Annual Report - Promoting Competition

The Competition Bureau promotes competition in a variety of ways, including making regulatory interventions, participating in departmental and interdepartmental policy making, providing comments to policy advisory bodies, participating in international bodies (for example, the Organisation for Economic Co-operation and Development and various trade bodies), giving speeches and holding seminars.

Interventions

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

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 when regulation is required it takes the form that least distorts competition and efficiency in the affected markets.

In 2000-2001, the Bureau made a number of significant interventions on issues ranging from the dumping in Canada of refined sugar to issues related to air, marine, road and rail transportation. The following pages outline the Bureau's interventions in the past year.

* The Board adopted the recommendations on May 3, 2001

Consultation on the Shipping Conferences Exemption Act, 1987

In 1999, Transport Canada invited comments on the Shipping Conferences Exemption Act, 1987, which exempts shipping conferences from the provisions of the Competition Act. In its comments, the Competition Bureau said that instability in rates and services was no longer a valid rationale for the exemption, and recommended that it be revoked. However, in the event that this proposal proved to be unacceptable, the Bureau recommended a number of other changes to the Act. In light of the submissions, Transport Canada prepared a consultation paper in late 1999 containing various options for change, which it provided to the Competition Bureau for comments.

While not endorsing the option Transport Canada proposed, the Bureau indicated that retaining antitrust immunity while introducing pro-competitive options was acceptable. This option provided for a shorter notice period for independent action, the mandatory right of a member of a conference to offer an individual service contract, an end to tariff filing, and electronic filing of documents. The Bureau also addressed a number of issues concerning the definition of a conference, the complaint mechanism, and the need for a sunset provision. Subsequently, Transport Canada introduced Bill C-14, An Act Respecting Shipping and Navigation and to Amend the Shipping Conferences Exemption Act, 1987 and other Acts, into the House of Commons on March 1, 2001.

Consultation on the International Charter Passenger Policy and Air Transport Regulations

On July 21, 1998, Transport Canada requested the Competition Bureau's views on Canada's policy on international charter passenger air services. The Bureau supported a review of Canada's policy in this area on the grounds that liberalizing the approach to international charter air passenger service could benefit the travelling public through lower prices and more choice. Further, the Bureau held that existing fences, such as pre-booking and minimum-stay requirements, were not appropriate in the current environment. 

The Bureau also indicated that rules designed to protect Canadian charter carriers from price competition should be eliminated. On April 4, 2000, the Minister of Transport released a new policy for international charter passenger air service that included a number of the Bureau's proposals.

In response, the Canadian Transportation Agency revised its proposed Air Transport Regulations and submitted them to the Bureau for comment on December 7, 2000. In its comments, the Bureau noted that the Agency had accepted the Bureau's initial proposals and proposed ways of further liberalizing the international charter market.

Presentation to the Canada Transportation Act Review Panel

On September 7, 2000, the Competition Bureau made a presentation to the Canada Transportation Act Review Panel. The presentation reviewed the role of the Commissioner and the interface between the Competition Act and regulation, and examined the concerns of the Commissioner with regard to the effectiveness of the competitive access provision pertaining to rail in the Canada Transportation Act. The Bureau's concerns about the current restructuring of the airlines were also addressed.

Participation on the Federal Domestic Emission Trading Working Group

In March 2000, the federal ministers of energy and the environment endorsed continued analytical work to support future international and domestic environmental policy decisions, including crosscutting policy instruments such as emissions trading.

Given Canada's acceptance of a binding greenhouse gas (GHG) reduction target, domestic emissions trading (DET) is being considered as a major economic instrument that would address a substantial portion of the required GHG emissions reductions. DET is a means of pricing GHG emissions in a cost-effective fashion, including encouraging the development of new technology, by combining the requirement that firms submit permits equal to their covered emissions with the provision of a supply of tradeable permits equal to the overall target for covered emissions.

The Bureau has identified certain broad competition policy and antitrust enforcement issues, including economic and competition issues, which would promote developmental work on DET:

• the initial allocation of tradeable permits
• the competitiveness (e.g. market concentration and pricing behaviour) and efficiency of the initial permit allocation through an auction mechanism
• the impact of the initial permit allocation on domestic product market competition and concentration
• the broad categories of gratis allocations
• the administration and enforcement of the Competition Act in relation to GHG emissions permit markets.

