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Annual Report of the Commissioner of Competition for the year ending March 31, 1999


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Promoting Competition

The main objective of the Competition Act is to create an environment where Canadians can enjoy the benefits of competitive prices, product choice and quality services in a vibrant and healthy marketplace.

To fulfil this objective, the Competition Bureau frequently intervenes at hearings of federal and provincial regulatory boards and tribunals in Canada. It has also taken a leadership role in issues relating to antitrust policy internationally.

Domestic Markets

Formal Interventions

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

In 1998–99 for example, the Bureau made a number of significant interventions. They ranged from submissions aimed at maintaining choice in the marketplace for baby foods to several interventions aimed at promoting competition in the electricity sectors in Ontario and Alberta. Tables 3 and 4 provide an overview of these activities.

The Bureau's broad partnership role

To protect the public interest, the Competition Bureau makes representations on competition issues before federal and provincial boards, commissions and tribunals.

The Bureau frequently works with other governments and their agencies in developing competition policy, and is regularly invited to participate in government policy-making initiatives.

For instance, interventions on the proposed restructuring of the Ontario and Alberta electricity markets outlined in the following tables demonstrate how the Bureau's resources are used to help protect public interests and consumer choice.

**Table 3: Competition Bureau: Interventions 1998–99**
Industry Sector and Issue	Competition Bureau Intervention	Outcome And Potential Benefits For Canadians
Broadcasting, Telecommunications and New Media (Internet)
Fixed satellite services The extent to which Telesat Canada's satellite rates and services should be deregulated during the transition to competitive markets. (CRTC PN 98-8 and Decision 98-4)	The Competition Bureau said that Telesat should continue to be regulated until such time as the Canadian Radio-television and Telecommunications Commission (CRTC) is satisfied that the company will no longer be able to exercise market power.	The CRTC accepted the Bureau's relevant market definitions and competitive analysis in determining the extent to which it would continue to regulate Telesat. Broadcasters and telecommunications users who rely on Telesat are protected from Telesat's ability to exercise market power during the transition to competitive markets.
Television broadcasting A broad range of issues relating to the Canadian TV broadcast industry were examined. (CRTC PN 1998-44)	The Bureau's submission focussed on two issues: the desirability of eliminating the market entry test (in terms of economic impact) for licensing new local broadcasting undertakings; and the role of the Bureau in examining TV broadcasting mergers, should existing ownership restrictions be relaxed.	At the end of 1998–99, the CRTC's decision was pending. Greater consumer choice and increased competition in local TV broadcasting markets is being sought. The preservation of competition in local TV markets is being sought.
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 destinations.	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.	At the end of 1998–99, the CRTC's decision was pending. Increased competition in the wholesale and retail markets for Canada–overseas telephone services is being sought. Lower prices, as well as greater consumer choice and the introduction of innovative services should result.
Radio broadcasting The regulatory treatment given to joint industry management agreements in local radio broadcast markets. (CRTC PN 1998-42)	The Bureau submitted that radio station management agreements should be examined by the CRTC in the context of content and cultural objectives of the Broadcasting Act, and rely on the provisions of the Competition Act to safeguard competition in local radio advertising markets.	The CRTC issued its decision on March 31, 1999. It proposes to regulate radio industry management agreements through its power to license under the Broadcasting Act. The CRTC is seeking further comments on revisions required to its radio regulations to facilitate the new policy. The CRTC decision does not indicate the extent to which the impact on competition in local advertising markets will be a factor in its review of radio station management agreements.
Local telephone The allocation of local telephone start-up costs between incumbents and new entrants. (CRTC PN 98-10)	The Bureau argued that the CRTC should use principles of economically efficient pricing in determining the allocation of costs associated with providing access and interconnection arrangements for competition in local exchange services. The Bureau also expressed concern that existing local telcos, in an effort to limit competition, would attempt to pass on their costs to competitors.	The CRTC issued its decision on March 12, 1999, adopting most of the Bureau's recommendations. The growth of competitive local telephone markets and easier access for new firms entering local markets has been facilitated.
Television satellite signals The removal of restrictions to TV network signals from U.S. satellites. (CRTC PN 1998-60)	The Bureau argued that restricting the ability of Canadian broadcast distributors (cable companies) to access programming from U.S. satellites should be eliminated.	At the end of 1998–99, the CRTC's decision was pending. With lower costs for acquiring TV programming, competition will be increased among distributors of TV signals to Canadians.
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 98-20/98-82)	The Bureau argued that, given the evolution of the Internet and on-line new media services, the CRTC should begin a process of transition regarding the way the traditional broadcast industry is regulated. It also stressed the importance of ensuring that voluntary industry codes in the new media industry be in compliance with the Competition Act.	At the end of 1998–99, the CRTC's decision was pending. By discouraging unnecessary and costly regulation it will be easier for Canadian Internet, on-line new media and other applications (such as electronic commerce) to develop and remain competitive on a global scale.
Food
Dairy product blends Imports of dairy product blends, particularly butteroil/sugar blends, had become a matter of increasing concern, with some interveners recommending import tariffs of 300 percent. In December 1997, the Governor in Council directed the Canadian International Trade Tribunal (CITT) to inquire into imports of dairy blends outside the coverage of Canada's tariff rate quotas.	In March 1998, the Bureau argued that an examination of the domestic market for imported dairy blends should take into account the positive competitive impact those imports are likely to have on food processors in terms of choice, price of inputs, efficient operations and increased sales. Moreover, the Bureau added that imposing tariffs would only delay the adjustments that the dairy industry must eventually make to an open trade environment.	At the conclusion of the hearings, the CITT put forward several options to the Governor in Council. In its closing submission, the Bureau supported only one of these options: special class pricing. This option is welfare enhancing, allows consumers and processors the benefits of import competition, and is consistent with a gradual transition to a competitive market. As a result of a reference from the Deputy Minister of Canada Customs and Revenue Agency, the CITT undertook a review of the tariff classification of butteroil blends in January 1999. Since competition issues were not a focus of the hearings, the Bureau did not participate.
