[Recorded by Electronic Apparatus]

Tuesday, May 30, 1995

.1535

[English]

The Chairman: Good afternoon, colleagues. We will resume consideration of Bill C-89, An Act to provide for the continuance of the Canadian National Railway Company under the Canada Business Corporations Act and for the issuance and sale of shares of the company to the public, also known as the CN Commercialization Act.

We welcome to our table this afternoon witnesses from the Canadian Trucking Association, Gilles Bélanger, president. We have the president of the Ontario Trucking Association, David Bradley, and consultant Kenneth Maclaren. Gentlemen, welcome to the committee. Thank you for taking the time to be with us today.

I understand you have a submission to read that we all have copies of in both official languages.

Please proceed.

[Translation]

Mr. Gilles J. Bélanger (President, Canadian Trucking Association): Thank you, Mr. Chairman.

[English]

It's a pleasure for us to be here. Thank you for giving us the opportunity to appear before the committee.

Before I start with the submission, I'd like to introduce myself. I'm Gilles Bélanger. I'm president of the Canadian Trucking Association. With me is David Bradley, president of the Ontario Trucking Association, and Ken Maclaren, who is a consultant at this point but he was at the helm of the Canadian Trucking Association for many years.

I have one provincial association represented here with me, but the Canadian Trucking Association also represents all of the provincial associations in Canada. There are six provincial and one regional for Atlantic Canada. We didn't want to invite everybody here, but Mr. Bradley is here representing Ontario.

Ladies and gentlemen, the Canadian Trucking Association and the Ontario Trucking Association wish to thank the Standing Committee on Transport for this opportunity to present our concerns and suggestions on this important issue.

CTA is a not-for-profit association that has been the recognized voice of the Canadian motor carrier industry on national and international issues since 1937. The OTA is the largest provincial trucking association in Canada and speaks on behalf of the Ontario motor carrier industry.

Trucking is the largest component of the transportation industry. It accounts for 38% of the entire transportation component of the GDP. Trucking operates hundreds of thousands of heavy duty trucks and tractors, with annual revenue of over $30 billion. It employs nearly half a million people, and it carries 65% to 80% of Canada's trade measured by value. The difference between 65% and 80% depends on which region or province we are talking about.

Currently, the trucking industry moves approximately 70% of the total surface freight - by revenue - in Canada and the railways move the remaining 30%. This is an exact reversal of the pattern of 30 years ago when rail was the dominant mode, with 70% of the traffic. The trucking industry has become the dominant mode of freight transportation because it provides a flexible, efficient, reliable, and timely service that shippers prefer and rely upon to compete in the continental and global marketplace. The innovations of the trucking industry, made necessary by market forces, have driven the success of the motor carrier industry.

.1540

From the outset, it should be understood that our two associations have had longstanding positions supporting the privatization of the Canadian National Railway. For over five decades, our associations have been actively concerned with the efficient and competitive movement of freight in a multi-modal marketplace. The Canadian motor freight transportation sector has been deregulated since 1988. By its very nature, deregulation has encouraged a reliance on market forces, and Canadian shippers, manufacturers, retailers, and consumers have benefited from the improved service levels and pricing that increased competition has spawned.

To have one player in the marketplace still operating as a crown corporation is to negate the positive impact of the application of market forces. This is unfair to CN's competitors. It is unfair to its customers, and ultimately it impedes the ability of CN to do what it needs to do to ensure its long-term viability. For these reasons, the motor carrier industry has a very keen interest in Bill C-89, which is before this committee, and the manner in which the commercialization of CN is to be accomplished.

The advent of motor carrier deregulation in the late 1980s, coupled with a subsequent introduction of the Canada-U.S. Free Trade Agreement, has resulted in a substantial dislocation of the traditional east-west traffic for all transport modes in favour of north-south movements. The changes in traffic pattern and the massive influx of competition, accompanied by the recession and an overvalued dollar, caused severe problems to the industry. The trucking industry had to find its own solutions to its problems and Canadian carriers had to become more competitive.

Deregulation in trucking dealt only with the elimination of economic entry barriers for extra-provincial operations. The rest of the regime remained in place, which made it difficult for Canadian carriers to adjust quickly to competition. Despite these government-imposed impediments to competitiveness, Canadian carriers became more efficient, more productive, provided better service, and were innovative.

While there are still problems in the trucking sector, prospects have improved, essentially because of increased efficiency and productivity on the part of motor carriers, combined with a more streamlined regulatory regime, a growing economy and a correction in the value of the Canadian dollar. The trucking industry has survived deregulation and is now taking advantage of a freer marketplace.

The fact that the railways were overregulated without the freedom to rationalize is at least partly responsible for the rail malaise. To be profitable in a competitive environment, rail carriers need to have the freedom to adapt rapidly to a changing market, which is not the case for the Canadian railways because of the regulatory framework that maintains Canadian railways in another era.

The trucking industry has a significant stake in an efficient, competitive intermodal system, of which rail is a key component. The trucking industry reiterates that there is and always has been a much greater potential for rail-truck intermodal services in the long-haul transportation in Canada.

The Canadian railways can continue to compete unsuccessfully or they can follow the lead of their American competitors and become wholesalers of intermodal services to the trucking industry. We would point out that seamless intermodalism already exists in the interface between ships and trucks and aircraft and trucks. The trucking industry overwhelmingly favours the continuation of a competitive rail system that is rationalized to achieve efficiency. The fate of viable intermodalism depends on competitive pricing and service that is comparable to the truck load industry and on the availability of rail competition.

.1545

At the same time, the industry has serious concerns about the commercialization of CN, considering its present debt load and the historic tendency of CN management to overspend on infrastructure, particularly following previous recapitalization. CN management practices need to be checked by market realities. If a financial restructuring is undertaken primarily to make the initial offering more attractive, then the innovations and hard decisions truly necessary to change the very nature of this corporation may not occur, or will at least be seriously delayed.

The trucking industry opposes new recapitalization just to make the sale of CN more attractive in a difficult financial market. Commercialization is only a half measure if the government does not also ensure attention to the other regulatory issues. The more regulatory impediments to competitiveness that remain, the less receptive the market will be on the share issue.

If CN commercialization involves yet another excessive capital bailout, it would be highly detrimental, not to mention discriminatory, to private sector transportation competitors. As a result of past multiple capitalizations from the taxpayers, it is generally recognized that CN has a more modern but not necessarily more efficient infrastructure system than the other Canadian railway. The desire to reduce the debt-equity ratio to provide the commercialized CN with a better financial rating to entice share purchasers should not be such that it would provide CN with an unfair competitive advantage.

Although the economic package is not addressed by Bill C-89, this committee should state sound economic principles necessary to avoid an imbalance in the competitive position in surface transportation.

The railways do have problems, just as the whole transportation sector has problems. The solution to those is not found by blaming the trucking industry. The solutions to the railways' problems lie, to a great extent, with their own operational service and management practices. Ultimately, the shipper is the best judge of the mode's performance and market forces will prevail.

CN has been working hard to address these matters. In fact some railway leaders have indicated that they might do well to emulate the trucking industry.

Thank you very much for listening.

The Chairman: Thank you very much, President Bélanger, for your submission to the committee.

We'll go to some questions now.

[Translation]

Mr. Guimond (Beauport - Montmorency - Orléans): Thank you, Mr. Chairman. Thank you for your submission, Mr. Bélanger. Unfortunately, I missed the last part, but I shall probably come back to that in a second round of questions.

Were you here this morning when the president of the CP was appearing before us?

Mr. Bélanger: No.

Mr. Guimond: I am going to ask you the same question I asked him, but I will apply it to the trucking industry as I had applied it to the rail industry in his case. Does the Canadian trucking industry feel that there is unfair competition from the railways?

Mr. Bélanger: To some extent, yes, when the Canadian National receives subsidies or recapitalizations. There have been several instances worth thousands of dollars which have allowed the CN to compete with trucking for some categories of freight or in certain markets at prices lower than its costs.

I find that it isn't fair; it has always existed and it could exist in a case such as ours if, in privatizing the railway, too great a portion of the debt were eliminated, which would make things much too easy.

.1550

Mr. Guimond: What do you say in response to the railway's accusation that you somewhat damage the roads you use? This isn't my own deeply-held conviction that I'm relaying to you. Simply, we sometimes hear the railways accuse the trucking industry of unfair competition towards them, in the sense that trucks ruin the roads, don't pay the repair costs directly, etc. What do you answer to that?

Mr. Bélanger: Mr. Bradley will answer your question.

[English]

Mr. David H. Bradley (President, Ontario Trucking Association): This is an old argument we've heard over and over through the years. However, it's really not a meaningful comparison, nor can the railways ever prove the statements they make.

We in the trucking industry believe we pay our fair share for the highways. We pay for those through taxes, licences, etc., and we pay quite dearly. Some of the highways in Canada would in fact be a revenue generator for the provincial governments involved.

In terms of the taxes we pay, both the railways and trucking pay a 4¢-a-litre excise tax on diesel fuel. Very little of that money goes towards the building of highways. All the revenues go to the consolidated revenue fund.

In the provinces we have the same kind of situation. In Ontario they've implicitly recognized this infrastructure argument, because the tax on trucking is 14.3¢ a litre and it's 4.5¢ a litre on railways. But at the end of the day it's really difficult to compare. Highways are built to handle peak demand. Cars are what cause the peak demand issue, not trucks. We are not able to dispose of or sell that asset whereas the railways do have that land to sell at the end. So it's really not a meaningful comparison, and it's one that can't be proven.

[Translation]

Mr. Guimond: Coming back to the privatization of CN per se, do you recognize that in Canada intermodal transport is the way of the future?

We all know that a port, by definition, is used to switch goods from one mode of transportation to another. The goods arrive by boat and are transferred to railway cars or to trucks. And from the railway cars - and we have visited CP facilities - they can now be placed directly on trucks.

The whole issue here is that of intermodality. If we consider that intermodality is a viable solution for the future, given the provisions of Bill C-89, authorizing the purchase of blocks of shares amounting to up to 15%, to your knowledge, will the trucking industry have any interest in buying blocks of shares in the new CN?

Mr. Bélanger: I think there are two aspects to your question. I will first answer the second part by saying that I have no idea whatsoever. Obviously, as an association, that is not in our mandate. Will trucking companies be interested in buying blocks of shares? It's a possibility. But I don't think that has necessarily anything to do with the issue of intermodality that the Canadian industry is pushing for.

And contrary to what people in some circles might believe, the trucking industry has been and continues to be very much in favour of the use of the two railway companies' intermodal services.

