Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue 31 - Evidence
OTTAWA, Wednesday, November 5, 2003
The Standing Senate Committee on Banking, Trade and Commerce, to which was referred Bill C-48, to amend the Income Tax Act (natural resources); and Bill C-249, to amend the Competition Act, met this day at 4:10 p.m. to give consideration to the bills.
Senator Richard H. Kroft (Chairman) in the Chair.
[English]
The Chairman: The first item on our agenda is to continue consideration of Bill C-48, to amend the Income Tax Act (natural resources). We have one witness, completing the last of our witnesses from our previous hearing.
Ms. Joan Kuyek, National Coordinator, MiningWatch Canada/Mines Alerte: Thank you for this opportunity to address you, senators. I am the national coordinator of MiningWatch Canada, which is a member of the Green Budget Coalition. MiningWatch Canada is a national coalition of 17 environmental, social justice, Aboriginal and labour organizations.
Although we applaud the recommendation to remove the resource allowance, we are deeply concerned that the measures will cost the federal government up to $260 million per year in lost revenues, while ignoring the long-term negative environmental, social and economic impacts of non-renewable resource development.
This contradicts recommendations from the Organization for Economic Cooperation and Development and the Ministry of Finance's own advisory committee on business taxation reform.
Bill C-48 reduces the mining industry corporate tax by lowering it to 21 per cent by 2007; removes the resource allowances; and introduces a 10 per cent investment tax credit for companies based on their exploration expenses. These exchanges complement tax breaks and subsidies in the provinces in a planned removal of the capital tax in 2008. By 2007, the average effective corporate tax rate, both federal and provincial, for mining will be 30.1 per cent, and the marginal tax rate will be only 7.6 per cent.
The Organization for Economic Cooperation and Development has recommended that:
Canada's preferential tax treatment of conventional resource sectors, such as oil and gas, and minerals and metals be eliminated on both environmental and economic grounds.
These recommendations took place in the context of urgent warnings by the OECD and academics that all major global ecosystems are in decline, and that the economy has already exceeded many ecological limits.
Resource extraction and material consumption are central to these stressors on the biosphere. The centrality of issues was recognized in principle 8 of the 1992 Rio Declaration, committing the parties to the elimination of unsustainable patterns of production and consumption, and in chapter 4 of agenda 21, ``Changing Consumption Patterns.''
It has been estimated that to achieve worldwide sustainability, the material intensity of each unit of economic output will need to be reduced by 50 per cent, and, in industrial countries like Canada, it will have to fall by factors of between four and 10.
Society's demand for goods and services will have to be met with significant reduction in new material inputs. This can be achieved through waste prevention and design and delivery of goods and the recycling and reuse of existing material stocks, rather than disposing of used materials at one end of the material cycle and inputting newly extracted ones at the other.
Although the use of certain metals, such as mercury, should be phased out due to their extremely toxic properties, other metals are especially good candidates for these approaches. Metals do not lose their mechanical or metallurgical properties when recycled, while they retain their economic value. As a result, metals can be reused and cycled through the economy almost without limit.
The scale of the environmental and social impacts of mining, however, has been central to the arguments regarding the need to reduce the consumption of newly extracted materials. The current rates of materials consumption are considered unsustainable, not so much due to shortages of materials themselves, but rather due to the extent of environmental and social costs that are associated with their extraction and processing.
Mineral and metal extraction leaves an enormously damaging and lasting environmental footprint, and the consequences of mining accidents, such as tailings dam failures, are potentially calamitous. In addition to major disturbances of landscape, the destruction of fish, wildlife and plant habitat and the disruption of surface and ground water flows, mining, and metal mining, in particular, generates enormous quantities of waste.
Mining requires removing from the earth metal-bearing ores together with ``overburden,'' the dirt, rock and biological systems that cover the ore. Only a very small portion of the material removed is actually used. For example, one pair of gold wedding rings leaves behind up to six metric tons of waste rock and tailings. The ratios are likely to deteriorate further as existing high-grade reserves are exhausted and lower-grade resources are developed.
The Canadian mineral industry generates 1 million metric tons of waste rock and 950,000 metric tons of tailings per day, totalling 650 million metric tons of waste per year. This is more than 20 times the amount of municipal solid waste generated each year by all of the residences, industries, commercial establishments and institutions in Canada combined.
Globally, humans now move more earth by mining than is carried to the sea by all the world's rivers. In 1993, it was estimated that in Canada there was a cumulative total of 700 million metric tons of waste rock and 1.8 billion metric tons of sulphide tailings with a potential to cause acid mine drainage.
Mine operations are a major source of water pollution. Mine water and waste mill slurry may be extremely acid or alkaline and may contain suspended solids, residual mine mill chemicals, heavy metals, ammonia and, in the case of uranium mines, radioactive substances. Run off from tailings may be acidic and contain dissolved solids, heavy metals and other toxic substances that are leached out by the acid mine drainage. Even properly closed mines require perpetual care and maintenance, the cost of which is estimated, in U.S. sources, at hundreds of millions of dollars per operating mine.
While we may hope that mining companies will commit to perpetual care and maintenance of these sites, realistically, we have to realize that most of these sites will revert to the Crown down the road.
There are currently some 10,000 abandoned mines in Canada. The Mining Association of Canada has estimated the cost of the cleanup of these sometimes toxic sites as $6 billion. The federal liability alone for cleanup of these abandoned mines is estimated at $1 billion for 2003.
While many Canadian mines provide economic benefits for some 15 to 20 years, the costs associated with containing and treating the huge amounts of acid mine drainage waste they produce will need to be borne by Canadians for hundreds if not thousands of years after the mine closes.
In addition, ore extraction and concentration operations, refining and smelting and tailings areas are major sources of air pollution. Over 60,000 metric tons of particulate matter are released into the atmosphere from tailings in Canada each year, while the metal smelting sector is a leading source of a range of heavy metals, including cadmium, mercury, lead, nickel and arsenic, as well as acid raid pre-cursors such as sulphur dioxide.
Data on pollutant releases and transfers from the mining sector in Canada are incomplete, due to the exemption of extraction phase mining from the National Pollutant Release Inventory. The exemptions from reporting pollutant releases and transfers to the coal and metal mining sectors were removed from the United States Toxic Release Inventory in 1998. As a result, the metal mining sector emerged as the largest source of total on- and off-site releases to the environment of TRI substances, constituting 51.2 per cent of all pollutant releases reported to the TRI in 1999.
Mining also results in socio-economic costs, including health impacts, work injuries, boom and bust economic cycles, the destruction of indigenous livelihoods and dramatic changes in regional cultures.
Federal subsidies for the exploration and development of new mines in Canada have historically been justified because of the resulting employment and other economic benefits. However, the economic contribution of the metal mining sector, in particular, is in decline.
In 2002, MiningWatch Canada and the Pembina Institute published a report assessing the value of public support for the metal mining industry in Canada. Data from public, that is, government and industry sources, were compared, and trends were established between 1994-95 and 2000-01. Here are a few of the findings with respect to subsidies, jobs and GDP.
