Download as PDF

Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce

Issue 6 - Evidence

OTTAWA, Wednesday, May 12, 2004

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 4:03 p.m. to give consideration to the bill.

Senator Richard H. Kroft (Chairman) in the Chair.


The Chairman: Honourable senators, today we continue our consideration of Bill C-249, to amend the Competition Act.

We have two sets of witnesses today. The first set of witnesses is from the Competition Bureau. We have Ms. Sheridan Scott, Commissioner of Competition. I believe this is her first opportunity to appear before us in her new position. I see some familiar faces as well: Mr. David McAllister, Major Case Director and Strategic Policy Adviser, and Ms. Suzanne Legault, Assistant Deputy Commissioner, Legislative Affairs Division.

Welcome. We are delighted to have you here this afternoon. I understand that you would like to make an opening statement. We will then turn to questions. Please proceed.


Ms. Sheridan Scott, Commissioner, Competition Bureau: Honourable senators, thank you for inviting me to participate in your deliberations on Bill C-249, an Act to amend the Competition Act.

As you mentioned, Mr. Chairman, this is the first time that I am appearing before you as Commissioner of Competition and I welcome the opportunity. Before explaining why the Competition Bureau supports this important piece of legislation, please allow me to say a few words about our mandate and my role as Commissioner of competition.

As an independent law enforcement body, the bureau seeks to ensure that all Canadians enjoy the benefits of a competitive marketplace in the form of competitive prices, product choices and quality services. The bureau administers and enforces four statutes: the Competition Act, the Consumer Packaging and Labelling Act, the Textile Labelling Act, and the Precious Metals Marking Act. It enforces provisions prohibiting anti-competitive conducts such as false or misleading representations, deceptive marketing practices, abuse of dominant position, exclusive dealing, price fixing and bid-rigging. It also reviews merger transactions to determine if they will result in a substantial lessening or prevention of competition in the marketplace.


In addition to my enforcement duties as Commissioner of Competition, I also have a role to play as a competition advocate which brings me before committees such as this one to provide my perspective as the head of Canada's competition agency. The act also provides me with the right to appear before provincial and federal regulatory authorities.

The bill before you today would amend the merger provisions of the Competition Act and change the way we consider efficiencies in the course of a merger review.

Under the current regime, which was adopted in 1986, the bureau undertakes a delicate and complex exercise to assess a proposed merger's effects on competition. As explained in our Merger Enforcement Guidelines, a merger can substantially lessen or prevent competition when the merged company gains enough market power to maintain prices at a higher level than could be expected in the absence of the merger. In reaching this determination, the bureau assesses a number of elements in its review. These include market concentration, market shares and factors enumerated in section 93 of the act, such as foreign competition, innovation, the availability of acceptable substitute products, the existence and effects of any barriers to entry and the extent of any remaining competition in the relevant markets.

Under the current law, it is possible for a merger to proceed even if it results in a substantial lessening of competition. This is due to the efficiency defence, which allows the Competition Tribunal to weigh efficiencies resulting from a merger against anticompetitive effects, such as price increases. These efficiencies can include savings associated with integrating new activities within the merged firm, transferring knowledge between merging parties, quality improvements, and the introduction of new products.

Under our current system, a merger will be allowed if the efficiencies generated by the merger are likely to be greater than, and will offset, the effects of any prevention or lessening of competition.


My recent ten years in the private sector have made one thing very clear to me. The need for an efficient economy remains a critical issue for Canadians and Canadian corporations.

My consultations over the past three months with over 200 competition stakeholders have confirmed by belief that industries around the world will continue to undergo profound transformation in response to accelerating technological change, a growing global economy and continued deregulation.

If our economy is to prosper and grow in these challenging times, there is no doubt in my mind that we need to have successful and efficient corporations that can make the necessary investments in infrastructure and R&D to keep Canada at the forefront of progress. In this way, we will continue to see growth, job creation and innovation in this country.

For these reasons, the role of the efficiencies in merger review remains an important issue.


What will be the impact of Bill C-249 on the role of efficiencies? Under Bill C-249, efficiencies would become a factor that is considered in the assessment of whether a merger should proceed, rather than a justification of an otherwise anticompetitive merger.

Like the Canadian Bar Association, the bureau supports this approach. By factoring efficiencies into the overall competitive analysis of a merger, our review would focus on the likelihood that the relevant markets would remain competitive and, consequently, bring the many positive results that can flow from competitive markets, namely, choice, competitive prices, product and service innovations and investment.

Having reviewed the transcripts from last week's committee hearings, I would like to take this opportunity to answer the Chair's question regarding the use of ``may'' versus ``shall'' in Bill C-249. Does the use of ``may'' suggest that efficiencies need not be taken into account? The short answer is no. Replacing the word ``shall'' with ``may'' simply makes this legislation consistent with section 93 of the Competition Act. Section 93 lists factors to be considered regarding prevention or lessening of competition. The word ``may'' is used since each factor need not apply in all cases. If evidence of efficiencies is properly adduced or brought forward, it is certainly hard to imagine that the tribunal would choose to disregard it. In fact, in the past, the tribunal has systematically reviewed the evidence on all relevant factors in merger proceedings.

Furthermore, as a factor, efficiencies would continue to be broadly defined so that different types of efficiencies, specific to the proposed merger, would be taken into account. Nothing in the language of Bill C-249 restricts the types of efficiencies that would be considered. Specifically, the bureau would continue to look at allocative, productive and dynamic efficiencies, as I mentioned earlier.

Bill C-249 would, however, change how the bureau considers efficiencies. This amendment would drop the notion of a defence and provide that efficiencies are considered in an integrated fashion from the onset of a merger review. Furthermore, efficiencies would be considered in the context of the benefits they bring to consumers. This last point raises two issues: What types of benefits could be passed on to consumers? Who are the consumers?

I read this proposed legislation to be very broad in terms of the benefits that could be passed on to consumers. These could include innovations, quality and product improvements, choice and competitive prices that efficiently run competitive companies can demonstrate over time. They would not be limited simply to price issues, as they are in some jurisdictions. That is clear in the language of the proposed section, which identifies two types of benefits, price and choice, but does not limit other options.

In terms of the meaning of the concept of ``consumer,'' I also read the proposed legislation broadly. The dictionary meaning of a consumer is a purchaser of goods and services. It is not necessarily limited to end-consumers or consuming households. Jurisprudence in this area is consistent with a broad interpretation of ``consumers'' that would include individuals as well as businesses in the assessment of consumer impacts. This definition is also consistent with the concept of ``consumer'' internationally. For example, the European Union defines the meaning of consumers to include intermediate and ultimate consumers, potential and/or actual.

There is one important difference, however, under the factor approach. It is highly unlikely that efficiencies would justify a merger which results in a monopoly, something that has occurred under the current approach and, I would submit, is contrary to the purpose and objectives of the Competition Act.


The bill would also bring us closer to the rules of our trading partners. Historically, Canada has looked at efficiencies from a different viewpoint than virtually all other jurisdictions in the world.

In recent years, foreign competition authorities have focused more on how to encourage efficiencies without hindering the interest of consumers.

For instance, the EU adopted guidelines in 2004 that indicated willingness to consider efficiencies as part of its reviews, provided they deliver advantages to consumers and do not hinder competition. Prior to that time, efficiencies were virtually ignored.

And it was in the late 90s that the US confirmed that efficiencies would be integrated in the overall assessment of mergers as long as they do not harm consumer welfare.

I would therefore suggest that we are not witnessing a move internationally to the existing Canadian model as some witnesses seem to posit. Rather, we are seeing jurisdictions around the world revisiting their approach to mergers with a view to achieving the right balance between the promotion of efficiencies and the interest of consumers, much like C- 249 does.


Before I conclude, Mr. Chairman, I would like to say a few words in response to an issue that you raised last week, namely, why this matter is being dealt with as a stand-alone amendment and not as part of a comprehensive policy review. Let me begin with a procedural explanation.

As the committee is aware, Bill C-249 originated as a private member's bill and not as a government bill. As such, it followed the normal parliamentary procedures and was not the subject of parallel public consultations. Bill C-249 had a long history in Parliament, and the bill was adopted by the House of Commons following the normal procedures in May 2003.

