Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue 7 - Evidence, May 13, 2009
OTTAWA, Wednesday, May 13, 2009
The Standing Senate Committee on Banking, Trade and Commerce met this day at 4:02 p.m. for the election of a deputy chair; and to examine those elements dealing with the Competition Act (Part 12) contained in Bill C-10, the Budget Implementation Act, 2009.
Senator Michael A. Meighen (Chair) in the chair.
[English]
The Chair: Honourable senators, before we get into our business of hearing from witnesses today, we have a pleasant administrative matter to take care of.
As you all know, Senator Goldstein retired from the Senate. Accordingly, it behoves us to elect a new deputy chair. I would welcome any nominations.
Senator Oliver: I would be honoured to propose the name of Senator Hervieux-Payette for the position.
The Chair: Thank you, Senator Oliver. Are there any other nominations? If not, will someone move that the nominations are now closed?
Senator Harb: I so move.
The Chair: Thank you. That is seconded by Senator Fox. Nominations are closed and I have pleasure the declaring Senator Hervieux-Payette the new deputy chair of the committee.
Welcome and congratulations. I look forward to working with you.
[Translation]
I am sure that we will have a productive relationship, but we have business to attend to, so we should get started with our witness presentations for this afternoon.
Today, we will examine the elements of the Budget Implementation Act, 2009, better known as Bill C-10, that pertain to the Competition Act.
[English]
The committee was authorized by the Senate to undertake its review of changes to the Competition Act, found in Bill C-10, on March 12, 2009, the same day that Bill C-10 received Royal Assent.
Among other things, Bill C-10 changed the Competition Act to include new information disclosure requirements for large mergers, an expanded definition of "bid rigging,'' and amended penalty provisions that are expected to increase consumer protection from misleading advertising and deceptive marketing practices.
To discuss these and other changes, we are pleased to have with us, from the Competition Bureau of Canada, Melanie Aitken, Interim Commissioner of Competition; and, from Industry Canada, Colette Downie, Colette Downie, Director General, Marketplace Framework Policy Branch.
Welcome to both of you. Thank you for being with us. I understand you both have an introductory statement. Please proceed in whatever order you have determined.
Colette Downie, Director General, Marketplace Framework Policy Branch, Industry Canada: Thank you, members of the committee, for providing us with the opportunity to address you about the Competition Act amendments in Bill C- 10.
[Translation]
I will be providing an overview of the main elements of the amendments in Part 12 of the bill and the policy rationale for them. My colleague will address issues pertaining to the implementation and enforcement of the amendments.
Competitive markets provide the greatest potential for lower prices, more product choices, better quality products and innovation, benefiting not only the lives of individual Canadians, but also the economy as a whole.
[English]
Effective competition laws and policies are key elements in ensuring the competitiveness and efficiency of our economy. Prior to Bill C-10, the Competition Act had not been modified since 1986. For the conspiracy provision, that period was even longer — not significantly since 1889.
Perhaps it is an understatement to say that a number of key provisions required updating to better reflect the realities of a modern, global economy. Only a few minor initiatives, including proposals for legislative reform, have been undertaken since 1986 with a view to modernizing Canada's Competition Act.
[Translation]
As you know, in July 2007, the Competition Policy Review Panel, chaired by Lynton Ronald "Red'' Wilson, was created to review Canada's investment and competition policies. The panel received more than 155 written submissions and consulted extensively throughout Canada and internationally.
[English]
The panel reported to the government in June 2008. It concluded that for Canada to succeed internationally, it must ensure that its domestic markets are competitive and that unnecessary barriers to entry are reduced or eliminated. The panel's core recommendations included modernizing the Competition Act, particularly in the areas of conspiracy, merger review and abuse of dominance.
The amendments to the Competition Act in Bill C-10 respond to the core recommendations of the panel and are an important element in the government's economic action plan to spur long-term growth.
I will now address each of the key changes in Bill C-10 in turn.
First, the conspiracy provision of the Competition Act, also known as the cartel or price-fixing provision, had remained unchanged since 1889. It was out of step with the laws of our major trading partners. In many industrialized countries, if the court is satisfied that two or more businesses conspired to fix prices, the perpetrators are guilty — end of story. This was not the case in Canada. Under the old provision, even when it was clear that competitors had conspired to fix prices, the courts were still required to go further and to consider complicated economic evidence to be satisfied beyond a reasonable doubt that the effect of the price-fixing agreement in the market was significant.
[Translation]
Proving the economic evidence beyond a reasonable doubt, even in cases where it was clear that competitors had agreed to fix prices, often proved difficult — a hurdle not faced by prosecutors in the U.S. or other key jurisdictions.
With the amendments, the government has toughened its approach to hard-core cartels, amended the law to ensure it will not chill legitimate business activity and simplified the law in many respects.
[English]
The amendments remove the requirement to prove the economic effects of the conspiracy and narrow the conspiracy provision to apply only to hard-core cartels and agreements among competitors to fix prices, to allocate markets, or to restrict output. The process remains criminal, so the burden of proof on the Crown is still high — that is, proof beyond a reasonable doubt — and the amendments significantly increase the maximum jail time for conspiracies from 5 years to 14 years and possible fines from $10 million to $25 million for those convicted of conspiracy to fix prices.
The government introduced a non-criminal provision for the review of all other forms of agreements among competitors, which requires proof of the economic effects of the agreement and does not carry the effect of a criminal sanction. These types of agreements were previously caught by the old criminal conspiracy provisions.
[Translation]
The amendments recognize the importance of providing businesses with a transition period, until March 2010, one year after royal assent, in which to ensure compliance with the new provisions.
During this one-year period, businesses can apply to the bureau, free of charge, for a written opinion on the applicability of the new conspiracy provisions to an existing agreement and will be able to revise their agreements before the new provisions take effect.
When the bill was tabled, there was a great deal of discussion about how the amended provisions would be enforced. Since then, the Competition Bureau has introduced enforcement guidelines to provide transparency and predictability regarding the bureau's approach to the enforcement of these provisions.
[English]
My colleague Ms. Aitken will elaborate more on these bureau initiatives.
Other key amendments included the reform of the merger review provisions. Assessing whether a combination of two companies is likely to substantially lessen competition is a fundamental aspect of ensuring that markets remain competitive. It is based on the premise that it is far better to stop anti-competitive mergers than to try to undo one after the fact, or to live with the likely consequences — higher prices, less innovation in products and services and less choice for consumers.
Before the recent amendments, the merger review provisions of the Competition Act had not been substantially revised since 1986, as I mentioned, and a lot has changed since then, including the pace of corporate transactions and the sophistication of data available and necessary to analyze markets.
The Competition Policy Review Panel recommended, and the government adopted, changes to the Competition Act to ensure that Canada's merger review process allows the Competition Bureau to get the information it requires from the merging parties to properly assess the effects of a merger and make the right decision to challenge or clear the merger in a timely manner.
It also recommended, and this was emphasized by the panel, that companies need as much certainty as possible about the process and the timelines of their transactions. It is in this way that Canada maintains its reputation as a good place to invest.
Under the old provisions, parties could close a proposed merger after 42 days, even if they had not given the Competition Bureau the information it needed to determine whether the merger harmed the economy. Moreover, the bureau had to resort to court orders to compel the information from uncooperative parties, a process that was rigid and did not leave the Competition Bureau with sufficient time to responsibly review complex mergers in a timely and informed manner.
Under the new system, merging companies are told within 30 days whether their proposed transaction raises serious concerns. The vast majority of all transactions should be cleared within that initial 30-day period, and often in significantly less time.
For the small number of potentially harmful mergers — about four to six per year — companies will be told what supplementary information is required from them in order to complete a more in-depth analysis. Once that supplementary information is provided, the bureau will have 30 days to make a decision about whether to challenge the merger.
[Translation]
When the bill was tabled, there was a lot of discussion about how the new merger review provisions would operate. Since then, the Competition Bureau has issued draft enforcement guidelines in an effort to, among other things, describe the practices the bureau will follow to ensure the burden on parties in responding to a supplementary request for information is no greater than necessary. My colleague will elaborate further on this.
[English]
The third key amendment in Bill C-10 relates to abuse of dominance. That is a situation where a company with market power tries to exclude, discipline or eliminate a competitor in a way that harms competition or that has lasting or permanent effects. Under the old Competition Act, there were no financial consequences for this anti-competitive activity. All the Competition Tribunal could do was to order a company to stop the behaviour; but the company could keep all the money it made in the past from the activity.
The introduction of what are called "administrative monetary penalties,'' or AMPs, provides greater deterrence, recognizes the seriousness of this conduct and brings Canada's law in line with other jurisdictions' laws.
I will touch briefly on the last set of other key amendments. In addition to responding to the panel's recommendations, the amendments in Bill C-10 send a strong message to potential lawbreakers and the courts that the government is serious about cracking down on the crimes covered by the Competition Act.
