Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue 30 - Evidence
OTTAWA, Thursday, February 21, 2002
The Standing Senate Committee on Banking, Trade and Commerce, to which was referred Bill C-23, to amend the Competition Act and the Competition Tribunal Act, met this day at 11:00 a.m. to give consideration to the bill.
Senator E. Leo Kolber (Chairman) in the Chair.
[English]
The Chairman: Honourable senators, ladies and gentlemen, we are here to continue our review of Bill C-23.
We have two groups of witnesses. I am informed that each group will give a presentation one after the other. The two groups will take questions together. They will decide who will answer the question.
Mr. Bob MacMinn, Executive Vice-President, Canadian Independent Petroleum Marketers Association: Honourable senators, as the Chair mentioned, with me today is Mr. Dave Collins, who is with the largest independent petroleum marketer in Atlantic Canada, Wilson Fuels in Halifax.
CIPMA represents independent petroleum marketers in the Canadian petroleum industry. Our members are all in what is known as the downstream end of the business. Simply put, we are the local gasoline station and home heating oil distributors. All of our members operate small to medium-sized businesses.
Our membership includes some names you may be aware of: OLCO Petroleum, MacEwen Petroleum, Mr. Gas Limited, Noco Energy and Wilson Fuels. Our organization exists to represent the interests of independent petroleum marketers. We make up approximately 12 per cent to 13 per cent of the Canadian marketplace. That figure is down sharply from the early 1990s when we had over 25 per cent of the market.
We are important to competition in the marketplace. We provide competition at the wholesale level. We have the ability to switch suppliers rather and cause refiners to compete for our business. This situation lowers wholesale prices and the saving is passed on to the consumer.
We believe that we are entitled to purchase our product in an open, free and competitive market environment. While it is often taken for granted that the Canadian consumer is entitled to a competitive market this right is often overlooked when it comes to the wholesale buyer. After all, a wholesale buyer is just a more empowered consumer and deserves to deal in a competitive market as well.
We have actively supported changes in Canadian competition law. CIPMA, formerly IRGMA, supported Bills C- 402and C-472, participated in the Industry Committee hearings into the Competition Act and Competition Bureau, and were stakeholders consulted during the public policy forum meetings.
We fully support Bill C-23 and the proposed amendments to give limited private rights of access to the Competition Tribunal. We are philosophically opposed to limiting anyone's right of access to a court of competent jurisdiction, namely, the Competition Tribunal. We believe the amendments before you are a limited first step in modernizing Canadian competition law. Other jurisdictions have seen fit not to limit such access, namely, Australia, Great Britain, France and the U.S.
In the U.S., anti-trust actions can be brought forward by various parties, such as private firms, the FTC, the U.S. Justice Department and State Attorneys General. The Canadian process, where the Competition Commissioner acts as the sole gatekeeper to hear complaints, investigate and submit to the tribunal, needs restructuring. Private rights of action would, in our view, motivate firms away from anti-competitive activity and free up the Competition Bureau investigative efforts.
We are told that opponents of private access fear the potential for abuse in the form of strategic litigation. We see this as an attempt to derail the government from modernizing the law. Large firms that have come down against private access have abundant experience and the capability to deal with all forms of litigation. In fact, we are all too familiar with large firms threatening some form of legal action. It is a fact that exists today.
Furthermore, adequate safeguards have been built into the bill to prevent this activity. Those safeguards ensure that the tribunal no power to award damages; make summary dispositions; award costs and give references.
In our highly concentrated business, a decision to launch an action against one's supplier would be weighed very carefully. Supply lines are quite limited. Only the most egregious behaviour would even be considered worthy of jeopardizing one's supply line.
We applaud the minister for bringing forward this important legislation and fully support the amendment introducing private rights of access. Thank you.
[Translation]
Mr. René Blouin, President-Executive Director, Association québécoise des indépendants du pétrole(AQUIP): Mr. Chairman, with me today are Mr. Crevier, President of Pétroles Crevier Inc., and a member as well of AQUIP's economic affairs committee. We would like to thank you for giving us this opportunity to present our position on possible amendments to the Competition Act.
We are making this presentation on behalf of the members of AQUIP, which represents Quebec-owned undertakings active in the importation, distribution and retail sale of gasoline, heating oil and lubricants. Retail sales by Quebec oil companies total more than one billion dollars every year. Quebec's independent dealers hold approximately a 25 per cent share of the overall gasoline market in Quebec.
