Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue 32 - Evidence
OTTAWA, Thursday, November 6, 2003
The Standing Senate Committee on Banking, Trade and Commerce, to which was referred Bill C-249, to amend the Competition Act, met this day at 11:10 a.m. to give consideration to the bill.
Senator Richard H. Kroft (Chairman) in the Chair.
[English]
The Chairman: Honourable senators, I see a quorum. I will call the committee to order so we can continue with our consideration of Bill C-249, to amend the Competition Act.
Mr. J. Tim Kennish, Executive Member, Competition Law Section, Canadian Bar Association: Honourable senators, we are pleased to have this opportunity to present the views of the National Competition Law Section of the Canadian Bar Association on the bill, which raises important issues in the context of competition policy. I am a past chair of the section.
Whether or not one agrees with the view that was expressed in the first Superior Propane decision, that the attainment of efficiency is the paramount object of competition law, it is certainly an important purpose of the proposed legislation. It is therefore desirable that legislation that proposes changes to the law in this important area be carefully considered and that there be full public discussion and consultation in that regard.
Due to the procedure that has been followed on this bill, that has not happened, but there is currently a public consultation process underway, convened by the Public Policy Forum, to consider other proposed major reforms to the Competition Act outlined earlier this year in the government's discussion paper.
Given the importance of efficiencies in competition analysis and the desirability of greater public consultation, our preference would be that these proposals instead be considered as part of that process.
If it is determined that there is still interest in proceeding, we would prefer that they come forward as part of the amendments coming out of the discussion paper proposals. Nevertheless, if, notwithstanding this view, it is determined to proceed with Bill C-249, it is our strong view that two features of the proposed amendment that would operate to limit the recognition of efficiencies for the purposes of the section to those that have demonstrable benefits to consumers, and, additionally, to efficiencies that are merger specific, i.e., not achievable in any other manner less restrictive of competition, should be eliminated from the bill.
Those restrictions are, in our view, undesirable and unnecessary in the context of what is proposed by Bill C-249, which is treatment of efficiencies not as a defence, as currently under section 96 of the act, but rather as a factor to be considered along with others in determining whether a merger is likely to give rise to a substantial lessening of competition.
In that context, the overriding consideration is whether there will be a substantial lessening of competition. All potential efficiency considerations are relevant to that determination.
By limiting efficiencies that may be considered to those that provide consumer benefits, we may be ignoring important savings that come out of a merger, such as fixed-cost savings and other kinds of efficiencies where it is difficult to demonstrate that they will in fact be enjoyed by consumers. Innovation gains and productivity improvements are all upstream of consumers. It becomes a matter of proof as to the prospects to be enjoyed by consumers.
I think it is similarly undesirable to require parties to choose a particular method of attaining efficiencies, other than by way of a merger, in the context of treating efficiency as a factor as opposed to a defence, which might allow a merger to proceed, overriding substantial lessening of competition.
If it is determined that, having regard to all of the considerations — efficiencies, other circumstances — there would be a substantial lessening of competition, then presumably the merger would not proceed.
There are additional burdensome obligations of proof regarding both of these matters that go beyond what is already rather difficult to do — to demonstrate credibly that forecasted efficiencies arising out of the merger will likely be attained. It is important, because frequently parties enter into mergers for the very purpose of trying to improve their cost situation and achieve efficiencies in various ways. Attainment of efficiencies, as I said at the outset, is one of the main objectives of our law.
Our view is that the role played by efficiencies under the act in merger review to date has been marginal at best. We think that is an unfortunate situation. As you have heard, the defence in section 96 has been successfully invoked only once in its 16-year history, and there is a view expressed — which I have not independently validated — that had the dead-weight loss in the Superior Propane case been calculated on a different basis than it was, perhaps it might not have even been available there.
One reason why efficiencies have received so little attention in merger review is that they are recognized as coming into play as a defence, and therefore only after you have made a judgment that the merger will be anti-competitive. In the context of making that first judgment, efficiencies do not seem to be considered.
That creates a scenario in which efficiencies are really only considered, taken into account or prevail in circumstances where you have an anti-competitive merger and it becomes an all-or-nothing situation. The attitude of the bureau in approaching that sort of situation has ranged from suspicious to hostile, which is not entirely surprising because the effect of the implication of the defence is that it allows the transaction to proceed notwithstanding potential substantial anti-competitive effects.
