RESTRICTEDWORLD TRADE
ORGANIZATIONWT/WGTCP/W/72
6 April 1998
(98-1374)
Working Group on the Interaction
between Trade and Competition PolicyOriginal:  English
COMMUNICATION FROM CANADA
The following communication, dated 16 March 1998, has been received from the Permanent
Mission of Canada with the request that it be circulated to Members.
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Responses to Questions put by Members
At the meeting of the Working Group on the Interaction between Trade and Competition
Policy of 16-17 September 1997, a number of questions were posed by Members in response to
presentations on existing national competition policy regimes.  Further to the discussion of these
questions at the subsequent meeting held on 27-28 November 1997, the Canadian delegation presents
answers to some of the questions posed.
1. What is the role of guidelines or other policy statements in facilitating smooth
implementation of national competition polici es and promoting compliance with competition
laws?  Can Members provide examples of such guidelines?
In Canada, education is a fundamental and integral part of an overall strategy to promote
compliance with competition laws.  A comprehensive education programme is relied upon to enhance
the effectiveness of competition policy enforcement efforts and to assist in reducing the need for
enforcement action.
Guidelines and policy statements have been developed by the Competition Bureau to provide
all market-place participants with information and guidance on a number of issues.  For example,
Merger Enforcement Guidelines outline the process th at is followed in reviewing a merger transaction
and provide detail on how the various factors articulated in the law are interpreted and applied.
Detailed bulletins have also been developed that explain the approach of the Competition Bureau in
applying the law to situations involving predatory pricing, price discrimination and strategic alliances.
In addition to the more detailed guidelines, policy statements are communicated by means of
speeches, and regular reporting publications that may outline recent developments in specific cases, or
outline the current views of the Bureau on other enforcement matters.
In general, guidelines and other public policy statements are viewed as important to assist the
business community in understanding the requirements  of the law, to increase transparency and
predictability in terms of how the law will be applied, and to clarify how specific issues are analysed.
Public education is also helpful to advance consumer understanding of the competition laws, as
consumers are an important potential source of information relating to infractions.WT/WGTCP/W/72
Page 2
2. What is the importance of competition advocacy as an element of competition policy,
particularly in a country undergoing transition to a market-based economy?  What is the
appropriate scope of a competition authority’s involvement in:  (a) the privatization process;
and (b) monitoring developments in capital markets, as a tool for ensuring compliance with
competition policy?
Competition advocacy should be a major element of competition policy in any country and
may be particularly important in countries undergoing transition to market-based economies.
Advocacy work by competition authorities provides benefits in two interrelated ways.  First,
competition authorities can promote greater reliance generally on competitive market forces as the
most effective means to promote economic efficiency and consumer welfare.  Competition authorities
are well placed to advance these arguments as they may be more neutral (i.e. they have no direct
financial interest in the resulting market structure, and hence have no incentive to distort the emerging
market outcome). Also, competition authorities can contribute specialized expertise in analysingmarkets and competition.  Secondly, competition advocacy work can help to reduce the need for
future enforcement activity by antitrust authoritie s.  The establishment of effective competition in
markets emerging from regulation provides the best assurance against the need for enforcement
activity at a later date.
The Canadian Competition Bureau is very active in advocacy and policy development
activities.  The  Competition Act  specifically provides the Director of Investigation and Research with
a right to appear before regulatory boards, commissions and tribunals in respect of
competition-related matters that they may be considering.  The Director has a parallel right to appear
before provincial regulatory bodies subject to their request or approval.  In addition, the Competition
Bureau works to promote pro-competitive government policies and programmes through the provisionof input to government policy makers.
Privatization without competition may provide little if any benefit to an economy.  At the
same time, such privatization can ensure that govern ments will receive the best possible return for the
sale of assets.  Competition authorities can play a role in privatization initiatives to ensure that the
conflict is recognized and that attempts to maximize the returns from asset dispositions are not madeat the expense of the benefits that competition generates.
Competition law enforcement in Canada is mo st frequently complaint-driven, and thus
monitoring developments in capital markets in not a means by which the Competition Bureau has
sought to ensure compliance.  Such monitoring might be considered, however, where there was a
possible competition concern within the relevant capital market itself (e.g. possible collusion amongmarket participants to increase the cost of borrowing).
3. What measures may be appropriate in rela tion to the exit of inefficient firms (or
industries), particularly in the context of economic transformation?
