FAIT Committee Report

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INVESTMENT AND COMPETITION POLICY ISSUES

"What Canadians are Saying"

We believe that the World Trade Organization's only design is to help large corporations with little or no concern for public interests. The aspects of the MAI which we [found] objectionable are too numerous to be mentioned in detail here. We feel that future talks [on investment] should not resume on the existing bases established [for the MAI] in Paris. Any future negotiations should include clear performance requirements and regulations regarding the fair expropriation of corporate assets to serve vital community needs.

...the lesson we should not take away from [the MAI negotiating process at the OECD]... is that it's inappropriate to negotiate investment rules. I think in the kind of world that we live in today, it is very appropriate to have investment rules to continue to deepen the impact of rules on what governments can do.

While we support the inclusion of investment on the WTO agenda as a high priority, we also want to ensure that in so doing, the WTO does not enter into a highly-politicized, acrimonious and fractious debate that will bog down in endless discussion and potentially harm the Organization in the long run... Specifically, the critical concept of `expropriation' of foreign investment which triggers the binding dispute settlement mechanism needs to be better defined. Bona fide and legitimate areas of regulation and law-making by governments, where there is no real taking away of an asset involved, should be carved out from the agreement. Other aspects of the investor-state provisions, including issues of secrecy and lack of openness in the process, as under the current rules in the NAFTA, must also be addressed.

The postponement of MAI negotiations has provided the House of Commons standing committee with an opportunity to dissect the flawed pieces of the MAI and improve upon them.

Canadian sovereignty will not be adversely affected by an agreement on investments. Canada will retain its ability to agree to major business mergers or acquisitions which involve Canadian companies, and to continue to set limits on foreign control when businesses under government control are privatized. There will be no repercussions on Canadian social programs. ...Moreover, Canada's commitment to such an agreement merely requires us to treat foreign investors in Canada the same as our own investors. Foreign investors would therefore be subject to the same laws and regulations in all areas, including the environment, health, labour and culture.

...MAI-type agreements should be opposed from a Canadian public interest perspective, and should not be promoted from the narrow perspective of Canadian corporations which are major investors in developing countries.

If the WTO [members] decide...to negotiate investment rules then I would recommend that the Canadian government's goals in any negotiation give equal weight to measures that ensure the rights of states to legislate and regulate to preserve cultural identity, the quality of the environment and social cohesion as they ...protect the interests of incoming and outgoing investors.

The principles of most-favoured nation and national treatment are insufficient to ensure that investment is handled in a fair and equitable manner because the requirements of an investment regime are structurally different from those for the liberalization of trade in goods or services. Productive investment has a long term time horizon and can involve numerous changes over the lifetime of an investment. A foreign investor acquires continuing rights in the host country, a kind of economic citizenship, and with these rights come obligations. The international community should find a forum other than the WTO for the negotiation of a multilateral framework of rules governing international investment.

We'd like to see a moratorium on investment protection rights until the impact on public health is better understood.

The Canadian government should oppose comprehensive negotiations on investment being moved to the WTO until sufficient institutional safeguards are in place to ensure the primacy of international human rights law.

The whole thrust of competition policy is to keep a system open to innovation, by not allowing the big people to close off the little people from being able to innovate successfully. We have to keep in mind that competition policy has to keep the pot boiling.

The development of international competition policy depends on the pre-existing national system. It is legitimate for and must be expected that nations will have different competition laws in view of the differences in their local political, social and economic realities...Individual nations' preferences will chart the future course of international competition policy. Emphasis among nations may vary greatly as to the proper scope of the term competition policy... Likewise, emphasis among nations may vary greatly as to the national rules that should be co-ordinated.

I think it is true that competition policy needs to be addressed in the WTO. I don't think it needs to be addressed in the manner of coming up with a sort of global system of competition policy. I think it needs to be addressed in the context of putting a set of boundaries around national rules, which imposes some degree of harmonization on the national rules. I think the classic example of what the problem is here is the Boeing-Lockheed merger in the U.S., in which you had two U.S. companies merging and the European Union saying "We're not going to let you operate in Europe unless you comply with our particular competition policy rules." In that situation, you are battling competition policy authorities from the EU and the U.S., and that could happen in lots of other countries as well. So it seems to me we need to come up with some sort of overarching structure.

