Proceedings of the Standing Senate Committee on
Transport and Communications
Issue 12 - Evidence - May 1, 2007
OTTAWA, Tuesday, May 1, 2007
The Standing Senate Committee on Transport and Communications, to which was referred Bill C-11, to amend the Canada Transportation Act and the Railway Safety Act and to make consequential amendments to other acts, met this day at 9:30 a.m. to give consideration to the bill.
Senator David Tkachuk (Deputy Chairman) in the chair.
[English]
The Deputy Chairman: Honourable senators, we are here today to study Bill C-11, to amend the Canada Transportation Act and the Railway Safety Act and to make consequential amendments to other acts.
We have witnesses today from the Canadian Bar Association, Mr. John Bodrug and Ms. Tamra Thomson. From the Travellers' Protection Initiative, we have Mr. Michael Pepper and Ms. Christiane Théberge, who is also with the Canadian Travellers' Protection Initiative.
Tamra L. Thomson, Director, Legislation and Law Reform, Canadian Bar Association: The Canadian Bar Association is pleased to have this opportunity to address you on specific aspects of Bill C-11. The Canadian Bar Association is a national organization, which represents over 36,000 lawyers across Canada. Our objective in reviewing any legislation is to work toward improvement of the law and the administration of justice. It is in that optic that we have reviewed Bill C-11 and with which we bring the written submission that you have before you.
The submission was prepared by members of the competition law section, and by the air and space law section. I will ask Mr. Bodrug to address the aspects of the bill that are outlined in the submission.
John D. Bodrug, Vice Chair, National Competition Law Section, Canadian Bar Association: Honourable senators, we appreciate the opportunity to appear before you today. We would like to speak principally about the merger review provisions in the bill. This is a bill that the CBA has commented on, both in the current form and its predecessors going back to 2003.
Our first perspective is we do not see the need for singling out the transportation industry for special public interest merger review. To be sure, the transportation industry is very important, but so are a number of other industries in Canada for which reliance on market forces and regulatory review, under the Competition Act and the Investment Canada Act, are considered sufficient.
In our view, the onus should be on the proponents of the special merger review to demonstrate that it is warranted and this particular merger review lacks predictability, consistency and transparency, all of which are important for a healthy business environment in Canada.
I would like to focus my time on some particular aspects of this specific merger review procedure that concern us. First, the scope of the merger review provisions is unclear and overly broad in their application. Second, they will create an unnecessarily long period of uncertainty for both parties of a transaction and indeed the Commissioner of Competition would not know what regime to apply, for a significant period of time. Third, they create an unnecessarily inappropriate political role for the Commissioner of Competition.
Our written submission addresses a few additional points that I would be happy to address if time permits. First, in terms of the breadth and unclear scope of the provisions, the committee should recognize the very wide scope of the transactions that would be subject to this merger review provision. The public interest merger review would apply to all transactions that meet certain financial thresholds in the Competition Act; first that all the parties and affiliates have assets and gross revenues in Canada in excess of $400 million; and second, that the business being acquired has assets or gross revenues in Canada in excess of $50 million. If it meets that financial threshold, the only other thing that makes it applicable is the merger involves a transportation undertaking.
It is important to note that this is not limited to acquisitions of airlines and railways. The proposed public interest review would apply to any business that moves people or things across a provincial border on a continuous and regular basis, even if the activity in that business represents a very small percentage of the overall business. To try and bring this down to a concrete example, a furniture chain with a store in Ottawa, regularly delivering to customers in Gatineau, would qualify as a transportation undertaking under this test. Similarly, another important point is that the financial thresholds in this test are not triggered only by the transportation assets. The transportation business could be a very small part of a bigger transaction. For example, if a $400 million company acquires another business with $50 million of assets, even if the transportation component were only $1 million or lower that will be caught by these provisions.
Another aspect of the breadth and wide scope of these provisions is that the concept of a transportation undertaking extends not only to transportation activities themselves, but also in the case law that is developed in connection with this term, would include businesses that are operationally connected with transportation businesses. For example, courts have held that stevedores who load boats are transportation undertakings even though you would not normally think of them as railways and airlines. It is because shipping companies were held to be dependent on stevedores that they were held to be a federal transportation undertaking.
Another aspect of the over broad scope is the test that the merger involve a transportation undertaking. It is not limited to acquisitions of a transportation undertaking. Even if only one party to the transaction were a transportation undertaking, the merger provisions would extend to that. If a transportation undertaking buys a hotel for under $50 million that could be a notifiable transaction. If a company mostly involved in other businesses that happens to have an interprovincial trucking operation, buys an office building that costs more than $50 million that acquisition could be a notifiable transaction. Merger review provisions can also apply to acquisitions of assets, not just complete businesses. The Competition Bureau's notification guidelines refer to an example that a purchase of used railway engines could constitute a notifiable transaction.
These provisions will create a lot of work for me as a corporate lawyer so I am not complaining from that perspective, but I question whether this is in the broader public interest, to have such a wide concept. If there is true public concern about major acquisitions of railways or airlines, then we should have a merger review for a much more focused provision.
I will talk about the implications of the timing uncertainty in Bill C-11. The presumption is that all notifiable transactions will require a public interest review unless the minister, who has 42 days to decide whether such a review is required, exempts them. The Competition Bureau clears most mergers in a much shorter time in that most of their transactions will be cleared within two weeks because most notified transactions that meet those thresholds do not present a competition issue.
During the 42-day period that the minister has to determine whether a transaction requires a public interest review, not only would the Commissioner of Competition not know but also the parties and shareholders would not know whether the review would fall under the Competition Act or under the different standard of the Transportation Act.