Material injury intervention Hearings before the CITT claimed that the dumping of baby food sold in jars by Gerber Canada Inc. had caused material injury to H.J. Heinz Company of Canada Ltd.	Following Canada Customs and Revenue Agency's findings that Gerber had been selling U.S.-made baby food cheaper 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, trade restrictive 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 products. Gerber withdrew from the Canadian market, leaving Heinz as the sole marketer of jarred baby food.	Gerber Canada Inc. has sought to have the decision reviewed by a binational panel. At the time of writing the binational panel review is pending. Since the April 1998 finding of the CITT, Heinz has been the sole supplier of jarred baby food in Canada. Until the conclusion of the binational panel process, a monopoly situation exists in the baby food market in Canada.
Public interest inquiry 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.	Following the most extensive hearing of its type, in November 1998, the CITT recommended that the duties be reduced by about two thirds. This would, the Tribunal said, recognize the interests of Canadian infants and caregivers in a competitive market. At the time of writing, the CITT's recommendation to the Minister of Finance was under consideration.
Ontario Electricity Sector Restructuring
Ontario's Energy Competition Act Adopted in the fall of 1998, this Act allows the province's electricity market to be opened up to both retail and generation competition during the year 2000.	In 1998–99 the Bureau continued to participate in the restructuring process through: two major submissions; and advice to the Ontario government's Market Design Committee on restructuring the sector for a competitive environment. The Bureau's intervention has two main purposes: To support the move to competition in Ontario's electricity generation and retail markets. This should result in more efficient use of resources and lower prices. To ensure that the roles of the Competition Bureau and the industry regulator are appropriately assigned and coordinated so as to deal efficiently and effectively with any competition abuses that may arise, and to avoid unnecessary overlap and duplication between the two organizations.	Ontario's Energy Competition Act incorporates many key market and regulatory elements advocated by the Bureau in its submissions. For example: Householders, if they wish, will have the opportunity to choose among competing energy providers starting in the year 2000. A level playing field with respect to charges and fees will be established for public and private sector companies. This will ensure survival of only those who meet consumer demands at the lowest prices (and not on preferential tax and financing arrangements). Owners of transmission and distribution facilities must set up separate affiliate companies for their competitive business. This will ensure they cannot use their monopolies to gain a competitive advantage in other markets by discriminating against competitors. Regulation will be minimized by a requirement that it will be removed where there is sufficient competition to protect public interests.
Ontario Natural Gas
Improving the competitive framework in the sale of natural gas in Ontario Competition in retailing natural gas is not new in Ontario. However, a pre-existing regulatory and legislative framework limited true competition on pricing and service levels.	The Bureau's interventions promoted market structure changes to allow Ontario consumers to enjoy the full benefits of competitive and efficient natural gas supplies. Interventions included comments to the following: the Ontario government on proposed natural gas regulatory amendments in Bill 35, the Energy Competition Act; and the Ontario Energy Board on a proposed licensing scheme for marketers of natural gas to households and other low-volume users.	The Competition Act and the Ontario Energy Board's authority will protect small-volume customers from anti-competitive and unfair business practices and provide clear rules for natural gas marketers. This will be done by: making it an objective of the Board to facilitate competition; removing regulation where there is sufficient competition to protect public interests; having the Board govern relations between regulated natural gas distribution utilities and their competitive market affiliates; and requiring gas marketers to be licenced under the Board's authority. These and other amendments will pave the way for competitively priced, more innovative gas service offerings, allowing Canadians to benefit fully from a vibrant and healthy marketplace.
Alberta Electricity Market Restructuring
The restructuring of the Alberta electricity market The promotion of appropriate roles and responsibilities for the Alberta electricity industry regulator and the Competition Bureau in Alberta, and providing Alberta market participants with information on Canadian competition law and policy.	During 1998–99 the Bureau made a presentation to the Market Surveillance Workshop on Competition Law in Alberta. The Bureau also contributed to the Alberta government's electricity Market Surveillance Regulation, which was adopted in December 1998.	By explicitly recognizing the role of competition law in dealing with anti-competitive business practices in the province, clear lines of responsibility have been drawn between Alberta's Market Surveillance Regulation authority and the Competition Bureau. As a result, the surveillance authority will refer any business behaviour that may contravene the Competition Act directly to the Bureau for investigation and possible action. Clarification of federal and provincial roles will result in: clear rules for business and lower compliance costs — savings that can be passed on to Canadians; and greater clarity for the regulator and the Bureau, and the elimination of overlapping investigations and interventions — resulting in savings to taxpayers.
Draft Ontario Franchise Disclosure Legislation
The Competition Bureau's submission on franchise disclosure legislation as set out in a consultation paper issued by the Ontario Ministry of Consumer and Commercial Relations This Ministry's paper follows years of effort to establish a franchise law in Ontario.	In light of a number of complaints from franchisees about alleged misrepresentations by franchisers, the Bureau expressed its support for the proposed disclosure requirements. As well, the Bureau alerted the Ministry to potential competition concerns on some aspects of the consultation paper. The Bureau cautioned against legislation that would lead to common pricing, market or customer allocation; joint action to prevent entry; preventing franchisees from setting prices lower than those suggested by their franchisers; or any other conduct that could lessen competition within the industry or for Canadians.	The draft legislation, if passed, would ensure that all parties are bound by clear rules on: specific disclosure requirements by franchisers to prospective franchisees; the right of franchisees to associate; definitions of franchise arrangements to be covered by the legislation; and a process for the systematic collection of information on franchise activities. In short, the disclosure requirements would provide greater transparency and create a more informed marketplace. They could serve as a model for franchise disclosure legislation in other provinces. As of this writing, only Alberta has proclaimed such a law.

