Proceedings of the Standing Senate Committee on
Transport and
Communications
Issue 3 -- Evidence
Ottawa, Tuesday, May 7, 1996
The Standing Senate Committee on Transport and Communications, to which was referred Bill C-14, to continue the National Transportation Agency as the Canadian Transportation Agency, to consolidate and revise the National Transportation Act, 1987 and the Railway Act and to amend or repeal other Acts as a consequence, met this day at 4:30 p.m. to give consideration to the bill.
Senator Lise Bacon (Chair) in the Chair.
[English]
The Chair: Honourable senators, we wish to welcome to our committee Mr. Ritchie, representing CP Rail.
Mr. Ritchie, perhaps you could introduce your colleague.
Mr. Rob J. Ritchie, President and CEO, CP Rail System: Honourable senators, with me is my colleague David Flicker who has been involved intensively in railway policy and regulatory matters as vice-president of governmental and public affairs at CP Rail.
Bill C-14 has taken a long time to get to where it is today. There were extensive consultations across Canada before the bill was drafted, and progress was slowed by the recess and prorogation of last winter. On the positive side, I would say this slow progress has given everyone with any kind of stake in this legislation many opportunities to be heard.
Balance is and has been on everyone's mind. We have heard a good deal about how the shipper community perceives the balance of this bill.
Bill C-14 is still very much shipper legislation. It retains most of the spirit of its predecessor, the National Transportation Act, 1987. Responding to shippers's wants was the guiding philosophy of that act in 1987 and little has changed with this bill.
Canadian railways will still operate in a highly regulated environment, more so than any other transportation sector in North America. Regulation will continue to deflect the market forces in favour of shipper demands.
Many of the amendments that have emerged from the consultation process have whittled away at the goals of the government's rail renewal initiative. If the primary goal of rail renewal - the long-term viability of the railway industry - is achieved, there can be no further attrition. As it stands, the bill probably represents the only realistic balance of shipper and railway needs possible at this time. Whatever its shortcomings, it is time to bring the bill into force and to see how it meets the test of reality.
Our endorsement of the bill is qualified by an uneasy appreciation of these shortcomings. The bill is far from perfect, particularly in addressing matters that affect railway viability.
The most pressing problem for CP Rail System has been to try to sustain capital spending to meet our shippers' needs while our ability to support that spending has declined rapidly.
The NTA, 1987, contributed significantly to this predicament. It encouraged the shipper community to believe that it could have regulation that would force prices below market levels. At the same time, competition and markets were driving the need for improved transportation services. Unfortunately, too little thought was given to railway investment.
Railway prices have certainly declined. Despite a steady upward trend in Canadian commodity price levels, freight rates have been declining since the mid-1980s. Today, the CPI is about 30 per cent higher than it was in 1986, indicating that the markets for many of our shippers have rebounded strongly in recent years. However, railway unit prices are about 12 per cent lower. That is a 42-per-cent gap.
The decline in railway rates has been a significant factor - among others that I will mention - in forcing us to defer a lot of necessary expenditures. If we continue on this path, the damaging consequences are not hard to predict. We simply will not be able to continue to meet our shippers' needs with improved technology, essential equipment and infrastructure investment.
While shippers have applauded the downward trend in railway rates, many have not noticed what has happened to investment. The relationship between investment and both service and price is fundamental. Since the late 1980s, railway margins have been too thin, operating ratios too high, and earnings too low. The result has been a sharp decline in capital spending and in our ability to sustain service.
Railways consume a lot of capital. Railways assets are not cheap. Today, for example, locomotives cost more than $2 million each, and we have more than 1,200 main line locomotives. This is the oldest fleet in North America - replace them we must and soon.
In a typical year, our basic capital requirements are at least $300 million, but we have been able to support only about half that much spending since 1989. All but the most essential investment has been put off. A bare subsistence diet cannot sustain us in the long run. It means decline for the business, its employees, its shareholders and, most important, for Canadian shippers.
Looking beyond 1996, we have to meet the current annual capital spending needs, a normal level of about $300 million a year. We also have to make up the spending we have deferred. This catch-up spending is in the order of $150 million annually to the year 2000 - in other words, a total requirement averaging $450 million a year or almost $2 billion, which represents approximately 45 per cent of our net property investment today.
Last year we went out on a limb with a capital program of more than $500 million because our ability to maintain our presence in the industry was in jeopardy. It was also a measure of our faith that the rail renewal and Bill C-14 would bring a markedly better climate for investment. Now, we are less sure of that leap of faith.
Bill C-14 does contain a smattering of provisions that go to the question of rail viability; but, as it stands today, the sum of rail renewal, the bill included, does not deliver enough to support our essential capital spending requirements. Bill C-14 simply makes a start at acknowledging the reality that rails are a business that can survive only if they are allowed the opportunity to be commercially viable. Commercial viability cannot be restored by simply erasing the rate and service regulating mechanisms to so-called "shipper protections" introduced by the NTA in 1987 and perpetuated in Bill C-14. However, there is no question that these mechanisms have contributed to our current predicament. The NTA, 1987, was supposed to be about allowing market forces to do the job. In reality, it turned out to be about overlaying regulation on competition. It regulated where it was presumed that Canadian shippers needed protection because of a perceived lack of competition in the transportation sector.
Current legislation assumes that shippers are captive if they are served by only one railway. In fact, most of these shippers are not captive at all. Most have a viable, competitive choice between trucks, between trucks and rail, water and port options. In addition, market competition and geographic competition have a very real impact on rates.
Shippers are our customers, obviously. They face strong pressures in their markets for better prices, delivery and services. Our fate is dependent on theirs. We survive only if they do. We have to share our customer circumstances, adjusting our prices as we collectively struggle to hold on to our markets. It is a fact of life and a major driver of the interrelationship between railways and their customers. It cannot be legislated.
As a result, our prices responded to tight customer markets before 1987 and a lot more after that. Many of those markets have since come back for our customers, but we have not seen any recovery in our prices. Despite railway prices below what an effective competitive market place would have allowed, some shippers want stronger shipper protections, stronger even than those in the NTA, 1987.
Most of the differing views on Bill C-14 on centred on clause 27, a provision that some shippers claim would destroy the bargaining powers with railways. On the contrary, the provision merely attempts to restore some balance by doing what the NTA, 1987 had intended but failed to do; namely, provide recourse to rate and service regulation for shippers who actually need it; that is to say, those shippers who do not have transportation options and are experiencing commercial harm as a result.
Bill C-14 is not the ultimate regulatory reform. Compromises have been made both in the bill and in the larger rail renewal agenda of which it is a part.
The bill introduces some improvements. It acknowledges, for the first time, the need for transportation modes to be economically viable. Clause 27 can help to regulate regulatory intervention in the highly competitive transportation marketplace. The Railway Act will be repealed, eliminating a lot of confusing and redundant regulation. The line rationalization process has been streamlined to some extent and will no longer involve time consuming and costly public hearings. Little used public interest investigations are gone. Investors and financing secured by Canadian railway equipment will also have roughly the same measure of protection offered by their U.S. counterparts under the U.S. Bankruptcy Code.
However, other features of the bill are less positive. Canadian railways will continue to face more extensive and burdensome regulation than their trucking and U.S. rail competitors. U.S. railroads will continue to be able to take advantage of competitive access provisions to which Canadian railways have no recourse under U.S. railway legislation. Canadian railways will continue to be hampered by onerous levels of service obligations far beyond what the trucking industry or U.S. railroads face under common law. Recourse to final offer arbitration - more accurately termed "final offer selection" - has been inappropriately extended to railway passenger and provincial commuter authorities. Recourse to mandated interswitching and competitive line rates has been further extended, to the benefit of shippers on provincially regulated rail lines that are not subject to all the burdens imposed on federally regulated carriers.
Some shippers, as we have seen, think the bill provides too many advantages for the railways. We disagree. It does not go nearly far enough. An appropriate balance has not yet been struck. The new Canadian Transportation Act is neither a beginning nor an end, but part of a continuum of modern policy development going back almost 40 years. It must be looked at against the whole of rail renewal, the sum of which was intended to address the flagging viability of the railway industry today.
To me, the relevant test of railway renewal is whether the industry can attract investment. By that test, Bill C-14's improvements will not enable CPR to recover ground it lost from deferred capital spending over the years from 1988, and it is doubtful they will create the investment environment needed for the future. So we have a gap.
An important way to begin bridging the gap is to address the element of the government's renewal initiative that remains outstanding. A big part of that is taxation. Canadian railways pay a 75 per cent greater proportion of the revenues in taxation than either U.S. rails or truckers in both Canada and the U.S. Railway taxes on fuel and property are in effect subsidizing the competing highway system and its trucking users. Railways bear the entire investment risk associated with the infrastructure that they use.
Our competitive disadvantage is made worse by railway asset write-off policies that are uncompetitive compared to those that apply to U.S. roads and even to most other Canadian industries. With market and technological change occurring at an increasing pace, locomotives, freight cars and infrastructure are obsolete as competitive tools long before they wear out. U.S. tax policy recognizes this and is designed accordingly. Canadian tax policy does not and is not. When U.S. railway assets are fully written off under their capital cost allowance structure, the same assets in Canada are only 55 per cent depreciated. Federal and provincial fiscal policy change is the missing link that only governments can provide if we are to succeed in rail renewal.
Please do not misunderstand. Public policy is not the only area where we need improvement if we are to succeed. I do not spend the majority of my day planning how to get improvements in tax regulations. Other improvements are obviously needed to bridge the gap, and this is where we do spend our time as managers. We must resolve the serious structural and organizational shortcomings.
At CP, we are working hard at this. In fact, we are in the midst of the most comprehensive reorganization in over a century of our operations. Over 1,700 people are leaving the active managerial list this year. This is a reduction of greater than 25 per cent of our white collar staff. We must rationalize the rail network in Canada. Our U.S. competitors have far greater rail traffic densities. Over 50 per cent of CP's 1994 track mileage was maintained to handle only 5 per cent of our work load. We must concentrate our tonnage and revenue on core or essential lines and remove little used ones to remain competitive. We also must improve productivity. We are working hard on this, too.
In 1994, CP in Canada handled a 35 per cent greater work load than in 1980, with 43 per cent fewer employees. This is a productivity improvement of 80 per cent, but more progress is required. We must establish an effective partnership with labour that will allow us to harness the new technology to safely and effectively take the railway into the next century. Trading steam age work practices one by one in return for incremental wage improvements is no way to run a railway. I accept this as our biggest challenge. If CP is to offer good, satisfying employment, it needs to be met hand in hand with our union leadership.
