Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue 39 - Evidence
OTTAWA, Thursday, April 25, 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: I welcome our witnesses, Mr. Walt Lastewka, Mr. Konrad von Finckenstein, Ms Suzanne Legault, and Mr. Donald Houston.
As you are aware, the Standing Committee of the House of Commons on Industry, Science and Technology just released a report on Bill C-23 entitled, ``A Plan to Modernize Canada's Competition Regime.''
Mr. Walt Lastewka, M.P., Chair, Standing Committee of the House of Commons on Industry, Science and Technology: First of all, I would like to introduce two members of our committee with me today, Mr. Dan McTeague, vice-chair, and Mr. Dan Shaw, researcher, Library of Parliament. It is a privilege for me to appear before your committee today to explain a number of items on behalf of the Commons committee.
The Standing Committee of the House of Commons on Industry, Science and Technology has studied Bill C-23 and is content with its current form. I want to advise you that all five political parties concurred with the report.
I will speak to the committee's report entitled, ``A Plan to Modernize Canada's Competition Act,'' which was tabled in the House earlier this week. As you may be aware, there is an overlap of issues between Bill C-23 and the committee's report. In particular, I am referring to recommendation 4 of our report, which deals with the airline industry-specific provision. Allow me to make it clear that there is no conflict between Bill C-23 and the committee's recommendation.
I personally was disturbed to learn of some comments that implied that our report somehow suggests that Bill C-23 is flawed. Specifically, these comments suggest that the Industry Committee's report supports the immediate repeal of proposed new subsection 104.1. I wish to be very clear that this is not the intention of our report. I emphasize that the committee is satisfied with Bill C-23, including the amendments contained in 104.1. We are recommending that your committee pass the bill in its current form. However, I will review the Industry Committee's report.
The report is a plan for the future and contains 29 integrated recommendations.
If you change one part of the Competition Act, you affect another. For this reason, the committee's recommendations must be taken as a whole. There must be no cherry picking, which would confuse the issue.
Witnesses before the committee in the House agree that Bill C-23 is a good start; however, our work is not finished. The Industry Committee's report picks up where Bill C-23 left off. For example, you heard Air Canada complain that it is being singled out by the administrative monetary penalties Bill C-23 would permit. That is why we recommended that these penalties be extended to all industries. The potential for abuse of dominance does not exist only in the airline industry, but in all industries. Having such penalties would give the act the strong deterrence that it currently lacks.
The reforms we recommend will go a long way to remedy any deficiencies in the current competition regime. However, we are not advocating that these recommendations be immediately implemented. Rather, we are asking the government to respond in the form of a white paper. The committee's report is forward looking. It is a post-Bill C-23 report.
In reading the report, you will discover that its recommendations are designed to reinforce and improve competition in all industries. When Minister Collenette was before you last week, he said he viewed proposed new subsection 104.1 as a temporary measure that would be repealed when healthy competition was restored to the airline industry. The committee shares this view and expectation. Is the temporary measure for one, two or three years? That must be debated and decided.
The Competition Act is designed to be a law of general application. I must emphasize that the committee's report is intended to be a blueprint for a government white paper that would launch the next round of amendments to both the Competition Act and the Competition Tribunal Act. We strongly urge the honourable senators to read the report in its entirety. You will agree it represents a well-thought-out plan to modernize Canada's competition regime.
Senator Oliver: You indicated today that the report you produced and tabled in the House of Commons is a plan for the future. You said the future might arrive in two, three or four years; it is difficult to say. Recommendation 4 states:
That the Government of Canada repeal all provisions in the Competition Act that deal specifically with the airline industry (subsections 79(3.1) through 79(3.3) and sections 79.1 and 104.1).
If you recommend that it be repealed, what is wrong with doing that now?
Mr. Lastewka: You need to go back to a number of other recommendations and the preamble. If you make the changes to those items in the Competition Act, it will eventually make section 104 redundant. However, you must make those changes before you implement the recommendation.
Senator Oliver: We heard evidence from Professor Wong, who has studied proposed section 103 and section 104. He told us that section 104 is really not necessary and that proposed section 103 would be more in keeping with law and precedents in Canada. What do you say to that?
Mr. Lastewka: Looking at section 104 and the situation we find ourselves in, the objective is to get something done in a shorter time. It is a temporary situation that we have to get through.
Senator Oliver: I would say proposed section 103 and section 104 do that.
Mr. Lastewka: I am not sure about that.
Mr. Dan McTeague, M.P., Vice-Chair, Standing Committee of the House of Commons on Industry, Science and Technology: We are dealing with the airline industry. I point out to you that one of the underlying messages the committee put forward was about the issue of justice delayed and justice denied. While I respect Mr. Wong's position, I do not believe that he, certainly in the cases and testimony given to this committee before, can guarantee that a cease and desist order can be made in a timely manner.
Business operates in a far more sophisticated manner than House of Commons members, and perhaps even honourable senators, would be able to detect. Given the nature of these industries, time is money and may be critical. You may lose a vigorous and effective competitor if you have to wait 24 days or 24 minutes or 24 hours to obtain a cease and desist order. It is important to understand that section 104 is a stop-gap measure. We very clearly stated on page 29, in the preamble to recommendation No. 4, that recommendation No. 3 is there for a specific reason. I will read that into the record, honourable senator, for your benefit:
That the Government of Canada empower the Competition Tribunal with the right to impose administrative penalties on anyone found in breach of sections 75, 76, 77, 79 and 81 of the Competition Act. Such a penalty would be set at the discretion of the Competition Tribunal.
Further to that, under (3):
The special airline industry provisions would become redundant and thus could be repealed. This third advantage is particularly appealing to the Committee, as it would hasten the return of the Competition Act to a law of general application.
It is clear that what we are saying, and what the Chair has indicated, is that we are looking to the future. The single reporter who showed up at the press conference obviously did not report the situation. We were dealing with a situation of ``force majeure'' in this industry. Given the situation of Canada 3000, in all likelihood there would have been an opportunity for that airline to go bankrupt. We think it is the right approach.
Mr. Lastewka: My intention as the chair was to make sure there was no conflict between the 29 recommendations we are asking the department and the commissioner to look through before presenting a white paper on going forward. The commissioner is the next witness. You might want to ask him that question.
Senator Oliver: Mr. McTeague, I would like you to comment on why you have included a provision that a person seeking to have justice done would first have to apply for leave, and secondly, why you would not permit that same person who has been aggrieved, perhaps by predatory pricing practices, to at least obtain some damages.
Mr. McTeague: We also have to take into account that our proposal envisages a regime of deterrence through administrative penalties, private action and the ability for us to enact a cease and desist action.
Senator Oliver: You are referring to private action.
Mr. McTeague: Exactly. That is an option. However, it does not derogate from the authority of the commissioner to undertake his or her own investigation.
Senator Oliver: I am aware of that. Why put so many bulwarks and obstacles in the way of a person attempting to seek a private action?
Mr. McTeague: We have taken the position that there could be an opportunity for the courts in a private action, and ultimately the tribunal, to award damages, and if necessary, levy administrative penalties against an individual who may be taking up the time of the tribunal with something frivolous or vexatious.
Senator Oliver: Where is that in Bill C-23?
Mr. McTeague: I thought you were referring to our document. We are moving one step forward in referring to what we have recommended in this report.