As mentioned, the section has not been invoked more than once in 16 years. That is why I say that it has been of limited assistance. Efficiency factors, which are important, have only occasionally been considered.
If section 96 were to remain in the law without amendment, we think that in addition to having somewhat limited scope for application now that it has been interpreted by the Competition Tribunal and the Federal Court of Appeal, particularly with the ``balancing weights'' test becoming the determining factor, there are some rather difficult judgments to be made as to when it would be available. Not only do the efficiencies, as measured, have to exceed the dead-weight loss, but also — and let me give my lawyer's understanding of it — the ``socially adverse'' portion of the wealth transfer that is expected to come about as a result of the merger.
I would say that the application of the section, as it has been interpreted, becomes highly uncertain as well as limited in scope, and it is very difficult, from a predictive point of view, to advise clients whether or not it may be available to them. In this respect, treating efficiencies as a factor represents something of an improvement, in that it will allow their consideration in virtually every case. Certainly their relevance is acknowledged — and it follows the approach by which I believe efficiencies are considered in the U.S. — and it would integrate their consideration into the overall judgment as to whether or not a merger has net anti-competitive effects. It would create more of a rule-of-reason approach under section 93, which is the section that acknowledges the various factors that are taken into account in reviewing a merger.
However, as I said at the outset, this approach becomes much less desirable if the new provision is to be hobbled by these twin requirements of consumer benefit and merger specificity.
I would just like to conclude by mentioning two other more or less technical suggestions. Rather than proceeding with the proposed amendment, we would prefer that section 96 be repealed, and that the treatment of efficiencies as a factor be added to section 93. Section 93 in the current act provides for factor review of mergers. It would complement that approach to include it there as opposed to section 96.
Second, we would urge the repeal of the existing subsections (2) and (3) of section 96, which, in the context of a factorial approach to efficiencies, is unnecessary and not a particularly helpful additional requirement.
Thank you for attention. I would be pleased to respond to any questions later.
Mr. Neil Finkelstein, Blake, Cassels & Graydon, LLP, As an individual: Honourable senators, I have argued four of the five contested merger cases that have gone before the Competition Tribunal. I won the four of them against the commissioner.
The problem, in my submission, is not the law; it is the cases that the commissioner chooses to prosecute. Superior Propane is a good example. The Competition Tribunal and the Federal Court of Appeal held that the efficiencies outweighed all of the adverse economic and social effects, including monopoly, by a factor of 3.5 to 1.
That is a good merger. It makes Canada wealthier by a factor of 3.5 to 1. That merger would not pass under this amendment.
This amendment is entirely misconceived. It is perverse in its effects. I will explain that in a moment.
I should say that, while I am here as an individual, a great many of the leading members of the competition law bar agree with me. Notwithstanding the comments by Mr. Kennish on behalf of the Canadian Bar Association, many members of the competition law bar disagree with that submission. You should be aware of that.
Section 96, as it now stands, provides that a merger must be passed if it increases net Canadian wealth. As interpreted by the Federal Court of Appeal and applied by the Competition Tribunal, if the addition to Canadian wealth exceeds all the adverse economic and social affects, the merger must be passed.
In Superior Propane, the efficiencies were $29.2 million. The adverse economic effects were $6 million. All the adverse social effects, that is, the transfer from poor people to Superior Propane, were $2.6 million, for a total of $8.6 million in adverse effects of all kinds.
The amount of $29.2 million is much bigger than $8.6 million, and that is why the merger passed. It did not pass because there was anything wrong with the law, but because the Competition Tribunal and the Federal Court of Appeal said the efficiencies are much greater than all of the bad effects.
This amendment says that unless efficiencies are passed on to consumers, and it is only a factor, the merger will not pass.
I understand that ``consumers'' is a politically attractive word, but look at the consumers in Superior Propane. Most of them were many times larger than Superior Propane. Imperial Oil was one of Superior Propane's biggest customers. Imperial Oil is owned 70 per cent by Exxon. It has American shareholders. Under this proposed legislation, unless Superior Propane, which is owned largely by Canadian pensioners, passed on the efficiencies to Imperial Oil and, effectively, its American shareholders, that merger would not pass. That is perverse.
Shell was another of Superior's biggest customers. The largest shareholder in Royal Dutch Shell is Queen Beatrice. Unless the efficiencies are passed on to Queen Beatrice, under this amendment, the merger would not pass. That is perverse. It is also bad policy.