The fact that this was a private member's bill certainly explains why it was not part of a broader policy review. However, I do not think this explanation is fully responsive to the concerns you were expressing last week. These relate, I believe, to the broader question of why this private member's bill should not be reborn as part of a broader government review of changes to the Competition Act and be the subject of further consultations.

To answer that question, I would like to look at the advantages and disadvantages from a competition policy perspective and assess where the risks lie.

What are the advantages to such an approach? I perceive just one, namely, the possibility that one might obtain a more macro analysis of the impact of changing the efficiency defence to a factor.

What are the disadvantages to such an approach? First, the Canadian Bar Association indicated that there is uncertainty in the business community as to the application of the approach endorsed by the Federal Court and the tribunal. While Professor Townley clearly described the conceptual elegance of the model, practitioners such as Mr. Kennish are all too aware of the practical challenges in advising clients on whether their merger is likely to pass muster before the Competition Bureau and, ultimately, the tribunal. Under this approach, merging parties must speculate on whether any consumers will be affected in a socially adverse manner; how this should be weighed; and what adjustment should thus be made to the determination of the value of efficiencies. All are highly subjective assessments.

Second, in an increasingly concentrated economy, it is conceivable that another merger application raising the efficiency defence will come forward and could result in the creation of a monopoly. This is speculative, of course, but growing levels of concentration increase the odds.

Third, any further consultations would necessarily involve additional and unknown delays, with no guarantees that the delays will allow parties to shed further light on a debate where the sides have been clearly drawn for some time. The choice is between a defence where efficiencies can justify an anticompetitive merger or a factor approach where efficiencies must be considered in light of overall benefit to consumers.

Mr. Chairman, I suggest that, from a competition policy perspective, the risks of ongoing business uncertainty, the potential for another anticompetitive merger, as well as the delays one might face, argue in favour of the passage of Bill C-249.

I trust this is responsive to your concerns. We would be pleased to answer any questions you may have.

Senator Tkachuk: I have a couple of questions about the policy review itself. Who is conducting that review?

Ms. Scott: Are you referring to the package of amendments that is currently being examined? There was an Industry Committee report that resulted in a government response. Following that, there was a series of consultations carried out by the Public Policy Forum. This is prior to any decisions about draft legislation. This is simply discussing the ideas that were raised in the Industry committee report and the government's response.

Senator Tkachuk: What makes up the initial Industry committee report?

Ms. Scott: The original Industry Committee report is a discussion of four areas in the Competition Act and proposals for change.

Senator Tkachuk: I am trying to understand who is doing these things.

Ms. Scott: The consultations were led by the Public Policy Forum. They took the questions that were raised by the government in its response. Parties were invited to submit written comments to the Competition Bureau, to the public policy forum. That was the first type of written consultation. The forum then proceeded with oral round tables where parties came forward and made observations in response to the questions raised in the government's paper.

Senator Tkachuk: Just so I am clear, who initiated this, the minister, the deputy minister, or the head of the Competition Bureau?

Ms. Scott: I will ask Ms. Suzanne Legault to respond. As you know, I am relatively new at the bureau. She was there during this consultation process.

Senator Tkachuk: Who woke up one day and said, ``Let's review this?''

Ms Suzanne Legault, Assistant Deputy Commissioner, Legislative Affairs Division, Competition Bureau: It was initiated by the Industry committee report that was issued in April, 2002. That report made 29 recommendations where they thought we should look at proposals to amend the Competition Act. That generated an official government response to that report. The government response was tabled in October, 2002. The government then undertook to do widespread consultations on some of the recommendations that were put forward by the Industry Committee. The government then launched the discussion paper, which had a list of proposals for comments by stakeholders. That was issued in June, 2003.

The process was led by the Public Policy Forum. The bureau hired the Public Policy Forum to steer the process, gather the comments and organize the round tables. We had about 100 written submissions during a three-month period, followed by round tables across Canada. The Public Policy Forum was issued in April of this year.

Senator Tkachuk: Would the question of efficiencies have been part of that discussion during that time? This has been going on for a couple years.

Ms. Legault: One proposal in the discussion paper dealt with having agreements among competitors to be dealt with in the civil provisions of the act. As part of that, one of the factors was an efficiencies factor to be considered as part of the overall analysis. One of the questions in the discussion paper asked specifically whether it would be appropriate to consider such a factor of efficiencies in merger reviews as well. The factor that was in the discussion paper was modelled on Bill C-249. It was not a specific consultation on a modification to the merger provisions, but people commented on that at the same time. Before coming here, I reviewed the written submissions, and some people commented on that point in the written submissions, and at the technical round table, that issue was raised with the experts in competition matters.

Senator Tkachuk: Would it be appropriate to say that those who made presentations on the question of efficiencies and the Public Policy Forum discussion on the question of removing efficiencies as a defence, as Bill C-249 proposes, would be in harmony or would they be in contradiction with each other?

Ms. Legault: Two questions were asked in the discussion paper, if I may just put those on the record. One was whether efficiencies should be considered as a factor in the civil alliance provision, which we had in the discussion paper. The second question was whether efficiencies should be considered as a factor in a merger review: why or why not? People did address those issues. I must say, looking through the transcripts, that the issues that were raised before you and also in the other place were the same types of issues. Some people said that they prefer the status quo, having a defence within the efficiencies provision; and some people said they prefer to have it as a factor. Some people commented about ``may'' or ``shall'' and some people commented about the passing on to consumers.

The issues were exactly the same as those raised before you.

Senator Tkachuk: There was no common consensus?

Ms. Legault: No.

Ms. Scott: They were the positions that you have heard. Some people favour a defence, maintain the status quo; and some people favour the introduction of a factor. The issues you have heard over the last weeks or so are the same issues you would have heard last November-December when you heard witnesses as well. You would have heard similar sorts of comments in the process of the Public Policy Forum consultations.

Senator Tkachuk: Why did the government not proceed to bring a bill forward on this issue as part of a package? Is the government's position the same as the private member's position and the same as your position? Is there somewhere stated in a public policy document that this is the position of the Government of Canada?

Ms. Scott: When Bill C-249 passed the House of Commons there was a vote. The then Minister of Industry, Mr. Allan Rock, voted in favour of the private member's bill, as did the current minister, Ms. Lucienne Robillard.


Senator Massicotte: Ms. Scott, you have addressed comments and questions that we have expressed. I would like to come back to the potential impact of the bill. These are issues of efficiency put into perspective that increase supply, where consumer pricing is taken into consideration.

Let us go back to the economic theory. I would cite the Governor of the Bank of Canada, Mr. Dodge, who always says that the only issue for the Canadian economy is the country's productivity or per capita productivity. I have never heard him say that economic or efficiency measures are less important than consumer pricing or competition as such. Competition ensures that productivity is high and that the country produces a lot.

I am trying to understand the economic theory. Why is the efficiency argument secondary to competition or consumer pricing or consumer supply? Is that consistent with economic theory as expounded by our major Canadian economists? It even seems to go against the four objectives in the existing legislation. The purpose of the Competition Act is defined. Those four objectives seem to be forgotten. Can you help us?

Ms. Scott: We are not saying that the issue of efficiency is secondary. It remains a very important issue. We have before us the Competition Act. It is the interpretation of the Competition Act.

According to this legislation, the important thing is to have competition to ensure that Canadians benefit from all the advantages of competition, that is, choice and competitive pricing. There are even incentives for innovation and investment that do come from competition among large companies.

It is not that the importance of efficiencies is not recognized. On the contrary, I would say that the proposed approach is to continue to emphasize efficiency, but also to recognize that there is a need to recognize the impact on the market. Do we still have a competitive market? Are Canadians, companies and individuals benefiting from competition and the economy?

Senator Massicotte: With the proposed amendment, only efficiencies that benefit the consumer are considered. Efficiencies that increase competitiveness or productivity are not taken into account. You say that in the definition of competition in the Competition Act, you are prepared to have productivity and the well-being of our country considered secondary interests.

Ms. Scott: When I look at the proposed amendment, I am not limiting the benefits to price and choice. The wording in the provision is very broad. It can be read to mean that if a benefit to consumers can be identified, it should be taken into consideration.

