FINA Committee Meeting

37th PARLIAMENT, 1st SESSION

Standing Committee on Finance

EVIDENCE

CONTENTS

Thursday, May 30, 2002

À

1035

The Chair (Mrs. Sue Barnes (London West, Lib.))

Mr. J. Clifford Mackay (President and Chief Executive Officer, Air Transport Association of Canada)

À

1040

À

1045

The Chair

Mr. Bruce Burrows (Vice-President, Public Affairs, Government Relations, Railway Association of Canada)

À

1050

Mr. Chris Jones (Director, Government Relations, Railway Association of Canada)

À

1055

Mr. Bruce Burrows

Á

1100

The Chair

Captain Ivan Lantz (Interim President, Director, Maritime Operations, Shipping Federation of Canada)

Á

1105

Á

1110

The Chair

Mr. David Bradley (Chief Executive Officer, Canadian Trucking Alliance)

Á

1115

Á

1120

The Chair

Mr. David Bradley

Á

1125

The Chair

Mr. David Bradley

The Chair

Mr. David Bradley

The Chair

Mr. David Bradley

The Chair

Mr. David Bradley

The Chair

Mr. J. Clifford Mackay

Mr. Grant McNally

Mr. J. Clifford Mackay

Mr. Warren Everson (Vice-President, Policy and Strategic Planning, Air Transport Association of Canada)

Á

1130

Mr. Grant McNally

Mr. Bruce Burrows

Mr. Grant McNally

Mr. Bruce Burrows

Mr. Grant McNally

Mr. Bruce Burrows

Mr. Grant McNally

Mr. Bruce Burrows

Á

1135

Mr. Grant McNally

Mr. David Bradley

The Chair

Mr. Yvan Loubier (Saint-Hyacinthe—Bagot, BQ)

Mr. J. Clifford Mackay

Á

1140

Mr. Yvan Loubier

Mr. Bruce Burrows

Mr. Yvan Loubier

Á

1145

Capt Ivan Lantz

Mr. Yvan Loubier

Capt Ivan Lantz

Mr. Yvan Loubier

Capt Ivan Lantz

Ms. Anne Legars (Director, Policy and Government Affairs, The Shipping Federation of Canada)

Mr. Yvan Loubier

The Chair

Ms. Albina Guarnieri (Mississauga East, Lib.)

Á

1150

Mr. David Bradley

Ms. Albina Guarnieri

Mr. David Bradley

Á

1155

Ms. Albina Guarnieri

Mr. David Bradley

Â

1200

Ms. Albina Guarnieri

The Chair

Mr. Lorne Nystrom (Regina—Qu'Appelle, NDP)

Mr. J. Clifford Mackay

Mr. Lorne Nystrom

Mr. Chris Jones

Â

1205

Mr. Lorne Nystrom

Mr. Chris Jones

Mr. Bruce Burrows

The Chair

Mr. David Bradley

Â

1210

The Chair

Mr. J. Clifford Mackay

The Chair

Mr. Bruce Burrows

Â

1215

The Chair

Mr. Shawn Murphy (Hillsborough, Lib.)

Mr. J. Clifford Mackay

Â

1220

Mr. Shawn Murphy

Mr. Warren Everson

Mr. Shawn Murphy

Mr. Warren Everson

Mr. Shawn Murphy

Mr. J. Clifford Mackay

Mr. Shawn Murphy

Mr. Bruce Burrows

Mr. Shawn Murphy

Mr. Bruce Burrows

Â

1225

Mr. Shawn Murphy

Mr. Bruce Burrows

Mr. Shawn Murphy

The Chair

Ms. Sophia Leung (Vancouver Kingsway, Lib.)

The Chair

Capt Ivan Lantz

The Chair

Mr. David Bradley

The Chair

Mr. J. Clifford Mackay

Â

1230

The Chair

Mr. Warren Everson

The Chair

Ms. Sophia Leung

The Chair

Ms. Carolyn Bennett (St. Paul's, Lib.)

Mr. J. Clifford Mackay

Ms. Carolyn Bennett

Mr. J. Clifford Mackay

Â

1235

Ms. Carolyn Bennett

Mr. David Bradley

Ms. Carolyn Bennett

Mr. David Bradley

Ms. Carolyn Bennett

The Chair

Mr. Chris Jones

Â

1240

The Chair

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CANADA

Standing Committee on Finance

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NUMBER 107

l

1st SESSION

l

37th PARLIAMENT

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EVIDENCE

Thursday, May 30, 2002

[Recorded by Electronic Apparatus]

À  (1035)  

[English]

    The Chair (Mrs. Sue Barnes (London West, Lib.)): Good morning, everyone. Bienvenue à tous. The order of the day pursuant to Standing Order 108(2) is pre-budget discussions.

    On our panel of witnesses today are Mr. Clifford Mackay, president and chief executive officer, Air Transport Association of Canada, and with him is Mr. Warren Everson, vice-president, policy and strategic planning; and Bruce Burrows, vice-president, public affairs and government relations, Railway Association of Canada, and with him is Chris Jones, director, federal/provincial government liaison.

    Welcome.

    We also have with us, from the Shipping Federation of Canada, Ivan Lantz, interim president and director of maritime operations, Mario Minotti, director, economic analysis, and Anne Legars, director, policy and government affairs.

    Welcome.

    From the Canadian Trucking Alliance we have with us David Bradley, chief executive officer, and Ron Lennox, vice-president of regulatory affairs.

    Welcome.

    We'll follow the order of the agenda.

    Mr. Mackay, please commence. You have approximately 10 minutes.

    Mr. J. Clifford Mackay (President and Chief Executive Officer, Air Transport Association of Canada): Thank you, Madam Chair, and again, thank you for the opportunity to address you this year.

    Let me start by stating the obvious: 2001 was a dreadful year for air industries. It was in fact the worst year on record for the industry. In addition to the huge traffic declines, the industry suffered very substantial increases in costs for insurance and security. As well, we saw a sharp tightening of the credit markets around the world. Canada was not excluded from that.

    During the last year, we saw our second largest carrier, Canada 3000, go bankrupt. The industry laid off over 10,000 people. Although some companies continued to prosper, particularly those in the discount market, other airlines that had exposure in the international, transborder, and leisure markets suffered severe losses, the largest of which, of course, was Air Canada's recently announced $1.2 billion loss.

    Since the crisis of last fall, there has been a bit of good news. We have seen a strong recovery in traffic volumes in most markets, with the notable exception of the business market and the transborder market. Both of those markets remain soft.

    Having said all of that, let me say that Parliament should understand that the industry was seriously hurt by the events of the last year. Debt loads are very high and our cost structures have changed fundamentally. Although we have been relieved of our passenger screening costs by the government's decision to nationalize that service, our other security costs have more than replaced those costs. Meanwhile, insurance costs have--and this is the only word to use--skyrocketed. Many of our members are reporting increases of 300%. For one of our large members, fees or premiums increased 1,000% in the last 12 months.

    All of this is to say that the industry is in a difficult time. The possibility exists for even more changes in the next short period of time, the next 12 months. I believe your deliberations on the future federal budget should include this reality. There needs to be a serious policy discussion about the financial health of the industry in going forward.

    The year 2001 also demonstrated an important issue concerning the role of government in our industry. Government is a major source of cost for the airline business. Unlike many other major cost centres in our industry--labour, aircraft manufacturers, and fuel--government costs have been shown to be very inflexible. In fact, government costs are rising, despite all the difficulties I just ran through for you.

    You are all familiar with the air travellers security charge announced in December 2001. This new tax imposed nearly half a billion dollars in new costs on the travelling public. However necessary, I'm sure you'll agree this was a blow to travellers, but three weeks later there was one that wasn't reported as widely. On January 1, the government went ahead with a scheduled increase in airport rent. Federal charges in rent increased by $20 million, almost 10% year over year. Now the federal government is taking in around $250 million in airport rents and it is not providing any substantial services in consideration of those funds.

    We have vigorously protested the rent formula as a form of non-parliamentary tax, but it serves as a useful example of the problems that I'd like to mention. Government costs to our industry are not sensitive to the market or the economic circumstances.

    The accompanying paper, which we will table with you today, lists several tax issues that we feel the government could consider changing. These include the excise fuel tax, the GST on transborder services, and a long-standing dispute we have with the government concerning the deductibility of meals and other costs for our crews. Each of these taxes is entirely indifferent to the financial health of the companies on which they are imposed.

    I'd invite the members of the committee to review the paper at their leisure. I don't propose to go through it in detail today.

    However, the main point I want to take up with the committee today relates, of course, to the security charge. Although ATAC cooperated fully with the government in the introduction of this tax through the past winter, we have had and continue to have serious concerns about it.

    The first point is that we continue to contend that the government's decision to place the entire cost of aviation security on the travelling public is simply not reasonable. No other mode of transportation, indeed, no other sector of the economy, is treated this way. Security is a shared societal responsibility. The hijackers of September 11 were not targeting aviation in itself; they were targeting our society. In the same way, when Ahmed Ressam planned to explode a fuel truck in Montreal he wasn't targeting the trucking industry.

À  (1040)  

    It's wrong to say that the only people with an interest in aviation security are those actually on the airplanes. Given the huge increase in costs for our industry and, frankly, for our passengers, this committee should tell the government it was mistaken in placing the entire cost on users, and there should be a review of that policy decision.

    Secondly, in our view, it is clear that the government made a grave error in making the security charge a tax payable to the consolidated revenue fund. This design makes it extremely difficult for the Department of Finance to change the level of the fee, even though it is already clear that the spending will fluctuate over the next several years as equipment becomes available and threats change. As you all remember, the Minister of Finance made a commitment that he would review the fee in the fall of this year and give consideration to reducing the charge.

    Even if he is able to do that, we cannot expect that to be a regular occurrence. It is inevitable that moneys will accumulate and eventually will be applied to other uses, despite the minister's good intentions. In particular, we believe that over the next year the charge will pour money into the government coffers even though we don't believe it will be possible to spend all that effectively because of delivery schedules and other issues on screening that will need to be dealt with.

    How much better it would have been if the decision had been to allocate the funds directly to the new security agency, CATSA. We would urge that the decision be reviewed again. CATSA would have charged only what would have been needed for its business plan. It would have had nowhere else to go for money so it would have had built-in self-discipline. Since it would have had only one function it could not have accumulated vast surpluses because it would have been a not-for-profit corporation. Moreover, the level of the charge would have been adjusted regularly to meet the clear requirements of the authority.

    There is an example of this model and it works extremely well: it's called Nav Canada. It has been a great success and is internationally recognized. We urge the committee to look at that model and make recommendations to allow CATSA to move in that direction.

    By leaving this charge a tax, the government is committed to a system that is cumbersome, vulnerable to diversion of funds, and intrusive of the decision-making of the new security agency, which has one single purpose: good world-class security for our airports. We recommend that the committee again look carefully at these issues.