Let us go back to Superior Propane. I see that most of the bureau is here. They do not like Superior Propane. If they had their way, the Superior Propane merger would not pass. Imperial Oil would be a lot happier. Shell would be a lot happier, but the Canadian pensioner would not. I say it is bad policy.
Take again Superior Propane. In the United States, there are six retail propane distribution companies that are larger than Superior Propane — six!
The merger was Superior Propane and Inter-City Gas, ICG, and on their own, they had $29 million worth of inefficiencies. That is what the tribunal said. How will we compete with six larger American companies if we are inefficient? Yet this legislates inefficiency, because this merger would not pass. Let us face it; this is a Superior Propane amendment. That is why it is here. This merger would not pass, and we would not be able to compete.
You have heard from the acting commissioner that he effectively wants a per se rule against ``monopoly.'' That is another politically charged word. I will make three points on monopoly.
First, subsection 92(2), which is not being amended, says that you do not pay attention to market share. There is no difference between 80 per cent, 90 per cent or 100 per cent. You do not pay attention to market share. You are not changing that.
Second, the current section 96 considers monopoly. The second competition tribunal decision considered monopoly. It said that in considering monopoly, and everything else, $29 million beats $8.6 million.
Third, monopoly can be highly competitive. Ask the bureau's economists. Ask every other economist, but also ask the bureau's economists. You can have a situation of 100 per cent monopoly in which the monopolist thinks that if he raises the price by a penny, other competitors will rush in. It is called, in the jargon, ``poised competition.''
In this case, the jargon also makes sense in the real world. We all understand that if we do certain things, it will engender reaction. There are examples of where you have a highly competitive market.
In fact, one of the cases in which I was successful against the bureau was the Hillsdown case. My clients merged to a 67 per cent market share. The Competition Tribunal said, never mind efficiencies, there is no substantial lessening of competition. Poised competition was one of the reasons. Other competitors were not in the market, but they would have come in if the price had gone up.
Monopoly is just a word. You have to look at the situation. If the commissioner wants a per se rule against monopoly, it is misconceived. Thank you.
Mr. Brian A. Facey, Blake, Cassels & Graydon, LLP, As an individual: Honourable senators, I want to address three questions. The first is why are we changing the law? The second is what does the new law mean, both on its face and to the country? My third question is, what is the rush?
Turning to the first question — why are we changing the law — is it because the current law is too permissive, that it is basically a green light for monopolies to be created? I would submit the answer is no. The current section 96 has been on the books since 1986. During part of that time, since 1991, the bureau has used the most permissive interpretation of that section in its merger enforcement guidelines.
At the same time, we have had two major merger waves — one in the late 1980s and one in the late 1990s. During that time, the bureau regularly reviewed over 400 mergers per year, yet there was only ever this one case. It cannot be that the law is too permissive, especially since this case, according to the Federal Court of Appeal, has made the defence more difficult than it was previously. Therefore, in my submission, it cannot be because the law is too permissive.
Second, is it because we need to be more like the United States? Some people have suggested that. My answer there is no, for a couple of reasons. First, Canada is too small, too geographically diverse and perhaps too inherently inefficient to have the sort of antitrust laws that the United States has.
I have included an excerpt, which I would like to quickly read to you, on page 12 of our submission that is a quote from the Economic Council report of 1968, which is, in essence, the genesis of section 96. It is a very short quote and it gets to the point. Again, it is from 1968 and is comparing U.S. antitrust laws with Canada's.
It says:
Although competition policies in Canada and the United States as instituted in the late 19th century were in many ways a response to common concerns, their subsequent divergence has been partly a reflection of certain rather deep-seated differences between the two countries, and the smaller size, greater openness and world trade orientation of the Canadian economy.
I would submit that that has not changed today.
Last week, on October 30, I was here to speak but we were not heard. However, I picked up The Globe and Mail that morning, and thought it was interesting that the headline was ``Economic Ranking Deals Blow to Canada: Global competitiveness rating falls from third to 16th in two years.''
I am not suggesting that the competition laws are either a cause of or an answer to this. However, do we really want to take away a competitive advantage for Canadian businesses by effectively deleting section 96 from the act? In my submission, the answer should be no. Why are we changing the law? I think the answer is that it is simply in response to one case in the 15-year history of the section.
