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37th PARLIAMENT, 2nd SESSION

Standing Committee on Transport

EVIDENCE

CONTENTS

Thursday, November 6, 2003

0905

The Chair (Mr. Joe Comuzzi (Thunder Bay—Superior North, Lib.))

The Chair

Mr. Jim Gouk (Kootenay—Boundary—Okanagan, Canadian Alliance)

The Chair

Mr. Jim Gouk

The Chair

Mr. Jim Gouk

The Chair

Mr. Roger Gallaway (Sarnia—Lambton, Lib.)

The Chair

Mr. Roger Gallaway

The Chair

0910

Mr. Jim Gouk

The Chair

Mr. Jim Gouk

The Chair

Mr. Jim Gouk

The Chair

Mr. Jim Gouk

The Chair

Mrs. Bev Desjarlais (Churchill, NDP)

The Chair

Mrs. Bev Desjarlais

The Chair

Mr. Stan Keyes (Hamilton West, Lib.)

Mrs. Bev Desjarlais

Mr. Stan Keyes

The Chair

Mr. Stan Keyes

The Chair

Mr. Stan Keyes

The Chair

Mr. Mario Laframboise (Argenteuil—Papineau—Mirabel, BQ)

The Chair

Mrs. Bev Desjarlais

The Chair

Mr. Robert Ballantyne (President, Canadian Industrial Transportation Association)

The Chair

Mr. Robert Ballantyne

The Chair

Mr. Robert Ballantyne

0915

The Chair

Mr. Robert Ballantyne

The Chair

Mr. Robert Ballantyne

Ms. Cindy Hick (Vice-President , Canadian Industrial Transportation Association)

0920

0925

Mr. Robert Ballantyne

0930

The Chair

Mr. Robert Ballantyne

The Chair

Mr. Stan Keyes

The Chair

Mr. Stan Keyes

Mr. Robert Ballantyne

The Chair

Mr. Stan Keyes

Mr. Robert Ballantyne

The Chair

Mr. Robert Ballantyne

The Chair

Mr. Roger Gallaway

The Chair

Mr. Roger Gallaway

The Chair

Mr. Jim Gouk

Mr. Robert Ballantyne

Mr. Jim Gouk

0935

Mr. Robert Ballantyne

Mr. Jim Gouk

Mr. Robert Ballantyne

Mr. Jim Gouk

Mr. Robert Ballantyne

The Chair

Mr. Mario Laframboise

The Chair

Mr. Mario Laframboise

0940

Ms. Cindy Hick

Mr. Robert Ballantyne

Mr. Mario Laframboise

Ms. Cindy Hick

The Chair

Mrs. Bev Desjarlais

Mr. Robert Ballantyne

0945

Mrs. Bev Desjarlais

Mr. Robert Ballantyne

The Chair

Mr. Roger Gallaway

The Chair

Mr. Stan Keyes

The Chair

Mr. Stan Keyes

Mr. Robert Ballantyne

Mr. Stan Keyes

The Chair

Mr. Jim Gouk

The Chair

Mr. Roger Larson (President, Canadian Fertilizer Institute)

0955

Mr. Stephen Dyer (Transportation Manager, Agrium)

1000

1005

The Chair

Mr. Stan Keyes

The Chair

Mr. Stephen Dyer

Mr. Tom Maville (Consultant, Canadian Fertilizer Institute)

Mr. Jim Gouk

The Chair

Mr. Jim Gouk

Mr. Stan Keyes

Mr. Tom Maville

1010

Mr. Stephen Dyer

Mr. Tom Maville

The Chair

Mr. Roger Larson

The Chair

Mr. Roger Larson

Mr. Stephen Dyer

The Chair

Mr. Jim Gouk

Mr. Roger Larson

Mr. Jim Gouk

1015

Mr. Stephen Dyer

Mr. Jim Gouk

Mr. Tom Maville

Mr. Jim Gouk

Mr. Roger Larson

Mr. Jim Gouk

The Chair

Mrs. Lynne Yelich (Blackstrap, Canadian Alliance)

Mr. Roger Larson

1020

Mr. Tom Maville

Mrs. Lynne Yelich

The Chair

Mr. Roger Larson

Mr. Stephen Dyer

1025

The Chair

Mr. Tom Maville

The Chair

Mr. Tom Maville

The Chair

CANADA

Standing Committee on Transport

NUMBER 043

2nd SESSION

37th PARLIAMENT

EVIDENCE

Thursday, November 6, 2003

[Recorded by Electronic Apparatus]

¿ (0905)

[English]

The Chair (Mr. Joe Comuzzi (Thunder Bay—Superior North, Lib.)): Order, please.

Pursuant to the order of reference of March 25, 2003, we will resume consideration of Bill C-26, An Act to amend the CTA and the Railway Safety Act, to enact the VIA Rail Canada Act and to make consequential amendments to other acts.

Before I introduce the witnesses, let me take care of some housekeeping matters. There'll be a dinner meeting tonight at 6:30 for members of the committee and the staff; the people we work with all of the time will attend.

Second, as you know, we had an emergency meeting last week with respect to the flight attendants and their inability to access the employment benefits to which this committee feels they're entitled, to which HRDC feels they're entitled, to which the CCRA feels they're entitled--

An hon. member: That might not be that accurate.

The Chair: Well...but it turns out that the regulation passed by Transport Canada, to do with safety issues, is what is preventing them from participating in the benefits to which all of us feel they're entitled. I propose, with the permission of the committee, that we bring those folks back today to resolve the issue.

I gave you a document yesterday. Do you have it handy?

Mr. Jim Gouk (Kootenay—Boundary—Okanagan, Canadian Alliance): What kind of timing are you looking at?

The Chair: It's getting pretty tight, isn't it.

Mr. Jim Gouk: It's beyond tight. I'm booked up solid.

The Chair: How about tomorrow?

Mr. Jim Gouk: I'm not here.

The Chair: Do you want to leave it to the chair?

Mr. Roger Gallaway (Sarnia—Lambton, Lib.): Mr. Chairman, just for my own purposes, for information, when that meeting concluded, all the individuals and groups involves stayed in the room with a view to resolving that matter. Could you inform us what the outcome of that was?

The Chair: The legal framework supporting the....

Do you want me to read this?

Mr. Roger Gallaway: Sure, or give us the Reader's Digest version.

The Chair: Well, I'm trying to do that: “EI benefits is under the responsibility of HRDC. The legislation allows 35 insurable hours to be credited in circumstances where other legislation restricts the number of hours worked in the week to less than 35 hours. Such a restrictive regulation was thought to exist under the Aeronautics Act, administered by Transport Canada. Accordingly, flight crews were deemed to have worked 35 hours a week, even if the actual number of hours was less. CCRA's responsibility is to issue interpretive rulings based on the existing regulatory framework. We are working within the bounds of current regulation and cannot vary its content. This can only be done by Transport Canada or HRDC. Flight attendants have been getting EI benefits since 1996 on the same basis as pilots. As a result of a ruling in 2002, we discovered that flight attendants were not covered by the TC Canada regulation.” This is the crux of the issue. And it goes on and on and on.