Investment and Competition Policy Issues

Investment and competition policy (CP) are two of the new issues that may be included in a future round of multilateral negotiations. In one sense, inclusion is unavoidable in that both topics are already part of the WTO. The question then becomes whether the present treatment of investment and CP needs to be amended and/or extended.

In the negotiations leading to the GATT in 1947, provisions for an agreement on investment were discussed in the proposal for an International Trade Organization. Coverage was also to be extended to restrictive business practices due to concern with the formation and operation of international cartels. No agreement was reached on either investment or CP and neither issue reappeared in this forum until the Uruguay Round. In the interim, discussions and negotiations took place in the Organisation for Economic Co-operation and Development (OECD) and in various United Nations organizations such as United Nations Conference on Trade and Development (UNCTAD) and the International Labour Organization (ILO). At the same time, countries addressed investment issues by negotiating bilateral investment treaties, known in Canada as Foreign Investment Protection Agreements, of which there are presently 23 involving Canada and about 1,600 worldwide. At the regional level trade agreements such as the NAFTA and bilateral trade agreements include provisions relating to investment, which is also part of the FTAA initiative.¹

Investment concerns

While extensive obligations are already in place for trade in goods and services, trade agreements such as NAFTA have only partial rules for investment. In the WTO, investment-related rules are contained in the Trade-Related Investment Measures (TRIMs) agreement and in the GATS. Measures that require investors to perform in certain ways, such as restricting their imports and undertaking a certain minimum of exports or employment, are dealt with under TRIMs. As was explained in Chapter 5, the GATS provides for the right of establishment, which permits foreign service providers to enter a market by providing a commercial presence in those service sectors where countries have made commitments. The Agreement on Subsidies and Countervailing Measures provides disciplines on subsidies involving investment in start-up operations; and the Agreement on Government Procurement provides for non-discriminatory treatment for domestic and foreign-owned suppliers for procurement covered by the agreement. In the NAFTA, Chapter 11 is devoted to investment and the list of prohibited performance measures is more extensive than that found in the WTO.

The stimulus to develop rules for foreign direct investment (FDI), that is, long term investment abroad in productive activities, as opposed to short term and often speculative capital flows, has arisen out of the increasing flows of FDI and the view that investment and trade are complementary activities. In some instances, investment may be a substitute for trade, for example in circumstances where tariffs discourage the import of goods and services, but increasingly and with declining tariff barriers, investment and trade are found to be complementary activities and both are used to service foreign markets. Industry Canada notes that FDI often generates increased trade opportunities for Canadian exporters. If liberalization requires the removal of barriers, logic suggests that investment as well as trade should be subject to rules.

Canada has an interest in investment both as a host and a home country; that is, as a recipient of FDI and as an investor abroad. Historically, the stock of FDI in Canada has exceeded the stock of investment abroad, but in 1996, according to Statistics Canada, total investment abroad exceeded FDI in Canada for the first time. Canada's outward investment flows have also become more diversified so that the stock of FDI in the United States, which was 70% of the total outward stock, has now fallen to 50%. New destinations for Canadian FDI are Latin America, the Caribbean, Western Europe and Asia. Further data on FDI are contained in the Report's Introduction, in Box 1 and in Chapter 2.

If a more comprehensive agreement for FDI were introduced, it would aim at rationalizing the bilateral investment treaties and expand coverage of the treaty provisions to those developing countries with which Canada has no such treaty. An examination of the provisions of the bilateral treaties indicates the type of issues that Canada would likely consider relevant for negotiation in a multilateral agreement. The items listed in Box 10.1 summarize the investment related issues already included in a number of Canada's trade agreements.

According to Industry Canada, specific gaps in existing rules under the WTO include: the absence of principles of non-discriminatory treatment of investors in goods sectors; a lack of any transparency commitments for policies currently in place for investment in the goods sector; no commitments on the transfer of funds in the resource and manufacturing sectors; the absence of provisions on performance requirements for services; and, no protection against expropriation without compensation. These gaps relate only to FDI outside NAFTA and countries with which Canada has bilateral investment treaties, at present a small proportion of total outward investment.