Canadian Securities Administrators: Submission on Alternative Trading Systems

In July 2000, as part of an initiative to create a framework permitting the competitive operation of traditional stock exchanges and alternative trading systems (ATS), the Canadian Securities Administrators (CSA) republished for comment its revised Alternative Trading System Proposal.

While supporting the initiative, the Competition Bureau submitted a number of comments in response to the proposal about who should provide market regulation for ATS. The Bureau believes that a regulatory environment allowing for competition among stock exchanges and ATS would stimulate innovation and encourage securities markets to be more responsive to the needs of participants.

The Bureau does not, in principle, oppose industry regulation that complements the Competition Act in establishing appropriate rules of conduct. However, self-regulation involves particular risks for the competitive process. To take full advantage of the benefits of both industry self-regulation and competition, the Bureau believes that any industry self-regulatory process should espouse the principle of competitive markets, ensure impartiality and transparency of operation, and provide for the handling of formal complaints and for periodic assessment and review.

Allowing for competition between markets will promote the efficient, low-cost and innovative provision of services. The Bureau believes that respecting the above considerations would contribute to the full realization of the benefits of competition in the area of alternative trading systems.

Intellectual Property Guidelines

The Bureau's Intellectual Property Enforcement Guidelines, released in September 2000, promote transparency in the enforcement of the Competition Act for intellectual property issues. The guidelines explain how the Bureau determines whether conduct involving intellectual property raises a concern under the Competition Act. They also describe how the Bureau distinguishes between those circumstances that warrant a referral to the Attorney General for an examination under the criminal provisions of the Competition Act (section 32) and those that warrant an examination under the general provisions. The Bureau released draft guidelines in June 1999 and again in April 2000 for comment. On both occasions, the Bureau held roundtable discussions across Canada to listen to stakeholders' views. The Bureau took the comments it received at these sessions into account when finalizing the guidelines.

Guide for the Labelling and Advertising of Pet Foods

In May 2000, the Bureau released its draft guide on the labelling and advertising of pet foods and sought public comment. The guide is a voluntary code that incorporates best practices in labelling and advertising in this area. It also reflects the approach the Bureau intends to take when evaluating allegations of false or misleading advertising under the Consumer Packaging and Labelling Act and the Competition Act.

The guide provides a set of general principles for pet food labelling, guidance on using specific claims, and examples of acceptable claims. The examples illustrate the type of claims manufacturers and importers may wish to use to reduce the likelihood that their labelling or advertising will mislead consumers.

The guide was prepared in collaboration with several governmental and non-governmental organizations, including 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.

The guide is being revised following consultations and will be issued in final form in the forthcoming fiscal year.

"Made in Canada" Claims Relating to Diamonds

In August 2000, the Competition Bureau sought public comment on how to enforce the Competition Act when reviewing claims that diamonds are "Canadian" or "of Canada."

The purpose of this consultation was to determine when "Made in Canada" claims relating to diamonds would cause concern under the misleading advertising and deceptive marketing practices provisions of the Act.

The Bureau received more than 100 written submissions, and will release a final enforcement policy in 2001-2002.

Consultations on the Draft Abuse of Dominance Guidelines

On May 18, 2000, the Competition Bureau released its draft abuse of dominance guidelines for public consultation and comment. The Bureau developed the guidelines to provide the business and legal communities, as well as the public, with a clear understanding of the enforcement approach the Bureau takes when examining allegations of abuse of dominance in the Canadian marketplace. These draft guidelines, in conjunction with the related consultations, are part of the Bureau's overall commitment to developing enforcement and educational tools through an open and transparent process.

The enforcement approach outlined in these guidelines draws heavily on Competition Tribunal jurisprudence as well as economic theory.

The consultations on the guidelines ended August 31, 2000.*

---

* The final guidelines were published in July 2001.

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 about certain marketing practices of jewellery retailers.

In the Bureau's 1999-2000 annual report, the Commissioner reported on the first component of the strategy, which was designed to educate and inform jewellery retailers and consumers. During 2000-2001, the Bureau concentrated its efforts on the second component of the strategy -- monitoring jewellers' marketing practices, including visiting retailers to clarify the application of the law and give them the opportunity to voluntarily undertake corrective actions to ensure compliance with the legislation.

