FINA Committee Meeting

STANDING COMMITTEE ON FINANCE

COMITÉ PERMANENT DES FINANCES

EVIDENCE

[Recorded by Electronic Apparatus]

Wednesday, May 31, 2000

• 1533

[English]

The Chair (Mr. Maurizio Bevilacqua (Vaughan—King—Aurora, Lib.)): I'd like to call the meeting to order and welcome everyone here this afternoon.

We are dealing with a study on cost recovery, and we have the pleasure to have with us the following witnesses: from the Chamber of Maritime Commerce, Mr. Guy Dufresne; from the Shipping Federation of Canada, Paul Gourdeau, vice-president, Fednav Limited; from SODES, Ross Gaudreault, president, Quebec Port Authority; from Canadian Shipowners Association, Wayne Smith, vice-president and general manager, Seaway Marine Transport; from St. Lawrence Shipoperators Association, Ernest Beaupertuis, senior superintendent, Algoma Tankers; and also Mr. Marc Gagnon, executive director, SODES.

As you probably know, you have approximately five to seven minutes to make your introductory remarks. Thereafter we'll proceed to a question and answer session.

I believe we'll begin with Mr. Dufresne. Welcome.

Mr. Guy Dufresne (Chair, Quebec Cartier Mining, Chamber of Maritime Commerce): Thank you, Mr. Chair.

I'm Guy Dufresne. I'm president and CEO of Quebec Cartier Mining Company. I'm also chairman of the Chamber of Maritime Commerce. I'm the incoming chair of the Mining Association of Canada and I'm also chairing the Great Lakes-St. Lawrence Maritime and Industrial Coalition.

The Chair: Thanks for finding some time to come here.

Voices: Oh, oh!

• 1535

Mr. Guy Dufresne: All these associations are vitally interested in this subject.

First I would like to introduce my colleagues from Canada's marine community who are appearing before you today. Wayne Smith is vice-president of Seaway Marine Transport. He is representing the Canadian Shipowners Association. Paul Gourdeau, vice-president of operations of Fednav, is speaking on behalf of the Shipping Federation. Ernest Beaupertuis, senior superintendent of Algoma Central Marine, is representing the St. Lawrence Shipoperators Association. Mr. Ross Gaudreault is the CEO and

[Translation]

President of Quebec Port Authority,

[English]

and last,

[Translation]

Marc Gagnon is Director of Sodes.

[English]

Before you today is a wide and varied cross-section of Canada's commercial marine community. Shippers, Canadian and international ship operators, owners, and ports each play a role in moving millions of tonnes of Canadian product to domestic and international markets. Although different, we all have one thing in common: the need for a competitive, efficient, and effective marine transportation system in Canada.

The marine industry and the community it services in this country are the backbone to Canada's international trade system. More than 350 million tonnes of cargo pass through Canadian ports every year, with 250 million transiting the Great Lakes-St. Lawrence waterway system.

On behalf of my colleagues, I would like to thank this committee for undertaking this study of the federal government's cost-recovery policy. Your efforts are consistent with the finance committee's ongoing interest in reviewing the federal government's regulatory impact on the ability for the Canadian economy to remain strong and for its business community to remain competitive. That is very important. The key is the ability of the governments to work with industry in partnership to ensure that there is a healthy, vibrant, and predictable environment in which Canadian firms can not only compete in the world marketplace but also excel.

Today the marine industry representatives before you will not discuss a wide range of government cost-recovery programs. We will discuss just one, the Canadian Coast Guard marine services fee program. We firmly believe there is no better example of how policy directives, no matter how well intentioned, can be implemented without a clear understanding of the potentially far-reaching, negative implication of that policy. The marine industry in Canada has been trying to work with government for more than five years on this particular cost-recovery system.

We will also suggest how this particular program can be changed or perhaps can be transferred to other governments' cost-recovery programs. Today we think the best way in which our industry can serve this committee in their cost-recovery review effort is to tell you about our own experiences, our real-life, on-the-ground examples of one federal government program.

Today we will discuss a number of issues as they relate to the marine services fee program especially and to the federal government's cost-recovery policy in general. We will touch on the issue of the difficulties that arise with the initial and ongoing relations between a government department and its clients: how services that government may wish to deliver may not be consistent with what its client base actually needs; how cost-recovery programs can instil a greater need to deliver government services more efficiently, to the point of drastically reducing the need for revenue recovery; and finally, what can be done to improve one of the many cost-recovery programs now in place.

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Ultimately, we are here today to speak to you about competitiveness and the ability of Canadian companies to compete in the international markets. In my own company, the costs related to shipping our product to customers in Canada and worldwide can decide whether the sale is made or not. Iron ore is the second product after petroleum to be transported around the world. More than 430 million tonnes of iron ore are being transported. We have a big disadvantage. All the iron ore mines in Canada have an ore grade that is only half that of the other major iron ore producing countries in the world, which are Brazil and Australia. The transportation cost of our products is about 25%. So it is a very important cost item for us.

I can come back to that in the question period, but any change in transportation costs or any inefficiency means we would lose our competitiveness.

I'd now like to turn the microphone over to Wayne Smith, and I'll come back for the conclusion of this group.

Wayne.

Mr. Wayne Smith (Vice-President/General Manager, Seaway Marine Transport, Canadian Shipowners Association): Thank you.

Mr. Chair, distinguished committee members, I represent Seaway Marine Transport. We're a member of the Canadian Shipowners Association. Just by way of background, we are commercial managers of a fleet of 43 lakers. It's the largest domestic flag fleet operating on the Great Lakes. Last year we carried about 45 million tonnes of cargo—bulk commodities ranging from grain, iron ore, salt, and aggregate products to coal.

For my comments today, I would like to bring you back through a very brief history of the evolution of the marine service fees. I think when you understand the difficulties and problems we've had in the consultation process between industry and a government agency—in this case the coast guard—it will help explain some of the difficulties we're having today.

In 1995, the Standing Committee on Transport published a national marine strategy. This strategy included a blueprint for many of the marine reforms we have seen in the last five years, including commercialization of the seaway and ports. It also included a reference to the possibility of a national user-based fee for cost recovery of coast guard services.

Recommendation 23 of that report said:

No national cost recovery program should be implemented until the [coast guard] has clearly identified its costs for services, the future levels [of service] required, and demonstrated it has costs under control and down to the lowest-cost...possible.

Marine service fees were implemented a year later on June 1, 1996. Now, five years later, we are still not satisfied that the preconditions have been met. At the time of the implementation in 1996, the government said a consultant study proved that industry could absorb the marine service fees. This study was widely disputed by industry, and the conclusions were disputed by the consultants.

A survey of our customers at the time showed that only 15% of the shippers were actually consulted. Most of those shippers thought the process was superficial at best.

In a letter I received from the principal consultant after the fee was implemented, he said:

I cannot agree with the assertion by Mr. Thomas

—who was then the commissioner of the coast guard—

that the marine industry could absorb the costs.