What's the resolution? I simply draw that to your attention. I'm not going to allow discussion because it will take time away from the witnesses, and we have to be out of this room by 11 o'clock again this morning.

If we ever come back again in transport, when we get a room, don't let anybody else schedule it so that we're always pushed for time.

But I don't want to discuss this. Let's get to--

¿ (0910)

Mr. Jim Gouk: Can I just make one comment, Joe? I think it's valid.

The Chair: No, Jim.

Mr. Jim Gouk: Joe, listen, you either want to resolve this or you don't.

The Chair: I want to resolve it. Why do you think we're talking about it...?

Mr. Jim Gouk: This is our last meeting, so we need to do something if we're able to. I just want to suggest something to you.

The Chair: Can we suggest it after we hear the witnesses?

Mr. Jim Gouk: Yes--eleven is eleven.

The Chair: Is that all right with you, Ms. Desjarlais? I know you have to leave at 10:50.

Mrs. Bev Desjarlais (Churchill, NDP): Yes, I have to leave at ten minutes to the hour.

The Chair: But you still want it resolved?

Mrs. Bev Desjarlais: Yes, it should be resolved. I just think they're passing the buck.

The Chair: Well, we're going to bring them in. Sometime today we're going to visit with them.

Mr. Stan Keyes (Hamilton West, Lib.): Mr. Chairman, you may not have anybody here to meet with them if you call them today. I know that I'm not available, and the opposition is not available. We're not sure yet if we're not coming back the week after the break. There are still some bills to pass in the Senate. There's still some work to be done there. We might have to be here.

So I wouldn't close the door on the possibility that we may still be back.

Mrs. Bev Desjarlais: We can still come back as a committee.

Mr. Stan Keyes: Not if it's prorogued.

If I can respectfully suggest, Mr. Chairman, today would be a very difficult day for us.

The Chair: No, I understand.

Mr. Stan Keyes: I want to be here to help nurse this thing through, but the schedule does not permit.

The Chair: Would you leave it to my discretion to see what we can do?

Mr. Stan Keyes: Absolutely.

The Chair: Mr. Laframboise.

[Translation]

Mr. Mario Laframboise (Argenteuil—Papineau—Mirabel, BQ): Mr. Chairman, on reading the letter, it would appear the amendment to the Transport Canada regulations is the problem here.

Why not draft a motion between now and 11 a.m. and adopt it? All we need to do is adopt a motion calling for the Transport Canada regulations to be amended to extend eligibility to flight attendants. We could base ourselves on the wording in your letter.

I think we are all in agreement. We're hearing from witnesses, but I think we all want this matter to be resolved. We're hearing that the regulations need to be amended, and that's what this letter seems to be telling us as well.

Why not propose this amendment by way of a motion. Call in the members. You did it on Tuesday. Call in the members to adopt this motion by 11 a.m. That shouldn't be a problem and I would support it.

[English]

The Chair: I don't dispute what you've said, Mr. Laframboise, but let me read what I consider, as a lawyer, to be the operative words: “as a result of a ruling in 2002”. Obviously, the ruling was on a regulation, or maybe on a statutory authority.

I think it's incumbent on the clerk to bring us that ruling so that we know what we're talking about. What was that ruling?

Would you agree with that?

Ms. Desjarlais.

Mrs. Bev Desjarlais: If the clerk's doing that, can they also give us a reasoning as to why section 10.2 can't apply in this instance, why CCRA has to strictly look at section 10.1 when 10.2 is available?

The Chair: That was Mr. Gouk's position last week also.

We should have the answers.

Does everyone approve of that process? Thank you.

I welcome our first witnesses today. Mr. Ballantyne is president of the Canadian Industrial Transportation Association, and Ms. Hick is vice-president of the association.

Welcome. Are you familiar with the process of the committee?

Mr. Robert Ballantyne (President, Canadian Industrial Transportation Association): We are.

The Chair: You talk for a few minutes and then you're exposed to who knows what. Are you ready for that?

Mr. Robert Ballantyne: We have been here before, and we are ready for that.

The Chair: So you know what kind of action you're going to get. And I do apologize for the 20-minute delay in getting started.

Mr. Ballantyne.

Mr. Robert Ballantyne: Thank you very much, Mr. Chairman.

CITA is pleased to have the opportunity to present its views and concerns on Bill C-26 and to give the shipper's perspective on the state primarily of rail freight in transportation.

CITA was founded in 1916, and represents the interests of businesses that move their goods by all modes of transportation. The association represents approximately 140 companies, both large and small, from every industrial sector across Canada. The members purchase about $6 billion annually in transportation services, and contribute over $120 billion a year to Canada's gross domestic product.

I am the president of CITA. My colleague, Cindy Hick, who is with me, is vice-president, as you mentioned. We were appointed to these positions in June of this year. While new to CITA, we are not new to the transportation industry. Between the two of us, we have about 70 years experience in the railway industry. I'll leave it to you to decide--

¿ (0915)

The Chair: Do you want to break that down?

Mr. Robert Ballantyne: Yes, I was just going to say, I'll leave it to you to decide how to break that down.

The Chair: That is very important evidence. You'll break that down, Mr. Ballantyne.

Mr. Robert Ballantyne: I was president of the Railway Association of Canada from 1988 until 2000. During that period, Cindy and I had the privilege of appearing before this committee on several occasions. So it is a pleasure to meet with you again, but this time representing the views of the shippers.

It is generally expected that Bill C-26 is unlikely to be enacted. However, the issues raised in the bill are important, and we think it's useful for the shipper community to have the opportunity to discuss these issues with you.

In our presentation today, we will focus on only four matters: transportation policy, dispute resolution and competitive issues, rail service, and accessorial and incidental charges.

The first issue that we wish to address is the policy statement in Bill C-26. It is the view of CITA members that the policy statement in the Canada Transportation Act of 1996 should remain as is. To put it simply, if it ain't broke, don't fix it. Canada's existing national transportation policy has proven to be sound and effective, and has been the subject of numerous judicial considerations that have clarified its true meaning, intent, and import.

In contrast, the amendments proposed to the existing policy are vague and are capable of many varying interpretations. For example, what is meant by the phrase “economic, environmental or social outcomes” in proposed paragraph 5(b)? What is meant by the phrase “the price paid by users for transportation services better reflects the full cost of services chosen” in proposed paragraph 5(d)?

The myriad of possible interpretations of these phrases will contribute to future uncertainty and encumber the parties with endless litigation, frustrating the shipping community and causing shippers to expend scarce time, resources, and money needlessly.