At CP we will continue to do the things that we can in order to make rail renewal a reality, but we cannot do it all by ourselves. We need the support of federal and provincial government policies in certain areas. We will do our job; we ask you to please do yours. If Bill C-14 is to have any hope of advancing the goals of rail renewal, no further erosion of its provisions can take place. It is now time to make it law and to move on.
We will be happy to answer any questions.
The Chair: Mr. Ritchie, I have only one question, and I think everyone wants to ask the same question.
We heard a great deal from shippers about proposed sections 27(2) and 112. You also mentioned it in your brief. Why is it so important to you to have these clauses in the bill when they were not contained in the 1987 act?
Mr. Ritchie: We believe that the bill is an improvement and recognizes the shortcomings of the 1987 act. Much work was done post-1987, by the National Transportation Agency, which found shortages in the act. Work was also done by le table de consultation in Montreal and by the Vancouver round table, which found that rail viability was a pressing need. On investigation, they found that, for example, the ability to access the regulatory mechanisms that were available under the 1987 act should not apply to everyone, particularly to those who do not need them. Those are the people who have adequate competitive alternatives available to them.
Senator Roberge: Clauses 27(2) and 112 have phrases that seem to bother shippers, namely, "substantial commercial harm" and "commercially fair and reasonable." Shippers say that it is subjective and the rail agency would contest them, thus creating substantial litigation and, furthermore, that it will go further than the agency, namely to the appeal court or even to the Supreme Court. This will cost an awful lot of money in litigation and time. What are your thoughts on that?
Mr. Ritchie: This is new legislation and there will obviously be some testing of if, which is not uncommon. We do not believe that the words used are ambiguous or unclear. In fact, they go quite far in explaining and giving a list of examples which the agency should take into consideration when considering whether or not there is substantial commercial harm.
We believe it will be tested, and that is normal, but we certainly do not believe it will be a burden or that it will consume undue resources from any shipper or railway.
Senator Roberge: I asked officials of the Department of Transportation what the term "net salvage value" means in clause 145 with regard to land. Their comment, if I remember right, was that it is the market value less the cost to bring it to sale. Is that the way you understand "net salvage value"?
Mr. Ritchie: That is the way I understand it. Mr. Flicker may want to embellish on that. I understand he has been working on that specifically but it certainly is the over-the-fence market value with the addition of the cost to bring it to sale.
Mr. David Flicker, Vice-President, Government and Public Affairs, CP Rail System: Essentially, I agree with my president.
Senator Roberge: That is normal.
Mr. Flicker: That is the logical interpretation, but we have nothing that enshrines that point. We have checked the decisions of the National Transportation Agency, and of the CTC before it, and there is nothing on point that can satisfy the concern that something else might be meant. Although I believe that interpretation is the logical one, I cannot assure Canadian Pacific or anyone else that "net salvage value" really means the recognition of the highest and best usage. That is why we are proposing that we use the same sort of test as exists with respect to the Expropriation Act. A railway's property can be seized under the Expropriation Act. It makes sense that the same sort of test would apply when a railway has the opportunity to take land or have land taken from it. It is a parity arrangement.
Senator Spivak: You have both set Bill C-14 in the context of the entire railway and transportation policy, and I appreciate that. It is very clearly set out.
I have questions in two areas. One, of course, is regarding what you term shipper protection. You do not speak of producers; you speak of shipper protection. From the point of view of the producers, that is an attempt to establish competition where no competition exists. You have said throughout that there are other competitive modes which shippers can use. Of course, that is not really true of the grain producers at all times.
To paraphrase a sentence in a letter from a solicitor, each and every application for competitive line rate and interswitching rate established by the agency could be the subject of contested litigation. If that is so, that will certainly hinder commercial negotiations. Why do you believe those sections are necessary, in view of the fact that the interswitching rates are compensatory?
I will go right onto the other question to save time.
The other thing that strikes me about your presentation is your talk of the impediments to railway renewal and effectiveness. It seems to me that they come not so much from your customers, but rather from the competition in trucking and rail. We have discussed this in this committee before. You laid out what you say ought to be done and what the government should be doing in terms of tax relief. It strikes me as very unfair to the railways' competition.
I should like for you to tell me your estimate of the subsidies that are on the roads in the trucking industry and what the differential is in terms of dollars to the Canadian economy. I have heard some figures in the billions of dollars, and I think they came from some sort of cost estimate that was done by one of the transport organizations, but if you have any figures on that, I would like to hear them.
Mr. Ritchie: I will start in reverse order and call on my colleague for help in answering both questions. First, senator, our problems are never our customers.
Senator Spivak: You are saying there is too much protection for the customer.
Mr. Ritchie: When we say that our problems are with our competitors in the trucking and rail industries, we believe that they have advantages that we do not share, and we would like to have the playing field levelled.
I used to know the actual advantage that the trucks have over rail, but I do not think I ever had a national figure.
Mr. Flicker: We do know that the National Transportation Act Review Commission said that there was an overburden on Canadian railways vis-à-vis U.S. carriers of about $225 million per year. That is one starting parameter but, of course, that is dwarfed by the amount of money the federal and provincial highway authorities spend on the highways, which is a much more significant figure.
It is not only the highways. There is also the St. Lawrence Seaway, where we have an investment approaching $7 billion, and that is underused to a very great extent.
I cannot give you a figure off the top of my head for the total annual investment in maintenance in the road system, but that is not really the issue. The issue is that the Canadian railways are paying fuel taxes to the provinces when they do not use the roadways at all. In effect, it is a de facto subsidization of our opposition, which is a tough pill to swallow.
Mr. Ritchie: We do not have a specific number, senator. I know there has been an awful lot of work done on weight and distance. The counter argument is that the fuel taxes pay for the highways. The vast majority of fuel taxes are collected from private automobiles. The trucks use the road for commercial purposes and our numbers say that they fall far short, but we do not have a national number for that. Perhaps that is work that still has to be done.
On the grain issue, there are additional shipper protections to those they can access under the NTA. There is the maximum rate scale, for one, and there is the total review coming up in 1999, so there is what you might call a safety net for the grain shippers.
As to the comment made by the solicitor that every competitive line rate and every interswitching would be contested in court, I disagree, yet I do not know how that would be any different from the situation which exists right now.
Mr. Flicker: Your statement is literally true but, with respect, illogical.
Senator Spivak: It is not my statement.
Mr. Flicker: It is true that every rate could be contested, but fortunately we do not have enough lawyers to do that. Every contract could be contested.
Senator Spivak: To be fair, the point being made is that within the context which existed under the 1987 act, this was not an issue. This is now going to be an issue.
Mr. Flicker: With respect, I think that that commentator is not right, because we do not exist to be fighting battles with our shippers. They are our lifeblood. Will there be some test cases as with any new piece of legislation? Yes, but that applies not only to railway legislation. Almost every new act engenders some litigation until people get an idea of the way it works. That is our democratic system. The courts are designed to deal with that. It is not because we wish to frustrate parliamentary intention. The shippers will initiate proceedings more often than the railway companies.
That is not unusual; it is not inherently wrong; and it is something that both sides will want to do in order to gain a better understanding.
The introduction of the NTA, 1987, which was a landslide victory for the shipping community, did not engender a crushing load of litigation. If that is the case, then the rather halting, modest and, with respect, timid steps that are being taken in this legislation are far less likely to engender any significant amount of litigation.
Senator Spivak: Producers and shippers are not entirely the same. The case made by the producers is that, very often, they are captive shippers and they have no recourse to competitive situations to ship their grain. That is the lifeblood of the western Canadian farm economy. Therefore, a change to that is crucial.
Mr. Flicker: It is the lifeblood of the Canadian railway system. That accounts for 25 per cent of the revenues and contribution to the bottom line. The Canadian railway system would not be in existence today if it were not for the grain industry, at least not in a recognizable sense.
Mr. Ritchie: I agree with Senator Spivak. The definition of producer and shipper is confused. It will take a while for that to be straightened out, given the fact that the grain companies also become the shipper when they assemble the grain for furtherance.
However, every pound of grain starts at the farm in a truck. It is trucked to a railway. Over 90 per cent of the grain in western Canada is within 50 kilometres of a competitive rail location. There does exist for the farmer, therefore, competitive choice.
The Chair: We have heard from shortline operators. What sort of relationship do you have with them in Canada?
Mr. Ritchie: Our relationship is good and it is growing. I think senators are aware of the relationship that we have in our former Maritime lines, which is the Canadian Atlantic Railway, where we sold approximately 700 kilometres of lines to three railway companies. We are in negotiation with them right now for other lines in the Quebec and Ontario areas. We are working on the Ottawa Valley as a potential area. We were proud to help with the establishment of the Central Western Railway on a railway line of ours in Western Canada.
It think the relationship is very positive. It requires a partnership. You cannot be competitive with your shortline carrier and they cannot be competitive with their main line. You need each other. The minute you start fighting over who will get what, you will lose it to a truck or to another railway. We believe that is an incredibly important relationship. We believe that this legislation will allow us to take that relationship forward in a positive manner.
As I said, we are a little concerned about the extension of certain rights under the bill to provincially regulated companies that do not have the same requirements that we have in terms of safety, et cetera. That makes it more difficult to run. However, we believe that we can take this relationship forward in the future.
Senator Forrestall: With regard to your closing down of rail lines in Nova Scotia, did you ever do an assessment of how many heavy trucks it took to replace that capacity? How many heavy trucks did you add to the highway, in other words?
Mr. Ritchie: The answer to that is yes. However, I disagree with your assumption. We did not close the railway down. The Dominion Atlantic Railway was sold to Iron Horse. In fact, they have expanded the railway operations there. Why? Because it was a peninsula operation cut off from CP on the Dominion Atlantic.
Senator Forrestall: The other day I drove 65 kilometres on your rail bed. I do not know who owns it, but it is shut down.
Mr. Ritchie: You are talking about from Yarmouth up to Kentville. I agree that that has been shut down. As a result of that whole process, we have to take into consideration the number of trucks that we put on the highway. Sadly, there are not enough, from my point of view, because that is why we shut them down.
Senator Forrestall: I appreciate that. However, my question was more specific than that. My concern arises out of something brought up by Senator Davey, who is soon, unfortunately, about to leave us. It has to do with highway safety. I am curious as to how many additional trucks there are on the roads. Is there any rule of thumb in that regard?
Mr. Ritchie: There is a rule of thumb as to how many carloads a day you need to make a regional railway operate. I believe that is approximately 200.
As to when you are about to abandon a railway, senator, there is no rule of thumb as to how many trucks will be put on the highway. But we, too, share your concern about highway safety, which is why we believe that there must be this balancing of the modes.