The second question is what does the new law mean on its face, and what does it mean to Canada? On its face, the new law raises many questions. As you are aware, Mr. Finkelstein has argued most of the merger cases, and I argued the Superior Propane case with him. We have looked in great detail at the meaning of these sections.
Bill C-249 talks about ``consumers.'' Which consumers? Are these the consumers of the merging parties? Is it consumers as a class? Is it shareholders, who are also consumers? These issues were all litigated in Superior Propane, and they are not answered by this bill.
Second, which economic standard is to apply? Mr. Townley, I understand, will speak to that in greater detail, but is it the so-called price standard, the consumer surplus standard, the consumer welfare standard, the Hillsdown standard? There are many standards in the economic literature that were all debated in the propane case, none of which are answered by Bill C-249.
The third point is how does this section interact with the rest of the Competition Act? Section 1.1 of the Competition Act provides four goals of competition under the legislation. They are efficiency, international competitiveness, small business, and, enumerated last, consumers. The Federal Court of Appeal in the Superior Propane case said that section 1.1 was relevant for interpreting the statute, and yet this section focuses only on consumers. That is the mistake the tribunal made in the first case, in focusing solely on efficiencies, according to the Court of Appeal.
Finally, there is another section in the act that has an efficiencies defence; section 86 deals with specialization agreements. It is essentially the same language as section 96, yet there is no movement to change that section. There is also discussion about adding an efficiencies defence of some sort to the price-fixing section, section 45 of the act. If this passes, we could have one efficiency test for mergers, a different one for specialization agreements and a different one for strategic alliances between businesses. The current section does not consider the interplay with the rest of act.
My last point is, what is the rush? There is a much larger amendments package that has been debated and discussed in the antitrust competition law community over the last several years. In June, the bureau issued a wide-ranging discussion paper, and is today, as we speak, holding round tables on those amendments. None of that process is taking place in respect of this bill. I submit — and agree with the CBA, to this extent — that there should have been further consultation with stakeholders and with people practising in the area.
Those are my submissions and I look forward to questions.
The Chairman: Thank you. The final presentation is by Mr. Townley.
Mr. Peter G. C. Townley, Professor of Economics, Acadia University, As an individual: Thank you, honourable senators, for inviting me to speak today. This is a most complex issue.
I have been a professor of economics at Acadia University since 1981. For the two years ending June 30 of this year, I held the TD MacDonald Chair in Industrial Economics at the Competition Bureau. Currently, I am taking a sabbatical leave at the Institute for Policy Analysis at the University of Toronto.
You have a fuller written submission. I will use my time to speak to the essence of that.
When it has been found that a proposed merger will result in, or likely result in, a substantial lessening or prevention of competition according to section 92 of the act — the burden of which is on the Commissioner of Competition to demonstrate to the tribunal — the parties may appeal through section 96 of the act regarding cost savings — efficiencies, if you like — that are expected to result from the merger. The burden to demonstrate that the good of an anti-competitive merger would outweigh the bad falls mostly on the parties.
Section 96 is all about balancing things that are good and bad for Canadians with respect to mergers and acquisitions. In the propane case, I was the commissioner's expert on how this balancing might be accomplished in an economically valid and sound manner.
Prior to the propane case, the commissioner applied a test known as the ``total surplus standard.'' In the case of a merger that would cause consumers to lose and producers to gain, a merger would satisfy this test if the dollar gains of producers exceeded the dollar losses of consumers.
I argued against this test in Superior Propane. It misses the point that those dollar gains may not increase the well- being of those who gain by enough to offset the loss of well-being of those who lose.
We expect a relatively poor individual to value extra dollars more than a relatively wealthy one. Therefore, in the case of a merger, where the gainers are wealthy relative to the losers, passing the total surplus standard may not signal an increase in aggregate well-being. Such a merger will be said to have adverse distributional impacts. The total surplus standard treats distributional impacts as if they are negligible, whether they are indeed or not.
It is necessary to take into account the distributional impacts of a merger. This is what the approach I advocated in the case accomplishes. It is called the ``balancing weights approach.''
The first Federal Court of Appeal in this case determined that the total surplus standard was not flexible enough to accommodate the elements of section 1.1 of the act that Mr. Facey enumerated, that is, the purpose clause, and further determined that the balancing weights approach had the desired flexibility. That is now the law, the jurisprudence; balancing weights.