The amendments to our national transportation policy in Bill C-26 also omit key elements of policy that are vital to the attainment of fair rates and services. For instance, the CTA 1996 national transportation policy states that “key objectives are most likely to be achieved when all carriers are able to compete, both within and among the various modes of transportation”. By leaving this out, is it the intent now that carriers should be unable to compete, both within and among various modes of transportation?

There are several other rhetorical questions that one could ask on other elements that are left out in the policy statement in Bill C-26. Deleting these elements from the policy statement, in our view, will weaken it. We recommend that section 5 of CTA 1996 be retained as is.

Ms. Cindy Hick (Vice-President , Canadian Industrial Transportation Association): I have a few words on dispute resolution and competition.

The members of CITA support the proposed expansion of the final offer arbitration process to enable non-shippers, such as port terminal operators as well as shippers, to dispute not only the rates and charges for the movement of goods, but also the rates, charges, and terms and conditions that apply to any incidental services such as car cleaning, storage, etc.

The proposal to extend FOA to groups of shippers or “other persons” is also a welcome addition, and will help redress the imbalance in market power between the class 1 railways and the shippers. In this connection, I would like to mention two recent specific examples.

The class 1 railways have arbitrarily introduced several new charges. It has been reported to CITA that, for example, a new $8 bill of lading surcharge has been imposed if EDI is not used. On January 1, 2003, CN increased its charge for moving empty cars to 69¢ per car mile from 61¢, and announced that it would increase again, on January 1, 2004, to 90¢ per car mile.

The percentage increase from the rate prior to January 1, 2003, to the rate to be imposed on January 1, 2004, is approximately 50%.

A large bulk-commodity shipper has reported that CN has recently increased car demurrage rates by 50% to $75 per day, and has reduced free time by one-third, to two free days.

I would like to correct a statement made by Mr. Ritchie, president and CEO of Canadian Pacific Railway, during his testimony to this committee on October 21 regarding FOA and disputes under confidential contracts. In response to a question from Mr. Laframboise, he stated that FOA was available to shippers to arbitrate both rates and service conditions under confidential contracts. FOA is not available to shippers under confidential contract unless both parties consent. The existence of a confidential contract is a bar to FOA.

Subsection 126(2) of the CTA states:

No party to a confidential contract is entitled to submit a matter governed by the contract to the Agency for final offer arbitration under section 161, without the consent of all the parties to the contract.

A confidential contract, like any contract in our legal system, can set out the dispute resolution mechanisms available to either party. It is open to the parties to specify, in a confidential contract, that FOA will be available to resolve disputes that may arise between the parties, but I would challenge the class 1 railways to tell you how many of the thousands of confidential contracts they have that actually contain such a provision. A review of the agency's website will reveal instances where the railways have argued that the existence of a confidential contract is an absolute bar to FOA.

The imbalance in market power that exists between the class 1 railways and their customers is a real and continuing concern for shippers. While there are situations where CN and CP are prepared to compete, and while there is competition from other modes of transport and from U.S. railroads in some instances, CN and CP are an effective duopoly in Canada, and many shippers are effectively captive to one or another of these companies.

This situation has been recognized in our transportation legislation for decades, and the law has provided limited protection for shippers. We offer the following definition of captivity: A shipper is captive who does not have effective competition for the carriage of his or her goods.

FOA is designed to assist shippers in dealing with this imbalance. The enhancements to FOA that are contained in BIll C-26 will be very helpful.

The other elements in the existing legislation designed to enhance competition are extended interswitching limits, competitive line rates, and running rights.

We have no comments to make on interswitching.

On competitive line rates, as was noted in the testimony of Canadian National before the committee on October 28, there have been no CLR applications filed against CN since 1987, and only one against CP. This is a provision that is clearly not working. The national transportation review committee, in its report way back in 1993, determined that CN and CP do not compete on the basis of CLRs, and as a result, the remedy is ineffective in Canada.

¿ (0920)

It is the view of CITA members that the proposed competitive connection rate will not be an improvement on CLRs. There are a number of tests and hurdles built into the CCR provisions that will render them useless to shippers. It would be far better, in CITA's view, if the CLR provisions were strengthened by imposing a requirement that a federally regulated railway quote a connecting rate for CLR purposes if requested to do so by a shipper.

Running rights may be the most controversial and possibly most misunderstood of the elements of existing legislation designed to enhance competition. The agency has determined that the existing running rights provision is a competitive access provision, and that the kind of limited entry and the resulting enhancement of competition that the existing running rights provision provides are entirely consistent with national transportation policy. Running rights have existed in the railway industry for over a century, and continue to this day. The issues of safety and cost allocation between carriers have been worked out over the decades, generally on a commercial basis.

For example, on the CN Oakville subdivision that runs between Toronto and Hamilton, there are four railways currently operating--CN, the owning railway; CP; VIA; and GO Transit. There has been no indication that either safety of a mixed freight-passenger operation with high-density commuter traffic or scheduling between the various railways has been compromised.

The concern expressed by the class 1 railways relates to a regulatory process that may extend running rights to another railway where commercial agreement cannot be reached. As noted above, market power is not balanced, and in those situations where a commercially negotiated agreement cannot be reached for running rights, it is appropriate that there should be a regulatory process available to shippers or other railways to obtain running rights. It is understood that whether a running rights agreement is achieved by commercial negotiation or by regulatory decision, the owning railway must be fairly compensated.

In his presentation to this committee on October 21, Mr. Ritchie noted that “access does not bring more competition”. I would point out the irony of comments made in May of 2003 by Ms. Marcella Szel, vice-president of strategy and law at CP, who participated in a seminar on the future of BC Rail in Prince George, B.C. In comments related to the fact that BC Rail connects only with Canadian National, she stated the following:

So the issues of gateways, connections, and access--whether it's market access or rate access--is very critical in our view to effective competition to the shippers on the line....

This was reported in the Prince George Citizen.

CITA supports the recommendation of the Canadian Transportation Act review panel that the existing running rights provisions be extended to provincially regulated railways.

¿ (0925)

Mr. Robert Ballantyne: In discussion with a number of CITA members, we've been made aware of continuing, widespread service problems in different parts of the country.

On the west coast, terminal operators handling bulk commodities have stated that changes in rail service have led to substantial cost increases for them. In the case of one terminal operator, the cost for terminal crews more than doubled due to railway delays. Other labour costs for lost time in 2003, again due to railway delays, have increased by about $500,000.

In such instances, the shipper or terminal operator is not able to recover these costs from the railway, and at the same time, the railways have unilaterally imposed or raised the accessorial or incidental charges. In the case of one terminal operator, to add insult to injury, CN has increased demurrage charges sometimes for delays beyond the control of that terminal operator.

On the east coast, it has been reported that there have been chronic problems in the expeditious handling of containers from the port at Halifax, particularly during last winter, due in part to changes in service and car allocation by CN. Complaints by the Port of Halifax and local businesses have resulted in meetings with CN, but so far improvements have been limited.