With regard to subsidies, in the 2000-01 fiscal years, federal tax benefits to the industry amounted to $319 million. This is up 5 per cent from 1994-95.
With regard to jobs, in 2000-2001, 29,248 people were employed in the metal mining industry, down 12 per cent from 1994-95. During that time, Canadian industries increased jobs by 15 per cent. By 2002, there were less than 23,400 jobs in metal mining in Canada.
With respect to GDP, the contribution of the metal mining industry to GDP in 2000-01 was $4.5 billion. That was down 8 per cent from 4.9 billion in 1994-95, and it continues to decline.
These numbers and trends demonstrate that increased public investment in the metal mining industry has not led to a positive return in terms of jobs or contributions to the GDP.
We desperately need a tax system that encourages alternative economic development, industrial adjustment and resource efficiency, not the continuing extraction of non-renewable resources at ever higher social, economic and environmental costs.
The Department of Finance Canada based its recommendations for Bill C-48 on a technical study released March 3, 2003. No references to the environmental or social costs of mineral extraction are to be found in the study or in the background studies for the proposed tax changes.
If we actually respect the enormous environmental and social cost of each ounce of metal we consume, we would find ways to recycle and conserve metals instead of extracting new ones. Bill C-48 flies in the face of everything the government has been telling Canadians about protecting our environment.
I thank you for the opportunity to present, Mr. Chairman. I do have a copy of the ``Looking Beneath the Surface'' report of MiningWatch Canada and of a report on acid mine drainage, if any of the members would be interested in looking at them.
Senator Massicotte: The way I understand your presentation, you have two concerns. One is that the government will lose approximately $260 million per year in lost revenues, and the second is that you are concerned with the environmental impact, particularly of mining.
This is not a sector I know very well.
What is it that the governments do not catch?
You have the federal, provincial and you have people in finance. These are responsible people.
Why is it that, in light of your comments, they still proceed with such proposed amendments to the Income Tax Act?
We are being told that on the revenue side they need to do it to be competitive, but in your presentation you say that is a wrong decision.
Why are they still proceeding, and why do they disagree with your opinion?
Ms. Kuyek: One of the reasons is that the environmental and social costs of abandoned mines, for example, are showing up now on the public accounts as a liability instead of being part of the operating costs of the government. You have a silo effect where many of the costs are in different silos than revenues.
I think the other issue is that there is a very strong lobby, which I have witnessed, for prospecting and development of new mines, and there is no way that is analyzed against the environmental and social costs of the existing mines or of the mines when they close.
There is a substantial short-term royalty return to the federal government, which is often not shared with the territories or provinces in the same way.
It is very seductive. A very short-term high tax return looks pretty good, but it does not offset the subsidy and the costs that go into it or the cost at the end of the life of the mine.
Senator Massicotte: In Quebec the polluter laws are strict, as we saw in a recent Supreme Court of Canada decision. Even the members of the board may be held accountable. I guess that is not the case because you say there are many costs not borne by the mining company but by society at large.
Why are the laws not clear in that respect?
Ms. Kuyek: The Imperial Oil case is recent, and in most cases new mines do not have reclamation bonds that match the cost of closure. Much of the money put up against new mines is put up in a form that cannot be accessed by government, or it has been put up by a company that can easily go bankrupt at the end of it. It has been the case in the Yukon that many of the mines there have gone bankrupt and left a mess behind.
If you look at the Giant Mine, the reclamation bond was nothing near what was needed to cover the costs of reclaiming that mine.
There is a whole range of problems around holding the owners of mines accountable for what happens afterwards.
Senator Massicotte: However, they are in law responsible, but you are saying either because they are insolvent or their lease rights expired before the damage occurred.
Ms. Kuyek: It depends on the province. Federally, the new policies would make them responsible. The mining industry will argue that they are not responsible, that they were obeying the law of the time, that is, the older mines, and, therefore, the federal government is responsible for not having monitored them adequately.
It would be our position that they are responsible, but the history of the federal government going after previous owners is tenuous.
Senator Massicotte: Thank you.
Senator Tkachuk: What would be the total amount of royalties and taxes that the mining industry would pay into government coffers provincially and federally per year?
Ms. Kuyek: When we did our study, it was hard to find the exact amount of corporate tax returns.
Senator Tkachuk: You have a good idea of how much will be lost; $260 million in lost revenue.
Ms. Kuyek: We know what they pay in mining specific royalties.
Senator Tkachuk: Plus income tax.
Ms. Kuyek: We do not know income tax, of course, because you cannot get that information.
Senator Tkachuk: Well, sure you do, you say $260 million in lost revenue.
Ms. Kuyek: The Mintz report has all that information.
Senator Tkachuk: I know. Well then how much do they pay? Is it billions?
Ms. Kuyek: Yes, they pay billions.
Senator Tkachuk: How many billions?
Ms. Kuyek: I do not know. I do not actually have the figures in front of me, sir.
Senator Tkachuk: Where does that money go?
Ms. Kuyek: It goes into general revenues.
Senator Tkachuk: Exactly. They pay the money, and it is up to the government to decide if they will use the money to pay environmental costs or health care. There is a social benefit you have to include; you cannot just say there is a cost to the environment.
Governments choose to take the billions of dollars per year, or whatever it is, and they spend it on social benefits, or highways or whatever they decide to do rather than fixing a 20-year mine that may have generated who knows how much money.
Ms. Kuyek: With respect, sir, the Department of Finance does not even keep those records. They do not keep records of how much comes in and how much gets spent on the minerals industry.
We have argued for a long time now that we think it is important that the Department of Finance perform those kinds of cost-benefit analyses. They are not. They cannot answer that question for you either because we have asked them.
Senator Tkachuk: I understand.
Ms. Kuyek: The Mintz report said there is a substantial short-term benefit from each of these mines. They do not last very long. If you look at the Yukon, there are now no operating mines in Yukon, and in that territory they are faced with an enormous liability for abandoned mines and, at the same time, there is a lot of money going in to looking for new ones. There is a big disconnect in the middle.
In the Northwest Territories, the only mines that are currently operating are diamond mines and there is a rush of income coming in from there, not to the extent that anyone would have expected, but in terms of metal mines there is no income coming in right now. There is a huge liability, again, for these abandoned mines, the closed mines.
Senator Tkachuk: I understand. I am not trying to be argumentative. I am trying to say that mining companies do pay a substantial amount of money to provincial, federal and municipal governments, plus the income tax of all their workers, and all of that money flows into government revenue. It is the government that decides what to do with that money. It can make decisions to clean up the environment, or use it for health care or to build highways.
It is not a question of the mining companies not paying, it is that the receiver of all the cash, the government, is not doing what you want it to do rather than something else. Is that not true?
Ms. Kuyek: Well, that is one way to look at it and you represent the government.
Senator Tkachuk: No, I am not, I am the last guy to represent government.
Ms. Kuyek: There are a huge number of environmental and social costs that are carried in other departments. Water is provided free to these mining companies. There are subsidies not included in the report that we did for infrastructure development. There are a number of costs that we could not even include. There are costs that are borne by families, borne by communities and those costs are not included.
