Annual Report of the Commissioner of Competition for the Year Ending March 31, 2000

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Promoting Competition

The Competition Bureau assumes an advocacy role by actively promoting competition in the marketplace. These activities include making interventions and representations before federal and provincial boards, commissions and tribunals, encouraging and facilitating voluntary compliance, and taking a leadership role in issues related to international anti-trust policy.

Interventions

As the statutory champion of competition, the Commissioner may intervene as a right before federal bodies and with leave before provincial bodies. In making these interventions, the Commissioner's aim is to be the objective voice of economic competitive analysis.

The Bureau's interventions in the area of deregulation of certain industries serve a dual purpose. First, they sustain and promote a competitive environment. Second, they ensure that if regulation is required, it takes the form that least distorts competition and efficiency in the affected markets.

In 1999-2000, the Bureau made a number of significant interventions on issues ranging from allocation policy in the Ontario poultry industry to retailing of natural gas following deregulation in New Brunswick. The chart on pages 5 to 9 outlines the Bureau's interventions in the past year.

As the statutory champion of competition, the Commissioner may intervene as a right before federal bodies and with leave before provincial bodies. In making these interventions, the Commissioner's aim is to be the objective voice of economic competitive analysis.

Competition Bureau Interventions, 1999-2000

Industry Sector and Issue	Competition Bureau Intervention	Outcome and Potential BENEFITS for Canadians
Broadcasting, Telecommunications and New Media (Internet)
Radio Broadcasting Criteria and amendments to radio regulations governing local management agreements among radio broadcasters. CRTC PN 1999-55 CRTC PN 1999-176	The Bureau reiterated its earlier submission that the Canadian Radio-television and Telecommunications Commission (CRTC) should evaluate local management agreements in the context of the content and cultural objectives of the Broadcasting Act, and that the Commission should rely on the Competition Act to address effects on competition in local radio advertising markets.	The CRTC issued its decision on November 1, 1999. It declined to adopt the Bureau's recommendations and will review and approve local radio management agreements, including their impact on competitors and potential competitors in local radio markets. It will generally limit radio management agreements to the number of stations that can be commonly owned under its ownership policy. The Bureau's concern with this approach is that it creates a regulated conduct defence such that station operators can minimize competition in the radio advertising market.
Licensing Framework for New Digital Pay and Specialty Television Services CRTC PN 1999-19	The Bureau submitted that the CRTC should let competition and market forces play a greater role in the objectives of the Broadcasting Act, including bringing diversity of choice. The new framework should be based on an open entry licensing model, clear criteria for a licence, including Canadian content, and maximum reliance on competition among programmers. Financial and competitive considerations should not be factors in licensing. Each licensee should be free to find its own programming niche. The CRTC should abandon its one-licence-per-genre approach. Tiering, packaging and linkage rules should be greatly eased or eliminated.	The CRTC chose to license two classes of new services based primarily on the amount of Canadian content. In this decision, the CRTC chose to restrict the competitive opportunities available to new specialty and pay television services in order to achieve other objectives, specifically ensuring program diversity and the survival of entrants who face high Canadian content requirements, while at the same time protecting existing licensees. This leaves all potential new entrants with the task of finding unique program niches in order to qualify for a licence.
Television Broadcasting The CRTC proposed that the Pay Television Regulations, 1990, should be amended to ensure that pay television licensees do not acquire rights to pay-per-view programs on an exclusive or other preferential basis. CRTC PN 1999-83	The Bureau supported the proposal, stating that it would be an appropriate way to ensure that new entrants into the broadcast distribution market are given equal access to pay-per-view programming so they may compete effectively with cable television firms. As well, this policy would be consistent with the Direct-to-Home (DTH) Satellite Direction by the Governor in Council, which precludes the exclusive or preferential acquisition of pay-per-view programming by DTH pay-per-view television programming undertakings.	At the end of 1999-2000, the CRTC's decision was pending. A favourable decision would facilitate new entry into broadcast distribution by wireline, wireless and satellite firms wishing to compete with cable television companies.
Broadcasting, Telecommunications and New Media: Follow-up on Items in the 1998-1999 Annual Report