The Bureau completed its monitoring on March 31, 2001, having examined the marketing practices of more than 350 corporate entities representing 1049 jewellery outlets. Concerns under the Competition Act were identified in relation to 163 corporate entities representing 946 jewellery outlets. By the end of the fiscal year, the Bureau had resolved 73 files using information letters, 54 corporate entities had committed to correcting their marketing practices to ensure conformity with the law, and
36 corporate entities continued to be subject to examination.

As the same time, the Bureau was identifying the most serious cases of apparent non-conformity. During the third component of the conformity strategy, retailers showing signs of non-compliance will be subject to enforcement actions.

Labelling Statutes

The Commissioner of Competition administers and enforces three standards-based statutes: the Consumer Packaging and Labelling Act, the Textile Labelling Act, and the Precious Metals Marking Act. These three statutes are intended to ensure the accuracy and adequacy of information provided to consumers.

During 2000-2001, the Bureau conducted 433 inspections under these laws. Actions taken against consumer products that did not comply with the legislation included 245 trader corrections, 38 seizures, 19 voluntary disposals and one prosecution.

Cases resolved through voluntary compliance included the following:

• An inspection of imported caulking compounds, sealants and adhesives. During the inspection, a total of 30 lots of various caulking compounds and sealants were found to be in violation of the labelling requirements under the Consumer Packaging and Labelling Act and regulations. These labelling infractions included the lack of a bilingual common name, and an incorrect declaration of net quantity (the imperial unit of measure was not declared as being in U.S. fluid ounces, and the metric net quantity declaration was shown in brackets). The corrective actions included trader correction of the bilingual common name before these products were shipped to clients, with a commitment by the Canadian wholesaler that all future shipments would be labelled properly and display the correct net quantity declaration.
• An inspection that revealed that 4 kg packages of cat litter were marked as a product of Canada, when the product did not meet the Bureau's Made in Canada Guidelines. Following a meeting with Bureau officials, the company agreed to remove the "Product of Canada" claim and replace it with "Packaged in Canada."
• An inspection of 10-karat gold bracelets that revealed that the gold content of the items was less than declared, contrary to the Precious Metals Marking Act and regulations. The company returned the bracelets in question to the distributor, and the items were destroyed.

Internet Sweeps

To promote the Organisation for Economic Co-operation and Development's Guidelines for Consumer Protection in the Context of Electronic Commerce, the Competition Bureau conducted a domestic Internet sweep to see whether the requirements of the guidelines were being met. The purpose of these guidelines is to encourage businesses to provide sufficient information to consumers so they can make informed choices when buying goods and services on-line. During August 2000, the Bureau assessed 292 Canadian Web sites to see what information was being made easily accessible to consumers before they entered into a transaction. Officers examined various categories of e-commerce sites, such as those selling sport and fitness equipment, books, CDs, clothing, and health and beauty products, and completed a checklist of 18 questions regarding site, contract and transaction information, and the privacy policy.

In February 2001, the Competition Bureau participated in a similar sweep organized by the International Marketing Supervision Network (IMSN). Members include consumer protection authorities from 29 countries and representatives from the European Commission and the Organisation for Economic Co-operation and Development. ISMN's main objective is to help prevent and redress deceptive international marketing practices through knowledge sharing and promotion of fair business practices.

In the sweep, 62 Canadian sites were evaluated. The results show that 80.65 percent of the sites disclosed their physical address, 91.94 percent provided an e-mail address, 88.71 percent provided a telephone number, 70.97 percent gave an itemized cost for goods or services, 62.90 percent specified the applicable currency, 16.13 percent mentioned geographic restrictions on purchases, 4.84 percent mentioned parental approval or minimum age requirements, 45.16 percent provided a policy on, or allowed for, returns, exchange and refunds, and 48.39 percent had a privacy policy.

Participation in Conferences

Through its participation in conferences, the Bureau has built up a relationship with professional groups in specific industry sectors, and has increased its contacts with academics at universities.

