Speaking notes for Sheridan Scott Commissioner of Competition

Competition Bureau

Competition in a Dynamic Marketplace

Canadian Bar Association Annual Conference on Competition Law
Hilton Lac Leamy, Ottawa/Hull
September 23,2004

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Thank you for the kind words of introduction. I am delighted to take part in this prestigious gathering of competition experts and practitioners.

As you know, this is my first opportunity to address the Canadian Bar Association's Annual Fall Conference on Competition Law as the Commissioner of Competition and I can tell you that I am very excited about my new role.

It's exciting because, at this point in Canada's history, important changes are taking place that will have a significant impact on our economy. As many of you have heard me say, I believe that the increasingly global nature of our economy, the pace of technological change, and increased reliance on market forces will intensify competition and transform markets.

Though change is often stressful, it is also an opportunity to learn, improve, build…. And that's exciting. It also happens to be what I'm looking forward to doing as Commissioner: learn new ideas, improve our outreach and build our assets as a key player in a dynamic that's changing faster than you can say VoIP.

Which brings me back to what I believe are the profound changes that are taking place in our economy. More importantly, it brings me to how critical it is for us, now more than ever, to work together to ensure that we have a solid marketplace framework if we want economic growth that includes wealth creation, investment and innovation. This is a shared responsibility, one I am sure you embrace with passion.

At the core of a sound framework is the Competition Act, a key piece of legislation. With its emphasis on competition, the Act reinforces the notion that market forces, rather than government intervention, are the best means to deliver benefits to consumers and businesses in our current environment. I think that our work at the Competition Bureau and our dialogue with stakeholders will play an essential role in maintaining that focus.

I am the first to acknowledge that the changes I'm referring to are not new. We have witnessed globalization, technological change and deregulation for many years. However, I do think that the acceleration of technological change and the increased presence of developing economies in the marketplace are having a significant impact on our economy and on our ability to compete. In the future, it is likely that they will have an impact on several business models, allowing new competitors to emerge and causing others to fail.

Let me give you some examples.

The widespread presence of computers and the related arrival of a transformative technology such as the Internet will inevitably change our economic context. Richard Lipsey refers to the electronic computer as a general-purpose technology or GPT. Most GPT's, he states, are transforming – they induce "major changes in the society's structures of economic, social and political arrangements". And he argues that such transformative GPT's "…cause extensive structural changes to such things as the organization of work, the management of firms, skill requirements, the location and concentration of industry and supporting infrastructure". Which is why we must consider how to factor in the implications of these changes into our work at the Competition Bureau, in any new legislation and in the way we do business in general.

As for the impact of emerging economies, one need look no further than China. Certainly Napoleon understood the implications of China's rise on the world stage when he said, "When China awakens, the world will tremble". Now, nearly 200 years later, China is the top destination for direct foreign investment, according to the OECD.

Meanwhile, in a recent article in the New York Times, Ted Fishman noted that, "China has gone from being virtually absent in international trade to the world's third most active trading nation behind the US and Germany and ahead of Japan." For some sectors of the economy, competitors from developing nations represent genuine threats. Their concern is not misplaced. For example, in New York a few weeks ago, the CEO of Cisco Systems, John Chambers, speculated that half of the company's 12 competitors would come from Asia within 5 years.

So, changes are afoot. But what does this mean for the Competition Bureau and our work?

First and foremost, if we wish to ensure effective enforcement of the Act, as well as continued compliance, we will have to stay on top of technological change, industry trends, and consumer and business issues. This will be particularly relevant in the case of merger transactions, since our reviews are prospective and require an in-depth understanding of where an industry is heading. But it will also be true in the context of our other critical priorities - attacking criminal cartels and fraudulent telemarketing. These activities frequently transcend national borders. Clearly, globalization and technological change have increased the complexity of our enforcement work.