When we did our study it is, granted, only specific in terms of its costs to the mining royalties, which are mining specific, and to the mining costs and issues. We could not get and did not try to because Mr. Mintz had done a very good analysis of the effect of corporate tax rates and the marginal tax rates on mining, which informed the March 3 report that came to finance. Mining, it remains to be said, has one of the lowest effective corporate tax rates in the country.
In terms of what it is costing government in other ledgers, we argue that before you decide to give them another $260 million a year, you should analyze whether the benefits that you get in the short-term royalties justifies that investment in new mines, or whether they might be better put into recycling the metals we already have.
The Chairman: Thank you very much. We appreciate your appearance and the insight you have given us.
We will turn now to a consideration of Bill C-48.
Senator Kelleher: Mr. Chairman, I have a problem. Let me explain it to you. I have read the correspondence from the Minister of Finance and the copy of the letter to the First Nations. The minister has written that he understands that the First Nations is having a problem, but that he will see that the legislation is passed as it is. He has in effect, taken away any leverage the First Nations have had. Their leverage is gone.
I am not saying that the First Nations have a good or valid objection. I am concerned that I cannot tell from the correspondence and from hearing the witnesses whether the government had or did not have the legal obligation to consult with the First Nations. He just says in one sentence that there is no such legal obligation. At times I get a little frustrated over some of these legal opinions that are thrown about.
Was the legal obligation to the First Nations met or not met by not allowing them to appear before the House of Commons committee?
The Chairman: I understand your concern, and I have made some inquiries following the somewhat surprising events of the last meeting, surprising in that we had no reason to expect that the issue would be raised because, as you say, it had not been raised in prior hearings or through the department. We have consulted with the minister and with the department and are assured of two things.
First, the issues were not in fact raised at an appropriate time in spite of the consultation and the knowledge of Bill C-48 being put forward; and second, on the legal question of whether or not, because this was raised specifically by one of our witness, the allegation that there was not just a moral duty but a legal obligation. We have, in the minister's letter, the assurance that he has looked into that matter and they have received legal advice that the duty to consult arises by legislation, by agreement or in respect of a treaty right. None of these is implicated by the measures of this proposed legislation. That is about as clear and specific an answer as we can get from a minister of the Crown in response to a direct question.
Senator Kelleher: They say that they have received legal advice that has informed them that their duty to consult arises out of legislation. Does that refer to this particular legislation?
The Chairman: My understanding is that is the allegation of where a duty to consult may arise and it can arise if it is incorporated in legislation, if there is a specific agreement calling for it, or in respect of a treaty right, and none of those cases prevail in this situation.
Senator Kelleher: I am just trying to sort out whether this arises in respect of an Aboriginal treaty right?
The Chairman: This is responsive to the question of the legal duty to consult. We are advised by the minister in a letter over his signature, that in consulting legal opinion none of the bases for an obligation to consult exist in this case. I cannot go beyond that clear assurance. I insisted that we have this clarification before we went any further with this proposed legislation, and I find this letter properly responsive to the questions that the committee asked.
Senator Angus: Are we talking about the letter from the minister?
Senator Kelleher: Yes.
The Chairman: I understand your question. It was anticipated and therefore, we obtained the letter.
Senator Tkachuk: Senator Kelleher and I have discussed it and we support the proposed legislation. Tax reductions do not come every day and it is important in my part of the country, as well as to all of Canada. This little concern of ours should be noted when we report back. The whole committee would feel better if we knew that perhaps this could have been done better.
It bothers me that this thing has been around for a couple of years. It is not that the Assembly of First Nations does not have resources and that they did not know about it. I do not buy all that because they are in business. This is worth a great deal of money to them. It is not the government's fault. That is hard for me to say but I think in this particular case, neither of these things make me feel that good. Perhaps we could make note of that in our report back to the House.
The Chairman: Normally I would be agreeable and cooperative. The problem is that I have spoken to the minister and to the department, and they said that this matter was not brought before them in the consideration and, except for the fact that if it had been an issue, it would have been part of what came before us in the first instance.
In the face of that and beyond, failing anything that happened, there was a fundamental legal right irrespective of anything and that question has been answered. It seems to me that it is not the case that we have much to add.
Senator Tkachuk: At least we are on the record.
Senator Angus: I apologize for being late. One thing has troubled me. The other day Chief Buffalo indicated that there was a lawsuit pending on this issue. My concern is that we could pass legislation on something that is pending before the courts.
I had understood, rightly or wrongly, that when we rose from the hearing we would obtain a legal opinion, not just a letter from the minister talking about their legal opinion, as to whether we are able to legislate in the face of a lawsuit. The Chairman and I had a side talk on this and we both recognized that there was a problem.
The other thing is in respect of the minister's letter. There does not seem to be an explanation as to why they did not reply to the letter of June 16. The witnesses produced a letter that they had sent to which they never received a reply. To say that they did not know about it until September or October is spurious.
However, I agree with my colleagues in support of Bill C-48. Subject to clarification of a few items, what would be wrong with having a note attached to our report? That would not retard the legislation. It could simply note the points that have troubled us. We have done so many times in the past when there were concerns and it has not impeded the progress of the legislation.
The Chairman: I understand that.
[Translation]
Senator Prud'homme: I attended that meeting and listened carefully to the proceedings. I find it incredible that such a well organized office as the Minister of Finance's office sent the following letter to Mr. Fox on November 3.
[English]
On November 3 a letter was written to Mr. Fox thanking him for his letter of June 17, 2003. If Mr. Fox had not appeared before the committee, he probably never would have received a reply, unless I am wrong.
I find it quite unusual that an important group, such as those who appeared before us, could write the Minister of Finance on June 17 and suddenly, out of nowhere after the group's appearance before a Senate committee, and receive a letter in reply almost six months later.
I remember the rigid days of Mr. Trudeau when a minister would have answered much faster than that or he would not have been a minister for long.
The Chairman: The letter could not have been written before November 3 because it was in response to the request of the committee to deal with the issue that was raised. That is why it carries this date.
Senator Angus: A letter is in the file that the department wrote to Mr. Fox. After the hearing, he replied to that June letter.
Senator Prud'homme: That is what I am talking about. I always stand to be corrected and I have no hesitation about speaking out. I have the letter in front of me, unless I have the wrong document, which is possible.
The letter is dated November 3 and it says, ``Dear Mr. Fox: Thank you for your letter dated June 17, 2003.''
The Chairman: I understand. I was looking at a different letter.
I will try to deal with each of these issues.
Senator Angus is talking about the matter of whether we are dealing with an issue that is currently before the court. I am advised that the case in question does not involve any of the taxation issues raised in Bill C-48. It may have some general relevance but it is not specifically involve this issue.
If there are any specific questions, I am also advised that we have legal counsel from the Department of Finance here to answer those questions.
I do not have to ask these questions because we can ask legal counsel to join us. Senator Angus, you could pursue that issue.
Senator Angus: That would be helpful.
The Chairman: Those were the two issues. I will ask Ms. Lévesque to proceed.
