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37th PARLIAMENT, 2nd SESSION

Standing Committee on Transport


EVIDENCE

CONTENTS

Tuesday, October 28, 2003




¿ 0905
V         The Chair (Mr. Joe Comuzzi (Thunder Bay—Superior North, Lib.))
V         Mrs. Sandra Wood (Director, Government Affairs, Canadian National Railway)
V         The Chair
V         Mr. Sean Finn (Senior Vice-President and Chief Legal Officer, Canadian National Railway)
V         The Chair
V         Mr. Sean Finn

¿ 0910

¿ 0915

¿ 0920
V         The Chair
V         Mrs. Sandra Wood
V         The Chair
V         Mr. Jim Gouk (Kootenay—Boundary—Okanagan, Canadian Alliance)
V         Mr. Sean Finn
V         Mr. Jim Gouk
V         Mr. Sean Finn

¿ 0925
V         Mr. Jim Gouk
V         Mr. Sean Finn
V         Mr. Jim Gouk
V         Mr. Sean Finn
V         Mr. Jim Gouk
V         Mr. Sean Finn
V         Mr. Jim Gouk
V         Mr. Sean Finn
V         Mr. Jim Gouk
V         Mr. Sean Finn

¿ 0930
V         The Chair
V         Mr. Mario Laframboise (Argenteuil—Papineau—Mirabel, BQ)
V         M. Sean Finn
V         Mr. Mario Laframboise
V         M. Sean Finn
V         Mr. Mario Laframboise
V         M. Sean Finn
V         Mr. Serge Cantin (General Counsel, Canadian National Railway)

¿ 0935
V         Mr. Mario Laframboise
V         Mr. Serge Cantin
V         Mr. Mario Laframboise
V         Mr. Serge Cantin
V         Mr. Mario Laframboise
V         Mr. Sean Finn
V         The Chair
V         Mrs. Bev Desjarlais (Churchill, NDP)

¿ 0940
V         Mr. Serge Cantin
V         Mrs. Bev Desjarlais
V         Mr. Serge Cantin
V         Mrs. Bev Desjarlais
V         Mr. Serge Cantin
V         Mrs. Bev Desjarlais
V         Mr. Sean Finn
V         Mrs. Bev Desjarlais
V         Mr. Sean Finn

¿ 0945
V         Mrs. Bev Desjarlais
V         Mr. Sean Finn
V         Mrs. Bev Desjarlais
V         Mr. Sean Finn
V         Mrs. Bev Desjarlais
V         Mr. Sean Finn
V         Mrs. Bev Desjarlais
V         The Chair
V         Mr. Joe Fontana (London North Centre, Lib.)
V         Mr. Sean Finn
V         Mr. Joe Fontana

¿ 0950
V         Mr. Sean Finn
V         Mr. Serge Cantin
V         Mr. Joe Fontana
V         Mr. Sean Finn

¿ 0955
V         Mrs. Sandra Wood
V         Mr. Joe Fontana
V         Mr. Sean Finn
V         Mr. Joe Fontana
V         Mr. Sean Finn
V         Mr. Joe Fontana
V         The Chair

À 1000
V         Mr. Jim Gouk
V         The Chair
V         Mr. Jim Gouk
V         The Chair
V         Mr. Jim Gouk
V         The Chair
V         The Clerk of the Committee (Mr. Georges Etoka)
V         The Chair
V         Mr. Ian McCreary (Director, District 6, Canadian Wheat Board)
V         The Chair
V         Mr. Ken Ritter (Chair, Board of Directors, Canadian Wheat Board)
V         The Chair
V         Mr. Ken Ritter
V         The Chair
V         Mr. Ken Ritter
V         The Chair
V         Mr. Ken Ritter

À 1005

À 1010

À 1015

À 1020
V         The Chair
V         Mr. Ian McCreary
V         The Chair
V         Mr. Ken Ritter
V         The Chair
V         Mr. Ian McCreary
V         The Chair
V         Mr. Ian McCreary
V         The Chair
V         Mr. Ian McCreary
V         The Chair
V         Mr. Ian McCreary
V         The Chair
V         Mr. Ian McCreary
V         The Chair
V         Mr. Ian McCreary
V         The Chair
V         Mr. Ian McCreary
V         Mr. Ken Ritter
V         The Chair

À 1025
V         Mr. Jim Gouk
V         Mr. Ken Ritter
V         Mr. Jim Gouk
V         Mr. Ian McCreary

À 1030
V         Mr. Jim Gouk
V         Mr. Ian McCreary
V         Mr. Jim Gouk
V         Mr. Ian McCreary

À 1035
V         Mr. Jim Gouk
V         The Chair
V         Mr. Mario Laframboise
V         Mr. Ken Ritter
V         Mr. Mario Laframboise
V         Mr. Ken Ritter
V         Mr. Mario Laframboise
V         The Chair
V         Mrs. Bev Desjarlais
V         Mr. Ken Ritter
V         The Chair
V         Mrs. Bev Desjarlais
V         The Chair
V         Mr. Ken Ritter
V         The Chair
V         Mr. Ken Ritter
V         The Chair
V         Mrs. Bev Desjarlais
V         Mr. Ian McCreary

À 1040
V         Mrs. Bev Desjarlais
V         Mr. Ian McCreary
V         Mrs. Bev Desjarlais
V         Mr. Ian McCreary
V         Mrs. Bev Desjarlais
V         Mr. Ian McCreary
V         Mrs. Bev Desjarlais
V         Mr. Ian McCreary
V         Mrs. Bev Desjarlais
V         Mr. Ian McCreary
V         Mrs. Bev Desjarlais
V         Mr. Ian McCreary
V         Mrs. Bev Desjarlais
V         The Chair
V         Mr. Marcel Proulx
V         The Chair
V         Mr. Marcel Proulx
V         Mr. Ken Ritter

À 1045
V         Mr. Marcel Proulx
V         Mr. Ken Ritter
V         Mr. Marcel Proulx
V         Mr. Ian McCreary
V         Mr. Marcel Proulx
V         Mr. Ian McCreary
V         Mr. Marcel Proulx
V         Mr. Ian McCreary
V         Mr. Marcel Proulx
V         Mr. Ian McCreary
V         Mr. Ken Ritter
V         Mr. Ian McCreary
V         Mr. Marcel Proulx
V         The Chair
V         Mr. Ken Ritter
V         The Chair
V         Mr. Ovid Jackson (Bruce—Grey—Owen Sound, Lib.)
V         The Chair
V         Mr. Ovid Jackson

À 1050
V         Mr. Ken Ritter
V         Mr. Ovid Jackson
V         Mr. Ken Ritter
V         The Chair
V         Mrs. Lynne Yelich (Blackstrap, Canadian Alliance)
V         Mr. Ian McCreary
V         The Chair
V         Mr. Larry Bagnell (Yukon, Lib.)
V         Mr. Ian McCreary

À 1055
V         Mr. Larry Bagnell
V         Mr. Ian McCreary
V         The Chair
V         Mr. John Cannis (Scarborough Centre, Lib.)
V         Mr. Ken Ritter
V         Mr. John Cannis
V         Mr. Ken Ritter
V         Mr. John Cannis
V         Mr. Ian McCreary
V         Mr. Ken Ritter
V         Mr. John Cannis
V         Mr. Ken Ritter
V         Mr. John Cannis

Á 1100
V         Mr. Ken Ritter
V         Mr. John Cannis
V         Mr. Ken Ritter
V         Mr. John Cannis
V         The Chair
V         Mr. Ken Ritter
V         The Chair
V         Mr. Ian McCreary
V         The Chair
V         Mr. Ian McCreary
V         The Chair
V         Mr. Ian McCreary
V         The Chair
V         Mr. Ian McCreary
V         Mr. Ken Ritter
V         The Chair
V         Mr. Ken Ritter
V         The Chair
V         Mr. Ken Ritter
V         The Chair
V         Mr. Ken Ritter
V         The Chair
V         Mr. Ken Ritter
V         The Chair
V         Mr. Ken Ritter
V         Mr. Ian McCreary

Á 1105
V         The Chair
V         Mr. Ken Ritter
V         The Chair
V         Mr. Ken Ritter
V         Mr. Ian McCreary
V         Mr. Ken Ritter
V         The Chair
V         Mr. Ken Ritter
V         The Chair
V         Mr. Ken Ritter
V         The Chair
V         Mr. Ken Ritter
V         The Chair
V         Mr. Ken Ritter
V         The Chair
V         Mr. Ken Ritter
V         The Chair
V         Mr. Ken Ritter
V         The Chair
V         Mr. Ken Ritter
V         The Chair
V         Mr. Ken Ritter
V         The Chair
V         Mr. Ian McCreary
V         The Chair
V         Mr. Ian McCreary
V         The Chair

Á 1110
V         Mr. Ken Ritter
V         The Chair
V         Mr. Ken Ritter
V         The Chair
V         Mr. Ken Ritter
V         Mr. Ian McCreary
V         The Chair
V         Mr. Ian McCreary
V         The Chair
V         Mr. Ken Ritter
V         The Chair
V         Mr. Ian McCreary
V         The Chair
V         Mr. Ken Ritter

Á 1115
V         The Chair
V         Mr. Ken Ritter
V         The Chair
V         Mr. Ken Ritter
V         The Chair










CANADA

Standing Committee on Transport


NUMBER 039 
l
2nd SESSION 
l
37th PARLIAMENT 

EVIDENCE

Tuesday, October 28, 2003

[Recorded by Electronic Apparatus]

¿  +(0905)  

[English]

+

    The Chair (Mr. Joe Comuzzi (Thunder Bay—Superior North, Lib.)): Pursuant to the order of reference of Tuesday March 25, 2003, we are here to study Bill C-26, An Act to amend the Canada Transportation Act and the Railway Safety Act, to enact the VIA Rail Canada Act and to make consequential amendments to other acts.

    We are very happy to welcome this morning our friends from Canadian National: Mr. Finn, Ms. Wood....

    I'm sorry, we should have gone in order of seniority.

    Ms. Wood--

    Voices: Oh, oh!

+-

    Mrs. Sandra Wood (Director, Government Affairs, Canadian National Railway): Thank you, Mr. Chairman.

+-

    The Chair: --Mr. Finn, and Mr. Cantin.

    I'm sure you all know what the process is. You give some introduction, and then we're going to be interested this morning to....

    Inasmuch as there is so much rumour about when we are going to adjourn, prorogue, or whatever the situation is, let me kind of put it into some perspective for you. We have decided that the agenda, as set forth by the Parliament of Canada, is that we will sit until December 12, and we will proceed on that basis. That's the only factual data we have, although we may not sit until after the House is adjourned in the first week in November, or whatever the powers to be, over which we have no control, decide.

    In any event, we will proceed in our review of Bill C-26. Hopefully, if we sit until December 12, we'll have an opportunity to go into a session to look at it clause-by-clause, make the necessary changes that the witnesses have brought forward, and then submit it to the House. Failing sitting until December 12, we will have to be guided by the powers to be.

    With that in mind, I thank you very much for coming this morning. I think the committee somewhere, either in the initial evidence or in the subsequent questioning, will be interested in the corridors you have with respect to this iron rail or whatever it is you have to get the trucks off the highway and put them on the rail and so on. That would be very interesting for us to hear a little bit about today.

    Am I correct, members of the committee? Yes? Thank you.

    With those opening remarks, I'll turn it over to Mr. Finn.

+-

    Mr. Sean Finn (Senior Vice-President and Chief Legal Officer, Canadian National Railway): Thank you, Mr. Chairman.

    First I'll introduce my colleagues this morning. Sandra Wood, who you know well, is director of government affairs here in Ottawa for Canadian National Railway, or CN. Serge Cantin is general counsel at CN in regulatory matters. He is the senior CN person at the table. He doesn't brag about it too much, but he's been with CN for 30 years.

+-

    The Chair: I was talking about time on the Hill.

    Voices: Oh, oh!

+-

    Mr. Sean Finn: Mr. Chairman, members of the committee, we're very pleased to be here today. I thank you for the opportunity to share with you CN's views on Bill C-26.

[Translation]

    Mr. Chair and members of the committee, I thank you for giving us this opportunity to share CN's views on Bill C-26.

[English]

    Before I start, I'd like to forward to the committee and the chairman of the committee our CEO's and president's regards as well as regrets for not being able to attend this morning. Hunter Harrison had prior commitments with visitors from outside the country, and therefore could not be here this morning.

[Translation]

    Secondly, my friend and colleague Claude Mongeau, who is executive vice president and chief financial officer was supposed to be present, but he unfortunately had to go to British Columbia in order to meet with customers and to discuss the eventual privatization of British Columbia's railway. Therefore, Mr. Mongeau forwards his regrets as well as his regards.

[English]

    Mr. Chairman, you received a copy of our submission this morning, providing you with our general views on the status of the rail industry in Canada. Attached are our comments with some specific recommendations for changes and amendments to Bill C-26. I invite you to review the submission. I would be happy to answer any questions you might have this morning.

    I'd like to do two things this morning, if I may. First, I'd like to provide you with a very brief overview of the environment in which Canadian freight railways operate today.

¿  +-(0910)  

[Translation]

    We would also like to share our views on some specific provisions of Bill C-26. And we would also like to make some recommendations, together with proposed amendments to these provisions.