If company mergers have a positive effect on investment, innovation and research and development, always in view of increasing economic productivity, that should be taken into account. Everyone acknowledges that individuals benefit from this. The bill is quite clear when it states:

... including competitive prices or product choices...

The word ``including'' means that these are examples, and one could think of other examples that would benefit consumers.

Senator Massicotte: I want to be sure that I really understand your position. We are still talking about benefits to consumers, not to shareholders or employees. I agree that the legislation, as it is currently drafted, does not define this. The tribunal decided that the idea of efficiency was more important than the idea of competition.

This bill would close the door to that. Although efficiency and productivity in the Canadian economy are very important, the benefit to the consumer counts the most. Do you agree with my interpretation?

Ms. Scott: You seem to be saying that efficiency and productivity are the same thing. I do not entirely agree with that. When we talk about consumers, we are talking about companies, individuals and everyone who benefits from the advantages of a competitive market. All that has quite a major impact on society.

If we look at how the current legislation is interpreted, it is clear that monopolies can be created. The issue of natural monopolies has not been regulated and that goes against all economic theory.

In general, Canada has had monopolies, such as the CRTC and telecommunications companies, and these monopolies were regulated. Now, there is an effort to encourage deregulation. I entirely agree with the tendency to move away from regulating monopolies toward a competitive market.

If the result is the creation of a monopoly in which companies can innovate and invest, and if they can increase their prices, that goes against the objectives of the Competition Act.


Senator Harb: Thank you for your presentation. If Bill C-249 had been passed when the merger application was made, would you have been able to deny the merger application, and would that have succeeded, then, before the courts?

Ms. Scott: Generally speaking, if it had been a factor rather than a defence, it would have been much more difficult for that merger to have succeeded if the amendment in Bill C-249 had been the law.

Mr. Dave McAllister, Major Case Director and Strategic Policy Advisor, Competition Bureau: I will try to illustrate what we are talking about here in terms of the factor versus the defence. Instead of dealing with propane, perhaps we can think of a proposed merger in an industry with three equal size firms where one firm will end up with 66 per cent of the market, with 33 per cent in the hands of a competitor. We look at the merger and conclude there is a serious competition problem. The competition between the merging firms is being eliminated and there will only be two competitors left. In that scenario, if there were significant verifiable efficiencies that could be considered as a factor in the analysis, it would be possible to conclude that, because there is a 33 per cent competitor in the market, there will be competitive discipline imposed on the merged parties. There is a likelihood that they will have the discipline to achieve the efficiencies and pass them on to consumers.

In that scenario, the merger factor may tip the analysis in favour of allowing the merger. This is just a hypothetical example. If you go from a merger of an industry with two firms to one firm, of course, there is a total elimination of competition. There is no competitive discipline on the merged party to realize the efficiencies and certainly not to pass them on to consumers.

On a continuum of a not substantial lessening of competition to a monopoly, as you get closer to a monopoly or a near-monopoly, the factor approach would make it more difficult for the parties to convince the tribunal that the merger should be allowed in the public interest.

Senator Harb: When would the Competition Bureau reach the conclusion that there is a dominance element and, therefore, a lack of competition, and conclude that the application should be turned down? At what point do you decide whether there is a dominance or not in the marketplace?

Mr. McAllister: The answer varies on the case-specific facts. We do know that the act specifies that we cannot prevent a merger solely on the basis of market share or concentration. It is already built into the act to recognize the idea that bigness in and of itself is not necessarily bad. The commissioner bears the burden of showing that not only is the industry more concentrated and that the merged parties have a substantial market share, but we must also be guided by the other factors that the tribunal is required to consider. Are there barriers to entering into the industry? Is there any foreign competition? Are there any substitute products that consumers can chose to mitigate the anticompetitive effects of the merger?

Typically, high market share and barriers to entry are the key things we would look at, and we ask ourselves the question: Post-merger, will the merged company have an ability to raise prices that will not be curbed by imports or some other form of effective competition? There is no magic market share number. We tend to think that anything below 35 per cent is highly unlikely to be dominant, so in abuse of dominance cases we look at market share from 35 per cent and up, and most of the contested cases at the tribunal on market shares have been in the 80 to 90 per cent range.

Ms. Scott: It is conceivable that you could have a company that would end up with 95 per cent market share and there would be another company or the potential for other companies to enter the marketplace that would act as a sufficient discipline on the price, so that one would not conclude that there is market power and one would let that merger go through. This is clearly not a market share game, as Mr. McAllister indicated. It is an important distinction between Canadian competition law and U.S. competition law, for example. Recently the Federal Trade Commission published a major report showing the market shares that they have taken into account in determining whether there would be a substantial lessening in competition, because that is the focus of their work. We operate differently. As I said, one need not even have an actual competitor out there. If parties can lead evidence to persuade us that there is a possibility of entry that will act as a discipline on prices, then we can conclude that there will not be a substantial lessening of competition, even in those circumstances with very high market share.

Senator Harb: When the committee considered the bill, and it was supported, they asked for a review of the Competition Act. Then you went out and, as you said to my colleague, did some consultation and people brought forward their submissions. I would think, without even planning it, a good chunk of those submissions would centre around the amendment in Bill C-249 because that was one of the issues that came up before the committee at the time and one of the factors that triggered this whole notion. I am interested in, first, the terms of reference. What did you put on the table before the public in terms of their comment?

Second, to what extent have you considered not only the Canadian domestic market but also the international market because, as you know, we live in a global economy, so in some cases we cannot differentiate between a local market and an international market? In certain instances, under international law, an entrant cannot be prevented from coming into the marketplace. The Competition Bureau could be considering a case involving two domestic firms and decide that the merger will not be allowed because, in the Canadian context, there will be dominance and, therefore, a lack of competition. That is notwithstanding the fact that an outside entity, under international law, could provide the same kind of services to the consumer here, and it could penetrate the Canadian market and provide choices to Canadian consumers.

Regarding the terms of reference, to what extent have you looked at the reality of the situation, in a sense, rather than just looking at the domestic situation? Has any international consultation taken place?

Ms. Scott: You have raised a good question about how do we look at activities that are or could take place in foreign jurisdictions that could have some impact on Canadian companies and how they operate. To me, this was a very real issue in my former guise in the telecommunications industry, which is, obviously, an increasingly global marketplace, so I followed this quite closely.

In merger reviews, there is no geographic boundary that is limited to Canada. When you try to assess whether the merger will result in a lessening of competition, you must define the market in which the company is offering its service. The bureau defines, first, the product market. What is the product? What would be a substitute for that product? It is sometimes not obvious how people substitute different products. However, an assessment is done of what we think are comparable substitute products that would act as a discipline. The consumer may say, ``The price has gone up on product A, so I will buy product B instead because it is close enough for my purposes.''

An analysis is also done of the geographic market; and it is not limited to Canada. When we assess the competition and whether a company can exercise market power, we consider companies that are close at hand, for example, in the United States, that do not have significant transport costs or, indeed, in the information era, do not have many costs at all because they can transmit their product electronically. That would be taken into account in the analysis, and that would be considered a disciplining factor on the price.

For example, if I were dealing with a Canadian company, and that Canadian company was facing electronic competition from a foreign-based company, that competition would be taken into account and assessed to determine whether it would act as a discipline on the ability of the Canadian company to raise its price. That is something that we do now.

I am very interested in the implications of a growing global economy, technological change, deregulation, and in what is happening around the world? What does this mean for Canadian companies? When I spoke to members of the bar a couple of weeks ago I told them that, when they come forward with merger applications, to please lead all the evidence. I used to sit in on the debates inside a corporation and consider precisely this issue. A lot of consideration was given to where the competition of the future will come from. We tell companies that are merging to lead whatever evidence they want to demonstrate to us that, in fact, the competitor of the future is not the company down the street now, because it is a global marketplace. This is extremely important to our work, and it will become increasingly important to our work.

It is also important to remember that we are now in a world of global corporations. I will take a famous example of two companies merging, which is that of GE and Honeywell. When they merged in the United States they were also merging in Canada, in Europe and wherever they have customers. They had to go before multiple competition authorities for authorization. They went before the American authorities and their application succeeded. They went before the European authorities and their application failed. What does that mean? It meant their merger failed.