Ms. Anne-Marie Lévesque, Legal Counsel, Department of Finance: I will be happy to answer your questions.
Senator Angus: Thank you for being here. The matter is fairly simple and we are being careful after the testimony that we heard last week. I am not sure if you were present but I know other people were here from the department.
One of the representatives of the First Nations, I believe from Manitoba, Chief Buffalo, indicated there was litigation in progress that might deal with their arguments against Bill C-48. That triggered the thought that the litigation might render it premature to pass this legislation.
Are you familiar with that litigation?
Ms. Lévesque: I am. I was not here during the testimony last week. However, I was given part of the transcript of the testimony. I was able to look into the case of Victor Buffalo, which I think is the case that was referred to by the witness.
I was able to speak with the lead counsel for the Crown in that case. I put to him the provisions of Bill C-48 and asked if there was a direct relationship or an impact between the proposed legislation and the issues raised in the case of Victor Buffalo. He confirms that there are not any.
The Victor Buffalo case is big. It deals with issues of natural resources but not issues of the taxation of natural resources. I am confident in telling you that the passing of Bill C-48 will not impact the Victor Buffalo case. The issues raised in that case are not the same as those in this proposed legislation.
Senator Angus: How would you characterize the issues? I understand that if you reduce the taxes, it reduces the royalties and the monies available to First Nations. I understand that this process would negatively affect their lifestyle.
That is a very broad statement and I am sceptical. Can you reassure me?
Ms. Lévesque: I do not want to comment on what has been exposed to you.
Senator Angus: You only read part of the transcript.
Ms. Lévesque: From what I know, there is no relationship between the Bill C-48 and its possible effects on royalty rates, of which I am not sure. They are hypothetical, as far as I am aware. There is no relationship between that case and the proposed legislation.
Senator Moore: The comments are being characterized as if Bill C-48 is directed at lands owned by native people only. However, is it not so that the proposed legislation is directed at all non-Crown owned lands?
Ms. Lévesque: Yes.
Senator Kelleher: The natives said in their presentation to us that by the time they learned about the Bill C-48 it was at second reading. They had asked for an opportunity to appear before the committee that would study the proposed legislation after second reading. They were not granted the right to appear.
What kind of a legal obligation does the government have to consult with natives in certain types of cases? They are saying that we did not consult with them to the extent of our legal obligations. Is that correct?
Ms. Lévesque: I can speak to the legal duty that Canada has to consult with First Nations, generally. The Government of Canada's position in respect of the legal duty to consult arises in three different cases.
The legal duty arises when a specific legislation tells the Government of Canada that it must consult before it passes the specific legislation or in respect of the application of that legislation.
There is also a legal duty to consult if Canada has agreed with First Nations that it will consult before it does anything.
Senator Kelleher: Is that present here?
Ms. Lévesque: I do not believe that there was any agreement to consult. At least, I have not found any evidence of that agreement.
The other possibility where a legal obligation arises to consult is when the government is looking to affect Aboriginal or treaty rights recognized under the Constitution, section 35.
The measures that are proposed do not affect an existing Aboriginal or treaty right. Therefore, there is no legal duty to consult because it is not required in the legislation. There is no agreement to it and there is no Constitutional right to it.
Ms. Louise Levonian, Director, Business Income Tax Division, Department of Finance: My understanding is that the finance committee did hear the witnesses because the request was made after they had met.
Senator Prud'homme: There was a lady who stood up three times. One time she thanked someone for raising a question. Mrs. Buffalo was sitting behind motioning no.
I share Senator Kelleher's apprehension. The Aboriginals feel that they are being touched by this legislation. It seems now, based on all the letters in the file, that they are not. I like legal counsel and generally follow their wisdom.
Senator Tkachuk: We know that that their major complaint is that royalties will be deducted on their lands where previously they were not. Therefore, they had a tax advantage over surrounding municipalities and other lands. That is the issue.
With this bill, they will have a level playing field. All the taxes and royalties are now deductible. It seems fair to me.
Their problem is that they were using that extra advantage to spend on their own reserves. That is an issue between them and the feds.
It is not a tax issue. It is an issue between them and the feds.
The Chairman: Honourable senators, we have to draw some conclusions.
My judgment is that we have all the facts before us on which we can each have our impressions but the letters have been filed. The record of the committee is clear as to what was said and the responses to them. We have had clear evidence that there was no legal breach of process. There has been no suggestion of there being any flaw or fault found with the legislation itself.
Is it now agreed that we go clause by clause on the study?
Shall the title stand postponed?
Hon. Senators: Agreed.
The Chairman: Shall clauses one to eighteen carry?
Hon. Senators: Agreed.
The Chairman: Shall the title carry?
Hon. Senators: Agreed.
The Chairman: Shall the bill carry?
Hon. Senators: Agreed.
The Chairman: Shall I report the proposed legislation?
Hon. Senators: Agreed.
Senator Prud'homme: I say ``on division.''
When will you report to the House — tomorrow maybe?
The Chairman: Yes, or tonight.
Honourable senators, we now move to consideration of Bill C-249, an act to amend the Competition Act.
We will take a three-minute break.
Upon resumption.
Honourable senators, can we reconvene? So everyone knows the situation, at 6 p.m. we lose possession of our room, that is the reality with which we are working. We have an hour; if an hour does not prove enough, we can continue in the hall.
Let us proceed as expeditiously as possible, and still with full and fair consideration. I welcome witnesses from the Competition Bureau, Industry Canada.
Please proceed.
[Translation]
Mr. Gaston Jorré, Acting Commissioner of Competition, Competition Bureau, Industry Canada: Thank you, honourable senators, for allowing me to participate in your deliberations on Bill C-249, an Act to amend the Competition Act.
[English]
I have a relatively short opening statement that I propose to make, and then we will be delighted to answer your questions.
This proposed legislation is important and provides us with an opportunity to fix a serious problem. Without it, there could be a lengthy delay before this proposed legislation could go forward. During that period, the existing legislative provisions could permit major anti-competitive transactions to proceed, thereby harming both individual consumers and business customers.
The Competition Act delineates the rules of fair business play in Canada. Competition drives Canadian firms to become more efficient, more internationally competitive offers consumers better prices and better choices.
The Competition Bureau, through its law enforcement and policy efforts, works to ensure that all Canadians enjoy the benefits of a competitive economy.
[Translation]
Bill C-249 is mindful of these objectives. It recognizes that efficiencies are relevant in the analysis of a merger impact on competition, but it also ensures that consumers are not left out of the equation.
Before addressing the bill itself, I would like to provide some brief context on merger review in Canada.
[English]
In general, most mergers that are notified and that we review do not raise competition issues for us. However, the bureau pays close attention to the small portion of mergers that could substantially prevent or lessen competition in particular markets. In reviewing mergers, we consider many different elements, including the level of economic concentration in the industry and the merging parties' market shares. We also consider a number of factors.
[Translation]
Some examples are: whether foreign competition will provide effective competition in the relevant markets; whether one of the merging parties is a failing firm; the extent to which acceptable substitute products or services are available; the existence and effects of any barriers to entry; the extent of remaining competition in the relevant markets; whether the merger would remove a vigorous and effective competitor; and the role of innovation in the relevant markets.