[English]

    Essentially, Mr. Chairman, last Tuesday the CEO of CPR, Rob Ritchie, provided the committee with an excellent overview of the state of the industry in Canada. We agree with and support CPR's proposed amendments to Bill C-26, and we also agree with Mr. Ritchie's overview of the current state of the industry.

    From our perspective, I'm going to spend a few moments talking about the environment in which we operate today as a railway in North America.

    As you know, the North American Free Trade Agreement has fundamentally changed trade flows between Canada, the United States, and Mexico. Canada's trade with the United States and Mexico has increased by 80% and 65% respectively, and now exceeds $1.5 billion per day. This growth is expected to continue at an annual double-digit pace for the foreseeable future.

    It is this NAFTA environment that continues to influence strategic decisions and corporate investment at CN more than anything else. Further deregulation, not re-regulation, is required to position Canadian railroads in this North American environment to better compete and to continue to support Canadian industries that rely on exports to succeed in their end markets.

    Successive policies by the Canadian government of deregulating the rail transportation industry have lifted the rail industry from deficits and economic decline. To add a few more words on that, starting with the privatization, in 1995, followed very quickly with deregulation, in 1996, of CTA, we have ensured that both CN and CP are the best railways in North America, not to say the world--best from a competitive perspective as well as from a service perspective.

    Furthermore, the deregulation of the industry has also provided an opportunity for a very vibrant short-line rail industry. Of course, many of the short lines carry on business in some of your ridings across Canada. It's obviously been a great success story, both the short lines and for the class 1 railways, CN and CP. This is due in no little part to the government's policy on deregulating the industry and providing an opportunity for market forces to play in Canada.

    Canada has the lowest freight rates in the world, as you can see in the table attached to our submission, which by far continues to be one of the most successful stories when it comes to privatizing but also deregulating the industry for the benefit of shippers in Canada, for the benefit of shippers and receivers who now enjoy the lowest freight rates in the world. This is thanks, in part, to our government policy here in Canada and also an acknowledgement on the part of the Government of Canada that the transportation system is crucial to our country's economic development as being an important aspect of what shippers rely on in Canada to bring their goods to markets across North America.

    This double success can only be sustained if the industry can invest in innovation. Such an investment can only be justified if the industry can achieve a competitive rate of return to attract market capital. Capital markets will not respond if regulatory policies are seen to distort market forces, increase risk, and affect expected returns.

    Market forces must retain the overriding determinant of shipper-carrier relations. Transportation policies should be structured to encourage shippers and carriers to negotiate agreements in a commercial framework, not imposed by a regulatory framework.

    Those, Mr. Chairman, are essentially our broad comments this morning on the current environment of the industry. In light of this environment, we are of the view that Bill C-26, even though there's a very modest approach to re-regulation, does provide the appropriate environment to allow the class 1 railways in Canada, CN and CP, and the short lines, to continue to prosper in this environment.

    I'd like to bring your attention to essentially three recommendations on specific clauses of the bill itself, dealing with three very important aspects. You'll find proposed amendments attached to our submission.

    The first one deals with subsection 27(2), dealing with the so-called substantial commercial harm test. Our recommendation in our submission is that we must retain a test to allow shippers to request the CTA to review remedies asked for by a shipper. We recommend that you drop the term “substantial” and add a concept of commercial harm test as an entry test to allow shippers to request the review by the CTA.

    Essentially, this would be done in the context of an application to the CTA. Within the first 45 days of the application, the CTA, on the evidence provided by shippers and the railways, would have to demonstrate that they have gotten some harm through this concept, the commercial harm test that would be put in the legislation. Essentially, this does allow the CTA to review the application. More importantly, it's one thing to be in favour of competition when it's beneficial to the shipper, but it's also important to realize that we cannot just call upon the regulator to intervene in a situation where competition is not viewed as being favourable to a specific environment.

¿  +-(0915)  

    Therefore, we recommend that notwithstanding the bill as drafted, a commercial harm test be retained--not “substantial”--in subsection 27(2).

[Translation]

    Regarding clause 40, which deals with the competitive connection rate, this new regulatory provision could bring about re-regulation of the rail industry and, in the longer term, Canadian railways could be treated unfairly. It would provide our US competitors with unfair advantages, which could affect the density of traffic required to sustain the Canadian network, thereby impacting all shippers.

    Protecting density for Canadian carriers is a key to maintaining both high quality service and the lowest rates.

    Fundamentally, this provision would allow American railways doing business in Canada to benefit from a regulatory environment that could result in an unfair treatment for Canadian railways.

    Essentially, if a shipper can request that we require Canadian railways to offer a rate that would allow him to ship his products all the way to an American railway doing business in Canada, we recommend that this provision be applicable only if the American railway is also required to provide the same advantages to CN or CP when they are doing business in the United States. So we are essentially demanding that we ensure a level playing field in terms of operations and competition by submitting American railways doing business in Canada to the same requirements that apply to Canadian railways that want to ship on the Canadian system goods that come from the United States.

[English]

    Our last comment on the recommendations, Mr. Chairman, deals with the public passenger service provisions, and more specifically with the dispute resolution mechanism.

    Essentially, when a public passenger service would like to get access to the freight railway system, there usually are two issues that come down in the commercial negotiations. One is access itself and any plant improvements required in the context of this access itself. The other deals with the access rates, per se.

    We have two recommendations. First, there have been eight new commuter services on CN's line in the last 24 months. These have followed commercial negotiations in good faith between us and our good customers. Be it the commuter services in the various cities in Canada, obviously we sit down and negotiate in good faith and typically come to a negotiation that is beneficial for both the commuter line as well as CN.

    We say, essentially, that the concept should be that if any track improvement is required to facilitate the access of the commuter lines, it be paid for by the commuter lines, and on the basis of the commercial agreement between us and the commuter line.

    Second, when it comes to access rates, and how proposed section 152 will set the rate, there's reference in the rate-setting to the concept of net book value. You can imagine, if you retain the net book value as being the basis for determining the rate to be paid by the passenger service to access the railway, how in Canada, where our freight railways were built 80 to 100 years ago, the net book value of most of our assets is close to nil. It's a bit like asking you to rent out your house that you bought in 1970, and looking at the price you paid in 1970 to determine the amount of rent you're going to collect from your tenant rather than looking at today's cost of that property, or the replacement value.

    So our recommendation is very simple. We think that, under that provision, we should not retain the concept of net book value but more the concept of either net “salvage” value--so the salvage replacement for that asset--or fair market value as being the basis for setting the access rates that will be paid by the passenger services to access the freight railway.

    Notwithstanding our comments and the fact that we think this is, again, some form of re-regulation, we think that if it is required, at least we retain the concept of net book value as not being the appropriate concept to determine the rate to be paid by passenger service to access the freight railways in Canada.

    On that, Mr. Chairman, we strongly recommend that the committee recommend the adoption of Bill C-26 by the House of Commons.

    That essentially concludes my remarks this morning. We'd be happy and pleased to answer any questions you might have with respect to our specific recommendations and some overview of the rail service in Canada.

    If you like, I could say a few words about our rail service, which is essentially between Montreal and Toronto, where we put trucks on our rail system. It's called RoadRailer. It's a service we set up in 2001. It allows us to put trailers onto the railway bogies, which are essentially the wheels underneath our rail cars, to move a service between Montreal and Toronto. We started off with about 65 trailers a day, both ways.

    The train leaves Montreal at 9:30 at night, and on it we simply have installed 60 or 65 trailers that would normally go by highway to Toronto. The train meets, in Kingston, the train leaving Toronto at 9:30. The crews get back on the train and then go home the same night, and the train gets into Toronto the next morning before 5 a.m. for daily service in Toronto the next day.

    We started with 65 trailers a day in August of 2001. Today we're up to about 100 a day. Clearly, there is great potential for expansion to the extent that we can get the service up and running and reliable, which we have been doing pretty well in the last year and a half. We see it as being a great opportunity for us to alleviate some of the congestion on the 401 between Montreal and Toronto.

    We have tried to expand this service in other corridors and have not been as successful as it has been from Montreal to Toronto, but we continue to be devoted to that service. It's called RoadRailer, and I'd be happy to get you more information on this service itself, going forward.

¿  +-(0920)  

+-

    The Chair: Thank you, Mr. Finn.

    Ms. Wood, do you want to add anything to that submission?

+-

    Mrs. Sandra Wood: No, thank you, Mr. Chairman.

+-

    The Chair: Members, I should have told you at the outset--I will do so now, before we get to the questioning--that on your behalf, because of what happened here last Thursday, I thought it would be appropriate if the minister were to attend at the earliest convenience in order to explain his announcement in some detail to the committee members, as was not done at the meeting last Thursday. I extended, on your behalf, an invitation to the minister to attend either today or Thursday.

    We've just received word that the minister will not be here Thursday. He's in New York. So we will extend the invitation for next week. I assume we'll be sitting next week.

    That's just by way of information.

    Mr. Gouk, you have the first line of questioning.

+-

    Mr. Jim Gouk (Kootenay—Boundary—Okanagan, Canadian Alliance): First of all, ladies and gentlemen, I'd like to apologize for dragging you in here under what I see as false pretences. Notwithstanding what the chair has said, I think you could have a cracked and faded crystal ball and still be able to very clearly see that this Parliament is not carrying on late into the fall and that this bill is not going to see the light of day. But I do appreciate your coming down here and addressing these points in any case, because at some point, undoubtedly, this bill will be redrafted, and hopefully they will make use of the testimony you've provided us with today.

    With regard to valuation and net book value, could you tell us if the rate that VIA Rail gets from CN is based at this time on net book value?

+-

    Mr. Sean Finn: Mr. Gouk, the agreement by which VIA gets access to CN's right of way is under the train service agreement between CN and VIA. It's based on commercial rates, not net book value, as being one of the components of the rate being paid. Many factors go into the rate besides just the value of the asset itself, tied to some very specific services and some very specific corridors. But it's not currently based on a computation of net book value, per se.

+-

    Mr. Jim Gouk: Okay.

    You have an outfit that you have a contract with in British Columbia and Alberta, the Rocky Mountaineer, which has extensive use of your trackage throughout those two provinces. Are they paying you a fee that is negotiated based on commercial rates and commercial value?

+-

    Mr. Sean Finn: Yes. They are obviously a very good customer of ours. We're very pleased to have them in our right of way. They provide a very good tourist service in western Canada, and we think it's a first-class operator.

    To answer your question, clearly, we sit down with Rocky Mountaineer and negotiate the rates of access to our right of way, again not based on net book value but based on the value of the service received, like any other transportation service that we provide to our customers. It's subject to intense negotiations, I'll tell you that. Both parties sit down and negotiate to their best benefit.

    But clearly, I think that's a good example where a shipper, in this case a passenger service, must rely on very tight on-time service to bring their “guests”, as they call them--as you know, they don't call them “customers”--from Calgary to Vancouver. It's very important for us to make sure that for the services we render, which is a premium service to that shipper, they pay freight for that movement, but even more so that they realize it's because they pay a market value that we can provide the high-quality service they need. We have to make sure that on certain lines, where our capacity could be a bit tight, the passenger service gets the appropriate services under the circumstances. We don't park a Rocky Mountaineer train on the siding, waiting for a freight train to go by, unless we really have to.

    So it's tied to a broader relationship, which is tied to the fact that they'll pay for the premium service if we can deliver on-time service for their trains and their guests moving from Calgary to Vancouver.

¿  +-(0925)  

+-

    Mr. Jim Gouk: In terms of the rate differential between the Rocky Mountaineer and VIA Rail, would it be accurate to characterize VIA Rail's rate as lower, and say that this is not entirely in the control of CN Rail?

+-

    Mr. Sean Finn: The contract between CN and Rocky Mountaineer is a confidential contract that parties have agreed to keep confidential.

+-

    Mr. Jim Gouk: I don't want your rates, just the general relationship.

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    Mr. Sean Finn: The VIA agreement has been in place for almost 10 years now, and was negotiated in a different environment. I can't tell you the exact rate difference between Rocky Mountaineer and VIA, but I know that the rates would be different--negotiated at different times, in different environments. They're not the same corridors, obviously, but the same density, for example, between Montreal and Toronto.

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    Mr. Jim Gouk: With this business now of the net book value, VIA Rail would be a beneficiary of that, would they not, if that were to be enacted into law?

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    Mr. Sean Finn: With VIA Rail or any passenger or commuter service, in the computation of the rate to be paid, if all you take into account is the net book value of an asset.... As you know, when CN was privatized in 1995, we took a substantial writedown in our assets in eastern Canada. Some of our assets in the west have been there for 100 years, as I said to you before, and therefore the net book value is either nil or close to zero. If you put into the equation to determine the amount of the rate to be paid only net book value, clearly any passenger service would benefit from the fact that we would not be getting the full return on capital invested by CN. And that goes to our point that we recommend that we either use net salvage value or fair market value as being part of the equation, if you've looked at and determined the rates to be paid by the passenger service to access our right of way.

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    Mr. Jim Gouk: Commuter rail operations are very limited in terms of area they cover. To the best of my understanding, VIA Rail travels over those same areas that commuter rail operates on, with maybe some minor exceptions, and of course they operate nationally as well. Would it be fair to say that the primary beneficiary of bringing in legislation that provided for a rate based on net book value would be VIA Rail?

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    Mr. Sean Finn: I can't tell you who will benefit directly by such a provision. Every commuter service in Canada who wishes to benefit from this provision could do so when the contracts are up for renewal...as being a dispute resolution process available to everybody. I guess it depends very much on what corridor and who's negotiating the specific agreement at that time.