In the view of the Canadian Bar Association, it would be better if the public interest review were required only when the minister makes the determination to that effect within a shorter period of time, perhaps in 10-14 days rather than 42 days. Presumably, this provision is intended to reach the exceptional mergers, which would naturally be large transactions requiring that kind of public interest review.
What is the prejudice to the parties from this delay of 42 days while the minister determines the requirement for public interest review? In corporate transactions, timing can be critical and a 42-day delay, let alone a longer delay, for a public interest review can kill transactions. For a large Canadian conglomerate involved in many different businesses with assets over $400 million, any acquisition that it makes of a company that has more than $50 million in assets or revenues will be notifiable under the Competition Act. If it involves the transportation undertaking on either side, it will be notifiable to the minister. That will put that company at a competitive disadvantage when bidding on other businesses in Canada.
When there are two bidders for a non-transportation business and one of them happens to own an interprovincial trucking business, the seller will prefer the other buyer because the seller will not have to worry about the 42-day delay. This will be worse for the disadvantaged entity operating in Canada — the Canadian business — when the other bidder is foreign and does not have any business in Canada, let alone a transportation business. Bill C-11 will have the perverse result of favouring non-Canadian buyers in those circumstances.
In our view, it would be anomalous to put in place an additional layer of potentially over-burdensome and time- consuming merger review at the same time that the government is seeking to promote advantages to Canadian business. With the last budget, the government announced that is in the process of appointing an expert panel to undertake a comprehensive review of Canada's competition policies, including the Investment Canada Act review process, which could come to a different conclusion about putting extra burden in duplicate of regulation on merger reviews. At same time, the government is seeking to regulate in the most efficient, timely and cost-efficient manner. Consideration ought to be given to delaying the implementation of these merger provisions until this expert independent panel has completed its report, which I understand, which is anticipated before the next budget.
In summary on this point, these merger review provisions risk creating a disincentive for large companies to participate in transportation markets in Canada, even to a minimal extent, because they will be put at a competitive disadvantage when bidding or attempting to buy other companies in Canada. If Parliament thinks that a special review is required for certain kinds of specific transportation businesses in Canada, then the CBA would recommend a more focused and specific merger review provision.
Our written comments address a number of additional points, including the role of the commissioner that is anticipated in these particular provisions. It is more of a political role than is necessary in other similar contexts, including, for example, the bank merger review context. Our comments also speak to some deficiencies in the confidentiality provisions and the lack of a transition provision in the legislation. In our view, the airline price advertising rules are not necessary in light of existing provisions in the Competition Act and the ability of the Minister of Industry to direct the Commissioner of Competition to conduct an inquiry into those practices when concerns arise.
Michael Pepper, President and CEO, Travel Industry Council of Ontario, Travellers' Protection Initiative: Good morning, honourable senators. I represent the Travellers' Protection Initiative, and I am the President and CEO of the Travel Industry Council of Ontario, TICO. The Travellers' Protection Initiative is comprised of the Travel Industry Council of Ontario; the Association of Canadian Travel Agencies, ACTA; the Public Interest Advocacy Centre, PIAC; and the Quebec-based Options consommateurs. Members of the Canadian Association of Airline Passengers, CAAP, including the Consumers Association of Canada, in Saskatchewan; Transport 2000; the Consumers Council of Canada; Air Passenger Safety Group; Manitoba Society of Seniors; the Ontario Society of Senior Citizens' Organizations; and Rural Dignity of Canada, also join us. Many consumer groups have come together to put forward issues regarding consumer protection.
We are interested specifically in airline advertising and pricing, as well as a number of other issues that we put forward to the House of Commons Standing Committee in respect of working capital and financial criteria for air carriers.
The legislative framework in Canada has left consumer protection for travellers to the individual provinces. On paper, this looks fine for many industries that are not national or international in scope. From an operational management position, the provinces have the ability to control and deliver consumer protection by way of provincial legislation. However, travel is very much a global service that requires a higher level of oversight than that provided by only three of Canada's provinces — Ontario, Quebec and British Columbia, which have specific legislation with regard to travel.
Travel in Canada is commonplace for many Canadians and is a growing commodity. The sale of travel needs to be monitored more closely at the federal level. Travel is one of the only industries where consumers pay nearly the entire amount for services that they will not receive for weeks or even months ahead. The lack of consistency means that there is an inherent lack of fairness for consumers. We understand that the government is not in the business of running airlines but the government does have a responsibility to protect consumers by keeping abreast of what is happening in that area and how it affects consumers. For example, the failure of Jetsgo in March 2005 was the last large failure of an airline. That followed the demise of the airline, Canada 3000, after the 9/11 fallout in November 2001. Jetsgo was formed and offered air-only seats to various destinations, primarily in Canada. It also had some contractual arrangements with travel wholesalers on a charter basis to transport consumers to sunny destinations. Jetsgo was the last significant failure of an air carrier in Canada and caused widespread disruption to the travelling public when it closed its doors in March 2005. Why did Jetsgo fail? It closed because it was under-capitalized. This is the point we are making. Jetsgo was allowed to operate as an airline with little oversight of its financial affairs despite the warning signs that we in the industry saw as alarming, such as frequent seat sales at ridiculously low prices. Nothing was done to prevent consumers from buying advance travel. Airlines are not regulated at the provincial level and the seat sales continued until eventually the advanced monies ran out. That action led to a coalition of consumer advocates that we formed; in fact, we formed it just before the failure of Jetsgo. We put forward four issues to the committee for change and we asked that the airlines fully disclose their prices.
