Proceedings of the Standing Senate Committee on
Transport and
Communications
Issue 1 -- Evidence
Ottawa, Tuesday, March 26, 1996
The Standing Senate Committee on Transport and Communications met this day, at 5:30 p.m., to organize the activities of the committee.
[English]
Mr. Tim Wilson, Clerk of the Committee: Honourable senators, I see a quorum.
As clerk of your committee, I am authorized to preside over the election of the chairman of this committee. I am ready to receive motions to that effect.
Senator Poulin: I nominate Senator Bacon.
Mr. Wilson: It is proposed by Senator Poulin that Senator Bacon be chair of this committee. Is it agreed, honourable senators?
Hon. Senators: Agreed.
Mr. Wilson: Carried.
I invite Senator Bacon to take the chair.
Hon. Lise Bacon (Chairman) in the chair.
The Chairman: I want to thank senators for their confidence. Even though everyone could not be here this afternoon, I hope we can accomplish much in this committee. I count on each and every one of you.
[Translation]
I hope to get every member's cooperation so that we can continue the work that this Committee has already started. Item 3 on the agenda is the election of a deputy chairman.
[English]
Senator Poulin: I move that Senator Forrestall be deputy chairman.
The Chairman: Is it agreed, honourable senators?
Hon. Senators: Agreed.
The Chairman: Carried.
[Translation]
There will be a Subcommittee on Agenda and Procedure. It is composed of one other member of the Committee to be designated after the usual consultations. It is moved:
That the Subcommittee be authorized to invite witnesses and schedule hearings.
I need a motion for the designation of one other member of the Subcommittee. Senator Roux?
[English]
Senator Roux: I would move the name of Senator Poulin.
[Translation]
The Chairman: Do you accept, Senator Poulin?
Senator Poulin: Yes.
The Chairman: Senator Poulin, you are then a member of the Subcommittee on Agenda and Procedure.
We are getting to item 5. It is suggested that 600 copies of the Committee's proceedings be printed; we need a motion that the Committee print 600 - this is the suggested number - copies of its proceedings and that the Chair be authorized to adjust this number from time to time to meet demand.
[English]
Senator Forrestall: I want to ask a routine question of our officials. Was that enough last year?
The Chairman: Perhaps we should ask. Was 600 copies enough?
Mr. Wilson: A study was done of the needs of all the committees. The figure which was arrived at for this committee was 600. It is based on being no more than 5 per cent over the needs at any one time. At that rate, it would be 600 for this committee.
Senator Forrestall: Madam Chair, the flexibility built into the motion is quite acceptable to us.
The Chairman: Is it agreed, honourable senators?
Hon. Senators: Agreed.
The Chairman: Carried.
The next item is authorization to hold meetings and to print evidence when the quorum is not present.
Senator Forrestall: I move:
That, pursuant to Rule 89, the Chair be authorized to hold meetings, to receive and authorize the printing of the evidence when a quorum is not present.
That is the usual practice and procedure.
The Chairman: Is it agreed?
Hon. Senators: Agreed.
The Chairman: Carried.
[Translation]
As far as the financial report is concerned, pursuant to Rule 104, the Committee is required to report on its expenses incurred in the preceding session. I need a motion.
[English]
That, pursuant to rule 104, the Chair be authorized to report expenses incurred by the Committee in the last session.
Senator Roux: I so move.
The Chairman: Is it agreed, honourable senators?
Hon. Senators: Agreed.
The Chairman: Carried.
The next item is research staff. The research officers assigned to committees are recruited through the Library of Parliament or externally. We need a motion to the effect:
That the Committee request the Library of Parliament to assign research officers to the committee; and
That the Chair be authorized to direct the research staff in the preparation of studies, analyses, summaries and draft reports.
Senator Roux: I so move.
Senator Forrestall: Is this motion absolutely routine? I have not seen it in this wording before. It leaves quite an onus on the Chair to make the decisions as to what must be done outside the realm of the steering committee or, alternately, the advice of the committee itself. I would have thought - perhaps I misread it - that such authorization be given subject to, or as a consequence of, the fact that the Chair is the operative person who acts upon our requests.
Am I wrong? Perhaps the clerk might respond to the historical method. I do not want to burden you with the onus of setting up and calling up resources for studies at your own initiative.
The Chairman: I have been told, Senator Forrestall, that the same wording has been authorized by all the committees. I do not know if it is new wording.
Senator Forrestall: I am just suggesting, Madam Chair, that although this is the same in every organizational committee, it is not familiar to me that the chairperson would have such wide authority and power.
It states that the chair be authorized to direct the research staff in the preparation of studies, analyses, summaries and draft reports.
The Chairman: Perhaps the clerk can give us some information with respect to this.
Senator Forrestall: It seems to me that it should be at the direction of the steering committee, the chair be authorized to direct studies. It seems to me that there is an element missing. I may be wrong. If so, I am not trying to pursue it at any great length. It struck me as being a little different from what we have used in the past.
Mr. Wilson: Madam Chair, I think Senator Forrestall's idea is a good one. It would be quite easy to incorporate that into the motion as proposed. It would read, therefore, that the Chair, at the direction of the steering committee, be authorized to direct the research staff.
The purpose of this motion, which is a standard motion, as I understand it, is to ensure that the committee can get the work done in a timely fashion so that it does not necessarily have to wait for a meeting of the steering committee or the committee. Obviously, anything that the researchers do for the committee has ultimately to be approved by the committee. That is the final step. I see nothing wrong, Madam Chair, with adding this.
Senator Forrestall: I would be pleased to move that motion with that amendment.
The Chairman: Is it your pleasure to adopt the motion?
Hon. Senators: Agreed.
The Chairman: Carried, as amended.
The next item concerns authority to commit funds and certify accounts. The motion reads:
That, pursuant to section 32 of the Financial Administration Act, authority to commit funds be conferred on the Chair or in the Chair's absence, the Deputy Chair; and
That, pursuant to Guideline 3:05 of Appendix II of the Rules of the Senate, no account be paid by the Committee unless certified in accordance with section 34 of the Financial Administration Act by the Chair, the Deputy Chair or the Clerk of the Committee.
Senator Forrestall: That is fine with me, Madam Chair. Again, it is a new animal. We have always practised it. I have no difficulty with it at all.
Senator Poulin: I so move, Madam Chair.
The Chairman: Is it your pleasure, honourable senators, to adopt the motion?
Hon. Senators: Agreed.
The Chairman: Carried.
The next item is travelling and living expenses of witnesses.
[Translation]
It could read as follows:
That, pursuant to the Senate guidelines for witnesses' expenses, the Committee may reimburse reasonable travelling and living expenses to no more than two witnesses from any one organization and payment will take place upon application.
Senator Roux: I second this motion.
The Chairman: Carried.
[English]
We have to try to find a time slot for regular meetings. Are there any suggestions with respect to times?
Senator Poulin: May I suggest the time that we met today?
Senator Forrestall: Today at this time, or after the Senate adjourns on Tuesdays.
The Chairman: Is that agreed?
Hon. Senators: Agreed.
Senator Forrestall: What is equally important, Madam Chair, is that we find ourselves in one place and not four or five different meeting places. That is something to which I attach great importance.
The Chairman: Are there any other matters which senators wish to discuss?
Senator Poulin: I believe the Chairman of Internal Economy would probably want us to submit, along with our budget for the current session, a communications plan. Every committee has been asked to make such a plan. If you wish, I can begin working on it with the Chair.
The Chairman: When will that be needed?
Senator Poulin: When we submit our budget. The Clerk could let us know when he will be ready to submit an operational budget.
Senator Forrestall: I have two items which I feel are rather crucial.
Before I get into them, I hope that we will be able to have one meeting of the steering committee before the Easter break, in order to decide what work we should take up in an investigative sense as opposed to the legislative sense. After the Easter break, we could bring back to the committee some recommendations as to what matters we might want to examine.
By way of general notice, I wish to pick up the cudgel of Senator Davey, a very distinguished and long-time member of this committee, and suggest that we take a look at the issue of truck safety on Canada's highways. We have not been able to do so in the last couple of years because of the pressure of communications legislation and policy changes that have been taking place. The committee has been very preoccupied with those matters.
Second, I wish to alert colleagues to my very strong feelings about national air transportation. Legislation governing air transportation is now 70 years old.
As a nation now overtaking the jet age with other forms of communication, we should do everything to ensure that this old fashioned form of communication - flying - is kept up to date. I suggest that we might look at that next year or in the fall; that it be put into the mix with suggestions of other members. They may have difficulty persuading me that their ideas have priority over mine.
I suggest that the steering committee may want to meet on this.
The Chairman: We will try to find a suitable time for that.
I suggest that we send a question to the members who are not here to ask them about their priorities. We must not forget that our mandate is communications as well as transport. Some people are more interested in communications than transport and vice versa.
Senator Poulin: Would it be possible for the steering committee to have an update of the study that was started by the committee in the past session on internal competition in telecommunications for the country? I assisted in part of the study and I would like us to have an update on it.
Mr. Daniel Shaw, Library of Parliament: I can begin preparing that for the committee.
Senator Forrestall: We would presumably be finished with that by the summer break.
Mr. Shaw: The first decision to be made is whether to continue it. On the previous agenda there were about 12 more people we wanted to see. That could be done within your time frame and then it would be only a matter of writing the report.
Senator Poulin: Before we take any decision, it would be wise to see a summary of what the objective was, what part of the objective has been reached, who has been heard, and what is left undone.
The Chairman: We can discuss this further in the steering committee. We will have C-14 to deal with this week. That is a start. In the fall, we will have the Canada Marine Act and the NavCan plans. We will be pretty busy in this committee.
Are there any other matters to deal with today?
Senator Forrestall: None, other than to extend to you our warmest congratulations and to ensure you of our full support.
The Chairman: Thank you very much. The steering committee will meet soon.
The committee adjourned.
Ottawa, Tuesday, April 23, 1996
The Standing Senate Committee on Transport and Communications, to which was referred Bill C-14, the Canada Transportation Act, met this day, at 5:30 p.m., to give consideration to the bill.
Senator Lise Bacon (Chairman) in the Chair.
The Chairman: I wish to welcome you, Mr. Keyes, Ms Greene, Mr. Patenaude and Ms Burr from the Department of Transport. I believe that you have a statement to make on Bill C-14, after which members of the committee will feel free to ask questions.
Mr. Stan Keyes, Parliamentary Secretary to the Minister of Transport: Honourable senators, I consider it a privilege to appear before you this afternoon, although I must admit that this is the first time in eight years of politics that I find myself sitting at this end of the committee table. I ask you to be gentle, please.
Joining me are Moya Greene, Assistant Deputy Minister; Kristine Burr, Director General of Surface Policy and Programs, Policy and Coordination; and Jean Patenaude, Special Advisor to the Deputy Minister. They are here to assist me in providing to you thorough and comprehensive answers to all of your questions pertaining to Bill C-14.
Minister Anderson very much regrets that he is not able to be with you here today as you begin your deliberations on Bill C-14, the Canada Transportation Act. However, I understand that arrangements have been made for the minister to join you on May 7 to talk about the bill.
I will be concentrating my remarks this evening on rail issues in this bill. I would like to cover three main themes. The first is railway renewal, an issue for Canada at this time. The second is the process we followed to put the bill together. Third, there are the principles of the bill.
Rail renewal is an issue in a legislative sense because we have not been prepared to look at the industry as it really is today. A few decades ago, rail dominated our economy. About 80 per cent of all movements, both passenger and freight, were handled by rail. Under those conditions we built up substantial legislative measures to counteract both actual and potential monopoly abuses. Today, the rail industry has become relatively specialized with bulk commodities like coal, grain, forest products, potash and sulphur petro-chemicals being its bread and butter.
Today's railways, tied as they are to the fixed locations of their lines, probably are as captive to their main shippers as any shipper can be. With the globalization of competition, most shippers, albeit at some cost, can respond to changing market conditions by expanding production to a new location in another region or another country or by closing out an operation location that is in decline.
These are the new rules of doing business. Parties who wish for simpler times or who seek to ignore this new reality do so at their own peril. In the National Transportation Act, 1987, we removed most of the economic regulations remaining in the other modes. Companies have met all the resulting challenges. Predictions of disastrous results from these policy changes have proven to be unfounded. Economic regulation of rail changed far less in 1987.
The Canadian industry remains in the doldrums while the deregulated U.S. industry is very much rejuvenated. Because of all the track that must be maintained, and our harsh Canadian winters, rail is a highly capital intensive industry. Funding in the hundreds of millions of dollars must be found and spent every year just to keep the track in reasonable condition. Monitoring by the National Transportation Agency, however, shows no point in past decades where the industry has come close to earning its cost of capital.
What does this mean? It means that the rail industry has no way to replace all of its existing plant. One may ask, "Do you really need all that track?" The probable answer is, "No, we do not." Some 84 per cent of rail traffic is carried on only one-third of the entire rail network. Selling lines to new, lower-cost, shortline rail operators can take up to two years. The legal process to abandon a line is just as long, as well as being highly adversarial and expensive.
In short, even though we can see the problem as it really is, we have not been willing to date, legislatively at any rate, to allow railways to tackle the problem head on.
