Speaking Notes for Sheridan Scott Commissioner of Competition

Competition bureau

Address to the Federation of the Industries of São Paulo State

May 12, 2008

Introduction:

Good evening Ladies and Gentlemen. Thank you for the kind introduction.

I am delighted to be here in São Paulo with you this evening. I had the great pleasure of spending close to six weeks in your beautiful country some 25 years ago. That opportunity introduced me to the Portuguese language but, as I am sure you will appreciate, the vocabulary that was useful to me at that time – eating, sleeping, and traveling – would be of only limited relevance in addressing the topics I would like to talk a bit about today, namely merger notification and cartel enforcement. So I hope you will forgive me if I share my thoughts with you in English.

Before doing so, I would like to say that I am particularly pleased to be here in Brazil with my colleagues from the Brazilian competition authorities.

We have a very close relationship with our counterpart agencies here in Brazil that will be further strengthened tomorrow when we sign a cooperation arrangement. This cooperation arrangement will provide for greater exchanges of information and increased cooperation between our respective competition authorities in our shared efforts to ensure competitive marketplaces.

Brazil is an important economy and trading partner for Canada. It is the economic driver of the South American economy and an important world market economy leader. In South America, Brazil leads the way with progressive competitive market reforms and initiatives to strengthen and protect competition.

Canada and Brazil have much in common: beautiful natural geography; heavy reliance on export industries and tourism; a natural resource based economy; a history of significant regulation of key industries - And we both manufacture high quality aircraft for the world market. We have much to learn from each other.

In my role as Chair of the International Competition Network Steering Group I want to talk about the internationalization of competition law, particularly in the merger context. In my capacity as Canada's Commissioner of Competition, I want to underscore our close relationship with our colleagues in Brazil and share with you our approach to cartel enforcement, which I understand is currently a topic of discussion here in Brazil. First, the ICN --

Internationalization of Competition Law

We work today in a dynamic economic environment, in which technology has altered the shape of our world. Due to the widespread availability of communications technology, the prevalence of global competitors, new developments in transportation technology and international commercial frameworks, the world is no longer characterized by isolated and distinct economies – it is flat. In his famous book on competition and innovation in a flat world, Thomas Friedman describes the transformation underway as a triple convergence in which “new players, on a new playing field, developing new processes and habits for horizontal collaboration” now operate . This convergence has provided emerging economies with a more equal opportunity to compete in the global marketplace.

In this flatter world, transition economies are increasingly interested in competition related issues and are developing and enforcing competition laws and policies. Competition law is no longer the preserve of a small number of experts, working within jurisdictional boundaries, but has become the basis for an international community. This situation is nowhere better illustrated than at the ICN.

In October 2001, 16 competition agencies from 14 leading economies launched the ICN. Now, only seven years after its inauguration, ICN membership has expanded to 102 competition agencies from 91 jurisdictions.

The ICN was founded on two core principles or goals.

1. Promoting greater substantive and procedural convergence among antitrust authorities; and
2. Providing support for new antitrust agencies, both in enforcing their laws and in building strong competition cultures in their countries.

Over the past seven years, the ICN has been increasingly successful in pursuing these goals and will continue to do so. As our organization has grown in size and as the views and interests of more stakeholders are represented, we have continued to find consensus in our approach to enforcement. Our sustained ability to find similarities of approach to enforcement sends a powerful message. We are all working towards the same goal, and although we now have a broader membership, our ability to find consensus remains strong, supported by the trusting and cooperative relationships we are building as we get to know one another better through our work together in the ICN.

All three Brazilian competition authorities have played a very active role in strengthening the ICN through participation in the ICN's various working groups. CADE in particular, under the direction of Elizabeth Farina, has assumed a key leadership role in the ICN as Co-Chair of the Competition Policy Implementation Working Group and as a member of the Steering Group.

In today's economic environment, merger reviews are increasingly inter-jurisdictional and anti-cartel enforcement transcends national borders. By enhancing convergence and cooperation in the area of merger review and anti-cartel enforcement, the ICN promotes more efficient and effective antitrust enforcement worldwide for the benefit of consumers and businesses. The ICN will continue to focus on achieving convergence in these core areas of anti-trust.

Merger Review:

Turning to merger review --

Before 1990 there were only a handful of jurisdictions who had introduced competition laws – today there are close to 100 such jurisdictions most of them with merger review jurisdiction. The result is a rise in the number of mergers requiring multi-jurisdictional review.

Where merger transactions are reviewed by many competition authorities, the risk of substantive conflict increases dramatically. Divergence in both substantive standards and procedures among national and regional competition authorities can lead to significant delays and increased costs as businesses try to comply with various jurisdictional requirements. This can act as a strong disincentive to investment and to the pursuit of more efficient operations, to the detriment of both government and business.