Mr. Lastewka: That is why it is very important to understand that our document looks at post-Bill C-23.
Senator Oliver: Should this bill not be sent back to you, since you have made these recommendations and almost seen the light, so you could correct a lot of these things you now see as deficiencies? Thus we would have a more complete bill appropriate for the time.
Mr. Lastewka: I do not look at it that way. We want the department to look at many items, 29 recommendations in total, and come up with a white paper.
We have learned from our experience with round tables that there is much discussion on this and it takes up a lot of time. Bill C-23 is about getting things done now.
Senator Oliver: That is not what many of the witnesses have said. I have taken enough time.
[Translation]
Senator Hervieux-Payette: I welcome my colleagues from the House of Commons. It is always a pleasure for us to meet with you in order to discuss some bills. Sometimes we agree; sometimes we do not.
On the substantial issue, namely whether we want a healthy and equitable competition, I believe that there is no problem. We must focus on the means to provide such a competition.
The issue that bothers me is that of the amendments that were made and that now allow businesses to initiate procedures. It seems to me that when you give the commissioner the power to issue a cease and desist order, without going through the courts, you are putting him in an almost impossible situation of being both judge and defendant.
If you have on the one hand a corporation with 1,000 or 100,000 shareholders, and on the other hand a smaller business in financial terms, you have a big company that is robust and a small one that is weak, this being almost a truism.
We have seen yesterday that even a large corporation such as Bell Canada can have very serious difficulties at one point. I refer here to my previous life in the area of telecommunications.
In the telecommunications sector, there was for a long time what you call a ``dominant carrier,'' namely Bell. Since 1992, the concept of competition has been introduced. That was done in an orderly fashion, by giving powers to the CRTC.
We are now in the area of ``transport mail.'' We must recall that telecommunications and transport used to be under similar legislation, before the Telecommunications Act was passed. The Telecommunications Act goes back only to 1992. Before that, the Railway Act dealt with these issues.
I have a question to ask you about the matter of equitable competition. You are telling us that we need immediate action. There are tribunals that can make an immediate decision in order to prevent a risk. That is an independent party.
If you go to the Superior Court of Quebec and you obtain a court order, you can put a stop to an activity that could cause significant damage to a business.
In this case, it is the commissioner who would make the decision as to what could cause a significant damage to one of two parties. According to my philosophy of the law, a court should have the opportunity to hear both parties and the issue should be submitted to an independent party. That party could be the Transportation Tribunal or the regular court.
Why have you chosen this quite exceptional course of action? This course of action may be practical, but in legal terms, even the Canadian Bar Association is reluctant to accept it?
[English]
Mr. Lastewka: First, the regulatory paths for the telecom industry and the airlines were different. The situations were completely different. It goes back to Canada 3000 going bankrupt. The government found itself in a very difficult situation. Now time is of the essence.
Senator Hervieux-Payette: Have you heard about Unitel going down the drain and losing almost $1 billion?
The Chairman: You may proceed as you wish, but the purpose of having these gentlemen here is to clarify what they did, why they did it and what they see as the essence of this bill. You can ask anything you wish, obviously. However, some of these questions would be better put to the Commissioner of Competition when he appears. I do not think that we should enter into a major debate with colleagues from the House of Commons.
They have clarified why they said what they said and what they hoped to achieve.
Senator Tkachuk: I am not sure that they have.
Senator Di Nino: I do not think that they have.
The Chairman: They are not here on trial. They are here as a favour.
Mr. Lastewka: The committee has been meeting on Bill C-23 and has had many discussions on competition. Review of the competition law is well overdue. We needed to get through it.
We wanted to look at the Competition Act and make recommendations such that the government would at least come out with a white paper and encourage more discussions on making the Competition Act more current. That is the intention of our report.
To cherry pick 27 words out of a 127-page report and say that is what it is about is wrong. I want to make it very clear that we are making 29 recommendations for the department and the commissioner to look at before coming out with a white paper.
Let us have some open, transparent discussion on the Competition Act. It needs to be updated in a number of areas. That was the intention of our report. I hope that we catch the attention of the many people who we need to take a look at our Competition Act as it stands today.
I could go through some of the guidelines and be critical of them. Are they guidelines?
I come from industry. They should be the guidelines for everyone. There are a number of things that need to be clarified. We have a responsibility as legislators to make that happen. Hopefully, that is what the report will do.
Senator Di Nino: Welcome, gentlemen, and Mr. Lastewka in particular.
You will forgive us is some of us are sceptical about temporary measures in legislation. You are as aware as the rest of us in Canada that the income tax was a temporary measure. It was introduced some decades ago. We have some concern about that.
I have two questions. Does the committee, including the opposition, share the interpretation that you have just placed on your report unanimously?
Mr. Lastewka: There has not been any major opposition to our report. The official opposition made a supplemental addition to it, but wholeheartedly approved the report. The NDP made a different type of addition that looked at the philosophy of business and competition, which I believe was a little removed from the intention of the report.
To answer your question, yes, the opposition supported the report.
Senator Di Nino: Mr. Lastewka, I was talking about your interpretation this morning of the questions that we were asking. Do other members of the committee, in particular, those not on the government side, share your interpretations? Perhaps you have not been able to discuss it with them.
Mr. Lastewka: I had brief discussions with the official opposition to reinforce what I was saying. I did not go to everyone because of the timing.
Senator Di Nino: That is fine.
Mr. Lastewka: I will be sharing everything with the committee.
Mr. McTeague: Could I add one thing that you might find interesting. The grave concern of the Alliance is that the current cease and desist provision may not be sufficient. They cited the example of the delay of the WestJet complaint. Currently, it is almost two years before a complaint can be heard, which was one of the reasons that the Alliance had a slightly different opinion and felt that we did not go far enough in this report.
Senator Di Nino: Mr. Lastewka, we would like to compliment you. We think it is a good report.
I had an opportunity last evening and this morning to take a look at it. As my friend says, the report shows that you have seen the light. It suggested some improvements that could be made to this proposed legislation. Your response to my colleague, Senator Oliver, was that Bill C-23 was for the future.
Would it not make sense to perhaps send this thing back to you folks, who have done such a good job of discovering some of the weaknesses and some of the holes, so we could improve Bill C-23, particularly at a time when we know Parliament is not burdened with a lot of legislation?
Senator Oliver: Good point.
Mr. Lastewka: I want to go back to Mr. Collenette's remarks. This is a temporary measure that would be repealed once competition was restored. I would reinforce what the minister has said. You could ask that question of the next witness.
We have a certain situation and we need some temporary measures to get through it. We will go from there.
Senator Di Nino: If we could improve the bill, would it not be correct to do it now? You have discovered some weaknesses, so let us send it back. You make the changes and we will go along with it. You do not have a heavy workload.
Mr. Lastewka: I would not say that. Our workload is heavy, especially in our study of innovation, competitiveness and productivity in this country, which is the priority of this committee for the next six months.
I want to relay to you that it is the opinion of our entire committee that Bill C-23 needs to be passed. We need to get our airlines into a competitive position and then continue to review the Competition Act. This is a post-Bill C-23 report. You might want to ask the same questions of the commissioner when he appears.
Senator Meighen: I have just one question Mr. Lastewka. You talk about temporary measures. As my colleague, Senator Di Nino, said, you have done a great and thorough piece of work. It almost seems as if we have to monitor this on an ongoing basis. The marketplace changes very quickly.