[English]
After we consider such factors, and the list is open-ended, it is anything that is relevant, the bureau decides if it will challenge a merger or allow it to proceed. In most cases, when we have concerns we are able to remedy those concerns by negotiation. Merging parties will often present a modified proposal which will deal with the concerns.
If they choose to proceed despite our objection, we will challenge the matter in front of the Competition Tribunal; and it is the Competition Tribunal that decides whether or not there is a problem. We have the burden of showing that there is a lessening of competition before that tribunal.
Each of the parties in front of the tribunal presents their case on the expected impact of the transaction. If, on the evidence, the tribunal finds that a merger is likely to substantially lessen or prevent competition, a merging party can raise what is known as the ``efficiency defence'' in section 96. They can argue on the basis of that defence that the merger should be allowed to proceed.
To successfully argue that defence, the parties must persuade the tribunal that the merger, while substantially anti- competitive, nevertheless generates efficiencies that are greater than, and offset, the anti-competitive effects.
[Translation]
Between April 1999 and March 2003, the Competition Bureau has reviewed some 1,700 proposals. In most cases where we had concerns, we were able to resolve the issues without the need for litigation. Only a handful of transactions led to fully litigated proceedings.
[English]
One such case, which went to full litigation, was the Canada (Commissioner of Competition) v. Superior Propane Inc. case. We challenged that merger because it would result in a substantial lessening and prevention of competition in numerous markets across the country. In 16 local markets, the tribunal found that the merger would have led to a monopoly or near monopoly. It was also found that the merger would result in an entity with a 70 per cent market share for the entire country, and that it would have the ability to sustain significant price increases.
This was what we argued, and what the tribunal found. Nonetheless, after considering evidence on the efficiency defence, the tribunal concluded that the efficiency defence had been made out and the transaction should be allowed to proceed.
This means that section 96 has been interpreted in a way where it is permissible to create a monopoly, or a virtual monopoly. We believe that result is unacceptable. This means an anti-competitive merger can survive if it generates sufficient efficiencies even if it results in substantial harm to consumers, whether individual consumers or business customers.
It seems paradoxical that the Competition Act should allow for the elimination of competition in some cases, or permit higher prices and lower product choices. In our view, it is a perverse result that the application of the Competition Act could, in some cases, sanction a monopoly.
[Translation]
Certainly, efficiencies are an important element of a successful economy. However, they are best realized through a competitive market which achieves dynamic and sustained efficiencies such as innovation. We must favour a competitive economy which expands opportunities for Canadian participation in world markets.
[English]
We support Bill C-249 because it will ensure that efficiencies are given due consideration in the merger review; because consumers will benefit from efficiency-enhancing mergers; it will bring our treatment of efficiencies into one that is more similar to that of our major trading partners; and it will ensure that efficiencies are considered in the context of the overall purposes of the act.
It does not remove efficiencies from merger review, but instead of having a trade-off between efficiencies and anti- competitive acts, Bill C-249 will ensure that efficiencies are one of the factors that the Competition Tribunal may take into account in assessing the impact of a transaction. Since the proposed legislation will require that efficiency gains provide benefits to consumers, it will affirm that a merger's impact on Canadian customers is important, regardless of what the merging firm's management or shareholders gain from the transaction.
The approach in the proposed legislation recognizes the positive impact of efficiencies. It recognizes that better use of resources can lower costs, potentially influencing prices down, and that this can make your more competitive internationally, and that the timely introduction or development of new and improved products or services can provide consumers with wider choices.
These positive contributions, bringing benefits to consumers, can mitigate competition concerns. We all recognize the importance for Canadian consumers of having a Competition Act that is world class; yet our current treatment of efficiencies differs from that taken in other major jurisdictions.
[Translation]
In the U.S., claims of efficiencies are only taken into account if they do not result in higher prices to consumers. In the U.K., a new law that came into force this summer allows the Office of Fair Trading to take into account clear and quantifiable claims of efficiencies only in mergers where consumers benefit from lower prices, greater innovation and greater choice. These two countries, as well as any other OECD member countries, consider efficiencies in their assessment of a merger's overall impact on competition, which would also be the case in Canada with the changes proposed in Bill C-249.
Under draft proposals, the European Union is moving in the same direction.
Honourable senators, I am certain we all agree that competition is essential for a fair and efficient market economy. Competition drives Canadian businesses to decrease costs, reduce prices and improve services. It also stimulates innovation and the development of new products. As such, C-249 is fully consistent with the objectives of the Competition Act.
[English]
In our view, the status quo in relation to its treatment of efficiencies is unacceptable. We believe Bill C-249 will enable the Competition Act to properly provide Canadians with merger review provisions more in line with those of our major trading partners, while safeguarding consumers from non-competitive price increases, or loss of choice or loss of quality that can result from monopolies. The proposed legislative progress speaks of the degree of support it has garnered in Parliament and to the broad recognition that as it stands today fails to grant consumers the importance they deserve in merger review.
We will be very happy to answer your questions.
The Chairman: Thank you.
[Translation]
Senator Hervieux-Payette: Have there been many other instances where the Bureau referred a file to the Tribunal and the Tribunal made an unacceptable ruling? Are there other cases apart from the propane case?
Mr. Jorré: There have been other cases. However, the Superior Propane case is the only one in which the ruling was based on the efficiency defence. However, very few cases have been litigated with full proceedings and a ruling since the review of mergers has been in effect.
Senator Hervieux-Payette: If I understand correctly, your understanding of the conditions is that a merger should not result in a monopoly.
Here is my second question. Where is the monopoly? In the above-mentioned cases, Superior Propane and ICG Propane are companies in the energy sector. Is it not a fact that oil, natural gas and electricity compete with their product? In examining competition, the whole industry concerned should be considered. One should not consider just the company which sells the products, but how the product is used.
Mr. Jorré: The definition of relevant market is a key issue in those cases. Superior Propane argued that the relevant market was in the energy sector. We said that some consumers, for various reasons, do not have an effective choice among five different categories. Some people for instance live in remote areas and have no alternative for all practical purposes. The Tribunal therefore had to determine whether the propane market was indeed a distinct market. It found, after very long proceedings, that for some categories of consumers, there was no other choice. Therefore, it is a monopoly. Consequently, the Tribunal rejected Superior Propane's argument to the effect that it was a form of energy.
Senator Hervieux-Payette: As an example, you say that there are regions where propane is the only available form of energy. However, oil can be transported. Electricity can be generated. Apart from heating purposes, I do not see where the problem is. What are the uses for which there would be no competition?
Mr. Jorré: For some people living in remote areas, other alternatives would be extremely costly. Other groups of people are in similar situations. If I may, I would ask Mr. Robert Lancop to give you a few examples.
Mr. Robert Lancop, Acting Senior Deputy Commissioner of Competition, Industry Canada: Western Canada farmers, for instance, can only use propane gas for grain drying. They have no gas line for natural gas. Oil cannot be used because of the fumes. Electricity cannot be used for that application. As a result, propane is the only source that can be used. And where electricity can be used, converting propane into electricity is a very costly process.