We have worked, for example, Madam Chair, on the commuter rail in Montreal to try to show that, overall, it is less expensive to bring citizens into the city via commuter rail than it is to build more highways and more bridges. We believe that if you take into consideration which modes are taxed and which are subsidized, you will see that rail is discriminated against. Unconsciously, we are driving rail out of business. We are not yesterday's technology. We are not clipper ships. We are very modern and we can do the job - witness the rebirth of rail in the United States. However, if you tax us and tax us and tax us, we cannot do our job.
Senator Forrestall: I could not agree more. It is not a question of building more highways and more bridges. The reality is that more and more trucks are appearing on the highways. The regional municipality of Halifax, with a population of some 300,000, will now haul its out of the province going north along the principal highway to New Brunswick.
I do not know what the numbers are. It seems to me that if we could use rail instead of truck, our highways would remain a lot safer, at least until we can find a permanent land fill. This was my concern.
Mr. Ritchie: There is a creeping insidious movement going on in North America to have larger, longer and heavier trucks. Every time truck sizes increase, it makes it harder for us to compete. I do not mind having a hard time competing, but there is a greater subsidy when you put heavier trucks on our highways. Canadians think it is the winter that is killing our highways. That is partly true, but the heaviest trucks in North America outside Mexico - and you know what their highways look like - are in eastern Canada. That is another one of the reasons we have these problems staying alive.
Mr. Flicker: There is a healthy reliance on self-interest. Railway will always prefer the sale of a line rather than simple discontinuance of operations and going to salvage. It is in our interest to ensure that we get a return in the sense of payment for the line, but also to ensure that the traffic stays on rail. The railway will always prefer, if it can, to negotiate the sale of a line rather than discontinuance of the operation.
The provisions in the bill concerning discontinuance of operations will address the problem you just raised because it will always be open for the province to acquire the line at net salvage value, in effect. If the province sees that there is a benefit in this, the province could very economically acquire the line.
Your example with respect to hauling municipal garbage may be on point. Under this new legislation, the province can acquire the line at net salvage value in order to deal with those social and regional issues.
Senator Forrestall: One final question is prompted. Has Canadian Pacific, either in the East or the West, presented itself as a facilitator or advisor to any community which is having problems with, for example, land fill or garbage?
Have you developed an expertise within your corporate structure which could assist cities, municipalities and provinces which need answers to the problem of large-scale material movement on a seven-day-a-week, 24-hour-a-day basis?
Did you offer any help, for example, to Halifax?
Mr. Ritchie: We did not offer it to Halifax because we were not in that area, unfortunately. We tried to be there, as you may recall.
Going back almost 20 years, we offered help to Toronto in the ongoing saga of garbage movement there. We have offered the same possibility of moving MSW, as they call it, in the backhaul coal trains from Vancouver.
We do have an expertise. In fact, we used the NRC here to develop a walking floor - necessary because garbage freezes, this is Canada - which self-dumps and does not need to be tilted. That has gained quite an interesting acceptance.
Senator Spivak: It seems that there has been terrific rationalization of different transportation modes in Europe, for example. You did not mention Europe or the United States, which are much more densely populated than Canada. Maybe that is the reason.
Why is there so little recognition in public policy in this country of the premiums that railways have in terms of environmental considerations and safety? As a matter of fact, I remember some discussion when this bill was first proposed suggesting that rail line abandonment might be result in highway subsidization for provinces so the highways could be well-kept for the trucks. You never hear about that kind of thing for railways. What is the obstacle here?
Mr. Ritchie: The obstacle is our ability to explain the benefits that you see. I do not make excuses for that. I wish I could communicate more. In another way, I would say that the strength of the railway is its absentee management. We have to do our work with very few managers, so we are not in local communities. We then have a much more difficult time than a company which is involved politically and socially.
Our few managers are in head office. Our lean management contributes to our inability to communicate. We have also carried a lot of baggage for 115 years. Perhaps we felt that some of the truths were self-evident, and I guess they are not.
We do put communication on a higher priority now, but we are facing very restricted resources. Mr. Flicker is leaving us and going over to Canadian Pacific Limited. He used to be responsible for our communications.
Why is it, David, that you have such a difficult time with this?
Mr. Flicker: I am glad you asked, Mr. Ritchie. Too late; you should have asked yesterday.
I do not mean to be flippant because this is an important question. The news is getting out. It is not us blowing our own horn. For example, last winter we received presentations from government of Ontario representatives on sustainable development. They presented a report showing that the hydrocarbons emitted per unit of mass moved on railways were about one-eighth of emissions per truck-moved unit. That was not our research; it was government of Ontario research.
It is becoming recognized that railways consume much less fuel. The fuel that we do consume is burned more efficiently so that there are less emissions. We take up much less space in terms of valuable land. We are able to move goods more efficiently, more safely and with less congestion than they can be moved on the highways. That information is getting out. We are getting support from the automobile associations and from individual travelling groups. News is getting out. There is recognition of that. Rail makes a very significant contribution on the environmental side and on the safety side.
Senator Roberge: What has been your experience with shortline operators?
Mr. Ritchie: It has been good, as I stated, but it has mainly been in the East; in Nova Scotia and New Brunswick, and now in Quebec. We have been in a holding pattern waiting for the CTA to be passed because it facilitates our dealings with shortline operators.
As I said before, we will be going forward quite quickly, I think, with shortline operators on some of the lines which we have designated as being too expensive for us to operate. Those lines run from St-Jean-sur-Richelieu down into Vermont, and also on the north side of the Ottawa River and up to Owen Sound.
Senator Roberge: Have you had any bad experiences?
Mr. Ritchie: No. By far, shortline operators can be characterized as good, safe, responsible railroad people and good businessmen.
Senator Roberge: Have they all been profitable? Have none gone under?
Mr. Ritchie: No operators in Canada have gone under. Some operators in the Unites States have come and gone. It is not a guaranteed success story, but we have had a lot less failures in Canada. They have been far better capitalized here.
Senator Adams: We have heard from some private organizations which are taking over shortline railways. Our witnesses last week were very sensible. They cut down on employees by about 50 per cent. Your employees are mostly all unionized?
Mr. Ritchie: Yes, this is one of the oldest industries in North America. In fact, the first union was in the railway running trades, I believe.
Senator Adams: Sydney Shores took over a line on which 160 employees were working. They now run it with 92 in about the same way it was run before. Is that why there are so many problems in your company? The private company can do the same work with half the people that you used. Are salaries at the root of some of the railways' problems?
Mr. Ritchie: Exactly. We are a large industrial concern. We have a hard time explaining to our unionized employees that it would be better for them, over all, to take a salary reduction coast to coast.
As well, we do compete nationally for labour. Our labour must work seven days a week, 365 days a year. We need good labour. We need a good, responsible individual running a train, because it can be very dangerous otherwise.
We must compete with the pulp and paper industry which pays higher hourly wages than we do, as does the mining industry. If we are to get people to work on trains to pull pulp paper, we must provide a competitive wage.
We are trying to change our work rules. That is the reference I made to the steam age. Some of these work rules related to safety when there was a question as to whether rail was providing a safe operating environment for its employees. Many of the rules were specifically put in for safety reasons. The rules have not changed; yet our technologies have changed.
We need a break-out strategy with our unions. Things have changed with computers and automatic equipment identification and inspection. We need to write a new agreement in recognition of that. We should be able to get rid of the old without having to trade dollars back and forth; that is becoming too expensive and far too slow.
The Chair: Thank you, Mr. Ritchie and Mr. Flicker. It has been most interesting hearing from you today. It has enlightened the debate we have had so far.
We are pleased to have with us the Honourable Andy Renaud, Minister of Highways and Transportation in Saskatchewan. I believe you also have a message from your colleagues in two other provinces.
We welcome you to our committee and we look forward to hearing from you today.
Mr. Andy Renaud, Minister of Highways and Transportation, Government of Saskatchewan: Thank you, Madam Chair. It is a real pleasure to be here today in front of distinguished Canadians like yourselves. For a young minister, a new minister, it is indeed a great pleasure. With me is Mr. Bernie Churko, Executive Director, Department of Highways for the Province of Saskatchewan.
I will be very brief. There might be a little duplication in my presentation because, as you mentioned earlier, senator, I am also speaking on behalf of my colleagues the Honourable Glen Findlay and the Honourable Dr. Stephen West, the Manitoba and Alberta Ministers of Transport who are unable to attend today.
The three prairie provinces prepared a joint submission to your committee on Bill C-14 which provides the main basis for my presentation this afternoon. I am pleased to have an additional opportunity to comment on this important legislation following my appearance last year before the House of Commons Standing Committee on Transport.
Shippers in the prairie provinces are major users of Canada's rail system. About 80 million tonnes of product such as grain, potash, coal and sulphur move by rail to domestic and world markets. We account for about half of the total tonnage originated by CN and CP Rail and a similar proportion of railway revenues.
Rail transportation is of key importance to the prairie economy. For example, the value of Saskatchewan rail shipments accounts for more than half of its gross domestic product in the primary and manufacturing sectors. Saskatchewan and our neighbours Alberta and Manitoba agree that amendments in the draft legislation are required to encourage rail competition. Without effective competition, prairie shippers will be at a serious disadvantage when negotiating freight rates and service requirements with CN and CP Rail.
The cost of rail transportation is critical for prairie shippers, with transport costs making up a significant portion of the price of many prairie products - up to 50 per cent in some cases. Any increase in freight costs can impact significantly on a shipper's bottom line. Measures to create competition are essential for maintaining the competitiveness of our resource-based industries because virtually all of our bulk commodities are captive to rail. The high density and low value of agricultural products, for example - and many of you will understand that - and other bulk commodities and the long hauling distances in excess of 1,500 kilometres for many Saskatchewan shippers make rail transportation the only practical mode for export movements.
This gives railways a high degree of market power relative to prairie shippers which allows the railways to set freight rates well in excess of their costs. For Saskatchewan shipments, we estimate that rail freight rates average 50 per cent above costs. This is well above CN and CP Rail's system-wide average of 10 per cent.
The National Transportation Act, 1987 has provided an effective regulatory framework which has reduced freight rates for many shippers while recognizing the need for healthy railways. The NTA, 1987 introduced four key components that balanced the needs of shippers for competitive rail service with the needs of the railways for a positive regulatory and business environment.
These include elimination of joint rate setting by the railways; elimination of the mandatory rate publication; provision for confidential contracts between railway companies and shippers; provision of effective competitive access; and shipper relief measures including competitive line rates, expanded interswitching, joint running rights, and final offer arbitration. The prairie provinces believe these four cornerstones of the NTA are an integral part of a well-designed regulatory regime.