He went on to say:

Our analysis was based on the final year of application (i.e. the $60M revenue target), on an assumption

that the CFA Canadian flag ships would incur a cost of $2 million per year. Of course, the implementation of the program was estimated to cost $6 million a year. Concluded by saying:

I can certainly see significant cargo loss in the sensitive cargoes...at this fee level.

So this was the initial consultation process that was seriously flawed.

On announcing a marine service fee, the then Minister of Oceans and Fisheries—I can't recall which one—also announced there would be a second more comprehensive socio-economic impact study. This study, again, was to look at the ability of the industry to pay fees.

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Since that time marine service fees have increased, with the addition of dredging fees and ice breaking fees, to the point where total fees are approaching $40 million a year. Despite considerable effort by industry to work with the coast guard and be involved in a consultative process, we are still having difficulty. We still can't identify the fundamental components. What are the costs? What is the level of service that's absolutely required, and are the costs at the minimum possible level?

A third impact study was announced when the then Minister of Fisheries and Oceans announced the imposition of an ice breaking fee in the fall of 1998. We're starting to see the pattern here. Fees are announced and then an impact study to determine whether industry can pay for those fees immediately follows. That study was to have been conducted by Treasury Board. It's been over a year and a half. It's still trying to get off the ground and is progressing very slowly.

Just to give you a few examples of our impacts—this has been our concern all along—while the studies of the government's consultants have looked at the ability of industry to pay, that's really the short-run issue. We're concerned about the long-run competitiveness of industries. To give you some examples, 75% of the activities of my company involve international trade with the U.S., either the import of the U.S. commodities or the export of Canadian commodities. All these industries are in a very competitive environment—iron ore, steel, salt, and aggregate—yet the U.S. has no comparable coast guard user fee.

Beyond that, they do not charge for locks at Sault Ste. Marie and the St. Lawrence River. They do not have the mandatory pilotage regime we have in the St. Lawrence. They view marine transportation as an essential component of the U.S. transportation infrastructure and treat it accordingly. We estimate the Canadian marine service fees, depending on the size of ship and type of cargo, add literally dollars to the cost of Canadian commodities. If we have iron ore from Port-Cartier trying to compete in U.S. markets against U.S. iron ore that has none of these fees, the differential on one of our ships is about $3 a tonne. That's very significant.

I'll just give you an example of one of the more ridiculous outcomes of the marine service fees. In the Great Lakes, there is an international treaty between Canada and the U.S. on the provision of ice breaking services. That treaty calls for a sharing of the responsibilities and a sensible operational approach. Now, with the coast guard layering on a Canadian ice breaking fee, we have the ridiculous outcome that a Canadian icebreaker can provide service to a U.S. ship carrying U.S. cargo, competing with Canadian ships and Canadian cargoes, free of charge. But, as is often the case, if we're assisted in ice conditions by a U.S. icebreaker and carrying Canadian cargo, trying to compete in the U.S. market, we are charged by the Canadian Coast Guard, whether there are ice conditions in place, or whether it's a U.S. icebreaker or even a private icebreaker. So that's one of the ridiculous outcomes resulting from marine service fees.

What is the situation today? I think I'll go back to my original comment and the Scott committee's recommendation that no national cost recovery program should be implemented until the coast guard has clearly identified its costs for services and future service levels and has demonstrated that its costs are under control and down to the lowest level possible. Five years later, industry and the coast guard are still struggling with these same issues that have plagued the program from the very beginning: What are the true costs of the marine services? What is the proper allocation to commercial users? What's the required level of service and the appropriate service level?

Just as an example, we're still in quite a heated debate on the issue of capital costs and whether they should be included as a component for cost recovery. The issue is whether it's really a directive of Treasury Board to include capital costs or not. There doesn't seem to be any clarity on the issue. It seems in some cases capital costs are not included; in other cases they are. That's just one example.

The capital component of the coast guard's intended cost recovery is significant; it's at least one-third of the total cost. So those types of issues have given industry considerable difficulty.

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With that comment, I'd like to pass the microphone over to Paul Gourdeau.

The Chair: Thank you, Mr. Smith.

Mr. Paul Gourdeau (Vice-President, Fednav Limited, Shipping Federation of Canada): Merci, Wayne. Monsieur le président, membres du comité, as stated before, my name is Paul Gourdeau. I work with Fednav Limited. We're a Montreal-based international carrying company. We operate a fleet of 60 to 80 ships trading worldwide. I say 60 to 80 not because I don't know how many we have; it's that it varies all the time, according to market conditions.

I would like to centre my comments right now so that there's an element of fluidity between the five of us here on the particular issue of levels of service.

One of the difficult issues we've had to face when dealing with the coast guard and DFO throughout the last three or four years in dealing with the cost-recovery issue was that we had to agree on what sorts of levels of service were required by commercial shipping to support our fleet, to support our activity. There are a number of reasons for that. One of them is to decide amongst the three major user groups of the coast guard services—which are fishing, pleasure boaters, and commercial shipping—who should pay what part of the bill. Initially, of course, when this policy was announced, all three user groups were supposed to pay. Today we find out, five years down the road, that pleasure boaters don't pay and fishermen don't pay; commercial users pay. So already the goods were not quite delivered here.

The other issue starting from that, of course, is that you have to decide out of the coast guard purse who should be allocated what cost to decide what the recovery level should be and how it should be presented and how it should be assessed. Also, further down the line, there are levels of service between regions. You have to find out what the cost is between regions and so on, to decide how the fee structure should be constructed. That has not been easy. In fact, we never achieved it, because we're still in disagreement.

I will give you a particular example. A large number of industry members sat down with the coast guard on the committee on ice breaking for over one year of discussions reviewing the deployment plan of the fleet, how the coast guard deploys its fleet, how many ships they really need, this, that, and the other. As an aside, at least that exercise has proven to be quite fruitful in one way, inasmuch as the coast guard has completely changed the way it deploys its fleet nowadays; they do it in a much more sensible manner than they did five years ago. So maybe we've made some headway there.

Having said all this, it took a year of discussions, of looking at ice conditions, traffic levels, and the rest of it, to come up with a very nice comprehensive report, a joint industry-coast guard report that was signed by both parties and presented to the Marine Advisory Board, which at the time was studying the issue of cost recovery and so on. It was deposited. The coast guard went away with it and we heard nothing for eight months. Eight months later it's time to introduce the ice breaking fees. Suddenly, they present their plan. The levels of service have drastically increased, the associated costs have doubled, and when we asked what happened in the meantime, after they signed the report and were in full agreement with what we were proposing, we were told, “Yes, but that's your view. What is important is what we feel is the deemed demand.” In other words, they're saying, “Don't waste your time talking to us because we're going to do what we like at the end of the day.”

Needless to say, we were left with a bit of a sour taste in our mouth. To this day we've managed to agree to a sort of modus operandi, with a moratorium for three years on the ice breaking fees. But we're still not in agreement at all on the way this whole thing has been conducted.

I've talked before about the levels of service between various user groups and recovery between each user group. To give you another example, one of the first things that was sort of farmed out and where recovery was organized was on the dredging. It's easily understandable, in my view—it's purely a personal theory—but the only coast guard service that was not provided by coast guard employees was dredging. It was subcontracted out to contractors. So the first thing that is easy to do without hurting your employees, destroying your empire, is to get rid of this. So the minister decides they'll do no more dredging; they'll get rid of it.