The problem is more a matter of relationships between the parties than of wanting or not wanting to use the services.

We have no problem as far as offering intermodal services jointly with the marine industry or the air transportation industry. There, there is total intermodality with trucking, so we have no problem whatsoever.

.1555

Obviously, the airlines are more likely than the railways to find themselves in a position where they have to transfer the goods they are carrying to truckers, but there isn't really a problem. What has made relations tricky and is perhaps an explanation of why it hasn't worked out very well, is the fact that the railways, while all the while trying to sell their services to truckers, have offered the same services to the trucker's customers, and at reduced rates.

This has obviously made relations difficult at that level.

[English]

Mr. Bradley: I think that if we in trucking had the opportunity to buy the 401, we'd be very interested in that. We could probably turn that into a profitable venture.

I just want to pick up on one thing you said. You indicated that intermodalism was seen as a total solution to our transportation problems. I've seen intermodalism portrayed as the solution to our environmental problems, our infrastructure problems, etc.

Intermodalism is not new. It has been around for decades. As Gilles has indicated, my members are saying it doesn't matter to them whether freight moves on steel wheels or rubber wheels, as long as the price and the service are there.

However, one has to understand that it serves a role in certain marketplaces, particularly in the long-haul marketplace and not where the freight is generally just in time or time sensitive. So intermodalism has a role, but I wouldn't want the word ``total'' to be interpreted to mean that truck and rail are interchangeable. They're not. While intermodalism will grow over the next few years, trucking will grow exponentially at a greater rate as long as the economy continues to grow.

Mr. Gouk (Kootenay West - Revelstoke): I have a couple of questions. The phrase ``the trucking industry unfairly competes against the rail industry'' was used. I don't believe that's the case, but I do believe there is in fact an imbalance between the two. There are all kinds of semantics in there in terms of the amount of money that's paid and what it's paid for.

I think you raised a very good point. We're moving to a user-pay concept, and one of the problems with that is trying to determine what the user already pays.

I have a problem with the very point you raised about consolidated revenues. If we're going to collect fees for licensing and other things from trucks or from vehicles in general, then we should account for that and it should be used for that purpose. It's only taxation that should go into general revenues.

However, the rail industry does have some hurdles that you don't have. They have to provide their transportation infrastructure, and then they get taxed on it to boot. They still pay these taxes. I suspect there is an imbalance between what you pay and what they pay. That is not your fault. I don't want to try to solve rail problems by creating trucking industry problems. So we have to address the issues, as you said, through new regulations, which will come, hopefully, as part of this.

Mr. Kenneth Maclaren (Consultant, Canadian Trucking Association): One of the real problems in this area, which is understandable but also difficult, is that, as you've already suggested, the railways have to raise the capital for their own infrastructure whereas we pay an ongoing expense on a pay-as-you-go basis, primarily through fuel taxes.

It's never going to be fully resolved. You have about four engineering theories and three economic approaches to highway costing - or is it three of one and four of the other? I forget which. Depending on what your interest is, you can marry the economic theory to the engineering approaches and come up with whatever number you want, really. Then you have the different sizes of trucks, different axle weights, and all the rest of it.

.1600

Another problem is that on the major inter-city network trucks may easily pay - and we claim they do pay - their way. However, when you get to the secondary highways, to small-town Canada, which I assume some of you represent, you still have to build a bridge to take a heavy 18-wheeler even though only two or three 18-wheelers a day cross those bridges when going to the grocery store, carrying gasoline to the service station, or whatever. It's doubtful whether trucks on those secondary or tertiary highways pay their way. There just isn't enough volume to guarantee it, yet the bridges and the highway infrastructure have to be built to take the weight. So it's a very complex area.

Not only that, but it's the provinces that raise most of the money for highways. It's Ottawa that primarily taxes, although certainly not exclusively, in other areas where the rails get caught. So it's not an issue that is ever going to be resolved completely in terms of modal equity.

Mr. Gouk: I can see that. I think the idea is to move it as close as possible without, as you say, getting it totally balanced.

Mr. Bradley, you mentioned that you would like nothing better for your membership than to buy the 401. Do you see toll highways as a potential solution to transportation infrastructure problems in the future?

Mr. Bradley: Yes, under certain conditions. I wouldn't want to see all highways tolled or existing highways tolled.

There is the example in Ontario of highway 407, which is a new Toronto bypass. We were able to convince the government that tolls would be acceptable if there were things such as an alternative route; if the funds were used to pay for that highway; if there were a full, public accounting; and if, when it was paid off, the tolls went away.

Obviously, governments and the private sector are going to have to look to new, innovative ways of financing major capital expenditures like that.

Mr. Gouk: I have just one last comment. You mentioned that the rail industry has been somewhat unfairly subsidized versus the trucking industry. The rail industry saw its market share of freight drop from a very major portion down to a relatively minor portion of the overall freight carried. What would have happened to the rail industry if those subsidies hadn't been there?

Mr. Maclaren: Perhaps I can give you some of the background. We don't claim that the CPR has been unfairly subsidized, unless you want to take the revenues from PanCanadian and say that because of the land grants their profits over the years should have gone back into tracks.

The CNR has been massively cross-subsidized. Our figure for the post-war years up to 1992 in current dollars is $17 billion. If you go back before then, the figure becomes astronomical.

The trouble with that has been that every time the CNR was recapitalized, it tended to run out and gold plate the railway, do things that the CPR or the trucking industry couldn't do, cut rates on the truckers, that kind of thing. After the 1978 recapitalization of $708 million gave them a debt-equity ratio about equal to CP for the second time in post-war years, they started to expand their trucking empire. They cut the rates in trucking to the point that for the eight years before Don Mazankowski put them out of their misery and told them to sell it, they lost $500 million of the $708 million in trucking alone. From a business standpoint, they used the recapitalization money to try to beat the rail and trucking competition into the ground. It never paid off.

Mr. Gouk: It sounds as if you've been reading my brief to the Liberal task force.

Mr. Maclaren: I've been spouting this for 25 years, so I think I was there first.

Mr. Fontana (London East): Maybe I could go back to CN privatization for a moment. You're in favour of CN privatization. The caveat is that you don't believe it should be recapitalized, I take it, by the taxpayer. I don't know if you've been privy to some of the discussions that have gone on thus far.

If I could indicate to you that lowering CN's debt from the present $2.5 billion to $1.5 billion in order to make it appealable to the market for privatization to occur and that that billion dollars of capital would come from the internal cash that CN has and the sale of non-rail assets to accomplish that fair debt-to-equity ratio, which I guess the marketplace will demand, you would have no objection to that, would you?

.1605

Mr. Maclaren: It's a question of degree. CN, under its current new CEO, who got rid of some of the dinosaurs, still allowed its debt to be run up in the last four years by an extra 40%. They've got a brand-new tunnel under the St. Clair River where the two railways before that were talking about jointly twinning the tunnel at Windsor-Detroit. As a result, they both twinned and it cost $360 million instead of $120 million. You've got that kind of thing.

Something has to be done, obviously, to make the CN marketable. What that is, I don't know. It's not the best time to be coming out with initial public offerings.

Mr. Fontana: I tend to differ with you. In fact, the experts have said exactly the reverse, that in fact it is the perfect time.

Mr. Maclaren: Well, if you take Suncor, that's fine.

Mr. Fontana: Forget about the energy sector. We're talking about something different.

Mr. Maclaren: That's good. I hope they're right. There was a thing in the paper the other day showing IPOs in the last 15 months -

Mr. Fontana: But I want you to be a little more specific, if you could. CP started to play exactly the same game as you're playing. I want to know, because you say in principle - and I'm happy to see that everyone agrees that the government should not be in the railroad business and hence it's good for the private sector. I'm sure the trucking industry will probably be able to deal with CN privatized in a much better way. It obviously is cumbersome sometimes when you have to deal with the government to make business decisions.

What I'd like you to do, if you could be precise, because everybody keeps going around in circles about this - you don't want capitalization or recapitalization. Therefore, I'm asking you, if in fact you've done some homework, how much you think the Canadian government taxpayer in fact should support CN to the tune of making sure that we've got a successful launch of a privatized corporation. When I tell you internally they can use $300 million to $400 million and that the asset values that are non-rail amount to $400 million to $600 million, and there's the billion dollars. I asked you if you had any objection to that and you want to qualify that too. Now, can you tell me why, or do you have an alternative that we might want to look at?

Mr. Maclaren: Under a billion-dollar reduction of their debt, if part of it is internally generated from CN doing certain things, it is probably acceptable.

What we're really concerned about is that, contrary to what you've said, that at the last minute the financial people will come back and say, uh oh, to make this thing fly, you've got to go further, the tendency will be to try to get it done. Maybe the problem is doing it all in one tranche. Maybe like Petro Canada and Air Canada the minister shouldn't have been quite so bold in trying to do it all at once. I don't know. We can't come out with the precise numbers. For example, reducing CN's debt-equity ratio significantly below what the CP debt-equity ratios are to make this thing fly would be a bit of a travesty because then CP would have trouble competing, and we want to see a competitive rail system survive.

Mr. Fontana: In fact, to give you some information, right now CP carries, if I'm not mistaken, a double A minus bond rating.

Mr. Gouk: Single.

Mr. Fontana: No, I'm talking about CP.

Mr. Gouk: Yes, so am I.

Mr. Maclaren: You're talking about CP Limited.

Mr. Fontana: Yes, CP Limited. CN has a double A minus. In order for it to be a successful launch we have to make sure it doesn't get below a triple B, which essentially means that CN can't have a debt of more than $1.5 billion.

The example you used about Air Canada - I'm sorry you weren't here this morning to hear the underwriters and the global arrangement that has been made to launch this thing. In fact, they've indicated to us the preferred route would be to try to get 100% immediately. Air Canada is a terrible example of how it was done.

I'm not sure that was ever a successful launch of a public offering. In fact, a lot of people probably would agree that, based on the best experts in the field, the timing is right, and we ought to do what we're doing as quickly as possible and try to sell the 100%, but try to get to that. In order for it to be a successful launch it needs to have $1.5 billion in the debt-to-equity ratio.

.1610

We would agree that we don't want to put any unfair advantage or disadvantage on CP because they both want a level playing field just as you do. You've been a consultant, you've been around the business, you know your competition in terms of the rail. In order to achieve what we all want to achieve, obviously there's going to have to be a little bit of give and take. I've indicated to you that internally if they could raise the cash, because of the cash they have on hand, because of the disposition of assets, and that the government will in fact give them credit for the non-rail assets and not have to fire-sale some of those great real estate assets in the marketplace at the present time, and they could generate a billion dollars and that could accomplish it, then you would have no objection to that. You just don't want us to go beyond that.