Television Broadcasting Policy A broad range of issues relating to the Canadian television broadcast industry were examined. CRTC PN 1998-44 CRTC PN 1999-97	The Bureau's submission focussed on two issues: a) the desirability of eliminating the market-entry test (in terms of economic impact) for licensing new local broadcasting undertakings b) the role of the Bureau in examining television broadcasting mergers, should existing ownership restrictions be relaxed.	The CRTC issued its decision on June 11, 1999 (Building on Success - A Policy Framework for Canadian Television). The Commission decided to continue its current policy of limiting ownership to no more than one over-the-air station in one language in a given market. This policy will mitigate concerns about the possible effects on competition of increased concentration in local television advertising markets. The Commission's decision did not address the issue of criteria for the awarding of additional over-the-air television services.
International Telecommunications Services Teleglobe's application to the CRTC for complete and unconditional deregulation of its wholesale Canada-overseas telephone services, which link Canada to 240 locations. Telecom Decision  CRTC 99-14	The Bureau supported the application on the grounds that recent CRTC decisions, changes in government policy and technological change have combined to substantially reduce barriers to entry, thereby removing Teleglobe's monopoly position. As a result, new competitors can compete with Teleglobe in the wholesale market for Canada-overseas telephone services.	The CRTC issued its decision on September 28, 1999. It unconditionally forbears from regulating Teleglobe's pricing and agreements with third parties, and other aspects of its operations. The CRTC will retain regulatory power over confidential customer information. The result has been a continuous decrease in the cost of overseas telephone calls for Canadian consumers.
Television Satellite Signals The removal of restrictions to television network signals from U.S. satellites. CRTC PN 1998-60 CRTC PN l999-72	The Bureau submitted that restrictions Ton the ability of Canadian broadcast distributors (cable companies) to access programming from U.S. satellites should be eliminated.	On April 26, 1999, the CRTC issued its majority decision to not approve a proposal to authorize broadcasting distributors to receive the U.S. television network signals directly from U.S. satellite service providers. There were two separate dissenting opinions to the decision.
Non-traditional Broadcasting Services(including the Internet and on-line new media services) The extent to which the Internet and on-line new media should be regulated under the Broadcasting Act. CRTC PN 1998-20/ 1998-82 CRTC PN  1999-84/ Telecom PN 99-14	The Bureau argued that, given the evolution of the Internet and on-line new media services, the CRTC should begin to change the way the traditional broadcast industry is regulated. The Bureau also stressed the importance of ensuring that voluntary codes in the new media industry comply with the Competition Act.	On May 17, 1999, the CRTC announced that it will not regulate new media services on the Internet. It expressed concern that any attempt to regulate Canadian new media might put the industry at a competitive disadvantage in the global marketplace. This decision allows market forces to operate freely in new media, thereby enabling Canadian service providers to develop and remain competitive on a global scale.
Energy
Ontario Electricity Standard Supply Service The pricing and procurement of standard supply and marketing restrictions related to a distributor's obligations under Ontario's Electricity Act. Standard Supply Service is the default service that most customers will receive when the Ontario electricity market is opened to competition.	The Bureau intervened in an Ontario Energy Board hearing in support of measures to achieve the potential benefits of competition for all consumers and the Ontario economy. The Bureau favoured a supply service that passes the benefits of competitive wholesale supply directly to consumers, with budget billing allowed to protect consumers from price volatility.	The Board adopted positions largely consistent with the Bureau's recommendations. It adopted a form of the wholesale market price method for Standard Supply Service for residential and small commercial customers, and a direct wholesale market price pass-through method for large customers.
New Brunswick Natural Gas  Rules and regulations regarding the conduct of natural gas distributors and marketers in New Brunswick. Establishing the regulatory framework in preparation for the start of natural gas sales in the province.	The Bureau's submission discussed Canadian competition law and policy, as well as the appropriate roles and responsibilities of the New Brunswick Board of Commissioners of Public Utilities and the Competition Bureau in the New Brunswick natural gas market. It also presented competition principles for the Board to consider and commented on specific code-of-conduct matters.	The Board decided some issues and referred others to an industry working group. Among other things, it decided to accept a proposed code of conduct for marketers, to require regular reports from marketers, to require the distribution company to disclose all terms and conditions of any sharing of services with an affiliate, and to permit joint advertising in order to promote a level playing field.
