RESTRICTED
WORLD TRADE WT/WGTCP/W/70
25March 1998
ORGANIZATION(98-1215)
Original: English Working Group ontheInteraction
between Trade andCompetition Policy
COMMUNICATION FROM CANADA
Thefollowing communication, dated 11March 1998, hasbeenreceived fromthePermanent
Mission ofCanada withtherequest thatitbecirculated toMembers.
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TheImpact ofAnti-competitive Practices ofEnterprises andAssociations
onInternational Trade
1. Objectives ofcompetition policy andtrade policy
Liberaltradepolicycanbepro-competitivebyremovinggovernmentmeasuresthatactasbarriers
tointernational trade boththrough reduction intariff levels andthrough commitments tolimittheuse
ofnon-tariff barriers. Theresulting increased competition serves toreduce concentration inmarkets.
Concurrently, sound competition policy canfacilitate trade byproviding foreign firms thesame
opportunity tocompete asdomestic firms. Forthemostpart,competition policy principles andantitrust
enforcement arefullysupportive ofimproved market access forallsuppliers andinvestors, regardless
ofnational origin.
Inaneraofincreasing internationalization ofeconomic activity, inwhich knowledge israpidly
becoming thebasis ofnational comparative advantage, economies needtohaveinplace policies that
support aninnovative anddynamic economy. Sound competition lawandliberal trade policy will
promote thecompetitive process inthedomestic market, andfoster competitiveness attheinternational
level. Theability tosecure effective access tomarkets willserve toencourage efficiency inthe
production andallocation ofgoods andservices, andovertime, through itseffects oninnovation and
adjustment totechnological change, promote adynamic process ofsustained economic growth.
Some differences inperspectives between tradeandcompetition policy aremostapparent when
certain concepts -definitions andassumptions -andmethodological approaches usedbypractitioners
facing similar circumstances areexamined. Definition ofrelevant markets, pricing practices suchas
predatory pricing anddumping, andsuperior competitive performance arefrequently cited. The
benchmark forcompetition lawisthecompetitive process -theorganization andfunctioning ofmarkets
which willmaintain andencourage competition. Theissueforcompetition lawistodistinguish between
legitimate competition onitsownmerits andwithin theexisting provisions ofcompetition law,and
exclusionary practices thatharm thecompetitive process. Market structure andthepotential forabuse
ofadominant position areofprime importance inthisdetermination.
Restricted market access andthereasons forsuchrestrictions arealsopartofthetrade and
competition debate. Theinterpretation oftheconsequences flowing fromseemingly restrictive business
practicesmaydivergedependinguponwhetheronetakesatradepolicyorcompetitionpolicyperspective.WT/WGTCP/W/70
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Certain business arrangements, suchasvertical exclusive dealing arrangements, mayexclude potential
competitors, including foreign firms, fromaccess toestablished distribution networks, making entry
intomarkets difficult. However, theseexclusive arrangements mayhavepro-competitive andefficiency
enhancing justifications. Competition policy andtheapplication ofcompetition lawsdonotpresume
thattheharm toacompetitor thatsuchexclusionary practices mayentail willnecessarily beharmful
tothecompetitive process. Incontrast, ifrelevant obligations existunder atradeagreement, exclusion
offoreign presence could beseenbyaforeign firm(andlikely thegovernment ofdomicile) asabreach
ofthose obligations, calling forremedial action onthepartofthejurisdiction inwhich themarket power
isexercised.
2. Applying competition policy toanti-competitive practices thatmayaffect trade
Cartels
Ingeneral, thesameanti-competitive actsorpractices thatimpact upontradewithin adomestic
market mayaffect international trade, depending upon thefactsoftheparticular case. Totheextent
thatcompetition policy enforcement addresses theconduct atissue, aremedy canbemade available.
However, incases withinternational dimensions, thepractical ability topursue aninvestigation toits
logical conclusion ortosecure aneffective remedy maydepend upon theaccessibility ofnecessary
evidence ortheterritorial presence ofanindividual orentity against whom proceedings maybebrought.
Cartels thatinvolve aninternational dimension canaltertrade flows, limitcompetition and
adversely effect thegrowth prospects ofthecountry depending ontheimported product. Canada 's
Competition Actprohibits, under criminal sanction, combinations, agreements orarrangements that
prevent orlessen competition unduly. Adopting andvigorously enforcing domestic competition laws
canhelp countries toprotect themselves against international market abuses byprosecuting
anti-competitive conduct byforeign firms onitsterritory (either alone orincooperation withthe
competition authority ofanother country where theabusive conduct isoccurring).