It is important to recognize that the effectiveness of the legislation in maintaining a reasonable balance between shippers' and railways' interests arises from the integrated impact of these four key components of the NTA.
The prohibition against railways collectively setting rates has been a positive development. The opportunity to negotiate confidential contracts is also a progressive measure which has been widely used. Railways have become more efficient, which is partly attributable to these changes in the rate setting environment, and lower costs to some degree have been passed on to shippers, which has enhanced their competitiveness.
Competitive access and shipper relief provisions such as competitive line rates, interswitching, and final offer arbitration have forced the railways to act competitively. These measures have been largely responsible for lower rates and improved service under the NTA, 1987, particularly for many captive shippers. This is because railways would have substantial market power in dealing with prairie shippers in the absence of these provisions.
At a minimum, the new national transportation legislation must not weaken competitive access and shipper relief provisions contained in the NTA. Although seldom used, these provisions bring a degree of business discipline to the table when shippers and railways negotiate contracts. Elimination of any one of these four cornerstones would bring down the entire structure and return prairie shippers to the undesirable state of affairs that existed prior to the enactment of NTA, 1987.
For example, if competitive line rates or final offer arbitration were eroded, the opportunity for shippers to bargain effectively with the railways would be seriously undermined. These provisions must be made even more accessible and effective to ensure that railway companies and shippers can continue to negotiate rates and service requirements as equal partners. Unless shippers can compete, there cannot be a viable railway.
Our national railways must be given an opportunity to be viable. Shippers must have two competing railways operating from coast to coast. Where true competition exists, our national railways successfully demonstrate their ability to compete. When competition does not exist, railways charge rates far in excess of costs.
A transportation environment that fosters effective competition is critical for the sustained growth of the prairie economy because of the major role experts play in the agricultural and resource sectors of all three provinces.
New federal legislation must balance the needs of railways for less regulation and the needs of shippers for more competitive service. This legislation must not favour the interests of the railways over those of shippers.
The prairie provinces are concerned that Bill C-14 weakens the effectiveness of competitive access and shipper relief provisions, one of the cornerstones of the NTA mentioned previously. Under the draft legislation, shippers will not be able to seek regulatory relief from the new Canada Transportation Agency as easily as they do today from the National Transportation Agency. Weakening this ability unreasonably increases negotiating power in favour of the railways.
The prairie provinces believe two key provisions of the proposed legislation - clauses 27(2) and 112 - create barriers to competition that must be eliminated to restore a balance in negotiating power between railways and shippers. Imposing tests which shippers must meet to obtain relief from the Canadian Transportation Agency constrains the ability of shippers to negotiate rates and service agreements on an equal footing with the railways.
Clause 27(2) is of particular concern because it would place the onus on the shippers to demonstrate that they would suffer "substantial commercial harm" if the relief being sought were not granted. This will focus the agency's attention on the financial viability of the shipper and other financial aspects of its operations rather than options for giving the shipper competitive access to another railway.
The agency's interpretation of what constitutes substantial commercial harm to shippers is unlikely to be consistent. Establishing injury thresholds for different shippers will be a moving target. Because of widely differing corporate structures and the magnitude of their operations, discriminatory treatment of different shippers is inevitable under clause 27(2).
Moreover, it will be difficult for the agency to establish a cost-effect relationship between a shipper's financial viability and the impact of not having competitive access to another railway. Many factors influence a company's bottom line which, individually or collectively, may also cost substantial commercial harm. These inconsistencies in the new federal legislation can be avoided by eliminating clause 27(2).
Similarly, clause 112 of the draft legislation which requires the agency to determine that a rate or condition of service it establishes must be commercially fair and reasonable to all parties also requires an injury threshold to be determined on a case-by-case basis. This will result in inconsistent and discriminatory treatment of different shippers. It is not clear why this provision is needed in the proposed legislation because the establishment of rail rates and service requirements are already subject to strict rules and regulations.
In other clauses of the bill, for example, provisions governing competitive line rates and interswitching protect the railways' interests by requiring that rates must be compensatory. In addition, the agency's interpretation of what is fair and reasonable for specific shippers is expected to require them to analyze their financial viability and in fact their size of operations. Rather than promoting increased railway competition and efficiency, clause 112 will lead to inefficiencies by encouraging unnecessary litigation. On this basis, the prairie provinces recommend that clause 112 be removed from the proposed legislation.
The prairie provinces have considered alternative approaches that would soften the impact of these two clauses on shippers by easing restrictions on shipper access to the agency without actually eliminating either clause 27(2) or clause 112. However, after carefully analyzing and consulting with the prairie shippers, the three provinces firmly believe that no compromise that would weaken competitive access in shipper relief provisions is acceptable. Therefore, we would urge your committee to recommend that clause 27(2) and clause 112 be removed from the proposed legislation to strike a balance between the needs of the shippers for competitive rail service and the needs of the railways for less regulation.
The prairie provinces must have low-cost, high-quality rail service to compete in the rapidly changing world marketplace. In light of deregulation, we are pleased that the federal government is committed to market-oriented transportation policies. Competitive forces among railways will continually improve the effectiveness and efficiency of the industry with an appropriate regulatory framework in place.
With the elimination of the Western Grain Transportation Act in 1995, grain shippers will have to negotiate rates and service agreements on the same basis as non-grain shippers. All prairie shippers must have competitive rail service facilitated through the competitive access and shipper protection provisions of the NTA to compete effectively in domestic and world markets.
The NTA established a positive regulatory environment that fostered greater commercial harmony among shippers and railways. It is important that we build on the strengths of the NTA in developing new transportation legislation to maintain the balance and negotiating power between shippers and railways. The four cornerstones of the NTA must be preserved to bring a degree of business discipline to the table when shippers and railways negotiate contracts.
The prairie provinces believe that the improvements I have outlined today to Bill C-14 will contribute to achieving this balance in bargaining power. We urge the standing committee to amend the proposed legislation as recommended by the prairie shippers, the three prairie provinces and other groups, to establish a more competitive rate and to establish a more competitive rail transportation environment in Canada.
Honourable senators, we would be pleased to answer your questions as best we can.
The Chair: We heard from the shippers about potential job losses in their industries, although they never mentioned any numbers when we questioned them. We also heard that new plants may be located elsewhere if this bill passes in its present form. Would you care to comment on these assertions?
Mr. Renaud: I am not sure if plants would relocate or whether they would be able to find some alternative. I can give you an example.
We have a large pulp producer, Weyerhauser, in the northern part of Saskatchewan, and only one rail line services them. That happens to be CN. They have access to only one form of transportation. It would be impossible for them to load trucks and then move their goods to a competitor.
We certainly see that competition is very important to this and other industries, as well as to farmers and other shippers. In a deregulated situation, where there is a free hand but certain shippers and certain portions of industry in the province of Saskatchewan are captive to one form of transportation - there is no water and transportation by truck is impossible - it could mean the viability of a company as well as consideration of expansion and, therefore, jobs as well.
The Chair: Do you agree that the railways have a long-term financial problem? If so, what do you think must be done to help them?
Mr. Renaud: We are supportive of the new act, outside of some of the provisions that we mentioned and a few more that are perhaps not so serious.
I agree that the railroads must be viable. However, I do not believe that because of competition, they cannot be viable. For example, I have a real estate business. I would like to charge 8 or 9 per cent commission rates, but I have competition and therefore I charge a lesser rate in order to compete. I look at efficiencies elsewhere in order to be able to make the profit necessary to keep up the capital equipment I need to operate the company. We can live in a competitive world and still be viable.
The Chair: Does this apply to the shippers, too?
Mr. Renaud: Certainly. The problem of some of the shippers is that they are captive to one mode of transportation. They do not have a choice. You cannot ship wheat, for instance, to Prince Rupert by truck. You cannot ship coal by truck. We do not have water. We are in the middle of the prairies. We are right in the middle of Canada. We are many, many kilometres from sea. Where there is only one mode of transportation, competition is essential in order to provide shippers and producers with affordable transportation.
Senator Roberge: You stated that clause 27(2) will substantially reduce the impetus railways have to act in a competitive manner and to negotiate in good faith with the shippers.
If rail and shippers cannot bring the produce to the world market at world market prices, they both stand to lose. Would you not agree that, in effect, competition is also brought about by world market forces?
Mr. Renaud: That is correct. We must deal in a world market or certainly in a global marketplace today. The shippers realize and understand that. The cost of transportation is part of their cost and affects their ability to compete in that world market. The greatest problem in Western Canada is that they are captive to one mode of transportation to get their products to market. They would like to have two competing railways in order to have some choices to enable them to be competitive in the world marketplace.
Senator Roberge: Is it your opinion that world market prices are forcing more of a joint venture and more negotiated price rates between the shippers and the rail?
Mr. Renaud: You make a good point. I will turn that over to Bernie Churko.
Mr. Bernie Churko, Executive Director, Logistics, Planning and Compliance Division, Saskatchewan Highways & Transportation, Department of Transport: Concerning the railways charging what the markets will bear, history has shown that for our major resources commodities many of the efficiencies that the various resource-based and agricultural-based industries can generate internally are lost in terms of rate negotiations if there is not a competitive environment. While there is great effort to try to reduce costs, if you are in a captive situation, a lot of the "what the market will bear syndrome" ends up being in the hands of the railway, which has market dominance. In a large portion of our province, and in western Canada generally, there are those situations where they are captive, first, to the railway modes, since we are so far from market, and, second, to one carrier.
Mr. Renaud: Saskatchewan is split in two, as is most of western Canada. CN Rail runs through the north part of the province and CP runs through the south. There are great distances involved here. Manufacturing plants in the north have access to CN and not CP; in the south they have access to CP and not CN.
Senator Roberge: I heard the previous witness say that there is roughly a 50-kilometre maximum, so that in most areas there are possibilities to utilize competitive transportation.
Mr. Renaud: I think that was an average. In the Peace River area in Alberta, for example, the distance is much greater than that.
Mr. Churko: I believe that comment was made with respect to grain. It is true for the band through the centre, but there are significant portions, particularly in the southwest and in the northwest, where that is not the case. Even at 50 kilometres, the producer will have to incur an extra $5 to $8 per tonne to access the second railway, and they are still captive to the rail mode.
Senator Roberge: However, it does say in here somewhere, with regard to the competitive line rate, that if you are within a 30-kilometre radius, they will be obliged to carry to the next interswitch.