The ICN Merger Working Group promotes the adoption of Recommended Practices in the design and operation of merger review systems. We encourage both public and private sector reepresentatives to contribute to the development of these Recommended Practices. I believe that this practice has strengthened our ability to design regulatory frameworks that are clear, concise and preedictable. This in turn encourages businesses to invest and allows agencies to focus their scarce resources on those mergers which are most problematic to the economy.

This year, the working group has begun to develop recommended practices on substantive merger analysis and, building on the Recommended Practices for Merger Notification Procedures, has produced a report that provides agencies with guidance on adopting or revising thresholds.

The ICN encourages all governments to continually self-assess and critically reflect on their competition laws and to consider, in light of ICN Recommended Practices, ways in which their competition law and procedure can be improved.

When jurisdictions incorporate the ICN 's Recommended Practices into their own competition law, the result is greater consistency, efficiency and effectiveness in the merger review process of both domestic and cross-border mergers. This benefits competition agencies, merging parties and consumers across the globe.

A pre-merger notification system is the choice of jurisdictions with leading edge competition laws and policies. Why? Because pre-merger notification ensures that those transactions likely to have the greatest economic impact within a jurisdiction are subject to scrutiny for the effects the transaction may have on competition.

If you believe that competition and free markets drive economic growth, productivity and innovation, then identifying and rectifying anticompetitive activity early on is key to securing the benefits of competition. Pre-merger notification helps to achieve this result.

Pre-merger notification and review provides certainty to investors before a transaction is completed. It eliminates the risk that the transaction will be reviewed after closing and remedies imposed which were unanticipated by investors, thus reducing uncertainty. Further, a pre-merger notification and review system ensures that a key competitor is not removed from the market place on a pre-emptive basis. It is always considerably more difficult to unscramble the eggs and restore competition after the fact.

The key challenge in developing a pre-merger notification system is to identify those transactions with appropriate thresholds to trigger notification that are likely to have a significant impact on the domestic economy. This is where the ICN Recommended Practices for Merger Notification Procedures are particularly helpful.

I am encouraged by efforts in Brazil to adopt merger review amendments that would implement a merger notification system that is consistent with ICN Recommended Practices.

Cartel Enforcement:

Turning now to cartels-- Cartel enforcement is a key pillar of any effective competition law. In Canada, eradicating cartels is our number one antitrust priority, as it is in virtually all major anti-trust agencies around the world.

Cartels have no redeeming social value. Cartels corrode not only the markets they are in, but also all markets they touch. Businesses pay more than they should when they purchase their goods or services from price fixers; businesses may also be paying more when they purchase from the victims of cartels, who pass their higher costs on down the chain.

Because cartel behaviour is generally hidden, the key to effective cartel enforcement is detection. Our number one tool to meet this challenge is our immunity program – the so-called “get out of jail free” card.

In Canada, our program offers immunity from criminal prosecution to cartel members who are the first to disclose an offence we are unaware of or, in cases where we are aware, who can provide additional evidence to support referral to the Attorney General.

It is not sufficient to be the first in. The immunity applicant must terminate participation in illegal activity and also provide complete and timely cooperation, among other things.

The ICN continues to focus in this area to find ways to encourage greater global convergence to maximize the benefits of this powerful cartel-busting tool.

A close sister to immunity is what we call leniency – not a complete “get out of jail free” card, but an ability to seek a lesser penalty. In order to encourage parties to come forward to seek leniency, we believe it is important to provide as much transparency and predictability as possible regarding the leniency program.

In Canada, the courts are responsible for determining the sentence imposed, based on the submissions of the parties. However, the Competition Bureau also has a role to play in making recommendations to the Crown and we believe that parties will benefit from a better understanding of our approach.

For this reason, we have issued a draft bulletin, which explains in detail how the Bureau's leniency program works. It clarifies the approach the Bureau will take in arriving at its recommendations for fines and leniency reductions in sentences. It also set out the steps involved in the leniency process so that companies know what to expect when they contact us.

In addition to our formal tools for detection, two other considerations should be taken into account – the structure of our organization and the diagnostic tools available to identify cartel behaviour.

Structurally, we believe that if we put our investigators closer to the scene of the crime, we can improve our ability to successfully attack cartels. Therefore, we have given our regional offices responsibility for local cartels, especially bid rigging. This is our “feet on the street” strategy.

Diagnostically, we are very interested in current research in the UK about how to use economically based tools to identify those markets that are more likely to attract cartelists.

Once we have detected a cartel through our immunity program or otherwise, our work is not done. That is just the beginning of our investigation. And here too, we have a set of tools we use; namely s ubpoena powers, s earch and seizure powers and an ability to wire tap.

I believe that we should continue to identify as many ways as possible to detect cartels. The greatest deterrent is the fear of detection, and we will work hard to improve our ability to do so. In this regard, we are undertaking two additional initiatives:

First, recognizing that the business community has a role to play in cartel deterrence, we are working with the business community to develop competition law compliance programmes. Businesses pay a huge cost when they are found to have engaged in anti-competitive conduct, particularly criminal activities. That is why it is critical to have in place a proper compliance programme. This is particularly challenging in the international marketplace, where acceptable activities in one jurisdiction may not be in another.