Measures were introduced to protect consumers against misleading advertising by significantly increasing penalties and to provide a mechanism for restitution that will allow consumers that are victims of this conduct to secure a refund. These changes should help companies engage in honest marketing practices and instill confidence in advertising claims in the marketplace.
[Translation]
Thank you for giving me the opportunity to explain the highlights of Part 12 of Bill C-10.
[English]
I will be pleased to respond to any questions that you may have after Ms. Aitken's remarks.
Melanie Aitken, Interim Commissioner of Competition, Competition Bureau Canada: It is an honour to be here today to discuss the recent amendments to the Competition Act. Since January, I have had the privilege of serving as Interim Commissioner of Competition. Prior to that, I headed up the merger review branch of the Competition Bureau; and before that, I spent the bulk of my career in private legal practice in Toronto.
We are pleased with the amendments that Ms. Downie has described, which we firmly believe will materially help us fulfil our mission to contribute to the prosperity of Canadians by protecting and promoting competitive and honest markets, where efficiency and innovation are fostered and where consumers have the information they need to make informed choices.
An honest marketplace benefits everyone in the economy, businesses and consumers alike. It is the goal of the Competition Act and role of the bureau to ensure those conditions prevail.
Yet, as Ms. Downie has highlighted, before the amendments, our cornerstone cartel provision was ineffective and badly out of step with that of our major trading partners. This was a particular challenge for us at the bureau because combating cartels, given how harmful their effects are to the economy, was our number one priority and remains so.
At one and the same time, the cartel provision was too broad and too narrow. It was too narrow and an outlier around the world in that, in order to convict, the prosecution had to prove not just an agreement between competitors to fix their prices, but further, in this context of unambiguously harmful conduct, an anti-competitive effect. Needless to say, this consumed enormous resources to try to establish a complex economic effect, and very few prosecutions were successful as a result, even when we caught the conspirators red-handed.
At the same time, the previous cartel provision captured too much. Every business collaboration was potentially subject to the threat of a criminal investigation and a prosecution. That included things like franchise agreements, R&D agreements and the like. As a result, this broad cartel provision had the potential to discourage firms from entering into beneficial alliances and collaborations.
The government's fix, as Ms. Downie has explained, has been to narrow the criminal provision, explicitly decriminalizing all but the most egregious cartel activities while allowing for a review, under a civil track, of the vast majority of other agreements between competitors and only censoring those that seriously risk substantially lessening or preventing competition. Even then, the most that could be ordered is that the agreement be unwound.
[Translation]
Our method for reviewing mergers was also out of step. The old provisions did not provide the tools or the time necessary to review the few transactions a year that pose a serious risk to competition in Canada. We believe that the new provisions, which are based on the predictability of incentive harmonization, will allow the bureau to access the information it needs to conduct responsible reviews. At the same time, the new provisions will bring more certainty to the review process and time frame. They will also make it possible to harmonize our process with that of the U.S. That should help parties become more effective and efficient against the backdrop of the globalization of trade.
This is no small undertaking. Reducing the time frames for merger challenges and increasing the financial thresholds for merger notifications will increase predictability for merging parties and reduce the burden of the compliance requirement. That is especially true for small businesses, which have more trouble than other businesses paying the costs of filing a merger notification.
It is in the public interest that we have the tools we need to do the best job possible and to ensure that mergers do not result in the substantial lessening of competition, while making every reasonable effort to reduce the burden on businesses.
Significantly, the amendments decriminalize a number of pricing practices reflecting the reality and the international recognition that creative pricing can be pro-competitive and that hard and fast rules carrying the risk of criminal investigation can blunt entrepreneurial activities and incentives. Liberating businesses to be innovative in organizing their pricing practices can only be a good thing. If that freedom is abused, there is still recourse under the civil provisions.
Finally, the amendments enhance penalties for those who break the law. Prior to these amendments, the level of deterrence for certain kinds of illegal conduct was negligible. For many, it was seen as simply a licence fee for misleading and cheating honest consumers and businesses. Now, in areas such as false and misleading advertising that target the vulnerable, not only can the courts and tribunals administer higher penalties, we can act on behalf of consumers in appropriate cases to seek restitution — an additional and powerful deterrent and a way for victims to get their money back. Similarly, the act did not effectively deter anti-competitive conduct in the area of abusive dominance. Generally, the tribunal was limited to requiring the offending company, even if we established that there had been an abuse of dominance, to discontinue the activity going forward. In other words, the company was able to keep all the money it had made having excluded healthy competition through anti-competitive conduct designed to eliminate competitors.
It is key that these amendments introduce material incentives to comply with the law and, in appropriate cases, could be sought. There is no doubt in my mind that the changes to the act, including the ones I have highlighted here, coupled with the strong investigative and analytical teams at the Competition Bureau, will allow us to enforce better the Competition Act on behalf of all Canadians. I would suggest that that is even more important in these recessionary times. Economic crime cuts closer to the bone when times are tough. If anything, we fear that the temptation to break the law might increase in tough times.
Cartels and anti-competitive conduct are more prevalent in declining industries, while the kind of innovation and productivity growth and cost-effectiveness that honest competition can unleash are important drivers of recovery. For that reason, the principled application of sound competition policy is critical for us to promote a speedy recovery from the economic downturn.
We are conscious that our role must be carefully calibrated. We must be measured and we must make extraordinary efforts to ensure that we communicate clearly what is onside and what is potentially illegal. Also, we must enforce the law so that legitimate business alliances, innovation and efficiencies in the economy can all flourish. Let me be clear: this is not about creating obstacles to legitimate business conduct; quite the contrary. We take seriously our duty to ensure that those in the marketplace understand this, and that is why we are out in the community conducting consultations and education sessions with national consumer groups, the bar and the business communities across the country.
For example, last week we worked cooperatively with the chamber and the Canadian Council of Chief Executives, to whom we are grateful for their assistance, to put on an education session for their members in Toronto. We have met with Catherine Swift and her colleagues form the Canadian Federation of Independent Business. We have an event planned with the Retail Council of Canada. Last week in Vancouver and Montreal, we held open events for the local business communities. More are planned. The idea is to ensure that everyone who has an interest in being heard has an opportunity to present their input directly to us so that we can provide as much explanation and education as possible in return. The feedback so far has been positive and heartening. Many participants have described the sessions as valuable and said that they walked away feeling they could work well with the new legislation.
We are doing more than just talking, I assure honourable senators. We recognize that with this opportunity comes a significant responsibility. We are committed to ensuring that these amendments are implemented in the most effective and transparent way possible. We have issued draft guidelines outlining our approach to the two major, substantive changes to the law: the merger review process and how competitor collaborations are treated under the law. These draft guidelines lay out, as clearly as possible, how we intend to proceed in these two key areas. The draft merger process guidelines explain how we will ensure that we do everything we can do to keep the burden on merging parties as minimal as possible while enabling ourselves to conduct a sufficiently thorough review.
Our face-to-face consultations with the bar wrapped up last week. The exchange and reception were encouraging.
[Translation]
The draft Competitor Collaboration Guidelines were made public last Friday and will be the subject of extensive consultations this spring. The guidelines describe in detail our approach to each provision in the new bill and explicitly protect certain agreements from criminal sanctions. The guidelines also provide clear examples of the strict limits of our investigations under the criminal provision and outline our approach to other types of agreements. We state very clearly that we are interested only in cases that seriously undermine competition.
We will draw on the expertise of our legal, business and consumer stakeholders, and make any necessary changes to our two sets of draft guidelines before preparing the final versions in the coming months.
[English]
I have had the great good fortune to lead the organization when these amendments passed. I have clearly communicated to all our staff that getting the implementation of these amendments right is absolutely our number one priority. As Interim Commissioner of Competition, I take my role as a law enforcement officer seriously. I will not hesitate to act when we uncover evidence of a breach of the law. Business crime costs everyone in the economy. Honest competitors deserve the full protection of the law. We are committed to doing our part at the Competition Bureau responsibly to ensure that legitimate business grows strongly in Canada. We believe that these amendments will help us to do so. With that, honourable senators, we welcome your questions.
The Chair: Thank you for the clarity and brevity of those opening statements. I am certain they have spawned questions in the minds of senators.
Senator Harb: These amendments are explicit. I have a specific question to ask about the new section 45(1) of the Competition Act, at page 391, which reads in part:
Every person commits an offence who, with a competitor of that person with respect to a product, conspires, agrees or arranges
(a) to fix, maintain, increase or control the price for the supply of the product.
Probably before you joined the Competition Bureau, a few years ago, two companies in Ottawa were charged under the Competition Act because it was alleged that they communicated with one another and, as a result of that communication, the price went down. One would presume that they broke the law at that time. Under this regime, with 45(1)(a) in place, that kind of dialogue would be responded to as at page 407, which is the exception, in section 90.1(4). As clarification to 45(1)(a), section 90.1(4) sets out as an exception gains in efficiency:
The Tribunal shall not make an order under subsection (1) if it finds that the agreement or arrangement has brought about or is likely to bring about gains in efficiency that will be greater than, and will offset, the effects of any prevention of lessening or lessening of competition . . .