In the Toronto area, it has been reported that there have been serious delay problems at CN's Brampton intermodal terminal beginning in August and continuing to this day. The delays were so serious that the trucking drayage contractors resorted to work stoppage in September because of the long delays they were experiencing in picking up or delivering containers at this facility. We are told that CN's target has been to have drivers in and out of that terminal within about an hour. In some cases, truckers have been waiting for four hours or longer. There is serious congestion in this terminal due in part to increased volumes and in part to admitted deficiencies in CN's operation.

To help CN recover from these problems, customers are being required to operate on weekends, paying their labour at premium rates, to help clear out this backlog and congestion. Recently CN unilaterally decided to raise the storage charge on containers in this yard after a two-day period in an attempt to encourage shippers and receivers to work on weekends.

These are some examples of deteriorating service coupled with increased accessorial and incidental charges.

Earlier in this presentation, we mentioned increases in accessorial and incidental charges such as demurrage, car storage, car cleaning, fuel, and currency exchange surcharges.

In the recent presentations by CN and CP to this committee, they mentioned that Canadian freight rates are the lowest in the world. However, in order to determine what is the real cost of handling freight, one needs to add the accessorial and incidental charges to see what the total freight bill really would be.

I should mention that I was party to adding the Canadian data to this international table of freight rates some years ago, when I was president of the Railway Association of Canada. In computing the freight rates for this table, all freight rates were converted to U.S. currency for consistency. It may well be that with the increase in the Canadian dollar in the last few months, Canadian freight rates are no longer “the lowest in the world”. In any case, indicating that the average freight rates on a tonne-mile basis are the lowest in the world does not give a complete picture--

¿ (0930)

The Chair: Mr. Ballantyne, you're well over 15 minutes in your presentation. We're not going to have any time for questioning unless you want to wind it up, please.

Mr. Robert Ballantyne: Okay, fine.

I'll leave it at that, Mr. Chairman, and just say that while it appears that Bill C-26 may not be passed in the near future, the parliamentary debate has been useful. It's encouraged the stakeholders to develop and articulate their views. We look forward to this continued debate in the months to come.

The Chair: Mr. Keyes.

Mr. Stan Keyes: On a quick point of order, Mr. Chairman, there may be additional content in Mr. Ballantyne's speech that would be helpful. Can we ask the witness to...?

The Chair: We have copies.

Mr. Stan Keyes: You have one, but I don't.

Can we get them translated, and then given to us?

Mr. Robert Ballantyne: I gave the clerk copies to hand out.

The Chair: The copies are only in English.

Mr. Stan Keyes: Mr. Ballantyne, you've been around here long enough to know that we have to have it translated before it's presented.

Mr. Robert Ballantyne: Well, yes, but we only were advised of this appearance on Monday of this week. We didn't have a chance to get it translated.

The Chair: That's the clerk's fault. Blame this guy here. He's just not operating with a full deck these days.

Voices: Oh, oh!

Mr. Robert Ballantyne: We'll provide a French-language version.

The Chair: Thank you.

Perhaps I'll give an update on the flight attendants before we go to the questioning.

We've asked for the ruling to which the CCRC...or whatever they are.

A voice: CCRA.

The Chair: As a result of the ruling in 2002...they have no transcription of the ruling, which leads me to believe--and Mr. Gallaway, you correct me if I'm wrong--that this is a quasi-judicial decision, that requires notice to those parties that are affected by the decision, that procedural fairness has been denied and that the ruling really is of no consequence if procedural fairness has been denied.

Am I...?

Mr. Roger Gallaway: That's not necessarily so, because many departments have what are called “paper” hearings, where they sit and sift through written arguments from various sides, and without a public hearing, without a transcript, they render decisions. That's done regularly--so it may be a case that they're authorized to do that under some obscure regulation or through some interpretation of the legislation.

The Chair: But this affects the rights of people.

Mr. Roger Gallaway: It happens all the time.

The Chair: Well, it shouldn't happen all the time.

Leave that with us.

Mr. Gouk.

Mr. Jim Gouk: Thank you.

I have just a couple of questions here. You covered certainly a broad area of subjects on this. And you're right, it is good to at least have this input from you, which may be useful in the redrafting of this bill at some future date.

I'd like to first clarify or ask you something with regard to that empty car rate, the 50% increase. Was any justification given for this rather significant increase? Did they have any justification for it?

Mr. Robert Ballantyne: No justification was reported to us from our members. We can go back and ask them what the railway said in those cases as to why they needed those increases.

Mr. Jim Gouk: Yes, it would be most interesting, I think, to hear of whether or not, if the rail is putting something up beyond the norm for something, they've even attempted to justify it, or of whether or not they maybe even have some real justification.

You sort of touched on the edge of the access problems. We've heard this from other shippers with regard to having more competitive access both in terms of interchange, short-line operation, interconnection between the two major players. Are there specific problems that shippers in your group have experienced where there is a need for some form of interconnection, a requirement that a new operator or a short-line operation should be able to run through the line of one to connect to another, at a competitive rate? I'd just like you to clarify that.

¿ (0935)

Mr. Robert Ballantyne: Yes, there are. These vary from case to case, in specific instance to instance, but there are cases where some shippers feel that if there were an alternative on line of one railway or the other for a second or more carrier, they would be in a better bargaining position just in terms of normal commercial transactions.

Mr. Jim Gouk: I have sympathy for that, but I have a philosophical problem with the idea of creating another rail connection not to have better service as a result of that connection but in fact to simply put pressure on one of the majors to force them to negotiate. I think we do need some process where there's fair negotiation, but it seems like a rather complex and cumbersome way when really it is, I believe, simply a negotiation tactic.

Mr. Robert Ballantyne: Again, from a philosophical, basic premise, I think that the more people there are in the marketplace, and the more competition there is in the marketplace, generally we consider that there more likely will be fair negotiation and commercial resolution that both parties find acceptable. So it has the potential for both--one, if there is a second carrier, in fact it does bring more people into the market; and two, as you point out, it also does increase the bargaining power of a shipper on the first carrier, the owning carrier.

Mr. Jim Gouk: You talked in terms of access problems and also congestion. We heard from some witnesses that they're concerned about a provision in Bill C-26 where indeed it does give access to passenger rail. The particular problem is in an area that I'm most familiar with--Vancouver, because of the port, although Toronto is probably another good example. It's reaching saturation. That this would give additional running rights to a passenger rail system inside that area at a rate that is virtually nil, or close to nil, based on net asset value, going back to the very beginning, would, they said, create a major congestion problem, which would impact on shippers.

Do you have any comment on that part?

Mr. Robert Ballantyne: I guess as regards the specifics in the bill related to access for passenger and commuter operators, we don't have, if you want, a policy position on that, because we're basically representing freight shippers. But certainly the issue of congestion as it affects freight, and as it affects the freight handling on railways, is important.

