TRAN Committee Meeting

37th PARLIAMENT, 2nd SESSION

Standing Committee on Transport

EVIDENCE

CONTENTS

Thursday, April 10, 2003

¹

1520

The Chair (Mr. Joe Comuzzi (Thunder Bay—Superior North, Lib.))

Hon. David Collenette (Minister of Transport)

The Chair

Hon. David Collenette

¹

1525

¹

1530

The Chair

Mr. Jim Gouk (Kootenay—Boundary—Okanagan, Canadian Alliance)

¹

1535

Hon. David Collenette

Mr. Jim Gouk

Hon. David Collenette

¹

1540

Mr. Jim Gouk

Hon. David Collenette

Mr. Jim Gouk

Hon. David Collenette

The Chair

Mr. Jim Gouk

Hon. David Collenette

Mr. Jim Gouk

Hon. David Collenette

¹

1545

Mr. Jim Gouk

Hon. David Collenette

The Chair

Mr. Mario Laframboise (Argenteuil—Papineau—Mirabel, BQ)

Hon. David Collenette

Mr. Mario Laframboise

Hon. David Collenette

¹

1550

Mr. Mario Laframboise

Hon. David Collenette

Mr. Louis Ranger (Deputy Minister, Department of Transport)

Mr. Mario Laframboise

Hon. David Collenette

¹

1555

Mr. Mario Laframboise

Hon. David Collenette

Mr. Mario Laframboise

The Chair

Mr. Stan Keyes (Hamilton West, Lib.)

Hon. David Collenette

º

1600

Mr. Stan Keyes

º

1605

Hon. David Collenette

Mr. Stan Keyes

Hon. David Collenette

Mr. James Moore (Port Moody—Coquitlam—Port Coquitlam, Canadian Alliance)

Hon. David Collenette

Mr. Stan Keyes

Hon. David Collenette

Mr. Stan Keyes

Hon. David Collenette

Mr. Stan Keyes

Hon. David Collenette

º

1610

The Chair

Ms. Wendy Lill (Dartmouth, NDP)

Hon. David Collenette

º

1615

Ms. Wendy Lill

Hon. David Collenette

Ms. Wendy Lill

Hon. David Collenette

Ms. Wendy Lill

º

1620

Hon. David Collenette

The Chair

Ms. Wendy Lill

The Chair

Mr. Larry Bagnell (Yukon, Lib.)

Hon. David Collenette

Mr. Larry Bagnell

The Chair

º

1625

Mr. Larry Bagnell

Hon. David Collenette

º

1630

The Chair

Hon. David Collenette

The Chair

Mr. Larry Bagnell

Hon. David Collenette

The Chair

Mr. Rex Barnes (Gander—Grand Falls, PC)

Hon. David Collenette

º

1635

º

1640

The Chair

Hon. David Collenette

The Chair

Mr. Rex Barnes

Hon. David Collenette

The Chair

Ms. Liza Frulla (Verdun—Saint-Henri—Saint-Paul—Pointe Saint-Charles, Lib.)

Hon. David Collenette

The Chair

Mr. Jim Gouk

º

1645

The Chair

Mr. Jim Gouk

Hon. David Collenette

The Chair

Mr. Roger Gallaway (Sarnia—Lambton, Lib.)

Hon. David Collenette

The Chair

Hon. David Collenette

The Chair

Ms. Liza Frulla

º

1650

Mr. Louis Ranger

Ms. Liza Frulla

Mr. Louis Ranger

The Acting Chair (Mr. Larry Bagnell)

Mr. Mario Laframboise

Mr. Louis Ranger

Mr. Mario Laframboise

Mr. Louis Ranger

Mr. Mario Laframboise

The Acting Chair (Mr. Larry Bagnell)

º

1655

Mr. Louis Ranger

The Acting Chair (Mr. Larry Bagnell)

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CANADA

Standing Committee on Transport

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NUMBER 020

l

2nd SESSION

l

37th PARLIAMENT

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EVIDENCE

Thursday, April 10, 2003

[Recorded by Electronic Apparatus]

¹  (1520)  

[English]

    The Chair (Mr. Joe Comuzzi (Thunder Bay—Superior North, Lib.)): This is the 20th meeting of the Standing Committee on Transport, conducting a review of Bill C-26, an act to amend the Canada Transportation Act.

    Minister, I apologize. We were on time but the transportation system on the hill was not very efficient today, and that's the reason for the delay. We'd be grateful for your assistance.

    Hon. David Collenette (Minister of Transport): Luckily I'm not responsible for that.

    Some hon. members: Oh, oh!

    The Chair: Welcome, Minister.

[Translation]

    Hon. David Collenette: Mr. Chairman, committee members, I welcome the opportunity to appear before you today to discuss the proposed amendments to the Canada Transportation Act and to provide you with some context as to their origin.

    I have with me today my Deputy Minister, Mr. Louis Ranger, and Mr. Jean Patenaude, Director General of Strategic Policy.

    Canada's transportation policy has evolved over the years in response to changing times and conditions. Safety and security, accessibility, economic efficiency and environmental performance have all become cornerstones of our system. We must now ensure that our transportation policies continue to adapt in the face of new trends and challenges.

    These include growing concern about the impact of congestion on our quality of life, the need for sound infrastructure to continue to support trade and commerce and a recognition that our transportation system faces new challenges in a world where security concerns are creating the need for new vigilance and new technologies.

[English]

    I had an opportunity to speak to you in February following the release of “Straight Ahead”, and as you'll recall, “Straight Ahead” represents the culmination of an initiative I announced in 2001 to renew Canada's transportation policy. “Straight Ahead” proposes a vision to guide the continued development of a sustainable transportation system for Canada, one that addresses the challenges now before us. It also conveys the government's response to the 2001 report of the Canada Transportation Act Review Panel. I should also note that “Straight Ahead” reflects careful consideration and consultation with industry, users, and provincial and territorial governments.

    It lays out the principles that will guide transportation policy development and future transportation planning and activities. These include the highest practical safety and security of life and property, guided by performance-based standards and regulations where necessary. “Straight Ahead” confirms the government's commitment to transportation safety and security as well as extending it to include an increased integration with efficiency and environmental objectives in support of our vision of a sustainable transportation system for Canada.

    Other principles include the efficient movement of people and goods to support economic prosperity and sustainable quality of life, based on competitive markets and targeted use of regulatory and spending interventions. The principles also include a clear focus on environmental issues with specific measures such as promoting vehicles and fuels that produce few emissions, increased use of alternative modes of transportation for passenger travel, and more efficient transportation of goods, all to support the government's climate change plan.

    Transportation is the largest producer of greenhouse gas emissions in Canada, so progress on Kyoto commitments will require real gains in transportation. Clean air, clean water, improved fuel efficiency standards, and increasing Canadians' awareness are among the many elements of our strategy to contribute to the government-wide environmental agenda.

    Our vision is further guided by using user pricing that better reflects the full cost of transportation activity and transportation infrastructure decisions that meet user needs, based on governance models that provide for stakeholder involvement and transparency; reasonable access to the nation's transportation system for Canada's remote regions; accessibility in the national transportation network without undue obstacles for persons with disabilities; and partnerships and integration among jurisdictions and with the private sector.

¹  (1525)  

[Translation]

    You all will have had a chance by now to review Straight Ahead and you will also be familiar with the background for the amendments to the CTA that the government is proposing. These amendments are the first concrete steps in making real the vision set out in Straight Ahead. I would like to briefly review some of the main amendments.

    The Canada Transportation Act provides a declaration of National Transportation Policy. Amendments will simplify the declaration based on the vision put forward in Straight Ahead. The revised declaration will provide a better focus and include a reference to respect for the environment. This will provide greater clarity in the interpretation of the Act.

[English]

    In this era of rapid economic change, technological revolution, and globalization, mergers and acquisitions are a legitimate business strategy. Mergers allow corporations to gain efficiencies from economies of scale. Increased efficiency means more competitive businesses, and this in turn means a more vibrant economy.

    However, large corporations can also mean a concentration of power and possibly reduced competition. That's why we have a merger review process in the Competition Act. Public interest issues other than competition, however, are not addressed in the Competition Act. There's no process to address public interest issues for transportation mergers other than those that occur in the air sector, and you'll remember that this committee was instrumental in its examination of an earlier Bill C-26 that dealt with the merger of Air Canada and Canadian Airlines.

    As you're aware, in an industry where there are a small number of large enterprises, mergers can raise issues of interest other than competition. A key amendment will make the public interest review process that exists for airline mergers available for any federal transportation undertaking, and this amendment will provide a public forum for Canadians to voice their views and concerns with regard to proposed mergers of transportation undertakings.