We are now being asked to approve a specific provision dealing with the airline industry because a situation arose that was not foreseen in the existing act. Would you favour mandatory review of the act within a given period of time?
Mr. Lastewka: One of our recommendations is in the merger area. The act speaks about mergers worth $35 million. Our recommendation is that there be a compulsory review of that section every five years. Things are changing.
I come from the school that believes that we should be looking at the Competition Act on an ongoing basis, as things in the world change. I have a great desire that we do that more frequently because thing change so fast. We should not be playing catch-up.
Senator Meighen: No, I agree.
Mr. Lastewka: We should be trying to determine what is in the future and make sure our Competition Act is valid as we go forward. I said earlier that this report is post-C-23. The government and the commissioner should be looking at how the Competition Act should be going forward and conducting ongoing reviews, whether every five or every seven years. We should be determining that which we need to stay current, not playing catch-up.
Senator Oliver: Should that not be written into the bill that goes back to Parliament?
Mr. Lastewka: You are talking about Bill C-23. I am talking about the white paper and going forward.
Senator Meighen: Let's talk about competition policy in Canada. That is my question and that of Senator Oliver. I like your thrust. I like hearing that we must stay current. I do have a concern about — not that it is wrong — singling out merger provisions for review within a specific period of time. Why not also airline-specific provisions? Why not the entire legislation within two years?
Mr. Lastewka: I have no problem with a complete competition review every five years.
Senator Meighen: Five years?
Mr. Lastewka: You may want to ask the minister about that. You want some stability in business. You can make minor improvements. Business does not look at it every two or three years. I do not have to explain that to you.
Senator Meighen: The further you go out, the less accurate the planning.
Mr. Lastewka: They need to have some rules and benchmarks going forward.
The Chairman: I should point out to you that our committee will be requesting a review in two years' time. I assume this meets with the objective of your report?
Mr. Lastewka: We did not define the temporary period.
The Chairman: We do.
Mr. Lastewka: I have no problem with that. I am sure the minister would not have a problem with that.
Senator Meighen: I hope you are right.
Senator Tkachuk: We have been trying to figure out, since this report came out, and knowing that the majority of the members are Liberals, the government's exact intention. Has this been one or two years in the making?
Mr. Lastewka: It is over two years since we began studying the Competition Act and dealing with various sections of it. We have held many round tables on it. Much of that work was done so that the committee could move forward.
Senator Tkachuk: Your recommendation No. 4 is to repeal subsections 79(3.1) through 79(3.3) and sections 79.1 and 104.1. Was that recommendation a late inclusion in the report? Do you guys talk to each other?
The bill came down in April 2001. You have been studying the Competition Act for two years. You are saying that we should get rid of some of the provisions of the bill in the future. How did this all take place?
Mr. Lastewka: First, we do talk to each other. Our committee members work very closely together and on a non- partisan basis as much as possible.
Senator Tkachuk: That is not what I meant. I wondered if you, the ministers and members of the Liberal caucus talked. How did this provision get into this bill when at the same time you are studying a whole different line and saying that that provision should not exist?
Mr. Lastewka: We are moving on from Bill C-23. We are taking the lessons learned from Bill C-23 and the provision in proposed section 104 and looking at doing a number of other things in this paper.
I am asking that you look through the entire paper and all the recommendations. As we make recommendations on one end of the Competition Act, it affects the other end.
If we look at things like cease and desist orders, awarding damages and a number of other things, then proposed section 104 would become redundant. That is part of our paper and we must decide whether we will make those changes or not. Having made those changes, then we could do something else.
With the Competition Act, you have to always look at both the front of the book and the back, because one is affecting the other.
Senator Tkachuk: Mr. Lastewka, I am not surprised that the Liberal government is sending out a number of messages. I am trying to find out how you arrive at public policy.
Mr. McTeague: Mr. Chairman, with your indulgence, and senators, if you will allow me. This is not a new issue for the House of Commons, or indeed Canadians. We have been dealing with it on and off since 1996. There was wide recognition that the purpose and interpretation of this act were not being met.
There have been a number of studies, including from public policy forums and the conference board. You will see at the outset the number of bills on which Bill C-23 is based. There have been a variety of reports, including the VanDuzer report and then an interim report.
We see ourselves as using this as an open and fluid process.
We believe that the Competition Act must respond to changing times. That is the pragmatic approach. We also believe that if the committee had passed this Bill C-23 in December, by now we would probably have been in a position to deal with the next stage of competition, to make it more current with other jurisdictions around the world, and also to respond to the genuine belief that there are a number of changes, some good, some bad, and some very rapid, in this industry. This is really the basis on which we have proposed the plan for the future.
It is a discussion paper. It is an opportunity, and yes, we have discussed it with caucus members. It has been an issue; it has been the subject of many reports, as I have indicated. It is not new and it certainly did not come about by happenstance.
Senator Tkachuk: Was it deliberate?
Mr. McTeague: In what way do you mean?
Senator Tkachuk: Number 104 being put in the Competition Act.
Mr. McTeague: If you are referring to recommendation No. 4, I would suggest, as I did at the beginning, that you look at the entire report and put it in its proper context.
In the meantime, sir, we were dealing with an issue of ``force majeure'' that I think was extremely important for most Canadians and certainly highlighted the relevance, and perhaps the shortcomings, of the Competition Act.
Senator Tkachuk: I do not disagree that it was important. We are asking for a review in a couple of years. We all have some concerns, not so much about what is in it as where it is. It is part of the competition bill and it isolates one industry.
You say that Minister Collenette said it would be a temporary measure. This is Mr. Rock's bill; this is not Minister Collenette's bill. He said that in committee. He said he was just here to help explain how it kind of arrived in this bill. It kind of arrived as the bill was passing through the House and it was seen as a good place to address a problem. Mr. Rock has indicated to you, which he did not to us, if I remember correctly, that it was a temporary measure?
Mr. Lastewka: You have to ask that of Mr. Rock.
Senator Tkachuk: We asked him whether he wanted us to review this bill so that we could perhaps make amendments, and he wanted none of that. He did not want an amendment. My colleagues can correct me, but I believe he did not want an amendment that would cause a review of this bill in a number of years.
Senator Oliver: That is correct.
Senator Tkachuk: He is looking at this thing as a permanent fixture in the Competition Act.
Mr. McTeague: I believe you would be hard-pressed to find any section of the Competition Act that was not based originally, although it is law of general application, on a problem that arose in a specific industry. This second document, which of course is Parliament's, not government's — and I think you appreciate the distinction — gives advice to the government as to where we go from this point forward. The Chair has identified that. I suspect the question of the powers that have been given in this case are important because they are the only stopgap measure between preventing the collapse of a particular industry or the creation of one that might be dominated by what may be characterized as an abusive dominant player. It is not by accident that the committee dealt with this issue. I have sent information in the past to Senator Kroft, and others, dealing with the fact that we do not treat the issue of the airline industry in a cavalier or short-sighted fashion.
Senator Tkachuk: Minister Collenette says it is a temporary measure. That was not the indication we got from Mr. Rock. Your committee wants this repealed. Would you recommend that we use the House report as the basis for amending the bill?
Mr. McTeague: No, we do not want it repealed.
