Speaking Notes for Sheridan Scott Commissioner of Competition

"The Role of the Competition Bureau in a Competitive Canadian Economy"

Institut des administrateurs de sociétés
Montréal (QC)

December 13, 2007

(Check against delivery)

Thank you very much for inviting me, and for your interest in the Competition Act and the work of the Competition Bureau.

There’s no doubt competition is a topical issue, both because a federal panel is looking at issues of competitiveness, and because of some recent fairly high-profile work we have done.

I won’t say much about the work of the competition panel because it’s still too early to know where it will land on the issues before it, but it is clearly doing important work. We cannot underestimate the importance of competitive markets to our prosperity. Canada is falling behind in terms of productivity and income growth and the rest of the world is not standing still, but is racing us down the innovation highway.

What I want to do today is focus on what the Competition Bureau does and some of our current priorities.

As Commissioner of Competition, I oversee a group of lawyers, economists, business analysts and others who have two jobs. First, we enforce the Competition Act to protect competitive forces in the economy. And second, we are energetic advocates on behalf of competition.

I will speak a bit more about our advocacy work later, but let me begin with a quick primer on the four broad enforcement elements of the Act.

First, the Act provides the Bureau with civil powers to deal with certain potentially anti-competitive business practices. These include practices such as abuse by a firm of its dominant position in a market to reduce or preclude competition, refusal to deal, tied selling, and exclusive dealing. Now I know that aggressive pricing and bundled discounts can be legitimate business practices and we are very, very careful to differentiate business practices which support, or are part of intense and vigorous competition, from those with the effect of impeding competition. If you are interested in how we apply these provisions, you will find general guidelines on our website. Meanwhile, we are currently consulting on how we look in particular at predatory pricing.

The second part of the Act covers criminal practices such as price fixing and bid-rigging. These have been described as the most egregious forms of anti-competitive conduct and enforcement in these areas is our number one priority, with particular emphasis on domestic cartels.

You may have heard about our recent searches of the premises of some of Canada’s major chocolate manufacturers as part of a cartel probe.

You may also recall the announcement last year of a major cartel decision involving the paper industry. Cascades Fine Papers Group Inc., Domtar Inc. and Unisource Canada, Inc. each pled guilty to two counts of conspiring to lessen competition unduly contrary to section 45 of the Act. Each company was sentenced to record fines of $12.5 million for their part in the domestic conspiracy of carbonless sheets and they were ordered to fire or at least demote key employees.

This decision demonstrates that we and the courts take domestic cartels very seriously.

And the economic reason is clear: price fixing and bid-rigging are capable of diverting large sums of money away from consumers, away from taxpayers, and away from other Canadian companies such as yours that compete globally. In short, these acts destroy markets and competitiveness.

Which in fact brings me to the third element of our enforcement mandate, which is to preserve the integrity of the marketplace, and in particular marketplace information. To this end, the Act contains provisions dealing with false or misleading advertising.

This is the area where we receive the largest number of complaints - from 10 000 to 15,000 per year - and where we must make the most judicious choice of cases, in light of our limited resources. We have recently developed criteria that help us identify the most important marketplace issues and select the most critical cases. Our sweet spot is found where the impact on the marketplace is the highest and likelihood of harm is the greatest. We will focus on this set of issues - the ones where the outcomes will have the highest impact - by assigning dedicated enforcement teams to minimize these high-risk threats in the marketplace. For example, we have recently formed a team to look at the issue of the deceptive use of mail-in rebates.

Part of our work in this area also includes combatting mass marketing fraud - fraud committed over mass communication media such as telephone, mail, and the Internet. This is our second top priority, which we pursue in partnership with the RCMP, local and provincial police forces, consumer ministries, the U.S. Federal Trade Commission, the U.S. Postal Inspection Service and the U.K. Office of Fair Trading. Over the last year, the Bureau has secured a combination of fines close to $3.5 million and prison sentences in five separate prosecutions.

The Bureau’s role and powers in enforcing these three elements of the Act are those of a law enforcement agency. For example, we can and do seek search warrants and conduct searches. We can and do seek wiretaps for criminal investigations into activities such as price fixing. We also have an immunity program for individuals who want to bring us evidence of cartels or other criminal offences. The program offers immunity from criminal prosecution to cartelists who are the first to disclose an offence we have not yet detected or, in cases where we have an ongoing investigation, who can provide additional evidence to support referral to the prosecutor. Our immunity program is our single most effective weapon in detecting and fighting cartels.

And if we do not settle a case, we proceed to the Competition Tribunal to deal with civil matters. This is a specialised body equipped with judicial, economic and business expertise. For criminal matters, we proceed by way of the Attorney General to the ordinary court system. Since 2000, the courts have imposed more than $100 million in penalties on businesses and individuals in relation to contraventions under the Competition Act.

This brings me to the fourth element of our Act, the review of mergers. In the case of mergers, the Act provides the Bureau with the right to review any merger in order to prevent a significant lessening of competition. But only the larger mergers must be notified to the Bureau. These involve companies with combined sales or assets exceeding $400 million, and where the acquired firm has sales or assets exceeding $50 million.