Based on this clarification and on 45(1)(a), would those two companies be charged with price fixing under today's Competition Act? Without naming the companies, obviously, because I do not know the result of the charges.
Ms. Aitken: I have the good fortune of having no idea what case you are referring to, so I can answer without worrying about the facts of the specific case. Needless to say, every case would be approached on the basis of its own facts and the evidence. I will attempt to respond to your question as a structural matter.
Under the new provision, we have two agreements provisions. We have a very narrow provision for unambiguously harmful price-fixing agreements. Those will be criminally looked at.
However, the vast majority of agreements, collaborations and communications as between competitors would be looked at, if at all, under the 90.1 provision, the second provision you turned to. In being analyzed under that provision, they would be analyzed in what we call the rule-of-reason approach, which effectively just means a civil approach, absolutely, but also means balancing all of the factors together.
Do we think this is an anti-competitive agreement that will substantially lessen competition? As part of the final answer to that question, there is an explicit efficiencies exception that says even if it is anti-competitive in its essence, if the efficiencies that would be associated with that agreement are greater than and offset that anti-competitive concern, then the agreement is perfectly free to stand.
Senator Harb: With respect to the efficiencies reducing the price, is that an efficiency or deficiency in the market?
Ms. Aitken: It can be a reflection of efficiencies. It is not, per se, an efficiency. An efficiency would be freeing up resources for other uses in the economy and things of that nature. However, it could very well be a reflection that because the companies have been able to collaborate and share some joint cost that they have in a perfectly legitimate way, they are able to lower their price and be more competitive and offer consumers lower prices.
Senator Harb: My second question deals with vertical integration provisions that many states in the United States have looked at. A number of states have introduced laws, as have certain parts of Europe and other countries around the world, whereby a producer may or may not be able to be a retailer at the end. If that producer is a retailer, the percentage that person can retail at the consumer level can be, say, 10 per cent or 15 per cent of what he or she produces.
Vertical integration would remove the whole concept of a conflict of interest of an institution that produces a product and itself sells the product on the market as well as other franchises selling it. It gives you control directly into the market through your own outlet, but it also gives you indirect undue pressure on the agencies or the other groups that are also buying your product and selling it on the market.
Vertical integration provisions were introduced in order to eliminate that, indicating that you cannot have it both ways. You either want to be a producer and let others sell your product, or you want to be a producer and sell part of the product yourself. You have to decide what you want to be, a retailer or a producer. If you want to be both, we have to put some rules on it.
So I do not have to come back for a third question, in my other life, when I was in the House of Commons, there was a provision dealing with whistle-blowers. Have you applied that provision at all? If so, what has your experience been with that?
Ms. Aitken: You can let me know if there are gaps to my answer. As a response in general to your notion that we would put explicit criteria around the kinds of agreements that are or are not allowed, that has not been our approach. We have framework legislation here in Canada, and that is not because of the amendments; that is the way we have always approached looking at agreements, mergers or conduct otherwise in the marketplace.
The kinds of situations you were looking at could conceivably fall within the act for us to consider in the context of a merger. You could have a vertical merger in the sense of a supplier and one of their distributors merging, and you might be concerned to look at it, depending on the concentration levels. There is certainly nothing per se wrong with that.
Second, it could be an agreement of some sort. You might have a supplier who competes with some of the retailers that he sells his goods to, but he also sells into the secondary market. Again, that would be an agreement that clearly, under our new laws and in our guidelines, is explicitly reserved for civil treatment or examination, if you will. Again, it will only be a problem if it is on balance anti-competitive.
A final check on that sort of conduct would be if indeed a dominant player was engaged in that sort of arrangement; it might conceivably, in certain circumstances, give rise to a concern if it could be shown that the conduct that particular player was entering into had the intent of excluding competition and disciplining or excluding from the market one of its competitors.
I am not sure whether that is a complete answer. Ms. Downie may have something to add.
Ms. Downie: I do not have anything to add to that.
Ms. Aitken: On the whistle-blower question, whether we have ever used the provision, I have to confess I am not entirely acquainted with that. A lot of our work is initiated through complaints, but I think what you are driving at is an internal whistle-blower.
In the criminal sphere for sure, we have an immunity and leniency policy, which is how we have had most of our success in the criminal area, because of the frailty we spoke about earlier in our law that had to do with the requirement to produce and establish economic harm. We have had whistle-blowers in that sense, under our immunity program, and it is vital to the administration of our criminal program.
Senator Ringuette: You have mentioned that the introduction of these amendments is to better coordinate our laws with U.S. laws. Could you elaborate on that a little bit? When I look at your statement, it seems many items have been removed. I am concerned that when you talk about hard-core cartels, your legislation will pretty much be restricted.
Could you please elaborate on that in regards to hard-core cartels, and the opposite of that, which I suppose would be soft-core cartels? How does that compare with U.S. legislation? I have some concern here.
Ms. Downie: There are three key areas where these provisions would line us up better with U.S. laws. The first is, as you point out, the new cartel provisions, and then there are the administrative monetary penalties for abuse of dominance, and the merger review process. I will start with cartels.
The premise of the amendments was to ensure that Canadian consumers enjoy the same extent of protection from price increases from cartels as U.S. consumers do. The provision was designed to make hard-core cartels, price-fixing market allocation and output restriction illegal per se, so without the requirement to introduce evidence of economic harm. That is also the case in the United States.
The other important thing about that is that often cartels are cross-border, so they do not affect only Canada or the U.S. but North America as a whole. Often the Competition Bureau was investigating cartels in parallel with U.S. enforcers, who only had to find evidence of a price-fixing agreement, for example, to then proceed to lay charges and hopefully get a conviction.
In Canada, the bureau was slowed down because on top of having to provide evidence of price-fixing it then had to go on and find evidence of an undue lessening of competition. In a recent case, that actually added two years to the investigation. Ms. Aitken might want to elaborate on that. Thus the bureau was previously very much behind other agencies, and not only U.S. agencies, but obviously they are the key partner.
With respect to mergers, the idea was to align the two processes, so the new merger review process is very similar, at least in structure, to the U.S. process, with similar timelines. If you have cross-border transactions, businesses will hopefully receive similar types of information requests at similar times, and the two competition agencies will be required to proceed relatively in parallel.
The last one is administrative monetary penalties — the fines, essentially, for abuse of dominant position. As Ms. Aitken mentioned, in Canada, the Competition Tribunal did not have the ability to award any kind of financial penalties to deter that conduct. In the U.S. and the EU you see very significant penalties to deter that conduct. The idea was that Canadian businesses and consumers should be protected from that conduct, as they are in other jurisdictions.
Senator Ringuette: Ms. Downie, in your opening statement, with regard to abuse of dominance, you referred to "a situation where a company with market power tries to exclude, discipline or eliminate a competitor . . .''
Why is it "a company''? Why could it not be, for instance, two companies having 94 per cent of the market share?
Ms. Downie: It generally is a single competitor, which is why I refer to "a competitor,'' but you are right; it could also involve multiple competitors. The amendments change nothing about the abuse of dominance provision itself, so it continues to apply as it did to usually one or more competitors that abuse their dominant position, but it introduces administrative monetary penalties where the Competition Tribunal finds that that conduct has taken place.
Senator Ringuette: What percentage of market share would be considered abuse of dominance?
Ms. Aitken: I get the easy question. Market share is relevant to many of the things we look at under the act, and the thresholds that are material for us to become concerned about anti-competitive conduct vary depending on what you are looking at under the act.
In the abuse context, it has generally been significant. In the sense of mergers, for example, we might get concerned with as low a threshold as 35 per cent. We would unlikely be concerned about dominance in the context of either joint or single dominance at a level like that. There are no clear and fast rules, and it really depends on the particular marketplace whether you might find joint dominance, whether it be 70 per cent or 80 per cent. Certainly a monopoly is an easy question at 100 per cent.
Senator Ringuette: Joint dominance. I like that.
Senator Oliver: Following Senator Harb, I will have three short questions.
First, Red Wilson did a report on the Competition Policy Review Panel, and there was a Bill C-19 that included many of his recommendations. Is there anything in the bill that is now the law that is before us that were recommendations of Red Wilson's that are not here but are material and should be here?
Second, you both stressed that it is important in this bill that you have changed the penalties from 5 years to 14 years and that there are now fines between $10 million and $25 million; yet it is conceivable that there could be circumstances where $25 million would not be adequate. I want to know how that would compare with fines for similar offences in places like the United States and the United Kingdom.
Third, you both mentioned the importance in this bill of the possibility for people to get restitution. I just wanted to know what the quantum is. Will it be 100 per cent? What is the formula?