Box 10.1 Issues covered in the NAFTA, the Canada-Chile Trade Agreement,
and the bilateral Foreign Investment Protection Agreements
with a number of developing countries

· definitions of investment and investor;

· minimum standard of treatment: fair and equitable treatment in accordance with international law;

· Most Favoured Nation commitments: non-discriminatory treatment of Canadian investors in a country relative to foreign investors from other countries;

· national treatment: non-discriminatory treatment of Canadian investors in a country relative to domestic investors in the same country;

· rights to transfer funds related to investments freely and without delay, both into and out of a country;

· rules on expropriation and compensation;

· commitments on permitting investors the free choice of senior management for their investments;

· disciplines on performance requirements imposed by a host government on an investor, such as domestic content rules, trade balancing, and technology transfer requirements;

· rights to adopt environmental measures consistent with the principles of the agreement;

· general and specific exceptions to obligations to safeguard particular measures;

· transparency commitments with respect to government policies towards foreign investors;

· enforcement through dispute settlement, including both state to state and state to investor arrangements.

Source: Industry Canada website <http://strategis.ic.gc.ca> March 15, 1999.

Competition Policy Concerns

The rationale for including CP within the WTO stems from the view that trade policy and CP are complementary in their objectives. Both aim to improve consumer welfare by making markets "contestable", a code word for market access. (For further explanation of the concept, see Box 10.2. See also the discussion of the broader application of the principle of fair market contestability in Chapter I). Trade policy to date has emphasized the removal of measures taken by governments such as tariffs and non-tariff barriers (NTBs) that restrict trade. Another set of policies, competition (antitrust) policies, has similar aims but addresses actions taken by private decision makers on their own that may restrict market access. Trade policy tends to deal with government actions and market access at the border and CP with private measures taking place within borders.

In the domain of CP, rules may be applied to private actions that affect imports and exports. For example, CP in a number of countries, including Canada, permits the operation of export cartels ¯ agreements between domestic companies to fix prices in foreign markets in a manner not permitted in domestic markets. This clearly has an impact on exports and imports by permitting firms to engage in price discrimination through charging higher prices in foreign than in domestic markets, the reverse problem to that addressed by trade remedies for dumping.

Other examples show the convergence between trade and CP. Two recent cases illustrating the boundary problems have been the merger of Boeing Co. with McDonnell Douglas Corp. and the Kodak-Fuji case. The European Commission threatened to block the aircraft company merger on the grounds that the two companies had exclusive deals to supply certain major airlines, which could harm the makers of the competing European-made Airbus. The U.S. threatened to retaliate if the merger was blocked. Private anticompetitive practices in Japan regarding market entry were the basis for a 301 petition filed by Kodak leading to a submission to the WTO regarding Kodak's attempt to sell film in the Japanese market. The problem arose because of the actions taken by a vertically integrated Japanese company that limited the ability of Kodak to distribute films in Japan.

Countries vary in the scope and enforcement of their competition laws. About 80 countries were reported to have such laws in 1997 compared with half that number a decade earlier, but the wording and application of each country's legislation differs.² The scope of coverage varies by industry and activity, with most countries exempting agreements among unions or associations of employees. The effectiveness of the policy depends on how fully and effectively it is enforced and this will often be a function of court and regulatory decisions. As well, competition authorities often use discretion in advising firms about the actions they are permitted to take, making it difficult to enforce policy transparency. As in the case of copyright piracy and intellectual property rights policy, the devil is in the details in understanding how the policy works and its likely effectiveness. Even for those countries that have competition laws on their books, there are often significant differences in their actual impact.

The conduct typically covered by competition laws and regulations include:

· price fixing and market sharing cartels or agreements;

· export and import cartels;

· agreements by competitors to rig bids;

· group boycotts or refusal to supply;

· abuse of monopolistic or dominant position;

· exclusive distribution or supply arrangements;

· resale price maintenance;

· price discrimination;

· horizontal, vertical, and conglomerate mergers;

· misleading advertising.