Section 93(b) of the  Competition Act  draws attention to the importance of assessing "whether
the business, or a part of the business, of a party to the merger or proposed merger has failed or is
likely to fail".  This information is to be considered in "determining, for the purpose of section 92 (of
the Competition Act  ) whether or not a merger or proposed merger prevents or lessens, or is likely to
prevent or lessen, competition substantially".  The impact that a firm's exit can have in terms of
matters other than competition are generally beyond the scope of the assessment contemplated in
section 93(b).
It is important from a competition perspective to assess the financial health of the parties to a
merger for two principal reasons.  First, the loss of the actual or future competitive influence of afailing firm cannot be attributed to the acquisition of such a firm, where the firm would have exitedWT/WGTCP/W/72
Page 3
the relevant market in any event.  Second, the extent to which the acquisition of a failing firm can
increase the market power of the acquirer is often reduced as the failure of the former becomes
increasingly likely, and as its relative market position weakens.
The merger enforcement guidelines set out three criteria to determine if a firm is considered
likely to be failing:  (1) it is insolvent or is likely  to become insolvent;  (2) it has initiated or is likely
to initiate voluntary bankruptcy proceedings;  and (3) it has been, or is likely to be, petitioned intobankruptcy or receivership.
4. How should countries ensure the harmonizat ion, or otherwise manage the interaction of
national competition laws with other elements of their national legal regimes, which may
incorporate provisions that limit competition?
There are various ways in which harmonization and appropriate interaction between
competition and other legislation may be pursued.  Some of these are:
(a) Clearly specify in the relevant legisl ation the intended interface or relationship
between competition law and policy.  This can help to avoid confusion, and its
associated costs, regarding which legislation will be relied upon to govern business
practices and control anti-competitive abuses when they arise.  It can be particularly
important to ensure that legislation that is not intended to address anti-competitive
business practices does not prevent the application of competition law.
(b) Include reference to the promotion of co mpetition, where relevant, in the elaboration
of the goals or purposes of other legislative instruments.  Competition may not be the
only, or the primary, goal of a regulation or enactment.  However, explicit reference
to competition as one of the objectives to be pursued may prevent competition from
being unnecessarily distorted or prevented in order to achieve other economic orpolicy objectives.
(c) Provide legislative or other powers to anti trust authorities to intervene in regulatory,
policy, or legislative processes to ensure effective presentation of competition
concerns.  As noted above, powers of this nature are provided to Canadian
competition authorities in respect of the right to intervene before boards, tribunals andcommissions.
5. What is the optimal balance between enforcement and non-enforcement of competition
laws?  How do competition authorities avoid becoming "just another regulatory body"?
The objective of enforcement activity is to deter anti-competitive conduct and seek to secure
maximum compliance with the law given the resources that are available.  A mix of enforcementapproaches may be effective, and the optimal balance may shift at times depending upon the
environment in which the competition agency operates.  Thus, rather than thinking in terms of
non-enforcement, it may be more appropriate to consider the range of possible enforcement responses
to anti-competitive conduct and the various situations which would warrant these differing responses.
The Competition Bureau applies a mix of enforcement tools ranging from formal court
proceedings to less formal approaches designed to bring alleged violations to the attention of those
involved and prevent future occurrences.  Court proceedings leading to the application of formal
sanctions are viewed as necessary and appropriate in cases which involve significant economic harm.Less severe enforcement responses may be appropriate in other instances - for example where it is
believed the conduct is an isolated instance and the impact is not substantial.  Public education
activities are also important to provide information on the application of the law and howWT/WGTCP/W/72
Page 4
transgressions can be avoided.  The Competition Bureau ensures that information is available to the
public through a range of mechanisms, including participation at trade shows, speeches, an Internet
website, pamphlets, guidelines, etc.
With respect to the concern that competition authorities avoid becoming "just another
regulatory body", this is best achieved if the ag ency focuses on only intervening in the market-place
when it is not functioning properly on its own.  Co mpetition policy can be distinguished from industry
regulation, to the extent that it establishes general rules applicable across the economy, rather than
engaging in detailed prescriptions with respect to particular industry sectors.  In Canada, competition
policy (with the exception of notification of large merger transactions) does not involve prior approvalof business conduct and relies to a large extent on voluntary compliance.  Intervention by the
competition authorities is on an ex post facto  basis and is selective.  At the end of the day, the
competitive environment determines the involvement of the competition authority.