Mr. Bélanger: I don't think we'd have objection. If the government feels that it has to purchase what it has paid for already to make the sale go, I think it will have to be. But the reservation we all have of this sale of assets is that the government is buying it again. It paid for it in the first place. At the same time we understand that if money can be generated from within to reduce the debt and make the sale go, it has to be. I think the major concern is the privatization.

Mr. Fontana: I just want to agree with your brief totally in the sense that there has to be a winner in this, not only the Canadian taxpayer, who I think will win out of this, and CN obviously as a privatized corporation, but the most important winner in this whole equation needs to be the user of the system. The fact that the very companies and people who rely on rail and truck to deliver the products to the countries and to where we have to...unless we can become very competitive in terms of transportation, there's not going to be any business in trucking or in rail for this country. So I agree with you totally.

Mrs. Terrana (Vancouver East): Good afternoon. I have just a brief question. I noticed in your brief that you seem to be totally agreeable with what is being done. You seem to be supporting tolls, which I support too because I have seen them all over Europe and they work. We also know there are going to be regulatory changes to the railway. Don't you think competition will increase and eventually the railway may have the upper hand over trucking? Are you expecting something of this sort, and how are you going to face it?

Mr. Bradley: No, I don't see that happening at all. Trucks and rail are essentially two different industries. We dominate in the short distance, small shipment, time sensitive type of freight, whereas they dominate in the long-haul bulk commodities, and I don't see that changing, again, where there'll be crossovers, in the long-haul marketplace and where intermodalism makes sense. But I don't think there's any concern whatsoever that rails will predominate.

I should repeat that I think conditions can be found to make tolls acceptable. I did not say at this point that I would be prepared to accept the federal government getting involved in tolling of highways. So there has to be a lot of water go under the bridge before we start talking about those kinds of things.

Mrs. Terrana: If they are earmarked for the highways themselves, that should be the idea.

Mr. Bradley: Well, leaving out which level of government, if they're earmarked and if those projects are important, sure, they're worth sitting down and talking about.

Mrs. Terrana: I want your thoughts. In the report of the CN task force on the rationalization of CN there was a recommendation that all the railway companies have full running rights.

What do you think about that? From the way he's talking, there seems to be a gentleman there who is an expert in railways.

.1615

Mr. Maclaren: Short-line railways?

Mrs. Terrana: In general, to be able to use the same tracks... that are interchangeable.

Mr. Maclaren: I think the two railways missed a terrific opportunity of rationalizing their tracks in eastern Canada and then running trains on a combined set of tracks. I think we all missed a terrific opportunity in really putting efficiencies into the rail system.

In eastern Canada the market is changing very quickly. Because it's mainly short-to-medium-haul, trucks have a tremendous advantage over rail. And the advantage is not price. That's only part of it. The advantage is really service, door-to-door, factory-to-retail outlet, that sort of thing. That's where the trucks have the advantage. It's on the longer distance, high volume that intermodal really has an opportunity.

To allow short-run railways to have operating rights on main-line tracks, or something like that, I suppose that makes sense. I know the two big railways have some thoughts on it that are not all positive. I don't know whether it's necessary or not.

But there is a future for short-line railways that people, a few years ago, didn't think was feasible in this country. Now low-cost, mainly U.S. operators have come in and they've shown that indeed they can do what the big railways couldn't do on short lines. That's a good thing. That's more competition.

Mr. Bélanger: Certainly today, with the technologies and everything, I don't see why we need two sets of tracks from one end of the country to the other.

[Translation]

Mr. Guimond: On page 3 of your brief, and I'm doing a loose translation here, you mention that privatization will only be a half-baked solution if the government does not deal with other regulatory issues. What do you mean by other regulatory issues? What regulatory issues do you refer to? Are you talking about other regulations pertaining to your transportation mode or about regulatory review in the railway industry, which Transport Canada has undertaken?

Mr. Bélanger: We are talking about the review of other regulations in the railway industry or about the National Transportation Agency. It is obvious that, if the CN is privatized, and if it is required to compete in a market which is relatively active, where part of the trucking services are deregulated, or to compete with U.S. companies in a deregulated market, if it cannot abandon the lines which are not profitable, if it cannot reorganize itself as it should to be able to compete, then this will certainly create a problem, and the company will not survive. That is what we mean.

In privatizing the company, we must make sure that it gets the freedom to operate without regulatory restrictions such as the abandonment of certain lines.

Mr. Guimond: Thank you.

[English]

Mr. Maclaren: One more comment on that. While it's not our mandate to fight the railways' battle over local taxes, there's no question that Canadian railways pay a much higher level of local taxes than the U.S. railways do. This can give U.S. manufacturers, who are trying to serve the Canadian market from U.S. plants, an advantage. It can also give U.S. ports an advantage over Canadian ports. That's a very difficult question to deal with because it gets into things like municipal taxation of rail right of way, provincial taxes on railways, and things like that.

But I think it's only fair to say that on some of those issues, the Canadian railways are hard pressed, and certainly from a competitive standpoint with their U.S. counterparts.

.1620

The Chairman: Thank you very much, Mr. Bélanger, Mr. Bradley, and Mr. Maclaren, for your submission and for answering our questions here today.

Mr. Bélanger: Thank you.

The Chairman: I would like to welcome the representatives of Prairie Pools Inc.

Mr. Ray Howe (Chairman, Prairie Pools Inc.): Thank you very much, Mr. Chairman.

I'm a grain farmer and I also serve as chairman of Prairie Pools Inc. With me this afternoon is Rick Wansbutter, director of marketing and transportation, Saskatchewan Wheat Pool, and Terry Harasym, director of policy and economic research, Saskatchewan Wheat Pool. We're representing Prairie Pools Inc.

There are two other people here I would like to make mention of. Joining us from our Ottawa office is Gord Pugh and Patty Townsend.

Our purpose in appearing before your committee this afternoon is to ensure that the committee and, through it, the government are fully aware of the linkages...the effect of their actions, be it the commercialization of CN or the review of transportation policy, on other industries, in this case the grains and oilseed industry.

I will stick very close, Mr. Chairman, to the prepared text. I'm sorry it isn't in French, but it will be. I will read it fairly slowly. It will only take me a few moments to read through it. This is a brief brief. It's to make the linkage. That's why we're appearing before you, and we appreciate that opportunity.

.1625

Prairie Pools Inc. makes this presentation to the Standing Committee on Transport on behalf of western Canada's largest farmer-owned cooperatives: Alberta Wheat Pool, Saskatchewan Wheat Pool and Manitoba Pool Elevators.

The interest of the pools in grain transportation is well founded. Together, and on behalf of their farmer member/owners, the three prairie pools handle close to 60% of the grains and oilseeds produced on the prairies through more than 800 country elevators.

Alone or in partnership, the pools own export terminal elevators at the Ports of Vancouver and Prince Rupert on the west coast and at the Port of Thunder Bay. They employ more than 5,000 Canadians and generate annual revenue of more than $3 billion. As cooperatives, they return the profits to their farmer owner/members. Since their beginnings in the 1920s, the pools have returned more than $1.5 billion to these members. The pools work together as Prairie Pools Inc. on many issues of regional, national and international interest and involvement.

I now turn to the importance of rail transportation. Over 100,000 prairie farmers produce about 45 million tonnes of grain and oilseeds annually. About 30 million tonnes must be transported large distances over difficult terrain to reach export ports. Much of the remaining production is also transported large distances to reach domestic processors and other domestic markets.

The large volume and the distance over which it must be moved dictates that rail transportation is the only cost-effective way to get prairie grain and oilseeds in particular to export ports.

What is the importance of CN Rail? Close to half of the country elevators on the prairies are located on rail lines owned by CN Rail. As a result, almost half of the grains and oilseeds transported from the prairies move on CN lines. In the northern part of the prairies, CN provides the only readily accessible rail transportation for many farmers.

An efficient and competitive CN Rail is very important to prairie grain and oilseed producers who rely on rail transportation as an integral part of their farm businesses.

The pools are very supportive of efforts to improve the efficiency and competitiveness of the grain transportation system in Canada. With the Minister of Agriculture and Agri-Food, grain industry participants, including the pools and Canada's two railways, have developed a vision for the grain industry. The vision concludes that in the year 2005, three things - actually there were five or six things identified but these three are pertinent to this discussion: Canada will have the world's more efficient, viable and competitive production, market transportation and handling structure; the industry will deliver to its customers what they want, where they want it, when they want it, in both raw and processed form; the industry will double our combined capability to export and process grain and oilseeds.

Prairie Pools Inc. appreciates the steps that have and are being taken by the government, working with the industry, to develop the environment that will be required to achieve that vision. For example, the decision to work towards improved labour relations and reduce disruption of service resulting from labour disputes is commendable. The pools look forward to full participation in the review of the Canada Labour Code. Through the review of national marine policy, the government's efforts to improve efficiency and competitiveness at Canada's export ports are also welcome. The pools continue to participate in that review.

The government has convened a working group of grain industry representatives, labour, railways and the Canadian Wheat Board to examine grain transportation and handling policies and regulation with a view towards increasing efficiency and reducing costs.

The pools believe the proposed commercialization of CN Rail should be just another step towards increased efficiency and competitiveness in rail transportation.

On behalf of the grain and oilseed industry in western Canada, Prairie Pools Inc. very strongly cautions the government against increasing the attractiveness of CN Rail at the expense of grain and oilseed shippers. The pools are very concerned that a number of processes to change the regulatory environment will seriously disadvantage grain shippers and will jeopardize the vision established by industry and government, the vision previously referred to.

.1630

Just a word about the regulatory change that really impacts on grain transportation. Bill C-76 - and I know you're familiar with it - which implements the 1995 federal budget, will terminate the Western Grain Transportation Act on August 1, 1995. The termination of the WGTA will result in the loss of federal transportation assistance and in the loss of a number of provisions that were established in recognition of the uniqueness of grain producers as shippers captive to Canada's two railroads. These include performance guarantees, productivity sharing from costing reviews, allowances for competitive and contiguous points and the monitoring of railway expenditures and performance.

The pools are pleased that the government proposes to amend Bill C-76 to improve rate protection for grain producers as captive shippers. However, on August 1 all other aspects of the grain transportation will fall under the National Transportation Act, 1987. Contrary to government assurances, it is the opinion of many in the industry that the shipper protection provisions of the NTA, even in its present form, are inadequate for grain.

We have recently learned that, in an effort to create a regulatory climate that will be more conducive to railway profitability, the Minister of Transport proposes to amend the National Transportation Act, 1987. It causes the grain industry great concern that the few shipper protection provisions currently contained in the NTA are under this review.