In seeking to stay on top of changes, we are, of course, mindful that our work at the Bureau is fact-based. It is not about speculation. Indeed, as Hewitt Pate, Assistant Attorney General of the Antitrust Division at the U.S. Department of Justice, warned in a recent speech entitled Competition and the End of Geography, " Our legal standards do not turn on what new gadgets capture the imagination of the public and the press – antitrust laws protect everyone and not just the early adopters or cutting edge consumers". This means that we must ensure that the Competition Bureau remains flexible enough to absorb the implications of the changing environment and rigorous enough to determine which changes are meaningful.

Over the years, the Bureau has done a good job of trying to follow the evolution of various sectors in the economy. But the pace of change is making it more challenging for us. Complicating things is that, more often than not, we do much of our fact gathering in an adversarial context.

In recognition of that and in order to enhance our knowledge of industry and sector specific operations and challenges, we are undertaking three key initiatives designed specifically to boost our understanding of how Canadian businesses are dealing with globalization, technology and deregulation. I'd like to take the next few minutes to elaborate on these three key areas of focus for the Bureau.

Sector Days

Since my arrival, I have consulted with stakeholders across the country. Already, I have met with over 400 people, including business and consumer representatives, law enforcement officials and competition professionals from coast to coast to coast. Next week I'm completing my visits to all ten provinces and three territories, with consultations in Whitehorse.

During these visits, I benefited from a wide range of suggestions about the Bureau's work. A number of business representatives described transformations taking place in their sectors and offered to come to the Bureau to give us a thorough briefing on their issues and how their business models have changed. It was an offer we couldn't refuse.

As a result, we are developing a series of one-day workshops designed to focus on the effect of the global economy, technology and deregulation on specific sectors. The first of these sector days will be held in the next few months, with the financial services sector being our first focus. By the way, the reaction of several other Deputy Ministers to this initiative has been overwhelmingly positive. They are watching with great interest, seeing this as a pilot project for other government agencies and departments.

Business outreach

In addition to our sector days, which will target certain industries, we will also be increasing our dialogue with business in general. The executive committees of several major business associations have agreed to meet on a yearly or twice yearly basis with Bureau executives, in order to generate more dialogue and awareness about what the Bureau does. These sessions will also provide the Bureau with macro views of the issues affecting a broad range of sectors.

As you can see we are committed to staying abreast of new developments at all levels of industry and business. There is, however, another audience that needs targeting: consumers.

Consumer outreach

It has been suggested that competition policy and consumer protection are not mutually exclusive; rather, they can be mutually supportive, travelling corresponding paths. Louise Sylvan, Vice Chair of the Australian Competition and Consumers' Commission, recently called for a new way to think about competition. She provoked much thought when she asked that we not only look at what competition does for consumers, but also consider, "what do consumers do for competition?" Sylvan pointed out that there's been "very little focus on the systemic behaviour of consumers in markets, why it's happening and what to do about it".

Others around the world are also exploring this relationship, including the Office of Fair Trading in the UK, and the International Competition Network. I expect that, as we gain a deeper understanding of the role of the consumer in competition, we'll find a new understanding of competition dynamics and how to rely on market forces to advance their interests.

We recognize that many Canadian citizens are unaware of our work and consumers have few formal organizations, making it difficult to reach them other than through active media relations. Consequently, we're actively seeking out opportunities to meet.

In December, I will be hosting a first meeting with representatives of consumer associations and various consumer groups in order to begin another important dialogue. I hope consumers will learn more about what we do and that we, in turn, will gain a more profound understanding of their role in our competition dynamic.

The initiatives I've mentioned are designed to help us grasp what the major issues are for consumers. They also help us to determine the extent to which competition policy is an appropriate vehicle to address their concerns.

The need for top talent

Another challenge arising from this global flux is how to recruit and retain top talent ensuring an optimal mix of knowledge and skills for the future. The Bureau has been and is well served by an expert and highly professional staff. Retaining these resources will continue to be an important priority for us. But we, like others, are dealing with the inevitable retirement of the baby boomers. Part of our human resources strategy now includes a champion we've appointed to focus on recruitment. His team will be working with universities to help identify top Canadian talent and, starting next week, senior Bureau members will be attending university career days across the country to explain the advantages of working with us.