    In the air sector consumer protection is a key goal. Proposed amendments will require airlines and resellers of airline services to provide the total price of air travel, including all airline-generated surcharges, in their advertisements. This will ensure that pricing information is complete and not misleading and will allow passengers to more easily determine the cost of their planned travel. Airlines and resellers will also be prohibited from advertising products they don't actually sell, such as one-way tickets when only return tickets can be bought. Public access to the terms and conditions associated with airfares will be ensured.

    Another key goal is to ensure that Canada has a competitive air services market for the long term. New provisions will require domestic carriers to provide other domestic carriers with access to their interlining and loyalty marketing plans where necessary for competition and where the arrangement will not cause financial hardship for the carrier on which it's imposed.

    These provisions will apply to all airlines and are not expected to have an adverse impact on the industry. Access will be required on commercially reasonable terms so airlines will be fairly compensated for the services provided. These provisions are aimed at providing a greater choice of prices and options for the travelling public.

[Translation]

    In the rail freight sector, the substantial commercial harm test is being removed. The reason for this is that the test focuses on the effect on shippers rather than on the behaviour of the carriers. The test was considered by shippers as a barrier in accessing recourses before the Canadian Transportation Agency.

    Final Offer Arbitration, which is considered as one of the most useful tools by shippers, will be improved by ensuring that it is also available for incidental services provided by a railway such as late charges or car cleaning, in addition to the rate charged for the movement of the goods. Final Offer Arbitration is an effective incentive for parties to reach a negotiated settlement, and expanding its scope makes good sense.

    Other amendments to Final Offer Arbitration will permit multiple shippers with a common complaint to join in one proceeding. The idea is that Final Offer Arbitration may be an expensive process for an individual shipper. Allowing shippers with a common complaint to join in a single application makes the recourse less expensive for each individual shipper.

¹  (1530)  

[English]

    A complaint often heard these days, especially in urban areas, is the issue of noise emanating from railway operations. Existing law provides no review for complaints dealing with railway noise issues. A new provision will authorize the agency to seek voluntary complaint resolution through collaborative measures and, where this is not sufficient, to require a railway company to make reasonable changes in its construction or operations to keep noise to a minimum.

    Increasing trade flows with our American neighbours have led to calls for additional crossings, either bridges or tunnels. A proposed new section would require the governor in council to approve the construction or alteration of an international bridge or tunnel. Currently, special legislation is required for each crossing, as has generally been the case in the past. These changes will streamline and accelerate the process for proponents of new international crossings. This will also ensure that Canadian interests are taken into consideration in the approval process.

    The new VIA Rail Canada Act confirms VIA's current mandate, and the existing corporation has continued under its own corporate legislation. Unlike the majority of other crown corporations, VIA did not have its own legislation. Over the past 25 years there have been calls from parliamentary committees, including a recommendation made by the Standing Committee on Transport in 1998 and others, for a legislative mandate or a demonstrated longer-term commitment for passenger rail in Canada.

    The new VIA Rail Canada Act accomplishes this and, combined with other initiatives, demonstrates the government's continued support for intercity passenger rail services. What may be of interest to you is the process that has led to all these proposed amendments.

    The package you have before you is a result of careful consultation and of consideration of all points of view taken from discussions with various industry stakeholders. We have taken all opinions into account. We have considered the issues at hand from all sides and have made decisions we believe are appropriate ones for the moment and in the current environment. The amendments reflect the government's efforts to strike a balance between these diverging views. I believe the result is a sound public policy package that builds on existing strengths and makes adjustments where they're required.

    One of the government's priorities, reiterated in the throne speech, is to strengthen the partnership between government and its citizens. The manner in which “Straight Ahead” was developed and the way in which the resulting amendments to the CTA were crafted are the first concrete step in moving our agenda forward. They are examples of a government at work with and for the people of Canada. I'm very pleased to see the final result of so much effort and consultation in the legislative process. As always, your insights and contributions will permit the government to move on its agenda and contribute to providing Canadians with sound and balanced public policy.

    I should say that there's been much interest in this document, not just in this country but in other parts of the globe, including the U.S., where I was on Tuesday, and it was a subject of discussion at the conference at the University of Denver.

    Thank you very much, Mr. Chair.

    The Chair: Thank you, Mr. Collenette.

    Mr. Gouk.

    Mr. Jim Gouk (Kootenay—Boundary—Okanagan, Canadian Alliance): Thank you.

    Mr. Minister, it'll probably come as no surprise to you that I'd like to start with the VIA Rail portion of this. I'm concerned on so many different avenues of VIA Rail that it's almost hard to tell where to start.

    I guess I would start by asking you to explain once more why you think that VIA Rail, the passenger rail system of our country, needs subsidies when no other government operation directly competes with the private sector as much as VIA Rail does in terms of other transportation modes. How can we justify spending half a million dollars a day in subsidies to VIA Rail when they compete directly against bus companies, they compete against the airline companies, and to a limited degree--although I know you intend to expand on that--compete against the tourism sector in the rail industry as well? How can we justify using the taxpayers' money to compete against taxpaying private sector companies?

¹  (1535)  

    Hon. David Collenette: Well, I would say, Mr. Chairman, in answer to the question that passenger rail has always been considered to be an essential part of the nation's transportation fabric. For many years a service was provided by Canadian Pacific on a commercial basis and by Canadian National, which was a crown corporation formed, I think, around the First World War or just after as an amalgam of money-losing companies. In those days, of course, there were very few other ways to get around; that was the principal way.

    The passenger rail system obviously fell into decline for a number of reasons, including the ascension of the private automobile and aircraft. But what we're finding is that rail is reinventing itself as a technology in the 21st century. All around the world rail is adapting to new technologies and new demands.

    And when you look at VIA, you have to accept or reject--reject, perhaps, in your case--whether or not we need a national, publicly funded passenger rail corporation from coast to coast. This government believes that VIA, which was established in the late 1970s, fulfills a valuable public mandate, though of course its mandate is not uniform across the country. In Atlantic Canada the service, even though it has been cut in recent years--certainly was cut by the previous government--provides an essential lifeline to many communities in Quebec, New Brunswick, and Nova Scotia, with ancillary benefits to Prince Edward Island. In western Canada and northern Ontario there are still many small communities that feel passenger rail service serves a proper public interest. In some parts of the network there are remote services where there is no other access.

    I know the issue you'll probably want to follow up on--and perhaps I can let you ask the question--is on the corridor, as to why we have in the corridor a publicly funded service that competes with bus or with airlines. But under the VIAFast proposal, which we hope to move forward in the near future, not only will there be 100% cost recovery at the end of the developmental period, it will actually make money. It will therefore help to subsidize the rest of the system and reduce the ongoing subsidy to VIA.

    Mr. Jim Gouk: Actually, it's a different route I have in mind I want to ask you about. I have correspondence from you that indicates it's highly probable you're looking to put VIA Rail back on the southern route, which is referred to in British Columbia as “Calgary to Vancouver”. Right now VIA operates from Edmonton to Vancouver.

    Even with its high subsidy and even with the costs now imposed against airlines, which this committee is studying, it's 37% more to travel by VIA than it is to travel by aircraft. It takes 16 times as long, yet you claim this is to provide a passenger service, not a tourism service. There's no other reason for a person to get on that train but for tourism purposes.

    Why, then, would you consider putting VIA back on the southern route in British Columbia in direct competition with a private company, Rocky Mountaineer, subsidizing a tourism business owned by the government, when if people are worried about getting from point A to point B, they can do it by air or they can do it by bus, both being cheaper and faster?

    Although people tend to look at rail as being the environmentally friendly thing because it is when it comes to moving heavy freight, it is not when it comes to moving passengers. It is the worst. So why would you possibly consider putting VIA back on the southern route in competition with Rocky Mountaineer?

    Hon. David Collenette: I might remind you, Mr. Chairman, that the Calgary-Vancouver service was one of the most profitable parts of VIA. Sadly, it was sold off by the previous government to a private company. It has done a great job, but it's a company that knew what the deal was. They had five years, basically, of non-competition from VIA, first; a number of VIA services were provided to that service at very favourable rates; and that service has really had, I guess, an 11-year monopoly now on the provision of the Calgary-Vancouver service. I find it odd that Mr. Gouk from the Canadian Alliance is coming here as a protectionist and is saying that a private company like Rocky Mountaineer shouldn't be required to compete.