The rail industry has other significant problems. Wasteful and antiquated work practices are maintained by labour agreements; rail faces high tax loads and different tax rules compared to its competitors who are, of course, the U.S. railroads and truckers; and rail faces a daunting level of regulatory supervision.
Under the current law, about 200 different kinds of business decisions must be accepted or approved by the regulatory body. Overall, we are talking about an industry with serious structural problems; an industry where renewal is long overdue.
Another measure of this structural problem is that CN and CP have been obligated to take combined financial writedowns of almost $4 billion over the past four years. A small part was for non-rail operations. No doubt, some of the problems rest at management's doorstep for their own decisions. However, a very real part of this loss stems from the legislative and regulatory glue that we have had stuck to this industry and which is getting in the way of needed change.
Railways have done much on their own behalf to get their costs down but end up almost standing still because their revenues have been dropping at similar rates. This is partly due to global competition. It is also due to the major new negotiating levers given the shippers in 1987.
Typically, the amount a shipper pays in 1996 to move a tonne of goods by rail is about 30 per cent less in constant dollars than the shipper paid for the same service in 1986. Government has to set an agenda for its part in the change to have commercial solutions negotiated between the parties directly affected replace regulation wherever possible; to get out of a wide array of direct operations by Transport Canada; to sell our interest in CN; to require that the arbitration award imposed to the end of the last rail strike have due regard for commercial viability in the industry; and to bring forward a modernized legislative framework as outlined in Bill C-14.
On my second theme of how the bill was put together, Senator Bacon has already commented at second reading on the extensive consultations that were undertaken with those directly affected by this bill, which was then called Bill C-101. Throughout this consultation process, which began more than 18 months ago, both the former and the current ministers of transport have emphasized the government's willingness to listen to constructive proposals to improve this legislation.
The first consultation phase on this bill proceeded for a full year before the bill was even introduced last June. The second phase through the summer obtained stakeholder proposals for additions and improvements.
In the third phase, the standing committee which I had the honour to chair received over 120 written briefs, listened to 83 witnesses during 55 hours of testimony and made over 80 amendments to the bill.
Under a new procedure applied in the House of Commons and as set out in Standing Order 73(1), the bill was referred to our committee prior to second reading. As a result, our committee had more time to conduct thorough and meaningful hearings and managed to build consensus around key issues as evidenced by the degree of unanimity achieved with respect to the amendments.
I should also point out that even the pugnacious Reform Party transport critic spoke very highly of this procedure. Notice that I said "pugnacious" and not "vexatious."
Finally, during the report stage debate last month, the government accepted a further 17 amendments, including changes to clauses 27 and 113, which became clause 112. The result is that there have been about 100 amendments to adjust and clarify the bill. None of these breaks the delicate overall balance that the government has sought to achieve between the interests of shippers and carriers in the bill.
My final theme concerns the broad principles that this bill should bring to the rail industry and other sectors. The first is simplification of the law. This bill reduces over 1,000 pages of largely antiquated legislative provisions to a more manageable 200 pages.
While some criticism is inevitable in any legislation, in the end, modernization on this scale resulted in only a handful of the 180-plus clauses in the main body of the bill being singled out for negative comment. Criticism in these few areas has come from both sides. Some say we have gone much too far; others say we have not gone nearly far enough. In the end, though, it must be remembered that we, the law makers, cannot directly make a better business out of the rail industry; that is the job of the companies and the people employed by those companies.
As law makers, we can facilitate positive changes with a framework that nudges the industry to act more like the service business that it really is; that introduces new levers to encourage the industry to become more efficient; and that ensures that where protection really is needed, it is provided.
To realize such principles, we have provided a commercially oriented approach to rail line rationalization where the emphasis is on seeking the most positive alternative future for a line when a current owner is not able to continue; where ample notice is given; where every possible buyer is tested for interest; and where a closure of operations can only come after continued operation of the line has been rejected by everyone.
We have kept all of the special negotiating levers added for shippers in the 1987 legislation. Consistent with the government's regulatory form thrust, the bill removes unnecessary or duplicative regulatory provisions and processes not just in rail but in other important areas.
The bill completes deregulation of the domestic air sector by removing unnecessary vestiges of economic regulation in the north by introducing a minimum financial entry test for new carriers and a prohibition on selling tickets prior to licensing, which I find very important today. The bill also removes unnecessary economic regulation of motor carrier transport, northern marine resupply services, and mergers and acquisitions.
As the government deregulates transportation modes and rolls back agency day-to-day oversight, the bill also ensures that the government can still act should an unforeseen, potentially damaging set of circumstances come together to disrupt an effective national system.
Overall, the bill makes the legislative framework more logical, shorter and understandable.
In conclusion, we have addressed rail renewal to deal with industry problems as they are today. We have followed an extensive consultative process over 18 months and with approximately 100 amendments to ensure that this is a better bill. We have brought in a bill to move the industry on to a more commercial and less regulated footing.
I believe these policies are consistent, transparent and fair. They will help to modernize the rail sector and enable Canada and Canadian businesses to compete effectively well into the 21st century.
Madam Chair, those are my comments. The officials from Transport Canada and myself are prepared to answer any questions you may have.
Senator Roberge: I should like to compliment you on the thorough job that was done on the other side in your committee. This bill was long overdue.
Clause 145 on page 68 of the bill states in part:
The railway company shall offer to transfer all of its interest in the railway line to the governments mentioned in this section for not more than its net salvage value -
I want to understand that particular wording.
As far as net salvage value is concerned, I do not think it is a problem if you are talking about hard assets, such as rail locomotives, et cetera. However, how will the net salvage value versus the market value for land be evaluated?
Mr. Keyes: I will ask Moya Greene to give you a thorough answer to that question.
First, however, I wish to thank you for your compliments to me and the job that the committee did. I want to stress that it was teamwork that made this happen. The chair had something to do with it, but so did the opposition members who contributed greatly to the bill as well. Quite frankly, we would not have been able to achieve some of the compromises that were met in this bill had it not been for, in some cases, the unanimous approval of the amendments that came forward.
Ms Moya Greene, Assistant Deputy Minister, Policy and Coordination, Department of Transport: Senator, concerning the question that you raise on the difference between market value assessment and net salvage value assessment, as I understand it, that depends upon where the track is situate. We are quite prepared to make experts available to you on this matter should you require it.
Net salvage value may include the market value of the land. However, it also includes the value of the steel that is on the track. In many cases, the lines that are most likely to come up for sale are in parts of the country where the value of the land would not be as high. In most cases, we are not talking about the downtown areas of the major urban centres of the country. We would be talking about valuing the steel for sale.
Senator Roberge: I want to make myself clear. I understand that in terms of anything that touches steel, locomotives, or what have you. However, as far as hard assets are concerned - and I am talking about land - you cannot evaluate land at a net salvage value; you can only evaluate land at a market value.
Ms Greene: That is right. However, the net salvage value of the piece of track about which you are talking will also include an appraisal of the market value of that land which, in many cases, because of where it is situate, will be very low.
Senator Roberge: I understand that if it is in the boondocks the value will not be high. However, are you saying that it will be appraised at the market value wherever it is?
Ms Greene: Yes.
Senator Roberge: It will not be appraised at the net salvage value because you cannot have net salvage value on a piece of land.
Ms Greene: That term has always been used in respect to segments of rail line. It has always been the net salvage value of the segment. It is not something new for the agency to determine; and it is certainly not something new for professional appraisers to determine.
I take your point, senator, that usually when we talk about salvage we talk about the residual value of a good to be sold on a market. However, in the case of segments of track, this is the term that has always been used. It is meant to incorporate both components. The first component is the land which is used for rail purposes, or other purposes if there are other purposes. The second is the steel.
Senator Roberge: Do you have any other comments to make on that?
Mr. Jean Patenaude, Special Advisor to the Deputy Minister, Department of Transport: No, I agree with it. It is the value of the land, less the cost of bringing it to market.
Senator Roberge: You are talking about the market value of the land, less the costs of bringing it to market, are you not?
Mr. Patenaude: Yes. This is a measure in the current legislation. It has not been amended by this bill.
Ms Greene: That has been in place for a long time.
Senator Roberge: That is not what it specifies, which is why I wanted to make sure.
You said before that rail prices over the past 10 years have been reduced by 30 per cent, did you not?
Ms Greene: Yes.
Senator Roberge: Do you have a chart which shows the variance between rail prices and the fluctuation in the commodities market over that same period?
Ms Greene: We can provide that. I did not bring it with me today.
Senator Roberge: I would like that information for a future meeting of the committee.
Ms Greene: That will not be a problem.
Senator Roberge: The tax burden on the railroads is pretty excessive in comparison to what exists in the U.S. I think the variance is 8 per cent to 14 per cent. Will the government be looking into this aspect of taxation?
Ms Greene: The government has been looking at the tax situation for the rail industry for some months now. However, as you know, it is not a matter exclusively in the domain of the federal government. A large portion of the tax burden imposed upon our rail system is imposed either by provinces or, in some cases, municipalities which are imposing high property taxes on railroads. Only a small part of the tax burden is federal.
We have discussed this matter with our provincial colleagues. Some provinces, including the province of Quebec, have moved to reduce the tax burden on the rail industry, bearing in mind the point you make, that the rail industry must be competitive with the United States.
We are continuing to monitor the situation. It is a matter of regular discussion with our provincial colleagues. I think we are making some progress in bringing other points of view to understand that this is really important for the competitiveness of the system.
Senator Roberge: You are doing some work already on the GST, perhaps that part will be easier.
Mr. Keyes: When money is concerned, negotiations with the provinces are always difficult.
Senator Spivak: What did you mention was the market share of railways vis-à-vis trucking? I believe you said 40 per cent.
Mr. Keyes: Yes, it is about 40 per cent.
Senator Spivak: What is your forecast as to how the railways will fare in keeping their market share? In what period of time has this market share been changed? How rapidly has it happened? What are the factors, other than cost, that you attribute to this very rapid change in transportation in this country?
Ms Greene: Since the development of the commercial trucking industry really got going in the late 1950s, there has been a continuing trend for trucks to take traffic from the railways. Trucks are simply more competitive and more flexible for certain kinds of traffic moving under a certain distance, which is about 500 kilometres.
My personal view is that despite the enormous progress on the part of our railways in the past 10 years to recapture some of the manufacturing market that is moving under 500 kilometres, it will be very difficult for the railways to fully recapture what has been lost. The railways are trying partnerships with trucking operators, new approaches to delivery, more on-time service, and scheduled train services in order to be as flexible as the truckers are in terms of the shipper and the destination.
The advantage of the railways is clearly and will always be in the area of bulk commodities moving in the medium to longer distances. There have been important trucking inroads for that type of traffic. However, our thought is that the railways, given the good progress that has been made in the past few years to bring costs under control, will keep that traffic as long as they become much more service-oriented and develop stronger and more direct relationships with shippers.
In a way, the regulation of the rail industry has been part of the problem. As long as a regulator was in place to mediate the relationship between the shipper and the transportation provider, the transportation provider did not have to be as much a go-getter as other service providers because someone was interposed in the relationship. One of the important advantages of regulatory reform is to force the railways to become more customer-oriented and to deal directly with the shipper on a more regular basis, just as any other business is forced to do. They should keep the long haul bulk commodity traffic. They should stem the erosion that has taken place in the medium-distance manufacturing traffic.
Senator Spivak: How do you assess the price factor? I have seen some figures concerning the extent to which the trucking industry is subsidized by not having to pay for roads.
Ms Greene: That is a very controversial topic.
Mr. Keyes: We had a lot of fun with that matter in committee.
Senator Spivak: I have not read your committee proceedings, but this subject keeps coming up.
Ms Greene: The truckers would say that they are not subsidized at all, that they are paying a small fortune in fuel taxes, and it is just that governments across the land do not dedicate their taxes to the infrastructure that they use.
Mr. Keyes: Senator Spivak, your first question on the business of rail was a good one. When we had the rail companies before us at the Transport Committee, they certainly knew that they were no longer a federal government agency relying on the federal government to pick up the tab at the end of the line if they fell short. As a privatized company, they know now that they have all the responsibilities of any business in this country. They must operate under certain rules, just as any business must do. As a result, they, too, are working quickly to reduce their administrative costs. They, too, are working diligently to ensure that they will streamline their operations, including archaic labour rules that have been negotiated in the past. It is a new world out there in terms of competition.
Senator Spivak: Let me point out that the Government of Canada has an obligation under international convention and treaty to reduce emissions which affect global climate change. Certainly, rail traffic is not as big a contributor to global climate change as is truck traffic. When looking at the year 2000, this is a serious consideration. Some people may not think so. However, it is, indeed, a serious consideration with serious cost implications.
How is the Government of Canada reconciling the fact that truck traffic may increase without looking at the tax subsidy structure to affect what is national policy?
Mr. Keyes: The bottom line is this: How do we improve the environment, as you asked, by using trucks less and trains more?
Senator Spivak: The phrase "improve the environment" is not the case. How do we ensure our survival? How do we continue to breathe?
Mr. Keyes: It must be remembered that it is not the responsibility of transport alone to ensure that we do that. Many factors must be examined and incorporated. For example, what type of muffler do we put on a truck to ensure there is some kind of action? The bottom line is to make the railways competitive with the truckers so that a choice can be made by the shipper.