Mr. Churko: You are speaking about the expanded interswitching issue. That is correct, but there are many cases, particularly in the grain industry, where they would not fall within the 30-kilometre radius. The majority of shipping points, from a rail perspective, would not fall within the 30-kilometre radius.
Senator Spivak: I should like to get away from clauses 27(2) and 112, which have received a lot of coverage here and in the House of Commons.
Transportation issues have a huge impact in the west. It has an impact on the viability of small communities, rural development and grain producers. As a provincial government, what sort of policies do you have? In Manitoba, we build highways for pulp and paper mills in the north. What sort of policies do you have to encourage rail as opposed to highways, particularly with regard to the economic instrument side of it, taxation measures, and so forth?
What sort of priority is your province giving to the viability of rail? As much as I am, of course, an advocate for the prairie grain producers, I think there is a case to be made that the rail industry is being discriminated against in terms of provincial tax policies and in terms of how we think we must provide roads for the trucking industry regardless of how they destroy them and regardless of what it costs us to maintain them as a result of the damage these huge trucks do to them. We do not seem to be shifting our subsidies and incentives provincially toward rail, although that makes a lot more common sense on a long-term basis.
Mr. Renaud: I think we are talking of taxation primarily.
Senator Spivak: And subsidies. I am sure you subsidize your pulp mills by building roads to them.
Mr. Renaud: We do not call them subsidies, though. We do have partnership agreements, and those partnership agreements are working quite nicely. I can mention a couple of partnerships. We have a partnership with the potash companies whereby they pay to the department of highways some money and we build a bit stronger road. In this case, they are paying us something like $600,000 a year. We have a partnership with a mining company in northern Saskatchewan whereby we allow them to use a larger than normal vehicle on that highway. They have some savings and they return 75 per cent of their savings to the Department of Highways for road improvements on the particular highway.
To talk about taxation for a minute, in Saskatchewan we collect about $375 million in fuel taxes from motor vehicles. We return about $170 million to highways, so about $200 million goes into general revenue. The railways pay in Saskatchewan about $30 million in taxation per year. The railways pay the most taxation in Saskatchewan; about 15 cent per litre, and contribute about $30 million to the province. That goes into general revenue as well.
So the railways, I am proud to say, are good corporate citizens of the province of Saskatchewan. They help us with our hospitals and our health care system in general. You have to understand that quite a good portion of their income comes from Saskatchewan and the prairie provinces in general. If you compare the other fuel tax of about $200 million going into general revenue with the railroads' share of $30 million, I think the balance is reasonable.
The railways will sometimes say that they have not received any benefit from government but, if I remember correctly, there was a rail rehabilitation program some years ago to which I think the federal government contributed something like $1 billion.
Senator Spivak: Does that square with the statement made by Mr. Ritchie that Canadian railways pay a 75 per cent greater portion of their revenues in taxes than either U.S. railroads or truckers in Canada or in the United States? Are you saying that the balance is taken up by the federal government?
Mr. Renaud: Mr. Ritchie may have been talking of trucking by itself, and I do not have those figures so I do not know. Certainly I do not have the figures for other provinces.
Senator Spivak: Seventy-five per cent is a heavy burden to carry. Do you know the basis of it?
Mr. Renaud: Can you tell me what his comment was?
Senator Spivak: He said that Canadian railways pay a 75 per cent greater portion of their revenue in taxes than either U.S. railroads or truckers in Canada or in the United States.
Mr. Renaud: I would think he was talking of all taxation, including fuel tax and corporate income tax, but I am not sure.
Senator Spivak: That is fine. We can get this matter straightened out later.
Senator Forrestall: I am a little concerned about from where these amendments arose. It seemed at first blush that the amendments were indeed intended to enhance sufficiently the value of that one instrument that public companies must continually have in mind; that is, their shares. For some reason, there was something in the rail industry that was causing management of both CN and CP, as well as others, a fair amount of concern.
We understand this, Madam Chair, but we understand it against the background that the Government of Canada appreciates the difficulty that rails are having, particularly with capital cost allowances. There are a great many things that are causing problems for them today, but there is also a vast array of things that are under active and positive discussion, even negotiation, with the government and with the provinces, in this whole area of taxation. It makes me wonder why the shippers are so upset and angry, and why the rails are so convinced that the situation has to remain as it is.
You are an ideal witness because you are an arbitrator, you are a player, you have public responsibilities. Do you have any views on why the shippers are so incensed, and how we have caused this upset? Will the new law do as much as some people seem to think it will? Will it all of a sudden add $5 a share to CP's market value or CN's market value? I doubt it. Have you given any thought to why these two clauses are in here?
Mr. Renaud: We do not know. We would like them out. We believe that the NTA, 1987 had the four cornerstones that I mentioned before, which seemed to create a sense of competition where there was perhaps really no competition. That allowed shippers to sit with railways and negotiate contracts. We believe that the process now will be muddled, with the wording of the new act not being very clear to shippers. It could be very costly.
Will they be able to arbitrate this rate? What does some of this wording mean? It seemed to be very clear under the NTA, 1987 exactly where the shippers and railroads sat. It was a small stick which the shippers had, although one which they did not have to use very often because the railways and shippers negotiated in good faith. This is what we think we need in a situation where there is very limited competition.
In a situation where there is full-blown competition, we would not have to worry about this bill at all, or at least many parts of it. However, many shippers and producers feel that there is just not enough competition.
They believe that the rules of 1987 in the NTA at least provided that little bit of competition, that little stick which allowed them to sit down with the railroads and negotiate. That is where the shippers come from.
On the other side, if I were in the railway business, I would not want frivolous accusations that I am not providing the service or that I am charging too much. Certainly, I would have some legitimate concerns about that.
We are trying to have a balance so that the shippers and railways can live and work together in a competitive mode, so that the shippers and farmers can get the best rates possible, and so that the railways can indeed be successful, even in the face of the increasing competition due to some re-regulation.
We need strong railways but we also need a strong shipper sector with a strong economy and certainly a strong agricultural sector as well.
Senator Forrestall: You do not expect us to magically enhance the financial situation of the two principal railways, do you?
Mr. Renaud: No, but you must understand that the Crow subsidy is gone and there is a maximum rate on grain which will be reviewed in 1999.
Certainly, we believe there are other efficiencies in the system. If you have competition, as I mentioned before in real estate, you look for other areas within the system in which to become more efficient in order to compete. We believe there is some room there as well.
The Chair: Minister, do you have any specific examples of lost grain sales or lost coal sales because of rail rates being too high?
Mr. Renaud: I would not think so. Mr. Churko might want to add to that. We are captive; the rates are what they are. The farmer and the shipper must live with those rates.
Senator Forrestall: Does this process bring us close to being in trouble under our Free Trade Agreement? Are we skirting close to it with the various forms of help and assistance and subsidy?
Mr. Renaud: To my knowledge, there is no danger of that in this situation. That is what I have been advised.
Mr. Churko: I might comment on the grain question. We do not know how Bill C-14 will work in the grain environment because it is new. It has been regulated up to now, so grain has not yet experienced the new unregulated environment. I guess there would not be grain sales lost from this sort of environment.
I am informed by some shippers that there have been lost potash sales to other countries as a result of rates. I have no documented evidence to that effect.
The Chair: Thank you, Minister, for your presentation and for your answers.
We welcome you, minister. There are many questions to be asked of you today by the members of the committee, so please leave enough time following your presentation for the members to ask their questions.
The Honourable David Anderson, P.C., Minister of Transport: Thank you, Madam Chair and honourable senators, for having kept a place for me in the discussion of this bill.
[Translation]
I regret that overseas obligations prevented us from starting in the traditional way, where the Minister of Transport brings a bill to this committee at the start of its deliberations.
Your committee has heard from a cross-section of witnesses on Bill C-14, the Canada Transportation Act. Now is the time to sum up and to look to the future.
[English]
If I may sum up, I believe that we need to review and emphasize the goals and how this legislation will serve to help achieve those goals and modernize Canada's transportation system.
For modernization, we must focus our energies so that we may not only strengthen traditional partnerships but obviously build new ones. In this way, we will build an innovative economy that will mean jobs and growth for Canadians.
Much has been done by Canadians in every region, and indeed in every walk of life, but more still needs to be done.
[Translation]
The discussions leading to this bill began almost two years ago.
My colleague, Stan Keyes, when he appeared before you on April 23rd, noted that, to a large extent, consensus had been achieved.
Wide support exists for most of this bill.
Only a handful of sections still attract adverse comments.
You now have heard both sides on these issues. Some say that we have gone too far, and that we have taken away some of the shippers' rights, while others say that we have been too timid and should have gone at least as far as the Staggers Act in the United States.
[English]
The government's commitment at every stage has been to maintain a necessary balance in its policies but to make necessary corrections to the bill and to make it clearer, simpler, and more effective wherever possible.
We have acted to reduce the regulatory burden, at the same time preserving key protections. I might add that the regulatory burden is something about which we hear frequently from the private sector as a major objective of government. Reducing that regulatory burden is a major objective in the private sector presentations.
We ask for more decisions to be taken by the interested parties, at the same time preserving the government's ability to address the broad public interest and to act in the face of extraordinary disruptions.
[Translation]
We ask the regulator to do fewer things in a more timely way, while improving the tools to ensure compliance where regulatory relief has been granted.
Moving to a more self-reliant transportation system, with fewer rules and stronger partnerships, confirms that we strongly believe:
That the private sector is the driving force behind job creation and growth;
That it is the responsibility of the government to ensure that the environment is such that jobs can indeed be created.
And let me be quite clear, a strong and cost-efficient transportation system is absolutely fundamental to the delivery of Canadian goods on domestic and international markets at the lowest delivered cost.
[English]
This enhances economic growth and will create new jobs in this country.
We are moving in this direction with confidence because Canadians are focused on success and not on failure. In partnership, we can all work together to build the domestic economy and to ensure that economic growth results in good, well-paying jobs for Canadians.
[Translation]
While maintaining the highest standards of safety, we are moving to a transportation system that is more efficient, that meets today's needs, and is ready for tomorrow's.
Most of the shippers have brought to your attention the important role of railways in helping them secure a reliable and price-competitive access to current and new customers in international markets.
[English]
We share a common vision of increasing Canada's success in international markets.
Faced with rapid global changes, we need to increase our flexibility and to lower our response times. This is why we must maximize commercial negotiations and diminish regulation. This is why we must change the psychology surrounding rail rationalization.
In this bill, we are dismantling the barriers to the start-up of shortline railways in Canada so they can provide successful, lower-cost service. This point was made very well by Mr. Bruce Flohr of Rail-Tex when he appeared before your committee. The information you received on his experience with the Cape Breton and Central Nova Scotia line in Nova Scotia and his Goderich and Exeter line in Ontario, and on Mr. Payne's Central Western line in Alberta, are positive examples of the direction that we believe we need to take.