    Finally, I would be remiss if I left the committee with the impression that the industry is reconciled to the level of this charge. To put it bluntly, we're not. Today Canada is in the unhappy position of having the highest security charge in the world. We see resistance from passengers already and we anticipate market impacts, particularly in the regional and short-haul markets over the summer. Carriers like Tango, WestJet and others, particularly some of the new entrants you've heard about in the last few days, cannot help but be hurt by these costs. Recently, provincial tourism ministers added their voices to protest the tax and the impact it's going to have on leisure travel. We urge the committee to heed these comments and we urge the government to move as soon as possible to reduce the level of the charge.

    Thank you, Madam Chair.

À  (1045)  

    The Chair: Thank you very much.

    Now we'll move to the Railway Association of Canada. I believe Mr. Bruce Burrows is going to start us off.

    Mr. Bruce Burrows (Vice-President, Public Affairs, Government Relations, Railway Association of Canada): Thank you and good morning. Joining me today is Chris Jones, our director of government liaison.

    Thank you for inviting us to share some ideas about how rail, under a modernized fiscal and regulatory structure that is in harmony with our all-important NAFTA marketplace, could better help Canadians achieve a more prosperous and socially and environmentally sustainable future. Rail can do all of that by getting Canada's products to market faster and cheaper and moving passengers and tourists quickly and more efficiently.

    I say that we will share some ideas because in fact you'll find that our presentation today is rather familiar. We submitted an extensive brief to you back in August on the background issues, and then we followed up with an appearance before the committee on November 1.

    First, I'd like to say a bit about who we are at the RAC. Our 55 members represent virtually all railways operating in Canada today, including the main-line carriers, the more than 40 short lines, intercity passenger, which is VIA Rail, and commuter and tourist rail. Together we carry over 6 million carloads and containers of traffic and over 51 million commuters and intercity and tourist train travellers.

    Canada has seen a rail resurgence in recent years, particularly spurred on by rather proactive measures to deregulate the industry. Our rates to customers are down 35%. We have a rather new continental focus and a dynamic short-line sector. That's relevant because transportation infrastructure that moves Canada's products to market is rather critical to our trading existence as a country, and this means that our transportation costs must be kept low.

    However, a key point I want to make in the context of the resurgence of rail relates to productivity. Most manufacturing and other firms in Canada across the economy have trailed in their ability to fully capture the economic benefits of innovation. There are many reasons for that, particularly on the policy and fiscal sides. In short, they have been slow in adopting new technology and implementing business practices. However, the rail industry has led the way over the last decade, with productivity improvements well above the norm, over 200%. This is because of such things as new locomotives, which are now 40% electronic, reformed labour practices, belt packs to remotely control trains in yards, and other new technologies, such as state-of-the-art management control centres, and EDI, electronic data interchange, which conveys information electronically and very quickly to border agencies for customs purposes. These and other things have caused rail to jump forward over the last decade, but--and this is an important but--we still do lag behind U.S. rail productivity growth and we must do more.

    On the passenger side, we also have seen significant increases in activity. VIA's operating grants, for example, are down 40% and growth is up well over 20% in recent years. VIA recently purchased 21 high-speed locomotives and a fleet of 140 new, state-of-the-art cars are about to come on line. GO's ridership in Toronto, AMT's in Montreal, and the third main commuter service in the country, West Coast Express in Vancouver, have all experienced double-digit increases in ridership. Rail passenger services are reducing urban and highway congestion, greenhouse gas emissions, pavement rehabilitation costs, accidents, and overall noise.

    I would now like to address two themes before turning to my colleague, Mr. Jones, and these are themes that I believe are of specific interest to your committee: the themes of prosperity and quality of life.

    Rail contributes to Canadian economic prosperity in terms of its employment. Combined with our supply sector, we employ over 90,000 people. We contribute over $10 billion annually to the economy. Ninety per cent of the finished auto industry market depends on rail. We have numerous growing partnerships with Canadian ports to maximize the use of Canadian trade routes for North America through Canadian ports. We're a net contributor to government revenue.

À  (1050)  

    On the quality of life side, we have reduced land use and consumption by running over separate, dedicated corridors that are safe, which is important in this new security-conscious environment that we are living in after September 11. We are helping to remove freight and passenger traffic from congested roads where it makes sense to do so. We facilitate economic activity while minimizing the impacts on the environment. We do over 60% of the overall freight business on the surface, yet we produce only 4% of transport GHG emissions. In fact, as an industry we are now virtually Kyoto compliant. Our passenger and commuter rail services give Canadians vast new transport mobility choices.

    So the rail industry is creating great momentum to move forward, but the potential to do more, I would argue, is larger. The rail option remains rather underutilized owing to continued discriminatory tax policies.

    Our vision for the future, which we like to call the 20/20 vision, has Canada developing an integrated, multi-modal, efficient, and sustainable surface transport system. This vision of a better future can be achieved only by righting certain tax policy imbalances. There are essentially three of them: the fuel tax, the capital tax, and capital cost allowance rates. Mr. Jones will speak to these issues in greater detail.

    Mr. Chris Jones (Director, Government Relations, Railway Association of Canada): Thank you.

    Railways are currently paying about $76 million in federal excise fuel tax annually on their locomotive diesel fuel. That's on the basis of a four cents per litre charge. During the 1989-1991 period when the GST was being designed, cascading was identified as the principal weakness of the sales tax system and the Department of Finance advised that with the implementation of the GST this tax would be fully removed from motive fuels.

    Despite that commitment and the more recent elimination of the federal deficit, the fuel excise tax of four cents a litre remains. Railways pay this tax but we receive no roadway benefit, as truckers do, for this fuel tax. In fact, the rail fuel tax proceeds go into consolidated revenue where they're used to build and maintain highway infrastructure used by our modal competition. In effect, railways are paying for the entire cost of their own infrastructure or right of way and, in our view, the federal excise fuel tax is therefore inequitable to rail compared to trucking.

    In terms of our key “asks” on this side, our first one relates to the movement of international rail traffic. Rail generates more than about 55% of its total revenues across borders or in international traffic movements. Since 1986 Canadian marine vessels operating internationally on the Great Lakes have paid no federal excise fuel tax on these international movements, nor is this tax applied to aviation jet fuel which is involved in international traffic. Hence, we believe the government should amend the ships' stores regulations and extend the fuel tax exemption to fuel used by rail in its international traffic.

    Second, we would like to see the government gradually reduce and phase out the federal fuel excise tax on rail, initially moving it to the American number and then gradually matching the American reductions. Just so you know, a current U.S. energy bill brought to Congress recently will result in the total repeal of the American federal excise tax on locomotive fuel over a period of years.

    As we mentioned before, we brought the capital tax side of this issue to you last year. Just to briefly restate it, we view the capital tax as a major disincentive to new investment and a tax on innovation. It penalizes companies for investing in new capital stock and equipment spending. Just to illustrate, rail is the single most capital-intensive industry in Canada at the moment, but in 27 of the 45 years between 1955 and 2000, Canada's railways invested less than the level needed just to maintain their capital stock. We have huge investment demands that are at times difficult to meet.

    Canada is alone amongst the G-7 countries in levying a capital tax on its corporations. We believe this anomaly should be corrected. The B.C. government, for instance, has just recently announced its intention to phase out its capital tax. It was halved in the last budget and the government plans to phase it out entirely within two years. We view this as a tax that is profit insensitive. It can hit companies at the worst point in the business cycle. Also, it fails to discriminate between capital-intensive and non-capital-intensive industries like service sector industries, hitting us harder, obviously.

    On that basis, we would like to see the capital tax removed. At the moment, at the federal level it's costing us as an industry about $14 million. If it were removed, we believe you would see additional investments in our infrastructure, which would generate jobs and so on.

    Finally, I'd like to turn to the issue of capital cost allowance rates, an issue the committee raised in its November report. Again, most of you will be familiar with it, but it's essentially about the rate at which a company can write down the investment in a piece of machinery. The sooner it can do so, the quicker it's able to invest in new technology. Current CCA rates for Canadian railways are considerably lower than they are for U.S. railroads. The annual CCA rate for rail equipment is considerably less than what is applicable to trucks. We're at 15% and they're at 40%.

À  (1055)  

    The vast majority of rail cars are leased, which brings up another issue. Many of the railways lease their rail cars in the United States, where a more advantageous and generous CCA rate regime is in place. This enables those leasing companies that lease rail cars to offer more attractive rates, hence in large part, for economic reasons, the railways choose to lease their equipment in the U.S. That represents a significant loss of revenue to the Canadian industry, both the rental income for the leasing companies and tax revenue for the government. We are currently reckoning that the number for this loss is about $600 million per year. We believe that the capital cost allowance rates should be harmonized with those of the U.S. so that we stem this flow of lost income.

    To mention one more point, the recent U.S. economic stimulus package passed in March has provided a bonus first year depreciation of 30% for rail assets. This will have the effect of widening the gap between Canada and the U.S, so this is something that we believe the government should act on fairly quickly.

    Just to restate, our objective through these three tax measures is to offer lower rates, essentially, and to engage in further reinvestment in our industry.

    Thank you.

    Mr. Bruce Burrows: Just very quickly, this has been an exciting time in some ways for the rail industry. Fundamental changes over the past few years have been innovative and productive. We have moved away from an environment of losses, from an environment of regulation, to what is now a market driven environment.

    However, we also spoke today about a vision for the future. I ask you, what will be needed to keep us on this road to a brighter future that also speaks to a multi-modal, sustainable, and efficient vision?

    Our presentation today is fundamentally about climate, I would say, and by that I mean creating the right climate for investment, creating the right climate for the adoption of more innovative equipment. Progress in the three areas just outlined by Mr. Jones will encourage the deployment of new, energy-efficient and productive assets for rail as a fundamental sector that serves Canadians and their economy.

    At the beginning of the 21st century, and as Canada begins to assert itself with its trading partners, particularly in the context of NAFTA and around the globe, now is the time to get our fiscal environment right and to attract the needed investment that will help Canada address its innovation challenges.

    Thank you.

Á  (1100)  

    The Chair: Now, Mr. Lantz from the Shipping Federation of Canada.

    Go ahead, sir.

    Captain Ivan Lantz (Interim President, Director, Maritime Operations, Shipping Federation of Canada): Thank you, Madam Chairman, members of the committee and colleagues.

     I would like to thank the committee for having invited the Shipping Federation of Canada to testify here this morning. The federation is particularly honoured to be able to represent the shipping community here today since as a general rule, this community speaks through several different associations, representing various regions and specific areas of business.

    The federation covers all of eastern Canada, from Newfoundland and Labrador to the Great Lakes, including Hudson Bay. The federation operates in the area of international commercial shipping, including international cruise or goods vessels.

