EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, November 2, 1995

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[English]

The Chairman: Good morning, colleagues. I just want to get started because the bells may start to ring at 10:05 a.m. for the vote at 10:15 a.m. We may have to scoot away, so I want to get our first witness presented at least, and then we can come back and ask questions after they've presented.

We welcome Edward Burkhardt and Susan Norton from Algoma Central Railway to the table for consideration of Bill C-101, the Canada Transportation Act.

Welcome to the transport committee. We thank you for your submission to the committee. If you could give us your executive summary in about 15 minutes or less, then we can begin our questions. As I said, there might be an interruption with the vote, but we'll return immediately afterward.

The floor is yours, Mr. Burkhardt.

Mr. Edward A. Burkhardt (Algoma Central Railway Inc.): Thank you, Mr. Chairman.

Algoma Central Railway Inc. is a federally regulated Canadian railway company, established pursuant to the Railway Act and continued under the Canada Business Corporations Act. It operates freight, passenger and passenger tour train services. Its main line runs 295 miles north from Sault Ste. Marie to Hearst, Ontario. A branch line runs 26 miles from Hawk Junction to Wawa and to Michipicoten Harbour on Lake Superior.

The freight service operates over the entire line. A regularly scheduled daily passenger service operates between Sault Ste. Marie and Hearst. A scenic spring, summer, fall and snow tour train operates between Sault Ste. Marie and the Agawa Canyon.

ACRI, Algoma Central Railway Inc., is owned by Wisconsin Central Transportation Corporation through its wholly owned subsidiary, WC Canada Holdings Inc. WCTC is a publicly traded company whose shares are listed on the NASDAQ stock exchange.

WCTC also owns two regional railroads in the U.S.: Wisconsin Central Ltd., which is the largest regional railroad in the United States and the largest railroad in the state of Wisconsin, and Fox Valley & Western Ltd. Its U.S. operations provide service to the upper peninsula of Michigan, northeastern Illinois, eastern Minnesota, and Sault Ste. Marie, Ontario, utilizing 2,507 route miles of line. The railroad's principal gateways are Chicago, Duluth, Green Bay, Milwaukee, Minneapolis, and Sault Ste. Marie.

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Since its inception, Wisconsin Central's revenues have grown from $93 million in 1988 to $211 million in 1994, an increase of 225%. WCL has also gained national recognition as the premier regional operator in the U.S. It has won Distribution magazine's quality service award seven years in a row, the only carrier to have achieved this honour.

The combined Canadian and American operations utilize 227 locomotives and 10,867 freight cars. As a result of our success in the U.S., WCTC was invited to participate in the privatization of New Zealand's only railroad, New Zealand Rail Limited, a 2,500-mile route system, offering freight, intercity and commuter passenger services. Through WCTC's wholly owned subsidiary, Wisconsin Central International, we own a 31% interest in New Zealand Rail Limited.

Following its success in New Zealand, WCTC acquired Algoma Central on January 31, 1995, after having obtained all the necessary approvals. Since that date the level of freight service has increased. The Agawa Canyon Tour train has been aggressively marketed with the result that ridership has increased and the passenger train service has been continued pursuant to existing orders of the National Transportation Agency.

Prior to WCTC's entrance into the Canadian market, Algoma Central Inc.'s predecessor, Algoma Central Railway, had operated at substantial losses for some time and had relied heavily on provincial subsidies for its existence. In both 1992 and 1993, ACR received from federal and provincial governments over $12 million in subsidies. By 1994, faced with the prospect of a discontinued provincial subsidy, ACR was on the verge of discontinuing services completely.

WCTC felt strongly that it could return the railroad to viability if it could bring the same entrepreneurial spirit to Canada that had been successfully used in the U.S. and in New Zealand. Our investment in ACRI has secured employment for more than 200 of the previous 500 employees, all of whom faced an uncertain future. As part of the transaction, ACR's nine unions entered into a single collective bargaining agreement, which eliminated anachronistic and burdensome work rules. Finally, the $8 million to $9 million annual freight subsidy paid by the Province of Ontario was eliminated.

