. We all approach it from a different philosophical mindset and look at similar remedies.

It's not an easy task, because there are different legal traditions and different views of economics. There's always the ghost of national champions walking around in countries, thinking we need to be big in order to compete, maybe having certain anti-competitive effects at home so that our companies can realize the price we're willing to pay, and so on.

Mr. John Cannis: Thank you very much.

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

Mr. Riis, please.

Mr. Nelson Riis (Kamloops, Thompson and Highland Valleys, NDP): Thank you, Madam Chair.

I want to tell you that your presentation this morning has been absolutely fascinating. You don't seem to be a terribly shy person to me, yet it seems to me the needs of your department are quite horrendous, and you made the case very clearly that, in terms of staffing, if there has been a period of deregulation, then a department that needs to be honed up into a fighting form has to be the bureau. So I think you'll find around this table a lot of cheerleaders for your efforts when you go to ask for some additional staffing.

That's just as a way of opening. There are so many areas to start with.

I don't mean to be offensive when I ask you this question, but to pick up from my colleague, the reputation of the bureau with the public is generally questionable at the moment. The Global Competition Review was not helpful. I suspect it probably just confirmed in a lot of people's minds a lot of the suspicions they've held. I'm thinking of the consumers and the gasoline issue.

Mr. von Finckenstein, can you explain to us, and to the public generally, what the problem is? When people are generally convinced there's price-fixing or collusion and all these sort of things with the oil companies, and as you say, following the law, you've regularly come out and said sorry, there's no problem, there's obviously a problem of perception.

I appreciate your explanation of the job you have and that you follow the letter of the law. Can you comment on that perception problem? I do think it is a perception problem, as opposed to your bureau not doing the job we expect it to do.

• 1000

Mr. Konrad von Finckenstein: It's not a Canadian problem; it's a worldwide problem. In every jurisdiction, you have the same issue. Whenever I meet with my international colleagues, whether they are British, American, or Australian, gasoline is a problem for everybody and exactly the same perception problem you mentioned.

One aspect of it is the volatility of the price. The price moves quite dramatically up and down as a result of the change in the price of crude.

Mr. Nelson Riis: Excuse me, sir, perhaps I haven't made my question clear—not to describe what the issue is, but why do Canadians think you are so ineffective?

Mr. Konrad von Finckenstein: I was coming to that.

It is also, as you know, a very well-advertised price, probably the best-advertised price in Canada, so consumers are acutely aware of it. They see the price rising in unison, and they come to the conclusion there must be a conspiracy here, otherwise there would be a differential price.

It happens to be a very homogeneous product. There's no difference at all whether you buy the gas from Esso or Shell. It's purely driven by price. There's no differentiation whatsoever between the various products. So it's only the price, and it's rising higher.

The fact is, it's also an industry that posts its prices. So the price information that is going on in the industry is about as readily available as it can be. Therefore, for companies to move in unison is no problem, and that's what they're doing. It's conscious parallelism.

The margins for the retailers are relatively very small. If there's an opportunity to raise the price and increase your margin and one person does it, everybody follows the leader. This is the behaviour that consumers see, and they say there has to be a conspiracy. So far, we haven't found one. That's all I can say. I have not found one, notwithstanding extensive investigation, millions of dollars spent going through thousands of documents, putting people under oath, searching and seizing documents, and doing everything.

Mr. Nelson Riis: So is the problem that consumers are just not too bright? The way you describe it seems to be fairly clear, yet there's this gap of perception between the public and your public utterances on this issue. I'm curious to know why there's such a gap.

Mr. Konrad von Finckenstein: It's not that the consumer isn't bright. The consumer is puzzled by it, truly puzzled. We probably haven't done as good a job as we could in explaining it, which is part of the reason the Minister of Industry has hired a public policy firm. Maybe they can do a better education job than we can.

There's the second, unrelated, problem with it, which is the plight of the independents. The share of independents has remained the same. The number of independents has gone down, because you need a certain support in order to stay profitable, and a lot of them have not.

Secondly, even if you are in the business of retailing gas, you actually make your money on cigarettes, chocolates, and Cokes, not on gas. Those who have not seen that and have tried to make some money on gas are hopelessly losing their money. You have to have a convenience shop beside it. The gas is there to get the customers to stop and buy the gas. It carries itself, mainly, but your profit margin comes from the convenience store.

Mr. Nelson Riis: That's interesting. Thank you very much.

In terms of your comments, I'm thinking of Mr. McTeague's earlier intervention regarding the Global Competition Review and those who were participating in the review. One group that was conspicuously absent from that review was the consumers.

When you go out across the country seeking input from the stakeholders, I assume that the consuming public will be playing a major role.

Mr. Konrad von Finckenstein: Absolutely. By stakeholders, I mean everybody who has a stake in competition, which is basically every player in the economic field, including the consumers.

Mr. Nelson Riis: Would you agree that in the review itself that you referred to earlier, the consumer's perception or the consumer's view was absent from that evaluation?

Mr. Konrad von Finckenstein: They don't make clear who they have consulted, but from the answers, it seems to me they have primarily consulted the bars in the various countries—the competition bars, I should say.

Mr. Nelson Riis: Yes.

• 1005

I'd like to go back to the point in your presentation where you say that one of the concerns you have, of course, is the speed at which transactions now occur and therefore the need for haste in terms of your bureau being able to act. As well, you mention that with the globalized economy you have to work out arrangements with your colleagues from the antitrust agencies in other jurisdictions. You mention that you meet every three months.

To me this seems to be rather slow. If we're going to come to grips with this, we have to really place a much higher priority on this international cooperation. Do you see it taking place adequately at this point in terms of attempting to catch up, I guess, with the globalized markets?

Mr. Konrad von Finckenstein: International negotiations by definition are very slow. The Uruguay Round on the WTO took seven years to complete. The Kennedy Round took four years. The FTA was negotiated in two years, which was at almost record speed for an international agreement.

I was very hopeful that the next WTO round would be launched in Seattle and that competition would be one of the subjects of negotiations. As you know, the whole round didn't get off the ground, and competition also did not get off the ground.

We had extensive pre-Seattle negotiation discussions. It became clear that the developed nations are very much on top of it. For the undeveloped nations, they look at competition as a rich man's luxury that they can't afford yet. Therefore, a considerable education job needs to be done at the same time.

In terms of speed, you most likely will see developments on the bilateral level rather than the multilateral level. For instance, that's why the Americans have right now in their law a provision that allows for the exchange of civil information with others nations who have reciprocal legislation.

One of the things I would like to see—and this is really my number one priority—is a provision in the Competition Act allowing me to enter into such an agreement with the Americans so that we can exchange that type of information.

Mr. Nelson Riis: That provision doesn't exist now, but obviously it would be one of the provisions you're seeking.

Mr. Konrad von Finckenstein: Yes.

Mr. Nelson Riis: Excellent.

You referred to the “merger mania”—I guess that's the popular term—that has made your job that much more challenging. Can you give us an idea of the extent of mergers occurring in Canada vis-à-vis some of the mergers occurring in some of the other major nations? Is our rate of merger greater or less than some of our major competitors'?

Mr. Konrad von Finckenstein: My colleague, Gaston Jorré, is the senior deputy for mergers, so I'll let him answer the question.

Mr. Gaston Jorré (Senior Deputy Commissioner of Competition, Competition Bureau, Department of Industry): I think the answer is that this wave is taking place just about throughout the industrialized world.

Mr. Nelson Riis: No more in Canada than in other countries?

Mr. Gaston Jorré: It's taking place on a vast scale in the U.S. as well. The people who do the same functions in the United States are being equally overwhelmed with work. It's taking place in Europe. It seems to be a worldwide phenomenon.