Box 10.2 Contestable Markets

A market is viewed as being contestable if any effort by an existing seller in the market to raise prices above some "competitive" level results in attracting new entry by firms into the market, such that the price is driven back to a competitive level. A contestable market is one where either entry occurs when prices are raised, or where the incumbent firm(s) which could be a monopolist, behaves like a competitive firm because of concern that by raising the price, entry by competitors will occur. Thus a monopolist may operate in a manner similar to a firm in a competitive market if the market is contestable. However, not all markets are contestable. Conditions may prevail, either associated with the economics of the industry such as economies of scale, or due to government policy such as licensing requirements, or due to private actions taken by firms such as exclusive dealing arrangements, that prevent entry or the realistic threat of entry. Measures making markets more contestable often involve improving market access leading to the benefits associated with trade liberalization. CP assists in promoting contestable markets by addressing private actions that otherwise limit firms from competing in a market.

An example of alleged monopolistic abuse is illustrated by the U.S. antitrust case against Microsoft where the firm is accused of abusing its dominant position by making it difficult for competitors to sell software that is in competition with similar software owned by Microsoft. This case is of relevance to software suppliers in Canada and elsewhere in the world if Microsoft's private actions restrict the use of their products. Canada and the United States, through an informal cooperative process, successfully prosecuted a cartel affecting the price of thermal fax paper in both markets and involving firms situated in third countries. Fines in Canada totaled $3.5 million. A conspiracy between a Canadian and American firm supplying ductile iron pipe used to deliver drinking water led to fines in Canada of $2.5 million.

Particular attention has been given to two areas, dumping and export cartels. A detailed procedure is incorporated into trade agreements to handle dumping cases which is in part related to safeguards as a way of protecting domestic industry from low priced imports. In competition legislation, the practices of price discrimination and predatory pricing is the domestic equivalent to dumping, whereby sellers can be protected from unfair pricing practices of their competitors. Most countries have separate regimes for dumping and price discrimination.

Export cartels present an unusual if not unexpected problem. As noted, some countries permit the formation and operation of export cartels, that is, agreements affecting export but not domestic sales. These countries consider it acceptable to do to others what they would not be prepared to have happen in their own domestic market. Most observers see no redeeming value to these arrangements and argue that they should be prohibited. In some instances, export cartels have led to governments permitting the formation of import cartels, that is, associations between buyers to offset the activities of export cartels. Other cartel related measures are voluntary export agreements (VERs) whereby exporters are pressured by an importing country to agree to limit their export sales. This is often done in order to prevent the introduction of some other less desirable trade retaliation.

In sum, there are a wide range of private actions that may restrict market access or lead to unfair methods of competition. As government inspired trade barriers come down, these private actions become more visible leading to proposals for their inclusion in a trade agreement. A recent WTO report summarizes the restrictive practices that Member countries think should be addressed. (see Box 10.3)

Box 10.3 Examples of Anticompetitive Practices

With regard to practices affecting market access for imports, the specific examples cited by member countries in the discussion included actual cases of domestic import cartels. International cartels that allocated markets among participating firms, the unreasonable obstruction of parallel imports, control over importation facilities, exclusionary abuses of a dominant position, and vertical market restraints that foreclosed markets to competitors, certain private standard-setting activities and other anti-competitive practices involving industry associations examples of practices including vertical integration by local manufacturers into distribution; contractual arrangements that mimicked the effects of vertical integration, such as exclusive dealing and sole distribution rights; cartels involving local producers; anticompetitive arrangements involving both local and offshore producers; possible instances of predatory pricing; and private standard setting activities in addition to import cartels, vertical market restraints, and more general exclusionary abuses of a dominant position.

Source: WTO, Report of the Working Group on the Interaction Between
Trade and Competition Policy to the General Council,
WT/WGTCP/2, December 8, 1998, para. 84.