The presentation that we made to the House of Commons Industry Committee in March 1999 remains very relevant. We will avoid duplicating its contents in order to keep today's presentation short, but we urge you to review our earlier submission to get a better sense of the various facets of the oil and gasoline market as it operates in Quebec. Suffice for us to reiterate that Bill C-235 now under consideration remains, in our opinion, the appropriate legislative measure required for banning unfair trade practices based on loss leaders. These practices undermine true competition which benefits consumers.
However, we want to note that Quebec's Loi sur la Régie de l'énergie (Quebec Energy Authority Act), which prohibits setting prices at the pump that are lower than the acquisition cost, provides that the Régie can add to this minimum price the value of retailer operating costs, in order to put a stop to a price war. The Régie decided to take this action last June further to a price war in the Quebec City region. It determined that these price wars were ``socially and economically'' harmful. It ruled in favour of independent dealers. A summary of the ruling is appended to this brief, while the full text is available at the Régie's website.
Mr. Pierre Crevier, President, Pétroles Crevier Inc.: On the subject of Bills C-23 and C-472, our presentation today deliberately avoids legal theory, focusing instead on the concrete effects of these legislative proposals in the oil and gasoline sector.
For independent oil and gasoline undertakings in Quebec, Bill C-472, which would amend Bill C-23, is definitely a step in the right direction for those who want competition to flourish in ideal conditions.
While we are pleased with the content of Bill C-472 in general, we would like to begin by voicing some concerns about clause 77.1(1), which would close access to the Competition Tribunal, except in situations of usual trade terms. We submit that suppliers of petroleum products would only have to illustrate that they cannot supply products because of unusual trade terms to stall access to the tribunal. We propose instead that the new provisions for access to the tribunal provide for markets where trade terms are not usual. For example, should there be a relative shortage, supply should be provided to all undertakings on a prorated basis, in keeping with the way that the market usually operates. If, for instance, the amount of product available makes it possible to meet only 80 per cent of normal needs, the majors and the independents should each be able to obtain 80 per cent of their regular supply. In this way, both types of undertakings would be subject to the same conditions and none would be forced into bankruptcy because of a lack of stock. Given the uncertain international situation at the moment, such a situation might easily arise.
Furthermore, rationing should not result in non-renewal of supply contracts on the pretext that the market situation is abnormal. On the contrary, we must ensure that abnormal market situations do not cause the elimination of efficient oil and gasoline businesses by depriving them of supply.
We therefore propose that the words ``on usual trade terms'' be struck from the bill. In this way, the new provisions would also be applicable in ordinary circumstances, where they could be particularly useful. We are hopeful that the Senate will take action to bring in the suggested amendments.
Mr. Blouin: We will take advantage of the question period to expand on our proposal with concrete situations illustrating the need for effective recourse in the event of abnormal situations. These risk destabilizing the market to the advantage of vertically integrated oil and gas undertakings that are at one and the same time producers, distributors and retailers.
Last, we consider that all initiatives likely to simplify the judicial process should be vigorously supported. It must be borne in mind that small and medium-sized businesses do not have the financial means or technical resources required to fight drawn-out legal battles. Access to justice must remain a central concern of our elected representatives. There can be no doubt that the bill will help to achieve this goal, although we are all aware that much remains to be done.
The proposals before you constitute a step in the right direction, and we hope that Parliament will follow up on them subject to our proposed amendments.
[English]
Senator Tkachuk: Mr. Collins, what is the name of your company?
Mr. Dave Collins, President, Canadian Independent Petroleum Marketers Association: Wilson Fuels.
Senator Tkachuk: From whom do you buy your product now?
Mr. Collins: We have a marine terminal in the Halifax harbour. We have three major suppliers: Imperial, which is our predominant supplier; Irving, which is a secondary source of supply; and Ultramar, which is our tertiary source of supply.
Senator Tkachuk: Have you had problems in the past with suppliers treating your company unfairly?
Mr. Collins: We have had some direct firsthand encounters with the competition policy, most notably and involvement with Petro-Canada. In 1995 the price difference between regular and premium gasoline, at retail, was 8 cents per litre. The wholesale cost of premier gasoline had tumbled so that the acquisition cost was only 2 cents per litre more. This is a price-volume business. Thus, we lowered the price of premium gasoline by 1 cent. In other words, we were at only 7 cents, figuring that the increase in sales would give us more profit.
We encountered a response from Petro-Canada whereby they lowered the price of regular gasoline to maintain the 8 cents per litre spread. They did that to levels that were well below the cost of crude oil at the time. No matter what we did around that spread, to try to understand what they were doing, they kept rigidly maintaining that spread.
Our operator received an anonymous phone call. He was informed that unless we maintained an eight-cent per litre spread for premium gasoline that we would be forced to sell our regular gasoline below our acquisition cost. That threat was backed up. This outlet was on a shopping mall parking lot in Tantallon, Nova Scotia, which is just outside Halifax. There was a Petro-Canada truck parked and full, ready to make a delivery just to show that they meant business. We documented all this and took the documentation to the bureau.