    I couldn't tell you today on a given corridor who will benefit most, but if it's a corridor where it's shared, there's no doubt that if one commuter service gets a lower rate because of the dispute resolution, it won't take very long for another one to do the same thing and apply the same rationale.

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    Mr. Jim Gouk: Net book value is going to be the basis, according to this legislation, on which you get remuneration from them. Would it be more realistic if provincial governments were prepared to tax you on the basis of net book value? And is that likely to happen?

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    Mr. Sean Finn: No doubt that how the provincial tax rates apply once you open the door.... It remains one of the thorns in our side, Mr. Gouk, how the federal and provincial governments tax the railways across Canada.

    Mr. Ritchie made a reference last week to the fuel tax in Canada as being a preoccupation of ours, both federally and provincially, and there's no doubt that any provision that alleviates the tax burden of the railways in Canada to become more competitive on the same basis as the U.S. railways, but also as trucks, would be welcomed by the railways in Canada. There's no doubt about that.

¿  +-(0930)  

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    The Chair: Mr. Laframboise.

[Translation]

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    Mr. Mario Laframboise (Argenteuil—Papineau—Mirabel, BQ): Thank you, Mr. Chair.

    In your brief, you focus on the issues on which you have some objections and you propose some amendments. Earlier, you referred to the presentation by the Canadian Pacific Railway. You did not indicate any opposition to clause 31, which amends section 95 dealing with noise pollution. Do you manage marshalling yards? Are you in complete agreement with what is contained in the bill, contrary to the Canadian Pacific Railway, which had reservations?

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    M. Sean Finn: Mr. Laframboise, clearly, the issue of noise management in marshalling yards is essentially the railways responsibility, but this responsibility is shared with municipalities throughout Canada. There is no doubt that we are required to ensure that our rail operations in marshalling yards do respect the surrounding environment. Unfortunately, some municipalities, in their zonin by-laws, have allowed residential developments to be built within 100 meters of railways and marshalling yards in some places, resulting in some difficulties in terms of the co-existence of these two entities, the residential area and the railway operations.

    We are of the opinion that there is a need for a Canadian standards regarding compliance with noise limitation provisions. We should not find ourselves in a situation such as that which prevails presently in Quebec, where 1,400 municipalities will be able to regulate the noise level in each of the marshalling yards or railway facilities.

    Insofar as Bill C-26 recommends that the Canadian Transportation Agency be given the jurisdiction regarding noise complaints, we are in agreement.

    Secondly, we are working closely with the Federation of Canadian Municipalities to set some standards that would be complied with both by railways and by municipalities regarding zoning by-laws, in order to avoid a co-existence that can be somewhat difficult in some places. As I told you earlier, several municipalities in Quebec have allowed houses to be built 100 feet from the railway, which makes the co-existence difficult.

    If there were Canadian standards that were well-known both by railways and by municipalities, and if these standards were applied in an objective fashion by the Canadian Transportation Agency, that would be the way to ensure an acceptable co-existence both for municipalities and residents and for railways that must continue with their operations and have done so for 100 years without ever having to face these issues. So we do agree with the provisions of the bill as such and we are quite favorable to the Canadian Transportation Agency having jurisdiction to make a determination in any dispute between municipalities and railways.

    However, I must tell you that we do not take lightly the complaints by municipalities in Canada. When people file complaints, we try to see whether we could, by making some changes to our operations in marshalling yards, alleviate somewhat these problems. Several marshalling yards in Quebec are faced with these issues and we are working on a continuing basis with municipalities. We do not want to find ourselves in a situation where we would have to tell municipalities to direct their complaints to Ottawa because there is nothing that we can do about it. We do want to work with them, but we believe that where it is impossible to agree on the manner in which we operate a given marshalling yard or railway facility, equitable Canadian standards implemented by the Canadian Transportation Agency would be the way to go for our rail industry.

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    Mr. Mario Laframboise: I will tell you that I am happy with the provisions in the bill, given that we could not agree on some issues. That is the reason why we have such provisions. I am happy with them. Let's see how this will work out. You are happy as well and you are prepared to try this way of doing things.

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    M. Sean Finn: Yes, but we must continue to work together with municipalities. It is not a reason not to do so. We are trying, as far as possible, to do so everywhere we can. We do not always succeed, but we do try.

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    Mr. Mario Laframboise: Yes, you try, but it all depends on how hard you try and on the quality of employees who work in your marshalling yards.

    My second question deals with arbitration. You seem to agree with the amendments concerning the standards for arbitration in the proposed section 161. My problem is that there are an increasing number of stakeholders who have signed confidential contracts with you and who are complaining to me. What is the proportion of confidential contracts that you sign? Are the majority of these contracts confidential?

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    M. Sean Finn: Mr. Cantin will answer your question.

+-

    Mr. Serge Cantin (General Counsel, Canadian National Railway): According to our most recent information--and here we must be very careful, because it can be calculated by volume as opposed to revenues--, approximately 75% of traffic on our network is covered, directly or indirectly, by confidential contracts. That said, the issue is complicated by the fact that some parts of that traffic could be subjected to a rate and not to a confidential contract, but by virtue of the confidential contract, we will reduce the rate or offer bonuses depending on the volume being shipped and so on. So there is a complicating factor, but 75% of our traffic is directly or indirectly governed by confidential contracts.

¿  +-(0935)  

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    Mr. Mario Laframboise: Here is what concerns me. If I understand correctly subsection 126(2) of the Canadian Transportation Act, for the confidential contract to go to arbitration, the consent of both parties is required.

+-

    Mr. Serge Cantin: You are perfectly right.

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    Mr. Mario Laframboise: That means that 75% of your traffic is not and will never be submitted to arbitration, unless both parties consent to it.

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    Mr. Serge Cantin: Generally speaking, in the case of a confidential contract, each of the parties has signed the contract and will respect its provisions. It could happen that in the course of events, new factors intervene and give the appearance that the terms of the contract are inadequate. There are provisions allowing to re-negotiate in order to strike a compromise, and that could include arbitration in some cases. We try to exhaust all negotiating means to try and find a resolution to the issues. As you know full well, a contract can also be amended. Sometimes, for competitive reasons, we make the required changes to a contract that is still valid.

    I must tell you that, generally speaking, it is not a significant cause for concern.

+-

    Mr. Mario Laframboise: However, at the present time, in the case of shipping contracts from Quebec to the United States, among others, you are applying a surtax because of the exchange rate. Well-informed people tell us that shippers are incurring a loss of some $15 to $20 million because the surtax is applied to the total amount of the bill, even though the transportation rate accounts only for part of the bill. If there was a provision allowing to go to arbitration regarding this surtax even in the case of confidential contracts, would you be agreeable to this? It is somewhat peculiar and it seems to me that is a lot of money. Since we are amending the act, why not take this opportunity to review the process by which you determine the amount of the surtax, so that it will be really fair for all?

+-

    Mr. Sean Finn: I would like to make two comments. First, we would not want to put this to arbitration unless both parties consent to do so, and we do respect that. These contracts have been negotiated in good faith between the parties and there are other surtaxes in addition to that which is applied because of the exchange rate.

There is also a surtax on the price of gas, such as in the case of truckers and their customers. If, because of external factors that have nothing to do with rail operations, the rates that are granted to customers are lower than our operating cost, there must be a mechanism to allow both parties to agree on what will happen in such circumstances. We do have a surtax on gas at some levels.

    What is at stake here would be submitting to arbitration a contract that has been negotiated in good faith between the parties. The parties have agreed on the formula to determine the amount of the surtax or the cost of other incidental services, but suddenly, in the middle of the contract period, just because a customer is unhappy with the economic environment that he is subjected to, he would put the issue up for an arbitration that would bind both parties, without the consent of the parties. That would be a concern for commercial contracts.

    So we would not want to subject to arbitration confidential contracts negotiated in good faith, contracts that both parties have agreed on. These are not mandatory contracts. No one is forcing a shipper to sign a shipping contract with us, with another railway or with a trucking company. We cannot all of a sudden subject these contracts to arbitration that would be binding for the parties. You know how arbitration works. If the parties do not agree, an arbitrator is chosen and he decides in favor of one or the other of the parties. There is no middle ground. In this way, commercial contracts would be subjected to circumstances that could randomly happen two or three years down the road.

    I believe that the markets make the parties negotiate in good faith. I believe that the parties understand what is at stake. The surtax is not under the control of the CN or the shipper. It exists only because of the Canadian exchange rate.

[English]

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    The Chair: Mr. Laframboise and Mr. Finn, I appreciate your comments, but we're running a little short of time. We may have a second round.

    Ms. Desjarlais.

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    Mrs. Bev Desjarlais (Churchill, NDP): Just following from Mr. Laframboise's questioning, have you had a request from those companies to have their contracts go to arbitration, and if so, how many of those requests have you had that you've rejected going to arbitration?

¿  +-(0940)  

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    Mr. Serge Cantin: According to my information, I cannot recall one instance where the signators of a contract have requested to go to final offer arbitration. There have been numerous requests to renegotiate or reopen the contract, which we would normally do. So we sit down and try to have a resolution of the differences and amend the contract whenever appropriate.

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    Mrs. Bev Desjarlais: You're saying you've had “numerous” requests to reopen contracts. What would be your definition of numerous?

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    Mr. Serge Cantin: Numerous requests means that shippers normally are never satisfied with any rate you're going to charge them. It's always too high. So they keep coming back, with their competitive environment, to readjust for the competitive factor. This is an ongoing process.

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    Mrs. Bev Desjarlais: Of the 75% who fall under these areas, roughly what amount would come back to renegotiate?

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    Mr. Serge Cantin: I would say that in the vast majority of cases, except for short-term contracts of one year, the parties come back with additional requests, and it's ongoing. I would guess about 80% of the time they would keep coming back in some fashion.

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    Mrs. Bev Desjarlais: Okay.

    For the shippers who have these contracts, what would be their alternative shipping if they couldn't renegotiate with CN?

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    Mr. Sean Finn: In some circumstances, obviously, the competition is the other class 1 railway, if it's close by enough, or if there is access to it. Second, in Canada, the real competition to the railways is truckers.

    To give you an example, Alcan in northern Quebec, which moves aluminum ingots from northern Quebec to Memphis, Tennessee, has various ways to move that finished product into Montreal and then have it moved by another shipper to the U.S., or by truck to Montreal, and loaded and moved into the U.S.

    I would come back to one of the questions you had about our shippers. When you have long-term contracts with important customers, the customer can come in and say, “Listen, we have an issue with the contract. It has three years to run. What can we do?” We'll sit down with them and negotiate something in good faith. And the reason we don't have an arbitration clause is that we do sit down and try to negotiate when we can.

    Now, it's not always possible. Typically, as Serge Cantin mentioned, customers ask for even lower rates, and we try to reinforce the message that we have the lowest rates in the world when it comes to shipping rates in Canada, and to have a viable railway industry in Canada, in which we must invest $1 billion a year to maintain our right of way, we have to essentially make sure that's available to be done. We try to explain to our customers that the rates aren't necessarily high; the rates are there for a premium service. When CN talks about the scheduled railway, to move boxcars and containers on an on-time service 95% of the time, it requires that the plant be highly maintained, and to do so, obviously, it's part of the fact that we offer this premium service.

    So to answer your question specifically, customers sit down with us. We try to sell them on the fact--

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    Mrs. Bev Desjarlais: Actually, you're getting way too specific. You've now become an advertisement. So we'll just leave it at that.

    You indicated that CN took a substantial writedown in its assets at the time of taking over. Comparing that substantial writedown in assets to fair market value, or net book value, how did that work out for CN when they took over?

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    Mr. Sean Finn: Essentially, when you privatized Canadian National Railway, we looked at our physical plants across Canada. The accounting rules at the time required that we do an evaluation of our assets based on their use and density, and whether they were impaired or not, going forward.

    As you'll recall, in 1995 CN had a 102% operating ratio, which means it cost us more to operate the railway than to earn a dollar of revenue. So clearly our assets were not being used to their full potential. As well, an evaluation was done of our assets in eastern Canada. They were viewed to be impaired for accounting purposes, so we had almost a billion dollar writedown, from book accounting, of our assets, being assets that had been impaired over time.

    If you look at a specific piece of track between Montreal and Quebec City, you could argue that the net book value of that asset is now either zero or close to zero. So writedown is one aspect, but also, if you look at the part of the plant that was installed 100 years ago, the net book value has not increased over 100 years; it's the book value that's on the books of the company today.

    If you take that as being the premise to determine how much a third party should pay, in this case a passenger, with that access to the right of way, it does not take into account the cost of capital, the cost of replacement of that asset, or the cost of maintaining the asset. Therefore, our view is that essentially you would be subsidizing passenger service based on the fact that you're not taking into account the value of that asset going forward.

¿  +-(0945)  

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    Mrs. Bev Desjarlais: So in those areas where there had worked...or renewing the infrastructure that was there, that's taking place throughout the system, then. You're not using the same infrastructure, and it's all been changed over.

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    Mr. Sean Finn: Yes, but when we renovate or upgrade the system, we do ten miles at a time, and over time the net book value will increase, but depreciation applies also. So if you look at a piece of track we renovated 20 years ago, it's been depreciated today down to almost nothing, back down to zero. If you look at the overall net book value of the assets of both CN and CP across the network, that net book value is very low compared to the replacement value or the cost of maintaining that asset going forward.