The work that the House of Commons has done and the work that the Senate is now doing will ensure that the agency does not have to go through all the regulatory gobbledegook to get the job done. This work will allow the agency to do its job as an efficient, cost-effective, safe, competitive agency.
We know that the shipper will look for the best possible price. For example, if I am a farmer looking to ship my grain to a West Coast port or a Thunder Bay port, I will look for the best price. If that price can be achieved with a railway, then he will do that and help to reduce all the problems.
Senator Spivak: I am in total agreement with you there. My point, however, is that in looking at a national transportation policy, what work has been done in looking at economic instruments to achieve the policies, not only of transportation but of other government objectives? Motor vehicle emissions are the single, key, contributing factor to global climate change.
Mr. Keyes: Different things are being done by different levels of government. There are different departments which deal exactly with your point, Senator Spivak. Of course it begins with the Minister of the Environment, Sergio Marchi, who came forward with auto-emissions announcements in Vancouver two weeks ago. The government is very conscious of those points. We are working ministry by ministry to accomplish the objectives you describe.
Senator Roberge: Have you evaluated the advance of the shortline operators which could re-balance the averages between trucking and rail?
Ms Greene: We do not have sufficient experience in Canada yet in that area, although we certainly hope that this bill will encourage the development of a shortline industry in Canada. We have looked at the experience in the United States. As suggested in your question, senator, the experience there has been very positive. Shippers are receiving service at a lower cost than they had been receiving it from the main line railway on that segment of track. They are continuing to receive the kind of service that makes the shipper choose rail over truck, even where the choice is available to the shipper.
By and large, the service offered by the shortline railroad is more flexible and attuned to the needs of the shipper than is the case with the bigger rail line whose marketing departments may not always be able to get out and touch the bases of all the smaller shippers.
We hope to replicate here the experience of the U.S. with the development of a larger shortline industry. In the few cases that we do have - and perhaps you will hear from some of them in your deliberations - Canada's shortline rail industry is providing service where there would have been no rail service otherwise. They are providing more flexible service at a lower cost.
This is a positive move toward the revitalization of a Canadian rail industry. It is also part of the solution to stem the erosion of traffic from rail on to trucks.
Senator Poulin: Mr. Keyes, that was an excellent presentation. It was very clear.
I have two questions which arise because of my past lives. Because my designated region is northern Ontario and because I am from Sudbury I am wondering what impact this legislation will have on remote areas.
Mr. Keyes: There are two aspects to your question, senator. Constitutionally, we are bound to provide service to certain areas depending on the location. Ms Greene mentioned that in response to the last question. We preserve the service.
It is also open to opportunity. We have had more than one individual come before committee or the minister to express their excitement about this subject. They understand that there may not be a need to supply a particular service between Towns A and B which are connected to Towns C, D and E down the line. The railways are looking to hive off that kind of opportunity. However, that service is being picked up by those in the private sector who want to run a railroad.
Tom Payne is a fellow from western Canada. Talk about an entrepreneur! Senator Adams is familiar with him. Mr. Payne is a classic example of those illustrated in the stories we hear from Ontario. Entrepreneurs are telling CN and CP that if they are no longer interested in running these services, they are.
We all know why that is possible. The individual can run a railroad, be they passenger or freight, through communities in a more efficient manner. They will not be tied to the labour agreements of the past. They will be able to do more with less.
I am not trying to reflect on industry. However, coming from Hamilton as I do, I can tell you that rationalization at Stelco and Dofasco has caused some work forces to drop from 16,000 down to about 9,000.
Rationalization is everywhere. This bill will help the rail industry to cushion the effects of that rationalization. The private sector is ready to pick up the pieces.
Ms Greene: Part of the philosophy of this bill is to eliminate unnecessary regulation so that main line railways can reduce their costs. As rail lines reduce costs, the possibility of preserving service is greater. That is something which should be emphasized.
We had a lot of regulatory reform starting in 1987. For rail, though, we deregulated the price of the service without allowing the railways to reduce their costs. The regulations kept costs unnecessarily high. That cost on low-density traffic lines formed a recipe for potential abandonment unless something could be done to help. In this case, regulatory reform is a direct link to preservation of service in areas where densities may not be high.
Second, as the honourable former chairman of the house committee has pointed out, there is another new philosophy in this bill. The old bill provided for abandonment of lines with the longest possible process for saying "no". Politically, I felt the discontinuance of service should be done in a shorter and simpler process. The whole focus of that regulation was to prevent change and to prevent the railways from rationalizing.
This bill takes a different approach. It promotes the sale of lines which main line railways no longer wish to operate but which could still be operated profitably by someone. In fact, this bill prevents the main line railway from abandoning service on that line until every single opportunity to sell it has been sought out. That also preserves service, particularly where traffic densities are low.
Senator Poulin: You both spoke about the regulatory agency. We know the importance of the implementation of a bill through a regulatory agency. What are the main changes caused by this bill between the existing regulatory agency, the National Transportation Agency, and the new Canadian transportation agency which will be created as a result of this bill?
Mr. Keyes: Do you mean structural changes in the agency body itself?
Senator Poulin: I refer to both powers and body.
Mr. Keyes: It is a long list.
Ms Greene: It is a long list. However, it can also be a short list, depending on how you talk about it. The philosophy of this bill is that the houses of Parliament decide the policy. The agency is a quasi-judicial group which decides the cases that are presented to it.
In the former bill, those two roles had become commingled. The agency was deciding a lot of things on the basis of its view of the public interest. Of course, all those decisions wound up back in the hands of government under the appeal route because any decision of the agency can be the subject of a petition to the government.
This bill more clearly defines the quasi-judicial roles of the agency and keeps those intact. It segregates out the purely policy and political roles of the government of the day.
Second, the agency will be making decisions about a fewer number of things. The agency, at least theoretically, could make decisions about pipelines, about motor vehicle transportation, about areas where, when you actually look at them, there has not been a single case in years and there was not likely to be a case.
Let us look at motor vehicle as an example. When we looked at who actually would wind up in front of the agency on a motor vehicle question, it turned out to be one bus. The road crews are bussed in Newfoundland, which was part of the CN operation. You do not need a whole part of the act with the power of decision-making to support one busing operation. Nor do you need a whole part of the act and a whole series of powers for the agency around pipelines when there is a body better able to deal with them.
Third, the powers of the agency have been clarified. I refer to the whole matter of the objectives that have always been in the act. The act, since 1967 and right through the 1987 reform, always said that regulation should not be the first resort. Parties should try to make their solutions first, and only if there is a need for a regulatory intervention should there be one. That was always the objective of the National Transportation Act and the act that preceded it.
However, the regulated shippers and railways got used to having an intermediary to help them in their decision making. Therefore, there would be resort to the agency on occasions where, in a mature industry, 20 years later and now moving into the year 2000, you probably did not need a mediator.
The third area in which there is change is with regard to the guidance to the agency on that objective. The guidance provisions indicate that the government is proposing that the agency should take any complaint from any shipper, just as it did in the past, and that it should make a prompt decision where they believe there is a substantial commercial interest at stake. If there is no substantial commercial interest at stake, you could say that the objectives of the act are not being respected because there is probably not a need for a regulatory intervention.
Finally, with respect to the structure of the agency, it is now proposed that the agency have seven members and that there should be flexibility for part-time people to be appointed to deal with specific issues that might come before the agency.
The final point is that the agency retain all of its powers. The powers are like those of a superior court judge, quasi-judicial powers to call evidence, subpoena, enforce its orders like orders of the Federal Court of Canada, and to make its decision on the basis of evidence and facts that it needs to have presented to it. In those core quasi-judicial areas, all of the powers of the agency which are analogous to the Federal Court are preserved in this bill.
Senator Poulin: In the spirit of the bill, Ms Greene, since you say there seems to be a simplification of the regulation, what will be the savings, both at the agency in terms of moneys and within the department in terms of moneys?
Mr. Keyes: Time is money.
Ms Greene: Mr. Keyes makes the right point. The savings are primarily in time, red tape and unnecessary supervision that caused a relationship not to develop. If the shipper and the rail carrier do not have a direct relationship, then the rail carrier will not know how to tailor its service to meet the shipper.
That said, our agency was asked in the past to carry out many administrative functions. It used to give out subsidies under the Western Grain Transportation Act. It used to give out the maritime freight rate subsidy. We had a staff of about 500, a number which will be reduced significantly because they no longer need to give out these subsidies since they subsidies are no longer in place.
As I pointed out as well, there are areas of regulation for which there had not been a case in years.
Senator Poulin: As you said earlier, there will be fewer appeals on decisions made by the agency going through the department. Because of that will there be any possible savings within the department?
Ms Greene: I do not think so. We did not have any appeals in many of those areas like pipelines or motor vehicles. Most of our appeals were on abandonment. There may be some savings. However, even there, it used to take so long that I cannot say to you in a department of the size of Transport that we were truly overburdened by the number of appeals that we had on abandonments. It would take so long winding its way through the process that we were never inundated with 20 at a time, if I can put it that way.
Mr. Keyes: As I stated, time is money. Therefore, if you are realizing savings on time, time spent on the regulatory process, time spent not allowing the two parties to come together and having to initiate an action through the now CTA in order to make that, then that is time. If we save time, then we save money.
Senator Adams: I live in a remote area. I will not talk about railways and highways but, rather, I wish to talk about air and marine transportation.
Our community is supplied by the airlines. When Bill C-14 is passed there will be an open market for private business. Thus, there can be more competition. Airline and marine transportation operators understand how much it costs to operate their services. It is a little different from trucking on the highway and transporting goods to cities. In some remote areas in the west, there are winter roads. In areas around Hudson Bay, we do not have such roads but rely instead on airlines and marine for shipping goods to our community.
Right now I can ship goods from Winnipeg to Rankin Inlet, which is about 900 miles, for $1.80 per kilo. From Ottawa or Montreal to Pond Inlet, the cost is about $6 per kilo. I can ship cheaper with NWT Air, perhaps at $1.30 to $1.40 per kilo. If I was in private business and going into competition, would the other carriers be able to survive if I did that? As soon as you have a more open market in transportation, some people will start to compete. How will we deal with the competitive in areas such as mine?
Ms Greene: Senator, as I understand your concern, you are worried that in northern parts of the country, where markets are smaller and thinner, if there is a lot of competition you may see a disruption of stable service because the stable operator could be driven out of business by an unfair fly-by-nighter. That is how I see your question; is that right?
Senator Adams: Yes.
Ms Greene: We were worried about that. As you know, in 1987, the air industry was first deregulated in this country.
We kept in place a system that was not really a regulated one but which was some sort of regulation for northern air services for the very reason that you give; the fear that the market was so thin that if fly-by-nighters were to come into it, it would really disrupt the service. That never happened. In fact, there was hardly a single application to the agency under that residual regulation. The service in northern areas is now better than it was pre-1987. On the basis of the 10 years of evidence that we now have, this seemed to be the kind of supervision that the agency was purporting to exercise, something which, in fact, was never called upon.
As Mr. Young said at the time, and as Mr. Anderson has confirmed, if a problem should emerge in these thin markets where there are not as many people as there are in some other markets, he will intervene right away. In addition, we will be looking very carefully to see what happens in markets such as the ones you cite. This bill provides for an annual review of everything that is happening in the transportation sector, including how the act operates, as well as for a complete comprehensive review every four years.
We believe that the bill is equipped to catch any problem which may emerge. On the basis of 10 years of practice, we do not think a problem will emerge. In fact, we think this was a regulatory safeguard upon which no one relied.
Mr. Keyes: I have been in the North a few times. I have seen three bags of milk being sold for $15.95. That indicates the cost of shipping freight around this country.
Senator Adams: Two litres of Coke cost $7.
Mr. Keyes: I believe that Senator Adams is asking whether this bill provides an opportunity for more competition, thereby reducing the price of products being brought up North. Both northern air services and northern marine services will be totally deregulated as a result of this bill. There will also be an extension of the final offer arbitration provision which has been extended to the northern services. That is included in this bill. We hope that deregulation will encourage more competition, thereby lowering the price of the good or service.
The Chairman: I would like to thank you all very much. Your presentation was interesting. If we need any more information, we will certainly feel free to ask the department and Mr. Keyes for it.
Mr. Keyes: I am sure the department officials would be more than willing to appear again at your request at any time during your process.
The committee adjourned.
Ottawa, Thursday, April 25, 1996
The Standing Senate Committee on Transport and Communications, to which was referred Bill C-14, the Canada Transportation Act, met this day, at 9:00 a.m., to give consideration to the bill.
Senator Lise Bacon (Chairman) in the Chair.
[English]
The Chairman: Honourable senators, our first witnesses are from the Railway Association of Canada. I should like to welcome Mr. Robert H. Ballantyne, President; Ms Cynthia M. Hick, Corporate Secretary; and Mr. Roger K. Cameron, General Manager, Public Affairs.
Mr. Robert H. Ballantyne, President, Railway Association of Canada: We have made copies of our written brief available. The remarks we will make today are abbreviated. If any members of the committee have had a chance to read the brief, we would be glad to respond to questions on it.
I will be sharing this brief presentation with my colleague Cindy Hick. We appreciate the opportunity to present the views of the Railway Association of Canada on the rail renewal strategy in general and on Bill C-14 in particular. In this presentation, we will focus on the principles and the broad issues, but we will be pleased to answer specific questions on the recommendations included in our written submission.