Afewexamples ofcases pursued under thecriminal provisions oftheActwillhighlight the
needtotakeaction against foreign-based cartels, andthekeyroleenforcement cooperation canplay
inaneraofincreasing trade liberalization.
TheThermal FaxPaper caseinvolved aninternational conspiracy toraisethepriceofthermal
faxpaper inNorth America. Thermal faxpaper isusedtocreate anumber ofpaper products including
labels, tickets, printer papers, charts andfacsimile papers. Theconspiracy involved participants based
inJapan, Canada andtheUnited States andinvolved anagreement entered intooutside Canada that
wasimplemented inside Canada andthathadeffects inboththeCanadian andUnited States markets.
Theconspiracy wasuncovered bytheCanadian Competition Bureau, butmuch oftheevidence was
located intheUnited States. Cooperation wasundertaken withtheUnited States Department ofJustice
under theauspices ofthe1984 Memorandum ofUnderstanding andtheCanada-US Mutual Legal
Assistance inCriminal Matters Treaty .Following theinvestigations inCanada, guilty pleas, fines
andprohibition orders were secured against Rittenhouse Ribbons andRolls Ltd.1,New OjiPaper
Company Ltd.2,andMitsubishi Paper Mills.3Fines inCanada inthefaxpaper matter havetotalled
1Canada v.Rittenhouse Ribbons andRolls Ltd.,Federal Court ofCanada T-2663-95 20December 1995
(unreported)
2Canada v.NewOjiPaper Company Ltd.,Federal Court ofCanada T-1693-96, 16August 1996(unreported)
3Canada v.Mitsubishi Paper Mills,Federal Court ofCanada T-125-97, 17February 1997 (unreported)WT/WGTCP/W/70
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Can$3.45 million. Thematter wasalsothesubject ofprosecutions intheUnited States where significant
fineswere levied.
TheDuctile IronPipe4casewasalsopursued under theconspiracy provisions oftheCompetition
Act.Theconspiracy involved anarrangement between Canada PipeCompany Ltd.,(CPC) andUSPipe
andFoundry Company, bywhich USPipeagreed towithdraw from theCanadian market andcease
supplying CPCs solecompetitor intheCanadian market. Ductile ironpipeisusedinthefiltration,
transportationanddistributionofdrinkablewaterinhighpressurewatermains.CPCscustomersincluded
municipalities, distributors ofpipe, fittings andvalves, andconstruction contractors. Discussions and
exchange ofinformation between Canada andtheUnited States helped todetermine thatthemaineffects
oftheconspiracy wereinCanada. CPCpleaded guilty andtheFederal Court ofCanada levied afine
ofCan$2.5 million andimposed aprohibition order against CPC.
TheDuctile IronPipecaseprovides evidence ofhoweffective competition lawenforcement
cancomplement andreinforce tradeliberalization. Trade liberalization, byreducing tariffandnon-tariff
barriers totrade, brings newcompetitors tothemarket. Thisenhanced competition inturnmaybe
expected tohaveadownward effect onprices. Inpractice, however, theprivate arrangement between
CPCandUSPipewould havehadtheopposite effect. Theagreement toallocate theNorth American
market amongst suppliers ofthisproduct prevented freeandopen competition within theCanadian
market, andwould haveallowed CPCtoholdprices above competitive levels, thereby nullifying the
benefits thatconsumers oftheproduct might haveexpected fromtheCanada-US FreeTrade Agreement.
IntheDuctile IronPipecase, theFederal Court ofCanada 'sconviction andfining ofaCanadian firm
ensured thatthebenefits oftradeliberalization would notbethwarted bythisparticular anti-competitive
act.
Abuse ofadominant position
Provisions dealing withabuse ofdominance suchasthose found inCanada 'sCompetition Act
canalsobeeffective tools toaddress anti-competitive conduct thatcanactasabarrier toamarket
affectingpotentialforeigncompetitors.UnderCanadianlaw,threeelementsmustbesatisfiedtoestablish
abuse ofadominant position: afirmorfirms musthavecontrol ofaclassorspecies ofbusiness, they
must beshown tohaveengaged inapractice ofanti-competitive acts,andsuchactsmust beshown
tohavebeenorbelikely tohavetheeffect ofpreventing orlessening competition substantially.