We moved our premium gas price to 8 cents per litre above regular; Petro-Canada raised the price. We put our price up as well and then maintained the 8-cent per litre spread and the price war stopped. The message was loud and clear. In two days, we lost about $15,000. We complained to the bureau that Petro-Canada was trying to push us out and that it had acted in an anti-competitive fashion.
As businessmen we can raise our prices or invest elsewhere in other businesses. The gasoline business is just but one aspect of Wilson Fuels' business. The response we got from John Bean, Chief of Investigation, was that competition can be rough. I responded that indeed it can be rough but most especially on the consumer. Basically, that is where it ended.
We were not able to take that to the tribunal; we were shut down even before we got to the commissioner.
About five to six months later, Irving did the same thing. They took a run at us on sites in Saint John, New Brunswick, as well as outside Halifax. They targeted all our high-volume retail sites and lowered their price to below the normal acquisition cost. Their prices were at the cost of crude or lower and they left those prices for five to six weeks.
We were within about a 10 days of closing down when it ended. The bureau did not investigate even though it was well laid out and documented and even though they had, in other cases, some lower level functionaries of those companies claiming that the goal was to drive us out of business.
Those are two cases in which we have had direct and personal experience and where the bureau has failed. I was mystified that we even had to go through the bureau because in a normal commercial transaction if someone has done something we can file a suit.
However, we cannot do that here. We just want you to get out of the way. We do not need that kind of bureaucratic overhead. Just give us the laws and let us go to court. If the laws work too well, deal with that. If they do not work well enough, you can deal with that also. However, we do not have any experience; we cannot get there.
The Chairman: Just for the record, in the presentation from the Association québécoise des indépendants du pétrole, you keep referring to Bill C-472 and that does not exist any more, because it is part of Bill C-23. I want those who are being briefed to understand that.
You also referred to section 77.1 which I think is really section 75. That may seem picayune, but if you have staffers looking at this, we do not want there to be any confusion.
Senator Tkachuk: Is this experience abnormal across the country?
Mr. Collins: Other members have encountered similar instances where they felt they had a legitimate complaint.
To give you an idea of the breadth of our operation, there are various degrees of ownership among the family, but in essence this firm distributes home heat and gasoline as well as manufacturers furnaces in Nova Scotia, 55 per cent of which we export to the U.S.
One of the joys of going to the U.S. is not only is it a bigger market, but also we tend to be protected by U.S. competition law from the kinds of excesses that we see in Canada. I can invest in the United States which has bigger market and I have a better chance of success because much of the below cost or deep pockets market strategy is cut off by the Clayton Act, the Sherman Act, and the Robinson Patent Amendments and other jurisdictions at the federal level. There are also many state laws concerning below-cost selling.
There is more conducive atmosphere to encourage competition in the United States. We do not encounter the same kinds of excesses that we have experienced in the gasoline business here in Canada.
Senator Kroft: My business experience has taught me that I should try to avoid competing with someone who controls an essential component of my supplier process, because it is not a great position to be in.
When I look at your business I see that you are always competing. At the retail pump business you compete directly with the people who supply your product. I have always found this to be an interesting situation.
A former colleague of ours in the Senate has built an enormously extensive and successful operation doing exactly that in Western Canada, with Domo Gas. They are a full-service pump operation. Part of their thrust has been success in competing against non-services at the pump.
Do you provide service at the pump, or are you simply automated pumps?
Mr. Collins: The issue is what is the business model that allows us to believe that we can compete. Is that cutting through to the short of it?
Senator Kroft: I am trying to understand the totality or otherwise of your dependence on the competition authority. You do not have as many of the normal tools as a normal marketplace.
Mr. Collins: In Atlantic Canada, we are blessed with respect to petroleum in that we are right on the North Atlantic shipping lines, so we are part way to Europe. Our company can access domestic or foreign refiners.
We have competition. The domestic refiners are not fools. They will take advantage of the freight differential to keep a foreign refiner out. That part works.
The next part is that we are far more efficient as a marketer. We do a number of things depending on what the marketplace dictates. We might be all full-serve; we might be all self-serve. We may run one a convenience store, a McDonald's or a car wash alongside the pump operation. We do anything to make a buck as any good retailer tries to do. We will try to get as much profit out of a piece of real estate as we can.
We can do that marketing and distribution aspect of the business far more efficiently than the major oil companies can. A major oil company has three aspects to the business: There is a mining business, a manufacturing business and a marketing business.
