Remarks by John Pecman, interim Commissioner of Competition

C.D. Howe

Toronto, Ontario
April 5, 2013


Introduction:

Thank you for the invitation to be here this morning. It's a pleasure to be here with you.

I have been serving as Interim Commissioner for 6 months now – although some days it feels much longer – and this is a question I am often asked:

"We know who Melanie was – who are you?"

It's a fair question. There are three things you need to know about me:

  1. I'm tough – I have a proven, track record at the Bureau as an enforcer and it's that principled enforcement record that I'm most proud of.
  2. I'm fair – I'm a bridge builder, after 29 years at the Bureau, I have learned that success comes through collaboration, and through open, transparent communication.
  3. I'm an advocate – As an economist, by nature, I am a strong proponent of increasing competition and competitive forces in to our economy.

So, having said this, the 3 priorities I have outlined for the Bureau going forward, should come as no surprise.

They are:

  • benefitting Canadians, through focused enforcement and through strategic regulatory interventions;
  • applying Canada's competition laws in a transparent and predictable manner; and,
  • building trust through enhanced collaboration.

I recognize that none of this can happen in a silo.

Working with people like you, our stakeholders, is the key.

I have been talking for months about my belief that successful collaboration is built on mutual trust, and trust must be established through open lines of communication.

And, accordingly my mantra for the Bureau is – "building trust through collaboration" - between the Bureau and all its stakeholders.

This is not just a slogan.

For those of you that have interacted with the Bureau recently, you will have noticed this culture change.

Transparency, certainty and predictability are critical to our continued success. This is what Canadian consumers and the business community should expect from us.

These notions of trust, collaboration; transparency and predictability are precisely why I am here speaking to you today, and why I have been making the rounds, talking to Canadians and to stakeholders from the business community.

In the coming weeks, I plan to build on this approach through a number of sector days which will bring key players in important sectors of the economy to the Bureau. We began just last week with the telecommunications sector. The Bureau hosted three major companies from the digital sector to deliver presentations and engage in dialogue with members of the Bureau team.

Companies are invited to provide us with first hand knowledge of the nature of competition in their sectors and what forces are shaping change in the marketplaces they operate in.

These sector days are the next step in building that crucial dialogue between the Bureau and the drivers of Canada's economy.

It's an opportunity for us to increase our understanding of the dynamic nature of the markets we are asked to study and to form partnerships around a shared objective – advancing the competitiveness and strength of the Canadian economy.

Our approach to collaboration is working and I intend to build on that success by engaging more partners in our goal of ensuring that Canadian businesses and consumers prosper in a competitive marketplace.

Economic climate:

And, there is no time more critical than the present to be engaged in advancing that goal.

We are, across the world, in a period of economic uncertainty that is unparalleled in recent memory.

Governments around the globe are engrossed in the task of determining two things:

The first – how did we get here? And the second, and more pressing question, how do we fix it? While we are fortunate in Canada to have a stronger and more stable economy than many other countries, Canada's economy is not immune to the influence of the global market.

If we turn our attention to the question of how we fix this problem, there are two key components to recovery.

The first piece is about what we need to stop from happening.

We need to prevent any additional harm, and this means avoiding the knee-jerk reaction to relax competition as a means to protect industries and lessen further economic impact. Make no mistake: raising barriers to competition is not a panacea to an ailing economy.

This insular and ineffective approach can come in many forms.

One of the most apparent forms is protectionism, which, by restricting trade, inhibits greater competition, effectively stifling innovation, and forcing consumers to pay the price.

Equally corrosive to a recovering economy is dirigisme, which occurs when government exerts strong, direct influence in the economy, through direct and indirect subsidies of sectors of the economy. This approach of building up industries may seem laudable on the surface, except when you consider that for each winner, there must be a loser, and the loser, more often than not, is the consumer.

Not one of these approaches is conducive a strong, productive, resilient economy. What they do, in fact is harm consumers, and thwart economic growth. When competition is all but eliminated, the result is economic stagnation – to the detriment of businesses, the economy and consumers.

The second piece is about doing the right things for the economy:

Employing strong competition enforcement, which means providing enforcement bodies with the legal tools and resources they need, and reducing the opportunity for interference in competition.

We need to create a regulatory framework that is pro-competitive and a broad, economy wide approach that makes no special exception for any sector of the economy and engages all stakeholders in this endeavour.

I have spoken before about the success achieved in Australia who has aggressively pursued a policy of promoting competition.

While the immediate result for Australia was that its citizens benefitted from lower prices, the long term result was that it moved from being one of the most unproductive countries in the OECD, to one of the most productive.