The evidence before the courts showed that there was no alternative.
Senator Hervieux-Payette: What will happen with Superior Propane if the Act is changed? Will you come back and tell them to de-merge?
Mr. Jorré: That case has long been settled.
Senator Hervieux-Payette: Thank you. I can see that this is a bill dealing with a very specific case which the Bureau lost. As a consequence, we are changing the legislation.
[English]
Senator Angus: You say that section 96 has been interpreted in a manner that allows for the creation of monopolies. Please explain who has interpreted them in that way. There have not been other litigations or court decisions.
Mr. Jorré: I am not saying there was no subsequent decision. That ended relatively recently. That is the effect of this decision.
Senator Angus: You are saying in black on white and before this committee that since that decision it has been interpreted in such a way. I am asking, by whom? Do you mean by the bureau?
Mr. Jorré: That is what the decision does.
The Chairman: Do you mean as a result of that decision?
Mr. Jorré: Yes, as a result of that decision.
Senator Angus: I am asking who is making the interpretations.
Mr. Jorré: The tribunal is, under the guidance of the Court of Appeal. Having found that the test was met, it then concluded that, even though you had 16 markets, which were monopolies or virtual monopoly, it was fine.
Senator Angus: We know what that decision says. My colleague asked you if there had been any other cases that have followed Superior Propane, because you are saying that, since and as a result of that case, the act is being interpreted to allow for the creation of monopolies.
We are looking for examples, but you seem unable to give us any.
Mr. Lancop: This has been the subject of a considerable amount of debate and there have been a number of learned articles written on this subject since the Superior Propane case. I can cite one here.
Senator Angus: Who has done these interpretations?
Mr. Lancop: Let me cite one that was written by Frank Mathewson and Ralph Winter, both well-known antitrust economists. Let me quote parts toward the end of the article.
Superior Propane explicitly allows mergers that lead to substantial lessening of competition providing the mergers generate sufficient efficiencies to meet the total surplus test - and, as the Tribunal recognizes, relatively small cost efficiencies may be enough to offset a substantial lessening of competition. Prior to Superior Propane, competition lawyers would have properly advised clients not to pursue mergers that involved an obvious and substantial lessening of competition. After Superior Propane, such advice is too conservative for mergers involving significant efficiencies.
This is one of the many articles written on the subject. I think the general conclusion is as we have cited here.
Mr. Jorré: The last decision was the second decision of the Federal Court of Appeal. There was one partially dissenting judgment and that partially dissenting judgment dissented on the basis that, insofar as the 16 monopoly markets were concerned, he disagreed with the majority and still felt the tribunal should not have allowed the transaction. The converse of that was that the two majority judges did agree with the tribunal's decision that law did allow a monopoly to arise, if you could prove the efficiency defence.
Senator Angus: It is the public policy that we should have these statutes on the books that ensure that there will be healthy competition, insofar as it may be practical or pragmatic.
One issue that comes frequently before this committee is public policy in the area of banking. Every day, there is something in one or another of these periodicals or newspapers about bank mergers, and whether it is good public policy to allow them in Canada or not.
Will the passage of Bill C-249 make it harder for the banks to merge? They have had a lot of roadblocks. We know there has been a process set out by the government that this committee understands to be the present policy, which includes approval by the Competition Bureau. It is one of the key things. In fact, there is a report from this committee that says, in a perfect world according to this Garp, it would be good if there were no political interference. If OSFI and your bureau felt the mergers would be in the best interests, then let them go ahead. Will this proposed legislation make it tougher or more restrictive to get your bureau to approve a bank merger?
Mr. Jorré: Let me first point out that, with Bill C-249, you would analyze banks like any other industry.
There is a process difference unlike other industries because of the way the legislation is set up. We make a recommendation that is sent to the Minister of Finance who makes the ultimate decision.
I cannot speculate about what will happen and what will be relevant in the analysis of any future transactions. What I can say about the past transactions is that efficiencies were not really a significant factor.
Senator Angus: The key word is ``efficiencies.''
Mr. Lancop: The only thing I might add is that ``efficiencies'' under the Bill C-249 environment would be looked at an earlier stage in the process, as one of the factors to be considered when assessing whether or not there is a substantial lessening of competition. That was not explicitly set out, previous to this proposed legislation. It was a factor that could be considered, but it would have been considered as a defence at a later stage. Now, it gets moved up front explicitly into the consideration of whether or not there is a substantial lessening of competition. It is looked at earlier in the process.
Senator Angus: Can you tell us or assure us that this legislation is not targeting or directed at any specific industry?
Mr. Jorré: We do not think that allowing a monopoly to emerge is good, whatever the industry. We think that it is desirable to have the legislation changed so that this does not happen. We think that is true for the economy as a whole.
Senator Angus: Sometimes with legislation, there is a specific reason. It comes through and it is a small little bill.
Has there been a wide consultation of stakeholders?
The competition lawyers are a very eminent part of the legal world. Today, in business transactions, the competition element is an important one for businesses to look into.
I think public policy needs to be that we want to enhance the doing of business. We want fair competition. In Canada, that is what it is about. We do not want to unwittingly agree to some piece of legislation that will restrict business.
There are lots of examples, I am told, of when a monopoly is the only option. You might have no industry or business without it. I think you can see what I mean. I want to be reassured that this is not some draconian little statute.
My colleague pointed out this is a single purpose act.
You lost your case in the Federal Court of Appeal so we are going to close that door. I empathize and sympathize with that comment. We make these comments that may sound a little bit frivolous; they are not. We are acting in good faith, and we want to make sure it is done properly.
Mr. Peter Sagar, Deputy Commissioner of Competition, Competition Bureau, Industry Canada: We do not believe your comments are frivolous; these are key questions that must be examined.
The question of the proper role of efficiencies in the Competition Act and the competition policy has been debated for eons, that is to say my lifetime.
Bill C-249 has been heavily debated. We performed a review of the major international standards to see what our competitor countries are doing on this particular issue and to see how they treat efficiencies.
Canada is the only one of any major international country that has an efficiency defence. In virtually every other country, in one way or another, they will take deficiencies into account, providing, just as this proposed legislation states, there is some benefit to consumers. You do not pay an enormous price.
Let me be clear on how this works. Our first step in analysis is to determine if a merger will create a significant market deadening effect?
Are we creating market power in the hands of the merged economy?
From an economics point of view, this has been considered to be a bad thing.
We can take into account whether efficiencies would mitigate this negative effect in terms of the overall effect of functioning of the economy.
We are bringing ourselves in line with the way the United States, the U.K, the European Community and Australia views these things. In broad terms this is bringing Canada into the 21st century of competition thinking, and for that reason, it is a good thing.
It has no industry specific effects. We do not assess the mergers on the basis of the industry. As the commissioner said earlier, we look at the individual markets and their impact on markets.