To give you a sense of the scale, in terms of notifiable transactions, in the fiscal year that just ended, we have, broadly speaking, twice as many as there were about five years ago. So it's a very major wave that's taking place.

Mr. Nelson Riis: You may not be the person to respond to this question, but—

The Chair: Last question, please.

Mr. Nelson Riis: Is it ten minutes already?

With regard to the concentration that occurs in an economy as a result of mergers and takeovers, how does the level of concentration in Canada compare with some of the other nations with which we trade? Particularly, could you make a reference to the newspaper sector?

Mr. Gaston Jorré: In terms of the general part of that, perhaps the best comparison would be with the U.S. I'm not talking newspapers; generally, concentration levels in this country have historically been higher, and they still are higher.

I'm not sure what the comparison would be if you went into different countries in, say, Europe. I'm pretty sure their concentration levels would be higher than the levels in the United States. In general, then, we've historically been higher and we are higher than the U.S.

In terms of newspapers, certainly it is more concentrated than in the U.S. I'm not sure I could give you any numbers, but there are more players in the U.S. market.

• 1010

Mr. Konrad von Finckenstein: In terms of newspapers, of course it's not an open market. We have ownership restrictions in Canada. Therefore, they undoubtedly contribute to the concentration. Whenever you have ownership restriction in an industry, whether it's newspapers, whether it's telecommunications or broadcasting, etc., you're likely to have fewer players in the market than if you have unrestricted access.

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

Mr. Lastewka, please.

Mr. Walt Lastewka (St. Catharines, Lib.): Thank you, Madam Chair. I have a few questions.

I want to get away from just talking about the Competition Bureau from the policy standpoint and so forth to recognizing—and I think Mr. Riis was getting at it a little bit—what the Competition Bureau is, to publicizing it, to it being known to Canadians what it is or what it isn't.

It would seem to me that no matter what the prices are for something, as soon as they go up a bit it's then put on to the Competition Bureau that obviously you're not doing your job. But when you ask people, when you talk to people concerning about what they think the Competition Bureau does, they don't have any understanding of it—or very little. I have not seen too much advertising, I'll call it, from the standpoint of explaining to Canadians what your job is and what it isn't. Could you comment on that?

Mr. Konrad von Finckenstein: Yes. I see my job not purely as enforcement but very much in terms of educating or informing Canadians and players in the economy as to what are the rules, how they work, and what we do. My goal is that there will be compliance with the act rather than me having to enforce it.

Part of it is also general public information. If you go to our website, you will see that there is an extensive literature on what we do, how we do it, etc. We issue a whole series of pamphlets and information booklets, etc., on what we do. I also personally go around speaking to basically anybody who invites me to explain what the Competition Act is, and so do my colleagues. We do a lot of interaction with the universities in terms of suggesting that they should have courses in competition, as people who study commerce or economics need a grounding in competition.

That being said, you're right that there is, unfortunately, not an appreciation of what competition is. It very often gets confused. Our job is to ensure that there's a competitive market. That very often gets confused with protecting competitors. Therefore, when a company is in financial difficulties or goes out of business, there is confusion that it is our job to step in there and rescue them. That is not at all our job. That's part of a normal economy. It's only when it's occasioned by anti-competitive acts of their competitors that we have a role to play. This is a very time-consuming, labour-intensive, resource-intensive activity. We spend as much as we can on it, but there's a long way to go.

Mr. Walt Lastewka: The more global we get and the more mergers that happen, where we're all being touched on almost an ongoing basis, to me it would seem that some of your future efforts need to be put into play to have more Canadians involved on what your job is and what it isn't.

Mr. Konrad von Finckenstein: I agree absolutely. In the three years since I've been appointed, I think this is now my sixth appearance before you. You have spent an awful lot of time and effort on the Competition Act and have done much to publicize the Competition Act and the importance of it. The various private members' bills have drawn attention to the Competition Act. I expect the consultation that we will now hold will, to a large extent, publicize what the act does and doesn't do.

One of the reasons we hired the Public Policy Forum to do it rather than doing it ourselves is that it is the only forum I know of that brings together leaders from academia, from business, and from the government. It has a huge reach. It will hopefully be able to bring into the consultation all sorts of stakeholders that normally don't get involved, and that will therefore advertise and inform Canadians about the positive effects of competition if properly administered.

Mr. Walt Lastewka: I want to go back to the topic of the Conference Board of Canada. I realize that there were previous studies done in the gas-pricing situation and so forth. It's always the petroleum industry saying there's a conflict or the independents saying there is a conflict or consumers saying there's a conflict. How independent is the Conference Board?

• 1015

Mr. Konrad von Finckenstein: The Conference Board is a non-profit organization. It has its own board of directors. Their own board of directors, of course, has members from various bodies, including members from industry. Mr. Mercer, here, who has been very actively involved in the discussions with the Conference Board, can probably shed more light on it.

Don.

Mr. Don Mercer (Assistant Deputy Commissioner of Competition, Amendments Unit, Competition Bureau, Department of Industry): Thanks, Konrad.

Thank you, Mr. Lastewka.

The Conference Board does its research entirely independently from its board of directors. There's actually one oil company on their board, Syncrude, which, as you know, is the tarsands company.

They are fiercely proud of their independence and will run a fully independent operation. Their members, which include major oil companies and so forth, are entitled to member services. They get data streams from the Conference Board and they attend conferences put on by the Conference Board, but they have absolutely no influence on how the research side of the Conference Board conducts its work. That is one of the reasons we were happy to go with them. They are fiercely proud of their independence.

The Chair: Thanks, Mr. Lastewka.

Mr. Schmidt, please.

Mr. Werner Schmidt (Kelowna, Canadian Alliance): Thank you very much, Madam Chair.

Thank you very much, Mr. von Finckenstein and officials.

I want to commend you for a couple of things. You made a big point about how independent you are, and you also are going to now go to various stakeholders and look at the Competition Bureau. After all of this discussion and this comparison and stuff between this Competition Bureau and another country's Competition Bureau, I've become somewhat concerned that all we're doing here is talking about what is now, almost looking backwards as to what has happened and how successful you've been; it's all historic information that is being consulted.

I'm just wondering, with the change of pace that's taking place, both internally here in Canada and internationally, whether that is going to produce any kind of result that's going to give us any sort of forward-looking principles and directions, because the marketplace is, in my opinion, the issue. How do you define the marketplace? How do you define what competition is? How do you in fact assure that there will be competition?

It's no accident that mergers are taking place. There's a reason for these mergers happening. It's not just happening because somebody thought it'd be a good idea to have a merger. There's an economic reason for this happening. The marketplace is changing.

Let's say you had an absolutely blank sheet and you had to give advice to the government on how you could develop a marketplace that would in fact assure competition, that would make sure that the government didn't mess around with that place, but rather created an environment in which business can in fact operate, apply its capital, be competitive, and that there be some fairness in this place: what kind of bureau would you set up?

Mr. Konrad von Finckenstein: That's an interesting question.

Mr. Werner Schmidt: With all due respect, it's not a facetious question.

Mr. Konrad von Finckenstein: No, I understand that.

Mr. Werner Schmidt: It's a very serious question.

The Chair: I think he's going to answer your question.

Mr. Werner Schmidt: Thank you.

Mr. Konrad von Finckenstein: As I mentioned earlier, you really are asking two questions. Number one: what is a market and how do you deal with it?

Mr. Werner Schmidt: That's right.