Other Interventions
Poultry (Ontario) In April 1998, a committee of the Ontario Farm Products Marketing Commission developed an allocation policy for live chickens going to Ontario processors.	The Bureau reviewed the policy and outlined its concerns to the Commission. In its intervention, the Bureau expressed the concern that the allocation policy limits the choice of large chicken purchasers, freezes current market shares among existing processors, and raises barriers to entry to new processors. In the Bureau's view, there are two major ways of making the industry more competitive:  a) reintroduce a true bottom- up system b) continue to manage the supply through the Chicken Farmers of Ontario (CFO) but allow competition to allocate it. A true bottom-up system focusses on market rather than individual processor requirements. It gives an incentive to producers to respond to future competition, gives more flexibility to purchasers to choose among processors and allows for entry by new processors.	Following hearings in September and October 1999 to determine a process for allocating live chickens to Ontario processors, the Commission issued its decision on December 1, 1999. The key points of the decision are that a formula approach to chicken pricing will be instituted, supply will be determined by a bottom-up process, new entrants will be allocated supply, and the CFO shall establish an export policy that provides for direct contracting between individual processors and producers on price and volume. These changes will ensure a more market-oriented approach to the supply of chickens, which will ultimately benefit the consumer.
Household Goods Removal Services: Review of Public Works and Government Services Canada (PWGSC) Request for Proposal The Request for Proposal is a tendering document that dictates the conditions to be respected for moving government employees and for allocating contracts for these moves among carriers. Members of the moving industry expressed a number of concerns that their inability to bid for government contracts lessened their ability to do business. Since the PWGSC contract for the movement of goods is the largest such contract in Canada, it has a tremendous effect on the moving industry and the competitive environment.	The Bureau reviewed the Request for Proposal and made a number of recommendations to the Interdepartmental Committee on Household Goods Removal Services (IDC), which sets the moving policy for PWGSC, including the following: broadening the base standards, ascurrent standards limit the number of eligible bidders suspending the exclusivity clause for the purpose of the bid, or deleting the "no right of refusal" rule basing benchmark and input rates (costs associated with providing service) on broad consultation, and having PWGSC set the rates, not bidders simplifying the Request for Proposal to be more readily understandable to movers.	These recommendations, and others, are under consideration by the IDC.
Public Interest Inquiry Before the Canadian International Trade Tribunal (CITT) Baby food sold in jars.	The Competition Bureau, Gerber Canada Inc. and numerous public interest advocates sought and obtained a public interest inquiry into whether the CITT should recommend to the Minister of Finance that the duties on baby food sold in jars be reduced or eliminated. The Bureau recommended to both the CITT and subsequently to the Minister of Finance that the duties be eliminated or set no greater than the level of the injury found by the CITT (i.e. four cents per jar).	Following the most extensive hearing of its type, the CITT recommended that the duties be reduced by about two thirds to about 10 cents per jar. This would, the Tribunal said, recognize the interests of Canadian infants and caregivers in a competitive market. The Minister of Finance accepted the CITT's recommendation and implemented it in July 1999. Heinz continues to be the sole supplier of jarred baby food in Canada.
NAFTA Binational Panel Review of Canadian International Trade Tribunal Material-injury Decision on Jarred Baby Food	Following Canada Customs and Revenue Agency findings that Gerber had been selling U.S.-made baby food for less in Canada than in the U.S., the CITT held an inquiry to determine whether this dumping had caused material injury to Heinz's domestic production of jarred baby food.  During its intervention, the Bureau argued that other events, restrictive trade practices among them, had caused injury to Heinz. When, in April 1998, the CITT determined that the dumping had caused injury to Heinz, duties averaging 30 cents per jar were imposed on Gerber baby food. As a result, Gerber withdrew from the Canadian market, leaving Heinz as the sole marketer of jarred baby food. Gerber Canada Inc. filed a request for Binational Panel review of the decision in June 1998. The Competition Bureau was a party in seeking this review.	Since the April 1998 CITT finding, Heinz has been the sole supplier of jarred baby food in Canada.  In April 1999, the NAFTA Binational Panel upheld the Competition Bureau's right to be a full participant in the review of the CITT decision. In November 1999, the Panel also upheld the CITT's decision (i.e. that the injury caused by the dumping was supported rationally by the evidence, and on the appropriate standard for finding injury, the Panel could not find any reviewable error).