Second, we reach out to those who might be the victims of price fixing, particularly in the area of bid-rigging. We have had success in targeting procurement officers and arming them with information through outreach seminars on identifying price fixing and bid-rigging behaviour. Over the last three years, Bureau personnel have given over 100 presentations on how to detect the signs of bid-rigging, to audiences totalling over 3,200 persons. We have extensive material on our Web site that deals with this topic, which has recently been updated.

International Cooperation:

Often when I speak about the effectiveness of the international aspects of our work as competition agencies, I mention the “three Cs” : communication, co-ordination and cooperation. All three are invaluable to all aspects of our antitrust work: cartels, mergers, and abuse of dominance. The world's leading antitrust authorities – and I include the Brazilian Competition Authorities among them - employ these three Cs regularly.

First, and perhaps the most important, communication . The ICN creates the opportunity to get to know each other and allows us to build relationships essential to cooperation and coordination. This personal connection through communication ensures the most effective use of our tools to detect and attack cartels and coordinate merger reviews. In Canada, tighter and more frequent communication between agencies means that we now hear about some cases more quickly from our international partners than through counsel. We currently hold bilateral meetings with our US, EU and Japanese counterparts, where senior management discusses cases-related issues such as investigative steps and timing. There is also a high level of contact with foreign counterparts at the officer level.

These closer ties have led to even more co-ordination in enforcement action. Nothing is more impressive than global dawn raids requiring carefully timed and well orchestrated searches and seizures of cartel operations straddling the globe. In one recent case, the Bureau delayed the use of formal powers to accommodate several other jurisdictions, thus preserving the element of surprise for all.

Finally, we look for ways to co-operate. For example, we exchange information about our investigative practices at yearly workships dealing with merger and cartel enforcement. We also co-operate in actual investigations. We routinely seek waivers to exchange information with other jurisdictions where there is an immunity applicant. We exchange leads and thoughts on the theory of cases. A recent example can be seen in the marine hose international cartel case, where we worked alongside the US, EU and other international agencies in conducting the investigation. We were satisfied that, due to the minimal competitive effects in Canada, the settlements in other jurisdictions were able to sufficiently address our concerns. This approach allows us to focus our energies where we can secure optimum deterrence while at the same time making the most effective use of finite enforcement resources.

It also suggests there may be a fourth “C” – that the principles of comity represent a further factor that might be taken into account. Indeed, the ICN announced at the conclusion of its recent annual conference in Japan that it will be looking at global settlement, including the issues of duplicative recovery and double counting.

Promoting Competition:

Although attacking anti-competitive behaviour such as cartels is of critical importance for enforcement agencies, so too is attacking state imposed restrictions on competition. Increasingly, agencies are devoting resources to this aspect of their work, which calls on us to serve as competition advocates. We can do so in a number of ways, all with a view to encouraging a presumption in favour of the market rather than government intervention. For example, we can promote deregulation whenever appropriate. We can engage in market study activities to better understand what barriers to competition exist in a market. We can encourage government review and assessment of existing and proposed laws and regulations to ensure that they minimally impair free and open competition or are even pro-competitive.

Competition is at the forefront of the economic agenda of the Canadian Government which, in June 2007, established a Competition Policy Review Panel. This Panel was created in part to ensure that Canada's policies keep pace with changes in the global marketplace so that Canada remains a highly competitive economy which provides opportunities for Canadians to participate in the global economy. The Panel is due to report back next month.

I have spoken about the role of agencies in promoting competition and advocating for greater substantive and procedural convergence, in order to foster simplified and predictable reviews. Creating a culture of competition in our respective countries is a shared responsibility. A competitive marketplace benefits both businesses and consumers.

Let me finish, then, with a few suggestions on the pivotal role that the business and legal communities can play in the effective enforcement of a country's competition laws .

First of all, you can choose how you wish to interact with the relevant agencies. In my experience, competition laws are most successfully implemented when there is constructive cooperation between the authorities and the business and legal communities. This includes providing all relevant information to the authorities in a timely fashion so that the competition authority can do its work as quickly as possible.

The legal and business communities can also take steps to become engaged with national governments in the implementation and development of competition laws . Governments and competition authorities need information and feedback on their performance and what can be done to ensure more effective and efficient enforcement of competition laws .

The business and legal communities can act as a catalyst for reform by engaging their own governments and encouraging compliance with ICN Recommended Practices.

The interaction between public and private interests will help to compare, identify, and promote better competition law practices across jurisdictions and will help ensure that the benefits of more effective and efficient competition law enforcement will be realized.

We all have an interest in challenging competition-restricting regulations and anti-competitive behavior. With the growing involvement of Brazil in the international marketplace, I hope you will be equally active in encouraging and supporting a competition culture around the world. Thank you.