Mr. Konrad von Finckenstein: That one is the key question in antitrust. It always is. It's becoming more and more difficult because the market becomes at least North American if not global, and therefore we're all driven to the same thing. Let's say for argument's sake that the market is North American. But of course we look at the impact on the Canadian market and the Americans look at the impact on theirs.

That's why, in the first part, I said that my number one priority is that I think we need to have international cooperation. We need to have the ability to make meaningful agreements so that we can in effect split the task and it is carried out where it makes most sense.

We all have the same aim, by and large. We want to ensure a competitive market. We want minimal government regulation. We want to make sure that the economic players have the maximum freedom to move so that they can produce the greatest efficiencies.

• 1020

That being said, everybody will agree on that principle, but the problem is when you try to nail it down. We spent two years in Paris making an international declaration on cartels. You would have thought a cartel is pretty axiomatic: it's bad; you don't want a cartel, etc. It's still difficult trying to nail down what is a cartel and what's not, and such issues as boycott. Is boycott a cartel activity or not? I would have thought yes, it is, but there were some European nations that raised major issues on whether boycotts should be included.

So all that being said, first, we need the capacity, but then comes the next part, which is agreeing on some norms. We will get there. I'm convinced we will. And I think the model we will use is what's happening in intellectual property, where you in effect have an international standard on what kind of intellectual property protection members should offer in terms of patents, in terms of copyright, in terms of trademarks, etc. Then it's left to each individual nation to decide in accordance with its own judicial histories, tradition, and means, how to enforce it there. You will have certain horizontal standards, such as non-discrimination, fairness, etc. And you will have a dispute settlement as to whether you've actually implemented it—not your individual intentions, but did you live up to your treaty obligation to provide this kind of protection?

So if you translate it to antitrust, you would say we all agree there should be merger review or there should be anti-cartel activity. And if there is anti-cartel activity each country will provide for meaningful enforcement by way of...and you specify such. Then each country decides what that means in its context, etc. That's where I see us going, etc.

What is the best Competition Bureau to run it is, I suppose, your second question. How do you structure it? There are three models. There's the Canadian model, which is an independent agency that's part of an economics ministry because competition is considered to really be a tool of economic micro-policy and therefore that's where it belongs. You have the other model, which is essentially the one that's followed in Australia and the United States. Actually, the United States has both. They have the Canadian model because it's in the DOJ, but they also have an independent commission called the FTC, the Federal Trade Commission. So you have an independent body doing it and you can have a certain model where it becomes essentially a body that not only does the investigation but a decision-making body that renders the final decision. So you have both the investigation and the adjudication in the same body subject to an appeal to a court.

We've looked at all three models. All models have pros and cons. Can our model be improved? No question. But is it necessary to do radical surgery or incremental? Frankly, it's something we're still struggling with. There's a lot to be said for having an independent body, but there are some difficulties with it.

Also, the question other nations have addressed that we haven't addressed is do you want an override, a national interest override that allows you to not follow strict competition because for whatever reason this is a case where an exemption is required. How do you invoke it? Who should invoke it? We don't have it. The Americans don't have it. The Europeans basically all have it. The Australians have it. That's a very important question. In principle, I think it's appealing. In practice, is it going to be abused? Is it going to be subject to immense political pressure, etc? Those are issues that need to be addressed.

As the market becomes increasingly large, there comes the question of whether you need a certain bulk to compete in that market. For the bulk, in terms of strict competition and looking at the Canadian market, etc., you'd say no, that doesn't make sense. If you say it's really an international market, you could make an argument that the bulk is necessary; it's the cost of.... I personally don't believe in it, but there are some very strong advocates of it, and that's why I say those are issues that need to be looked at.

• 1025

I'm sorry, it's a very difficult question, and there's no clear-cut answer to it, at least in my mind.

Mr. Werner Schmidt: I'm sure that there isn't a clear answer at this time. I think what I'm really trying to get at is that to look at existing models elsewhere in the world, or with other countries, I think is necessary to do, but at the same time, if we want to model a new thing after something that exists already, I think we're going to be in a lot of trouble, because I think we have two conflicting views that are coming.

On the one hand, we have the increasing bulk that has to take place in order to deal globally. And on the other hand, with the compression of information that's now possible, especially with the third generation of wireless Internet connections, which are just beginning to take place, probably bulk will decrease immediately where you can almost have individual interaction almost instantaneously, and a whole new set of variables are going to come into place, and a whole new way of looking at this. And the old models won't even apply. They won't even deal with these variables.

So the question I have is a very serious one, because to define the market in terms of the old variables that are operating won't work. We have to look at a whole new way of looking at that marketplace. Yet the old market is going on at this time while this new market is developing and there's a bit of an overlap. But it seems to be that if you're really going to build a good Competition Bureau, it must be able to deal in both of those areas. And I don't think any existing models are going to deal with this new market that's developing.

Mr. Konrad von Finckenstein: You're absolutely right. The new economy has several features that are very worrisome. It is, in effect, a network economy.

Mr. Werner Schmidt: It is.

Mr. Konrad von Finckenstein: And whoever controls the network can use his dominant position. Or you have several networks, etc. So there's a huge degree of interconnectivity and interdependence that's being created in the new economy, and how can you assure competition with it?

The other thing is that the intellectual property rights are becoming increasingly important. By definition, they restrict the use of certain property. We have, for instance, issued in the guidelines how we see those two can interact in an intellectual property regime and a competition regime, because it seems to me that's going to be one of the key questions we're going to face and we're going to increasingly face.

So we are looking at these issues very much. What I dealt with today are the problems I see staring me in the face. But that doesn't mean that I haven't got my eye on the future and that we don't have to address those. In all prognosis at this point in time, the shape of things is not that clear.

Mr. Werner Schmidt: I appreciate that. But every once in a while I think we have to do a leapfrog. We don't have to have a straight-line projection in progress. I think there comes a time when you have to actually jump, and I'm particularly concerned about exactly this happening, because I think Canada can be a leader.

When I talked to some of these people who are in the electronic developments, especially in the wireless electronic developments that are taking place now, I believe the economy of Canada can become a leader in that area. If we expect and anticipate that your bureau is going to carry on the way it is now, I think it probably should be ambitious enough to actually go out into a whole new area and cast about and do something altogether new and different. And I don't think it should wait very long. I think you should be starting on it now and actually get busy in doing it.

Mr. Gaston Jorré: I wonder if I could add something that may help you.

When you do a competition policy analysis and you have to look at what is the relevant market, that's a question of fact, and it's not something that's fixed in time. You have to look at, in fact, what is the market, given the current way business and technology is structured. So when you look at what is the relevant market today, that can in some areas be very different from what it was only ten years ago, when the Internet wasn't there. So within the law, there's a great amount of flexibility in some ways in dealing with parts of the evolution anyway.

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

Mr. Werner Schmidt: Yes, but I think the definition of property itself is going to be an issue. I wasn't going to raise this question, but I will now because of what you've just said.

The Chair: You'll have to wait.

Mr. Werner Schmidt: And the point is the intellectual property definition I think is going to have to change.

• 1030

Mr. Konrad von Finckenstein: Intellectual property is considered property for the purposes of the Competition Act. It is a good, and the definition of “good” is large enough to take in intellectual properties. There is actually a—

Mr. Werner Schmidt: You have to be careful.

Mr. Konrad von Finckenstein: You're absolutely right.

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

Mr. McTeague.

Mr. Dan McTeague: Thank you.

Mr. Jorré, you made some very interesting remarks concerning a word I like too. There are a number of qualifiers in the Competition Act specifically dealing with section 92 in the mergers. About market definition in part III, it's stated that in general, a relevant market is defined as

...the smallest group of products and smallest geographic area in relation to which sellers...could profitably impose and sustain a significant and nontransitory price increase above levels that would likely exist in the absence of the merger.