    There is consensus on the majority of the pre-budgetary recommendations put forward by the federation among the various bodies representing the shipping industry in Canada. The federation has a two-pronged message for this committee this morning. Firstly, the upcoming budget must cover security issues, which now explicitly include maritime border security. Secondly, now that the initial shock of the events of September 11 has died down somewhat, it is time to look at the long-term thrust of transport policy in Canada.

    On the issue of security, we support the recommendations put forward by this committee in its latest report. Security has become a prerequisite for economic growth and represents a type of social capital, which is a major component of the national economy. Maintaining the conditions necessary for the economy to operate effectively enables Canadians to go about their business.

    Over the past few months, developments in the area of security in both North America and abroad have increasingly focused attention on maritime borders. You have perhaps heard about the potential disaster scenario put forward by an American senator. According to his description of events, a nuclear bomb would arrive concealed in a container aboard a vessel. This bomb would then be set to explode while the container was being transported over land.

    The management of maritime borders raises specific challenges, particularly because of the huge volume of traffic. Over 60% of Canada's international trade is by sea. This percentage rises to 94% for trade with nations other than the United States. Indeed, over 50% of goods loaded or unloaded at Canadian ports is destined for U.S. markets. This requires a whole multifaceted transportation chain. Ensuring the security of maritime borders without hampering the flow of goods will require all stakeholders involved to put their shoulder to the wheel. Funds will also have to be made available for port security and for the creation of shore-based AIS receiving stations. In the near future all international cargo vessels will be required to carry AIS equipment.

Á  (1105)  

    It should be pointed out that the key to border management is the multi-departmental assessment of advanced information provided by ships. The federation believes that it would be logical for all the advanced data requested by the various departments for ships approaching Canadian coasts to be transmitted to a single communication system. This current system is made up of a network of radio stations and in the near future, this information will be transmitted via the Coast Guard's AIS system.

    The cost associated with setting up this communication system should not come out of the Coast Guard's operating budget, but rather from the government's overall security budget, since the identification and the positioning of ships and the advanced transmission of information on these ships including cargo, crew, passengers and stowaways, are key components of the risk analysis process.

    If oil rigs were to be attacked, in an attempt to destabilize the North American energy supply, the environmental, social and economic repercussions would quite simply be disastrous. In our view, this case in point clearly shows that the Coast Guard's communication network does indeed work to ensure public safety.

    The coast guard is Canada's universally recognized image in our waters. The aging fleet we now present to represent Canadians' security and sovereignty over the Arctic, the Great Lakes, our fishing grounds, and our oil resource fields has to live up to the expectations of Canadians and the world.

    As vitally important as security is, the government cannot continue to focus exclusively on this subject at the expense of other fundamental issues, which must be addressed in order to meet important long-term planning challenges within the transportation industry. All the stakeholders present today are highly interested in the effort to develop the transportation blueprint announced by the Minister of Transport some time ago, which will guide the government's transportation decisions for years to come.

    It is about time to realize that the shipping industry and the shipping infrastructures represent an essential asset to this country. Who actually knows that the marine mode is the most used mode in Canada in terms of volumes carried, that it alone carries nearly as much as all the other modes combined, that it is the most economical, the greenest, and the safest mode, and that it could carry much more with very few marginal costs? Do you think that such information is relevant in the long-term planning of Canada's transportation policy?

    In order to ensure that the minister's policy decisions in this respect are based on the most current and relevant information available, at least as far as the maritime industry is concerned, we believe that the government should provide financial support for two important initiatives, namely, the proposed study on the economic benefits of the marine industry, the marine economic benefits study, and the United States Army Corps of Engineers' ongoing study into the long-term infrastructure needs of the Great Lakes-St. Lawrence navigation system.

    Within the same context of long-term planning, we believe it is important to ensure the maintenance of ports infrastructures that are under Transport Canada's public ports divestiture program. Without adequate maintenance, the survival of some of this infrastructure will be called into question, which will ultimately result in the loss of transportation options within the marine mode and the loss of tools that are currently used to promote the economic development of certain regions.

    Our third and final set of recommendations on long-term planning focuses on the chronic underfunding faced by the Canadian Coast Guard, which creates a variety of problems for users of coast guard services. As far as commercial users are concerned, the department's consistent budgetary shortfalls make it increasingly unlikely that the industry will succeed in concluding a long-term agreement with the coast guard on user fees, since any cost savings in the provision of services are used not to reduce the cost recovery fees but instead to whittle down the coast guard's overall deficit.

    As far as others in the Canadian public are concerned, the chronic underfunding of the coast guard's budget seriously compromises levels of service in the short term because the agency has insufficient funds to make the necessary investments in equipment and infrastructure.

    Key to our submission is the very fact that Canadian routes are competing against U.S. routes for U.S. markets, and this Canadian multi-modal transit route is vulnerable, both in terms of costs and in terms of delays. We explained in our brief how delays for security clearance at whatever stage of the Canadian multi-modal transportation chain can jeopardize the competitiveness of this whole chain versus the U.S. competing modes. The coast guard's current cost recovery policy is leading to similar disastrous consequences on the competitiveness of the Canadian routes vis-à-vis American routes in terms of costs.

Á  (1110)  

    Besides, the less marine traffic there is, the more user pay there will have to be to make the targets. The less competitive the route becomes, the more marine traffic diverts. This is a vicious circle and it impacts on the shipping industry, Canadian shippers and receivers, and the Canadian multi-modal transportation chain. It is time to address these issues.

    Those, then, are our major recommendations to the committee, the substance and details of which can be found in our written brief.

    I thank you for your attention and would be pleased to answer any questions you may have, with the assistance of my colleagues from the federation, Mario Minotti, our director of economic analysis, and Anne Legars, our director of policy and government affairs. I'll take this opportunity to mention that should the committee need additional background information, please write us. We'll answer your questions at any time.

    The Chair: Thank you very much for that presentation.

    Now we are very pleased to hear from the Canadian Trucking Alliance, with David Bradley, the chief executive officer.

    Commence your presentation as you wish.

    Mr. David Bradley (Chief Executive Officer, Canadian Trucking Alliance): Thank you very much, Madam Chair and members of the committee. I guess it falls to me to bat cleanup today, which is a position that anyone would like to be in.

    First, I would just like to say that it seems like only a matter of weeks since we were all together discussing the run-up to the December budget. We will be providing you with a comprehensive brief in the weeks ahead.

    I'll try to keep my remarks brief. We're going to focus mainly on fiscal instruments to achieve environmental objectives, but before I do that I'd like to talk about a couple of issues, the first being industry conditions. I think it's important to hear about what's happening in our industry, because trucking is a good leading indicator of economic activity. Trucks haul 90% of all consumer products and foodstuffs in the country and 70% of Canada's trade by value with the United States, so we're usually a pretty good reflection of what's going on. Certainly business levels are up compared to six months ago. It's still somewhat choppy, but as the weeks go by and as we head further into spring, the recovery appears to be more broad-based. There are certainly activity and freight to be had.

    Major economic issues impacting upon our industry right now centre on: the rising costs of equipment, such as new tractors and trailers; the persistently high cost of fuel and the question marks that surround it going forward; and finally, some astronomical increases in insurance, which in large part are a reflection of the decimation of the reinsurance market after September 11.

    September 11 and the events following it still hang like a pall over our marketplace, a pall that crosses borders. We have our security budget now and I don't want to spend a lot of time on it, other than to repeat that we continue to need, and the federal government continues to pursue, bilateral solutions at the border with the Americans. I think that's extremely important. There appears to be some progress. The key will be to keep the Americans at the table and their hands tied on some of this. Also, we need infrastructure investments and by that I mean investments in our major trade corridors, our rivers of trade for the 21st century.

    I don't want to digress too much on this, but a point was raised in one of the previous submissions about the excise tax on fuel. I do agree that it's something that should be woven in with the goods and services tax, but just to be clear on how much the federal government is or isn't spending on highways, Canada remains the only major industrialized country on the planet not to have a national highways policy. While Canadian motorists and truckers pay $2 billion a year in federal excise tax on gasoline and diesel fuel, the four-year infrastructure program right now is at $150 million a year, so I don't think it's really fair to say there's a balance in that equation. We'd like to see that addressed.

    I would like to raise one issue on behalf of the truck drivers, because they have difficulty in coming to these sorts of forums. This is a long-standing concern, which we've raised at many previous presentations like this one. In the federal budget in 1994, a change was introduced to the allowable meal deductibility--a tax deduction for meals--for income-tax purposes. It was lowered from 80% to 50%. The stated reason for the change at that time was to bring the Canadian federal system more in line with what was going on in the United States, where in fact the same thing had been done. However, under rules passed in 1997 and revised again in 1999, the U.S. meal deductibility rates will be restored to 80% by 2007.

    Truck drivers, unlike a lot of other workers, don't have a lot of choice as to when and where they stop to eat. Hours of service regulations often dictate when they stop and the availability of parking spots that can accommodate trucks impacts upon where they stop. We're really talking about subsistence here. We're not talking about lavish client entertainment or personal dining experiences. Many Canadian truck drivers are spending a considerable amount of time in the U.S., and they're paying in U.S. dollars. This is in stark contrast, I must say, to federal government employees, who receive a daily compensatory tax-free allowance of $61.50 to cover the cost of meals and incidental expenses while travelling on government business. It's interesting, because I seem to pay for a lot of those meals and I don't know what happens to the deduction.

Á  (1115)  

    I'd like to spend the rest of my time trying to address some of Canada's environmental challenges and to outline how fiscal measures could play a positive role in advancing the environmental agenda.

    Traditionally, public policy has sought to address environmental issues through regulation. Just recently, Environment Canada introduced regulations governing the emissions from heavy truck diesel engines and heavy truck diesel fuel. These changes will produce staggering reductions in smog-forming emissions of nitrogen oxides, volatile organic compounds, or VOCs, and particulate matter. These contribute not only to smog but also to respiratory illness. In fact, we're going to be looking at reductions of over 90% in each of those emissions by the 2007 model year, so that's within five years.

    Of course, every picture is worth a million words, and I've distributed a chart to you that shows the regulated mandated reductions in those emissions from the heavy-duty diesel trucks. There's no varying from this. This is the law in Canada and it harmonizes with the law in the United States. However, clean air doesn't come cheap. To achieve these tremendous reductions, trucking companies will incur significant operating and capital cost increases. The United States Environmental Protection Agency estimates that this could add up to $20,000 to the cost of buying and operating a truck.

