Annual Report of the Commissioner of Competition for the year ending March 31, 2004

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Chapter 5: Advocating for Competition and for International Coordination

This chapter covers the wide range of activities the Competition Bureau pursues to promote competition. Domestically, Bureau officials appear before federal and provincial government agencies and regulatory bodies, and also participate in departmental and interdepartmental policy-making. Internationally, the Bureau plays a leadership role in the International Competition Network, the Organisation for Economic Co-operation and Development and various trade bodies.

The Bureau's officials also contribute to debates on competition issues through publications, speeches and seminars (see chapter 7 and appendices II and III).

Domestic Activities

Marine and Rail Transportation

Submission to the Canada Marine Act Review Panel

In November 2002, the Bureau made a submission to the Canada Marine Act Review Panel that addressed three areas of marine services: Canada Port Authorities, pilotage and ferry services, and shipping in domestic waters (coasting trade). Details of the submission were described in last year's annual report.

The panel accepted the Bureau's recommendations in a number of areas: implementing a competitive selection process for the boards of directors of all Canada Port Authorities, eliminating regulatory constraints that restrict Canada Port Authorities from borrowing money and that prevent them from merging, and continuing the commercialization of ferries. The panel's acceptance of the view that Canadian ports compete directly or indirectly with U.S. ports and that ports contribute to Canada's economy and competitiveness is important, since it supports the Bureau's view that certain ports compete among themselves. The Minister of Transport indicated that Transport Canada will carefully review the panel's recommendations and observations, which will likely lead to amendments to the Canada Marine Act.

Submission to the Canadian Transportation Agency

On December 10, 2003, the Bureau filed a letter of intervention in response to a request for comments from the Canadian Transportation Agency on the Railway Interswitching Regulations.

The letter included three comments.

• First, the Bureau supported the proposed amendments to the Railway Interswitching Regulations, since the interswitching provision in the regulations is a critical competitive access tool, creating opportunities for competitive service in situations in which natural monopolies occur.
  
  
• Second, lowering the current interswitching rates by more than 10 percent would undoubtedly benefit shippers and encourage them to use this competitive provision. The interswitching provision could be made more competitive if the number of car block sizes were extended from the current two to three or more.
  
  
• Third, this would have the effect of lowering rates and encouraging efficiencies in developing unit trains, reflecting current industry practices. In addition, the competitive process could be enhanced by converting the interswitching rates to maximum rates under the Canada Transportation Act. This would allow the shipper and railway to negotiate rates below those prescribed.

The Canadian Transportation Agency has not concluded its review of the matter and will be gathering further evidence.

Telecommunications

Review of Price Floor Safeguards for Retail Tariffed Services and Related Issues (Telecom Public Notice CRTC 2003-10)

The Canadian Radio-television and Telecommunications Commission (CRTC) invited public submissions on proposed modifications to rules governing the pricing of bundled services by dominant local telephone companies, including Bell Canada, Telus, Aliant and SaskTel. These rules restrict the bundling of monopoly local residential telephone services with competitive services, such as Internet, long distance, wireless and video.

In its June 2003 submission, the Bureau cautioned the CRTC that prematurely removing these restrictions would create barriers to entry and stifle competition. Maintaining the bundling restrictions until local telephone markets are competitive will allow new entrants to grow and provide consumers with greater choice of local telephone service providers. The Bureau, therefore, recommended that the CRTC maintain the ban on the bundling of monopoly local residential telecommunications services with competitive services until there is effective competition in the local telephone market.

As of March 31, 2004, this proceeding was ongoing and a decision pending.

Application to the CRTC by Call-Net Enterprises Inc. (Telecom Decision CRTC 2003-49)

On January 17, 2003, Call-Net applied to the CRTC for an order directing Bell Canada, Telus and the other dominant local telephone companies to provide high-speed Internet service to residential customers choosing a competitor's local telephone service. At the time of the application, the policy of the dominant companies was to require their high-speed Internet customers to take their local service. Call-Net argued that this policy was a barrier to new entry into the local residential telephone market and denied consumers the benefit of competition.

On February 26, 2003, the Bureau filed a submission supporting Call-Net's application, urging the CRTC to recognize that the existing policies of the dominant companies make it more difficult for new entrants to compete in the local residential telephone market.

On July 21, 2003, the CRTC issued its decision in this matter, directing the dominant local telephone companies to provide high-speed Internet services to the customers of competitive local telephone service providers, such as Call-Net. As a result, residential phone customers will have more choice of local telephone service providers.