    Where I take his point is on the kind of competition. VIA would not compete for the same kind of passengers because VIA is a through service. Rocky Mountaineer is a premium tourist service with an overnight stay in Kamloops. That was not the original passenger service between Calgary and Vancouver, and that wouldn't be the case.

    It's somewhat academic for this year, anyway, because it's not going to happen. There will be some discussions on this. I've met with Rocky Mountaineer, and perhaps there's a way Rocky Mountaineer and VIA can come to some commercial arrangements on that particular corridor. I've asked them both to think about that.

    I see it as a precursor to the re-establishment of passenger rail service on the CP main line going all the way to Toronto, and I can't believe that a party from western Canada would be against the reinstitution of passenger rail services through cities like Regina as well as Calgary and other smaller communities on the CP line.

¹  (1540)  

    Mr. Jim Gouk: I'm talking specifically about Calgary to Vancouver, where there is a tourism service, where VIA will be nothing more than a tourism service by virtue of evidence of the rate structure from Edmonton to Vancouver.

    In terms of your comments about why somebody from the Canadian Alliance would be opposed to competition, I would point out to you, sir, that Rocky Mountaineer is prepared to compete against anyone in the private sector. But no one in the private sector in their right mind is going to compete against the government when the government can use the taxpayers' money to subsidize it.

    Hon. David Collenette: But our studies have shown, Mr. Chairman, that the service would be fully cost-recoverable and would compete on the same basis as the Rocky Mountaineer.

    Anyway, the discussion is academic for this year, but the observations are useful as we go forward.

    Mr. Jim Gouk: It won't stop after it starts.

    Hon. David Collenette: Mr. Chairman, I would hope that we can restore passenger rail service to communities across this country. It's great that people like me, from cities like Toronto and Montreal, care about how people get around in small communities in this country, especially in western Canada.

    The Chair: Mr. Gouk, you have another minute left.

    Mr. Jim Gouk: If I have another minute left, I'm going to switch gears for just a minute and go to proposed section 5 of your new Canada Transportation Act, dealing with running rates.

    I've looked at and I agree with a couple of concerns that have been brought to my attention. One is in the preamble to this proposed section 5, where you've eliminated most of the preamble, particularly the part that deals with intermodal and intramodal competition, which constitutes the basis for which the objectives of policy are most likely to be achieved.

    More specifically, people who operate and who need an interchange with either the existing two major rail lines or a short line run accept the idea of paying all the variable costs and a share of the fixed costs, that share being something in the range of 7.5% for an interchange or up to 36% or 37% for a short line operation. But if they are asked to pay the full costs, including the entire costs of administration, head office and everything else, it will basically put that type of interchange and short line operation out of reach for almost everyone. I think it's unrealistic, and why would you possibly consider that?

    An hon. member: Hear, hear!

    Hon. David Collenette: Mr. Gouk, we're a little mystified on parts of your question. In terms of the preamble and the changes, I think that what was taken out of the act as it stands now has really been put back in under proposed paragraph 5(a) on page 2 of the bill, where it says “competition and market forces are, whenever possible, the prime agents in providing viable and effective transportation services”.

    On the issue of short lines, I'm not quite sure what you're getting at here.

    Mr. Jim Gouk: Proposed paragraph 5(d) says “the price paid by users for transportation services better reflects the full cost of services chosen.” Now, is that referring to the full fixed cost as well as the incremental cost?

    Hon. David Collenette: Surely I believe that to be the case, because if you're running a business, you can't run a business unless you operate with all costs being revealed. How can you run a business and anticipate making a profit if you ignore certain costs? It's the same way from a legislative point of view. Everything has to be up front.

¹  (1545)  

    Mr. Jim Gouk: They have that full fixed cost of administration whether anybody runs in there or not. They would expect to pay the variable costs or the costs for that type of operation and a contribution towards the fixed cost, but not the entire share for headquarters administration thousands of miles away.

    Hon. David Collenette: But it is a contribution, that's what it is. It's a fixed cost.

    The Chair: Thank you, Mr. Gouk.

    Mr. Laframboise.

[Translation]

    Mr. Mario Laframboise (Argenteuil—Papineau—Mirabel, BQ): Thank you, Mr. Chairman.

    I have two questions for you, Minister.

    The first question pertains to clause 28 and the obligation on the part of carriers to enter into agreements with one another respecting interlining and loyalty programs. The proposed legislation sets out this obligation for service providers. Clause 28 amends section 85 of the Canada Transportation Act.

    As far as these measures as concerned, Air Canada has informed us that only once of the past two years has it fielded a request concerning the obligation to harmonize its interlining agreements with other domestic service providers and that it has never received any requests respecting its loyalty programs. Why is Air Canada being taken to task on this point? Why is this obligation being forced on the carrier, given that it has never fielded any requests to this effect?

    Hon. David Collenette: Mr. Chairman, in my view, it's very important to have in place a system that allows other air carriers to have interlining agreements with Air Canada as well as access to Aeroplan, the carrier's loyalty marketing plan. With a company the size of Air Canada, the possibilities are many. The advantages associated with being a large carrier can be used to promote competition with other carriers.

    It may well be the only one small carrier requested an interlining agreement with Air Canada. However, even after Air Canada restructures its operations, it's important to have a system that enables other carriers to profit commercially from Air Canada routes. This proposal will not have an adverse impact on Air Canada. It is simply a question of giving other carriers the option of accessing Air Canada's routes, in exchange for which Air Canada would be financially compensated.

    Mr. Mario Laframboise: Minister, Air Canada maintains that these measures are designed merely to give the carrier with some competition. One must understand that the carrier is in dire financial straits. That's no secret. Air Canada has a few advantages over its competitors, such as its Aeroplan program and its interlining agreements. You stated that from now on, all other carriers can ask Air Canada to enter into interlining agreements with them and Air Canada will be obliged to comply, perhaps in exchange for some financial compensation. As I see, you're taking away the few remaining advantages the carrier still had. I think the timing is all wrong for this kind of legislative provision.

    Hon. David Collenette: From a business standpoint, it is in Air Canada's interest to attract passengers, regardless of whether they're coming over from West Jet, Calm Air or some other small carriers. However, this bill was not drafted with an eye to the short term. Air Canada is currently facing problems in the short term, but six months down the road, the carrier will be restructured. In a year's time, the business climate may be more favourable for large air carriers. Therefore, we need to concentrate on drafting regulations for the industry in general.

    These regulations do not adversely impact Air Canada or any other carrier. They enact our government's policy which received the support of most MPs and which is designed to generate competition for Air Canada on domestic routes. This is good for Air Canada, for all of the other carriers, for communities and for passengers.

¹  (1550)  

    Mr. Mario Laframboise: Right now, it's not looking too good for Air Canada.

    My second question concerns railway transportation. You have brought in a provision that would allow persons to file complaints. I'm talking about clause 31 which amends section 95 of the Act. Persons will be able to file a noise complaint with the Canadian Transportation Agency.

    Minister, I have to say that the Bloc Québécois is intrigued by this measure. Noise pollution is a very serious problem in this day and age, particularly in railroad yards. Since deregulation, the railways have fewer employees. Switching operations, even those done for maintenance purposes, proceed without any supervision. These operations are now automated and noise levels are excessive. Other complaints have been filed as well.

    WIll the amendments to section 95 really make it possible for citizens' complaints to be heard? As you know, many complaints were filed in the past and the Canadian Transportation Agency wasn't able to take any action. I'm referring to the noise emanating from railway yards, not the train whistles which are another issue entirely. Will these provisions finally make it possible for the Agency to intervene to resolve some of the noise problems associated with railway yards?

    Hon. David Collenette: Mr. Chairman, this is the first time that we will be putting in place a provision to safeguard the interests of persons living in cities or regions in close proximity to railways. The Island of Montreal is a major problem area. I recall a problem in Mr. Cotler's riding, as well as one in Oakville, Ontario, Ms. Brown's riding. This is the first time that we have devised a strategy to allow the CTA to examine the situation. By putting in place these measures, the CTA will be able to order changes to railway operations and infrastructures. I believe the outcome will be very positive.

    Yes, Mr. Ranger.

    Mr. Louis Ranger (Deputy Minister, Department of Transport): This time around, we have tried to give the parties a first chance to resolve the situation. In other words, the government is not the solution of first resort, but of last resort. The Railway Association of Canada has worked with the Canadian Federation of Municipalities to develop mechanisms that would allow the parties to communicate. It's only when efforts at this level fail that the government steps in, as a solution of last resort.

    Mr. Mario Laframboise: You talk about the first level but as you know, municipal by-laws do not apply to federal lands. It worries me to hear you mention this, that there are no other by-laws that might apply. Given my experience with municipal matters, I would have rather you allowed municipalities to adopt noise by-laws, the enforcement of which would have been a much simpler process. Nevertheless, you have taken a step in the right direction.