At the other extreme from the total surplus standard is the price standard, which Bill C-249 resembles. Like the total surplus standard, it is arbitrary and inflexible. A merger does not satisfy this test if it causes anyone to lose, regardless of the magnitude of the gains that might accrue to the rest of the economy. It takes just one loser.
In essence, this test treats distributional impacts as egregious in the extreme, both when they are and when they are not. The balancing weights approach, the current jurisprudence after Superior Propane says to look at the distributional impacts of the merger. If they are egregious, treat them as egregious; if they are negligible, treat them as negligible. Look to the evidence on a case specific-basis instead of applying an arbitrary, inflexible test that ignores the facts of the case and the multiple objectives of the act given in section 1.1.
This is my main problem with Bill C-249. It imposes a state of ignorance on the Competition tribunal, the same tribune that did apply a variation of the balancing weights approach in its redetermination decision in Superior Propane. It did account for the distributional impacts of the merger.
We worry about allowing welfare decreasing mergers and preventing welfare increasing mergers; that is, we worry about making mistakes. The price standard, Bill C-249, would prevent too many welfare increasing mergers and the total surplus standard has a potential to allow too many welfare decreasing mergers. The current jurisprudence, what is the evidence, reduces the likelihood and costs of making both kinds of mistakes.
Section 96, as it is, augmented by the jurisprudence of the Federal Court of Appeal in Superior Propane, does not require amendment. Bill C-249 would mean a radical change in how mergers are assessed and prosecuted, to the detriment of Canadians.
The Standing Committee on Industry, Science and Technology hearing transcripts reveal that the principal motivation for Bill C-249 was the outcome of Superior Propane, especially with respect to those geographical markets classified as ``monopoly'' post merger.
First, an amendment to the effect that the efficiencies defence would not be available in the case of elimination or near elimination of competition would have provided more clarity and would speak directly to the express concerns of House committee members. I do not agree with it, but I simply think that an amendment along those lines would do less damage to Canada than Bill C-249.
Second, there would appear to be a presumption that it is section 96 of the Competition Act that is inadequate rather than the Commissioner of Competition's prosecution of the Superior Propane case.
The inadequacy of the prosecution of this case is well known. It was revealed in journals as long ago as the fall of 2000, just after the tribunal issued its original decision, well before factums for the redetermination case were prepared, and before the first Federal Court of Appeal hearing in this case. Cost savings were counted that should not have been counted and losses to the Canadian economy were understated by a factor of 8.5. That is the claim of both Professor Mathewson and Professor Winter who used to be at the University of Toronto. The factor of 8.5 has not been tested before the tribunal.
The tribunal was aware that evidence existed, but the commissioner did not adduce the evidence at the first tribunal hearings properly and at the redetermination hearing at all. In the redetermination decision, at paragraph 169, the tribunal states:
It therefore cannot be said that the total surplus standard necessarily would have led the tribunal to approve the instant merger had the dead weight loss been measured properly.
Thus the tribunal expresses the view that had the proper evidence been adduced the Superior Propane merger may not have met even the easiest test to pass, much less the balancing weights approach, the current law.
On the back of an envelope, using published numbers, it appears to me that the social costs of that merger exceed the social benefits by 14 per cent had that new evidence been adduced and stood the test.
In my view, if the outcome of the Superior Propane case is to be the rationale for adoption of Bill C-249, an independent inquiry into its prosecution is warranted. The merger provisions of the Competition Act as they currently exist serve Canadians and the legislated objectives of the act best.
Senator Hervieux-Payette: My first question is for the Canadian Bar Association. It seems that you had not too much time before the committee of the other place.
Did Canadian Bar Association make the same representation before the House of Commons committee?
I understand that some of the individuals who are appearing here today were not heard there.
What is the bar's opinion about making amendments to bills that are directed to one corporation?
I voted against the amendment to the Competition Act when we dealt with the question of Air Canada. To me, it is totally against the public interest to legislate for one company.
I do not have a conflict of interest. I it think it is important to know the bar's position on amending bills that do not touch on any other cases but one.
Mr. Kennish: We have three times provided submissions on this legislation as predecessor bills. We presented a written submission on Bill C-248 and when it was converted into the current version we appeared before Industry Committee and presented a similar view to the one you have heard today, but primarily urging members to drop the proposed legislation in favour of broader public consultation.