[Translation]
The current NTA process encourages railways to demarket light density lines. It encourages local interests to oppose all change. What we want, and what we have in this bill is a process that encourages new owners to invest in short line railways. This way, we encourage the maintenance of usable track, instead of abandonment, which has been the trend up until now.
We have to determine how remedies will be granted, should there be abuse of the system for private advantage, where market forces cannot offer effective protection.
We strongly believe that the proposed changes will work. The record shows that success by the parties in agreeing on rail rates is commonplace, and that failure is the rarity.
[English]
However, to ensure that proper procedures are in place to say how things will work should negotiations fail, we have kept all of the competitive access provisions won by the shippers in 1987. In some cases, we have reduced the time periods allowed for completing these processes. Let me repeat: We have kept all of the competitive access provisions.
Some have said to you that things are working fine and that if it ain't broken don't fix it. Not so.
[Translation]
In 1993, the National Transportation Act Review Committee pointed to emerging problems in the rail sector. We have been monitoring the situation very closely, but our strategy is to deal with problems as soon as we spot them, not to wait until they get too serious to be ignored.
In response to questions by Senator Roberge, we have tabled before you price indices, in 1986 constant dollars, showing that railways have lost 30 per cent of their average revenues in the last decade.
Prices have not declined in sudden jumps, but steadily, at a rate of 3 per cent a year.
[English]
Some of the shippers have said that they, too, are suffering, like the railways, real price declines. Thankfully for our economy, this is not the case for every sector. Where it is true, the price reductions in most cases are below the 3 per cent a year faced by our railways.
Improving the economic viability of railways would ensure that they have adequate resources to invest in needed rolling stock and to improve the quality of their services. It would assure investors and lenders that Canadian rail is a worthwhile investment.
[Translation]
With regard to the guidance and the discretion we have given the Canadian Transportation Agency - the much debated clauses 27 and 112 - let me make a couple of comments.
As I see it, the relationship between shippers and carriers is that of partners, people who depend on each other to achieve success. They are not competitors. What weakens one partner weakens the other.
In a sustainable partnerships, there is no winner nor loser. Rather, it is intended to maintain a reasonable balance of benefits between the partners. Remedies must produce results that can endure in the long run.
[English]
We must take great care when replacing commercially negotiated mutual decisions with an imposed regulatory result.
First, we should not move out of commercial negotiation and into regulation over disputes that have no real importance or magnitude. We say that when the impact of what is placed before the agency is substantive, the agency should give relief. However, when the impact of the issue is not substantive, the agency should not proceed.
[Translation]
Second, when regulation is invoked, a global perspective, as well as the interests of both parties, should at least be considered, which means that the agency should have a measure of discretion.
When both the carrier and the shipper are facing the pressures of declining prices and revenues, the agency may indeed face a difficult decision.
This is why we count on its impartiality and its expertise. What is the point of having those skills in place, if the agency is not to exercise any discretion?
[English]
Is it fair to impose a regulatory remedy without any discretion on the part of the regulator? Should there be no regard to the fact situation where the applicant is doing very well, but the carrier is not?
The current law does not allow carrier or shipper viabilities to be given any consideration in the case-by-case decisions on shipper relief.
Under clauses 27 and 112 we are ensuring that both shippers' and carriers' viability be considered in any results that would be imposed by the regulator.
[Translation]
Including the concepts of "substantial commercial harm" and "commercially fair and reasonable" is a way to say that the duty of the agency is to consider the immediate and long-term effects of its decisions on both partners.
We think that balance is possible when responsible discretion can be exercised. We think that balance is in jeopardy when harm is not considered, and when one party or the other cannot be dealt with in a fair and reasonable way.
[English]
Also, I would like to mention the monitoring safeguards that we have installed in this bill. First, in this bill there are five avenues of review. The Canadian Transportation Agency is charged in this bill, by clause 42(2), to report every year on any problems that it has encountered in administering this law.
Second, under clause 49, the agency can be called on to conduct wide investigations into any problem.
[Translation]
A third avenue of review lies with the Minister who is charged under this bill to provide an annual report on the state of the transportation system (Clause 52(1)), and to carry out a data collection program to support every aspect of that analysis.
Starting next year, industry will conduct a non-statutory review of the grain transportation and handling system, and the Minister himself is charged with conducting a statutory review of the state of the grain transportation and handling system in 1999 (Clause 155(1)). This provides a fourth avenue of review.
[English]
Finally, under clause 53, the minister is charged in this bill with conducting a statutory review of the entire Canada Transportation Act during the fifth year after its proclamation.
With these safeguards, we are striving to ensure that problems will be intercepted as they emerge and dealt with appropriately.
[Translation]
Our vision of the Canadian transportation system is that of a system going through the modernization process that should be followed if we want to have the system we'll need in the 21st century, a system which will help us pursue our highest goals and aspirations as a country, a system which will allow us to get where we want to go, safely and at a price we can afford.
[English]
When the objectives or the underlying conditions change, our tools must be adapted to the new tasks that will emerge or be replaced with what is needed to meet the next challenge.
[Translation]
I think that, through the Canada Transportation Act, we have the appropriate tools to deal with the business at hand. We have created an environment which will allow sound partnerships to flourish. The time has now come for the government to turn to other important concerns and to let Canadians, through a number of business undertakings, make the transportation system work.
[English]
The Chair: My first question is the same one as I asked the minister from Saskatchewan. We heard from the shippers about potential job losses in their industries and also about the possibility that new plants may be located elsewhere if the bill passes in its present form. Would you care to comment on that?
Mr. Anderson: We considered that general concern. Inevitably, there is the possibility of change in a transportation system when subsidy systems in both Atlantic Canada and western Canada are eliminated. Our view is that with the changes and commercialization that will be introduced, chances are that economically viable plants or operations will not be affected dramatically. There may be cases where people are on the edge and a change in the legislation will mean less subsidies from other customers of the railroads, through the railroads to the particular plant. However, to suggest that this is in any way a general situation, I think, would be quite incorrect. We are attempting to ensure that there is an element of economic viability throughout the system, including economic viability of the railroads.
We are not used to not having viable railroads in Canada. Up until now, we have had a good railroad system. However, the future worries me. If we allow our rolling stock to age and the system to be maintained at a lower level, ultimately the day will come when we start losing right across the board with respect to our shippers, exporters and, indeed, our internal traffic. That is important to recognize. If we do not keep the railways fully viable, we could suffer right across the board.
Senator Kinsella: Minister, I would like to turn to Part V of the bill dealing with the transportation of persons with disabilities. I would refer you to clause 169, in particular, as well as to clauses 170 and 171.
My first question relates to government policy. When I look at the wording of clause 171, I wonder whether there is a change in the government's policy with respect to the primacy that is given to the Canadian Human Rights Act over other legislation.
Mr. Anderson: There is no policy change whatsoever. We want to ensure that people with physical disabilities which would cause any concern will indeed be accorded the same assistance or protection that the Canadian Human Rights Commission would be willing to offer.
I should add that in the general stripping down of my department; from getting rid of operations, concentrating on safety, on policy and on being the landlord of certain exercises, the element that we kept in the forefront of the department was transportation for people who may have disabilities. Even though we will have stripped the department down from 19,000 people when this government took office to around 4,500 when we face the next election, we still maintain that responsibility within our department.
Senator Kinsella: I certainly laud the government's effort to facilitate the easy movement of persons with disabilities throughout the transportation system in Canada. However, clause 171 states that "The Agency and the Canadian Human Rights Commission shall..." do certain things. Here we have the Transportation Act purporting to give instruction to a quasi-independent tribunal, namely, the Canadian Human Rights Commission. I am curious as to whether the government realizes the implication of the wording of that clause.
Mr. Anderson: I understand that the provision was in the previous act in the same form. It has not resulted in any difficulty in the previous legislation. The question of equivalency of position of the agency in the Canadian Human Rights Commission has been raised by you, senator. I do not personally think there is a major issue there. That is an area that the department is also following closely. It is not something that has been totally handed over to the agency.
This clause ensures, as did the previous section, that the agency is fully coordinated with the Human Rights Commission. Clause 171 is a signal to the agency and all people that we will assist and make special provision for those who have visible disabilities or, for some other reason, have any problem with existing transportation facilities. It is in no way an attempt to avoid that responsibility.
Senator Kinsella: Are you of the view, therefore, that the agency is subject to the provisions of the Canadian Human Rights Act rather than what is written here?
Mr. Anderson: The issue is a trifle complicated in the sense that the agency and the Human Rights Commission have differing jurisdictions and differing areas of activity. We want to ensure that they are fully coordinated. I believe that this provision will achieve that, just as it has in the past legislation. My personal view is that attempting to maintain that as one of the four elements of the remaining activities of Transport Canada is an indication of the importance we place on it.
Again, I do not know of any difficulties raised in the past by reason of this coordination as it existed in the previous piece of legislation, which I believe had exactly the same wording.
The Chair: I neglected to mention that we have with us Mrs. Moya Greene, Assistant Deputy Minister of Transport.
Mr. Anderson: Assistant Deputy Minister responsible for Policy; my right hand.
Senator Roberge: Mr. Minister, in the meetings we have conducted in the past couple of weeks we have discussed the subjective nature of the wording "substantial commercial harm" and "commercially fair and reasonable." It is subjective because, for example, shippers say that this will create tremendous litigation. This will go further than the agency. It will go to the Court of Appeal or even the Supreme Court of Canada. Tremendous costs will be involved and there will be a lengthy period of time before a decision is rendered. I would like to get your opinion on that.
Mr. Anderson: There is the possibility of someone testing any new legislation. A railway or major shipper will want to test it in the courts to see what advantage they can gain therefrom.
This is no different from other piece of legislation in that regard. The courts would quickly determine what it means, if there is any doubt, which I do not think there is.
To a certain degree, the courts will defer to the agency. There are issues of interpretation which are buried in clause 27. I am not suggesting that there will be no litigation, but the legal people with whom we have consulted on this matter, who are involved in neither railways or shipping, have not given us reason to suspect that this concern is well founded.
It is possible that the words will at some stage be tested. However, the phrase "substantial commercial harm" has not come from the moon; it is wording that has been used frequently. It has a certain ordinary meaning. Our belief is that, while there may be a test, the chances of continuous litigation are extremely remote; in fact, non-existent.
Senator Roberge: If it is no problem at all, I do not know why it is in the bill. The same is true of the phrase "net salvage value." The phrase "commercially fair and reasonable to all parties" refers even to parties which have no direct interest in the case per se.