I notice, Ms. Aitken, that when you talked about where you have been working with stakeholders, you mentioned Toronto, Montreal and Vancouver, but there was no reference to the eastern part of Canada, in important cities such as Halifax, Nova Scotia, and Saint John, New Brunswick. Are they being excluded in your work?
The Chair: That is three and a half questions, senator. I know the half question was very important.
Ms. Aitken: We will deal with your questions in reverse order. At our consultations we have physically turned up. I have made a personal effort to make sure everyone knows that we are engaged at the highest levels in the bureau. I have not turned up in those cities as yet, but we have had participants phone in from other cities across Canada. We have ensured that our invitation was extended right across the country. If any interest is expressed, we would be more than happy to go.
We did make some initial explorations as to whether an eastern tour would attract a sufficient audience, and unfortunately at that time it did not. However, perhaps with our Competitor Collaboration Guidelines having been recently issued, that will generate some more interest. We will be open to doing that and anxious to hear from any Canadians interested in talking with us.
Ms. Downie: I will go back to your first question, whether the Competition Policy Review Panel recommended significant amendments that are not in Bill C-10. All of the significant Competition Act amendments recommended by the panel are there. They are not always there in exactly the way that the panel recommended, but the majority of them actually are. They are very much based on that previous Bill C-19 as well, which you referred to.
Senator Oliver: Penalties?
Ms. Downie: You are referring to the penalties for the conspiracy provisions. In the other key jurisdictions, they can be significantly higher, although it is a bit of an apples and oranges comparison in the sense that the maximum fine of $25 million for conspiracy is per what prosecutors would call count, so per charge laid, per agreement. You can have multiple charges and higher fines.
For example, in the United States, they are significantly higher. The maximum is $100 million. Obviously, you have to take into account the relative size of our economy and the need for deterrence as well when you look at fine levels.
Senator Oliver: Restitutions?
Ms. Aitken: To be clear, currently we have entered into restitution agreements, with those who have offended the act, voluntarily in consent agreements. What we have never had before is to have given, through legislation, the power to the Competition Tribunal to consider it in appropriate cases before the tribunal. We are trying to extend it in that way.
In appropriate cases, we would recommend it to the tribunal, but whether we recommended it or not, it would be within the power of the tribunal to structure a restitution order if they thought one was appropriate in the circumstances. It would, of course, be customized to those circumstances.
Senator Greene: Have there been examples where illegal activity was identified in the U.S. and prosecuted and stopped, but because the activity was international in scope or continental, it continued on in Canada and could not be prevented because of our weak laws?
Ms. Aitken: I cannot think of specific examples, but I can tell you in principle what the response to that would be, not to get too legalistic. In terms of our jurisdiction, if there are direct or indirect effects on Canadians owing to a conspiracy — wherever it takes place — we have the jurisdiction. We would take the position to absolutely go after that behaviour, and we would not hesitate to do so. Was there another part to your question? Whether there had been a case where we were not able to prosecute successfully because of our weak laws.
Senator Greene: I was not asking for specific examples because I do not think that would be right.
Ms. Aitken: We have certainly had challenges. We are usually the last invited to the party historically, in terms of cartel enforcement. Our laws are sufficiently weak — until now and until next March — that we have not been the first one they come knocking on the door to worry about. In that sense, we can be often so late that it becomes a question of whether it is the right devotion of resources to pursue the particular behaviour.
However, at the end of the day, we are confident that these new provisions will allow us to play more actively — and I think this goes to Senator Ringuette's question as well — to really crack down on white collar crime, to do so in an effective and targeted way.
Senator Greene: I suppose there are occasions when the cartel might originate in Canada and have spillover effects in the U.S. as well?
Ms. Aitken: Sadly, that is the case. Certainly in particular in the misleading advertising and representations, deceptive telemarketing, we have had cases where that has been directed out of Canada into the United States. It has been a good illustration of how their strong penalties are a huge deterrent. You can see that the activity was happening here, and when we extradited those individuals they ended up with sentences in the range of 19 to 23 years.
While we have not gone there, I think we have struck a new good level in being able to actually have stiffer penalties for things like deceptive telemarketing.
Senator Day: Thank you both for being here. Ms. Aitken, you just referred to next March. What is next March?
Ms. Aitken: I apologize. All of the amendments are in force as of the date of Royal Assent, March 12, except the new cartel provision and the new collaborations provision, deliberately. Perhaps Ms. Downie can speak to that. Essentially, it is to give people time to organize their affairs. There is an obvious concern over the fact that it affects criminal conduct.
Senator Day: Thank you. I missed that.
Ms. Aitken: Pardon me. I should have been more explicit.
Senator Day: Ms. Downie, with respect to the amendments that you referred to as Part 12 of Bill C-10 — and there are 15 parts of this bill — you have been working at this at least since 2005, with Bill C-19 which died on the Order Paper when the house was dissolved. Instead of reintroducing the bill the same as Bill C-19, you then had Mr. Red Wilson's panel do further review, and that came out in June of last year.
Ms. Downie: That is right.
Senator Day: Presumably, you decided to take some of Bill C-19 of four years ago, and some of Mr. Wilson's panel's recommendations, and then crafted a new piece of legislation that became part of an omnibus bill called "budget implementation'' at the time of an economic downturn.
Why would you consider putting this kind of legislation, which, as you say, is a huge and significant change to the competition policy in Canada, into Bill C-10?
Ms. Downie: Obviously, I am not the person who made the decisions about how the Budget Implementation Act was crafted. I cannot comment on that, but I can tell you a couple of things.
First, the Competition Policy Review Panel found that strengthening the Competition Act was absolutely key to driving productivity and growth. It was very important in the view of the panel and of the government that the bureau, especially at this time, would have the tools that it needed to deal with anti-competitive conduct.
Second, in times of economic downturn and uncertainty, it can be tempting for dishonest businesses — not all businesses — to engage in anti-competitive activity in reaction to tough times. For example, some dishonest businesses might be tempted in such circumstances to engage in price-fixing activity or to engage in deceptive marketing practices — that is, to take a bit of a shortcut because times are tough. We wanted to ensure that the bureau has the tools it needs and that the framework is in place to deter and deal with that kind of conduct.
Senator Day: Ms. Aitken has explained a lot of consultation since the bill was passed, but we received significant representation from the Canadian Bar Association and from the Canadian Chamber of Commerce indicating their shock and dismay that this type of legislation would be introduced without consultation. I recognize that Mr. Wilson had a lot of consultation before his report, but, with the draft legislation, those who would be most affected by it felt that there was a lack of consultation.
It is sort of like a Senate committee reviewing a piece of legislation after it is passed, which is exactly what we are doing. It is sort of after the horse is out of the barn.
Do you feel that it was that important to get this legislation out that you would avoid and forego the usual pre- passing consultation?
Ms. Downie: I actually think the opposite, that in fact there was extensive consultation on all of the provisions in the bill, starting back a decade ago, when consultations were conducted by the Public Policy Forum on many of these same amendments. Many of them, as I explained earlier, were in Bill C-19. There were extensive parliamentary hearings on those amendments, preceded by a report of the industry committee as well, which held hearings on its report and made similar recommendations to what is contained in this bill. Recently, there were consultations by the Competition Policy Review Panel, as you have mentioned.
All the provisions had been consulted on extensively — more extensively, I think, than most proposals are consulted on, certainly for an extremely long period of time, and in detail as well, particularly on the cartel conspiracy provision. Multiple draft texts during that period were debated and discussed by a wide variety of commentators as well as by the Competition Bureau. There were expert groups on drafting and technical round tables as well to discuss the drafting of that provision, which was very helpful in the design of it.
Senator Day: Does my comment indicating that the Canadian Chamber of Commerce and the Canadian Bar Association were concerned about not having pre-consultation surprise you?
Ms. Downie: No, it is not a surprise because I read their testimony.
Senator Day: You reject those two bodies?
Ms. Downie: I have a different point of view about it.
Senator Day: I appreciate that. Thank you for your consultation, after the fact.
The Chair: I think the evidence was that it is still continuing in terms of the guidelines.
Senator Gerstein: Ms. Aitken, I noticed with great interest that in your first paragraph you indicated that since January, you have had the privilege of serving as Interim Commissioner of Competition for the Competition Bureau. I must say that January is a very important month to me because I have had the privilege of serving in the Senate of Canada since January.
In the four months that have ensued since I joined this wonderful place, my views have changed on a few matters. I would be interested to know if your perspective on the role of the Competition Bureau has changed at all, since you are now interim commissioner, from the time that you were head of the mergers area at the bureau.
