Treatment of Efficiencies in the Competition Act - Introduction

Introduction

The notion of competition contributing to the efficiency of the Canadian economy has been a topic of discussion in legal, business and political circles for nearly 40 years, and has been entrenched in Canadian law, in the form of the Competition Act, since 1986.

The treatment of efficiencies in competition law is highly complex. The drafters of the Competition Act adopted a unique approach to efficiencies in light of the Canadian economic context in the mid-1980s. However, the Canadian economy has evolved, and continues to do so, and there is a need to ensure that the legislation meets its stated goal of "promoting the efficiency and adaptability of the Canadian economy."

In April 2002, the House of Commons Standing Committee on Industry, Science and Technology, following a lengthy study of Canada's competition regime, recommended that "the Government of Canada immediately establish an independent task force of experts to study the role that efficiencies should play in all civilly reviewable sections of the Competition Act."¹

In response to this recommendation, the Government commissioned a study that reviewed the treatment of efficiencies in merger review around the world.² In June 2003, the Government issued a discussion paper on a variety of options for amending the Competition Act, particularly those related to the conspiracy provisions. The public was asked to comment on whether efficiencies should be considered a factor in merger review and/or in a new civil strategic alliances provision.³

In March 2003, following the decision not to appeal the Federal Court of Appeal's second decision on the proposed merger of Superior Propane Inc. and ICG Propane Inc., the then Commissioner of Competition appeared before the House of Commons Standing Committee on Industry, Science and Technology to express support for a private member's bill, Bill C-249, to amend section 96 of the Competition Act, which deals with efficiencies in the context of mergers.⁴

Bill C-249 gained multi-party support and was passed by the House of Commons on February 2, 2004 with a majority of 175 votes against 29. Sub-section 96(1) of Bill C-249 read as follows:

96. (1) In determining, for the purposes of section 92, whether or not a merger or proposed merger presents or lessens, or is likely to prevent or lessen, competition substantially, the Tribunal may, together with the factors that may be considered by the Tribunal under section 93, have regard to whether the merger or proposed merger has brought about or is likely to bring about gains in efficiency that will provide benefits to consumers, including competitive prices or product choices, and that would not likely be attained in the absence of the merger or proposed merger.

Bill C-249 would have repealed the existing efficiencies exception in sub-section 96(1) in favour of an approach that would have made efficiencies a factor in merger review to be considered along with the other factors set out in section 93. The Bill also included a "consumer benefit" requirement: the efficiency gains that would be recognized were those that would provide benefits to consumers, including competitive prices and product choices, and that would not likely be possible if the merger were not to occur.

Bill C-249 received first reading in the Senate on February 3, 2004, and second reading on April 1, 2004. It was then referred to the Senate Committee on Banking, Trade and Commerce. The current Commissioner of Competition appeared before the Committee to express support for the Bill.⁵ The Bill died on the Order Paper with the dissolution of Parliament on May 23, 2004.

One recurrent theme among the submissions to the House and Senate committees that studied the Bill was that the role of efficiencies under the Competition Act in Canada's evolving economy would benefit from broad public debate. Given the demise of Bill C-249, there is a renewed opportunity for such debate and this paper launches the formal consultation process. These consultations will involve an assessment of the experience under section 96, the evolving economic context, the international environment and the experience of other jurisdictions, and the relative merits of the various options.

The consultation paper covers the treatment of efficiencies in relation to merger review and in relation to other areas of competition policy, such as specialization agreements, joint ventures and strategic alliances.

Parts 1 reviews how efficiencies are currently treated in Canada under the Competition Act, focussing on the Competition Bureau's enforcement practice, as outlined in the Merger Enforcement Guidelines, and on the decisions in the Superior Propane case. Part 1 also examines the legislative history of section 96 and looks at issues related to the burden of proof and other evidence requirements in efficiencies cases. Part 1 concludes with a summary overview of the treatment of merger efficiencies in the United States, the European Union, the United Kingdom and Australia.

Part 2 sets out several issues and options for discussion.

There are also three appendices that include supplemental background information on the subject of efficiencies:

• Appendix A: What are Efficiencies in Merger Review?
• Appendix B: Merger Efficiencies in Other Jurisdictions
• Appendix C: Consideration of Efficiencies in Non-Merger Matters

The Consultation Process

The Competition Bureau invites interested parties to submit their comments on part 2 of this consultation paper. The results of the consultation process will be carefully reviewed by the Commissioner of Competition and submitted to the Minister of Industry.

The Competition Bureau has hired the Intersol Group to conduct national consultations. Responsibility for facilitating, organizing, and documenting the process is shared among three firms: Intersol, PRIME Strategies, and InfoLink: The Conference Publishers.

Please submit your comments by mail, fax or e-mail before December 21, 2004, to:

Competition Act Consultations
c/o PRIME Strategies/Intersol
#205 -240 Catherine Street
Ottawa, Ontario
K2P 2G8

Toll Free Number: 1-888-233-5179 ext 265
Fax: (613) 233-5179
E-mail: competition@primestrategies.ca
www.primestrategies.ca/bur eau/index.htm

All submissions will be made available to the public, except when confidentiality is requested.

Consultation meetings with stakeholders will be organized in the coming months to discuss in greater detail the issues raised in the written submissions.

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1. House of Commons Standing Committee on Industry, Science and Technology, A Plan to Modernize Canada?s Competition Regime (April 2002), Recommendation 28, available on the Parliament of Canada Web site (www.parl.gc.ca/InfoComDoc/37/1/INST/Studies/Reports/indurp06-e.htm).

2. A.-B. Everett and T. Ross, The Treatment of Efficiencies in Merger Review: An International Comparison (November 22, 2002), available on the Competition Bureau Web site (ht tp://competition.ic.gc.ca/epic/site/cb-bc.nsf/en/ct02516e.html).

3. Government of Canada, Discussion Paper ? Options for Amending the Competition Act: Fostering a Competitive Marketplace (June 2003), Question 39, p. 17, available on the Competition Bureau Web site (ht tp://competition.ic.gc.ca/epic/site/cb-bc.nsf/en/ct02584e.html).

4. Konrad von Finckenstein, Bill C-249: An Act to amend the Competition Act, speaking notes for a presentation to the House of Commons Standing Committee on Industry, Science and Technology (March 31, 2003), available on the Competition Bureau Web site (ht tp://competition.ic.gc.ca/epic/site/cb-bc.nsf/en/ct02543e.html).

5. Sheridan Scott, Bill C-249: An Act to amend the Competition Act, speaking notes for a presentation to the Standing Senate Committee on Banking, Trade and Commerce, May 12, 2004, available on the Competition Bureau Web site (ht tp://competition.ic.gc.ca/epic/site/cb-bc.nsf/en/ct02846e.html).