Mr. Lastewka: No, if you want to cherry pick, you can say that. I advise you that you have to do the other things that we are recommending.
Senator Tkachuk: We would be happy to do that.
Mr. McTeague: Senator, I point out that your own Conservative counterpart in the House of Commons did indeed, without objection, support the provisions that dealt with the airline industry. We believe these things should stand. It would not be fair to suggest that we are saying one thing one day and something else on another, when in fact we are being very consistent. We believe that the provisions should remain until such time as amendments are brought forward in the white paper. I presume that will be sooner rather than later.
Senator Tkachuk: That is fine.
The Chairman: Thank you, gentlemen, for being with us.
Our next witnesses, from the Competition Bureau, are Mr. Konrad von Finckenstein, Ms Suzanne Legault and Mr. Donald Houston.
Mr. Konrad von Finckenstein, Commissioner of Competition, Competition Bureau, Industry Canada: Thank you for inviting me to appear before you again on Bill C-23.
As you know, we believe Bill C-23 is vital proposed economic legislation that will benefit businesses and consumers alike. For example, the prohibition on deceptive price notices is urgently required. These scams can target our most vulnerable members, especially seniors. Losses can amount to thousands of dollars, and regrettably, Canada is gaining a reputation as a haven for scam artists of this sort. We believe these provisions, and the other provisions, are key in the renovations that need to be made.
We followed your proceedings and listened closely to some of the witnesses. I want to address my remarks today to four points that came up during your discussions. First is the competitive effects test proposed for clause 75; second, the issue of mutual legal assistance; third, section 104.1 of the Competition Act, and last, the administrative monetary penalty.
[Translation]
The primary purpose of section 75 is to protect small firms in Canada in very specific situations.
As such, it fully complies with one of the objectives of the Act set out in section 1.1 which is to ``maintain and encourage competition...'' in order to ensure that small and medium-sized enterprises have an equitable opportunity to participate in the Canadian economy.
In order to minimize the risk for strategic litigation, Bill C-23 proposes a ``competitive test'' which differs from that of other reviewable matters i.e. ``substantial lessening or prevention of competition.''
To that effect, some concerns were raised that the proposal introduces an inconsistent standard in the Act. In keeping with the objective of section 75, we believe that the ``adverse effect on competition'' test added to section 75 is fitting as it codifies the existing jurisprudence.
Let me give you an example to explain the difference between the two tests.
A dominant supplier of a product decides to stop supplying a small firm. The small firm cannot carry-on its business since adequate supply of the product cannot be obtained from anywhere else. In light of the limited role it played in that market, the exit of the small firm will not likely have an impact on competition that would constitute a substantial lessening of competition.
As a result, it is unlikely that an increase in price will arise from the exit. However, this exit from the market will reduce the number of competitors in that market as well as provide less product choices for consumers.
Therefore, we can observe an adverse effect on competition. For that reason, we believe that this amendment is necessary.
[English]
Second, on mutual legal assistance, you have heard much about the international dimension of our cases. We see an increasing demand, especially on mergers, to look at these cases on an international basis. This trend also brings its share of practical difficulties, specifically, those regarding sharing of information.
As a general rule, the enforcement of laws is limited to the territory of the country making them. Therefore, collecting the evidence within the territory of another jurisdiction is one of the major challenges that we must overcome in order to enforce our law. This fact has required the development of tools more suitable for dealing with an increasingly present international dimension.
The new Part III in Bill C-23 seeks to enable Canada to enter into agreements for reciprocal assistance in civil competition matters. Mr. George Addy, my predecessor, expressed concerns about the proposed mutual legal assistance scheme with respect to due process rights. Frankly, I do not share his concerns at all and I will explain why.
One should keep in mind that the new Part III prescribes minimum prerequisites to be included in any mutual legal assistance agreement.
The provisions set out in Part III do not constitute an agreement by themselves. When I appeared previously before you, I provided you with a model agreement that reflects the main elements of the cooperation provisions contained in Bill C-23 that would be implemented in the agreement authorized by this proposed section.
Before Canada enters into an agreement, the Minister of Justice — not the commissioner — must be satisfied that the competition laws of the foreign state are substantially similar to those of Canada. The minister must also be satisfied that any record or thing will be protected by laws respecting confidentiality that are substantially similar to Canadian laws. That is, we will only make treaties with countries that have the same level of protection as we have under competition laws.
The minister must then be satisfied that requirements are included in the agreement such as provisions with respect to the circumstances in which Canada may refuse a request and the confidentiality protections that will be afforded to any record or thing.
The agreement will contain undertakings by the foreign state that any record or thing provided by Canada will be used only for the purpose for which it was requested.
The agreement will contain undertakings by the foreign state that any record or thing provided by Canada will be used subject to any terms and conditions on which it was provided, including conditions respecting applicable rights and privileges under Canadian law.
Furthermore, any request made under an agreement must satisfy the Minister of Justice that it is made in accordance with the legislation and the agreement.
If he then approves the request, the commissioner makes an application to a court for either a search warrant or an evidence-gathering order.
Before issuing an order, the judge must be satisfied that there are reasonable grounds to believe that the conduct that is the subject of the request made by a foreign state is taking place or has taken place or is about to take place. The judge must be satisfied, not the commissioner. He must also be satisfied that evidence in respect of the conduct will be found in Canada.
Furthermore, a search warrant will only be issued if the judge is satisfied that a less intrusive evidence-gathering order would not be appropriate in the circumstances.
Obviously, no notice is given to the parties to be searched. Mr. Addy suggested we should give notice. I do not know why you would give notice to someone you want to search. That encourages the destruction of evidence; that sometimes happens. No notice is given, as it never is before you search anybody.
Before sending abroad any record or thing seized, or any evidence obtained as a result of the issuance of an evidence-gathering order, a judge will consider all relevant representations from the persons from whom the evidence was obtained, any person who claims to have an interest in such evidence, the Minister of Justice and the Commissioner of Competition. That is, there will be a hearing on the evidence gathered to decide whether it should be sent to a foreign country and every party involved has a chance to make their points at the hearing.
It is important to reiterate that the proposed Part III essentially duplicates the existing framework for criminal matters under the Mutual Legal Assistance and Criminal Matters Act, under which more than 27 treaties with different countries are presently in force.
The United States and Australia entered into an agreement on criminal and civil matters in 1999, and many other foreign states are considering amending their legislation to obtain the authority to negotiate such agreements. We all realize that you cannot enforce competition law unless you have the ability to exchange and gather information in countries that are closely linked to you economically.
Bilateral mutual legal assistance agreements are an important step toward improving the enforcement of competition laws in today's global economy. That is why this provision is included in Bill C-23.
I shall now turn to section 104.1 of the Competition Act. As honourable senators will be aware, this was enacted in the year 2000, under Bill C-26, and has been in force now for over two years. Section 104.1 provides that the Commissioner of Competition has the authority to issue temporary orders in respect of practices related to abuse of dominance in the airline industry.
Section 104.1, as part of Bill C-26, not Bill C-23, was adopted following extensive hearings in the House of Commons Committee on Transport and the Standing Senate Committee on Transport and Communications. Both committees heard the views of a broad range of stakeholders, including government officials, industry experts, trade associations, industry participants, consumer groups and academic and legal experts. Most notably, many small Canadian air carriers provided their views to both committees.