    Fuel consumption--this is important in the context of Kyoto--will increase by as much as 5% again, according to the EPA. These changes begin to take place with the model year commencing on October 1 of this year, just a couple of months away. Not unexpectedly, therefore, there's been a frantic pre-buying binge, where companies, in order to try to beat these increased costs, are buying current models like they're going out of style. We think the time is right for the federal government to consider the use of fiscal instruments to speed the introduction of newer, cleaner technology into the vehicle fleet and to accelerate the penetration of those vehicles into the fleet by attenuating some of these costs that flow directly from this regulation.

    Fiscal instruments should never be seen as a replacement for regulation, but we believe they should be looked at as a means to support it. The National Round Table on the Environment and the Economy is beginning to look at these things. We see great potential in various approaches, whether it's tax credits, rebates, fee-bates, or accelerated capital cost allowances. We share the same issues with some of our friends from the other modes in terms of our competitiveness on the CCA side compared to Americans. We've raised this in the past.

    However, recently the Department of Finance has asked us to look at class 43.1 of the Income Tax Act, which provides for accelerated write-offs for emerging environmental technologies, presently limited to power generation, to see whether there would be application in modes like ours. We believe there certainly would be, and we believe that if we could have an enhanced CCA through class 43.1--there would have to be some amendments to class 43.1--that would be ideal.

    What we want to avoid is the same sort of pre-buy situation in late 2006 that we're experiencing now. If you look at the chart, you will see that the 2007 model year engines are the next generation of pollution-reducing vehicles. We don't want to be overly prescriptive at this time as to how to achieve this objective. Again, whether it's through tax credits or CCA rates, we would be quite happy to have that discussion.

    In terms of some other measures, we have consistently supported the federal agenda on cleaner engines and fuels. Indeed, we're the only mode to have such regulation at the present time. We're being challenged with contributing to cleaner air at the same time we're being challenged to reduce our greenhouse gas emissions linked to global warming.

Á  (1120)  

    We're certainly committed to doing our part, but the emissions/fuel efficiency trade-off is a limiting factor, and that has to be understood. Therefore, we would encourage the committee to also examine the use of fiscal instruments for add-on equipment designed to improve fuel consumption and reduce greenhouse gas emissions. In fact, in Minister Anderson's recent discussion paper on Kyoto, he spoke of anti-idling devices, for example.

    The Argonne National Laboratory in the United States has observed, “Market acceptance in the trucking industry of any of these technologies would have to be augmented by appropriate government incentives.”

    In conclusion, the message to the committee, therefore, is that there is a great potential, we believe, to use fiscal instruments to buttress environmental regulation. A fiscal incentive whose ultimate impact will be cleaner air and lower health care costs seems, in our view, entirely appropriate.

    Thank you very much.

    The Chair: Prior to beginning questions, you've given us this wonderful chart but we're not all experts in the acronyms of your language. Would you just take a second on it? I know people were struggling with this.

    Mr. David Bradley: Yes. This shows the regulated emissions from heavy-duty truck engines for the major emissions that cause smog and that contribute to respiratory illnesses such as asthma and those kinds of things; in the case of particulate matter, they have been linked to lung cancer as well. What you see if you follow the lines is that since the 1970s the emissions from heavy-duty truck engines and heavy-duty truck fuels have been mandated to come down significantly. For more recent events, starting with 2002, in the fall of this year, you will see that by the 2007 model-year engines--so we are looking at five years away--we will virtually eliminate those emissions.

Á  (1125)  

    The Chair: Perhaps I'm not being as clear as I should. I don't know what PM--

    Mr. David Bradley: PM is particulate matter.

    The Chair: Yes, and NOX--

    Mr. David Bradley: --is nitrogen oxides.

    The Chair: Okay. And HC means hydrocarbons?

    Mr. David Bradley: Yes.

    The Chair: Okay. That's fine.

    Mr. David Bradley: We are the only mode on the freight side whose engines and fuels are regulated to this at all, quite frankly. Therefore, the sooner we can get this newer equipment in the marketplace--because you do have to replace what is out there now--you will be able to say in the not-too-distant future that smog and health-related emissions from heavy-duty diesel trucks will not be a problem. How soon is really up to the federal government, if it wishes to assist us.

    The Chair: Thank you for the clarification.

    Mr. McNally, you have ten minutes.

    Mr. Grant McNally (Dewdney—Alouette, Canadian Alliance): Thank you for your presentations, all of you. You have given us a lot of information today. I would like to start by talking about the air travel tax that Mr. Mackay began with.

    You mentioned two points, one being there is too much burden on the consumer, the traveller, with 100% of the cost going on the traveller. You thought this money should not go into the consolidated revenue fund. I think your words were that those dollars were vulnerable to diversion of funds, or in other words, those dollars were not going to the intended use of security. You gave us some other examples of systems that work. The airport improvement fee that's paid at many airports is, I would imagine, somewhat similar. Those dollars are collected per traveller, but those dollars, all of those dollars, go directly back into enhancing the airports the travellers are departing from. Is that a model you would also say is working? Maybe that is what you were referring to under Nav Canada.

    Mr. J. Clifford Mackay: It's one of the models. The model Nav Canada uses is even more direct. It provides air navigation services. It has a costing methodology that is transparent and agreed to by the industry, and that is the basis for charging for its service. It sends a bill to everybody who uses its services, on a monthly or annual basis depending on the kind of arrangements it has.

    The airport improvement fees are slightly different. They are very specifically earmarked, only for capital projects, only at that airport. We, the airline industry, have a contractual arrangement with the airport industry, because we help them by collecting it. Part of that contractual arrangement is that the airports sign up--and it's audited--to using those moneys only for those purposes.

    Both of those models are possible. I would suggest that in this case, because you are dealing with a national service, the Nav Canada probably is a better model because it's a national model as opposed to an airport-specific model.

    Mr. Grant McNally: Okay, so in that system the dollars are audited. There's value for money. It's going directly to the intended purpose the dollars are collected for. It would seem to me that this would be a model the government would want to take on when implementing this travel tax on travellers, to do the same kind of thing.

    Another concern for me and for many of my constituents is that they must take more than one carrier to get to a final destination, so they're paying that tax more than once. For example, if they' re leaving from a smaller airport like Abbotsford in the Fraser Valley via WestJet to connect through Calgary and then fly Air Canada from Calgary to Toronto or another destination, they're in essence paying that tax twice on the way out and twice on the way back, in many cases adding an enormous cost to the ticket, and, I would imagine, hampering your industry greatly.

    Mr. J. Clifford Mackay: We're concerned about that. I'd ask my colleague, Mr. Everson, to speak to that subject. This is an issue we've been trying to find a solution to, working with tax officials, and frankly, we don't have a satisfactory answer to that problem.

    Mr. Warren Everson (Vice-President, Policy and Strategic Planning, Air Transport Association of Canada): It's a challenging issue. What happens is that if you buy an airplane ticket for travel from one carrier or from the same airline alliance, then everybody involved knows what your journey is and then they can levy this charge just one time, which is what the legislation intends. If you make purchases from different air carriers and they're not related, such as Westjet, Tango, Air Canada, or Jazz, then there won't be any connection. Nobody can prove that this is all part of the same journey so everybody levies the charge on you, as they're required to do.

    Now, that was not the intent of the law. Finance Canada freely acknowledges that they are quite dismayed by it. We suggested that the first thing they ought to do is set up a rebate system. A consumer can come back to them and say, “I can prove that it was part of one journey, I have my travel records, and give me my money back”. They don't want to do that because they think the administrative costs would be excessive in relation to the rebate, and I see their point.

    We've put that on our list. We have about seven or eight quite pressing technical issues that we have to keep working on this summer, and we'll be sitting down with others on it. I'm not sure how we're going to do it. Probably it will relate to some obligation or service the travel agency intermediary can provide to keep a proper record and justify the rebate, but I don't know how that's going to solve the problem of Internet sales, where your relationship is private and intimate to the service provider. I don't know what we're going to do there.

Á  (1130)  

    Mr. Grant McNally: It certainly seems to be another example of something that wasn't very well thought out in its implementation. As a result of that, the unintended consequences are bearing directly on the consumer, the taxpayer. The unintended consequence--and I'm assuming it's unintended--is that the revenues go into consolidated revenue. They can get collected more than once, which was not the intention of the plan, and the end losers are really two, I guess: the industry and the consumer.

    The impact that has on the economy is crippling. It's just another frustration from the bad implementation of a tax, and I wouldn't hold out any hope it will ever be reduced, not even once. In the fall Mr. Martin said he was going to re-examine it, but once a tax comes in around this place, it doesn't often disappear, not very easily.

    I'd like to ask Mr. Burrows something.

    You mentioned West Coast Express. I think Mr. Jones was talking about commuter rail. That is in my riding. It starts in my riding and goes through Mission and Maple Ridge into Vancouver. There's a bit of a controversy right now on right-of-way rates with West Coast Express. Back in 1995, when the provincial NDP government was in place, they made a bit of a sweetheart deal with CPR and gave them a lot of money for these rights-of-way. As a result of that, the users of that system are paying huge amounts of dollars as a tax, almost the reverse of what's going on with the airport tax. This one happened because CPR made a good deal with a bad government at the time--

    An hon. member: Ahem.

    Mr. Grant McNally: Sorry, Lorne, but it's true. They simply gave them way more than they needed to and now the consumers are asking CPR to reconsider that.

    Just as a suggestion, it might be a good-faith way on CPR's part to garner support with the public. They've signed a good deal, but the end loser is the consumer. The price of a ticket is way more than it should be.

    Mr. Bruce Burrows: I understand your point. I think it's hard for us to comment on the specific commercial arrangements that are negotiated, for various reasons, between two parties. In this case, you mentioned the NDP government. They presumably had various needs at the time that had to be addressed--

    Mr. Grant McNally: Yes, getting re-elected was one of them.

    Mr. Bruce Burrows: --and they were addressed.

    I can say, too, that CPR is doing its best, I think, to service that business in as many ways as it can. There are a lot of factors that go into creating the best service, because it's not only investment, it's also service lots and so on. All of those things together create a package.

    Mr. Grant McNally: I don't want to put you on the spot. It is a good service. I used it before I was elected. I was a teacher and I used it every day. It's a great service.

    Mr. Bruce Burrows: Yes, and it's a growing service. That perhaps is the best indicator that it's working--

    Mr. Grant McNally: But if the costs could be lower for the consumer, I believe you'd see an even greater increase in travel on West Coast Express, for sure.

    Mr. Bruce Burrows: Just to close on that point, I think one thing to keep in mind with commuter service, particularly when you're looking at substantially higher levels of service, is that a tremendous of investment is required to create that service. People tend to under-appreciate how capital-intensive the rail industry is. It is the most capital-intensive industry going. Up to 20% of revenues in any year have to be put back into the plant. In average manufacturing concerns it's 3% to 5%. You might get up to 10% in the mining sector. I think that is an under-appreciated fact.

Á  (1135)  

    Mr. Grant McNally: My last question will be about the fuel taxes.