ACRI's business plan, submitted to Investment Canada and the NTA, assumed the continuation of a federal passenger train subsidy in view of the fact that passenger service would continue under NTA orders. These payments and the related orders for continued passenger service are made under the Railway Act.

The Algoma Central story is not unique. There are many segments of the Canadian rail system that are, or soon will be facing, the same downward spiral of disinvestment and eventual abandonment. WCTC and ACRI applaud the effort of the Minister of Transport to address this problem through Bill C-101. The bill would generally promote economic development, foster competition and produce more balanced public-private partnerships. At the same time, however, changes can be made to the bill to assure that the zeal to preserve rail corridors and service doesn't undermine the entrepreneurial spirit of the bill.

ACRI and WCTC support the government's initiatives to deregulate the conveyancing of lines of railway, and in particular, the repeal of section 158 of the Railway Act. As investors in the Canadian transportation system, we are and will remain subject to the requirements of Investment Canada Act and, as with all Canadian operators, of the Competition Act also. In these circumstances, the need for third approval by the NTA is not warranted. The existing approval process to acquire a line of railway is costly and time-consuming. In addition to Competition Act concerns, the investor under the Investment Canada Act must satisfy the minister that the investment is likely to be of net benefit to Canada. Thereafter, the purchaser must satisfy the public interest requirements of the National Transportation Act, 1987.

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ACRI and WCTC believe that the provisions of Bill C-101 modernizing the acquisition process will help shippers and short-line operators. Specifically, they will promote the formation of short-line railways and their resulting efficiencies, including improving service, reducing operating cost, preservation of employment and the potential for greater modal choices to shippers.

Service levels on ACRI have in fact increased; and while pricing is and remains confidential, ACRI is confident that it has improved their profitability and hence the competitiveness of its shippers. In a word, shippers win with increased access to short-line and regional operators.

While ACRI and WCTC generally support the new discontinuance provisions of Bill C-101, one aspect remains of concern. The discontinuance provisions of the bill require a railway company to sell to one of three levels of government at net salvage value if there are no other buyers that will retain rail service. The NTA may fix the net salvage value if the parties cannot agree. However, there is no restriction on the use to which a government buyer may put the line it has just acquired.

In many instances, the line will be used as a recreation facility or perhaps a public transportation corridor. A government, having exercised the proposed right to require a railway company to sell at a net salvage value may turn around and set up a subsidized railway company of its own in competition with the previous operator. Bill C-101 should be amended to prevent land required to be sold to a government purchaser from being used - or worse, resold at a profit for use - in competition with the discontinuing railway.

At present the Railway Act requires as a condition of a certificate of fitness that a proposed new railway company satisfy the NTA that it would be adequately insured against claims arising from the operation of the line of railway.

Bill C-101 has a similar provision in subclause 93(1), which is, however, subject to regulations to be made by the NTA. The authority to make regulations regarding insurance coverage should be avoided, particularly if the thrust of the regulations will be to surrender the decision as to the level of insurance to the insurance industry. Regulations should also be avoided if their effect is to permit the agency to re-enter the field to regulate the acquisition of lines of railway indirectly, notwithstanding that a direct regulatory role has been eliminated by Parliament in repealing old section 158 of the NTA 1987.

We suggest that the power to make regulations be removed from the act. The present system works well. Alternatively, the power to make regulations could be given to the Governor in Council because the regulations will in large part create a new jurisdiction for the NTA. The jurisdiction of the NTA should so far as possible be prescribed by legislation or, at the very least, by cabinet order and not the agency itself.

More fundamentally, there is no insurance sufficient to cover all contingencies. The adequacy of insurance is a matter best left to the operator and its insurer to resolve given the particular business environment in which railway companies operate.

The ACRI's predecessor was ordered to continue the uneconomic existing passenger train service from Sault Ste. Marie to Hearst. That order was reiterated by the Canadian Transport Commission and the NTA in 1982, 1987, and most recently in 1992. Continuation of this service by ACRI was required as a statutory consequence of the acquisition. At present ACRI receives a federal subsidy, which amounts to only 64% of its losses on the passenger service. The balance of these losses, the remaining 36%, are borne by the railway company's freight customers, making them less profitable and, therefore, less competitive in Canada and internationally, or are reflected in reduced capital and other expenditures.

