Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue 32 - Evidence
OTTAWA, Thursday, March 7, 2002
The Standing Senate Committee on Banking, Trade and Commerce, to which was referred Bill C-23, to amend the Competition Act and the Competition Tribunal Act, met this day at 11:05 a.m. to give consideration to the bill.
Senator E. Leo Kolber (Chairman) in the Chair.
[English]
The Chairman: We have three sets of witnesses, two of whom will appear together. The first is from the Association of Canadian Travel Agents. Mr. Taller, please proceed.
Mr. Martin Taller, Board Member, Association of Canadian Travel Agents: Honourable senators, the Association of Canadian Travel Agents, which represents approximately 5,000 travel agencies from across the country, is pleased to have the opportunity to comment on the proposed changes to the Competition Act. As senators will be aware, there is hardly a sector of the economy that has experienced to the same extent as we have the day-to-day reality of being in a business dominated by one large supplier.
We are constantly being squeezed one way or another. We look to the Competition Act to provide us with relief and a level playing field. In this context, ACTA wishes to make three points.
First, we should like to comment briefly on the expanded powers being accorded to the tribunal by Bill C-23. Second, we should like to bring honourable senators up to date on the consequences of the last round of amendments to the Competition Act. Third, we should like to suggest a couple of items to be placed on the agenda for the next round of legislative amendments.
Given the safeguards of summary disposition and the awarding of costs, ACTA supports a limited direct access to the tribunal. We believe that small and medium-sized businesses should be given the additional opportunity to seek a remedy for what they believe to be an unjust competitive situation. Like the proceedings of a small claims court, such a provision might not have a measurable impact at the macro-economic level and, for that reason, might not be readily taken up by the bureau. Nevertheless, it should be of benefit to particular businesses in their buying and selling operations, where remedies are sought for refusal to deal, tied selling, market restriction and exclusive dealing.
As senators will recall, at the time of the airline restructuring legislation, Bill C-26, the Competition Act was amended at section 4 to allow travel agencies to come together for the purposes of collectively negotiating fair compensation with the dominant supplier of air services. A special committee representing all travel agencies was formed and began in good faith to negotiate with Air Canada. After months of slow progress, the dominant carrier announced on August 27, 2001, that it was reducing commission rates unilaterally, thus bringing to a halt any further negotiations. Parliament's intent in putting in place a legislative remedy for travel agencies has been foiled.
This committee now has the opportunity to see that Parliament's will is respected. ACTA proposes the amendment of Bill C-23 by adding a new clause that will extend provisions found in clause 4. Essentially, we are requesting that an arbitration process be laid out to deal with such a contingency as the breakdown of negotiations. Having willed an end, Parliament should be prepared to will the means.
A precedent for this kind of arbitration process we have in mind can be found in the consent order approved by the Competition Tribunal in the case of Indigo and Chapters. To remedy the loss of competition in the bookselling market, the dominant distributor had to agree to certain ceilings on the terms of its contracts with book suppliers. In the event of a dispute arising out of this behavioural remedy, an arbitration procedure has been provided. ACTA would simply like to see the air travel industry benefit from a similar procedure.
As the government has made it clear that it wishes to proceed incrementally with changes to the Competition Act, ACTA wishes to put two items on the table for future consideration: amendments to clause 45 and amendments to clause 78.
ACTA was pleased to see that the Competition Bureau has begun to get expert opinion on how we in Canada can best handle the increasing numbers of complex agreements between competitors. There is clearly a need, in this age of easy communication and information sharing, to revamp clause 45.
On the one hand, we need a civil procedure that would put strategic alliances and joint ventures to the test of reasonableness; on the other, we need a criminal procedure that would cover hard-core cases of conspiracy regardless of their effect on competition. For some time now, ACTA has raised the issue of alliances: At what point does reasonable cooperation become unfair collusion? For example, the organization of the world's major airlines into two global alliances has led the European Commission to examine how international airfares are set. In the United States, the five biggest carriers have created a single joint on-line agency called Orbitz, which can provide consumers with exclusive discounted Internet airfares.
Sections 78 and 79 of the act, which deal with the abuse of dominance, form another item that ACTA would like to see clarified in the next round of amendments. Wherever there is a lack of competition, it is important that policymakers keep a close eye on the behaviour of a dominant firm or firms. However, that behaviour extends vertically as well as horizontally. It is not just a matter of how they treat potential rivals to their core business, but also how they treat ancillary businesses upstream and downstream, with which they sometimes enter into competition. We remind the committee that Air Canada is no longer just a dominant supplier; it has also become a retailer in direct competition with the travel industry.
As part of the ongoing decriminalization of the Competition Act, the important abuse of dominant provisions should be amended to focus on what a firm does to maintain or to increase its dominance and on the actual and likely effects of its behaviour rather than on why a firm does what it does, or the intent of its behaviour. For that reason, ACTA would like to see the expressions of ``for the purpose of'' and ``with the object of'' found in section 78 replaced with the expression of ``with the likely effect of.''
ACTA urges the committee to give serious consideration to our proposed amendments to clause 4 and to generally maintain its close watch on the state of competition in this country. In the circumstances in which Canadian businesses find themselves today, amending the Competition Act is a full-time and ongoing process.
I would be pleased to answer any questions that you may have.
Senator Tkachuk: I believe you mentioned that on August 27, 2001, the dominant carrier announced that it was reducing commission rates unilaterally. How much were the rates reduced by, or were they eliminated completely?
Mr. Taller: Our commission rates were lowered to 5 per cent across the board, with a capping of the rates to $28, which is the maximum revenue that can be earned on a ticket. The maximum earning on a $3,000 ticket for domestic travel is $28.
Senator Tkachuk: Did all the air carriers do this at the same time? Were commission rates not lowered prior to 2001?
