Mr. Speaker, I am pleased to speak to Bill C-235.
I applaud the efforts of the hon. member for Pickering—Ajax—Uxbridge. He is a passionate and tireless champion for what he believes is right. He is rare among the members of the Liberal caucus in that he is prepared to stand on principle even when he stands alone. That takes both integrity and courage.
However, this legislation is not about the hon. member for Pickering—Ajax—Uxbridge. Despite the respect and admiration I have for the member and his commitment to his constituents, I cannot ignore that the legislation before us would shackle Canadian industries and punish Canadian consumers.
As members of this place know, this legislation would prevent a company that is both the producer and the retailer of a product or service from selling the product or service at a retail price that is below its own wholesale costs and the wholesale costs charged to its retail competitors.
The purpose of this bill is to prevent vertically integrated companies from using their corporate structure to compete against their non-vertically integrated competitors on price. It was intended to address the alleged problem in the gasoline retail industry where vertically integrated companies are accused of attempting to squeeze independent gasoline retailers out of business by offering consumers a retail price that is below the wholesale cost paid by independent gasoline retailers.
It has been argued that vertically integrated fuel companies can incur a loss at the pump that non-vertically integrated companies do not because the vertically integrated companies can make a margin on their wholesale price that allows them to remain profitable.
It is often the case that gasoline retailers will lose money at the pumps during price wars where prices fall below wholesale costs. This situation has fuelled innovations like car washes, food services, mechanical services, and the list goes on. In other words, competition in the retail gas industry involves more than just gasoline.
In an attempt to address the alleged problem in the gasoline retail sector, the bill will unintentionally regulate all vertically integrated companies. The impact of this legislation therefore would extend the intended scope. It would place controls and regulations on vertically integrated companies that would not apply to non-vertically integrated companies. A non-vertically integrated company with deep pockets could use this legislation to compete with its vertically integrated competitors by selling its product or service below cost while its competitors would be prevented by law from doing the same.
On a practical level below cost selling, or the practice of offering a retail price that is below the wholesale price, occurs every day in the business community. When inventory is cleared or a new product is introduced to the market, this price is typically set below the wholesale cost.
Additionally, companies providing a charitable service may offer a product or service at a cost that is below the wholesale price. For instance the federal government is currently engaged in partnership with the private sector to provide Internet access to Canadian schools. This partnership would be deemed illegal if the proposed amendments to the Competition Act were adopted.
I would like to take the time to address the economic arguments upon which this entire bill rests. Predatory pricing, below cost selling, is an attempt to drive competitors out of business. It is an extremely rare and unsustainable practice.
Businesses that internalize the cost of manufacturing a product or delivering a service in order to provide consumers with a price discount incur a serious opportunity cost. While their competitors are spending capital on innovations, they are spending their capital on subsidizing the cost of their own product or service. This is an unwise business approach with no long term viability. Subsidizing the price of a product will mean that eventually a company will drain its resources and be left with a product or service that is outdated. Consequently it is rarely practised.
Additionally, competition laws in Canada and the U.S. punish those companies that attempt to compete aggressively on price while others may aggressively compete on innovation or superior service with impunity. Companies that invest their profits in innovations for instance are forced to incur a short term loss in order to attempt to capture a larger market share by providing a superior product or service in the future. Strictly speaking, this is a form of short term below cost predation but competition law does not preclude it. It is okay to spend money to make a product better but not to make a product cheaper.
The Competition Bureau has investigated the predatory pricing situation presented by the author of Bill C-235 and has determined that the impact on consumers will be detrimental. I was very impressed by the presentations made by the commissioner of competition and am now much more confident that the Competition Act will not be used as a tool to regulate Canadian business, strangle the Canadian economy and punish consumers.
The commissioner of competition stated succinctly that the Competition Act is intended to protect competition and not competitors. Those companies that are not vertically integrated may find themselves at a disadvantage to those companies with a superior corporate design. However, it is not the role of government to intervene in private sector decision making.
Small businesses have always struggled to survive against large businesses. They do so by providing a superior product or service, by finding niche markets not properly served by larger competitors, or by building a reputation for a certain service. It is not easy but the government should not be in the business of protecting competitors from competition. The Competition Act instead must serve consumers.
The creation and maintenance of competitive markets is of the highest priority for the Reform Party, make no mistake about it. However, we have a fundamental disagreement with the author of this bill and with big government solutions to market failures.
The key to competition is free trade. We must work to create contestable markets. Companies that succeed in driving their competitors out of business by providing consumers with a product they want at a price they find reasonable will not subsequently raise prices if a contestable market exists.
Yesterday at the Standing Committee on Industry I attempted to address the issue of creating contestable markets to ensure domestic competition but every Liberal member of the committee rejected my proposal. We are attempting to use the Competition Act to address problems in the market that should be solved through trade liberalization.
Let met give the House an example. It involves Norm Wallace of Wallace Construction Specialties Limited. As a result of a 1998 CITT decision, Mr. Wallace has not been able to get access to a supply of jacketed pipe insulation at a price that would allow him to be competitive because a punitive 70% anti-dumping duty has been levied against those companies that import this product from the U.S.
The vertically integrated Canadian producer-retailer of this product, Manson Insulation, now has an effective monopoly in this market and refuses to supply Wallace Construction Specialties Limited with this product. Manson Insulation is arguably in violation of the abuse of dominant position and the refusal to deal provisions of the Competition Act. The cause of the problem however is the CITT anti-dumping policy which falls outside the direct jurisdiction of the Competition Bureau.
Competition and free trade are interconnected. The threat of competition will force businesses to behave as if they have numerous competitors. The number of actual competitors in the market is a very poor indicator of the intensity of the competition. There are hundreds of farmers in Canada yet these farmers do not actively compete against each other. There may be only two cellular phone providers in an area but they compete vigorously for business. It is therefore wrong to suggest that if small business loses out to larger vertically integrated companies consumers will pay more.
The Reform Party is committed to small business. We have never moved from the resolve to lower taxes and remove the regulatory barriers that hinder the success of small businesses. Small business is the backbone of our economy but there may be products and services that are better provided by large companies, just as there are business ventures that can only be managed by small organizational structures. The Reform Party is therefore reluctant to give government the power to protect businesses from competition at the expense of the Canadian consumer.
I come from a small business background. I know firsthand how difficult it is to compete. Canadian small businesses only survive due to long hours and hard work. Instead of punishing small businesses with more government regulations, let us reward them with tax relief and deregulation.