Mr. Anderson: Yes, but these are interpretive provisions. Let me show complete deference to the court. I am sure that every court would interpret this in a common sense and logical manner. If a court said that it is open to anyone with no interest whatsoever to take part, one would question the wisdom of the judge.
I think judges will react sensibly to this measure. They will see it as interpretive. I think they will recognize the clear objective of the legislation, which is to ensure that there are normal commercial dealings between parties, and that they will interpret this in that manner.
At this stage, before the legislation is in place, some who would prefer to see the legislation written otherwise and prefer the regulatory mode to the commercial mode which we are trying to change, will perhaps see problems that I do not think an analysis of the legislation would support.
There are people who would prefer the previous system. I am sure a lot of them have come before you, as they have come before me. The fact is that we have bitten the bullet on this policy issue of trying to introduce commercialization, trying to force the two parties to come to a reasonable decision, allowing for the protections we have put in place, while at the same time getting away from the tendency of trying to con the agency at a regulatory hearing. That is what we are trying to get away from. It is time consuming and destructive of useful, intelligent commercial relationships between client and railroad, and is not leading to a modern transportation system.
Senator Spivak: Legal counsel for the western Canadian shippers make two points about the interpretation of clause 27(2). First, they say that it is redundant because there is a compensatory provision.
Second, in terms of the litigation aspect, the agency will have to exercise its discretion. That is a subjective opinion; it is not a question of fact. They think it will be subject to litigation since it calls for a formulation of an opinion, based on the facts and circumstances of each case. They do not think that the prospect of litigation is non-existent, as you put it, Mr. Minister, because it is not a question of fact but of opinion. Their view is that this is absolutely a question of law which is specifically appealable.
There are two points here. First, there is already adequate provision for compensation through the compensatory provision. Second, it is a discretionary opinion on the part of the agency, which is a tribunal.
Mr. Anderson: Certainly, there is the issue of whether there will be legislation. I am not suggesting that there will be no litigation, but it seems to me that the period of litigation will be relatively brief. It probably would be unwise to take to court some of the more extreme analyses that we have all heard on this legislation.
With respect to the discretion, the agency will have to exercise discretion, as do many agencies. The protection there is quality of appointments. That is a serious issue, which everyone of us understands fully. On those two scores, I have no real fears. Perhaps I am optimistic, but I believe we can create agencies which exercise discretion in a proper and careful manner.
I will turn to Ms Greene to comment a little further on the issue of redundancy and on whether this is somewhere else in the legislation.
Ms Moya Greene, Assistant Deputy Minister, Department of Transport: I disagree with Mr. Foran. I have spent a lot of time, as you know Senator Spivak, with Mr. Foran, for whom everyone in transportation has the utmost respect. However, I disagree with him on this point.
My view, which I can support by much of the legal work that we did in the preparation of this bill, is that, setting aside the more general issue of the frailty of any language in any bill that gives opportunities - new opportunities, some would say - for any lawyer to take any case, there is no language in this bill that is unheard of in the law. Therefore, there will be very good and clear guidance from previous cases as to what the words mean.
I do not agree that the words "commercially fair and reasonable", are redundant. Those words apply to the most extraordinary protection that any shipper anywhere has; namely, the right to something called a competitive line rate. No one else - not in the United States or anywhere that we could find - has that right. It is a truly extraordinary right. It forces the railroad that comes to the door of the shipper to turn the traffic over to a competitor railroad if the shipper is not satisfied with the rate that is being quoted by the railway that is closest to his door. It then gives the long haul revenue to the competitor railroad. It is very extraordinary. It is a right that is protected in this bill. It has existed since 1987.
The only thing the "commercially fair and reasonable" provision does is ensure that if the agency imposes this extraordinary regulatory protection, which exists nowhere else, the rate that is imposed on the railway must at least be commercially fair and reasonable.
The words "for all parties" were added at the behest of some shippers in the parliamentary committee so that it would be plain that the decision in any fact situation would have to take account of both sides.
On the issue of parties, by definition "parties" means the people who have a direct interest in the case.
The wording "substantial commercial harm" in clause 27(2) was adopted by the parliamentary committee so that it would be known to the law. "Substantial commercial harm" is very common phraseology which is clarified in legal cases.
Also, the parliamentary committee decided that for the utmost clarification it would list, among other things, the kinds of situations that might be considered "substantial commercial harm".
Finally, it may be some reassurance to you that, while any new law is open to challenge on language, we do believe that the interpretive guidelines in this bill will not be as challengeable as you fear.
Clause 31 of the bill makes it clear that a finding of fact by the agency is binding; it is not appealable. Because the agency hears all the facts, the law says to anyone who would seek to appeal a decision of the agency that findings of fact are not appealable.
Second, there is very senior case law which holds that the courts will defer to any matter of opinion expressed by a tribunal. I would submit that is so with respect to the interpretive guideline in clause 27(2) and in clause 112. An interpretive guideline serves as a guide to the agency to keep certain factors in mind in making decisions. That is a matter of opinion.
The courts will defer to that opinion because the courts have taken the view that these are specialized agencies whose members sat through the presentation of the facts and who are competent to make the decision before them.
For all of those reasons, honourable senators, I cannot agree with Mr. Foran on that point.
Senator Spivak: You have given a very wide-ranging and competent legal reply to my question. I do not want to take issue with it. Rather, I would turn to another question. However, before doing so, I must say with all due respect that I am not impressed by your statement that this is an extraordinary measure seen nowhere else in rail parlance or rail jurisdiction.
Grain producers, the people with whom I am most concerned, are looking to this area for signs of competition. Competition, to a great extent, does not exist for grain producers. Therefore, this is not really a case of protection for the shipper; rather, it is a case of elimination of monopoly. That is a very different perspective on the matter which we will not get into now.
In the presentation to us by CP, it was stated that Canadian railways pay a 75 per cent greater portion of their revenue in taxes than either U.S. railroads or truckers in Canada or in the U.S. I was told that the large majority of this is provincial and not federal, and I understand that. Mr. Ritchie did make a very broad-ranging presentation on Bill C-14 wherein he astutely described the context of transportation policy.
Because I think railways are a safer and more environmentally sound mode of transportation, I am totally in sympathy with the idea of viability for the railroads. In your contemplation of this policy, surely the basic problem facing the railroads was not so much their customers but their competition. What levers are available to you in terms of federal policy or economic instruments which tip this delicate balance toward the railways rather than toward trucking? Presently, trucking seems to be running away with the service and, in the course of it, destroying our roads and posing greater threats to safety on our highways.
Mr. Anderson: Senator, I understand your concern about the monopoly of railroads. You and I are both westerners. We both know that a suspicion of railways comes with mother's milk. We are all very concerned about that. This legislation is an attempt to break down some of that suspicion because we believe it has been destructive in the past.
Obviously, we do not wish to deliver the grain producer or any other producer, as might have been the case in decades past, into the hands of monopolistic railroad pricing practices where everything was skimmed off.
Having said that, I would certainly agree with you that railways are more environmentally friendly. We want to encourage them. We want to maintain the maximum number of shortline railroads. That means, in essence, getting them divested from the major railroad systems early enough that there is still a potential for profitability.
This bill does go into that. The concept which you have outlined is certainly present as an objective.
With respect to taxation, you are correct. Yes, Canadian railroads do pay higher taxes. Again, without attempting to pass the buck, the federal government probably taxes them too much as well. Certainly, the provincial jurisdictions tax a great deal more heavily than the state jurisdictions in the United States.
My province of British Columbia was the only jurisdiction in North America which actually taxed the bridges. From the railway bridge at Second Narrows, $800,000 goes to North Vancouver and $1.2 million goes to Vancouver. It is a bridge between them for which they provide no services.
That is changing. British Columbia and Manitoba and some other jurisdictions have altered their taxing policies to even the playing field somewhat for Canadian railways.
One issue is very important. If it is cheaper for a train full of grain to go through the United States and through an American port, we will lose the traffic. Until recently, there was a cost differential of $10,000 to $12,000 related to diesel taxes, roadbed taxes, straight property taxes and other tax situations, as between the Canadian and American railroads. That is improving but we have a way to go. I will bear in mind your point and I am sure you will remind me if we do not move fast enough in the future. It is a serious problem.
I will ask Ms Green to comment briefly with respect to the other aspects of your question.
Ms Greene: This bill will help to get the appropriate commodities back on the rails, as you suggest, in the sense that the railways can rationalize their plants and bring down their costs. Ultimately, bringing those costs down is the best way to stay competitive. That is what this is all about - not gouging shippers. As was pointed out, shippers' rates are likely to come down for grain as they have access to confidential contracts for the first time, just as other commodities have come down. The real issue is whether rail costs will be allowed to come down now.
Senator Forrestall: Mr. Minister, I still do not know why you have put these two measures in the bill. I have listened to shippers and to you people. I have been waited upon by your people and by rail people; I still do not know why you have done it.
I ask that you give me a frank answer and that you understand my concern, which is whether this is in response to a request from the railways, CN in particular. We have a pile of their shares which I gather we want to put back out on the market. The climate is not very healthy for them right now. Is this an attempt to make the company look a little stronger to the eventual or prospective stakeholder?
Why have you done it? If you wanted to get on with what you say are the reasons for this measure, then surely you would have done more to lead this legislation in the direction of running down the regulatory agency and bringing into greater play the concept of a competition tribunal. Sooner or later we have to end up there, because that is what the marketplace is all about. The sooner we take advantage of that, the better off we will be. I think the government recognizes that.
Keep in the back of your mind when you respond to my question, minister, that many of us are wondering how the government is getting on in its negotiations with respect to cost allowances and depreciation and a whole lot of other things that could very quickly - much more quickly than this - enhance for the stakeholder the value of the share, if you will. I think you get my drift. I do not know where you are coming from.
As you will appreciate, minister, I sense that there was a great deal of midnight oil burned going over such clauses as this and understanding whether or not they were necessary. They were not formerly necessary but you seem to think they are now, and I would like to know why.
Mr. Anderson: I may not be able to satisfy all your suspicions, senator, but I hope I can satisfy one. We have, of course, sold all of CN's shares. We sold them at $16.50 and they quite quickly went up. Therefore, any change that this legislation might bring to the railroads themselves would not make any impact whatsoever on government revenues from share sales. It is certainly not designed specifically for that purpose. It is designed to ensure that the private sector markets understand that Canadian railroads, like American railroads, are good places to invest so that we will get new equipment and the new technology which has put the American railroads in a position to offer rates cheaper than ours.