Ms Cynthia M. Hick, Corporate Secretary, Railway Association of Canada: Honourable senators, the RAC is the trade association of the railway industry. All 32 common carrier railways in Canada, both passenger and freight, federally and provincially regulated, are members of this association. The RAC is now in its 79th year, having been formed in 1917 at the request of the Canadian government to coordinate railway activities during the First World War. The members of the RAC account for virtually all railway activity in Canada, had freight revenues of $6.6 billion in 1994 and directly employed over 54,000 people in 1994.
A reliable, low-cost transportation system is not a luxury. It is essential to overcoming our geography, and it is essential to our prosperity. Canada's railways have been meeting the challenge of providing low-cost transportation for over a century and can continue to do so in the future in an environmentally responsible way. If they are to continue to do so, they need a rail renewal strategy that will provide equitable treatment across modes, fair taxation and legislation that relies on market forces to govern transactions between buyers and sellers in the transportation marketplace.
Our analysis and comments are based on three principles. First, railways are businesses like any other - no more and no less - and should be treated accordingly. They are not monopolies. They do not have market dominance. They are no longer instruments of national policy and are inappropriate agencies for promoting regional development. Two, railways have no inherent right to exist. Regardless of regulation, they are ultimately subject to the laws of the marketplace and their future will be and should be determined by the market. Three, railway policy and any strategy for rail renewal should reflect these principles and should ensure equitable treatment for railways in terms of policy, regulation and taxation. Railway managers have not requested special treatment, only equitable treatment.
The National Transportation Act of 1987 and its predecessor took partial steps toward acknowledging that railways no longer had monopoly power or market dominance.
In its current form, Bill C-14 remains too timid in its reliance on market forces to govern the commercial activities of the industry. While we are disappointed that the House of Commons did not take bolder action in deregulating the railways, we think Bill C-14 is a step in the right direction.
Clause 5 of the bill deals with transportation policy and, as far as it goes, the RAC agrees with its stated policies. We are pleased that clause 5(h) explicitly recognizes as government policy that each mode of transport should be "economically viable."
Historically, railways have been perceived as monopolies with some of the characteristics of public utilities. In the last decade of the 20th century, they are neither. They are businesses operating in a highly competitive environment. There is competition within the rail mode and there is intense competition between modes. The existence of competition has implications for government policy makers and legislators, especially with regard to taxation, funding of infrastructure, mandated access and regulation in general.
With the intense competition that Canadian railways face from Canadian and U.S. truckers and from U.S. railroads, taxation of Canadian railways is a major element in the ability of the industry to remain competitive. The views of the industry on taxation have been made known to various levels of government on many occasions over the past few years and will not be repeated here.
In summary, railway revenue in 1994 averaged 2.35 cents per revenue tonne kilometre, a drop of 8 per cent in current dollars from 1989. To put this into perspective, railways must move one tonne of freight 12 kilometres to generate enough money to buy a pencil.
In 1994, the railway industry tax bill for locomotive fuel tax, property tax and other sales and excise taxes was $464,149,000, an increase of 4 per cent over 1993. In five of the past seven years, this tax bill has exceeded the total net income of the industry.
The figures quoted are not the total tax bill. They exclude income and payroll taxes.
A second major element affecting the ability of railways to compete is the funding of fixed plant and the provision of traffic control services. In the marine, air and highway modes, various levels of government have provided the fixed facilities and traffic control services. These have generally been funded from current revenues or bond issues and have been accounted for as long-term capital assets in the private sector. In most cases, the public entity recoups some portion of the cost from user fees and any shortfall from general taxation.
In contrast, railways finance, build, own, operate, maintain and police their own infrastructure, pay taxes on it and provide their own traffic control. The funding of highways is of particular interest to the railway industry, and the ambiguity surrounding fuel taxes and licence fees is of particular concern. For the most part, these revenues are treated as taxes and taken into general revenues; that is, they are not treated as user fees. Modal equity will not be achieved until highway funding is reformed and costs are properly allocated among the various classes of highway users.
Several provisions of the NTA, 1987, are brought forward into Bill C-14 to give one carrier regulated access to another carrier's facilities or to give extra leverage to shippers in negotiating "interchange" from an originating railway to a connecting carrier. These provisions are competitive line rates - CLRs - and extended interswitching limits. These provisions have generally been given the term "competitive access provisions." The implication is that these provisions enhance competition. This is an example of "doublespeak." These provisions are examples of the use of regulation in place of market forces. The perceived need in the 1990s is an example of 19th century concerns driving 21st century policy. They are based on the perception that railways have monopoly power. Railways have monopoly power in no markets. There is intramodal, intermodal and market competition. There are virtually no captive shippers and even fewer that lack bargaining power.
The shipping community has made very strong and insistent representation to keep these provisions along with the final offer arbitration provisions. It is, of course, not surprising that they should. They have nothing to lose in the short run and much to gain in bargaining power.
The questions for legislators considering the need for these provisions are as follows:
1) Are these provisions compatible with the stated policy of relying on market forces?
2) Do the railways really have monopoly power?
3) Do shippers need these provisions to protect their negotiating position with the railways?
4) Is there any similar provision imposed on any other mode of transport?
5) How would the shipping community react if similar provisions were directed at their industries?
The mandated access provisions appear to have superficial logic when compared to the operation of the marine, air and highway modes; namely, competing carriers are available at any terminal. These provisions are an attempt to make the railway industry look, from a shipper's perspective, like the other transport modes. The fundamental difference is that railway companies provide their own infrastructure. Railway company deployment of capital and fixed plant investment is part of its competitive strategy. It is no more reasonable to mandate access to railway A for railway B or shipper C than it would be to order General Motors to assemble Ford motor cars.
The railway companies have no objection to sharing access. This has been an inherent part of the industry for the past century. Our objection is to having access mandated by legislation or regulation. Access is more appropriately negotiated on a commercial basis.
Mr. Ballantyne: The RAC supports the provisions of Division V of the bill which addresses the disposition of railway lines. These provisions should expedite the sale to short line operators and accelerate the abandonment process for those lines that have no possibility of economic operation.
In the debate on Bill C-14, the shipping community is recommending that provisions be added to Division V that would mandate, as a consequence of sale to a short line operator, that the new short line be awarded running rights over its Class I railway connection to the first interchange with a third railway.
A recent survey by the CITL - the Canadian Industrial Transportation League - on this issue indicates that this is hardly a burning issue for the shippers. While they reported that over 87 per cent of respondents supported this concept, only 32 per cent of their membership even bothered to respond.
The railway industry is strongly opposed to this recommendation. The carriers, both big and small, are of the view that running rights are more properly left to commercial negotiation.
As with other parts of Bill C-14, the level-of-service clauses include conditions that are inconsistent with the principles enunciated in clause 5. Clause 116(4) provides that the agency may order railways to carry out specific construction or acquire rolling stock and specify the maximum charges that a railway company may levy in respect of such orders. It is our view that normal common carrier obligations are sufficient protection for shippers and travellers. Again, the railways are being singled out for special treatment that may have been appropriate in the 19th century but is certainly not relevant as we approach the 21st century.
Is it more reasonable for regulators to impose investment decisions on railways than on, say, newsprint producers or farmers? We think not.
I would like to say something specific about Division VI which deals with the transportation of western grain, particularly as it relates to the Central Western Railway. Tom Payne, President of the Central Western Railway, is the next speaker, and he will speak to this in somewhat more detail.
In Division VI, transportation of western grain by a "prescribed railway company" is defined in clause 147 as CN, CP and "any prescribed company operating a railway." Clause 154 further states that the Governor in Council may make regulations prescribing a railway company for the purposes of this division.
The Central Western Railway operates in the heart of Alberta grain-growing country as a provincially regulated railway. The grain originating on the CWR is interchanged to CN and CP for handling to export position. The provisions of Division VI will not apply to grain shippers delivering to CWR loading points unless and until the CWR is designated as a prescribed railway under regulations made pursuant to clause 154.
The RAC certainly supports the position of the CWR requesting that it be designated as a prescribed railway in clause 147 of the bill itself and that Schedule I be amended to include the lines of railway owned by the CWR.
In summary, it is our view that legislation such as Bill C-14 should not be considered either "pro-shipper" or "pro-carrier" but should provide an equitable and stable environment in which commercial organizations are left free to succeed or fail by the dictates of the market. Surely such legislation should be "pro-Canadian".
With Bill C-14, the Parliament of Canada has an opportunity to act in a bold and innovative manner and to show global leadership in providing 21st century law for 21st century transportation. While we think Bill C-14 in its current form is too timid in its response to the current realities, it is a step in the right direction and we support its passage.
In our written brief, we made specific recommendations. We would be glad to attempt to answer any questions from the committee.
The Chairman: What commodities are considered truly captive to rail?
Mr. Ballantyne: In our view, virtually no commodities are truly captive to rail. In almost every situation, there is some alternative. There are commodities that lend themselves to movement by rail. These tend to be bulk commodities such as coal, sulphur, potash and grain, commodities that move in large quantities and that tend to have a somewhat low value on the market.
The Chairman: Do you have any views on how much track is likely to be abandoned - some people do not like that word - in the next few years, for example? Do you have any idea?
Mr. Ballantyne: No, I do not have any specific number. CN and CP, when they appear before the committee, may be able to give you specific numbers on that. They both said publicly that they expect to convey large amounts of their existing trackage. They both indicated that large portions of their existing networks handle small amounts of their traffic.
We expect to see the two large railways focus on their main line activities and do what big railways do best - haul large quantities of material over long distances on a concentrated route. Light density branch lines which show up on railway maps would certainly be the candidates. They represent a large portion of the total Canadian railway network.
Senator Kinsella: I thank the witnesses for their presentation and, in particular, for drawing our attention to the general matter of principles and policies.
Clause 5 of the bill speaks to the National Transportation Policy. Do you agree with every word contained in clause 5? Is it congruent, in your view, with the principles enunciated on page 3 of your submission?
Mr. Ballantyne: Certainly we would agree with most of the principles in clause 5. With respect to subclause (d), which deals with regional development, we do not think that, at this time in history, transportation in general and railways in particular are really appropriate instruments for regional development.
Senator Kinsella: Subclause (d) states:
...transportation is recognized as a key to regional economic development...
The government recognizes as a principle that, as a matter of government policy, transportation is key to regional economic development.
...and that commercial viability of transportation links is balanced with regional economic development objectives so that the potential economic strengths of each region may be realized,
Does your association disagree with that?
Mr. Ballantyne: We are saying that if transportation is a commercial activity, it must be treated as a commercial activity.
Senator Kinsella: Can we examine your hypothesis?
Mr. Ballantyne: Certainly.
Senator Kinsella: In your first two articulated principles, you state that railways are businesses like any other. In your second principle, you state that railways must be subject to the laws of the marketplace, determined by the market. If I understand correctly, the view of your association is that there is no social dimension in terms of public interest or in terms of business interest to our railway network in particular and our transportation policy in general; is that right?
Mr. Ballantyne: Yes. Railways are essentially a commercial activity. Railways at this time in history are not like railways in the 19th century. We are not opening the country. There are lots of option. Governments in North America have built highways all over the continent.
In our view, railways do not play the same role as they once did in terms of instruments of social or developmental policy.
Senator Kinsella: This bill addresses transportation in general and not only your sector.
Mr. Ballantyne: That is right.
Senator Kinsella: It is clear from what you have said and from what is written that it is not totally congruent with the policy of the government.
My second question is in reference to Part IV of the bill, which deals with labour relations matters. Does your association have a particular view on what is proposed here? In practice, there has been some experience of bringing in statutorily in the general transportation legislation proposals which deal with the use of final offer arbitration.
Mr. Ballantyne: There are provisions for final offer arbitration in the 1987 act. These provisions are still in place in Bill C-14.
Senator Kinsella: What has been the experience of your membership with respect to that?
Mr. Ballantyne: My recollection is that few cases have come to final offer arbitration. I am not aware that any have gone that far. There have been some with respect to which the final offer arbitration process was started and the parties eventually came to a negotiated agreement.
Senator Kinsella: Parliament was forced to deal with that principle in the last session of Parliament with regard to back-to-work legislation affecting the ports.
On page 14 of your written submission, it is your recommendation that clauses 113 to 116 of the bill be deleted. You state that you find these provisions discriminatory to your industry and incompatible with the policy objectives set out in clause 5. I take it your view is that they are offensive to what is actually set out in clause 5 and not that you disagree with clause 5.
Mr. Ballantyne: Yes, indeed.
Senator Kinsella: Would you review for members of the committee your fundamental argument as to why you think those clauses of the bill should be deleted?
Mr. Ballantyne: It is a long-standing issue in transportation law that there are common obligations on carriers, whether carriage be by water, rail or some other mode. This means that anyone who sets themselves up to provide transportation services will provide those services if an appropriate price can be negotiated.
However, the level of service provisions included in Bill C-14 go beyond this for the railway industry and for the railway industry alone in that they basically state that the agency may order railways to carry out specific construction and acquire specific rolling stock. They may then specify the maximum charges that the railway company may levy in respect of such orders.