To date, only one temporary order has been issued under that section. That was in the case of CanJet on October 12, 2000.
Further, it is noteworthy that Air Canada has challenged section 104.1 in the courts. This provision is valid and was upheld by the Competition Tribunal, the Superior Court of Quebec and the Federal Court of Appeal. These three court judgments all uphold the section and the way it was used.
The airline industry is weathering a crisis. Therefore, now more than ever, section 104.1 is an essential administrative tool available to the commissioner to protect competition in this industry from abusive practices of dominant carriers.
An order under section 104.1 enables the commissioner to intervene quickly so as to freeze the factual situation for a limited period of time in order that he might complete the inquiry, thereby helping to avoid irreparable harm to competition.
The only matter at issue before honourable senators in Bill C-23 is a peripheral amendment to close the gap between the expiry of a temporary order and the filing of an application with the Competition Tribunal under section 79.
In the last two years, there has been movement in the market share levels of Air Canada. However, with the demise of CanJet, Royal, Roots and Canada 3000, we are back to the levels observed after the merger between Air Canada and Canadian.
We heard from potential entrants and investors that they will not enter into the market without safeguards in place against anti-competitive conduct on the part of the dominant air carrier.
Watering down the current regime would seriously impair enforcement under the Competition Act. It would also send the wrong signal to potential new entrants looking to compete in Canada's airline industry.
Section 104.1 is not a unique power in Canadian legislation. Similar powers exist in other federal statutes such as the Canada Post Corporation Act, the Canadian Environmental Protection Act and the Aeronautics Act.
For all of these reasons, we feel that the amendment to section 104.1 included in Bill C-23 should be enacted and will not have the impact that previous witnesses have testified to.
[Translation]
An administrative monetary penalty can only be imposed where the Competition Tribunal finds in accordance with section 79 of the Competition Act that the dominant carrier has abused its dominant position. Currently, the tribunal may only make a prohibition order or an order dealing with remedial measures.
In the absence of a stringent deterrent, a dominant carrier may have an incentive to engage in anticompetitive conduct such as predation. An administrative monetary penalty will promote compliance by deterring future abusive practices by a dominant air carrier.
Furthermore, Bill C-23 contains additional amendments to further enhance compliance with the act such as requests made to the commissioner for a binding written opinion on the applicability of the Competition Act in respect of a specific conduct.
Therefore, a dominant airline will be able to ask the Competition Bureau for guidance and avoid conflict with the provisions of the act.
Such as the interim power, the authority to impose an administrative monetary penalty is not unique. Indeed, the European Commission can impose a penalty of 1,000 to 1,000,000 euros or a sum not exceeding 10 per cent of the turnover where it finds that an air carrier engaged in anticompetitive conduct.
Most non-criminal competition law regimes in the world comprise general administrative monetary penalty schemes to deter non-compliance with the legislation.
The introduction of administrative monetary penalty builds on the special regime for domestic airlines in the Competition Act that took place in 2000.
That regime intends to prevent anticompetitive behaviour and preserve competition in the airline industry, a vital sector of the Canadian economy.
On this specific point, the Federal Court of Appeal, in its recent decision of the Air Canada's appeal of the section 104.1 order issued in the CanJet case, stated that ``...the economic health of air transportation in Canada is a matter of considerable concern to millions of Canadians.''
[English]
I hope you will agree with me that Bill C-23 is a balanced package of amendments with broad support from stakeholders and from all parties in the House of Commons. It was passed with all-party consent. It will benefit consumers and businesses alike. In our view, it provides a modern tool to strengthen the enforcement of the Competition Act in today's global economy. I urge you to pass this bill in its present form, without further amendment. I am ready to answer your questions.
Senator Tkachuk: We heard earlier from the chairman of the House Industry Committee. He said something intriguing. Has the minister given you any indication that section 104.1 will be a temporary measure?
Mr. von Finckenstein: I have testified previously that I think our airline industry is in crisis. This section was put in to deal with that crisis. Clearly, if the crisis ends, there will no longer be a need for that provision. It has always been implicit that this is a temporary phenomenon. It is not there for all time.
Senator Tkachuk: Do you see this as a three-year or five-year problem?
Mr. von Finckenstein: Since becoming commissioner five years ago, I have set up an amendment section and said publicly that the Competition Act is a framework act. It must be reviewed periodically. It is my intention that under each government, we have a review of the Competition Act to ensure that it is up to date and deals with the current situation.
We have had, since I became commissioner, two bills, C-20 and now C-23. In between, Bill C-26 dealt with competition and other matters in the airline industry. In order to have a decent framework that deals with the economic issues, it must be iterative. You have to amend it to meet the situation of the day. That means you may add or take away things as situations develop.
As Mr. Lastewka said, business also likes certainty. You do not make major changes in concept and approach. You add to or subtract from the existing sections to meet the contingencies of the day.
Senator Tkachuk: Besides the purpose clause in the Competition Act that sets out your duties and those of the Competition Bureau, what acts as a check on your individual authority when you use section 104.1 for an interim order against a competitor?
Mr. von Finckenstein: As you know, that action is reviewable, has been reviewed, and itself sets out specific preconditions before it can be applied. The act sets out that I have to find certain things. It is not as if I decide today, or whoever sits in my chair, ``Let us have a cease and desist order.'' The decision must be in accordance with the preconditions set out in the act. It is reviewable by the Competition Tribunal. It can also, obviously, be challenged before the Federal Court.
In the one action that we launched, we disallowed one fare because we thought it was unnecessarily harmful and was targeted at CanJet — one fare out of all the thousands of fares that Air Canada has on five specific routes. The Competition Tribunal reviewed my action and it was held that I dealt with it exactly as the act says. I made the necessary determination and was entitled to arrive at that conclusion.
Senator Tkachuk: Do you interpret the House committee report to read that the Government of Canada should repeal provisions in the Competition Act that deal specifically with the airline industry? Do you see those provisions being placed in another act?
Mr. von Finckenstein: No, the way I read the report is the way Mr. Lastewka said. They have a blueprint for the government for the next white paper. The report was made as a result of another report that we commissioned and tabled before the House. They had several hearings and round tables and heard from all sorts of industry participants. All kinds of issues were raised in terms of the pricing section, the merger and the cartel provisions. The report sets out some of the representations that were made to the House of Commons. The House of Commons said, ``These are urgent issues that should be addressed. Address them. When you do, you will, in effect, substantially change the Competition Act.''
They suggested, inter alia, private access across the board, not only for the proposed sections in Bill C-23 but also for abuse of dominance. They suggested that the tribunal has the power to award damages. They suggested major changes to give remedies to private parties. Once you institute all of that, do you still need section 104.1? They have come to the conclusion that the combination of 103.3 and the rights of small airlines to take matters into their own hands and go to court — and not only get injunction, as we can right now, but also damages for any harm caused — plus the administrative penalty, is enough. Therefore, at that time, you would not need 104.1. They may well be right.
Will we have those amendments? Will they be passed? That is a good question. As he said, you cannot cherry pick. If you implement all of his recommendations, then the statement in recommendation No. 4 is true and it is not needed. However, are you going to do that?
Some people very violently oppose some of the ideas. There are very divided opinions on the issue of opening up the possibility of damages in Canada. Industry will tell you that this takes us down the U.S. path of litigation. They believe that the fact that we do not have that kind of litigation is a great advantage.