    By the way, Minister, Liberal ridings aren't the only ones impacted by these measures. They affect other Quebec ridings as well, such as the ridings of Mr. Ménard and Mr. Crête, as well as Mr. Dubé's former riding.

    Hon. David Collenette: Municipalities can devise a strategy for dealing with railway noise, but from a constitutional standpoint, this area remains under federal jurisdiction. If a railway company makes changes to its operations and in the process, it creates a lot of noise and violates the law or municipal by-law, then a municipality or a person can make representations to the Canadian Transportation Agency. This bill in fact empowers the Canadian Transportation Agency.

¹  (1555)  

    Mr. Mario Laframboise: That's fine, but I just want to make something clear. Municipalities cannot adopt by-laws that apply to federal lands. Let's be clear about that. Our Constitution does not give a municipality that authority.

    Hon. David Collenette: However, municipalities can implement a strategy.

    Mr. Mario Laframboise: Yes, it's possible to negotiate with railway companies.

[English]

    The Chair: Mr. Keyes.

    Mr. Stan Keyes (Hamilton West, Lib.): Thank you Mr. Chairman. Mr. Minister, Deputy Minister, and Director General, thank you for appearing before the committee.

    You know, the wonderful thing about working on a committee is that sometimes you can cross into different areas. For example, we're not only working now on the CTA amendments, but we're also at the same time attempting to complete our work on recommendations to the minister that have something to do with trying to help the beleaguered airline industry in this country survive. They're in tough times, and we're trying to find ways to do our part as a government to cut costs to help them continue to do their job.

    Mr. Minister, I draw your attention again to page 1 of your speech, where you say at the bottom of the second-last paragraph, “Straight Ahead”--the plan you put out--“reflects careful consultation with industry, users, and provincial and territorial governments.”

    Now, let's flip to proposed section 85.2 in the bill, where it speaks specifically to interlining and joint fares. While this committee is trying to reason ways the government can save the airline industry money, the CTA amendments and specifically proposed section 85.2 could actually be putting yet another burden on the airline industry. When we're talking about interlining and joint fares, we're talking about, it says here, “the Agency may...order the licensee”--for example, of interlining or the airline--“to enter into the agreement” of such things as interlining, inter-ticketing, and joint fares.

    Minister, these are business decisions. These aren't decisions where the government should be saying, this is what we think you should be doing. These are decisions, by the way, in the amendments where--well, I don't know where they came from. They certainly didn't come from the industry. They certainly didn't come from any province. None of the players in the industry wants interlining or joint fares.

    I suppose the way they figure it, Mr. Chair, is that if they want interlining or if they want joint fares and if it makes commercial sense, then they'll enter into an agreement. If it's Air Canada that says, we can do ourselves well and WestJet well by entering into a commercial agreement with WestJet for interlining or inter-ticketing, then we'll go to WestJet and sell them on how they are going to make money with us, Air Canada, by entering into this commercial arrangement.

    So you let business make that decision, not have one airline say, you know, I want to go from here to there but I can't get there from here directly, so what I'm going to do is, I'm going to enter into an agreement with this airline in order to ensure that the passenger's bag goes through in a seamless fashion or that a ticket can be purchased in a seamless fashion.

    But maybe the other airline, perhaps WestJet, says, wait a minute; I don't want to do that with you because--and again, we heard this from witnesses--interlining and inter-ticketing cost us more money. It costs WestJet more money and it would cost small airlines more money. These are additional, costly burdens to an airline that is in its own right trying to run a business without interference from government. Quite frankly, proposed section 85.2 is interference.

    Hon. David Collenette: First of all, Mr. Chairman, Mr. Keyes asked where this came from. The earlier Bill C-26, which dealt with the merger of Air Canada and Canadian Airlines, had this type of provision with respect to the post-merger process, and it came from the commissioner of competition himself. It came about because we, through the merger, were creating a dominant airline, which then had the international, transborder network, and the commissioner wanted to make sure other carriers would be able to sell through-fares and so not be penalized.

    Take, for example, Newfoundland. You have Provincial Airlines--I know Mr. Barnes is here--and you have Air Labrador. They're two competing companies. I think one of them may have an arrangement with Air Canada. But surely when you have a dominant carrier--and you still have a dominant carrier in Air Canada, with an overwhelming share of the market--you should be able to create an environment where everyone has the same level playing field to offer services. Why? Because for the people in Mr. Barnes' province, they then have a choice of two companies, Air Labrador and Provincial Airlines, if they want to go to Los Angeles. If you only have the option of going through the Air Canada network, that doesn't get you the best price for the individual; that's not good competition. That came from the commissioner.

    Now, if I remember correctly on the old Bill C-26--and I believe you were on the committee for that--there was a $250 million sales limit beyond which the interlining did not apply. We were taking that out. I'll tell you what happened, and I remember this distinctly.

    The moment the merger went through, Royal Airlines made a deal with Air Canada for interlining so they could feed into transborder, international services. The moment Royal hooked up with Canada 3000, the resulting company was over the $250 million threshold. I think it was the same for Canada 3000 as well. Air Canada said, well, that's it; your deal's over, and we're not going to deal with you any more.

    That meant all those people who perhaps liked the prices on Royal and Canada 3000 couldn't go to Heathrow or go to Los Angeles through traffic originating within Canada on that airline; they were obliged to go on Air Canada. Therefore, you were boosting the dominant airline, the monopoly, so it became quite obvious that you had to do something about it.

    The foreign carriers had the same problem, British Airways, Cathay Pacific, and some of the others in the One World Alliance. The moment Canadian was absorbed into Air Canada, you only had Star Alliance. What happened to British Airways passengers who were coming from Heathrow if they wanted to go to Winnipeg or Ottawa?

    I remember the case in Ottawa, and I spoke to the CEO of British Airways, Mr. Eddington, about this. He was very upset. The fact is that Air Canada was not giving favourable terms for the Canadian portion of the travel. In other words, they were denying those foreign airlines the ability to compete even here for foreign travel, say if you wanted to go from Ottawa to London or from Ottawa to some place in Europe or the Far East. By virtue of Air Canada not being required to deal with companies with over $250 million in sales, you didn't have the ability to interline.

    I come back to Mr. Laframboise's question about this not being the right time in this environment. Sure, it's a tough time to deal with all of these measures, but we're going to get over this. Six months or a year from now we're going to get over all the airline problems. We could be sitting here a year from now with the industry restored to health with the restructured Air Canada.

    This bill is putting the rules together for the long term. It's not imposing; it's just saying, if a company refuses to deal, there's legal recourse to the agency so you can have fairness for competition, which means fairness on price for the consumer.

º  (1600)  

    Mr. Stan Keyes: My response is on two fronts. One is, due to better technologies and better flow-through ticketing opportunities on the Internet, also given the apples and oranges scenario we had prior to this point in time, where Air Canada and Canadian Airlines were very separate entities and we then had to fold them together with the expectation we had for Air Canada, that has obviously not been met. I even question whether or not Air Canada will be at the 80% level in six months to a year's time.

    If what you're trying to do is protect to a degree the smaller businesses like WestJet, Jetsgo, and JetBlue, it's not something they're asking for. They feel they can provide a service. If someone gets on a smaller, economical airline and takes their trip, they can through their travel agent make the connections they want to make and still feel they're getting a better ticket price than what they might get from two airlines coming together and saying, look, if you fly with us, we'll look after your bag and it will go right through, but this is how much it's going to cost you.

    You see, if it's not industry-driven, I don't understand why we're in it.

º  (1605)  

    Hon. David Collenette: It's more than industry-driven. I would exhort you to get some of the small companies here, and I--

    Mr. Stan Keyes: Well, we did, and look what they told us: get us costs and money, Mr. Minister.

    Hon. David Collenette: What do you define as small companies?

    Mr. James Moore (Port Moody—Coquitlam—Port Coquitlam, Canadian Alliance): Air North--

    Hon. David Collenette: Okay, because many small companies did come to us. Many communities will come to us and say, you have to encourage competition; even though we live in Prince George or small communities in Newfoundland or wherever, we would still like to have the option of not just being stuck on the Air Canada network; we'd like to be able to have regional carriers develop.

    For example, in the paper--I think it was this morning's or yesterday's--I read that there is now a contest between First Air and, I think, Air North or one of the other carriers as to who goes on the Air Canada network. So let's assume one of those becomes part of the Air Canada network; then what is the option for the other carrier? They'll be at a disadvantage unless they can say, look, we've struck a deal with Air Canada. It's not going to hurt Air Canada because they're going to get their money; it's about access to those international routes.