Mr. Taller: The process began in 1996 and has been ongoing. The most dramatic, with the greatest impact, was actually in August. It was implemented in Canada with Air Canada on November 1. The impact of September 11, combined with the lowering of commissions, which took effect on that date, has been rather traumatic for the industry.
Senator Tkachuk: Did both carriers reduce the commissions before August 2001?
Mr. Taller: Yes.
Senator Tkachuk: If memory serves me, both Canadian Airlines and Air Canada acted as if they were in concert or collusion.
Mr. Taller: Absolutely. In fact, both Air Canada and Canadian Airlines, in effect, formed an oligopoly.
They follow suit, and followed suit, not only on those types of issues but also on pricing issues and consumer affairs and things like that.
Senator Tkachuk: Did the Competition Bureau ever investigate their rather close relationship on issues like travel agency commissions and on certain fares that they were charging?
Mr. Taller: I do not believe so. I do believe that there were issues surrounding competitors who tried to do market- entry strategies in Canada and would eventually have to leave the marketplace because of both Canadian and Air Canada matching prices and basically driving them out of the business.
Senator Tkachuk: My view is that this was a way for them to increase prices. If I remember correctly, they can become a retail operation and sell their own products. That is great. They used to do that.
What they did is eliminate the commission. You cannot get a ticket agent except in Toronto. Toronto is the only place in Canada, I believe, that Air Canada actually has a human being you can see in order to buy tickets and make arrangements. All the rest you are forced to do either by phone, if you are lucky, or on the Web site, if you are fortunate enough to have a computer. You are forced to go to a travel agent because there is no other place to buy a ticket. What they have done is decreased the commission and, therefore, more money for themselves, and it was not passed on to the consumer, obviously.
Mr. Taller: In Ottawa, the city ticket office closed about three months ago. There was a study, commissioned by our own office through KPMG, through ACTA, that indicated that the average cost of producing a ticket was around $40 or $45. When you take that model and apply it to the city ticket office, they probably could not stay in business. They were not operating a sound business model. Really, from that perspective, they found that their city ticket offices were not functioning well.
As a result of that, I suppose they made a business decision to close them. From a competitor's perspective, we are always happy to try to provide a higher-end service. The difficulty is with the compensation that the industry has been paying. It is difficult to do that without having ancillary charges to the consumer, in effect raising the cost of travel.
Senator Tkachuk: Is there an equivalent to WestJet in Eastern Canada, Ontario, Quebec, and the Maritimes?
Mr. Taller: No, there is not. There was, at one time, a small commuter carrier that was operating between Ottawa and Quebec City. It was OntAIR, part of the Canadian family. WestJet is a Western Canadian carrier that operates on the same model as Southwest Airlines.
Senator Tkachuk: Why do you think there is not one in Eastern Canada?
Mr. Taller: The Calgary-Edmonton-Vancouver corridor is rather robust. They have opened up new routes to other sectors of the marketplace there. It has been well received by Western Canadians. For that matter, Air Canada was strongest in the East and not very strong in the West. The sympathies for WestJet have been strong in the West. They have really enjoyed a popular resurgence of travel on a one-price, one-tier airline.
[Translation]
Senator Poulin: You said you represent 5,000 members. How many travel agencies are there in total in Canada? I thought there would be 5,000 in Ontario alone.
[English]
Mr. Taller: There are a total of 5,000 travel agencies. Our association represents about 3,000 of those. In Ontario, there are about 2,000 agencies, 2,002 or something like that.
From a volume perspective, most are small to medium-sized businesses. In Canada, there are about 100 travel agencies that do a significant amount of business. They do the very high-end corporate business. For example, government travel is handled by a large tendered-for company.
They skew the numbers, but mostly it is small to medium-sized business.
[Translation]
Senator Poulin: With regard to small and medium-sized businesses, you are probably aware that the Federation of Small and Medium-sized Businesses appeared yesterday before the committee. I am sure they will be very happy to know that you support the provisions of Bill C-23 giving direct access to small and medium businesses who seek an additional avenue to get relief from alleged abusive practices.
I would like you to elaborate on how such an arbitration process would work. I do not understand why you want to include an arbitration process in the amendments to the Competition Act. How would such a process work in the airline industry?
[English]
Mr. Taller: The retail travel industry, through the trade association, has tried at length to broker negotiations to examine the way in which we do business with the carriers. The carriers are in terrible financial positions right now. We know that.
It is difficult for us to try to express our needs and consolidate those needs to the carriers' particular goals and objectives. Their corporate goals are directed to consumer satisfaction, like ours, and also for profitability, like ours.
As a result, in order to make a bridge when negotiations fail, the arbitration process should be a building block and a pillar on which to build relationships.
When Air Canada left the table, we were really disappointed. We had many high-profile businesses representing large and small business. We were disappointed not just because they had pursued their own venues without considering the industry, which employs about 30,000 individuals and affects 5,000 businesses, but also because we feel that we have a way in which we can help lower their costs of distribution if we can just somehow work together and get an arbitration process together so that we can do what we think we can do to help not only lower our costs but maintain our profitability.
They seem to follow the trend, as oligopolies do. Oftentimes, they do not think of the long-term impact on the distribution systems.
[Translation]
Senator Poulin: Would there be additional costs to your members from this arbitration process?
[English]
Mr. Taller: No, there would not be additional costs. The trade association is essentially a volunteer organization. Our national association office in Ottawa is a staffed office. However, the people who are negotiating do a considerable amount of work on behalf of all of the carriers and consider it a responsibility of the trade to settle a business-to- business relationship with our suppliers.
We are looking for the ability to bring people back to the table. If we cannot find a process that works between us, we must find an arbitration procedure that is binding on both of us.
The Chairman: Is not this sort of handling of the air travel agents with the low fees happening all over the world?