When we review a merger, we do so on the basis of very careful analysis and in close consultation with participants in the affected markets, including customers, suppliers and competitors of the merging firms, and other affected parties.

A recent example was our decision not to challenge the merger between Abitibi-Consolidated Inc. and Bowater Incorporated. Following an extensive review, we concluded that the merger was not likely to result in a substantial lessening or prevention of competition. Over the course of the review, we consulted with numerous customers, competitors and industry experts, and while we did identify potential competitive issues, we concluded that there were insufficient grounds to challenge the merger.

And we undertake merger analysis well aware of the business pressures for timely resolution of issues.

In fact, timeliness is just one of the five basic principles which guide all of our efforts, including merger reviews. These are: timeliness, as I have already mentioned, fairness, predictability, transparency and confidentiality. Let me address each of these in the merger context.

First timeliness. We have established service standards for mergers and we publish our results annually.

Our timelines are relatively simple. On average, about 90% of our cases are completed in less than 10 days. Close to 80% of the remaining filings take about 6 weeks, allowing us to concentrate most of our time on the handful of very complex deals, some 2-3% of our cases, which take a little less than 4 months to review.

As for predictability, we have a policy of open communications on our approach to mergers, including detailed formal guidelines which set out the analytical framework we apply to merger reviews. The merger guidelines and other Bureau Guidelines, such as the ones I referred to earlier on abuse of dominance, are of course available on our Web site.

I mentioned before that our top two enforcement priorities are domestic cartels and mass marketing fraud. With respect to our work on mergers and abuse of dominance, our focus has been on clarifying key enforcement principles. One critical way of doing this is through our guidelines and also by making numerous presentations to the Bar and the business community, such as this group today.

Transparency is our third principle, an important goal to improve both understanding of our reviews, and acceptance by affected stakeholders, including customers and suppliers, of the outcomes.

In the case of mergers, we are publishing backgrounders on our more interesting cases, the most recent examples being the Abitibi/Bowater transaction and the BGM/CHUM deal. These public explanations of the grounds for our decisions are another way of clarifying our enforcement principles in merger review.

As for fairness, we cannot impose remedies or block mergers on our own. With the exception of financial sector mergers, where the Minister of Finance has the final say, and transport sector mergers, where the Minister of Transport is the ultimate authority, merging parties have full recourse to the Competition Tribunal, and potentially to the courts if they disagree with our reviews.

But more to the point, we make every effort to be impartial as a professional obligation. We work carefully with the merging parties to get the facts straight, to ensure there are no questions of misinterpretation and to afford the parties full right to discuss their cases with us. And just in case there is any concern regarding political interference, it is important to recall that the Bureau operates completely independently of the Government of the day. Ministers have no say over the Bureau’s enforcement and advocacy work.

The fifth principle, confidentiality, is critically important to the business and financial communities. Parties count on our confidentiality for we are dealing with your most sensitive business data. While information confidentiality is formally protected by S. 29 of the Act, it is also safeguarded by the professionalism of our staff and our commitment to maintain the Bureau’s excellent record.

Now while enforcement is a big part of our job, we are not just “les flics économiques”. We are specifically charged by our Act to advise on, and speak for and about competition in Canada. We do this through our interventions in regulatory fora such as the Canadian Radio-television and Telecommunications Commission and the Canadian Transport Commission and by providing advice to governments of all levels on policies, regulations and other matters affecting the marketplace.

In this, we are reasoned advocates. We do not argue blindly for competition at the expense of all other goals. We do, however, advocate that these goals be achieved through and in concert with competitive forces, and with the least impact on the marketplace.

This is not always easy, but we need to continue the effort because the competitive marketplace is crucial for our future.

Two days ago, in Toronto, I released the results of our study into selected self-regulating professions in Canada. The premise was simple, and anchored in economic fact.

We asked ourselves, and them, a basic question: what are your regulatory practices, and are there some that hinder competitiveness without the saving grace of safeguarding a clear public interest?

The economic underpinning consisted of two recent reports. The OECD said that one of the five keys to improving future prosperity in Canada was a lessening of regulation in the professions. It found we are among the countries with the heaviest regulatory regime for the professions, with possible negative effects on our economic growth and productivity. Meanwhile, the Conference Board of Canada rated the professions in the bottom fifth in this country for productivity for hours worked, and also found the professions only about half as efficient as their colleagues in the United States.

During our study, we found that rules that limit advertising, set prices for services and restrict who can offer some professional services may go beyond legitimate consumer protection. These rules can lead to higher prices, limit choice and restrict access to the type of information consumers need to make decisions.

While we studied only five professions - lawyers, real estate agents, accountants, optometrists and pharmacists – we believe our work applies equally to others, and we challenge all of them to re-examine their rules to make sure they benefit the public interest more than just self-interest.

In all that we do, under both our enforcement and advocacy mandates, the Bureau fights for the most open and free markets practicable, and against practices and policies that try to subvert the market, whether through illegality or inadvertence.

This is articulated in the Bureau’s new mission statement. It states that we contribute to the prosperity of Canadians by protecting and promoting competitive markets and enabling informed consumer choice. And we take our mission very seriously.

In conclusion, let me salute you for your interest in competition, and thank you for your time and attention.