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Long discussions take place. We start off the first year, we pay $2 million; the second year, $3 million; the third year, $4.1 million. Now we're at the point where to dredge.... I'm talking about the St. Lawrence River between Cap-Brulé just below Quebec City all the way to Montreal, and this is only maintenance dredging to maintain the channel to its charted depth.

Now, five years later, we're paying the full cost, 100%, including salaries, benefits, and the rest of it, of coast guard employees who oversee the job that is being done by the private contractors, sounding, making the charts, the whole bit. We pay for everything. We're told this is the way to go, all of that.

About three weeks ago we saw a beautiful announcement: DFO has suddenly found $15 million in the drawer somewhere to dredge private marinas in Ontario. We're baffled. It's unbelievable, incredible.

Levels of service you can agree about. You can discuss cost of services. But there seems to be no rhyme or reason to all of this. Levels of service between regions, for example, the Great Lakes and the Laurentian region, or the Quebec region. For the longest time they got rid of lighthouses, they modernized their infrastructure for aids to navigation, because they had to cut costs, and we're being charged to pay for all this modernization. It's part of our cost, part of the calculation of our fees.

Well, when it comes to the east coast and the west coast, in certain areas lighthouses are beautiful and we still have the lighthouse with the lighthouse keeper and the whole bit. Suddenly, money is found to preserve that.

In the context of a cost-recovery system, which should be aimed at disciplining demand, making sure users don't demand services they don't need, making sure that services are rendered in the most efficient fashion, all these factors just prove to us that.... In all honesty, we have difficulty buying this philosophy because it doesn't appear to be working at all.

One last comment before I pass on to my colleague is meant to reinforce what has been said before. We have to compete all the time with other carriers that operate on the same routes as our fleet, but we also have to compete—and this is extremely difficult—with the Mississippi river system and we have to compete with the U.S. east coast.

Every winter we have to quote on cargoes of steel and raw product going to the Ontario region, principally Hamilton for the steel industry, and every year we beat our nose against the door because we simply cannot compete with the ships going to Philadelphia and railing the cargo from the U.S. to Hamilton, as opposed to taking it to Montreal and doing the same thing.

Even in the summer now, for certain ports, albeit on the U.S. side, we've recently been trying to get some steel cargoes from Brazil that go to a user in the Cleveland area. The competition to put our hands on this cargo is absolutely atrocious, because we are competing with the Mississippi river system and it's very, very difficult. The U.S. Army Corps of Engineers invests massive amounts of money every year into the system. There are no fees whatsoever. So we're not on a level playing field here.

I guess I've said my bit for now. I'll pass the mike to Mr. Beaupertuis.

The Chair: You're making my job a lot easier today.

Mr. Paul Gourdeau: I'm sorry.

Mr. Ernest Beaupertuis (Senior Superintendent, Algoma Tankers; St. Lawrence Shipoperators Association): Good afternoon, Mr. Chair, ladies and gentlemen.

My name is Ernest Beaupertuis. I'm here to represent the St. Lawrence Shipoperators, but I have also been a seafarer for 20 years, a man who has plied the waters from the Great Lakes to the High Arctic.

When I first started to sail, I used to see hundreds of ships going up and down these waterways. We have here a highway to the heartland of the Americas, unparalleled anywhere. Today, 30 years after, Canadian vessels number 65 to 75. Why is this? Is it because we are not competitive? The question is legitimate.

When the government decided that industry had to discipline itself, industry reacted. It recognized there was a valid point here, a fair point here. You're competing against trains. You're competing against trucks and you're complaining that competition is unfair, but what have you done to improve your way of doing business?

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It was a fair question and we've addressed it. We've trained our people. At one point, there were as many as 8,000 seafarers on the Canadian vessels. Right now you're looking at 3,500, roughly, the best-case scenario. We've invested in training those people to be more efficient, safer.

We've purchased precision navigating system equipment to allow us to navigate those waters and the outreaching waters in a safe and efficient manner. We've spent a great deal of money doing this.

As well, we bought equipment to navigate in icy waters. We built ships to navigate in icy waters. The vessels are high-class, class 1 vessels.

We were expecting and we were told that the coast guard would be a partner with us in this venture. That has yet to be proven.

As the previous presenters were mentioning, we're not sure that the allocation of funds given to the coast guard are going in the right direction. We're talking here as well about job creation. We're losing a valid potential to be strictly very competitive. We're losing good people who are going elsewhere because they cannot find positions here. As I said before, the coast guard was going to work with us as a partner.

When we purchased those precision navigation systems, our intention was to be able to navigate those waters with the top technology equipment and with less buoys around. The coast guard had a program in place to get rid of some of those buoys that were not critical. The more buoys you have, the more buoy tenders you need. The capitalization for buoy tenders is around $20 million.

We have that equipment. We've invested a great deal in the equipment, but the buoys are still there, and this is still an example.

The previous presenters as well were mentioning the fact that we are paying ice breaking fees even if we don't require them. We want to work in good faith with the government to discipline the industry. Unfortunately, one agency of the government has not yet done so.

We don't understand why the coast guard could not operate as we operate in private business by being extremely efficient at what we're trying to do and minimizing costs. You can achieve that. They've not proven that thus far.

So we are today in a situation where we're not competitive any more. We're struggling to survive. We had accepted to pay those fees and we saw those fees as a means to improve the industry, to improve Canada's economy overall, hoping that together we would be able to create more jobs.

As an industry we've done our part. I think the charges that are put on us as we go on reduce our profit margin. We have become more productive but we're less profitable. We're less profitable because government was never a partner with us, and that's the unfortunate situation. Situations were imposed on us by government. Times were difficult. Times were driving. Today times are better and fees are necessary at this point in time. One should probably think about this.

That's why we're here. We rely on you people to really address this problem seriously. You have prime routes to develop. Canada's economy was developed by the waterways, and we're losing that prime possibility to regain our competitive edge and to maximize safely and efficiently those waterways.

Ladies and gentlemen, I'm suddenly out of text here. It is certainly, in essence, what I came here to say to you as responsible people of government. I hope you will all be in a position to understand where we're coming from.

Thank you very much.

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The Chair: Thank you, Mr. Beaupertuis.

Mr. Gaudreault.

[Translation]

Mr. Ross Gaudreault (President, Quebec Port Authority, Sodes): Mr. Chairman, members of the Committee,

[English]

I am the president and CEO of the port of Quebec,

[Translation]

Quebec Port Authority,

[English]

and in a few weeks from now I will be the chairman of the AAPA, the American Association of Port Authorities. I will be the first Canadian in 85 years to be elected by acclamation. Our association represents all the ports in 34 countries in the western hemisphere. They are my competitors, so I know what I'm talking about.

We are operating in a very competitive business. My competitors are not among the other ports in Canada. I know my competitors. I'm the one who sells. So when my customers tell me I'm too expensive, they don't have to come into Canada; they don't have to use the St. Lawrence River.