I would think the answer has to be that if there is congestion, somehow or other the costs to alleviate this congestion have to be allocated among the various users of the facilities. So really, if it's the overlay of, for example, a new passenger or commuter operation that ends up causing this congestion to kind of go over the top, then presumably the passenger operator should be the one who has to provide the funds for improving the capacity on that line.

The Chair: Thank you, Mr. Gouk.

Mr. Laframboise, with your permission, Ms. Desjarlais has to leave in a few minutes, so I wonder if you'd mind--

Mr. Mario Laframboise: I have to leave too.

The Chair: You both have to leave.

Go ahead.

Mr. Mario Laframboise: I have just a small question.

[Translation]

Ms. Hicks, I'd like you to explain to us again how confidential contracts work. Mr. Ritchie from Canadian Pacific told us how confidential contracts can be sent to arbitration. He even told me that he'd check with his corporation's legal services on this matter.

When CN representatives testified before the committee, they told us that 75 per cent of rail freight shipped was moved under confidential contract.

It's all well and good to want to improve the arbitration process, but if 75 per cent of all rail freight is excluded from the arbitration process, then to my way of thinking, we have a problem. Briefly, can you give me your take on confidential contracts and arbitration.

¿ (0940)

[English]

Ms. Cindy Hick: I think if the railways came to the negotiating table with the FOA process enhanced, perhaps the shippers would be able to come to the negotiating table with more of a balance and have those included in the confidential contracts. But for Mr. Ritchie to say that they are part of the arbitration process at the current time...because it's not true. They would have to have the consent of the railways to do that, and of course they would not do that at this point.

Mr. Robert Ballantyne: May I add something, Mr. Laframboise?

The point we were making is that certainly our reading of the law is that FOA, final offer arbitration, does not automatically apply to movements under confidential contract. But like any contract of any kind in our legal system, I assume it will allow the parties to decide on how disputes will be resolved. So as Cindy said in her presentation, unless both parties agree under a confidential contract, final offer arbitration can't be used. That's just the way the law currently is written.

[Translation]

Mr. Mario Laframboise: Therefore, if we want to improve the legislation and, in so doing, the arbitration process, we need to ensure that arbitration applies to confidential contracts. That is what you're saying. Correct?

[English]

Ms. Cindy Hick: Yes, we would like to have some mechanism to ensure that all shippers have access to FOA.

The Chair: Ms. Desjarlais.

Mrs. Bev Desjarlais: It may be in your presentation further on down, but I'm just wondering if you would be able to present to the committee, at some point, what the cost would have been for a particular shipment over the course of the last number of years--in 1990, say, 1993, 1996, 1999, and to the most recent years--just to give us some idea of where all the additional costs have increased, and whether or not you're aware if shippers have requested an opening up of the contract, or the final arbitration, to the railway company, but were denied that opportunity.

I think I asked the same type of question of the railways, and they sort of suggested that they didn't have that figure. So I'm just curious if the numbers are there.

I'm in agreement that if both don't agree...and why would you agree if you were the railway company and you had the best-case scenario in front of you? You're of course not going to say “We're going to arbitrate.” So I think if we had those figures, it would give us an idea of the types of problems the shippers are having.

Mr. Robert Ballantyne: The kind of information that you're suggesting should be available in fact is not readily available. One of the things we've been looking at doing at CITA is attempting to put together, on an annual basis, some overview of freight expenditures by different modes of transport. I'm not sure we could go into the level of detail you've requested, but we could certainly ask maybe one of our members if they would possibly give us a sample of some movement that's taken place, even if it's not in absolute terms then maybe just in relative terms, and what kind of percentage increases they've experienced.

¿ (0945)

Mrs. Bev Desjarlais: Okay. If we had a few examples, it would be better.

As well, I would assume that most businesses would do a costing out of whether or not it's still more cost-effective to use the railway or certain trucking routes. Perhaps we could get a breakdown from a couple of your shippers just to give us an idea of that.

Thank you.

Mr. Robert Ballantyne: We'll certainly see what we can do on that.

The Chair: Thank you.

Mr. Gallaway.

Mr. Roger Gallaway: I really don't have any questions. I just wanted to thank the witnesses for providing what I would call “clarification” of testimony offered here previously. I thank you for that, particularly around the issue of FOA.

The Chair: Mr. Keyes.

Mr. Stan Keyes: I too want to thank Mr. Ballantyne. You've been around a long time, and we've seen you here in different capacities. Just for the fun of it, I might dig up those old speeches you made, Bob, when you were a RAC representative.

The Chair: What's “RAC”?

Mr. Stan Keyes: The Railway Association of Canada--the other side of the fence.

Mr. Robert Ballantyne: My railway friends have accused me of going over to the dark side.

Mr. Stan Keyes: That's right.

Thank you for your presentation, and thanks to Cindy.

The Chair: Mr. Gouk, do you have any other questions?

Mr. Jim Gouk: Not really. Again, it's received for input. We'll have your full presentation, and hopefully that will be well taken into consideration in any future drafting of the bill.

The Chair: Thank you, Mr. Gouk.

Thank you, Mr. Ballantyne and Ms. Hick, for appearing this morning.

Shall we suspend?

We'll suspend for 10 minutes.

¿ (0948)

¿ (0954)

The Chair: We'll reconvene.

We welcome now, from the Canadian Fertilizer Institute, Mr. Larson, the president, and Mr. Maville, the consultant; and Mr. Dyer, the manager of Agrium.

Let's explain what that is.

Mr. Roger Larson (President, Canadian Fertilizer Institute): Mr. Chairman, I'll do a short introduction and explain.

Thank you very much. The Canadian Fertilizer Institute would like to thank the committee for inviting us to appear and give testimony on Bill C-26. My name is Roger Larson, and I am president of the association. With me today is the chairman of our transportation committee, Steve Dyer.

Agrium is a member company of the CFI. They're a major North American shipper, so something unique for the committee; we have a real, live shipper who actually pays bills and deals with the issues in the real world that we're about to talk about today.

Also with us today is Tom Maville, who is a technical expert and is available to answer any technical questions the committee might have on our comments.

I'll just give a little bit of background on our industry. First of all, many of our members are members of the Canadian Industrial Transportation Association, and we would reflect their general comments. As an industry, we would tend to be the part of their membership that would be the large bulk commodity shipper part of the transportation industry.

We represent the basic manufacturers of nitrogen, phosphate, potash, and sulphur fertilizers in Canada, as well as major retail and wholesale distributors that supply fertilizer across the country--organizations such as Coopérative fédérée de Québec, Agricore United in the Prairies, major importers of fertilizers such as Agrico and Sylvite, who would import materials into Montreal and Hamilton, as well as members like Campotex that export potash from Vancouver or exports from New Brunswick.