There is disparity between the provinces and the federal government. Travel must be fully disclosed. The full price of travel must be disclosed in the three largest provinces, and there is disparity with airline prices where they do not disclose all of the transportation costs in their prices to the public.
Protecting consumers through financial and service performance criteria is another issue we put forward. We asked the government to consider having at least ongoing working capital monitoring and putting consumer monies in trust, or, failing that, the establishment of a consumer compensation fund similar to what the three major provinces have — Quebec, B.C. and Ontario — to reimburse consumers in the event of insolvency or bankruptcy. This would ensure transparency. We also asked for a responsive body to respond to consumer complaints about airlines. The figurehead has been dispensed with. This initiative has been taken in-house by Transport Canada by the CTA.
Of these four issues that we put forward, the Standing Committee on Transport Infrastructure and Communities adopted one — the requirement for airlines to fully disclose prices, terms and conditions of their advertising. We are very happy with that as a first step. Right now airlines are able to advertise a net price and not disclose the cost of transportation and fees in their advertising. That is not transparency, and it is offside with what the provinces have to do.
The proposals adopted by the committee will go a long way to ensuring that Canadian travellers are fully aware of the price they are expected to pay for travel services, while at the same time, they can make an informed decision on buying those products.
This is a good starting point; we support the advertising change. We will continue our quest to have the federal government make more changes that will oversee the financial viability of air carriers so that consumers are never again left stranded and out-of-pocket by air carriers such as Jetsgo, which was allowed to continue operating when it was financially insolvent.
Our mission is to encourage the federal government to pass meaningful legislation that will require air carriers to meet those ongoing minimum working capital requirements to put consumer monies in trust until the services are provided and to introduce a national compensation fund similar to what is operated in the three larger provinces in this country.
The federal government has the tools to do this, and the travel industry in Canada is willing to partner with government to achieve this goal through a similar self-management scheme operated in Ontario. The industry needs that legislative framework so that such a scheme has teeth.
That is my presentation to you. We support the initiative with regard to that change to the advertising. I thank you for being permitted time to speak today.
The Deputy Chairman: So that honourable senators know, that is the change that was adopted in the House committee.
Mr. Pepper: Correct, the House accepted proposed sections 86.1(1) and 86.1(2).
Senator Mercer: Did the Canadian Bar Association make a similar presentation on this bill to the House of Commons committee?
Mr. Bodrug: We made these comments in 2003 to the House committee on a predecessor to this bill. With the most recent bill, we submitted written comments and asked to appear but were not invited to do so.
Senator Mercer: We have a bill before us that has gone through the House of Commons without the participation of the Canadian Bar Association, an organization of some significance. I find these comments on the mergers disturbing. You have hit some interesting points, particularly on the acquisition side. If two entities wanted to purchase something and one had a transportation component, that entity would be at a disadvantage. It is amazing that we are putting up another roadblock to Canadian industry.
You did not make that presentation to the House of Commons committee. You did make a comment about the lack of transition time. Is there an optimum time that would make this work more efficiently if it goes forward?
Mr. Bodrug: This is perhaps a more technical point, but typically in these kinds of provisions, I would often see something that says that agreements entered into before this particular legislation is passed into law are not subject to the new regime. There will be a transition period of uncertainty when this is actually implemented into law, whether it is intended to apply to transactions where perhaps the agreement has been entered into but has not yet closed. I presume the intention is not to be retroactive to previous closed transactions. That is a significant but more minor technical point to our presentation.
Senator Mercer: You did not specifically comment as directly as Mr. Pepper did on the airlines' pricing rules. Did the bar association form an opinion on that?
Mr. Bodrug: I can state our view on that fairly succinctly. I recognize issues associated with whether advertising creates total price disclosure; we do not see that as an issue unique to the airline industry. That issue comes under the general rubric of misleading advertising. If failure to make total price disclosure in an advertisement is a materially misleading representation to the public, it is already a problem under the Competition Act. Our point here is that we do not see the need to piecemeal specific legislation for different industries when there is already a provision to deal with it. If there is a specific concern about the airline industry, the Minister of Industry already has the power under the Competition Act to direct the commissioner to inquire into a specific area of conduct.
Senator Mercer: Mr. Pepper, the airlines, particularly Air Canada and WestJet, will tell us that the full price disclosure in advertising will put them at a disadvantage because travel agents and American carriers do not have to provide the same disclosure of end-of-sale price.
Mr. Pepper: I do not think that is correct. The American carriers do have to advertise the full price, with the exception of federal taxes. Certainly in Canada the travel wholesalers are required to advertise the full price, with the exception of GST and PST. Even when the third party sellers of travel, such as the travel wholesalers and agents, sell travel in this country, they are required to disclose the full price. That is offside with what the federal airlines are allowed to do.
If the legislation is passed as proposed, it will capture all the foreign carriers that advertise in this country. The consumer needs that information to make an informed decision.
As an example, go on any airline's website. WestJet had a seat sale not 10 days ago advertising $11 and $29 fares between Toronto, Montreal and Ottawa. The taxes and additional charges on those $11 seats was $58, so it is not truthful advertising.
Senator Mercer: Those taxes and other fees will be on all the fares, whether they are $11 sale prices tickets or the regular price at $500 or $600.
Mr. Pepper: Correct, but the third party taxes that the airlines collect for others, such as the NAV CANADA fees, the security fees, the airport landing fees, et cetera, are not disclosed in the price. We are advocating that those fees should be included in the price so that consumers can make an informed decision about what they have to pay.
Senator Mercer: Maybe I am mistaken, but I was on one of the airline's websites in the past 10 days looking at the Ottawa-Toronto seat sale. There were very good prices but, if I recall, the website said ``plus applicable fees,'' which means the taxes, the landing fees and the NAV CANADA fees.