Do we have to be that broke in Canada? Are we really that broke in Canada that we can't afford to dredge the St. Lawrence River, one of the most important waterways in the world that brings billions of dollars in economic downfall to Canada? We are broke in Canada. It's incredible that we can't afford to dredge the St. Lawrence River.

[Translation]

It is impossible.

[English]

I'm trying to bring business to Canada, and we're competing with the Mississippi River, where for a few cents per tonne I lose my business...and they don't pay for dredging in the Mississippi River.

We have to look at what we bring here in economic downfall. There's an explosion right now in the cruise business. There's going to be $20 billion worth of new ships coming into the market within the next four years. They're looking for new markets. They're looking for new areas. I'm trying to sell Quebec City and Canada. They don't have to come here. Every port in the western world wants these ships.

If we could bring one ship into Quebec City that would cruise twice a week from Quebec City, do you know how much economic downfall that would be for the region? It's $140 million per year. It's $40 million for the two levels of government. That's what this kind of business brings to our country, Canada. So it's a very important business.

As far as I'm concerned, cost recovery is for the birds. Canada should be able to afford to pay for cost recovery. What we need is better management of the coast guard but not cost recovery. Certainly, they've been living in big spending over the last 20 years, but we are in the new world.

I have cut my costs at the port. I reduced my staff by a half; 50% of my employees have gone because I have to be more competitive.

So this is what the coast guard has to do: Run a better shop. Cut their costs. Be like a private business.

We have to be better operators in Canada. We have to be competitive. I am the salesman with the suitcase who goes and knocks on doors and tries to bring business to Canada. And if I don't have the tools, they don't have to come to Canada. They go to the Mississippi River and they go elsewhere. The cruise ships in Italy are beautiful. Every country in the world wants cruise ships, but I have to be competitive, Mr. Chairman.

As a matter of fact, the only other port in Canada that I compete with is Churchill. Why is it that in Churchill they don't pay for ice breaking and I pay for it in Quebec City? This is not fair.

[Translation]

The last word is yours, sir.

[English]

The Chair: I thought for a second you were going to tell us to go to Italy and find out how it works.

Mr. Ross Gaudreault: No.

Mr. Guy Dufresne: Mr. Chairman, you've heard from people who are in the field. On this user fee, we have agreed with a lot of ministers that there are two important principles. One, industries have to remain competitive in Canada, and when we start this whole shebang the second objective is that government costs have come down.

We said to the government that we as industry agreed with those two principles.

You've heard loud and clear from each and every one of us. That's the first time in Canada. You're coming from all parts of Canada.

We had a coalition from Victoria to Saint John; all industries from all sectors agreed on one thing: it didn't make sense. And that's what we present to the government. It's very difficult to get an agreement from all businesses.

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We have agreed on a moratorium. The government set a moratorium on that. But when a system makes your industry non-competitive versus the Mississippi, or even versus the inside, like Churchill, it makes us.... Don't forget, we're shipping 80% to 90% of our product outside. That's what creates jobs on the north shore, thousands of jobs, in a very difficult environment. Our ore is half the grade of our competitors, and we're able to make both ends meet. That's because we have to be more efficient. We have the most efficient plant in the world. But when you get to this level and you're imposing on us additional fees, this is not fair.

We were expecting our government to work with us vis-à-vis Brazil and the other countries of the world. We're supposed to work in partnership. User fees, when they don't disrupt the competitive industry, could be a way to do it, provided they listen. But in this case, you have a double whammy: they didn't listen and it makes the industry non-competitive.

So if you're asking us what we should be, our objective should be zero user fees in this case, because it makes industries non-competitive. Mississippi are not paying. A boat coming in the St. Lawrence going to a port pays zero to a U.S. port. To a Canadian port it pays thousands of dollars. How do you compete with that in this world? I have a port, a private port, the second-largest in Canada, one buoy, no ice. In the initial system, I was going to pay $6 million, the highest bill in the country. That's why I'm involved here. Now they've found ways to reduce that, but it's still too much.

This is not the case of user fees that could be a system that could have some application, not when it makes industry non-competitive. It doesn't meet the first principle. But we're willing to work with the government. We have made suggestions on how to reduce costs and how to use new technology. We have some expertise. That's because we know that as Canadians we have to have lower costs. We're willing to do that, to help, but not to pay the price in exporting Canadian jobs outside. That's what the system is doing right now. That's why it's so important. That's why you have so many people across Canada, from all industries, saying the same thing.

We're willing to help out. We're willing to use the latest technology. I can tell you a story. When I joined, the first commissioner, the head of the coast guard, told me you could not use GPS, because it was unsafe. You know that around the world, all the planes are landing with GPS.

We have to be together and use the latest technology. Canada is a great country and needs low-cost ways of marine transportation.

Also, think about the other side effect. It's probably the best in terms of the environment. You vote for Kyoto in order to reduce the gas. This is the best industry in that way too. Are the government policies trying to encourage that? No. They're discouraging that with the fees.

We could go on talking about that for a long time. You can see some frustration, not because the intentions were not good. I think the intentions were very good, but in this case they've been harmful, and that's not the solution. But we agree to help and form a partnership to reduce the costs in Canada.

The Chair: Thank you, and thanks to all the presenters. Obviously we're engaged in this study of cost recovery because we do see some challenges in this area. We thank you for your contribution.

We'll begin with Mr. Solberg on our ten-minute round.

Mr. Monte Solberg (Medicine Hat, Canadian Alliance): I'll make just a very brief remark, and then I'll pass off to my colleague.

First of all, I want to thank all of you for presenting today. You've made your point quite powerfully. I was recently along the Mississippi, and I saw the amount of freight that moves up and down what is really just a commercial highway. It's amazing. I'm aware that the U.S. Army Corps of Engineers does all their work for them, and it puts you at a terrible disadvantage.

• 1615

I simply want to say the Canadian Alliance takes this issue very seriously. We've pushed it for a number of years. We're disappointed that the Treasury Board president has not responded to letters about the problems associated with cost recovery. There are many of them. We appreciate the competitive pressures you're facing, and we want to assure you we're doing what we can. I have a private member's bill trying to bring parliamentary scrutiny to cost recovery so that these fees aren't arbitrary and people actually do get value for money.

I'm simply going to leave it at that and allow my colleague to ask a few questions.

The Chair: Mr. Forseth.

Mr. Paul Forseth (New Westminster—Coquitlam—Burnaby, Canadian Alliance): I wanted to specifically give you an opportunity to respond on the matter of international competitiveness. Looking at your paper here, in point 2 you clearly say:

Ongoing efforts must take place within government to fully understand and acknowledge the continuing competitive imbalances that are introduced when Canadian firms must pay for government services that our international competition does not have to pay in similar, competing markets.

I want you to elucidate more clearly on where we are internationally. What are the numbers? When I think of the situation in Vancouver, often we hear, even on the talk radio, it's a choice between Seattle and Vancouver, and very easily that's a trade-off situation we hear about. Or on the Atlantic seaboard certainly it's a choice between an Atlantic Canada port and one of the American seaboard ports. It's a matter of comparative cost. Maybe you can give us some specifics of the magnitude of the problem. What are the numbers when we look at those kinds of trade-offs?