In Canada, the interplay between competition law and regulation is governed to a large extent
by a jurisprudential doctrine known as the regulated conduct defence.  The essence of the regulated
conduct defence is that specific activity which is authorized or carried out pursuant to a valid schemeof regulation is deemed to be in the public interest.  As such, it cannot be found to be in violation of
the criminal provisions of the Act.  It is of fundamental importance for a proper understanding of this
issue to recognize that not every activity in an industry nor every dimension of competition is
normally regulated.  The mere fact that some government regulation exists in a given sector does not
mean that the  Competition Act  has no application.  Furthermore, whether or not such a defence may
be applicable depends upon a careful examination of the nature of regulation in the particular case
under review.  There is no conclusive jurisprudence with respect to the civil provisions of the Act and
it remains for the courts and the Competition Tribunal to determine the full scope of the application of
the regulated conduct defence.
1
6. How do regional trade or economic integration arrangements bear on the
implementation of competition policy?  Should a country party to such an arrangement attempt
to establish or maintain its own national comp etition policy, particularly if other countries in
the arrangement lack such policies?  Alternativ ely, should a regional competition policy be
considered?
Competition laws seek to remove anti-competitive restraints to business transactions and thus
facilitate a more efficient allocation of resources.  This is usually accomplished in the context of anational market.  However, obstacles to trade negatively influence the efficient allocation of
resources.  Competition policy should ensure that as tariff and non-tariff barriers to trade are removed,
they are not replaced by private anti-competitive activity.  Trade liberalization increases international
trade, which in turn increases the potential for tr ansborder anti-competitive activity and the need for
vigilant competition law enforcement, both domestically and internationally.
Regional trading agreements such as the Canada-US Free Trade Agreement (CUSFTA) and
the North American Free Trade Agreement (NAFTA) have sought to accelerate market liberalization,and establish disciplines in specific areas that can have an effect on trade and investment, e.g.
intellectual property rights.  In the case of NAFTA, competition law is considered part of the integralpackage of market-oriented provisions intended to foster the competitive process.  NAFTA contains a
chapter  (chapter 15) on competition policy, monopolies and state enterprises.  Under this chapter,
each party commits itself to adopting and maintain ing measures to proscribe anti-competitive conduct
and to take appropriate action with respect to such conduct.  The parties also commit themselves to
                                                     
1 This issue has been touched on in two recent cases:  the Interac case (see Canada (Director of
Investigation and Research) v. Bank of Montreal et al  (Comp. Trib., CT9502/92, 20 June 1996)), and the Law
Society case  (see Law Society of Upper Canada v. Canada (Attorney General) , Court file No. RE5349/95,
Ontario Court (General Division), 27 March 1996).WT/WGTCP/W/72
Page 5
cooperating on issues of competition law enforcement, including mutual legal assistance, notification,
consultation and exchange of information relating to the enforcement of competition laws in the
NAFTA area.
Implementation of a regional free trade agreement can change the perspective of competition
authorities.  As in the case of successive rounds of the GATT, the intended objective of regional trade
agreements is expanded opportunities for domestic and foreign firms.  This in turn should result in
more intense competition for domestic firms.
Trade liberalization facilitates the expansion of relevant antitrust markets from local and
national in scope to regional and at times even to global markets.  As a consequence, mergers and
positions of dominance which, in the past, could have generated competition issues when borders
were closed, may cease to be a concern under a more liberal trading regime.  With increased imports
and the greater threat of entry through direct investment, merger transactions and other business
practices which would result in high levels of market concentration when markets are computed in
terms of domestically-based producers, often no longer need to be challenged by the Canadian andother antitrust authorities.
With trade barriers coming down and freer flows of factors of production, it is becoming
more difficult for private parties to maintain cartels, abuses of dominant position and similar
arrangements within domestic markets.  Accordingly, Canadian and other antitrust authorities arehaving to take greater account of the dynamic market-place changes resulting from enhanced trade
liberalization in their investigation of such cases.
More generally, with trade liberalization, Canadian and other authorities are giving greater
weight to the ability of imports and of possible entry by foreign investors to discipline the pricing
behaviour and other commercial practices of merger parties after the transaction, of companies in a
dominant position in the domestic market, and of companies which allegedly are part of a domestic
cartel.  This approach goes beyond the issue of concentration in the relevant antitrust market to
encompass such difficult questions as potential competition and the contestability of markets.  This
methodological approach is captured in the merger provisions of the Canadian Competition Act ,
which lists the extent of foreign competition as a separate factor to be assessed after the relevant
market and market concentration have been determined.