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    Mrs. Bev Desjarlais: How many kilometres of track would you have replaced since the period of time that CN took over?

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    Mr. Sean Finn: Since 1995? I can't answer that specifically, but I can tell you, it's a billion dollars a year. As to how much of that is track replacement, it's probably a third in value.

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    Mrs. Bev Desjarlais: Would you be able to get that figure for us?

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    Mr. Sean Finn: Sure, absolutely. I'd be happy to.

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    Mrs. Bev Desjarlais: I mean, you're making an argument that there's been all this additional cost, that it's no longer the same infrastructure in place, so I think it's reasonable to see exactly how much has gone into replacing that infrastructure.

    That's fine, Mr. Chair.

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    The Chair: Thank you, Ms. Desjarlais.

    Mr. Fontana.

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    Mr. Joe Fontana (London North Centre, Lib.): Thank you, Mr. Chairman.

    Thanks for being here, and for your presentation.

    I just want to clarify and I guess find out what the motivation is with regard to clause 40 and proposed section 152.2 on the net book value as well as competitive connection rate.

    I take it there was some consultation with the department with regard to CTA and its review. I'm just wondering...because there doesn't appear to be a problem, at least in the background information you've provided to the committee, which indicates that so far the system is working as it should with regard to the connection rate and/or negotiating access to your right of way.

    You've called it “re-regulation”, and I'm trying to understand where you think the department is coming from in terms of why they essentially want to make the changes that are in clause 40 and proposed section 152.2.

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    Mr. Sean Finn: I'll give you a broad answer and then maybe ask Serge to get into the details, if you like, Mr. Fontana.

    Essentially, as you know, the CTA review panel came to the view that deregulation had worked in Canada, that market forces had ensured that both the railways were competing amongst themselves in Canada but also with trucks, as well as the U.S. shippers, U.S. railways. Clearly, the view is that the system ain't broke, so don't try to fix it.

    Essentially, clause 40, on competitive connection rates, would replace what used to be called the CLR, or competitive line rates, and allow a shipper, in a case where he felt that he wasn't being dealt with fairly, to complain to the CTA and get a rate to allow its goods to move out of origin to the closest interchange and to go on somebody else's railway. It clearly is our view that the rates in Canada are the lowest--I'll say it again--from around the world when it comes to shipping rates.

    Here it's an attempt, no doubt, to re-regulate the industry to allow a shipper to have a remedy. In certain circumstances there might be a basis for such a remedy, but our concern with the CCR is that, more importantly, there's no reciprocity in the U.S. Very concretely, then, it would allow a shipper to request the rate between northern Quebec and Montreal, which is a short haul for CN or CP, for example, and then in Montreal get access to one of the large class 1 railways, CSX or NS, and move its goods all the way to Memphis, Tennessee, or Texas, based on a longer-haul profitable rate.

    So clearly, this is re-regulation, and our view is that it should allow the parties to negotiate in good faith. For example, in the line from Alcan to Montreal, the competition is not just the railways; truckers also can move that very easily into Montreal.

    Under their view, this is a shipper remedy that's required, but clearly that opinion was not shared by the industry, nor by the review panel, on the basis that you have to tinker with the system a bit to make sure it works. But we cannot see a real basis for why the CCR rates should be applied.

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    Mr. Joe Fontana: Before you leave that point, tell me, under the old regime or the old name of CLR, how many complaints or problems would there have been in order for the department and/or the minister to decide that, essentially, a remedy was required?

    Secondly, is it the suggestion that if in fact there is reciprocity, then this is workable? Or is it just saying that if you're going to do this, you'd better make sure that those kinds of provisions are available to U.S. shippers so that you don't get caught in this uncompetitive move without there being reciprocal action on the part of the U.S.?

¿  +-(0950)  

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    Mr. Sean Finn: Serge, on our experience with CLRs....

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    Mr. Serge Cantin: Okay.

    To answer the first part of your question, on how many there's been since the inception of CLR, in the case of CN, there's been no formal ruling by the agency imposing a CLR on CN. That's number one. And two, I understand there's been one case for CP, but repetitive over a four- or five-year situation.

    Interestingly enough, what was “inflicted” on CP, to use my favourite expression, was done by a U.S. railroad, BN in this particular case, for exactly the same reason that we want to have a cure--because that was a way for them to attract the traffic over their railway and then route it over the United States, and CP could not react in a competitive way. So we're just seeking a balance out there.

    Now, I think what is very important to remember is that when you look at the competitive environment, there is the interswitching principle. When you draw the 30-kilometre radius right across the country, 80% of the traffic in Canada is subject to competition. CLR applies where there's no competition, so it would be for the residual part, which is very minimal. In most cases, our experience has been that those shippers, instead of relying on CLR, have gone to final offer arbitration to resolve the problem, whenever felt appropriate.

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    Mr. Joe Fontana: I have just two additional questions.

    The first is I guess the same question with regard to net book value. I'm trying to understand the motivation. If I look at your two issues that deal with net book values--track capacity and access--if in fact in your example, I think, again...and of course we'll test your recollection or memory of the issues with the minister of the department's. I'm just trying to understand what the motivation is if in fact the system is working. If you're negotiating in good faith, and there's never been a problem, then tell me why we need to do these proposed changes. I'm trying to understand where the problem is.

    You say that there is no problem, so why change it? Is it put in place to advantage a passenger, or new passenger down the road? If that's the motivation, I'd like to understand it, at least from your standpoint.

    Secondly, I know that this review is silent on the infamous debate about running rights. I take it that it's silent, and therefore, no changes are being contemplated with regard to running rights. I'm just wondering whether or not you can comment on that whole issue, on how that's working.

    Again, I think what we put in place some number of years ago seems to be working. It's allowed CN to grow, it's allowed competition to flourish, and it's allowed CP and even the short lines to evolve, which is what we wanted. So it seems the public policy framework that was put in place a number of years ago in fact is working, and if it is, I'm trying to understand why we need to change it.

+-

    Mr. Sean Finn: Let me make a few comments, and then I'll ask Sandra Wood to respond to your specific question about the department's view on net book value.

    We have a tendency to forget that the two best railways in North America are CN and CP. Essentially, then, the proof is in the pudding that the regulatory framework and the policies of the Government of Canada have worked to ensure that.... I mean, who would have thought five years ago that CN and CP would be the best railways in North America? We wouldn't have thought that could be the case, but it is the case today, and we're very proud of that environment, of both us and CP being in that situation.

    Second, on the motivation behind why you would change net book value, as I told you before, we put in place eight commuter services in the last five years, one of which was in Montreal. We negotiated to reinstall a commuter service on the south shore of Montreal, servicing Montreal. We negotiated commercially between CN and l'AMT in Montreal. Obviously, there's an environment there that showed that the new service could be put in place, so starting from scratch, we installed a new service, a very successful service from our perspective, and I think also from l'AMT's. Therefore, our view is that you don't need a dispute resolution provision in so much detail, because the parties have agreed to allow commuter trains back on our right-of-way on a commercial basis, and it's been very successful both for us and for the commuter services in Montreal and elsewhere in Canada.

    I'll let Sandra say a few words about net book value and then I'll come back to your question on running rates.

¿  +-(0955)  

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    Mrs. Sandra Wood: Frankly, Mr. Fontana, we don't know either. We don't know what the problem is for which a resolution is being sought here.

    And I'm afraid I can't provide you with any more detail than that.

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    Mr. Joe Fontana: I guess we'll have to ask the question at the appropriate time of the department and the minister as to what the real motivation is--unless the parliamentary secretary has something to say about it. And I know he knows everything, sees everything, and is provided the information.

+-

    Mr. Sean Finn: On running rights, a few comments. As you know, there's a provision today in the CTA Act, section 138, that allows for a federal railway to request access to another railway's right-of-way.

    You should know, Mr. Fontana, that today, 45% of CN's business moves already what is called “interline”. So we negotiate and CP gets access, we get access, a short-line gets access. Today, 45% of CN's traffic moves interline with some other class 1 railway or short line in Canada.

    So there is an environment by which you can negotiate amongst parties, in good faith, commercial access to each other's right-of-way. It's done every day.

    What we're talking about here is forced, regulated access, which is being asked by certain shippers across Canada, or some places in Canada, mostly tied to grain shipments. As you know, there was a case two years ago before the CTA where the CTA concluded that the provision, as drafted today, works, and should be applied in exceptional circumstances to allow a federal railway access to another federal railway as right-of-way. We don't think that regulated access will increase competition. On the contrary, if you put on certain lines in Canada a second shipper or second railway, you will impact the investment on that line, and secondly, you will not increase competition, you will decrease competition. One of the two railways will most likely not survive in that environment.

    So it very much is our view that, as the legislation provides, today the provision works. There is not a requirement, per se, for open access or regulated access. We think the environment is there today to allow the parties to negotiate commercially, and we don't see why the statute should be amended to include regulated access.

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    Mr. Joe Fontana: But my point is that in that instance, the proof and the history show that it's working, so why touch it? In these other two cases, you've indicated again that the history is that it's working, that it's allowing for the system and competition and so on with balancing of protection for the shipper as well as the railroad. It's working, so why change it? To me, some consistency in the application of policy is important.

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    Mr. Sean Finn: Two last comments.

    This is a very slippery slope in that if you start allowing access for one commodity, it won't take a very large leap for a second commodity to get the same argument. Second, never forget, we operate in a North American environment. We compete against other class 1 railways that today are in Canada. So if you open access to a third party, a federal railway, the same way that I'm asking you to make sure that the CCR is also applied to U.S. railways, I'm sure you wouldn't want in your government policy to allow the class 1 railways to access the networks of CN and CP in Canada, and essentially switch traffic from them, to move into the U.S.

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    Mr. Joe Fontana: Yes, we'll just create another airline policy...[Inaudible—Editor].

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    The Chair: Thank you, Mr. Fontana.

    We won't go through another round, since it's a few minutes beyond 10 o'clock.

    To be absolutely fair between CN and CP, when Mr. Ritchie was here last week, I complimented him--and the same compliment applies to CN, obviously--that it may be one of the best-kept secrets in all of Canada that the two best railways in North America are CN and CP. We've got to find a way to get this out, because if you're the two best railways in North America, you're the two best railways in the world. I think Canadians have to be exceptionally proud of the fact that right here in Canada, we have the two best railways in North America and the world. And that particular facet isn't attracted easily, because when you compare of all the criteria by which you judge the success of a railway--I know you're laughing at me, Ms. Desjarlais--and judge the efficiencies and the availability of customer services, we should all as Canadians be proud of the fact that they have their head offices, and are administered, right here in Canada.

    I look up and down at this group, and those of us who have sat on this transport committee for a number of years realize full well that this has not always been the case, that there were some times when we sat here, with both CP and CN, and were disturbed that we were maybe on the brink of seeing the demise of national railways in this country with, at times, the huge subsidies that they would have to receive from government in order to continue to exist. So I think it's a credit to everybody who is employed by CN and CP that in a period of five or six years, you've attained these successes--and not, in my judgment, at the expense of the people who use the railways in Canada. So I compliment you.

    That was the same statement I made to CP, so I'm not showing favouritism.

    Thank you very much, all, for coming.

    I should be better prepared on housekeeping issues, but as you know, we have a problem with the airline....

    Mr. Gouk, will you just bring us up to date, please? I think this is Ms. Desjarlais' and your issue, supported by members of the Liberal Party.

À  +-(1000)  

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    Mr. Jim Gouk: We met briefly last week in the chair's office, and we decided at that time that it would be appropriate to have a meeting here and ask...because it seems to be almost like a shifting of who's responsible. Is it Transport Canada, because of the definition of air crew, or is it--

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    The Chair: But do you want to mention what the issue is, or who we're meeting with?

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    Mr. Jim Gouk: Well, I assume--

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    The Chair: No, don't ever assume.

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    Mr. Jim Gouk: --that everybody knows we're talking about the flight attendants.

The problem they have is that they've always been treated as air crew but never officially designated as such. HRDC has now discovered this error, and consequently, most of them are either curtailed or outright banned from getting EI at a time when the industry's in trouble.

    At the meeting in the chair's office, we decided that rather than have individual department people come in....

    The parliamentary secretary was kind enough to get some information from Transport, but it seems that every time we get information, Transport says it's HRDC's problem, HRDC says it's CCRA, and around it goes. So it has been decided to have officials from all three departments in, I believe, tomorrow at 3:30.

    What we're looking for, ultimately, isn't who's responsible but rather how can we fix the problem. We're not really interested in whose problem it is. We're not pointing fingers. We don't think that somebody's done some really dastardly thing here. We simply have discovered a problem and we want to fix it, and we want to find the simplest and quickest way to do it. Hopefully we'll do that tomorrow afternoon.

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    The Chair: Where is the meeting, Mr. Clerk?

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    The Clerk of the Committee (Mr. Georges Etoka): It's at 307 West Block.

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    The Chair: I would very much like for every member to be there who can be there, because the more members who are there to hear this issue....

    I don't suspect it will take more than half an hour. There won't be speeches. With your permission, I'll outline and ask Transport, HRDC, and the “Revenuers” to put their positions forward and find out how it can be reconciled.

    Hopefully it'll be a quick meeting tomorrow, and I invite everybody to be there, because it's very important that this issue get resolved.