We are also exploring exchanges and welcome a cross-pollination of ideas between the Bar and the Bureau. Please continue to think about encouraging your top talent to spend some time with us.

Not only are we focused on recruiting and retaining top talent; we are committed to making the best use of the expertise and talent we have.

For example, we should optimize the contribution that both economists and legal experts bring to an evaluation of the competitive effects of a proposed transaction. Given the complexity of the climate we operate in, I think it is incumbent upon us to make the best use of economics in our decision-making. William Kolasky, Deputy Assistant Attorney General, Antitrust Division, U.S. Department of Justice, stressed the importance of this in a speech to the American Bar Association two years ago. He suggested that, "The first element of sound decision-making is a sound analytical framework grounded in economic science".

Several years ago, when Margaret Sanderson was an economist at the Bureau, she was asked how best to integrate the Bureau's economists into our decision-making. I have asked her to do a post-mortem of her earlier work, to assess how well it has worked and whether any further modifications are warranted.

This type of work, I believe, is part and parcel of what Bill Kovacic, General Counsel of the Federal Trade Commission, has referred to as critical self-assessment. In a speech to the International Competition Network in Korea last spring, he called upon competition authorities to routinely evaluate past policy interventions and the quality of administrative processes. I agree. With that in mind there are a number of initiatives that we have identified in the hope of achieving what Bill has described as – not best – but better practices, as we all strive to improve.

Regulated conduct defence

A few months ago, the Executive of the Canadian Bar Association raised questions with respect to the Bureau's Information Bulletin on the Regulated Conduct Defence (RCD). This bulletin was issued several years ago, but was not the subject of consultations. This morning, I indicated to the Executive Committee of the CBA that I would welcome broader views on the current legal status of the RCD, particularly in light of the recent Garland decision. I have decided to treat the published RCD paper as interim and we will soon be calling for comments on our current bulletin.

The RCD raises a number of questions about the appropriate interface between sector specific regulation and competition law. In a speech to the 2004 Telecom Summit this past spring, I outlined several approaches one could take to deal with this interface - including legislative amendments - based on different examples from around the world. While legislative reform is beyond the scope of the consultation we will initiate, perhaps this can be borne in mind for future discussions.

Immunity

An important aspect of our cartel work is a successful immunity programme. Our current policy on immunity was published in 2000. Since then we've experienced a flurry of activity and we have learned a great deal. This makes it an ideal time to re-examine the policy.

The OECD report on effective immunity programs emphasized, "clarity, certainty, and priority are critical, as firms may be more likely to come forward if the conditions and the likely benefits of doing so are clear. To maximize the incentive for defection and encourage cartels to break down more quickly, it is important not only that the first one to confess receive the "best deal", but also that the terms of the deal be as clear as possible at the outset."

Clearly, we have a vested interest in making sure that the immunity program continues to respond effectively to changing situations. In this case, it means having explicitly stated standards and policies and clear explanations of how we apply those standards and policies.

I believe our policy needs to be transparent enough so that prospective cooperating parties can predict, with a high degree of certainty, their treatment following cooperation. Otherwise they will be less likely to come forward. In this regard, we have identified a number of issues that require clarification with respect to both the implementation and interpretation of the policy. Because we've learned a lot in the last four years, I think we can make those improvements to the immunity program and make them more accessible in the process. You will be hearing more about this initiative during this conference.

Post merger review

Another way to engage in critical self-assessment is to attempt to determine the impact of one's actions on the market. We can learn from such an enquiry. For example, I think we should examine whether the conclusions we draw regarding the potential impact of specific mergers prove, over time, to be correct, and whether the remedies in the case of problematic mergers have the anticipated result. We can learn by looking at how prices changed in certain circumstances and whether there was any other economic impact in the marketplace. This would be a first for us. One of the biggest hurdles to overcome in such an assessment is finding out what information is available. We are currently considering how such a post-merger analysis might be done.