Currently, grain traffic moving to the United States or domestic destinations is governed by NTA. With the passage of Bill C-76, all grain traffic will fall under the NTA on August 1. Amendments to the National Transportation Act have the potential to impact seriously on the grain industry.

The grain industry was not included in the development of the proposed NTA amendments. The industry must be fully involved in an ongoing process to amend the NTA and the impact of the amendments on the industry must be given a high priority in the development of those amendments.

In the interest of its viability and competitiveness, the grain industry in western Canada believes that as a minimum NTA should enhance competitive access provisions, enhance rate relief dispute mechanisms, maintain current common carrier obligations, establish a simple and straightforward procedure for abandonment and commercially viable short lines and ensure that the National Transportation Agency has adequate power to resolve shipper-carrier disputes quickly.

In conclusion, Prairie Pools Inc. supports government efforts to increase the efficiency and competitiveness of Canada's grain and oilseeds industry. The proposed commercialization of CN Rail must contribute to these efforts. While the pools are in agreement with the principle of eliminating unnecessary and expensive regulation, the interests of grain producers, as shippers captive to the railways, must not be sacrificed in the effort to attract potential investors to CN Rail.

As this committee considers legislation to commercialize CN, and, later, legislation to amend the National Transportation Act, 1987, Prairie Pools Inc. urges you to make the viability and competitiveness of Canada's grain and oilseeds industry a high priority.

We're prepared to respond to questions that you have relative to the bill you're talking about today or as far as you want to take it in the other areas. The two people with me are both experts in this area and have spent a great deal of time in studying the act before us and the other acts we talked about.

The Chairman: Thank you, Mr. Howe, for the submission you brought forward.

[Translation]

Mr. Guimond: I have a brief question about the repeal of the WGTA. In your brief, you mentioned:

[English]

``the interest of grain producers as shippers captive to the railways''.

[Translation]

Will you still be captive to railway companies when the WTGA will be repealed? Do your members plan to use other shippers than the railways?

.1635

Could you ship by truck? We know you used to ship by train, we've even seen trains come and turn around in the port of Thunder Bay in order to

[English]

pass GO, collect $200, and return to Vancouver, as in the game of Monopoly.

[Translation]

Would you still be captive to the railways with the elimination of WGTA?

[English]

Mr. Richard Wansbutter (Director, Marketing and Transportation, Saskatchewan Wheat Pool): The current average haul for Canadian export traffic is in the order of 1,000 miles. With that in mind, in makes in impractical to haul grain by truck. We certainly utilize trucks a great deal for local trucking into primary elevators and into our inland terminal elevator system. Given that we rely heavily on the rail system, we do believe that we are captive to the railways.

Furthermore, as Mr. Howe outlined in our brief, if you look at a map of the prairies, CN is predominant in northern Saskatchewan, with CP being predominant in southern Saskatchewan. We have little option but to move grain by railways. Furthermore, there is little competition between the two routes.

Mr. Howe: Further to that, I think that farmers recognize that they can move grain farther than they did in the past by truck, and they were doing that. Gradually that mileage is increasing. However, to think that it might increase to the extent necessary to move the volumes of grain that we're talking about that are available for export every year.... That may drop somewhat with further diversification, which has already been happening on the prairies and which certainly will increase in the future. However, there are still massive quantities of grain to be moved, and we believe, and farmers believe very strongly, that the best and cheapest way to do that has to be steel on steel. We're talking about large distances from many farms - a thousand miles.

Mr. Gouk: Mr. Howe, your points were well taken. I'll certainly keep them in mind as we proceed beyond Bill C-89 and get into the regulatory change. I'm sure that you will be a part of that. We'll all try to make sure of that, because your input is necessary and very valuable.

I assume that you have read through Bill C-89 itself. I would ask if you have any specific concerns or comments relative to that legislation, because that is the most pressing matter for us at this point. It's going to be through committee by the end of this week. So if you have any concerns or special points you want to make, this is when we have to hear about them.

Mr. Howe: Of course we have an interest in the commercialization, and in this bill in particular. We think that there are possibilities for a more effective system through the commercialization of CN. We anticipate that our members will be interested in seeing that go forward.

However, as a company, at this point we have not even discussed it. We have direction from most of our membership as an interested person, which is understandable. It's too big for us, even the share part of it. As to how far we might go, we haven't even discussed that at this point.

Mr. Gouk: One of the things that has been talked about with the privatization, and even before that, is the rationalization of excess rail. Would Prairie Pools be interested in becoming short-line operators to some of the agricultural areas not served by mainline CP or CN, in order to facilitate better service for the farmers?

Mr. Wansbutter: Prairie Pools is supportive of short lines. In certain areas they will make a lot of sense, because a short-line operator isn't faced with the same type of cost structure. Certainly in the U.S. experience, and even in limited Canadian experience, the Canadian operator has cheaper labour rates. It's a smaller scale of operation. The staff can usually do a multiplicity of tasks and duties, unlike the unionized rail employee, who is limited and restricted to one aspect. So there are certain efficiencies to be gained by short-line operations.

.1640

We do not see ourselves getting directly involved in those short-line operations. We are primarily a grain-handling and transportation company that is certainly expanding its business into other agri-food related businesses. That really should be relegated to a short-line specialist.

Mr. Gouk: Just one other question then, which ties into to this somewhat. The previous proposal for the partial privatization of CN was the CP offer to buy the eastern network. Did you have any general position on this, pro or con?

Mr. Wansbutter: No. Our concern would be that if CP bought that portion of the CN track, it would ultimately result in a monopoly situation. Unless one saw what the regulatory environment looked like, it would be very difficult to accept a monopoly situation.

Mr. Comuzzi (Thunder Bay - Nipigon): Over the years we've heard about the very serious inefficiencies in the movement of grain in the west. Let me just reiterate a few: the absence of good utilization of the designated cars; the use of those cars for storage capacity rather than the movement of grain, canola, or other products; the inability of the bureaucracy, the Grain Transportation Agency, really to come to grips with the issues at hand, although they had most of the resources to do a good job; and artificial costing that was created by the Western Grain Transportation Act. All of those factors - not one in particular, but all - led to a very inefficient system of handling grain and related products and getting them to our customers. They also added tremendously to the cost.

I think the trust of this legislation is to become efficient in how we use every element of our infrastructure that we could possibly use, bearing in mind that we will be in a competitive market.

Do you not see the benefits that can arise out of a very efficient grain transportation system in this country?

Mr. Terry J. Harasym (Director, Policy and Economic Research Division, Saskatchewan Wheat Pool): We could spend a lot of time today talking about each of the three or four points that you put on the table in terms of whether there are efficiencies or inefficiencies relating to any one of them. From my perspective, though, I'm not entirely certain how the commercialization or privatization of CN will solve any of those issues.

You talked about the WGTA and the current regulatory environment as having some artificiality, and having presumably caused these things. I'm not sure that I would necessarily agree that that's the conclusion I would draw.

Mr. Comuzzi: I was very careful in what I said. I said that not any one aspect of the items I mentioned had the overwhelming capability of distorting our efficiency, but the combination of all those elements, the inability to take 21,000 grain cars that we own and use them properly, adds to the cost of our grain delivery. Do you agree with me there?

Mr. Harasym: I think that's true.

Mr. Comuzzi: That's what we've been hearing from you folks for the last number of years.

Mr. Harasym: I think the industry is well aware that in large measure there are efficiencies that are there to be had in some ways. There is probably no perfect way of allocating those cars today, as there was not a year ago when we ran into the problems that we had.

I think the industry is searching for answers to make that part of that system more efficient, as is the rest of the system, in terms of what we do with those cars.

.1645

We're talking about many areas right now in terms of how you allocate those cars to accomplish what you're talking about. A very high-profile group right now is looking at that and is attempting to provide solutions, both short term and long term, so that when we're done we shall have a car allocation system that is considerably more efficient than the one there now.

They're all hooked together. The car allocation issue, the disposal of the government hoppers and a few other things are all issues that do not solve themselves and are being dealt with by the industry right now.

Mr. Comuzzi: Are you prepared to say that that, as one item, coupled with the several other aspects that I've mentioned, tends to create an inefficient system of handling grain in our country, a less-efficient system than we should have?

Mr. Harasym: I'm not sure where you're headed with this.

Mr. Comuzzi: I'm trying to find out if we can't -

Mr. Harasym: If you're asking me if the system can become more efficient than it is today, then I agree with you.

Mr. Comuzzi: All right. One of the efficiencies is by streamlining CNR.

Mr. Harasym: It may or may not be. The question depends upon which side of the balance of this equation you're looking at.

The content of our brief, as Mr. Howe has pointed out, is that in large measure grain and grain-related products have a significant role and connection to the well-being of CN.

We want to see two viable railways just because we have in large measure a great deal of product that we move alongside either or both of them. We care about the viability of CN as much as we do about that of CP.

On the other hand, it should also be clear that moves to make CP or CN, or the railways together, more competitive at the expense of shippers, who are whom we represent, is not necessarily in the interest of the shippers.

So there is a balance. All we're saying is that one should understand that those two things are in need of sawing off.

Mr. Comuzzi: I have some difficulty. Get rid of all the nonsense that's happened in CN over the last ten or fifteen years. If it becomes, as everyone tells us it's going to become, a very efficient, cost-competitive system of transportation, if it achieves its goal, then it can only help the prairie farmers.

Mr. Howe: It can only help the prairie farmers, but it has to be service-oriented as well.

Mr. Comuzzi: Certainly.

Mr. Howe: That's what we're concerned about, because you could have a very efficient system and it might be only one rail line across the prairies. That would be very efficient for the railways, but what would be the cost of that facility to the primary user?

Mr. Comuzzi: Yes, but, on the other hand, the railway now is in private enterprise and it has to service its customers and it has to find a way to do that wherever those customers may be.

You've already stated that CN handles the northern part of some province and CP handles the southern part. It would be folly for us to think that CN is going to operate one efficient railway line but bypass all of its customers. That doesn't make any sense to me.

Mr. Howe: It doesn't make any sense to me either, and we want to guard against that happening.

Mr. Comuzzi: Exactly. It's very prudent, and I think we can all agree that it has not been efficiently operated because of a whole series of things.

Mr. Howe: Far be it from me to suggest that there haven't been many areas that could have been improved on.

Mr. Comuzzi: I've sat around a lot of meetings and in the last three or four years I've heard about the gross inefficiencies of how we move grain in this country. Now I'm hearing that we don't have those inefficiencies.