In that context, the bureau considers a 5% increase to be significant. Is that correct, more or less?

Mr. Gaston Jorré: Yes.

Mr. Dan McTeague: I'm reading from Nozick. Obviously that's a dated book.

My concern right now, and having gone through the experience some time ago with this committee and others of looking at the gas industry and expanding to the much broader issue of “all roads leading to Rome” in terms of the Competition Act, I'm wondering.... And perhaps this is a more general question to all of you here today. We discussed a little earlier the issue of the varying differences in those who advocate before the bureau and, more importantly, before the tribunal.

As you know, right now you're involved in a rather interesting battle on the question of Superior Propane, the merger application. I think you have wisely chosen to suggest that this does not represent good public interest, that there is no real—I guess the argument may be able to question it—substitution. Can you tell me, in instances like that, do consumer groups, do private parties or perhaps individuals who might be affected, have any voice before the tribunal? Have they legal advocates who are taking up their cause, as they might do in a similar situation in the United States where there might be a similar merger?

Mr. Gaston Jorré: You certainly can't have what you have in the United States, which is private antitrust lawsuits on a vast scale. A private party cannot be a party to our actions. They can seek to intervene, and be heard and express their views, but they can't have the full standing of a party.

Mr. Dan McTeague: Right. I ask that because my proposal in Bill C-472 encompasses a very limited right of access before the tribunal.

My overall concern, however—and given my earlier remarks—is with respect to this review being conducted by, for, and with the consent of people who have obviously vested interests, as compared to the United States, where there is a very strong antitrust body. Not only that, but there are groups such as the American Antitrust Institute.

A number of people who tend to be at the forefront of changes to competition, or reflections on relative competition jurisdictions, tend not to be simply the people who are the lawyers representing particular clients. So how effective could my bill be if individuals do not have recourse to effective litigation on their behalf before the tribunal, given that—and for reasons that Mr. von Finckenstein had suggested earlier—we don't have contingency fees in some provinces of Canada? How is it possible for us to avoid what's stated on page 9, that “In today's innovative economy, speed counts and a complainant may well have gone out of business before a case can be heard and a remedy ordered.”

These are things I talked about in Bill C-201. They have led to the much wider consideration that if we have a bar that is slavish to one particular group and is steadfast in their determination to maintain the status quo—as written in 1986—how can any change that I make to the Competition Act that might be successful through the government be successful if the advocates tend to be universally one-sided?

Mr. Konrad von Finckenstein: Not quite so fast.

Mr. Dan McTeague: I'm jumping a few rungs, but I think it's important, because I know we're going to get there sooner or later.

Mr. Konrad von Finckenstein: First of all, we've hired the Public Policy Forum so as to make sure that the widest possible group of stakeholders are consulted, not only lawyers, so that the government has the best view from everybody concerned.

Secondly, the provision that is in your bill right now regarding private access would allow companies to take forward those cases that fall within 75 and 77 and which are of most immediate concern.

In terms of mergers, which you were talking about, when we take a merger case, first of all, when we examine it we talk to everybody who is affected by the merger, including consumers. We take their views into account in deciding whether to challenge a merger or not.

• 1035

When we challenge a merger, an interested party can ask to intervene. The court will allow them to intervene if they have anything to add to the issue in dispute—i.e., the merger and the effect of it. If it is just general outrage, of course they won't, but on the whole the Competition Tribunal has been quite liberal in its interpretation of what interventions it will allow or not.

Now, intervening is not cheap. It is costly. You need counsel, etc. Unfortunately, consumers' associations, by and large, are underfunded, so there haven't been very many. It's not a structural defect; it's a resource issue.

Mr. Dan McTeague: That's an excellent remark, Commissioner. I guess my concern is amplified by the recognition that those who might take a different position from those who had a vested interest might not have the same resources to advocate a particular point, notwithstanding changes that might be made to the Competition Act with respect to a limited private right of action.

I'm concerned, generally speaking, that members of Parliament, for instance, may not have the horsepower, as they do in other jurisdictions, to suggest changes through a variety of confluence of information—the kind of Competition Act that ensures there's a level playing field.

I'm not suggesting that the American model is the level playing field, but I recognize that the ability for somebody to get adequate representation is based on cost. If you're about to be eliminated or your business is not going to be very successful, as a result of what might or might not be an anti-competitive act, is there truly a level playing field, notwithstanding my private right of action before the tribunal? Will the individual have the ability to make the same argument as some of the large corporations here, who are traditionally well recognized...well versed and well steeped by their own membership, with respect to work on the Competition Bureau in the past?

Mr. Konrad von Finckenstein: In any lawsuit that takes place between two parties, the resources available to one litigant vis-à-vis the other may have an impact on it. That's unfortunately part of the world we live in. I can't change that. But we are suggesting the rules be changed so the disposition is as quick as possible and the areas for delay are as small as possible. Also, companies that feel they are affected and have genuine griefs but cannot convince us to take the cases, for whatever reasons—or we may have differences of opinion—will get opportunities to argue them for themselves. I think that's the best you can do.

Mr. Dan McTeague: Thank you, because that's exactly what I thought under the circumstances. I'm just worried about the scenario.

I believe, Madam Chair, you'll remember that my very last comment on C-201 was my fear about Bambi versus Godzilla, in an environment where the litigants and those who understand this act can interpret it many times around. I understand you have to enforce the act that is there. We, as parliamentarians, have the ability to ensure there is that return, perhaps, or the greatest measure possible of a level playing field.

Perhaps I could just suggest something here, by way of a final question. If this is the first step we take, in terms of looking at where we go on this, one of the things that could be considered is to recognize the relative imbalance that exists between a private individual and someone who has unlimited resources. We should also consider ways to ensure that your department has the resources, so even where a private right of action may not be successful, at least the greatest modicum of protection to the consumer—that's really important here—as opposed to those who have particular vested interests that do not necessarily equate to the public interests of the economics, is indeed considered.

I realize you're in the very difficult position of answering questions like that because you're simply enforcing the act; it's there. You can suggest certain things, but if we, as your legislators, aren't picking up and smelling the proverbial coffee, we will wind up with an act and an enforcement that may not be able to meet the demands of a changing economy.

Mr. Konrad von Finckenstein: That's a statement you've just made, not a question, so I don't think it's necessary for me to comment.

• 1040

Mr. Dan McTeague: Thank you.

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

[Translation]

Do you have any further questions, Mr. Brien?

Mr. Pierre Brien: Still on the same subject, you are responsible for enforcing the act. However, do you think the Competition Bureau should be more proactive, even if this means increasing its resources? Getting back to the subject of gas prices, shouldn't you be assigned a much broader mandate than that of merely investigating possible offences? Shouldn't you be conducting your own study of an industry that is fairly concentrated, compared to what we see in the United States, for example? Given your resources, could you not take on this added responsibility?

Mr. Konrad von Finckenstein: Possibly we could. You've asked two questions. Firstly, is my agency in the best position to carry out this study or should this task fall to other organizations? Should an organization like ours, the primary responsibility of which is to conduct investigations, the best choice for doing some in-depth research?

Secondly, specific provisions in the act allow agencies to carry out an in-depth study of the industry, not because the provisions of the Competition Act have been contravened, but because certain questionable things have happened, people don't know how the situation is evolving, they want a study done and recommendations made. The Canadian International Trade Tribunal is not authorized to conduct investigations at the behest of the Governor in Council. All of this investigating takes considerable time and resources, and I think that as a general rule, it's preferable that this not be done by our bureau. Investigators perform a different function than the people who do studies. We don't want to confuse the two roles.