What this tells us is something vitally important — competitiveness is the key to reigniting economic growth through increasing innovation and productivity.

Now, there are those who will point to free-trade as a cure all to a lagging economy. Without a doubt, free trade plays an important role but if your domestic economy is not productive, placing all your eggs in the free trade basket puts economic growth at risk. That is to say, if our non-tradable goods and our domestic markets are not competitive, it will be a serious challenge for our tradable goods to compete effectively in the world market.

Now, where Canada is concerned, we have, by any measure, weathered this storm better than many of our trading partners. But despite this, we have no cause to rest on our laurels.

Especially when you consider that nearly half of the US economic growth comes from industries that were nascent a little more than a decade ago.

To give you an idea of this, following the recent election of Pope Francis – NBC shared two photographs, taken at the same moment, when the new Pope was first presented. One is from 2005 and another from 2013. The 2005 of the then new Pope photo shows no more than a handful of phones among the hundreds of people in the crowd. In the photo taken last month just 8 years later, there are no more than a handful of people gathered for the event without phones. That's how quickly innovation changes our world.

So, if our continued success depends on our country's ability to foster an increasingly innovative and productive economy, the best way to do this, the most effective way to do this is through increased competition.

This is why the government has, in its most recent throne speech and in subsequent budgets, made innovation and productivity key priorities. They understand that these are critical components of economic recovery.

In fact, Industry Canada's mandate speaks directly to these critical components of economic recovery - making Canadian industry more productive in the global economy, thereby increasing the economic and social well-being of Canadians.

One of the ways in which Industry Canada is presently delivering on its mandate is by developing and administering economic framework policies that promote competition and innovation.

Which is where we fit in — ensuring that Canadian businesses and consumers prosper in a competitive and innovative marketplace. We promote competition through focused and principled enforcement of the act and through strategic regulatory intervention.

I said earlier that the path to a more innovative and productive economy follows through increased competition.

And I'm not the only one saying this. I'd like to share with you sentiments expressed by Tom Jenkins, Executive Chairman of Open Text who said "competition drives innovation, which in turn drives productivity. It follows that when we have suboptimal competition we can expect suboptimal innovation and suboptimal productivity."

I am sure I don't need to remind this audience that multiple recent studies have recognized the direct link between competition and productivity.

In November of 2011, the group Canada 2020 released a report identifying increasing innovation and productivity as a key challenge for our country. It then noted competition as a key driver of innovation and productivity adding that governments could no longer lecture about increasing productivity and becoming more innovative, they needed to move the agenda forward by increasing market competition.

These sentiments were echoed by Jenkins who said the "most effective way to 'encourage' firms to evolve is to expose them to increased competitive intensity in a thoughtful manner."

Both Jenkins and Canada 2020, through its report, argue that changes in regulated sectors of the economy are essential to improving productivity and innovation.

I couldn't agree more. If we are committed to reigniting our economy, if we are committed to ensuring that our economy thrives and prospers in the future, we need to remove burdens to competition. We need to introduce more competitive forces – and we need to do this in the sectors where competition is currently constrained, such as energy, transport and telecommunications.

This is why the Bureau has begun incrementally increasing its use of strategic regulatory interventions.

Regulatory interventions

I believe that we owe it to Canadians and to the economic health of our country to explore all ways to bolster competition and realize positive benefits for our economy.

And as such, the Bureau has proactively sought out areas where we can advocate in favour of increased competition.

Advocating for regulatory change has been an effective tool in promoting the economic productivity I spoke to earlier. Our past work in this vein demonstrates the tremendous benefit that can be realized by the Canadian economy by adopting this approach.

We have, in the past, used our powers under sections 125 and 126 of the Competition Act to research discriminatory practices in the grocery trade, automobile insurance and automotive products among others. Our actions in several of these cases resulted in the removal of anti‑competitive rules and regulations that restricted competition.

The value of these strategic interventions is clear, and here's an example that demonstrates this. A 2008 Statistics Canada Canadian Productivity Review showed that those Canadian industries that were deregulated between 1977 and 2003 experienced more rapid growth in labour productivity than the aggregate business sector. In some of these sectors, which included rail transportation, telecommunications and financial services, the industries outperformed their US counterparts.

The regulated sector represents a quarter of our economy, and I am sure I don't need to underscore for this audience that increasing competition in these areas has the potential to have an immediate and significant impact on our economy.

Our first intervention, as you may know, came last month when we made a submission to the CRTC consultations on the wireless code of conduct.

The sheer size of and impact of the now $20B wireless industry on Canadian consumers made this a natural and necessary intervention for the Bureau and we have an important, unique perspective to bear on the development of this code.