Mr. Howe: We didn't say that, but there is one point that we have to make. It isn't by accident that Canada has continually shipped more and more grain through its system. It's been a pretty efficient system to do that, to be able continually to build that system and build that movement of product out of this country as export, and it has been very profitable for Canada as a country. All we're saying is don't do anything to jeopardize that, because if you do that, then probably you will have solved one problem - that's CN's problem - but not solved the problem for the economy of much of Canada. You'll have created another problem that may be far worse.

.1650

Mr. Jordan (Leeds - Grenville): The elevators themselves are owned by the pools and the farmers, but they're located on CN, and in some cases CP, property?

We can't tell with CP, but will that not become a part of the negotiated deal as to the relationship that you have now with the new landlord? Has that been taken into account?

Mr. Wansbutter: We are, as we speak right now, into negotiations and discussions with CN Rail for property and trackage rights, and in fact service and rates issues.

Mr. Jordan: To buy from them?

Mr. Wansbutter: Not so much to buy from them, but we're looking for guarantees for the line to remain for a certain number of years. We're looking for rate deals as part of our negotiations. There will also be consideration for trackage arrangements. So we are already taking that into account when we negotiate with CN, as well as CP, when we construct a new elevator.

Mr. Jordan: The negotiations are going to have to go on, though, with the new owner.

Mr. Wansbutter: Yes, and they are contractual arrangements. We would have an agreement.

Mr. Jordan: I can understand this idea that you could become captive, because rail seems to be the way to ship that makes the most sense. But I think there's a gap here somewhere in your way of addressing that, when you, say, very strongly caution the government against increasing the attractiveness.

I just don't see how that addresses the problem of your being captive. Do you want to make it more expensive or less expensive? I don't know in which way you want it to go to address the problem you have in being captive. Do you want it to be more attractive or less attractive, and which will help you with your problem of being held captive?

Mr. Wansbutter: We have to zero in on the issue of affordability of service. When we talk about captivity, if I, as a shipper, have limited or no options on, certainly, the mode of transportation, if I'm captive to the railways and there's no protection within regulation and the railways can charge whatever they wish, then they could price to the point of bankruptcy. That would make the railway potentially very viable, but it certainly would be to the detriment of a grain shipper, or, for that matter, potash, sulphur or whatever. There has to be some regulatory instrument to protect us as shippers.

Mr. Jordan: Yes. I think that's what Mr. Gouk was saying. You have to get that kind of protection in there before the deal is struck, because I can see where it would leave you in a desperate strait.

Mr. Wansbutter: Yes.

Mr. Jordan: You would have only one way of moving your grain. If you ever talked about a monopoly, that would be the best example of it. There would be only one way to move it and these people would own it. What could you do?

Trucking doesn't seem to make any sense, but I guess it may start to make more sense than it has. You need some form of competition.

Mr. Wansbutter: Yes.

Mr. Jordan: You would agree with that?

Mr. Wansbutter: The trucking part of it makes sense to a point, but there is a limit as to how far it goes.

Mr. Jordan: Mr. Chairman, we should be noting the situation that it would put the western grain and potash shippers in if no provision was made.

You could be put in very serious -

The Chairman: As I had mentioned to our presenters when they arrived, we appreciate their submission to us, but much of it leans in the direction of amendments that we will see coming forward from many of the different users and shippers of the system during the course of the NTA amendments, with which we will be dealing as our next step in the process.

Mr. Jordan: You're so well versed in all of this. The concern I'm expressing here would be taken into account under the competitive access provisions of the National Transportation Act. My God, is that the name of that?

The Chairman: That's right, and this is part of the NTA stuff we are going to be dealing with as the next parallel process that will take us to the fall.

Mr. Jordan: I see the need to have it. What I fail to see is the connection between the way it's being described here...that that will give them the protection that I think they're going to get under this bill. I don't see how making the deal any more or less attractive is going to help you or hinder you. Is it?

.1655

Mr. Wansbutter: We do have concerns about what is transpiring within the regulatory reform of the National Transportation Act. There are concerns that some of those current provisions that provide protection for the shipper are in danger of being severely and seriously diluted.

I'll be very specific in trying to answer that for you.

Mr. Jordan: That's what I want. Would you be specific? Give me an example.

Mr. Wansbutter: One of the concerns, not only of grain shippers but also certainly of the Western Canadian Shippers Coalition and the Canadian Industrial Transportation League, is about the proposed amendment by the Department of Transport to the common carrier obligation. There is an amendment to remove the common carrier obligation from the National Transportation Act and to have the issue of service addressed through final-offer arbitration. Legal counsel for the Western Canadian Shippers Coalition do not believe that's very effective.

What could ultimately happen is that a rate could be provided by a railway but there would be absolutely no service guarantees or obligations without common carrier protection.

The Chairman: As I said, Jim, this is stuff we can get into later, because right now it's not really pertinent to Bill C-89.

Mr. Jordan: The importance of it is that unless you do something like that, I could see you in a few years coming back to the government, or whoever will own this thing, saying, ``Sure, we'll remove your grain, but we'll have to be subsidized''. We'll be right back where we were before, paying subsidies.

The Chairman: That'll certainly be a day down the road. The opportunity should always be there in a democracy, but it'll be made on another day.

Mrs. Terrana: My question is in the same tone. I come from Vancouver and the port is in my riding. There are a lot of concerns regarding the termination of the WGTA and the fact that there may be movement north-south rather than east-west.

Has anything transpired in your group? Is there any indication of that? That could impact quite a bit on whatever we are doing in transportation.

Mr. Wansbutter: We have done some initial research into that area. Certainly our discussions with the Canadian Wheat Board and our own marketing efforts indicate that Asia will continue to be a primary export market, meaning that we will continue to export western Canadian grain and oilseeds through the west coast. It is fairly certain that Vancouver and Prince Rupert will be high-demand ports.

We have looked at the U.S. system. We have looked at moving grain through Portland, Seattle, Tacoma and the Mississippi River system. Right now the rates - and I'm referring primarily to the rail rates charged by the BN Railroad - are prohibitive and result in transportation costs that are greater than the costs we currently face or will face under the new regime.

Mrs. Terrana: We lost the port access to Portland, you know.

Mr. Wansbutter: Yes.

Mr. Fontana: Interestingly, you didn't say ``the seaway''. I'm sure that you wanted to include the seaway as part of that long list that included Portland, the Mississippi and everything else. We have a nice seaway that you could use, too. That's the other aspect we were discussing.

That's one of the problems, of course, when you have the government involved in business. Sometimes CN is being made to do certain public policy issues or public policy directions at the expense of becoming efficient. We talked earlier about $17 billion in capitalization since the Second World War. The fact is that sometimes CN has had to play the role of a public policy maker because it is a government-owned situation.

How much of your business goes to CN? How much are we talking about in terms of dollars?

Mr. Wansbutter: We're talking in the range of 5 million to 5.5 million tonnes for the Saskatchewan Wheat Pool. We are CN's single largest customer.

Mr. Fontana: Of all the pools, how much money do you give CN? It's immense, isn't it?

You talked about being captive to them. As a private sector company, I've got a feeling that they're going to be captive to you, which is how the system should work. Under a private sector arrangement, being free enterprise, that company is going to have to start listening to you and looking to you, because you are their biggest customer. Before, maybe because it was a public company, you talked about not getting service and everything. I think they will be captive to you, and that's how the system should work: the user should have a say.

.1700

If the users of the system wanted to deal with a private sector company, I think you should buy some shares, and then you might even have a lot more to say about how that company is going to treat you. That's just for what it's worth. I'm not making a commission, so it doesn't matter.

The Chairman: Maybe they shouldn't buy any shares, because then they can go in a true private way - a competitive way - to either of the railroads and get the best deal. Being part of one of the railroads, they may have some conflict.

Did you want to respond at all? It was fun, but it doesn't need an answer.

Mr. Howe: We accept that.

The Chairman: The witnesses are noting your intervention, Mr. Fontana.

Mr. Wansbutter: I would like to respond to that.

Your comments are very well made. When we negotiate with either railway, we try to negotiate in good faith, and we certainly try to arrange a commercial arrangement that's profitable to both of us. But there will be circumstances and instances where we are in a remote area on a branch line and we have access to only one railway or the other. At times this puts us in a difficult competitive position.

Yes, we can bring to bear, and will bring to bear, our total volume of business, and not just at that one little point. However, if we are truly captive, then the railway option may be simply to say, ``Well, we'll walk away, knowing that you just have to haul that grain farther to one of our other lines''.

The Chairman: Gentlemen, thank you very much for your submission to this committee today. We appreciate the time you've taken to be here with us and to answer our questions.

Mr. Howe: Mr. Chairman, on behalf of the three of us, thank you very much for hearing us. We appreciate the opportunity to appear before you.

The Chairman: Colleagues, I have just a bit of business before we break. The clerk is handing out correspondence we received from the Minister of Transport, the Hon. Douglas Young. They are the responses to all of Mr. Gouk's questions that he posed to the minister regarding Bill C-89. You each have copies of the questions as well as the answers. They're bilingual.

We'll resume our hearings at 6 p.m., or right after the vote.

.1812

[English]

The Chairman: Order.

We are resuming consideration of Bill C-89.

Joining us at the table are members of the Western Canadian Shippers Coalition. Tom Culham is the chairman.

Welcome, Mr. Culham. I wonder if you could introduce the individuals you have brought with you today and present your submission. We can follow up with questions.

Mr. Tom Culham (Chairman, Western Canadian Shippers Coalition): With me are Emile Dubois, manager, transportation, Luscar Ltd.; Terry Park, manager, strategy development, Novacor Chemicals; Forrest Hume, representing Manalta Coal and; Dick Whittington, vice-president, marketing, Luscar Coal.

The Chairman: Mr. Culham, do you have a written presentation?

Mr. Culham: I have a presentation that is marked up in draft form. I will fix it up and send it to the committee tomorrow, but I can't leave it with you today.

The Chairman: In both official languages. Thanks.

Mr. Culham: Maybe not by tomorrow.

The Chairman: What you say today will be on the record, so we'll be all right.

Mr. Culham: The Western Coalition appreciates the opportunity to address the CN Commercialization Act. I know a number of you are familiar with us, but I thought I would just go through who we are briefly and then proceed with our submission.

The Western Shippers Coalition is an ad hoc group of producers in western Canada that produce sulphur, coal, potash, petrochemicals, pulp and paper, vegetable oil meals, fertilizers and forest products. We have producers located in every western province: Manitoba, Saskatchewan, Alberta and British Columbia.