Testimony to the House of Commons Standing Committee on Industry, Science and Technology

On February 24, 2003, the former Commissioner appeared before the committee to speak about foreign investment restrictions that apply to telecommunications common carriers.

The former Commissioner described his responsibilities and role as an advocate of competition and stated the Bureau's views on access to capital, the benefits of foreign capital, the lack of distinction between telephone signals and broadcast signals, and foreign ownership requirements. On this last matter, the former Commissioner said that foreign ownership restrictions are not necessary to achieve a healthy and vigorous telecommunications industry.

The committee issued its report, Opening Canadian Communications to the World, on April 28, 2003. Two of the committee's four recommendations directly addressed the issue of foreign ownership restrictions and echoed the Commissioner's position on other matters. The committee recommended that the Government of Canada remove the minimum Canadian ownership requirements for telecommunications common carriers, including the requirement of Canadian control, and that the Government of Canada ensure that any changes to these ownership and control requirements apply equally to broadcasting distribution undertakings.

Broadcasting

Remarks to the House of Commons Standing Committee on Canadian Heritage

The former Commissioner appeared twice in 2002 before the committee to present his views on the future of broadcasting. Details of the submissions were described in last year's annual report. The Bureau subsequently made three main recommendations: include efficiency and increased reliance on market forces in the broadcasting and regulatory policy; clarify the CRTC's mandate; and ensure the foreign investment levels for broadcasting distribution undertakings parallel those for telecommunications carriers. The committee issued its report, Our Cultural Sovereignty. The Second Century of Canadian Broadcasting, on June 11, 2003.

The committee recommended reviewing the mandate of the CRTC and clarifying the respective roles and responsibilities of the CRTC and the Competition Bureau regarding broadcasting. It also recommended that the House of Commons Standing Committee on Industry, Science and Technology review the role and resource requirements of the Competition Bureau in the area of broadcasting. The committee agreed with the former Commissioner's observation that the CRTC should not review broadcasting transactions for commercial viability; rather, it should focus solely on the impact any proposed merger would have on the production and distribution of Canadian content.

Testimony to the Standing Senate Committee on Transport and Communications

On September 23, 2003, the Acting Commissioner appeared before the committee to present the Bureau's views on the state of the Canadian news media.

The Acting Commissioner described the character of media markets as somewhat different from that of other markets. Media markets are advertising markets. From an economic perspective, the advertiser buys exposure of advertisements to readers, listeners or viewers. Television, radio and newspapers generally serve different advertising markets, with the first two being national and the last local. Finally, the Acting Commissioner emphasized that the Bureau favours increased consumer choice. He noted that having diverse owners as well as diverse forms of ownership (resulting in different incentives) may help increase product choice, which may indirectly benefit the diversity of voices. He encouraged the committee to consider other ways of promoting diversity, including liberalizing foreign ownership restrictions. He noted, however, that the issue of diversity of voices was more cultural than economic in nature, and thus a natural adjunct to the CRTC's mandate to maintain and enhance Canadian culture.

The committee has yet to release its report.

Energy

Ontario Energy Board Hearing on Ontario Power Generation Inc.'s Leasing Arrangement With Bruce Power LP

In January 2003, the Ontario Energy Board invited the Bureau to testify at its hearing on whether a leasing arrangement of nuclear generation assets between Bruce Power and Ontario Power Generation resulted in their being separate entities. In November 2000, the Bureau provided an advance ruling certificate on this arrangement that did not address the issue of independence. In its testimony, the Bureau advised the Ontario Energy Board on how to determine independence and clarified that the earlier advance ruling certificate had not addressed that issue.

The Ontario Energy Board's decision of April 4, 2003, indicates that it agrees with the Bureau's approach and determined that the lease arrangement would result in an independent competitor. As a consequence, Ontario electricity consumers are assured of the benefits of a new competitive supplier of electricity for the province.

Trade

Jarred Baby Foods: An Application to the Federal Court of Appeal

On April 28, 2003, the Canadian International Trade Tribunal (CITT) issued a decision removing all tariffs on the import of certain prepared jarred baby foods. The CITT found that any injury to Heinz Canada due to the removal of tariffs would likely be the result of renewed competition and not of dumping. As a result, American companies are now free to enter the Canadian market and supply Canadian consumers and retailers, provided they meet Canadian jar and ingredient standards.