We operate our marketing side of the business at about half the cost as they do. That is why you see firms like Imperial merge their refining, manufacturing or marketing businesses together for financial reporting purposes. Petro- Canada, who puts out their numbers separately, reveals that their cost structure is significantly higher than ours. That forces them to either use their manufacturing profits to subsidize and keep them going or face their shareholders and admit that they are not as good.
In a long-term sense, we are valuable because we force them to become more efficient. The consumer wins on that issue. The other way the consumer wins is because in a rising market, the major oil companies have much longer inventory lines. They will hold the prices down. That is their natural advantage. In a declining market we flush through high-cost inventory. The consumer wins by having a lag on prices increasing. We come back to market because we are a competitive crowd, on the way down, with lower cost material quite quickly. We will lower the prices first, which is why you tend to see independent marketers being the first ones down in a declining market, because we are out of our high-priced inventory far more quickly.
The U.S. competition commissioner Richard Parker has said that independent marketers are extremely valuable in that they force competition at the wholesale business. We force competition at the refinery gate. That is the reason why you might want to be concerned about us.
If you are not concerned about that and you decide that is not an issue, then do not worry about us. However, it is a big issue in the U.S. They consider it valuable. I would urge honourable senators to think that it is valuable. The better we are as buyers, the more efficient we make the refiners in Canada. That is the reason we want them to do that.
Senator Kroft: You do have a number of tools that you have developed that do not leave you helpless victims of a set of suppliers. At the same time, fair and economical access to a process that takes the rough edges off uneven relationships or their threat is very important to you; is that right?
Mr. Collins: That is right. There is no doubt that if you do this, there will probably be a bit of the Hawthorne effect that will come in: as soon as you include these concerns in the law, you will look at it and it will probably change many behaviours right away. They know that they will be called on it. Firms such as ours will call them on it and will have access to be able to call them on it. It will be valuable very quickly.
We have the ability to do many things if you just let us do them. We can push much more efficiency into the business.
Senator Gustafson: I live in an oil field in southern Saskatchewan. Right now, it is dead. Nothing is happening because of world oil prices. However, the impact of that really affects so many areas of our society, including fertilizer prices, for instance.
Last year the price at the limit, $475 a tonne, this year it is down to $275 a tonne. There seems no way to regulate these things. It seems we are at their mercy.
Russia has just said they will not cooperate with North America. What is the answer? This is a competition bill. It seems to me there is such a monopoly there that it would be impossible, almost, to regulate these matters from a Canadian standpoint.
Mr. Collins: I do not know whether I can afford my philosophy. However, I do not really want regulation in prices. The market can work. However, one of the key issues for the market to work is that you have open access to information. One of the other issues that we are working on is separating these things. In an integrated firm there are mining, manufacturing, and marketing profits. Investors and analysts look at the figures and wonder why huge amounts of money are invested into marketing. That is one aspect.
Our company believes that the free market works well until you get to deep- pockets marketing exercises. A recent example is Best Buy buying Future Shop. Future Shop is a great bunch of entrepreneurs; it has a great business model and is a profitable company. Why did they sell so quickly to the first threat of American competition coming to town? The reality is that we, as Canadians, permit deep-pockets marketing to flourish. We need to stamp that out and force the issue that we want to encourage efficient operators, and that is what matters.
Why would I not go and invest in the United States where they do that? One often wonders why this stuff, as dry as it is, is so important. It matters.
Senator Gustafson: Are swing markets good for your business?
Mr. Collins: Absolutely.
Senator Kroft: I would like to follow up on your Best Buy/Future Shop analogy. Could you elaborate more on the deep-pockets policy, please?
Mr. Collins: The reality is, if you are Future Shop, you have limited exposure in the United States, and you are heavily weighted to Canada. If you are Best Buy, and you target the big city markets with a couple of stores and you start dumping the high volume movers at below acquisition costs you will bring that company to its knees. Meanwhile, you can still be gleaning profits from large markets in the U.S. where Future Shop is not located. You can lever your U.S. brand into Canada, pick a few select markets, drive it well below the cost and the Canadian operator is gone.
Senator Kroft: That is dumping, is not it?
Mr. Collins: For predatory pricing you must prove intent. Where will you find the intent? There is no jurisprudence to support it, honourable senators. Much of our competition law in Canada is criminal in nature as opposed to civil in nature. If the law were civil, we could use a balance of probabilities; however, with our competition law as it stands now, the standard is one of criminal law, which is beyond a reasonable doubt.