No comparable provisions are directed at any other mode of transport. As far as I know, this is unique to Canadian law. I would defer to any lawyers in the room who may know about this in more detail than I do. However, I am not aware that such provisions exist in the laws of any other western country.
Senator Roberge: Clause 145 deals with once a line has been abandoned and states that the net salvage value will be used. What is your understanding of "net salvage value"? We discussed this matter on Tuesday with representatives of the Department of Transport. What is your opinion of the term?
Mr. Ballantyne: I do not recall there being in the bill a definition of the term "net salvage value." It is our view that the value of land should be included in the final price paid by a government agency under that provision of the bill. In fact, our view is that it would be more appropriate to come to some negotiated market value for the land and the value of the fixed plant that is on that land. However, it is also our view that there should be an element in that net salvage value to represent the value of the property as well as the material on it.
Senator Roberge: The answer I received on Tuesday was that, as far as land is concerned, the net salvage value would be the market value of the land less the costs of bringing it to market. In my estimation, that cost would include brokerage fees, for example. That is what I understood from the Department of Transport. Does that satisfy your understanding?
Mr. Ballantyne: It would go a long way to satisfying it. I have not given much consideration to elements such as, for example, brokerage fees. We are saying that such a transaction should have a commercial dimension as far as it is possible to have a commercial dimension.
Senator Roberge: If we are talking about steel, then, the net salvage value is totally different from what we are talking about when we talk about land.
Mr. Ballantyne: That is right.
Senator Roberge: I have noticed for about the last 10 years that the price of rail to the consumer has not increased. In fact, it has decreased by about 30 per cent. Why has not the price of rail to consumers increased? What are your views on that issue?
Mr. Ballantyne: There are a number of reasons for that. In part, it is a reflection of the 1987 National Transportation Act. First, there has been a long, continuing downward trend in railway prices, even going back to the National Transportation Act of 1967. This has been due to a number of factors, the greatest one being the competition that exists in the transportation marketplace and which has existed for a long, long time. This in itself is good evidence that the railways do not have market dominance and that there are not many captive shippers.
Some provisions of the 1987 National Transportation Act have had an effect. The railways themselves were interested in confidential contract provisions, which were introduced in 1987. The railways knew that this would lead to downward pressure on prices. They were quite willing to have that take place. Some of these so-called "competitive access" or "mandated access" provisions have also, in our view, given the shipping community additional bargaining power, which may not be commercially warranted, and that has also had an effect of downward pressure on railway prices. I think, however, that it is largely the very fierce competition that exists in the transportation marketplace between railways and truckers. The northern U.S. railways have access to much of the Canadian traffic, so there is very strong and intense competition.
Senator Roberge: I will reserve my other comments on that issue for the shippers.
Mr. Ballantyne: They will give you their views which, I am sure, will not be identical to those I have expressed.
Senator Roberge: As a follow-up to Senator Bacon's comment on captivity, one area which I believe is probably more captive than others is coal. It is in such a distant area and can only be serviced by rail, and there is only one rail line instead of two. That situation merits more explanation. Why you do not believe it is captive?
Mr. Ballantyne: That is really not difficult, senator. Coal is a highly competitive commodity. It moves on a worldwide basis. A lot of Canadian coal ends up in countries such as Japan and Taiwan. If Canadian coal is to be competitive in those markets, then it must meet the competitive price on a world basis. Therefore, the coal coming from Australia, China and South Africa is in competition with Canadian coal. If all the partners in the production and movement to market of that Canadian coal cannot be competitive on a world basis, then the coal will not move. That will not be in the interest of anyone, even the one railway that may service that mine. That is the market pressure. That is where there is market competition.
Even if only one carrier services the production facility of some producer, the market competition on a world basis brings the same competitive pressures to bear that would exist if there was more than one carrier directly serving that facility. Those pressures can be even stronger than where there is direct and immediate competition with more than one carrier or more than one mode of transport serving a facility. That is true for many export commodities that are so essential to the Canadian economy.
Senator Roberge: In the coal sector, has there been a final offer arbitration situation? Has there been some experience in that regard? It may be that you do not have the answer to that question. Perhaps the two major lines will have an answer.
Mr. Ballantyne: I am not aware that there have been any such situations. When CN and CP appear, they can answer more specifically. However, I could find that out for you, if you like.
Senator Roberge: No, I will ask them that question.
The Chairman: I wish to thank Mr. Ballantyne, Ms Hick and Mr. Cameron for appearing before the committee this morning.
I now welcome Mr. Thomas Payne of Central Western Railway Corporation.
Mr. Thomas Payne, President and Chief Operating Officer, Central Western Railway Corporation: It is an honour to appear before you today.
Central Western Railway started in the province of Alberta in 1986 as a result of a special act of the government of Alberta in 1984 to own and operate railways. We are the largest Canadian-owned regional railway company. We operate 250 miles in the centre of Alberta. We are partners in the Quebec Railway Company, a company we started. It operates a line from Quebec City to Clairmont, Quebec. We are currently working with Canadian Pacific for a line in the Ottawa Valley.
We have been an active participant through the years in the working of various policy questions touching upon grain, general transportation and general freight. We have lived through the changes of the WGTA, which have been substantial. I will touch on that later.
The issue facing all the railways and particularly the regional railway industry is the need for real balance between shippers and railways; thus, the necessity for Bill C-14. We are certainly acting as the local delivery boy. For many of the communities we serve, we represent far more than that.
On the branch line which serves the Stettler subdivision and some surrounding communities, we pay upwards to 42 per cent of the total tax base. If the railway and the shippers who use its facilities on that line were to disappear, the communities would disappear.
The changes to the WGTA presented last year in the Budget Implementation Act have had a substantial effect on branch lines in western Canada. A portion of our line carried some 20,000 tonnes of traffic last year, and more the year before that. This year it has carried 12 cars at an average of 83 tonnes per car. That line is becoming uneconomic very quickly.
The issue in the WGTA is no longer freight rates or the railway but the price the farmer is paid for his grain on a delivering commodity basis to an elevator company. There is competition among elevator companies to get that grain. This is causing a tremendous dislocation on the prairies, which is affecting the branch lines.
Perversely, and perhaps to our advantage in due course, the ability of an elevator to blend grain and offer a farmer a higher price for his grain is causing shifts of traffic between the branch lines. Branch lines which had previously been contemplated as candidates for abandonment are now enjoying higher levels of traffic because the older elevators have many compartments and they can blend. It is rather funny; on the other hand, where there is blending capability on an adjacent line, branch lines are dying.
The trucking industry is reaching into the countryside for shippers and purchasers to the extent of 400-mile and 500-mile hauls because of the distance-related freight rate prescribed in this bill and in the Budget Implementation Act. Given that we are not a prescribed railway, we are not entitled to participate in all of the costing and divisional arrangements for the carriage of western grain. This is an issue not just for us but for any emerging regional railways on the Canadian prairies. If we cannot participate on an equal basis with CN and CP in the grain handling business, then the shippers, the grain companies and the people affected by regional railway growth will make the decision not to support this policy and not to have a regional railway with its potential benefits.
What benefits has Central Western brought to its communities? We have hauled more traffic at about 60 per cent of the price of the nationals carriers. We provide a demand weekly service on the line. We have become a focus in the community again.
Given this lack of ability to participate in the system on a legislated basis, we will be shut out. The policy of lowering costs and making more efficient regional railways will be frustrated on the Canadian prairies.
Enough said about the WGTA.
With respect to the shipper-railway balance in this bill, you will no doubt hear from the national carriers and the shippers. The shippers want more privileges under this bill. My observation is that the objections of the shippers were addressed in 1987. Now it is time to address some of the difficulties of the railways.
For the creation of new regional railways in clauses 91 to 95 of the bill, there is an implicit insurance test requiring a carrier who wants to buy a line and operate it in the federal jurisdiction to provide proof to the agency of sufficient liability insurance to cover the public risk. This is a laudable goal, but it is hard to achieve. Central Western's first annual premium for a line carrying some 20 cars of grain a week was $425,000. That is a one-year premium covering one accident. If we had one accident, we would have to pay another premium. Things have improved, but there is no premium pool in Canada in which regional railways can participate.
National carriers assume their own risk for many millions of dollars on the front end. If the agency, in the determination and issuance of a certificate of fitness, is to require $20 million or $25 million worth of insurance, it will be very hard to place. The other difficulty is that you may not be able to find a marketplace for that. When you look for $25 million worth of coverage, perhaps one will underwrite it.
Surely it is not the intent of the Government of Canada to restrict the ability of forming railways through this regulatory instrument. We must ensure the availability of coverage for this insurance requirement in the circumstances as found in the actual field.
Transferring and discontinuing the operations of railway lines are covered in clauses 140 to 146. At page 6 of my brief, I referred in error to clause 143(3); that should read 141(3).
There are two kinds of lines; those that are abandonment candidates and those that should not be abandoned. There must be a little more clarity in clause 141(3) to provide for a short notice filing of some kind - a transaction between railways, whether federal or provincial or of whatever geometry - to allow quick transactions to take place. The current process is to file with the agency, and the agency has 120 days to make its decision. That is a long time.
Decisions in the United States are made sometimes in as little as a week. If a competent railway is willing to operate it and wants to change their service, sell it or convey it for some reason, the two should be able to make a deal, submit a short notice filing and get on with running the railway. In Canada, they must make their deal and let the whole thing sit for up to six months, perhaps, by the time they make their filing and the agency makes its decision. That is a long time to wait for a decision out of the agency which will ultimately be made anyway. Perhaps some review could be made to provide for railways to get on with normal transactions between themselves. The bill could be made clearer in that respect.
I have talked about the maximum rate scale and the shippers on the WGTA. Regional railways must participate in the grain system or we will not see regional railways on the Canadian prairies.
On the question of purchasing lines, they are expensive to buy. With respect to the honourable senator's question about net salvage value, we paid a net salvage value for the Stettler subdivision. It included some 102 miles worth of track; 60-pound steel with "unrehabilitated" track; and 60-pound steel with rolling dates between 1898 and 1910. Some $30,000 was the net salvage value. What is that? If the national carrier is to take up the line and sell the steel for scrap, sell the ties for landscape, plough the grade back to some kind of reasonable use, dig up the culverts and sell the land to the local farmer or, in some cases, give it to the local farmer because it is a liability, that is $30,000 a mile. That is on an inexpensive piece of railway. If you buy a secondary main track or a reasonably high-density branch line with higher values of steel, you can a net salvage value of upwards to $60,000 to $75,000 a mile. Getting into the railway business is not inexpensive. Raising capital is difficult, but we have done it.
Our concern is that this bill must make it easy to get into the business. The significant omission in this bill is a question of labour successor rights. When the Staggers Act was passed in the United States, through the Interstate Commerce Commission, they uncoupled the Labour Act from railway transactions.
This has not been done in Canada. A railway may be marginally uneconomic for the national carriers and could be operated by a regional railway but, because of the survivor provisions - the successor right provisions of the Canada Labour Code - one must go through all kinds of gymnastics to avoid the federal jurisdiction. For example, let us assume a railway title crosses a border and you divide the title. One side is deemed provincial in one area and the other is provincial in another. Artificially created structures then avoid the federal jurisdiction because of the successor rights.
This does not bode well for the continuing management of rail policy by the federal government. In effect, it forces the federal government to create the rules and to create new regional railways. However, the minute that happens, they lose jurisdiction over it because the provincial jurisdiction covers the labour successor rights.
What has been the reaction of the labour unions to regional railway growth in the United States because of the uncoupling of the existing contracts from labour transactions? Oddly enough, they have gone back to some of the carriers and said that they want to sit down and negotiate a collective agreement that provides for the railway industry to at least get into the 20th century.
Some protocols in the collective agreements we see today being operated by the national carriers are under the signatures of officers of the union and the railway companies who are now dead. Some of the signatures are probably 50 years out of date. We are running on agreements from the 1910s, 1920s or 1930s. This frustrates the ability of people to operate on both sides of the issue.
If the Labour Act were cleaned up and decoupled, we could start on a fresh footing, and you would see railways in the federal jurisdiction come into the fore.
The Chairman: Mr. Payne, you mentioned truck competition. Just how vulnerable are you to truck competition?
Mr. Payne: It happens in a snap. If you look at east central Alberta, we are the railway in town.
We had a farmers' meeting three months ago where we discussed grain. Again, you will hear this from the grain shippers: "We are captive to the railway, and we have no place to go. We must have shipper provisions enhanced. We must have running rights. We need connecting carrier status for provincial carriers on federal rails."
One farmer told us that he has been delivering to the local elevators at Central Western for 33 years. Then he said, "I cannot afford to do this any more; I am driving 175 miles with a truck I went and bought because I can go somewhere else and get a better price for my grain." He is one farmer. He delivered approximately 11,000 tonnes of grain. He is gone and he is not coming back. He is better off to the extent of about $9 per tonne for his grain by putting it on a truck and taking it away. That is what he is doing, and he is not the only person doing it. It is real and it is happening all over the prairies. We need to sharpen our pencils to become truck-competitive on a branch-line basis in Western Canada.
The impediment to the rationalization of this bill is the penalty of $10,000 a mile to the railways in the event of abandonment, reducing the cost base.
In Bill C-76, under the Budget Implementation Act, thousands of miles were to be rationalized. Now you see 600 or 700 miles in the schedules. Some of those lines have trees growing out of them and they should die. Why has that happened?