While our approach to these interventions is evolving, and we are considering all options within the regulated sector, we have identified three areas we believe are most promising. They are the regulatory environments that impact the digital economy, the retail sector and the health sector.

And, in assessing our approach, we will consider four strategic factors:

  • Does a forum to present exist, and is there a high level of public interest?
  • Will the Bureau be contributing in a useful way?
  • Will we be able to gauge the impact of our advocacy efforts?
  • Will our efforts have clear, tangible benefits for Canadians?

With our focus again on the digital economy, we are presently looking at policies being developed by the Internet Corporation of Assigned Names and Numbers (ICANN), which is responsible for administration of the domain name system on the internet. ICANN is poised to adopt a system that could potentially restrict competition, by providing exclusive access to new generic top level domain names.

The internet and domain names play integral roles in e-commerce, and by extension in the digital economy. In the Bureau's view, any measure which has the potential to adversely impact competition within the digital economy must be thoroughly examined.

Again, we are actively seeking feedback from our stakeholders, like the CD Howe and we will be open to hearing your thoughts on how we approach these interventions going forward.

On the regulatory side, we are working on a project with the International Competition Network to identify the characteristics of harmful regulations, which restrict competition in the marketplace.

Some of the types of harmful restrictions we have identified are:

  • Restrictions that raise barriers to entry or expansion in the market
  • Restrictions that control how firms are allowed to compete in a market
  • And; restrictions that shield firms from competitive pressure.

Our extensive experience in this area, through our interventions before the CRTC, previous studies on self-regulated professions, generic drugs led the US FTC to ask us to take a drafting role in this project. We know that this collaboration with our ICN partners will be beneficial and insightful for recovering economies across the globe.

Enforcement intersect with regulators

On the subject of collaboration, another initiative that we are actively working on is developing stronger working relationships with regulators, with whom we share enforcement responsibilities. This is to ensure that we can work together in concert and provide additional clarity for the business community.

Among these are the Canadian Radio and Television Commission, Investment Canada, Transport Canada and the Canadian Transportation Agency, with whom our enforcement responsibilities frequently intersect, chiefly on the subject of merger review.

The most recent example of this intersect is the Bell-Astral merger, in which we reached a consent agreement late last month. Through that agreement, we required significant divestitures and behavioural commitments in order to ensure that competition was being preserved in the marketplace. The merger is now being reviewed by the CRTC.

Reviews by more than one institution have been the case in other mergers in recent history, including those in the airline, resource and financial services sector.

The institutional framework in Canada is such that, where merger reviews are concerned, parties sometimes have to deal with more than one agency. This can result in duplicative efforts and sometimes in divergent decisions. While this isn't common, I appreciate that it can be frustrating for the business community.

This is precisely why we have reached out to our counterparts at the CRTC, CTA, Transport Canada and Investment Canada. Through this, we will be able to collectively provide greater predictability and transparency where merger reviews are concerned.

The Bureau has an integral role in competition enforcement, both in matters where it shares responsibility with others and where it has sole responsibility for a sector.

Regulated conduct doctrine:

A few short months ago, the Competition Policy Council of the CD Howe Institute published a report which called for the Bureau to "actively engage in competition matters in regulated sectors of the economy, where anti‑competitive conduct may be protected by government legislation or authority."

This report is, not the first on this subject. Many previous studies have challenged what is called the Regulated Conduct Doctrine, which protects parties from being liable under the Competition Act, on the grounds that their behaviour is authorized by validly enacted federal or provincial legislation.

I'd like to take a moment now to address the Regulated Conduct Doctrine, the existing concerns and the Bureau's position on the subject.

The regulated conduct doctrine has evolved, through case law, to provide implicit exemptions to the Competition Act. The current interpretation of this doctrine allows exemptions from competition policy where 1) a legislature has conferred regulatory power on a commission, board or other authority 2) the conduct in question falls within the scope of, and is ordered or authorized by said legislation 3) the regulatory power conferred has been exercised and 4) the conduct in question has not hindered or prevented the regulator from effectively exercising its powers.

In the absence of further judicial direction on this, the Bureau has developed a bulletin, which outlines the Bureau's approach to enforcement with regard to conduct regulated by another federal, provincial or municipal law.

For many years, academics, members of the business community and think tanks, like your own have argued the Regulated Conduct Doctrine is tantamount to legitimizing cartels and that in the very least it impedes the Competition Bureau's ability to prevent anti‑competitive behaviour in these regulated sectors.

With respect to RCD, it has been our position for some time that the RCD case law is underdeveloped. This doctrine arguably insulates regulated sectors from the full force of competition law. We recognize the concerns that have been raised and are searching for an appropriate case to deal with this.