In my own riding I'm very proud of Fraser Port. It's one of the models that has been run independently without tax subsidy for a long time. It was the early model for the new models of how ports are operated. So it's an issue I'm concerned about. What's going to come through Fraser Port? What are the various ways government manages or mismanages to see the jobs that are created in my community versus going elsewhere?

So perhaps you can address the international competitive context a little bit more clearly and provide maybe some numbers and percentages in that regard.

Mr. Paul Gourdeau: Maybe I can answer this by giving you a live example, something we go through just about every day in our company. We get a call from a big grain trading house. The guy has a buyer, say, in Italy. He wants to buy 25,000 tonnes of wheat, 14 protein, whatever. He puts forward the specification.

The man is going to do two things. He's going to check with the Australians, the Argentinians, the Americans, the Canadians, whatever, to see where he can source this grain. Then he has a price delivered at different ports. Then he goes to shipping companies like us, which have ships carrying cargoes from all over the world, and he asks for our rate from Quebec City, from Thunder Bay, from Mississippi, from La Plata, and so on and so forth, and he's just going to add it up.

Not only do I stand to lose the freight, if it goes to a market where we are less of a dominant player and we have competitors that will take that cargo away from us as carriers, but the guy who grew it may not be able to sell it, because it's being sourced from Argentina or it's being sourced from the Mississippi rather than being sourced from Canada, because of the added costs. If it's 25¢ a bushel or 50¢ a bushel, I'm sorry, sayonara, it's coming from somewhere else.

That's just to give you an example. This goes on day in, day out, all over the world, all the time. It's big commodities, huge amounts, huge volumes, and people are margin players. They play with cents per tonne, and that's the name of the game. If you try to ignore that, you're just digging your head in the sand.

Mr. Guy Dufresne: Yes. I'd just give you the example of the price level we have in the commodity. In the iron ore business we are now selling our iron ore in constant dollars at 40% of the price of 25 years ago. If you don't increase your productivity, you're dead. It's 40% of what it was 25 years ago, and the trend is not going to go up. So every nickel, dime, and penny counts.

• 1620

Our business is selling large volumes of commodities, and if it's a difference.... When you ship to China, transport is a very important aspect. When you ship to Europe...our bulk market is Europe.

So we're competing vis-à-vis other places. The Brazilians don't have those kinds of fees and their ore is twice the ore content. This is a very competitive world. This is why there's a small margin. When Wayne said $3 per tonne, it costs us $5 per tonne to go to Europe. Imagine what $3 per tonne here just in the Great Lakes does. There's no way we're going to get that business.

Mr. Paul Forseth: I would like to address Mr. Gaudreault. You talked about the cruise ship business. I recently had a look at that, and Princess Cruises, doing the Mexican Riviera, I understand, are changing their itinerary for next year merely because one of the Mexican ports adjusted their fees. So Princess Cruises said they were not going there any more.

Mr. Ross Gaudreault: That's exactly right.

Mr. Paul Forseth: You want the cruises to continue to come to Quebec City, but there are merchandising ports of call all along the eastern seaboard. It's very easy for them next season to say, we're not going to go to Quebec City any more if there is an adjustment.

So in your direct competitors, what is the cost disadvantage for your specific port against some of the near ones just a little bit to the south? What kinds of numbers are you looking at, at your port?

Mr. Ross Gaudreault: I can't give you exactly the number of cents today, but they look at every cent. The port you were talking about is Acapulco. Acapulco decided to raise their fees, and they said they were not going there. They don't have to go there. There is so much demand all over the world and they can move the ships anywhere.

So any added costs they have when they come into the St. Lawrence—they have two pilots on board, not one, so they have to pay that, and the cost of dredging is an added cost. They count, and if it's too much they don't have to come into the St. Lawrence. That's what I'm saying. Any added costs that are charged to the ship are negative to this business coming into the St. Lawrence. With just a small increase in the costs in Acapulco, Princess said goodbye. And that's thousands and thousands of passengers who were going there. They lost it.

Mr. Paul Forseth: So out of Quebec City, what other alternative port is your biggest competitor that's close by?

Mr. Ross Gaudreault: Mainly what the cruises were doing.... Of course, Quebec is a very special city and we're in big demand. We're getting 8.9 out of 9 satisfaction out of passengers. I know my friend lives on the south side of Quebec City....

But right now we could lose our business to the Mediterranean. The new ships have to find a niche. If they don't, if it's too costly to come into the St. Lawrence, they will position these ships in the Mediterranean. There's a big demand in the Med now. Even Russians, Italians, all these guys want to have cruise ships. Or they can sail from New York to Bangor, Portland, and they can go to Halifax and back to New York. They don't have to come into the St. Lawrence.

But what makes them come is that we are very special. We have one of the most beautiful cities in the world, and so they come into the St. Lawrence. But if we're too costly, they're not going to come. We're not going to get part of this new market, this new $20 million market; we're not going to get part of it. They're still going to come in September and October, but we want them to come in June, July, and August. That's what we're working on.

Mr. Paul Forseth: Okay. I'll leave it at this point.

The Chair: Mr. Dubé.

[Translation]

Mr. Antoine Dubé (Lévis-et-Chutes-de-la-Chaudière, BQ): By the way, I would like to point out that today is somewhat of a special day. I am not a member of the Finance Committee but of the Industry Committee and there will be a debate tonight on the shipbuilding bill, bill C-213, that I presented. You will understand that I am quite a natural allied because I want more boats to be built. I am interested in the rest of the marine world making money in order to build boats.

I think you raised a very important issue yesterday. Last summer, I saw the Mississippi where equipment from the US Department of Defence was used for towing barges. The US government is sparing no expense because the Mississippi is a large competitor to the St. Lawrence as far as waterways go.

• 1625

You said a lot of things but I will ask you this question. What is the priority for you? You said that you accepted that there be a moratorium but that we need a long term policy. You did not talk about taxation. You could have talked about it because you are loosing maritime workers to your American competitors and others. I know there are countries where they don't pay tax. All things considered, what is the number one priority for you that we should take action about?

Mr. Guy Dufresne: We are here to talk about the user pay concept. In your case, there are two main principles. The first is that industries remain competitive and the second one includes two objectives. The first of those objectives is that governments reduce their costs. In this case, the user pay concept puts businesses at a competitive disadvantage and penalizes us. If you are asking us what our objective is in that regard, I would answer that it is to make ends meet.

We are not at the same level as the Mississippi. We are not at the same level as anywhere else in the world. User charges should be eliminated. On the other hand, we would be willing to work with the government in order to reduce costs by using new technology.

When we told the government that 5,000 buoys were being used and that all our pilots were telling us that only half could be used, the answer was that it was impossible. It's funny because now more than 30% of those have been removed. But the first answer was no. Why? Because there was a group looking only after that. What we must do is reduce governmental costs but not at the expense of business competitiveness because we risk exporting jobs.