Witness Views on Investment

The ghost of the Multilateral Agreement on Investment (MAI) haunted the testimony of investment and to some extent CP policy issues although there was more support for including the latter in a new round of negotiations. Throughout the Committee's hearings the MAI was referred to almost as frequently as the WTO, and usually in an unflattering manner.³

The witnesses were concerned about two aspects of the MAI: the process of public consultation, and the substantive issues that might be included in an investment agreement within the WTO. We have already dealt in the first Recommendation with the need for ongoing consultations and reaffirm that proposal here. A similar recommendation was made in an earlier report by this Committee in December 1997, where Committee members also supported with recommendations many of the issues that witnesses now urge the Government to adopt in all future negotiating forums.

On the substantive issues, there were conflicting views. Some, such as the Council of Canadians, opposed the inclusion of investment in a new round of negotiations, as did the Canadian Labour Congress by noting "the potential of the MAI to undermine the ability of governments to maintain public services such as health care on a non-commercial basis, and the potential of the MAI to subvert and undermine legitimate government regulation in the public interest in areas such as the environment and health and safety." (Submission, Canadian Labour Congress, April 27, 1999) David Runnalls, Interim President of the International Institute for Sustainable Development, argued that his opposition was primarily because "the requirements of an investment agreement are structurally different from those for the liberalization for trade in goods." (Evidence, Meeting No. 95, March 16, 1999) Another factor noted was the opposition of developing countries to an agreement that would limit their ability to promote and shape their national economic development.

The opponents to the inclusion of an MAI-type agreement in the WTO centered their arguments around a series of themes that were repeated in numerous briefs. They felt that an investment agreement would be an infringement on state sovereignty, making it difficult to implement a wide range of policies concerning culture, health care, social policies, and labour and environmental standards. Particular concern was expressed about the investor-state mechanism which allows foreign investors to claim damages from the state as a result of policies that adversely affect the value of their assets in member countries as provided for in Chapter 11 of NAFTA. Michael Flavell, a lawyer in private practice, noted that many lawyers argue that "there is a problem with section 11, which is that the concept of expropriation is too widely defined." (Evidence, Meeting No.99, March 1999) This needs to be fixed in the NAFTA and its wording in any multilateral agreement would require careful attention. On the same topic, Professor Bernier argued that "if the investment issue is to be negotiated under the WTO, that door that was opened absolutely must be closed. Investors must be able to complain about specific and limited things involving a genuine expropriation or similar measures, but certainly not, as was the case, for situations equivalent to expropriation, which opens the door very wide for anything." (Evidence, Meeting No. 104, March 22, 1999, Québec City)

Recommendation 32

In view of the concerns arising from the interpretation of "expropriation" in the investor-state provisions of the NAFTA (Chapter 11), the Government should ensure the incorporation of a narrowly-defined concept of expropriation in any future negotiations on investment in the WTO.

More than any other issue, the Ethyl/MMT case was used as evidence to argue that the proposals in the MAI were a charter of rights for multinational enterprises that would adversely impact citizens and the state. A related line of argument proposed the inclusion in an agreement, if a comprehensive one was negotiated, a set of mandatory standards for labour and mandatory guidelines for the behaviour of multinational enterprises as a way of offsetting the perceived advantages of private investors. The voluntary OECD guidelines for multinational enterprises were deemed by most witnesses to be inadequate measures.

Throughout the hearings in Western Canada, the Committee received numerous submissions setting out a similar set of arguments, for example from the West Coast Environmental Law Association (Evidence, Meeting No. 121, April 27, 1999, Vancouver) and the Special Committee on the MAI of the Government of British Columbia (Evidence, Meeting No. 120, April 26, 1999, Vancouver) as well as from spokespersons from religious, student and women's organizations, and from individuals. Members of the Council of Canadians appeared in a number of locations. Their presentation is assisted by a draft position paper on trade and investment liberalization posted on the Council's Website at www.canadians.org. The Council and other interest groups have made effective use of the Internet to mobilize support for their points of view.

The Committee's attention was drawn by a number of witnesses to the Lalumière report to the French government, which is widely credited with being responsible for France's decision to withdraw from the negotiations, and for the subsequent demise of the MAI. A reading of the complete report confirms its criticisms of the MAI but reveals its support for some type of investment agreement, "Under the present disorder in globalisation, every country has an interest in the establishment of stable and fair rules... an agreement is in the interest of France and (its) firms."⁴ The report goes on to discuss the elements of a new agreement and the reasons why it would be preferable for these to take place within the WTO rather than the OECD.

