moved that Bill C-221, an act to amend the Competition Act (illegal trade practices), be read the second time and referred to a committee.
Mr. Speaker, I appreciate the opportunity to lead off the debate on my private member's Bill C-221, an act to amend the Competition Act.
The bill would amend the Competition Act by making it an offence for manufacturers and distributors of motor vehicles and farm equipment to engage in certain marketing practices with their dealers. In the great majority of cases in Canada franchise agreements provide that a dealer shall not carry any other line, or dual, without the written permission of the manufacturer. In practice permission is rarely forthcoming.
There are generally two sets of consequences arising from this restrictive arrangement. In the first, the dealer's investment in one line of motor vehicles or farm equipment very often substantially exceeds the investment actually required to efficiently supply the sales and servicing demands faced by a particular a dealer in his or her market. In the second, a dealer may be forced to own several facilities selling different lines and may desire to amalgamate those brand lines under the same roof, thereby saving overhead and more efficiently utilizing his or her resources.
Because of the current prohibitions on dualling found in Canadian dealership agreements in neither of these cases can the dealer take the sensible course of action he desires to take. Further, if the dealer proceeds to attempt to dual his facilities without manufacturer approval, which is rarely granted, his action would constitute cause for immediate termination by the manufacturer of his dealership rights.
I believe all Canadian vehicle and farm equipment dealers aspire to having available to them the option of dualling, which their counterparts in so many U.S. states enjoy. Roughly 50 per cent of American automobile dealers operate their dealerships as duals, in some cases with more than two lines. Why should anti-dualling provisions which prevent that right in Canada be lawful?
By compelling manufacturers and distributors to allow their dealers the choice to offer one or more new lines of motor vehicles or farm equipment I believe two positive results would follow. First, the investment of the dealer would be utilized more efficiently and effectively. Second, the public in the dealer's market would be better served through a wider array of products and services.
As it stands now, in virtually 100 per cent of motor vehicle and farm equipment franchise contracts in Canada the manufacturer has the authority to terminate the contract if the dealer does not abide by the manufacturer's rules of dealer purity. This whole issue was brought to my attention shortly after the last election.
A constituent of mine who is a dealer in new and used farm equipment, and who has contracted with the Ford-New Holland company, wrote to me:
While it is true we have all signed agreements alluding to the sale of competitive products, it should be noted that for many of us we had no option but to sign this agreement, for our ability to stay in business hinged on the exclusive availability of the Ford-New Holland line. If I chose not to sign, I would have lost the business my father and I worked 40 years to build. It is true that Ford-New Holland is not restricting the number of agencies we represent as long as they are housed in separate facilities.
However, most of the lines Ford-New Holland deems competitive do not represent enough volume to operate as a stand alone dealership. Therefore the demand for exclusivity leads to lessening and even elimination of competition. This policy has far reaching consequences to our customers as well. By reducing the number of agencies willing to handle a line, you also reduce availability of service and repair parts. Our farmers today do not need a further erosion of service.
Why should rural dealers and farmers be denied reasonable access to all lines of agricultural equipment? As far as I am concerned, it is essential that dealers be given the freedom to carry more than one line of equipment to be of service to their farming customers.
All major farm equipment associations across Canada have been lobbying the federal government for years to have this onerous restriction on their livelihoods loosened.
The same is true of motor vehicle dealers. A 1993 survey of Canadian car dealers showed that about 50 per cent of the dealers would try to add another line if wide open dualling were permitted.
Presently the Competition Act provides that exclusive dealing can be prohibited by the competition tribunal in very limited circumstances. Subsection 77(1) of the act defines exclusive dealings as any practice whereby a supplier of a product, as a condition of supplying the product to a customer, requires or induces a customer to deal only or primarily in products designated or supplied by the supplier, or requires or induces the
customer not to deal in a specified products except as supplied by the supplier.
Under subsection 77(2) of the act, the director of investigation and research can apply to the tribunal for an order to prohibit a supplier from continuing to engage in exclusive dealing only if three conditions are met: first, if the supplier is a major supplier or if the practice is widespread in the market; second, if the practice of exclusive dealing is likely to impede entry into or expansion of a firm in a market, or to impede the introduction of a product into or expansion of a product's sale in the market; third, if as a result of exclusive dealing competition is or is likely to be lessened substantially, that is, in a major way.
In my opinion current anti-dualling provisions in Canada do fulfil elements one and two. However, element three, the substantial lessening of competition test imposed by the act for the director to be able to move against restrictions on competition occasioned by anti-dualling provisions, is unlikely to be clearly presented in the case of most vehicle and farm equipment dealerships in Canada.
To be really affective and fair, an amendment to the act should not only allow for enforcement action against anti-dualling provisions in franchise agreements but should also be framed in such a way that a dealer or a member of the public injured by the existence or the enforcement of such a provision will have the right to take private action against the restrictive provision.
Bill C-221 would effectively solve the problems created for dealers and the public through a simple prohibition of anti-dualling provisions in the franchise agreements. I also believe the bill has the benefit of brevity and clarity while identifying the restrictive conduct in those provisions as against the interests of the Canadian public.
By utilizing a prohibition to deal with the anti-dualling provisions, Parliament would be enabling dealers and members of the public who suffer loss or damage to take legal action for recourse independent of any action which the Bureau of Competition Policy may or may not be able to undertake.
Bill C-221's proposed prohibition of anti-dualling provisions will permit the crown to choose to proceed against an accused manufacturer by way of a summary conviction or by way of indictment. Typically the crown would proceed with a summary offence in less offensive cases and in the case of a first offender while reserving the potential for harsher penalties for cases of outlandish breaches and repeated violations by a manufacturer which has shown contempt for the law. This dual approach is seen in the act's treatment of misleading representation and has proved to work well.
In the process which led to the drafting of this bill, some have questioned whether it is not unusual to be proposing legislation amending the Competition Act that would only apply to just one segment of the economy. Not at all. There are a number of industry specific provisions in the act. For example, section 5 deals with the exemption from the conspiracy provision of the act for security underwriters. Section 6 deals with amateur sport in relation to the act. Section 48 deals with conspiracies in professional sport. There is even a subsection which deals exclusively with soft drink franchisers.
I suggest that the restrictions faced by dealers in motor vehicles and farm equipment are unique and particular to these types of dealerships.
We do not see the same restrictions applied to dealers in electrical appliances or musical instruments. Though each may specialize in one particular brand, each is free to carry other brand names as he or she may sees fit.
I am of the opinion that in the great majority of cases, when business is left alone, it tends to thrive when it is allowed to find its own solutions to problems that confront it. In that respect, I agree with the viewpoint that the role of government is to construct a framework that allows businesses to operate with the least amount of constraint.
However, there are instances when government is called on to correct an inequity which threatens the livelihood of certain sectors of the economy. Over the past two years I have become convinced that the constraints faced by dealers in automobiles and farm equipment must be properly addressed.
I feel it is very important that we give the small business community a break. The Prime Minister said a few days ago that it is time corporate Canada released its iron grip and did its part in allowing small businesses to expand and provide employment opportunities for Canadians.
I believe my bill echoes that sentiment and I ask for support from all members.