We have never advocated that kind of open forum. The House of Commons says we should examine it. They say that if that is the case, we do not need section 104. As the chairman said, it is all post-Bill C-23. They say that if you implement this package, you do not need 104.1. I do not think one can quarrel with that, but we are not there. We are a long way from there.
Senator Hervieux-Payette: I will go back to my telecom example, because this is another sector where we wanted to establish competition. The industry was, of course, regulated and the CRTC had powers. I recall that very often, companies complained about the conduct of the dominant player. They went to the Competition Bureau and were sent to the CRTC.
Is that correct, Mr. von Finckenstein?
Mr. von Finckenstein: In some cases, yes. As you know, the CRTC still has power over communications to a large degree. To the extent that the CRTC has regulatory power and exercises it, the Competition Bureau has no jurisdiction whatsoever.
Senator Hervieux-Payette: Have you heard some cases in which small companies wanting to enter the reselling market said that the dominant player was blocking that, and have you given remedy in such situations?
Mr. von Finckenstein: As you know, the whole area of resale is mandated by the CRTC. I personally do not know if people came forward. I know that our answer would have been that this is mandated by the CRTC. Therefore, they need to go to the CRTC, as it is not a competition issue.
Senator Hervieux-Payette: That is the point I have wanted to make for some time. When it came to a specific sector that was already regulated, the Competition Bureau was sending it to the expert tribunal to deal with. I have nothing against the Competition Bureau. I am only saying that there are specialized organizations. Of course, the transportation commission cannot currently do this because they do not have the enabling legislation. We are going to review the transportation policy. The minister is assuring us that he will table his new transportation policy report in the fall. I hope that the competition issue will be dealt with then, so that an expert tribunal can deal with transportation matters.
My second question is with regard to 1 million euros versus $15 million. There is a big difference. One million euros, which is the maximum penalty, is about Can. $1.5 million. Therefore, why go to $15 million in Canada? Lufthansa, Air France and Air Italia are as large players as Air Canada here. Lufthansa is probably much bigger.
Mr. von Finckenstein: I assume that your conversion rate is correct.
Senator Hervieux-Payette: I was there two weeks ago.
Mr. von Finckenstein: Under Bill C-23, the tribunal imposes the penalty, which is to a maximum of $15 million. The act specifically spells out what must be considered. We must look at the frequency and duration of the practice, the vulnerability of the class of persons adversely affected, the injury to competition in the relevant market and the history of compliance with the act.
Senator Hervieux-Payette: I understand that. Why $15 million maximum? Why 10 times the penalty that can be imposed in the European Union? The gap is big.
Mr. von Finckenstein: Air Canada is a multi-billion dollar company. It lost more than $1 billion last year. This company also has roughly an 80 per cent share of the Canadian market.
No one wants to hurt Air Canada. We want to ensure that Air Canada abides by the law. We want to provide a meaningful reminder to play by the rules.
By the way, the penalty in the EU is twofold. It is 1,000 to 1 million euros or 10 per cent of turnover. I am sure that 10 per cent of the turnover of Air France is a lot more than that. Depending on which company is being dealt with, the commission can go either way.
Ms Suzanne Legault, Assistant Deputy Commissioner of Competition, Legislative Affairs Division, Competition Bureau, Industry Canada: If I may, I would like to address the first point about having a specific act to deal with a specific industry. It is important to clarify that the provisions in Bill C-23 in respect of the airline industry do not regulate the airline industry. They ensure that we have the proper tools to stop predatory behaviour and abuse of dominance in that industry. These issues are competition matters, which is why they go to the Competition Tribunal.
Senator Hervieux-Payette: To make the parallel point, when people in telecommunications were complaining that what resellers were being charged did not make sense, you referred them to the CRTC. That is my argument. It was a competition matter and it was addressed by the CRTC.
Senator Oliver: I will go to something different. This is really for my information because I do not understand it.
On page 6 of the statement you provided today you say:
To date only one temporary order has been issued under section 104.1, that being in the CanJet case on October 12, 2000.
You have also said that the airline industry in Canada is in a state of flux and having problems. How is it that there has not been more than one?
Mr. von Finckenstein: It is a power to deal with situations where other means are not sufficient. The act sets out the preconditions before it can be invoked. We have received lots of complaints and done a lot of investigations. None of them resulted in convincing me as commissioner that the preconditions for section 104.1 existed so that the order could be used. Some companies allege that Air Canada is engaging in abuse of dominance. We look into it and find that that is not the case, that it is perfectly fair competition. They may be suffering, but that is the name of the game.
Senator Oliver: Approximately how many such complaints have you investigated since October 12, 2000?
Mr. von Finckenstein: We have received 15 separate complaints from airlines against Air Canada on various routes.
Senator Oliver: And only one temporary order was issued?
Mr. von Finckenstein: In only one of them did we find that the situation posited by section 104.1 existed and therefore invoked the order. As you know, the order was not invoked regarding all the routes. That was done so that we could investigate without CanJet suffering from prices that we thought were clearly predatory.
Senator Oliver: That was October 12, 2000. Is that matter now dealt with?
Mr. von Finckenstein: No.
Senator Oliver: Tell me why, this being April of 2002.
Mr. von Finckenstein: I am just as disappointed as you that it has not been dealt with.
Senator Oliver: Do you not have enough staff? What is the problem?
Mr. von Finckenstein: That has absolutely nothing to do with it.
Senator Oliver: What is the problem?
Mr. von Finckenstein: I will tell you. We made the order, which, of course, was challenged by Air Canada. We went to two separate courts. The courts upheld the order. We then needed some further documentation, which only Air Canada had, before we could file a formal proceeding. That is one of the reasons for the amendments that you have now, which provide that, after 80 days, which is the maximum, if we still have not obtained the necessary information to proceed, then we can go to the tribunal and ask for an extension. That information is only in the hands of the dominant air carrier. It was unwilling or unable to deliver it.
To make a long story short, Air Canada did finally give us the documentation. We came to the conclusion that indeed we had grounds for making an application. We made an application in February and asked for an expedited hearing. The tribunal set the expedited hearing down for September. Notwithstanding that, we both felt it was an urgent issue.
Air Canada cooperated in saying that there were four issues that had to be clarified. They wanted the tribunal to have a hearing on those four issues. If the tribunal gives guidance, it really drives the case one way or the other.
We started the hearings in September. September 11 came along. Air Canada made an application to have it adjourned because of the complete turnover in the world of airlines and the dramatic effect of that day. They got the adjournment.
We tried to restart it in April. The tribunal set a restart date for September of this year.
Is this because the tribunal has no sense of urgency, or because they do not have the necessary staff or whatever? You will have to ask them. Obviously, we made the case to them and felt it was urgent, but we did not succeed. Unfortunately, the judge who was hearing the case is very sick right now and unavailable. We are now in something of a quandary.
Mr. Houston is counsel on the case. He can explain to you exactly where we stand right now.
Mr. Donald B. Houston, Counsel to the Commissioner of Competition, and Lawyer, Kelly Affleck Greene: Where the case sits now is as Mr. von Finckenstein said; it was initially supposed to be heard as we speak. We should have been proceeding now. Unfortunately, the chair of the panel hearing the case became ill.
Senator Oliver: Can no one else sit in? Is there no such provision?