With respect to the railroads, we do not want them to continue to sink as they have been doing, because eventually we will hit a cold winter - it was cold enough in January of this year; I was in Saskatoon at 42 below - when the railway system simply will not function effectively because we will have equipment which is too old, we will have electrical systems that will not be operating effectively, and we will simply be unable to deliver our wheat to world markets. That is my biggest concern. That day will come if we allow our system to erode.
Senator Forrestall: I cannot resist a comment on that. In the specifications for the new helicopter, you have now gone to minus 40 degrees when, in fact, they wanted minus 50 and minus 60. I could not agree with you more.
Mr. Anderson: At least we are together on one form of transportation, senator.
The issue is to make the railways competitive with American railways. They do face competition, and one of the areas in which they face competition is in attracting capital.
I cannot deny that we want to have profitable railroads. Nor can I deny we want to reverse that decline, and I make no effort to suggest that we would want to let that decline continue. We do not. Certainly, it is not to benefit the federal government in any respect in terms of CN's shares. We do not have any more.
Senator Forrestall: I did not mean to suggest we did. I was not sure of that. I was really speaking of the marketplace and the activity in the marketplace.
Mr. Anderson: In that respect, I will agree with you; we want to ensure that the world sees Canadian railroads as vigorous and as competitive as the American railroads, or any other, capable of offering equally low prices for shippers because of their technological edge. Yes, we want them to be good railroads, top-of-the-line, and that requires them to be able to charge adequately.
Senator Forrestall: How are you getting on with the negotiations with respect to some of the major taxation problems?
Mr. Anderson: The progress has been substantial, senator. Let me give full credit to those provinces which have made adjustments. I believe we are still waiting for Saskatchewan to be as generous as some of the other western provinces. I am sure that those of you from that province will take the message home. We are improving the taxation differential.
At the federal level, I should perhaps reply to you by letter in order that I can have more accurate figures as to the comparisons with American federal taxation levels, but I can assure you, without divulging any secrets or discussions between myself and the Minister of Finance, that ensuring that railroads are not penalized by our taxation policies is a very active issue.
Senator Forrestall: We would all like to see them balancing down their capital equipment in eight or ten years, as opposed to 18 or 20 years. After a while, you are running with very obsolete equipment.
Mr. Anderson: That is right, senator.
Senator Forrestall: As you say, you cannot function with such equipment. Many will notice that there is no mention of the Maritimes here. That is because we have no railways east of Quebec. You took them all away from us.
I am pleased to hear your comments for a couple of reasons. One of them has a lot to do with the last question I want to ask. It is a very practical one. Every month that goes by, we see regional groupings of municipalities faced with the recurring problem of how to dispose of garbage. We are getting into sophisticated landfill and a lot of other technology, most of which seems to involve long-distance movement of garbage.
I do not know what the situation is like in the rest of Canada, but in Nova Scotia we are moving it on the Trans-Canada Highway, which requires a lot of time, effort and money for upgrading, twinning and all of that. Now we will be adding the refuse from 350,000 people to the strip of the Trans-Canada Highway which goes through the Wentworth Valley. We call that strip a lot of things that I would not like to mention here, but it is a death trap. Now we will add the number of trucks that it will take to move that amount of garbage.
What is the government doing to encourage the railways to study this kind of market and come up with innovative solutions that involve the use of the rail track? Is the government doing anything?
Mr. Anderson: Senator, I will reply by letter to your specific question about the removal of garbage as I do not have the full information on that.
With respect to your earlier comment about equipment, I am pleased to report to honourable senators that we have very recently upgraded the equipment on some VIA lines, in particular some lines in Quebec and also the line between Edmonton and Prince Rupert. We are trying hard to maintain an improved passenger rail service through VIA, which is another major component. This poses some difficulties for me in a period of substantial budget reductions because the subsidies are over $200 million annually, but our hope is that we will be able to increase ridership on railroads and thus reduce costs and improve service. We hope to get in one of these positive spirals.
Certainly it is important, for the reasons you have outlined, to maintain the alternative to the TransCanada Highway and other highways. We are trying to do it with the movement of people. I will reply specifically by letter on the issue of moving new products or products not currently moved, such as waste and garbage.
Senator Forrestall: There is not much point in giving us significant money to upgrade our highways if, on the other hand, we are allowing a greater influx of trucks. In this case, I shudder to think of how many will start hitting Death Valley later on this summer.
Mr. Anderson: Senator, I will take that as a representation and thank you for it. It is certainly in keeping with my personal beliefs.
Senator Forrestall: I might say you can have this bill as long as you would agree to let us stand those two offensive clauses for six months. How does that sound?
Mr. Anderson: It is one of those deals that I am not sure I can afford to accept.
Senator Forrestall: Summer is coming, and it does not matter whether you get it in June or September.
Mr. Anderson: Senator, you are just as persuasive in the Senate as you were in the House of Commons.
The Chair: Perhaps you could send the same information to all committee members.
Mr. Anderson: Certainly, as well as any other issues that may come up in the interim.
Senator Carney: Minister, I do not have a question, but I do have an invitation. Your department has the lead mandate on aviation safety. Many members of this committee, including the chair and Senators Adams, Johnson, Spivak and Forrestall and myself, participated in a study on the automated weather observation systems called AWOS in the Standing Senate Committee on Energy, Environment and Natural Resources. We issued an interim report.
This is an ongoing issue for our committee. This is the first opportunity I have had to bring to your attention that this report, in which the pilots said AWOS is an accident waiting to happen, has generated comment from municipalities right across the country - from Inuvik to the furthest reaches of British Columbia, from Sable Island, and from every province, from premiers and mayors and airports and legislatures - all expressing their dissatisfaction with this technology.
The Canadian Airline Pilots Association, in their response to Transport Canada's response to our committee, said they have read this report with dismay and disillusionment. They find its reflections on operational and regulatory aspects of aviation bewildering.
The subject today has been rail. I am simply saying to you that because of the ongoing interest of senators in this issue, we hope you will give this issue the priority that Canadians have given to it and arrange for an early appearance before another Senate committee to bring us up to date on what steps have been taken to concur with our recommendation that humans be left in place until this technology proves to be safe.
I thank the chair for allowing me to bring this issue forward at this time.
The Chair: I cannot say "no" to Senator Carney.
Mr. Anderson: I learned it is unwise to say "yes" to Senator Carney, and we go back to our undergraduate days at university.
The Chair: Thank you very much, minister, for your presence here. The answers you gave us today to our many questions are important.
Mr. Anderson: If there are questions at any time, we can certainly attempt to respond by letter directly to you, Madam Chair, or to any member who has questions.
The Chair: We have completed the agreed-upon series of public hearings on Bill C-14. I understand that at this point in the consideration of the bill it is usual for the chair to entertain a motion that the bill be reported without amendment and, if there are amendments, they would normally be moved during the course of this debate.
How do you wish to proceed, honourable senators?
Senator Forrestall: Madam Chair, I would like us simply to adjourn this evening in order that I may have an opportunity to carry back to my caucus the comments and observations of the minister with respect to these two clauses which give us concern and to seek their direction.
As I have indicated, I am prepared to do one of three things with respect to the clauses to which I refer, all of which are premised on the inadequacy of the reply. I am not satisfied as to why the clauses are there. I think there has been sufficient concern voiced by the three prairie provinces and by the coalition of shippers; by virtually everyone involved other than the minister and the ministry. They still seem a little vague. The only ones absolutely certain about what is happening are the railways and the shippers. I would sooner err on the side of discretion and look at it a little longer. By and large, the bill meets with the favour of us all, with those two exceptions.
I would respectfully ask that the committee consider meeting on Thursday or on one day the following week, at which time I will certainly be prepared to deal with clause-by-clause consideration of the bill or to indicate to you that I have withdrawn my amendments and we can get on with the business at hand. That is my position now.
Senator Petten: Before my honourable colleague spoke, I was about to move that we report the bill.
Senator Forrestall: You are entitled to do that. I would be the last person in the world to deny you that right.
Senator Poulin: I do not understand, Senator Forrestall.
Senator Forrestall: I am saying you are railroading the bill, and that is what I will say to the press. You are railroading something through, and there is no need for it. There is no rush for this bill.
Senator Poulin: Could I ask a question, Senator Forrestall? At the meeting of the steering committee, when Senators Bacon, Forrestall, Roux and I were present, I thought we had agreed that we would have a certain number of meetings for a certain length of time.
Senator Forrestall: We have had those meetings.
Senator Poulin: I thought we had agreed on that in terms of process.
Senator Forrestall: Can we consider the information we received today?
The Chair: Are you finished, Senator Poulin?
Senator Poulin: No. I felt that we were all comfortable with that process. I do not understand why you would want to change the process now.
Senator Forrestall: I made a mistake. I had not seen the bill. Now I have seen the bill, and I want to think about it for 24 hours. If I cannot do that, then you can do what you want. You have the majority here. I simply object to it. That is all.
The Chair: Senators, would you be agreeable to postponing until Thursday morning? We could have another meeting at that time for clause-by-clause study of the bill.
Senator Petten: I am in agreement with that.
The Chair: Will you be ready on Thursday morning, Senator Forrestall?
Senator Forrestall: Yes.
Senator Adams: I was advised that we would be having our last meeting on this tonight and would be reporting the bill back to the Senate tomorrow.
Senator Forrestall: I did not agree to returning the bill on the last day of evidence. I have never done that in 30 years of public life and I do not intend to begin now on this matter.
The Chair: If it is agreeable to members of the committee, honourable senators, we will postpone clause-by-clause consideration of the bill until Thursday morning, but that will be it at that time.
Senator Forrestall: Do not be so absolute about things, Madam Chair. We hope that that will be it.
The Chair: I was hoping that would be it, because we have Bill C-20 coming to us.
Senator Davey: I do not understand why we are not voting now. We have a man who objects, as is his privilege. It seems to me that we are wandering around and I do not know why. Why do we not vote right now?
The Chair: It is the decision of members of the committee.
Senator Davey: I move that we report the bill without amendment.
The Chair: Is that agreed, honourable senators?
Senator Forrestall: I will move my amendments in the chamber. You may find it would have been a little easier to have waited until Thursday than to deal with it in the chamber. However, that is your choice.
Senator Roberge: It would have been nice to have had the opportunity to discuss it in our caucuses tomorrow. Therefore, I vote against the motion.
Senator Forrestall: I am opposed as well, Madam Chair.
The Chair: There being no other questions to entertain, is it agreed that, as Senator Davey has moved, we report the bill to the chamber without amendment?
Some Hon. Senators: Agreed.
The committee adjourned.