Canada deserves poor marks for competition regulation

What do Greece, Ireland and Argentina have in common with Canada, other than perennial second-tier status on the world stage? The answer: Shoddy performance in the “Rating the Regulators" survey published by the Global Competition Review, a publication that covers competition regulators and policy.

The Globe and Mail
April 11, 2000

Canada deserves poor marks for competition regulation
Competition Bureau cases mired in inefficiency, Eric Reguly says
Comment by Eric Reguly

What do Greece, Ireland and Argentina have in common with Canada, other than perennial second-tier status on the world stage? The answer: Shoddy performance in the “Rating the Regulators" survey published by the Global Competition Review, a publication that covers competition regulators and policy.

Canada’s Competition Bureau got a lowly two stars out of five in the international ranking, the first of its kind, and competition czar Konrad von Finckenstein can’t be happy about it. Canada, after all, has had competition law since 1889 – beating the United States by a year – and takes great pride in a system that it believes protects consumers from monopolies and price gouging without unduly impeding the urge to merge in the name of creating efficiencies ad shareholder value.

At first, being lumped in with countries that are, charitably speaking, relatively unschooled in the delicate art of competition law seems unfair to the point of nastiness. But the rating is nonetheless deserved. The Global Competition Review’s survey noted that the bank and airline merger escapades “tarnished the [Competition Bureau’s] reputation for independence,” and that even minor cases are getting bogged down by bureaucracy, dumb rules and “perceived incompetence and reliance on entry-level staff.”

Both charges are serious and have ample evidence to support them. In the latter charge, look no further than Superior Propane’s tortured $175-million purchase of ICG Propane. True, the case required thorough review – the combined company would have 70 per cent of the propane distribution market – but it’s still not resolved and it started more than a year and a half ago. The Competition Bureau called about 80 witnesses – some of them clearly out of their depth – compared to Superior’s four.

At the moment, Superior and ICG are being run as separate companies, pending a Competition Tribunal ruling on whether Superior must sell all or part of ICG. Meanwhile, estimated costs savings of about $40-million a year are on hold, lawyers’ bills have gone through the roof and shareholders face more uncertainty.

In the European community, competition reviews must be resolved within five months, and most require only one. This is sensible.

The other charge – questionable independence – is more damning because any competition authority that is seen as the ruling party’s lap dog can lose credibility in a hurry, just like a central bank that moves interest rates at the whim of the government. In Canada’s case, the Competition Bureau has given the appearance that it has been susceptible to political meddling or has had political meddling thrust upon it. In 1998, for example, four of the Big Five banks announced merger plans. Finance Minister Paul Martin was not pleased and, lo and behold, the Competition Bureau found the proposed deals to be anti-competitive, giving Mr. Martin a handy excuse to scupper them.

Of course the matter was not that simple, but the bureau nonetheless seemed to depart from the norm. Instead of simply ruling that the proposed mergers posed serious competitive problems (which they did), it could have gone one step further and sought remedies to eliminate the competitive threat. If the “adjustments” - as competition lawyers call them – proved insufficient then the banks could be told to go home and no one would shed any tears. In this case, though, the banks were not given the opportunity to discuss remedies before the report came out. You can understand how this led to accusations from the banks that Mr. von Finckenstein and company were playing into Mr. Martin’s vote-grabbing hands.

The impression that the bureau lacks independence was reinforced last year when Onex launched a takeover bid for Air Canada and Canadian Airlines. At one point, Transport Minister David Collenette said the airlines had to “conduct themselves within the law”; that is, they couldn’t collude. Later, the minister changed his mind and allowed the airlines to conduct themselves outside the law by suspending the competition rules and sidelining the Competition Bureau. Mr. von Finckenstein didn’t like being tossed out of the loop, but there was nothing he could do about it. Canada, alone among G7 countries, now has a monopoly airline.

With merger frenzy showing no signs of slowing, strong, independent and expert competition authorities are needed more than ever. The Global Competition Review report does not pretend to be exact science, but its findings reflect the common criticisms of Canada’s Competition Bureau. It’s time for the bureau to spruce up its image.


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