Competition Bureau and CRTC Interface

The Bureau and the Canadian Radio-television and Telecommunications Commission (CRTC) have agreed on a document that describes the CRTC's authority under the telecommunications and broadcasting Acts and that of the Bureau regarding the telecommunications and broadcasting sectors. This interface document deals with a range of competitive issues, including access, merger review, competitive safeguards and various marketing practices.

The purpose of the document is to provide industry stakeholders, including the general public, with greater clarity and certainty as to the overall regulatory and legal framework governing the telecommunications and broadcasting sectors. These sectors are undergoing rapid change and are moving from detailed regulation to greater reliance on market forces. The document does not deal with matters unrelated to competition to which the CRTC's mandate extends.

The Interface document is available on the Bureau's Web site (http://www.competitionbureau.gc.ca; click on News Releases and Notices and then on Backgrounders).

Voluntary Compliance

The Bureau participates in the design of voluntary codes of conduct, norms and standards for a host of professional and industry associations. Bureau staff are available to meet with association members, both individually or as a group. Examples of such activities include work with pet food manufacturers, the retail jewellery industry and federal government agencies.

Consulting: Pet Food Guidelines

For the past several years Canadian pet food manufacturers and consumers have expressed the desire to see a more uniform approach to the labelling and advertising of pet food in the Canadian market, as well as more rigorous application of the Consumer Packaging and Labelling Act and the Competition Act in matters concerning false and misleading representations.

The Competition Bureau has responded to these concerns by preparing draft Guidelines for the Labelling and Advertising of Pet Foods. The Guidelines have been issued for public comment, and will help the industry to provide clear, accurate and meaningful information. They were drafted in collaboration with Bureau stakeholders, such as Health Canada, Agriculture and Agri-Food Canada, the Pet Food Association of Canada, the Canadian Veterinary Medical Association, the Canadian Kennel Club, the Canadian Animal Health Institute and the Pet Industry Joint Advisory Council.

Facilitating Conformity: Retail Jewellery Industry

The Bureau has developed a conformity strategy for the retail jewellery industry in response to concerns from consumers, competitors and industry associations.

The aim of the first component of the strategy, completed in December 1999, was to educate and inform both jewellery retailers and consumers. On December 1, the Bureau sent personalized letters to more than 3000 jewellery retailers in Canada inviting them to review their obligations under the Competition Act and the Precious Metals Marking Act, and to examine their own advertisements and marketing practices to ensure conformity with the law. As well, the Bureau posted on its Web site a consumer warning that, in addition to alerting consumers to questionable practices by jewellers, invited them to report any suspected misleading activities to the Bureau. The consumer warning was included with the letter sent to jewellery retailers.

The second component provides for the monitoring of jewellers' marketing practices and includes targeted visits to clarify the application of the law and give retailers the opportunity to voluntarily undertake corrective actions to ensure compliance with the legislation.

In the third component of the conformity strategy, retailers showing signs of continued non-compliance will be subject to enforcement actions.