On June 18, 2003, Heinz Canada applied to the Federal Court of Appeal, seeking an order to reverse the CITT's decision. The Bureau opposed Heinz Canada's application.¹

Agriculture

Remarks to the House of Commons Standing Committee on Agriculture and Agri-Food

On February 16, 2004, the Commissioner appeared before the committee as part of its study of the price of beef at the slaughter, wholesale and retail levels as a result of the BSE crisis. The Commissioner said that the Bureau is closely following developments in the beef industry and that, based on information available to date, there is no reason to believe that the Competition Act has been or is about to be contravened. The Commissioner noted that the Act does not authorize the conduct of general inquiries into competition in a particular industry; however, when information is uncovered that points to a potential breach of the Act, the Bureau takes appropriate action. The committee released its report in April 2004.²

Merger Review: Efficiencies

Remarks to the Standing Senate Committee on Banking, Trade and Commerce

On November 5, 2003, the Acting Commissioner appeared before the committee to present his remarks on Bill C-249: An Act to amend the Competition Act. He supported the bill because efficiencies would be given due consideration during merger review, while ensuring that this was done in the context of the overall purpose of the Act.

International Activities

Bureau officials have assumed leadership roles in a number of international organizations, including the International Competition Network, the Competition Committee of the Organisation for Economic Co-operation and Development and the Asia-Pacific Economic Cooperation Competition Policy and Deregulation Group. These activities foster greater co-operation among competition authorities around the world, which is critical for law enforcement. They also provide an opportunity to disseminate information about Canada's competition policy system and domestic marketplace framework to potential investors, and promote coherence between Canada's approach to competition law and that of foreign counterparts for the benefit of Canadian business.

The Bureau also leads Canada's free trade negotiations in the area of competition policy.

Empagran

In February 2004, the Minister of Justice, acting in close collaboration with the Bureau, Foreign Affairs Canada and International Trade Canada, filed an amicus curiae brief with the Supreme Court of the United States, outlining Canada's concerns with the decision of the United States Court of Appeals for the District of Columbia Circuit in the matter of F. Hoffman-La Roche, Ltd., et al. v. Empagran, SA, et al. The case was a class action lawsuit in which non-U.S. residents sought compensation through U.S. courts for financial harm they suffered outside the U.S. as a result of a worldwide price-fixing conspiracy among vitamin producers and distributors.

The Bureau's intervention concerned the following:

• principles of international law and comity;
  
• implications of the lower court's decision on international co-operation in the detection, investigation and prosecution of international cartels;
  
• the efficacy of the Bureau's Immunity Program;
  
• the development of domestic civil jurisprudence on damages arising from cartel activity;
  
• the global development of effective anti-cartel enforcement regimes; and
  
• the potential for unreasonable interference with Canadian competition policy.³

Falconbridge

An important Ontario Court of Appeal decision was rendered in May 2003 in the matter of the Commissioner of Competition v. Falconbridge Limited, et al. This decision ensures that Canada and the U.S. can continue to assist one another in investigating criminal antitrust matters under the Mutual Legal Assistance in Criminal Matters Act and the Mutual Legal Assistance Treaty. In particular, the decision held that offences under the Sherman Act (the U.S. antitrust law) were offences within the meaning of the treaty and that an offence need not be a reciprocal offence in both countries for assistance to be given. On January 22, 2004, the Supreme Court denied Falconbridge et al. leave to appeal the decision.

International Competition Network

Founded in October 2001, the International Competition Network (ICN) is a network of private and public sector competition practitioners from around the world. In the past year, it has grown to include 85 member agencies from 75 countries. The ICN serves the following purposes:

• providing antitrust agencies from developed and developing countries with a forum to address practical antitrust enforcement and policy issues of common concern;
  
• facilitating procedural and substantive convergence in antitrust enforcement through a results-oriented agenda and an informal, project-driven organization;
  
• promoting more efficient, effective antitrust enforcement worldwide by enhancing convergence and co-operation; and
  
• encouraging consistency in enforcement policy and elimination of unnecessary or duplicate procedural burdens for the benefit of consumers and businesses around the world.

The ICN's second annual conference was held in Mérida, Mexico, in June 2003. During the two-day conference, members confirmed Canada's Commissioner of Competition as chair of the ICN Steering Group and the Assistant Commissioner, Communications, as co-chair of the advocacy sub-group.

The ICN's three working groups had a productive year. The Advocacy Working Group undertook studies on the telecommunications, air transportation, legal and energy sectors. It launched the Advocacy Information Centre for the benefit of members, and developed the online Toolkit for Effective Advocacy, which provides practical techniques for promoting competition. The Working Group also investigated existing provisions to promote competition in member countries, with a view to developing a set of model provisions or best practices.

The Capacity Building and Competition Policy Implementation Working Group produced a report, Capacity Building and Technical Assistance: Building Credible Competition Authorities in Developing and Transition Economies.