Let us take a 20-inch T.V. that Best Buy sells for $189; Future Shop needs to match that price. Who was the first one to put the price down? Can you prove that? Are you sure? How do they respond, and so on, back and forth. It gets so messy and takes so long that you are out of business anyway. To maximize shareholder value, it was probably a better deal for them to sell and get out.
Senator Tkachuk: You say that in the United States they do not allow these practices because of civil litigation?
Mr. Collins: Yes, that is correct, they litigate those issues in civil court.
Senator Tkachuk: Future Shop would go to court; is that right?
Mr. Collins: That is correct.
Senator Meighen: They would have a lesser burden of proof.
Mr. Collins: That is correct, it is only a balance of probabilities.
[Translation]
Senator Setlakwe: The Régie de l'énergie du Québec prohibits the setting of prices at the pump that are lower than the purchase cost. Further to the ruling to the effect that these prices were ``socially and economically'' harmful, can you tell me whether companies were fined?
Mr. Blouin: The Régie sets the rules. If companies violated these rules, we could launch a civil action against them and demand that they be fined. Since the Régie has been setting the rules for the Quebec region, we have not had any violators and we have not had to resort to this legal action.
I would like to take a moment to follow up on a comment made earlier by the chairman. He noted that our presentation contained a reference to bills that had received no follow up. However, we believe that these bills' provisions were quite valid. The fact that the situation were are discussing today arises only under usual trade terms is included in the current act. We respectfully request that senators include this amendment and send it back to the House of Commons for debate.
[English]
The Chairman: I do not wish to sound improper, but on your example of Best Buy and Future Shop, it is hard to argue with what would happen; Best Buy would come in and Future Shop would go under. Should that be a concern for a legislator, or should it be a concern for the competition bureau whose main job is to protect the consumer. If Best Buy comes in and offers low prices, it is good for the consumer. If Future Shop disappears, will someone else not come in to offer prices to beat Best Buy? Is that not what the free market is about?
Mr. Collins: Sure, the free market is about price. However, it should also be about rewarding the most efficient operator. That is the thing that has legs. Eventually the pockets dry up, right?
The Chairman: What you are saying is that efficiency is the end-all and be-all, as opposed to the end price to the consumer; is that correct?
Mr. Collins: Yes a system that maximizes and rewards the most efficient.
The Chairman: Is it our job to be guardians of the consumer? I am posing a poor question, but I wish to understand the problem.
Mr. Collins: This is what we believe as a group. I do not have a personal axe to grind. Our company believes that the most efficient operators should be the ones to survive. In the free enterprise system that can be masked if you have a company with very deep pockets that comes roaring into a market.
One of the classic examples that you will probably hear about later in regard to new competition is when the big box retailer comes into town. The big box retailer is so much more efficient. However, when you look at a big box retailer, whether it beWal-Mart, which is one of the best, or Loblaws. Loblaws' top line gross profit for all their business, all up, runs about 24 per cent. They end up having costs of sales that run around 20 per cent.
Our business has top-line gross profit of 12 per cent and our costs of sales are 8 per cent.
The Chairman: You are each making 4 per cent.
Mr. Collins: We are both making 4 per cent, but I am far more efficient at it. Loblaws could turn around and decide to target my big sites and cause a ripple on the bottom. Loblaws cannot get down to 8 per cent; they will try to put me out of the market.
That is what the Americans protect against. They keep their efficient operators in order to force competition and protect against deep-pocket marketing. That is what we want you to do.
That is all the legislators should be concerned about. If you want to reward deep pockets, fine, but you know what will happen with that. If you do not want to reward them, then you will have to do something to stop it because free enterprise, if left alone, allows that to occur.
The Chairman: Are you suggesting we are against the free enterprise system?
Mr. Collins: No. I am suggesting that you can moderate it.
The Chairman: On that step you talk about concerning what the United States does and does not do, would you be kind enough to have someone in your shop write me about what you are saying and what they do that we do not do?
Mr. Collins: Absolutely. Mr. MacMinn will take care of that.
The Chairman: We will get witnesses to tell us this, but it will give us kind of a pre-brief that I will distribute to all members of the committee. It is not that we want to ape them completely, but it would be worthwhile knowing.
Senator Meighen: They do not have too much of a threat from deep pockets coming from Canada.
The Chairman: That is within the country, though.
[Translation]
Mr. Blouin: With your permission, further to Mr. Collins' answer, the unique thing about the oil and gasoline sector — something we do not see anywhere else — is that the same companies extract the oil as well as refine it. They also control the wholesale markets. And in Quebec's case, the same companies control 80 per cent of the retail market as well. You will not find a comparable situation in other sectors of the economy.