    Now, if we fast-forward a couple of years and go to a situation like the one we had with Canadian, where they had 33% of the domestic market and Air Canada 47% and there were two international networks, well, maybe you wouldn't need this clause. But I would think you will still have, after the restructuring of Air Canada, an airline with 55% or 60% of the domestic market.

    What we're concerned about is not the big cities. Of course, in your case in Hamilton you've been blessed by WestJet going in there; you have the competition and you can drive to Toronto. It's the smaller communities in the country, and again I point to Mr. Barnes. There are many places in the west and in rural Quebec where you don't have that ability and you need a level playing field.

    Mr. Stan Keyes: I'm somewhat heartened to see there is an appeal they can make to the agency.

    My fear is that if there is true competition, say between two airlines in Labrador and Newfoundland, and one of those airlines decides to make a commercial arrangement with Air Canada where they know they will make money and where Air Canada will make money--given that they won't enter into it otherwise--then they're going to do it. If the other decides they're not going to do an interlining because they feel the cost of interlining for them would be burdensome and would detract from profitability, then they're not going to do it.

    Hon. David Collenette: That could put the other one out of business.

    I remember Provincial Airlines coming into my office about 18 months ago--

    Mr. Stan Keyes: You can't be babysitting airlines, Minister.

    Hon. David Collenette: We're not babysitting airlines, Mr. Chairman. You know what we're doing? We're protecting communities and people in the far-flung regions of this country because they have a right, just like people in the big cities of Hamilton and Toronto.

    Mr. Stan Keyes: I'll just conclude by saying this. I've been around for a few years and watched all this happen too. I think this whole debate about protecting communities is much, much too overblown; I think if the business is there and the business opportunity is there, those airlines will fly there. It's been demonstrated time and time again by airlines that pop up where Air Canada couldn't make it and by the fact that Air Canada went so far as to create airlines like Jazz and ZIP in order to get into those markets.

    But they took those markets away from legitimate businesses that were starting up in small airports like Abbotsford or in Newfoundland, now in Halifax, and soon in Moncton with WestJet. They're doing that because they can make money, which is because there is a market there for that money.

    You can't twist the private sector's arm to fly somewhere where they're not going to make money unless of course the government is going to be standing around ready to bail out any airline that starts up but decides it can't cut it.

    Hon. David Collenette: This is not an imposition. This is a facilitation, where if a company like Air Canada is not prepared to negotiate with them on favourable commercial terms, then there is an appeal to a regulatory body. So it's not an imposition.

    Mr. Keyes says this is overblown about service to small communities. Maybe in Hamilton you can get away with saying that, but I can tell you, if I as a Torontonian said that, I'd have everybody around the country down my throat.

    The fact is that this government is totally committed to helping the small, far-flung communities in this country have competitive air service, and that's what this is all about. And where did it come from? It came from our round tables. It came from consultation with small airlines. It came from the CTA panel recommendations, and it came from Debra Ward, the--

º  (1610)  

    The Chair: Thank you, Minister.

    Ms. Lill, please.

    Ms. Wendy Lill (Dartmouth, NDP): Thank you.

    I'd like to ask you a couple of questions about your vision around accessible transportation for persons with disabilities. I did raise this yesterday in the House and I'd like to go a bit deeper into the issue around VIA Rail.

    In April 2000 you announced a $400 million capital improvement plan for VIA to buy new trains, and at that time you guaranteed the disabilities council that the new rail cars would be accessible. Lo and behold, VIA used that $400 million to buy some rolling stock that was anything but accessible.

    It has now become very clear through some pretty gruelling appeals and complaints by the disability community, by the Council of Canadians with Disabilities, that the cars that were bought by VIA Rail didn't meet the accessibility standards in Britain, which was why they were selling them. Canada outbid Morocco and Iraq to buy these Chunnel trains that were going underneath the channel between Britain and France.

    It's turned out to be a shemozzle, I don't think there are any two ways about it. The other day the Canadian Transportation Agency ruled against VIA Rail and said that the cars were very inaccessible and in fact unsafe. They provide undue obstacles for persons with disabilities. The aisles and the doorways are too narrow to accommodate wheelchairs, the washrooms are inaccessible, there's no space for guide dogs, there are no movable armrests to facilitate the transfer from a wheelchair to a regular seat, and there's no seating available in the wheelchair tie-down areas for the attendants. All these things are big problems for persons with disabilities, but on top of all that, the Canadian Transportation Agency said they don't meet basic Canadian safety standards.

    These cars were on the rails in this fashion, as is and not meeting the rail safety standards, between June and October of this year. I have a whole lot of problems with that, and I understand you do as well, because you mentioned to your advisory committee the other day when you met with them that the cars don't meet safety standards and that you're working on it.

    But what kind of confidence are we to feel about this when we have what seems to be an attitude or approach to accessibility issues that is just unacceptable?

    Hon. David Collenette: Well, Mr. Chairman, first I have to take great umbrage at what Ms. Lill said about safety. I can tell you that nothing goes on VIA Rail, not a plane goes in the sky, and nothing goes on the road we do not judge to be safe. Those cars have met our safety standards and VIA made some modifications.

    In fact, at our behest they made some additional modifications at Christmas to go 100 miles an hour in the corridor, and because of the problems of where the washrooms are situated, those washrooms are out of service with a baggage car while they relocate the washrooms. Those cars are safe, and I don't think it's right for anyone to be under the impression they're unsafe.

    However, on the issue of accessibility for persons with disabilities, I wrote to the chairman of VIA Rail, and I can table that letter with you if you want. I said that we would approve the purchase of those cars from ALSTOM in the U.K.--an exceptionally good deal for the taxpayers, by the way--as long as they met certain requirements in terms of safety and accessibility, and VIA undertook to meet our requirements.

    Subsequent to that, the cars came in, various groups concerned with disabilities viewed the cars and worked with VIA, and modifications were made. Some were not satisfied and they appealed to the CTA. The CTA has taken about two years on this. They've been extremely thorough and they've come back with things that need to be corrected.

    That shows the system is working. It doesn't mean to say they're unsafe; it means that according to the agency our accessibility code is not being met, and they know, as do my advisory group I met with the other day, that we will not tolerate those cars being in service unless they meet our accessibility code for persons with disabilities.

    Therefore, VIA has been given a certain period of time by the agency to comment and to make adjustments, and they can actually appeal the ruling. My understanding is that they are looking at the judgment, and I believe they are trying to make the necessary adjustments. It's something I would keep my eye on.

    But please do not mistake the facts in terms of safety or suggest that we are somehow walking away from our commitment towards people with disabilities. That is not the case.

º  (1615)  

    Ms. Wendy Lill: I appreciate your comments, but I go back to the Advisory Committee on Accessible Transportation. Apparently you said to them that the cars were unsafe but that you were working on it.

    Hon. David Collenette: I never said that. It was a private meeting. I would never, ever say that, and I would challenge anybody.... The transcripts of that meeting can be accessed. I'll get them and prove I never said that.

    Ms. Wendy Lill: I'd like to move on to one other issue, and it is with regard to air transport.

    I've heard from many people in the disability community that we're going backward, not forward, in terms of accessibility. A young person, for example, with an intellectual disability trying to fly Air Canada was told he needed a doctor's certificate to fly. It appears that if someone self-identifies as needing a certain level of assistance on a plane, if you need a wheelchair, if you're elderly, or if for some reason you need somebody to assist you, no problem. But if you have an intellectual disability, you have to get a medical certificate.

    I'd like to know exactly where this shows up in regulations. It sounds to me as if Air Canada is making some regulations on the fly on this because as far as I can see from CCD, from advocacy groups for persons with disabilities, there is no regulation saying that Air Canada can require a medical certificate. It certainly sounds like an undue obstacle, one that's discriminatory against persons with intellectual disabilities who are trying to use our airlines.

    Hon. David Collenette: Well, Mr. Chairman, Air Canada gets rapped for a lot of things, and much of it is unfair criticism. In this case I believe it's unfair.

    The fact is that there is a voluntary code of practice with the airlines to deal with persons who need supervision. We're working with ATAC, the association, and I'm sure you can raise this with them when they come to the committee. The airlines voluntarily--I believe Air Canada and perhaps the others, but certainly Air Canada, which is the largest carrier--give a 50% discount for an attendant fare. Now, they have to make sure before they allow the 50% attendant fare that the person who is being attended to actually conforms to the profile of someone who requires an attendant. Otherwise, it might not be a justified second fare.