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ACRI supports the government's decision to repeal the legislative basis of the continuation orders and the partial subsidy. The 1987 scheme perpetuated a burdensome, inefficient, costly and inflexible regime that prevented ACRI's stakeholders from finding realistic funding solutions for this uneconomic service.

ACRI has already commenced discussions with provincial and federal officials with a view toward finding a solution that will enable the Sault Ste. Marie-Hearst passenger service to continue.

On a related front, clause 160 of the bill applies final-offer arbitration to railway companies providing services to passenger rail companies. ACRI opposes this provision as an unnecessary intrusion into the marketplace, particularly given the complexities of contractual agreements in this area. ACRI's concerns are heightened by the bill's provisions to facilitate the incorporation of railway companies and the opportunities opened to non-essential, non-continuing new entrants carrying passengers.

As many have already noted, Bill C-101 essentially continues the running rights provisions of previous legislation. Any federal railway is afforded running rights on any other federal railway subject to the approval of the NTA.

ACRI believes that running rights should not be granted to railway companies solely or primarily in the ``railfan'' or excursion business. Given the bill's provisions to facilitate the incorporation of railway companies, this is a very real concern.

It would appear that Bill C-101 will require Wisconsin Central and other U.S. carriers that run in Canada to have a certificate of fitness. This is not presently the case. Bill C-101 should be amended to exempt U.S. railroad companies running into Canada from such a requirement.

Current legislation makes it clear that the vendor railway company ceases to be burdened with any statutory obligations upon sale of lines. Bill C-101's transfer and discontinuance provisions should be clarified to relieve a railway company from such obligations once the bill's provisions are followed.

In closing, Algoma Central Railway Inc. and Wisconsin Central Transportation Corporation would be pleased to address this committee on these and any other related topics of interest. We appreciate being asked to testify.

The Chairman: Thank you very much for your presentation, Mr. Burkhardt. I think we will embark on a round of questions.

Mr. Gouk, please.

Mr. Gouk (Kootenay West - Revelstoke): I would like to start with what seems to be your main concern, your passenger losses and your operation there. You mentioned 36%. Could you put a dollar figure on that, an approximate dollar figure on an annual basis?

Mr. Burkhardt: The total loss is about $3 million, and in round figures we would be assuming about $1 million of it.

Mr. Gouk: What is the frequency of your passenger trips?

Mr. Burkhardt: That varies according to the season of the year. In summer we run six days a week in each direction and for the balance of the year we run three days a week in each direction.

Mr. Gouk: Is that one trip each way?

Mr. Burkhardt: Yes.

Mr. Gouk: How many cars would you carry on that particular train for passenger purposes?

Mr. Burkhardt: Normally we carry one or two baggage cars and one or two coaches, so the train is typically between two and four cars.

Mr. Gouk: Okay. It doesn't include freight. This is strictly a passenger run.

Mr. Burkhardt: Strictly a passenger run.

Mr. Gouk: Have you ever looked into the possibility of some alternative arrangement for running on there, perhaps some kind of partnership, or even a sale of the running rights to possibly a bus operation or some other operator, running that with passenger and baggage cars - four of them with some spares - and using something like a Brandt conversion? Are you familiar with that? It's a truck tractor converted for rail operation.

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Mr. Burkhardt: We are exploring different equipment configurations. We haven't looked at that particular equipment, but we have considered one of the self-propelled Budd car types of trains.

We have commenced discussions with what we call stakeholders - passenger organizations, economic development people, communities and other political leadership - along that line to see if we can come up with some scheme under which the cost can be reduced. Most likely the fares will be increased, and probably on top of that we will require some type of governmental assistance, which could come at the local level.

We would very much like to see that service continued and are exploring ways of putting it on a sound footing so that can occur.

Mr. Gouk: Given that you lose $1 million a year, if there were an operator prepared to take that over, would you be prepared to make certain concessions to them with regard to low-cost or no-cost running rights on your rail at an authorized or acceptable schedule to you?

Also, would you have any other use for those passenger and baggage cars if you wanted to get out of that and someone were prepared to take it over? Do you have other lines that you would move those onto, or could those units be spared for that operation?