Mr. Taller: Let us look at the distribution channels on one side. The Internet is one channel. The retail travel industry is another channel. Selling direct is another channel, and so on. People are looking to E-commerce as a trend by which distribution costs can be lowered. We are still very young in the way we can view those things. There is a trend worldwide, but the industry is resilient, and consumers still choose the retail travel industry to do business.
The Chairman: Is it because of your perception of Air Canada's dominance, or is this just a trend?
Mr. Taller: Canada is rather unique in the sense that Air Canada does control upwards of 80 per cent of the marketplace today. We do perform a bulk of their services.
The Chairman: Are you sure about that number? We have been told anywhere from 60 per cent to 80 per cent of the marketplace.
Mr. Taller: Their percentage was lowering during the Canada 3000 rather robust period of growth and the WestJet intrusion into the marketplace. However, since Canada 3000 has left, the market has moved to Air Canada dramatically.
The Chairman: Where could we get a precise number? Could you provide us with one?
Mr. Taller: Our trade association would be pleased to provide that for you.
Senator Oliver: I have two brief questions. The first arises from the last sentence in your written presentation. It reads: ``In the circumstances in which Canadian businesses find themselves today, amending the Competition Act is a full-time on-going process.'' I gather that you are saying that for an important framework piece of legislation like this, rather than waiting 15 years to bring it up to date, it would be better if we had a window of, say, every five years to have a mandatory review in order that it could be updated and made current. Such a review would help Canada to compete with other countries in the world.
Mr. Taller: I quite agree.
Senator Oliver: I return to the issue of your amendment to clause 4, which asks for a tribunal. I wonder if we should be trying to put in a major piece of framework legislation something as fundamental and basic as the form of arbitration if there is a grievance.
The example you use is Indigo and Chapters. Their amalgamation was done by way of a consent order. There was nothing in legislation that set that practice.
You are asking us to put in legislation something based on a precedent that was done by a consent order. Do you really feel that we should be cluttering up major framework legislation with something like arbitration?
Mr. Taller: Arbitration for a small to medium-sized business where there is a dominant supplier, whether or not it is the travel industry — some course of action should be taken. Whether or not a consent order, or legislation, is the right way to go, I would leave it up to honourable senators to make that determination. However, in terms of expediting and having an arbitration procedure, it is necessary and its time has come.
Senator Oliver: I did not read the Indigo-Chapters order, but I gather that each side would appoint someone to be involved in the arbitration and the two of them would choose the chairman and proceed from there. Is that how it was done?
Mr. Taller: I do not have all the details on how it was done, but I would imagine that that would be the procedure. We can provide you with that information if you wish to have it.
Senator Fitzpatrick: Mr. Taller, you have spoken about your concerns for the dominance of the main carrier. We had some discussion in this committee about existing section 104(1), which gives the commissioner the power to act unilaterally to proceed with action against the dominant carrier, Air Canada. You have indicated what effect the dominant carrier has on your industry.
If it is fair, I should like to ask you your view with respect to the commissioner having direct access rather than having to go to the tribunal to take action against the dominant carrier.
Mr. Taller: Obtaining direct access is why we are here. It should be only in cases tied to selling, exclusive dealing and refusal to deal or market restrictions. Those are the main points that we feel should be included.
Frankly, this is a safeguard. The tribunal can dismiss and award costs, if that is the case, for whatever could happen. This would be a modest step in the right direction.
Senator Fitzpatrick: The commissioner can act unilaterally without going before the tribunal under section 104(1).
Mr. Taller: That is correct.
Senator Fitzpatrick: I am not sure what I took from your comment and whether you agree with that or do not agree.
Mr. Taller: Direct access for the commissioner is important. The position of the trade association is to support the commissioner having direct access. I believe that this would be the approach and I support that approach.
Senator Fitzpatrick: Unilateral action without having to go to the tribunal first?
Mr. Taller: Yes; that is correct.
Senator Eyton: Mr. Taller, can you tell me how you came to make this presentation on behalf of your association? I am curious about the process. For example, to what degree are the 5,000 agencies that make up your membership familiar with the sort of presentation that you are making today?
Mr. Taller: For the past 20 years, I have been involved with the trade association and have been doing work within the association. I have been on the national committee and on national boards. Currently, I am the chair of the governance committee in Ontario for the Travel Industry Conference of Ontario and I am on the board of directors there.
Senator Eyton: Perhaps I was not clear: I want to know to what extent the members know about this presentation and support it.
Mr. Taller: We have a vital and robust national trade association in Ottawa. This information is posted on our Web site. Our members are faxed and e-mailed all the information about the ongoing hard work that is done in Ottawa.
I represent the trade association, but I am not the president of the association. I am one of the travel industry people who have been involved on a day-to-day basis and plugged into the communication.
Senator Eyton: Is there a committee within your association that looked at and blessed the presentation?
Mr. Taller: Yes, and that is across Canada.
Senator Eyton: Following up on Senator Oliver's questions on arbitration, it is one thing to ask for an arbitration procedure in the general way, but there are arbitrations and there are arbitrations. I was hoping that you could be more precise as to what you really had in mind.
Without thinking about it for more than a few seconds, arbitration can be sole, there can be three arbitrators, or any number that make a solemn-like judgment after listening to the cases on both sides. There is the arbitration that occurs, for example, in major league baseball where everyone is at risk and you pick A or B. One is a winner and one is not. Behind that, there is the question of whether these judgments are binding or to what degree they are binding.
I assume you are looking for some sort of simple process that would be relatively quick in its action and would result in some judgment, satisfactory or not. Have you thought at all about the kind of arbitration procedure that you have in mind? That is quite critical.
Mr. Taller: Absolutely. The arbitration procedure that we would like to have would be as quick as possible, naturally. However, it should also be reflective and represent the stakeholders around the table.
Negotiations that we have tried to have with Air Canada in the past have been very open and have included representatives from all constituents from across our industry and Canada. We would expect that from Air Canada. As a result, we are prepared to go to binding arbitration. Having no arbitration and going to arbitration is a major step for us. We would be more than happy to take the advice of the Senate vis-à-vis what would be most expeditious and most opportune and not as onerous, time-consuming and costly to the public.