In June 2000, Bureau staff presented papers to the Canadian Economic Association and the Canadian Transportation Research Forum on Marshallian surplus analysis, alliances among competitors, marine pilotage, and analysis involved in certain transportation cases.

In September 2000, Bureau staff presented papers on the Competition Act's efficiency defence at the Canadian Law and Economics Association's annual meeting. Lectures on Canadian competition policy and antitrust enforcement were also given at l'Ecole des Hautes Etudes Commerciales in September 2000 and at l'Université Laval in April 2000. During the same month, staff presented papers to the Canadian Bar Association on intellectual property, the new economy and the Microsoft case. A paper was also presented to the Air Transportation Association of Canada in Vancouver.

In February 200l, a member of the staff attended the Agrifood Workshop in Tucson, Arizona, and presented his professional comments on a paper on concentration and market power in Canadian agribusiness. The Bureau's Immunity Bulletin was also presented in February 2001 at the American Bar Association Advanced International Cartel Workshop held in New York.

International Activities

As a result of the increasing integration of the world economy and the globalization of international commerce, competition policy, once regarded as purely domestic, is now increasingly global in outlook and orientation. Consequently, the Bureau is actively involved in international initiatives to promote the development of competition policy and to enhance the effectiveness of enforcement through cooperation with competition agencies around the world.

Cooperation

Legal and practical issues, such as confidentiality and national borders, pose great challenges for the Bureau in its investigation of transnational anti-competitive conduct and, in particular, cartels and mergers. International cooperation is invaluable for overcoming some of these challenges and enhancing the effectiveness of enforcement activities related to transnational anti-competitive conduct. The Bureau and other competition agencies regularly reap the benefits of cooperation, which can result in more timely and effective investigations and reviews, more efficient use of scarce resources and a reduction in potential interagency conflicts.

This fiscal year saw a marked increase in cooperation between the Bureau and other competition agencies, primarily the U.S. Department of Justice and Federal Trade Commission and the European Commission Competition Directorate-General (under bilateral cooperation agreements with the United States and the European Community, respectively) but also with agencies in Australia, Mexico, Japan and the United Kingdom.

For example, significant growth occurred in the number of notifications the Bureau received and sent under its cooperation arrangements as well as under the Organisation for Economic Co-operation and Development's Recommendation Concerning Cooperation. Notifications serve to alert a cooperating agency when an investigation, or other activities such as requests for information and visits, may affect its interests, often leading to dialogue between the agencies about their respective investigations.

There was also a significant increase in contact between Bureau officers and their international counterparts. Communication about merger reviews was most common, partly as a result of the willingness of parties to cooperate to expedite the review. For instance, in several merger reviews, officers from the U.S., Europe and Canada participated in three-way conference calls and meetings to discuss analytical issues and possible remedies.

Signing of Cooperation Arrangement Among Canadian, Australian and New Zealand Competition Agencies

On October 25, 2000, the Canadian, Australian and New Zealand competition agencies signed an interagency cooperation arrangement on the application of their competition and consumer laws. This arrangement will allow the Bureau to improve coordination with its counterparts in Australia and New Zealand.

The arrangement sets out a framework for notification, coordination and cooperation on enforcement activities, exchange of information and avoidance of conflict, and fully incorporates measures to counteract deceptive marketing practices.

Free Trade Area of the Americas

The Bureau continued to lead the Canadian delegation to the Negotiation Group on Competition Policy in negotiations for a Free Trade Area of the Americas (FTAA), and actively participated in the five meetings held in 2000.

During these meetings, Canada worked with other countries to prepare a draft chapter for the FTAA agreement on competition policy. Canada proposed a comprehensive framework on competition policy that builds and expands on Chapter 15 of the North American Free Trade Agreement to provide for more effective enforcement against anti-competitive activities. The proposed framework includes an obligation from signatory countries to adopt or maintain a competition law and to establish or maintain an independent and impartial competition agency authorized to take appropriate action and to advocate competition in regulated sectors. The framework also includes an obligation for countries to adhere to general principles of transparency, non-discrimination and procedural fairness, as well as mechanisms to promote enforcement cooperation and coordination. Consultation mechanisms and peer review are also part of the proposal.