Mr. Pepper: Yes, but the consumer is unaware of the cost of those fees.
Christiane Théberge, President and CEO, Association of Canadian Travel Agencies (ACTA): If I may add, it is about consumer protection and the consumer knowing what he will pay for a seat. However, it is also about creating a level playing field for other players in the industry. As Mr. Pepper stated, in the regulated provinces of Quebec, Ontario and B.C., provincial law would prevent tour operators and travel agents from doing the same thing. They could not advertise like Air Canada is advertising here: $1,046 to New York. They would have to advertise the full price, including all surcharges, taxes and fees, including NAV CANADA fees and all others. It is about creating a level playing field for those three markets, which are the largest travel markets in Canada.
That is also one of our arguments. Sometimes those prices may start at $146, but after going through the website the actual price can end up being 95 per cent more than the advertised price.
Senator Mercer: That depends on what price they offer, of course. Everyone is subject to these fees so I do not see the big argument. If you were to go to Aeroplan or to Air Miles or to your RBC Avion Program, any one of the reward programs, and book a flight using your travel points, you are still subject to all of the fees. Your free flight ends up costing you whatever the taxes would have been on a regular flight.
I do not really get the argument that anyone is disadvantaged by the airline saying they are selling $11 seats when you add the price of the taxes and the regular fees. It is still much cheaper than a regular fare.
Mr. Pepper: It is not just the additional charges that are not disclosed, they are not just taxes. There are fees that are the cost of doing business: Landing fees, flyover fees, taxes on the airplane. There are costs of doing business for the airline and should be included in the fare.
Senator Mercer: Are they not included in the price of a regular priced ticket?
Mr. Pepper: No.
Senator Mercer: Are they only added on to these discount prices?
Mr. Pepper: No, not only on the discount prices, the extra costs are added on all tickets. They break out the price and they take not just taxes, they add on transportation fees and other charges and separate them out.
Ms. Théberge: The issue is not about taxes and surcharges; we know that airlines pay those taxes and surcharges. They want to show that they have low fares and the responsibility for the high fares is with the government. They want to show that the government imposes the taxes and surcharges.
The Deputy Chaimanr: The landing fee at Toronto airport is different from a landing fee at another airport. It could be very difficult to advertise. You would have to advertise different landing fees for different airports.
Ms. Théberge: That it is part of their cost of doing business and it should be included. We are not talking about airfares; we are talking about advertising the airfares, which is quite different.
Senator Mercer: When I bought gasoline for my car the other day, at Mount Uniacke, Nova Scotia, it was ridiculously high, $1.12 per litre. On the pump, I read the price of the provincial tax, federal tax, and everything else added onto the price of the gasoline. The gasoline industry posts this notice to let consumers know that the price they are paying is unusually high because of the taxes imposed upon it.
Mr. Pepper: That gasoline seller is not advertising the gas at 50-cent-per-litre. My point is the consumer knows the gas will cost $1.12 per litre when they reach the cash register.
Senator Mercer: I appreciate that point.
Ms. Théberge: The price advertised on the pump is the price you are paying.
Senator Mercer: Would that be part of solution to the problem?
Mr. Pepper: Yes, I think it would be part of the solution. If the travel wholesalers and retailers want to advertise a net fare they can, but they have to disclose the additional charges so that the consumer can make an informed decision by adding up the two numbers and getting the total price.
Senator Segal: I am delighted to see the Canadian Bar Association here today. I know that the advice and council you give on technical specifics is very constructive and helpful, and I wish the government would consult with the bar association more frequently.
It is not clear from your presentation, as to whether you are concerned about the timing by which the Minister of Transport might express a public interest in a matter of a merger. It is not clear whether you are concerned about the frames that define that timing, or the fact that he or she is able to do so under the provisions of this act; namely, to conclude that a particular merger, because there are transportation assets involved, may have a public interest beyond the pure question of the competitive structure of the industry. It strikes me that they are very different arguments.
One argument is for timeliness so there can be an assured context within which business can be done in a normative way. The other is about whether there is such a thing as a separate public interest.
I will take your example of two big conglomerates, one of which owns a tiny piece of a trucking company that goes back and forth over a provincial border. From the point of view of the consumer, the public interest is in that little truck company and it strikes me that it is normal for a minister to want to have a statutory basis to reflect on whether there is a public interest. You may have evidence to the contrary, but I do not know that there is any body of evidence to suggest that a department or a minister would use that right capriciously or excessively. If there is some indication of that, please share it with us.
Mr. Bodrug: I certainly did not intend to suggest that there is any evidence that a minister is using that type of power capriciously. Our position is we do not see the need for the special public interest review for transportation. Transportation is important but so are many other businesses, and the Investment Canada Act and the Competition Act are considered sufficient.
Senator Segal: When a vehicle is involved in the public movement of goods or people, the nature of the company operating that vehicle has an impact upon other innocents in the marketplace who may be on the same road, who may be crossing a rail crossing, who may be involved in some other fashion. Is that the difference with transportation? Is that why we have had such a history of transport legislation in Canada right from the real beginning of the country? Are you saying that interest is no longer there and it does not matter?
Mr. Bodrug: No, we are not suggesting — and this is starting to get a little beyond my area of expertise — that transport should be unregulated. The point is if there are concerns about the way transportation businesses are operated then those concerns should be regulated in terms of whatever it is Parliament considers should be regulated. We wonder what special circumstance surrounds mergers. Why is there a need to regulate mergers at this point in time?
Senator Segal: Any new bill has a series of regulations that are drafted and come afterwards. If those regulations addressed the timing issue so that the amount of delay potential, worst case scenario, was in some way constrained, would that be constructive.
Mr. Bodrug: Yes, it would certainly be constructive. We set out our big-picture perspective but then said that if you make the decision to do this anyway, we think that the provisions would be much improved and the negative repercussions lessened if this dilemma could be resolved quickly. If, for example, the minister had 10 days to decide, then the Canadian business that happens to be in the trucking business would be much less disadvantaged. It is more likely that a prospective seller can live with that rather than the 42 days, where other potential bidders would already have cleared the regulatory hurdles.
Senator Segal: I have a question for the Travellers' Protection Initiative people. I assume that your organization is a hierarchy where you sort out the priorities of what matters most to travellers and how to protect their interests. The constituency that you represent is very broad.
For all of us who have been on flights that have been cancelled for no reasons; for all of us to whom airlines have misrepresented the reason for a flight cancellation or delay; for all of us who have had baggage go anywhere in the world except the place it was actually directed; do you think the advertising of fares is our most important concern?
Do you think Canadians who travel on a regular basis would want you to use time here on fares as opposed to complaining that this act does not provide for greater protection and indemnification at the companies' expense for passengers who are wilfully mistreated by bad organizations and inappropriate structures?
You made a choice about what is important, and I defer to that and respect it, but I wonder why you have chosen that as opposed to all these other massive impositions upon the travelling public, which seem to cost much more time and money.
Mr. Pepper: We did not actually just choose the advertising issue; it was one of the issues we chose. If you look at the Transportation Act itself, there is very little in there that provides direct consumer protection. It is for the provinces to deal with consumer protection.
Senator Segal: As I understand what you are saying, you want to see a common playing field. You do not want provincial regulation to be certain things in certain areas and not in others. I am interested as to why you want that to engage on price advertisement and not other these other matters, once you are into the business of extending federal jurisdiction.
Mr. Pepper: We do not regulate the airlines. The provincial governments do not directly regulate the air carriers. We do regulate the travel wholesalers and travel retailers. There are advertising requirements with which they have to comply within the provinces. That is why we have directed on that particular issue.
Similarly, with the financial criteria, one of our targets was working capital and putting monies from consumers into trust. That was very high on our list because consumers are not protected at the federal level. If they go through a travel agency, we have had to reimburse consumers from an industry fund that is financed by travel agencies and travel wholesalers in respect of airline failures. That is not fair, but we have had to do that. We focused on issues that are affecting us within the provinces directly rather than the loss the baggage and other issues.
Senator Segal: Could I ask about the working capital proposition you are advancing? I would say, that by a conservative assessment, the CICA accounting rules with respect to working capital, since Enron, changed 12 to 15 times. How would you have a government agency interpret and precisely understand the nature of working capital in any company at any one time or any specific circumstance that was not either retroactive or already out of date by the time the government agency actually got there? How would you physically do that?
Mr. Pepper: We have managed to do that in Ontario by routinely receiving financial statements that we look at, because there is a minimum working capital requirement for travel wholesalers and travel retailers.
Senator Segal: Do you get them to the last quarter?
Mr. Pepper: Yes, depending upon the gross sales. If the sales are higher, they are required to file quarterly. Everyone is required to file financial statements at least with a review engagement, and if there are $10 million of gross sales or more, it is with an audited opinion. As they get progressively higher, they are required to file more frequently. We monitor, and we have been pretty successful. If you look at the track record for Ontario, our compensation fund has gone from $4 million to $30 million in the 10 years we have been self-managing. At the same time, we have reduced our claims significantly to the point where we have given an 80 per cent reduction in fees to the industry by monitoring financial criteria and working with those players in the industry to maintain a level of working capital. That is our objective, and we can do it. It can be done through looking at financial statements and frequent monitoring.
Ms. Théberge: Concerning service performance and lost baggage and overbooked flights, we have been advocating on those problems before the House of Commons. This issue is also one of our concerns. We are asking for better disclosure of service performance, and we would certainly be happy to work with Transport Canada and the agency to look at how it could be done.
I would like to come back to WestJet. Senator Mercer talked about WestJet being concerned that if this legislation came about, they would be disadvantaged. I am quite surprised to hear that WestJet would be disadvantaged because they are afraid that under this legislation, which would be federal legislation, they would have to advertise the real price. The non-regulated provinces, travel agents and tour operators would not be regulated because the only regulated provinces are Quebec, Ontario and B.C. WestJet is afraid that what they are doing, others will be doing to them. It is a strange situation. It is quite interesting to look at that situation.
Senator Munson: Thank you for being here on Bill C-11. Mr. Bodrug, in your brief you cite the lack of appeal mechanisms and a proposed mergers and acquisitions review processes as problems in this bill. Could you describe to us the appeal process that exists under the Competition Act? Can you give the committee an example in which the appeal process under the Competition Act was used, and what was the outcome?
Mr. Bodrug: The broader point is that under this bill, the commissioner is the effective decision-maker, whereas in the Competition Act review regime, the commissioner is the investigator, the enforcer of the legislation. The commissioner gathers the evidence and has extensive tools to do that. Then, if the commissioner wants to block a merger or obtain remedies, she has to make her case to the Competition Tribunal, which is a quasi-judicial body composed of the both Federal Court judges and some lay members, retired business people and economists. There is actually an appeal from the competition tribunal to the Federal Court of Appeal. Our basic point was that here you are politicizing the role of the commissioner in making her the investigator and the decision-maker.