Mr. Houston: We brought an application to the tribunal to reconstitute the panel so that they could start over. The view of the tribunal was that that was not the appropriate thing to do. That was at a time when it was expected that the judicial member would be returning in September. Unfortunately, that now no longer appears to be the case. We will be back before the tribunal next week, hopefully to have a new panel constituted so that the case can actually proceed in September.
Senator Oliver: It sounds like justice delayed and justice denied. It is a terrible example of injustice in Canada. It is disgraceful.
Mr. Houston: It has taken a long time. There have been some pretty extraordinary circumstances, including the September 11 situation and the tribunal's decision as a result of that to delay dealing with these issues until the situation in the airline industry had crystallized. There was also the unfortunate illness of the judge. Those things are regrettable.
You are correct, sir, that it has taken a long time to get this case heard on its merits.
Senator Oliver: If Bill C-23 were to pass and not go back to the House of Commons, is there anything in it that would prevent a two-year delay in a CanJet-type application, or will the same thing happen all over again?
Mr. von Finckenstein: I cannot tell you. It depends on the Competition Tribunal and, if there were a new case, to what extent they would deal with it and set the dates. Once you go before the tribunal, you are in their hands as to the timetable.
Mr. Houston: I think it is also worth pointing out that part of the idea in the case before the tribunal now is to treat it as a test case. The issue revolves around whether or not Air Canada is below its so-called ``avoidable'' costs.
Senator Oliver: It is about predatory pricing, in other words.
Mr. Houston: Yes. That is not a simple term. The idea in the case before the tribunal is, in part, to get those issues determined so there will not be this kind of delay in future cases.
Mr. von Finckenstein: Senator, I was a bit too hasty in my previous answer. The bill before you also amends the Competition Tribunal Act. The Competition Tribunal sits with one Federal Court judge and two lay members, who are economists, accountants or businessmen. Right now, four judges of the Federal Court are designated as being members of the Competition Tribunal. The bill will increase that number to six. Thus, there will be more judges of the Federal Court available to sit on the Competition Tribunal. To that extent, it might help speed up the cases.
Senator Meighen: Mr. Commissioner, you will readily ascertain this is not an area of expertise for me. Therefore, my questions will be very simple.
In listening to what you said in response to Senator Oliver's questions, could I, and other non-experts in this area, conclude that a driving reason for permitting the commissioner to issue interim orders without notice is that our judicial system in general is unable to deal quickly and efficiently with requests for such orders?
Mr. von Finckenstein: No, I think that would be overstating it. I brought Mr. Houston along because I think he can explain to you why we need 104.1 rather than 103.3.
Senator Meighen: I do not want to interrupt, sir. I was a lawyer before I stopped practising. As such, I have forgotten whatever I once learned. It seems to me that an ex parte application is there because there is a question of urgency. You still have to go before a judge to obtain authority to conduct a wiretap and to obtain a search warrant. Why cannot the commissioner go before a judge and say, ``Listen, this is a very serious and grave situation and I have to move quickly,'' and make a prima facie case?
Mr. Houston: It is largely a question of the time that it takes. It is important to focus on the purpose of the order, which is not to determine whether or not there has been anti-competitive conduct, which is dealt with by the tribunal, but rather to preserve the competitor in a case of extreme urgency, pending the commissioner's investigation. It contemplates a situation where urgent action is required.
The tribunal is a very able body. It is also a very cautious body. It has limited experience with interim orders and so forth. The additional time that it takes to get before the tribunal can be critical in the airline context.
Let me give you a hypothetical case to illustrate the point. As you know, the airline business is quite seasonal. Carriers are looking to get people travelling on their flights in the summer, which is a peak time. Thus, it is also quite common for there to be seat sales of limited duration but which cover a lengthy period of time. A seat sale of 10 or 14 days could be announced that applies to the whole summertime.
Envision a situation where, next month, you have a new entrant that says, ``I will start flying in the summertime on a limited number of routes.'' It is critical for that new entrant to get that summer business, because in the fall things slow down. If the entrant does not have the summer business, it is in serious trouble.
Let us say that in response, the dominant carrier puts on a seat sale of limited duration, for example, 10 to 14 days, and says, ``You can get bargain basement fares on these routes, plus you get frequent flyer points,'' and all the other things that go along with that. In the course of that seat sale, I would argue there is a risk of the new carrier essentially being wiped out because it cannot get the summer business.
Under the current regime of 104.1, assume that the new entrant complains the day after the seat sale; you are then into the 14 days.
Senator Meighen: Excuse me. It has to be prompted by a party who is affected. It cannot be the commissioner acting alone?
Mr. Houston: It does not have to be, but the commissioner is essentially complaint-driven. One prerequisite is that the commissioner typically launch an inquiry as the result of a complaint.
We are into the seat sale. There is a complaint. The commissioner's staff investigates and determines over two, three or four days that it is important that some action be taken to preserve the existence of the new entity. With the current 104.1, an order could be issued then, say on day four or five, which would freeze the situation and allow the commissioner to complete his investigation.
Air Canada has the full right to challenge that in a tribunal quickly and to have the issue resolved. Without 104.1 and with the new 103.3, you are correct that the application could be made on an ex parte basis, but it still adds, I would argue, 7 to 10 days to the process. Once the commissioner has come to the judgment that a temporary order is appropriate, there then have to be affidavits; evidence must be obtained. You have to get before the tribunal. The tribunal potentially will want to hear from witnesses. The tribunal will then make its decision. Historically, the tribunal is cautious and takes time in making its decision.
There is a real risk in that scenario. The seat sale is completed. The dominant carrier has locked up those routes for the summertime and the new entrant is in a serious bind.
That is why, I would argue, you need this extraordinary power, for extraordinary circumstances.
Senator Meighen: Do not take this personally, Mr. von Finckenstein.
You said the tribunal is cautious. The commissioner issues an order. That is why we are giving him this power. He could be incautious; he could be wrong. The dominant carrier — I think we can say ``Air Canada'' out loud — has not been found to be in breach, let us say. What does it do? It cannot seek any damages, as I understand it. That is the other side of the coin.
Mr. von Finckenstein: We are using ``dominant carrier'' very deliberately. We are dealing with specific markets. It could be that tomorrow I get a complaint against WestJet, which is dominant on some western routes.
Second, you are right that commissioners could be reckless. Hopefully, they never will be. I wrote to the chairman and senators about how we have used section 104.1, what steps we go through internally in analyzing the circumstances over and above the requirements that are set out in the act.
The court reviews our actions afterwards. Any commissioner, whether it is myself or anyone who follows me, is aware that this only works as long as there is integrity in the system. It is understood that the actions of the commissioner are to protect the competitive system and not to take sides between competitors. That is absolutely integral to the administration of the act. Whatever powers you have must be exercised cautiously, always keeping in mind that your job involves a public duty to ensure a competitive system. It is not to take sides, to choose winners and losers.
Senator Meighen: I appreciate that. I prefaced my remarks with the words, ``in a theoretical situation.'' If a complaint, whether initiated by the commissioner or by a competitor, is found to be unfounded, is there any recourse?
Mr. von Finckenstein: It is the same as if you get an order under proposed section 103.3. If a court gives you a temporary injunction and it later turns out there was no conflict, then you do not have any recourse. There is no difference. That is why we have various checks and balances in the preconditions when there is an intervention such as this.