In addition, the negotiating group considered the topic of competition policy in smaller economies and economies without competition regimes, and concluded terms of reference for further study. In the area of technical assistance, the Bureau participated in technical sessions, including one on competition issues related to the deregulation of the electricity sector, in general as well as in Ontario and Alberta.

The draft chapter on competition policy consolidates all countries' proposals and shows that consensus has yet to be reached on many issues. The draft chapter was considered, along with those from other negotiating groups, at the sixth meeting of the FTAA Trade Ministers held in Buenos Aires, on April 7, 2001. Negotiations will resume in Panama following instructions from the ministers.

Organisation for Economic Co-operation and Development

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 promoting and encouraging further work following the adoption of the 1998 Hard Core Cartel Recommendation. This work led to the 2000 Hard Core Cartel Report to the Council and the setting up of a three-year anti-cartel program. The next phase of the program has already yielded the completion of the Leniency Report and discussions on information sharing.

In Working Party 2 on Competition and Regulation, Bureau representatives played an important role in developing the Recommendation on Structural Separation, which was approved by the CLP and forwarded to the OECD Council for adoption at its meeting in April 2001. The recommendation is intended to provide guidance to countries with regulated firms simultaneously operating a non-competitive activity and a potentially competitive complementary activity.

Representatives from the Bureau participated in the most recent review of the chapters of the OECD Guidelines for Multinational Enterprises on consumer interests and competition. These important voluntary guidelines, which embody standards and principles on responsible behaviour by multinational enterprises, were first adopted on 1976 as part of the Declaration on International Investment and Multinational Enterprises. In order to keep the guidelines current in light of economic changes, the OECD has revised them several times, with the last review concluded in June 2000. In addition to competition and consumer interests, the guidelines include recommendations relating to adequate disclosure of business information to the public, employment and industrial relations, the environment, bribery and corruption, science and technology and taxation.

Canadian law and regulations are being reviewed in 2001 under the OECD's Regulatory Reform Programme, a project that each year reviews several countries' progress on regulatory reform. This multidisciplinary review will include a look at the role of the Competition Act and the Bureau in the regulatory reform process. The Bureau is responsible for and has been actively preparing Canada's submission to the OECD on these matters. The review of the competition policy will take place during the October 2001 meeting of the CLP. The Ad Hoc Multi-disciplinary Group on Regulatory Reform will then review the entire report on Canada in April 2002. It is expected the report will be published in June 2002.

Canada-Costa Rica Free Trade Agreement

The Bureau led the Canadian delegation in negotiations on competition policy to the Canada-Costa Rica Free Trade Agreement. Canada was seeking the negotiation of a framework on competition policy similar to that proposed for the World Trade Organization and the FTAA, based on consultations with stakeholders in 1999. Canada also viewed these negotiations as a building block for the conclusion of a competition policy chapter in the FTAA agreement, taking into account that several FTAA countries have yet to adopt a competition law and many others have very limited enforcement experience.

In this context, Canada proposed a chapter on competition policy that builds on previous free trade agreements and that could provide a benchmark for other countries for the design, implementation and application of competition law and policy as well as for enforcement cooperation among competition agencies.

The proposed framework included obligations on the adoption or maintenance of a competition law and the establishment or maintenance of an impartial and independent competition agency. It also included obligations on the general principles of transparency, non-discrimination and procedural fairness, mechanisms to promote enforcement cooperation and coordination, mechanisms for consultation with no dispute settlement and a recognition of the importance of technical assistance.

Negotiations on competition policy were concluded in March 2001, resulting in a chapter of the free trade agreement closely resembling Canada's initial proposed framework. The chapter will promote greater transparency and certainty in both Canada and Costa Rica, and enhance the effectiveness of enforcement activities by competition agencies in both countries through the establishment of a concrete framework for cooperation and consultation.*

---

* The entire agreement was signed in April 2001.

World Trade Organization Working Group on Trade and Competition Policy

Bureau representatives continued to play an influential role in the World Trade Organization Working Group on Trade and Competition Policy. In particular, the Bureau authored two submissions, Cooperation in a Multilateral Setting and Competition Policy Advocacy and Regulatory Reform in the Canadian Telecommunications Industry. The Bureau continued to encourage negotiations on competition policy in a new round of World Trade Organization negotiations, provided that any future obligations in this area were not subject to dispute settlement.