Mr. Antoine Dubé: I understand that and Mr. Gaudreault talked about the loss in the end. In fact you are trying to convince the government of one thing: if they really consider you as partners and want to feel involved in the industry by trying to limit fees, the end result will be economic benefits and more cash receipts.

This all started under a general policy when the government wanted to reduce the deficit and even pay it off. Now the goal has been reached and we have choices. Do you think that at this stage there is really no more reason to continue trying to recover the costs?

Mr. Guy Dufresne: At this stage we still have the two same objectives. We want the industry to remain competitive and this means eliminating user charges. But we want to work with the government because we are aware of the fact that government costs must go down. We are willing to work with the government in order to find ways to reach that goal.

We were told that the costs amounted to $15,000 a buoy. I don't know if it is still true but this is what it was costing the government. In the private sector, in the Great Lakes, it costs $1,500 a buoy, a tenth of the cost. There might be ways to reduce the costs other than having the users pay for it.

Mr. Antoine Dubé: You say that the Americans are the main market. I don't follow shipping as closely as Michel Guimond but should there not be bilateral negotiations with the United States? In the meantime, if we were to make it a condition that the Americans modify their policies to match ours, would you be satisfied?

Mr. Guy Dufresne: Yes but this would not change the fact that people go a lot to Europe and elsewhere. In the meantime the boats that my friend Paul or Ross are missing are gone. If everybody was charging more, what would surprise me very much, it would be different but it is only an hypothesis that remains to be verified. We are the only ones in that situation and we are penalized.

• 1630

Mr. Antoine Dubé: Your wish is for those fees to be eliminated until something else happens internationally but it might take a long time. Would that difference be enough to make you more competitive or would we have to address other dimensions?

Mr. Guy Dufresne: Sir, we are addressing several dimensions. As I was saying, we are selling our product at 40% of the price 25 years ago and wages have tripled. Therefore we are paying for many other dimensions. We are positioning our trucks in our mine by satellite. We have the most efficient pelletizing plant in the world but the ore of our competitors is twice our ore content. We must make up for that and we work very hard at it. All the additional costs that we must pay make it harder for us. At one point, jobs will be lost.

Mr. Antoine Dubé: Here is a last point. I worked in a coalition for shipbuilding, like you, and I know for a fact that it is not easy because interest sometimes differ within the group. You did it and I congratulate you. I love ships. I see ships go by and I see Quebec City port. I would very much like to see more ships on the south shore but that it something else. We will settle that with Mr. Gaudreault.

Canada is a large country with a lot of water spaces and the longest inland waterway in the world. That waterway is close to the US market, the largest in the world. Suppose that we manage to convince everybody. I seems to me that we could have a summit with all concerned governments and individuals to think of something even more important that would go beyond all that, to examine all other measures.

Mr. Guy Dufresne: Before thinking of other measures, let's try to correct those that are hurting us. Then we will have time to sit down and see what we can do better. This was imposed to us recently and none of our competitors in the whole world is subject to such a measure.

Mr. Antoine Dubé: Yes but I have a concern.

Mr. Guy Dufresne: Let us correct the measure first, then we can make things better. We have a lot of ideas to make things better.

Mr. Antoine Dubé: I have a concern, Mr. Dufresne. We are in the Finance Committee today. Nobody on the other side has confirmed it but there is the possibility of an election. For things to change we need more than a policy; we needs laws and programs. I do hope that my colleagues from the other side want things to change as quickly as me. Of course you can count on the Bloc. We are in the opposition, we represent Quebec's interests and we are behind you all the way.

[English]

The Chair: Thank you, Mr. Dubé.

We'll start with Mr. Gallaway, followed by Ms. Redman, and then Mr. Pillitteri.

Be mindful of the fact that the witnesses have to leave at five to five. Is that correct?

Mr. Guy Dufresne: I can stay a little longer. Some of us have to leave, but not all of us.

The Chair: Okay. I just want to confirm that not all the witness have to leave.

Mr. Roger Gallaway (Sarnia—Lambton, Lib.): I have a very quick point of information, Mr. Chairman. I checked with the clerk and I understand that the coast guard officials were not on the list. I wondered if we could just get unanimous consent to invite them here.

The Chair: Sure. Agreed.

Mr. Roger Gallaway: Fine, thank you.

First, the marine services fee was introduced in 1998. I have to tell you that I live in Sarnia and every week I come over Lake Huron at about 2,000 feet in a Dash 8 going to the Sarnia airport. Since 1998 I could have run an ice breaking system on the lower end of Lake Huron in a rowboat because there hasn't been any ice.

I am told—and maybe you could discuss this or confirm this—that in fact your industry association offered to do the ice breaking yourself, that you could do it cheaper than the coast guard. I'm wondering if you could confirm whether that offer was made or discussed with the coast guard and what the results of those discussions were. Did they indeed take place?

• 1635

Mr. Guy Dufresne: Yes. I think the problem for some members of the industry is that where there's ice, it's very costly. We believe we could do it cheaper than that. But those are penalized where there's ice. I have a port that has no ice, but that's part of the fee structure of this whole thing.

The important thing is that we would not be charged. If a port like Churchill is not charged for ice breaking, why the hell would some people in Sarnia be charged for ice breaking? Are the truckers asked to be part of removing the snow in Canada?

We have a great country, a fantastic country. But there are some difficulties, and that's part of the system. The whole thing is that if the coast guard in total costs less to the government, that's when we would try to work with the coast guard. That's the sort of proposal; let's try to find ways to reduce that. But if you're trying to charge that to everyone, you're going to kill the industries in Canada.

Mr. Roger Gallaway: I'm told that 88% of the fees collected on the Great Lakes and the St. Lawrence Seaway are for ice breaking.

Mr. Guy Dufresne: Yes.

Mr. Roger Gallaway: The actual coast guard expenditure may be something under 50%, between 40% and 50%. No one knows for certain. A lot of this whole discussion was triggered by a case in Ontario having to do with probate fees, called the Eurig estate. Have you contemplated taking the coast guard to court?

Mr. Guy Dufresne: No. That's not the way we want to go in partnership with the Canadian government.

Mr. Roger Gallaway: All right. Have you had meetings then with Monsieur Massé, the former head of Treasury, and Madame Robillard?

Mr. Guy Dufresne: Yes. I had personal meetings, and several of us had meetings with Mr. Massé and several other ministers. That's why we agree on the two principles: keep industry competitive and work together to reduce government costs. This is where this system has not reached those objectives.

Mr. Roger Gallaway: For those who ship on the St. Lawrence Seaway, is there not a sense of what I would refer to as cross-subsidization, that in fact you're subsidizing Churchill, you're subsidizing the east coast?

Mr. Guy Dufresne: We're not going to enter into that. The government has to look at that as a country. What we're saying is that the same boat that goes throughout the system, that goes to the U.S., pays zero and we pay. Whether it's cross-subsidization...it's complex and we don't have all the numbers. This is not the issue. Government is looking at what you have to do in certain regions. This is very complex and we respect that.