As a railway company, I can put a branch line to sleep, pay my local taxes of about $1,500 a mile and come up with a King James Bible full of reasons why I should never run a train on that subdivision - the track is too soft; I cannot find a crew; I cannot find an engine; I cannot get any cars; you cannot supply me with enough traffic to justify running a train. There are a raft of excuses to put that line to sleep but never abandon it. I can put it to sleep for $3,000 a mile. If I abandon it, I get a permanent penalty out of the cost base for the carriage of grain of $10,000 per mile. There will not be a lot of abandonments, but there will not be many rail lines operating either. That will be very interesting. That is just one of the effects of the little costing formula.
Senator Roberge: That being said, you seem to be doing pretty well anyhow.
Mr. Payne: It is a close-run operation, senator. We have taken about a 35-per-cent reduction in gross income this year courtesy of the change to the WGTA and we are abandoning lines. Courtesy of the changes, Central Western in Alberta will probably lose, over the next two years, half of its railway. Some 11 communities will be affected. It is unfortunate, but we cannot run a railway where there is no traffic.
The elevator companies are consolidating elevators and knocking down others. The Alberta Wheat Pool closed the elevators in the north end of the Stettler subdivision and 55 miles of track with 6,000 tonnes of traffic on offer. It does not do it.
These changes are happening irrespective of whether the railway is there or not. On the prairies in the past, the accusation has often been that the railway is the first to want to leave, but we are the last. We are running trains out there because it suits us and our traffic arrangements require it for another year. There is no traffic.
Senator Roberge: You said earlier that your cost base is about 60 per cent lower than the majors.
Mr. Payne: Yes.
Senator Roberge: Is that due mostly to the labour negotiations you conducted? You talked about successor rights within a federal rail environment as opposed to a provincial rail environment. In your case, if I understand correctly, you are under both in certain situations, federal and provincial.
Mr. Payne: We are solely provincial right now. We hope to operate in the federal jurisdiction.
Senator Roberge: If you do, you will be stuck with successor rights.
Mr. Payne: Yes, unless we renegotiate, which will be pretty tough sledding. However, the provincial jurisdiction turns on labour quantity and flexibility. Most of our people, about 80 per cent, are cross-qualified. I do not need distinct people to run a tamper or an engine. When the grain freezes up in the winter, my tamper operator works as a locomotive engineer or as a conductor. I have lower absolute quantities and more flexibility, although that flexibility is limited in practice because the tamper operator must be on a tamper in the summer. When absolute numbers go down, costs go down.
Senator Roberge: Did you have any price increases? You have been in operation for 10 years.
Mr. Payne: Yes.
Senator Roberge: Has it been a similar situation as far as the majors are concerned? Have there been price increases?
Mr. Payne: No. Funnily enough, under the WGTA when we were under contract with the transport minister, while the nationals' rates were going up, our rates went down. We started at $13.65 in 1986, and by 1995, when our last contract was over, we were down at $9.25 a tonne for our costs on the branch line. Meanwhile, the majors enjoyed increases in payments under the WGTA. That was because we were not a participant in the system. We were on a contract basis with the minister, but the minister followed our costs down.
Senator Roberge: Regarding insurance, could you not make a deal with the majors to buy into the same pool in order to get better rates?
Mr. Payne: They do not have a pool. That is the problem.
Senator Roberge: They should create a pool.
Mr. Payne: I do not know. I am not an insurance underwriter, but if I asked CN or CP to please make an allowance in their pocketbook for my risk, I think the answer would be quick and very short.
Senator Roberge: That is not what you would ask. You would ask for the same rates they receive, and you would put your own guarantees on it.
Mr. Payne: They just take a hit on their income statement for perhaps the first $10 million of an accident. They just pay it out of their cash flow.
Senator Roberge: That is a good answer. I guess you would have to make a pool with other regional short line operators in the future.
Mr. Payne: I am looking around at them. There are only one or two.
Senator Roberge: There will be more coming around.
Mr. Payne: Perhaps.
Senator Roberge: What does it take for you to become a prescribed railway?
Mr. Payne: I have not seen regulations under that section either in the old act or the new act indicating how to do it. It would take an action of the minister, I guess, for an Order in Council prescribing us as a railway company under the act. It is an action of the minister, but he must take that decision first.
Senator Roberge: Have you approached him?
Mr. Payne: I have not approached the most recent minister, but every minister previous has answered no. We have had 11 transport ministers; all have said no up to now.
Senator Roberge: Did they give any answer besides saying no?
Mr. Payne: No. Just "no."
Senator Adams: It is nice to see you again, Mr. Payne. The last time, we were debating the Sydney railway issue in the committee. That section of line has been bought out.
Mr. Payne: It is gone. It was bought by Railtex, an American short line regional railway company. I understand it is doing very well.
Senator Adams: Living in the territory, our main suppliers are in Churchill. We heard that CN may abandon that line; perhaps private industry will be interested in it. You mentioned a cost of $30,000 a mile. I am not sure exactly how many miles it is between Manitoba or Saskatchewan and the beginning of the Churchill railway. It is probably about 500 miles.
Mr. Payne: I would think 500 or 600 miles would be the length of the Churchill railway.
Senator Adams: Churchill is a little more than 600 miles from Winnipeg. If that line is privatized and offered to private enterprise, do think anyone could afford it?
I do not think Churchill ships grain any more. Can the line operate with just freight between Churchill and the south? Churchill is not very big. Perhaps it will grow since a new national park was opened yesterday by Prince Charles. I do not know how many others will come looking for polar bears and whales, as he did.
Mr. Payne: The Churchill line poses a real public policy issue question. There is provision in this bill for the minister to make contracts to support the public policy of Canada and the aim of this act. Churchill will be one of those issues, I think, because there is not enough traffic to support it on an economical basis with its present freight rates. If a public policy decision is made to keep that railway open, then it behooves the minister to make the best possible arrangements for the operation of the Hudson Bay Railway Company, whatever that takes, whether it is with a regional railway carrier, with CN or with someone else.
The Alaska railway has similar kinds of terrain with a lot of permafrost and tough conditions. It was privatized. Significant changes were made in the methodology to physically maintain and operate that railway. It is running full-tonnage coal trains at 40 miles an hour.
It can be done but the proper environment must be put in place. As I understand the Alaska railway, it was sold, but some transitional provisions were made between the environment supported by public policy and the commercial environment. That change took place very quickly. However, blend is required until all the questions are settled.
Senator Adams: In the meantime, according to Bill C-16, the market will be open for more privatization and less regulation. Most cargo is now coming into the north by air freight. I discussed this air freight issue with the Minister of Transport the other day. Right now we have a special rate from Winnipeg to Rankin Inlet, NWT Air connecting to Air Canada, for about $1.80 per kilo. It may go up to $2 per kilo or more. If you bring in freight at more than 50,000 pounds per year, you can get a special rate.
Would anyone be able to compete with the airline by offering rates of less than $1 per kilo?
Mr. Payne: With respect to northern transportation, you are touching on NTCL and the other barging companies. Could Churchill be used as a forwarding basis between the railway and Norterra? Perhaps you could, but again it will turn on volumes. If there is a market for grain moving out of that port, the purchasers will certainly ask for it if the service can be designed to meet the shipping season. I do not know how late the shipping season could go.
Senator Adams: It can go right up to sometime in October. In the meantime, it is okay for the government, but we are not all that happy either with NTCL rates. Like CN, it is a kind of a monopoly. If private people can get in there, they could set their own rates. That cannot be done with the NTCL.
Mr. Payne: Again, it is one of those obliged public service regulatory regimes; there are places where we will never get out of in this country. The same thing happens in Ontario. The ONR runs to Moosonee. There will always be obliged public service cases. One of them is Churchill and forwarding on the ocean after that.
The Chairman: Our next witnesses are representatives from Halifax Grain Elevator Limited.
Mr. Allen L. Stevens, President, Halifax Grain Elevator Ltd.: I hope to change your thinking and direction from the previous witness. You have been hearing about grain transportation on the western side of the country. I would like to focus on what happens at the other end - that is, grain transportation and distribution in the maritime provinces and Atlantic Canada.
Our company has operated a grain elevator facility in Halifax for the last 10 years. This facility was previously operated by the Halifax Port Corporation. We lease the facility from the Halifax Port Corporation and operate it as a privately owned company. The facility has a capacity of 144,000 metric tonnes. It is a large facility, built back in the 1920s. The principal reason for its construction was the export of grains during the winter which were shipped to Halifax by rail when the St. Lawrence River and some of its ports were closed due to ice.
We developed this company into the business of distributing grains in the maritimes. We are currently facing a problem in the water-to-rail competition for feed grain shipments which, if not corrected, likely will result in the closure of this, the only remaining water-based distribution facility in Atlantic Canada. The St. John elevator was closed four or five years ago and has since been demolished. The result of such a closure would likely be much higher transportation costs for feed grains and milling wheat due to a rail monopoly on this traffic. The flexibility of the agricultural industry to consider alternate sources of feed ingredients would be limited.
Grain has to be shipped over 2,000 miles from Western Canada into our region.
As you are well aware, CN is now the only national rail carrier serving the maritimes. Without water competition, they would have a complete monopoly without even competition from the Canadian Pacific in our region. In our opinion, this would adversely affect the costs of meat, dairy and bakery products to consumers and also impact the port of Halifax by reducing the level of shipments through the port. We do not believe the present version of Bill C-14 provides an adequate remedy in a situation such as this.
Since 1985, Halifax Grain Elevator has operated this facility which can receive, store and ship grains that are received by vessel. The elevator serves as a trans-shipment and distribution point for wheat and barley from Western Canada and for corn and soy meal from southwestern Ontario. These products are brought in by water and then distributed in the maritimes. Our principal markets are feed grains to the agricultural community and milling wheat to the only flour mill in Atlantic Canada. We also export some wheat for the Canadian Wheat Board into certain world markets.
In 1986, we established a program to utilize maximum-size seaway vessels for the carriage of these feed grain products to Halifax via the Great Lakes and the St. Lawrence Seaway. Previous to that time, substantially all of these grains were moved by rail. With the elimination of the At and East railway subsidies in 1989, the movement of feed grains became the major market and the linchpin of the elevator operation.
From 1987 to 1994, the elevator has distributed approximately 125,000 to 175,000 tonnes of feed grain per year, or approximately 50 per cent of the market for feed grains shipped into Atlantic Canada. The balance has been handled by direct rail shipments.
As a result of this healthy competition between water and rail movements, rail rates today are lower than they were 10 years ago. For example, today the rate on corn from Chatham, Ontario, to Moncton, New Brunswick, is $39 per tonne versus $47 in 1986 without any adjustment for inflation. Barley from the junction point at Armstrong, Ontario, to Moncton is now $45 per tonne versus $56 in 1986. We believe this demonstrates the effect of the healthy competition between water and rail in minimizing the transportation costs of feed grains to the maritimes.
I would like to give you an example of the type of difficulty a small company such as Halifax Grain Elevator can have with a large railway even with the present regulatory oversight.
Halifax Grain Elevator has total revenues of less than $3 million. It employs 15 people. Yet, we are the key linchpin between the water movement and the distribution by truck in the maritimes.
Recently, the Canadian National took a rate action consisting of adding two off-line points to their tariffs. These points are located in the Annapolis Valley area of Nova Scotia and represent the largest feed grain market served by the elevator. These points are on a newly formed short line railway. CN published tariff rates to these points at or below rates charged for similar products to Moncton, even though the rail distance beyond Moncton to the Annapolis Valley points is approximately 350 to 400 kilometres. CN is not only carrying this product the extra distance for no additional revenue but is actually fully absorbing the cash payments CN is making to the short line for the on-carriage of this product to the destination. The comparable cost to truck this product from Halifax to the Annapolis Valley is approximately $8 per tonne. CN is now providing this service for nothing. There is no additional charge. In fact there is a lower charge to those points.
The effect of these rate actions has been that Halifax feed grain shipments have declined from an excess of 25,000 metric tonnes per quarter to less than 5,000 tonnes in the first quarter of 1996, a decline of over 80 per cent.
It is our view that the publication of these rates was not done with a view to offer fair competition, but was done with a view to set rates at such a low level as to capture all the feed grain business and deprive Halifax Grain Elevator of its ability to fairly compete in this market, resulting in the potential closure of the elevator operation and the elimination of water competition.
Because of this anti-competitive attack by the railroad and subsequent loss of business, Halifax Grain has reluctantly filed a petition before the National Transportation Agency requesting the agency to investigate the rates under section 59 and subsection 62(1) of the National Transportation Act of 1987.
Our concern is that Bill C-14, as presently proposed, eliminates the protections afforded to small companies such as ourselves when faced with a situation as I have just described. Although the proposed bill does provide that the railroads are subject to the Competition Act, because of the inability of a private party to directly bring such an action before the competition tribunal under the provisions of the Competition Act, it is likely that we would be left without an adequate remedy in such a case. Therefore, I strongly request that your committee add provisions similar to the present section 59 of the National Transportation Act of 1987 to Bill C-14.
At this point, I would like to ask Forrest Hume to comment further on our request.