We think it is a very important issue in competition law and warrants full consideration. We now have a process ongoing; this discussion paper review. I believe that is the perfect place to have included this, and I do not think it is too late to do so because it is at least as important as many of the measures that are currently being canvassed in that process.
We did take objection before the industry committee to the process that was followed because it was not inclusive enough, in our view, for proper consideration of it.
The bar has gone on record a number of times in its opposition to industry-specific provisions because the view we take is that the Competition Act is framework legislation of general application that should not be targeting, for example, travel agents dealing with airlines. There is a provision like that in the act.
In this case, there is a proposal to change the merger efficiency defence, which is a more general issue. I appreciate it is prompted by the Superior Propane decision, but we have treated it on a more general basis as opposed to one case- specific situation. Nevertheless, we still think it would benefit from much more public discussion and consideration, and that is our primary position e.
Senator Hervieux-Payette: Mr. Finkelstein you talked about the advantage that this would have given to Imperial Oil and Shell. Yesterday, we heard that the farmers would be the ones hurt by the adoption of the proposed legislation.
I would like to know just who you consider the consumers to be.
Mr. Facey, where do we draw the line? In the general public, there seems to be a threshold that once you attain 70 per cent, then there is practically no competition. Is that when you call it a monopoly?
My last question is to Mr. Townley. You made a good presentation. I do not mean any offence, but I am wondering whether you are doing this totally on your own and no fee has been paid to you to present this paper? I want us to be sure that it is your personal opinion.
Mr. Townley: May I answer that now? That is an important question. I am not being paid for my presentation here today.
Senator Hervieux-Payette: You are totally on your own?
Mr. Townley: I am on sabbatical leave. The good taxpayers are paying for my transportation here today.
Senator Hervieux-Payette: It is important for the record to know that you did that on your own, and your opinion has more weight because of that. Mr. Finkelstein and Mr. Facey, can I have your answers?
Mr. Finkelstein: Let me also say that we are doing this for nothing.
Senator Prud'homme: Yes sir, but it is very prestigious.
Mr. Finkelstein: Highly prestigious, senator. I am here because it gives my reputation an enormous advantage.
Senator, your question is absolutely the right question, and it is totally foreclosed by this amendment. Your question is, who is the consumer? Let us apply some judgment, asks your question, to who is the consumer.
Some consumers we will consider as having been adversely affected, and other consumers we will not. That is the balancing weights approach. Mr. Townley and I were adversaries. I cross-examined Mr. Townley and you can see how successfully; the Federal Court of Appeal accepted his method, which says that you have to look at who the consumers are.
When the commissioner told you the consumers were farmers, I find that incredible when you look at the evidence. Were they telling you the truth? Sure. Were there farmers? Absolutely. I see Mr. Lancop has his mouth open. There were farmers there. We had evidence of agricultural consumers, and I can tell you a lot of them were from very large co-ops.
We had industrial consumers: Imperial Oil, Bombardier, Shell, and McDonalds. We had construction consumers and very large developers. We had poor people living in isolated communities. We had all kinds of consumers.
What the tribunal did when it looked at the evidence, and you can see this in the redetermination hearing, is go through the various different categories of consumer and said, ``For the small, poor consumer, there is an adverse social effect.'' How much? They measured $2.6 million.
Was the commissioner telling you the truth? Yes, insofar as it goes.
Does it present the whole picture? No, it does not.
I was giving you a submission to prove a point, which is, do not have an absolute rule that a merger will not pass unless the efficiencies are passed on to consumers unless you are ready to say, ``unless we benefit foreign consumers,'' because there will be situations and the merger will not pass. That is my point.
Mr. Facey: Regarding the question of what is ``monopoly,'' that is a most important question of the last century in antitrust debate. It has a popular meaning to all of us and an economic meaning. The question is, when is it a monopoly and at what market share?
I submit that it is really an empty concept, and that is what the tribunal said in the Superior Propane case. What we are really talking about is market power.
What is market power? We seem to think it is the ability to raise prices or reduce service. That is generally how we accept it. Monopoly is basically irrelevant to that in the sense that you could have complete perfect entry, as Mr. Finkelstein said in the Hillsdown case, where you could not raise prices because entry would come in and defeat any price increase.
That is why subsection 92(2) is in the act. It prohibits a finding of a substantial lessening of competition based on market share, because we are beyond using those kinds of proxies.