Analytical backgrounders

Another aspect of reviewing past action is transparency in decision-making, since it allows for more effective feedback. Several jurisdictions issue analytical backgrounders with their decisions. These include market definitions and far more detail than is normally given in a media release or backgrounder. I like this practice. I think that we should be able to defend our reasons for making decisions, though we must balance this against our obligation to maintain confidentiality in many circumstances. As many of you may know, we have embarked upon a study of our practices in this area, as well as those in other jurisdictions to assess ways in which we can improve transparency. As Tim Muris, the former Chair of the Federal Trade Commission has suggested, greater transparency improves credibility. This is a critical issue in an age where both public and private organisations are under increasing scrutiny. Analytical backgrounders should help address this situation.

Legislative Change

Self-assessment is not limited to an evaluation of how well we are enforcing the Competition Act. We must also ask ourselves whether the Act reflects current thinking about the best policy framework. In this regard, I share my predecessor's view that an incremental approach is best. We are continually evaluating whether we have the best competition framework for current circumstances.

For example, in an appearance before the Standing Committee on Banking, Trade and Commerce, we were asked what framework is best for addressing efficiencies that arise in the context of mergers and other transactions, particularly in light of the transformations being brought about by globalization, technological change and deregulation. As you will hear over the next day or so, we will be attempting to reach a better understanding of the issues so that we can respond to just that question. Indeed, I am pleased to announce that tomorrow we will be issuing a paper on efficiencies, which I hope will form the basis of future debates. One of the fundamental questions is whether or not circumstances have evolved in Canada, such that the efficiencies defence is no longer justified. Canada is the only OECD member country with such a provision in its competition law.

We are also continuing to assess our approach to price-fixing.

As you are all aware, we have consulted on a number of amendments over the past year, but more work needs to be done before we can recommend a course of action on efficiencies and changes to Section 45. This too will be discussed in greater detail during the conference so I won't dwell on the details.

There is also some question about the strength of the civil sections of the Act. In this area, I would like to focus on those aspects of the law that have the greatest impact on the Canadian economy. While I don't advocate blindly accepting what others have done, I think we need to look to our international counterparts and work towards international convergence, where it is right for Canada.

Other Better Practices

Another "better practice" that intrigues me occurred in Australia several years ago. They have a practice of reviewing any new legislation through a competition lens. I do not advocate competition always trumping other goals. However, I believe that legislators should be aware of the full impact of their decisions, including the effects on competition when they pass new laws. And having a "competition test" is a bold idea. It is one you may want to discuss with parliamentarians and other decision makers. Indeed, advocacy for competition is not the sole responsibility of the Bureau; those of you who work in this area must share it.

The Minister of Industry recently identified another area where barriers to competition may exist. In his recent speech to the Canadian Chamber of Commerce, Minister Emerson called for a strengthening of the agreement on internal trade, in order to remove barriers to the movement not just of goods but of people, with a view to increasing the economic potential of the country.

For the first time in years we have a minority government. Despite what some columnists have written, this is a golden opportunity for new ideas. While I am the statutory champion of competition in Canada, you, members of the Bar, have a vested interest in advocating changes to our policy framework. I look forward to working closely together.

I think it's a foregone conclusion that the era we are living in is one of profound transformation not unlike what occurred at the turn of the 19th century. The difference today is that technology has given us an unprecedented capacity for movement and the communication of ideas, values, and knowledge. It is this, more than anything, which has led to globalization, changing how we do business and changing the nature of competition through deregulation.

We all have a role to play in making the most of the real opportunities that those changes present. I use the word "real" advisedly because periods of transformation can, as you know, lead to wild speculation. But our work isn't about that. The Competition Bureau's work is firmly rooted in fact-based analysis and our proposed course of action is one that enhances that approach.

I believe that through outreach we will learn new ideas, through critical self-assessment we will improve the way we do things and through transparency we will build our assets.

One of our greatest assets is the Competition Act. It will be crucial to continue working on improving it to reflect the world we now operate in. We need to be able to count on stakeholders to be part of the dialogue if we are to succeed economically. The Competition Act is, after all, the basis of a solid marketplace framework.

I believe we can achieve a great deal through a considered and incremental approach to change. I think we can succeed if we focus on achievable goals. And I think that through better practices, if not best practices, we will build a world-class system in Canada.