    Also, from a safety point of view, Air Canada has to make sure that the people who get on board are people who can understand safety routines, can behave in a certain way in terms of an emergency, or will not be under the influence of alcohol. They have to be careful as to who gets on the plane.

    Therefore, each case is looked at specifically. I think that unless they feel someone is a hazard as a traveller and an attendant cannot be in full supervision of them, there are very few circumstances where those people will be turned away.

    Ms. Wendy Lill: But in your estimation, in terms of persons with intellectual disabilities who are travelling on their own and not with an attendant, what is it that triggers some kind of scrutiny in terms of regulations?

    We're not talking about people who are drunk or causing a problem or whatever, we're talking about people who are making every effort they can to function in and to contribute to their society. Then suddenly they're being told that in order to fly they're going to have to get a doctor to make out a certificate. This is from a gatekeeper who may or may not even know them and who has certainly never flown with them.

    The whole thing is kind of hare-brained. I'd like to know where it came from and what kind of validity it has in terms of regulations around air transportation.

º  (1620)  

    Hon. David Collenette: I will endeavour to get back to the committee with the specifics on this, because I realize some of it was in the press recently. Under the Aeronautics Act the carrier does have the responsibility to ensure that those persons who travel are persons who would not cause an undue problem as passengers, however that's defined.

    Perhaps something could come out of this process. The committee could think about that. If you want to propose a regulation that deals with this, then after we get the required clause in the existing act to you.... I'm talking about the Aeronautics Act here; I'm not sure we can amend the Aeronautics Act in this bill, but we have another set of aeronautics amendments coming up, and we could do it then.

    The point is, though, that it's very subjective with persons who are intellectually challenged. There are people with those kinds of disabilities who are perfectly fine to travel on their own; they have the basic level of comprehension of safety that is required. But there are others for whom an attendant would be necessary. We will get you the detailed information so we can have a proper debate on this to ensure that this can indeed be dealt with.

    The Chair: Thank you, Ms. Lill.

    May I suggest that if you have any witnesses with respect to those issues you've brought up, which are very important issues, you will give the names of those witnesses to the clerk. We'd be more than happy to have them come here to give evidence or appear when we're in your community or wherever those folks are located if we're close by as this committee reviews the legislation. Would you do that for us, please.

    Ms. Wendy Lill: Yes, thank you.

    The Chair: Mr. Bagnell.

    Mr. Larry Bagnell (Yukon, Lib.): Thank you, and thank you, Mr. Minister, for coming.

    As you know, we're looking at perhaps the most exciting transportation project since Macdonald's trans-Canada railway, namely the potential linking of the Alaska railway with the B.C. railway for a thousand miles so people from all over North America can go right to the end in Alaska. It would really change the face of rail transportation. Is there anything in Bill C-26 in law or in the spirit of the law that would either encourage or discourage the potential to look at this project and proceed with it?

    Hon. David Collenette: No.

    I agree with Mr. Bagnell, Mr. Chairman, that this is an exciting proposition. Foreign affairs is in the lead, and it's something that truly conforms to the idea of a national dream.

    It would be very costly. It would require an extremely rigorous environmental assessment process, although part of it could use the existing BC Rail corridor, but it's something I personally think we should look at.

    But it begs the question, is the government prepared to put in money? Is the U.S. government prepared to put in money? And if the U.S. government is prepared to finance this, are we prepared to have this go through Canadian territory, and under what auspices?

    Certainly, it cannot be realized unless Canada is in agreement and our environmental laws are respected. But I think it's something that would be great for the Yukon, great for Alaska, and great for the north.

    Mr. Larry Bagnell: Thank you.

    The Chair: I might just add to what the minister has said. I know that the United States Senate has already passed a bill for $8 million for the study of the Alaskan railway.

º  (1625)  

    Mr. Larry Bagnell: Yes, the American Congress has passed a bill for $6 million to set up a joint Canada-United States commission to look at this project. We wouldn't be looking at any construction projects from the government but would just be joining this commission so we could look to see if it's feasible. Then perhaps the private sector would know whether or not we could go ahead.

    If it did go along the Alaska Highway corridor, which is one of the options, of course there wouldn't be much environmental change. In fact, it would be a great assistance for our Kyoto targets, etc., because it would be much more environmentally sound than other modes of transportation as far as emissions go.

    I have one other question, and it's related to allowing other users on existing rail lines, that is, short lines or company lines. I'm just wondering what your thoughts are on that.

    My thoughts are mixed in the sense that I've been approached by companies that don't want to be forced to have other companies use their lines because it might take away their customers and make them not viable. On the other hand, we could have a situation where a company might be able to prohibit anyone else from using an abandoned line; it may have been abandoned for years and it might be a great line to use.

    In the telecommunications industry it's becoming the idea these days that the best way to operate is to force the telecommunication companies to allow competition on their lines so the consumer will have some alternatives.

    I just wonder where your thoughts are on that.

    Hon. David Collenette: Mr. Chairman, this was a very tough debate, and there are many who believe, as Mr. Bagnell does, that we should expand the existing running rights provision in the act. There is already a provision, but it's hardly ever used because railways normally make a deal.

    One company in particular, OmniTRAX in western Canada, has been pushing for this, as has Ferroequus, which is a virtual railway, but many of the other short lines don't feel it's necessary.

    The problem with open access is the potential, which has been shown in other jurisdictions, for disincentive to invest in the plant, in the infrastructure, and therefore you have an erosion of the basic infrastructure. Canadian National and Canadian Pacific take the view that these are private rights of way and they have the right to extract a price for hauling over their tracks, and if another company wants to have running rights over their tracks, there is a provision.

    By and large, the real issue, especially in western Canada but not exclusively--I think in Quebec there was one example, the Alcan plant out of Chicoutimi--is to ensure that there is competitive access into switching points.

    Take, for example, Alcan. It brings its ore from Chicoutimi to Montreal by CN. That's the only option it has. Once it gets to Montreal, it has the option of continuing on the CN network and the Illinois Central and Wisconsin Central network all the way down to Mexico, of interswitching onto CP, or of using CSX, which is an American carrier.

    The key issue, then, is whether or not there is competition for that product or whether Alcan is stuck with using the CN network. That's why the competitive connection rates have been put in; there is in effect a bidding-type process, where the low bidder for the interswitching is accepted. There's also the removal of the substantial commercial harm test, as well as a few other issues dealing with final offer arbitration.

    We feel this is preferable to going down the road, say, Britain has gone down. As you remember, British Rail was broken up, the infrastructure was privatized, the train-operating companies then had running rights over the infrastructure, and safety was given to them. Because of that, safety fell away. There was neither the incentive nor the revenues from the competing companies, which demanded access and had to have access under the rules, to give adequate payment to allow Railtrack to invest in the infrastructure.

    There have been other examples where running rights just don't work, so what we've tried to do here is to use these other mechanisms in the absence of having running rights.

    Again, maybe you should get some of the short lines to talk to you at the committee. Most of them do not see running rights as essential; they see connection rates and other issues as being more important for competition.

º  (1630)  

    The Chair: Thank you, Mr. Bagnell.

    I understand the minister has only 20 minutes left. I know some of you want to speak, but I want to make sure our members from the opposition have the opportunity to ask the questions they want. With your permission, I will go to Mr. Barnes.

    Just before we leave you, Mr. Bagnell, you asked a question to which no answer was given. I happen to know something about the $6 million or $8 million the American Senate has put in. What you asked was, if you wanted to use some other means in your area for supplying the funds that are necessary to complete the study, would the Minister of Transport agree to some other form of financing, because that's been the holdup on the Alaskan study?

    Hon. David Collenette: Mr. Chairman, we have the authority but we have no money, and I would be more than happy if the committee sought--

    The Chair: But Mr. Bagnell, Minister, indicated that there would be some other sources of funding. The Americans, I know, aren't particularly insistent on the $2 million. As long as there is some contribution to the study, they would be happy to do that.

    Is that your question, Mr. Bagnell?

    Mr. Larry Bagnell: That's fine.

    Hon. David Collenette: If you offer the money, I'll take it.

    Some hon. members: Oh, oh!

    The Chair: So I gather that if there were a contribution, there would be no problem.

    Mr. Barnes.

    Mr. Rex Barnes (Gander—Grand Falls, PC): Welcome, Mr. Minister. It's nice to see you again.

    There's been a fair amount of talking back and forth in Newfoundland and Labrador. I will tell you that with regard to the air transportation system in Newfoundland and Labrador, Air Canada has done, as far as I'm concerned, an injustice to the province. It seems that for some reason or other, when a smaller carrier did come in, they seemed to butt into their business, undercut them, and cause major problems so the smaller carrier wouldn't be able to compete in the market.