    I now welcome, from the Canadian Wheat Board, Mr. Ritter, the chair of the board of directors, and Mr. McCreary, the director of district 6.

    Where is district 6, for clarification?

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    Mr. Ian McCreary (Director, District 6, Canadian Wheat Board): In central Saskatchewan, right up through the centre of the province.

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    The Chair: They'll be making their submissions with respect to Bill C-26 and how it affects the Canadian Wheat Board.

    Is that correct, Mr. Ritter?

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    Mr. Ken Ritter (Chair, Board of Directors, Canadian Wheat Board): That's right.

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    The Chair: And you'll be the spokesman, sir?

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    Mr. Ken Ritter: I'll begin, and Mr. McCreary will assist me.

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    The Chair: You've appeared before the committee before, have you, sir?

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    Mr. Ken Ritter: I'm not sure whether I've appeared before this committee, but I have appeared before many others.

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    The Chair: The regular rule here is that you have a period of time to make your submission, and then there'll be questioning from the members.

    Are you comfortable with that, Mr. Ritter?

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    Mr. Ken Ritter: Yes, thank you,

    Mr. Chairman, members of the committee, western Canada has always had an export-based economy. From the earliest days of the fur trade through the growth of both the oil and forest industries, we have always produced more than we can consume.

    The grain and oilseeds sector is no different. Western Canada is blessed with resources that are well suited to the production of grain. Sixty million acres of crop land, a climate that normally offers sufficient rainfall and frost-free days to produce a crop, and an abundance of fresh air and sunshine have provided generations of prairie farmers with the opportunity to grow safe and wholesome food for their fellow Canadians and for people throughout the world.

    We think globally, we plan globally, and we sell globally because we have to. We do not have the choice. If we narrow our vision, vast parts of this huge resource that we call western Canada will fall into neglect, not only to our own detriment but also to that of all Canadians.

    You cannot have exports, especially in today's globalized economy, without a cost-effective, efficient, and reliable transportation system. This is the case anywhere in the world, but much more so in the middle of a vast continent like North America. Some prairie farmers are 1,000 miles from tidewater, and then an ocean away from our markets in Japan, China, Europe, and the Middle East. We cannot afford to have anything but the best transportation system in the world. Anything less and we will not be able to compete, regardless of the quality of our crops, the reliability of our shipments, or the skill and diligence of our farmers.

    My name is Ken Ritter. With me today is Ian McCreary. Both of us serve on the board of directors of the Canadian Wheat Board. I am the chair, and Ian is chair of the CWB's farmer relations committee and past chair of the transportation committee. Both of us farm in Saskatchewan, and we are here today to urge you to continue to pursue the best, the most cost-effective, the most reliable transportation system in the world.

    We urge you to do so not only on our behalf and on that of the CWB, but also on behalf of the 85,000 farmers in western Canada who sell their grain through the CWB. We depend on an efficient transportation system for our livelihoods, but so do the local communities in which we live, and so do the secondary and tertiary industries that are dependent upon a healthy and vigorous grain sector. So do Canadians from all walks of life who benefit from the affordable, wholesome food that we grow and sell.

    Before I address the issues related to Canada's transportation legislation, I think it is important to briefly outline what the CWB is. Created in 1935, it is a marketing organization that sells 18 million to 22 million tonnes of wheat and barley to more than 200 customers worldwide. Our annual sales range from $4 billion to $6 billion.

    The CWB is not a marketing board in the same sense as the business structures in place for supply managed products like dairy, chicken, and eggs. Wheat and barley growers in western Canada are not subject to production quotas. We are free to grow as little or as much wheat and barley as we choose, depending on what will give us the best return. There are no production controls, and the Canadian market is open to international competition. We operate in a competitive international market that is subject to global supply and demand, influences, export subsidies, import tariffs and restrictions, and currency fluctuations.

    The CWB is vitally interested in the transportation of the wheat and barley that we grow and sell through our marketing agency, for three main reasons.

    First of all, we need to maintain a role in transportation logistics in order to ensure that we are able to meet our customers' needs. All marketers need to get their product to their customers, and farmers are no different.

    Secondly, freight costs represent the largest costs that farmers must incur in the production and marketing of their wheat and barley. Freight costs by themselves can easily amount to 20% of a farmer's total expenses on a tonne of grain.

    Lastly, we are committed to providing farmers throughout western Canada with access to cost-effective transportation services, regardless of where they are located. However, we own no elevator facilities, no terminal facilities at the ports, and of course no railway lines.

À  +-(1005)  

    The CWB's position on Bill C-26 can be summarized by one word: competition. We believe competition is key to building the grain transportation system that our nation and the farmers of western Canada require and deserve. We believe that just as we must compete in the domestic and international markets with grain grown in the U.S., in Australia, in the Black Sea region, and in Argentina, the transportation service providers who move our grain must not be insulated from competition. They must be expected to go head-to-head with meaningful competitors who will force them to continuously strive for the lowest cost structure and best service in an open and fair marketplace.

    At the present time, we have a regulatory environment that basically prohibits the entry of new service providers. We have no truly independent short-line railways currently operating on the prairies, with the exception of OmniTRAX. All other short-line operators require the major railways to perform such duties as car allocation, waybilling, and revenue collection. Unless we increase the level of competition in the rail industry, we will have to re-regulate and return to the regulatory environment that existed in the past. There does not appear to be the political will to take such a step.

    We do not believe Bill C-26, in its present form, provides for the level of competition that is required in this industry. In the remaining time that we have with you this morning, I would like to specify where the shortcomings of the bill before you lie, and what can be done to remedy them.

    The proposed national transportation policy statement in Bill C-26 is not strong enough. It de-emphasizes competition by demoting it to one of a number of factors for consideration in implementing transportation policy. It also abolishes the goal of maintaining the economic well-being and growth of Canada and its regions, and says nothing about lowering the costs of the transportation system to meet users' needs.

    Finally, the proposed statement introduces the concept of user fees based on the full cost of providing services. By giving full-cost user fees and competition similar weighting, the government could be removing any incentive that a carrier, such as a railway, would have to be innovative and efficient. It could be locking in a high-cost structure rather than creating a low-cost system for the benefit of users. The CWB believes that without more players in the rail service market, the current statement will only serve to increase the rail sector's ability to extract excessive profits from shippers who, like many prairie farmers, are captive to one service provider.

    In the past, Hudson Bay and Ferroequus railways have both sought, and have been refused, the right to provide a competitive alternative to service provided by Canadian National and Canadian Pacific railways. These applications offered farmers the real potential of competitive rates and service levels. Granting them would have added much-needed competition to the western Canadian grain transportation system, and prairie farmers would be reaping the rewards of enhanced rail competition today.

    After Ferroequus applied to the Canadian Transportation Agency for running rights to the port of Prince Rupert, for example, we saw a reduction of close to 50% in the spread between the published rates for rail traffic to that destination compared to the freight charges to the port of Vancouver. This price drop of $2 per tonne in freight rates was triggered by the threat of a new rail competitor for business to the port of Prince Rupert. We wonder how low the rates would have been if running rights had actually been granted. More significantly, what would this have represented to farmers if running rights had been extended to a few more locations across the prairies and not simply on one line to one port? About 30 million tonnes of grain move by rail annually, and a reduction in per-tonne freight rates quickly becomes an extremely significant amount when multiplied by these kinds of volumes.

    The federal government's refusal to adopt effective running rights is unacceptable. Canadian railways, through voluntary or regulated running rights, are currently running over other railway lines in North America in an efficient manner and without incident. The Canadian railways, in fact, have actively sought and obtained running rights, even when the host railway opposed their application. Given this, and given that access fees have successfully been established in the rail passenger sector, it is clear that the issues around the implementation of running rights are not insurmountable.

À  +-(1010)  

    Secondly, the delay in implementing effective running rights is unwarranted. Farmers are not requesting full and open access in the rail sector, but rather a careful, considered approach to enhancing rail competition through the adoption of case-by-case reverse-onus running rights. In this type of regulatory environment, granting of running rights can only happen if the Canadian Transportation Agency finds a railway to be a “fit” operator and determines that the granting of running rights is not at odds with the public interest.

    Therefore, we would recommend to the committee that Bill C-26 be amended to include reverse-onus running rights.

    Running rights provisions such as those that we are proposing would bring effective competition to the rail sector, whether they are granted or not. Effective competition, we believe, would bring about lower freight rates for western Canadian farmers, especially those who are captive to one rail line and for whom viable transportation alternatives do not exist. However, we also believe there are considerable benefits in establishing reverse-onus running rights from a regulatory point of view. Effective competition eliminates the need for costly and burdensome regulations and costing reviews. The marketplace becomes the tool for setting prices and determining levels of service. Competition drives the cost structure downwards and ensures that our transportation system is effective and economical.

    Unless a new way is found to facilitate the entry of new service providers, we ask that the committee recommend the reinstatement of quadrennial costing reviews. We favour a costing review that ties the revenue cap base to actually railway costs, including a reasonable profit. In the absence of effective railway competition in western Canada, a proper quadrennial costing review would ensure that railway productivity gains are shared between the railways and shippers who helped to achieve these gains. This is not happening at the present time. Instead, farmers are picking up the costs related to branch line abandonment and consolidation of service.

    If competition provisions are not strengthened through reverse-onus running rights, we also recommend that the railways' ability to deduct Industrial Development Fund contributions for revenue cap purposes be eliminated. Allowing the railways to deduct amortized Industrial Development Fund contributions from their revenues is not appropriate, as these contributions are retained by grain companies to fund their capital investments and are not shared with farmers. Ultimately, it means that farmers pay higher rates than they would if the deduction was not allowed.

    Amendments to Bill C-26 preserve existing rail infrastructure in urban areas but overlook the importance of preservation of similar infrastructure in rural areas of western Canada. Rail sidings and spur lines enable farmers to load producer cars as an alternative to the primary elevator system. This brings much-needed competition into the grain-handling system, especially in areas where the elevator service has been severely cut back due to grain company consolidation. In addition, preserving profitable rural rail infrastructure is key to facilitating future value-added investment and reducing greenhouse gas emissions.

    Bill C-26 establishes that if a railway company wants to discontinue service on urban rail sidings and spurs, it must follow a protocol that includes publishing the names of the sidings and spurs it plans to dismantle, informing everyone of its plans to dismantle this infrastructure, waiting 12 months, and offering to transfer the railway's interest to a number of interested parties prior to dismantling. On the other hand, if a railway wants to discontinue service on a rail siding or spur, Bill C-26 only requires them to provide advance notice.

    The same level of protection should and must be afforded to rural rail infrastructure, including rail lines, yard track, sidings, switches, and interchange track. Parties with an interest in contributing to the western Canadian economy, whether they are groups of farmers, local communities, or entrepreneurs, must be given sufficient opportunity to acquire these assets before they are lost forever to western Canada.

    One more point, sir, before my conclusion.

    Bill C-26 replaces the current competitive line rate with a competitive connection rate provision. This is a change that reduces rather than enhances rail competition. We support the Western Canadian Shippers' Coalition recommended changes to this provision, and urge the committee to retain the existing competitive line rate provisions. We also recommend exclusion of the requirement for an agreement with a connecting carrier as a condition to obtaining that relief.

À  +-(1015)  

    In conclusion, in the post-Crow era, western Canadian grain farmers have been called to go head-to-head with producers throughout the world. While the playing field upon which we are required to compete is far from level, we have no choice. We have to earn our living by supplying better value for the dollar than our competitors do.

    What we are asking is simple. Establish a grain transportation system in Canada where service providers, including the railways, are subject to the same market forces as we are. Establish a system where effective competition ensures that we have the lowest possible cost structure and the best possible service. And establish a system where extensive regulations and reviews are not necessary, because railways have to earn our business.

    The recommendations that we have advanced today have one sole intent: whether it is running rights, protection for rural infrastructure, or the wording of the policy statement, all of these are meant to embed competition throughout Bill C-26. The CWB firmly believes that only competition can sustain the drive towards the efficient and effective rail transportation system that Canadians as a whole and prairie farmers in particular need to have in place.

    We trust that you give our recommendations due consideration, and wish you all the best in doing what is best for our country.

    Thank you, Mr. Chairman.

À  +-(1020)  

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    The Chair: Thank you, Mr. Ritter.

    Mr. McCreary, do you have anything to add to that opening statement?

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    Mr. Ian McCreary: No, thank you, Mr. Chairman. I'll just provide answers to questions.

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    The Chair: Just as a point of clarification, you said, Mr. Ritter, that you handle on an annual basis 18 million to 22 million tonnes of wheat and barley--for export?

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    Mr. Ken Ritter: Yes, it would be export and for domestic use within the country as well.

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    The Chair: That was my next question. Is that the total amount you handle, and could you break that down into export and domestic consumption?

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    Mr. Ian McCreary: The percentage varies, of course, with the size of the crop. In a standard year, western Canadian farmers export approximately 80%, and 20% is used domestically of the food consumption portion. The feed portion, which we're not involved with, is of course almost all used domestically.

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    The Chair: I'm sorry, the last part was...?

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    Mr. Ian McCreary: The feed portion of our grains, which are used domestically, is a portion of the grain marketing channel that we're not involved in. So it's outside of that. But 80% of our business would be export and 20% would be domestic.

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    The Chair: So 20% for internal consumption, or 20% of $18 million to $22 million.

    Could you break that down further to wheat and barley, please?

