The Challenges of Globalization of Trade and Competition Policy in Canada

Dominique Burlone
Assistant Deputy Commissioner
Economics and International Affairs Branch
Competition Bureau¹

To the Canadian Bar Association, Quebec Division

May 10, 2001

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At the present time, competition policy is a fascinating subject, and there are many developments in the international sphere. In our work at the Economics and International Affairs Branch of the Competition Bureau, we have found, in recent years, that competition policy has become a central consideration on the international scene because of the challenges associated with globalization of the market economy. My paper will attempt to show that domestic and international laws on competition are tools that act as catalysts for international trade.

In their successive rounds of trade liberalization, GATT and the World Trade Organization (WTO) have substantially reduced, or even eliminated, tariff and non-tariff barriers at borders, thus broadening the economic arena within which companies do business. Some companies, faced with increased pressure caused by the growing presence of foreign competitors, may be tempted to restrict or even block access to the marketplace, and to reduce competition there significantly through anti-competitive manoeuvres. The wave of deregulation that continues to wash over most countries also highlights the very important role that a sound competition policy can play in avoiding the slide towards private monopolies after the dismemberment or restructuring of state monopolies.

Because exports are so important for the health of the Canadian economy, the government is working to make our country a world leader in international trade. Competition policy plays a key role in achieving this objective. The mandate of the Competition Bureau ("the Bureau") is to make sure that competition policy enhances the effectiveness of the Canadian economy, and hence the competitive capability of Canadian businesses. Healthy competition on the domestic market, and in particular that competition which originates outside Canada, is a prerequisite for making our businesses more effective on foreign markets.

At first glance, competition policy and international trade policy seem to be closely connected. It is, however, important to stress that they have very different objectives. Trade policy primarily focuses on government measures and their impact on market access for exporters and investors. On the other hand, competition policy is primarily concerned with the manoeuvres of businesses, including those that operate in newly deregulated sectors, and with the effects of these activities on competition. Competition law is a discipline with many facets, and it thus covers much more than market access issues.

International trade and foreign investment also affect companies, consumers, governments and decision-makers, and consequently impinge on several aspects of the Bureau's mandate. Globalization continues to change how we work. Ten years ago, the great majority of cases examined by the Bureau were domestic in nature. Today, a very large number of our cases have an international dimension. We see these trends in the increasing number of mergers that involve more than one jurisdiction, and in anti-competition practices, such as international cartels, on a worldwide scale. For that reason, the Bureau continues to pay close attention to the choices that are made by the foreign authorities responsible for competition and by their respective governments. The increased volume of international business obliges us to show great discipline, in order to prevent or minimize possible risks of conflicting jurisdictions. This trend also brings its share of practical difficulties associated with the application of the Competition Act ("the Act").

Before we become more involved in this discussion, let me offer you a very brief survey of the practices covered by the Act and of some investigation tools. The Act lays down the basic rules for carrying on commercial activities in Canada, and it applies to all sectors of the Canadian economy, with a few exceptions. The practices of private and public enterprises whose commercial manoeuverings are targeted, but are not otherwise regulated, normally come within the purview of the Act. This is the only piece of Canadian legislation of general application that deals with competition.

The provisions of the Act are divided into two broad categories: criminal offences and non-criminal (or so-called "civil") matters which the Competition Tribunal may examine. This distinction is important because the tools available and the approaches taken in applying the law may vary according to the type and seriousness of the practices. Criminal offences include, in particular, conspiracies (cartels, unwarranted agreements), bid rigging, price discrimination and certain unfair trade practices (misleading telemarketing and pyramid sales). Civil practices primarily concern the abuse of a dominant position, restrictive trade practices such as tied sales, and other misleading trade practices associated with advertising and marketing. The Competition Commissioner ("the Commissioner") may examine any matter which, in his opinion, requires investigation in greater depth. For this purpose, the Act gives the Commissioner important constraining powers, with which he can obtain orders requiring the production of documents or testimonies, conduct searches or do wiretapping. The Act also includes measures of a civil nature, to ensure notification and review of mergers and acquisitions that might considerably reduce competition. It is also important to stress, in passing, that the Commissioner bases his approach to enforcing the Act on selection of the most appropriate instruments, which all form part of a continuum. The continuum of enforcement of the Act consists of various types of complementary measures, ranging from voluntary compliance to strict enforcement.²

Over the last few years, we have paid very special attention to the manoeuverings which have taken place outside Canada but whose repercussions are felt within the country. Whether they are transnational mergers, international price-fixing cartels or deceptive telemarketing schemes, multi-jurisdictional practices continue to grow in number. Although the Commissioner can claim jurisdiction over such matters when substantial impacts are felt in the Canadian marketplace, the essentially domestic framework established by the Act has required the development of tools more suitable for dealing with an increasingly present international dimension.