Yes, there could be some harm. You have to weigh that harm against the harm that is being done to the competitor who may be driven out of business.
Senator Meighen: That is helpful. Obviously, there is a wide body of concern about this power, and understandably so. The other concern is about aiming this provision at one particular industry.
Let me ask another overly simplistic question. We seek to do two basic things. We are trying to prevent a dominant player from undercutting and driving out of the market a less-dominant player. We are trying to prevent a dominant company from gouging the public.
Mr. von Finckenstein: No.
Senator Meighen: Are not those the two essential things we are trying to achieve?
Mr. von Finckenstein: Gouging is implicit, but there is nothing in the act against it. We are trying to ensure that there are competitors in a competitive system. If there are competitors, there is no opportunity to gouge. However, there is nothing in the act that says, ``Thou shalt not gouge,'' or that if you gouge you will be taken before the court.
Senator Meighen: There is nothing in the act that would permit you to go out and encourage a competitor to enter a market controlled by one entity?
Mr. von Finckenstein: True.
Senator Meighen: The market has to be cracked open somehow.
Mr. von Finckenstein: The job is to preserve the status quo of the market, not to improve it. It is not my job to crack the market open. My job is to look at situations and, let us say, with regard to a merger, ensure that it does not result in a substantial lessening of competition.
In the present situation, where a company has dominant market power, they must use it legitimately. They do not use it to drive people out. It is perfectly all right to use it to maximize their profit and to prosper. At the bottom of this is that if you have a dominant position, you cannot price below avoidable costs. That is the price of dominance, so to speak. If you do that, we will take you before the Competition Tribunal. If you drive the price above avoidable costs and you prosper, that is fine. So be it.
Senator Meighen: If I am trying to break into a market, obviously the best way to do it is to price my product below yours. As I understand it, there is nothing wrong with that as long as I am not engaging in predatory pricing. The only way to determine predatory pricing is after the fact.
Mr. von Finckenstein: No, there is one ingredient you missed. You have to be dominant. If you want to break into a new market by undercutting the existing player, that is fine. You are not going to drive them out of the market by undercutting them. If you do it at below avoidable costs, you have to justify that to your shareholders, but not to me. That is your commercial decision.
However, if you already have dominance, you already are in control of this market, then undercutting and going below your avoidable costs has absolutely no business rationale. Your only rationale has to be to drive your competitor out of the market.
Senator Meighen: In the European Union, my understanding is that administrative monetary penalties, or whatever it calls them, apply to all industries and not to just the airline industry. I think the minister told us there is a provision in Europe covering the airline industry. He might have been a bit ingenuous; maybe he did not know. My understanding is that it covers all industries. Is that so?
Ms Legault: Yes. In fact they have both. They have administrative monetary penalties for all industries, but they also have a specific airline regime.
Senator Meighen: Is the airline one the only specific regime they have within the general framework of AMPs?
Ms Legault: Transport generally.
Senator Meighen: That is the only specific regime?
Ms Legault: As far as I know.
Senator Meighen: I have been told — I do not know whether it is true; I am asking you — that the threshold test before these penalties are imposed is more stringent in Europe than it is supposed to be in Canada. Can you assess that?
Ms Legault: I am definitely not an expert on the European Union regime. However, I know that every competition regime around the world has different tests and different frameworks. In the European Union, you are dealing with a commission that is both judge and jury. They may have a different threshold. That is as far as I can go.
Senator Meighen: What is your conclusion, Mr. Commissioner, from the fact that under section 104.1, there have been 15 applications, requests or investigations and only one order issued. Does that mean that section 104.1 is acting as a good deterrent or that there are many frivolous or unfounded applications?
Mr. von Finckenstein: Both. There are some unfounded applications. It is may be part of a business strategy to complain to the Competition Bureau and get us to investigate in order to put one's competitor on notice. Some of the applications were poorly formulated and based on a misunderstanding of the act and what we can do. There is a fairly common misconception that it is our job to protect competitors rather than the competitive system. I am sure there is a deterrent effect, in that the section does have an influence on the way the dominant air carrier prices its products and competes with others.
Senator Meighen: Thank you, Mr. von Finckenstein. I appreciate your answers. Some of my colleagues and I are left with an ongoing unease about the fact that we have section 104.1 now and are being asked to insert proposed section 103.3. You have said, I think, that if the recommendations of the Commons committee were all adopted, we probably would not need both. It seems like we are throwing everything in the soup and hoping that we come up with the right formulation. Then we have two previous commissioners expressing grave concern about the route we are taking. However, I know that you have the best interests of consumers and producers at heart.
Mr. von Finckenstein: I wanted to allay the senator's fear. There has been much talk here about a review. You asked the two witnesses before about a two-year review. On the assumption that you recommend that such a review should take place and the government accepts that, we have outlined proposed terms of reference for such a review.
This is very similar to what we did in the House of Commons, where we had an independent person, Professor VanDuzer from the University of Ottawa, review certain sections that were in dispute. We had draft terms of reference, which I tabled with the House of Commons committee. They looked at it and made changes. Then pursuant to those terms, we engaged Professor VanDuzer to carry out the review and I tabled the report. If you recommend a review in two years and the government accepts that, this is how I would propose to proceed. It would address precisely the points that you have mentioned. With your permission, Mr. Chairman, I would like to table these terms of reference.
The Chairman: Senator Tkachuk and I have signed a letter to the minister requesting the review after two years and we await his response. He would only get the letter today. When we receive his response, we will try to wrap up the bill. We will make copies of what you have just tabled available to the members of the committee.
Mr. von Finckenstein: I would like to address one other point, because I understand through your staff that there is some concern about proposed section 106.1. There is a mistake there, with one extra word inserted. Has the committee given some thought to amending the bill for that purpose? There is a very simple answer to this issue. In 106.1(4), there is an extra word in the English version that is not in the French.
The Chairman: You are catching me by surprise. There is a difference between the French and the English?
Mr. von Finckenstein: Yes. If you look at the English in proposed subsection 106.1(4), there is an extra word, ``within,'' when it should say, ``shall be registered 30 days after its publication.'' That is what the French says. The word ``within'' in the English portion was left there through some computer glitch. These things are drafted on the computer.
There is a simple way to deal with this. Once every two years, a miscellaneous statute law amendment act is passed by Parliament. That is where you deal with those things. I would suggest that this proposed section not be proclaimed in force until such time as this error is picked up by the miscellaneous statute law, which I guess would be next year. The impact is zero. This deals with a consent judgment under the private access. If you pass Bill C-23 as is, private access will be available if there is a case under sections 75 or 77 where two parties want a consent judgment. Rather than registering it, section 106.1 now provides that they would go before the judge and say, ``We have come to an agreement. Could you please pronounce judgment along those lines,'' and that is what would happen. In the meantime, you can pass this bill unamended and this proposed section would not come into place until such time as the Miscellaneous Statute Law Amendment Act takes out the word ``within.''
The Chairman: How do we make this happen? Do we do nothing?
Mr. von Finckenstein: I undertake that I will recommend to the government that proposed subsection 106.1(4) not be proclaimed until it is corrected.
The Chairman: Can you send us a letter for the record?
Mr. von Finckenstein: Yes, I will do that.
The Chairman: Thank you very much for appearing before us today.
The committee adjourned.