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    Mr. Ian McCreary: Domestic use of milling wheats is approximately 2 million tonnes. Depending on the size of the crop, the balance would be exported. With malting barley, we would look at a program where approximately one million tonnes would be used domestically by the malt houses, either for export malt or for domestic use.

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    The Chair: Could you be clearer on that?

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    Mr. Ian McCreary: For malt barley, I believe the number would be approximately a million tonnes of domestic use that the maltsters would malt domestically. The only point I was adding is that is a large, signification portion of that malt then would be re-exported.

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    The Chair: So you would handle one million tonnes of malt barley a year...?

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    Mr. Ian McCreary: No, my point is that the malt houses would in turn be exporting a significant volume of bulk malt, and of the million we sell to them, I think somewhere around 600,000 or 700,000 tonnes is in turn exported as malt.

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    The Chair: So that's the total amount of barley that you would handle a year--one million tonnes.

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    Mr. Ian McCreary: No, we would handle two million tonnes. One million would be exported as barley, one million sold to the malt houses. Of the one million that the malt houses purchase, 700,000 is exported as malt and 300,000 would be used domestically.

    That's a rough breakdown, depending on the quality of the crop.

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    The Chair: Okay.

    The third question is, what is malt barley? Is there a difference in barleys? I should know this, but I don't.

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    Mr. Ian McCreary: We market all of the barley that's used for food consumption. First of all, there is a specific number of varieties of malt barley accepted by the commercial malt houses around the world. Those varieties are grown as malt barley, and then within that, specific quality characteristics must be met by farmers in order for the barley to be selected as multiple quality.

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    Mr. Ken Ritter: Sir, malt barley is used to make beer.

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    The Chair: Oh, I thought so, although not much of it is now, because they're selling a lot of that clear beer, you know, carbohydrate-free or something.

    Mr. Gouk, did you want to ask any questions--instead of making those rude comments about the chair?

À  +-(1025)  

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    Mr. Jim Gouk: I would not make rude comments about you, Joe. I don't believe in shooting fish in a barrel.

    I would open by offering the same comments that I made to CN, that I regret.... You know, the committee has a mandate to study bills that are put before them, notwithstanding the fact that, realistically, I don't think there's anyone who can honestly say they believe this thing is going to see the light of day. But we've taken your time, and you've raised a few points, and I would like to address them now that you have raised them.

    One of the things you talk primarily about in your presentation is the need for more competition of rail. Now, we have two rails, but you feel that's not enough, that we should have more open competition than what's presented by the two national rail companies in Canada.

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    Mr. Ken Ritter: I'll start, sir, and then Ian can add his views.

    Sir, this discussion around Bill C-26, in my judgment, is pretty simple. You either have competition or you don't. And if you have competition, what does that effectively mean, and is there a reason for it, an even more fundamental question?

    In western Canada there are large swaths of the prairies, including, for example, southwestern Saskatchewan and southeastern Alberta, where there's just a single rail line. Then it begs the next question: Is there an alternative intermodal competitor there to hold the railways accountable for their rates? The answer is no. You can't effectively truck long distances in the grain industry. Quite frankly, our commodity values are too low to do that effectively.

    Quite simply, you need competition, and what we're seeing is that in large swaths of the prairies, there is no competition. Elevators are built on single rail lines. The reality is that you have to ship on that line and you have to accept the rates that are offered, that's all there is to it.

    In conjunction with that, the prairies have changed dramatically over the last five to ten years. I represent a district that includes 40% within Alberta and 60% within Saskatchewan, and I dare say that ten years ago the Alberta side of my district would have had at least a hundred elevators. Now they have four.

    How does that translate into additional costs to farmers? Well, it simply means that farmers have to haul their grain much longer distances and incur much greater costs in terms of infrastructure on their farms and having to hire commercial truckers. Most farmers are no longer even able to haul their own grain. They have to hire a commercial trucker to do that.

    A lot of these efficiencies in productivity that have been raised over the past five to ten years have fallen on the shoulders of the farmers. The next question is, have they received any benefits? The answer is, very few, and they're far between.

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    Mr. Jim Gouk: You're saying that part of the problem is that it's down to a single rail, not a double, and that farmers have to accept whatever rate is offered.

    I wonder if you could tell me, just for my own education, if you would, how you square that against the fact that the Canadian Wheat Board doesn't want competition from farmers. We've actually seen Canadian farmers arrested and thrown in jail for competing against the Canadian Wheat Board.

    How do you square that against the fact that farmers, if they don't want to accept what the Wheat Board is offering them and they want to sell on their own and want more competition, are not allowed to do that by the very organization that is now before this committee, saying we want more competition on the other side?

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    Mr. Ian McCreary: Thank you, Mr. Chairman.

    There's no question that as a board we understand that competition affects one's terms of trade. If farmers were to compete among themselves in selling to the 200 customers around the world, we know that our terms of trade as farmers would be worse. Farmers, through the acts of this Parliament, have been given the right to determine the decision as to whether the Canadian Wheat Board would continue to sell to those customers as one source from Canada or whether we would sell individually as producers, and compete with each other. In our view, as...and bid those premiums down.

    As western Canadian farmers, we don't see any benefit in Canada in offering competitive alternatives for Canadian grains to the millers in Japan and Europe and other places around the world, because it would in fact lower the prices. We recognize that. In the same sense, within Canada, if we are to remain competitive, we see advantages in having commercial service providers competing amongst themselves to provide the best possible alternatives.

    We don't have an obligation to lower the price of wheat to make the Japanese miller more competitive. We do have, I believe, some obligation to lower the price of rail within Canada to make all Canadian companies and western Canadian shippers as competitive as can possibly be.

À  +-(1030)  

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    Mr. Jim Gouk: Don't misunderstand; we're not suggesting that the Wheat Board should be eliminated. We're just simply saying that we don't think farmers should have a gun at their heads when it comes to opting in or opting out.

    One of the things you said is that you feel this concept of getting running rights based on the total operational costs of either CN or CP would be a disincentive for them to lower their operating costs, that they would drive their own operating costs up in order to make it less friendly for other companies to get any running rights.

    Do you seriously believe that a huge organization like either of our national railways would intentionally increase their costs instead of becoming more cost-efficient for their entire operation in order to provide a disincentive for someone who might want to get running rights on their lines?

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    Mr. Ian McCreary: I would flip that around. I think the disincentive language that we would be referring to there is simply that in the absence of ongoing competitive pressure to continually be innovative and look for new solutions, there's a risk of the cost structure continuing to rise. I think the recognition in industry is that new entrants are the discipline on those cost structures.

    I wasn't in any way, and I don't think our language was in any way, implying an intent by the Canadian railways. It was simply saying that in the absence of the competitive players, like the Hudson Bay Railway and Ferroequus, we're prepared to step up to the plate and say that we can provide services that the class 1s aren't offering, and/or we can provide rate packages that they aren't in a position to offer. Partly because of the way we do our business--it's new, it's innovative, it's different--that creates an ongoing competitive pressure to put a competitive discipline on rates.

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    Mr. Jim Gouk: I find it an interesting argument, and I've heard this in other areas as well, where one side wants anybody and everybody to have access to the services of a given company or service. I would suggest that rather than this providing a disincentive, or an incentive for them to drive their costs up, what both rail companies in fact are doing is being innovative. That's the reason for their costs going up. Being innovative is the very thing they are doing. They're trying to find new ways of running the....

    CN explained here today about the movement to try to get more trucks onto rail, to take them off the highways. They're providing a lot of new innovations, and certainly they have to be innovative, going into congested areas like Vancouver, for example.

    If they were in a situation where they knew that they would be the ones who invested in all this innovation, and then anybody and everybody could then come along and demand to use that, that would be not an incentive to drive their costs up but rather an incentive not to innovate, not to make their line attractive to other businesses in the first place, and to just do the base service, and if somebody wants to be innovative, they're going to have to come in and put it in themselves. You may get the exact opposite of what you're looking for, and both rail lines may in fact let their infrastructure deteriorate to make it less attractive for people wanting to run on it as opposed to innovating and driving the costs up in order to have that formula kick in.

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    Mr. Ian McCreary: Mr. Chairman, if I may, we do have a case where one of the Canadian railways, Canadian Pacific, has applied for regulated running rights, opposed by the host railway in the U.S. They were subsequently approved by the Surface Transportation Board. The response has been, in fact, that investment in that area has increased. There has been no incident of concern. The report from, in this case, the state of New York is that it was very positive for competition and improved the access issues.

    I think the situation varies, depending on where you are in Canada, and certainly there are other areas of Canada where other modes of transportation provide real competition. And I think there are strong signs that the Canadian railways provide innovation in those corridors. Western Canada is, we believe, in a specific commercial environment where the competitive alternatives that exist in eastern Canada are not there in an economically efficient way. We don't have the option of the seaway. We don't have distances that make trucking cost-effective. Therefore, having a case-by-case reverse-onus running rights provision, which is judged on the basis of whether it is put against all of the tests that you've raised in concern, we believe would be an important advancement that would improve conditions for all of the shippers within western Canada.

À  +-(1035)  

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    Mr. Jim Gouk: But one concern--

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    The Chair: Thank you, Mr. Gouk. You've gone beyond your time.

    Monsieur Laframboise.

[Translation]

+-

    Mr. Mario Laframboise: Thank you very much, Mr. Chair.

    I see that you are proposing amendments concerning arbitration in case of disputes. How many transportation contracts do you sign each year with railways? You must sign many of them. First of all, are you the one who sign them? If so, how many do you sign in average each year?

[English]

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    Mr. Ken Ritter: Sir, I wouldn't be able to give you the exact numbers, but we do have confidential contracts with the railways, and they would be a significant number. Not only do we have confidential contracts with the railways in Canada, I believe we occasionally employ the services of all North American railways.

[Translation]

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    Mr. Mario Laframboise: If you sign confidential contracts, you know that by virtue of subsection 126(2) of the Canadian Transportation Act, in order to go to arbitration, you must have the consent of both parties. Why do you sign confidential contracts?

[English]

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    Mr. Ken Ritter: Well, sir, we sign them for commercial reasons. And that's as far as I can go in answering your question.

[Translation]

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    Mr. Mario Laframboise: Thank you.

[English]

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    The Chair: Thank you.

    Ms. Desjarlais.

+-

    Mrs. Bev Desjarlais: Just following on that, would those commercial reasons be that if you didn't sign that contract, you wouldn't be able to transport your product?

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    Mr. Ken Ritter: No. I want it clearly understood that the CWB's relationship with the railways is a good one. We have a good commercial relationship with the railways. Occasionally we have some disputes over levels of service and/or rates, but nevertheless, over the long term it's been pretty good.

    But by the same token--

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    The Chair: [Inaudible—Editor]...you've made that statement. Up to this point in time I thought there was just a terrible relationship between the railways and the Canadian Wheat Board.

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    Mrs. Bev Desjarlais: Are you cutting into my time?

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    The Chair: I'm not. I'll be giving you the extra time.

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    Mr. Ken Ritter: No, sir, there aren't.

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    The Chair: Well, would you clarify that, then, that there are good relations between the railways and the Canadian Wheat Board?

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    Mr. Ken Ritter: Sir, the very fact that there's a movement of something like 20 million tonnes a year of grain obviously indicates that it's a fairly reasonable flow.

    The issue we are raising is that we have to find a means and a way to ensure that there are competitive rates over the long term that ensure that farmers share in this productivity increase, which, we strongly argue, we have largely contributed to. I mean, it's a fairly simple matter of having one grain elevator instead of fifty, and having all the farmers haul to that one grain elevator and having a unit train.

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    The Chair: Ms. Desjarlais.

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    Mrs. Bev Desjarlais: Thank you.

    With regard to the running rights--and you made a comment about the situation in New York--there are running rights available on other rail lines in the U.S., is that correct? Even if there is competition, there is access to running rights that you may be able to get within states in the U.S.?

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    Mr. Ian McCreary: There have been cases of approved running rights. The regulations of the Surface Transportation Board in the U.S. are at this point quite tight. There is a review within the U.S. that's ongoing as well, and that will affect the long-term competitive balance. We work with shippers in the U.S. as well to see what can be done on that front,

    Certainly it's not what we'd like to see in that jurisdiction either, but there are cases.

À  +-(1040)  

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    Mrs. Bev Desjarlais: Okay.

    In the situations with OmniTRAX and Ferroequus, what was the reasoning behind the running rights being denied in the areas where they were requested? What was the reasoning given for denying those running rights?

+-

    Mr. Ian McCreary: In the case of Hudson Bay Railway, the process of soliciting traffic was deemed outside of the act, which leaves one to question how running rights are useful if you can't gain traffic, if you can't pick up traffic. In the case of Ferroequus Railway, the reason given was that they said it was an extraordinary remedy. The dissenting opinion in that case did recognize that there was nothing in the act that would have given cause for that ruling. However, that was the reason that was given.

+-

    Mrs. Bev Desjarlais: So if we look at the Hudson Bay Railway situation, where it indicated that they unfairly were looking for traffic, would that be suggesting that they were going to give a better rate to certain shippers to use their rail line?

+-

    Mr. Ian McCreary: It's always difficult to boil it down to one or two lines, but I would describe the Ferroequus rail package.... They are in the business of providing a set of services, and making money doing so, in an area where the class 1 carrier had deemed that service was not cost-effective. They were prepared to provide branch line service packages, which I think was their biggest piece. Obviously there had to be a rate package in order to make the package attractive for shippers.