    Mr. Bradley, you were saying $2 billion is raked in on the federal excise tax on fuel and $150 million goes back into infrastructure.

    Mr. David Bradley: I'm sorry. The number is actually closer to $6 billion a year.

    Mr. Grant McNally: Wow.

    Mr. David Bradley: I was thinking of one of the provinces when I made that statement.

    The only real highway infrastructure program--or I should say transportation; it's not clear what would go into highways--was announced two budgets ago, I think, by Paul Martin. It was a $600 million program over four years, commencing in 2003, I believe. When you look at the equation, which is $6 billion a year versus $150 million a year, it's really a spit in the bucket.

    If you compare that to the United States, on the other hand, and their transportation efficiency act, they're mandated by law, over virtually the same period of time, to spend $300 billion Canadian on their infrastructure, the vast majority of which goes into the interstate highway system.

    In Canada, we don't have a national highway policy. That's still left to the provinces. I can tell you, taking Ontario as an example, that what the trucking industry pays in diesel fuel taxes and commercial vehicle registration fees is almost identical to the entire provincial highway management budget of the Province of Ontario, for capital and maintenance. Somewhere along the line we've begun to neglect that infrastructure.

    The Chair: Thank you.

    Mr. Loubier.

[Translation]

    Mr. Yvan Loubier (Saint-Hyacinthe—Bagot, BQ): I would like to begin by looking at the air transportation industry. Consequently, my question is for Mr. Mackay and Mr. Everson.

    I agree wholehearted with you when you say that the new airport security tax is completely outrageous. From the very outset, we have been saying that this was a ridiculous decision, and that it amounted to poor fiscal policy, which could have far-reaching consequences. On the one hand the Prime Minister was telling Canadians to start flying again after the September 11 attacks, and to get on with their lives, to take full advantage of their freedom and to keep the economy functioning normally, but on the other hand, his government was applying a major tax on air travel.

    As you said earlier, even Air Canada has racked up losses of 1.2 billion dollars this year. Indeed, most airlines throughout the world, especially here at home, seem to be experiencing the same fate.

    Mr. Mackay or Mr. Everson, could you tell me whether industry has already begun to feel the impact of this new tax, which has been added on top of already existing taxes, adding to the already sizable burden placed upon the airline industry in Canada? Are we already beginning to detect the repercussions that were bandied about three months ago, when the idea of this new tax was first launched? Are the effects already evident?

[English]

    Mr. J. Clifford Mackay: It's still early. That's the first thing I must say. The tax has been with us now only about seven weeks, going into its eighth week. It's early. All I can give you at the moment, sir, is some anecdotal information. I can't give you very hard analytical information yet, but I will give you just a few examples.

    We have seen a significant drop in short-haul traffic in what is called the triangle, the Montreal-Toronto-Ottawa area. One carrier said to me not long ago that they saw a 10% drop in traffic in one month. We think what's happening is that passengers are shifting to other modes. They're going by rail or they are deciding to drive. I can't tell you how much of that is specifically as a result of the charge, but I'm sure the charge is part of it. It may also be the increasing uncertainties that the new security measures are creating at airports, the wait times and that sort of thing.

    I suspect it is a combination of those things,but we're seeing those things happening right now. We haven't had a long enough period yet to be able to understand how serious that will be.

    Secondly, out west we've had a number of smaller operators tell us they are seeing differences in their traffic volumes, again, particularly where they are charging the fee but the level of service is relatively modest or minimal and the overall price of the ticket is fairly small. Of course the smaller the price of the ticket, the more impact the charge has on the passenger from a proportional point of view. We are starting to see some of that.

    Over the summer months, we intend to stay in touch with our members and gather as much information as we can on these issues so that hopefully we'll be in a position to discuss them with the Minister of Finance in the fall. We are pretty confident, though, that particularly on short-haul routes and with discounted or cheaper fares we are seeing an impact already.

Á  (1140)  

[Translation]

    Mr. Yvan Loubier: Rest assured, Mr. Mackay, we intend to support your demands and to fight with you to repeal this tax, which at the end of the day, does not make sense, and which seems quite misplaced in terms of the current needs of industry.

    I have one question for the Railway Association of Canada. One of your main proposals is to increase capital cost allowance rates. This suggestion raised a question in my mind. What would warrant the rail industry having a higher capital cost allowance rate than other areas of the transportation industry?

[English]

    Mr. Bruce Burrows: In fact, if I may answer that question, the problem is that our CCA rates are a lot slower than those of all the other modes and of our U.S. competitors, so we are looking for equity. We're looking to have them speeded up so that they then would be equitable with the other modes.

    I guess we could call this asking for competitive CCA rates. This is critical because it will provide incentives to purchase the latest and most fuel-efficient locomotives. We buy the best locomotives we can, but there are only two manufacturers, one in London, Ontario, for the North American market, and one in Fort Erie. Also, in international traffic, we are using locomotives that are EPA compliant.

    I guess the key point here, the reason why I say it's critical, is that users of rail, passenger or freight--and we talked about modal shift to rail a moment ago, which potentially is a good thing--can benefit from its fundamental fuel efficiency. That's based on two key factors. One is the fact that we have a very low rolling friction of steel wheel on steel rail, and second, we are able to couple a vast number of passenger or freight cars behind just one or maybe two locomotives. That's what has led Environment Canada to say just in January of this year that rail transport boasts the lowest greenhouse gas inventory of all the modes.

[Translation]

    Mr. Yvan Loubier: Madam Chair, I have one last question for Mr. Lantz.

    Recently, the director of the port of Montreal told us that only a very small number of containers arriving at the port of Montreal and which then continue their journey by road, are inspected. I don't recall the exact percentage, but it seemed to me to be terribly low. In light of the security issue and the fact, as you stated earlier, that often cargo begins its journey by sea but is then taken by other means to United States or elsewhere in Canada, don't you think then that funds given over to security and container inspection should be increased? This is especially the case since as the director of the port of Montreal told us, the sample inspected is very low. If I remember rightly this figure was somewhere around 3 or 4%. Perhaps you can give me a more exact figure. I've even heard talk of 2%. That's even worse. Don't you think that we should try to increase the sample percentage? I don't think that 2% represents a significant sample.

Á  (1145)  

    Capt Ivan Lantz: Customs officers at the port of Montreal have an inspection target of approximately 2% of all containers.

[English]

    They inspect about 2% of the containers arriving at the Port of Montreal destined for wherever. Recently, about one month ago, I think, inspectors also arrived from United States customs.

[Translation]

    American customs officers are now working in the port of Montreal.Recently,customs announced that it intended to buy X-ray or gamma ray equipment, in an attempt to increase inspection rates. Indeed, if I'm not mistaken, customs intends to buy three such machines.

    Mr. Yvan Loubier: What is the world standard then? In the United States, for example, I would imagine that customs there inspect more than just 2% of containers.

    Capt Ivan Lantz: No, the figures there are much the same as here.

    Mr. Yvan Loubier: Really?

    Capt Ivan Lantz: Indeed.

    Mr. Yvan Loubier: Even in the wake of September 11?

    Capt Ivan Lantz: Yes. They have significantly increased staffing levels. U.S. Customs intends to increase the inspection percentage also.

[English]

    Ms. Anne Legars (Director, Policy and Government Affairs, The Shipping Federation of Canada): I would just like to complement the answer.

[Translation]

    Indeed, we have come to the conclusion that it will never be possible to inspect all containers. There are far too many of them. Consequently, the philosophy behind border management, be it a land or sea border, is to analyze advance information so as to focus human resources and technology available to us on known or suspicious cargo and to let the rest that we're sure about through. That's what we're trying to do. We're moving towards a technological solution, but one which will take some time to develop. This approach is based on information analysis rather than on the physical inspection of containers, since it is physically impossible to monitor all cargo.

    This is why our brief focuses on funding facilities which will enable us to deal with the advance information provided by vessels to various federal departments and agencies, such as customs, immigration, transport and the Coast Guard. We will be asked to provide diverse information, based on the different mandate of each federal department or agency. Then, the departments and agencies will analyze this information, in an attempt to focus their port inspection activities on unidentified or suspicious cargo.

    However, if we are to be able to gather this information from vessels, we will need specific technology. Consequently, one of our recommendations is for the government to invest in this new shore-based AIS technology, since vessels will be required to have AIS equipment on board by 2003. The rest of the world and indeed the rest of North America will be required to obtain this equipment by 2004. It's all well and good that vessels provide advance information, but we need to have the facilities to be able to receive and process this information. Consequently, this is where investment should be focused, because we will never be able to go through all those containers arriving in Canada with a fine tooth comb. It's just physically impossible.

    Mr. Yvan Loubier: Thank you.

[English]

    The Chair: C'est tout?

    Ms. Guarnieri, please go ahead. You have ten minutes.

    Ms. Albina Guarnieri (Mississauga East, Lib.): I understand that my colleague, Mr. Murphy, has questions for the Air Transport Association of Canada, so I will restrict my questions to Mr. Bradley of the Canadian Trucking Alliance.

    I commend the work you and your organization have done to provide the government with excellent advice to improve our competitiveness. Your past recommendations on improving speed and security at the border, as well as your request to accelerate the capital cost allowance for the purchase of newer and cleaner engines, are certainly measures I support and which the government needs to take seriously.

    Starting with the issue of border security, you probably have seen that Canada Customs reported yesterday that there is no delay for commercial vehicles crossing the border in either direction. I believe they highlighted that, with the exception of the Windsor crossing, there are no delays nationwide. Has that been your recent experience? If so, how do you account for the disappearance of the lineups of earlier months?

Á  (1150)  

    Mr. David Bradley: Certainly, we've not experienced anything like the days immediately following September 11. I think the way to characterize it is not that the delays have disappeared, but the delays are back to what they were on September 10. Let's keep in mind that there were problems at the border prior to September 11, so we're still losing efficiency and productivity at the border.

    The issue with Windsor is that it is the planet's largest gateway for trade, so to say “everything but Windsor” is really sort of shooting ourselves in the foot.

    The major reason why we're seeing the delays back to where they were prior to September 10 has to do with two main factors. One is that the U.S. has invested in enforcement personnel at the northern border. Over the last number of years, they had shifted people from the northern to the southern border. Now they've made arrangements with the National Guard, etc., so those inspection officers are there. Over the longer term, that's not what we want anyway because more inspectors mean more inspections, which mean more slowdowns. The other thing that's happened is that car traffic across the border has slowed significantly. That has freed up capacity for the trucks.

    Anything that would tamper with that equilibrium--a pickup in economic activity, a pickup in tourist traffic and the like--would put us right back where we were before. We need a long-term solution. Trade has doubled between the two countries over the last 10 years. It's expected to double again over the next five or six years. We have an opportunity here to come up with a true bilateral solution. In fact, as I said in December, I think that Canada is well out in front of the Americans in terms of the use of automated pre-clearance systems. What we need to do is convince the Americans of the veracity of these programs, but if you take Windsor as an example, you could have all the pre-clearance in the world but unless we fix the road infrastructure leading to the bridge, we're not going to accomplish a whole lot.