Ms. Aitken: That is a very interesting question. It has been impressed upon me how important it is — and this may be a confluence of my appointment and the economic downturn — to stay the course in terms of enforcing principled and transparent competition policy to ensure that our markets stay competitive; to ensure we take our enforcement role seriously; and to provide as much guidance as we can, by talking to our stakeholders and by finding out what is happening with small and medium-sized businesses, big businesses and consumers and what is engaging them. It is particularly important in tough economic times to stay the course and ensure that you do not get persuaded, as some constituencies might try to make you think that applying "competition lite'' is the right thing to do.
Senator Gerstein: I share the enthusiasm for the Senate that you are obviously sharing for your new position.
Ms. Aitken: Thank you.
The Chair: We wait with bated breath to see who lasts longer in their respective positions.
Senator Moore: Thank you, witnesses, for being here. The abuse of dominance question that I had was covered by Senator Ringuette.
In your remarks, Ms. Aitken, you said that combating cartels is the bureau's number one priority. You went on to say that very few prosecutions were successful under the old rules, even when conspirators were caught red-handed.
Maybe the Canadian public does not understand what a cartel is. Could you explain to us what a cartel is? Prosecution would be a matter of public record. Can you give us an example of a cartel that was prosecuted by your office, and the parties and the nature of the cartel?
Ms. Aitken: I would be delighted to do so. A cartel, in its fundamentals, is a bare agreement to fix prices between competitors or to allocate markets as among yourselves — that is, saying "I will not go into your territory if you do not go into mine'' — or agreeing to restrict output so that there is less supply and the price will go up because people need your product. Those are three general categories of hard-core cartel agreements. They have to be between competitors, about those subjects and must have no pro-competitive rationale. They are not part of a broader agreement like a non- compete agreement in a big acquisition deal.
On its face, if looked at in isolation, one might say that is trying to control things that we might otherwise be worried about. However, in that context, we are not going to be. There is an explicit exclusion of those sorts of agreements from the coverage of the cartel provision.
An example of a cartel that we recently prosecuted was the price-fixing gas cartel in Quebec. In four markets in Quebec we uncovered evidence that they were fixing prices at the pump through prior conversations. They were timing the increases through communications among competitors. There were a number of co-conspirators.
It took us roughly three years to investigate that case to the point where we could recommend to the Director of Public Prosecutions to lay charges. A big part of that time was because we not only needed to figure out that they were in this agreement to fix prices, but we had to establish, to a beyond-a-reasonable-doubt standard, an anti-competitive undue lessening of competition.
Senator Moore: Were the parties to that transaction supply companies or individual gas stations?
Ms. Aitken: They were retailers; they were individuals.
Senator Moore: With the passage and proclamation of these new provisions, how soon could you go to prosecution today?
Ms. Aitken: I do not have the specific facts to unpack that, but I can give you a general sense. Gathering the evidence to establish the agreement probably took, at a rough guess, one third of that time.
You are still looking at a criminal standard. We are not going to casually prosecute people for cartels. We are looking for serious, hard-core behaviour. We are aware of the responsibility to ensure that if we are going to accuse someone of that, or recommend that the Director of Public Prosecutions do so, we have clear evidence beyond a reasonable doubt that they have the agreement.
We will now be relieved of the second step, which is to prove that undue lessening of competition. As I was saying to someone earlier, if you have two economists in a room, you get three opinions. It becomes very difficult to gather that case and put it to the standard of beyond a reasonable doubt.
Senator Moore: Will this expedite the investigation or prosecution of a case by one third of the time?
Ms. Aitken: I cannot say, in all cases, that it would, but it would materially reduce the time required to bring cases to the place that we can refer them for prosecution by the Director of Public Prosecutions.
Senator Moore: In your remarks, you said that the old provision was both too broad and too narrow. It was too narrow and an outlier around the world. Aside from being the name of a bestseller, which I have yet to read, can you tell us what an outlier is?
Ms. Aitken: I do commend the book to you. What I meant to convey by using the word "outlier'' in that case was to say that among the sophisticated jurisdictions and our major trading partners, we were the only jurisdiction that required there to be an economic effect when you wanted to prosecute a hard-core cartel.
Senator Moore: "Outlier'' means that we are outside of the standard legal rules that the rest of the industrialized world was using to prosecute cases; is that correct?
Ms. Aitken: Yes, in the sense that we had the extra burden — we had to prove the economic effect. That was what was unusual about our jurisdiction. It put us out of line and made cooperation with our international counterparts more challenging.
[Translation]
Senator Hervieux-Payette: I have met with ambassadors from Europe, as we are about to engage in discussions with Europe regarding a common market with 27 countries. Most of them said that they were very unhappy with the amendments made to the Competition Act. I find that a bit worrisome, and I wonder whether you consulted them, whether Mr. Wilson consulted them and whether you were involved in the process before the bill was drafted.
[English]
Ms. Downie: I am surprised if the Europeans are upset, because as I explained with respect to the United States, there are many parallels with the proposals in this bill with the laws in the European Union, and in some of the member countries as well.
To answer your specific question, Mr. Wilson's panel did travel to the Organisation for Economic Co-operation and Development and to Europe to consult, and the panel very much had in mind making sure that our laws lined up with those jurisdictions. Many of the same considerations around enforcement, cooperation and ensuring that our processes are parallel apply to the European Union, as they do to the United States.
[Translation]
Senator Hervieux-Payette: In terms of decriminalization, were you taking a practical approach by saying that, rather than catching just the big fish with the new method, which involves presenting evidence in civil court, you will be able to stop illegal practices more easily with a level of proof that is less demanding than in criminal law?
[English]
Ms. Aitken: If I understood correctly, it was a question about whether we would be taking a practical approach in the cartels that we choose to enforce and looking for those that are having the greatest effect on consumers, as well as in our other new —
[Translation]
Senator Hervieux-Payette: You removed a number of provisions of a criminal nature. You made the activities offences, but you placed those provisions in the civil sphere. Was your goal simply to ensure that the act was effective, and so you were a little more practical or pragmatic in terms of its enforcement? Indeed, there were very few prosecutions, and it seemed as if the Competition Act was not really enforceable. [English]
Ms. Downie: The principle underlying the decision to decriminalize some of the provisions was based on the recognition that unambiguously harmful conduct should be reserved for the criminal sphere. Conduct where there can be harmful, anti-competitive effects but where also sometimes there can be pro-competitive effects should be dealt with in a non-criminal track by the expert Competition Tribunal, which can really sort out whether it is harmful or beneficial. That was the underlying principle for that particular proposal.
[Translation]
The Chair: Thank you, Senator Hervieux-Payette. It is now 5:08 p.m., so we must wrap up this half of our meeting. I want to thank each and every one of you.
The second part of our meeting this afternoon will shed light on the merchant's perspective on the amendments to the Competition Act under Bill C-10.
[English]
From the Canadian Chamber of Commerce, we are pleased to welcome Ms. Shirley-Ann George and Mr. George Addy. We are also happy to have with us, from the Retail Council of Canada, Mr. Peter Woolford and Mr. Terrance Oakey.
Ms. George, please proceed.
Shirley-Ann George, Senior Vice-President, Policy, Canadian Chamber of Commerce: With me is George Addy, who is chair of the policy committee. Mr. Addy is also a partner with the firm Davies Ward Phillips & Vineberg. In another life, he served as the competition commissioner.
It is my pleasure to present the views of the Canadian Chamber of Commerce and our members to this committee on the amendments to the Competition Act contained in the Budget Implementation Act. The Canadian Chamber of Commerce has been supportive of measures aimed at advancing the ongoing success and competitiveness of our economy.
As many of you know, the Canadian Chamber of Commerce is the largest business organization in Canada, representing over 175,000 businesses from all parts of the country. Our members include both the largest and the smallest companies, and we pride ourselves on being the voice of Canadian business. We work hard with all political stripes to ensure that the Canadian business community is able to maximize its economic and social contributions to our national well-being.
Turning to the amendments to the Competition Act, the Canadian Chamber of Commerce was not pleased that the government attached these important changes to framework legislation to Bill C-10. Of course, we were very supportive of the plan to get Canada's economy rolling again, but these amendments should have been subject to rigorous review and consultation prior to their passage, not after the fact. On the substantive side, the chamber is concerned that these amendments hold the potential for serious and unintended consequences for business. They could create an unnecessary and costly burden at a time when the business community is struggling to recover from the most serious recession in generations. In particular, the chamber is concerned with two key provisions: conspiracy and mergers.
We have had meetings with the Competition Bureau to discuss these amendments. The meetings were constructive dialogues aimed at putting a fence around the broad provisions of the proposed merger guidelines. Similar consultations are planned as well for the conspiracy provisions. We will put forward formal comments on both the merger review guidelines and the conspiracy provisions. While many of our members' concerns have been lessened by these consultations, it is important to note that the underlying and broad changes to law remain and that guidelines can be altered without parliamentary oversight. I will turn to Mr. Addy to discuss the specifics of these provisions more closely.