    Of course, Air Canada at times did go out. Now, we all know that Air Canada had a four-year agreement in Labrador, and when the agreement expired, they decided to move out. It sent out shock waves in the area of Labrador because people there depend on it and it's so costly. Basically, no other air express went in and took over where Air Canada left off.

    The biggest problem we see is that for some reason or other governments have sometimes gotten into the business of doing things they shouldn't do. We've had hearings where--and I said so today--the people coming to speak to all the committees criticize government for doing things that cost them money as they try to deliver a service and have some fair competition. Every time you look around there are all kinds of these taxes being put on, and people are saying the government is not listening.

    You've said that you've listened to the industry, you've listened to groups, and you've come up with a plan; this is the plan and this is what we're doing. But it seems like we're speaking to different people from those you're speaking to.

    What I'm wondering is, where is it all going to go with regard to the people you're speaking to, because there has to be a price tag? What's the price that's going to be paid by the consumers of this country for the government's agenda?

    Hon. David Collenette: We would hope that the government's agenda is the public's agenda, trying to foster domestic competition in the country. And it has worked, because Air Canada's market share is down now into the low sixties. I don't think it's going to go back up to the eighties, where it was before.

    You talked about Air Canada putting extra capacity on, matching prices, and undercutting as to the true cost. I think Mr. Beddoe was here last week and talked to you about that. The fact is, that's why you had the powers in the Competition Act enhanced last year in Bill C-23, although there was a court decision that struck them down. But the government is appealing to the Supreme Court on that because we believe that Parliament has the right to ensure through the Competition Act that predatory behaviour is dealt with in a certain fashion. So that's a guarantee for those smaller airlines.

    On the issue of airlines exiting communities, we have generally found that when a carrier has left, like when Air Canada left some communities in Newfoundland and Labrador, others have followed in. It takes a while to really get the competition, but don't forget, we've been through a seismic revolution in the last three years with the merger, then with all the problems of 9/11, now with the Iraq war, and also with the bursting of the dotcom bubble. All that has converged at the same time.

    But if you live in Deer Lake, for example, you have two alternatives: you can take Provincial Airlines to Halifax and you have Jazz to Halifax, and then you have options of other carriers out of Halifax. Of course, that's an example where Provincial Airlines has the ability to interline with Air Canada and market tickets in Deer Lake, Corner Brook, and the western part of Newfoundland to go to London, Paris, Hong Kong, or wherever you want on the Air Canada network. But Provincial Airlines can compete, so you may travel to Halifax by Provincial Airlines instead of Jazz because they have a better cost or maybe people like flying on them for other reasons. We're finding that with very few exceptions, where Air Canada exits a community, others backfill.

    The issue of charges is a complex one. Airport rents were all part of the deal when these airports were commercialized. I know the Canadian Airports Council is and has been crying the blues, but the Vancouvers, the Torontos, and the Montreals of this world all knew what they were getting into. These people were over 21, they signed deals, and they knew what the rent arrangement was.

    Only eight airports pay rent right now, although over the next 10 to 15 years others will kick in. That's where the real issues are going to come up, with the smaller airports, the Monctons and the Saint Johns of this world--I forget all the list of airports that will be eligible for rent payment.

    But we are looking at that. It's very complex because each deal made with each authority is separate, based on the infrastructure, traffic patterns, and all of that. But we are going to try to deal with that.

    Mr. Manley did reduce the air security charge in the last budget. Maybe this committee is going to advocate that it be reduced further, I don't know. That's not really within the ambit of this bill. This is something under the Department of Finance and the Income Tax Act or other statutes.

    Then there are the taxes on fuel. Again, that's a matter for the finance department to deal with. There are different kinds of issues where we're dealing with charges.

    What is germane to this particular discussion on this particular bill is the clause--I forget the number--where we require the airlines to be upfront in the way they advertise their prices. We're not just making sure that the type of fare is explained, whether it's one-way and advertised as one-way without the impression being given that it's a return fare, but that certain charges are advertised and not just tacked on to the cost of the airfare. It's not an easy issue.

    The problem we have right now is because of Air Canada's issues, which have been structural, which have been exacerbated by different events, and which, some argue, have occurred because of the strategy management has pursued. We'll leave that to conjecture. But for whatever reason, that and of course the fall-off in traffic as a result of the Iraq war are causing a lot of problems.

    The airports are owed about $80 million across the country, and that's going to reverberate. The Torontos and the Vancouvers can handle that, but the Monctons and the Saint Johns and others maybe can't.

    We can't, though, just look at what's happening now as normal. The World Trade Center attacks were not normal. This Iraq war is not normal. But a year from now, hopefully, we'll return to normalcy.

º  (1635)  

    It's very important in the case of the airport authorities that we not start to undo the whole financing framework for these services only to have the industry return to health and then not be expected to go back to the regime, which they actually signed on to and never complained about until the last 18 months or so.

º  (1640)  

    The Chair: Thank you.

    Hon. David Collenette: Sorry, that's a long answer, but these are good questions.

    The Chair: Mr. Barnes.

    Mr. Rex Barnes: It's just that the rural areas of this country could be adversely affected more than ever now because of the abnormal circumstances of all the events over the last year and a half. People are feeling that the government is not doing enough to make sure that the interests of rural areas are protected. Urban areas will survive; the big centres like Toronto, Edmonton, Vancouver, and all those areas may survive and overcome, but not the rural areas.

    I just wanted to make that point.

    Hon. David Collenette: I don't think we have much time, maybe five minutes, but Mr. Ranger will stay with Mr. Patenaude to answer the questions.

    The Chair: Let's go to Ms. Frulla.

[Translation]

    Ms. Liza Frulla (Verdun—Saint-Henri—Saint-Paul—Pointe Saint-Charles, Lib.): Air Canada is very much in the news and obviously, everyone is concerned. Getting back to the proposed section 85.2, Air Canada is of course arguing that it is a private corporation and that it is asking nothing of the government, except that it not add to its burden until such time as the corporation can restructure its operations.

    Given Air Canada's situation, is it reasonable to consider temporarily suspending the proposed section 85.2 until an agreement can be reached and we have some assurances as to Air Canada's new restructuring plan and overall future? Perhaps then we could think about applying the proposed section 85.2 and start talking about loyalty and interlining plans.

[English]

    Hon. David Collenette: This particular clause is only triggered when the government triggers it, in effect through proclamation. This is a complex bill; there are hearings, and the process is going along at the same time Air Canada's restructuring is going through.

    I don't want you and the members of the committee to be misled by some who might argue that somehow this is going to pose a financial burden on Air Canada at a difficult time. What this is trying to do is create an environment, a level playing field, for all carriers. It will not be disadvantageous to Air Canada in the sense that if interlining agreements are required and if they don't agree to setting up a deal, then the agency will obviously be able to impose those conditions, but they will be commercially acceptable.

    I have to be careful about what I say here, but Air Canada is a private company and it wants as few regulations as possible. We have a wider responsibility as parliamentarians to protect the public interest in a country that's difficult to service. No business likes to pay taxes and no business likes to have regulation, but in something like this we have to make sure the public interest is looked after. That's why we have this clause, to provide for competition, service to communities, and better pricing for individual passengers.

    The Chair: I don't know if you got an answer, Ms. Frulla, but we're going to Mr. Gouk for five minutes.

    Mr. Jim Gouk: Thank you, Mr. Chairman.

    I just have a couple of points I'll make very quickly and let the minister respond to.

    First, with regard to this issue, before Mr. Keyes started his questioning, the minister said that he was doing this for Air Canada's benefit. Well, there's a senior representative of Air Canada sitting behind them who I'm sure will be happy to talk to them after, someone who came before this committee and said, we don't want it and why is it being forced on us?

    It's interesting that after saying this was to Air Canada's advantage and using the example of Royal Airlines, the minister said that Air Canada saw fit to stop that arrangement when it came to a point where Royal Airlines was competing directly against them. Air Canada said, we're not going to help you compete against us.

    I have a couple of other points. There's so much, and every time the minister opens his mouth I think of more I want to challenge him on.

    He spoke on how the infrastructure of the rail system is very important. If it's that important, then I think the minister should be looking at changing things so track is no longer a capital investment but becomes maintenance. There could be better write-offs on that and we could have a write-off system, a capital cost allowance, a lot closer to that of competitors in the United States. People have asked for this for years and years and years, yet the government never addresses it.

    In terms of airport rents, I might point out that they used to lose $250 million a year. Now they have somebody who runs it for them and puts in all the improvements and investments while the government still owns the facilities. It doesn't cost them a dime, yet we want rent over and above that, which of course is passed on to the airlines in terms of fees.

    The final point I would make--

º  (1645)  

    The Chair: Is that a question?

    Mr. Jim Gouk: I have a lot more. The final point I have is, I just want to clarify that I am not advocating free or open running rights on the railroads. I'm talking specifically, as when I mentioned this before, of interchange and the short line operations. They have to be kept financially viable.

    If he really wants competition, he should be doing that. If he puts that up to full recovery of fixed costs, then you're basically going to be driving a lot of small operators out of the business completely. We're not going to get better competition, we're going to get worse.

    Believe me, I have a lot more. I wish the minister had another hour or two to spend with us. I'm sure he would find it enlightening.

    Hon. David Collenette: Mr. Chairman, I'd be happy to come back. It's just that today I have to leave--I should have left two minutes ago. But here's the answer to the question.

    On airport rents, I'm surprised that Mr. Gouk, from a free enterprise party, is basically saying, when you sign a deal and you do due diligence, down the road you can come back and say, I want to change the deal; I don't want to pay the rents.

    We are looking at it to see whether or not there are injustices that can be dealt with in the way of modifications. But it would never happen in business. If you sign a deal, you sign a deal, and the people who run the airports are not exactly neophytes in this business. You're talking about very sophisticated business people. Of course, it sounds good when you come into committees and say, oh, that's terrible. I say, a deal is a deal.

    Anyway, we are very flexible in government, and we're looking at it.

    With respect to this issue on interlining, what this bill is doing is extending something this committee approved during the merger process and was required by the competition commissioner. That was to provide access to the loyalty marketing system until 2005 and then to provide access to the interlining until 2007. What the Canadian Alliance is saying, Mr. Chairman, is that they don't want small carriers protected! They don't want communities protected! They don't want a competitive environment!

    Some hon. members: Oh, oh!

    Mr. David Collenette: Shame on them, Mr. Chairman!

    Thank you very much, and good afternoon. I'll come back at another point in time.

    The Chair: Mr. Minister, will you take one question from Mr. Gallaway, your colleague.

    Mr. Roger Gallaway (Sarnia—Lambton, Lib.): Minister, I'm very fascinated by this argument around interlining. I wasn't here at the time of this report. I would simply like to know, if indeed this is such a valuable commercial tool both for the prosperity and the health of the airline industry and for communities, then why wouldn't Tango interline with Air Canada and Tango interline with Jazz?

    Hon. David Collenette: The way Tango was set up by Air Canada was as a separate airline, very much like WestJet, where you book on the Internet. Meanwhile, I understand ZIP offers Aeroplan points and it does interline. Jazz does interline, obviously, with the main carrier.

    Mr. Chairman, I'm sorry but I have to go.

    I would point out, since there's some concern, that you've asked Mr. von Finckenstein to come in here to explain to you the rationale as to why this was put in the Competition Act amendments, which this committee dealt with in Bill C-26, the one on the Air Canada-Canadian merger.

    What we're doing is, we're extending those protections and we're covering all carriers. We may have in the next year or two, believe it or not, another carrier emerge as a full service carrier like Canadian Airlines, and Air Canada may be the secondary carrier. This is to protect everyone and to apply to everyone. This is not specifically aimed at Air Canada. This is not aimed at a company. This is aimed at providing opportunities for travellers.

    Thank you.

    The Chair: Mr. Minister, as you can see, there is much concern over this legislation. I would understand that as we go through the process of reviewing all the elements of the bill that's before us, you would be more than happy to come back to discuss this further with this group. Am I correct?

    Hon. David Collenette: Anytime.

    The Chair: Thank you so much.

    We'll carry on with Mr. Ranger, and we'll go back now to Ms. Frulla for some questions.

[Translation]

    Ms. Liza Frulla: I'd like to focus briefly on what I was talking about earlier.

    I don't think anyone objects to competition. Quite the contrary, in fact. Nor do I believe people are opposed to the idea of providing service to remote regions. Until now, it hasn't been easy. Costs are exorbitant and it's been difficult providing service to the Far North or to the Abitibi region. The same holds for all regions of Canada.

    Getting back to the proposed section 85.2, I suggested that the application of this provision be suspended temporarily. The bill is a sound piece of legislation and it is critically important at this point in time. If concerns have been expressed with respect to section 85.2, then perhaps we should hear from witnesses and take a closer look at this provision, but without delaying the bill's other measures. Would that be possible?

º  (1650)  

    Mr. Louis Ranger: Jean can correct me if I'm wrong, but as it is now worded, this provision does not automatically take effect when the bill is adopted. It's left to the government's discretion. If it becomes necessary to invoke a similar provision, then the government can do so. It doesn't automatically take effect when the legislation comes into force. There is considerable flexibility here.

    Ms. Liza Frulla: Therefore, some flexibility can be exercised to address certain situations.

    Mr. Louis Ranger: Correct. The provision was designed this way because Air Canada is already subject to specific requirements as set by the Competition Commissioner. However, if necessary, this provision could be invoked.

    Confusion abounds. People are greatly concerned about the meaning of this provision, but the government can invoke it at its discretion, when it feels it's necessary.

    The Acting Chair (Mr. Larry Bagnell): Thank you.

    Mr. Laframboise.

    Mr. Mario Laframboise: Thank you, Mr. Chairman.

    I too am concerned about protecting remote communities. I can understand that you're trying to help small businesses. However, I think the timing is all wrong to intervene in Air Canada's affairs.

    Have you had an opportunity to examine the Essential Air Service Program implemented in the United States which targets remote communities? That's my first question.

    Mr. Louis Ranger: Indeed we have. One of the principles set out in Straight Ahead is the importance of trying to find solutions to help the private sector. A number of measures have been proposed to promote competition.

    Let me give you one practical example. Suppose both Air Canada and a small carrier, Air Val-d'Or, provide service to Val-d'Or.

    In terms of providing service on the Val-d'Or-Montreal route, both carriers compete on an equal footing. However, passengers travelling from Val-d'Or to Toronto or Chicago encounter problems. Why would a resident of Val-d'Or opt to travel on Air Val-d'Or when Air Canada offers a wider selection of route and transfer options in Montreal? Again, if Air Val-d'Or wants to offer its customers something similar and is prepared to buy Air Canada points and offer them to its customers, why shouldn't this be a viable option, one that would give small carriers a chance of surviving in this market?

    Mr. Mario Laframboise: Mr. Ranger, a little competition is a good thing. The program that's been implemented in the United States was specifically designed to help remote communities in which competition is non-existent. You indicated that you only considered programs or ways to promote competition with a eye to saving the industry. However, you didn't consider providing direct assistance to remote communities to help them sustain an airline industry. Unlike the US, you didn't consider this option. You looked at the program, but did not make any recommendations. Is that in fact what you're telling me?

    Mr. Louis Ranger: That's right. The government's current philosophy has been to have the department stop subsidizing virtually all sectors of the transportation industry. What we're doing is trying to promote commercially viable solutions.

    Mr. Mario Laframboise: Thank you.

[English]

    The Acting Chair (Mr. Larry Bagnell): One of the witnesses said the competition thing just wasn't working. WestJet's claim took years, and by that time airlines could be out of business. Do you see any resolution to that problem?

º  (1655)  

    Mr. Louis Ranger: As the minister pointed out, we're going through very exceptional times. There's a convergence of the aftermath of September 11, the war, and SARS. The fact that Air Canada has filed under CCAA has imposed additional costs on airports, and NAV Canada is encountering some difficulty because of the lower traffic. So there is no doubt that the whole industry is encountering major turbulences.

    The question is, is this a temporary situation? If it is, one could hope that traffic will pick up later this year and we'll come back to a normal situation. We're having a lot of discussions as to how we can possibly deal with that issue. There's a concern, as the minister said, that we would try to bring some structural changes to a problem that is temporary.

    But we're really looking at all the options and certainly monitoring it very carefully, especially at Toronto and Vancouver, the two airports that are particularly hit by SARS. Load factors are down considerably and flights to Vancouver from Asia are being cancelled, for example.

    The Acting Chair (Mr. Larry Bagnell): If there are no more questions, I'd like to thank the minister and his staff for coming. It's high time we had a new act because the world is changing, including the methods of transportation and the connections between those methods. Some very unexpected events have occurred, so it's time we looked at these things. We appreciate your coming.

    The committee will adjourn for five minutes, and then we'll look at the report.

    The meeting is adjourned.