Senator Eyton: Would you agree, Mr. Taller, that open negotiation is the preferable process?
Mr. Taller: We have always been open from a trade association perspective. We should like to continue that, absolutely.
Senator Eyton: Can you give me a better description of how the negotiation went with Air Canada, preliminary to their unilaterally deciding not to reduce your fees?
Mr. Taller: To prepare for the negotiations, we made an investment of about $100,000 with KPMG to find out the cost involved in doing business.
We went into the process seriously. We met with them repeatedly.
Senator Eyton: How much dealing did you have with Air Canada?
Mr. Taller: It was regular and repeated, and it involved cross-Canada meetings. It took some time to arrange.
Senator Eyton: Over what period of time did that take?
Mr. Taller: I believe it was over a six-month period. There were periodic delays because stakeholders or constituents around the table were not able to meet. However, then we did meet. During the arbitration process, there was a rather unilateral walking away from the table by Air Canada and lowering the commissions overnight.
Senator Eyton: Had the discussions come to a standstill at that time?
Mr. Taller: No, they had not.
Senator Eyton: What period of time elapsed between the last meeting and the unilateral actions by Air Canada?
Mr. Taller: I do not have the exact timing, senator. However, they left the table very suddenly.
Senator Eyton: They left with no warning?
Mr. Taller: It was quite a surprise.
Senator Eyton: They left with no warning whatever?
Mr. Taller: That is correct.
Senator Eyton: Do you know of any other jurisdiction either in America or in Europe or elsewhere where there is an arbitration procedure of this kind open to associations such as yours?
Mr. Taller: No, senator. This is the first in the world.
Senator Eyton: There is nothing like this in the U.S.
Mr. Taller: No, there is not.
Senator Eyton: Even though it would be subject to some of the same pressures?
Mr. Taller: That is correct.
[Translation]
Senator Hervieux-Payette: I view the role of travel agents in much the same way as that of my broker when I buy insurance and am looking for a specific coverage. I know the travel agent has several suppliers and can provide advice. If I go to an agent rather than buying directly, it is because I want the best advice in organizing a trip.
I would be interested to know what percentage of the revenue of an average travel agency is derived from plane tickets, as opposed to other services such as tours, car reservations, hotel reservations, et cetera. What proportion of your revenue comes from the selling of tickets?
[English]
Mr. Taller: There are two types of agencies in Canada. The managed travel businesses deal primarily with corporate business structures. The leisure travel agents are more reflective of the travel industry in Canada. They are primarily focused on outbound travel and interprovincial travel, selling tickets across Canada and through the transborder market into the United States. It was representing as much as 60 per cent or 70 per cent of an agency's volume. Because of the lowering of commissions, everyone is trying to migrate to areas that are more — I would like to call them more lucrative — but areas that are less price sensitive and less laborious, as oftentimes an airline ticket can be.
The travel industry has been gradually and incrementally implementing service fees when it issues a ticket, which has not been the happiest situation for the consumer. In many ways, the functions that we perform are primarily that of the carrier. We do things at the customer's request, for example, researching a ticket, and customers are ready to pay for our fees.
However, we do many things for a carrier. For example, when there is a schedule change, a ticket reissuing or problems beyond the control of the consumer, we are there. We are never compensated, and the carriers do not have a way of structuring anything for us at this time.
We would like to get back to the table to figure out how to do business with one another in a structured way that compensates us fairly. Fair compensation is all the industry is looking for.
[Translation]
Senator Hervieux-Payette: How do you negotiate, for example, with other suppliers of the products you sell? There are many suppliers of hotel rooms. If I buy an airline ticket to go to Toronto, I will ask at the same time for a hotel reservation in a given price range. Does the industry or each travel agent negotiate its own rate? If you are a wholesaler, you get a better price. As a consumer, is it advantageous to go through my travel agent? Or would I pay the same price if I called the hotel directly? I do not know your various compensation structures. Is it very different in the area of car rentals, for example? Do you get a percentage or a fixed rate when you make a reservation on a tour for a client?
You also deal with wholesalers, who sometimes are also retailers. Has there been an evolution in your industry? Have your commissions been reduced? How have things changed since the arrival of electronic business?
[English]
Mr. Taller: The travel industry has been moving incrementally and diligently toward e-commerce. In fact, the B to B and B to C relationships are being fine-tuned everyday. With respect to our supply chain, whether through the Internet, direct, over the phone, by fax, by letter or by any traditional way of doing business that the industry has been built on, the trend is to make a booking and then to be compensated by a commission of approximately 10 per cent of the price of the sale. Normally, it is after, on checkout or on disposition or the payment of that particular product or service. You are waiting for your commissions, and you can track those. The software available now will track a booking that is done through the computer reservation systems that we use. We do track those. Most offices do not take those revenues into their financial statements until they are received. Reservations can change. People can cancel or move their dates by a day or two. As a result, it takes some time to catch up, and the revenues do not flow in as quickly as we would like, but they do flow in.
The difference between the air carrier revenues and that of the tour operator revenues is that the air carriers are always in a state of transformation. A reservation is not dormant. Often it can be changed or there are schedule changes. Even until the passenger actually leaves you are not sure these days whether everyone will have a simple trip. They may be affected by weather delays, airport delays and so forth.
As a result, the time taken up doing tickets is not proportionate sometimes to the effort that goes into it. We are working harder than we ever have on the airline ticketing side because of September 11. Everyone has been working hard to ensure that everyone has the right connecting times and all the information that is necessary for an expeditious trip, and we are still working for less revenue than we ever did.
[Translation]
Senator Hervieux-Payette: If I understood you correctly, you get 10 per cent of a room reservation, 10 per cent on a car rental, you get 10 per cent on a $800 tour, except when dealing with an airline?