Our members produce about $5.5 billion worth of fertilizers and constitute domestic retail sales of about $2.5 billion. We supply about 40% of the world's total potash use and 25% of North America's nitrogen fertilizer requirements. In all, Canada provides about 12% of the total world supply of fertilizer materials, so we are a major global competitor in the fertilizer industry.

Our industry creates about 12,000 jobs in Canada, many of these in rural regions, from mines in New Brunswick and northern Ontario to the centre of our industry's production in Saskatchewan and Alberta. Our members produce and ship about 24 million metric tonnes of fertilizers annually. Over 20 million tonnes of this are transported by Canada's railways, making fertilizers the third-largest customer group of CN and CP.

CFI's members represent a resource-based industry, heavily dependent on the railways for access to our markets and for our global competitive success. Our members ship to over 19,000 origin-destination pairs, or OD pairs, in North America. Roughly 58% of these destinations are captive to one railway. I think the nature of our industry, moving product throughout North America, reflects the issues that we will bring forward to you today, and our perspective on Bill C-26.

With that, I'd like to turn it over to our transportation chair, Steve Dyer, to outline our concerns with Bill C-26.

¿ (0955)

Mr. Stephen Dyer (Transportation Manager, Agrium): Thank you, Roger.

I would like to reiterate Roger's comments, thanking you for allowing us to present to this committee.

As Roger also mentioned, I am the manager of transportation for Agrium, one of the largest fertilizer companies in North America.

I basically want to talk about Bill C-26 in terms of some of the provisions that we think are important and that have carried forward in the CTA, and then talk about some of the concerns we have within Bill C-26.

CFI members were definitely pleased to see that several provisions were carried forward in the CTA--namely, the common carrier service obligations of the railways, the regulated and extended interswitching, and the mediation and final offer arbitration. Specifically with that one, we strongly support the extension of the FOA process to include non-shippers as well as shippers, and to be able to dispute not just rates but other incidental charges that the railways are continuing to put against shippers and non-shippers alike.

So those are three provisions that we're very happy to see carried forward in the CTA. However, overall, CFI cannot support the bill in its present form. In our minds, there are two critical areas from the standpoint of CFI and its members that need to be addressed as part of the bill. The first is the national transportation policy statement and the second is competitive access, specifically in the form of CCR.

On the national transportation policy statement, the current policy statement, going back to 1967, actively promotes and encourages rail-to-rail competition, and speaks of the needs of the shipper. The current policy also encourages the setting of rail rates that do not create a disadvantage to shippers moving goods in domestic or international trade and that do not discourage the development of industry in different regions of the country.

In the new bill, in Bill C-26, I'm very concerned about the statement around users having to better reflect the full cost of services when, at the same time, the definition of that full cost, or what that really means, has not been put forward. It talks about the socio-economic impacts. So shippers are very concerned about what that means going forward. In essence, we see the policy statement as a complete change and about-face in the direction of the Canadian transportation policy.

Finally, the CFI and its members definitely weren't consulted on this change within the policy statement.

Moving on to rail competitiveness--and as I mentioned, specifically CCR, or competitive connection rates--we are concerned and disappointed. We did see the removal of two significant provisions in CLR, which was originally in place and is currently in place today, of the substantial harm test and the agreement test, meaning you have to have agreement in place before you can move forward with a CLR. We were glad to see the removal of those, but we feel that added in are additional tests or provisions far beyond even the ones that were in place with CLR.

These specifically include a 75 percentile test, which requires you to prove that you're above the 75 percentile. The issue we have here is, how is this test going to work? How do you collect the information to ensure that this test is...and how is that going to be managed on a go-forward basis?

There's a new captivity test that states that there is no alternative, effective, adequate, and competitive means of moving the traffic. Again, in essence there's a competition test there that needs to be passed as well.

À (1000)

The third one is the rate-setting formula within the 75th and 90th percentile of revenue per kilometre mile. There's another test there for the rate setting, and setting a range where that needs to be. Again, what is the 75th to 90th percentile, and where is that information going to come from and be available for that to be an effective and meaningful process?

Two others include a new restriction precluding shippers from activating final arbitration once the rates have been put in place, and the new cease-and-desist order for the Governor in Council to not be able to step in.

Based on these additions to the modifications of the CLR to the CCR, we really feel that it is less workable than the CLR today. The reason this is important...and I'll refer to what Rob Ritchie of the CPR stated to the committee on October 21, that interlining is North America...railways is often overlooked, and he said that accounts for 40% of CP's revenue, but I think his statement is probably more for CN. I definitely know it's for CN. I think last year with CN, their U.S. revenue outstripped their Canadian revenue last year for the first time. I'm pretty sure I'm correct on that.

It is crucial that traffic is moved between points served by different railways throughout Canada and the U.S: we strongly agree with that statement by CP, but the shipper should have the ability to dictate the route that movement takes, and for many reasons. One is from a competitive rates standpoint; two is from a service standpoint; and three is from an access to market standpoint. Without the ability of something like CLR or CCR in a workable form, shippers will not have the ability to dictate the route that the product takes.

To that, the CFI developed a modification to CLR, or CCR--which we call “CAR”, or competitive access rates. That was basically an extension of interswitching, and the same principles of interswitching, to move forward in terms of making a simple working mechanism in place for shippers to deal with the interlining issue.

I won't necessarily go through all that, but we would like the opportunity, if we have time, to talk more about CFI's provision around CAR. I would turn that over to Tom to talk about CFI's proposal around that, if the committee is interested in hearing more about it.

Is that something the committee would...?

À (1005)

The Chair: Before you continue, would you give us the full names of what you're talking about? There's CFR, CAR, ABC.... You've lost us. I mean, you guys talk about that stuff all the time, and you don't understand: We know nothing.

Mr. Stan Keyes: Mr. Chairman, maybe you want to speak in the singular on that. Some of us understand this.

The Chair: No, no, you guys are just posturing.

Mr. Stephen Dyer: There are three key acronyms, and I'm going to let Tom talk to those specifically and just spend a few minutes talking about.

Mr. Tom Maville (Consultant, Canadian Fertilizer Institute): The provision that is presently in the Canada Transportation Act and has been there since 1987 is called the CLR, which is the competitive line rate. The provision that the Canada Transportation Act review commission recommended replaced that with the CCR, the competitive connection rate--same animal, different tests or different rules attached to it. The provision that the Canadian Fertilizer Institute is proposing here is CAR, the competitive access rate.

The competitive access rate essentially was intended to clean up, simplify, and streamline the existing provision, the existing competitive line rate provision. It does essentially two things. It removes the substantial commercial harm test that was attached to the CLR in 1996, that didn't exist before 1996, and it removes the requirement for a shipper to first have to have an agreement with the connecting railway.

Those two requirements were identified by the CTA review panel as impediments to the competitive line rate provision, and they recommended their withdrawal or removal. We would suggest that if the CTA review panel had stopped there and recommended the reinstatement of the CLR provision with the removal of those two provisions, it would have worked.