However, in the absence of further judicial guidance through such a case, we will be reviewing the Regulated Conduct Bulletin to ensure that it reflects our approach accurately.

Foreign investment:

I know one of the subjects you have expressed an interest in hearing about today is foreign investment.

Foreign investment, we know, can be a major spur to competition. The Competition Policy Review Panel indicated this in its final report. The panel recommended both changes to the Investment Canada Act to reduce barriers to foreign investment and the liberalization of investment restrictions in regulated sectors. It saw these as essential policy shifts that would increase competition.

In past, the Bureau has spoken publicly about the fact that foreign ownership restrictions can present a significant barrier to entry into industries, specifically the telecom sector.

Canada is one of only a few OECD countries with explicit foreign investment restrictions on domestic telecommunications service providers, ranking it among the most restrictive countries where its domestic telecommunications sector is concerned.

And it is clear that foreign ownership restrictions in telecom represent a considerable and sometimes insurmountable barrier to entry.

We know the federal government has expressed an interest in attracting increased foreign investment; highlighting this in its most recent Throne Speech and noting its role in helping Canadian companies grow.

The Minister of Industry, was quoted last Wednesday, in reference to the wireless industry, saying that what the government wanted was "to have more competition" and that foreign capital was essential to the smaller players in this sector.

Where the subject of foreign investment is concerned, I will say this. We are supportive of any shift in policy that will serve to allow greater competition, particularly in regulated sectors of the economy.

Cartel detection

I've spoken at length today about advocacy and our role in promoting competition through strategic interventions; I'd like to take some time now to touch on the enforcement side of our role. In particular, I'd like to focus on our work in Cartel detection, and to provide an update two of our recent cases.

The Bureau has a number of tools at its disposal to detect and deter the most egregious anti‑competitive behaviour. Our Immunity and Leniency programs, however, are our most effective tools supporting the detection and swift resolution of these matters.

Through the Immunity Program, the Bureau recommends immunity from prosecution only for the first business, organization or individual to apply for and receive a "marker" under the Immunity Program, provided that all of the requirements of the program, including full cooperation with our investigation are satisfied.

Cooperating parties are provided assurances that their identity will remain confidential during the Bureau's investigation. We treat cooperating parties under the Immunity Program to as though they are confidential informants, until charges are laid or until such time as this status is waived.

We use sealing orders in our investigations to protect both the identity and information provided by immunity applicants and other cooperating parties. This is to prevent the identity of these parties from being prematurely revealed. And, the courts have consistently accepted our grounds for sealing orders.

This approach was used during our affidavits in the LIBOR case. It is an essential element of our Immunity program, which as I have noted, is critical to our ability to detect and address the most serious anti‑competitive behaviour.

As such, we are working toward further protecting applicants, their identity and information they provide through the increased use of more extensive sealing orders when formal powers are used. While I must also acknowledge that we may be limited in this by Canada's open court principle, which favours openness in the interest of the integrity of the court, we will not retreat from this approach.

Just yesterday, we witnessed the effectiveness of our Immunity and Leniency program, with the announcement of the largest fine ever ordered by a court in Canada for a bid-rigging offence under the Competition Act. As part of an ongoing investigation by the Bureau, Furukawa Electric Co., a Japanese supplier of motor vehicle components was fined $5 million by the Ontario Superior Court of Justice for its participation in an international bid-rigging conspiracy. Furukawa participated in the Bureau's Leniency Program and provided substantial assistance both to the Bureau and the Public Prosecution Service of Canada.

I mentioned earlier the LIBOR case and thought I would provide you with a brief update. Our investigation remains ongoing, as is the case with other international investigations including in the European Union.

Affidavits have been filed on both sides on RBS's challenge to our use of Section 11 orders and we are tentatively expecting a hearing on this in the fall.

Conclusion

I have covered much ground today, and spoken extensively about the role of competition as a driver of economic growth, and the Bureau's role in enforcing and promoting competition.

I think I have been clear about the fact that strong competition has an integral role to play in improving lagging productivity. It is one of the single most effective ways to lower costs, and improve rates of productivity, as firms strive vigorously to outdo each other.

We play a central role in ensuring a competitive and innovative Canadian marketplace.

When competition is strong and when we do our job well, the market functions well. When the market functions well, Canadian consumers, Canadian business and the economy thrive.

And, going forward you can expect to continue to hear from the Bureau both in our words and in our actions about the fundamentally important role that competition law — and, by extension, the agency mandated to enforce it — plays in building a strong, productive, resilient economy.

Thank you for your time. I look forward to any questions you may have.

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