[Translation]
George Addy, Chair, Canadian Chamber of Commerce Board Policy Committee: Unfortunately, Mr. Chair, my presentation is only in English, but if you have any questions, I would be happy to answer in either language.
[English]
Before getting into the specifics of the amendments that we find troublesome, I would like to make a couple of remarks. The Canadian Chamber of Commerce and all of us here fully support the benefits that flow from competitive markets. No one is challenging that. None of our remarks are directed at anyone at the Competition Bureau. I have many friends there. My remarks are focused more on what we should do from a public policy perspective in administering our competition law in Canada, the policy and the legal framework.
The law has changed and we will deal with it. Personally speaking, some changes should not have been made, but it is now the law and we will deal with it, as will our members. I will focus today on ways to minimize the uncertainties that these changes in the law have triggered and suggest ways to improve them. As Ms. Aitken and Ms. George said, they have held round tables to try to address some of these concerns with guidelines. Despite that, there is a tremendous amount of uncertainty in the business community, which is of concern to me as a board member of the Canadian Chamber of Commerce and as a former official. Those uncertainties do cost the economy. They are not costless.
What are our concerns? First, as identified by Ms. George, the process adopted for the passage of the legislation did not allow sufficient time to deal with the issues that we need to remedy now.
Second is the amount of discretion that is available to the Competition Bureau and the exercise of that discretion when we do not have an oversight mechanism in our system. Others countries have such oversight but Canada does not, judicial or otherwise. The concern on the accountability gap is that no ongoing review or mechanism is in place to know how the Competition Bureau is doing its job, how it deploys its resources, how many cases it brings in, and what kinds of cases it focuses on. We do not have that check and balance system in Canada. I appreciate that it is likely outside the parameters of the mandate of this committee, but I urge senators to think about that issue and how we might address that significant gap. That sentiment is shared by many of my colleagues, both in the profession and at the Canadian Chamber of Commerce.
One eminent retired jurist, Sir Christopher Bellamy, judge of both the Court of First Instance of the European Communities and the U.K. Competition Appeal Tribunal, has a great deal of background in this area. He summed it up succinctly when he said that for competition law to develop, it needs to have a sound basis in law and not just in administrative guidelines. In my view, the Competition Bureau is, first and foremost, a law enforcement agency, and mechanisms need to be developed to ensure that it is doing its job. Many other law enforcement agencies have those types of mechanisms, whether they are municipal police forces with police commissions or the Canadian Security Intelligence Service, CSIS, with its committees. We do not have that institution in Canada, and it is something that should be considered. Perhaps the committee could reflect on that in its deliberations.
Dealing specifically with the provisions of the legislation, the new conspiracy provisions, as you know and as explained by Ms. Aitken, create a dual track. The investigation takes place, and the commissioner can elect to bring a criminal case or, if she would prefer, bring a civil case. Criminal cases are referred to the Department of Justice, to the Director of Public Prosecutions, and go to the criminal courts. Civil cases go to the Competition Tribunal where, in effect, the bureau is the prosecutor.
In my view, these provisions, on both sides of that election, could lead to unintended consequences, and those consequences could have a detrimental effect both on business and on consumers.
While undoubtedly no one likes hard-core cartels, the specifics of these amendments are broader than were needed. I think the new legislation will have a chilling effect on legitimate business collaborations.
In my day job, I have had clients tell me they are contemplating such and such an activity, and I explain there is a new law coming in next March; there is a risk, albeit a low risk. We have guidelines that are a bit unstable on this issue, so you have to be aware of the risk.
In today's environment, with respect to even a low risk — you all know how exposed CEOs, officers and directors are at the corporate level now — in today's environment, they do not want to take even a low risk, which is an unfortunate consequence of these amendments.
As the interim commissioner mentioned, she has been working to try to appease that concern with the draft guidelines. They are helpful, but guidelines are not binding on the interim commissioner, the next commissioner or the courts and, frankly, they can be changed at any moment.
When we heard about the transition provision — because the cartel provision does not come into effect until next March — people today are looking at future collaborations. The one-year grace period, as Ms. Aitken said, gives you a year to get your house in order. That is telling you two things: first, that there are deals today that are lawful that will be unlawful a year from now; and second, that when planning affairs that will continue past next March, you had better think of the future law as well today's law. There can be a future effect of chilling, in my view.
The other specific element of the provision is that there is no de minimis exception at all. No matter the agreement, whether it is between two competitors on price, two people with corner stores saying they will fix the price of bread, it is a criminal offense punishable by 14 years and $25 million in fines. There is no de minimis quotient there at all. Frankly, that was one of the rationales behind our effects test: we do not want people to be worried about things that do not have a significant market impact. The de minimis issue should be fixed.
With respect to the affiliates exemption, the law allows agreements between affiliates. That is not unlawful, but the definition of "affiliate'' in the act is limited to corporate affiliates. Fifty plus one per cent and you are affiliated. It excludes joint ventures and partnerships, as well as all sorts of other vehicles that people are using legitimately and lawfully in the environment today. That should be fixed as well.
You have heard today, and you will hear again tomorrow I am sure, that part of the rationale here was to better align our model with the U.S. There are a few points on that. First, on a number count, I suggest there are more countries with non-criminal cartel provisions than there are with criminal provisions.
In the European Union, as Senator Hervieux-Payette referred to, cartels are not criminal. They are an administrative offense, and they have secured billions of Euros in fines. It is not as if the Europeans have been sitting on their hands because it is not criminal.
If you want to align yourself with your major trading partners, which one will you choose, the U.S. or the Europeans? Europe is number two and U.S. is number one. If you want to align yourself with the U.S., let us fully align ourselves with them.
The cartel provision in the U.S. is basically one line: Thou shall not agree with your competition. Over decades, they developed law, called the rule of reason, because the courts realized that does not make sense. My de minimis example is an illustration. They have developed a rule of reason. The idea that by having a per se offense you are perfectly in line with the U.S. is not accurate.
Second, if we align ourselves with the U.S., they have a five-year limitation period. If the conduct is older than five years, it is irrelevant and not subject to criminal prosecution. Canada has no limitation period. In counselling and talking to other lawyers for clients around the world, it is a big issue. If we want to adjust and not be the outlier and focus on the U.S. as our model, we should have a limitation period. Why not?
Regarding the civil conspiracy provision, as I said, the commission can elect which track to go. Unfortunately, there is no prohibition against re-electing until you launch proceedings. The way the business works, parties are often in consultation with the bureau long before either charges are laid or an application is filed with the tribunal. Now you go into those discussions, and the bureau will not have to tell you which way they want to proceed. It is a bit strange from a process perspective.
Further, even if the commissioner elects one channel, if the commissioner elects to proceed civilly, class-action civil plaintiffs are not bound by that. You can resolve your issues with the commissioner and have whatever remedy the tribunal deems appropriate, but you can still be subject to class-action civil litigation complaints by the class-action bar, and I think that should be fixed as well. If the commissioner makes an election, it should apply to everyone, both in the proceedings the bureau launches and off-shoot proceedings in the civil courts.
With respect to the merger amendments process, I think you are probably well aware of our concerns, apart from the process one. These information requests can be made unilaterally. Again, no judicial oversight or judicial approval is required to issue the second requests. The notion that somehow this will accelerate and provide certainty to the merger process I take exception to.
You have heard about the initial 30-day clock, when there is a request in that period, and the second 30-day clock. At the end of that 30-day clock, there is no statutory requirement for the commissioner to do anything. She does not have to make a decision. The guidelines say she will, but she has a year. She can sit on her hands and tell you to close at your own risk and we have a year to decide whether we want to challenge your transaction. That is a problem. If we go down this road, have the clock stopped. That should be fixed.
Again, if we are aligning ourselves with the U.S., we will live with it. Frankly, for the legal community, it is a stimulus bill. With respect to the average cost of compliance, the American Bar Association did a study two years ago on the average cost of complying with second requests, and it is $5 million a pop, in case any of you want to get into this business. When we hear it is four or six, that is $20 million or $30 million right away. That cost can be put on the business community without judicial oversight.
Last — I know we are short on time — I would like to put in a plug for another part of Bill C-10 that is outside your mandate. It deals with the Investment Canada Act. It had good news and bad news. The good news is they have increased the threshold, which now is the scope so that you focus only on big deals. The bad news, in our view, is the national security amendments. You may ask why, since national security is a good thing. However, it is not defined; there is no limitation period; and there is no financial threshold to be passed before it applies. If you are foreign and you buy 5 per cent of a company, you could be at risk in that.
I can tell you from my practice that that is creating concern in the investment community. In my mind, that is not encouraging investment in Canada. It is outside your topic area, but I thought given the opportunity, I would share that with you.
Peter Woolford, Vice-President, Policy Development and Research, Retail Council of Canada: Thank you to the Senate committee for agreeing to hear us this afternoon. I see in my notes I had a couple of remarks to introduce the Retail Council of Canada to the committee, but after the last month, it is probably superfluous.