There have been a number of cases. Just to be arbitrary in picking one here, in the transportation sector, one case involved tugboats in Vancouver Harbour. The commissioner challenged, and ultimately it was resolved on a consent basis. More recently, there were cases involving distribution of propane. In one of the cases, the tribunal decided there was not a problem, and then there were further appeals and it went back and forth between the Federal Court of Appeal and the tribunal.
Senator Munson: In recent years, the federal government has intervened in the airline industry during turbulent times. For example, in 1999 the Minister of Transport brought forth legislation that permitted Air Canada to purchase Canadian Airlines International, including provisions that obliged Air Canada to maintain services to smaller markets during that transition period. There was a fear that service to those communities would be lost.
After the 2001 terrorist attack in the U.S., the federal government guaranteed war risk insurance coverage for airlines. It contributed to new security features on aircraft, enabling airlines to continue operations in the heightened security environment.
In your brief, you stated that political intervention in the airline industry has proven unsuccessful, harming the industry and not protecting consumers beyond the protection available to other industries. Could you elaborate on that statement with some recent examples of unsuccessful political intervention?
Senator Mercer: You have stumped the Canadian Bar Association.
Mr. Bodrug: I am at a disadvantage. That portion of the brief was written by the National Air and Transport Section and I really am here today to focus on the merger provisions. I am a little at a loss. I apologize.
Senator Munson: I do not want to put you on the spot but if someone can get an answer to that question, we would appreciate it.
The Traveller's Protection Initiative and your proposed amendment regarding enhanced reporting requirements of the agency with respect to air travel complaints filed, was largely adopted by the Standing Committee on Transport, Infrastructure and Communities. Are you satisfied with the impact on passengers, following the elimination of the Air Travel Complaints Commissioner?
Mr. Pepper: I am not sure it was adopted. The position of the complaints commissioner has been dispensed with, but the complaints will be handled by the agency, by the CTA. That is my understanding. I am not sure of any amendments.
Senator Johnson: This is for Canadian Bar Association. From time to time, the Minister of Transport appoints panels or individuals to review the public interest on his or her behalf, in respect of the performance of transport legislation. Examples are the Canada Transportation Act review panel, the Canada Marine Act, the Railway Safety Act and sectors of the transportation industry. Another is the Royal Commission on National Passenger Transportation. In your brief, however, you question whether it is appropriate for the minister to conduct a public interest review. Why would the review of the public interest impacts of a merger acquisition in the transportation industry proposed in clause 13 be less appropriate in your opinion?
Mr. Bodrug: I do not think that our position, even speaking for the other clause, is that the minister should not be able to perform public interest inquiries at all. I frankly do not know. Our point is that this proposal will be triggered by every merger that meets these financial thresholds that involves a transportation undertaking. I would expect that most of these notifications would not result in a public interest merger review because, in most cases, the minister would determine that it is not important enough for a public interest review. That is really the focus of our concern. This will be creating an unnecessary and burdensome review procedure. It is hard for me to see why mergers in particular, should be triggering this public interest review beyond issues that arise in the context of lessening competition. Otherwise, if there is conduct in the industry that is a concern, then I would have thought the minister and the appropriate agency should address that and in the normal course.
Senator Johnson: That is the answer to that.
The Minister of Transport also told this committee last week that the merger and acquisitions provision in the bill was developed in consultation with the Competition Bureau. The committee heard that the Commissioner of the Competition Bureau would not be guided by the decisions of the minister when reviewing an application for a merger or acquisition.
Given these assurances from the minister, do you still feel the provisions in this bill compromise the independence of the commissioner?
Mr. Bodrug: I am not quite sure what that comment means. The commissioner is put in a position of consulting directly with the Minister of Transport as opposed to reaching decisions on the basis of an established statutory test under the Competition Act. Currently the Competition Act sets out at standard that the commissioner, if she is convinced there is a likely a substantial lessening or prevention of competition, can seek to challenge that transaction and block the merger or seek other remedies. Under this bill, that is not the standard. The standard is any prevention of competition, there is no substantial threshold there, so it is a different test. I know the commissioner has said she intends to apply the same test, but it is putting the commissioner in an awkward position and it will be exposing her to more political lobbying rather than the law enforcement position she is in now.
Senator Johnson: You proposed Bill C-11 be amended to require that carriers provide information regarding their financial fitness and service performance to the agency and that the agency has a corresponding duty to report on the financial fitness of airlines to the minister who would then inform consumers.
How do you propose to deal with the fact that some airlines, particularly the smaller non-scheduled airlines, whose financial situation may be the most precarious, are private companies and need to protect the financial information for competitive reasons?
Mr. Pepper: I am assuming the federal government, having received that information, would keep that information confidential. I can give a parallel with what we do in the province of Ontario. We receive financial statements from all private companies, most of which are private companies with relation to their financial position; working capital, et cetera. We are bound by confidentiality and the federal government would also be bound by similar rules of confidentiality. We would not be able to disclose that publicly.
Senator Johnson: You commented, in previous testimony, in the House of Commons, on the removal the complaints commissioner role, but not today. Can you tell us your position on this?
Mr. Pepper: When the role of the complaints commissioner was removed, we were very concerned that not only the role of the commissioner was being removed but the actual process was going to be removed too. Since we made that submission, we have met with Transport Canada and the CTA and we have been assured that the program will continue. The complaints will still be acknowledged and consumers will receive a response.
Senator Johnson: You do not have the same problem with the figurehead.
Mr. Pepper: That was our issue to start with. We thought the processes role would disappear because it was not just the commissioner, it was the staffing of the office of the commissioner as well and we have been assured that the process will continue.
Senator Johnson: Do you feel it streamlined the complaints process? Is it pretty much the same?