I also echo what Mr. Townley says. If that is really the concern, this does not fix that. The better way to fix it is to say that this does not apply in the situation of monopoly.
Senator Angus: I am tempted to ask you what you really think, but I will restrict my comment to thanking you for clear presentations, without pulling any punches.
Mr. Finkelstein, you indicated that not all members of the competition bar subscribe to the submissions put forward by Mr. Kennish.
Did I understand you correctly?
Mr. Finkelstein: You understood me correctly.
Senator Angus: Could you elaborate please?
Mr. Finkelstein: Most agree, and I agree, with Mr. Kennish's submissions on process, and we agree with his submission regarding the inflexibility of this proposed amendment given that if the efficiencies are not passed on to consumer, the merger does not pass.
Where leading members of the competition law bar, and I include, with his permission, my partner Mr. Cal Goldman, a former Commissioner Of Competition and others, strongly part company is here: Efficiencies are very important, and to make efficiencies a factor, which the commissioner can then ignore, is bad policy.
I have heard the argument put that the commissioner ignores section 96 now. If we make it a factor, then he will consider it, because it is not all or nothing. To me that argument turns the world on its head. If the commissioner is not following the law that he is supposed to follow, the proper approach is not to change the law but to get a new commissioner.
Senator Angus: We have been reading the papers.
Mr. Finkelstein: As Mr. Facey said, section 86 of the act, regarding specialization agreements, puts forward an efficiencies defence. The idea is that where efficiencies exceed all of the anti-competitive effects that is a good merger for Canada, that should end the inquiry. It should be a defence, not simply a factor, which would permit good mergers, welfare enhancing mergers, as Mr. Townley has described them, from being refused.
That is where I, as well as others, depart company with the bar. We say it should remain as a defence and not simply be a factor.
Senator Angus: In the larger sense of being against C-249 or any technical aspect of it, are you on side with the submission of the bar?
Mr. Finkelstein: With the greatest of respect, senator, it is much more than a technical aspect. If it is only a factor, the realty is efficiency-enhancing mergers are highly vulnerable. That is not a technical issue.
Senator Angus: No, I appreciate that.
Mr. Finkelstein: We agree with the concepts.
Senator Angus: I had understood, and I think it came through, even with you, Professor Townley, that we do not want anything to do with Bill C-249, but if the powers that be want to do something in response to Superior Propane then here are some other ways maybe you could perhaps go. It was characterized by at least one of you that this will do less damage to Canada, but it would still do damage. I cannot see how you could subscribe to anything that would do damage to Canada.
Why would we pass a law that is doing damage to Canada?
Mr. Finkelstein: That is our point.
Mr. Townley: I would take the lesser of two evils, but yes, I agree.
Senator Angus: I have to congratulate you for your candour, Mr. Finkelstein especially, with these gentlemen and ladies sitting right there.
Mr. Finkelstein: They did not like me before.
Senator Angus: I am glad they came back. From what I understood of their testimony yesterday, first, they told us this did not start off as a government bill but a private member's bill for whatever reasons, I do not know and it has not been made clear to me. It has been quasi-converted to a public bill. I do not understand how that came to pass or why the government is bringing this thing to us at this time, especially with the discussion paper process underway, and to everybody's knowledge.
However, the reality is that we are here, and these folks were telling us that this would bring Canada into the 21st century and modernize our competition laws because we are in the Middle Ages. That came through yesterday and I am shocked. Please comment.
Mr. Finkelstein: I am shocked, sir, because we came through a major exercise, and Mr. Kennish was an important part of that exercise. Since the early 1970s, there have been numerous discussion papers culminating in the Competition Act of 1986.
Competition law was thought to be only foundable on the criminal law power, but it was decided that was not to the case. Therefore, the 1986 comprehensive amendments moved our merger law, and recognized it as being economic in nature. To say that this is a move forward is, in my view anyway, is a significant error.
Senator Angus: It is the reverse, it seems.
Mr. Finkelstein: Mr. Facey said this, Professor Townley will confirm it, and the tribunal said it in the second decision in Superior Propane, that the Americans are looking at ways to consider efficiencies. They, in their law do not, and they are looking at ways to consider efficiencies. They are going the other way.
Senator Angus: Thank you very much. I think it is res ipsa loquitur, Mr. Chairman.
The Chairman: Thank you, gentlemen. That concludes our time with you, and I would ask that the committee now go in camera on two matters.
The committee continued in camera.