Speaking Notes for Gaston Jorré Acting Commissioner of Competition

Bill C-249 - An Act to Amend the Competition Act

Standing Senate Committee on Banking, Trade and Commerce

November 5, 2003

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Introduction

Thank you Mr. Chairman, Honourable Senators, for allowing me to participate in your deliberations on Bill C-249, An Act to Amend the Competition Act.

The Competition Act delineates the rules of fair business play in Canada. Competition drives Canadian firms to become more efficient, more competitive internationally and to offer consumers better prices and product choices. The Competition Bureau, through its law enforcement and policy efforts, works to ensure that all Canadians enjoy the benefits of a competitive economy.

Bill C-249 is mindful of these objectives. It recognizes that efficiencies are relevant in the analysis of a merger's impact on competition, but it also ensures that consumers are not left out of the equation.

Before addressing the Bill itself, I would like to provide some brief context on merger review in Canada.

Merger Review

In general, mergers are viewed positively as a means to increase competitiveness. However, the Bureau pays close attention to the small portion of mergers that could substantially prevent or lessen competition in particular markets. In reviewing mergers, we consider many different elements including the level of economic concentration in the relevant industry and the merging parties' market shares. The Bureau also considers such factors as:

• whether foreign competition will provide effective competition in the relevant markets;
• whether one of the merging parties is a failing firm;
• the extent to which acceptable substitute products or services are available;
• the existence and effects of any barriers to entry;
• the extent of remaining competition in the relevant markets;
• whether the merger would remove a vigorous and effective competitor; and
• the role of innovation in the relevant markets.

After considering such factors, the Bureau decides if it will challenge a merger or allow it to proceed. In most cases, when we have competition concerns regarding a transaction, we are able to remedy the problem by working with the parties. Merging parties will often present a modified proposal. If they choose to proceed with the merger despite our objection, we will challenge it before the Competition Tribunal. It is then up to the Competition Tribunal to decide the matter.

Before the Tribunal, the Commissioner and the merging parties each present their case on the expected impact of the transaction on competition. If the Tribunal disagrees with the parties and finds that the merger is likely to substantially lessen or prevent competition, the merging parties can still raise the "efficiency defence" under section 96 of the Competition Act to attempt again to justify the merger. To successfully argue the defence, the parties must persuade the Tribunal that the merger, while substantially anti-competitive, nevertheless generates efficiencies that are greater than and offset the anti-competitive effects of the merger.

Between April 1998 and March 2003, the Competition Bureau has reviewed some 1700 proposals. In most cases where we had concerns, we were able to resolve the issues without the need for litigation. Only a handful of transactions led to fully litigated proceedings. One such case was the merger between Superior Propane and ICG Propane.

We challenged the proposed merger because it would result in a substantial lessening and prevention of competition in numerous markets across the country. In 16 of these local markets, the impact on competition was such that the merger would have led to monopolies or near monopolies. It would also have provided the merged entity with a national market share of 70%, which we believed would give it the ability to sustain significant price increases. The Tribunal unanimously agreed with our assessment. Nevertheless, the merger was allowed to proceed byecause the the majority of the Tribunal on the basis that the efficiency defence had been accepted.concluded that the efficiencies outweighed and offset the anti-competitive effects

As a result of the recent decision in the Propane case, section 96 of the Competition Act has been interpreted in a manner that would basically allow for the creation of monopolies. This result is completely unacceptable.

An anti-competitive merger will survive if it generates sufficient efficiencies, even if it results in substantial harm to consumers. It seems paradoxical that the Competition Act should allow the elimination of competition and the introduction of higher prices and/or lower product choices. In our view, it is a perverse result that the application of the Competition Act results in sanctioning the creation of a monopoly.

Certainly, efficiencies are an important element of a successful economy. However, they are best realized through a competitive market which achieves dynamic and sustained efficiencies such as choice andinnovation. We must favour a competitive economy which expands opportunities for Canadian participation in world markets.

Bill C-249

In a nutshell, we support Bill C-249 because it will ensure that:

1. efficiencies are given due consideration in the review of mergers;
2. consumers benefit from efficiency-enhancing mergers;
3. Canada's treatment of efficiencies will be closer to that of our major trading partners; and
4. efficiencies will be considered in the context of the overall purpose of the Competition Act.

Bill C-249 does not propose to remove efficiencies from the merger review process. Instead of having a "trade-off" between efficiencies and anti-competitive effects, Bill C-249 would add efficiencies to the many existing factors that the Competition Tribunal may take into account in assessing a merger's overall impact on competition .

As well, since Bill C-249 would require that efficiency gains provide benefits to consumers, including competitive prices or product choices. It would affirm that the merger's impact on Canadian consumers is important, irrespective of what the merging firm's management or shareholders gain from the transaction.

The approach contemplated by Bill C-249 recognizes the positive contribution of efficiencies: a better use of resources that can lower costs, thus influencing prices down - this may make you more competitive internationally; as well the timelier introduction of development of new or improved products or services can provide consumers with wider choice. These positive contributions, bringing benefits to consumers, can mitigate overall competition concerns.

We all recognize the importance for Canadian consumers and businesses of having a Competition Act that is world class. Yet, our current treatment of efficiencies differs from the approach taken in other major jurisdictions.

In the US, claims of efficiencies are only taken into account if they do not result in higher prices to consumers. In the UK, a new law that came into force this Summer allows the Office of Fair Trading to take into account clear and quantifiable claims of efficiencies only in mergers where consumers benefit from lower prices, greater innovation and greater choice. These two countries, as well as many other OECD member countries, consider efficiencies in their assessment of a merger's overall impact on competition, which would also be the case in Canada with the changes proposed in Bill C-249.

Under draft proposals the European Union is moving in the same direction.

Honourable Senators, I am certain we all agree that competition is essential for a fair and efficient market economy. Competition drives Canadian businesses to decrease costs, reduce prices and improve services. It also stimulates innovation and the development of new products. As such, C-249 is fully consistent with the objectives of the Competition Act.

Conclusion

The status quo, as it relates to the treatment of efficiency claims in merger review, is unacceptable.

Bill C-249 will enable the Competition Act to properly provide Canadians with merger review provisions more in line with those of our main trading partners and to safeguard consumers from non-competitive price increases, loss of choice and quality that result from monopolies.

The bill's legislative progress to date speaks to the degree of support it has garnered in the Parliament and to the broad recognition that the Act, as it stands today, fails to grant consumers the importance they deserve in merger review.

Thank you for allowing me to share my views on Bill C-249 which, as Commissioner of Competition, I support. I would now be pleased to answer any questions you may have.