Speaking notes for Sheridan Scott Commissioner of Competition

Competition Bureau

Cartel Enforcement: International and Canadian Developments

Fordham Corporate Law Institute
Conference on International Antitrust Law & Policy
October 7, 2004

(PDF: 62KB)

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It is a pleasure to be presenting at this Conference along with such a distinguished panel from around the globe. Thank you to Barry Hawke for inviting me to speak and to Paul Victor for coordinating everything.

Although the issue of anti-cartel enforcement is not new - for Canada the issue dates as far back as 1889 - it is an issue of growing international relevance and importance.

The world of anti-cartel enforcement has changed dramatically over the last twenty, even ten, years for a host of reasons, including globalization and changes in technology.

During this time, we have seen the introduction of many new anti-cartel laws and the establishment of many more enforcement agencies.

These new laws prohibit cartels.

This makes it even tougher for cartel members to hide behind national borders.

However, the agencies enforcing these new laws have limited or no experience.

These agencies are looking to the international antitrust enforcement community to share experiences and to provide technical and, in some cases, enforcement assistance.

We have also seen a dramatic increase in the detection, investigation and sanctioning of international cartels affecting many countries and billions of dollars in commerce.

This increase is due, in large part, to the introduction of new and improved investigative tools and the expanded and enhanced use of incentives, such as immunity programs, and international cooperation.

These circumstances pose new and different challenges for antitrust enforcers and suggest a need for more intensive and focused international dialogue and cooperation.

The ICN recently embraced this challenge and is embarking on an ambitious work plan.

This work is aimed at sharing experiences and identifying effective frameworks and investigative techniques for anti-cartel enforcement.

The Canadian Competition Bureau, as co-chair, is particularly interested in the work of Subgroup 2 on anti-cartel enforcement techniques.

I am pleased to see the substantial progress this Subgroup has made in the preparation of a chapter on searches and raids for the investigative techniques manual and the planning for the Cartel and Leniency Workshops which will be held in Sydney at the end of November.

Check out the ICN website for further developments regarding the work of the Cartel Working Group.

Some of my esteemed colleagues have discussed the pros and cons of international antitrust convergence. David Lewis refers to the limits of convergence as a result of perceived national or "public interests" and the vast divergence in the relative experience and capacities of the various national enforcement and adjudicative agencies.

So, what is all this talk about convergence and why is it important in the context of anti-cartel enforcement?

The answer to this question is best illustrated by highlighting some differences and their potential impact on anti-cartel enforcement.

For example, not all jurisdictions define cartels in the same way.

While the OECD has developed a definition of "hard core cartels," there is no universal legal definition and understanding of what is a cartel, when a cartel should be prohibited, and when and what kind of sanctions should be imposed.

Canada, unlike some other jurisdictions, does not have a per se prohibition of certain hard core cartel activity.

Conspiracies are not "per se" illegal in Canada.

The Canadian Competition Act currently does not distinguish explicitly between hard core price fixing conspiracies and other forms of agreements or arrangements, such as strategic alliances, that may or may not be anti-competitive.

The Competition Act prohibits only those conspiracies that have "undue" anti-competitive effects or that unreasonably enhance prices.

Proof of a violation requires showing more than the mere fact of an agreement.

This difference in the legal standard has an impact on the way in which the Competition Bureau conducts investigations, on the application of the Bureau's Immunity Program, on the use of formal investigative powers, such as search and seizure, and on the prosecution of a cartel.

Information that may be sufficient to launch an investigation, trigger immunity, justify a search and form a basis for a prosecution in another jurisdiction may not be sufficient in Canada.

Moreover, it may take more time to amass the evidence necessary to satisfy the standards under Canada's Competition Act.

Differences in the timing of and approach to an investigation and prosecution can make cooperation and coordination difficult.

Another difference relates to the ability of enforcement agencies to share information.

Many cartels are international and are formed in other countries.

As a result, different people have different pieces of the puzzle.

We need to be able to coordinate investigative strategies, simultaneously seek evidence in multiple jurisdictions, and have access to evidence and witnesses located outside our borders.

There is a web of different laws, policies and practices with respect to information sharing and the seeking of information from and visits to other jurisdictions.

This poses a challenge, sometimes insurmountable, to obtain information from other agencies and in other jurisdictions which is necessary to prosecute cartels.

There are also differences in the legal systems which govern cartels.

More specifically, there are significant differences among jurisdictions in terms of whether cartel conduct is treated criminally, civilly or even administratively.

Moreover, the range of fines is vast and only a handful of jurisdictions hold out the threat of imprisonment.

Without strong sanctions in all jurisdictions, it is extremely difficult to deter international cartels which affect commerce in multiple jurisdictions.

We need all jurisdictions to have strong sanctions in their anti-cartel arsenal.

While I am not necessarily advocating that sanctions in all jurisdictions be exactly the same, narrowing the differences would enhance everyone's ability to deter international cartels.

Finally, there is the issue of immunity programs.

It is desirable to have immunity applicants going into as many jurisdictions as possible at the same time.

This facilitates cooperation and coordination of investigations.

Where immunity policies differ in terms of the incentives offered and are not clear in terms of the benefits of immunity and when immunity is available, they may create disincentives for companies and individuals to come forward in particular jurisdictions.

It is impractical to expect full convergence in all of the areas I have touched on.

However, we need to, at a minimum, understand the differences in the legal frameworks and practices and procedures of other jurisdictions and the implications of such differences.