Mr. Pepper: I think it will be pretty much the same. The figurehead was someone that the consumer could see and was there for the consumer to go to, but I have been assured that the CTA will continue in the same manner, responding to complaints.
Senator Johnson: In your experience, did you find that this process worked well in terms of the consumer? Were there many complaints?
Mr. Pepper: It is difficult to measure that because I was not in receipt of the complaints. We received complaints if they were federal issues. I cannot really respond effectively on that question.
Senator Johnson: I have been sending letters about the service.
Ms. Théberge: Our concern about the Air Travel Complaint Commissioner is one of exposure so that consumers know that the process exists. There is not much publicity around it so people have to dig hard to find it.
Senator Johnson: That is a good point. I did not know. I sent my letter to the president and he forwarded it to someone else. No one told me about the complaints commissioner.
Ms. Théberge: That is it. Now, the role and function of the Air Travel Complaints Commissioner is integrated into the agency. We want to ensure that consumers know the function exists and they understand the role and responsibilities so they can address their complaints. That is one of the most important issues.
The Deputy Chairman: If you lose your luggage, you can phone the government, only in Canada.
Ms. Théberge: Only after you have complained to the airline.
Senator Zimmer: I will make a few comments about the questions by Senator Mercer and Senator Johnson because they are prime issues. Senator Mercer raised the matter of air travel prices. It appears that there is an uneven playing field. There must be more consistency so that travelers can compare apples with apples. Of course, the agents do not advertise the additional fees that they receive of 8 per cent to 9 per cent, which amounts to adding insult to injury.
Senator Segal raises a good point on other priorities, which we all encounter when we travel, such as delays and lost luggage. The onus is on the traveler and often we are so tired from travelling that we are happy to get our luggage back and go home that we do not make the complaints. We have other priorities in our lives. The occurrences are inconvenient but we put up with them. Many industries put the onus on the individual because they know most often they will not complain. In addition to what Senator Segal said, I would urge you to pursue those issues, although I realize they do not originate in your domain.
Relevant to Senator Johnson's question, I have a point for clarification in respect of specific concerns about the handling of the air travel complaints function by the CTA, as opposed to the Air Travel Complaints Commissioner, and you have answered that part.
My questions are for the Canadian Bar Association. Your submission seems to favour the status quo such that you would prefer to see the Commissioner of Competition continue to deal with misleading advertising pursuant to the Competition Act.
How would you respond to complaints that, for years, most consumers have been subject to the ``sticker shock,'' as it is called in the industry, because the cost of taxes and fees are not shown up front?
Assuming fees and taxes continue to be collected an air travel, what course of action would have to be undertaken to affect a change in this situation?
Mr. Bodrug: I am not sure how specifically I can respond to that other than to say we have not done a study of advertising or that kind of thing. However, when the advertising in this or in any other industry is misleading in a material respect to the general public, there are two avenues: a criminal provision in the Competition Act and a civil provision, which was specifically passed to make it easier for the Competition Commissioner to bring cases and address issues without the higher criminal standard of proof to address such issues and to obtain orders for it to stop or for other appropriate relief.
When the consumer is misled, it is a problem but it is not unique to the airline industry. People buy and sell many other products that have additional charges not disclosed as part of the total purchase price and that can be an issue. Our big-picture perspective is that this is an issue but it is not unique to the airline industry. When it becomes an issue, the Commissioner of Competition can investigate it. People have access to such complaint venues. The Competition Bureau is user friendly. For example, people can access their website to send an email. There is mechanism for any six Canadian residents to file a complaint with the Commissioner of Competition and ask for an inquiry, or the Minister of Industry can ask the Competition Bureau to conduct an inquiry.
It is not clear to us that the mechanism is not already in place so why would we add additional regulatory burden on a specific industry to cover something that is already covered?
Senator Zimmer: Thank you. Could you provide us with an appreciation for the circumstances that led to the merger of new provisions for airline undertakings? Could you expand on what you see as the failings of these measures?
Mr. Bodrug: My understanding of the provisions in the existing Canadian Transportation Act with regard to airline mergers involving airline undertakings is that they were enacted around the time of or with a view to the proposed Air Canada-Canadian Airlines merger. I do not have intimate knowledge of that merger and I am not sure that it had much impact. I do not know whether Air Canada, for example, has been notifying the Minister of Transport on transactions in which it has been involved. The Canadian Bar Association raised concerns about that provision when it was passed, similar to what we are saying now except today's problem is much broader.
I might point out that even the Competition Bureau, in its submission to the House of Commons Committee, indicated that it would prefer to remove that provision as well. I cannot point to specific harm that would arise from that provision. Conceptually, it could be creating a disadvantage for companies in the airline business in the way that I talked about earlier. The order of magnitude would be magnified by the current proposal.
Senator Peterson: Mr. Bodrug, is there any provision in the proposed legislation for advanced rulings? If there is not, would one be beneficial and would it eliminate at least some of these minor mergers so they can get on with it?
Mr. Bodrug: A mechanism exists under the Competition Act for advanced ruling certificates so that the Competition Bureau can give a clearance. Perhaps this comment is open to interpretation, but one view of reading the proposed legislation is such that if the bureau were to clear it with an advanced ruling certificate then you would never have to notify the minister. I do not know if that is the intent or whether the Competition Bureau will simply be more reluctant to issue advanced ruling certificates because of the implications for the Transportation Act. We will have to wait and see.
I do not see anything in the proposed amendments to the Transportation Act that would involve an advanced ruling. However, perhaps that is something the Minister of Transport would be prepared to do administratively. It is not specifically contemplated in the proposed legislation.