    Ms. Albina Guarnieri: Thank you for your insights. It's obvious that we have to be vigilant and we have a lot of homework to do.

    Moving on to the capital cost allowance proposal, one of the interesting facts about the Canadian trucking industry, as I understand it, is that it is one of the few Canadian industries that competes for U.S. domestic business against very local American companies. In fact, I'm told that more than half of all Canadian long-haul trucks are physically in the United States at any one time. It would be clear to us that we can't expect Canadian firms, with 6% profit margins, to continue to compete successfully with American companies and carry the bulk of Canada-U.S. trade while suffering a higher tax burden.

    In one of the past briefs you presented to us, you indicated that U.S. companies could depreciate their investment in new trucks faster than the Canadian tax rule permits. What do you think this tax gap costs the typical Canadian carrier? Do you have any further evidence that Canadian trucking companies are following the example of the auto parts industry and delaying capital investment that might improve cost efficiency in the long term?

    Mr. David Bradley: Certainly the facts as we understand them would suggest that in the United States they are typically able to turn over tractors about once every three years. That allows them to keep the equipment solely during the period of warranty, so there are no preventative maintenance costs or any of those sorts of things. Then they sell them, either domestically or, for a lot of them, offshore.

    In Canada, we typically hold on to our tractors for anywhere from five to seven years, so we are extended out beyond the warranty period. As well, from a broader social policy point of view, we are unable to get the newer, cleaner, safer equipment into the marketplace as quickly as we could. It all comes down to preventative maintenance at the end of the day.

    I'm an extremely proud Canadian and I would say that this is the side of the border to be located on. I would not say, for example, that overall, if you look at dollars in and dollars out, we are at a tax disadvantage, because when you include the health care and social security costs that the United States employer pays, they are astronomical. In terms of our ability to innovate, because we have smaller fleets--the top three U.S. trucking companies are the size of the entire Canadian industry--we need to have some advantages as well, just as I think our economy needs to have them as well.

    So while I'm all in favour of equalizing CCA rates, at the same time I don't think we should just accept a level playing field. We don't have the economies of scale to compete with them one-on-one from a cost perspective. They buy their equipment more cheaply. They are able to buy their fuel more cheaply simply because they buy in larger quantities than we do.

Á  (1155)  

    Ms. Albina Guarnieri: My last question, Madam Chair, relates to apprehension about the government's Kyoto strategy.

    You have often made the point that 70% of imports and exports travel by truck and that the only way to reduce the volume of truck cargo is to chill the economy into a recession. You were saying today that new engines have reduced emissions by 83% in a decade and that new anti-idling technology could save half a billion gallons of fuel a year. This all depends on how fast trucking companies get rid of their old, inefficient, polluting vehicles.

    You've talked about incentives to buy new vehicles, but often they go into fleet expansion rather than replacement. What kind of scrappage incentives would be necessary to ensure that fleets can get their old trucks off the road while remaining competitive with U.S. companies?

    Mr. David Bradley: It's true: if you replace a new vehicle and the old vehicle just ends up in service somewhere else, what have you accomplished? In fact, one of the measures that the transportation table on climate change looked at was scrappage programs. Unfortunately, it didn't make it into Minister Anderson's discussion paper, but there are examples. In California, they do indeed provide some financial incentive to take that vehicle and scrap it so that it doesn't just end up back on the market or in the third world.

    There's a point that I think it is important to raise with regard to GHG. It's true that the solution to greenhouse gases is burning less fuel--it doesn't matter if it's a train or a truck or an airplane--and you can do that in one of two ways. You can slow down the economy so there is less economic activity or you can try to make those vehicles using the fuel more efficient.

    The conundrum we have here is the paradox in the pursuit of reduced emissions of those things that make people sick and cause smog and GHG. As I've said, the solution to GHG is increased fuel efficiency. However, in the new mandated reductions in the nasties, let's call them--which we fully support--it has to be recognized that there is a fuel efficiency penalty associated with that technology as well. I don't think that from a policy perspective we've reconciled that in Canada. It seems we want to have our cake and eat it too.

    Maybe we should want to have our cake and eat it too, but I think it's important that as we look to solutions on greenhouse gas we don't shoot ourselves in the foot by increasing smog and health-related emissions by moving, let's say, to other modes whose engines and fuels aren't as clean but perhaps have a better GHG performance. There has to be some balance in this.

  (1200)  

    Ms. Albina Guarnieri: Thank you. As always, you've provided us with a truckload of advice.

    Mr. David Bradley: Very good.

    The Chair: Mr. Nystrom, let's see what you can deliver.

    Mr. Lorne Nystrom (Regina—Qu'Appelle, NDP): Perhaps a boxcar full of questions for Mr. Jones.

    I just want to start by saying that I agree we need a national highways policy in this country. I come from Saskatchewan. Half my riding is very rural. We don't have a national highways policy. We have all kinds of problems. We have more highways per capita than any province in the country because we have a million people and a lot of roads. We have all kinds of problems because a number of years ago the government got rid of the Crow rate, and the grain now has moved from railways to highways. Highways built many years ago were what are called “thin membrane” highways and of course the big trucks are damaging these highways. You have potholes and problems on them, and we now have to build highways with thicker membranes to carry the big trucks. There's very little or no help from the federal government; there's no national highways policy. That really discriminates against a place like our province, which has a lot of roads and very few people, so I certainly agree with you on that.

    I'd also like to ask one question about the air tax and then come back to the railway questions. You mentioned that they're reducing the air tax. It still doesn't get around the problem you talked about: the double taxation you get on WestJet from Abbotsford to Calgary and then on Air Canada from Calgary to Ottawa. What about the proposition of getting rid of it altogether? Security could be something that's paid out of the national treasury. It affects all Canadians. It's a fundamental thing for a democracy. Many other countries don't have an air tax.

    Even if we reduce it, we still have the problems. We still have the cost of the tax and the cost of collecting it, all the bureaucratic nightmare and the inconvenience, and still an extra charge. Why not just pay it out of general revenue? If you live in a high-crime area, you don't pay an extra fee to the police because you have a high-crime neighbourhood. It comes out of the general coffers of the city, the province or the country.

    Mr. J. Clifford Mackay: That's been our fundamental starting point. We have argued from day one that national security is national security and should be financed by the society as a whole. We have been singularly unsuccessful in convincing the Minister of Finance or his colleagues of that argument, so we're now into a debate about how best to do it in the context of what has been proposed, but if we had our druthers, sir, yes, we would be precisely there.

    Mr. Lorne Nystrom: I'm glad to hear that, because that makes a lot more sense.

    I'd like to ask Mr. Jones some questions about the railway brief he presented and the question on taxes.

    You talked about the fuel excise tax being $70 million, I think. Can you give us an idea of what the costs of the changes to the capital cost allowance tax would be, plus the capital tax, in terms of the federal government, if we were to accept your recommendations?

    Mr. Chris Jones: To some extent, the capital cost allowance rates are difficult to predict as they relate to the purchasing or procurement patterns of the railways in any given year and it's hard to quantify exactly what that number would be. Suffice it to say, with a more advantageous regime of CCA rates, a number of railway companies would be incentivized or induced to purchase new capital equipment, which would improve their operations. It would stimulate economic growth and activity. On the capital tax, I guess the figure we're looking at for the moment is that it's costing the railway industry about $13 million annually.

    I wonder if I might pick up on another point that was made earlier, which was, I think, a somewhat disingenuous point. It made reference to a false dichotomy between environmental protection and the health of the economy. I think that kind of assertion can't be left unchallenged.

    I want to make a very controversial statement here. I think the existing practice of surface transportation policy in this country is fundamentally unhealthy and fundamentally out of balance. There are some very significant manifestations of this that this committee and other committees of the House should be looking at: the skewing of infrastructure dollars; a lack of a level playing field on the tax side; a failure to capture environmental externalities; massive increases in road-based noise and overall ambient noise; issues around accidents, such as lost productivity of the economy from injuries, fatalities, and insurance payouts. In fact, I would assert that the existing surface transportation policy in this country is fundamentally unhealthy, and we need to look at it in a root-and-branch way. I think it would behoove members around this table to look at those issues very carefully.

  (1205)  

    Mr. Lorne Nystrom: On that very issue, just last Friday I spoke in Orillia, Ontario, and I was on Highway 401 for a very short distance. It was just amazing to see all the trucks, the big warehouse trucks, on the highway and to see the pollution that was going up into the air, the congestion, and the frustrated drivers. It seems to me that we are getting ourselves into real quicksand here.

    What should the federal government be doing in terms of spending, in terms of trying to move more freight and more people onto rail, and how costly would this be? What would be the savings to the environment? We have people on both sides of the issue here who might want to comment on that.

    Just a while ago, too, I went to Peterborough. I think it's 150 kilometres from Pearson Airport to Peterborough. I thought I would make it Saskatchewan-style in an hour and a half, but it took me three hours.

    It's incredible what human beings are doing to the atmosphere and yet we are sitting here as the federal government, the federal Parliament, just sort of pretending it doesn't exist, so what should the vision be? We have people here who are in different modes of transport.

    Do you want to start and respond?

    Mr. Chris Jones: Sure. In our view, what we need to be looking at is a multi-modal, sustainable, efficient, transparent system of capturing the costs that the different modes impose on the system.

    One of the key solutions to this massive explosion in intercity trucking is something called intermodal services, moving container cars on the backs of flatbed rail cars, double-stacking them, and taking trucks off the road. There is a role for trucks, and we concede that. It's probably more in the short- to medium-haul delivery of products when they reach their end destination.

    The kind of situation we have at the moment, with mom and pop sharing the road with massive trucks moving long distances, is a result of an economic distortion we have created in this country, since 1955, essentially, when the responsibility for interprovincial trucking was moved to the provinces. The federal government should claw back that responsibility and start to look at the lack of a rationale in this whole system.

    Mr. Bruce Burrows: I have just two quick points. You said, “What investments can we look at?”. I think there are a couple of interesting mechanisms that could be explored. Chris mentioned intermodal, and this is an interesting area that we are trying to pursue much more vigorously. It's an area where in some cases it makes sense to move traffic intermodally. In some cases, of course, it doesn't, as Mr. Bradley might rightly say, but the point is that we may have an opportunity, for example, where it makes better sense to move intermodally, which is beginning to happen, to look at incentives to use intermodal, even incentives that could be paid directly to the trucking industry.