Senator Massicotte: I will summarize how I understand the proposed legislation and your process. My understanding is that when you look upon any merger or any acquisition you try to interpret if there is a significant diminishment of competition that is unacceptable. You will refuse the merger or acquisition if they are not agreeable to make amendments to take away that negative conclusion.
There is paragraph in the proposed legislation that says that in spite of that, they could argue that irrespective of that negative conclusion, you must allow it to proceed. Bill C-249 would take away that efficiency argument. If there were a significant benefit to the consumer, it would be the exception to the rule of the rest of the body of the proposed legislation.
Is that correct?
Mr. Jorré: That is essentially correct. You can still take account of efficiencies where they are beneficial to consumers. Even though there has been a finding that prices will raise, they will no longer be able to say that even though prices will rise, it is acceptable because of the efficiencies.
Senator Massicotte: Why this exception if the other parameters are so broad?
The amendments to the Bill C-249 are limited in regard to the consumer. We presume it to be the individual consumer when we use those words. It could be corporate also.
Mr. Lancop: It is much broader than that.
Senator Massicotte: The economy is more than the consumer. It creates employment. There are many benefits. I am worried that it is too limiting. I appreciate other countries that have it but that does not influence me very much if it is not the right answer.
Sometimes you use ridiculous examples to make a point. You see a merger. It may not increase the price of the consumer. It may actually decrease. If this company has two jobs and the other one creates 1,000 new jobs, it is not a bad effect to the economy.
Mr. Lancop: It is important to understand that we only challenge those mergers that are the most egregious. We challenge those that have a very significant adverse effect on competition. This would be in the order of less than 1 per cent of all mergers that take place.
If we are successful in determining that there is indeed an adverse effect in terms of competition, that effect can be felt by consumers, equally it can be felt, as in the case of Superior Propane, by other businesses that were disadvantaged as a result of the merger, had to pay higher ask prices and may have become uneconomic as a result of these changes. There can be manifold impacts as a result of one of these mergers. We could have a situation where a monopoly is created, as in the case of Superior Propane, where a monopoly was created at the national level and in 16 local markets. They acquired market power. Among many mergers, this is an exceptional merger that has an egregious effect.
The tribunal found that even in such a case, if you realized cost savings by laying off people and through other variables, you could use that as a justification for proceeding with this egregious merger.
We are saying that we do not think that is good public policy. We are saying that we should be able to stop those very egregious mergers. At the present time, given the decision in this particular case, we can no longer stop them.
Senator Massicotte: I agree with your comment that cost savings to merged companies should not be the principal factor to make the exception the rule.
I am a big proponent of competition. The exception being lower consumer prices is too specific and limiting. It should be broader on the economic impact. Perhaps the creation of jobs should be a reason for the exception. I am not saying that your efficiency argument is not broad enough, but I am saying that what you propose is not broad enough.
Mr. Sagar: You raise a critical point. What would happen in a merger that created the sort of market power to make the prices rise?
How would this create jobs in this industry?
It will not export more. Presumably, it will not sell more because prices have risen. It will sell less unless it is in a bizarre market area.
You will lose competitiveness. You will hurt the customers. We use ``consumer'' as a generic term. It means everyone who deals with the firm: customers, small businesses, and suppliers. Suppliers may suffer as a result of the monopoly this firm gets as a buyer. It also reflects on Canada.
This firm will merge and raise prices. You do not get more internationally competitive that way. You do not sell more. You do not employ more people that way. In reality, you employ fewer people, you sell fewer exports and you hurt the rest of the economy. It is a lose-lose situation. In a monopoly situation where prices rise is generally bad for the economy.
Senator Massicotte: Your economic theory says that if a consumer does not benefit, it is not good for the economy. That is your argument. I am not sure it is supported by many books on economic theory that I have read.
There could be exceptions where monopolies benefit the country and create jobs. Your position is that if it does not benefit the consumer, it must be negative.
Mr. Jorré: No, Mr. Sagar has taken it a step forward by asking: How do you become a more competitive economy if you charge your customers more?
Senator Massicotte: Generally speaking, I agree with you, but there are exceptions to the rule, not to flog a dead horse.
Mr. Jorré: There are sectors that are regulated; however, that is a different matter from a free market sector.
Senator Massicotte: Please describe the processes you have taken to get this proposed legislation this far.
Have the stakeholders been consulted?
Mr. Jorré: This is a private member's bill, and for that reason it has not gone through the normal process.
Mr. Sagar: Bill C-249 is a private member's bill from MP Dan McTeague. It was debated in the House, and in committee. It has been the subject of endless discussions in the community. You will see in the bar proposal that they agree that, in principle, moving this to efficiencies is acceptable. They have some quibbles that we can deal with at a later time. However, the broad principles have been widely discussed and researched. There are few things that I have seen in my life as an economist in the government that have been so heavily and intensively debated.
Senator Tkachuk: I agree with the intent of the proposed legislation, or rather, the intent of the amendment. I am not in favour of monopolies.
Let us say two companies convince you that if they merge, the efficiencies will be such that the consumers will benefit.
How do they get away using that argument and how do you keep track of them after the fact?
Mr. Jorré: Under the current structure of the act, a merger can only be reviewed during, at most, the three-year period from the time it takes place. If it was unchallenged, you could theoretically challenge it within the three years, although in practice, it is unclear whether you would be able to assess what happened then.
What happens when mergers are challenged is that the tribunal, on the basis of the evidence it has received, has to make the best judgment it can of what will in fact happen, which is a very difficult task.
Once you are past the three years, you then may have the question whether any of the other provisions come into play. Certainly, the merger review provisions no longer come into play.
Mr. Lancop: I was involved in the legislative process in 1986, so I have a bit of history on this procedure.
One thing we discussed and hoped was that this would apply to situations where you do not create a monopoly, because we do not see a monopoly as consistent with competition and providing benefits to society.
Indeed, we saw it as a situation where the number of competitors would consolidate to a point where you would have more efficient enterprises that could provide better benefits to society and that could make the economy more competitive. That was the thought process.
The way this has unfortunately worked out is that we have allowed the creation of monopolies, which we believe to be inconsistent with the purposes of this law.
Under the new regime, you would have a situation where it would be assessed within the context of the assessment of competition. If, as a result of this merger, you see a monopoly created, it is highly unlikely that this merger would succeed or proceed.
More likely, you would find a creation of more efficient enterprises that would be more competitive on a world scale and provide benefits to society.
That is why the wording ``of benefit to consumers'' was thought to be appropriate. It allows for situations where consumers, or the person on the street, as well as businesses downstream could benefit and society as a whole could benefit as a result of such a merger. That kind of merger would pass. The merger that would create a monopoly or a lessening of competition, to the point where these benefits could not be felt or would not likely be felt, would be stopped.
Senator Moore: In the Superior Propane case, you talk about 16 local markets and the merger resulting in a national market share of 70 per cent.
Do you look at mergers only when they impact on a national level, or do you look at provincial mergers, as well?
Mr. Jorré: You look at the relevant geographic end product market. One of the early steps in a merger analysis is to determine the relevant geographic market, so you have to see how far will people go.