As a general rule, national laws on competition are limited to the territory of the country making them, although some countries feel free to give extraterritorial scope to measures taken under such laws. In this context, international cooperation³ is undoubtedly the means that has the greatest potential for ensuring sound management of competition on markets whose borders are becoming increasingly permeable. In addition to setting up efficient channels of communication among national agencies, it is important to have a high level of trust among the individuals who work to apply the laws, and a reasonable degree of compatibility in regard to substance and procedure, particularly where the protection of confidentiality is a factor. Experience has shown that greater collaboration opens the door to a better reciprocal understanding of the systems in place. In the long term, this fosters greater agreement over substance and procedure. It goes without saying that such a convergence facilitates subsequent efforts at collaboration.

More specifically, application of the law to practices that originate in another jurisdiction creates a number of practical challenges for authorities concerned with competition. Obtaining evidence from foreign territory is often problematical, or even impossible. It is also very tricky to decide upon and impose corrective measures affecting partiesCand their assetsCthat are located in another country or jurisdiction. Finally, the practical difficulties involved in imposing sanctions on individuals located outside Canada, or the impossibility of doing so, weakens the deterrent character of domestic legislation on competition.

It has been in this spirit that Canada and the Commissioner have concluded, over the last few years, a certain number of international agreements and arrangements, in order to lay the foundations for a network of international cooperation. These instruments create a structure for attacking anti-competition practices which, directly or indirectly, can impede international trade. Although it is not always necessary to have an accord in place in order to collaborate, practice suggests that the negotiation and application of a clearly defined structure of cooperation definitely foster the development of mutual trust and close ties of cooperation among the agencies and individuals who work in them.

Up to the present time, we have maintained the closest relationship with our major trade partner. In 1959, Canada concluded its first memorandum of understanding with the United States concerning the application of competition rules. This instrument is better known as the Fulton-Rogers Accord. Because of situations resulting from the extraterritorial enforcement of American antitrust laws, we negotiated a more elaborate memorandum of understanding in 1984. This was followed by the Canada-U.S. Agreement Regarding the Application of their Competition and Deceptive Marketing Practices Laws of 1995.⁴

The 1995 agreement seeks to promote cooperation between the authorities responsible for competition in Canada and in the United States by minimizing the potential consequences associated with the application of different competition law systems. The Agreement sets up a specific framework to govern notification, coordination and cooperation in regard to measures taken to combat anticompetitive practices extending throughout the North American space. This instrument also has provisions governing the use of "active courtesy", information exchanges and the prevention of conflicts. It is quite fair to say that the 1995 agreement with the United States, and the collaboration to which it has given rise, constitute a reference model.

At the heart of the 1995 Agreement is the undertaking of the parties to give mutual consideration to their important interests. This type of agreement does not require that laws be harmonized through legislative amendments. It is entirely subject to the domestic laws in force, and also to each country's mechanisms for protecting the exchange of confidential information. The Agreement may be said to be "flexible" in that its effectiveness is largely based on the mutual good faith of the signatories.

Since it was concluded, the 1995 agreement has been very beneficial to Canadian companies. Increased cooperation between Canada and the United States has fostered a more rapid and harmonious process for reviewing transnational mergers, while ensuring that the corrective measures chosen were suitable for all parties involved. The Agreement has also opened the door to greater collaboration in regard to international price-fixing conspiracies, and in the fight against deceptive trade practices and fraudulent telemarketing. On the whole, this exercise in cooperation has thus helped to consolidated competition in Canada, which in turn has resulted in more competitive prices in the Canadian marketplace, a better choice of goods and services for consumers, and greater protection against consumer fraud.

With the United States, we are also using the Treaty on Mutual Legal Assistance in Criminal Matters⁵ through its enabling statute, the Mutual Legal Assistance in Criminal Matters Act.⁶ Unlike the use of the 1995 Agreement, utilization of the Treaty on Mutual Assistance opens the door to more constraining cooperation regarding anticompetitive practices that become the target for criminal prosecution. In particular, the Treaty allows the signatories to assist each other in collecting evidence during an investigation. Let us repeat here that collecting evidence within the territory of another jurisdiction is one of the major challenges that must be overcome by competition agencies seeking to take action against practices originating outside their country. By allowing this kind of cooperation, the Treaty on Mutual Legal Assistance in Criminal Matters provides another important tool for maintaining sound competition on transborder markets.