With respect to gas prices, I'd like to be able to address the tribunal or this agency and relate how things are happening and that while the act has not been contravened as such, the actions taken could have serious negative implications for the future. The time has come to do an overview of the current situation and to make some recommendations.

No doubt, as members of Parliament, you can take these matters into consideration and propose some changes.

Mr. Pierre Brien: I have another question about something entirely different. For some time now, I've noticed -and this is true of many private members' bills - a trend to wanting to further safeguard consumer interests and to use the Competition Act to achieve this objective. Recently, we considered draft legislation on unwanted solicitation, such as lotteries. The trend seems to be to want to broaden the scope of the Competition Act.

Naturally, consumers are protected by the Competition Act, but I'm concerned about efforts to broaden the legislation's scope to turn it into some kind of consumer protection legislation. Quebec, for example, has consumer protection legislation on the books. Recourse is available and a monitoring agency has been created. Increasingly, we get the feeling that the federal government wants to protect consumers. The day will come when we have two separate pieces of legislation designed specifically to protect consumers, whereas as I understand it, your job is to monitor competition.

Mr. Konrad von Finckenstein: You're quite right. We are not a consumer watchdog organization. The Competition Act was not designed to protect consumers. Its aim is to ensure a competitive marketplace.

The key to a competitive marketplace is ensuring that consumers, as economic agents, have access to accurate information so that they can make enlightened decisions.

• 1045

Certain provisions in the act are geared to consumers. They concern misleading advertising and telemarketing. Their purpose is really to protect consumers, not in so far as decisions as such are concerned, but so that they have the necessary information to make an enlightened decision.

I too am concerned about the trend that seems to have emerged toward transforming the Competition Act into consumer protection legislation. I don't want to see us head in this direction. In my opinion, the act must continue to be legislation aimed at ensuring that competition prevails in the market. That is, and must continue to be, my primary objective.

Mr. Pierre Brien: Fine, thank you.

[English]

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

Madam Jennings, please.

Ms. Marlene Jennings (Notre-Dame-de-Grâce—Lachine, Lib.): Thank you, Madam Chair.

Thank you, Mr. von Finckenstein. I apologize for not being here when you made you presentation. Unfortunately, I was detained in the House.

I understand you briefly touched on my private member's Bill C-471, in response to a question from my colleague, Mr. Cannis, regarding deceptive telemarketing practices.

I think you know my interest in the issue of globalization and information technology and how it's having a major impact on business practices here in Canada and elsewhere. A particular case involving florists sparked my interest in looking into the area of the Competition Bureau and what kinds of tools the Competition Bureau actually had, in order to collaborate and cooperate on the international scene on these kinds of civil matters that cross borders.

Have you already explained to the House what tools you have right now, and how my private member's bill can afford you with more effective and efficient tools, if that's what you think?

Mr. Konrad von Finckenstein: I briefly mentioned in my opening remarks that there were four private members' bills, including your Bill C-471. I also mentioned that international cooperation is my number one priority. We clearly live in an integrated North American market, and probably an increasingly global market.

We cannot administer the Competition Act appropriately without international cooperation, first of all with the Americans, but with other nations too. We have very good cooperation with them in criminal matters. We have the Mutual Legal Assistance in Criminal Matters Act and we regularly do joint investigations. We exchange data and have been quite successful in dealing with international cartels.

The same kind of exchange on the civil side is lacking because the American law does not allow them to exchange unless the Canadian law has reciprocal dispositions. Your act in effect introduces that. As I announced, the Minister of Industry believes the thrust of the four bills is correct and they would help; however, we are talking about a law of general application, and it would affect all industries, so such act would have ramifications.

We will be issuing a discussion paper next Tuesday that will have those four bills attached to it. It will basically suggest that we agree in principle with the thrust. We want a full-scale consultation. We've also hired three permanent policy forums. They will ask for submissions and then hold public discussions in seven different cities, to bring in as many stakeholders as possible so we can hear the views.

Clearly, we will talk about your bill there and about the need to exchange civil information. A lot of anti-competitive conduct is not outright criminal but is actually civil. Therefore, in my view, having this ability is absolutely essential so that we can deal with it.

• 1050

If we can exchange this information, the next thing that comes into play is really what antitrust agencies call positive commenting—i.e., we decide where the balance of the activity is taking place. If it's in the U.S., we won't fix it. If it's here, we will fix it. We'll make sure that there's a solution wherever it is crafted, that we both agree with it and that it applies to the entire market.

Ms. Marlene Jennings: Thank you, Mr. von Finckenstein.

As you said, under their legislation they can in fact conclude agreements with other countries in order to be able to exchange information on civil matters. Are you aware of any agreements that the United States has in fact concluded with other countries? Obviously that's not with Canada because ours doesn't permit it.

Mr. Konrad von Finckenstein: As we speak, they've only been able to do it with one country. That's Australia.

Ms. Marlene Jennings: How long ago was that? Do you have any information as to how that has been working?

Mr. Konrad von Finckenstein: It's within the last year that they have signed it. I do not know to what extent information exchanges have taken place on that.

Ms. Marlene Jennings: Thank you.

The Chair: Thank you very much, Ms. Jennings.

Mr. Riis, did you have any further questions?

Mr. Nelson Riis: Just a short one.

Commissioner, you've mentioned once again the public sessions that will be held in the seven cities and the discussion paper coming out in a few days. Can you indicate what you see the timeline being in terms of your investigation?

Mr. Don Mercer: Mr. Riis, perhaps I can answer that question. The Public Policy Forum will in fact be putting the discussion paper up on on their web. I believe they will do that on Monday. They're going to be putting out a press release explaining their process.

Under their contract with the commissioner, they have four months to start and complete this consultation. The first day the discussion paper goes out, there will be a solicitation of written commentary. After a period of 30 days, all that material will be summarized and they will then start the regional discussions in the seven cities. They will report to the commissioner by August 31.

Mr. Nelson Riis: I guess this raises a question; I wonder if we shouldn't be playing some role in this.

Mr. Don Mercer: You have a role. You are encouraged to have a role in this process. I believe that will be made clear by the Public Policy Forum in their announcement. You will be able to participate in these regional hearings and have your input.

Mr. Konrad von Finckenstein: Yes, like everybody else. More than that, whatever comes out of the process, obviously we will make it public. You can then decide whether you want to hold a hearing on it yourself, in supplement to your process.

Mr. Nelson Riis: Yes, we appreciate that.

Commissioner, in your judgment, what country has legislation or policy that's leading the way? I'm going back to the points Mr. Schmidt was making about the new economy dealing with the changing marketplace. Is there a country we'd look to for some guidance?

Mr. Konrad von Finckenstein: Various countries have features that I think are attractive. Overall, globally, I would probably say the most progressive one is generally acknowledged to be Australia right now.

Mr. Nelson Riis: Interesting.

My last question goes back again to the points Mr. McTeague was raising. In your recommendations, do you see changes coming to the legislation that would ensure that the balance you've called for many times, or what he referred to as a more level playing field...? Are there changes to ensure that consumers, with their restricted access in terms of financial resources, have a greater say in your decision-making process?

Mr. Konrad von Finckenstein: Consumers right now are consulted by us regularly when we have issues before us. What I see of the changes coming forward is to produce a more competitive system, a better system that, by definition, will benefit the consumer. As you know, the biggest problem is that there are so many of them and they are busy and not very well organized. Through the private access provisions and through the improvement to the tribunal process, we will allow consumer organizations or their representatives to, in effect, intervene at a crucial point in the process. They'll be heard and they will have another input so that the input is not only between the economic players but the consumers as well.