These provisions havebeeneffectively applied inanumber ofinstances. However, onerecent
caseprovides aconcrete example ofhowanti-competitive actsmayimpact upon international trade.
TheA.C.Nielsencase("Nielsen")5involvedconductbyaCanadianfirmthatwasallegedtohaveimpeded
entry bypotential competitors. Inthismatter, ithappened thataforeign firmwasaffected bysuch
conduct.
TheNielsencaseinvolvedallegationsthatNielsenhadentered,renewedandmaintainedcontracts
withallthemajor Canadian grocery retailchains toacquire theirUniversal Product Code (UPC) scanned
dataonalong-term, exclusive basis, precluding anypotential competitors from acquiring suchdata.
Itwasalsoargued bytheCompetition Bureau thatNielsen reinforced itsdominant position inthemarket
bystaggeringcontractrenewals,andbyenteringintolong-termcontractswithmanufacturersofconsumer
4R.v.Canada Pipe Co.(1995), 64C.P.R. (3d)182, 101F.T.R. 211(T.D.)
5SeeCanada (Director ofInvestigation andResearch) v.theD&BCompanies ofCanada Ltd.(1996), 64
C.P.R. (3d), 216, (hereinafter Nielsen )April 1994WT/WGTCP/W/70
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packaged goods toprovide market tracking services6,andbyimposing strict conditions requiring
substantial notice oftermination, andpenalties forearly termination. Nielsen 'spractices prevented
other firms from competing withitinthesaleofsuchdata, withtheresult thatcompetition was
substantially prevented inthatmarket.
Initsdecision, theCompetition Tribunal noted thatthe"unquestionable effect ofthestandard
exclusivity provisions istoexclude allpotential competitors fromobtaining theretailer scanner data"
andthatNielsenwithhelddataand"adoptedastrategyofsigninglong-termcustomercontractsgenerally,
andwith(UScustomers) ofInformation Resources Incorporated (IRI) specifically, asameans of
preventing IRI'sentry". TheTribunal concluded that"Nielsen intended itslong-term manufacturer
contractsalongwithexclusivesandinducementstoexclusivity,toexcludepotentialcompetitorsgenerally
andIRIspecifically".
TheTribunal 'sremedial order enabled entry intothemarket forIRIandotherpotential entrants
byprohibiting Nielsen fromentering intoanyfuture contracts which restrict orpreclude aretailer from
supplying itsscanner dataandcausal datanecessary fortheprovision ofascanner-based market tracking
service tosomeone other thanNielsen andfromoffering aretailer inducements torestrict orpreclude
access inthatway. Aswell,theTribunal prohibited Nielsen fromentering intocontracts which contain
what hasbeenreferred toasa"most-favoured-nation" ("MFN")7clause foraperiod of24months
from thedateoftheorder.
TheNielsen casealsoraised theissue oftheeffect thatexclusivity restrictions mayhaveon
innovative activity andultimately onthecompetitive process. Thepaceofdevelopment ininformation
technology isveryrapid. Assessing thecompetitive impact ofNielsen 'scontractual restrictions needed
tobedoneinthecontext oftheemerging orprospective stateoftechnology. Competition maybe
prevented ifafirmisdeterred fromusing themostadvanced technology evenif,inarapidly changing
market, thetechnology isnotyetmatured andhasnotcompletely displaced theprevious technology.
TheTribunal concluded that"there islittleevidence insupport oftheproposition thatexclusives were
justified because ofthetime, energy andresources thathadtobeexpended toexploit anewtechnology".
TheTribunal wentontostatethat"tojustify theexclusives onthisbasis(technological improvements),
Nielsen 'sinvestments would have toberelated tocreating benefits thatother firms could then
appropriate, forexample, improving retailer scanner penetration ordataquality andusability". The
Tribunal found littleevidence ofasubstantial commitment ofresources toinvestments ofthisnature.
6Ascanner-based market tracking service isatypeofsyndicated market tracking service thatisbased on
UPC data. Thedataareusedtotrack sales ofanumber ofproduct categories andbrands inaspecified period
oftime. Theservice tracks thephysical movement ofgoods andother factors such asadvertising levels,
promotions, prices andpackage size. Market tracking isaservice thatmonitors theprogress andcompetitive
position ofaproduct inrelation toother competing products overtime. Themarket tracking services produced
from thedataarepurchased bymanufacturers ofpackaged goods whousethedatatoassist indecision-making
andstrategic planning relating toproduct promotion, pricing andcompetitive position.