Mr. Jim Gouk: Mr. Chair, with all due respect to our researcher, a short phone call I can put up with, but if he's got a half-hour-long call, perhaps he can take it outside. It is causing a problem for me.

I'll tell you what, I'll trade you seats, and you can listen to him.

The Chair: I don't know why you guys are so raunchy today. Is it because you're not going to work tomorrow and you may not come back next week? I mean, why is there an ugly mood in this room?

Mr. Jim Gouk: I think it's a very friendly mood. In the spirit of friendliness, I've left it for a long time.

Mr. Stan Keyes: Mr. Chair, just as a point of clarification, not to interrupt the witness--and maybe just to demonstrate to the chair that I'm not posturing--I think one important point in terms of the details behind the competitive connection rate and the competitive line rate was also a distance qualifier, if you will. One was meant for under 30-kilometre distances, etc.

Perhaps you could clear that up for the committee as well.

Mr. Tom Maville: Yes. There is a provision called “interswitching”, which has been around since 1908, that is very similar to the existing competitive access provision in the sense that it allows access to an interchange if you're located less than 30 kilometres. It was intended for shippers in urban areas, where you have two lines of railway but probably in different parts of the city. In order for each railway to compete for that shipper's traffic, the provision states that the shipper has a choice. And there's a regulated rate that applies to the interchange, set once a year by the Canadian Transportation Agency. It's a very streamlined, straightforward system. There's no application to the agency for it, no arguments and no confrontation. The regulations are set once a year: “Here's the rate to the interchange, you can have it.”

It only applies to urban shippers. It doesn't help the coal shipper, the potash shipper, the sulphur shipper, the chemical shipper located in remote regions. That's what the CLR was intended to do, to give the remote resource-based shipper access to another railway and interchange at a simple rate, within a simple rate definition, without getting involved in overregulation.

À (1010)

Mr. Stephen Dyer: Just to elaborate on that, as Roger mentioned, in our industry, being resource-based, as Tom mentioned, the majority of our product is moving into the U.S from Canada. You're typically always dealing with more than one carrier. Again, being able to determine the route that's taking...and service as well as access to markets are key to be able to determine the route that product's taken.

So not just competitive rates but those other two elements are very, very critical for our industry as well.

Mr. Tom Maville: Under the CFI proposal, it would allow a shipper to apply for a rate to an interchange, and that rate would be established with information that's available in-house at the Canadian Transportation Agency. The agency would look at all of the movements to that interchange, or all of the movements over the line of railway, and take the average. To ensure that this average came up with a reasonable rate, some additional revenues are added to it, to arrive at the rate to the interchange. But it's a process that can be undertaken and completed within probably 30 days.

The difference between the CFI proposal and the proposal before this committee is that the proposal before this committee will require the agency to find substantially similar traffic moving under similar conditions. What is similar traffic moving under similar conditions? As Mr. Ritchie indicated in his appearance, there are thousands of contracts within the railway offices in Montreal and Calgary. Those contracts are not on file with the agency. That means every time there's an application, agency staff are going to have to literally camp out in the offices of the railways, probably for weeks, going through contracts to find similar movements under similar conditions.

So the CCR provision is going to significantly increase the regulatory oversight and intervention that will be required by the agency. The CAR provision, as I indicated, is modeled after interswitching. It uses system averages available in-house, and can be done in 30 days, with few resources, few expenses, and very minimal regulatory intervention.

The Chair: At the outset of your presentation, you said that you ship 25% of your product by rail, correct?

Mr. Roger Larson: No, we ship over 75% of our product by rail. Our members produce about 24 million metric tonnes in Canada, and about 20 million of that is moved by rail to points of export--Vancouver, New Brunswick--to the United States, with probably about 12 million to 14 million tonnes to the U.S. and the rest offshore, to about 60 countries around the world.

The Chair: How do you ship the balance?

Mr. Roger Larson: Some portion is shipped to domestic markets, to farmers on the prairies, etc., from ports in Montreal and Hamilton, where the distribution is going short distances to local farmers, and therefore doesn't go by rail.

Mr. Stephen Dyer: About 10% of the production within Canada is probably used domestically, and the rest of it is exported. The majority of that export does go by rail, as at least the first step into a warehouse or terminal, and then out from there.

The Chair: Thank you.

Mr. Gouk.

Mr. Jim Gouk: Are you finished with your presentation, or...?

Mr. Roger Larson: Mr. Gouk, we had finished our presentation several minutes ago, and then we got into the technical description of CCRs, etc.

Mr. Jim Gouk: Okay.

There's one thing I'm particularly interested in. I certainly have sympathy for the interchange problem, but I know of some specific examples, such as Edmonton and Saskatoon.... Now, those are areas where CN is effectively blocking that access, using the 30 kilometre rule, because they've gone to a short-line operation north of those locations at, I believe, 31 kilometres. But I believe also in both cases those were CN lines; they went into a short-line operation as an alternative to simply shutting it down. While I have sympathy for you, I still recognize that this is their line, it's an internal decision they made, and they're not about to cut their own throat with their method of moving to a short line in order to keep the line operating.

Are there other examples you can give us where it is not the case, where it has not been something that they operated and then turned over to someone else to operate, effectively on their lines and still connecting to their operation?

À (1015)

Mr. Stephen Dyer: Again, if you look at the case with the distances our products are being moved...and I'll talk about service. If you're moving product halfway from Saskatchewan to Florida--and we do move potash from Saskatchewan to Florida--there are many interswitches you can take, and different routes you can take, and different carriers--

Mr. Jim Gouk: No, I understand the concept, I just want to know of any examples where it has not been created by a rail line that already had that line, and was captive, going into a short-line operation, protecting themselves in the process.

Mr. Tom Maville: Maybe I could clarify.

Another aspect to the existing competitive line rate provision is a grandfathering clause. The way it works is that if a class 1 railway owns a piece of track that has a shipper located on it, and part of that track is transferred or sold or leased to a short-line operator, even though that line may fall out of federal jurisdiction and become provincially regulated, the shipper on that line still has access to the CLR provision from the point where the provincial line connects with the federal line--for instance, Edmonton--and from there to the next interchange the shipper could active that access provision.

Mr. Jim Gouk: Where I have a concern is that before the Canada Transportation Act, rail abandonment was a disaster. Basically, in order to abandon a line, the rail line had to prove that it was totally unviable economically. They could attempt to sell it, but of course, now they're in conflict with themselves. To sell it you have to say it's worth something to somebody, and if you're unsuccessful in selling it, now you have to say that this thing we were promoting as viable is now absolutely unviable, notwithstanding our previous comments. So invariably, they simply ran it into the ground and then went for abandonment, never trying to sell it.