• 1055

If you have a more open procedure and more private access, undoubtedly consumer interests will get better. But the whole design of the act is not consumer protection, as I mentioned in answer to the question from the Bloc. The aim is to create a competitive system that by definition will have consumer protection. Consumer protection is really not a federal responsibility.

Mr. Nelson Riis: In terms of what you've described as where you see the bureau going, how does that differ from what happens now? You mentioned earlier that you make an effort to receive consumer input.

Mr. Konrad von Finckenstein: The Competition Tribunal is probably an underutilized tribunal right now because of limited access and because of costly and lengthy procedures. If the changes along the lines that we are suggesting are implemented, I think it will be used more often. It will be less costly and it will be quicker. Therefore, consumer agents will be less reluctant to participate and will have more opportunity to participate.

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

Mr. Penson.

Mr. Charlie Penson: Mr. von Finckenstein, there's been quite a bit of discussion this morning about where competition law may go globally. We've talked about the World Trade Organization. You have mentioned that the model that may be used is the intellectual property rights model. I have some concerns when it comes to that, especially when it gets into areas like genetics and how that's going to play out.

We've seen it, for example, in Monsanto, with the genetically modified seeds that are used by farmers. They control a certain gene and it's not available to the general public except through intellectual property protection. When it comes to the next step, the human side, how are we going to protect ourselves if one commercial company has that property right to human genetics?

Mr. Konrad von Finckenstein: Well, you're now outside of my brief. These are ethical questions; these are questions of how much you want to limit research into human genomes, etc. The first part of your question, on Monsanto, is the very point we are trying to address in our intellectual property guidelines. What is the interaction of the Competition Act?

The intellectual property laws by and large have two purposes. They give you a right of property in your ideas so that you can market them and you can get the financing. Since you did the intellectual work, you should reap the benefits. That's essentially it. That's for a limited period; after that, they become public goods. The period varies with the intellectual property you're talking about.

However, having been given essentially this time-limited monopoly to reward you for your rights, you should not be able to abuse it. The point is that if your intellectual property is one that is absolutely key, not only for the exploitation of your idea but if in effect there's a whole market behind it and you have the key to it, at that point in time the Competition Act looks at it.

What we look at first of all is how you market it, how you license, what you can do. We make sure your licensing is not done in a way that you're using it to lever yourself into other markets and you use unfair advantage that has nothing to do with your invention. Since you have that invention and people want to get at it, they're willing to pay that price. So that's the unfair leverage aspect.

The other one is that there are some rare instances where we say that because it's a key to a larger market and you're refusing to share it with anybody, you're holding up overall development. You've really wreaked havoc in the Canadian economy. In those cases, there is essentially an abuse of your power. You should be fairly rewarded for it, etc., but you should share it on fair terms.

Section 32 of the act allows us to go to court and make an application to that. This has never been done and it didn't have to be done in the past, but given the absolute importance of informatics and the way it's becoming key and the way industries are becoming networked, it may very well be that we'll have to do that in the future. What we are doing in those guidelines is trying to lay out what consideration we would apply.

• 1100

Mr. Charlie Penson: Would this be the type of discussion that takes place with your international counterparts in these meetings you're having?

Mr. Konrad von Finckenstein: We published on our website and we asked for input from everybody. We got a lot of input from our international colleagues. And yes, indeed, when we meet at the OECD, one of the key discussions is the network industry. How do you deal with them? How do you on the one hand foster them, because they can be extremely powerful and they have a sort of self-multiplying attack, and on the other hand avoid their becoming dominant or trying to lever themselves into other markets, etc.?

Mr. Charlie Penson: How would you assess the position you've been putting forward at the OECD or the WTO in these discussions? Is Canada leading the discussions, or are there countries that are pushing to define this more narrowly so that we can control if there is abuse of position?

Mr. Konrad von Finckenstein: I think, in terms of competition, there are five countries that are in the forefront: the Americans, the Australians, the European community, the Germans in particular, and us. We are the most vociferous members at the OECD generally. I personally am chairman of one of the working groups on international cooperation. I feel that's the area on which we really have to concentrate to make the Competition Act relevant in a globalized economy.

Mr. Charlie Penson: Thank you very much.

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

Commissioner, it's been a very interesting discussion this morning. There are a couple of areas I'd like to ask a few questions about that we haven't touched on yet this morning.

One of the issues that's been in the newspapers recently is the issue of newspaper concentration. I know that in the past several years you've had a number of reviews—I think three—in which you found there would be a lessening of competition and it would raise no other concerns. I'm wondering if you could explain to the committee or if you have any ideas on what you attribute this trend of greater and greater concentration in the newspaper industry to, and whether you could provide an overview of how the bureau looks at the issue of concentration in the newspaper industry.

Mr. Konrad von Finckenstein: I think my colleague, Gaston Jorré, who is charge of mergers, is best suited to answer that question.

Mr. Gaston Jorré: Thank you.

I might start first with how we look at newspaper mergers, and then perhaps we can come to your first question about what's happening.

The act is one of general application, so the basic principles and the basic approach we use with newspapers are the same as with any other industry. When you have a proposed merger of any size, it's going to be notifiable to us. The key test for us is going to be whether you have a substantial lessening of competition. What I'd like to do is just briefly outline the steps and then mention to you some of the characteristics about newspapers that are particular to that industry that come up.

[Translation]

Basically, we proceed as follows. Once we receive the notice, we attempt to determine which product markets are relevant and which geographical markets are relevant. I'll come back to this later in connection with newspapers. Next, we do a market share analysis in an effort to determine what the market share would be following the merger. Then, we consider other factors. For example, how difficult would it be for a new company to enter the market? Would the proposed merger mean the demise of a strong competitor? We examine a slew of factors. Finally, we collate the information and present our findings. We either support the merger, oppose it or suggest certain changes.

[English]

But newspapers have a number of specific characteristics. First, I would like to remind you that our analysis is essentially an economic analysis, so the focus tends to be on advertising. Now, why is the focus on advertising? The reason is that from a business perspective, the key product that comes out of a newspaper is an audience for the advertisers, which you are selling to advertisers, so that is where the core of our analysis will be.

• 1105

Broadly, you can say there are two kinds of advertising. There's image or national advertising. It tends to be to promote brand preference, as opposed to say a specific purchase at a specific point in time. You can contrast that at the other end with retail advertising, which may be an advertisement for a specific sale in a specific store at a location that is much more detailed and local.

Now, in the case of national advertising, newspapers tend to compete with other media—for example, magazines, and to some extent broadcast media. It may well be now that the Internet is a competitor. I don't know whether we've had to look at that in the past, but it's certainly something we would look at now.

When you go to the retail type of advertising, which is so much more detailed, newspapers tend to be a market on their own. They don't really compete normally with broadcast media or magazines, although flyers, for example, may be a source of competition.

In terms of geographic market, you look at what the relevant area for the advertisers is. So if you're looking at the retail advertising, it tends to be fairly local, which corresponds with most newspapers, which tend to be within a particular area. Image advertising, of course, is national. You have a couple of newspapers that are national—the Globe and Mail and the National Post, for example—but as I said, most of the others are quite local.

So what other characteristics do you have here? One thing, for example, is that you have a fair number of markets where there's really only one newspaper. If you have a change of ownership, that may have various effects on editorial policy or other things, but that's not going to change the nature of that local competitive market. You had one newspaper before and you'll have one after. You will, of course, have an issue if for example you had two newspapers in a market and the owner of one were to try to purchase the other.

Therefore, as such, the editorial content or the editorial orientation of a paper is not something we look at in terms of competition policy.