An alternative view supportive of the inclusion of a broader instrument on investment within the WTO was put forward by the Alliance of Manufacturers & Exporters Canada (Evidence, Meeting No. 95, March 4, 1999) and by Professor Bernier of Laval University. (Evidence, Meeting No. 104, March 22, 1999, Quebec City) The Mining Association of Canada stated that "An agreement on investment should provide a general framework for national policies and international principles related to the treatment of international investment." (Submission, April 27, 1999)

According to Professor Globerman of Simon Fraser University, of the unfinished items on Canada's trade agenda, none "is more important than continuing and completing the liberalization of the global environment for foreign direct investment." (Submission, Professor Stephen Globerman) Professor Winham of Dalhousie University was also supportive but noted that "there will be a problem in how to negotiate investment in the WTO. I would expect developing countries will prefer to start on a minimal basis, moving from the terms of the agreement reached in the Uruguay Round." (Evidence, Meeting No. 107, March 24, 1999, Halifax)

This cautionary approach was repeated in the position taken by Pierre Sauvé, a Canadian official at the OECD on leave at Harvard University. Testifying in Ottawa on May 12, 1999, he argued that there were important lessons to be learned from the MAI experience about what was achievable in an investment negotiation given the current political and economic context.⁵ The remarkable growth in FDI, especially over the past decade and the existing inclusion within the present agreement of investment provisions, especially in the TRIMs and in the "commercial presence" wording of the GATS, led Dr. Sauvé to suggest that it would be wise "to scale back ambitions on trade and investment in Seattle" and "to focus on more short-term expectations." Among the areas for discussion within the GATS, he suggested: broadening the rules for the definition of commercial presence; strengthening the investment protection features of the GATS; improving the clarity of the GATS' current method of scheduling commitments; and promoting greater transparency on investment incentives. In effect, the existence of a WTO Working Group on the Relationship between Trade and Investment implies an on-going negotiating group so that one way to proceed would to "renew and refine the mandate of this Working Group." (Evidence, Meeting No. 135, May 12, 1999)

The testimony of Professor Smythe of Concordia University College of Alberta pointed to similar factors: that FDI flows at record levels; most of Canada's outward investment is covered by provisions of the NAFTA and the bilateral investment treaties; and a mandated review of the TRIMs is already part of the Uruguay package due by the end of 1999. While these initiatives would continue, she recommended "that Canada not support the inclusion of broad investment rules in the new round of negotiations at the WTO." (Evidence, Meeting No. 124, April 28, 1999, Edmonton)

The large flows of FDI in recent years suggest that an agreement may not be needed to maintain such investment. In an earlier hearing on the MAI, witnesses in support of an investment agreement told the Committee that failure to complete such an agreement would not be especially harmful to Canada, since most of its investment abroad was in developed countries where there is little fear of expropriation, and in developing countries where investors are or can be protected by bilateral investment treaties. The question then is whether the net benefits to capital exporting and importing countries would be improved if an agreement existed.

Recommendation 33

In the event that the mandate of the Working Group on Trade and Investment within the WTO be renewed, the Group's workplan should focus on refining and extending the commitments already made with respect to investment.

Witness Views on Competition Policy

There was a broader consensus in favour of including CP within an expanded WTO but caution was expressed. The Alliance of Manufacturers & Exporters Canada argued that "competition policy and law is a highly complex area, as we all know. It is the alliance's opinion that the focus should shift away from coming up with and trying to agree on substance of competition rules and remedies and look more toward the development of a clear set of principles and guidelines for the open and fair administration and enforcement of these rules." (Evidence, Meeting No. 112, April 13, 1999)

Michael Flavell drew attention to the differences between countries: some have competition laws, some do not; some are enforced, others not; some use a judicial and others a regulatory approach; and differences occur in the coverage of restrictive practices and the exemptions granted. He advised that negotiators should work towards harmonization of existing laws around practices that many countries with an active CP already address, especially the prohibition of price fixing or horizontal combinations and conspiracies. (Evidence, Meeting No. 99, March 16, 1999) Measures related to the abuse of dominant position are other candidates for possible harmonization, an issue on which there is already some agreement in the competition regime of the European Union.