We are in a somewhat different position than many other business representatives that may appear before you. As Ms. Aitken, the interim commissioner, mentioned this afternoon, in many sectors and many parts of act —
The Chair: Excuse me. I do not mean to interrupt you, but do you have a statement?
Mr. Woolford: I provided a statement, a set of talking points for the translators; that is all. I do not have a formal submission.
The Chair: Fine.
Mr. Woolford: I apologize. Let me start anew. In many sectors, the concern of the government and the focus of its amendments with respect to competition are driven by the small size of the Canadian marketplace and, as a result, the risk that there may be insufficient competition. In retail, the amendments that are of concern to us and were the focus of the bureau are the reverse. They are concerned that there is too much competition and that those animal spirits that retailers are so famous for will get out of control at times and lead to negative results. As a result, the changes that I am concerned about are those that flow out of such a highly competitive market rather than one that is too small and cozy. You have to adjust your headset when you look at the act as a retailer.
[Translation]
My presentation will touch on three things. First, I will discuss the role of the new fines in the bureau's investigations. Second, I will draw to the committee's attention an expert opinion on the constitutionality of those fines. And third, I will discuss the implications for price maintenance.
[English]
Let me address each of those in turn. First, there is the role of the administrative monetary penalties, the fines. I was pleased that either the interim commissioner or Ms. Downie called them fines. They are fines, not administrative penalties. When they were introduced in Bill C-19 some four years ago, we were opposed to them vigorously. That concern remains amongst the retail trade today. First, we believe that they are disproportionate to the offences that they are being levied against; and second, we are concerned with the potential impact these offences could have on the bureau's practices as they are doing an investigation of misleading practices inside the retail trade. Let me explain.
Our members were already unhappy with the way bureau officers used their existing powers to induce retailers to cop a plea in the form of a consent agreement and to drive up the fine. The best example — and Mr. Addy referred to this in passing — is the commissioner's wide discretion in whether she will proceed by the civil track or by the criminal track when she is investigating a retailer. This flexibility allows officers to work the company and to induce the company to agree to cop a plea, as I said, in the interests of both getting this over and done with and avoiding much more serious charges against company officers and against the company itself.
Adding to that potential for criminal charges against the company or its officers, the threat of enormous potential fines and restitution gives the bureau even more tools than they had before to lever out of the company the result they want. Our argument would simply be that we unbalanced that relationship between the law enforcement agency that is investigating activities and the party being investigated.
I will now change gears a bit and stress that we have a very good working relationship with the bureau. We have worked with them over the years in terms of developing guidelines and best practices and encouraging the trade to comply with those. Recently, we worked with them closely on matters such as rebates and on the labelling of textiles. That has led to better results for the trade and for the bureau.
The emphasis in this area has been on enhancing compliance through the use of guidelines, best practices and consultation with the responsible players inside the marketplace, with a view to getting to something that makes sense in that marketplace and can be administrated and respects the law as the bureau sees it.
We continue to believe that for the great majority of retail marketplace issues that is the best way to go. That is the most effective way, rather than using prosecution and fines. It is particularly unfortunate that the new law is signalling a different approach. When you reach for large hammers like multi-million dollar fines, you are sending a signal that you are much more interested in prosecuting and levying large fines than in working with the trade to correct it through compliance enhancement.
Let me touch briefly on the constitutionality issues. I would simply remind senators that when Bill C-19 was introduced, the Retail Council of Canada asked Peter Hogg, who is possibly the pre-eminent legal expert on the Constitution of Canada, to prepare an opinion on administrative monetary penalties for the particular changes that were contained in Bill C-19. Mr. Hogg concluded that the administrative monetary penalties would violate several provisions of the Charter of Rights and Freedoms and would not be reasonably justifiable because they do not provide for normal criminal process protections for those subject to the penalties. The administrative monetary penalties now passed into law are not dissimilar to those in Bill C-19, as I think was referred to earlier, and we suspect that they may not withstand a court challenge.
The final item is resale price maintenance. The retail market itself is a pretty noisy, bare-knuckle place. That high degree of competitiveness serves the value-focused Canadian consumer well. They are well-served by a noisy, vigorous marketplace where retailers are shouting out their best offers to the customer all the time. The changes now allow suppliers greater latitude to enforce minimum prices. We believe this will restrict competition and drive up retail prices to the final consumer. This is not theoretical; this is not "what if.'' This is happening today.
The Retail Council of Canada has already heard from some of our members who are fighting their suppliers now about their efforts to force prices higher on the products that they carry. If I carry a national brand product as a retailer, some of those companies today are being pressured by their supplier to put in place minimum prices for particular products, driving up the price of that particular good in the marketplace. It will not affect competition in that there are lots of options out there for the consumer, but it will push the price up for some products.
Our understanding is that this change was introduced partly as a result of some U.S. court decisions. On the other hand, we are seeing that in the United States today, several U.S. states are in the process of passing laws to protect consumers against this kind of pressure from suppliers now that retailers no longer can prevent this increase in price.
Those are my opening remarks. I would now be glad to answer any questions.
The Chair: Thank you very much, Mr. Woolford. Before I turn to our first questioner, I wish to ask Mr. Addy about the magnitude of the fines. For people watching and listening, is it your argument that the amount in the act of the fine is too large in all cases or some cases, or that there is no de minimis? You might explain what that means.
Mr. Addy: It is not the fine level. I am comfortable with the fine level. If you go to the record of what the bureau has accepted by way of plea, it is important to understand that there have been very few contested prosecutions by the bureau in over a decade. All the numbers you see in the reports are usually as a result of people pleading guilty. Recently, we had some in Quebec for a domestic cartel, but the bulk of the hundreds of millions of dollars that have been yielded in fines have come from pleas in Canada for the Canadian wedge of a global conspiracy. The parties are basically saying, "We want to settle this thing around the world. We will settle it with Canada.'' That is one thing to understand.
The issue I have is that there is no effect test to the legislation, and there is no de minimis. There is nothing that says, "If the commerce that was affected was under $1 million, it is irrelevant for prosecution purposes.'' There is nothing like that. I can give you an extreme example of two corner store people agreeing on the price of bread. All they have to do is agree; they do not even have to sell one loaf of bread at that fixed price.
The Chair: In which case, they agree. They are convicted or they plead guilty, and the fine is what?
Mr. Addy: Who knows? These are hard-core cartels that we keep hearing about.
The Chair: It is a maximum, is it not?
Mr. Addy: Yes; $25 million. Those individuals will now have a criminal record and will not be able to travel to the U.S. They will be on the border watch. Criminal offences are serious. If you look at the pleas recently in Quebec, where people have accepted one year of house arrest, when you read those orders, this is not chicken soup we are talking about. You are walking around with an ankle bracelet; you cannot leave home, except in certain hours; you cannot use cellphones. It is drastic. My concern is we have this hammer and there is no control over the use of the hammer.
Senator Moore: I want to hear a bit more. Mr. Addy, you mentioned and repeated a number of times that there are no time limitations on the time that the board takes or may take to investigate, to prosecute. It could take years. Is the statute of limitations not binding on the bureau?
Mr. Addy: For a conspiracy in Canada, there is no statute of limitations. You are exposed forever. In the U.S, it is five years; in some countries, it is seven. Most of the countries that have cartel laws have limitations periods; we do not.
Senator Moore: I have not looked at the statute of limitations, but does it say in there that prosecuting for cartels is accepted?
Mr. Addy: No, but the statute of limitations usually applies to civil matters, not indictable criminal matters.
Senator Moore: No end in this instance?
Mr. Addy: Correct; but the U.S., which we are trying to mirror here, does.
Senator Moore: Five years.
Mr. Addy: Correct.
Senator Hervieux-Payette: Does it mean in civil law that there would be a prescription?
[Translation]
Mr. Addy: No, Senator, there is no prescription.
Senator Hervieux-Payette: Is that what the statute of limitations means?
Mr. Addy: In the United States, if the illegal activity had occurred more than six years ago, no criminal charges would have been possible. That is not the case in Canada. I see it every day in my practice; Americans are scratching their heads wondering how come there is no prescription on that in Canada.
[English]
Senator Moore: You mentioned, by way of example, something about affiliates or joint partnerships to companies who get together to do a certain project. Will that now be subject to prosecution?
Mr. Addy: It would be, yes. My point is that we have recognized in the law that if you are affiliated, you cannot conspire with yourself. However, how that is articulated is in a corporate environment only, so it is 50 plus 1 per cent of voting shares.
If you decide to affiliate via partnership, you are still exposed to criminal prosecution. If you decide to affiliate by joint venture, you are still exposed to the risk of criminal prosecution.
I am saying in today's market, where people are doing these other types of tools for very legitimate reasons — whether tax planning or whatever the reason is — they run a risk that corporate affiliates do not. I do not understand the rationale for that.
Senator Moore: Neither do I.