Coming to the first part of your question, about what's happening, there are already not a lot of players in newspaper markets, and because we have ownership restrictions on newspapers.... There are indirect restrictions there as a result of the Income Tax Act, which in section 19 denies the deductibility of advertising unless you meet certain conditions. In essence, those conditions result in the need for Canadian ownership, which is defined in a very specific way. You can't have foreign newspaper chains offering to buy papers here, so you have a very limited number of purchasers, unless a business outside of the newspaper industry were to suddenly decide they wanted to get into it. But we haven't seen any of that lately.

So that's an overview of the situation.

The Chair: You mentioned that you have no mandate with regard to the editorial diversity, and we recognize that. You also talked about advertisers and the type of advertising that takes place. Are there any other aspects of the newspaper industry that would require special consideration in your analysis of the competitive effects of a proposed merger? Is there anything else to add?

Mr. Gaston Jorré: I suppose one that is growing is that a lot of the newspapers are moving into the Internet, and I suspect that's going to change how we look at our analysis a bit, because they're one of the main sources of Internet information content and there are advertising markets there. We're very early on in terms of knowing how those markets work.

The Chair: I know Mr. Riis has a question on this, but just before I go to him, that leads me to my last question. Where does that leave the bureau, then? We know that the CRTC has jurisdiction and the bureau has jurisdiction, and telecommunications mergers don't require preapproval. So where are we heading? If we say that the newspaper industry is heading more into electronic commerce than into more of that type of media, are we heading for any type of jurisdictional issue or barriers or any type of conflict? Do we see any potential conflict down there?

• 1110

Mr. Konrad von Finckenstein: I'm sorry, did I hear you say that telecommunications mergers don't require any pre-approval?

The Chair: Under the Telecommunications Act.

Mr. Konrad von Finckenstein: Oh, under the Telecommunications Act.

First of all, for those mergers you notify us. They're pre-notifiable. We look at them, and the CRTC looks at them. It's in effect a dual approval process. We will look at it in terms of the relevant antitrust market effect, which may be, for instance, advertising, as my colleague pointed out. CRTC will of course look at it in terms of them and in terms of diversity of voices or whatever.

We actually have issued a document jointly with the CRTC outlining our interface and what their jurisdiction is and what ours is, because there has been a lot of confusion on the part of the industry as to where one stops and the other one starts and to what extent they overlap. That's on our website and the CRTC website.

But if you're talking about a broadcasting merger, we just saw the merger of CTV buying TSN. We looked at it, and we came to the conclusion that in terms of the licence—one had a regional licence, and one had a local licence—we didn't see that there was a major overlap. The CRTC looked at it and came to the conclusion that in effect it would result in CTV having too much of a monopoly in terms of sports news, and therefore it forced them to sell their Sportsnet channel, which is now taking place. This is the same issue looked at from different points of view and coming sometimes to the same conclusion and sometimes to divergent conclusions.

The Chair: So you don't see any potential conflicts or problems through the use of the Internet. I see the media moving toward the Internet, and I'm just wondering if we see any problems heading that way. We're moving toward electronic commerce. Do you think you have the tools to deal with that?

Mr. Konrad von Finckenstein: The CRTC may have a fairly large problem, because it's questionable whether it's under its jurisdiction. They had these new media hearings, and they came to the conclusion that, firstly, the new media should not be regulated, because essentially you can't regulate it. It's in development, and one wouldn't want to stifle it or drive it out of the country. Secondly, to the extent that it's not broadcasting, it doesn't fall under their jurisdiction. Whether or not it is broadcasting is a very wishy-washy boundary.

If there are mergers, undoubtedly we will look at the Internet and new media. But if we look at it in terms of concentration, at this point it has a huge number of players, and there haven't been any concentration problems. There may very well be. As I mentioned in reply to a question from Mr. Cannis or somebody else, the whole Internet and e-commerce issue causes us a lot of problems. From the enforcement point of view, it can be very difficult, because the deliverer of the product, the consumer of the product, and the market may all be in different countries. Hence, the need for international cooperation.

The Chair: Back to the newspaper issue, the chairman of Thomson Corporation, as we've already acknowledged, said that this is where the future is going to be. I'm just wondering what that means for the whole issue of newspaper concentration if we're moving into an electronic media and whether there are any issues with regard to your abilities or any potential problems you foresee or whether we can even predict what the future is going to be.

Mr. Konrad von Finckenstein: I think none of us can predict how it's going to shape out. There are various models, and people are betting literally millions of dollars on what is a proper business model for the Internet. What is the combination? Do you have to be in all fields, or do you concentrate on one niche? Is it necessary to have a large content, or do you specialize on content? Do you appeal to a broad audience, or do you appeal to a targeted audience?

The Internet allows you to be multifaceted and to target very small markets that before were not profitable. Is that a trend that is going to be used? Is it that there will be basically a series of four clicks? Most users will only go four clicks, and if it takes more than four clicks to find you, forget it; you're not there. Therefore, the AOLs of this world have a great advantage. You go on their site and everything is there. You can find it within four clicks.

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There are others who are saying that people actually want to.... If you are interested in golf and you want really specialized golf information, you're not interested in the generalized golf information AOL offers.

I think it's really too early to tell how this is going to work out and what are the anti-competitive aspects or competition aspects we will have to look at.

The Chair: Mr. Riis.

Mr. Nelson Riis: Chair, I just want to add to your questioning.

Minister, you mentioned earlier that the new economy is a network economy. Whoever controls the networks is going to control the economy. My single question is along the same lines of questioning.

We listened to Gaston describe the role of the Competition Bureau when it comes to newspapers. Is it possible, from the bureau's position, that someone like Conrad Black could own all the newspapers in Canada and that, if he structured his advertising policies and so on adequately, it would receive the support of the bureau?

Mr. Gaston Jorré: Imagine, for example, trying to own both the Globe and Mail and the National Post. With the kind of review we do, there would be very serious issues we'd have to look at. It's hard to imagine that you could have one owner of all the papers without raising issues, but you can own a lot of papers because there are a lot of markets where there's only one paper. Except for the Globe and Mail and the National Post, most of the papers don't really compete outside their areas. So you can probably have quite high concentration without having too many issues.

Mr. Nelson Riis: But we have many markets where there is only one newspaper today. Could we not have a country where there's only one newspaper?

Mr. Konrad von Finckenstein: In some markets.... Toronto is a perfect example. The Toronto Star tried to buy the Toronto Sun. We vigorously opposed it because we said it was the same market.

Mr. Nelson Riis: What about Vancouver?

Mr. Konrad von Finckenstein: It's the same in Vancouver. We had a case in Vancouver that went all the way to the Supreme Court where we forced Southam to divest one of the North Vancouver papers it had acquired.

Mr. Nelson Riis: But the two major Vancouver papers, The Vancouver Sun and The Province, are owned by the same person.

Mr. Konrad von Finckenstein: Yes.

Mr. Nelson Riis: North Vancouver, fair enough. Still, when you consider that they're both almost provincial papers, as well as the Greater Lower Mainland papers.... I know you stepped in to stop the North Vancouver deal, but that was a pretty bit player in that whole region.

Mr. Konrad von Finckenstein: It's before my time, so I can't tell you what the considerations were there.

As Gaston said, it's impossible to envision that one person would own all the papers in one-paper towns, in one-paper markets. From a competition point of view, you can deal with it in terms of national legislation prohibiting it or something like that. But purely from a Competition Act point of view, all the markets where there's only one paper could be owned by the same person. Unless it could be established that this dominance is being used in an abusive fashion to lever yourself into other markets, we would not have a competition problem.

Mr. Nelson Riis: Right.