With respect to the second part of the question on whether a country party to such an
arrangement should attempt to establish or maintain its own national competition policy even if other
countries in the arrangement lack such policies, the answer is yes.  With enhanced liberalized trade,
smaller countries like Canada could be particularly vulnerable to collusive behaviour elsewhere,
which may have negative effects on Canadian markets.  Moreover, there is a growing body of
literature which indicates that strong rivalry in domestic markets, supported by vigorous antitrust
enforcement, helps to ensure that the potential ga ins from liberalized trade arrangements are actually
realized and that these benefits are shared equitably among marketplace participants.  Strong
competition in domestic markets also helps to smooth the structural adjustments which can result
from liberalized trade.
Moreover, in addition to playing a complementary role to trade liberalization, competition
policy can be an important policy safety net which can allow countries to reduce direct price andmarket regulation and to privatize state-owned corporations.  Competition law can safeguard the
interests of consumers and public welfare and thereby promote political support for regulatory reform.
As well, it is the Canadian experience that competition authorities can play a pivotal role in
advocating deregulation (or regulatory reform) in regulated sectors of the economy.  This processdoes not eliminate the need for an effective competiti on policy.  On the contrary, it reinforces the need
for it and presents new challenges for its implementation.WT/WGTCP/W/72
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7. Smaller countries are sometimes affected by mergers that eliminate rivalry between
local divisions of multinational enterprises (MNEs) where the merger has been "approved" or
"authorized" in the jurisdiction in which the MNEs are headquartered.  Do the competition
authorities of jurisdictions which are headquarters  to MNEs take into consideration the effects
that such mergers may have in other countries where those  MNEs operate?
The competition authorities in each of the jurisdictions in question (local and headquartered)
would have the opportunity to examine the effects of the mergers under their respective competition
laws.  Although the market for a particular good may be regional, national or international in scope,
each authority examines the impact upon its domestic consumers, as competition laws are grounded in
national jurisdiction.
Where bilateral cooperation arrangements exist between the two countries, and each finds
anti-competitive effects within their jurisdiction, it may be possible for the two countries to construct
complementary remedies.  Alternatively, the jurisdic tion with the greater interest in the subject-matter
may be in a position to pursue a remedy that will satisfy the competition policy concerns in the other
jurisdiction.  However, if a merger raises no issue under the laws of the headquartered
company - there is no significant harm to competiti on - then that jurisdiction would have no basis to
pursue a remedy.  The scenario can easily arise that a transaction is actionable in one jurisdiction but
not in another owing primarily to differing compe titive conditions in the two jurisdictions, although
difference in the scope and application of competition laws can also play a role.
Globalization and trade liberalization have led to an increasing number of mergers, joint
ventures and other forms of business collaboration that cross jurisdictional boundaries.  If it is
presumed, in the example above, that the smaller country does not have a competition law in place to
allow for a formal examination of the anti-competitive effects of such  transactions, the benefits ofseeking to develop a competition law are clear.
8. Regarding the use of positive comity principles as a tool for resolving competition policy
problems while minimizing international conflicts of jurisdiction, is this workable in
circumstances where anti-competitive practices originate in economic sectors which are
excluded from the purview of national competitio n laws in the jurisdiction where the practices
are occurring?
Traditional comity principles dictate that nations respect each other as equal, sovereign
nations.  In practice, the concept may go beyond examining whether an actual conflict in the law
exists, to a consideration of how other jurisdictions national interests will be affected by actions of the
enforcement authority. Notifications of actions undertaken by one jurisdiction that may affect anotherare a practical enunciation of traditional comity principles.
Positive comity principles take traditional com ity a further step by providing a mechanism by
which an affected country may request that another country consider enforcement action to address
concerns about anti-competitive practices.  As such, positive comity can facilitate competition law
enforcement by the jurisdiction best placed to do so, and can reduce the rationale for extraterritorial
application of laws.
Enforcement actions undertaken in the interests of positive comity are however, carried out
under national competition laws.  If the practices in question originate in sectors that are excluded
from the application of competition laws in the jurisdiction in which they are occurring, or if the
conduct generally is not censured, then a positive comity request may not ultimately provide a legal
remedy.
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