Senator Ringuette: In the earlier presentation from the bureau, there was a lot of emphasis regarding the time to build a case for prosecution and that this revised legislation would remove the study or the provision of justifying the economic impact. Have you looked into that?
Mr. Addy: The short answer to your question is yes. I have been in this trade for 30 years, so I have come across it often, from all sides of the fence.
On the issue of the preparation, they link that to the lack of success in contested prosecutions, and I take issue with that. The last unsuccessful prosecution involved taxis in St. John's, as I recall, and it was dismissed at preliminary. It was not because the effects test was there. The judge, in his decision, said he did not believe the Crown's witness. It was a credibility issue, not a legal test issue.
In my view, losses are okay, because the law is vague and the loss will help clarify the law. In one of the cases I lost during my tenure, they disagreed when we said the market for freight is this, and the judge said no, it includes trucking and trains, et cetera.
Fine; that is not the test. That is not the effects test, in my view. That is a question of a legitimate difference of opinion by the judiciary, who are supposed to be deciding these cases, about the evidence that was led. You have got me going on a rant now, but you can tell I feel passionate about the issue.
The lack of success in contested cases, in my view, has not been attributable to the effects test.
Senator Ringuette: What about the time? They were specifically talking about the time period that they needed to build the case. She gave an example of three years to build a case because of this request about the economic impact.
Mr. Addy: Colour me skeptical on that one. One issue that relates to that is how the bureau allocates resources. I am told from people within the bureau that for a period of time the public policy and legislative affairs branch had a bigger budget than the criminal branch. That is what gets me wound up, if I can use that term, about the lack of an oversight issue.
They are very good people in all the branches and there may be some good policy work and market studies to do. That is all well and good; but who is looking at how those resources are used that Canadians are giving to the agency to enforce competition law, which we all want? Who is looking at that issue?
Senator Day: I will start with Mr. Woolford. You talked about having an opinion from Peter Hogg with respect to administrative monetary penalties.
Mr. Woolford: That is correct.
Senator Day: The administrative monetary penalties, which are increased in this legislation, were in Bill C-19 four years ago. Is that what you said?
Mr. Woolford: Yes, it was.
Senator Day: That died on the Order Paper, as we have heard recently. Did you express a concern about that?
Mr. Woolford: Yes, we did at that time.
Senator Day: Notwithstanding that consultation, it is still there; is that correct?
Mr. Woolford: Yes. At the time the hearings were held, we introduced that in front of the House of Commons and put that on the public record. I would be glad to provide a copy to the committee in the two official languages.
Senator Day: If you could do that, give it to our clerk and she can circulate it to all of us.
Mr. Woolford: Perhaps it would be useful for you to have the commissioner's response to our concerns. Ms. Scott appeared shortly after we did and gave her response, so you may want to ask the bureau for her response. I will make sure you get our comments.
Senator Day: Thank you very much for that. Do you share the view of the Canadian Chamber of Commerce that it would have been preferable to have consultation before the legislation was introduced or passed?
Mr. Woolford: Yes, we do.
Senator Day: I want to switch to Ms. George and Mr. Addy.
First, Mr. Addy, your comments with respect to the Investment Canada portions of Bill C-10 were welcome. There is an awful lot in Bill C-10. This committee is being asked to deal with one part, Part 12 of 15 parts, but there are others of us here, and all of this will be discussed in the Senate as a whole. Your comments were helpful and I have made notes on those.
The other point I wanted to clarify was the one on oversight that you talked about. You said there is a lot of discretion with no oversight. You also talked about no ongoing review.
Could you tell us, in other jurisdictions, would this be divided between something — you mentioned CSIS and the Security Intelligence Review Committee, SIRC, which is an independent review body, an oversight body — or would this be a parliamentary oversight group? Can you share examples from other jurisdictions for types of oversight?
Mr. Addy: For instance, the U.S. officials have to appear before Senate committees annually. I am not familiar enough with it to know how much detail they go into in reviewing, how the resources were allocated and how the priorities were established by the agency.
I do not know what the right model is. With the amount of discretion expanded by these amendments, I am increasingly concerned. I do not know whether that concern is a function of age, mellowing or getting crustier. I have been a lawyer, been at the agency, been in business and then I came back to law, so I am concerned about the economic costs associated with the exercise of discretion in a law enforcement agency like the Competition Bureau, where no one is looking over their shoulder. I do not know what the model is today but when I was there, I would dialogue annually only with the deputy minister of the department on the budget. After that, it was all up to me and I could do what I wanted. Yes, I liked it when I was there; I am the first to admit that. Having grown older, and hopefully wiser, I see an accountability gap.
Senator Day: Do you share the concern that bringing in this legislation at a time of serious economic downturn and a possible chill in business as part of a stimulus package to get the economy going is poorly timed? Do you believe that such stimulus will be achieved with this legislation?
Ms. George: As you mentioned, the budget bill had many components to it. While the broad purpose of the budget was stimulus, some components slipped in might be considered housekeeping elements that the government would have had difficulty putting in through the normal process. This would be one of them.
Senator Day: Absolutely.
[Translation]
Senator Hervieux-Payette: I do not think that a few questions in French would be ill-advised.
In English, we often talk about "guidelines'' and refer to consultation on the guidelines. In French, we say "directives.'' It seemed that having a role that can change depending on who the administrator is is not at all useful.
I am speaking as a lawmaker, on behalf of those who pass laws. The regulations committee is examining the regulations to ensure they are consistent with the act. Guidelines come after regulations and are often regulations in disguise.
I would like to hear your opinion on that because guidelines, whether they come from the Office of the Superintendent of Financial Institutions or not, are usually pretty important building blocks. And when acts are enforced, guidelines are applied to the letter; they are very specific.
I would argue that they are more binding than not. I would like to know what advice you would give the government on this matter, which I believe can go even farther than the act.
Mr. Addy: That is why I suggested creating an administrative council that could provide a kind of oversight. That oversight could be carried out annually by your committee, by other parliamentary committees or by other institutions.
You asked whether consultations were held on all aspects of the act, and the answer is no. In terms of the changes to merger measures and to new powers for the issuing of information requests, the suggestion was raised and included in the report prepared by Mr. Wilson and his colleagues. The idea was not put to debate, however, and I would even say that it was not submitted to the panel during the hearings.
The first time the public heard about the idea was when it appeared in the final report. I recognize that consultations were held on the changes to the conspiracy provision, and, as Mr. Woolford mentioned, it was the subject of much debate, but no consensus was reached.
The guidelines are in no way binding upon the bureau. And that is why I think we need to develop a review mechanism to determine whether the guidelines were respected or not.
As for the merger measure, I would like to know how many second requests were made and how much the measure cost? That is the kind of issue we should consider at some point. I leave it to you to find an appropriate forum for that.
[English]
Senator Hervieux-Payette: Mr. Woolford, you have a legal opinion. Could you share it with us? It might help us to understand the full scope of this bill.
[Translation]
Mr. Woolford: As I told Senator Day, I am very happy to do that for you.
Senator Hervieux-Payette: The clerk will be pleased to receive it. I have no other questions.
[English]
The Chair: We are dealing with a law, and we all have to obey the law. I understand that you have concerns. Mr. Addy, you suggested that we consider recommending the establishment of an oversight mechanism or institution. I am concerned about that for a couple of reasons. First, it takes time; and second, it is another layer of bureaucracy and expense.
Can you think of an existing institution that could play that role? Is there another mechanism that you or we could recommend? For example, perhaps in one or two years the Competition Bureau and representatives such as yourselves could come together to assess how the law has affected you in that period.
Mr. Addy: I do not know what the perfect tool would be. My concern is that we do not have a tool, whether it would be this committee advising people that you will invite the commissioner back next year and ask her to explain what happened with respect to the various issues. That might be useful and would be a start. Whether it is a perfect mechanism, I do not know, but we do not do that now.
The Chair: We will not let perfection destroy good. If it could be useful, we might consider it.
Senator Harb: I have a comment based on the presentations by the Canadian Chamber of Commerce, the Canadian Bar Association, and the Canadian Real Estate Association.
I am beginning to feel that because this subject matter was referred to the Senate Banking Committee for study, perhaps we should not rush it back. We should ensure that tangible and legitimate amendments to it are proposed. To that extent, the challenge of the Canadian Chamber of Commerce and other agencies and organizations is to bring forward suggested amendments so that we can take them to the full Senate and respond to the will of the people. Both the Canadian Real Estate Association and the Canadian Chamber of Commerce raised the same point. For example, two real estate agents who make referrals are perceived to be criminals under the act. I recommend that we consider amendments suggested by these organizations.
The Chair: I remind senators that we have a deadline of June 11. We will hear from witnesses at the meeting tomorrow, which Senator Hervieux-Payette will have the pleasure of chairing.
I thank the witnesses for their appearance this afternoon.
(The committee adjourned.)