    Also, I think the other area of investment is infrastructure. We've had a traditional roads-based infrastructure spending culture in the country. Again, I think we could look at more balance in infrastructure opportunities. In all the modes we have infrastructure that's critical to this country's prosperity, and I think we have to look at a more balanced approach.

    The Chair: Mr. Bradley.

    Mr. David Bradley: I have a number of issues. Firstly, truck and rail provide essentially two different services. Trucks serve the short-haul, small shipment, and generally time-sensitive freight. That is our bread and butter. Railways, given that they can't provide door-to-door service most of the time, serve longer-distance, heavier bulk commodities. That is their marketplace. We overlap on a relatively small part of the market, maybe about 10%.

    I don't believe that this theological debate is about freight at all. I believe it's about pushing up rates, quite frankly, because the fact of the matter is that rail is cheaper now. Intermodal service is cheaper now and it is growing where it makes sense to do so.

    This is a continental system. We can't take Canada out of the hub and spoke that we have created in North America. The reason that people and shippers use the various modes is not based on price; it's based on service. That's what we compete on by the nature of our business. As manufacturers and retailers move to smaller shipments, this is what is driving the marketplace. You can subsidize rail all you want and it's not going to change drastically the amount of freight that is moving.

    When I make the comments I make, some around the table may disagree with them, but I would like to refer you to some studies.

    Firstly, in 2001, Environment Canada looked at the emissions from railway locomotive engines. They found that, yes, the railways are right when they're saying that their new engines are more fuel efficient. They are. Therefore they can portray themselves as being in a strong position to meet Kyoto targets. At the same time, however, the study said that those more fuel-efficient engines are producing more emissions.

    We can follow that with a study conducted in 2000 for the Commission for Environmental Cooperation, whose board happens to be the three NAFTA environment ministers. They looked at this issue and asked, “What's trade doing to the environment?” One of the things they looked at was what would happen if we had a modal shift on the major trade corridors, including Toronto-Detroit.

    Do you know what they found? Because the emissions from trucks, the stuff that causes smog and respiratory illness, are regulated and are going to be eliminated over time, and because, for example, our fuel is going to have a sulphur content of 15 parts per million, compared to 1,500 to 2,500 for railway diesel fuel, forcing a shift, even if you could do it, it in fact would increase emissions, not reduce them.

    Finally, on the issue of urban congestion, if anything, it is disingenuous to think that we are going to shift freight from truck to rail and solve congestion problems in metropolitan Toronto or the lower mainland. It is just not going to happen. I don't know of many rail lines running into the Eaton Centre or into the Rideau Mall. It doesn't work that way. I don't know that people want to go up to the rail yard to pick up their gasoline, groceries, diapers, or go to the local mall. This is what drives it: service.

    There will be increased use of intermodal, but it will be determined in the marketplace. From our members' perspective, we are in the transportation service business. We exist only to serve our customers. If it is transparent to the customer in terms of price and in terms of service, they will use intermodal service. If it's not, they won't.

    On some of the longest distance truck shipments today, there aren't very many carriers still doing cross-Canada or Canada to California routes, but where they are, there's a reason for it: damage to freight, time, or whatever the case may be. I can tell you that there are contracts where the shipper will dictate, based on their perception of service, that the trucker shall not move that freight onto rail, so we have to deal with market realities here, too.

  (1210)  

    The Chair: Two of you have indicated you want to make brief comments. I will allow very brief comments as I want to end at 12:30. I'll also allow three more questioners.

    Mr. J. Clifford Mackay: Just very briefly, the only comment I would make is that from the air point of view we have no concerns at all about looking more carefully at intermodal transportation. We've tried, on a number of occasions over the last number of years, to find better ways of moving people in and out of hub airports and that sort of thing.

    The only concern we have is being faced with a situation where we are being asked to compete with another mode that is not just modestly but massively subsidized by the taxpayer. To be quite frank with you, the levels of subsidies going into VIA Rail are mind-boggling compared to what is 100% paid for by the air traveller. The markets such as Toronto and Montreal are a good example of that. We'd like to see a level playing field in that context.

    The Chair: Mr. Burrows.

    Mr. Bruce Burrows: I have two points to make, if I may, one on intermodal. As I said, and I think David said the same thing, there are places where intermodal makes sense. I think Mr. Bradley is inferring, though, that there are very few places. Let me tell you this: intermodal is growing tremendously. It has grown 130% over the last ten years. Why? Because of price and service. There are a lot of urban areas where we have a lot of through traffic moving. For example, on Highway 407 and Highway 401 through the GTA, there is a lot of traffic that moves on a through basis. A number of truckers themselves, including Mr. Bradley's own members, have now started to use these services, and it's because of service and it's because of price. That's point one.

    Point two, on the environment, reference was made to a study that had been done. That study, in my view, was fundamentally flawed. It looked out 20 years and assumed no change in rail in terms of evolving technology. We're going to see a lot of change in rail. Today, of course, I think everyone pretty much acknowledges the environmental superiority.

    Let me just say one thing. Perhaps a way to look at this is that it's analogous to the difference between a pickup truck and a large tractor-carrier. Of course, a large tractor-carrier will emit more emissions, and the point is that rail suddenly has an advantage because we can literally, as I said earlier, put hundreds of rail cars behind one or two locomotives so that on a workload basis, on a per tonne moved basis, suddenly the advantage is very clear.

  (1215)  

    The Chair: Mr. Murphy is next, followed by Ms. Bennett.

    Mr. Shawn Murphy (Hillsborough, Lib.): Thank you very much, Madam Chairperson.

    I just want to follow up with a few questions, Mr. Mackay, on the $24 charge. I won't call it a tax. I agree with Mr. McNally that there wasn't a lot of foresight put into this fee, but I disagree with him because I'm optimistic that we will effect a reduction.

    This is my first question for you. When the finance department came forward, they really didn't have a lot of basis on which to justify the $455 million fee. They used a number of assumptions and I want to question you on them. The first assumption they used was a 10% reduction in the number of deplaned and in-plane passengers in Canada. I know you don't have enough time to analyse the impact of the fee, but you do have more time to analyse what's going on in the industry with the number of deplaned and in-plane passengers. Let's compare the first four months of 2002 to the first four months of 2001. As part of that question, what are your projections going out, let's say for the last eight months of this year and even into next year? What are we looking at?

    Mr. J. Clifford Mackay: Let me start on the basis of reminding members that when Finance did their analysis they were what I would call ultra-conservative. If you look at the budget papers, not only did they flatline the growth in traffic for the next four to five years--so they assumed zero growth--but they also built in a fairly large fudge factor, something in the order of 10% plus. So when we did the analysis of the budget numbers,we thought there was about a 20% contingency factor in there in our view. That was the first thing that concerned us.

    To come to your question specifically: what is happening with traffic? In almost all markets, the one exception being the U.S. market, we are seeing a return to traffic volumes analogous to the pre-September 11 volumes. If you compare quarter over quarter, last year to this year, with the exception of transborder and the U.S. domestic market we are pretty close to being there in most markets. We're within 5% on international, both Pacific and Atlantic, and probably even closer on Canadian domestic traffic, but you have to remember we were seeing the first indications of the downturn in the first quarter of 2001, so be careful about the base we are comparing from.

    Where do we think life is going forward? All the predictions we are seeing at the moment are to a return to what is generally referred to as “normal growth” in the international and in the domestic markets. In the nineties, generally speaking, we were enjoying traffic growth in our industry in the order of 3% to 4% domestically and a little more, 5% plus, if you were talking transborder or international. IATA, ICAO, and a number of other what I'll call industry watchers, are all saying that we're headed back in that direction. We're headed back to traffic growth, which is analogous to what we were seeing in the mid- to late nineties. There is an argument going on as to exactly when. The optimists are saying we will likely be there toward the end of this year. The pessimists are saying we will see those numbers in 2003.

  (1220)  

    Mr. Shawn Murphy: Also, as part of the Finance analysis, I didn't agree with them on the number they took for connecting routes. For example, if you took the number of in-plane passengers and deplaned, times 12, it comes to $1.1 billion they would raise, but of course there are interconnecting routes that would reduce this. They just used a figure of 35% or 40%, something like that. Was that a correct figure? They certainly didn't explain it very well when they came here.

    Mr. Warren Everson: It's a complicated question.

    Mr. J. Clifford Mackay: Yes, it is a complicated question.

    Mr. Warren Everson: When you take the traffic figures you don't want to have in-plane and deplaned, because only an in-plane passenger will pay the charge, so--

    Mr. Shawn Murphy: But isn't this a factor? I mean--

    Mr. Warren Everson: Sure. The amount of connection and the charge levied on connection is going to be very problematic for us to figure out. Among the reasons is the one I raised. We intended a $24 maximum for a journey, but instead some passengers will pay $48 or $72 or whatever. We are also going to see a bit of a delay in understanding the real impact because people pre-sold inventory of seats to beat the charge and we will be most of the summer sweating that out of the system until we come to a real remittance that represents the going-forward charge.

    Mr. Shawn Murphy: Let me ask you a tougher question. This issue is going to come back before this committee, I expect by November at the latest. We are going to have to get accurate information. If they still support the user fee concept, I hope it'll be reduced. Everything I've read and everything I've studied doesn't support the $24.

    One of the philosophical differences is that there are some of your members who are advocating an ad valorem charge of 3% or 2.5% or something like that. Some of your members are maintaining the per passenger level. I can argue both sides of the equation. Does the association have a position?

    Mr. J. Clifford Mackay: The short answer, sir, is no, we don't. What we have encouraged finance officials to do is to try to find a way of making this a more level playing field. Unfortunately, the way the charge has been implemented has created a competition issue among our members and it is truly a competitive problem. If you are a short-haul discounter as opposed to a long-haul, full service carrier, then the way the charge is being implemented gives you a competitive disadvantage.

    My members are going to take different positions on this because that's in their business interest and that is not the way a tax should work. We would encourage Finance to try to find another formula here that doesn't have a competitive impact among carriers.

    Mr. Shawn Murphy: I have a question for either Mr. Jones or Mr. Burrows.

    This goes back to the issue of CCA, which you've raised. It's always been my impression that the CCA is basically one of the foundations of our Canadian tax system and it's to be based upon the economic life of the asset. We have 15% for your locomotives and I think it's 30% for trucks. Is that correct?

    A voice: It's 40%.

    Mr. Shawn Murphy: It's 40%, and I assume it's less than 15% for ships.

    Mr. Bruce Burrows: It's 15% for rail.

    Mr. Shawn Murphy: They're based upon the economic life, and of course with technology coming forward now the argument is that the economic life is depleted much faster than it was. A locomotive bought in 1950 probably had an economic life of 20 years. Now it might be less.

    Are you suggesting that we throw...? That is the first basis of tax law. That's a foundation, and once we start giving somebody a change for competitive reasons we'd have to open the door to everyone. I know that when you start comparing this with the States you can make that argument, but still, as legislators, I think we have to keep the fundamental principle that the CCA has to be based upon the economic life of the asset. Do you agree with that?