The Mergers Working Group produced a variety of materials, including the following:

• four new recommended practices to add to its initial set of eight Recommended Practices for Merger Notification Procedures;
  
• tools for more efficient merger review procedures, including links to templates with answers to frequently asked questions;
  
• three reports: Developing Reliable Evidence in Merger Cases, The Role of Economists and Economic Evidence in Merger Analysis, and Report on Investigative Techniques Employed by Member Agencies in the Area of Merger Review; and
  
• a series of papers analyzing merger enforcement guidelines in 12 jurisdictions, authored by non-governmental advisors.

All of these documents, as well as contact information for ICN members and links to information about the merger laws of many member countries, are available on the ICN Web site (www.internationalcompetitionnetwork.org).

Organisation for Economic Co-operation and Development

The Bureau is Canada's lead representative on the Competition Committee of the Organisation for Economic Co-operation and Development (OECD). The OECD and its working parties have examined various competition issues associated with the following:

• mergers: information sharing, media mergers and merger remedies;
  
• cartels: information sharing during international investigations and sanctions against individuals;
  
• co-operative relationships;
  
• the consumer-competition interface; and
  
• stock-taking of the regulatory reform process.

The two-day Global Forum on Competition, which was attended by representatives of OECD countries and others from the developed and developing world, was held February 12-13, 2004, in Paris. The Forum focussed on the link between economic development and competition policy and law.

The Asia-Pacific Economic Cooperation organization and the OECD forged an agreement on joint work on regulatory reform. Workshops were the focus of the first phase. The second phase, currently under way, focusses on developing an integrated checklist for self-assessment on regulatory, competition and market-openness policies.

The Bureau also participates in the OECD Committee on Consumer Policy. Part of the committee's mandate is to examine questions relating to consumer policy and law in member countries and within international and regional organizations. The United States currently chairs the committee. The Office of Consumer Affairs leads Canada's participation, with one of its employees serving as one of the vice-chairs. The Competition Bureau participates in its capacity as a Canadian law enforcement agency.

The committee's current focus is the implementation of the OECD Guidelines for Protecting Consumers from Fraudulent and Deceptive Commercial Practices Across Borders. The OECD adopted these guidelines in June 2003 with a view to fostering international co-operation in the fight against fraudulent and deceptive commercial practices. The Competition Bureau, in collaboration with the Office of Consumer Affairs and provincial and territorial consumer authorities, is responsible for implementing these guidelines in Canada.

Other areas of interest to committee members include the potential role the committee could have in combatting deceptive unsolicited bulk e-mail, also known as spam. The committee held a spam workshop in February 2004. Committee members also participate in joint meetings with the OECD Competition Committee to determine what links exist between consumer policy and competition law and what benefits can be drawn from them.

International Consumer Protection and Enforcement Network

In October 2003 and March 2004, Bureau representatives participated in the biannual meetings of the International Consumer Protection and Enforcement Network (ICPEN), held in Helsinki and Saariselkä, Finland. ICPEN is a voluntary organization of the trade practices law enforcement authorities of 29 countries, most of which are OECD members. Its mandate is to share information about cross-border commercial activities that may affect consumer interests and to encourage international co-operation among law enforcement agencies.

At the Helsinki meeting, Bureau representatives delivered a presentation on best practices for combatting international deceptive mail scams. At the Saariselkä meeting, participants discussed the role ICPEN can play in implementing the OECD Guidelines for Protecting Consumers from Fraudulent and Deceptive Commercial Practices Across Borders, as well as future work or possible collaboration on fighting spam. ICPEN members are committed to achieving greater co-operation in the area of cross-border law enforcement.

Asia-Pacific Economic Cooperation

Canada has been active in providing technical assistance and co-operation to other Asia-Pacific Economic Cooperation (APEC) countries. Each member economy submits an individual action plan or annual report to monitor progress toward the targets APEC nations set in 1994 for freer and more open trade and investment in the Asia­Pacific region.

The Bureau participated in the preparation of Canada's 2003 individual action plan. For additional information, see the competition policy chapter of Canada's individual action plan on the APEC Web site (www.apec-iap.org/docume nt/CDA_2003_IAP.htm).

Technical Assistance

This year, the Bureau provided technical assistance to a number of countries that are in the process of drafting or implementing their own competition laws, including Ukraine, Vietnam and China. Such assistance included the following:

• providing information on Canadian policy, law and practices;
  
• welcoming visitors from foreign governments and competition authorities;
  
• helping develop or refine foreign competition laws; and
  
• providing advice on how to deal with particular types of investigations.