7Interms ofcompetition policy, most-favoured-nation (MFN) clauses incommercial contracts inahighly
concentrated market canbeanti-competitive. Inthisparticular case, under theMFN clause theretailer would
agree nottoprovide itsdatatoathird party onterms more favourable thanthose ithasgranted toNielsen. The
effect ofanMFN clause isthatNielsen determines whatwould-be competitors willhavetopayforscanner data.
MFN clauses could thusbeusedbyNielsen toinduce exclusivity because theyallow Nielsen tosettheprice
fordatahigher thanitthinks arival willpay.WT/WGTCP/W/70
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Deregulation andessential facilities
Sound competition policy isanincreasingly valuable toolinthecontext ofaderegulated and
privatized business environment. Arecent OECD study8observed thatcompetition authorities need
tomonitor aderegulated market toensure thatprivate barriers donotreplace regulatory barriers.
Inparticular, itnoted that"(market power) mayposeaproblem forforeign firms when regulatory
barriers arereplaced bylesstransparent private barriers". Inthisrespect, abuse ofdominance provisions
canbeinstrumental inassisting inthetransition from regulation toderegulation.
Arelated topicthatisgaining theattention ofcompetition authorities isthequestion ofaccess
toessential facilities. Thistopic intersects withthediscussion ofgovernmental measures thataffect
trade, inthesense thatimplementation ofapolicy ofderegulation maybethwarted ifmeasures are
notavailable toensure thatentry oncompetitive terms ispossible.
Incertain industries undergoing deregulation, anincumbent maybeincontrol offacilities that
newentrants needaccess toinorder tobecome competitive. Thepotential forexclusionary conduct
byincumbentserviceprovidersbydenyingaccesscanraiseanimportantissueforcompetitionauthorities.
Open access tonetworks canbepivotal ifnewentrants, either domestic orforeign, aretobecompetitive;
notacting against entry restrictions mayinhibit theevolution ofanindustry andimpede dynamic
efficiency.9Indeed thisveryissueisreflected intheGATS Agreement onBasic Telecommunications
Services, which contains safeguards against theuseofanti-competitive practices involving control of
essential facilities. However, thisagreement hasapplication onlyinadefined sector, andtheissue
mayobviously ariseinavariety ofcontexts.
Thetraditional antitrust articulation oftheessential facilities doctrine provides thatpersons
whocontrol afacility essential tocompete inamarket must allow others access tothatfacility on
reasonable commercial terms. Although thisdoctrine hasnotbeenthesubject ofdetailed judicial
consideration intheCanadian context, wecanpoint toacasewhere analogous issues were raised.
TheInterac case10wasanapplication totheCompetition Tribunal foraconsent order regarding
thesupply ofshared electronic network services forconsumer-initiated shared electronic financial
services. Thismatter waspursued asacaseof"joint dominance" under theabuse ofdominant position
provisionsinanapplicationbroughtagainstInteracInc.,BankofMontreal,BankofNovaScotia,Canada
Trust, Canadian Imperial Bank ofCommerce, LaConfederation desCaisses Populaires etd'Economie
DesjardinsduQuebec,CreditUnionCentralofCanada,NationalBankofCanada,RoyalBankofCanada
andtheToronto-Dominion Bank.
Interac wasalleged tohaveabused itsdominant position inthesupply ofshared electronic
network services inCanada byleveraging thecontrol ofdemand deposits andautomated banking
machines (ABMs) inCanada. Thiswasachieved through avariety ofrestrictions onmembership and
8SeeInternational Market Openness andRegulatory Reform, DAFFE/CLP/WP2(06)9/10/REV1, OECD:
Paris, 1996
9Prudence ishowever required before classifying facilities asessential. Therecent WTO Special Study on
Trade andCompetition Policy observed thatadownside ofdirecting access toexisting facilities isthatit"may
reduce theincentive fornewcompetitors to'invent around 'existing bottlenecks, thereby reducing therateof
technologicalprogressintheindustry".SpecialTopic:TradeandCompetitionPolicyinWorldTradeOrganization,
Annual Report, Geneva, 1997, p.43
10Canada (Director ofInvestigation andResearch) v.Bank ofMontreal etal(Comp. Trib., CT9502/92,
20June 1996 (unreported))WT/WGTCP/W/70
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participation intheInterac network. Theanti-competitive actswerealleged tohavehadtheeffect of
preventing orsubstantially lessening competition inCanada intwomarkets: the"intermediate" market
forthesupply ofshared electronic network services tofinancial institutions, retailers, third-party
processors andother service providers; andthe"retail" market forthesupply ofshared electronic
financial services toconsumers orcardholders.