The group produces over 50 million tonnes of product a year and exports about 90% of that. The total sales exceed $19 billion per year. We have about 140,000 employees. So we are a significant group in western Canada.

.1815

In WCSC's submission to the Nault commission last November, we supported in principle the commercialization of CN. That remains our position today. The commercialization of CN, however, cannot be considered in isolation of its customers, for without customers CN will not be a viable railway. It is absolutely essential to CN's customers that a competitive regulatory environment will prevail.

We are not satisfied that this will be achieved by Transport Canada's revision of the National Transportation Act. Should this not be achieved, the medium-term value of the shares acquired by the private sector will be highly questionable. In other words, any endeavour to maximize the sale price of CN by increasing its monopoly power through legislative change will be contrary to the interests of its customers and to the public interest of the nation. This is equivalent to taking short-term gain for long-term pain.

There is no need to maintain or enhance the market power of the railways in an effort to assist their revenue outlook.

A key conclusion of an IBI Group report evaluating the financial viability of the Canadian railways states:

The railways have a cost problem. Labour costs and tax levels must be reduced. Uneconomic plant must be reduced or eliminated.

Our members, the customers of CN, sell their products in the international market-place. To access these markets, they require competitive and reliable rail transportation service, which can be achieved only through the existence of a regulated competitive environment. Should such competition be reduced, the ability to compete in export markets will be diminished.

In today's highly competitive global market-place, this will result in decreased production and sales, the encouragement of plant relocations outside of Canada and the elimination of jobs. These events would prejudicially affect all stakeholders, including new shareholders of CN.

The WCSC has been involved in a number of meetings with Transport Canada, one as recently as yesterday, with respect to the framework of regulatory reform. We are now very concerned with the outcome of these consultations.

For example, very recent changes have been introduced that were never considered before. They are detrimental to shippers because they inhibit access to the National Transportation Agency and the shipper relief provisions of the act.

Transport Canada promised that shipper rights would be preserved. This has not yet been achieved.

Significant contentious issues are not being dealt with in a manner satisfactory to shipper concerns.

For example, the containment of the level-of-service provision within final-offer arbitration is not acceptable to shippers. The inclusion of a public-interest test in the running rights provision and the deletion of public interest elsewhere in the legislation are inconsistent and unacceptable.

The revised National Transportation Act will permit CN and CP to sell or abandon rail lines without any regulatory intervention whatsoever.

The WCSC is on record as supporting the requirement of CN and CP to divest themselves of uneconomic trackage and to take all measures to become more efficient in the management of their plant. It must be recognized, however, that as such trackage is removed from CN's and CP's systems, their market power will be enhanced and the customer's negotiating leverage will be reduced. Pro-competitive initiatives are required to offset this enhancement of market power.

The WCSC fully supports the recommendation of the Nault commission that running rates be included in transportation regulatory reform legislation. As CN and CP sell unwanted trackage, it is most likely that the purchasers of such rail lines will be short-line provincial railways, which are presently unable to exercise running rights over the federal railways.

Transportation regulatory reform must include a provision that gives provincial short lines the right to exercise running rights over federal rail lines, at least to the interchange of a competing railway of its choice.

Moreover, as trackage is sold to provincial railways, shippers will lose the benefits of established interswitching rates and competitive line rates, unless an amendment to the legislation confers those rights upon shippers.

.1820

Such an amendment is essential to the continuation of a competitive rail transportation system. Establishing inter-switching rates should be permitted at the junction of federal and provincial railways, and amendments to the legislation should be provided for the interchange of traffic between railways, irrespective of whether they own the line or simply operate on such a line.

One other matter much be mentioned today. For many years the rail legislation has contained an obligation for CN and CP to provide adequate equipment and facilities. Transport Canada proposes to delete this provision and empower an arbitrator, under the final-offer arbitration provision, to deal with the level at which service is provided.

This proposal is unsatisfactory to shippers across Canada and has been initiated not at the request of the railways but at the initiative of Transport Canada. Rates and service go hand in hand. There is no benefit to obtaining rate relief if a railway refuses to provide equipment on the basis of its dissatisfaction with a rate that has just been awarded.

Sale of our members' goods at home, and internationally, is dependent on adequate rates and adequate service. The common carrier provisions, at common law, do not ensure the provision of adequate equipment or facilities, and there are no other statutory provisions which require that they be provided.

It is incomprehensible to the members of the WCSC that the deletion of these provisions would be insisted upon by Transport Canada. We urge you to inform the Minister of Transport of your desire that the level of service provisions be retained as an essential component of the regulatory environment under which CN will be sold. The inclusion of such provisions under final-offer arbitration will not permit the expeditious and effective relief which is now available from the agency.

The WCSC questions clause 5 of the CN Commercialisation Act, which gives to the Minister of Transport the jurisdiction to sell the shares of CN to the public, with the obvious objective of maximizing the sale of those shares. At the same time the minister intends to initiate legislation that will determine the transportation environment in which those shares are sold. This places the minister in a very difficult position, because an appropriate balance must be achieved between these two initiatives.

CN should not be commercialized at the expense of competition in Canada's railway system. The interests of the country require rail competition as an element indispensable to our nation's ability to compete in export markets. Maximizing the sale price of CN shares through an enhancement of CN's monopoly power would be inconsistent with that national objective. It would be short-term gain for long-term pain. This must not be allowed to happen.

In summary, WCSC supports CN's commercialization, but only on the basis that it not be achieved at the expense of railway competition in Canada. The CN Commercialization Act is inextricably linked to the forthcoming rail legislation reform. The fact that the Minister of Transport is handling both initiatives is a matter of great concern.

We ask you today to express your concern to the minister that the transportation regulatory reform legislation, which is to be promulgated later this month, recognizes the vital interests of CN's customers as an essential stakeholder in the process of selling CN. By so doing, you will be reflecting our concerns and those of the broader national interests, which must not be sacrificed in attempting to obtain top dollar for the sale of CN.

The Chairman: Thank you, Mr. Culham, for your presentation to the committee.

Some of your submission to the committee drifts a little away from the mandate presented us with Bill C-89, with your specifics on regulatory reform. For some, I'm sure you were talking a different language, because we have not been privy to the information you apparently have been privy to. We are not fully aware of exactly what parts of the NTA are going to be touched on and which amendments are going to come forward. I want to assure you and your organization that the minister certainly recognizes the burden of the current regulatory regime on the industry today.

.1825

As a result, he is going to sit down and produce the NTA amendments. In concert with that, he will not be ignoring the suggestions and concerns of the stakeholders and users of the system. As you are probably aware, you are being consulted in order that that burdensome regulatory environment will be altered to make it less burdensome for CN to respond quickly, competitively and cost-effectively to the users of the system, yourselves included. For that reason the minister wants to ensure there is this parallel process of regulatory reform going on, so it can be in concert with the vision he has for CN and the one we're working on today.

Mr. Culham: I certainly understand that. What we wanted to do today was... we knew you are dealing with the commercialization of CN, but we wanted to make it very clear that there is a direct linkage between that and the legislative reform.

The Chairman: I understand that. Some of the detail is pretty fuzzy for us here.

Mr. Culham: I have brought that up and I should repeat that we are supportive of the concept that the railway should have the right to manage its plan. What we are concerned about is, in the larger context, we will have less market competition in the railway industry in Canada. What we would like to see is for the regulatory reform legislation to be adjusted to compensate for that loss in competition.

The Chairman: That's the exact balance the minister is hoping to achieve. As anyone here understands, the two railways must be able to compete on a level playing-field, as the buzzword goes. That requires a very delicate approach to ensure that there is a fairness when reducing the debt of CN in order to meet the objectives the minister wants to meet to ensure the shareholders have an interest in purchasing shares... and at the same time not be detrimental to CP as a railroad, which is working hard to be a good, solid railway in this country.

We'll turn to questions. Mr. Gouk.

Mr. Gouk: As has just been discussed, it goes into another area, but one that's very important to this whole thing. I certainly would be interested, as I'm sure the rest of the committee members would, to have a submission from you on your specific concerns, in terms of regulatory change for when that is coming up.

Mr. Culham: We'll have that for you within the next day or two.

Mr. Gouk: You mentioned specifically clause 5, dealing with the share price. Are there any other clauses of the bill itself, Bill C-89, on which you have either concerns or comments?

Mr. Culham: No.

Mr. Gouk: You're happy with the general framework, the concept of debt reduction; you're not concerned in that area?

Mr. J. Richard H. Whittington (Western Canada Shippers' Coalition): I might just make a comment on debt reduction, because it is a bit of an issue.

In principle, the shippers would support some degree of debt reduction to assist in the aid of the sale of Canadian National. We would hope, as we heard today, this would be such to put the two railroads on a level footing, to ensure fair competition in the future.

The Chairman: Gentlemen, we thank you very much for your submission to the committee, and for answering our questions.

Colleagues, joining us at the table from the Halifax Port Corporation are Merv Russell, the chairman; David Bellefontaine, the president and chief executive officer; and Patricia McDermott, vice-president, marketing.

.1830

Mr. Merv Russell (Chairman, Halifax Port Corporation): Thank you, Mr. Chairman and members of the committee. It's a pleasure for the Halifax Port Corporation to appear here today. I'm chair of the Halifax Port Corporation. Participating with me on our presentation today are Ms Patricia McDermott, our vice-president of marketing, and David Bellefontaine, our president and CEO.

Mr. Chairman, I would like the record to show our pleasure with the report on the marine policy review. We have noted favourable similarities between your recommendations and the HPC submission. Mr. Keyes, we congratulate you and your committee on the national marine strategy.

Mr. Chairman, the Halifax Port Corporation appreciates this opportunity to appear before your committee and express our views on issues relating to Bill C-89, the CN Commercialization Act. We had the opportunity to appear before the Nault task force in December last year. We recognize, of course, that some of you were members of that task force. This evening we would like first to provide a brief background on the importance of rail service to our port of Halifax. We apologize if some of it is redundant to those of you who sat on the task force, but we believe the explanation is necessary as a backgrounder to our views of Bill C-89, which is the reason for our appearance here this evening.

The Halifax Port Corporation is a federal crown corporation established by the Minister of Transport on June 1, 1984. The mission of the corporation is to develop, market and manage assets in the port of Halifax in order to foster and promote trade and transportation, and to serve as a catalyst for the local, regional and national economies.

This year the port will handle over 14 million tonnes of cargo, including 3 million tonnes of container traffic. The latter represents the most important part of our business in terms of revenue and port activity. The economic spin-off from port activity is very significant to the province and our community. In 1994 the spin-off represented some 7,000 jobs, $233 million in income, and $305 million in direct expenditures.