The Commissioner of the Competition Bureau at Industry Canada supported negotiations leading to a set of multilateral rules for CP within the WTO for reasons previously cited and associated with the linkage between trade and investment, and between trade policy and CP.⁶ In addition he noted that the introduction of new technologies means that "commerce increasingly ignores borders, and so does anti-competitive conduct." (Evidence, Meeting No. 113, April 15, 1999) This requires cooperation between competition authorities in different countries, a practice that is already under way. The Commissioner advocated an agreement similar to that negotiated for TRIPS but in this case called TRAMS, standing for trade-related anti-competitive measures.⁷ Such an agreement would contain "a provision against cartels and criminal conspiracy; a provision for merger review; a provision for abuse of dominant position; an advocacy role for the competition authority to make sure competition is considered in the various policy forums; a protection of confidential information and finally, access to effective deterrents, be they monetary or criminal." (Evidence, Meeting No. 113, April 15, 1999)

TRAMS would build on existing measures of formal and informal cooperation between competition authorities in different countries. To begin with, it would state general principles and priority areas for negotiation and agreement. Over time the agreement would develop more obligations and procedures necessary to implement such an arrangement. This proposal is similar to the way in which the GATT developed and the GATS is expected to evolve. A TRAMS process would be a way of getting private market access restrictions on the radar screen for trade negotiators.

A month after the appearance of the Commissioner, the Competition Bureau posted on the Industry Canada Website a discussion paper calling for public comment on options for the internationalization of CP. This document provides an additional overview of the issues, with references to the OECD, WTO, EU, and academic sources.

Lawyers for the firm of Stikeman, Elliott provided an overview of trade and competition policy issues. They noted both "the widening divergence between the expanding geographical scope of economic markets and the limited jurisdictional scope of regulatory activity and competition enforcement," and the proliferation of national laws and guidelines which may be "misused or used strategically to protect domestic interests against foreign importers." (Submission, April 27, 1999) Citing an urgent need for action, this brief indicated that the present was an opportune time to build on the cooperative arrangements that already exist between countries with competition laws. "An unparalleled opportunity exists for Canada to be a real force for positive change on this issue. Canada should help formulate a consensus on the promotion of international competition policy during the next round of WTO negotiations."

A similar recommendation has been made by the Deputy Secretary-General of the OECD.⁸ Proposed as a third approach between a mandatory set of rules similar to those contained in a Draft International Antitrust Code put forward by the Munich Group (a group of German competition scholars)⁹ and a set of minimum standards, the OECD proposal "seeks to have countries agree on a framework of rules, rather than a set of specific provisions." Countries would agree on a set of core principles which would refer to basic concepts like "relevant market, barriers to entry, market power and abuse of dominance," and would include due process and positive comity principles, but would not involve a formal dispute settlement process.

In the CP trade policy nexus, attention has been given to trade remedies associated with dumping which as noted, is the cross-border equivalent of predatory pricing or price discrimination undertaken in domestic markets. A detailed procedure is incorporated into trade agreements to handle dumping cases which is, in part, related to safeguards as a way of protecting domestic industry from low priced imports. In competition legislation, Canada and other countries have measures to address the domestic equivalent to dumping whereby sellers can be protected from unfair pricing practices of their competitors. Can the two policies be merged?

There was general support for the view that the two approaches should not be combined, even though this had happened in the case of the European Union where the creation of a single market eradicates the distinction for those countries that are part of the single market, and in the case of the Closer Economic Relations Agreement between Australia and New Zealand. In part this may reflect bureaucratic competition where neither group of administrators wants to relinquish certain policy instruments. But in part it stems from the political reality that the United States and other countries that have introduced antidumping regimes do not want to give up these powers. Michael Flavell argued that in Canada's case predatory pricing in domestic markets only occurs if the predator has market power and intends to hurt a competitor. No such intent needs to be shown in the case of dumping. Thus, if dumping became part of domestic CP, it would weaken Canada's ability to pursue antidumping cases since intent would be difficult to prove especially when pricing is the result of actions taken outside of Canada. (Evidence, Meeting No. 99, March 16, 1999) The Commissioner for CP in Canada also supported the maintenance of two separate regimes.