Mr. Forrest Hume, Counsel, Halifax Grain Elevator Ltd.: The purpose of my comments will be to track the recent history of the public interest protection provision and perhaps give you an idea of why the provision was necessary and why it is presently necessary in our opinion.
The forerunner of section 59 was section 63 of the National Transportation Act, 1967. That year was somewhat of a watershed for railway legislation in this country. The act which was developed provided a very substantial deregulation of railway rate-making.
In order to provide safeguards against abuses permitted by deregulation, Mr. Pickersgill developed section 23 of the act, which was a public interest complaint provision, so that if any person had reason to believe that the effect of any rate established by a federally regulated carrier was contrary to the public interest, that person had the right to complain. I say "person" because this provision did not only apply to shippers; it applied to competitors of the railway and any person that might be adversely affected by the rate action taken by the federally regulated railway.
In 1987 when the National Transportation Act, 1987, was developed, the national transportation policy remained virtually the same, with one minor addition. With respect to national transportation policy, it is unusual to have a policy established in the act itself. However, in 1967 and in 1987, the act enshrined the policy. The enforcement mechanism for the policy was the public interest complaint provision. In 1987, that section was section 59, which is the section that is applicable today and the section under which Halifax Grain Elevator Ltd. has filed its recent complaint against Canadian National.
In each of these two years, we saw a deregulation, one in 1967 and a further deregulation in 1987. The mechanism for enforcing the national transportation policy in each case was the public interest rate complaint provision. In 1967 it was section 23; in 1987 it was section 59.
Attached to the brief Mr. Stevens filed this morning is an excerpt from the National Transportation Act, 1987. It is section 59, the public interest provision, and it sets out the parameters by which individuals and companies may seek relief from the agency for actions that the federally regulated railways may make contrary to the public interest.
With Bill C-14 in 1996, we are seeing virtually a complete deregulation of railway rate-making. There are some exceptions. Interswitching, for instance, is an exception. However, for ordinary rate-making, there is a virtual deregulation. Clause 5 of Bill C-14 gives the national transportation policy in much the same terms as section 23 did in 1967 and section 59 does today under the National Transportation Act, 1987. However, there is absolutely no mechanism to enforce the public interest national transportation policy. The equivalent of section 59 has been deleted from the bill so that, now, if the federally regulated railways, such as CN, take a rate action contrary to the national transportation policy, the Minister of Transport has no method of enforcing that policy against the railway. In fact, Halifax Grain Elevator Ltd. would have no effective remedy against a rate action taken contrary to that policy. That is why we feel that section 59 should appear in Bill C-14 in some form. If it is not present in Bill C-14, then the railways will be free to establish whatever rates they want, whether or not they conform with national transportation policy.
The Chairman: You have access to three modes of transport for much of your traffic - trucks, ships and trains. Do you not have more choice than any of the other shippers? Is that your feeling, or am I wrong?
Mr. Stevens: We have access to three modes, but at this point in time, there is a combination of water and truck. In other words, in order to be competitive in the marketplace, grain is brought by water from Western Canada to Halifax in large vessels. It is then trucked a short distance within the maritime provinces for distribution. A truck would not be a competitive mode for the long-haul movement. There are really two competitive routes for grain coming into the maritimes. One is by the combination of water and trucks through our elevator, and the other is direct movement by rail for the full distance. My concern with this rate action is that the water mode is not competitive at this point. Not only is it not competitive, but rates are such that we are not even close to being competitive. We feel this action has been taken by rail to force the water mode out of business.
Unfortunately, the elevator is the one piece that cannot move. We have a big, concrete structure, and we are not packing up and going anywhere.
The ship lines which have supported us and support these movements to Halifax are interested in the business and wish to remain in the business; but, they have an alternative. They can take their ships and sail them to other ports with other cargoes. They do not have to remain in the business of moving feed grains to the maritimes.
The real competition is between the water mode and the rail mode. We have traditionally had fair competition. Rates have declined over the last 10 years, but we feel at this point, contrary to what we believe is the public interest, that the railroad has taken actions designed not to compete but rather force the water mode completely out of the industry.
The Chairman: What faith do you have in the Competition Act to protect you from the carriers?
Mr. Stevens: We see difficulties in the Competition Act because of the limited ability or inability of a private party to bring an action under this act.
Mr. Hume: It is possible for a private party to take an action for damages under the Competition Act, but that really would not help us out. The money would not compensate for the loss of the elevator facility in Halifax. It is not possible, currently, for a private party to take an action which the director of research can take with the remedies available before the competition tribunal. I know the Competition Act authorities are looking into the possibility of changing that, but, up to this point, there has been no change. We do not have an effective means to get to the competition tribunal, unless the director of research should take on our cause. The director has many other things on his mind at this particular time. It may well be that we would not have access in the long run.
Senator Roberge: Have you applied to the competition tribunal?
Mr. Hume: No.
Senator Roberge: Do you intend to apply?
Mr. Hume: We hope that our case will be dealt with under section 59 and that the relief available under section 59 will be granted. Transitional provisions in Bill C-14 would permit the National Transportation Agency to carry on with our case based on the NTA, 1987.
If all else fails, we will have to examine the possibility of going to the competition tribunal. However, for the reasons I have outlined, that may not be an optimistic avenue for us.
In our view, protections against the abuse of deregulated rate-making are necessary. They are more necessary now than they were in 1987 and 1967.
Senator Roberge: Is there a grain elevator in the Annapolis Valley? You told us that they are now reshipping directly at lower price to a dropoff zone in that valley.
Mr. Stevens: Major users in the valley have rail access. These shipments come in directly to the user by rail. There is no significant elevator. One small farm elevator in the valley is used for local crops but not to distribute western grains. These come in directly to the customers.
Senator Roberge: Have you looked at the possibility of getting into the short line business?
Mr. Stevens: We have considered it. I am in favour of the development of short lines. I think they have a very important place in the rationalization of the rail industry in Canada. We are not opposed to the operation of short lines and look forward to utilization of the short line in this case for the distribution of products from our elevator. All we ask is that they do it on a fair rate basis.
At the moment, the short line does not publish a rate. The rate is published by CN to the short line point. This rate is lower than it is to Moncton. In effect, CN is carrying the grain beyond Moncton to the Halifax area at the same rate or less than they are carrying to Moncton. Then they give it to the short line. The short line carries it to the Annapolis Valley. CN has set that rate lower than the Moncton rate. CN is not getting any additional revenue for the carriage of this product to the Annapolis Valley.
We all know that the short line is not doing this for free. There is a division of the rate. CN is writing a cheque on every carload to the short line for the on-carriage of that product and absorbing it wholly with no additional increase in revenue. Whatever revenue the short line is generating, whatever the rates are and however efficient they are, CN is absorbing that entirely.
I do not have any difficulty with the short line charging a fair rate for the service it provides. If that rate is less than the truck rate, that is fine; but, when the rate is zero, I do not think that has a basis in economics. It is not a fair rate.
Mr. Hume: This occurred in October of 1994 and has been carried on by CN up to and including the present time. Mr. Tellier of CN has indicated that his company is losing $120 million a year between Montreal and Halifax and that CN is losing 50 cents on every dollar of freight that it carries. We do not know how CN, in light of that, can take this rate action unless it is for the specific purpose of getting rid of the water competition for a future gain.
Senator Roberge: I thought CN took the grain all the way to the Annapolis Valley directly, but you are saying that a short line operator exists. It receives the grain from CN in Halifax and then ships it out. Is that right?
Mr. Stevens: CN has filed a tariff as if those points in the Annapolis Valley at the end of the short line were its own points on its own railway. The tariff does not even mention the existence of the short line, nor does it disclose any division of rates between CN and the short line. We are not privy to their arrangements, but from the outward view, it would appear to a shipper or to the public that this is CN rail track and CN is providing the service through to that point.
Those are not the facts. The facts are that CN is providing the service to a point near Halifax called Windsor Junction. At that point, the short line picks up the traffic and delivers it in the Annapolis Valley. That is a distance of about 60 miles or 100 kilometres.
Again, we do not know what the short line is charging for that service. All we know is that CN has published a tariff to those points with rates at or less than they are charging for the movement to a point like Moncton, New Brunswick. They are carrying this cargo and, in effect, subcontracting that additional movement to the short line, paying the short line something for that movement, and yet not charging that to the public in their tariff. They are totally absorbing whatever they are paying to the short line for that additional carriage.
Senator Roberge: I understand. Maybe you will have to get into the short line business yourself.
Mr. Stevens: We will have to talk to Mr. Payne about that.
The Chairman: Thank you, Mr. Stevens and Mr. Hume, for your presentation.
Our next witnesses are representatives from the Agricultural International Development Associates of Canada.
Honourable senators, we are pleased to welcome the Honourable Eugene Whelan and Mr. Terrance Hall to our committee.
Please proceed, Mr. Whelan.
Hon. Eugene Whelan, P.C., Agricultural International Development Associates of Canada: I appreciate the opportunity to appear before your committee. My associate, Mr. Hall, is a lawyer who at one time worked for the Minister of Agriculture as a legislative and parliamentary assistant. He also worked for CNR for ten years on rail line abandonment. We live in the same community and have known one another for years. He brought to my attention some things that I had not paid attention to when this piece of legislation was working its way through the House of Commons.
We wish to thank the members of the Senate committee for this opportunity to address Bill C-14, the Canadian Transportation Act. Having been a minister of agriculture for 12 years and a member of Parliament for much longer, I am very familiar with some of the problems that can arise in an omnibus bill such as Bill C-14. One might be tempted to give it hasty consideration, but before it is rushed through the Senate, I wish to draw the committee's attention to some problems, particularly drafting problems, which I have noticed, through the observance of Terrance Hall, in clauses 27, 95, 102 and 146 of the bill, all of which could frustrate Parliament's true intent.
With respect to clause 27, the minister's news release for Bill C-101 - the predecessor of Bill C-14 - stated:
The new Act will ensure that shippers continue to have access to competitive transportation services. The National Transportation Act, 1987, contains provisions designed to improve the bargaining power of shippers. These provision are preserved in the new Act...
Examples of some of these provisions, which were introduced to protect shippers as the carriers were being deregulated, were joint rates and competitive line rates. A joint rate allows a shipper to force two or more railways to agree on a market rate for a continuous route for traffic. A competitive line rate permits a shipper captive to one run railway to force that railway to provide a market rate to the nearest point of interchange with another railway.
Subclause 27(2) of Bill C-14 imposes a precondition on the availability of a remedy such that an applicant must prove "substantial commercial harm", which is an undefined term not found in the 1987 legislation. Subclause 27(2) states:
27(2). Where an application is made to the Agency by a shipper in respect of a transportation rate of service, the Agency may grant the relief sought, in whole or part, but in making its decision the Agency must be satisfied, after considering the circumstances of the particular case, that the applicant would suffer substantial commercial harm if relief were not granted.
The words "substantial commercial harm" are not defined in the bill nor in any decision of the National Transportation Agency. The agency has considered similar words - "significantly harming a competitor" - in its recent decision of Upper Lakes Group Inc. v. National Transportation Agency, where it found that no such harm is caused where a business survives or, in the words of the agency at page 9 of its decision:
Competition has not been lessened as attested by the ULS continued presence in the transportation market.
Extrapolating this to the present situation, a remedy would be denied unless a shipper was driven from the marketplace. They would call that unfair competition. This, to me, seems too unrealistic.
Supporters of subclause 27(2) will probably argue that the precondition affects only the remedy and not the right to complain, but the right to complain is useless if there is no remedy and especially if the shipper is no longer in business.
Neither the minister nor Parliament could intend such a result. I firmly believe that. The hallmarks of our law are fairness and transparency. Remedies that appear available but in reality are unobtainable are not transparent. What is needed is the restoration of integrity in Parliament and in the remedies that it creates. The government has probably intended that the agency, a quasi-judicial body, has some means to control its process in the same manner as the courts, and in fact clause 25 gives the agency some powers of a superior court. Shippers and carriers should have no objection to a reasonable requirement that the agency control its process. The limitation should apply not only to shippers but also to carriers and intervenors. Therefore, borrowing a typical example from the courts - section 25.11 of the Ontario Rules of Civil Procedure - an amendment to subclause 27(2) that would satisfy all sides would be as follows:
27(2). Where an application or other document is filed with the agency in respect of a transportation rate or service, the agency may
(a) strike out or expunge all or part of the application or other document, with or without leave to amend, on the ground that the application or other document is
(i) scandalous, frivolous, or vexatious, or
(ii) a prejudice, delay, or an abuse of the process of the Agency, and
(b) grant the relief sought, in whole or in part.
The balance of the subclause is repealed.
In this manner, the minister's commitment to preserving the shipper remedies will be fulfilled, the agency will be able to prevent abuses of its process, the shippers will have access to remedies without having to go out of business, carriers will be relieved of frivolous cases, and the integrity of Parliament will be restored. It is a win-win solution for everyone.
Now we turn to clause 95. The drafting problem in this case is found in subparagraph 95(1)(d), which mentions various types of utilities but does not make use of the more modern concept of utilities found in the definition section of clause 100. The provisions read as follows:
95(1)(d). divert or alter the position of a water pipe, gas pipe, sewer or drain, or telegraph, telephone or electric line, wire or pole across or along the railway; and
100. "utility line" means a wire, cable, pipeline or other like means of enabling the transmission of goods or energy or the provision of services.