Ms Patricia McDermott (Marketing Vice-President, Halifax Port Corporation): We handle a wide range of cargoes, such as bulk, break-bulk, cruise ship passengers and automobiles, all of which are important to us. However, the issue of rail service to the port, although relevant to some of those other areas, is critically important when we discuss container cargo. The container business is the most important part of our business. The container component accounts for two-thirds of our total revenue.

Like many other businesses, the port is emerging from a difficult recession. From a high of 4 million tonnes of container cargo in 1990, we've handled about 2.5 million tonnes annually since 1992.

Now, for the first time since the beginning of the decade, we're projecting a significant improvement. As of the end of April this year, container business has increased by 32%, compared with the same period last year. For the most part, this increase comes from continued improvement in the traffic levels of our long-standing container liner customers, the acquisition of important new shipping lines, and growth in our U.S. midwest business.

In general, Halifax container lines, which number about 20 direct services, call the port en route to major markets in the U.S. For example, the typical next port of call is New York. For all these lines, Halifax is an incremental port call. They evaluate the profit potential of serving Canada over Halifax compared with U.S. alternatives. They have many other options and can choose to serve Halifax over U.S. east coast ports such as New York and Philadelphia. In fact, in 1994, well over 100,000 TEUs or over 1 million tonnes of Canadian cargo moved over the U.S. east coast. Of this, 75% moved over New York and Philadelphia, a significant amount on the CP rail connection to and from Canada.

The advantages the port sells over its many competitors are well known. Halifax is a minor diversion off the ``Great Circle'' route between Europe and North America. It's a non-tidal port, ice-free, with deep water. Its depth is ever more important as economies of scale push into service larger and larger ships, requiring 40 to 45 feet of water depth.

.1835

Incidentally, only Halifax on the east coast and Vancouver on the west coast are capable of handling these large container ships.

Our natural features translate into time and cost savings for shipping lines. Combined with a stable and productive workforce, appropriate infrastructure, and most importantly, an effective rail link, these advantages allow Halifax to compete with U.S. ports.

The port of Halifax is completely dependent on an efficient and cost-effective rail connection to our main markets in Ontario and Quebec. Currently, 75% of our international port traffic is based in central Canada. Almost all of it moves to these destinations by rail. Montreal is 800 miles away. Toronto is 1,100 miles away. These long distances mean trucking, for all but the highest-value cargo, is uneconomic.

The U.S. midwest is a small but growing market for Halifax. This is spurred by the completion of CN's double-stacked tunnel between Ontario and Michigan. Chicago is 600 rail miles from Halifax and our future as a U.S. gateway depends entirely on rail developments in the east.

So far the future for the midwest looks good. Our present share of U.S. midwest business, although small in proportion to total port traffic, is increasing rapidly. We expect to handle upwards of 25,000 TEUs in 1995, about 7% of our port business. This is up from 11,000 TEUs last year, when CN and the port began to market the Halifax gateway for midwest cargo. Prior to this, the amount of midwest cargo moving through Halifax was negligible.

Rail freight costs in the container business are volume-based and negotiated by the shipping lines. They account for between 62% and 82% of the total cost of moving a container from dockside in Halifax to final destinations in Montreal and Toronto.

The dominance of rail costs in the equation clearly demonstrates the importance to the port of having a rail carrier that is dedicated to ensuring competitive service over Halifax in operating the line.

In recent times we feel CN has demonstrated a commitment to promote and maintain Halifax as a gateway for international trade. Recent investments include the implementation of double-stack rail service and the development of an intermodal terminal. I've already mentioned the St. Clair tunnel development. CN and the port have established a close working relationship in marketing Halifax. We've been successful, and the port is now at a turning point.

The Halifax Port Corporation also believes aggressive pursuit of import-export traffic is critical to the continued operation of rail service in Atlantic Canada. Loss of this business will have a domino effect on the economy of the entire region. We understand the export-import business now accounts for about 20% of CN's present business in the region. The port's automotive and break-bulk cargoes are also important.

We estimate total port of Halifax business associated with CN's main line in the region accounts for one-third of CN's operations there. Port of Halifax business is the linchpin for rail operations in eastern Canada. Without a viable port business, we can envision the termination of rail service in our part of the country.

Finally, the wide range of shipping services calling Halifax, albeit sustained by central Canadian cargoes, greatly benefits the Atlantic region's exporters. The breadth of shipping services offers local shippers cost-effective and frequent access to many export markets. On the import side, many of the region's manufacturers, such as Michelin Tire and Volvo, also depend on frequent shipper service. Loss of container lines, in addition to the direct loss of port-related jobs and income, would have serious consequences for these interests, since they would be left with less convenience and less competitive international transport options.

.1840

The loss would undoubtedly hinder Atlantic Canadian exports and manufacturing, and curtail related economic benefits.

Mr. David Bellefontaine (President and Chief Executive Officer, Halifax Port Corporation): Mr. Chairman, I'm going to be concise. I have a sore throat, so please excuse me if my voice cracks.

First of all, the Halifax Port Corporation supports the government initiatives to strengthen the railway system in Canada. However, the requirement to maintain a national railway presence in Halifax is of paramount importance to us. The Minister of Transport has mentioned the need to maintain a viable transcontinental railway system from coast to coast.

The Nault task force's first recommendation states:

The task force recommends that the Minister of Transport commit to a process leading to the full commercialization of the CNR as a coast-to-coast, main-line operation.

The report also recommends the establishment of a core network of rail lines. We feel the government must play a role in structuring rail reform to protect the port of Halifax. This is consistent with your committee's report on marine policy. Your report issued in May recommends that the federal government continue to have direct responsibility for a national port system. This shows the importance of Canada's ports in the country. Recommendation 3 also proposes the retention of the objectives of the national ports policy for Canada, as an endorsement of Canada's interest in supporting international trade and other policy objectives.

Under the NTA, 1987, section 3, transportation is recognized as a key to regional economic development. We know of no policy initiative that supersedes the NTA policy.

About protection of the public interest, Bill C-89 already contains public interest protection in three areas. First, there is a restriction on the ownership of voting shares to a ceiling of 15%. Obviously, this is to help ensure that CN's decisions reflect a plurality of views. Secondly, the head office is to remain in the Montreal urban community. Thirdly, the Official Languages Act is to apply. We feel these latter two are assumed to protect against loss of jobs and economic benefits to the region.

We feel the need to protect the availability of a national rail service to the port of Halifax is equally important. Therefore the legislative regime should specifically restrict the alienation of the Montreal-to-Halifax line from the CN transcontinental system. This interim measure should be in effect for a minimum period of 10 years, subject to review at that time.

Recent efforts by CN regarding internal, regional operations - i.e., in Quebec - are encouraging, and should result in lower costs and flexibility in operations, especially with labour conditions. If successful, this system could allay our concerns in the future.

We feel our proposal would not impede the commercialization of CN. Mr. Tellier has stated that CN is already an attractive investment. It's profitable and the company expects to surpass 1994's profit in the current year.

In conclusion, the port of Halifax must have a dedicated and uncompromising rail partner if it is to remain an economic engine for the Atlantic region. Therefore we request that the bill be amended to contain a provision disallowing, for a minimum period of 10 years, the alienation of the Montreal-to-Halifax line from the rest of the CN coast-to-coast, transcontinental system.

Mr. Russell: Mr. Chairman and members of the committee, we know you've had a long day. But in summary, in the short period we had for preparation of our submission today, we want you to know this submission was not prepared in isolation. The Halifax Port Corporation's position has been reviewed by our terminal operators, the major shipping lines and the shippers, and at this stage we also understand the Province of Nova Scotia is also in agreement with our position.

We thank you, and we're prepared to answer any questions you might have.

The Chairman: We thank you. We've come to expect the usual thorough submission from the Halifax Port Corporation, and you've done it again. Thank you, Chairman Russell.

.1845

Of course we will take into consideration as a possible amendment the suggestion you made within your submission.

We can go to questions now. Mr. Mercier, please.

[Translation]

Mr. Mercier (Blainville - Deux-Montagnes): Mr. Russell, you say, on page 6, that you approve clause 8 that restricts ownership of voting shares to 15% for any one person or corporation. You approve of these provisions because they will ensure that a plurality of views are reflected.

The bill also provides that several buyers might belong to the same organization or be associated in some way and, in wich case the group could own more than 15% if each member purchases 15%. To protect against that, the bill provides that several organizations belonging to the same group will be allowed to own more than a total of 15% of the shares, on the condition that these persons or corporations submit a statutory declaration stating that they undertake not to act in concert with respect to their interests in the CN. Do you believe that the directors of the corporation will be able to control the carrying out of such an undertaking, as provided for in the bill? Also, do you think that that would be possible in the case of foreign buyers?

[English]

Mr. Bellefontaine: We understand that provisions were set out in the bill to restrict the ownership to a cap of 15% in order for CN to have a plurality of views about its operations and future. We certainly aren't in favour of a company or individual owning more than a majority of the shares. We made a presentation on the CP purchase of the D and H and CAST and so on. It would give us great concern if CP were to purchase the majority of shares in CN, for example. We understand there are provisions that would restrict that in the bill, and we hope the committee would make sure that is the position.

Mr. Gouk: Aside from the 15% restriction in the bill, it's my understanding the Competition Act would also deal with your concerns about CP buying control of that.

I'd like to ask about this amendment you proposed on ten-year protection of alienation. They have just laid out hundreds of millions on the Sarnia tunnel, and the viability of Halifax has been specifically linked by CN, saying now they can use that port instead of the American port. In fact, they need something like the kind of volume you have with your deep-hulled ships in order to get any kind of return.

What gives you the concern that line could be abandoned? They actually need you; maybe not quite as much, but more or less as much as you need them. There's a joint need there. Where has your concern come from that they might want to abandon that line?

Ms McDermott: I think we will be talking about new owners of CN. The essential point we want to make is that our rail link is critical.

Mr. Gouk: I understand that.

Ms McDermott: We need a degree of comfort on this issue. Really, that's the reason for the amendment.

Mr. Gouk: I understand why you feel you need it. I don't disagree with that one bit. I am just curious as to what has made you concerned that you could lose it. I don't see any reason whatsoever why a rail company would want to pull out of that line, a valuable asset for them.

Mr. Russell: There's no question this is a very serious issue to us. This is our lifeline. The fact that CN has made this investment in Sarnia and the double-stack investment for our intermodal is comforting. But we have a Herculean task ahead of us if we hope to get into the post-panamex phase shipping.