What we're saying is that when you're putting some of the industries in Canada at a non-competitive level, we have to say that we cannot compete. That's what we're telling you, loud and clear. It hasn't worked. We're not competitive vis-à-vis the others. You're taking business away from Canada with the system. Whether you cross-subsidize or not, this is a complex issue. I would not want to go into that issue.

Mr. Roger Gallaway: Okay.

My final question for the moment will be this. When Treasury Board officials appeared before this committee a few weeks ago, they swore up and down that the policy was that there would be a dispute resolution mechanism. They said that was one of the cornerstones of this policy and that without any doubt it existed. The policy certainly exists, but when asked the question, they said we would have to ask each group that appears before us just how it works. So I'll ask you the question. Are you aware of a dispute resolution mechanism? I think you've already told me how it works.

Mr. Guy Dufresne: Yes. It doesn't work. The problem is more fundamental in the case of the user fee for the coast guard. The fundamental problem is that we're not competitive. Whether you have a dispute mechanism or not, the question is whether we should have the fees in this case.

Mr. Roger Gallaway: Would you then say that the coast guard is overbuilt, that there's too much of it?

Mr. Guy Dufresne: I would tend to say that we're not.... Even though we criticize, criticizing is the easiest thing. I would not want to tell them how to run their business, but I think there's room for improvement.

• 1640

The Chair: We wanted to reduce costs, though.

Mr. Guy Dufresne: This is what we've agreed. As Canadians we want to reduce costs. We're willing to have a partnership. We should work together with Australia, Brazil, and Europe. This is what the competition is. It's not government versus industry. We should be together. If we're not together, we're dead in the international market. We're selling 80% outside.

The Chair: But above and beyond your diplomatic approach, which we appreciate, you want costs reduced.

Mr. Guy Dufresne: We want the costs reduced. We want them to use the latest technology. We're willing to help. But the thing is, don't charge us something that is not charged by others. Whether all the countries of the world should charge that in their ports and so forth is another debate. But they're not doing it right now, and that's the issue.

Mr. Roger Gallaway: Thank you.

The Chair: Thank you.

Mr. Pillitteri.

Mr. Gary Pillitteri (Niagara Falls, Lib.): Thank you, Mr. Chairman, and thank you for your presentations.

At the start Mr. Solberg wanted to make a comment that he had been on the Mississippi. Let me inform you that we were together on the Mississippi. Looking at the Mississippi River, which goes on for 700 miles, you don't have any ice or any obstruction whatsoever down the river. Starting from Memphis, there are no bridges or buildings on both sides of the banks, and it is still primitive. You can see 54 barges tied together with a tugboat, with four or five people working on that tugboat. They're carrying as much as 2,000 truckloads of grain and so on. When you see all this, you just wonder how competitive you can be against them.

I do understand your plight. But I also understand that it's difficult to compare the Mississippi River to the St. Lawrence Seaway when it comes to the artificial costs, the added costs, the icebreakers or even some free ports, because we do have some obstruction of the canals and of the bridges and so on, and it's all costly. I do understand all that.

But I did see the Mississippi River, and quite frankly I was amazed to see that this is in the heartland of the United States, and to see the wealth that is within that river when it comes to transportation and that they've built nothing along the way so that there will not be any obstructions.

Here we're doing cost recovery. I have some knowledge because I do live along the St. Lawrence Seaway. I represent Niagara Falls. I grew up next to the Port Weller Dry Docks, which start from lock number one from the lake.

I hear so much about being competitive. Do you have any facts and figures? What was the situation with the coast guard prior to cost recovery? What were their expenses? What were the total costs and what are they today? I know that you want to be more competitive. Are they spending more or less? Are they running a proper business? In order for us to make a recommendation in looking at the total cost recovery, I think we would have to have some of this information.

Mr. Guy Dufresne: The way I would answer is that they would be in the best position. There was not full transparency on that. But this committee, I'm sure, could get it from the coast guard.

But what would be even more important is what further cost recovery is possible by using the latest technology and by working with industry to get the minimum amount of buoys that are reasonable and safe for the population. When you have 98% of your pilots, experienced people, say that you don't need half the buoys, there is a problem. Now they've reduced them after saying they were all needed. There might be other areas they could improve on in terms of information systems.

• 1645

I'm on the board of the seaway. This has been privatized. We're trying to get more business and to keep the costs down. I think that's what we need to work on. Industry is willing to do that.

I don't know if my colleagues want to say something about the coast guard. They probably know more than I do. I'm just paying the bill.

Mr. Ross Gaudreault: I'm going to surprise you, Mr. Pillitteri. We are competing with the Mississippi. We are stealing business away from them. Can you imagine that? We're getting some iron ore that used to be transhipped in New Orleans using the Mississippi. We're doing it out of Quebec City now. We're moving almost two million tonnes. Why? Because Canadians are more efficient. They have barges. For 120,000 shipments it takes only five lakers. We can bring a large ship to Quebec City and use the laker and bring it up in the States or anywhere else, and we are more efficient. Can you imagine that? We're stealing business away from Mississippi, even with the high costs we have to live with.

Can you imagine how Canada would become more competitive if we didn't have these added costs, such as dredging? You have to pay for dredging. If we didn't have that, we would steal more business out of the Mississippi, because we are more efficient and we have the best highway in the world, the St. Lawrence Seaway.

[Translation]

Mississippi, it's peanuts. It's only rowing boats.

[English]

It's incredible. We can bring large ships, and we have Canadian lakers that come to our ports. That's why we are efficient. That's why we can compete.

So remove these costs. What we're saying is very simple: let the coast guard manage their own thing but do it better. Reduce their costs because they're better. We don't have to pay for that. Are we in Canada or in a third world country where we have to pay for dredging? Can you imagine that? That's what we're saying. Let them do their work. Reduce their costs.

The Chair: I appreciate that you're very efficient and productive. The dollar is at 67¢ or 68¢, depending on the day. How much of your competitiveness is as a result of the low dollar?

Mr. Ross Gaudreault: I did not understand your question.

The Chair: The dollar, the exchange rate—

Mr. Guy Dufresne: I can tell you from an industry—

The Chair: What about him? Do you think he can tell me?

Mr. Guy Dufresne: Oh, yes, he can tell you, too.

The Chair: You can both answer.

Mr. Ross Gaudreault: This is a big thing for us, 40%, so sure, it helped us. If we did not have that, with the costs of the coast guard and everything, goodbye to the business. It's gone.

Mr. Guy Dufresne: That's what is saving all the resources. I spent 25 of my years in the pulp and paper business. It's the same thing with mining. The dollar at that level is what's helping us right now, but it might not be at that level all the time.

The Chair: I appreciate that. We're always trying to find ways to make our economy more competitive, and I just wanted to know what percentage had to do with the dollar. We're with you when it comes to reducing costs. We want to stay out of the way of businesses as much as we can—at least I do.

Mrs. Redman.

Mrs. Karen Redman (Kitchener Centre, Lib.): Thank you, Mr. Chairperson.

I want to thank you for your presentation. I think you've been very articulate and forceful. I sense some frustration in the process that has gone on to date.