+-

    Mrs. Bev Desjarlais: So they were going to provide service where the major carrier, I guess, was no longer going to provide that service, but they were denied the running rights to the rail line. Why would the major carrier have done that, in your view?

+-

    Mr. Ian McCreary: Well, it's always difficult to speak for someone else, but I think there is a general hesitancy to accept just the recognition of some running rights provisions within Canada.

+-

    Mrs. Bev Desjarlais: Would it be because they're the bigger operation and they wouldn't want someone treading on their territory who might be able to provide a less costly service?

+-

    Mr. Ian McCreary: I mean, one can only assume--

+-

    Mrs. Bev Desjarlais: I know Mr. Finn is smiling over there.

+-

    Mr. Ian McCreary: --that the language that was used was opening the door a little, was of concern. It might have been better to ask them to answer this, but from our perspective, we don't see any good reasons for not having those services provided. But we obviously weren't the ones who--

+-

    Mrs. Bev Desjarlais: No, and I didn't get the chance to get a second question in to Mr. Finn, so I had to ask you.

    Obviously, being supportive of Hudson Bay Railway and wanting to increase the shipping through certain lines, it appeared that, from my perspective, one rail carrier was willing to give up certain sections but wouldn't give up a section that would ensure the product would be shipped.

    If we look at it from a road perspective, it would be like putting in the highway to Toronto and taking out, say, 100 kilometres so that you'd then have to go some other way; we're not going to really let you get there efficiently.

    Is that a reasonable...?

+-

    Mr. Ian McCreary: Yes--and the other way had a toll.

+-

    Mrs. Bev Desjarlais: There you go.

    Thank you.

+-

    The Chair: Thank you, Ms. Desjarlais.

    Mr. Proulx.

+-

    Mr. Marcel Proulx: Oh, thank you, Mr. Chair.

+-

    The Chair: You're welcome, Mr. Proulx.

+-

    Mr. Marcel Proulx: I guess I'll have to thank you a second time.

    On running rights, how many rail companies, or how many train companies, do you think would be the ideal number under the running rights that you're looking for? You now have two, CN and CP. For you, what's the ideal number?

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    Mr. Ken Ritter: Sir, we wouldn't be able to answer that directly. However, our proposal on reverse-onus running rights would ensure that once an applicant made his application for running rights, they would first of all have to be a fit carrier. They would have to be licensed as a railway company, either provincially or federally, and qualify under the “any person” part. They would then go before the CTA. The host railway would have to come up with a case on why they shouldn't be allowed to run. In effect, we'd be putting the decision in the hands of the CTA to determine what is in the public interest and what is fair and reasonable compensation. Even the threat last year of a potential case succeeding allowed for rates to come down significantly.

À  +-(1045)  

+-

    Mr. Marcel Proulx: Sir, if you're asking for expanded rights, it's because you're not happy with the two companies you have now. So my question, again, is how many companies would you need to be happy?

+-

    Mr. Ken Ritter: Well, sir, it might depend if it's nationally or regionally. I mean, good rail competition, for example in sectors of the prairies that don't have any competitors...one or two might be fine.

+-

    Mr. Marcel Proulx: Okay.

    Obviously, you realize that if you have extended additional running rights, you have more companies using the rails. You're actually causing a decrease in railway investment. You could be reducing service to shippers. Because what's going to happen is that CN and CP, having more competition on their lines, will not be as interested in investing in their own lines.

    How are you going to cope with that?

+-

    Mr. Ian McCreary: I'd like to say a couple of things on that.

    First, the history on the running rights, anywhere it has been looked at, is that there are service fees provided, recognizing that ongoing investment is required in the line. Those service fees, being set either through negotiation or, in the absence of a negotiated piece, recognizing that an agency has the right to do it, would recognize that ongoing need for investment. In that case, the host railway would be running the maintenance of the roadbed as a viable business, and that would be recognized by all parties.

+-

    Mr. Marcel Proulx: Do you not feel that you'd be creating inefficiencies from splitting the traffic between two, or more than two, railways?

+-

    Mr. Ian McCreary: It's our view that the opportunity exists for efficient movement in specific cases and that the cost structure would in fact come down.

    As to how many railways are appropriate, from our perspective, as we said, there are 20 million tonnes of movement, and some of that, through the central corridor, has reasonable access to two railways now. Much of it has access to only one railway. And the key in competition is making sure, at a core minimum, that you have access to more than one in all areas. If you take the Hudson Bay rail application as an example, they were in an area of the province where there was really one railway.

+-

    Mr. Marcel Proulx: How far was the second one?

+-

    Mr. Ian McCreary: There would be areas of Saskatchewan where 150 to 200 miles would certainly be an entry point to....

+-

    Mr. Marcel Proulx: What's the average distance to one in particular, whether it be CN or CP, as it is now? What's the average distance--which has to be done by trucking, right?

+-

    Mr. Ian McCreary: Probably our colleagues who were just ahead of us today would have the exact number, but I think it's in the area of 20 miles. That would be an average haul at this point.

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    Mr. Ken Ritter: But on average, to a competitive point, it would be 50 to 80 miles--

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    Mr. Ian McCreary: No, to one line.

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    Mr. Marcel Proulx: He understood my question.

+-

    The Chair: Is there anything else you'd like to add?

    Mr. Ritter, perhaps you could tell us, on the Hudson Bay Railway, where does it begin, where does it end?

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    Mr. Ken Ritter: It starts at Sturgis, Saskatchewan, and goes to Churchill. Actually, in many ways, it is the shortest route from the prairies to overseas markets.

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    The Chair: Okay.

    Mr. Jackson....

    Or no, I'm sorry, not Mr. Jackson--

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    Mr. Ovid Jackson (Bruce—Grey—Owen Sound, Lib.): Mr. Chairman, I've been in there for quite a while--unless you want to ignore me completely.

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    The Chair: All right, go ahead. I'm a very obliging chair.

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    Mr. Ovid Jackson: Thank you.

    We don't get people from the Wheat Board here too often. You answered part of my question, coming from Mr. Gouk, with regard to some of the problems we've been seeing on television with regard to some farmers wanting to sell their product on the open market. Basically, your answer to that was that if they compete among themselves, they'll end up defeating the whole purpose, partially.

    And I'm one of those guys who has, as a vegetarian, partaken of that special barley that you sell there, in having some brew.

    In the last little while, we removed the Crow rate, and we gave you guys some money. I have two questions for you. The first one is, what happened to that money? Did it improve the situation or did it make the situation worse?

À  +-(1050)  

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    Mr. Ken Ritter: First of all, sir, going back to the previous question, farmers do not have a gun to their heads, they have a ballot in their hands. They can vote for whoever they want as a director for their district. So that is the first point.

    Second, the Crow money was a one-time payout of, I believe, $1.6 billion, paid out over two or three years. That money is now gone forever. Farmers are seeing additional transportation costs of $15 to $20 a tonne, and that is putting severe strain on their very viability. If farmers had that money in hand now, most farms would be viable. But now it's a real question.

+-

    Mr. Ovid Jackson: So what happened to the money? I thought the money was supposed to--

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    Mr. Ken Ritter: Well, the money, when divided among 85,000 to 100,000 individual farmers, wasn't very much. What did they do with it? They probably built granaries or bought trucks or whatever so they could do more on-farm storage, or better storage. It has just disappeared now.

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    The Chair: Thank you, Mr. Jackson.

    Have you got your question about beer straightened out now?

+-

    Mrs. Lynne Yelich (Blackstrap, Canadian Alliance): I would just like to mention that it didn't go to farmers, necessarily, it went to landowners. I know ladies who own land in Saskatchewan who got it and who live in the United States. So it really didn't address the transportation issue whatsoever.

    I have a comment and a question. CP was here, and they think you're laying a lot of responsibility on the rail for your transportation issues, and with grain transportation, there are a lot of problems. It goes right to car allocation, to the port. They feel that perhaps they're getting hung with a lot of the responsibility, say, of it being so expensive.

    We were told earlier that we have the cheapest rates in the world. You do not agree with that, then.

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    Mr. Ian McCreary: Thank you, Mr. Chairman.

    We've always had a different understanding of the railways' “rate per tonne mile”, which we do not feel is a fair reflection of whether or not you have the cheapest rates in the world. If you are, on average, a couple of hundred miles from port, clearly you would charge more dollars per tonne mile in Australia to go the same distance, but that doesn't mean the Australians are getting more or less value for service. If you have the longest distance in the world to port, by definition you will have the lowest rate per tonne mile. That's not a reflection of whether we have a good or a poor competitive environment for rail in western Canada.

    So clearly we do dispute that fact. I think it's fair to judge rate for service. The fact is that rates in western Canada, since the deregulated environment has come into effect, have in fact increased in spite of the fact that farmers have met the railway closer to export port. In other words, there are a lot less pickup points than there would have been previously.

    So I think that is an important clarification, and I would thank you for asking that question.

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    The Chair: Thank you.

    Mr. Bagnell.

+-

    Mr. Larry Bagnell (Yukon, Lib.): You were saying that, in some parts, there is only one rail as opposed to two. How much more are the rates charged by the railway companies in areas where there's only one line as opposed to two?

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    Mr. Ian McCreary: The issue for us becomes, because we are the single player who works with the railways, a question of service. Clearly we do have some capacity to move grain between the two lines, but it ends up meaning that the producers who are captive to either one railway or the other, depending upon which may or may not be the more aggressive, end up having very poor service package or delivery opportunities.

    That ends up manifesting itself back to us in terms of farmers phoning me and saying, “Listen, you guys at the Canadian Wheat Board--the delivery opportunity, I haven't had any yet, and it's May.”

    So it ends up manifesting itself in both rate and service packages.

À  +-(1055)  

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    Mr. Larry Bagnell: You didn't say there was any rate difference.

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    Mr. Ian McCreary: No, that's correct, I did not say there was a rate difference at this point. Because of the nature of the rate-setting mechanism, there isn't a rate difference at this point. It manifests itself primarily in the service side.

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    The Chair: Thank you, Mr. Bagnell.

    Mr. Cannis.

+-

    Mr. John Cannis (Scarborough Centre, Lib.): Thank you, Mr. Chairman.

    Welcome to the committee.

    My question is triggered by what Mr. Jackson said, and what was said across, in terms of the money that went to the landowners. That's the first time I'm hearing it.

    If I understand this correctly, there are landowners who rent out or lease out their land, so the landowners took the money, and the farmer working the land didn't benefit from this?

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    Mr. Ken Ritter: I believe it was something like 15% or 20%, or something like that, where just landowners who weren't actual farmers received the money, yes.

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    Mr. John Cannis: Now, I'm not going to profess that I know a lot about farming and about how things are done with the Wheat Board, because I don't, although I have followed it very closely. There has always been a confusing message going out in terms of some of the squabbles that we've heard in debate over the years, Jim, and what have you.

    I'm puzzled, because I hear from earlier presenters, and from what you say today, that these are confidential contracts. And yet, again, I see a graph here that tells us how competitive our rates are--“the lowest in the world”, if I may quote.

    Why don't you open those contracts and make everything transparent so that Canadians in essence know exactly that it's a, it's b, or it's c? Why should these be confidential? When you come to the government and you say, “We need you to do this and this”...because we had an earlier presenter last week who said to us, and I quote, “Either regulate, and regulate properly, or deregulate, and deregulate properly.”

    You're saying here, and we've heard earlier, that further deregulation is needed.

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    Mr. Ken Ritter: I agree, sir, that there is a mishmash of rate-setting mechanisms. Some are published tariffs and others are by confidential contract.

    This is just the way we do business in this country. Confidential contracts are used from time to time between the carrier and the shipper, and they usually provide for different rates, levels of service, and so forth.

+-

    Mr. John Cannis: Then how, if I may ask, can representatives on this committee or in government as a whole, or even Canadians, if I may say, feel comfortable about pushing the government, saying we should help these farmers, or do this or do that, when, from what I've just heard around here, things are not transparent? I hear “confidential, confidential, confidential”, and that puts me in not a very easy position.

+-

    Mr. Ian McCreary: I appreciate that, but I'd like to point out.... What we're referring to is the aggregate position, and the aggregate rails position, and those numbers are totally available. The CTA does keep track, on an annual basis, of the railways' revenue and how closely it tracks the revenue cap. So that's a reflection of the aggregate net of all that business. In addition to that, the government has mandated a transportation monitor that provides, on an ongoing basis, aggregation of all that information for the exact purpose you have, in reflecting that need. All of that data is available.

    If there is something in addition that you would like us to provide on the basis of those reports, I see that Mr. Riegle of the CTA is here, and there are other players who would be happy to make sure that information is available to public policy-makers to be able to make that judgment call. Because I think the facts do speak for themselves.

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    Mr. Ken Ritter: Perhaps I can answer that another way, because I think this point hasn't been brought out. The question is, do railways make money hauling western Canadian grain? The answer is, yes, they make huge profits hauling western Canadian grain. So at the end of the day, our presentation is to ensure that we have competitive mechanisms whereby if there are productivity increases—and there have been—farmers get a fair share of that productivity increase commensurate with their contributions.

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    Mr. John Cannis: As I just said, how then can the government ensure that? If I may quote you, they're making “huge profits”.

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    Mr. Ken Ritter: Absolutely.