    Mr. Bruce Burrows: Absolutely. In fact, that's one of the fundamental justifications for advocating a faster CCA rate: because of technology and market changes. We were just speaking about intermodal a moment ago. That business is changing every three or four years, yet it takes 15 to 20 years to fully write off the rolling stock. It just doesn't make sense.

  (1225)  

    Mr. Shawn Murphy: You're agreeing with the principle. You have to make an argument that the economic life is less than it was--

    Mr. Bruce Burrows: That it's substantially less than it was.

    Mr. Shawn Murphy: That would go with most assets in the transportation industry, with trucks, with airplanes--

    Mr. Bruce Burrows: Yes.

    The Chair: Thank you.

    Ms. Leung, you're sharing your time with Dr. Bennett. Go ahead.

    Ms. Sophia Leung (Vancouver Kingsway, Lib.): Thank you, Madam Chair.

    I'd like to make a comment regarding the West Coast Express issue to my colleague, Mr. McNally, and to Mr. Burrows. Right now, the B.C. Liberal caucus--I'm one of the members--is concerned about the issue. We're going to work with the Minister of Transport, Mr. Collenette. We're in discussions and we'd like to find some solutions to resolve that issue.

    My question is in regard to the smart border action plan. We all know about that. It's an important one. The government has allocated $7.7 billion to try to strengthen our security. Also, the government has implemented a lot of new programs for border traffic and to increase security.

    My questions are to each of you.

    Mr. Mackay, I'm asking about the airports. We are talking about using iris biometric detectors at the airports.

    Then I would like Mr. Bradley to comment about how our new program, customs self-assessment or CSA, has been working. I think it has been in Windsor for quite a few months. How do you find it working?

    The third one is for Mr. Lantz, on port security. We did actually purchase seven VACIS, which is the gamma ray x-ray.

    I want each of you to comment on how you find it useful or feasible.

    The Chair: They're fairly straightforward questions, so, Mr. Lantz, I'll take you in reverse order.

    Capt Ivan Lantz: On the VACIS purchases and equipment at the ports, I think it's a wonderful idea, and I think it fits within the context of providing the tools to examine that high-risk cargo. It continues to let us, with the communications modes from a distance, from offshore, allow Customs to target the low risks and high risks, separate the two, and funnel the higher risks through the gamma ray or the inspection processes at Vancouver, Halifax, and Montreal.

    The Chair: Thank you.

    Mr. Bradley, with respect to the experience at the border point.

    Mr. David Bradley: I would agree with you that the CSA is a good program. We should stop calling it customs self-assessment, though, and start calling it automated commercial vehicle processing, because the Americans don't like anything that's called self-assessment.

    Keep in mind that it does help U.S. exports into Canada come in quicker. What we need is reciprocation on their side with a bilateral program. My understanding is that the Americans and the Canadians are close to agreeing in principle on a CSA plus, which will add more of a security element. At the same time, as it's a new program, even in Canada, there are some things that need to be improved, but we believe that CSA should be the model for a bilateral approach to border clearance. With regard to security, it should be the single and sole source for driver registration as well.

    The Chair: Thank you very much.

    With our final comment, Mr. Mackay.

    Mr. J. Clifford Mackay: I have something just briefly on biometrics, and I'm going to ask Mr. Everson to speak very briefly to something called API.

    We're looking at biometrics in two ways. One is identification systems for employees, not only at airports but at airlines and for all the various people you see around airports and around the aviation system. We're looking at trying to find ways to standardize that system and implement a system nationwide. We're dealing with Transport and other agencies on that as we speak.

    With regard to passengers, we are looking at whether there is a way to start implementing a voluntary system. Again, we have to work with government officials on that because they have to accept that sort of documentation. We are very much thinking of a voluntary system as opposed to any other kind, because we frankly do not want to get into the politics of a national ID card, to put it bluntly.

    Perhaps Warren can spend just a minute on API.

  (1230)  

    The Chair: Mr. Everson, go ahead.

    Mr. Warren Everson: You do two things at the border: you identify who the person is and you assess their risk to your country. All the western nations are mad keen right now on the use of technology, biometrics, and so forth to identify people. We certainly support that and we're head and shoulders into the tent with them in doing it.

    There is a problem in that there's literally no point in one country doing something on that; all the nations have to agree. Right now we have pilot projects in Canada, Holland, America, and Britain on different applications, so it will be a little while before we resolve how to do that.

    The more challenging issue is to assess the risk. We are seeing an enormous amount of money being spent--and unfortunately it's going to be our money--on systems to give governments information about passengers before they arrive so governments can make those risk assessments. The big risk for us and for Canadians generally, because it's a very challenging file, is that once you have really good passenger information, will the security agencies be content with that or will they still want to privately interview large numbers of people and search their bags and the like? I think the jury is very much still out on that, but for the first part of it, in getting the passenger information organized and electronically provided to all the interested governments, that process is well underway and the cost is staggering.

    The Chair: Thank you.

    Ms. Sophia Leung: Thank you, Madam Chair. I just want to make a last comment.

    I want you to reassure all your sectors that the two countries, the U.S. and Canada, are constantly in negotiation to try to speed up the program. Recently I was at a conference and I want you to know that Canada is way ahead in technology programs, so it's not us: we're waiting for the U.S.

    Thank you.

    The Chair: Dr. Bennett, please.

    Ms. Carolyn Bennett (St. Paul's, Lib.): Thank you very much.

    First, does the Air Transport Association of Canada take in the small charters?

    Mr. J. Clifford Mackay: Yes. We have about 320 members. Almost everyone who makes a living from commercial aviation, one way or the other, tends to be a member.

    Ms. Carolyn Bennett: We have some concerns in this huge country that there's a whole part of this country that doesn't have any rail or roads and the cost of getting around up there is huge. Some communities are spending 60% of their health care budget on air charters for taking their patients out. Is there anything the Government of Canada could do to help with that? I don't think those companies are doing so badly, but how do we actually get this country opened up? This is a country built with bush pilots. How do we help make transportation in the west of Canada easier?

    Mr. J. Clifford Mackay: You've raised probably the most difficult policy issue on air transport in Canada. In the last 10 to 15 years, we have been in favour of a policy framework for air transport--and generally the industry has been in favour of this--that says, “Let the market work. Deregulate. Let people decide how and when they want to travel by air and let the prices be determined by the market.” I think in general that policy approach has proved to be enormously successful. If you look at the rate of growth of traffic, or at the amount of investment that's gone into infrastructure in the last 10 years, none of it coming out of government, it's just phenomenal.

    I would start the answer to your question by saying that I think we can't stray too far away from that. But having said that, let me say that you're absolutely right. The geography of the country puts us in a position where there are markets and there are places in the country that are simply not sustainable in terms of the private sector being able to generate enough revenue to be able to pay for the infrastructure and whatnot. I think small airports and northern remote services are very much examples of that.

    We would encourage the Minister of Transport, through the blueprint exercise that has been mentioned, to take that question and put it up there in lights and say, “Let's debate how we have to work on that particular problem.” I don't think it's just a federal problem. I think provinces also have to be involved in this discussion. How can we modify our broad policy framework, which I think is right, to address that issue? I think there are innovative and creative ways of doing it without completely skewing the fundamental policy framework, which I think has been proven to be successful in the last 10 years.

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    Ms. Carolyn Bennett: To think about one of those small hockey teams being up there trying to play in the Nunavut hockey league is ridiculous, but it's something that's part of growing that area.

    Mr. Bradley, I was interested and I know you have to defend your industry, but there must be some advantages to your industry in terms of moving towards this multi-modal concept. What could the government do? How would you suggest we help? I'm not so sure we need a highway plan. We want a transportation plan where people are taking the best mode at the least price. In health research we found that if we wanted people to cooperate, we let it be known we would be funding the projects that showed cooperation across sectors or across disciplines. How can we help your industry decide it's that in their best interest to cooperate on this multi-modal thing? Or do you think they are?

    Mr. David Bradley: I don't know that the industry needs the government's help in that regard. We're in the service business. Our members know their business. If the service and price are transparent to our customers, whom we're trying to serve, they will use the service. That's why you're seeing the kinds of growth you are seeing.

    This argument gets blown way out of proportion. Intermodal will continue to grow in the marketplace as the service improves. The price, as I said, is already cheaper than truck, but we have to understand that it will serve a niche, and you have to look at where manufacturing and shippers are located and the nodes going into those rail yards versus going in a straight line. It all comes down to efficiency of service.

    It's interesting, on the one hand, to hear rail proponents talk about this terrible highway policy. That's not really something that I think the federal government can be blamed for, but where are they locating their intermodal yards? They're right on the highways.

    I think the thing's been blown way out of proportion. It will continue to grow, but it will grow, as RAC says, where it makes sense. It will not grow because it's better for the environment or better for highway congestion, because those arguments, quite frankly, are--

    Ms. Carolyn Bennett: We're in the business of trying to change behaviour and we have some perverse incentives in the tax system all the time. I understand the economic argument Mr. Murphy talked about in terms of tax policy and capital cost allowance, but I also think there are tax policies that could incent better behaviour for the environment versus other behaviour and that we need some help sorting out whether the cleaner gasoline should be taxed less than the dirtier gasoline. That--

    Mr. David Bradley: That was my submission: that our engines and fuels are cleaner than the engines and fuels used in some of the other modes, so yes, the tax system can be used to accelerate the penetration of those into the marketplace. Perhaps a fuel tax based on the sulphur content of the fuel would be of interest.

    Ms. Carolyn Bennett: We have talked about that, yes.

    The Chair: Mr. Jones, you wanted to add something.

    Mr. Chris Jones: Very briefly, you are quite correct, Ms. Bennett, to point out that government has a duty, an obligation, to look after societal priorities. I think that you would all be very wise to look at two reports that have come out recently, both of which were done by the government, the recent Kyoto plan and the Canadian Transportation Act Review Panel, and both of which concluded that a sensible and enlightened thing to do is to look at the use of road tolling. This is clearly the way to go: to price the cost of the use of infrastructure and apportion that cost as a function of the damage or the congestion or the environmental degradation that is imposed on government and on the taxpayers.

    You will see that the British government in the next few weeks is likely to produce a report by Lord Birt that will be calling for road tolling. I think that if you look down this road you will see other enlightened jurisdictions in the world doing this. This is clearly the way Canada is going to have to go.

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    The Chair: With that, on behalf of all the members of the finance committee, I want to thank you for your input today.

    We look forward, Mr. Bradley, to receiving further documentation. If you send it to the clerk, it will be distributed to all committee members.

    Thank you very much as we go about doing our work and getting on with all of our different businesses.

    We are adjourned.