At the present time, the Bureau does not have any similar instrument for facilitating investigations of non-criminal matters. In this regard, the Minister of Industry has tabled draft amendments to the Act in the House of Commons, which in particular would allows similar agreements to be made for non-criminal matters.⁷

I would now like to consider in greater depth an important, but still little-known tool of cooperation. So-called "flexible" cooperation agreements usually contain a mechanism known as "active courtesy", which is applied in particular to anticompetitive situations that create obstacles to market access.

When anticompetitive actions occur in a particular jurisdiction but their effects are felt beyond the borders of that jurisdiction, active courtesy can be used to minimize the conflicts between the jurisdictions concerned. This approach is based on the principle that the country where the restrictive practice originates is in a better position to conduct an investigation and to take the required action under its national laws. Active courtesy thus requires that the practice be, in the first place, covered by the competition legislation in the country where the practice originates. This is an effective instrument for cooperation and for strengthening trust among jurisdictions that might otherwise experience conflicts arising from the extraterritorial application of their laws. Canada is currently negotiating a second-generation agreement that exclusively concerns active courtesy with the United States. When it comes into force, this tool will complement the 1995 Agreement and consolidate Canada-U.S. collaboration the area of competition, while helping Canadian businesses to maximize their advantages on the North American market.

The excellent cooperation between the United States and Canada, strengthened by the various instruments in force, has facilitated the work of the Bureau, including the coordination of parallel investigations and the determination of appropriate corrective measures. There is no doubt that the accords and cooperation agreements we also have with the European Union,⁸ Australia and New Zealand⁹ and, we hope, Mexico and Chile in the near future will continue to bolster the confidence of Canadian and foreign firms involved in the process of reviewing competition legislation at home and in the countries that are our trade partners.

In parallel to the increase in the number of cooperation agreements among states, competition policy has also become quite an important item on the agendas of the bilateral and multilateral trade negotiations in which Canada is participating. More recently, we have actively participated in negotiating a detailed chapter on competition policy in the Canada-Costa Rica Free Trade Agreement.¹⁰ Canada is also an active participant in the group negotiating competition policy in connection with the negotiations of the Free Trade Area of the Americas (FTAA).

Finally, we are still maintaining the position we put forward in 1999, in preparation for the Seattle meeting, which favours development of a multilateral framework on competition within the WTO.¹¹

Trade negotiations are having more of an impact on national policies. Competition policy is likewise affected by these developments, since in our day it is one of the cornerstones of a properly functioning market economy. We believe that it is important to incorporate adequate provisions on competition policy into free trade agreements, to the greatest extent that this is possible. Such provisions are important for establishing measures and national institutions which will ensure that anticompetitive practices will not replace the old tariff and regulatory barriers that have been eliminated through trade negotiations.

More specifically, we believe that the text of a free trade agreement can be utilized to ensure that an appropriate competition scheme is developed and maintained, in addition to providing a basis for effective collaboration between responsible national institutions. In this regard, we believe that the following undertakings will facilitate the attainment of such an objective:

These provisions on competition should also lay the foundation for practical mechanisms that will foster cooperation between the competition agencies of the signatory countries, in addition to creating adequate means of encouraging compliance with undertakings.¹⁴

Canadian companies and investors doing business abroad want to benefit from a treatment based on competition rules that are well-established, fair, transparent and non-discriminatory. Undertakings made along these lines with our free trade partners unquestionably benefit Canadian consumers and Canadian businesses, which may otherwise have to suffer the consequences of unfair competition on international markets. The international tools now in place that concern Canadian competition policy, anchored as they are in bilateral relationships, are working well. However, they do not provide a complete solution to dealing, now and in future, with the increasing number of practices that extend to several jurisdictions. We still have a way to go to arrive at a multilateral instrument within the WTO that would allow the various jurisdictions to take more effective action against anticompetitive trade practices of this type. Opinions differ on the matter, and there is an ongoing debate concerning the usefulness, or even the relevance, of such a tool. In this context, it is important to ask ourselves about the other possible avenues that the worldwide antitrust community might explore in the shorter term, to encourage more consistency and greater efficiency in the application of domestic competition rules to markets that are becoming increasingly globalized. What can we do collectively to reduce the risks of conflict inherent in an enforcement of competition laws that may contradictory and sometimes even downright lax?