So the provisions for rail abandonment inside the Canada Transportation Act, passed in about 1995 or something, I think were much better for shippers and for everybody, because they kept in operation the lines that otherwise probably would have been abandoned.

My concern--and as I say, I do have sympathy for the situation, and I think we need to find a resolution--is that if we simply say, “Hey, when you go to a short line, too bad, now you have to give interchange if it has to go through,” we may force them back to the old attitude of saying, “If we're going to end up cutting our own throat, we're just going to either keep the line--in which case you don't get that access--or alternatively, we're going to drive the line into the ground and simply abandon it.”

How do we resolve this problem without pushing them back into that situation?

Mr. Roger Larson: Possibly one way of doing it would be to amend the act to give provincial railways the same rights and options as federal railways in order to enhance competition.

Mr. Jim Gouk: Yes, but that still wouldn't resolve.... If one of the class 1 rail lines owned that to begin with, they'd say, “Hey, if we do this, we're going to fall into that, and we're going to end up cutting our own throat with the suppliers we're dealing with, so we're not going to do that, we're going to do something different”.

That's all, Mr. Chair.

The Chair: Thank you, Mr. Gouk.

Ms. Yelich.

Mrs. Lynne Yelich (Blackstrap, Canadian Alliance): I was just wondering if you could make any comparisons with those who ship grain. Are there any differences or similarities in shipping grain that are quite visible to you?

Mr. Roger Larson: I'll pass that question on to Tom after I start answering it.

Most of the grain shippers in Canada--Agricore United, Saskatchewan Wheat Pool, Cargill, James Richardson, certainly those in western Canada--are members of the Canadian Fertilizer Institute because they're also suppliers of fertilizer to the farm market. And the Western Grain Elevator Association has endorsed our brief, all of the statements we have made, all the positions we have taken to the standing committee.

Tom, can you compare grain and fertilizer transportation?

À (1020)

Mr. Tom Maville: It's a little difficult to compare. Grain has had over 100 years of regulation pricing attached to it, and it's only been deregulated for the railways to price according to commercial market trends for the last few years.

The way a railway prices grain and the way a railway prices potash, under the Canada Transportation Act, are the same. Both products can move under confidential contracts. Both commodities can move under published tariffs. The railways are at liberty to set rates for grain or fertilizer largely without government intervention. The difference with grain is that the railways are restricted by revenue cap as to how much total revenue they can collect through the setting of their rates on an annual basis in the movement of export grain. That cap does not apply to the movement of fertilizer.

Mrs. Lynne Yelich: Okay, thank you.

The Chair: Thank you.

Mr. Keyes? Mr. Gallaway? No one else?

The fertilizer industry is associated with the agriculture industry in the west primarily. Am I correct?

Also, for some reason or other, the railway business and the grain business have become so synonymous and so regulated for the last 100 years. Are we taking into account that in the last five years, both railways have now become private corporations, and that your industry, the industry you represent, represents all private corporations, for-profit?

Are we getting in your way as a government? On this regulatory control, which is so cumbersome, have we ever stopped to think that now that we are corporation to corporation, you can resolve these problems amongst yourselves rather than have it done under a regulatory basis?

Mr. Roger Larson: That's a good question, and I think part of the answer is that there are all sorts of definitions about what deregulation means and what regulatory means. I think we have to look at the basic structure of the rail transportation market.

There are two railways. If you look in western Canada, essentially you have a northern franchise and a southern franchise. If you said, okay, we're not going to have any pro-competitive measures or requirements, you're dealing with an unfettered, commercial relationship where you have one dominant party, and I'm not sure that any customer corporation would be able to find a way to establish a level playing field for negotiations.

As a fundamental principle, the CFI has stated that regulations should be a backstop to create an arena where effective negotiations should take place. For that to happen, the shipper has to have choice. If you create a policy environment where shippers do have choice, where they are able to say, no, I am going to have a way of accessing the other carrier, or I am going to route my traffic this way if you don't sit down and negotiate terms, then....

That policy environment is essential to having a non-regulatory environment if you think of regulated rates as the most regulatory, and setting a policy environment where market structures can then start to work as being the least regulatory.

Mr. Stephen Dyer: I guess from a CFI standpoint, I agree with your statement, and again, I agree with what Roger was saying around the fact that you do have many cases where our facilities are captive, because you only have two railways in Canada. We are looking for general principles to be put in place.

To go back to something like competitive access rates, that's why we're looking for something that's very simple and easy to understand, to put in a provision that then allows the parties, the shipper and the railway, to work together, and not put in something that has a lot of complexity to it and a lot of regulatory hurdles. So the provision in place would allow a shipper to do what a shipper should be able to do--determine how his products are going to go from point A to point B. Really, that's what this is putting in, and not adding the extra layers that CLR, for example, does today, with all these tests in place.

So there needs to be a balance there, and hopefully the balance can be closer to the commercial standard--

À (1025)

The Chair: Mr. Dyer, I understand what you're saying, but both you and Mr. Larson have just said, in essence, that you really can't trust the railways, because they're isolated to serve you in a restricted market, and therefore you need the government to intervene on a regulatory basis, which is very expensive for this government to do. You know, I'm having real difficulty when we have private corporations....

Years ago, when the farmers were being abused, we got the Wheat Board and so on. So I have real difficulty understanding today, when we've talked about the necessity to have trade with the United States, to be competitive with the United States, to be competitive with the world markets, to facilitate our maritime transportation, why we need governments to come in and tell you how to conduct your business with each other.

Mr. Tom Maville: Can I respond?

The Chair: Yes, please. Explain to me where I'm wrong.

Mr. Tom Maville: I was a regulator for 20 years. When I started in 1977, there were probably 200 to 300 regulations governing the way railways conducted themselves. When I left in 1996, there were three regulations applying to the movement of rail freight in Canada.

It sounds like a lot of regulation, just from listening to all of these submissions, but the regulation that shippers are talking about here is really in those limited instances where you have the resource shipper captive, with no alternative. That's really what we're talking about. You have interswitching for your urban shipper and you have competitive access rate and arbitration for a resource shipper.

In the United States, they didn't have these things 20 years ago, because they had over forty class 1 railways competing with one another. They're now down to six. And if you divide the U.S. into regions, you'll find no more than two major railways in any one region, each railway with its own territory. They're now facing the same problems we've had in Canada for 100 years--a country with two big railways in two different areas.

They're starting to look at our provisions. There's a bill before Congress right now, called Bill S.919, advocating the need for the same types of shippers, for the same kinds of provisions that we've had in Canada under the competitive access provisions since 1987.

So when it comes to levelling the playing field, I would suggest that our friends south of the border are starting to adopt some of the provisions that we have here.

The Chair: One day you should walk through Transport Canada and look at the regulatory control we have. We have about 5,000 people involved in administering the regulatory regime. I don't think that can continue.

Thank you very much for being with us this morning.

We're adjourned.