For example, in grocery buying, you are talking about a much shorter distance than looking at the market for new automobiles. You do that at the same time as you are trying to determine the relevant product market.
Senator Moore: Do you only begin to look at a merger if the resulting market is estimated to be 50 per cent or more?
What is the number that triggers your interest?
Mr. Jorré: Most mergers of any significant size are notifiable under the act. We look at all the notifiable transactions. We can also look at non-notifiable ones.
Senator Moore: Is there a number? Is it a certain percentage?
Mr. Jorré: They are notifiable if the value of the particular transaction or the annual sales are $50 million or more and if the size of the parties, measured by their value or their sales, is $400 million.
Senator Moore: What was the second part?
Mr. Jorré: The first part is the size of transaction and the second part is the size of the parties.
Senator Moore: If it is less than $50 million, you do not look at it.
Mr. Jorré: Both the transaction size and the party size have to be met in order for it to be notifiable. We have the power to look at non-notifiable ones as well and we look at some of those.
Senator Moore: The party size has to be $400 million in terms of their net worth?
Mr. Jorré: It is measured in a certain way. It can be sales. By the way, that is sales into or out of Canada. It is not worldwide sales.
Senator Moore: Thank you.
[Translation]
Senator Biron: The Competition Act exists in the first place to safeguard consumers from price increases, and to ensure that there is not the lessening of choice or quality that usually results from monopolies. Those are the main criteria that you usually consider.
Your goal is to make sure that efficiencies are considered. In the case of bank mergers, efficiencies could clearly be a rationale for banks to merge when the major banks already have a near monopoly.
Mr. Jorré: According to the way C-249 is drafted, it would be one consideration. However, the provisions of the bill will need to refer to efficiencies that have a positive impact on consumers.
Senator Prud'homme: You can always count me as a faithful ally. When you reach a certain age, you know for sure that we do need a Competition Bureau which can understand and see through things.
Why is it that you are presently the Acting Commissioner of Competition and Mr. Lancop the Acting Senior Deputy Commissioner of Competition? I can see that someone is presently reluctant to increase the powers of MPs. Paul Martin is advised to move slowly in increasing the powers of Members of Parliament. There is a new Competition Commissioner, Ms. Scott.
[English]
I do not know the new Competition Bureau Commissioner, Ms. Scott. Where does she fit in the scheme of things?
[Translation]
Mr. Jorré: Commissioner Konrad von Finckenstein was appointed as a Federal Court Judge on August 14. I used to be the Senior Deputy Commissioner of Competition, and Mr. Lancop is now the Acting Senior Deputy Commissioner of Competition. In the absence of a new commissioner, I am the Acting Commissioner. There has been some speculation in this morning's papers, but so far I am still the Acting Commissioner.
Senator Prud'homme: When we say ``Federal Competition Commissioner,'' it doesn't mean ``chairman,'' but commissioner.
Mr. Jorré: There is indeed only one commissioner. When the government appoints a new Commissioner, I will no longer be the Acting Commissioner.
Senator Prud'homme: Anyway, I intend to vote in favour of the bill. If you are telling us that this bill will help you strengthen your institution, I am obviously all in favour.
Mr. Jorré: We do believe that Bill C-249 will benefit competition.
[English]
Senator Moore: I would like to have clarification on the annual sales of $50 million. The net worth of the two companies was $400 million and the annual sales were $50 million.
Mr. Jorré: There are two sizes and both can be met either by value of the transaction or by sales. They are used as alternate measures. The sales on the transaction can be sales into Canada or from Canada. It is economic activity.
Senator Moore: You said that the sales measures are not worldwide.
Mr. Jorré: That is correct.
Senator Moore: How is that if they originate in Canada?
Mr. Jorré: For example, in the U.S. when they measure their threshold, they measure in worldwide sales, even if those sales were from Brazil to Australia. The Americans measure their size by measuring the worldwide size of the organization, even if the sale has no connection to the United States.
We do not do that. We look at sales that have a connection with Canada; that is the way the regulation is written.
Senator Moore: In other words, if a Canadian company owns subsidiaries in Brazil and they are making deals with Australia, the sales are not considered, but if the sale is shipped from Brazil to Canada the sale is considered.
Mr. Jorré: Yes.
The Chairman: Please clarify how,
the tribunal may together with the factors consider the significance of the permissive rather than the mandatory —
Mr. Jorré: Are you looking at the act?
The opening paragraph of section 93 says:
they may have regard to the following factors.
It is written in a permissive language. It is open-ended because there is no limit on what the tribunal can consider. If they think some other factor is relevant to determining whether there is an SLC, they can consider that as well. This is done in the same way as the other factors.
Mr. Lancop: In some situations certain factors are not relevant, such as a failing firm. That factor may not be relevant at all. The two companies could be in good health and so it may be relevant.
The Chairman: It underlines the incredible discretion inherent in this whole approach. Implicit is that they could also choose not to consider any of these things.
Mr. Jorré: The Court of Appeal, if they did not consider something clearly irrelevant because there was evidence that properly demonstrated the fact, would say that in applying paragraph 93 you cannot ignore something that is relevant just because of the word ``may,'' provides the proper evidence was in place as proof.
Senator Massicotte: Section 96 of the Competition Act has an exception to the rule of competition. If the tribunal finds that there is efficiency in gains, it makes an exception and superimposes all the other considerations.
However, the proposed amendment, in respect of sections 93 and 96, puts the tribunal in a position similar to yours in that it must consider all other considerations of paragraph 93. It makes a broader review and, I presume, makes it much more difficult for somebody to disagree and use section 36. It widens the consideration of the tribunal compared to the old positions.
Mr. Jorré: I do not think it widens things. Compared with the analysis that has gone on in the Superior Propane case, this will be a little more straightforward. In the Superior Propane case they had to consider a lot when dealing with section 96.
Mr. Sagar: This will ensure that efficiencies —
Senator Massicotte: I understand that.
Mr. Sagar: This will ensure that efficiencies are taken into account at the right stage of the process rather than as an absolute defence, but as a factor that may be considered.
If I may return to the previous question, you do not want to necessarily force consideration. If the two parties do not view efficiencies as a factor, then you do not want to force them do the analysis because this is extraordinarily expensive work to do, although it does not come up that often.
Senator Massicotte: I looked at the proposed paragraph where you have the words:
the Tribunal may, together with the factors that may be considered by the Tribunal under section 93, have regard to whether —
The old paragraph did not have that reference to section 93. It was an exception for efficiency. You are putting the other consideration of section 93 into the tribunal's court.
Mr. Jorré: The tribunal currently considers all the factors in section 93.
Senator Massicotte: You make section 96 the exception to the rule. Section 96 currently says that irrespective of section 93 because of efficiency, it must be allowed. You are changing that to state that it should not occur. You are going back to section 93 as the total criteria for the tribunal.
Is that correct?
Mr. Jorré: That is correct, but they will still consider efficiencies. It does not add anything because all those section 93 factors had to be considered in the first place on the substantial lessening.
The Chairman: Thank you; we will conclude for this evening and resume tomorrow.
The committee adjourned.