International Cartels

Jurisdictions that co-operated with the Bureau on international cartel cases in 2003­2004 included the United States, the United Kingdom, the European Union, Japan and Germany. Noteworthy cases involved graphite electrodes, polyester staple fibre, choline chloride and monochloroacetic acid/monochloroacetate (see chapter 2 for information on these cases).

Deceptive Telemarketing and Deceptive Marketing Practices

The Bureau is showing strong leadership in the fight against deceptive telemarketing and mail solicitation through a number of new initiatives, including the following:

• support for international guidelines for increased co-operation in investigations of cross-border fraud and deceptive commercial practices;
  
• an anti-fraud education campaign that has been adopted for use in the U.S. and the U.K.; and
  
• increased co-operation with other international enforcement agencies in investigations.

On October 14, 2003, an inter-agency co-operation arrangement was also established between the Competition Bureau, the U.K. Office of Fair Trading and the U.K. Department of Trade and Industry. The arrangement will enhance enforcement co-operation between Canadian and U.K. authorities in areas such as deceptive marketing (including cross-border scams) and criminal cartel activity.

Further to its current information sharing protocol with the U.S. Federal Trade Commission, the Competition Bureau signed two protocols with the Australian Consumer and Competition Commission and the U.K. Office of Fair Trading in March 2004. These protocols formalize how the Competition Bureau and its partners share complaint and investigation data to combat cross-border fraud faster and more efficiently.

Competition Law

Negotiations are continuing between Canada and Japan on a co-operation agreement for competition law. The proposed agreement is expected to provide a framework for coordination and co-operation to deal effectively with anti-competitive business activities affecting both countries.

On April 11, 2003, Canada's co-operation agreement with Mexico regarding competition law enforcement came into effect, following its approval by the Mexican Senate.

Trade Negotiations

Free Trade Area of the Americas: Negotiating Group on Competition Policy

In partnership with Foreign Affairs Canada and International Trade Canada, the Bureau continued to contribute to the development of a regional framework for competition policy in the Americas. A copy of the most recent draft chapter on competition policy is available on the Free Trade Area of the Americas Web site (www.alca-ftaa.or g/FTAADraft03/ ChapterXIX_e.asp).

United Parcel Service of America, Inc. v. Government of Canada

The Bureau continued to help the Canadians litigating a claim by United Parcel Service of America, Inc. under a North American Free Trade Agreement (NAFTA) Chapter 11 (i.e. investor state dispute settlement) arbitration that Canada Post Corporation engages in discriminatory practices by providing advantages to its courier products that are not available to those of United Parcel Service Canada. United Parcel Service also alleges that Canada Post has engaged in anti-competitive conduct, such as cross-subsidization and predatory practices. In a preliminary motion, the NAFTA Tribunal found that competition matters are beyond its jurisdiction.

World Trade Organization

In 2003, the World Trade Organization Working Group on the Interaction Between Trade and Competition continued to address issues related to a potential multilateral framework on competition. The discussions focussed on the mandate set out in the Doha Ministerial Declaration, including clarifying core principles (transparency, non-discrimination and procedural fairness), drafting provisions on hard-core cartels, encouraging voluntary co-operation and supporting the progressive reinforcement of competition institutions in developing countries. The Bureau worked actively to promote a constructive dialogue and, in particular, encouraged discussion of issues facing developing countries.

The Doha Declaration provided for a decision to be taken at the next ministerial meeting, which was held in Cancún in September 2003, on whether to launch trade and competition negotiations. While considerable progress was made, members continued to differ on how to proceed on trade and competition policy, and a number of countries stated that they were not ready to negotiate. As of March 2004, no agreement had been reached on a new mandate for the Working Group.

Other Trade Agreements

Canada is currently involved in free trade negotiations with the Central American Four (El Salvador, Guatemala, Honduras and Nicaragua) and Singapore, and is seeking to include competition policy provisions in these agreements.

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Footnotes

¹ This matter was heard by the Federal Court of Appeal on May 26, 2004. The court dismissed the application by Heinz Canada, awarding costs in favour of the Commissioner of Competition, Gerber Products Company and Novartis Consumer Health Canada Inc.
² Canadian Livestock and Beef Pricing in the Aftermath of the BSE Crisis, Report of the Standing Committee on Agriculture and Agri-Food, April 2004.
³ In June 2004, the United States Supreme Court ruled against the non-U.S. resident plaintiffs but remanded the matter to the United States Court of Appeals for the District of Columbia Circuit for further consideration.