[English]
Mr. Taller: That is correct.
Senator Fitzpatrick: I do not know what I would do without my travel agency if I had to deal directly with the dominant airline.
Mr. Taller: Thank you.
Senator Fitzpatrick: Do you have any statistics, or can you provide any information as to what this reduction of commission has done to the industry? How many travel agents have gone out of business? What is the prognosis for your industry? How seriously has this hurt your industry?
Mr. Taller: The trade itself has not been monitoring its gains and losses statistically. In Ontario, the industry has consolidated. Many offices have closed, merged or have been forced to restructure their businesses and move away from the traditional business model they used to work toward. They have not been able to service the customer cost effectively and efficiently.
In general terms, in Ontario, there has been a reduction of travel offices. There used to be continued growth in the industry, particularly because of a focus on the baby boom and so on. However, there has been a downturn, particularly since September 11.
I can tell you that the ``travelling pie,'' if you want to call it that, has been growing. The industry has been growing to reflect the growth of the travelling public. However, servicing that public has become more difficult because of declining revenues of the airline industry.
The Chairman: I will endorse your industry as well. I make extensive use of travel agents.
Having said that, are you aware of the recent U.S. District Court antitrust decision in the American Airlines case, where American Airlines was accused of squeezing travel agents, to put it mildly, where the court found that that was not anticompetitive behaviour? Are you aware of that case?
Mr. Taller: No, I am not.
The Chairman: I suggest you have someone in your association read the case and send us your written comments. There may be 100 different things, but there is some jurisprudence. It would be interesting to know.
Senator Setlakwe: Some agents compensated for the reduction in commissions by setting their own fees. Is that general or particular?
Mr. Taller: Anyone who is not charging transaction fees for doing business with airline tickets essentially loses money on every ticket that they issue. The studies we have done indicate that it costs approximately $40 to do a ticket. That includes not only the on-site or telephone visits of the passenger, but also the backroom accounting, the requirements of processing, the ticketing requirements to report all the work we do to the airline industry and the banking systems behind that. Yes, there are transactions fees that we charge.
Senator Setlakwe: Do all agencies do so or only a few?
Mr. Taller: The majority now do. It is getting close to 90 per cent.
The Chairman: Thank you, Mr. Taller.
I now invite Mr. John Dillon from the Canadian Council of Chief Executives and Mr. Alain Perez from the Canadian Petroleum Products Institute to come forward.
Mr. John Dillon, Vice-President and Legal Counsel, Canadian Council of Chief Executives: Honourable senators, it is a pleasure to be here. Some of you may know our organization by its former name, the Business Council on National Issues. The name was changed earlier this year.
I wish to deal primarily today with one subject, but I will give you a background in terms of our opening statement. I will take this opportunity to indicate that my organization, the Canadian Petroleum Products Institute and many other business organizations have followed the issue of competition policy for many years through the various changes that have taken place, the major reforms in 1986 in which the old Combines Investigation Act was rather radically changed and reformed. We supported those changes, as honourable senators are probably aware.
We have also participated actively in the process of review that the Competition Bureau and Industry Canada have undertaken over the last number of years. Certainly we were active in the public policy forum process that led to many of the reviews that were suggested in Bill C-23.
In our view, on the whole, Canada's competition legislation has worked reasonably well, especially since its major overhaul in 1986. Nonetheless, it is important to remember that the pace of change in the marketplace is accelerating and that competition law, along with other economic framework policies, must keep pace if Canada is to continue to offer an attractive location for investment and a sound foundation from which businesses can compete internationally.
Indeed, such policies must support the ability of Canadian companies to maintain and increase the pace of their innovation in order to succeed in this dynamic international arena. Changes to the Competition Act should facilitate rather than inhibit the kind of strategic alliances and new business arrangements companies will need to operate effectively in the global marketplace.
In the interests of time, I wish to make a couple of comments with respect to Bill C-23 and then deal with the issue of private access that I know has been a focal point of our activity and, I assume, honourable senators' interest as well.
On the whole, we thought Bill C-23, as it was introduced into the House of Commons, represented a balanced package of necessary amendments. As honourable senators know, during the committee review in the House, changes were made in particular to the bill to allow access to the tribunal by private parties. That is the main subject that I wish to deal with today.
This is not a new idea; it has been around for quite some time. It has been part of the academic debate in the literature. It was the main subject of a private member's bill. Many of the prominent provisions of that bill found their way into the amendments introduced by the commissioner and by the government before the House of Commons committee in clause by clause.
I must say that, notwithstanding all of the discussion and study, we, as an organization, and our members are not convinced that a compelling case has been made for the right of private access. In a fundamental sense, we believe that access to the tribunal should be limited to those cases where it is necessary to protect the public interest in competition, and the bureau, not private parties, should be the actual arbiter of that decision. Having said that, I wish to be clear that it is not our intention to ask the Senate to reopen the bill and make further changes. We obviously recognize that there was all-party support for the addition of private access. We are not here today to further debate that. However, there is a legitimate scope of inquiry for the Senate in particular to look at this provision and to provide some further reflection on whether the right of private access is likely to operate in ways in which the government and its proponents seem to suggest.
It strikes me that there are two questions at issue here. First, and this is recognized even by the proponents of private access, by opening up this new right of private parties to bring these kinds of cases there is a threat and a possibility that some parties may be somewhat unscrupulous in their use of this. It will not promote competition but rather it will be used to seek tactical advantage in contractual or other commercial negotiations between private parties. There is the legitimate question about how do we ensure that only legitimate cases actually come before the tribunal through a right of private access.
There have been considerable effort and discussion. We recognize that the amendments that were made to the bill in the House do go some way to trying to protect and provide procedural safeguards so that these provisions would not be abused. That is important to recognize. However, we do need to look at that closely.