At first glance, the situation looks like a disturbing puzzle. More than 90 countries or jurisdictions have some kind of competition legislation in force, and a few dozen others are in the process of adopting similar laws. Although there are many points of convergence, the aims and objectives of these laws and of their related procedures often differ from one country to the next, since they are based on ideological foundations that reflect the diversity of economic structures, national policies, legal systems and concrete experience involved in applying competition policy. For example, according to several stakeholders from the business world, the mushrooming of national merger review mechanisms, with their attendant administrative burden, result in inefficiency and red tape when the time comes to carry out transactions that impact a number of national markets.

Since globalization does not seem, at first glance, to be particularly tolerant of systemic divergences, is the internationalization of competition rules inevitable? In practice, we see some pressure towards more uniformity, particularly among trade partners involved in cooperation. This convergence is also largely the outcome of an increasing dialogue within international organizations and, to some extent, of growth in the amount of technical assistance offered to developing countries. The internationalization of international rules on competition is a recent phenomenon. In 1948, the importance of international rules on competition was raised in the Havana Charter, which was supposed to lay the foundation for the International Trade Organization (ITO). The Havana Charter would have enabled member countries to bring complaints against restrictions on trade to the ITO, which was to conduct an investigation and suggest a corrective measure to the country where the culprit firm was located. However, this initiative never materialized. More recently, a group of universities, known as the Munich Group, has made a similar proposal to draft an international code on competition. That code would cover, in particular, horizontal and vertical agreements, mergers, and the establishment of an international organization which, in concert with national governments, would assume responsibility for applying competition rules. This proposal, which is bold to say the least, has not receive enough support to be implemented.

A number of other multilateral tools have been developed over the years. The expert group of the United Nations Conference on Trade and Development (UNCTAD) has developed a set of principles and rules to govern the conduct of governments and businesses in regard to the international control of restrictive trade practices, consultation and cooperation. For its part, the OECD has developed the Revised Recommendation Concerning Co-operation between Member Countries on Anticompetitive Practices Affecting International Trade and the Council Recommendation Concerning Effective Action Against Hard Core Cartels. These instruments are useful references for encouraging cooperative efforts between competition authorities. However, their scope is largely restricted to the members of these organizations, and compliance remains essentially voluntary and often uneven.

Nonetheless, efforts are still being made to develop greater convergence and cooperation among the various competition agencies around the world. Special attention is being given to integrating the developing economies and to increasing the operational capabilities of the new agencies. Some initiatives deserve mention here:

The discussions on competition policy within the OECD have allowed, and continue to foster, greater convergence among the leading developed countries that have well-established systems and institutions. The topics discussed within the OECD are very diverse, and concern all aspects of competition policy. Very praiseworthy initiatives for bringing a larger number of non-member countries to the table have emerged. However, sustained efforts will be needed if the work of the OECD is to be incorporated, in a truly conclusive way, into the practices of the developing countries. We believe that the recent establishment of a joint group within the OECD Committee on Competition Policy, for the purpose of initiating discussion between member countries and developing countries, is a step in the right direction.

UNCTAD's International Experts Group has 77 members, most of whom are developing countries. Canada and some other developed countries are taking part in the Group's meetings. The Group plays an important role in providing analysis, education and technical assistance to developing countries. In our opinion, however, its limited mandate restricts its potential for becoming an adequate vehicle for the internationalization of competition rules.

At the regional level, negotiations under way among the 34 member countries of the FTAA might in particular result, by 2005, in a hemisphere-wide agreement on competition included in the free trade agreement. An enormous amount of work remains to be done to develop a common vision of such an instrument, and discussions of the matter will soon resume in Panama City. Canada firmly believes in the importance of establishing a solid framework for competition policy that would include all the countries of the Americas. Discussions concerning the FTAA offer a unique opportunity to achieve this goal.

In recent years, the work of APEC has led, in particular, to the development of Principles on Competition and Regulatory Reform.¹⁶ Implementation of these principles will continue in the coming years. This discussion forum can foster the advancement of best practices on competition policy and regulatory reform with our Asian trade partners.

At the present time, the inclusion of competition rules on the agenda of a possible next round of WTO negotiations is also being deliberated. In concert with other member countries, Canada is exploring the possibility of envisaging real progress in that direction. To support this approach, Canada has, in recent years, played an active part in the work of the WTO's Working Group on Trade and Competition Policy. In our opinion, the gradual and cautious negotiation of a multilateral framework on competition at the WTO would provide, in particular, a solid basis for supervising the development of efficient institutions and effective cooperation among member countries, in order to promote and protect healthy competition at the international level.