The Canadian Competition Bureau has significant experience working within international fora and with other antitrust enforcement agencies.

These experiences have enhanced our knowledge and expertise and expanded our network for enforcement cooperation.

They have also been invaluable sources for bench marking and measuring the effectiveness of Canada's cartel regime.

However, there is a great deal more agencies can do, including,

• sharing information about our respective anti-cartel regimes;
• developing a common understanding of the nature and impact of cartels;
• learning about how other agencies detect, investigate and sanction cartels;
• cooperating with other agencies in the detection and investigation of international cartels which might otherwise be outside the reach of a domestic law; and
• identifying effective approaches and promoting adoption of the most effective approaches

Accomplishing this is no easy task.

It requires extensive interaction between antitrust enforcers, not only in international fora, like this conference, and formal bilateral meetings, but also more informally, at the case handler level.

To borrow from a recent speech of William Kovacic, General Counsel to the Federal Trade Commission, at our Canadian Bar Association Annual Conference on Competition Law, the process of convergence is the result of contacts and cooperation among people,

• at the highest levels of government
• at the case handler level of enforcement agencies; and
• at the non-governmental agency level.

Contacts and cooperation among all of these players facilitate and promote the development of a common vocabulary and understanding.

Moreover, contacts and cooperation at the case handler level facilitates and promotes the greatest transfer of intellectual and practical knowledge.

The journey to convergence can be as important as convergence itself.

It is through the journey that we learn, experiment and refine our laws and practices.

The majority of my remarks this morning have been about anti-cartel enforcement as this was topic of my paper. However, I also want to take this opportunity to speak to another important issue that were raised in one of my colleagues' papers.

In his paper and during his remarks this morning, Andrej Plahutnik speaks about, among other issues, the relationship between competition authorities and sector regulators.

Mr. Plahutnik asks the question whether there can be a uniform system that would provide an effective way of market regulation.

He states that different systems have chosen different models.

He suggests that the most important thing is for every country to decide about the best model taking into account the specifics of the country.

The OECD and the ICN have done some work in this area.

Most recently, the ICN Antitrust Enforcement in Regulated Sectors Working Group Subgroup 3, Interrelations between Antitrust and Regulatory Authorities, delivered a report on the issue at this year's ICN Annual Conference in Seoul, Korea.

The Report noted, among other things, that there is a wide diversity of models and that whatever the current division of labour between competition agencies and regulators, there are certainly no countries where that division can be regarded as finally settled.

The Report further noted that the "optimal" solution varies from country to country and across industries within the same country.

While I cannot disagree with the observation that different systems have chosen different models, it seems to me that there is some scope for further work on this issue and the development of common approaches.

I believe that more work could be done to flesh out some common principles and effective practices for dealing with the transition to competition and the interface between competition agencies and sectoral regulators.

For example, during the transition to competition, it is important to have some regulatory control to prevent excessive pricing, including excessive pricing for essential facilities, due to market power held by incumbents.

As another example, it is important that regulations are removed when their costs outweigh the benefits.

There should be a mechanism or mechanisms in place to remove regulations when they are no longer reasonably necessary.

Such mechanisms could include sunset or review provisions providing a certain time frame for removal of a regulation.

They could also include the possibility for regulatory forbearance in regard to any activity shown to be subject to sufficient competition to protect the public interest.

With respect to the interface between competition agencies and sectoral regulators, I am sure there is some common understanding about the necessity for competition authorities to cooperate and coordinate with sectoral regulators.

Cooperation and coordination helps to

• ensure that anti-competitive conduct is detected and prevented;
• minimize unnecessary overlap and duplication;
• minimize the costs of businesses complying with the requirements of both competition laws as well as industry specific regulations; and
• create a more certain competition framework for businesses.

Overlap between the jurisdiction and responsibilities of antitrust enforcement agencies and industry regulators leads to inefficiency and a waste of valuable resources.

Where there is overlap, some level of awareness and communication between the agencies is necessary.

There are many ways of doing this, and antitrust officials around the world would benefit, I think, from attempting to define the best principles and the most successful models.

Working together as effectively as possible may not always be easy. For example, in the Canadian telecommunications context, we do not have all of the legal plumbing in place to be able to share confidential information with our telecommunications regulator.

Given our shared concern about eradicating anticompetitive behaviour in the telecommunications sector, I do not believe that this is the best model. Indeed information sharing with sectoral-specific regulators may be one of the basic principles that we would endorse as competition authorities.

Furthermore, it may be advisable to establish some formal arrangement to describe the respective roles and responsibilities of the antitrust agency and the sectoral regulator. Again, there are different models around the world. Perhaps we should at least be able to agree that the allocation of responsibility should be set out in a clear framework in legislation.

Such an arrangement provides some degree of certainty and predictability as to how the competition law will apply and provides a framework for cooperation and coordination in dealing with any matters where there is shared jurisdiction.

As a final note, I am pleased to announce that on Tuesday of this week Canada and the US signed a Positive Comity Agreement.

Our 1995 Cooperation Agreement with the US contained a limited provision on positive comity.

However, the Positive Comity Agreement sets out in greater detail the situations in which positive comity can be used and will help pave the way for making such requests.

The Agreement introduces rules for deferral or suspension of investigative activities and outlines commitments that a requested competition authority will undertake in handling a request.

While we will need to use this Agreement often, it is an important tool to have in our enforcement tool box.

Moreover, the Agreement puts in place a clear and transparent process for making positive comity requests, where the need arises.

Thank you for your attention.