The second point, and the argument often made with respect to private access, is that it is a remedy that is essential, in particular, for the small business community that may not otherwise have access. However, it is important to remember that these kinds of complex commercial arrangements between businesses are neither straightforward nor simple. In trying to bring one of these private access cases, obviously the bureau has considerable resources to bring to the table, but a private party would also have to hire a considerable degree of expertise and spend a fair amount of money. We are not convinced that it will actually be an effective remedy for small and even medium-sized businesses. There was a time when the bureau looked at this and a review of the history suggested that these cases could easily cost on average $1 million for any kind of a complex arrangement. That is not something that most small businesses would think would be easy to manage.
A number of alternatives and different ideas were raised, along with how to deal with the issue of protecting the interests of small business. Some of those were raised in our brief and by other organizations to the House of Commons committee. We may yet have to come back to some of those ideas. It remains to be seen whether small business will want to and be able to take part and have access to the particular provisions.
In regard to the fundamental questions with respect to the changes that were made to the bill, do the new clauses and new parts of the bill actually contain sufficient safeguards to protect against its use by unscrupulous competitors in strategic litigation, and will it in fact work to the benefit of the small business community?
With respect to the Senate's review of the bill, I know that you have had one appearance by the Commissioner of Competition already. I do not know if you intend to bring him back. However, it would be useful to seek from the commissioner the following information: how he intends to deal with these cases; what role the bureau intends to play in these kinds of disputes; and to what extent the commissioner or the bureau will have guidelines that will help both private parties and others interested know when the commissioner might intend to intervene and when such cases would be left to private parties to dispute.
That is a legitimate area of inquiry if this particular provision turns out to be not as beneficial to the small business community, in particular, as its proponents have suggested. We may very well be back here in a few years' time trying to look at further amendments to the legislation.
My colleague here with me today is Mr. Perez, who is president of the Canadian Petroleum Products Institute. He reminded me that you have probably already heard from the independent petroleum markets, and undoubtedly would like to hear the other side of the story as well with respect to the petroleum refiners and distributors in Canada.
We have worked closely on this bill. We have a similar view with respect to Bill C-23. We are more than happy to be here today to answer any questions that you may have.
Senator Tkachuk: We did hear from the retailers. I believe the gentleman who made the presentation was from Atlantic Canada, specifically from the Maritimes. They did talk about the problems that they had with accessing gasoline products, retail pump products and some of the problems that they faced.
Perhaps you are aware of that testimony. Could you tell us your side of the story on some of the comments that they made and some of the objections that they had.
Mr. Alain Perez, President, Canadian Petroleum Products Institute: Honourable senators, the example that was mentioned by the gentleman from Wilson Fuels when he appeared before you was a 1995 case involving allegedly Petro-Canada. This case has been presented over and over again. We have been repeatedly asked, and Wilson Fuels has been asked, to provide examples where supply had been curtailed or when lack of supply or inadequate supply had created business issues for those retailers. To the best of my knowledge, there has been absolutely no example. In fact, if there had been one, the bureau would have investigated, and the tribunal would have ruled.
To the best of my knowledge, there has been no instance when the Competition Tribunal has been asked to rule on a supply issue. As of today, all of the members of my organization to whom I have spoken individually are unaware of any problem of supply for any of their customers.
If you look closer at the testimony, the issue shifts quickly from supply to pricing. Pricing is an issue about which we have heard many complaints in different forums coming from that segment of the industry. However, pricing has nothing to do with Bill C-23, and pricing has nothing to do with private access.
I hope I am answering your question. Perhaps to further Mr. Dillon's testimony, I believe that the independent segment of my industry will not take advantage of Bill C-23 private access because of the cost issue. More important, the independent segment will not take advantage because none of the issues they have been publicly discussing, such as alleged pricing practices or supply issues, would find a remedy in private access the way private access has been structured. This would be a non-issue. It is a non-solution to the problems that the people have been putting on the table.
Senator Tkachuk: One of their concerns was in regards to access. If there were a question of supply, they wanted to be guaranteed a certain percentage. In other words, if there were a 20 per cent decrease, they would get their 80 per cent as everyone else would. Price was not an issue.
Mr. Perez: This is commercial law.
Senator Tkachuk: Is that possible to do?
Mr. Perez: These are commercial relationships. Commercial relationships are guided and governed by provincial laws, not by the Competition Act.
I know from my own experience in the industry on the operation side that some of my clients at the time had such clauses in their contracts. That becomes a matter of negotiation.
On the issue of severe shortages, I cannot foresee such a problem. We did not have a shortage during the many Middle East wars. Even during the embargo, we did not have that kind of shortage. However, if there ever were one, cabinet, with its emergency measure powers, would be in the position to deal with that, not the Competition Act.
If we start focusing the Competition Act on supply and commercial issues, it diminishes the intensity of competition between the refiners who wants to supply the same customer. For instance, I would rather see, hypothetically, ESSO saying that they will draw a contract with that kind of guarantee and let someone else compete with these terms. These are commercial arrangements, not something at which the Competition Act or private access should even be looking. That is not a route to resolve it.
Senator Tkachuk: How many refinery companies are there in Canada? How many companies refine petroleum products?
Mr. Perez: There are seven or eight refinery companies. Moving East to West, you would have North Atlantic Refining, Irving, ESSO, Sunoco, Petro-Canada, Shell, Husky, Parkland and Chevron.
Senator Tkachuk: These refineries are located across the country. Does ESSO buy from the Shell refinery?
Mr. Perez: Yes, they exchange.
Senator Tkachuk: They do?
Mr. Perez: Yes, in the East, for instance, Irving sells Irving products in New Brunswick but sells another company's products in Nova Scotia. If you buy products in Ontario, it is likely to come from Imperial, Shell or Sunoco, even if it marketed as another brand. There are constant exchanges.