Therefore, to some extent you can have increased harmonization of the rules that guide us in our merger analysis, but they need not be identical. We have Canadian concerns that may be quite different from U.S. or European concerns but, to the extent that you can move toward some type of similarity — we call it soft convergence — then that is good for companies because it increases the likelihood that they will be dealing with similar issues as they go to all these different international competition authorities to seek approval.

Does that answer your question?

Senator Harb: Perfectly.

The Chairman: One of the values of these sessions is that we all learn as we go.

Senator Moore: I want to follow up on Senator Tkachuk's question with respect to the review that was undertaken. I believe, Ms. Legault, you said that the government tabled a response to the Industry Canada report in October of 2002, and then, in the spring of 2003, they called for public input and they hired the Public Policy Forum to obtain that input. It was about the same time, as indicated in the brief of Ms. Scott, that Bill C-249 was in the Commons. Since it was topical at that time, do you know why it was not included in that policy review by Industry Canada through its agent, the Public Policy Forum? It deals with an important part of the act and it will have considerable ramifications, so I would think that something as important and as fundamental as that would have been seized and been part of that policy review.

Ms. Legault: At the time that the discussion paper was issued, which was in June of 2003, Bill C-249 had already been referred to committee and was being considered. In fact if I look at the timing, Bill C-249 was read the third time in the House on May 9 and May 13, 2003, and the discussion paper was issued in late June, 2003, so in fact it had already passed the House and had been voted upon by the House by the time that the discussion paper was issued.

Senator Moore: Yes, but it did not go further than that. It was not dealt with by the Senate.

Ms. Legault: It was then referred to the Senate.

Senator Moore: Various things happened in Parliament.

Ms. Legault: Yes, it was referred to the Senate and, as I said, it was discussed, in part, in a discussion paper along with the other provision dealing with civil strategic alliance, and a question was asked specifically about whether or not our stakeholders felt it was appropriate to consider efficiencies as a factor in merger review.

Bill C-249 itself was not part of a specific, separate consultation because of the legislative path it was following at the time. It had already been passed by the House and it had been referred to this committee for consideration. It had been referred to the Senate, in any event, for consideration.

Senator Moore: I find it peculiar that something as important as that would not have been part of the Industry Canada report in the spring of 2002 and would have been continued to be looked at as a policy consideration. Just because it is before the House and the Senate does not mean people cannot look at it. It is not like a case is before the court where you cannot comment.

Mr. Chairman, may I deal with ``shall'' and ``may?''

The Chairman: Go ahead. It has been raised.

Senator Moore: You state in your presentation:

Does the use of ``may'' suggest that efficiencies need not be taken into account? The short answer is ``no.'' Replacing the word ``shall'' with ``may'' simply makes this legislation consistent with section 93 of the Competition Act... The word ``may'' is used since each factor need not apply to all cases.

It seems to me that unless the word ``shall'' is there, factors need not be looked at. The only way that people can be made to look at all factors is if they are told that you ``shall'' do that. However, do you think that ``may'' has the same purpose or meaning as ``shall?'' I do not understand that.

Ms. Scott: I looked at it in a couple of different ways. One is to posit: What if it stated in section 93 that the tribunal ``shall'' look at it? Having studied the law for many years, it seems to me that that would create a most unusual situation where you would be telling the tribunal that it must take into account matters that are irrelevant to the transaction before it.

If you do not have ``shall,'' which I would suggest is an inappropriate word in this type of direction to a tribunal, the other option is to have ``may.'' That indicates you ``may'' take it into account, if it is relevant.

As you say, senator, a tribunal could say, ``There was no obligation on me; it says `may'.'' I will make two comments about that. First, it would be highly unusual as a practice of a tribunal where evidence is properly laid before it that the tribunal would choose to disregard that evidence. Indeed, I suspect there might be grounds for appeal if a tribunal had relevant matters before it and had adduced before it evidence that would be relevant to the matter and they refused to take that into account. Those are the basic principles of administrative law. You should be putting your mind to what is before you and not disregarding relevant matters.

Second, the practice of the tribunal would suggest that they do exactly that. If you review the cases that have gone before the tribunal, you would see that they review all the evidence of all the relevant factors. Their practice would suggest that that would be the outcome.

I do not believe that the use of the word ``may'' would allow for the tribunal to disregard evidence of efficiencies. Frankly, if I thought that were so, I would be troubled by it. My view is that the notion and the analysis of efficiencies and whether they are brought about by a corporation is increasingly relevant as we consider the global context. The tribunal should be paying attention to that.

I am not sure it should trump a situation where the result would be a monopoly when I believe that goes contrary to the purpose of the legislation.

Senator Kelleher: I would refer you to page 2 of your presentation. While you were not here at all of the hearings, I was. I listened attentively to all the witnesses. Only one witness agreed with the proposed change set out in Bill C-249, while all of the other strongly disagreed. In particular, I take issue with your third paragraph on page 2, where I think you are suggesting that you and the Canadian Bar Association support the same approach. I do not think that is correct at all. As I listened to the evidence, the Canadian Bar Association does not agree with you.

Ms. Scott: Let us be very clear on this point because we are not 100 per cent lined up with the Canadian Bar Association. There are three or four issues.

Senator Kelleher: I understand that.

Ms. Scott: I want to be very clear on this because I do not want there to be any misunderstanding as to what I am saying the Canadian Bar Association said. The CBA has said that they favour a factor approach. I am saying that the Competition Bureau favours a factor approach.

The Canadian Bar Association expressed additional concerns, however. The first has to do with consultations. They believe there should be further consultations. They have expressed concern about including the words such as, ``passing on to consumers,'' and ``merger specific.''

Clearly, they have those additional concerns. In terms of the ``passing on to consumers'' concern, I suspect they may read the section more narrowly than I do which, perhaps, is their concern.

This comes down to a debate about a factor approach or a defence. I believe the CBA is on record as supporting the factor approach.

Senator Kelleher: How do you account for the fact that all the other witnesses, except the first one, disagreed with Bill C-249 and expressed concerns about removing the efficiencies defence? Are they all wrong and you are right?

Ms. Scott: I would say there are two positions on this. I think you have heard those. You have heard from a number of legal counsel from Superior Propane who have come before you with their specific knowledge of that case. You have heard from the Canadian Bar Association. I would have to say that I do not believe they are so opposed. I believe they favour a factor approach.

You have not yet heard from those who would normally speak in favour of this amendment. You will hear another group following our presentation that, I believe, supports the factor approach and Bill C-249.

You have not yet heard from any of the consumer groups. I think they have said that they are willing to appear, if you would like to hear from them. Thus, you would likely hear support from them as well.

I know there are other lawyers who have put their names forward as being willing to appear. You have heard one subset. Frankly, there are two arguments. I tried to explain the best way I can why we favour a factor approach. However, I do not think this is so much a counting of heads to decide who is right and who is wrong. I think you are looking at two different approaches that have various strengths and weaknesses.

Senator Kelleher: One of the problems we have is the way this bill was handled. You may not like my suggestion, but I suggest this bill was manufactured, brought forward and drawn up by the former commissioner, who is no longer with us. He has gone to a life on the bench. He enlisted the aid and assistance of an M.P. to carry the bill forward.

Senator Prud'homme: Who is here by the way.

Senator Kelleher: That may be. Good for him. We welcome him to the committee.

What we have here is a demonstration of the need for the approach a number of us are taking. That is to say, this should be integrated with a full review of the bill, and not be an ad hoc stand-alone bill. I do not think this is a good approach.

I also take issue with your suggestion that this bill would bring us closer to the rules of our trading partners. We heard evidence from an American lawyer, who is an expert and whose firm does nothing but merger work, that they are coming to Canada, we are not going to them. The evidence he gave suggests that it is good to have this efficiency defence. I am sure you read that evidence.

Ms. Scott: Yes, I did. You certainly heard from one of the members of the American bar.