TheTribunal concurred withtheproposed Consent Order which putinplace changes necessary
torestore competition tothemarkets atissue. TheConsent Order removed restrictions onconnecting
totheInterac network, provided non-Charter members withagreater roleinthegovernance ofInterac,
andeliminated discriminatory feesandrestrictions onthetypes ofaccounts thatcanaccess thenetwork.
TheConsent Order alsoputinplace amechanism fortheintroduction ofnewshared services onthe
network andpermitted members toestablish bilateral andmultilateral shared services using Interac 's
software.
TheInterac caseposed some newandinteresting considerations fromaCanadian competition
lawperspective. Interac isanetwork ofnumerous participants withdiverging interests. Furthermore,
themembership iscomprised offinancial institutions which arebothextremely large, inthecaseof
theRoyal Bank, andthose thatarequitesmall, liketheruralcredit unions. Thesharing ofthese types
offacilities isarelatively newphenomenon.11IntheStatement ofGrounds andMaterial Facts ofthe
Interac case, reference wasmade totheviewthataccess totheshared electronic messaging system
wascritical. TheTribunal noted that"...bythelate1980s ithadbecome essential fordeposit taking
financial institutions tojoinInterac inorder toaccess itsshared electronic network services tocompete
effectively inthesupply ofretail financial services inCanada". Additionally, theTribunal stated that
"inthefaceofgrowing consumer demand forcashdispensing andIDPservices ...itbecame essential
forfinancial institutions toconnect totheInterac Shared Services inorder toretain theircustomer base
andtocompete effectively inother financial services markets".
ItisnoteworthythatinboththeInteraccaseandtheNielsencase,theTribunaldesignedremedies
withtheintention ofsanctioning theanti-competitive practices engaged inbyfirms. Theremedies
didnotaimatspecific kinds orclasses ofcompetitors, i.e.,foreign orpotential domestic suppliers,
butrather weredirected atensuring thatpotential competitors werenotprevented byanti-competitive
conduct from entering themarket, orexpanding theirpresence inthemarket.
3. Conclusions
Thecasesreviewed generate anumber ofgeneral conclusions ontheenforcement ofcompetition
lawintheglobal economy:
(1) Measures designed toremedy theanti-competitive effect ofconduct suchasprice-fixing
andabuse ofdominance areimportant toensure thebenefits oftrade liberalization
materialize. Inthesame vein, sound competition lawhelps toensure thatina
deregulated business environment private barriers donotreplace public barriers.
(2) CompetitionlawinCanadacanbeeffectiveindisciplininganti-competitiveacts,whether
theyimpact upondomestic orforeign firms. Ifcompetition policy isenforced toensure
thatfirms donotengage insuchconduct against anyone, thenforeign suppliers trying
topenetrate themarket willbenefit asmuch asdomestic would-be competitors.
11Michael J.Trebilcock andMichael S.Gal,Migration from Regulation toCompetition -KeySectors for
the21stCentury -Electricity andFinancial Institutions, Paper Prepared forthe1997 Annual Competition Law
Conference, Canadian BarAssociation, 18-19 September, Alymer Quebec, CanadaWT/WGTCP/W/70
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(3) Insituations involving conduct byforeign firms, theenforcement ofcompetition law
willclearly befacilitated, andmayindeed, require thecooperation ofothercompetition
lawagencies. Suchcooperation isfounded onamutuality ofinterest infinding ways
toinvestigate anddeter suchpractices andisnurtured byarelationship oftrustand
confidence intheprocesses oftherespective agencies.
(4) Competition lawsamong nations dodiffer intheirspecifics. Although thesedifferences
should notbeunderestimated, toaconsiderable degree, theapplication ofcompetition
lawisinformed byacommon bodyofeconomic theory, asimilarity ofobjectives and
similar approaches totheanalysis ofmarkets. Deliberations intheWTO Working
Group andinother foracancontribute toimproved understanding ofthose differences
thatremain, andhowbesttodealwithanti-competitive business conduct inaglobal
economy.
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