Mr. Burkhardt: Our Sault Ste. Marie to Agawa Canyon tour train is the other one we could use the coaches for, but not the baggage cars.

The tour train is very successful. We just completed our season for the year, handling around 80,000 passengers. Economically it's a profitable operation and it works.

To answer your overall question, if we could find a responsible operator, we would certainly consider something like that at a very low cost for use of the right-of-way. We would want to see that any additional expenditures we had on the right-of-way relating to passenger trains were covered.

Mr. Gouk: I find it interesting that the main cost, set-up capital-wise, is the locomotive. A Brandt conversion, the last I checked, is approximately $0.5 million. That's six months' worth of your losses. It might be an interesting alternative.

Could you tell me approximately what the relationship is between the fare you charge and the loss on a per capita basis? How much loss per passenger do you operate on? What ratio of the fare is it?

Mr. Burkhardt: We want to make sure we don't drop a zero in the calculations here.

While Susan's running numbers, I'll tell you that basically the fare box generates about 20% of the operating cost of that train. So approximately 80% is subsidy in one form or another.

Susan says it's running at about $125 of subsidy per passenger.

Mr. Gouk: So you'd have major cuts to make in order to make that thing balance at the current fare.

Mr. Burkhardt: It's difficult because there is such a wide gap. If the thing were close, there ought to be some way to close the gap and solve the problem, but this is going to be much more difficult.

Mr. Gouk: In terms of fare structure, have there been discussions of fare increases with the ridership? I would assume there have. What sort of reaction have you gotten from them?

Mr. Burkhardt: We're engaged in that right now and in fact are planning a revision of the fares effective December 1. The tourist industry in the area, owners of hunting lodges, economic development groups and community groups are aware of this and actually have supported it, because the fares have not been raised for the last three or four years. The predecessor company was very inactive in doing anything about that train. They were collecting a very heavy freight subsidy, which was enough to make them haul.

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In any event, there will be increased fares, but that has a limited possibility as to how far that can go.

Mr. Gouk: With regard to the certificate of fitness, can you tell me how we can justify to Canadian carriers your suggestion that American carriers operating in Canada should not be subjected to the same requirements as a Canadian carrier operating in their own country?

Mr. Burkhardt: That's probably primarily an issue about grandfathering existing operations. For example, if they're there today and they've been there historically, I don't think any operation in Canada should have to go back to ground zero and start all over again.

Mr. Gouk: Do you accept the concept of equality, that if there's a regulation that is required of a Canadian carrier, then an American carrier operating in Canada should be subjected to the same obligations, whatever those obligations might be?

Mr. Burkhardt: Very definitely. I couldn't support any other concept.

Mr. Bélair (Cochrane - Superior): I would like to ask you, Mr. Burkhardt, to expand further on the subsidies that you are currently receiving. On page 2 you refer to a $12 million subsidy, from both the federal government and the province. You have also mentioned that you have some concern that the provincial subsidy might be discontinued, but you have not indicated if it's still on. Has it really been discontinued?

Mr. Burkhardt: We get no provincial subsidy. That was a part of the understanding at the time when we acquired the railroad. The previous company was getting in the area of a $9 million annual subsidy from the province, but the province, like governmental units everywhere, was increasingly in bad straits to continue that type of expenditure, so it wanted to stop it. We cut our costs to the extent that it was not necessary any more.

Since we took it over, Algoma Central has run profitably. It's not a big profit-maker, and never will be, because it's a tough territory. But it is profitable.

To get up to $12 million, the rest of it was a federal subsidy, being somewhat over $2 million, for the operation of the passenger train. That's what continues today, and what will become of that under Bill C-101 is very much in question.

Mr. Bélair: If the subsidy did not exist any more, would the level of service remain the same, or would you simply think of cancelling the ACR service altogether?

Mr. Burkhardt: The freight operations service level would remain the same. The tour train operation would be untouched, because it's not subsidized.

For the Sault Ste. Marie to Hearst passenger train, we would seek arrangements locally, to the best extent that we could, with the tourist industry, economic development groups, and local political sources, including the province, to try to retain the operation of that train. We would like to see it retained and we're willing to run it at a little more than a break-even cost in order to maintain it, but we don't want to have to continue to subsidize it privately ourselves.