The wording of the two provisions should be coordinated by an amendment to subparagraph 95(1)(d) as follows:
95(1)(d). divert or alter the position of a sewer or drain, or a wire, cable, pipeline or other like means of enabling the transmission of goods or energy or the provision of services, across or along the railway; and...
Clause 102 suffers from unclear drafting that will cause problems in the future. It attempts to parallel section 215 of the Railway Act which gave a right to farmers to require a railway to build, at railway expense, a crossing use for farm purposes. Section 215 states:
Every -
- railway -
- company shall make crossings for persons across whose lands the railway is carried, convenient and proper for the crossing of the railway for farm purposes.
Clause 102 states:
If an owner's land is divided as a result of the construction of a railway line, the railway company shall, at the owner's request, construct a suitable crossing for the owner's enjoyment of the land.
Clause 102 is not a hardship on the railways because the right does not often arise. It is only available where title to both pieces of property has been held together continuously from a time predating the construction of the railway. Usually, the railway preceded the landowners and often the title has not been kept together. The right is not even available if a landowner later buys both pieces of land on either side of the trackage.
Nevertheless, clause 102 lacks the clarity of subclause 103(3), which states:
103(3). The owner of the land shall pay the costs of constructing and maintaining the crossing.
In comparison, clause 102 is not clear as to who pays for the crossings, whether maintenance is covered, and whether land divided in the past is included. Clause 102 should mirror subclause 103(3) regarding costs and maintenance. Additionally, clause 102 is forward speaking; yet, most divisions of land by trackage will have predated the passage of the bill and, as a result, not be covered.
Again, Parliament's integrity will suffer because of the drafting errors. To better express Parliament's intent, clause 102 must be amended to read:
102(1). If an owner's land is or has been divided as a result of the construction of a railway line, the railway company shall, at the owner's request, construct a suitable crossing for the owner's enjoyment of land.
(2). The railway shall pay the costs of constructing and maintaining the crossing.
Two drafting problems are present in clause 146. First, the concern for the restoration of terrain in subclause 95(3) usually arises at the time of discontinuance of the operation of a railway line; yet, the discontinuance provisions of clause 146 are not tied to subclause 95(3). The two provisions should be linked so that Parliament's intent is clear. No extra obligation is imposed on the railways.
Subclause 95(3) reads:
95(3). If the railway company diverts or alters anything mentioned in paragraph 1(b) or (d), the company shall restore it as nearly as possible to its former condition, or shall put it into a condition that does not substantially impair its usefulness.
Subparagraphs 95(1)(b) and (d) cover items - such as watercourse, road and utilities - as mentioned above for subparagraph 95(1)(d).
Subclause 146(1) states:
146(1). Where a railway company has complied with the process set out in sections 143 to 145, but an agreement for the sale, lease or other transfer of the railway line or an interest therein is not entered into through that process, the railway company may discontinue operating the line on providing notice thereof to the Agency. Thereafter, the railway company has no obligations under this Act in respect of the operation of the railway line and has no obligations with respect to any operation by Via Rail Canada Inc. over the railway line.
Clause 146, we suggest, should be amended to ensure that subclause 95(3) is brought to the attention of the public and the agency prior to a discontinuance because, thereafter, the railway has no obligations under the act.
A second drafting problem, addressed for crossings in clause 102 but forgotten in clause 146, is again the bisection of land. Clause 102, as discussed earlier, expresses a parliamentary concern for a landowner whose land is bisected by the construction of a railway and makes provision for a crossing at railway expense upon request of the landowner. However, if the railway line is to be discontinued, then, in fairness, the terrain should also be restored to its former state upon the request of the landowner. As in the case of clause 102, no particular hardship would be caused to the railways because the situation will rarely arise where the title to both pieces of land has been held together continuously from a time predating the railway. Furthermore, the restoration will occur only when a landowner requests it. Clause 146 should mirror clause 102.
To incorporate the above changes, clause 146 should be amended to read:
146(1). Subject to subsection (3),
(2).
(3). Prior to the discontinuance of the operation of the line, a railway company shall
(a) comply with subsection 95(3) and,
(b) where an owner's land is or has been divided as a result of the construction of a railway line, restore the terrain as nearly as possible to its former condition or put it into a condition that does not substantially impair its usefulness, upon request of the owner.
In summary, the changes that I suggest are designed to clarify legislative intent so that the integrity of Parliament and the laws that it creates are respected in this great land of ours. Again, the changes that I submit are, first, amendments to subclause 27(2):
27(2). Where an application or other document is filed with the agency in respect of a transportation rate or service, the agency may
(a) strike out or expunge all or part of the application or other document, with our without leave to amend, on the ground that the application or document is
(i) scandalous, frivolous, or vexatious, or
(ii) a prejudice, delay, or an abuse of the process of the agency, and
(b) grant the relief sought, in whole or in part.
Second, amendments to subparagraph 95(1)(d):
95(1)(d). divert or alter the position of a sewer or drain, or a wire, cable, pipeline or other like means of enabling the transmission of goods or energy or the provision of services, across or along the railway; and...
Third, amendments of clause 102:
102(1). If an owner's land is or has been divided as a result of the construction of a railway line, the railway company shall, at the owner's request, construct a suitable crossing for the owner's enjoyment of land.
(2). The railway shall pay the costs of constructing and maintaining the crossing.
Fourth, amendments to clause 146:
146(1). Subject to subsection (3),
(2).
(3). Prior to the discontinuance of the operation of a line, a railway company shall
(a) comply with subsection 95(3) and,
(b) where an owner's land is or has been divided as a result of the construction of a railway line, restore the terrain as nearly as possible to its former condition or put it in a condition that does not substantially impair its usefulness, upon the request of the owner.
As well, I wish to say a word or two about the railways and their financial positions. I noticed it the Financial Post this morning that they are not suffering very much. Their shares are increasing in value and people are still buying them. Their profits are good. Therefore, they cannot tell Canadian citizens that they are experiencing hard economic times.
Honourable senators, we hope that you will take our proposed changes into consideration and see fit to act on them.
The Chairman: Thank you, Mr. Whelan, for expressing the concerns of shippers about various clauses in the bill.
What would be the worst effect of not adopting your recommendations regarding the crossing of rail lines?
Mr. Terrance Hall, Counsel, Agricultural International Development Associates of Canada: The worst effect would be that farmers would lose a century old right. If there are outstanding agency orders to protect a crossing or to create one, those agency orders will continue. However, in the future farmers will be left with a situation where they have to then come to the railway and ask for a crossing to be built. They would have to pay the cost. It is exactly the opposite of the current situation. Currently, the railway pays the cost, but this will be a 180 degree turn - the farmers will have to pay the cost.
The Chairman: What traffic do you believe is truly captive to rail?
Mr. Hall: There are various mining companies, for instance, in northern Ontario. Only one railway line serves them.
Back in 1987, the concern for these "captive rail shippers", as they are called, came to the forefront. It was decided to protect them because at that time, in 1987, the railways were being deregulated.
When you deregulate anything, there are bound to be increased profits. For instance, the Ontario government spoke recently of deregulating rent regulation. That would be an immediate windfall to all landlords.
In 1987, it was foreseen that if railways were deregulated, there could perhaps be windfall profits for the railways. That had to be balanced out, and these captive shipper provisions were created.
The concern raised by Mr. Whelan is that although the shippers will have a right to complain, they will not have a remedy. What is the point of complaining if you cannot get anything out of it? The right is useless. That is why Mr. Whelan said that this is not a transparent situation. We need clarity.
I asked some civil servants why they need this substantial commercial harm provision. They told me that they try to keep out all of those frivolous cases that shippers could bring to clog up the system. My comment would be why do it with something that you will to have to define? "Substantial commercial harm" is undefined. Someone cooked it up, but no one knows what it means. It will mean more litigation as they try to figure it out, and everyone will be off to Federal Court.
If you want to get rid of the frivolous, useless cases that shippers could bring, why not do what the courts do? They simply have an election in the enabling statutes. The statute for the Federal Court states that the court has a gate to keep out frivolous cases. Why not do it that way instead of getting into a situation where you tell people they have a right, and then they do not have a right?
If you wish, I could file that statute with you.
The Chairman: Perhaps you could furnish the committee with a copy.
Senator Roberge: As I understand it, the shippers have objected to the frivolous notion that you are bringing forth. Am I right? How do you define this?
Mr. Hall: That is not the frivolous notion that I am bringing forward. The problem here is "substantial commercial harm."
Senator Roberge: I understand that, but you just said that it could be replaced with a clause which includes, among other things, frivolous nature. How do you define "frivolous"?
Mr. Hall: That is a well-defined term to all the courts. That term has been defined over the last 100 years because the courts have always had that provision as a gatekeeper to ensure that frivolous, scandalous, annoying or vexatious cases are kept out of the system and kept from clogging the system. If the Canadian Transportation Agency, as it will be called, wants the power to keep out all of those cases, why not do what the courts do? The agency is a quasi-judicial body anyway. It acts in its hearings the same as a court does. There are rules of evidence. They have procedures such as applications, defences and replies. If it wants to behave as a court, why not have the same provision?
Senator Roberge: Why would the shippers not object?
Mr. Hall: I do not think the shippers would object to that because a frivolous case would be one that they, themselves, would know to be a ridiculous or useless case brought simply to annoy the system and annoy the railways.
When you are in railway law, you know when you have a case that is simply brought as an annoyance, and you know when you have a case that has substance to it. It is just like the courts. They know when a frivolous or scandalous case is brought just to bring someone's name out in public. Why not do the same as the courts do if they want to keep out all the frivolous cases? I do not think the shippers would object because when you get too many of these cases, they clog up the system. The agency has good staff. They are under tight budget restrictions, but I have found over the ten years that I have dealt with them that they are a very efficient group of people who have the public interest in mind. They want to do a good job, but they also need to ensure that all of these cases that could clog the system are kept out. I am saying that you should not do it using a backhanded method, such as a test of substantial commercial harm which will cause litigation in the future. Do it the way the courts do it. That is all you have to do.
Senator Roberge: Did you bring your recommendations to the house committee?
Mr. Hall: At that time, no, I did not.
Senator Roberge: Is there any particular reason why you did not? Were you not ready?
Mr. Hall: At that time, I was not ready because I was pursuing other things. As part of the overall severances that occurred at CN, they finally reached my level of seniority. At that time I was off with another lawyer doing other things, but I kept my eye on transportation matters. When I saw this bill and started to read through it, I became concerned because I saw problems that could arise in the future.
Mr. Whelan: It was Mr. Hall's training with the Minister of Agriculture about fairness and democracy that he remembered.
We had a discussion about what was taking place. I live near a railway line where the old farm was. Technically, it was illegally abandoned. It is still there and has grown up in trees. The rails are still there. I was a member of Parliament when that happened too. That was one of the straightest railway lines in North American. It went from Buffalo through to Chicago without one curve. With a wood burning engine, it could do over 100 miles an hour in those days. That was over 100 years ago. It was one of the fastest, straightest railway lines in the world at that time. It still sits there.
We are talking about Parliament. Many times, Members of Parliament are not properly informed. They do not have time to absorb all of that legislation. I asked Mr. Hall if there was anything we could do. He informed me that the Senate was holding hearings. I said that we should apply to the Senate and make these facts known so the Senate could make amendments and take recommendations back to the house if they saw fit.
Senator Roberge: Thank you very much for bringing them to our attention.
Mr. Hall: I am not sure that we were clear on the wording of some of the amendments proposed by Mr. Whelan.
On page 8, the words "Where an application or other document is filed with..." should be underlined as an addition. That would be new legislation.
Down below under 27(a)(ii), the words were "prejudice to, delay of," and then continue on.
I was trained as a legislative draftsman by the Department of Justice here in Ottawa. I see more problems with this bill every time I read it. They are not substantial problems, but they are drafting problems.
If I could direct your attention briefly to clause 27(4) on page 11 of the bill. Clause 27(4) appears to be of a general nature. It states:
27(4). The agency may, on terms or otherwise, make or allow any amendments in any proceedings before it.
However, that subclause will be cut off by subclause (5), which states:
27(5). This section does not apply in respect of final offer arbitration under Part IV.
That means that for final offer arbitration, you could not have any amendments by the agency. Subclause (5) cuts off subclause (4). What I think you should do there is renumber 27(4) to 27(1) and renumber 27(5) to 27(4).
The Chairman: If you see any more, please let us know.
Mr. Hall: There is one at clause 185(3)(b).
The Chairman: You will have to rush because another committee is waiting to use the room.
Mr. Hall: The last point of substance is clause 40, which talks about the Governor General's power of appeal. That is a real problem for everyone, shippers and carriers, because there is no time limit on that appeal. It should be coordinated with clause 41 so there is some finality. In clause 40, with an indefinite period for appeal, there is never any finality to decisions. I am having that problem right now. You could close a deal and, in the future, someone who is dissatisfied could write a letter to the Governor in Council saying he or she wishes to appeal. What do you do? You have closed a deal, and you are trying to do financing.
The Chairman: Feel free to send us amendments if you see any more.
Mr. Hall: I will send them through Mr. Whelan.
The Chairman: We would be happy to inform our members and circulate that information. Thank you very much.
The committee adjourned.