Monitoring and Enforcement: Misleading Representations and Deceptive Marketing Practices on the Internet

The Bureau was involved in two Internet sweeps this year. The first, carried out in December 1999, targeted approximately 30 multilevel marketing plans and related Web sites and found problems with approximately 20 of them. Appropriate follow-up action will be taken in the next fiscal year.

In February 2000, the Bureau participated in an international law enforcement project to address misleading representations on the Internet. The project targeted phony "get-rich-quick" schemes, such as deceptive work-at-home offers, business opportunity scams and illegal lotteries. The Bureau identified 50 national and international problem Web sites, and sent warning e-mails to targeted sites with suspected misleading practices. The Bureau will be monitoring those sites to see which ones make changes to comply with the law. Appropriate enforcement action will be taken in situations of non-compliance.

International Activities

In an increasingly globalized marketplace, it is important for Canada to be actively involved on the world stage in the promotion and development of coordinated competition laws and policies. Therefore, the Competition Bureau participates in a number of international initiatives.

Signing of the Canada-European Union Co-operation Agreement

On June 17, 1999, Canada and the European Union signed a new agreement regarding the application of competition law. The agreement is designed to enhance economic relations between Canada and the European Union by increasing cooperation and coordination in the enforcement of competition laws to combat anti-competitive activities in both jurisdictions.

The new agreement, which replaces earlier informal arrangements between the Competition Bureau and the European Commission Directorate-General for Competition, has increased the effectiveness of enforcement and reduced the risk of inconsistent or incompatible decisions in individual cases for both authorities. This has been achieved through improved communication and the sharing of best practices and experiences in relation to international cartels and, in particular, reviews of transnational mergers.

Organisation for Economic Co-operation and Development

Competition Bureau representatives continue to actively participate in the various initiatives of the Competition Law and Policy Committee (CLP) and working parties of the Organisation for Economic Co-operation and Development (OECD). In his capacity as Chair of Working Party 3 on International Co-operation, the Commissioner of Competition played a leading role in developing the Report on Positive Comity, which sets out principles for a country's full and sympathetic consideration of another country's request to initiate or expand a law enforcement action in order to remedy conduct that is affecting that country's interests.

The Working Party also spearheaded the report to the OECD Council entitled New Initiatives, Old Problems: A Report on Implementing the Hard Core Cartel Recommendation and Improving Co-operation. The report is significant in that it identifies ways in which competition authorities can work together to better address these unequivocally harmful activities through both enforcement and legislative improvements.

In addition, the OECD released this year its guidelines for consumer protection in the context of electronic commerce. As a member of the OECD, the Bureau has, with the participation of Industry Canada's Office of Consumer Affairs, undertaken to disseminate these guidelines and to encourage businesses, consumers and their representatives to take an active role in promoting their implementation at the international, national and local levels.

International Marketing Supervision Network

The Bureau is a member of the International Marketing Supervision Network, which comprises various international enforcement agencies. The Network's main objective is to facilitate practical action to prevent and redress deceptive marketing practices with an international component. The Network fosters cooperative efforts to tackle consumer problems connected with crossborder transactions in both goods and services. This year, the Network undertook a survey on enforcement activities so member countries could become familiar with each other's jurisdiction and legislation, including confidentiality provisions.

World Trade Organization

This year, the Competition Bureau conducted roundtable discussions with competition policy and trade experts in Toronto, Ottawa and Montréal on the implications for Canada of possible negotiations on competition policy at the World Trade Organization.

The discussions focussed on a background document - Options for the Internationalization of Competition Policy - prepared by the Competition Bureau to seek views on a suggested approach to the internationalization of competition policy. The issues raised during the sessions did not result in any major changes to the options.

The Bureau also participated in consultations led by the Department of Foreign Affairs and International Trade.

Free Trade Area of the Americas

The Competition Bureau led the Canadian delegation and actively participated in meetings of the Free Trade Area of the Americas (FTAA) Negotiating Group on Competition Policy, held in May, July and October 1999 and January 2000.