We're in the second year of a three-year moratorium, and the marine service fees are now frozen. But a marine advisory body has been created, and my understanding is that the commissioner of the coast guard is consulting on the future of marine service fees. I'm wondering if the Chamber of Maritime Commerce has an opinion on how efficient that will be or has taken a stand. My sense is that part of this is the process you've gone through as well.

Mr. Guy Dufresne: Some members are on that board.

Mr. Paul Gourdeau: Both Wayne and I sit on the Marine Advisory Board. It wasn't really created; it was reformed. There used to be 20 or 30 members, and it was a bit difficult to manage that crowd and to come to any sort of decision. So it has been reformed. When the moratorium came about, there was also a decision to start fresh with the Marine Advisory Board. Rather than have representation per industry sector, it was changed to a different pattern where it is representation per region. I represent the Laurentian region and Wayne represents the Great Lakes region. We have sub-regional groups that do the same type of work, where industry representation is present.

• 1650

The board has met eight or nine times since.... We are making some headway. In fact, at the last meeting the issue of starting to look at fees for the future was tabled. The last couple of years have been more to help the commissioner get up to date. He has various projects with regard to the fleet, the headquarters, and so on and so forth.

There have been lots of good efforts, I think, but they've been a bit slow in coming. At the same time, the issue of fees is coming forward in a year. We're still at the stage where the costing has not been clarified.

The next issue will be, again, to go over the debate on levels of service, the more philosophical tug-of-war to decide who pays what and how it works at the end of the day. I dread this year coming forward if we're going to have to go through the same mess we went through the previous time around. I hope we've learned something, at least, but if it works the same way it worked before....

I mean, industry people like ourselves are very, very busy people, and we've spent hours working with these people, hours, to be told yes, yes, thank you. You come up with a joint report, they go away, and when they come back six months later they've ignored everything you've done.

I hope it's not going to work like that the next time around. Of course, if we were to follow Guy's recommendations this would all be a futile debate, but I'm not sure where that's going to take us.

Maybe Wayne wants to comment some more.

Mr. Wayne Smith: Yes, perhaps I could add a comment.

The Marine Advisory Board process has been around since the beginning, I think pre-1995. At the time, it had an independent chair. Coast guard was part of the process, and then industry and various stakeholders participated.

You know, it's difficult to be critical of a process that you're involved in, especially as it's early going for this iteration, but as I said in my comments, the critical issues are that we're still trying to grapple with the issues of, really, what are the true costs and the levels of service? These issues go right back to day one.

So it has been a long, difficult, and frustrating process for industry, and now the Marine Advisory Board is a process, controlled by the coast guard, really. Industry is participating willingly. Hopefully our input will be valued and considered, but at this point it's not certain what the outcome will be.

Mrs. Karen Redman: In your estimation, having been involved in the process, does the coast guard have the expertise to come up with good cost-recovery programs? I mean, you talk about the costing. Is it that the expertise isn't there to provide that kind of...?

Mr. Paul Gourdeau: I think whether we like it or not.... The answer to your question is no, but at the same time, I'm not sure, if they had the expertise, it would really be that relevant. I'll give you a very simple example.

They could come and slice their costs to a point where it's so well defined that if the captain on his ship looks at this buoy, he pays 5¢. If he doesn't look, or looks the other way, he doesn't pay. I'm being a bit caricatural here, but Mr. Dufresne, with his one buoy, what would he be paying?

If you start to do this, then you're pushing all the costs onto the people who are in areas that are often remote or with less traffic and so on and so forth. Then they immediately fall into the political world. I'll give you a very simple example.

The gentleman was talking about ice breaking. Well, 88% of cost recovery in ice breaking is done between the Laurentian region and the Great Lakes, but we have only 50% of the costs. That was a big part of the debate.

If we said, okay, if everybody pays their true share, which means that rather than paying a $3,100 escort fee to go into the Charlottetown or Corner Brook or Belledune areas of the country, which we all know need a little bit more help, they would pay $27,000 in and $27,000 out, then you might as well close the port.

So even as an industry we agreed with the people of these regions that, okay, we'll share part of your load. We were able, as industry, to do something that, politically, government was not even capable of doing, quite honestly.

So on the issue of cuts, we can slice it every way we want, but when the crunch time comes, the decision's taken at a higher level. You need people with vision to make these decisions. It's not just bureaucrats slicing numbers each and every way. You can take that only so far.

• 1655

Mr. Wayne Smith: I'd like to emphasize that point and give you my very strong view that the coast guard is not equipped to develop or administer fees.

Really, Canada now has a patchwork system, with different regional fees, with different fees for domestic ships and foreign ships. It was a mess from the beginning. Industry worked really very hard to rationalize these fees but the coast guard just said, you know, this is it; this is the fee.

It doesn't make any sense. It can't be applied commercially. The fee in eastern Canada is entirely administered by shipowners in the case of the domestic fleet, and I think the same holds true for the foreign fleet. We calculate the amount of fee payable. We develop statements. We send it to the coast guard. Well, the coast guard has its own administration bureaucracy, which I've been told costs about $2 million, and yet we tell the coast guard how much of the fee is actually payable. They recently even developed a new computer program that we cannot use, at a cost of who knows what. We can't support it because we can't tie into it with our computer systems.

Even if they can't administer the fee and they can't develop the fee, they're charging up to $2 million in the cost recovery to administer the fee and we do all the administration.

Those are some examples of the difficulty with the process.

Mr. Guy Dufresne: I'd like to add one thing. All this agreement in industry was damage control. The system was so bad we decided amongst ourselves on how we were going to try, until we got the fees out, to split that. Otherwise, you would have shut down some place in the Maritimes. But Churchill was free and....

There was no logic in the thing. That's why we went at it. That's what the coalition has done throughout Canada, trying to get something, under a very bad system, until we could do something to get rid of those additional costs.

Mrs. Karen Redman: Do the Treasury Board guidelines for cost recovery give enough guidance? Is that part of the problem?

Mr. Guy Dufresne: No, I wouldn't say it's the Treasury Board guidelines in terms of user fees, because user fees can have their use. But as I say, with the two principles, when they're hurting industry, then there shouldn't be any user fees. That's where it failed.

Mrs. Karen Redman: Thank you.

The Chair: On behalf of the committee, I'd really like to thank you all very much. As you probably know, this committee is very committed to supporting a public policy direction that speaks to the issue of enhanced productivity. One of the levers we do have is cost recovery and also regulations in general.

The general thrust here is to develop an economy where we have a competitive tax regime, flexible regulation, and as free as possible a market. After all, that's where wealth and jobs are in fact created.

So we'd like to express to you our sincerest gratitude for the illustrations you've given us. It will certainly help us in writing the report and making recommendations to the government. On behalf of the committee, thanks.

Mr. Guy Dufresne: Thank you for receiving us. We really appreciate that. As you can see, we've managed to get together several associations from across the land with the same objective. I would have to say that we're not going to give up on that, because it's hurting.

The Chair: Yes. I would have to say that today we're all in the same boat.

Voices: Oh, oh!

Mr. Guy Dufresne: Good. I appreciate that.

The Chair: We are adjourned.