Mr. Bélair: In August you met with municipal authorities of towns and villages spread on the ACR line from Hearst to Sault Ste. Marie. Did you attend the meeting?

Mr. Burkhardt: No, I didn't, but Susan, who's our corporate treasurer, did.

Mr. Bélair: Ms Norton, could you give the committee a brief summary of that meeting?

Ms Susan Norton (Treasurer, Algoma Central Railway Inc.): We met with them in August, and then we met again with the same group on October 31. At the meeting - I think it was in August or September - we discussed with them the problem and the issues of cross-subsidization between the freight and passenger services and indicated to them that we felt the stakeholders needed to come together to try to find some sort of solution to the issue of funding, both in the short term and in the long term. Algoma Central went back to the drawing table. We took the suggestions and comments given to us by the people at the meeting, and we took a look at the service levels, at their concerns, and at the rate structures.

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We met with them again on Tuesday, when we introduced a proposed fare structure and a summer service level that would appear to meet their needs, would enable them to continue to operate, and would appear to work to reduce the gap between revenues and expenses. Those changes seemed to be favourably received. I think they all recognized amongst themselves the need for the stakeholders, the lodge owners, and the communities to really concentrate on developing and promoting activities that can increase the ridership on that train and create the economies there.

We've asked each of them to go back to look at things very seriously, and to come forward with proposals that allow us to see they are willing to make the investment of time, money, and energy to increase the activities that will promote ridership and create a long-term solution to the problem. We are continuing to look at operating changes and projects that may require capital investment, but which would have a resulting decrease in the long-term operating expenses.

There are also probably some regulatory items. If we could receive a variance on them, we could implement additional operating changes.

So all of those items are on the table and we are pursuing them as actively as we can.

Mr. Bélair: Thank you, Ms Norton.

In those discussions, did you touch at all on those people who live permanently along the line - the cottagers, and the natives? Because there is no other mode of transportation, has this subject been touched?

Ms Norton: Yes, it has. Along the line, we primarily find there are cottagers and recreational facilities that people use as camps, and for fishing, and what have you.

Mr. Bélair: How about natives?

Ms Norton: We have not touched on that area.

Mr. Bélair: You didn't touch on the natives.

So would it be a safe assertion to say that if the passenger service between, let's say, Agawa and Hearst, is cancelled, many people would be left out in the cold?

Ms Norton: I don't know how many people would be. There are a lot of not-so-great access roads that people can actually access with four-wheel-drive vehicles and what have you. There are, however, some cottages. I think Algoma Central Properties identified somewhere in the vicinity of 200 vacation camps that would not be readily accessed other than by rail.

Mr. Bélair: Thank you.

The Chairman: Colleagues, I'm going to give this five more minutes, and then we're going to go for a vote. We can then either excuse our witnesses or continue questioning.

Charlie, did you have a question?

Mr. Hubbard (Miramichi): Mr. Chairman, we have a witness whose company, either directly or indirectly, has experience in three different countries at least.

When we look at fixed costs, in terms of freight per tonne mile, how do the various countries compare? Also, in terms of the variable costs that make up that overall total cost, are there anomalies that stand out in terms of the Canadian practice, be it fuel taxes, right-of-way taxes, or labour costs? How do they compare in the three countries, and is there this anomaly that we might look at?

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Mr. Burkhardt: That's a complex subject. To try to give a relatively quick answer to it, Canada is a high-cost country relative to our comparisons in this regard.

Freight operations, which are our primary interest, tend to be relatively low-density at the same time. We measure density on rail lines as revenue per mile. All of Canada - even the transcontinental railroads in Canada - has relatively low revenues per mile when compared with other countries. That puts a burden on the railways in terms of their economics.

The fuel taxes in Canada are exceedingly high. There seems to be a disconnect between fuel taxes paid by our truck competitors, which basically are user charges for using the highways, and rail fuel taxes, which obviously are simply general revenues.

In the labour area, Canada tends to have relatively inflexible labour regulations. When a rail line is sold in the United States, the purchaser can start afresh in terms of labour agreements and practices. They can establish their own practices. Employees are hired under the terms and conditions established by the new operator. Those employees clearly have the right to organize as a union and negotiate collectively from that point forward, but not on day one.