It might be useful to get the comments of the competition authority. I think my counterpart is the best source to understand what it is they are trying to accomplish there. I suggest you look at what they are doing and what they have chosen to do, rather than look at the preferred framework of one lawyer who brings forward mergers. If you look at what the Federal Trade Commission has adopted as an approach you will see that it is quite similar to Bill C-249. That is where they have chosen to position themselves. It is not a movement toward an efficiency defence. The Federal Trade Commission came from a relatively consumer-oriented approach. They have not been particularly interested in pursuing efficiencies the same way as we have in Canada. They are moving toward it, which is why I suggest, if you had Canada at one end of the spectrum with a defence, where efficiencies trump all other issues, and you had the Americans and the Europeans that have taken a somewhat more consumer orientation, they are now increasingly recognizing the importance of efficiencies.

I would suggest one look at what the competition authorities have done, as opposed to what a member of the private bar might prefer.

Senator Kelleher: One final question: On your last page, Ms. Scott, as a defence, if you will, or a reasoning, you say:

Second, in an increasingly concentrated economy, it is conceivable that another merger application raising the efficiency defence will come forward and result in the creation of a monopoly.

In fairness, you say that this is speculative. Of course it is. We have had only one case, Superior Propane, in 18 years. It is not as if this has produced a rush of cases or a rush of applications. I am questioning how important it is to move on this so quickly, which comes back to our original suggestion, at least from some of us, that there is a need here for a further study.

Ms. Scott: I understand, which is why I said it is speculative. It is an observation. Since 1986 or so, there has been an increasing concentration in our industries in general. The likelihood is greater. To my mind, this is a weighing of pros and cons, the risks that one might run. Obviously, you will make your determination. I was trying to put the factors in the balance that I would take into account in deciding whether a delay is warranted or not.

Mr. McAllister: It just occurred to me that there is another side of the coin. I was here when Mr. Tim Kennish testified. It seemed to me a fair representation of his evidence that there may be some mergers contemplated that will not be brought forward because of the uncertainty that exists now with respect to the efficiency defence in particular, this balancing-weights approach, and the need to identify socially adverse consequences. That draws attention to the need that it would be preferable to try to clarify the law, and the sooner the better.

Senator Kelleher: That is right, but I do not think it has to be clarified next month.

The Chairman: One thing that has bothered others and me in discussion around the table is that there is a fundamental confusion of roles. You and I spoke about it earlier, commissioner. We have, in the role of this committee, many agencies of government with different responsibilities appearing before us. We usually hear from them and the minister and we put it all in a policy framework because, as legislators, we are here to deal with policy issues.

Speaking personally and echoing what others have said, part of the dilemma is to understand how our system works. We have to educate ourselves. We have the Competition Bureau, which under the definition of the act, is to administer and enforce an act. Then, if you read, for instance, the debates of 1986 when this was brought into force the policy is the reflection of a broad industrial strategy for Canada.

The creation, development and maintenance of an industrial strategy for Canada is the role of governments, ministers and their departments. That policy is created by legislation, and then various agencies are created to interpret the act and enforce it.

However, there is confusion. In fairness, I know you tried to address that, but the confusion remains. I am raising this now because, in support of your view of the American position you look for confirmation to your counterpart. What we see is agency supporting agency, and agency reinforcing agency where we, in spite of pleas, do not hear from those who are responsible for drafting Canada's industrial strategy.

The act is to give effect to a strategy that has been developed. I am trying to be as honest and straightforward as I can. It creates a problem. I put a statement on the record a week ago, which was a cry in the dark to try to get some guidance. We have heard from many experts, economists and lawyers, and they start with broad questions such as: What is the economy trying to accomplish? Where are we trying to go as a country? Do we have a different role as a small country next to a large country? All of these issues are part of our industrial strategy. We keep coming down to a narrow issue of enforcement. We are looking for more in our discussion.

If there were an appropriate debate, we might hear from the witnesses you mentioned. We have been trying to encourage them to come. We received a draft report, which has not been tabled yet, from a consumers' group that I guarantee you would not like to see it. They may come forward with it or not.

This is a major debate about what is appropriate industrial and economic strategy for this country. It has also been pointed out that this is not a piece of consumer protection legislation. This is a piece of economic framework legislation to make the Canadian economy more efficient.

I say all this, for the record, and to help you understand where we are coming from in this discussion. These are not frivolous comments. We want you to see it as we as legislators see it and as we see our responsibility.


Senator Hervieux-Payette: I worked long enough in the telecommunications field to remember that competition in some sectors often comes not from within Canada but rather from abroad. I am thinking, for example, of a company that used to exist called Teleglobe.

I want to bring up two sectors: furniture and textiles. If there was only one furniture company that could compete with Asia and the world markets, efficiency would not be considered a factor, but it would be like the case of propane. What competitor is there in that case? Another propane company or a natural gas company? I had to choose to buy a generator that ran on propane, natural gas or diesel. I decided on natural gas because I was connected to the gas line, but I would have chosen one of the others if it was a better buy. We cannot isolate products and companies as if they were alone, without thinking about other, related sectors. I put propane in the energy sector.

How do you narrow these factors? What is considered to be the competitor for propane? Natural gas or diesel?

Ms. Scott: That is exactly what the economists in the Competition Bureau look at. They do quite a technical analysis that shows when one product is substituted for another. I do not know the propane market, but that is exactly what they try to calculate, that is, where can a substitute be found? If there are substitutes, a consumer can say: ``I am not buying product A, I am buying product B.''

You said that maybe one Canadian company was enough for competition to exist. That is exactly the analysis that is done. The bureau looks at the possibility of a foreign company coming from Asia, the United States or Europe and competing with a Canadian company. Approval might be given for two Canadian companies to merge in order to compete with a foreign company. Such a competitor can discipline the market price. We try to see how competition will occur.

Senator Hervieux-Payette: Where does the consumer find himself when we know that Asian textile workers are paid $2 a day, whereas in Canada — I am most familiar with the Quebec market — collective agreements determine the price of labour? How do you make a decision on that? It is obvious that it costs less to produce textiles in Asia — even if transportation costs are factored in — than in Canada.

Ms. Scott: The Competition Act has an impact, but free trade does as well. Free trade agreements are signed in order to neutralize these factors. There are laws against anti-dumping. That is one way to prevent someone from coming into our market with a product sold much more cheaply for reasons unrelated to cost. That is what we try to do in the Canadian economy. We continue to put pressure on all companies. Competition makes for more productive companies.

The presence of a foreign company can force Canadian companies to review how they supply their products and how they can reduce their costs in order to be competitive. The difference in production costs between Asia and Canada is a much broader question than the Competition Act.

Senator Hervieux-Payette: Consolidation is often required in a sector in order to really be competitive on the international scene. We no longer even have a continental economy with the United States. We are in a world economy. If we look at what happened to Teleglobe, Canadians lost billions of dollars. The day when a certain Canadian company was faced with the international market, it simply collapsed.

Ms. Scott: There were all sorts of explanations for that. I do not believe that the failure of Teleglobe can be blamed solely on our Competition Act.

Senator Biron: The long-distance phone call costs dropped dramatically when the telecommunications sector was deregulated. But the costs of local service — if we take into account added charges that never existed before such as file-opening fees — have nearly tripled. Whereas long-distance phone calls were used by industry, local service costs — in the case of company equipment — dropped very substantially. Costs for the majority of citizens increased and will continue to increase.

When we talk about competition in local services, it is obvious that a company installing cable through the elevator shaft at Place Ville-Marie will reach 5,000 customers, but near the border, 500 feet of cable will not even connect two farmers, and that increases the costs of local service. In some cases, anti-competitive mergers might be valid and might not necessarily increase costs. The Competition Tribunal would have to make a ruling. The defence proposal is perhaps a good approach to consider rather than opting for the proposed change. The status quo may be better.