Take, for example, the hardware industry and two players, namely Rona and The Home Depot. The latter company is a retailer and distributor, not a manufacturer. It does not need an iron mine in order to manufacturer hammer heads. In our particular industry, we face competition from retailers who also happen to be our suppliers. Can you imagine The Home Depot as a Rona supplier? Or Métro as a supplier for Provigo? That would be unthinkable. Do you think Métro owns dairy farms or land? Do you think it manufactures fertilizers? It does not. Métro and Loblaws are distributors and retailers, not manufacturers.
Our competitors are our suppliers and manufacturers. They control the resource. That explains why in the oil and gas sector in the United States, there are many state laws. Members of Congress are aware of the unique situation in this industry.
I am trying to identify the features that distinguish our industry from others affected by the Competition Act. It is for these reasons that we are so very interested in these amendments to the Competition Act.
To illustrate just how useful these amendments would be, I would ask Mr. Crevier to give you examples of concrete situations where legislation was needed, but none was in place.
Mr. Crevier: I can relate to you three situations which the oil companies alleged were unusual. The first arose during the 1972 oil crisis. At the time, our company had four suppliers. When their contract expired, three of the four suppliers decided not to renew. They did not claim that they would be unable to supply the volume requested. They simply chose not to renew their contract. Strangely enough, the fourth supplier was able to increase supply levels. And yet, three of the four suppliers completely withdrew their services.
The same thing occurred when the second oil crisis hit in 1979. A Quebec refiner operator decided to withdraw from the independent wholesale market and did not renew his contracts with independent clients. After a considerable amount of pressure was brought to bear on the head offices in Toronto, some retail dealers were able to obtain supplies of the product simply by arguing that the situation was unusual.
The third incident occurred in 1989 following a much colder winter than we have had this year. Ice formed on the St. Lawrence in late November. It was impossible to deliver supplies of fuel oil during the better part of December and supplies in Montreal had fallen below quota levels. Again, we feel certain that we were receiving only a percentage of the volume guaranteed in our contracts, whereas divisions of the oil companies selling fuel oil to consumers were receiving 100 per cent of their supplies to meet their customers' requirements. With this legislation, the companies could easily have argued that the situation was unusual and that they were under no obligation to divide reduced supplies in order to meet both their own needs and those of their clients.
Senator Bolduc: I would like further clarification of Mr. Blouin's comment. Are you saying that because Quebec now has an energy authority, all problems have been eliminated? Would it not be a good idea to have a similar authority in each province? If that were to happen, would this amendment still be necessary?
Mr. Blouin: Yes, it is a very important amendment. It relates to the supply process and it would make it difficult for people to refuse to supply us with the product. Quebec legislation affects pricing which comes under provincial jurisdiction.
[English]
Senator Meighen: I wish to ask you about Irving and the State of Maine. I would like to hear what the Americans did when Irving moved into Maine. Irving is now the largest gasoline retailer in Maine.
There must have been many independents that were upset with this deep-pocketed Canadian company moving into Maine. You say the Americans deal with this in a different way than we do, but it seems that the outcome was predicable.
Mr. Collins: There are two things here. First, Irving came in and purchased a number of Maine marketers to facilitate their entry into the market. They invested heavily in the market and they stressed a number of less efficient marketers. There was then a move in the Maine state legislature to limit Irving's market share to preserve competition; the governor vetoed it. Even though the law was passed at the state level it was overturned. However, Maine does have and did pass a below-cost selling law. Irving's market share peaked and still exists at slightly less than 30 per cent.
In essence, what they did is they cut them off from deep-pockets marketing by implementing the state below-cost selling law.
Senator Meighen: Your contention is that if that same sort of law existed in this country, then your example of Future Shop/Best Buy would not have occurred the way it did; is that correct?
Mr. Collins: They dealt with the more tactical issue in a narrow market with respect to petroleum, as did the State of Maine and some influential local marketers.
The American competition law provisions and ours look very similar. Their laws have some more definitive aspects to them in that the words ``unduly'' and ``unreasonable'' are not sprinkled through them. There are also civil remedies and as a result businesses can fight in civil court. It is probably not perfect, but it is a far lower hurdle to deal with.
A marketer coming in had better be efficient and better be able to prove he is efficient. If he is in trying to do it on deep pockets he will find himself in court where he will encounter strategic litigation and trouble damages. There are punitive damages for conducting that kind of behaviour in the United States. In Canada, entrepreneurs do not have that protection.
Senator Meighen: When you say ``trouble damages'' do you mean frivolous litigation?
Mr. Collins: No, quite the opposite. Let us say Wilson Fuels was to sue a large American concern for anti- competitive activity.
The potential reward is three times the damages that we incurred. If it is deemed to be frivolous, it comes without recourse to the smaller firm. That is a level of protection that I am sure would upset many people.