Another substantive issue is the exemption for export cartels in the legislation of Canada and other countries. The ability to fix prices in foreign markets in a manner prohibited in domestic markets has no economic justification. The Commissioner noted "I don't think you can justify export cartels, either in terms of economics or in terms of our trade philosophy. It's an area that needs to be addressed." (Evidence, Meeting No. 113, April 15, 1999)

Other testimony pointed to the existence of CP provisions within the Reference Paper on telecommunications services and in relation to the operation of state-owned enterprises. Where state owned monopolies have been privatized, they have often been converted to private monopolies in situations where there are no competition laws, permitting the maintenance of trade distortions through private actions. General support for extending trade agreements to embrace CP came from the Canadian Chamber of Commerce, the Canadian Conference on Policy Alternatives and the Saskatchewan Synod of Evangelical Lutheran Churches. (Evidence, Meeting Nos. 120 and 123, April 26 and 28, 1999)

In commenting on the need for progress in this area, both the OECD and the WTO have noted the need for more examples of actual instances of restrictive business practices frustrating trade liberalization. The WTO, which has made a sustained study of the issue, concluded that it would be desirable "to obtain more systematic empirical information of the frequency and impact of the various types of anticompetitive practices of enterprises (para.95). The submission by Stikeman, Elliott refers to the need for more "systematic information on the frequency and impact of the various type of anti-competitive practices." For those countries like Canada and the United States that have had CP for over a century, it seems surprising that more examples are not readily available.

Testimony presented to the Committee suggests that there are already detailed discussions under way on the need to broaden the scope of CP beyond national borders, given the rash of mergers with international consequences and some evidence of a range of cross-border restrictive business practices. Competition authorities already appear engaged in discussions both within and outside trade regimes like the WTO. It is not clear to the Committee how close the cooperation is between trade and competition officials.

Recommendation 34

In view of the expansion of international trade and investment, including cross-border mergers involving large companies and the application of competition policy to national jurisdiction, the Government should:

· work with like-minded countries to collect more information of actual examples of anti-competitive practices affecting trade;

· encourage the introduction of competition policy regimes by countries that presently have none and the enforcement of policies by those that do have them; and

· work towards a common set of principles for inclusion in an agreement on competition policy with a view to their being expanded and refined over time.

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1^# A further description of the context for an international agreement on investment are contained in Canada and the Multilateral Agreement on Investment, Third Report of the Standing Committee on Foreign Affairs and International Trade, December 1997, pp. 43-50.

2^# The Economist, October 3, 1998, Survey of World Trade, p. 4.

3^# The Canadian Artists Representation submitted as their brief to the Committee (Saskatoon, April 30, 1999) two previous submissions prepared in connection with the MAI in 1997 and 1998.

4^# Catherine Lalumière and Jean-Pierre Landau, Rapport sur l'Accord multilatéral sur l'investissement (AMI), Paris, September 1998, p. 4.

5# A detailed exposition of the rationale for the views expressed is found in Pierre Sauvé and Christopher Wilkie, "Exploring Approaches to Investment Liberalization in the GATS," Paper prepared for "Services 2000 - New Directions in Services Trade Liberalization," conference co-sponsored by the American Enterprise Institute, the Brookings Institution, the Center for Business and Government at Harvard University and the Coalition of Service Industries Education and Research Foundation, Washington D.C., June 1-2, 1999.

6^# The 1996 edition of UNCTAD's World Investment Report examines the trade-investment relationship in detail.

7^# The TRAMS proposal has been put forward by Edward Graham and David Richardson in Competition Policies for the Global Economy, Washington, Institute for International Economics, November 1997, pp. 41-58.

8^# See "Competition Policy: What Chance for International Rules?" speech delivered by Joanna R. Shelton at the Wilton Park Conference 545: The Global Trade Agenda, November 25, 1998.

9^# Reprinted in 65 Antitrust and Trade Reg. Rep. (BNA) no. 1628 (Special Supp.) Aug. 19, 1993.