Senator Tkachuk: There are transportation costs and all those other issues. Along with all the majors that are buying from each other, the independents would be facing the same prices, as Irving would be charging another major oil company that they would be supplying in Nova Scotia, as you say, from another refinery.
Mr. Perez: That is correct. The issue of severe supply shortages would hit everyone the same way. It would hit those companies making exchanges among themselves. I am sure they have provisions there that have been negotiated. That is the way I believe it should be.
Senator Tkachuk: Many companies, even the majors, would not be able to service their own retail operations from just their refineries. Is that correct?
Mr. Perez: That is right. Therefore, they would have to import the product. If you were an independent and you were asking me for that kind of guarantee, I would probably suggest a contract where, if I incur a higher cost because I must bring that from Russia or from the Middle East, we would share the cost. This is the way it happens in reality when independent retailers ask for those types of guarantees and they get them.
Senator Taylor: You said that the regulations regarding retail are quite often governed at the provincial level. As you know, many provinces will not allow a brewery to own a bar or a distillery. How can you justify that, or would you justify a law that would keep a refinery from owning a service station? Currently, the refiners, through manipulation and price wars, are in a position to shaft the independent retailers. That is the most polite word I can think of at the moment. Canada is one of the few countries in the world that allows the refiners and your associates to get away with as much as they do. How do you have the gall to complain about this bill?
Mr. Perez: Obviously, I would object to some of the premises of what you have just said, senator.
What you are speaking about here is ``divorcement,'' which is something that some independents have also been asking about. Our industry is comprised of both integrated companies, which I represent, and non-integrated companies, or people who only sell and must buy the product somewhere.
The gentlemen who have been making representations before you are legitimate members of the non-integrated segment but they represent the minority of that segment. That segment is more and more dominated by people who are not in those associations, for example, Costco, Loblaws Superstores, Parkland, the United Farmers of Alberta, and Canadian Tire, which is a member of my organization.
If you look at the 20 largest players in the non-integrated segment, about 18 of them are not members of the associations that have been asking for those changes. However, that does not mean that there are not legitimate requests from their standpoint. I am just saying that you cannot paint a world where you have the refiners and then the people who have been in front of you. It is much more complex than that.
Currently, the dynamics in my industry are changing. This has occurred in other industries such as hardware stores and merchandising in general. For example, Wal-Mart announced last week that they were entering the Canadian market with the intention of building 20 service stations per year for the next five years. These are the people who are changing the dynamics of my industry.
If I were an inefficient independent, they are the people I would fear. To return to the senator's question, I have never heard about divorcement being asked by Loblaws or by Costco or by the other independents. Divorcement exists in five U.S. states that have no refineries. It does not exist anywhere else in the western world.
Divorcement is something that would diminish competition. I am not speaking for Imperial Oil, but from my own experience there, if I were an executive at Imperial Oil and I were faced with legislation that said that you cannot refine and market at the same time because you are a refiner and I also have large operations elsewhere and ESSO is my brand name, I would probably choose to close down my refineries and continue marketing. I can access product from the U.S. through pipelines and ships. Faced with that terrible dilemma, I am sure that some refiner would choose to stop refining and to move to the marketing side. It is their brand. Not marketing with the pride of their name is like asking Coca-Cola to make the recipe but not bottle and sell it. It is a dangerous proposition at best.
Senator Taylor: Your Coca-Cola example is probably a good one. Coca-Cola allows retailers who buy its product to sell other items. Retailers can choose whether or not to buy Coca-Cola; they will not be shut down overnight if they choose not to buy Coca-Cola. It is not quite the same with gasoline. Most service stations are leased, not owned by the operators. The operators are in a difficult position because they must do what a refiner says. The independent marketer down the street can easily be put out of business by the refiner delivering at a different price to its own service station than to the other.
Is there any rule there? What do you say to those service stations that are independent and are saying that they are being discriminated against in the tank wagon price for gasoline, for instance, because they are not owned by you? To use the bar analogy, if it were a bar they would be getting their beer cheaper than the guy across the street.
Mr. Perez: That is not true. The Competition Bureau has investigated that dozens of times. These allegations are unfounded. They are completely, completely untrue. They seem to become legends out there that continue to recur and are thrown back at us.
Canada has probably one of the strongest competition laws and one of the best agencies in terms of drafting and enforcing this legislation. It is centralized with one agency, namely, the Competition Bureau.
The bureau has testified many times that they have never been able to substantiate any allegation of that sort. Perhaps this is a question for the commissioner.
Senator Poulin: Mr. Dillon, why change the name from Business Council on National Issues to Canadian Council of Chief Executives?
Mr. Dillon: I am glad that I will get an opportunity to put this on the public record.
The Chairman: How is this related to competition?
Senator Poulin: I am getting there.
Mr. Dillon: I can then hand out the transcript when I am asked the question. There are three reasons. First, the organization has changed its mandate somewhat to reflect a more global view of issues with which we will be dealing. As part of that renewed mandate, we thought it was time to think about whether the name was reflective.
A second issue was the fact that ``Canadian'' did not appear anywhere in the name. Our business organization has numerous contacts and visits outside this country. When you speak English in a foreign meeting, people tend to assume that you are American. As part of our global outreach, it was important to have the word ``Canadian'' firmly in the title.
Third, there was an issue around whether what we deal with are truly national issues or international issues. The name in French for many years has been Conseil canadien des chefs d'entreprise. It was really a matter of aligning the English more properly with the French.
Senator Poulin: Since you spoke of your mandate, Mr. Dillon, could you speak of your membership?
Mr. Dillon: That was the most important reason we changed the name, because our members are all chief executive officers of the organization. The name is now more clearly descriptive of who we are. Our members are 150 chief executives of mostly the larger Canadian corporations, but we cover all sectors and all regions of the country.
Senator Poulin: Did you say ``larger organizations''?
Mr. Dillon: Yes, that is correct.