That is what happens: Small businesses and innovation are nurtured in the United States. They have some tremendous protections available that we do not have in Canada.
Senator Meighen: Litigation is also nurtured.
Mr. Collins: The lawyers always win.
The Chairman: Mr. Blouin, you referred to section 77 of the act, which I point out is section 75. It states:
the Tribunal may make an order requiring the supplier to accept the person ``as a customer within a specified time on usual trade terms.''
Is that what you want amended? It is hard to define what a ``usual trade term'' is. If you are in times of crisis, usual trade term could be way up in the sky. Is that what you are trying to get rid of?
At some point during the hearing, the members may wish to consider amendments. Is that the amendment you are requesting? I would like a clarification on that, please.
[Translation]
Mr. Blouin: We want to be frank with you. We support these amendments because they would facilitate the recourse process. However, in order for such a process to be fully effective, these words must be taken out because in our opinion, given Mr. Crevier's concrete examples, they constitute impediments when unusual situations arise. If usual trade terms apply here in Canada, we do not anticipate many problems.
[English]
The Chairman: If there is a blockade in the Middle East and Saudi Arabia puts their oil up to $40 per barrel, would usual trade terms not be $40 per barrel? Do you want the tribunal to have the power to bring that oil to you for less than that?
[Translation]
Mr. Blouin: If, as you suggest, there is limited supply, then we are faced with an extremely difficult situation
[English]
The Chairman: It is not limited supply; it is being held back so they can command the higher price.
[Translation]
Mr. Crevier: It is not the price that is important, but rather the supplies allocated to all sector stakeholders. The issue is one of supply.
[English]
The Chairman: If you take out ``usual trade terms,'' how does that change anything?
[Translation]
Mr. Crevier: In the case of the three incidents to which I alluded earlier, suppliers could have argued that they were not dealing with usual trade terms. An oil crisis resulted in supply problems. From that moment onward, they could argue that the situation was unusual. The issue here is how supplies are allocated. We want assurances that someone can justify how product supplies are allocated.
If we have trouble supplying 20 per cent of our customers, we want the large companies to experience the same problems as well because they are our retail competitors. If they do not have to contend with this problem, they can fully supply their customers, whereas we can only supply 70 per cent of them. Instead, both sides should have to contend with a limited supply, with both parties meeting only 80 per cent of their client's needs.
[English]
The Chairman: Do you want the words taken out?
[Translation]
Mr. Crevier: That is what we would like to see happen.
Senator Setlakwe: In the first case you mentioned, the requested amendment is justified, because you argue that if the fourth company had refused to supply you, you would not be in business today.
Mr. Crevier: We would have had to shut down. We find it rather odd that this company was able to supply us whereas the other three could not, even though all four were grappling with the same crisis situation. Had this company not been able to supply us, we would have had no choice but to reduce sales by 50 per cent.
Senator Bolduc: I find your comments rather odd. When everything is going well, you have no complaints. However, when you are in a difficult position, you would like your suppliers to feel the pinch along with you. You are asking them to take your side. That is asking a little much of them.
Mr. Crevier: As suppliers, they have a responsibility. They have become our competitors. Their retail sales division competes directly with retail operators like us. They should look upon us as clients just like any other. However, our suppliers are also our competitors and, as Mr. Blouin was saying earlier, this is one of the unique feature of the oil and gas industry.
[English]
The Chairman: I will read an excerpt from information supplied by the Library of Parliament. I imagine most honourable senators are familiar with it, however, just to shed a little more light on the subject:
The phrase ``usual trade terms'' as it occurs in section 75 of the Competition Act (``refusal to deal'') has received little interpretation by courts. It has been said to refer to the ``trade terms generally prevailing at the time in question''(4) or those ``prevailing prior to the refusal.''(5) Two other cases provide a limited clarification:
``usual trade terms'' do not preclude a supplier from charging different prices for the same goods depending on whether the goods are intended for export or domestic resale;''(6)
there cannot be ``usual trade terms'' for a product that is subject to a licence (i.e. intellectual property), and the licensor is under no obligation to license the product, (7)
It does not appear that the outcome of any case has turned upon the meaning of the phrase as interpreted by the court in the circumstances of a particular case.
[Translation]
Mr. Blouin: That is precisely why we did not want to get into legal discussions of this nature. We wanted to keep our presentation short to illustrate to you, as Mr. Crevier did, that this expression could have been used. We just wanted to clarify that.
Senator Gill: I have a question concerning Quebec's Régie de l'énergie. It is patently clear to me that when there is a shortage, the supplier cuts you off. In other words, he competes with his clients. You have no control whatsoever over this situation. The Régie forbids you to set prices below the agreed upon level. Does the Régie play any other kind of role?