Mr. Konrad von Finckenstein: As a share person pointed out, if the Internet becomes a separate outlet, then questions arise. Can the owner own both the Internet that serves that town primarily and the paper? Those questions will have to be addressed.

Mr. Nelson Riis: It would come back to the integrated operations like the oil companies, then.

Thank you, Madam Chair.

The Chair: Thank you, Mr. Riis.

I just have one final point. Earlier in your comments, you talked about cease and desist powers and what's happening in the air industry. Mr. McTeague talked about that as well. You've said several times what the mandate of the Competition Bureau is and the fact that you're there to protect competition. Does cease and desist not mean you're protecting the competitors, other than protecting competition?

Mr. Konrad von Finckenstein: No. With the cease and desist, you would step in because a dominant player has control of the markets. That's the way it's worded in the airlines right now. This is for section 79: where you have a dominant player. In this case you have Air Canada controlling 80% of all flights. If a dominant player has that power and there's another competitor trying to enter into it, they can compete with that new power, and they will, but they shouldn't compete unfairly.

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Airlines are the best case to illustrate it, so I'll stick to airlines. We're saying if WestJet comes in and offers flights from Hamilton to Ottawa at a certain price, let's say $300, and then Air Canada steps in and offers them for $250, we will look at it. If the avoidable costs of Air Canada are actually more than $250, then we would consider it anti-competitive, because there's no reason for them to do that other than to drive these other prices, and they're willing to take a loss over and above what it costs them for that flight.

You have a dominant position. It's not because of market share. You already have 80%. So your only reason to do it is to drive somebody out of business. And there we would step in. We'd issue the cease and desist, and then a court would have to decide whether we were right or wrong.

The Chair: I can understand where you're coming from when you say you'd step in. I'm looking at it from the larger viewpoint of what the role of the Competition Bureau is. If I understand Bill C-26, it's offering industry-specific types of provisions in the act—specific to the airline industry.

My understanding, when we were discussing the oil industry and other things at this committee in the past, was that we couldn't do it on an industry-specific basis. That was one of the major problems we had with Dan McTeague's original private member's bill. It couldn't be industry-specific, because that wasn't the role of the Competition Act.

I see what's coming in Bill C-26 as being industry-specific, and I'm wondering if that's the right direction for the Competition Act to be heading in, or we're heading in.

Mr. Konrad von Finckenstein: No, I'm not suggesting we go industry-specific.

Air traffic is by definition federal. The provision that is in the act could just as well have been put in the Canada Transportation Act as well as the Competition Act. It was put there because there is the commissioner, and the whole apparatus was set out in the Competition Act. So it was sought for simplicity and legislative consistency to put all the provisions regarding the Competition Act in that act.

What's in Mr. McTeague's bill is a general provision that applies across all industries. The question is whether it makes sense to have it for all agencies the way we do it for airlines. Airlines are a federal jurisdiction, and in airlines you have the dominance today. You know there is a major problem, because in the two-player industry, one player failed. Does it make sense to have it in other industries, and does it make sense to structure it alone?

It may very well be that as a result of this consultation, it's decided, no, it doesn't make sense to have it across the board; or, if yes, then it should be differently formulated, differently structured, because airlines are a very special case, where you're dealing with an immediate problem. If you do it across the board, it should be more attenuated, with more nuances, etc.

That's one of the things I hope will come out of the discussions the Public Policy Forum is going to conduct.

The Chair: But I thought that was the goal as well, that all industries were to be treated the same, that we're not to be industry-specific. I look at what's happening in Bill C-26 and I'm concerned that we're heading down a slope that we've already established the Competition Act shouldn't be heading down.

Mr. Konrad von Finckenstein: If the present bill that's before Parliament regarding airlines is passed, yes, you're going to have an industry-specific provision for airlines that you don't have for others, admittedly. And that breaks to some extent the consistency that otherwise is within the Competition Act. You are right.

As I said, you could have taken the same provisions and put them in the Canada Transportation Act, saying here we have provisions dealing with transportation, specifically three modes, and airlines have specific problems, therefore we've put in these provisions. That's a question of legislative convenience.

The bigger question is the one you raised. Do you want to duplicate what has been done for airlines—because the government sees a problem in airlines—across all industries, or not?

The Chair: I guess that's the other question. Are we then going from a role of prosecution, where you've done the analysis, to a role of judge and jury as well, where you offer temporary...? Well, temporary in the airline is not so temporary in electronic commerce. Eighty or ninety days is a long time in electronic commerce, versus in the airline industry.

Mr. Konrad von Finckenstein: First of all, it's twenty days, then renewable twice by thirty days.

The Chair: So it's eighty days.

Mr. Konrad von Finckenstein: Yes. But the person against whom the order is issued can appeal to a court on day two.

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Secondly, as I mentioned, a very big question is if you do take that provision and put it across industry, should it be a shorter period, or should there be an expedited procedure to go to the Competition Tribunal, rather than that we make the decision?

The whole thing is the issue of the abuse of dominance, where all the advantage is with the abuser who has a dominant market. To what extent can you put speed in the process that allows the issue to be addressed and prevents the person who has abuse of dominance to use his economic might to delay the process? How do you balance it?

Mr. McTeague has put forward one solution, and it may very well be that as a result of consultation we might arrive at a totally different one. All I know is that it is an issue that needs to be addressed. The way it is right now, the person who has the economic dominance and who is abusing has the advantage of delay on their side. They can use it in such a way that by the time the remedy arrives, it's too late.

The Chair: We'll wait to hear what that consultation process has to say. Obviously, we'll be a participant, if not an active player in it.

I have a final question. In the past number of years a number of fines have been been assessed to multinational corporations. For some of them, paying out a multi-million-dollar fine is just the cost of doing business. I'm not sure that some of the fines that have been assessed have been sufficient so that they are more than a licence fee. I'm wondering how you determine what the amount is they should pay. When I see some of the fines and we look at their revenue and their profit margin, I wonder where the deterrent is.

Mr. Konrad von Finckenstein: The fines are very substantial. They're the largest ever in Canadian criminal history. Nobody has ever collected fines like we have collected in the last two years. Also, they're not deductible from tax, so they're a direct hit on your bottom line.

If you want the methodology we use for calculating, Mr. Mercer can walk you through that. Don.

Mr. Don Mercer: I think it's important to understand that in the final analysis, of course, it's the courts that do the determination of fines. But when the Department of Justice is involved in assessing cases, you're indeed looking at deterrence. You're looking at the value of commerce and the impact on those particular companies concerned. You also go into their past behaviour. Is this something that's relatively new in their behaviour, or is this something that has some long history? The courts do take that into account, and we take that into account when we're looking at sentencing.

Certainly those fines that were assessed in those particular cases have a greater deterrence than we would have achieved a few years ago, when we were getting fines of a maximum of $1 million on the same volume of commerce.

We've come a long way through this process. In fact you'll note that this has been a trend both in the United States and Canada, and in the last three or four years there has been a dramatic escalation in fines as the courts say that price-fixing is indeed a criminal offence that should be taken seriously. It has a big impact on the economy, and there's no excuse for it.

Mr. Konrad von Finckenstein: What the fines don't show is what happened within the companies that have been fined, the corporate reorganizations, the firings, the change of directors, etc.

The Chair: I want to thank you very much for being here this morning. We want to thank you, Commissioner, and your assistants, Mr. Jorré and Mr. Mercer, for joining us for a very interesting discussion. We appreciate the time you've given this committee. It has been very valuable for our process, which we're just entering, and we look forward to meeting with you again in the future.

Mr. Konrad von Finckenstein: Thank you.

The Chair: The meeting is now adjourned.