Senator Poulin: As you know, the Federation of Small and Medium Businesses appeared before us yesterday.
Mr. Dillon: Yes, I am aware.
Senator Poulin: They were expressing strong support for the new access that will be available now for small businesses to the tribunal. You stated in your brief that you do not feel that there has been a compelling case for the right of access to the Competition Tribunal and that that case has not been made. What arguments would you have made so that the access is not granted? Do you find that the safeguards are insufficient? If so, which ones would you add?
Mr. Dillon: To answer your first question, I have looked at what the Canadian Federation of Independent Business has put on the record in terms of what their members say. I understand they are a democratic organization and that they follow what their members say. The question they actually asked their membership was this: ``Do you believe the Competition Act should be strengthened?'' There was not even a majority of the membership that answered ``yes'' to that question. I believe the figure was 43 per cent. I am not sure if they have actually explained to their membership what private access is all about and how expensive it might be to bring these cases. That would be my first question.
We wonder whether it will be effective, first, because the commissioner and the bureau has a statutory obligation to investigate these cases if a complaint is brought. They have a series of guidelines and criteria as to what they look at and how they deal with that. We have said for many years that if the bureau feels that it lacks adequate resources to investigate all of the complaints that are brought to it, then obviously we should be looking at ensuring they have adequate resources.
Ultimately, the legislation is about protecting the public interest in competition. It is not about protecting any particular company or organization. The commissioner has that responsibility. He should determine whether there has been something that affects competition in the marketplace generally. If there are private contractual dispute between parties, there are means and private litigation for them to do that outside of the Competition Tribunal.
Having said that, if there really is a strong case, our biggest concern, as I tried to indicate in our brief, is that this provision will not be used by small companies at all; it will be used by large competitors trying to confuse and tie up legitimate competitors in unnecessary litigation. We do not happen to believe that that is good for any size of business or for the Canadian economy.
Senator Poulin: In the United States, I believe that direct access is available. Do you feel that it has increased the cost of doing business in the United States? Has it put a chill on investment in the United States?
Mr. Dillon: I am not trying to suggest that this particular provision would put a chill on investment in Canada. Let me be clear about that. I was speaking more generally about the need to ensure that we are creating a climate in Canada that encourages investment.
With respect to the United States, although I am not an expert in their competition regime, I believe there are problems with an excess of private litigation, not only in competition but also in many other areas. There is encouragement in the United States because there are damages available. I think there have been instances. speak to the lawyers who were involved in some of these cases or have colleagues who are involved. There have been cases where private parties tie each other up in this kind of litigation rather than really encouraging competition. That is really our concern.
Having said that, there has been a legitimate attempt — I do not want to suggest that there has not been — to try to build safeguards into this legislation. We are prepared to see whether they work or not, but at the end of the day if a firm is really determined to tie up its potential competition, especially a new entrant from the United States coming into the Canadian marketplace, we know that they have significant resources. They will not be concerned by hearings before the tribunal or elsewhere. They will be able to bring lawyers and plenty of motions to keep these cases going, irrespective of some of the safeguards in the bill. That is the concern.
As I said, it is not that we think that small business will tie up our members in this kind of litigation. I do not think they will have the resources to bring these kinds of cases before the tribunal.
Senator Kelleher: Mr. Dillon, I would appreciate your opinion as to whether you think that the legislation before us should contain a specific reference to a specific industry, such as Air Canada, or should the bill be general in nature and be utilized for other types of businesses?
Mr. Dillon: Senator, let me declare my bias by saying that Air Canada is a member of ours.
Senator Kelleher: That is okay.
Mr. Dillon: As are many other businesses that are competitors in one manner or another.
I would say that as a general principle this should be about broad framework legislation, about protecting competition, and not about regulating one company or one particular industry. There are obviously industries in this country that are still regulated and where there is not competition. We have seen numerous examples — long-distance telephone is a good example — where companies have gone from a regulated situation to an open competition situation, and obviously consumers have benefited from that degree of competition. As a general rule, this is not the place to regulate individual industries.
Having said that, there is obviously a significant situation that exists in the airline industry that arguably does not exist in any other industry in Canada in terms of a major player. Given the capital-intensive nature of that business, there is a view that it is a matter of public policy that there must be more regulation on that particular company. Our members are in favour of more competition. We need to figure out a way to bring more competition into the airline industry in Canada.
Senator Kelleher: Having said that, the bill appears to go further by giving special powers to the commissioner with respect to the airline industry about circumventing the tribunal. What is your opinion on that?
Mr. Dillon: There is a problem. Mr. Perez will remember, and honourable senators will remember, that at one time in the reform discussions there was a proposal that the commissioner have the ability to seek temporary orders on his own account. In our submissions, we resisted that idea. The commissioner now has that power with respect to the airline industry only.
As a general rule, it is dangerous and not good precedent to have a situation where the prosecutor is also the arbiter of the situation. Honourable senators may remember that there was a time in the old Combines Investigation Act when the director of investigation, as he was called at that time, the current commissioner, had the authority to issue his own search warrants. That case went all the way to the Supreme Court of Canada and the Supreme Court said quite clearly that it is legally wrong to have an enforcement officer and an adjudicator in that role also able to issue search warrants. You must go to court.
There is a legal issue that may yet be litigated before our courts with respect to the idea that the commissioner could actually issue a temporary order and in essence make a judgment before a complete hearing has actually been held. We all recognize that there are situations that require emergency measures because allegedly a company may fail unless some relief is granted. However, the procedures exist and we would certainly support a situation where there is a requirement that the commissioner go to the tribunal, get that independent judgment before an order is issued. Obviously, this process needs to be expeditious in dealing with those curious situations, to obtain an immediate answer. As a general legal principle, there should be a clear separation between the commissioner's office and the tribunal.
The Chairman: If there are no further questions, I will thank Mr. Dillon and Mr. Perez for their participation this morning.
The committee adjourned.