Mr. Blouin: The Régie has many duties. It oversees hydro electrical power and natural gas, among other things. It monitors prices in the oil industry as well as in the markets. Quebec's Loi sur la Régie de l'énergie is modeled after US laws, with the Wisconsin Act being identical to the Quebec legislation. These laws stipulate that to guard against companies taking advantage of the fact that they are manufacturers and making profits at this stage, companies must not restrict retail margins in order to crowd out competitors and take over their market share. Both Quebec and US lawmakers advise companies that once the wholesale price has been set and Mr. Crevier, for instance, is sold a litre of oil for 55 cents, retailers cannot set the price at their pumps at 54 cents. If the price remains at 55 cents and Mr. Crevier continues to pay 55 cents for an extended period of time, he will not be able to hang on for very long, because he does not have any refining profits to fall back on. The prospect of going under would thus loom large.
To prevent such a situation from arising and to ensure ongoing competition, if this continues, you can always make representations. If you can show that the situation places you at risk, three cents will be added to the 55 cents, an amount representing the operating costs of efficient retailers. For a given period of time, as determined by the Régie, and until such time as the market rebounds and the situation reverts to normal, no one will be allowed to sell gasoline for less than 58 cents, that is 55 cents plus three cents. This is what the Quebec legislation stipulates, as does the Wisconsin legislation, with the difference being that the provisions of the latter are slightly more stringent than those of the former. In Wisconsin, the margin is four and a half cents, not three. This provision is still in effect. If the cost of supplying gasoline at the pump is 55 cents, the retail price cannot be set below 59 cents.
Senator Gill: Distributors cannot alter the floor price at the pump. Why is it that in Quebec City, Montreal or on the North Shore, prices vary from one region to the next? Does it have anything to do with profits? I realize that there are transportation costs involved.
Mr. Crevier: Transportation costs are one factor, but taxes are another. Tax rates in Quebec varies from region to region.
Senator Gill: Not so long ago, we experienced some serious problems, particularly in the Lac-Saint-Jean region.
Mr. Blouin: That is correct. The Régie does not set prices, but does provide a benchmark. Prices cannot fall below a set floor price. However, prices are determined by the market.
[English]
The Chairman: If the world supply is cut by 20 per cent and they are only giving out 80, you want your 80 per cent of the normal allocation. It is not a question of price?
Mr. Blouin: No.
The Chairman: Okay. I am trying to wrestle with the term ``usual trade terms'' because everything I read becomes more confusing. I want to understand your position. Your position is getting the supply in whatever ratio is available to everyone.
Senator Meighen: At the same price as well.
The Chairman: That is not what he said.
Mr. Blouin: No.
Senator Gill: It is already done in Quebec. It is fixed.
The Chairman: I do not know what is done in Quebec; I am dealing with the Competition Act.
Senator Tkachuk: The point is not to be choked off by the monopoly. Is that right?
The Chairman: I think that is correct.
Mr. Collins: Excuse me for interrupting. In Newfoundland, P.E.I. and Quebec we had the provinces weigh in with specific pieces of legislation in our sector. They have only done that because there has been a failure of leadership at the federal level.
In many ways, there have been many local responses to failure in the Competition Act. I urge honourable senators to do something. Much of this discussion is occurring because the Competition Act is failing businesses. The petroleum business, which AQUIP has been so eloquent in pointing out, has its own unique issues.
Moreover, in a global sense from a federal perspective, why are these provinces bolting and doing something that should be under the federal jurisdiction if we have a properly constructed law. Something is not right. These amendments, Bill C-23, decriminalisation, right of access, let us see what happens. Let us bring our laws closer to the Americans. We have free trade with the Americans, why can we not have their competition laws? That is all I want as a business.
Senator Tkachuk: My father was a small retailer in a small town during the time when wholesalers went from being independent to being vertically integrated. I am sure this is exactly what you are dealing with.
Mr. Chairman, in the beer industry, we are so concerned about that highly taxed product that we actually prevent vertical integration in that industry. We say that if you make the beer and own the brand, you cannot even own a pub or a beer store. These gentlemen have a valid point. We protect the beer market and the liquor market from vertical integration and monopoly control and exploitation, yet leave the poor gas retailer to fight with the big boys.
The Chairman: There are no poor gas people.
This is only our second day of hearings. Yesterday we heard that the airline industry is so unique that they have particular issues that need to be addressed. Now you are telling us the same is true for the gas industry. Thank you for being with us.
I would ask honourable senators to please stay as we go in camera.
The committee continued in camera.