.1850

In the new environment we can only anticipate, it requires a very major investment - an investment we're not used to - if we want to get in the real game. In the new environment, I think the only way we're going to be prepared and have the confidence of the lenders when going after that type of money is by having assurance that there's going to be a lifeline to the major markets.

Mr. Jordan: I can understand your concern, of course. You want to plug all the holes. But is it not true that everybody would have a similar concern? A while ago we had a group in here from western Canada who had some concern that their dependency on one shipping line would leave them in a very vulnerable position, too.

Although I think you should appreciate that I'm conscious of the problem, I don't see that your situation is unique, considering some of the other situations in Canada. Whenever you have privatization of something that has been heavily government subsidized, the whole idea is to make it more competitive.

I think it has been said that surely they will need the port of Halifax, because it's the gateway. I think one of our colleagues said in Halifax last weekend that if there isn't a healthy economy around the port of Halifax, then the whole east isn't going to be healthy.

I'm with my colleague, Mr. Gouk, in saying I don't think your concerns are that well-founded, because they certainly wouldn't.... I can understand if things changed and it became CP, with their centralization seemingly more in Montreal; CP would promote the port of Montreal as opposed to the port of Halifax. I could see that as a problem.

But do you really think they would put this kind of a rider in, and the new owners would accept it, when the idea is to get out of that and say, come on, compete fairly? As soon as you start putting riders in, doesn't that defeat the whole purpose of the exercise?

Mr. Russell: As you know, there are other issues that are already in there, but the fact is that we have a history in Atlantic Canada, sir, of railways bailing out. Mrs. Wayne could speak on this for days. I am from Saint John, New Brunswick. I happen to be a convert to the city of Halifax.

Mr. Jordan: You're enrolled.

Mr. Russell: I can remember the dependency of Saint John, New Brunswick on CP, and the disastrous effect it had. In the new global economy, I don't think it's too much of a concession to ask, considering the shipping companies we deal with. That's floating capital that comes in. It can move very quickly to Baltimore, New York and Norfolk. We have to have some comfort, sir, and we suggest it should be there for the good of Atlantic Canada.

Mr. Jordan: Who would pick it up if CN didn't take it? You'd have to rationalize; somebody is going to have to pick up the business. You're afraid if CN abandoned it, it'd be picked up by CP.

Mr. Russell: It'd be very easy over two ports, sir. It could be very easy over New York. Or the D and H railway can easily handle it back to Canada and to the major destinations.

The fragility of our operation at the port of Halifax is very dependent upon cooperation with shipping, our labour force and that fine balance of getting equitable rates to market, because, as was pointed out earlier, sir, we're hauling 800 miles to Montreal, 1,100 miles to Toronto, and 1,600 miles to Chicago. Every penny a mile that's added to that balances it in favour of the U.S. ports.

Mr. Jordan: So you see them going to the U.S. ports.

Mr. Russell: That's where they'll go. They've already warned us.

Mr. Jordan: It might make a little more sense. I see it in that context, as maybe something you'd want to be fully cognizant of.

I'm sure Elsie has something to say.

Mrs. Wayne (Saint John): Mr. Chairman, that was why I asked the question earlier today of Mr. Ritchie of CP.

.1855

About Mr. Ritchie, he didn't give us quite a full answer on that one, because that is our competition for both the port of Halifax and the port of Saint John, the ports of the United States, right now. The DNH is really a worry to us.

I would like to ask you this question. If you've travelled to Germany, if you've travelled to Romania - and I've had the pleasure of doing so in just the past few years, you will find everything is on the rails. I'm mean everything. You don't have tractor-trailers on the highways there. Everything is on the rails. I'm wondering what your position would be on weight restrictions, strict weight restrictions, brought in by the federal government for our highways.

When you come down into our area of Atlantic Canada and in Ontario as well, there are half a dozen double tractor-trailers. They hurt tourism and they hurt everything. But if we take them off the road, we have to put them on the rails, and they then are in a position to do a better job financially. I wonder how you feel about that.

Mr. Bellefontaine: For Halifax, as for most ports, trucking does provide some form of competition to rail. It keeps railways honest, and maybe railways keep truckers honest. It forces down the rates which make the port competitive. You need both, in our estimation. Seventy per cent of our traffic goes inland by rail. We need that. But there's also a significant and growing proportion of our cargo which is destined for the maritime provinces. It is growing as well, and that is trucking.

About weight restrictions, it depends on where the line would be drawn. We would have some concern over that. When we look at safety, I think it has to be reasonable. It depends on what level of weight.

The Chairman: We thank our friends from the Halifax Port Corporation for their submission and for answering our questions. We hope to see you again soon, probably on the NTA.

Colleagues, we will deal with two motions Mr. Gouk is putting forward. Mr. Gouk has a request of us as a committee.

Mr. Gouk.

Mr. Gouk: About the main estimates, I was remiss in not bringing this forward before. I assumed they would come up for discussion at some point and be passed. I was not aware they get passed automatically if there's no intervention. Therefore I have two motions I would like to make on specific parts of the estimates of expenditures. One is on vote 10.

I move that vote 10, Transport Canada, in the amount of $329,139,000, be reduced by $23,451,899.

Do you want both of them now, Mr. Chairman, or do you want to deal with them one by one?

The Chairman: It's up to you.

.1900

Mr. Gouk: Just for information, if you don't have it, vote 10 deals with grants and contributions. The estimates this year increased the expenditures there by 7.23%. We are obviously recommending a reduction.

The Chairman: Let's deal with them one at a time. You're requesting that we deal with the motion.

Colleagues, you've heard the terms of the motion. We don't need a seconder.

Do you want a recorded vote on this, Mr. Gouk?

Mr. Gouk: Yes, I think it would be appropriate this time.

Mr. Comuzzi: Can we ask a question?

The Chairman: Sure.

Mr. Comuzzi: There's not enough information.

An hon. member: That's right.

Mr. Comuzzi: I don't know what the hell we're doing.

Mr. Gouk: The estimates were dispersed to everybody.

Mr. Comuzzi: I understand that; but I don't use that as evening reading. Do you want to explain why you would propose a reduction? First off, what does the $329 million mean? You said it was for grants. Why would you pick the $23 million for reduction?

Mr. Gouk: Section 10, as I say, is grants and contributions.

Mr. Comuzzi: To whom?

Mr. Gouk: To everyone. Everything -

Mr. Comuzzi: I don't get one this year.

Mr. Gouk: We would be here for quite some time, Joe, if I went through it line by line. We're talking pages and pages of total grants. We're just talking about an overall reduction, as opposed to the 7.23% increase.

We're at a time where we're in fiscal restraint. Your own finance minister has set a target of reducing from $40 billion to $25 billion. We say it's a good initiative. We'll argue on another day whether it's enough, or about the speed at which it's done, but it's going in the right direction. We support that, and we say that in order to support we have to move towards reducing things such as grants and contributions. Of all the areas, there are only two I'm recommending a reduction in at this time, and that happens to be one of them. I haven't fine-tuned it down for the purpose of this meeting as to the specific grants...but rather a general reduction in that amount.

Mr. Jordan: I can agree with the idea of the government spending less, but I can't really support, as Joe was saying, let's do that and that way we'll accomplish our objective of spending less. I want to know who's going to be affected by which reduction in the expenditure. Some of them may -

Mr. Gouk: That'll be up to government allocations, Jim, because I'm not saying, give all that money to this but don't give it to that. I'm just saying there should be a general reduction in the amount given out in grants and contributions, and that is the total amount of reduction I propose, as opposed to an increase.

Mr. Jordan: I support that in principle, but I couldn't support picking out those specific amounts and applying them to whom I'm not sure. That's the part that.... I would have to vote against both of them.

Mr. Gouk: The contrary part of that, though, is that you're supporting, without detail, a non-descriptive 7.23% increase. You support either a non-descriptive increase or non-descriptive decrease. You have to decide whether you want the expenditures to go up or the expenditures to come down.

Mr. Jordan: I am agreeing with you in principle, but I'm saying I want to know exactly who's going to be affected by which reductions. I don't think we can give you blanket approval to cut something out without knowing -

Mr. Gouk: I understand that, because that's the way I feel about -

Mr. Jordan: For that reason I'm going to vote against both the motions.

Mr. Gouk: On the second one you'll get more detail. So you might want to wait.

[Translation]

Mr. Mercier: I feel exactly the same way. We cannot possibly vote on something when we have so little information.

Secondly, I suppose that the English version says the same thing and that does seem to be the case. I don't understand how you arrive at $135 million by subtracting $23 million from $329 million. I think that if you subtract $23 million from $329 million, you get $306 million, and not $135 million.

I think that it's the same thing in English, isn't it?

[English]

The Chairman: Yes, they're the same. He's taken a percentage and reduced it by that percentage.

[Translation]

Mr. Mercier: It says $329 million. You substract $23 million and by some miracle you get $135 million.

[English]

It is not all right, because $23 million from $329 million is $303 million. It is not $130 million.

The Chairman: Mr. Gouk, is that $135 million each year over three years, which totals $309 million.

.1905

Mr. Gouk: You can actually forget about the part that's in italics. The part that's in question is the $23 million. We're just showing some projections that were left in there showing it beyond this year.

The Chairman: I think a consensus is building here, Mr. Gouk.

Mr. Gouk: That's fine.

Motion negatived: nays 5; yeas 1

The Chairman: Do you have another motion, Mr. Gouk?

Mr. Gouk: I move that vote 30 for Transport Canada in the amount of $4,340,000 be reduced by $2,358,000.

That one is specific, for Mr. Jordan's information. Vote 30 deals with payment to the Laurentian Pilotage Authority. The expenditures call for a 45.98% increase and I am calling for a $2.3 million decrease. It's very specific in what it's applied to.

Mr. Jordan: It's very simple. I'm voting against that one too.

The Chairman: I might speak to that, only because of the recommendations that have been put by this committee on the marine sector, which will be responded to by the minister on Friday. They might see you voting for something that may result in us not even having a Laurentian Pilotage Authority.

Mr. Gouk: Then you should be in favour.

The Chairman: No, not necessarily. We're not sure whether we even have it.

Motion negatived: nays 5; yeas 1

The Chairman: As a matter of information, in the normal flow of events this probably would not have been allowed to be brought forward, because we are under an order to do a particular piece of business as a committee. But the chair saw some leniency in allowing the questions to be put by Mr. Gouk. Mr. Gouk has learned that if he's going to deal with estimates, next time he'll jump on them really quickly.

Mr. Gouk: I disagree that it can't come forward. It is just that it has to come forward -

The Chairman: That's what I mean. You'll learn now that you have to jump on the estimates a little more quickly than the second day before the end of the month.

The meeting is adjourned.