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    Mr. John Cannis: Of course, they come to us and say they're not making money--

Á  +-(1100)  

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    Mr. Ken Ritter: Providing competitive transportation mechanisms in the new Bill C-26--that's the best way to ensure that innovation and cost reductions are--

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    Mr. John Cannis: Well, as my closing question, Mr. Chairman, it's contradicting, because Canada, it says here, has the lowest rates.

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    Mr. Ken Ritter: I think Ian explained that. If you're hauling things long distance, you're obviously, on a per tonne basis, going to be able to make the argument that you have the lowest rates. Each kilometre farther that you go, the costs in effect decline on a per-kilometre basis. That is basically the point.

    When you compare this head-to-head versus Australia--and in my judgment, that is a good comparison--they do have competitive rail services, and for the services provided, they provide good value. They probably can argue that they have the lowest rates.

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    Mr. John Cannis: We're similar to Australia, Mr. Chairman, in terms of landscape?

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    The Chair: I don't know, Mr. Cannis, I've never been to Australia.

    Has anybody in the room been to Australia, able to answer that question?

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    Mr. Ken Ritter: Sir, the grain-growing area is roughly, on average, a couple of hundred kilometres from the coast.

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    The Chair: Thank you, Mr. Cannis.

    There are no further questions.

    Every time we get to the Wheat Board it gets complicated for some reason or another. What we're really talking about--and these are honest questions that I'm trying to get a grasp on--is that we're not really getting enough money for the cost of our grain, for whatever reasons. Is that correct? You're unhappy with the costs you receive out of a bushel of grain, or barley.

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    Mr. Ian McCreary: I think what's at issue today is that we recognize that we are in a very low-margin business. We as western farmers know that we can be competitive in that international marketplace if we have reasonable rules and reasonable public policy to make that happen. One of the things we are here to address today is that as part of that package—and I wouldn't say that's all-inclusive—we need competitive rail rates.

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    The Chair: Isn't the real issue the fact that you're not happy with the price you're getting today for the price of a bushel of grain or barley?

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    Mr. Ian McCreary: Certainly, on a broad basis, we always would like to, as any business would, get more money out of our product. But from the sort of confined basis of today, the issue we are here to address is to ensure that part of Canada's competitive advantage is competitive rail rates.

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    The Chair: Mr. McCreary, we're here to try to assist, as a committee, but we can't assist if you don't answer the question.

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    Mr. Ian McCreary: Okay, sorry.

+-

    The Chair: What should we be getting for a bushel of grain in Canada, grown by Canadian farmers, as a fair return on their investment, their work? What should we be getting for a bushel of grain--ballpark figure?

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    Mr. Ian McCreary: Go ahead, Ken.

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    Mr. Ken Ritter: Sir, it'll depend on a farm-to-farm basis, but arguably it should be between $6 and $8 Canadian a bushel. Quite frankly, the farm gate price is now, for high-quality wheats, in the range of about $4 a bushel.

+-

    The Chair: So we're $2 short.

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    Mr. Ken Ritter: Literally, we're at only 50% of its value.

+-

    The Chair: Is that because of the world subsidies?

+-

    Mr. Ken Ritter: Largely. Our major competitors are the U.S. and Europe. They have huge subsidies. Then we have to go head-to-head with countries like Australia and Argentina, sir, which have some pretty simple logistics. They have large swaths of land located right near their coastline, and they're able to get their product out at a very cheap rate.

+-

    The Chair: When I was asking you, at the outset of your submission, about the volumes, I forgot to ask you, would those numbers include the volumes of grain produced in the province of Ontario?

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    Mr. Ken Ritter: No, they wouldn't.

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    The Chair: And am I correct that Ontario is the second-largest grain-producing province in Canada?

+-

    Mr. Ken Ritter: Just thinking it through, I would doubt that, sir. I think Alberta would be.

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    The Chair: I said the “second”.

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    Mr. Ken Ritter: Saskatchewan would be first, Alberta second, and Ontario would be third. And from my understanding of Ontario, it's largely consumed within the province of Ontario.

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    Mr. Ian McCreary: For wheat and barley, which are the crops that we would market, Ontario would be fourth. It would fall behind Manitoba as well.

Á  +-(1105)  

+-

    The Chair: I'm just trying to get some kind of comparison. Ontario, I understand, grows white wheat, and it's sold to the United States for flour or whatever. But Ontario doesn't receive any of the assistance that is received by the western provinces with respect to the movement of grain or barley.

    From evidence that we've heard over the years, as I recall, the Ontario farmer looks after everything that he has to do with respect to planting his crop, making sure it is nurtured, harvesting his crop, storing his crop in his own facilities, and finding a way to get his crop to market. Am I correct in that?

+-

    Mr. Ken Ritter: Sir, you may very well be correct, but western Canadian farmers do exactly the same thing.

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    The Chair: Yes, but there's some assistance in there someplace.

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    Mr. Ken Ritter: Where?

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    Mr. Ian McCreary: There is no assistance.

+-

    Mr. Ken Ritter: There is no assistance.

+-

    The Chair: So if we wanted to make a comparison--this is getting complicated--we should take one province and compare it to another to be sure that the economies of scale, that the efficiencies in production, and so on are comparable across the board, if we're going to provide the assistance for any area in Canada. Is that correct? I mean, to be fair, we have to look at this as a country.

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    Mr. Ken Ritter: Yes. We understand the difficulty of forming national transportation policy, because, basically, in transportation you almost have a divided country. From the Ontario border east, there's intermodal competition. From the Ontario border west, there isn't. That's the difficulty in establishing a transportation policy, and we understand that. But we have to speak for our 85,000 farmers who are independent, individual business people. They require the lowest-cost and most efficient transportation service to be competitive in the world marketplace, which we serve.

+-

    The Chair: No, I agree with what you're saying. It's just that I'm trying to find a comparison.

+-

    Mr. Ken Ritter: But we don't get any breaks--or we don't from our point of view.

+-

    The Chair: Just talk to me for a few minutes about the Wheat Board. Now, you're run by a board of directors, but you also have an administrative staff. I mean, you folks are farmers who have certain sections in certain areas, but you have an administrative staff that handles your affairs, correct?

+-

    Mr. Ken Ritter: Yes. We're a board of directors. We have ten elected members. Ian and I are two of them. We have eight other ones, obviously, and we have four appointed directors from the business sector--one from Toronto; one from Saskatoon, a dean of commerce; one from Calgary, an oil industry executive; and one from Regina, a lawyer. And then for our CEO, it's sort of a joint appointment between the board and the government. We made the decision on that, and the government followed our recommendation.

    We act like any corporate board of directors would. We have a CEO. We have a staff and management, who are accountable to us. We establish policy, and as I say, hold them accountable to the policy that we establish.

+-

    The Chair: How much of an administrative staff does the Canadian Wheat Board have?

+-

    Mr. Ken Ritter: It's about 500 to 550, depending on needs and requirements.

+-

    The Chair: And you sell between $4 billion and $6 billion, export, which would include....

+-

    Mr. Ken Ritter: Yes, and that $4 billion to $6 billion would include the sales within Canada as well.

+-

    The Chair: Which is 20%.

+-

    Mr. Ken Ritter: About 20%, yes.

+-

    The Chair: So we're talking about $3 billion to $5 billion export.

+-

    Mr. Ken Ritter: Yes. And we have to go head-to-head with the U.S., Australia, Argentina, and now the former Soviet Union countries of Ukraine, Kazakhstan, and Russia.

+-

    The Chair: What do your administrative costs amount to?

+-

    Mr. Ken Ritter: Our administrative costs are in the neighbourhood of $60 million to $65 million a year.

+-

    The Chair: Do you have that by way of a percentage?

+-

    Mr. Ian McCreary: A percentage of total revenue?

+-

    The Chair: Yes.

+-

    Mr. Ian McCreary: It would range between 1% and 2%.

+-

    The Chair: Thank you.

    Just two other questions.

    When we're talking about transportation, we all know that marine transportation...and this may be a parochial question inasmuch as I represent Thunder Bay.

    You have such a huge export market, and you get it out to B.C. or you get it out to the other coast. Have you ever done an analysis on marine transportation where if we were to forgo the tolls on the Great Lakes, which is only $30 million to $35 million a year--we have pilotage concerns and we have a whole big mess on the seaway--and clean that up, what that would do to effectively make you extremely competitive in the transportation part of shipping and exporting grain?

Á  +-(1110)  

+-

    Mr. Ken Ritter: We're certainly charged, sir, with maximizing returns to farmers.

+-

    The Chair: I know you are.

+-

    Mr. Ken Ritter: We do weigh the costs of lake freighter versus the costs of railing it, and bypassing Thunder Bay. Quite frankly, we use both, so any reduction would obviously benefit farmers, and we would welcome that.

+-

    The Chair: But have you ever done an analysis of those ships that are operating that can utilize the Great Lakes-St. Lawrence Seaway system and don't utilize that system by the very fact....? We have the biggest, largest, longest inland waterway in the world. If they could come and pick up a load and come back, and they didn't have to be faced with that $75,000 or $100,000 fee from the....

    You know, we have a whole bunch of people taking money out of this thing.

+-

    Mr. Ken Ritter: Ian was a Wheat Board employee at one time, and he can probably answer that more directly. He was involved in the marketing side, so he can probably cover that.

+-

    Mr. Ian McCreary: I guess the answer is that the analysis as to how much that means in volumes varies every single year. It depends on the customer, and whether the customer base uses their own set of vessels and whether those vessels are appropriately sized to be possibilities in the St. Lawrence, but the percentage of the ocean fleet that is sized for the St. Lawrence has declined with time.

    That said, if you can take a significant number out of that, it moves the volume. I'm not sure I could give you a volume move, because we do that analysis to the marketing plan on an annual basis. If the east coast is 30% of exports, on an annual basis, moving that five or six percentage points as a result of a cost structure change would be a big move.

+-

    The Chair: Ian, I know you represent district 6, and I know you farm. I want to know, were you ever a lawyer?

+-

    Mr. Ian McCreary: No, Ken's the lawyer.

+-

    The Chair: Oh. Well, you answer the questions like a lawyer.

+-

    Mr. Ken Ritter: Ian, sir, has a master's degree in economics. I have a law degree.

+-

    The Chair: Maybe you should switch roles.

+-

    Mr. Ian McCreary: He hands me the questions for which there are no answers.

+-

    The Chair: Okay.

    So you haven't done that analysis. That would be a good exercise.

    At any rate, I was interested in your submission inasmuch as you keep referring to OmniTRAX. I don't have any concerns about the volumes that you ship through Churchill, but I have concerns about the fact that you look upon this short-line railway, which is 700 or 900 kilometres....

    Let me ask the question this way. I know that you're presently being challenged by the U.S. Department of Commerce. What's the status of that challenge now?

+-

    Mr. Ken Ritter: We have a number of them, actually, so I'll go to the first one.

    We were challenged that we're providing a countervail duty in Canada and also anti-dumping into the U.S. on both wheat and durum wheat, and there is a difference. This has gone now to the International Trade Commission in the U.S., and they decide whether there's injury to U.S. farmers. Well, lo and behold, they've come up with the decision that there's no injury in durum wheat but there is injury in hard red spring wheat, and have imposed a duty of 14.55%. We haven't yet gotten the reasons for their decision. November 4, I believe, is the operative date.

    In the meantime, we have indicated that we are going to take the injury part to a NAFTA challenge. I believe the federal government and Minister Goodale have indicated they are going to take the countervail duty part, which is an allegation that we're subsidizing the Canadian grain industry, or the Government of Canada is, to a NAFTA panel as well.

    Do I know where this is going to end? Not yet, sir.

Á  -(1115)  

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    The Chair: Yes, you'd have to be a seer, I guess, one of those guys who sees the future.

    My problem is that you favoured the Churchill area three years ago, and you know full well that the money that was given by the Government of Canada to the Port of Churchill the next day was divested to a company called OmniTRAX, which is a completely and wholly owned railway company of the United States, with its head office in Denver, Colorado. I have a difficult time challenging the United States, on the one hand, on trade things, and then, on the other hand, supporting an organization that uses Canadian taxpayers' money in order to compete with areas in the country. And you're part and parcel of that.

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    Mr. Ken Ritter: Sir, in answer to your question, we don't believe we're favouring anyone. We look at what is in farmers' best interests, and clearly, moving grain the 780 miles from central-eastern Saskatchewan to Churchill, and having it put on board an ocean-going ship, is the cheapest way to get grain out of that particular region. It may not be for southern Manitoba--that would probably be through Thunder Bay--and Alberta, and the area in which I live, which is western Saskatchewan. It likely would be through Vancouver.

    So I think we're doing this in a reasonable, sensible way that benefits farmers.

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    The Chair: But we're promoting the very thing that we're fighting all the time--the investment of Canadian taxpayers' dollars into a United States corporation. It wasn't months; it was the next day that OmniTRAX.... There was collusion in the arrangement. It was a foregone conclusion that OmniTRAX was going to be providing a service.

    It's repulsive to have Canadian taxpayers' money going directly to an American concern to compete against Canadian corporations. I really don't see the wisdom of that, and we're part and parcel of it.

    The Canadian Wheat Board is a Canadian institution, is it not?

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    Mr. Ken Ritter: We're run by farmers, though, and the example you use, sir, would not be within our purview of decision-making. It would be under the Government of Canada's.

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    The Chair: Thank you so much.

    Thank you for coming today, gentlemen.

    The meeting is adjourned.