During these meetings, the Bureau played a lead role in developing an annotated outline of the potential issues for negotiation to conclude a chapter on competition policy in the agreement establishing the FTAA.

As well, the Bureau participated in discussions on the interaction between trade and competition policy, and in technical assistance sessions to provide guidance and advice to delegations on the drafting, implementation and enforcement of competition policies.

In October 1999, the Negotiating Group submitted a progress report, together with the annotated outline, to the Trade Negotiations Committee, which subsequently reported on this work to the meeting of the Trade Ministers for the Free Trade Area of the Americas in Toronto in November 1999. Following this meeting, and in response to directions in the Ministerial Declaration, the Negotiating Group began work on a draft chapter on competition policy, to be submitted to the Trade Negotiations Committee prior to the next Ministerial meeting in Argentina in April 2001.

Technical Assistance

The Competition Bureau is increasingly asked for technical assistance from countries without competition laws, those in the process of drafting or implementing them, or those seeking to enhance their institutional capacity. Subject to the availability of resources, the Bureau has been actively involved in providing technical assistance, both independently and in partnership with the private sector, the academic community and international non-governmental agencies, and with the support of funding agencies such as the Canadian International Development Agency.

The Competition Bureau is increasingly asked for technical assistance from countries without competition laws, those in the process of drafting or implementing them, or those seeking to enhance their institutional capacity.

In addition, the Bureau has participated in international seminars, workshops and conferences, provided information on Canadian policy, law and practices, and welcomed visitors from foreign governments, competition authorities, economic "think tanks" and academic institutions. Countries that received this assistance this year included Mexico, Thailand, Korea, Vietnam, Taiwan, China, Latvia, Lithuania, Morocco and Jamaica.

The Bureau assists other countries to advance Canadian government foreign and economic policy objectives and obligations under regional free trade and cooperation agreements, and to support Canada's commitment to various international organizations, such as the OECD, the World Trade Organization and the Asia-Pacific Economic Cooperation, and to regional free trade negotiations on competition policy, such as the FTAA negotiations.

Labelling of Textile and Apparel Goods

As part of the mandate of the NAFTA Subcommittee on Labelling of Textile and Apparel Goods, the Competition Bureau, along with other government departments and concerned industry and consumer representatives, has been working to harmonize labelling requirements to facilitate trade in textile and apparel goods. As part of that initiative, NAFTA countries are in the final stages of developing new common care symbols. These symbols will provide more care information than do the current ones, and will better reflect modern cleaning methods. Canadian business, particularly exporters, will also benefit from a system that is recognized in the international community.

In light of the proposed new symbols, the Bureau has asked the Canadian General Standards Board to provide advice on the revision of the current care labelling standard and to review associated test methods and test criteria to ensure that they are appropriate for the current marketplace. The revised standard, which will identify the symbols and their meanings, and describe the presentation of information on the label, performance criteria and test methods, will provide assurance of compliance and will foster a credible image for individual businesses in the marketplace.

Environmental Labelling

Since 1994, the Competition Bureau has provided input to three International Organization for Standardization (ISO) working groups to assist in the development of environmental labelling standards under the ISO 14000 environmental management series. All of these standards have now been published, and the Competition Bureau has worked with CSA International (formerly the Canadian Standards Association) to have one of these standards (ISO 14021: Self-declared Environmental Claims) adopted as a National Standard of Canada.

This standard reflects what will be accepted in most industrialized countries as the basic guidance on the use of environmental symbols such as the mobius loop, terms such as recyclable, recycled, biodegradable and compostable, and substance-free claims. The widespread use and application of this standard will give consumers confidence that the environmental claims they see in advertising and labelling are accurate, reliable and verifiable.

The Competition Bureau will be launching a consultation in fiscal year 2000-2001 on its proposal to replace the Bureau's current Principles and Guidelines for Environmental Labelling and Advertising with this new National Standard of Canada.