**Table 4: Competition Bureau: Enforcement Activities 1998–99**
Industry Sector and Issue	Competition Bureau Intervention	Outcome and Potential Benefits For Canadians
Alternative Case Resolution
Airport park-and-ride services Among its activities, an airport authority operates various parking and related shuttle bus services for travellers. The operator of an off-site park-and-ride company offered a similar service to travellers in competition with the airport. This operator complained to the Bureau. The complainant claimed that the airport's entrance fees and its access policies were anti-competitive.	The Bureau examined the complaint under the abuse of dominant position provisions of the Competition Act.	During the course of several discussions with the airport, the park-and-ride operator reached a settlement with the airport. In addition, the airport agreed to alter its ground transportation policy to conform with the Competition Act. A valuable competitor was able to remain in the market for consumer choice in park-and-ride services and prices. This case was also important for demonstrating to other airport authorities that if they engage in competition with off-site rivals, then they should ensure that the Competition Act is not violated.
Camera parts and the repair of a well-known brand of cameras The exclusive distributor for a well-known brand of cameras in Canada refused to continue to supply parts to the complainant. As a result, the complainant could no longer provide competitive repair services.	Bureau staff made several telephone calls to discuss the matter with the distributor.	The supply of camera parts was restored. Consumer repair services for this particular brand of cameras have been reinstated.
Distribution of videos in Eastern Canada A major producer of videos discontinued the supply of videos to a distributor in Eastern Canada. The distributor claimed that this would substantially affect its business, and that competition would be lessened as a result.	Representations were made by the Bureau regarding the supply of videos.	The supply of videos was restored. The distributor and its clients benefited from the supply of a full line of videos — averting the potential negative effects to the distributor's business and a likely lessening of competition in the marketplace for these products.

Informal Cooperation

The Bureau is an active participant 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.

In September 1998, for example, the Bureau was invited to address delegates to the Canadian Real Estate Association national conference and trade show. It took this opportunity to communicate its vision for replacing the 10-year-old prohibition order with an effective voluntary code of conduct.

The issuance of the prohibition order was the result of investigations by the Bureau into alleged anti-competitive conduct by several real estate boards and associations. Because it prohibits specific types of anti-competitive behaviour, the order is effectively a mandatory code of conduct respecting competition matters for the industry.

The Bureau advocates the adoption of a voluntary code of conduct — one that will promote best competition practices, rather than minimal compliance with the law. This will provide a better model for fulfilling the broader competitive objectives of the real estate industry in today's changing world.