Ms. Scott: The telecommunications sector had a monopoly that became a competitive product. When a regulated industry is opened up to market forces, all sorts of things happen. The reason that long-distance phone calls went down in price and local service went up is that local service was priced below cost and long-distance service was priced above cost. A multi-year adjustment is ongoing, and we continue to hear arguments about local service costs. I do not know whether a merger would have made a difference. It was the transition from a regulated market to a competitive one. What if there were three competing companies that did not make any profit and two of them decided to merge? In that situation, even if there were no efficiencies, the merger would probably be approved. There is an exception to the rule or a provision in the act that states that when companies are insolvent — companies that may declare bankruptcy — even if there is a merger that could be called anti-competitive, it may be approved because it would be better to have two companies instead of only one. If the market is allowed to develop with three companies in difficulty, there may end up being only one company. In that situation, it would be acceptable to approve the merger request.


Senator Tkachuk: I will refer to what Senator Kelleher quoted. He asked a number of questions regarding a statement you made. You said the following:

Second, in an increasingly concentrated economy, it is conceivable that another merger application raising the efficiency defence will come forward and result in the creation of a monopoly.

In your view, did the Superior Propane decision create a monopoly?

Ms. Scott: Yes, it did, in a subset of the markets in which it was operating, but not in all the markets.

Senator Tkachuk: Have they abused their position, resulting in an investigation by the Competition Bureau?

Ms. Scott: That is an excellent question. It is something I have been following. Some of the other competition authorities like to go back to see the implications of their decision later on. For example, if they allowed a merger, did the prices rise afterwards or vice versa? It would have been an interesting thing to do in the case of Superior Propane.

That would not be an easy proposition. You would not just look at prices; you would have to look at a number of other inputs to see what exactly was happening in the marketplace. Prices could go up because of weather conditions, which is something we would take into account if we were doing a proper analysis of the situation.

There is no publicly available information that would allow us to do the type of analysis that we would need to do to determine whether there has been a significant increase in prices, for example, as a result of the merger, that one might expect.

Under the current legislation we do not have a tool that would allow us to pursue that information, nor do we have the power to require companies to provide us with the sort of confidential information that we would need. It would be an interesting proposition if we were able to do that.

Senator Tkachuk: I am not sure if you understood me. When I asked if Superior Propane created a monopoly I believe you said you thought it did, if I am not mistaken.

Ms. Scott: Right.

Senator Moore: In certain subsets.

Ms. Scott: I thought you were asking if there has been an increase in prices.

Senator Tkachuk: Have they abused their position as a monopoly that would require the Competition Bureau to investigate them?

Ms. Scott: The provisions under the legislation, the abuse of dominance, asks whether this company has abused its dominant position through a series of acts that result in a substantial lessening of competition. Frankly, there is no competition. There could not be a substantial lessening of competition because there is none. Therefore we would not be able to make out one of those provisions under our legislation.

The legislation does not say you cannot abuse your dominance; it says you cannot abuse it in a way that results in a substantial lessening of competition. The Competition Act is devoted to putting competition in the marketplace so consumers can benefit from competition and the benefits that brings. However, section 79 would not arise at all in a monopoly market.

Senator Tkachuk: Propane is an energy source, so there is some competition from other energy sources.

Ms. Scott: No, there actually is not. As I was explaining to Senator Hervieux-Payette, that is the analysis the bureau does. It looks at all the substitutable products. It looks at all the different energy products and it analyzes whether those are real substitutes for the product. We can all imagine what those might be, but an economic analysis is done to look at the substitutability of products. It is not homogenous. There are a variety of products, but they actually do the modelling to determine which ones are substitutes. In that subset of markets, in the case of Superior Propane, there are no substitutes, because it reached a monopoly in a subset of the markets that are served by Superior Propane.

Frankly, I do not think anyone disagrees that it resulted in some, not all but some, monopolies. We could not have a lessening of competition when there is none. I interpreted your question to be: If they have market power, if they are a monopoly, then are they raising their rates? That is what one would normally expect from a monopoly, which is why we do not, generally speaking, want to have a monopoly.

As I said, in order to determine whether they had raised their rates because they are a monopoly, I would need to do something more than a simplistic analysis of prices. I would have to look at other impacts on price increases. Why are the prices going up? Is it because of market power, or is it because it is very cold out and people need to buy a lot of propane? I would need to have access to confidential company-specific information in order to carry out a proper analysis. As the legislation exists, I do not have the power to force companies to answer those questions.

Senator Tkachuk: I want to get to the bottom of this. Let me ask this again. Are you getting complaints from consumers saying that they are being abused by the monopoly that has been created?

Ms. Scott: We have had some complaints about Superior Propane. Not a large number, but yes, we have received some complaints.

Senator Tkachuk: What normally happens when complaints are made, if some company is abusing its monopoly position?

Ms. Scott: We would analyze them and decide whether there was a contravention of the Competition Act.

I must tell you, senator, this is sometimes a frustrating thing for me to explain to people. We will observe the behaviour of large companies that have market power, for example, in increasing their prices. We do not regulate prices. It is conceivable then that companies can increase their prices under our current competition law. We have to look at whether they abuse their dominant position in a way that substantially lessens competition. That is what Parliament told us to look at. When I receive a complaint, I will analyze it and I will sometimes be in the unfortunate circumstance where I write back to someone and say, ``I know this is difficult and you are in a difficult circumstance, but I do not have the jurisdiction to look into this matter.''

Senator Tkachuk: At the beginning of the paragraph I quoted, you use the phrase, ``in an increasingly concentrated economy.'' What do you mean by that?

Ms. Scott: It is the observation that, several years ago, the bureau might have been looking at mergers from four companies down to three. Increasingly, one looks at mergers from three to two. We see these general trends in other places as well. There has been greater consolidation in a number of industries.

Senator Tkachuk: Give me some examples, please.

Ms. Scott: Long-distance providers, for example. There has been huge consolidation in that industry. I remember seeing a presentation a couple of years ago when I was in this business, there were 273 long-distance competitors. That was during the boom.

Senator Tkachuk: I am not ancient, but I remember when there was only one.

Ms. Scott: Then we opened the market to competition and then there was a huge influx of competitors, and now they have consolidated. It is not unusual. We have new entrants and then they consolidate and consolidate. Companies merge in order to become more efficient. Often, when they merge, they can create efficiencies and pass those on to their customers.

Senator Tkachuk: Therefore in an increasingly concentrated economy, are you saying that there is less competition or there are monopoly situations?

Ms. Scott: There are fewer competitors in a number of industries.

Senator Tkachuk: I do not find the long-distance telephone rate compelling, because it is tremendously competitive.

Ms. Scott: There are fewer companies, but they are still a competitive industry. Our discipline would be looking at how much they can merge to the point where there is a substantial lessening of competition.

Senator Tkachuk: I am not sure if that was properly explained to you. I am not sure what that means. However, it seems to me that we have a situation where Superior Propane has created as a monopoly in certain areas, but not in all areas. It has happened once in 18 years. As far as we know they have not abused their position.

Now we have this bill. What is the great public urgency to pass this bill? As far as I can see there is no evidence we need to do that.

Ms. Scott: Again, and I am repeating myself, there is the question of some business uncertainty that Mr. McAllister mentioned. The way in which this test works now, the way in which one would go about trying to assess whether the efficiencies would outweigh the substantial lessening of competition, is a test that requires fairly significant resources and analysis and a number of subjective judgments. Mr. Kennish testified to that fact. He said this would be a difficult issue for practitioners to advise clients on.

As in my earlier discussion with the Senator Kelleher, this is obviously a speculative point. You are right; it is difficult to know how many mergers have not come forward in the past because of the difficulty in making out an efficiency defence. I do not know. It is difficult to speculate.


Senator Massicotte: The Bar Association recommends that efficiency gains become a factor and not a defence. They also recommend that efficiency not be limited to efficiency gains for consumers. Why this restriction rather than considering all efficiency gains?

Ms. Scott: To begin with, the definition of consumers and benefits to consumers is quite broad in the act. I do not know whether that can help the Bar Association to accept this restriction in the legislation. I do not know their position on that. It comes back to the reason behind the Competition Act. The purpose is to benefit all Canadians who are consumers. If there were a very restricted definition of consumer, I would agree with you. But if the definition is broad enough to accept all types of benefits that reflect the desire for innovation and investment, I am prepared to live with the wording of the bill.

Senator Massicotte: If the definition of consumer were as broad as you indicate, we would agree. The dictionary states that the consumer is the person who consumes the product. Your definition is rather broad and that is the source of the problem to some extent.


Senator Kroft asked: What is in Canada's best interests? Where are our economic interests best served? I heard your argument that consumer price reflects efficiencies. I am not so sure efficiency equals productivity. Nor am I sure that the price to the consumer equals productivity. In other words, you say this whole issue is complicated. We are not economists or experts. We have to deal with this and we cannot get strong comfort that consumer price equals the best interests of Canada.

The second issue is: What is the urgency? Everyone told us, including Mr. McAllister, that the Superior Propane decision creates confusion. We also heard from many people that the way the act is worded also causes confusion.

We also heard that the Superior Propane decision actually discourages mergers because it leaves a lot of uncertainty and because the appeal period is very long. Therefore, few companies will try to use that decision as an advantage because it is lengthy and costly. Mergers need to take place in months, not years.

I am hearing complicated economic theory support for the approach. From what we have heard, not many mergers are forecast, which leads me to ask: Why do we not do a proper, planned approach to study what is in Canada's best interests re its economic support and economic theory? That is my thinking. Am I way off track?

Ms. Scott: I think that what you were hearing from some witnesses is that there some mergers may not take place because merging companies just cannot get reassurances on what might happen if they were to go forward to the tribunal.

Senator Massicotte: Do you mean, if they use the efficiency argument?

Ms. Scott: That is right, if they use that argument.

Of course, I cannot know about the non-mergers. Perhaps companies are deciding not to go forward because they do not know if they will meet the efficiency defence. It is speculative. I do not know, but I am speculating that that is a possibility.

As to the price being consistent with the welfare of the country, I do not think that is what we are saying. In the end, when one looks at why we have certain things in this country, why we want consolidation of corporations, why we want strong corporations, why we want to have investment and why we believe in a productive society and efficient operations, it is because it is good for Canadians. It is about Canadians living in Canada.

When one says that there should be a benefit to consumers, it seems to me that is what we are getting at. There should be a benefit to the people and companies who live in this country. It is as simple as that.

Obviously, there will be interpretation of this legislation. It will not be as broadly based as that. The consumer is a relatively larger number of people than one may think.

Senator Massicotte: I cannot agree that your definition is that large.

Ms. Scott: I do not want to overstate it either. I am not saying that it is absolutely everything. I am saying it is companies and individuals. It is those who are the end-users, the end-consumers and those who consume on the way there.

Senator Massicotte: Do you mean of that particular company?

Ms. Scott: Of that particular company.

Senator Massicotte: We are a long way off from talking about all of Canada here.

Ms. Scott: Exactly.

If merging companies can demonstrate the merger will lead to greater innovation, investment, research and development, that can have some other impacts beyond the immediate consumers.

Senator Massicotte: Are you saying that the reason we may wish to pass this now is because there may be some mergers that should occur in the interests of Canada but that will not occur given the confusion of the Superior Propane case?

Ms. Scott: That is one possibility.

Senator Massicotte: Would you not also agree that the only mergers that would not occur, given this confusion, are those that would have used the defence argument? If they do not use this defence argument, Superior Propane does not confuse it at all. In the bill the defence argument would be minimal, relative to what you have. Perhaps Canada is best served by leaving it the way it is.

Ms. Scott: I am not sure I can go that far. That is sort of a judgment that we do not like this type of merger.

Senator Massicotte: I thought it was quite logical.


Ms. Legault: To come back to your last point, if you look at the Canadian Bar Association presentation, you will see that it points out that it is a defence that does not enable entities to make representations on efficiencies that exist at the outset when the bureau reviews their transactions. One of the advantages of an approach that looks at efficiencies as factors is also that efficiencies are considered from the outset when the transaction is analyzed.

To go back a little bit, the reason that the provisions on mergers exist is that, if there are entities that want to merge, it creates greater concentration in the market. As my colleague said, this is neither good nor bad; it depends on the circumstances in the market. When we look at efficiencies as factors, if there is competitive pressure in the market, it creates an incentive for the entity to pass along efficiencies to its customers, the consumers. It was in a situation involving the propane file that the tribunal determined that a monopoly existed in certain markets, where even if efficiencies were being claimed, there was in fact just one business operating in the market and no competitive pressure from outside. Although the entity generated a lot of efficiencies after the merger, there was no incentive for it to pass those efficiencies along to consumers. So we can see that the result may be a reduction in the quality of the service or the product or an increase in price. There is no competition in the remaining market. This is what can happen with the defence as it now exists.

As an entity that implements the Competition Act, we would suggest to you today that having this defence, given the way that it has been interpreted by the courts and the consequences that it can have, is somewhat contrary to the objective of the Competition Act and the aim of these provisions.


The Chairman: I will not put a question, but I will make a comment. As we discuss this, it will have to be made clear to me why you seem to put efficiency in an either/or sort of way, and why it could not have been used as a consideration in the original evaluation, and also as a defence. At the tribunal, it could then be argued that it was not in the evaluation and given adequate weight. Let us not get choose when we can or cannot use the efficiency defence. If it is a valid consideration, it should be used in any situation.

I have to bring this session to a close. Thank you all very much for a very productive hearing.

Honourable senators, we are all under extraordinary time pressure. We have before us Mr. André Piché and Mr. Rob Taylor of the Canadian Federation of Independent Business. The federation is a frequent and welcome visitor to our committee, and we are always glad to have its representatives back.

Everyone, as I said earlier, is under extreme time pressure. There are committees where ministers are awaiting the attendance of our members so, in the interests of time, with your permission, I would like to take, as read, the introduction of the brief from the federation. Over successive visits you have built that case with us. We can then use the limited time we have, which will not be more than 15 minutes or so to focus on Bill C-249.

Mr. André Piché, Director of National Affairs, Canadian Federation of Independent Business: I refer you to page 7 of our brief. I will get down to the basic arguments as to why we support this bill.

In our view, Bill C-249 is a compromise. I think it strikes a balance between protecting the interests of consumers and the importance of gained efficiencies in merger reviews. The bill safeguards small businesses and consumers from non-competitive price increases, and the loss of choice and quality that occurs in monopoly situations.

As to the arguments that I heard while reading the transcripts here, I would, first, focus on the remark made about the Canadian market. Canada is much more vulnerable to anticompetitive forces. The point was made that we have a large geography in Canada, a sparse population and we have segmented markets across Canada.

In the case of the propane market the point was made that one supplier has 70 per cent of the Canadian market, compared to 6 per cent in the U.S. market. Less competition means less choice, less service and higher prices. We worry about the consumer. Who is the consumer in this case: many small and medium-sized businesses.

The second point has to do with the approach followed by other countries. The point was made before that what is being proposed goes in the direction of what is being done in the United States and Europe and that can be a bad thing. I think it is not necessarily a bad thing. It may not be something that we have. It is based on our industrial development policy, as you put it, Mr. Chairman, but I think it speaks to having consistency with our trading partners.

The third point is that this bill got the support of the Industry committee, the Commissioner of the Competition Bureau and the government, and this issue has been debated for years. It is not that it is a new issue being put before us.

The fourth point is on promoting efficiency in the Canadian economy. The point I made earlier in the brief is that, when we talk about the Canadian economy, we are talking about small and medium-sized businesses. The large businesses in Canada are very much a minority. Promoting the efficiency of the Canadian economy is an important goal of the Competition Act, but to us it is a means to an end, and the end is to provide SME owners and consumers with competitive prices and product choices. When you have competition you have choice. You also have innovation and you have a better job creation record as a result.

In conclusion, we believe that passage of Bill C-249 at this point would be in the public interest, and that it would fix an important flaw in the Competition Act. We would also, as a result, join other industrialized countries that have moved to safeguard small business owners and consumers from non-competitive price increases, and loss of choices in products and services from monopolies. We have the opportunity to pass the bill and make significant improvements in the working of the Competition Act and we urge you to give it your full support.

Senator Tkachuk: Have you, or have businesses, for example in the Yukon, made complaints about Superior Propane exploiting their dominant position? Are these complaints justified?

Mr. Piché: In the Yukon we have 200 business owners who now face a monopoly situation. They have no alternatives. They have no natural gas or oil available to them. As far as complaints, I, personally, have not seen any. There may be anecdotal evidence but I do not have that. It may be that many small business owners will believe that they cannot do anything about it because it has been sanctioned by the government.

Senator Tkachuk: Would this be true in all the other sub-markets where there is a monopoly situation? There must be other markets besides the Yukon, according to what we heard from previous witnesses. Have any of them made complaints to the federation?

Mr. Piché: I would direct you to graph 8 on page 6 of our survey. This is a survey carried out in March of this year, so it is recent. We asked business owners what factors affected the performance of their business in the last 12 months. The first one is insurance premiums, and we all know why that is there. The next ones are energy prices, 64 per cent, and other input prices, 45 per cent. We found that, over the past two years, input prices are becoming more and more of an issue for small and medium-sized businesses across Canada.

Senator Tkachuk: The energy prices are not based specifically on propane, but just energy overall. In Saskatchewan, natural gas prices have gone up substantially, as they have all across Canada. That is a problem for us, and, of course, we know what is happening with gas prices right now. It is not a question of Superior Propane being the problem, but energy prices per se.

Mr. Piché: We could not say Superior Propane has a role to play in that because I do not have the evidence to that effect.

The Chairman: At the top of the last page of your report, you state that the efficiencies arising from mergers outweigh the harm to consumers even though, in this instance, it was estimated at $8.6 million. How do you react to the fact that the same calculations estimated that the benefit to the economy was approximately $29 million?

Mr. Piché: Because Bill C-249 allows the balancing of the efficiencies on one side and the impact on consumers on the other, it seems to me that it gives more freedom to the tribunal and to the Competition Bureau to ensure that whatever proposal is being put forward, it balances the interests of the consumers and the efficiency aspects.

In looking at that, I am well aware that the benefits of the efficiencies are higher, but the costs to consumers are high as well. Canada as a country does not have a homogeneous population across the country. We are talking about separate markets. Some areas of the country can be affected by that. From a public policy perspective, do we want to condone that?

The Chairman: I understand, but when we talk about balancing, here you have a case where the benefit was three and a half times to the economy as compared to what it was to the consumers. What would it be to have a balance? Would it have to be 10 times or 20 times? Obviously, ``balance'' in your thinking does not mean balance as we normally think of it, that the two sides of the scale are evenly weighted — $8 million on one and $8 million on the other. Obviously, the consumer interest in your thinking — I am not making a judgment on this — is that a $1 million of consumer impact has a greater meaning than $1 million of general economy impact.

Here, three to one is not enough to justify it in your case. Would it have to be an overwhelming general benefit, favouring just a handful of consumers? What do we mean by the word ``balancing?''

Mr. Piché: I am not a lawyer and I am not an expert on the Competition Act, but I would think that if Bill C-249 were in place, it would give the Competition Bureau, when people come forward for a proposed merger, a much better hand to negotiate balancing the costs to consumers, possibly, with the gained efficiencies that may arise from that. In some cases, it might decide to ask the pro merger forces to divest some of their interests in the particular area of the country because of the potential harm there.

The Chairman: As I suggested to an earlier witness, there is no reason that I can understand why efficiencies could not be considered on the original evaluation basis, in any case. It can still be a defence. I agree with you that efficiencies can be considered at any point in the process.

Mr. Piché: What concerns us the most is that most small and medium-sized businesses, as you know, have fewer than five employees. We are talking about a consuming group. However, those small and medium-sized businesses create the wealth and the jobs in this country, especially in the small and remote communities of Canada. What is the impact on these small and medium-sized business when their input costs are going up as a result of reduced competition? What is the signal we are sending to SMEs across the country if we say that, for efficiency purposes, this will be gauged as the driving force in allowing mergers?

The Chairman: It is an interesting argument, which I would love to pursue, but we are short of time, and I will go to Senator Massicotte.


Senator Massicotte: I am wondering the same thing. I accept your argument that competition is very important for the Canadian economy and that it is generally in Canada's interest to increase free competition. But do you not foresee any circumstances in which efficiency gains are so important that despite the fact that there is less competition it may be in Canada's interest? Do you feel that there are no exceptions to this rule?

Mr. Piché: I would not say that. In fact, it seems possible in certain cases that a merger may result in a net gain for the Canadian economy. Now, if it led to reduced competition, if the Competition Bureau has some leeway in negotiating the merger, it may try to minimize not only the impact on consumers but also the impact on the economy in the broader sense, and I am thinking here of SMEs.

Senator Massicotte: I agree with you that it is their responsibility to minimize the impact. Do you accept that there may be circumstances in which the efficiency gain for the economy may be more important, despite the reduced competition?

Mr. Piché: Yes, in fact, it is a matter of quantity as well.

Senator Massicotte: That is what the current legislation says. In other words, it says that the issue of competition is important, but the efficiency gains in certain cases could be substantial enough that the merger will be approved despite the fact that competition is reduced. The bill rejects that argument and sides with the efficiency gains, only if they benefit the consumer, which greatly weakens the arguments and evidence of efficiency gains.

I do not understand: you are against this, but yet you accept the idea that this is such an important argument within Canada that reduced competition should be acceptable nonetheless.


Mr. Rob Taylor, Senior Policy Analyst, Canadian Federation of Independent Business: In the case where those circumstances were so compelling, then it would, in fact, fit under the factor description rather than the defence description; would it not?

Senator Massicotte: You could say that but, under the bill, it would only be efficiencies where the benefit is to the consumer. That is one of the problems. It certainly diminishes the importance of efficiency. As the act currently reads — and I am not an expert in competition — the tribunal will find that there is a diminishment in competition, potentially, in a certain case, although we all agree that is the objective. However, currently, there may be circumstances where there is a little less competition, but the gains in efficiency are so important they irrespectively approve of it.

I think that is what the act does today. The proposed amendment significantly diminishes that argument.


Mr. Piché: From my point of view, the bill strikes a better balance between these two arguments. With the merger of Superior Propane and ICG, which has a monopoly covering 70 per cent of the Canadian market, I feel that there is something there. How can I explain to the members of my organization that the government approved this merger? There is something there that needs to be looked at. Should the legislation not be much more flexible so that the efficiency factor and its impact on competition could be taken into account?

You know, we have studied competition in other areas within our organization. We do a lot of surveys of our members and when we look at the banks, where there is much more competition, we see that customers are much more satisfied and prices are much lower.

Senator Massicotte: I agree, and we do not understand why, in that case, experts have said that efficiency gains are so important, despite the huge reduction in competition. That is a good question. But experts say that the economic gains resulting from efficiencies are so significant that we have to accept it. But I do not know why.


Senator Harb: In the interest of time, I will lump my two questions into one.

In your second point on page 8, you talk about Canada's approach and the fact that others are following us the approach we are taking. If I am not mistaken, the witness before you said that that was not the case.

Are you involved in the Public Policy Forum consultation? If you are, have you made a presentation to them?

The main issues are efficiencies and dominance. How does the question of the price fit in? Sometime you may have multiple choices, but there is no pricing differential in a sense. Everyone is selling at the same price. For example, while there are probably 15 or 16 suppliers of milk, it does not matter where the consumer goes because he can buy a litre of milk for the same price.

Mr. Piché: My understanding is that this bill goes in the same direction as what is being done in the United States. I believe the commissioner made that point. I believe there are developments in Europe, where they are moving in that direction as well.

Your second point is an important one. We participated in the consultation with the Public Policy Forum. As good as the system is, the consultation is flawed in a number of ways. A lot of consultation takes place across the country. We know from experience when we try to have our annual general meeting how difficult it is to round up just a handful of our members to attend the meeting because they are busy running their businesses. As a result, these consultations tend to be dominated by corporate lawyers from large firms. Frankly, I do not think we are getting a very even appreciation of what the concerns are out there.

As to your third point concerning pricing, even when you have a lot of competition there is sometimes uniform pricing. That indicates to me that, perhaps, we have effective competition, and the fact is that we are down to the minimum in terms of delivering that product to a consumer.

The Chairman: Thank you, gentlemen. That completes the questions. I appreciate your attendance and your cooperation in focusing on the matter at hand. Once again, you have been most helpful to us.

The committee adjourned.