Having said this, we think it is clear that the convergence of systems of competition law and policy cannot be impeded; even less can it be decreed through regional or multilateral rules. This convergence must emerge from a gradual, concerted development. To be viable, however, it requires development of a stable, well-respected institutional foundation, and solid ties of trust among member countries. This objective will take much time, and will require great efforts of communication. On the basis of this observation, some influential members of the international antitrust community have proposed the creation of the World Forum on Competition.¹⁷

The originality of this proposal lies in the fact that the initiative would not be structured in the image of traditional international organizations. Its membership, which would be "virtual" in nature, would be inclusive and flexible enough to allow the participation of all the authorities responsible for competition at various stages of development, and also of the major stakeholders from the business world and consumer representatives. The group's objective would be to encourage procedural and analytical consistency, while taking into account the needs of governmental and non-governmental, and developed and developing, participants. In our opinion, the activities of this parallel initiative, though separate from the work being done within other international institutions, could contribute to the development of a broader consensus on the application of competition policy at the international level. The creation of this forum seems to be a step in the right direction, and deserves particular attention. However, if it does come into existence, the World Forum on Competition will have to confront a number of important challenges, not the least of which will be to obtain and retain the support of competition agencies in the developed countries, and also the commitment of institutions responsible for competition policy in developing countries. The Forum will also have to manage to carve a specific niche for itself, so that it can make a tangible, value-added contribution on the international scene, in concert with other international institutions in place and without duplicating their work.

The Competition Bureau remains on the lookout for changes that should be made to Canadian competition policy. A few years ago, we undertook to review the Competition Act on a regular basis, to make sure that it continues to be up-to-date and well suited to the needs of marketplace. With the same ideas in mind, we shall also continue to develop complementary, flexible instruments with our trade partners, to ensure the development and maintenance of a sound competition policy, increased international cooperation and the prevention of potential conflicts that might arise as a result of the enforcement of competition laws. In addition, we shall participate even more actively in the work of the international institutions that are dedicated to the development of greater international convergence in the development and enforcement of competition law and policy.

The international agreements on competition policy that are available in Canada are tools for facilitating international trade. The expansion of trade and of competition policy around the planet will continue to generate increasingly serious governance challenges, which will require innovative solutions based on inclusion and active cooperation.

For along time to come, the implementation of national rules will continue to be the preferred option for guaranteeing healthy competition in the sectors that are open to the market economy. This approach will continue to generate pressure to develop and maintain the consistency required for the coordinated, efficient and sustainable application of those rules in a rapidly expanding economic space .

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Footnotes

¹  I would like to thank Josée Villeneuve, Competition Officer in the International Affairs Division, for her invaluable collaboration in the writing of this paper.

²  For more details, see 01251.html.

³  The term cooperation means collaboration without regard for the level of development of the jurisdictions concerned.

⁴  For more details, see http://competitionbureau.gc.ca/eic/site/cb-bc.nsf/vwapj/canada-us-agreement-e.pdf/$FILE/canada-us-agreement-e.pdf.

⁵  We have 26 bilateral legal assistance treaties in effect, for the most part with member countries of the Organization for Economic Cooperation and Development (OECD). However, only the treaty with the United States has been used to deal with criminal anticompetitive practices.

⁶  R.S.C. (1985), c. 30 (4th suppl.).

⁷  For more details, see 02166.html.

⁸  For more details, see 01242.html.

⁹  For more details, see 02030.html.

¹⁰  For more details, see http://www.dfait-ma eci.gc.ca/tna-nac/Costa_Rica-e.asp. Chapters on competition are also included in the North American Free Trade Agreement and in the free trade agreements with Israel and Chile.

¹¹  For more details, see 01519.html.

¹²  In particular, unwarranted agreements, abuse of a dominant position and anticompetitive mergers.

¹³  In Canada: sections 125 and 126 of the Competition Actallow the Commissioner to make make representations to offices, commissions and other tribunals.

¹⁴  The use of different constraining regulation mechanisms, which are usually included in trade agreements, is not appropriate in the context of competition policy. Canada continues to propose that compliance with undertakings be encouraged instead through a procedure of peer review of national competition policies.

¹⁵  For more details, see http://www .dfait-maeci.gc.ca/tna-nac/Competition-summary-e.asp.

¹⁶  For more details, see http://www.apec.org/.

¹⁷  For more details, see http://www.ibanet.org.