Toward this goal, Bureau staff are consulting with stakeholders. The Bureau would like to work in partnership with all of the stakeholders to develop a code of conduct that will not only build on the achievements of the prohibition order, but will also be more efficient, requiring fewer resources to administer.

As well, Bureau staff were involved in consultations with industry and other government agencies to promote awareness of labelling, accreditation and general competition issues.

The Jewellery Accreditation Program invited Bureau staff to participate in discussions on an accreditation program for jewellery appraisers that will be recognized industry-wide.
The Bureau worked with representatives of the pet food industry and interested stakeholders to explore the usefulness of a voluntary code for the labelling of pet food products.
Bureau staff are continuing to conduct regular consultations with textile, upholstery and apparel industry associations.

International Activities

In an increasingly interconnected world, we cannot focus solely on domestic markets. With globalization, the number of businesses operating across borders is growing rapidly. This implies a greater risk that anti-competitive activities may be spread over several jurisdictions.

For this reason, the Bureau is actively involved in the promotion and development of sound competition laws and policies, together with appropriate enforcement, around the world.

Multinational merger activity

The recent proliferation of multinational merger activity implies a certain degree of cooperation among national and regional competition authorities.

The Competition Bureau strives to work with its foreign counterparts at an early stage of the merger review process. Discussions range from product market definitions to entry conditions and the coordination of remedies.

Organisation for Economic Co-operation and Development

In June 1998, the Competition Bureau's Commissioner was elected to chair the working party of the Organisation for Economic Co-operation and Development (OECD) Competition Law and Policy Committee. This working party on enforcement cooperation is an important contributor to the development of concepts and ideas to encourage international harmony among competition authorities. During the fiscal year, the OECD working party finalized a framework for notification, as well as a report form for transnational mergers.

Although the framework is not binding for OECD member countries, it is designed to promote the substantive and procedural convergence of notification forms. The framework can also offer guidance to countries wishing to modify information requirements on a case-by-case basis. This will help to improve efficiency in enforcement cases involving transnational mergers, to the benefit of businesses with operations in several jurisdictions. The framework was approved by the OECD Council in February 1999.

The Bureau is also a member of the OECD Consumer Policy Committee. As such, it is participating in the drafting of the electronic commerce guidelines, including those dealing with on-line investment services.

The Internationalization of Competition Policy

The Bureau continues to participate in a working group at the World Trade Organization (WTO) examining the interaction between trade and competition policy, and in negotiations directed toward establishing a Free Trade Area of the Americas and a free trade agreement with the members of European Free Trade Association.

Rather than continue the ad hoc approach to competition policy that has been taken in recent WTO agreements, the Bureau has been involved in examining the viability of establishing a sound multilateral competition framework at the WTO to advance competition policy internationally. Some of the key building blocks are now in place and others are being worked out at the OECD.

Through these activities, Canada plays an important role in achieving the goals of competition policy on a multilateral basis.

X-ray fluorescence analysis for jewellery

Bureau staff are working with colleagues in Canada and abroad to find new ways of assessing the precious metal content of jewellery without having to dismantle it or break it apart. To broaden its network, the Bureau participated at the June 1998 meeting of the International Conference of the Association of European Assay Offices held in Prague, in the Czech Republic.

Positive Comity

One tangible example of increased cooperation with other jurisdictions is the expanded use of what is known as "positive comity."

The concept is relatively straightforward. It can be applied to situations where anti-competitive activity in one country harms both Canada's markets and the country's markets. At the same time, the anti-competitive activity in question is remediable through the country's domestic competition legislation.

Positive comity requires the other country to give due consideration to a request from Canada in order for Canada to begin an investigation (or expand an existing investigation), and to seek an appropriate remedy that would address Canada's concerns.

Such an approach ensures that anti-competitive conduct that harms more than one jurisdiction will be addressed by the jurisdiction in the best position to seek a viable remedy. It also eliminates the pitfalls associated with the extraterritorial application of domestic legislation.

Positive Comity at Work

A general positive comity provision has been present in the antitrust cooperation agreement with the Bureau's U.S. counterparts since the agreement was established in 1995. A positive comity provision is also present in the cooperation agreement with the European Community, which the Bureau hopes will come into effect during the first half of the 1999–2000 fiscal year.

Since positive comity requests flow both ways, Canada must also be ready to consider such requests — in line with its international obligations. The Bureau is also examining the possibility of increasing the specificity of such obligations in relation to its cooperative efforts with its counterparts in the United Sates.

Strengthening Cross-border Relationships

Canada's closest trade relationship is with the United States, and it is within this relationship that the Bureau has been able to explore a number of cooperative issues. The following are some of these issues: