EVIDENCE

[Recorded by Electronic Apparatus]

Monday, October 23, 1995

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[English]

The Chairman: Good afternoon, colleagues.

I see a couple of our members are on their way in, so we'd like to begin with consideration of Bill C-101, the Canada Transportation Act.

Our first witness this afternoon is from the Roman Catholic Agriculture Coordinating committee. We welcome Paul Brassard.

Mr. Brassard, if you could introduce those individuals you've brought with you today and give us your executive summary of your report, because we did receive it in advance, then we can leave room for some questions.

Mr. Paul J. Brassard (Rural Life Ministry Coordinator, Roman Catholic Agriculture Coordinating Committee): Thank you very much.

I'm presently the Catholic Rural Life Ministry coordinator, and I've been that since 1989. Prior to that I spent 16 years as a credit union manager, mostly in small communities, and worked on the Hall commission for our community back in 1976. I've also worked as an elevator agent, so I have a little bit of experience in the movement of grain.

With me is Mr. George Burton, who is a farmer. He's the former Saskatchewan Wheat Pool delegate. He has served as director of community services for the Transportation Agency of Saskatchewan, working with committees regarding their concerns about transportation services. He has also represented the Government of Saskatchewan at numerous hearings of the Canadian Transport Commission. He has served as a producer-representative on the Senior Grain Transportation Committee, is a member of the Branch Line Review Advisory Committee, and is now president of Transport 2000 Saskatchewan, a consumer organization dealing with transportation concerns.

On my right is Mr. John Burton, who is the consultant to the Catholic Rural Life Ministry. Mr. Burton is a former member of Parliament. He's served on transportation committees on various occasions. He's presented briefs to the transport committee on numerous occasions as a private citizen and as a government official. He's presented briefs to the Canadian Transportation Commission, served as executive director of the Transportation Agency of Saskatchewan, and was a member of the Technical Cost Committee and the Senior Grain Transportation Committee. He's also an active farmer and an agricultural economist.

This is a presentation on behalf of the Roman Catholic Agriculture Coordinating Committee, established by the Catholic Bishops of Saskatchewan and coordinated through the Catholic Rural Life Ministry office.

The Catholic Rural Life Committee appreciates the opportunity to present our views on Bill C-101, the Canada Transportation Act. Our committee was established on the recommendation of many parish and community groups gathered to discuss the Saskatchewan bishops' statement of 1987 on the situation in agriculture and rural life in general. We represent all the Catholic dioceses in Saskatchewan and we have a close working relationship with representatives from many of the other denominations.

The focus of our group is to identify policy issues and concerns that affect people in our rural communities. It is out of caring for people, our most valuable resource and deserving of respect, that we are compelled to present this brief.

The one mode of transportation that has all costs tabulated and up front is the rail industry. In parentheses, though, I would like to add that one would have to dispute some of the items used in such calculations. The irony comes with government assistance, what we call government assistance for rail services being described as ``subsidies'' while road and airport upgrading costs are described as ``investments''. A true comparison would require the same measurement for all modes of transportation.

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As you are all aware, I'm sure, in 1897 the Crow rate was meant to control the monopoly pricing of the railroads and encourage economic development within the regions. In our view, any changes should echo those original aims.

Bill C-101, the proposed Canada Transportation Act, proposes changes that seem relatively minor but that will shift even more power to the railways.

Mr. John Burton (Consultant, Muenster Diocese Rural Life Ministry Committee, Roman Catholic Agriculture Coordinating Committee): Mr. Chairman, I'm very pleased to have been asked by the Catholic Rural Life Ministry to participate in this presentation. While I have not been involved closely with the work of the committee, I'm aware of it through some of my other activities and involvement in a variety of affairs in both church circles and farm circles. I think their work is to be commended, because what they are trying to do is to make certain that the concerns and interests of people are adequately taken into account in dealing with some of the economic forces and events we have to contend with at this time.

Bill C-101, the CTA, is meant to replace the National Transportation Act of 1987 and the Western Grain Transportation Act. The WGTA included in its legislation a four-year costing review, which called on the railroads to pass along any cost savings to producers. That will be lost. I can say, having taken part in the process of the costing review, it is a worthwhile exercise. It did accomplish worthwhile objectives. I think it will be a loss to the Canadian economy and to the Canadian public if that is dispensed with without any sort of adequate replacement.

The WGTA also had performance guarantees for the railroads, with the ability to fine the railways up to 10% of the Crow benefit if they were not meeting the standards. Again, that is lost.

The WGTA also included forums such as the Senior Grain Transportation Committee for producers to have input on the movement of grain - another loss.

We believe in reviewing Bill C-101 there is a need for some mechanism whereby producers have direct input into decisions that affect the transportation of their grain. The Canada Transportation Act removes several key sections of the National Transportation Act of 1987 on branch line abandonment by making it easier for railways to abandon lines and more difficult to keep those lines in operation. In the past committees have been stifled by the abandonment process and had little influence on the abandonment process. Now, however, there will be no opportunity to influence the decisions made at all. Yet the people in those communities will be forced to live with the result of rail line abandonment.

Under the NTA of 1987 a number of factors had to be examined before a line could be abandoned. Some of them were these: the effect on the community and the area; what were the existing alternative transportation facilities; what were the resources in the area and its potential future transportation needs; was the railway willing to help fund alternative transportation facilities; and finally, what are the effects on other lines and carriers and the transportation system generally? None of these factors are taken into account in the CTA. In other words, the railways can virtually abandon lines at will.

From our analysis, the railways do not have to give advance notice before advertising a branch line for sale. We do realize they are asked to indicate their plans for branch lines in a three-year plan, but there does not seem to be any requirement for them to hold to that plan, which has been discussed before this committee already. In reality, if the railways don't want to sell a line, they won't.

Mr. George Burton (Representative, Muenster Diocese Rural Life Ministry Committee, Roman Catholic Agriculture Coordinating Committee): Mr. Chairman and members of the committee, another factor when a branch line is abandoned is the affected communities also lose property taxes paid by the railroad companies and, I might add, the elevator companies. According to our review of this situation, this could lead to a loss of anywhere from $1,000 to $5,000. This may seem like peanuts to somebody coming from a city, especially one the size of Toronto, but let me assure you it is a crucial amount to a small village of a couple of hundred people, where this may amount to one-quarter to one-third of their tax base.

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This profoundly affects other business in the community as well, and in addition, while communities and rural municipalities lose the tax revenue from the loss of the elevator and railway lines, they will incur substantial increases in expenses to upgrade and maintain roads.

I would like to cite an example of the type of thing that happens. I recall once, when a councillor from the RM of Weyburn was asked what effect the terminal construction had on that area, he indicated it wasn't just too bad for that particular RM, but for the RM to the north.

The rural municipality of Wellington is in the position where the rail line that runs through their municipality is a light steel, all the elevators have already been closed in that municipality, they are already one of the highest-taxed municipalities if not the highest-taxed municipality in Saskatchewan, and now they find their roads are all in the wrong direction. What are they to do? About the only feasible thing is to amalgamate with someone else, and who is willing to take on that burden?

This is an indication of the type of thing we're heading to with some of the changes that would occur as a result of Bill C-101.

We believe there is an urgent need to alter the proposed legislation and to ensure entry into the system of new players on a fair and equitable basis so as to create a system that will serve and involve the people most affected by those decisions.

The Catholic Rural Life Ministry would urge three changes that would at least make the Canada Transportation Act somewhat more acceptable.

One, a running rights provision would allow a short-line railway to operate over the track of a national railway to a point of interchange with another railway of its choice. In this way, both shippers on a short line and the short line itself would have access to competing railways to ensure the advantage of a competitive environment.

Two, it is imperative that a panel be established to enable federal and provincial railways to have access to a dispute settlement mechanism. The obvious imbalance in power and size between federal and provincial railways would necessitate such an arbitration mechanism. This panel could arbitrate over, for example, disputes relating to the price of a branch line, operating agreements, or the fairness of the level of service by the major railroads to a short line.

Three, we would insist on the removal of subclause 27(2), which imposes a captivity test on shippers who wish to use the shipper relief provisions of the act. This subclause destroys the intent of the National Transportation Act of 1987, that is, for shippers to have open and easy access to intermodal competition.

As mentioned previously, our mandate includes education and identification of policy issues and other concerns that affect people in rural communities. We express the concerns of many farmers and farm families. The pain and suffering we see - and we've seen a considerable amount over the past ten to twelve years, particularly in rural Saskatchewan - oblige us to be in solidarity with them. The topic of transportation is an excellent example of service to people in all areas of the province, no matter how remote.

I would also like to share some thoughts with the committee on my report on the branch line review that I sent in to the chairman. I'll just deal with one aspect, and that has to do with road impact.

I had related my concern about the underestimation of road impact costs due to rail line abandonment. A critical point not accounted for is the speed of bigger trucks.

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I had an interesting meeting with some RM councillors from the Swift Current area, who quickly related to my concern. One had described how the roads were badly impacted by gravel hauls within their own municipality.

Finally, the rural municipal council slapped on a 40-mile-per-hour speed limit for these gravel trucks, and their roads stayed in reasonably good condition after that. Incidentally, they had the support of the contractor for that.

What can we learn from this experience, and does it apply to grain hauls?

It is generally recognized that speed is at least half of the factor in road impact, but it is never taken into calculations. Impact is calculated as the square of the speed. In other words, double the speed results in four times the impact or damage.

I suggest that most farmers might be willing to observe such a speed limit within a reasonable distance, such as that 10- to 20-mile haul that this municipality had with its gravel haul. In that case, some of the road impact studies might have application, but it would be impossible to impose that sort of speed limit on longer truck hauls. Time is a factor for truckers, and time would be a factor for any farmers trying to haul that extra distance.

It would be totally impossible to police.

In the late 1970s, the Montana Department of Highways stated that the wear on a mile of highway from one semi truck was equivalent to that from 88,000 autos. I've seen similar figures from Canadian sources, 10,000 autos.

Trucks have become much larger since then, and I just recently found a quote:

A variety of Canadian and American studies have shown that the damage done by heavy vehicles rises disproportionately according to the vehicle's weight. A truck carrying 115,000 pounds causes damage equal to 30,000 automobiles

- suggested Transport 2000 Atlantic president John Pearce in an article in the Saint John Telegraph Journal.

I think these figures correlate, because they show the increased truck size and the ever-increasing damage that is caused because of it.

Even with the trucks having extra tires and axles, a road surface needs time to recover before the next set of tires and axles passes over it. Here again, speed is a prime factor.

It is essential that these factors be taken into account in assessing the impact of alternative hauls from the branch rail lines under review.

The Chairman: Thank you very much, Mr. Burton, for the statistical examination.

Mr. Brassard and John Burton, former member, thank you for submission.

We'll move to questions. Mr. Gouk, please.

Mr. Gouk (Kootenay West - Revelstoke): Thank you, gentlemen, for coming and for the time and trouble that you've taken to put this together. I know from some of my studies on this that you've done a lot of work, and I can see a lot of accuracy in many of the statistics you are quoting.

Some of the things you are concerned about I had concerns about myself. I must admit that on some of these things - ironically, specifically most of the things you've addressed - I've altered my position somewhat. I would like to give you a couple of the reasons and see if you generally agree with them.

One of the things you said is that this will make it easier for the railways to abandon and more difficult to keep their lines in operation. I would buy half of that: it will make it easier for them to abandon. However, the concern I had before was that essentially, in order to abandon a rail line, the railway first had to show that it was financially not feasible to run it. If they wanted to abandon it but it wasn't financially not feasible to run it, then they made sure that it was before they applied to abandon it. They had to do that.

I am not saying that they were the culprits in this. That was the way the rule was made up.

In doing that, they created a situation where, at that point, no short line in its right mind wanted to buy it. The line was basically in need of total rehabilitation. It was demarketed or the shippers on the line had been moved to an alternate source of transportation with which they were already satisfied.

The whole idea of this is to allow them to do those abandonments more easily, which means they don't have to run the line down. They can still try to get out of it at a time when it's more appealing to a short-line operator, with the caveat in here that if they've tried to abandon it and they haven't sold it - and this touches another point you've made, that if the railways don't want to sell the line, they won't - then it will go at its salvage value to the federal, provincial, or regional government, depending on the type of line.

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If I were a businessman and I offered $3 million for an operating line that had a salvage value of $1 and they refused to sell it to me, I can tell you what I'd do. I'd be going to the provincial government and saying, look, here's the deal: you buy it for the $1 million, turn it over to me for that $1 million, I'll put some of the extra money into rehabilitating it, I'll drop my prices, and we'll all be happy.

I would think the railway would be very reluctant not to accept a bona fide offer.

Have you considered these types of explanations, or this type of position, in arriving at your conclusion?

Mr. G. Burton: To get into actual cases would be rather difficult, because I think we're trying to establish a principle. No doubt the member raises some legitimate questions there, but I wouldn't want to get into the whole technical discussion that would be involved.

I think we want to establish a principle here that there is that option for our communities. Let's remember, we might be talking of railway companies and elevator companies. It is the farmer who pays that bill in the end; and it's the farmer who's going to pay that bill if the alternative is going to be trucking fifty miles, with some of the results I indicated in road impact costs.

Mr. J. Burton: I just point out as well that I served on the technical costing committee under the Western Grain Transportation Act for some years. I can tell you some of the railway figures are open to a good deal of question. We were engaged in essentially confidential discussions, about which all of us gave an undertaking that figures and specific information would not be made public. But there were quite a number of times when the railways were brought to task for the type of information they had provided. They in fact had to make changes, and sometimes even admitted a change was necessary. This came about only as a result of having a forum where some of these things could be assessed and could be dealt with. It was in a particular environment at that time as well.

When it comes to the question of provincial governments, or even regional or local governments, taking over railways, there's some difficulty at present if we just attempt to pass it off that way. I don't think I have to tell the member there has been a good deal of offloading of federal programs onto provinces, and in turn there's been offloading onto local governments, in all provinces. So those other jurisdictions are finding themselves hard-pressed if they are approached about such a proposition, even though the proposition may have a good deal of merit.

Finally, the essential point here is that there is a community interest as well as the railway interest, and that has to be taken into account adequately. Maybe changes were needed in the process that was there before, but the railways appear to have got their own way entirely. We feel there needs to be a better opportunity for community input and for community interests to be taken into account.

Mr. G. Burton: In that regard, there is also a national interest. The production of our grains and agricultural products and their movement has been declared to the general benefit of Canada. I think we have to keep it that we have a well-functioning rail and grain-handling system.

Mr. Gouk: Maybe we could move on to a couple of different points, because I have a couple of points and I'm sure other members would like to ask some questions as well. We're on a fairly tight timetable.

About subclause 27(2), the part on significant prejudice, there have been a lot of points of view on this. We've heard producers and shippers come in and say, we don't like it there because we think it'll block us from getting to the NTA. We heard one rail company come in and say, we don't like it because we don't think it blocks us from getting to the NTA. If the clause were amended so it was absolutely clear this would not be a gateway walk for people applying to the NTA for a hearing - in other words, this would not be applied to stop them from making their application and having their application heard, it would only be used as a remedy after their submission had been made - would that make it more acceptable for you?

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Mr. Brassard: Until I saw it in writing I would be reluctant to make a commitment.

Mr. Gouk: I'd like to touch very briefly on running rights. A couple of things have happened here. I'm a little miffed at my understanding of what Transport Canada has done in terms of a lot of discussions and negotiations that went on with producers and shippers early on, because the issue of running rights was tentatively on the table to be considered against other concessions made by it. I think that was a very false premise, because we do not have the constitutional authority to make that particular change. It is a provincial authority.

First of all, I don't think they should have been trying to bait the discussions with it. But more interestingly, I've talked with officials of at least one of the major railways who said the short lines don't even want that right. They said not to take their word for it, but to ask them ourselves. To date I have found only one short line that wants to have those rights. All the rest have uniformly said they're not interested in having those rights at all.

There's a final thing I'm concerned about. If you'll recall, I explained how the railroads used to create financial instability before they applied for abandonment. If they're going to be placed in a situation where they have to take their own rail line, a spur, and cut if off, only to later have that same short line carrying their former clients' goods at a rate that may or may not be compensatory, at a time that may be disruptive to their schedule with some other problems in there, and take it for their competitor, they may in fact go back to their old standard of simply running the line into the ground and finding an alternative method of transporting their clients' goods by a reload centre or whatever.

I would just point out to you that I do have some concerns about that. I'm very sympathetic with your position, but I want to make sure if we make changes they are really in your best interest.

Mr. G. Burton: Was that provision not there in the National Transportation Act of 1987?

Mr. Gouk: No, not the one the shippers have been looking for under this one.

Mr. G. Burton: But the protection that was there under NTA 1987 was at least an option. There was provision for access to -

The Chairman: Running rights only for the federal railways.

Mr. Gouk: They have not lost anything.

Mr. G. Burton: We are saying it should also be applied to provincial railways.

The Chairman: Mr. Fontana.

Mr. Fontana (London East): I want to thank the gentlemen for putting their case. I can understand where you're coming from in terms of wanting to protect the family farm and the producers, but I have to ask you some questions because the status quo is not sustainable any more.

You speak of the railroads as if they were national public companies that belonged to the government. The fact is they are private businesses - I'm sure you would understand because you're probably business people yourselves - and you can't force them to keep something that isn't making any money. Hence, with regard to abandonment, I think the government has been very sensitive to the representations made to it by colleagues and others that the proactive way of being able to ensure that communities and producers are protected is to have a system in place that works a lot better than the one that's in place now, and I think Mr. Gouk pointed that out.

This bill is about maintaining railroad lines in communities and being able to make it possible for new players to get into the game, hence short-line operators. Therefore, lines won't have to be abandoned because there is too much infrastructure and the railroads will shed it. There is a proactive way of doing it by creating short lines to allow a rolling list and advance notice of abandonment so communities, producers and provincial municipalities can get together. I think you'll find the system is going to be much more proactive.

That's why I have to ask you this question. Don't you feel that in order to ensure that the producers in this country are able to ship their product, which is so essential to this country's economic future, we have to be able to do it in a very affordable and efficient manner? That means getting the railroads' viability in check to ensure we have a viable railroad industry, because the government, unless it's prepared to buy them - we're selling one, because we feel that's the better approach - has to ensure that we do have viable main-line industries or railroads that can move your products.

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Mr. Brassard: First - and the others can comment - I think we were the first ones to admit there are some lines that won't be able to survive if you try to put a short line on them. We're not asking for them.

But I ask the members to also consider that over the last number of years we gave something like 43 million acres of land to the railroads, with all the mineral rights plus a hell of a pile of cash. They took out all of the profitable portions and now want us to pay for everything. That doesn't make sense. You and I can take any program we have and take out the parts that make money and set up another corporation, and we're going to be laughing. I think that's what has happened, but we're not talking about that, and I'm sorry -

Mr. Fontana: I don't understand what your solution is. Is your solution to maintain everything as is?

Mr. Brassard: No.

Mr. Fontana: Who pays for it?

Mr. Brassard: No. I'll let the others respond to that. I don't think we're asking for that.

Mr. G. Burton: We certainly recognize there may be areas where there will be some abandonment. But let's keep in mind that in the three prairie provinces there have already been about 3,700 or 3,800 miles of track abandoned. This has been an ongoing process. How far do you let it go and still retain some semblance of service to the people out there? That's the whole point. And the whole point of our suggestions is that it can still be facilitated.

Mr. J. Burton: Mr. Chairman, I'd like to add a word. Some of the concerns already expressed to this committee - and I heard some of them here last week - were about the process for dealing with a short-line railway proposition or application. The members will be familiar with that and we certainly hope those concerns are addressed.

From the farmer's point of view, from an agricultural point of view, the concern is not just with shipping point to export point, but with farm gate to export point. That needs to be taken fully into account in assessing the alternatives.

The Chairman: Mrs. Cowling, there's some time left in this round. Did you want to ask a question?

Mrs. Cowling (Dauphin - Swan River): Yes, Mr. Chairman.

Your presentation hinged primarily around rail line abandonment. I would like your comments on the competition between trucks and railways.

Also, I believe you're talking primarily about grain. Would you explain why moving grain out of the country is so different from moving other products?

Mr. J. Burton: I can comment first. You have to have a very large collection system. You collect the grain into a system and then you move it on to an export point. When you're dealing with a product like coal, you're generally taking the product from one spot, like taking the product from a potash mine or some other such operation. In some of those instances you need to have a widespread system at the other end, at the market end of the picture. But here we need a very widespread collection system in order to deal with the product. That is the fundamental difference in the nature of the products we're dealing with.

Mr. Brassard: You referred to competition. The problem with competition when you're talking about trucks is that the people in the community are paying the full cost of those roads. That's why it really isn't competition. You're talking about apples and oranges. That's what we're concerned about.

The Chairman: Does anyone else have a question? Mr. Hubbard.

Mr. Hubbard (Miramichi): I noticed Mr. Brassard getting a bit annoyed or perplexed with some of the background to railroading in the west. Probably this committee's members would be well served if you or your group could give a brief summary later, maybe in writing, on some of that background you're referring to.

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The spin-offs that you mention should be considered in light of some of the provisions of this bill and how they may apply. There's a long history of how lands have been divested and things have been spun off, and maybe it should be considered by our committee.

The Chairman: Thank you, Mr. Hubbard.

Mrs. Sheridan.

Mrs. Sheridan (Saskatoon - Humboldt): Is this part of our ten minutes?

The Chairman: I've already asked on the other side and we're ready to go on to our next witnesses.

Mrs. Sheridan: Oh, really? Okay. I'll be very quick then, because I've talked to Mr. Brassard before.

I just wanted to talk about some specific things in here that you're worried about.

One of the things you seem to be concerned about is that under the abandonment of division V, with the new provisions in the new legislation, you are fearful that there's nothing to require the railway to comply with these things, including the preparation of the three-year plan. The quick answer back to that, which I'd like you to think about if you can't comment on it right now, is this.

First, all the language used in division V is mandatory. I have my lawyer's hat on for the moment. It says that the railway shall prepare the plan, it shall do this and it shall do that. In other words, if it wants to go through with its abandonment plan, its sale or lease or whatever, it must comply with these steps or it will be unable to complete the abandonment, for one thing.

There's also a new section, clauses 177 and 178 of the bill. Have a look at them when you get home and I'd be happy to talk with you again. In fact, one of them is new; you will not find this in the old act, if my research is correct. There are some teeth in this to require the railway to comply with these kinds of things you're worried about.

You're right that if they don't plan to sell something, there's no requirement for them to put it in the plan for what we're going to do. I say ``we'', assuming I have my railway hat on now. Watch carefully; I'm switching hats all the time. Assuming the railway's not going to, I would then say that if you as an RM or a producer were interested, they shall be required to keep that plan available for public view.

Therefore, by omission, if you go and look at the plan and it says A, B, C, and D are not listed, it must mean they intend to keep it. If you see what I'm saying, the flip side of it would be that if it's not there, they mustn't be going to get rid of it.

You have so little time here and I know you've come a long way, so I thought I'd bring this up for you now to at least to think about. If you have further comments, I know the committee would be happy to receive them.

The second thing I would like to ask you is this. On page 3 of your very concise submission to us, you've listed the kinds of concerns that the NTA was specifically required to address before it could think about abandonment, such as basically the effect on the community. What's it doing to rural Canada?

I know, Mr. Brassard, that no one is more sincere about those worries than you are. We saw a sample of what Mr. Hubbard was confused about. It's western passion that he was looking at, right?

I would say to you that yes, it's one thing to list these in the bill, the concerns you have on page 3. But having travelled across the country looking at the commercialization of CN Rail and knowing, as Mr. Fontana mentioned, that there's no money left to run the railway, what I'm asking you first of all is do you not think the marketplace itself would force the railways to sell the line, which is how you conclude the paragraph under that list? If the railways don't want to sell, they won't. Let's say for the moment the marketplace would force them to do that.

Second, we have fewer dollars, but I would put this to you to think about or respond to right now. Is there not another way to enforce public policy, which is really what the things you've pointed out are all about, and a way to get economic development going in the west or other parts of Canada? Is there not a better way to spend that money than just constantly shoring up the railway on unprofitable lines with taxpayers' money? You mentioned the RMs and taxes. Ultimately it's all coming out of the pockets of everyone in this room.

I'm sorry for such a long question, but could you comment briefly, if you choose to, on any of those points? I'm just wondering if this is the right legislation to deal with the valid concerns you raise.

Mr. Brassard: Without having a chance to look over some of the things you were talking about, it's hard, but the one thing that concerns me is the whole question you referred to about the marketplace and competition. There is no competition in this system now, and I don't think the legislation is creating any competition. I have researched what's happening right now in a deregulated market in the U.S., and they're in more of a mess now than they've ever been before, and they have some serious concerns down there too.

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So I don't think deregulation is going to solve all our problems. I agree with you, we have to change some things we are doing, and we're the first ones to say we can't keep all the lines that are there, I can tell you that.

Mr. J. Burton: Certainly there are some mandatory provisions in there, but some of the concerns that have been expressed before this committee already are that there's some shifting ground. It's possible to have some shifting ground, where plans can be changed.

Also, we expressed concern earlier about the length of time available to carry through with some of the options which may be open and which provision is made for in this bill.

The final point I would like to make is that when we're looking at the rural community in Canada, both the present government and the previous government made commitments to strengthen rural Canada, to make rural Canada a stronger place in trying to cope with some of the serious problems it has been encountering over the last number of years and on which we can all agree. But every one of the things we have seen over the last few years seems to be eroding or weakening the position of rural Canada.

I think that's part of our concern. We can't look at this legislation by itself, as one single entity. It's part of a whole package.

Reference was made to the privatization of CN Rail. We have the ending of the Crow benefit. We have rail line abandonment coming into the picture, a weakening of the Canadian Wheat Board and some threats to it, which has been regarded as a pillar. While I recognize these things don't come before this committee at this time, I just wanted to submit that they are part of the larger picture and the concerns over this bill are one part of the total concerns that face the rural community, and western Canada in particular.

The Chairman: Gentlemen, ladies, thank you very much for your submission to the committee. I am going to have to draw it off there. We have another few groups to come before us this afternoon.

Mr. Brassard, Mr. Burton, Mr. Burton, thank you very much for your submission and for coming so far to make it.

Without further ado, we welcome Prairie Pools Inc. Their chairman is Ray Howe.

Ray, welcome back to the committee. We look forward to an introduction to these gentlemen you brought with you today and a synopsis or executive summary of the submission you forwarded to this committee a little back now. Thank you very much.

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

Hon. members of Parliament, ladies and gentlemen, it is a real privilege for us to be here and we appreciate the opportunity to appear before your committee.

I think you know who we represent. We're Prairie Pools, which is a regional organization but has national implications, and international implications, because we're now involved right across the world, actually, in activities. We represent about 60% of the grain marketed on the prairies each year. We also have 5,000 employees right across Canada.

The gentleman who will be making the presentation today is Mr. Ken Edie. I serve as chairman of the organization. Ken Edie is first vice-president of Manitoba Pool Elevators and will be making the presentation. Gordon Miles is the general manager of services and development for Manitoba Pool Elevators; Anders Bruun is the general counsel for Manitoba Pool Elevators; and John Petruic is the acting director of corporate affairs for Alberta Wheat Pool. So we represent all three organizations here today.

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Mr. Chairman, I'd like to give the floor to Mr. Ken Edie.

Mr. Ken Edie (Vice-Chairman, Prairie Pools Inc.): Thank you, Mr. Chairman.

Prairie Pools Inc. has provided our submission in advance. We would be most pleased to answer questions about the submission, but considering that we are very limited for time, I would like to use a few minutes to discuss four points that we think are, in the consideration of this bill, very important for grain shippers.

Before I start, we think it is necessary to understand the nature of the prairie grains and oilseeds industry. Each year, prairie farmers produce over 50 million tonnes of grains, oilseeds and special crops. We have storage for one year's crops on-farm and in commercial storage, so the system has to be emptied every year to prepare for next year's crop. Of that 50 million tonnes, less than 25% is used in Canada. Much of that is transported over large distances to domestic processors. Over 30 million tonnes of prairie grains and oilseeds are exported annually.

One of the goals of our industry is to increase activities that add value to bulk grains and oilseeds, and we have been making steady progress. Domestic use of the six major grains and oilseeds has increased by more than 35% over the past ten years; however, sheer volume will continue to dictate that exports will still be the major source of revenue for the grains and oilseeds industry.

The first area that we need to clarify is captivity and competition. There are important points to make here. Grain shippers are captive to only one mode of transportation, and that is rail. There is little or no effective competition between the two national rail companies for grain transportation business. The first is captivity to rail.

Western Canada is a land-locked production base. Its geography prevents competition from road or water. Our waterway from the prairies to export ports does not exist and trucking is not a viable alternative for both economical and physical reasons. Current truck rates to west coast points from Calgary, Alberta, are $10 to $15 a tonne higher than full rail rates, and the greater the distance from port, the greater the truck rate.

Even if the economics worked, it would be physically impossible to move large volumes of grain by truck. As you will see from the overhead, in order to achieve the same level of exports out of the port of Vancouver that we moved by rail in 1992-93, a fully loaded super-B truck would roll down Hastings Street in Vancouver every two minutes, 24 hours a day, 365 days a year, one truck per stop light.

In November and December 1993 the government implemented an emergency trucking program for the west coast and Thunder Bay. Under this program, the government paid the equivalent of the rail subsidy to shippers for trucking. Despite a severe railcar shortage and the critical demand, only 270 tonnes of grain were shipped to Thunder Bay and 600 tonnes were shipped to the west coast by truck. That is the equivalent of ten railcars. Weekly railcar unloads at the west coast are around 5,000 railcars. Even if Hastings Street could take the extra traffic, the facility at the port cannot handle such large numbers of truck unloads. So grain shippers are captive to rail to move very large volumes to export and to domestic markets.

The second point is competition between rail companies. There are only two national rail carriers in Canada. Economic research shows that in a situation where there are only two market suppliers, price competition is not a permanent feature in the market. This can be demonstrated in Canadian grain transportation. If you take a look at these overheads, you will see the incentive rates provided by CN and CP from 1988 to 1995. Incentive rates are supposed to be the rail company's way of attracting traffic from each other. In other words, that is how they compete for traffic.

You will see that the incentives provided by the railways since 1988 have actually declined. Until this year, both CN and CP offered additional incentive for volume. This year they were discontinued. The reason given by both companies was that too many shippers were taking advantage of the volume discounts.

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The competition scenario is our best-case situation. In large areas of the prairies, shippers have access to only one rail company. In High Level, Alberta, grain shippers are over 500 kilometres from the nearest alternate railway.

The second area for discussion is the historic relationship between grain shippers and Canada's rail companies. Through the late 1890s and through 1983, grain moved to the west coast and Thunder Bay at a freight rate set in regulation - what was known as the Crow rate. In 1984, the Crow rate was abolished and replaced with a system in which rates were set based on rail costs, and they were shared by farmers and the government under the Western Grain Transportation Act.

On August 1 of this year, the Western Grain Transportation Act was repealed. With it came the loss of the government transportation subsidy and a mechanism that provided for transparent rate-setting based on a four-year review of all costs.

During their appearance before this committee, management of CN stated that while CN shares the pain of shippers when their commodity prices drop, they're unable to share in any market improvements because of the threat of final-offer arbitration. A specific reference was made to the regulated rate that had existed for grain with the claim that it prevented CN from capturing this recent upturn in the price of wheat. However, that is only one side of the story.

We'd like to draw your attention to the next set of overheads. First, we see rail revenue from grain for 1989 to 1994. Next, we see producer revenue from the export of grain for 1989 to 1994. When we superimpose the overheads, you can see the relationship between rail revenues from grain and farmer revenues from the export of major grains. The producer revenue from export grains gets up to $5.6 billion, drops to 1993. The revenue from grain transported is up to $1.18 billion, and drops down to over $1 billion, staying relatively flat at just over $1 billion. When you put the two together, you can see that while farmers' revenue was going up, rail revenue went up. But then the relative rates changed.

The costing review in 1994 did indeed result in a lower freight rate, even when wheat prices were increasing. However, during the period when market returns for grains and oilseeds producers turned down, the railways were still getting a constant freight rate. That rate guaranteed them their variable costs and a 20% contribution to fixed costs and profit. Contrary to what was said to this committee, there were no breaks for farmers even with the regulated rates.

Our third area of discussion is the provisions of Bill C-101 that would limit our access to shipper protection provisions.

When the WGTA was repealed, the Government of Canada assured grain shippers that they would not be thrown into a market where there is captivity and little or no competition. We were told we would have full access to the shipper protection provisions of the National Transportation Act of 1987. The key benefit of these provisions is that their threat often forces business negotiations and agreements on disputes. While the shipper protection provisions are still present in Bill C-101, articles such as the significant prejudice test, which was not in the 1987 NTA, would serve as barriers to our access to shipper protection provisions.

Mr. Bruun, who is legal counsel for Manitoba Pool Elevators, has done some work on the legal history of significant prejudice. He will discuss his work with you shortly.

Finally, I have some comments on clause 155 of Bill C-101. For grains and oilseeds producers, clause 155 is a critical part of Bill C-101. The clause establishes the maximum for grain freight rates. A maximum compensates the railways for the variable costs of transporting grain and provides a contribution to their fixed costs and profits. The maximum rate was transferred to Bill C-101 from budget implementing legislation. For all the captivity and competition reasons stated above, the government recognized that a provision that would have repealed the freight cap in the year 2000 should be removed. A government amendment to the legislation put the onus on the Minister of Transport to demonstrate that the shippers will not suffer significantly before any decision is made to remove the cap.

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This committee spent much of its time looking to the United States as a model for a Canadian transportation system. Let's take a quick look at what has happened in the U.S. in the absence of either competition or regulation to mimic competition.

This overhead shows the situation in the United States. In cents per tonne-mile, the freight rate for barley from Moccasin, Montana, to Portland, Oregon, where there's no competition for Burlington Northern Rail, either from other rail lines or other modes of transportation, is 4.75¢. The freight from Bismarck, North Dakota, to Tulare, California, where full competition exists, is 2.88¢ per tonne-mile, almost half the rate charged in the captive situation.

Mr. Chairman, members of the committee, thank you for taking the time to listen to the case for grain shippers. We would be most pleased to take any questions you might have, but perhaps Mr. Bruun could first make a statement on significant prejudice. I think it fits in as part and parcel.

Mr. Anders Bruun (Corporate Secretary and General Counsel, Manitoba Pool Elevators): Thank you, Mr. Edie. Thank you, Mr. Chairman and hon. members.

This submission relates to the real problems that will be caused for shippers by the use of the phrases ``significant prejudice'', which appears in subclause 27(2); ``frivolous and vexatious'', which appears in subclause 34(1); and ``commercially fair and reasonable'', which appears in clause 113. Detailed legal analysis is not possible in the short time allotted for this presentation; however, I will state what each of these phrases will mean in practical terms if they remain in the bill.

The significant prejudice test means that each applicant must, in the circumstances of their particular case, satisfy the agency that they will suffer significant prejudice if the relief they are seeking is not otherwise available than by agency order. The full onus is on the shipper. Unless a shipper proves they will suffer significant prejudice, the agency does not have legal authority to issue an order to assist that shipper.

The leading cases in which courts have defined the word ``prejudice'' show that it means ``unjustly made to suffer'' - that's one quotation - and ``suffer a pecuniary loss or damage''. The word ``significant'' requires that the losses be large.

The significant prejudice test will create a legal mechanism that will affect the competitiveness of businesses independently of underlying economic factors. For example, an application by a shipper with only one facility moving 100,000 tonnes of product from one location on one line can more easily build the case to support a finding of significant prejudice than can a shipper who moves 3 million tonnes from numerous lines but is making an application in respect of 100,000 tonnes from one line only under otherwise identical circumstances.

In the first case, the shipper is applying in respect of all their business. In the second, the shipper is applying in respect of an amount of business that is 100,000 tonnes but is, however, only one-thirtieth of their total business.

As the question of what constitutes significant prejudice must be determined in the circumstances of the particular case, it is clear that the agency has the right and, I'm quite certain, also the legal obligation to establish different levels of access to the relief contained in the bill, depending on the size of the applicant's total volumes.

Where an applicant brings an application that is frivolous and vexatious, the agency may order that person to pay compensation for any resultant loss or delay. While it is not unusual for courts and tribunals to have a mechanism to control abuse of their process, it is not common to see a provision permitting compensation orders in respect of loss or delay. No matter how quickly or expeditiously the agency moves on the applications brought before it, there may from time to time be delays in dealing with matters, which is completely beyond the control of an applicant. Under Bill C-101, the agency is legally empowered to order an applicant to pay for costs caused by delay that has been caused by the agency itself or by other parties to the complaint. This shows the extremely unreasonable extent to which Bill C-101 protects carriers at the expense of shippers.

The phrase ``commercially fair and reasonable'' will, in actual practice, create real problems for shippers. First, it raises the question: commercially fair and reasonable to whom; in whose perspective?

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In actual practice it is very likely that shippers will have an extremely difficult time in proving that a carrier's position on what is commercially fair and reasonable in any given circumstance is not correct. In other words, carriers are in a position to go before the agency to say that their offer on a condition of service or a rate, as the case may be, is commercially fair and reasonable, and it will be extremely for a shipper to prove otherwise unless that shipper is given full access to the carrier's costing information.

It is clear that these provisions must be given a major overhaul if Bill C-101 is to be fair and acceptable to the enormous number of Canadians who either are shippers or rely on shippers to earn their living.

I'll be pleased to provide a full legal analysis of each of the statements made in this submission if the committee so wishes. Thank you very much.

The Chairman: Thank you for your submission, gentlemen.

We'll go right to questioning. Mr. Gouk.

Mr. Gouk: That was a very good presentation, particularly that last part on subclause 27(2). I've asked that question of many people, and those are the best arguments I've yet heard being brought forward.

Over the course of the summer and this fall, I've met with many groups, both shippers and producers, short-line rail and main-line, including your group, so I am aware of most of the concerns you have.

Of the seven clauses you've listed in your submission where you're looking for change, I am either planning, or at least reviewing the possibility of, amendments to six. The seventh falls in the area of grain transportation, and I'm relying on my colleagues in the agricultural area, who are here in force today.

With that, I will pass it over to one of them who has some questions for you.

Mr. Benoit (Vegreville): I'm pleased to see you here today. I, too, appreciated your presentation. I had it in advance, and I appreciate that.

I want to start with a question on subclause 27(2). A similar clause wasn't in NTA 1987. Why, in your opinion, is it in this piece of legislation?

Mr. Edie: As we have commented, we thought we were going to an NTA 1987, but then this came along. To be perfectly frank, we were surprised.

Anders, do you have a comment on it from your perspective?

Mr. Bruun: I can only state the answer that's the most obvious to me, which is that it was suggested to government by the parties who felt that they would benefit most from it.

Mr. Benoit: The railways. But if you could put yourself in the place of the railway - just try for a while, I know it's difficult - could you argue with some legitimate foundation that this clause is needed?

Mr. Bruun: The agency has gone to a three-person commission. Its manpower is down. It might be more difficult for them to deal with matters. It might, in some circumstances, mean that minor cases won't come before the agency - which from some perspectives might be well and good.

However, I would say that the real question this committee has to ask is this: are we going to pass a law here that keeps Canadians from having access to the agency?

Mr. Benoit: The railways have used the argument that they would like this in fact to be strengthened. Why would they need it now, under the CTA, if it wasn't under the NTA?

Have you done the research to determine how many times this subclause 27(2) would have kicked in under the NTA? How many complaints were there under the NTA? What indication is there that this is needed at all in this legislation?

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Mr. Bruun: I have not done any research on that specific point in quantitative terms. I have read a number of the cases that have come before the commission in past years and I don't recall reading of any cases that weren't important to the people who felt they had to bring them to the agency. The cases appeared to be meaningful cases, with real issues that needed to be heard and decided.

The track record of the sorts of cases that have come before the commission is published. Those are published. They are available. It may be incumbent on that group to come before you to establish just how much of their time has been wasted.

Mr. Benoit: They will be a witness before the committee and my colleague will ask them, I'm sure, how many cases they have had to deal with in total, cases that would have been covered under subclause 27(2). But in your -

Mr. Bruun: May I make one final comment on that? My review of the past three or four years indicates not very many cases are a waste of time coming before the body, and certainly not enough to justify denying access to the agency to Canadians.

Mr. Benoit: In your paper you referred to the final-offer arbitration process. I've been told this process is not really what you'd expect a final-offer arbitration process to be like; in fact the shipper would make their final offer, and then the railway can have a look at the shipper's final offer before they decide what offer they want to put on the table. Is that true, and do you see a problem with that?

Mr. Edie: Certainly that was a surprise. Since I have had some personal experience in bidding on contracts in our family business, this leaves me wondering how in the world this would work to the benefit of the shipper if their bottom line was revealed and then the railway had the opportunity to deal with it later on. That's like offering one contractor a contract and then saying, well, now that we have your bid we'll reopen it so everybody can nickel-and-dime you underneath. To me it doesn't make any sense.

Mr. Benoit: The strength of final-offer arbitration is that both sides are forced to put their best offer on the table. Do you feel that is accommodated in this regulation?

Mr. Edie: Definitely not.

The Chairman: On a point of clarification, Mr. Edie, then, you favour the idea, obviously, of removing 27(2), 34, 113, etc., and we'll let the farmers, individually or as a pool, negotiate with the railway, and if something is unsatisfactory, you'll have the option to go right to the NTA for some final-offer arbitration at the end - pure competition.

Mr. Edie: Basically that's correct, because we felt we were going from WGTA, which was very shipper friendly, to NTA, which had some provisions for relief in certain cases. When some of these things came through, that was not what our original understanding was.

The Chairman: Ms Cowling.

Mrs. Cowling: Thank you for coming before the committee and making such a good presentation.

What is your overall position on Bill C-101?

Mr. Edie: Other than these particular points, there is a lot of good legislation in it.

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Mr. Gordon Miles (Prairie Pools Inc.): For the most part Bill C-101 tends to capture much of what was contained in WGTA legislation as long as there are no barriers to the competitive access provisions. What we have stated is that there are concerns about some of the current provisions in the CTA that will in fact be barriers to getting the kind of relief we may require in terms of rates or service.

But just to be clear, as far as the legislation itself goes, it looks to be, for the most part, fine.

Mrs. Cowling: Great.

Prairie Pools has made some recommendations that have been supported by a number of other groups that have come before this committee. If these recommendations don't come forward, what impact will this have on the grain industry in western Canada with respect to moving grain in the international market? You've requested that subclauses 27(2) and 34(1) and clause 113 be deleted. If they are not deleted, what kind of impact will that have on the overall grain industry and on shippers and farmers in western Canada?

Mr. Edie: We think it would have a significant negative impact.

I want to make one point clear. Going back to when we had the statutory rate, the Crow rate, and the run-up to the WGTA, as Prairie Pools, we recognize the railways have to be made whole. There's one thing worse than railways that charge too much, and that's bankrupt railways. The Staggers Act in the U.S. recognized that and came forward with a very railway-friendly act.

We're not asking to have railways that aren't prosperous and making money, because at the end of the day we will lose more. But we want to make sure we can enter a forum without encountering the hurdles we think this will create in getting to that forum. That's our problem. How will we have a discussion while someone argues endlessly, with lawyers going on and on about what is significant prejudice and what is frivolous and vexatious? I think the agency will be able to make that determination, as they have in the past, and we'll be able to go forward from there.

The last thing we want is to have railways that aren't competitive, efficient and economical for grain shippers.

The Chairman: Mr. Collins.

Mr. Collins (Souris - Moose Mountain): Thank you for your presentation.

My concern, coming from the west, is if we don't get it right this time, we may pay for it for a very long time to come. I hope this committee, as we sit down and review it, is here to really look at those things that need to be addressed in the way of changes that are going to be significant and long-lasting. If we're just here to put in time, then I for one, along with you and others, will be unhappy that this process even began in the first place. I take with very significant concern those things that you raised, like subclauses 27(2) and 34(1) and clause 113.

Having said that, I would like you to address something for me, if you would. As grain has just recently been placed under the NTA, what does this mean for farmers? Secondly, how is grain different from other bulk commodities in what we're going to look at as part of that process?

Mr. Edie: That question comes up, we say grain is different, and people hear us to say it needs special treatment. We're not saying that. But it is different in that it's gathered at 2,000 points of production and there are numerous classes of grain, at least ten or twelve if you get into the special crops like lentils and so on, but six majors, and with each of these there are grades and protein levels and on and on. These have to be segregated and identity preserved right through the system. It has to go through four export points: Prince Rupert, Vancouver, Churchill and Thunder Bay.

In the commodities market there are sayings, one of which is that yesterday's meals were eaten yesterday. If there's any break in the continuity, you've lost market. You have to have the right grade at the right time at the right place at the right price.

A consultant who was hired by Transport Canada, Andrew Elliott of Saskatoon, made the comment in his report that it's really the other way around; and using potash as an example, it is produced at four points and goes to 2,000 users. That might be so, but you can store potash, you can decide not to ship it or you can ship it and put it in inventory, in your customer's hands, whereas grain is a perishable product and you cannot do that.

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So we really don't buy that concept, yet it was put forward to Transport Canada because he was hired by Transport Canada to bring forward comments on rail regulation.

Mr. Collins: What is the bottom line for Canadian rail now, in your presentation here today?

Mr. Edie: I think the points we've made that are at variance with what we expected under NTA 1987.

As Mr. Miles as suggested, Bill C-101 has a lot of good foundations in it and we can live with those if we have the opportunity to compete - and I won't use the customary phrase - on a level railway, I guess, in that we shall have access to a ruling agency that can give us a competitive situation, but with revenue enough for the railways.

If I can make almost an editorial comment, we feel that there's a great deal of focus on enhancing and maintaining the revenue of railways, and to the extent that that's possible, it's fine. However, there are only two ways to stay in business: one is to increase revenue and the other is to reduce costs. We're not sure that the railways have been given the freedom to reduce costs. That would be helpful to them, and we would be happy to work with the railways in those areas.

Mr. Collins: I did note, very clearly, your feeling that you have to remain competitive and that those railways have to be viable and that you support that kind of an aspect.

Mr. Hermanson (Kindersley - Lloydminster): I appreciate you gentlemen being before the transport committee.

I want to get to clause 151 and the clauses around that, but initially I shall say that I understand that every shipper who has prepared a brief and appeared before the transport committee has had the same concerns. I'm sure that is speaking volumes to the legislators, and I suggest that if they are wise, then they will make changes to subclause 27(2).

We don't want to see what happened in eastern Canada happen in western Canada, where the railways have been successful, have been profitable, and have served industries such as agriculture very well. So we certainly hear what you're saying.

Clause 151 deals with the freight rate cap. I believe that Prairie Pools supports that provision in Bill C-101. I want to know if you have substantive evidence to indicate that overall freight costs will be lower, rather than higher, if a cap is in place.

I wonder about that, because I certainly agree with your statistics on the fact that it's impossible to truck grain to ports. Obviously, that's just a given. However, there is tremendous competition for the transportation of grains for short distances. You talked about high-level.... I'm not thinking so much of that, but even shorter distances, which can allow grain to go to either CN or CP, which increases the competition factor, which perhaps would keep rates down where they couldn't be kept down and would allow producers to take advantage of the lower rates on the main lines and perhaps reduce the overall cost of transportation of grain.

How do you rationalize that, or how do you argue against that argument?

Mr. Edie: The maximum rate cap under the WGTA was called the rate scale, which was adjusted through a costing review every four years. That is not in the new legislation, to have that available.

The rate scale guaranteed that the railways would have their variable costs, their line-related costs, return on capital invested, and return on constant costs.

We have shown that in western Canada the rates from Brandon to Vancouver are less than those from Bismarck to Portland. All you have to do is get the BN rate scale and the WGTA rate scale.

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However, the rate scale was lower going parallel to the Mississippi River. The railways only compete where they have to compete, and this was with the barge traffic - the Mississippi is heavily subsidized by the U.S. government - so they were competing with that.

I understand your question to mean that if the maximum were to be exceeded on some and under on the other, what would that do? Our view is that it would tend to drive the configuration of the railway as a grain-gathering system by an arbitrary decision of the railways without looking at costs from farm gate to terminal, not from grain elevator to terminal.

We've always been concerned about offloading of costs by the railways that have to be picked up by producers. That is not acceptable, particularly if the costs that are picked up by producers are larger than that.

However, that doesn't mean we have not been involved in the idea of rail rationalization through abandonment. In the latest round involving 535 miles, we agree - that's no contest - those lines should be removed. Unless there is a lower-cost alternative, and it hasn't been shown to us that there is...but any other rail line, only if there is a lower-cost alternative, considering road costs, extra farmer costs, before it should be done. Why go for a higher-cost-overall system?

Mr. Hermanson: What evidence do you have that if the railways do abandon some more of these lines and trucking were to take over on some of these 100-mile hauls or 50-mile hauls, the total transportation costs wouldn't be reduced? After all, there's far more competition in the trucking industry than perhaps there is in the railroads, where they can charge extremely high rates on these lines, and if they are capped, then they will pass on those extra costs on the more efficient lines and the total costs would be higher than they would be if we saw some more abandonment and were more dependent on trucking.

I am playing the devil's advocate here in asking what evidence you have.

Mr. Edie: I think we have to look at what has actually occurred, what is occurring in the United States. If there is not a competition factor, then the rates do tend to go up. The overall costs of moving the prairie grain crop over the last three or four years have been around $1.1. billion, and your question is: would this be $900 million instead of $1.1 billion?

We are willing to look at it, as we have with the 535 miles, and see if this looks as if it will be a lower-cost alternative. There's no point in taking $1.1 billion to get a $900 rail cost if you put $300 million onto the backs of farmers and municipalities through road costs and so on and so forth.

To try to say has there been a definitive study...I get a little nervous with studies that prove everything for all time. But if there is a case-by-case study of branch lines, we're willing to participate in any process that will lower the overall costs.

The Chairman: Mrs. Sheridan.

Mrs. Sheridan: On the legal analysis, I have some specifics I'd like to get to fairly quickly. I would like to see, as I'm sure the rest of the committee would, a detailed analysis if you can provide it to us eventually.

Mr. Bruun: I'd be pleased to generate that.

Mrs. Sheridan: The first thing is subclause 28(2), subsection 40(3) of the former act. This has to do with the ability of the agency to make an interim order. I would suggest to you that subclause 28(2) already provides the agency with that capability. Rather than argue about that, have a look at it to the extent...unless you're saying you want something more than the power that's already set in subclause 28(2). You suggest we should put in a subclause 28(3).

Mr. Bruun: No, I haven't discussed clause 28 at all in the submission that I made.

Mrs. Sheridan: It's in your list of recommendations. Anyway, have a look at that when you talk to the legal people who did the research for you.

The next area has to do with subclause 27(2) and how it relates to subclauses 34(1) and clause 113. If I understood Ken properly, you said the real question here is whether Bill C-101 denies Canadians access to the agency to bring forward their complaints. Are you saying that significant prejudice is a denial of access?

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I'd like you to think about this. As I interpret it, significant prejudice has to do with the order that might ultimately be made, but it does not in any way deny someone coming to the agency with an application. There isn't a significant prejudice hurdle you have to get over before you can make your application. I'd like to hear your view on that.

Mr. Bruun: I'm very glad you asked the question in exactly that way, because this committee has been told in connection with Bill C-101 that subclause 27(2) does not allow the agency to refuse to hear the complaint, decide the complaint, or decide the complaint quickly. You've been told that, and that's correct. Someone can file a piece of paper with the agency, and he or she will, in due course, be heard.

If you read subclause 27(2) carefully and closely, however, you will see that the agency may grant the whole or part of the application only if the agency is satisfied that the applicant would suffer significant prejudice. It may grant an application only if it has satisfied itself that significant prejudice exists in the absence of relief.

I think it's fair to say that subclause 27(2) requires the agency to hear your complaint, but it's legally prevented from granting you the relief you seek if you haven't proven significant prejudice in your case.

Mrs. Sheridan: I'm splitting hairs with you a little bit because you did present your argument as a legal analysis. I would just say that's not the same as being denied access. It pertains to the relief sought. Other people have come in who have had other difficulties with significant prejudice, not the least of which is the definition of it, which though you I might have addressed.

Mr. Bruun: I was trying to touch on the question of access to the remedies or the relief, the corrective action the agency can take. I don't consider a day in the court-house to be satisfactory if, at the end of it, the judge tells me he's sorry we can't get what we want because we didn't meet this, that or the other test.

Mrs. Sheridan: I guess we are agreed, though, that it has to do with the order that may or may not be granted as opposed to your right to get in there in the first place.

Mr. Bruun: Yes, we can get in the court-house, but unless we prove significant prejudice we will lose.

Mrs. Sheridan: Finally, you stated as well that this committee had relied heavily on the U.S. model to come up with this bill. Maybe it wasn't you; I don't want to accuse you unfairly.

Mr. Bruun: I didn't mention the U.S. at all.

Mrs. Sheridan: Well, someone did and the statement was made.

Mr. Edie: I was referring to the U.S. and that we should look at what has happened in the U.S. under this very railway-friendly act, which Staggers is. We tend to see this as railway friendly more than the NTA, which doesn't need to be railway unfriendly. But it gives both sides an opportunity to present their cases without defining such subjective words as ``significant prejudice'', ``frivolous and vexatious'', and so on and so forth. If we don't have that in, we will be disadvantaged.

The fact is that the U.S. is often held up as a model, and when we look at it, it's not a model we necessarily want to follow. That's our point.

Mrs. Sheridan: You're right that railways in the U.S. along with the railways in many other different countries were looked at. However, I think it would be quite a stretch, and I for one do not accept that this bill is based on U.S. legislation. I have to tell you this.

When you have nothing better to do and the winds are howling out in the west this winter, compare the declaration in clause 5 with what you find in the legislation in the U.S., where the whole gist of it is to make money - make lots of it, make it fast and do it however you can.

The wording used in clause 5 of the bill talks about all available modes of transportation. It talks specifically about the needs of shippers and travellers, including people with disabilities. It talks about the economic well-being and growth of Canada. It talks about being able to compete. It then closes by saying ``having due regard to national policy'', which would include public policy - the kinds of things Mr. Brassard was talking about - and legal and constitutional requirements.

If that's not a Canadian declaration, I don't know what is. For the record, I just have to say do not confuse this with American legislation. But on the other hand, don't turn your back on having a commercially viable railway.

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Mr. Edie: Thank you for the opportunity to clarify, if I left an incorrect impression.

I stated a couple of times that the WGTA was a compromise between shipper interests and railway interests, with a government component in paying for it. The railways have been making money on movement of grain and we have been well served by that particular component.

If any comments were made about the American system, it's just that the Staggers Act was very railway friendly because there was the Penn Central collapse and a whole credit crunch was created around that. In my opinion the Americans overreacted. When you talk to American farmers, they aren't all that happy with the results of it, for the valid comments you put forward on social policy or for national policy; for the economic well-being of Canada in its entirety.

The Chairman: Mr. Easter, please.

Mr. Easter (Malpeque): In going through your brief...in general terms here, the key question is the balance of power between the shippers and the carriers, and I guess the role of government in protecting the public interest.

Mr. Bruun said earlier Bill C-101 protects the carriers at the expense of the shippers. It's already known that under the WGTA, which you claim was better balanced, the railways did reasonably well. They were assured of a profit. In moving to the point of how you protect the shippers, can you be more specific on where this bill is in error and what has to be done to ensure a better balance from the perspective of the farm community in general?

Mr. Bruun: Mr. Easter, by way of a general opening comment...each of the comments we've made here is directed at gaining more and more broadly based access to the relief-granting powers of the agency. That can be achieved by several steps. The ``significant prejudice'' test should be deleted from this, so shippers who have a problem and who think the agency can grant them relief can apply to the agency and have that matter considered and appropriate relief granted or denied, as the case may be. It shouldn't be up to the shipper to prove not only that he will be prejudiced but that he will be significantly prejudiced before he is entitled to that relief.

So just remove the ``significant prejudice'' test. Let people go to the agency to have their case heard. Let Canadians have their day in court, so to speak.

On the ``frivolous and vexatious'' side, I think it's quite common for courts - and this body will have the powers of a superior court - to have a mechanism to control their process so you don't have one individual bringing fifty applications a year before the agency for all sorts of silly little things. Stories float around about that kind of thing. You do need something to control people who are abusing the process.

Maybe you should limit it so the agency can't award moneys for losses or delays. Simply have some mechanism so they can award to those whose time and energy have been wasted by a frivolous and vexatious hearing, but don't allow them to order an applicant to be liable for the full costs of any delay occasioned by an application. That's simply too heavy a burden. Leave some mechanism in there to control frivolous and vexatious actions, but water it down so the price is not overwhelmingly high.

The question of clause 113 relates to the phrase ``commercially fair and reasonable''. I think we need more guidance on that question. That phrase should be expanded or defined to a greater extent. Things should be tied back to real costs, I would think, in some way or another.

Those are three suggestions in the three areas I've commented on. All of them are aimed at allowing Canadians to have better access to that body.

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Mr. Easter: I believe the argument to screen out the crap applications was put forward by the department for those points.

Mr. Fontana: Are we shipping some of that, too?

Mr. Easter: No, we never ship crap from the farm sector, Joe.

Between 1982 and 1995 I believe there were only three applications with respect to rates under the old act. Although there are not a lot of applications coming forward, I do believe the fact that applications can come forward easily provides a pressure point on the railways not to increase rates. Would you agree that although there are not a lot of complaints coming forward, there is a subtle pressure there from the fact that applications could come forward?

Mr. Bruun: I think any action may be examined a little more carefully and run through another set of filters when you know your decision could end up being subjected to a thorough and fair review.

Mr. Easter: So from your point of view, if clauses 27 to 34(1) and 113 are taken out, then the public interest is protected more than if they're left in. Is that correct?

Mr. Bruun: I certainly believe that, but I would never be able to prove it. The fact of the matter is that such a screen would deter actions that are subject to review.

The Chairman: Is that public interest or shippers' interests you're talking about?

Mr. Easter: It's public interest and shippers' interests.

The Chairman: Thank you, Mr. Easter.

Rounding out the questioning is Mr. Fontana, and then we'll move to the next round.

Mr. Fontana: Thank you.

Talking about shippers' interests, let me start off with subclause 27(2), which my colleagues both talked about. I'm happy he asked the question of how many times you had to go to the NTA under a very shipper-friendly 1987 NTA Act. The answer is not very often, because you are very regulated, for one. You're protected on both ends.

I understand where you're coming from. Obviously, the status quo would do you very well because you have maximum rate protection now, and from what I understand you don't want the costs deregulated to the point where some efficiencies can be made to the system. I hope and think that at the end of the day, if we get a stronger transportation sector, more efficient and competitive, as Ken is indicating, just as your rates have been going down since 1987, the costs should start to come down.

Talking about shipper interests and the U.S. model, the fact is that this is a very interesting balancing act that the government is trying to do. Nowhere in the world, even in the U.S., do you have competitive access provisions in a bill, which you still maintain in this one that you had in 1987: interswitching, competitive line rates, and final-offer arbitration.

Those are mechanisms and regulations that protect the shippers big time, and they're in no other mode. In the trucking industry there isn't such a thing. Ask a trucker if they're prepared with CLR into switching. It is an interesting balance that we're trying to achieve here.

The bottom line, as I understand it, is that you want competition because that in fact will provide you with lower rates. As I understand it, when one railroad was here, 80% of the grain traffic was within 35 miles of two railroads. You tell me why there isn't any competition based on some of the charts you indicated. Could it be that you have a maximum rate? Therefore, what's the incentive for there to be competition between two railroads?

My colleague talked about trucking and the incentives that are in place to bring grain to certain points by trucking companies. The creation of short lines, which is what we want to do in this bill, too, obviously will open up the system for you so that competition hopefully will drive costs down.

I'm having a real problem trying to understand how you expect the government to achieve competition and lower rates if in fact you want us to completely re-regulate and provide more regulations into a system that needs, in my opinion, some deregulation so that we can get the costs down for everyone.

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Mr. Edie: I have one short comment and I ask Mr. Miles to comment. You mentioned the case numbers, saying that only three cases have been brought forward. So what is our problem? Under WGTA of course this was irrelevant. The three cases brought forward were only for shippers under NTA.

Mr. Fontana: You got maximum rate provisions here too, so -

Mr. Edie: But remember the maximum rates were cost-based rates and they guaranteed a return on investment, a 20% return to constant costs. Variable rates and line-related costs were all guaranteed.

All we've said is that the rate should be capped and we'd be willing to go to further costing reviews to make sure the railways were kept whole.

Mr. Miles has been involved in this more than I have.

Mr. Miles: I have a couple of comments. The only application for NTA 1987 was on grain being furthered from Thunder Bay east. In fact the railways stopped offering confidential contracts allowed under NTA 1987 because they found it cost them too much money. In order to do the business, they were just giving it away. They refused to do business in a confidential contract manner, which is supposed to be one of the competitive foundations for the legislation.

Rates have levelled off for grain in western Canada but they have not come down over the last number of years through the course of the WGTA. They rose to about $32 a tonne, and you'll find they're right in around that rate and have been for several years.

There is a need for competitive access because large parts of western Canada are not competitive. Whether it's modal, truck to rail or between the railways, they are just not in a competitive situation. The short lines work in areas where the densities are high enough, where the volumes are sufficient, and where there are other commodities.

The problem with western Canada is that for the most part the branch lines that will be abandoned will not be short-line candidates because they're grain-specific and too vulnerable to the vagaries of the weather. If the volumes were consistent you could make a good argument, but where you get the tremendous shifts in volume, if there is only one commodity coming off the line the short-line operator is placed at great risk.

Short lines may have a place. Western Canadian grain will be limited.

Mr. Fontana: I have another short question. As for provincial running rights, clause 138, are you in favour or against? Your submission doesn't mention them, but -

Mr. Edie: In effect, you're asking whether short-line rail is a viable alternative.

Mr. Fontana: Yes.

Mr. Edie: Prairie Pool's position, as made to GTA in 1991 and again in 1993, is that if short lines are the lowest-cost alternative, they're a good alternative.

Mr. Fontana: No. I'm asking about giving short lines full running rights.

Mr. Edie: John, is that in Alberta? There have more comments on.... To the extent that it increases competition, certainly.

Mr. Fontana: Do you want to give provincial short-line railroad companies full-access running rights on main-line railroads?

Mr. Edie: Yes, if we can work out a deal with the main lines.

Mr. Fontana: No. Do you want to legislate it?

Mr. Edie: Oh, legislate it....

Mr. Fontana: It happens now voluntarily.

Mr. Edie: I don't see any problem with that.

Mr. Fontana: What about the conveyance and abandonment process? Do you have any comments? Is it yes or no?

Mr. Edie: Are you talking about what is being proposed now, conveyance to a short line?

Mr. Fontana: Yes.

Mr. Edie: And you're talking about the process to go through that. The present process bypasses that under the 535 miles in question. We have always wanted each branch line to be looked at in itself to see that it's not a transfer of costs onto farmers and that it will be a lower-cost alternative. That's been our whole driving force.

Mr. Fontana: Now you have me totally confused. Are you for running rights, full running rights, or against running rights?

Mr. Edie: I don't see any problem with that, because if it brings another competitive aspect into the business....

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Mr. Fontana: Don't you feel, though, that if you grant full running rights to provincial railroads the main lines won't abandon, won't sell off, so you won't get any short lines, so you won't get any competition? Is that what you're suggesting we ought to do? Clause 138 under Bill C-101 now prevents granting full running rights to provincial railroads, because we can't do it anyway. There's such a thing as the Constitution and provincial jurisdiction. But some people have indicated that running rights -

Mr. Gouk: On a point of order, I'm having a little confusion here. It seems the hon. member is trying to talk them into asking for something they haven't asked for in their submission. I'm having a lot of difficulty understanding the point.

The Chairman: Let him ask the question, and then we'll get the answer and then -

Mr. Fontana: What's the matter with that? It's part of the bill. Don't you think I'm entitled to ask a witness what they think about a very important issue?

Mr. Gouk: It sounds as if you're trying to -

Mr. Fontana: No, I'm trying to find out where they stand.

The Chairman: Order. Ask the question and then we'll get the answer. Do you have one more question?

Mr. Fontana: I haven't heard the answer yet.

The Chairman: He said it was okay by him.

Mr. Edie: As I said, we haven't had it in our submission. To the extent that it's a constitutional issue, and if you get running rights across provincial boundaries, you run into all sorts of problems. We would really have to research that to see whether it would be compatible with our policies and where we need to go.

Mr. Fontana: As you know, this bill is a delicate balance. Before this bill gets to clause-by-clause I sure would like to have your position on what you think should happen with running rights.

Finally, about final-offer arbitration, isn't that the final lever available to the parties: the threat, at least, of FOA? What if we had FOA as the prime regulation and stripped all those regulations out of the bill and left it to the individual shipper and the carrier to negotiate terms and conditions, as opposed to having them in legislation?

Mr. Edie: Final-offer arbitration as presented here we don't find acceptable. Whether it would be for every situation for all time.... As Mr. Miles has indicated, the railways backed away from it when they had the opportunity in forwarding east of Thunder Bay, because they weren't happy with it either. I don't feel we should comment on that off the cuff, because I don't think we might necessarily run a viable grain-handling system on that basis alone.

The Chairman: Gentlemen, thank you very much for your submission to the committee. We appreciate your coming to us, making your submission, and answering our questions.

Colleagues, we might have enough time to hear from the Western Grain Elevator Association before we have to run for a vote.

Mr. Taylor (The Battlefords - Meadow Lake): While we're changing seats, might I make a point to Mr. Fontana about running rights?

The Chairman: We can entertain you as a witness, but across chatter, you can probably come over and sit beside him and fill him in.

Mr. Taylor: Could I just -

The Chairman: No.

Mr. Taylor: Just so long as he understands that it doesn't apply just to short lines.

The Chairman: I'm sure the parliamentary secretary pretty well understands what...but if you want to come over and give him a chat....

Colleagues, we welcome to the table, from the Western Grain Elevator system, Mr. Greg Arason.

Mr. Arason, we look forward to hearing your submission.

Mr. Greg Arason (Director, Western Grain Elevator Association): Thank you, Mr. Chairman. I do appreciate the opportunity to present our views on this important legislation.

I am a director and past chairman of the Western Grain Elevator Association and the CEO of Manitoba Pool Elevators. I am also a director of four other companies that rely heavily on transportation - namely, Prince Rupert Grain; the Pacific Elevators terminal in Vancouver; XCAN Grain Pool Ltd., Canada's largest exporter of non-board grains; and CanAmera Foods, Canada's largest oilseeds crusher.

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The Western Grain Elevator Association, which represents over 95% of the country's elevator capacity on the prairies, is also the umbrella organization for the Lakehead Terminal Elevator Association and the B.C. Terminal Association.

Our brief was prepared in cooperation with the Canadian Wheat Board, as we are agents of the board and responsible for shipping and handling board grains from country elevator to point of sale, either at port position or end-use customer.

I believe our presentation has been distributed to committee members, and I will review our recommendations regarding Bill C-101 and answer any questions you might have.

For the record, the members of the Western Grain Elevator Association were noted on the cover that we presented.

Basically, until July 31, as we've heard, grain fell under the regulatory framework of the Western Grain Transportation Act, which provided a maximum freight rate, railway performance guarantees, and allowance for the designation of competition and contiguous points.

Bill C-76 repealed the WGTA and rate protection was transferred to the NTA in a modified form. These rate provisions are now contained in clauses 149 and 150 of Bill C-101.

Throughout the consultations related to elimination of the WGTA, the grain industry was assured that concerns regarding performance, rates, and carrier obligations would be addressed by the competitive access provisions and rate-relief dispute mechanisms of the NTA 1987: competitive line rates, interswitching, and final-offer arbitration.

Bill C-101 contains most of the desirable and necessary shipper provisions of the NTA 1987; however, a number of clauses have been introduced that could effectively render the competitive access provisions meaningless.

There is a need for shipper protection. A number of features distinguish grain from other bulk commodities, such as coal, potash, and sulphur. Grain in western Canada is produced by over 100,000 separate and distinct units; i.e., farms. It's assembled for end-users at about 1,000 locations and, as we've heard, covers a multitude of types and grades.

Because of the large volume of the commodity that must be transported, which is in excess of 30 million tonnes annually, and the distance - in excess of 1,000 miles, on average - there is no effective competition to the rail mode for the transportation of grain. This uniqueness was recognized in the WGTA.

There are three reasons why shipper protection is required.

First, there is no effective alternative to rail for prairie grain and oilseed producers. Unlike the U.S. system, a waterway from the prairies to export port does not exist, and distances involved preclude truck competition.

Second, grain companies are limited in their ability to negotiate freight rates or ensure levels of service. As noted before, there's no effective alternative to rail for the movement.

Third, there is no effective competition between railroads. There are only two national rail carriers. Under any duopoly, competition between two players is likely to be limited either for rates or service. More importantly, it does not appear as if competition within the railroad industry will increase as a result of the passage of Bill C-101. In fact, there are significant concerns that competition and the level of service could decline if the bill is passed in its current form.

There are a number of positive aspects to Bill C-101; namely, that there is a maximum freight rate for grain, that common carrier obligations are retained, that final-offer arbitration is there to resolve disputes - although in the form in which it is presented in the bill it is somewhat akin to playing poker with your hand turned over, in terms of what the final-offer arbitration process involves - and, finally, that competitive access provisions such as competitive line rates and interswitching are present.

We have concerns about subclause 27(2). Under this subclause, when an application is made to the agency by a shipper in respect of a transportation rate or service, the agency may grant the application only if it's satisfied that the applicant would suffer significant prejudice. This was not present in the NTA 1987. ``Significant prejudice'' is not defined and could place too much authority in the hands of the carriers.

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An additional concern is that what may be considered significant prejudice to one shipper may not be significant prejudice for another. Subjective judgments give rise to unequal treatment.

Under subclause 34(1) the agency may order the payment of the costs of a proceeding if it's considered to be frivolous or vexatious. There's no definition of these terms, and while there may be value in deterring unwarranted claims, shippers should not be unduly constrained in exercising their rights.

Under clause 113 a rate or condition of service established by the CTA must be commercially fair and reasonable and would apply to levels of service, interswitching, competitive line rates, etc. This clause adds an ambiguous, dangerous and unnecessary layer of regulation. No definition of ``fair and reasonable'' is provided. One's definition of ``fair and reasonable'' will differ, of course, depending on whether one is a shipper or a carrier.

I would note that in previous proceedings of this committee, CN indicated a rate could be determined to be a captive test if it were 180% or 200% of variable cost. I would note that under WGTA, 120% of variable cost was considered to be fair and reasonable in relation to that paid by other shippers. We do have concerns as to what ``fair and reasonable'' means in different people's eyes.

The Western Grain Elevator Association is generally supportive of clause 155 and the need to conduct an evaluation of the efficiency of the grain handling and transportation system and the sharing of efficiency gains between shippers and railway companies. The concern here is that the clause provides no guidance to the minister as to what the basis for these reviews and evaluations will be.

The WGTA provided for costing reviews. There's no provision in Bill C-101 for costing reviews or for the maintenance within the CTA of a database or costing expertise. Clause 155 should provide for continuation of costing reviews until such time as an agreement can be reached otherwise.

Finally, under subsection 40(3) of the NTA of 1987:

(3) The Agency may, if the special circumstances of any case so require, make an interim ex parte order authorizing, requiring or forbidding anything being done that the Agency would be empowered, on application, notice or hearing, to authorize

This subsection is no longer present, and there is concern that the agency may not have the power to issue interim orders and that quick decisions or actions could be forfeited.

Grain is traded in a globally competitive market where delays in obtaining a rate could mean that a sale is lost or the ship has sailed if decisions are delayed. It's recommended that such a section be incorporated into Bill C-101.

That concludes my formal comments, Mr. Chairman. I'd be pleased to answer any questions.

The Chairman: Thanks, Mr. Arason, for your submission to the committee.

Understanding that good legislation usually means balanced legislation, after what we've been hearing from the different shippers who have been coming forward, what if we strike a new balance? What if we take your suggestion that we delete subclauses 27(2) and 34(1) and clause 113 and balance those deletions with deleting competitive line rates, interswitching and other shipper relief provisions, except for final-offer arbitration, so that we let the competitive forces work?

The shippers will negotiate with the mode of transportation, and if there's a problem, they can come to the CTA for final-offer arbitration. What's your consideration of that?

Mr. Arason: Balance must be provided in access to alternatives. By removing provisions such as competitive line rates, interswitching, etc., you severely restrict the alternatives and options a shipper would have.

The Chairman: But we're going to get rid of the shippers' side of things, like subclauses 27(2) and 34(1) and clause 113.

Mr. Arason: I understand that. What those clauses do, in our opinion, is restrict access. They don't provide balance; they restrict access to obtain balance. That's our concern.

Balance can be obtained when there are other alternatives. Our feeling is that unless other alternatives are present.... Final-offer arbitration is fine if we both put our offers in the envelope, but when I have to submit my offer to the railway for review under all the conditions and agree to provide the goods as part of my offer, that is a severely limiting aspect of the fairness of final-offer arbitration.

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The Chairman: I guess we have a difference of opinion on what balance means.

Mr. Arason: I think we do.

The Chairman: I think we have the answer - no.

Mr. Gouk, please.

Mr. Gouk: I found it a very intriguing card that the chairman played. I would probably want to look at that; however, I would want to get some input from all the people who have gone before, because we haven't actually talked about that. A change that major would probably require new input. It would be interesting to see the reaction of all those who have gone by.

I just have one question in the area of subclause 27(2). We all know this is not a perfect world, so we can rarely get perfect solutions. Would subclause 27(2) be palatable - not necessarily delicious but palatable - if we changed the wording in such a way to make it absolutely clear, because some people understand and some people don't understand, that subclause 27(2) is not a gateway blockade to stop the application from going to the NTA, and at the same time amended the wording so it was clear that it did not apply to final-offer arbitration?

Mr. Arason: I hope I speak on behalf of the members of our association when I say our real concern is the subjective considerations under subclause 27(2). I think significant prejudice would be extremely difficult to define. As has been said before in earlier submissions to this committee, there haven't been a lot of abuses. I don't think any shipper takes joy out of going through a regulatory hearing process to get a rate. I think in most cases the fact that there is an alternative is enough to bring the parties to a decision without putting further road-blocks in such as proof that you have significant prejudice or whatever.

Mr. Gouk: So in a word, your answer would be no.

Mr. Arason: I think it's no.

Mr. Gouk: Okay, thank you.

The Chairman: Colleagues, the bells are calling us for a vote. When we return, Mr. Gouk, we can pick you up for your remaining eight minutes of that ten-minute round.

Mr. Gouk: I was just going to defer to Mr. Hermanson, who can't return after the vote.

The Chairman: Unfortunately, I don't want to be held responsible for not being at the vote on time. So if we can make it back, Mr. Arason would you be prepared to hang in there and wait for our return in about half an hour or so?

Mr. Arason: I assume so. I'll make arrangements to change my flight.

The Chairman: That would be wonderful.

To the Saskatchewan Wheat Pool and the Canadian Chemical Association, I apologize for the delay, but we should be back here in about half an hour to resume hearings.

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PAUSE

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The Chairman: Welcome back, colleagues. Thank you, Mr. Arason, for hanging on while we had to go do that important vote in the House of Commons. By the way, the government won again.

You have eight minutes remaining, Mr. Gouk, in your round of questioning.

Mr. Gouk: I'll defer to Mr. Hermanson.

Mr. Hermanson: The shippers have been unanimous in their concern over subclause 27(2) and two or three others. We've also heard unanimous concern over the method of final-offer arbitration. It's unsatisfactory because it isn't true final-offer arbitration.

I would like to know the relative value you place on removing those objectionable clauses and how they relate to the value you see in having the maximum freight rates implemented in this legislation. So I want to know your priorities. In other words, if we had the arbitration fixed and subclause 27(2) were gone and a couple of other clauses, such as the vexatious argument one, would that be equal or greater in value to the loss of the freight rate cap?

Mr. Arason: I was reflecting somewhat on the question posed by the chairman at the conclusion of my remarks. I think I was being asked whether I would be happy if the padlocks were removed from the door so I could freely open the door. I guess my answer is that I don't think I would be happy if I could open the door and there was nothing behind it. I think that's really the issue. There have to be some provisions there to provide us with some relief, some competitive access in order to reflect more of a competitive environment.

In terms of the maximum rate cap, I believe the current rates have been satisfactory. I think they've been fair in relation to other commodities, as Bill C-155 said they had to be. Twenty percent was deemed to be satisfactory and fair in relation to other commodities at the time it was drafted. There was a further review of that provision and it wasn't changed, so I assume that those rates not only have been compensatory for the railways but also have provided a contribution to the overall health of the railway system.

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I don't think it's a significant burden to keep those rates in place for the foreseeable period during this transition. I would note that it is subject to review by the minister, who could determine if in fact those provisions were fair.

What we did object to was the reverse onus portion, where we had to prove that it wasn't fair. That's the clause to which we objected, and subsequently our views were reflected more fairly in the current wording of the bill.

Mr. Hermanson: I still don't have a clear answer.

Mr. Arason: What are the trade-offs?

Mr. Hermanson: If a fairy flew by and granted you three wishes, which three clauses would you want deleted or amended and in which order? If, in getting those three wishes, you had to lose one provision of this bill, what one provision that the railroads want would you be prepared to give up?

Mr. Arason: The issues of ``significant prejudice'' and ``fair and reasonable'' are probably more important to us than, say, ``frivolous and vexatious'', which is a concern but probably not the highest one.

I'm not sure I'm in a position to trade off anything for the rest of the members of my association -

Mr. Hermanson: That's fair.

Mr. Arason: - because, in effect, I probably represent about 10% as a company. Manitoba Pool has probably about 10% of the grain that is shipped off the prairies, and I would hesitate to trade off the protection that they have felt was fair, and that I feel is fair. I honestly do not think I can answer that question from the point of view of the association.

Mr. Hermanson: That's a fair comment, and I accept that.

If we couldn't delete subclause 27(2), how would you want to amend it?

Mr. Arason: I'm not sure. I'll state at the beginning that I'm not a lawyer. Ultimately these things will end up in some kind of a judicial process. Anything that is subjective is very difficult to word in any way that's going to give some assurance. Beauty is in the eye of the beholder, and I'm not sure that clause can be fixed.

Mr. Hermanson: So you feel that it has to be deleted?

Mr. Arason: That's our position.

Mr. Hermanson: Are we being a bit premature in passing a piece of legislation like this before we even know how the car allocation process will evolve? That's under discussion right now. How will the provisions in Bill C-101 impact on the allocation of cars? Has your association looked at that?

Mr. Arason: Certainly the subject of car allocation, the ownership of the cars, and the role of the Canadian Wheat Board in transportation are three issues that have been addressed by an industry group, including the shippers, the railways, and the producers. There is a report, I understand, in its final drafting stages, and I think some of the issues coming out of it will tie somewhat to the overall rate regime and the extension of the maximum rate for a period, with recognition that additional car ownership costs should be reflected. So I think they are interrelated and I expect that this information will be forthcoming within the next few weeks.

Mr. Hermanson: Not speaking as an MP but as a farmer, I feel as if I'm between a rock and a hard place, because the government is trying to pass this legislation in order to sell CN in the next few days. On the other hand, I don't know how the car allocation process is going to unfold, and it might impact on that.

Do you feel that we have a coordinated approach to dealing with all these issues? Has it been thought out well enough?

Mr. Arason: The issues of car ownership and car allocation are certainly linked and are something on which the industry has been spending a lot of time over the summer.

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As a shipper and a manager of grain elevators and having come from the farm myself, I understand your concern. I think the car allocation questions will be answered, but it will be part of an overall package that will represent a balanced approach.

Mr. Hermanson: Thank you.

The Chairman: If, behind that door you spoke of a little earlier, there were an FOA you agree with, could that be workable?

Mr. Arason: It would be some relief, but I think -

The Chairman: You'd want to have a look at the whole thing.

Mr. Arason: As I said, I sit on the board of a number of other companies, one of the those being CanAmera and another one being Can-Oat Milling.

The Chairman: In the good city of Hamilton, Ontario.

Mr. Arason: Yes, and Can-Oat in the fine city of Portage La Prairie.

As shippers of finished product to many destinations, interswitching and competitive line rates are extremely important to those types of industries.

The Chairman: As are subclauses 27(2) and 34(1) and clause 113.

Mr. Arason: More so perhaps than strictly raw grain, where we're shipping to Vancouver, Thunder Bay or wherever.

Mrs. Cowling: Mr. Arason, CN has indicated that 80% of the grain traffic is within 35 miles of the competing railway. If this is true, does it alleviate any concerns you may have with respect to grain shippers being captive?

Mr. Arason: One of the issues that has been the subject of debate, I would say going back to the 1970s, is what the rail network should look like.

We've had significant areas of rail abandonment. Simply drawing a map and saying from point A to point B is 35 miles really doesn't tell the whole story. In many areas of the prairies there are geographic barriers - rivers, lack of adequate road structures, etc. - that mean what looks to be a relatively short distance may in effect not be a short distance.

I would look at the situation of The Pas and I would admit that this is certainly beyond the 35-mile average. There is one rail company serving The Pas - CN. There's one grain company serving The Pas - Manitoba Pool. Producers there do have a choice when it comes to shipping. They can ship producer cars, they can haul to the pool or they can go to Swan River, the nearest point. Swan River also happens to be served by CN. There are two other grain companies in Swan River.

But the fact is that people in The Pas really don't have a lot of choices. They're not going to truck grain to Churchill, obviously for good reason, and Thunder Bay and Vancouver are out as well as far as truck movement goes.

There are those situations, but I can point to situations in southern Manitoba where it appears rail lines run parallel, but in effect, to get from point A to point B, you have to go so many miles east and back around.

The other fact is that elevators are permanent structures. You don't just pick them up and move them. And they are investments. All of us in the grain industry have worked closely with the railways in planning our future networks. We take into account potential rail abandonment, and I don't think we've made too many frivolous investments. Over the years we'll continue to do that.

But it really isn't always the case that there is competition between the rail lines.

Mrs. Cowling: Thank you.

The Chairman: Mr. Collins, please.

Mr. Collins: On page 2 you say ``A maximum freight rate for grain is retained''. What's the feeling of your group with regard to the capping provision we put in Bill C-76?

Mr. Arason: Our group supported the maximum freight rate cap being retained. We felt it was important, given all of the uncertainty there is in the future and the fact that it is a fair and reasonable rate that has served the industry well over the last few years.

The only addition we would make to that is we feel that in order to determine whether it continues to be fair and reasonable, there should be some process to do a re-costing before any further decisions are made, and the records and the capability to do that costing should be maintained.

Mr. Collins: Is that the view of inland terminals as well?

Mr. Arason: I can't speak for them. I know the inland terminal associations are going to present their own views here. We do have Weyburn as a member of Western Grain, and as such they supported the formal comments that I put forward here. But I expect they'll give you their own views on the inland association's viewpoint.

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Mr. Collins: Again, I put to you the same question as we put to the previous group. There is a very significant point of view expressed here that if some pertinent pieces of legislation don't receive amendment, then that will cause you and a whole series of shippers that are listed here some harm. In order to alleviate that, do you hold that 27(2), 34(1) and 113 are very critical issues from your perspective, to come to some resolve without adding a tremendous amount of onus on the other side of the coin, which is that you want to continue to rely on good rail services at competitive rates?

Mr. Arason: Our brief said that Bill C-101 has many positive aspects. The concerns we raised were on these particular clauses. We feel that there will not be a lot of frivolous and incidental activity, that issues brought forward will be ones of consequence and serious ones.

The concern we have is that what might appear to be serious for one shipper might not appear to be serious for another, so there are some judgmental factors here.

We feel that simply removing those clauses and allowing the process to work will provide the kind of competitive environment that we can function in and that will be healthy for both the railways and the shippers.

Mr. Collins: Concerning the legal aspect, if we were going to make some trade-offs, how would you assist the railroads so they would be able to come back and say that they have made some changes here, but they want to get around the ``frivolous and vexatious'' thing? Could you help us to amend that?

Mr. Arason: As I said, I'm not as concerned about issues around ``frivolous and vexatious'' as I am about issues such as ``significant prejudice''. So if we're marking things on a scorecard here, that's the hierarchy of concerns that I have.

The Chairman: Mr. Nault, please.

Mr. Nault (Kenora - Rainy River): One of the things that doesn't surprise me, of course, is that all the shippers feel that this bill is taking away a certain amount of protection that they have. That has been quite obvious in all the presentations we've heard.

One of the things we really haven't asked the shippers much is, do you agree or disagree that there is a fundamental problem with the railway industry today, or is that some figment of the railways' imagination and in fact we should just keep the NTA 1987 intact, because, quite frankly, it gives the shippers everything they ever wanted?

From my perspective at least, in reading it and looking at it, it's like Christmas for the shippers, total protection for them. History proves that correct in the sense that the rates for different commodities have gone down some 30% since 1987 as far as the railways are concerned.

Do you agree or disagree that there is a fundamental problem in the railway industry? If not, then obviously you would suggest that we should leave the status quo in place.

Mr. Arason: As to the relative health of the railway industry, we have to look at that on a somewhat east-west basis. You have to appreciate that we weren't under NTA 1987. We were under the WGTA, which in itself represented some trade-offs and compromises in how it was drafted. In return for guaranteeing the railways their total variable costs plus contribution, etc., the shippers agreed to pay more for shipping grain.

We're now being asked to move from that kind of an environment into what originally we thought was going to be an NTA 1987 model but now is Bill C-101, which is similar but has some disturbing aspects to it in terms of access to relief.

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As Mr. Edie said before, it's not in our long-term interest to see unhealthy carriers. That created the change to the WGTA in the first place. We feel that under this bill, with proper balance, there will be healthy railways in the future.

We don't want to be put in a position where we are literally marched to the cliff and shown the precipice, so to speak, and then walked two steps back and told we're okay. That's not healthy for our industry. We think there has to be some balance.

Mr. Nault: Correct me if I'm wrong. The sense I get from your statement is that you do agree there are some fundamental problems with the railway industry that need to be corrected.

Mr. Arason: I think there are some efficiency issues that have to be addressed. There was some arbitration carried on this summer to try to address some of those things, such as the contracts the railways have had to live with.

We are not against line abandonment. In fact, we've encouraged it in some cases where it's obvious line abandonment would be the correct step. We've encouraged it and have worked with the railways on that. We will continue to do so.

We worked on streamlining in the ports. It's our intention as shippers to cooperate with the carriers to create an efficient system. It's not in our interest to see them operating inefficiently. It's not in their interest to have us priced out of business. I think with the proper environment we will find a balance.

Mr. Nault: Okay. I respect that and I think that's what we're doing here.

But one of the problems we're having is something that is contrary to some statements made by certain individuals who have said that the railroads and the shippers are in partnership. I'm one of those who beg to differ because, quite frankly, you're so polarized and so completely far apart in your presentations that you would almost think we were talking about different bills, in a different country.

Would you agree with me that in order for us to be successful as parliamentarians, to have a balanced approach, and to have a transportation industry - at least the railway industry - that's successful and that at the same time gives shippers some comfort and protection, both of you are going to have to be unhappy at the end of the day?

What I've seen so far is the shippers at one extreme and the railroads at the other. Those extremes aren't good for either of you, because one will succeed and the other will fail and you can't live without each other. It sounds like a messy marriage, but it has to be.

I'm trying to find out whether there is any middle ground, because every question we ask the shipper.... Let's face it, you guys wouldn't be sitting at that table if you weren't good politicians in your own right. And so far you've been able to dance around every question we've asked you. You won't say, well, if I had to trade, I would trade this for that.

This is why we're in here. We're in the business of trading. You can't have it all shipper-oriented and you can't have it all railway-oriented. If we can't get a straight answer as to what you would be prepared to trade, it makes it very difficult for us to make a decision for the best, for what you're prepared to live with.

Mr. Arason: With respect, I'm not sure the differences between the shippers and carriers are as polarized as you portray. I think we generally support the fundamentals of this bill. It's some of the detail in access where we have some disagreement.

We've had long discussions with the carriers about this process and about this bill. We didn't come here with twenty pages of amendments. We came here with two or three serious concerns that we feel inhibit our access to competitive relief. That's the substance of our concern.

We're not here to say the railway shouldn't have a right to make a living. We're not here to say they shouldn't be free to make decisions within their own environment.

We do feel that the relative strengths of two carriers and no alternatives - no water alternative, land-locked base - are serious issues for us as shippers.

All we are asking for is some balance so we can get relief when required. Frankly, I think if that balance is there, the requirement to bring things before a judicial or an agency process will be reduced substantially, because when there is balance there's reason.

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Mr. Nault: Would you not agree with me, though, that if we accept your deletions - they are not amendments, they are deletions to certain sections - we're going right back to the protection the shippers had before we started? You're not accepting any changes; you're asking for deletions on a number of issues to the status quo. You're not willing to trade off anything. When I look at what your concerns are, they basically go back to where we were before under the old legislation, except for WGTA, and that's the only change that was brought down.

Mr. Benoit: It's a very substantial grain business.

Mr. Nault: Let's get back to reality. These people who come before us aren't exactly small potatoes. The last time I looked Cargill was doing quite well. There is this perception that you are hard done by. You can't build your own railroad, run your own facility, or make different arrangements.

One of the things your brief says is that your product is shipped, on average, over 1,000 miles. I've travelled by rail in the west and I can tell you there isn't one point on the railroad where you can't get into the United States and to an American rail line in over 1,000 miles. In less than 1,000 miles you can get to an American port to ship by truck via the U.S. route if you wanted to, so you are not land-locked in that sense.

Wouldn't you agree with that?

Mr. Arason: There is truck movement to the U.S., I will not deny that.

Mr. Nault: There would be a lot more if the rates were jacked up, so there is competition.

Mr. Arason: Depending on where you go in the U.S., if you stay close to the Mississippi you can get some decent rates. If you move away from water-competitive rates, the rates are not very attractive and there is no effective option of going across the border. I think those rates have been pointed out to you today.

The point is that Canada is unique. Things are changing. Manitoba is in a different position than are Alberta or Saskatchewan because of the impact of producers paying the full rate. There are going to be changes.

The bottom line is that we need to export to survive. We don't have the domestic population to support agriculture and the production coming out of western Canada in particular. We're just asking to be able to price ourselves competitively globally, as an exporter, not the Manitoba Pool competing against Cargill, but Canada competing against Europe and Australia and the U.S. Those are the competitive issues we have to deal with, and not whether the Manitoba Pool or Paterson are competitive with each other. We are competitive on the front line, but we all face the same problem when we put the product out into the export market.

Mr. Hoeppner (Lisgar - Marquette): Mr. Arason, I've been following the more or less amalgamation or partnerships of grain companies with multinational food processing corporations in the U.S., providing huge storage facilities right across the border. Is that not going to take some of the pressure off the rail industry? Are you going to ship by rail to those conglomerates or are you going to use trucks?

Mr. Arason: Cargill has its own facilities on both sides of the border, but in terms of the Canadian companies, I am aware that Alberta Wheat Pool has a joint venture with General Mills in Montana across the border. That's the only formal joint venture I am aware of. I would say that Manitoba Pool has worked with ConAgra, Anheuser-Busch and other U.S. companies, but we do not have any joint investments.

We've certainly looked at whether strategically locating a facility right across the border would be an option. It may well be. We would prefer to go the Canadian route. If we have proper competitive conditions, I believe we will go the Canadian route. Barring that, we will look for alternatives.

The Chairman: Mr. Arason, we want to thank you very much for your submission to the committee and for sticking around until after we got back from a vote in the House of Commons to answer our questions.

Mr. Arason: Thank you. If at any time there are specific questions you'd like to direct to our association, feel free to do so.

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The Chairman: Thank you.

We welcome to the table the Saskatchewan Wheat Pool, colleagues, and its president, Leroy Larsen. Mr. Larsen, welcome to the committee.

Would you introduce the gentlemen you brought with you today and give us an executive summary in your presentation, if possible. We did get your submission in advance, and we've all read through it. If you could give us an executive summary of that so we can get into questions, we'd appreciate it.

Mr. Leroy Larsen (President, Saskatchewan Wheat Pool): Thank you very much, Mr. Chairman.

Members of the committee, ladies and gentlemen, my name is Leroy Larsen. I'm the president of Saskatchewan Wheat Pool. I'm pleased to be able to make this presentation today.

With me are Richard Wansbutter, director of marketing and transportation; and Terry Harasym, director of policy and economic research, of Saskatchewan Wheat Pool.

I'll make a brief statement regarding the key points in our submission sent to you earlier. I hope to leave as much time as possible for questions.

First, let me give you a snapshot of the organization I represent.

Saskatchewan Wheat Pool is a 70-year-old cooperative with more than 60,000 Saskatchewan farmer members. We have a democratic structure comprised solely of our farmer members. Through a member-based electoral process, 133 delegates and a 16-member board are elected to represent these members and advance their interests. Saskatchewan Wheat Pool is also a major Canadian agrifood corporation. In 1994, we were the largest company in Saskatchewan, and the largest cooperative in Canada.

We are a major handler of grain. In the 1994-95 crop year, our grain collection and forwarding system managed the movement of about 10.3 million tonnes of grain, oilseeds and special crops. This represents 55% of primary elevator receipts in Saskatchewan - that's excluding special crops - and 31% of off-farm deliveries of grain and oilseeds in western Canada.

Our grain collection and handling system in Saskatchewan has 400 operating units. Saskatchewan Wheat Pool also has full or partial ownership of several terminal elevator facilities. These facilities combined handled more than 50% of Canada's grain exports through the west coast in the past crop year. Our facilities in Thunder Bay handled about 34% of that port's traffic last year.

Transportation policy has a very significant impact on both producers and Saskatchewan Wheat Pool. It is essential that Bill C-101 does not ultimately weaken shippers' interests. It should provide the necessary framework to ensure the viability of the western Canadian grain industry to enable Canada to become more competitive in international markets.

There are positive aspects to Bill C-101, which are the retention of a maximum freight rate for grain, final-offer arbitration, and competitive access provisions such as competitive land rates and interswitching.

Of these provisions, the retention of the maximum freight rate is clearly the most important. Without this provision, western Canadian freight rates for grain may be set by railways at levels that would severely impact the ability of producers to remain competitive in international markets.

However, Bill C-101 also contains a number of clauses that significantly weaken the shipper protection provisions and would have a negative impact on western Canadian producers.

Subclause 27(2) says that:

the Agency may grant the whole or part of the application only if the Agency is satisfied, in the circumstances of the particular case, that the applicant would suffer significant prejudice if the relief sought were not otherwise available.

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We disagree with the assertion by Transport Canada that significant prejudice is just one of the considerations that the CTA will take into account in its decision.

Furthermore, ``significant prejudice'' is undefined. Subclause 27(2) will be a major impediment to the hearing of an application on its merits and could effectively render final-offer arbitration meaningless.

Subclause 34(1) enables the CTA to order the payment of costs of a proceeding before it and may order any person who makes a frivolous or vexatious complaint, application, intervention, or objection, to pay compensation for any resultant loss or delay.

While there is merit in deterring unwarranted claims, the requirement that the agency may require the payment of compensation for damages is punitive and must be removed.

Clause 113 states that a rate or condition of service established by the CTA must be commercially fair and reasonable. This clause is undefined, adds an unnecessary layer of regulation, and creates uncertainty for the CTA and the grain industry in interpreting it. This clause did not exist in the NTA in 1987. It would restrict the CTA in providing appropriate relief to shippers, and could mire the CTA in unnecessary and time-consuming evaluations over what is fair and reasonable.

In order to restore some semblance of balance between shippers and railways, these clauses must be deleted. The terms in these clauses are undefined and would severely impede the regulatory recourse otherwise available to shippers.

Saskatchewan Wheat Pool is generally supportive of the 1999 review in clause 155 and of the need to conduct an evaluation of the efficiencies of the transportation and grain-handling system, the share of efficiency gains between shippers and the railway companies, and, in particular, the need to conduct an evaluation of the impact on shippers of the loss of rate protection before determining whether division VI and schedules I, II and III should be repealed.

Our concern is that Bill C-101 provides no guidance to the minister as to what the basis for these reviews and evaluations will be. If there is no means to quantify the sharing of efficiency gains between shippers and railways, on what basis would the minister be able to determine whether the repeal of the maximum rate scale would have a significant adverse impact on shippers?

Saskatchewan Wheat Pool requests that the committee recommend that clause 155 be amended to require the CTA to maintain a database and the costing expertise necessary to carry out these reviews, and that the measurements criteria be jointly determined by Industry Canada and Transport Canada before the end of 1996.

The question was asked earlier today: what evidence is there of the implications if there was no rate cap? We have an overhead to illustrate this. I would ask Mr. Wansbutter to respond and explain the overhead.

Mr. Richard Wansbutter (Director, Marketing and Transportation, Saskatchewan Wheat Pool): These rates are for 1994. We were able to secure the BN tariff rates. They are for 26-car movements. We tried to compare it to the full Western Grain Transportation Act rates that existed in 1994, which are really no different than the rates in effect today.

As you can see for the BN hard red spring for Minneapolis, the BN hard red spring to the Pacific northwest, and BN corn to the gulf, they are, as a rule, higher than those of the Western Grain Transportation Act. As for hard red spring, where there is competition for that commodity in Minnesota and some of the southern states close to the gulf, you can see the freight rate is generally lower than that of the WGTA.

The point to be made here is that where there is competition, both modally and for a commodity, the rates are lower. However, where there is no effective competition, as you can see, the BN rates are considerably higher than those of the full WGTA.

Mr. Larsen: Mr. Chairman, my presentation today has dealt with the key concerns we have with Bill C-101. In particular, it is imperative that the maximum rate provisions be retained, the current shipper protection provisions not be weakened, and that the barriers to access to the CTA and the shipper protection provisions, through subclauses 27(2) and 34(1), and clause 113, be deleted from Bill C-101.

We have a number of other recommendations in our formal submission and would be pleased, at this time, to answer any questions you might have. Thank you.

The Chairman: Thanks very much, Mr. Larsen. We appreciate your submission.

Mr. Gouk.

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Mr. Gouk: I think it's subclause 120(1) where you're asking for an amendment on the time of notice to go from twenty days back to thirty days. What exact benefit would you derive from that extra ten days of notice?

Mr. Wansbutter: Given the way we set up our contracts and such, it's rather difficult to respond in twenty days. We can, but it was felt an extra ten days would provide that much more flexibility. I have to admit it's not a critical item, but it is an item of some concern.

Mr. Gouk: Okay.

You've talked a bit about how subclause 27(2) would render FOAs essentially useless. If there were an amendment to the wording of subclause 27(2), which is something a lot of people have asked for - some people understand it and some people are concerned about it - to make it absolutely clear that it is not a gateway blockade but only a remedy after the application is heard, and that it does not apply to final-offer arbitration, would that satisfy the main part of your objections to subclause 27(2)?

I realize it wouldn't make it perfect, but would that be a solution - not the best one, but a solution to you - for that specific part of this act?

Mr. Larsen: We currently see subclause 27(2) as a hurdle to get to final-offer arbitration. If it can be simplified in any way to make the access easier, it certainly would be better than leaving it in its current form.

Terry, you may want to respond further.

Mr. Terry Harasym (Director, Policy and Economic Research, Saskatchewan Wheat Pool): That's entirely accurate, but on the other hand there is the additional concern of the definition of ``significant prejudice'', which you've heard three times today already.

From our perspective it wouldn't totally alleviate the concerns we have in terms of being able to access the competitive access provisions.

Mr. Gouk: Earlier this afternoon we heard a rather interesting proposal. What if we eliminated all of the shipper blockades, such as subclauses 27(2) and 34(1) and clause 113, and at the same time eliminated all the provisions covering competitive access, and said, ``It's an open market; negotiate with the rail lines. If you can't agree, then we will leave in final-offer arbitration in its pure sense, not the one-sided way it's done now, but a double-blind offer being submitted by both sides''? Would that resolve the problems?

I recognize you would lose something. Of course you would. So would the rail companies. But what if we just said ``It's causing a problem for this side and it's causing a problem for that side, so we're going to scrap everything and let you negotiate wide open. If you can't settle it, then we will go to final-offer arbitration''? What is your reaction to that?

Mr. Larsen: Let me respond first as a producer and a member of the Saskatchewan Wheat Pool.

First of all I would see myself as a producer of that grain and a shipper exposed to possibly a great variation in what I would pay for my freight. It would make it very difficult for me to identify the kind of productivity I should have on my farm without knowing in advance what level of protection might be there.

I will pass to Mr. Wansbutter to respond from an operational point of view.

Mr. Wansbutter: The proposal has some merit, but quite frankly we'd have to sit down. It's really just come up today. We would like to look at it and think about it.

The one area of concern might be the CLRs. As a grain industry, we have not accessed competitive line rates. However, I'm aware it is a concern to companies such as CanAmera and crushing arm and some of the further value-added processors.

It's rather difficult to respond with an affirmative yes, but it's something I think could be looked at.

Mr. Gouk: I want you to understand I'm neither supporting it nor rejecting it. It's a new concept. I want to get people's reaction.

Some hon. members: Oh, oh!

Mr. Nault: Where are you on this, Jim?

Mr. Gouk: Just settle down, you turkeys.

An hon. member: We're looking for a solution to the problem.

Mr. Gouk: It's a new and interesting idea. Part of the problem is half the interveners have come and gone already and it was never mentioned. I want to make sure it's mentioned to the rest of the interveners coming forward. So you can either comment on it or, failing your ability to do so which is understandable, get back to us to give us a position on that specific thing.

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Mr. Wansbutter: We would like to get back to you.

Mr. Gouk: Thank you. I'll pass what time I have to Mr. Benoit.

The Chairman: There are four minutes remaining.

Mr. Benoit: That's fine. Thank you, Mr. Chairman.

The Chairman: By the way, just to interrupt - and I'll give you your four minutes - the chairman's flight of fantasy is taking on a life of its own. But at the same time, I did put this question to our very first witness, Maria Rehner, when she was before us.

Mr. Gouk: That must have been the short-notice Monday meeting I couldn't make it to.

The Chairman: Yes, maybe you weren't here. But it has been mentioned by just about every witness since then, and each has said he or she would respond to that idea.

Mr. Gouk: Okay. I just want to make sure we are covering our bases.

The Chairman: We are discussing each one.

Mr. Benoit: Regarding the rate caps, Mr. Gouk has asked some of the questions I was going to ask. I was going to ask if the rate cap, subclauses 27(2) and 34(1) and clause 113, were removed and the final-offer arbitration put in place, would that be a solution you could live with?

If the caps were removed and all shippers were given open access for all grains to the American market, would that help with the lack of competition you see between the railways in Canada now? In other words, you're adding open access to the Burlington Northern as an option.

I know the rate on the Burlington Northern now is higher than CP or CN, but Burlington Northern has said if it were offered Canadian grain in some quantity it would compete and probably be very competitive with CN and CP.

Mr. Larsen: Let me start by answering your questions in reverse.

First, I'm glad you acknowledged that the Burlington Northern is prepared to negotiate, but the U.S. transportation system is not free either. As a matter of fact, we have given you some indication that it is considerably higher than where we have come from.

From the other point of view, I hope all members remember that in a few short months we've gone from rate protection under WGTA, where the costing process identified a method of return to the rail system and also assured the producer of a certain level of rates that were level. The maximum rate we now have was determined from that process, as I understand it.

When we lost WGTA, it was identified that some great efficiencies would happen to the whole system with the removal of WGTA and its mechanisms, with the removal of the prohibition orders that are part of the package that has already been put in place. I don't think anyone should be concerned about the maximum rates that were set under the former costing review.

As a producer, I live on a branch line. I don't think I should be paying a higher rate to remove the volume of grain that is currently moving on there, lose that rail line and end up having to pay an exorbitant rate at a farther distance from my farm.

I don't see the maximum rate in place, which is part of the costing review process that has been in place, as an impediment to putting efficiencies into the system at all.

Mr. Benoit: Do you think the railways can become more competitive to the extent that the maximum rate isn't even an issue?

Mr. Larsen: They told us there were going to be great efficiencies to be captured here if they could get out from under WGTA and the branch line prohibition orders. I think we should give them some time to deliver.

Mr. Wansbutter: About the whole notion of access to the U.S. system, I really believe BN's offer of a lower rate, quite frankly, is a hollow promise. I respectfully suggest that contact be made with American shippers such as Harvest States, ConAgra, Cargill, or any major shipper in the U.S., and I think they will tell you. In our discussions directly with them, BN indicated it does not offer discounts. BN, where it is a monopoly, does exercise monopoly power. I don't believe we could gain access to the U.S. system.

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Furthermore, I think when we talk about railway viability - and we're not disinterested in that aspect - shipping our Canadian grain via the U.S. system would be detrimental not only to Canadian farmers but to the Canadian rail system.

Mr. Benoit: But it would add an aspect of competition.

Mr. Wansbutter: I don't believe that BN would provide that competition. That is not evident to date in North Dakota, Montana and some of the northern states.

The Chairman: Thank you.

Mr. Fontana.

Mr. Fontana: This fact should be clarified. While you did lose the WGTA, the government has compensated the producers directly for that loss. Nobody bothers to mention that, but I thought I would just to be fair to the equation. While you did lose the WGTA and we're putting in place a new regime that will help efficiency and the maximum rate, you did get paid x number of dollars by the federal government for the transition period. I thought I'd mention that to be fair to the equation.

I want to ask you about your business, because it relates directly to competition and everything else. You obviously have trucking programs that move grain from certain parts to your facilities. The grain is then taken from your facilities by rail. In most cases, there are, as I understand it, two railroads that do access about 80%, so there is competition. Why isn't there competition in the rates? One has only to guess.

Do you offer incentive programs to bring that grain from the producer to your facilities?

Mr. Larsen: First of all, let me respond to your comments on the loss of the WGTA and the compensation we received. Its value is only a fraction of the benefits we were receiving previously.

Mr. Wansbutter can respond to the second part of your question.

Mr. Wansbutter: On the issue of competition, I would not question the railways' assertion that 80% of the grain is within 30 miles or within another point. As other presenters have done, we on the grain side are trying to make the point that we are captive to the rail mode. Being captive to the rail mode means there is little price competition, and that's certainly been in evidence in the last couple of years.

Mr. Fontana: But it's there with respect to trucking. I'd like to know how that operates for you.

Mr. Wansbutter: We are a major user of trucking facilities. To entice grain into an elevator we will offer trucking incentives to producers. Depending on type of commodity and type of year, that incentive will vary considerably, anywhere from $2 to $5 to $6 depending on what the market is dictating.

Mr. Fontana: The fact that you are able to offer these trucking incentives again suggests to me that competition does exist in the system. So far, all I've heard is that there's no competition. Yet there are two railroads and perhaps even a third railroad, be it American.

You are trucking now from producers to facilities. You have short lines involved in some cases that will perhaps be involved even more if we get this legislation in place. So we're introducing an awful lot of competition into the marketplace. Who offers these trucking incentives?

Mr. Wansbutter: I'm glad you raised the notion of competition in that way. Within the grain handling and marketing system we have eight major grain companies and a multiplicity of small grain dealers. It is a very competitive marketplace out there.

When Saskatchewan Wheat Pool was trying to secure canola, we were competing against all the other marketers. It also applies for board grades. We will offer trucking incentives to acquire that grain, but there is little competition on the transportation side.

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Mr. Fontana: Because this issue of the FOA and subclause 27(2) keeps coming up, I want to make it clear the two are separate and distinct. I don't know why people are getting things mixed up. Subclause 27(2) involves agency decisions; FOA is an arbitration decision and has absolutely nothing to do with the agency. People are confused if they think subclause 27(2) will, in some way, shape or form, erode the access to an FOA or impact on an FOA. That is completely erroneous. The two have absolutely nothing to do with one another. That needs to be clear, because subclause 27(2) relates to those agency decisions that are the common access provisions. The FOA is an entirely different matter and doesn't impact on the agency decision whatsoever.

Mr. Wansbutter: I will speak for myself on the issue of confusion because I am confused. When we were dealing with the federal Department of Transport in the transition from the WGTA to Bill C-76 and then the transition to Bill C-101, we were told in the transition from the WGTA we would have access to the shipper and competitive access provisions. There was no mention at any time in our discussions - and we had a number of them with Transport officials - about ``frivolous and vexatious'' and the introduction of ``significant prejudice''. It was a great surprise to us, and I think it's fair to say for other shippers as well that these were introduced without any discussion with the shippers. So there is confusion. We don't know why they're there, we don't know why they were introduced.

Mr. Fontana: But that's not what I asked. I asked you whether or not you needed clarification, because it has been clarified over the past two or three weeks. Surely from the time you were talking to Transport Canada in May, June and July to the time you got the bill, if you looked at it...the two have absolutely nothing to do with one another, subclause 27(2)...albeit you have some concerns and we're looking at how to better explain it to ensure it's not perceived as a barrier to access, but one of the guidelines by which the agency would look at the remedy. So it's a remedy question and not an access question.

The FOA has absolutely nothing to do with the agency part of this bill. That's why I just wanted to clarify it.

Mr. Harasym: Without disagreeing with you, if that in fact is the case, I would suggest that perhaps an amendment could be made to the legislation to stipulate that subclause 27(2) does not apply to FOAs.

Mr. Nault: They had nothing to do with each other and they never did before, so why would they now?

Mr. Fontana: I think that clarification has been made and obviously hasn't been heard or understood. We obviously have to do a lot more to do it.

I think you said in your brief you're in support of Bill C-101, even though you have certain reservations. But there are certain things you didn't mention, and I just want to get you on the record. I take it you have absolutely no problem with the abandonment provisions or the running rights provision, clause 138.

Mr. Larsen: That's true. We have no position on the running rights issue.

Mr. Fontana: When you say you have no position, does that mean you're in favour of clause 138 or it doesn't trouble you one way or the other?

Mr. Larsen: I guess that would be fair.

Mr. Nault: I just have one question. I don't want to keep the gentlemen. I'd hate to see them miss their plane. It's a long way out west; I can attest to that.

We haven't really talked a lot about the role of short lines with respect to grain traffic. The whole intent to make the process easier to create short lines was the result of the concern that there are many branch lines the major railway companies don't want. There's a perception that there's a tremendous potential for short lines.

Do you agree with that sentiment expressed by many that there is potential for short lines out west? Is this just a pipe dream fools will accept? Will there be a significant amount of rail abandonment, especially on the light steel side of this issue?

Mr. Larsen: Our position for a number of years has been that short lines should be part of the system, provided they can be identified as the least-cost option, taking into account the cost to my gate, the road impact costs, the trucking costs and the things that go with them. So if they are the least-cost option, we're certainly supportive of them being a vehicle that could and should be used.

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Mr. Nault: Mr. Chairman, this is my last question and it's a very short one.

If the Saskatchewan Wheat Pool is so concerned about protecting its interests, why has it completely ruled out buying a portion of CN? Wouldn't buying 10% of CN or some railway be the best way for the Saskatchewan Wheat Pool to protect its interests?

Wouldn't it be a pretty good investment for a farmer out west?

Mr. Larsen: First of all, we don't have this bill.

I guess the issue has not been totally ruled out, although in light of the privatization of CN it just could not fit into our economics right at this time.

It was a policy position, a request by the delegates at last year's meeting that we investigate the possibility. We have been doing that.

The Chairman: That's healthy. Of course, you know you can't buy more than 15%.

Mr. Larsen: That's right. You've put a limitation on us.

The Chairman: Mr. Larsen, I know you have a plane to catch.

Gentlemen, I want to thank you very much for your submission and for answering our questions.

Mr. Larsen: Thank you very much for hearing us. If you have additional concerns, please feel free to contact us.

The Chairman: We look forward to your response on the suggestions we've made vis-à-vis the balance and the flight of fantasy.

Mr. Larsen: Thank you very much.

The Chairman: Finally, colleagues, the representatives of the Canadian Chemical Producers' Association are here. They have been waiting so patiently for their turn at the microphones.

Mr. Alexander, Mr. Goffin, and Mr. Jensen, welcome to the committee. We look forward to your submission. We received it earlier and appreciate that cooperation. Most of us have read it and look forward to an executive summary.

Mr. Alexander, could you introduce the gentlemen you have with you?

Mr. Wayne Alexander (Vice-Chairman, Logistics Committee, Canadian Chemical Producers' Association): Thank you, Mr. Chairman.

I'm Wayne Alexander, logistics manager with Sterling Pulp Chemicals and vice-chairman of the logistics committee for the CCPA. With me are Al Jensen, of Novacor Chemicals in Sarnia, and David Goffin, a vice-president of the association.

Mr. Chairman and members of the committee, the Canadian Chemical Producers' Association appreciates the opportunity to meet with you here today. The CCPA represents 68 member companies producing a broad range of petrochemicals, inorganic chemicals, and specialty chemicals. A membership list is attached to our written submission.

As we point out in that submission, our member companies use Canada's transportation system to move annual shipments valued at $12 billion to both domestic and export markets.

Exports now account for over 50% of the value of shipments with 80% of these exports bound for the United States, but the Asia-Pacific region, Europe, and other locations are also important export markets for us. Our member companies rely on efficient, cost-competitive rail transportation in order to compete in each of these markets, either to reach the market itself or to reach tidewater and marine transportation.

CCPA's submission on Bill C-101 raises issues that have already been discussed with you by other shipper organizations. It covers subclause 27(2), the commercially fair and reasonable requirement in clause 113, the compensation for frivolous or vexatious complaints in clause 34, concerns about competitive access on provincially regulated railways, and so on.

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There's nothing unique about our position, and you already thoroughly understand the shippers' issues. Hence, rather than using this time to repeat them, we will comment on some of the questions you have raised with other shipper organizations.

Are CCPA members concerned about the railways' future financial viability? You bet. So we do not object to the streamlined provisions for conveying or abandoning rail lines that appear in Bill C-101. They will permit the railways to deal with under-utilized track and reduce system costs.

Let there be no mistake: individual member companies are giving up a lot in accepting these provisions in the interest of railway viability. They will have virtually no say in the future structure of the rail system other than possible recourse to the Competition Act, if that is warranted.

In this respect Bill C-101 provides a substantial rebalancing of the legislation in the railways' favour. In addition, the resolution of the rail-labour disputes earlier this year will also contribute to future railway viability.

Following the release of the Transportation Association of Canada's study of railway taxation a couple of years ago, the CCPA has supported the railways in obtaining competitive fuel and property taxation. Where we draw the line in our acceptance of these rebalancing initiatives is that the CCPA does not support any tinkering with competitive access mechanisms through ``significant prejudice'' or ``commercially fair and reasonable'' tests.

In its 1993 report, the National Transportation Act Review Commission stated: ``we generally feel that the Act's most significant achievement was to secure reduced costs for shippers.'' These gains must be protected. Will provisions in Bill C-101 damage the shipper gains referred to by the review commission? Our industry can't take that risk. As we have already discussed, railway financial viability is being addressed through several other important initiatives.

We are told that the government's current priorities are jobs, jobs and jobs. The government also needs reasonable economic growth in Canada to help achieve deficit reduction targets. It is well known that since the last recession Canada's economic growth has been led by exports by companies like chemical manufacturers who have particularly exploited opportunities in the United States. Why take the risk that tinkering with competitive access could increase rail costs for shippers, hinder their performance in domestic and export markets, and hurt Canada's prospects for economic growth?

If we understand correctly, members of this committee have questioned whether fewer competitive access mechanisms or reduced shipper access to the new Canadian Transportation Agency could reduce regulatory burden and costs, helping railways and perhaps shippers as well.

We suggest that any savings of this sort would be minimal. Bill C-101 will reduce the size of the agency in any event. The costs involved in developing the interswitching regulation were largely sunk in 1988. It is true that costing updates are done annually and the regulations are updated, but this is not a major outlay.

Interswitching works with virtually no regulatory intervention at all. The agency has been approached for the determination of a competitive line rate by only two shippers since 1988.

Similarly, there has been little direct use of mediation, public investigations or final-offer arbitration. For instance, during 1994, the agency only received two applications for final-offer arbitration. While we do not see much in the way of potential savings by reducing access to these provisions, the lack of direct use of the provisions does not imply that they are not needed by shippers.

The annual reviews carried out by the agency have consistently demonstrated that shippers are using these provisions in bargaining with the railways in order to reach negotiated agreements.

If Bill C-101 does have the effects feared by shippers, our costs can only go up. The importance of the competitive access provisions for our member companies is demonstrated by appendix II, which is attached to this presentation.

Mr. Keyes asked last week whether we could deregulate by removing the competitive-access mechanisms and rely solely on final-offer arbitration. That would require careful study. The existing mechanisms are based on a thorough analysis of plant access to railways across the country, which took place during development of the 1987 legislation.

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There has been little experience with final offer to date, so it is a largely untried mechanism. We also point out that more than 200,000 rail cars are interswitched annually with no direct intervention by regulatory authorities or arbitrators. Relying solely on final offer might overly burden the process and increase costs for both shippers and the railways. As we have said, though, it would require study to determine whether this merits our concerns.

Committee members have also referred to the U.S. rail system and the lack of competitive access mechanisms in that country. In fact, over the years captive shippers in the United States have continually argued for relief.

Recently those arguments have become particularly vehement in the face of rail mergers and proposed rail mergers. The U.S. National Industrial Transportation League, for instance, has been quite interested in Canada's competitive access provisions.

Our U.S. colleagues tell us that the NITL hopes to see similar provisions in draft U.S. legislation this year, but that has not happened so far. They also advise that if the proposed Southern Pacific-Union Pacific merger goes through, it is likely to include provision for Burlington Northern-Santa Fe access to shippers who would lose rail competition through the merger. So perhaps in the near future there will be more convergence of competitive access approaches in North America.

We have attached appendices to these oral comments showing the breakdown of our freight bill and the use of competitive access mechanisms by CCPA members. We have thought about possible definitions of the phrase ``significant prejudice''. The word ``prejudice'' has been judicially interpreted as suffering a pecuniary loss or damage. The difficulty lies in attaching a useful meaning for ``significant'' to this phrase; we have been unable to do so. We would prefer to see the phrase deleted from Bill C-101 and continued unfettered shipper opportunity to use the competitive access provisions, just as in the NTA of 1987.

Our written submission mentions possible enhancements to competitive access that might be needed as rail rationalization continues. We no longer expect that there will be much, if anything, in the way of enhancements, but we need to at least hang on to the rail competition we have today. As we said earlier, when it comes to tinkering with competitive access, we can't take the risk.

Thank you, Mr. Chairman, and members of the committee. That concludes my prepared remarks. We're open for questions.

The Chairman: I want to thank, on behalf of the committee, the Canadian Chemical Producers' Association for a very detailed response to the bill. You did a lot of work, and we do appreciate your examination and response.

Mr. Gouk.

Mr. Gouk: As the chairman said, you laid it out quite well. As for many of the things you're talking about, I have concerns on many - not all - of those areas. I'll certainly be coming up with some suggestions to rectify some of the concerns you have.

With regard to the idea of eliminating, from both sides, the shipper provisions and the rail protection provisions, are you still looking at coming up with a position on that or do you feel that you're just not really driven in that direction?

Mr. Alexander: I think at this point we're not overly driven in that direction, but Mr. Goffin might want to comment.

Mr. David Goffin (Vice-President, Business Development, Canadian Chemical Producers' Association): I think Mr. Alexander is right. As he said in his opening remarks, we do take railway viability seriously. But we feel that a number of other provisions have gone in that direction. Perhaps changing the competitive access provisions or access to them is something that is not needed on top of the other measures that are being taken.

Mr. Gouk: Would you feel the same way...? I can see that probably the ideal, from a shipper-producer's point of view, is to get rid of subclause 27(2), subclause 34(1) and clause 113, retain the rest, and the bill is perfect.

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If, for whatever reason, subclause 27(2), subclause 34(1), and clause 113 are going to stay, would getting rid of the whole works be an alternative you would then look at? Are you simply not looking at it because you would rather go the other way? If the bill is going to go as it is, or we start looking at doing away with provisions on both sides and relying on final-offer arbitration in its pure form, would you then be more inclined to look at it, or do you just feel it isn't the solution for you, no matter what?

Mr. Alexander: We're open to looking at anything, but I think our position, as we've laid it out, is reasonably clear. Mr. Nault suggested before that you can't get a straight answer from some of the people you've been talking to. I think a straight answer from us is that subclause 27(2) must go, and everything else is negotiable.

Mr. Gouk: Fair enough. Thank you.

Mrs. Sheridan: I would like to ask you something about subclause 27(2). Have you been here all afternoon?

Mr. Alexander: No. Should we have been?

Mr. Nault: They look a lot fresher than that.

Mrs. Sheridan: I was going to ask you for some beauty tips, I guess, if you had been. I have a serious question for you.

The reason I asked if you had been here all afternoon is because a lot of people have essentially said the same thing. Shippers are not happy with the way it's worded, and I'm not convinced that significant prejudice is necessarily the best way to handle this.

So far I'm hearing from both sides of this table that we should leave it in or dump it completely. But what I'd like to ask you, and I wished I had asked the other people, is whether there is some kind of criteria that could be added to the procedure clause 27 contemplates that you feel would maintain the balance I think everyone is looking for. There's no sense running the shippers out of business or running the railway out of business, because you would both be sunk.

Somehow you have to feed the wolf and keep the goat alive - and I don't know whether you want to think of yourself as a wolf or a goat. But in any case, is there some kind of criterion that should be in there that is better than significant prejudice? Perhaps it doesn't mean anything.

Mr. Alexander: Quite frankly, I'm not sure what the compelling argument is for having this in here. We're a little puzzled about that.

Mrs. Sheridan: Do you mean the entire process contemplated by clause 27?

Mr. Alexander: Yes. I guess we're having a bit of difficulty understanding the drive to have subclause 27(2) there. What does it bring to the table to protect either the railways or any other carrier or shipper? We're puzzled by where all that comes from. It seems to us it is a sufficiently unclear process, so why have it there? It will cause more problems than benefits.

Mrs. Sheridan: Does that mean in the real world of the work you're doing, you can't really see a situation where you would seek the remedy laid out in clause 27, as it now stands?

Mr. Alexander: It provides a hurdle for us that isn't in the NTA 1987. Our ability to negotiate with the railways under NTA 1987 is there, so why introduce this hurdle?

Mrs. Sheridan: So you see it only as an impediment as opposed to any kind of useful remedy for shippers?

Mr. Alexander: Yes.

Mrs. Sheridan: You don't see any situation where you might use it.

Mr. Alexander: I defer to my colleagues.

Mr. Al Jensen (Canadian Chemical Producers' Association): I don't see any use for it. In other words, there's no apparent way that helps us, but it does put this impediment in our way where we have to be concerned about that issue when we deal regularly with the railroads in negotiating rates and services.

Mrs. Sheridan: So to conclude, it's not just a matter of deleting the troublesome words ``significant prejudice''; it's the entire clause. Is that what you're saying?

Mr. Jensen: In all fairness, I don't understand what it does for anybody. Does it help the railroads? If it does, let them come forward and clarify exactly what it does for them. That would be put into the pot of balancing things out that Mr. Goffin referred to earlier, where there are other things happening that are tending to balance out. Why add this other thing when it's not apparent to us what use it is?

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The Chairman: Thanks, Mrs. Sheridan.

Mr. Nault.

Mr. Nault: I'm trying to get a handle on your presentation.

In one of the areas of support you mentioned you understand that there's an under-utilization of track. There's a belief there has to be a rationalization, which means, quite frankly, that there is a possibility some of your members could have line abandonment right on top of this. I suppose that's much more difficult to deal with than this whole issue of an unfettered competitive access mechanism.

I'm trying to figure out how to square that. On the one hand you're telling the railroads to go ahead, to do their thing, and to rationalize and get it over with because they need to. On the other hand, you're talking about significant prejudice, which, to me at least, means that you really must have a severe case of the railways forcing you into bankruptcy or putting you out of business before you can go and complain that they want you to pay $2 more per tonne-mile or something to that effect. I think that's what it means to me.

I'm not a lawyer - and maybe thank God for it - but that's what my common sense tells me this is trying to suggest. It really has to be serious before you can.... Otherwise it'll be somewhat put upon you to negotiate those line rates. That's how I see it.

On the one hand, you say it's perfectly acceptable for the railways to go out and rationalize. God only knows they haven't done that. I think everybody feels they are going to do that, given the abilities. And then we'll see whether short lines exist in some form. But we all agree there will be a significant amount of rail abandonment.

That doesn't bother you, but this whole issue of clause 27(2) does. I can't square that in my own mind, because on the one hand you're very willing to take on the competition head to head and you think you can do quite well with it, or you're willing to give the railways the benefit of the doubt when they say they want to do business with you and to give you good rates. But on the other hand, you seem to think the agency has to be there to hold your hand. I don't think they need to, because you've already told me they have gone only twice since 1987.

You're basically using the agency to be able to tell the railways not to force you or you'll go to the agency and turn them in. That's what you're using it for, because you don't use it for anything else. It's sort of an axe held over their heads.

What's your comment? You've basically told us you don't need this because you never use it anyway.

Mr. Goffin: Let me start. I don't think you've said very much we could disagree with.

On the system rationalization, Mr. Alexander said in his opening remarks that it's essentially a leap of faith on the shippers' side. Since 1987, the railways have continued to argue for that. That's been on the agenda at every transportation conference you've been to in the last eight years and on shipper-carrier panels and so on. Shippers have gradually been beaten down on that one.

Sure we have concerns that in some cases lines are going to be abandoned or short lines are going to fail or they're not going to come in and people are going to be left high and dry. We do have those concerns. On the other hand, under the abandonments that have already taken place we have one short line - on which a couple of our members had plants - that didn't go in because of Ontario's successor rights provisions. But once those are dealt with....

A short line would have gone in under this new legislation. Our companies gradually accepted it. We have one company in Arnprior that incorporated its own short line because it was forced to. There is some evidence that as rationalization takes place people will step into the breach, but it certainly does concern us.

In terms of the way the agency is used, I think you're quite right. That's what the record shows. There's been very little direct application to the agency. The shippers have used that as leverage, and in many cases they're dealing with one railway they're captive to. You can see that from our data. If they don't have that leverage, what leverage do they have to reach a bargain with the railways?

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Mr. Nault: Before you get past that, could it be fair to argue that it is misplaced leverage? There's a perception that you need it, but in fact you don't.

The reason why the railways negotiate is because they want your business, not because you say you're going to the agency. The railways aren't in the business of telling one to get lost; they are in the business of wanting to have some form of sharing the wealth.

I am concerned that the shippers, on the one hand, are misplacing their debate and their argument when it should be put somewhere else. In my mind, we spent a lot of time on this particular clause, which I think is going to prove to be somewhat insignificant. You never use it anyway. We are talking about using it twice since 1987, yet all we talk about in this room is subclause 27(2). Nobody uses it. We haven't talked about rail abandonment, rail rationalization, or all the effects that will have on shippers. We haven't talked about the competitiveness of the railways in one form or another. We are talking about trying to create some sort of regulatory competitiveness.

We spent all our time on subclause 27(2). I don't know if the minister did that on purpose. Maybe that is a good ploy, but I am trying to find out whether we could get by subclause 27(2) and talk about something a little more substantive.

Mr. Goffin: Let me just briefly comment and turn it over to these guys, because I don't ship very much myself. I think they can respond to this.

If you look to pre-1987, when we didn't have these mechanisms, and post-1987, you see why they need them to deal with the railways. Post-1987, the railways said to us that these things have forced them to look much more closely at what we were doing in our businesses, what market we were trying to get to, and how they can perhaps work with us to help get to those markets, and perhaps not. But at least they are doing that today.

Perhaps Mr. Alexander and Mr. Jensen should pick that one up.

Mr. Alexander: From personal experience, I would agree with what Mr. Goffin has said.

Mr. Nault, what you are suggesting with regard to the railways having the ability to go out to rationalize their plants - they have every right to do that, and they shouldn't be hampered by regulatory constraints. We want them to be profitable so they can be reliable carriers and be there for us so that our plants will survive over the long term.

It is at what cost? History has shown that railway freight rate increases prior to 1987 were of a magnitude that meant ``big'' and ``often''. We don't have the ability, like a lot of other industries, to be open to intermodalism in a big way. We are shipping commodity chemicals. Tank cars and hopper cars are really the name of the tune, when it comes to that.

So your point is really well taken: what is the big deal around subclause 27(2), and why are we spending so much time on it? It is really one of the nasty hurdles that are being thrown in there. For what purpose? The competitive access provisions under the NTA of 1987 at least seem to work to the advantage of both parties.

Mr. Fontana: I think one of the members of your association, Stelco, came before this committee last week or the week before, and we got into subclause 27(2). We talked about whether or not there needed to be a captivity test. I asked the question: if the particular shipper was captive, was that shipper captive because of rail or because of mode?

Do you think a captivity test might help in terms of subclause 27(2) so that its application is narrowed very much to make it a truly captive shipper, either by railroad and/or by mode? That's essentially what we are getting to.

Mr. Jensen: A captivity test would be much more difficult to figure out than the clause we are arguing about. Captivity is almost in the eye of the beholder. What's captive? We may have three movements out of ten that are captive, and seven that aren't captive. The market is distance, volume, and cost.

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Mr. Fontana: But the very point is to try to make a determination for the agency to give it some guidance, not in the access to the agency but in terms of the remedy, which is the rate and the service. The CTA should be given some sort of guidance as to whether or not there is any prejudice as to why that application was made.

My colleague already said that even under the existing system, nobody really used it. It has been used twice. I don't know even know why. It has been used as leverage.

So in order to narrow the scope of ``prejudice'' or ``significant prejudice'', don't you believe that one needs to at least attach...? This is not unheard of. These words have been used in other quasi-judicial things. There have been decisions made along the same terms by other agencies to quantify the nature of the significant prejudice.

So in fact, if you have a problem with rate or service and you want to go to the agency - if you should even want to get there - you have to prove that you are significantly prejudiced because of this application. What is wrong with that in order to protect and try to develop a competitive rail industry?

The alternative is that if you don't have rail you're not in business. Isn't that the case?

Mr. Alexander: In some cases.

Mr. Fontana: In what cases?

Mr. Alexander: I don't understand. When legislation is being developed and something new is introduced, I was of the opinion that there was a compelling reason for doing so. But I don't see what the compelling reason is. What is the improvement to the existing -

Mr. Fontana: Let me ask you something else. You indicated the problems prior to 1987 for the shippers. You got a lot of good things in 1987.

Mr. Alexander: Agreed.

Mr. Fontana: What has happened to your rates since 1987? Have they gone up or down?

Mr. Alexander: They are similar to our selling prices.

Mr. Fontana: So they've gone down.

A witness: By almost 30%.

Mr. Fontana: So the system has worked for you. Now we've got a problem, if you recognize it as a problem, in a rail industry that's struggling.

Say we want to maintain our competitiveness as a country. You export an awful lot of your stuff - thank God for that - but we need to have a competitive system so your prices are in line with that of other countries and other people who want to sell the same goods as you.

Therefore, we have to look at the whole system. I understand that transportation costs are a very big part of your price. So in the end, if we get a better, much more efficient, competitive system, won't you benefit, because the cost should come down to you?

Mr. Alexander: Agreed. You're suggesting that in 1987 there was a bill for shippers, which we don't dispute. What we're faced with here is a bill for railways. We're saying it's needed and we agree to it, but why this hurdle? Where is the benefit?

Mr. Fontana: But without something for the railroads.... Bill C-101 cleans up 2,000 pages of other regulations and puts railroads as a business under the Competition Act. So there are all kinds of remedies under the Competition Act that don't exist now because they're old and antiquated and have been around for a hundred years or so. So there are great improvements, but at the end of the day the railroads will tell you - one of them already did - that they haven't got anything out of this bill.

Mr. Goffin: Mr. Nault, they're going to abandon and convey whatever they want. We can't even come forward to say anything to them.

Mr. Fontana: Abandonment is part of this equation, and that's an improvement. You have other people suggesting that running rights ought to be given holus-bolus to every provincial short line, which would then cause no railroad to sell. So we're trying to strike a balance that in turn does it.

I'd like to ask one final question. Let me just add that you're in business, and so are the railroads. I just said that they're going to be under the Competition Act.

Say we were to impose the same regulations on your industry that you're asking us to impose on this one industry, which is the railroads. Trucking doesn't have it. Marine doesn't have it. Nobody else has these regulatory provisions. What would you think if we started to do that to you?

Mr. Alexander: You're talking to the wrong guy. We're in the chemical business. We have regulations up to here.

Mr. Fontana: Yes, environmental ones, I know, but not in terms of price or the costing part of it.

Mr. Goffin: But if we were a monopoly or an oligopoly, surely we'd be facing the same type of regulatory intervention in the marketplace as that for the railways.

Mr. Jensen: Heavy duty competition.

Mr. Fontana: So there's no competition now?

Mr. Goffin: We have a Competition Act. It's there.

The Chairman: Mr. Gouk, you wanted a supplementary?

Mr. Gouk: Yes, just a supplementary, which is further to what Mr. Fontana asked. I just want to clarify that it is your position that subclause 27(2) puts a roadblock in front of you. Your biggest argument against it is the fact that you cannot see how the railroad gets anything out of it. It's simply a bureaucracy that's placed in your way. So it's a detriment to you that the railroad doesn't really gain from. Is that your position?

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Mr. Goffin: I think the railway is going to gain from it. We were asked whether the shipper gains something from this, or if ``significant prejudice'' came out, would the whole subclause go? If ``significant prejudice'' comes out, there's no reason for keeping the subclause.

As for the railways, if I were these guys, after this goes through I'd expect to see a very hard-nosed approach from them. If I understood Mr. Nault correctly, they're going to look at it and say this means that unless this guy goes bankrupt, chances are he's not going to get his relief. If he can't get up in front of the agency to show he's going to go bankrupt, he's not going to get any relief. So if he's not going to get any relief, why won't they jack his rates up? It will help their viability, as Mr. Fontana said.

It won't help us. We feel we're on a pretty even keel with our U.S. competitors and others right now. But once our rates get jacked up, we're not going to be contributing very much to the country any more or seeing much more investment in our industry.

Mr. Fontana: I wouldn't go that far. You've interpreted our comments all wrong.

Mr. Nault: Mr. Chairman, if I can, I'd like to clarify my remarks. I don't want to leave the impression with the witnesses or the committee that the only time you could go to the agency is if you're going bankrupt.

I think this is the intent of ``significant prejudice''. Mr. Comuzzi hit the nail on the head the other day fairly well when we were talking about the significant increase in the amount of money that people are making in the forestry sector as it relates to timber, which is two-by-fours and all of that sort of thing. It just skyrocketed in the last number of months.

That's great. We love to see that. I come from a forestry area and we like to see that. Also with that is the reality that the railroads didn't jack up their rates to make a small, extra profit when everybody else was making a 200% or 300% increase in that particular commodity.

``Significant prejudice'' means this to me. Say the railways came to you and said they would like to jack up your rates from 12% to 15%. Under the system as it is now, you could go to the agency and cry foul. But with ``significant prejudice'' you couldn't do that. That's because the agency would have to rule that this is not significant as it relates to your industry. That 3% is within reason.

I think that's the intent of this. It's so they can raise their rates. I don't think we're arguing that. If someone is pretending that's not what's going to happen.... There's no sense in beating around the bush here; that's exactly what's going to happen with that particular clause. It's meant to allow the railroads to give reasonable increases.

But under the present system they're not able to do that. That's why you had a 30% decrease in rates. We're not going to argue that tonight, Mr. Alexander, because I know you've had some lean years as well.

I wanted to leave that with the committee and with you, because I think that's the intent of ``significant prejudice'' in my mind.

Mr. Goffin: I'm sorry I misinterpreted your earlier remarks.

Mr. Nault: I don't want you to get to the point at which you're going to go bankrupt before you can go to the agency or we might as well not have an agency.

The Chairman: Mr. Alexander, Mr. Jensen, and Mr. Goffin, we appreciate the time you've taken to be with us today. Your presentation was very thorough. Thank you for answering our questions.

Thank you very much, gentlemen.

Mr. Alexander: Thank you for having us. We do wish you all of the best.

The Chairman: Thank you, colleagues. We'll do it all over again tomorrow, starting at 9:30 a.m.

The meeting is adjourned.