Senator Peterson: Would you like to see that in the bill?
Mr. Bodrug: If this bill were to pass, it would give more certainty to whether they will be subjected to this potentially quite onerous review.
The Deputy Chairman: Is your criticism of the merger-acquisition process because it is bad law or bad public policy or both?
Mr. Bodrug: I would not use the word ``bad.'' In our view, it would be preferable not to have this provision at all. If there is to be a public review provision, it would be better policy to have it more focused and directed at the specific potential harm.
What is it that causes the concern that leads to this special public interest review? All I have been able to discern from the public record is that there was some concern about a proposed major merger in the railway industry. If Parliament decides that they want to have a mechanism for big railway mergers then, in our view, accepting that as the premises, there should be a more focused provision rather than something with such wide-ranging application.
The Deputy Chairman: Our committee made recommendations on the news media that CRTC should play a larger role in mergers and acquisitions of newspapers, because we thought that the Competition Bureau did not adequately fulfill its role there. I note that we also have laws on banks that are separate from the Competition Bureau. We have a public review process and ministerial involvement there. The CRTC also gets involved in media mergers. They are having hearings now on the CTVglobemedia with CHUM. This is not unusual. You think it is far-reaching. As a westerner, we would be very concerned that there be political involvement in a merger of the two railroads because we are already exposed to monopoly situations in certain areas, even though we have two railroads. British Columbia has an extra one and there are a few small ones coming up here and there, but nonetheless, we would want some process that would protect farmers from a merger of these two beasts, as I would call them.
Mr. Bodrug: To regulate conduct of transportation carriers through a merger review is a bit ad hoc in terms of when someone merges. If there is conduct in the transportation industry that is of concern, then it is one thing to regulate that conduct; it is another to regulate it with respect to an entity when it happens to merge or when there happens to be a transaction that technically trips a wire.
Senator Segal: When mergers take place, and let us take public companies for a moment, one of the great disputes between the vendors and the purchasers is the value of the synergies. The big dispute is how to divide the synergies in a fair way, between the shareholders of the purchaser and the vendor. That is a classic market debate that takes place and it is sorted out in the marketplace.
To amplify the point made by the deputy chairman, it is those synergies in transportation companies where people say, if we merge A and B, we can avoid duplication. Duplication for one group of Canadians on Bay Street may look like ample market coverage for another group of Canadians in the Prairies.
The notion that the Department of Transport would have no interest in those kinds of issues, which are harder to penetrate when there are private players involved, strikes me as almost a retraction from the existing regulatory premise that has been in place for some time, for which this is a small refinement.
Would you be more assuaged if there was a threshold that allowed many of the smaller references that you are concerned about to be addressed without attracting this interest, so that the threshold was sufficient that it would imply a market size where the public interest might be more applicable in terms of an assertion by the Department of Transport versus your concern?
Mr. Bodrug: The kind of circumstance that you are addressing where there are synergies is the kind of circumstance where you are typically talking about two competitors. That is one circumstance where the Competition Bureau will be fully engaged in addressing impacts on customers and suppliers.
Senator Segal: With respect, I disagree. A large company buying a small company may say that, even though it is not a competition issue because the small company was not a major market player in percentage terms, it may have been important in its particular niche. Those synergies may be of value to the regional subdivision of the big company that is proceeding with the acquisition. I am not 100 per cent sure it would attract the same measure of competition interest that you are uncomfortable it would attract.
Mr. Bodrug: You second point was with regard to the timing and the threshold. This is really the point we are trying to make about regulatory focus. Practically speaking, is the minister really going to be concerned about these little mergers or little transportation businesses? It certainly would be a more focused regulatory measure to say that a merger involving transportation businesses over a certain monetary threshold are potentially subject to this review. That would narrow the scope of these merger provisions. That would be helpful.
The Deputy Chairman: To return to that point, the way the act reads is that the minister makes that decision. He is not going to decide something that is of no political consequence. He is a politician. He is responsible to his members.
The reason they have it a little far-reaching is that while the acquisition of Yanke by CN Rail may not be a big deal in Winnipeg, it would be a huge deal in Saskatoon because the Yanke Group of Companies is the biggest trucker. It is a local Saskatoon company and the two companies together could become a significant player. Maybe the MPs of the area, the farm groups or the exporters would say they think the minister should look at this acquisition because all of a sudden it will limit the amount of competition in their region. The minister will not get involved in a process that is of no consequence.
Mr. Bodrug: If it involves competition issues, then the Competition Bureau is already addressing them. If it is other issues, then that goes to the point of creating a very wide area of uncertainty that will cause Canadian businesses to be wary of getting involved in the transportation sector, because it could subject them to these very significant delays.
It is a trade-off here between retaining a very wide discretion to potentially review a very wide range of transactions versus creating an environment that is more encouraging of investment and capital investment.
Senator Segal: You make a generic comment about entry into regulated areas. The economics of the marketplace argue that there are both costs and benefits to being in unregulated markets and there are costs and benefits to being in regulated markets. One can assume that many of the existing participants in the regulated transportation market are there because they think there is a profit to made. The notion that regulation per se or some modification of such, if it is done on a level playing field basis, discourages investment, is not necessarily the case. I agree that it may be the case in some contexts, but across the board I do not think it is necessarily the case.
Mr. Bodrug: Thank you, Senator Segal. I did not mean to suggest across the board. I was pointing to what I think is probably an unintended consequence of this legislation, to create a disincentive for a large Canadian company to have some presence in the transportation business because of the impact it will have on its ability to do other kinds of transactions.
The Deputy Chairman: Thank you, witnesses, and thank you, senators.
The committee adjourned.