Under the federal labour codes, a new operator in Canada has to accept the union's status and the work rules of the previous company, even though they may have been a major part of the economic problem that the previous company had. I think an unanticipated result of that is that in employees' minds there is a disconnect between their own future security and well-being and the ability of their company to be competitive. It is very important that employees and their companies have the same view on the need to be competitive.

Having said all of that, we can operate in Canada. We are doing so. We were able to work out a labour agreement that covered our needs. I'm not sure that would happen in every case, however.

Mr. Hubbard: With your -

The Chairman: Charlie, I'm going to have to interrupt you. The vote is at 10:15 a.m., which only leaves us with about seven minutes.

I would ask the witnesses to hang in there for about fifteen minutes if they could. We'll be back in fifteen to twenty minutes. We still have questions to come from Mr. Nault and Mr. Fontana, and then we'll move to our next witnesses.

Our apologies. We're suspended for the vote.

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The Chairman: We apologize to the witnesses for the delay. Good government had to proceed. We won again; that was the good part.

I was waiting for Mr. Hubbard because I think he just wanted to conclude with one more question. We'll return to his question when he rejoins us.

In the meantime, Mr. Fontana, you had a couple of questions?

Mr. Fontana (London East): Yes, thank you, Mr. Chairman.

First, I just wanted to clarify something with regard to the liability insurance issue. I think that should be eliminated or transferred to the Governor in Council. If you review the bill you'll realize that all regulations made by the agency can only be made with the approval of the Governor in Council; that's in subclause 37(1). I'm just wondering whether that might satisfy your concerns.

Mr. Burkhardt: We've since picked that up, but what you state is correct. Our basic position on the insurance is that it should be left to the carrier and the insurer. As you point out, any NTA regulation would require cabinet approval.

Mr. Fontana: I'm a little curious as to why you would think American railroads wouldn't be required to have certificates of fitness. As you know, by virtue of the legislation CN and CP will have to. Wouldn't it be sort of an unfair advantage to suggest that only Canadian railroads operating in Canada should have to provide certificates of fitness while American railroads operating in Canada would not?

I'm not sure why you're really concerned about this. Obviously we have to have the public interest in mind to ensure that railroads of any type and of any ownership in fact meet the test of safety for the country. I'm a little curious as to your position on that.

Mr. Burkhardt: I think our position came out wrong. We don't believe there should be a certification of fitness required of anyone because of the simple fact that anyone operating a railway in Canada is subject to all kinds of safety regulations and existing laws, and the certificate of fitness just doesn't seem to do anything additional beyond that.

Mr. Fontana: Okay.

Mr. Burkhardt: There should be no difference between American and Canadian railways.

Mr. Fontana: Finally, with regard to running rights, you say you don't support running rights for railways ``solely or primarily in the `railfan' or excursion business''. I'm just wondering why you make the distinction in terms of the excursion business only. You should know, of course, that running rights are not automatically granted anyway; they would have to be granted by the agency. Most running rights, as you know and as per this legislation, are negotiated, as are most in Canada and the United States where there is no legislated mandate for running rights.

I'm just curious about the excursion business.

Mr. Burkhardt: We would favour any running rights that are subject to negotiation between the owner of the property and the potential operator.

Perhaps this is more of an American than a Canadian phenomenon, but we have a number of railfan groups, people who are interested in railroads and would like to run trains all over railroads everywhere that aren't very well funded and aren't very well managed. Our Algoma Central operation goes through some of the most attractive country you'll find anywhere, and we would be concerned if there were a provision in the law that would allow them to basically get onto our railroad by a simple application where we wouldn't be involved in negotiations.

Mr. Fontana: Thank you.

The Chairman: Mr. Hubbard, I know you had one more. You didn't want to add that one?

Mr. Hubbard: No, I'll let that go. Time is of the essence.

The Chairman: Mr. Nault, do you have a question?

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Mr. Nault (Kenora - Rainy River): Thank you, Mr. Chairman. I have two quick ones that are tied together.

There is an understanding that there's a significant regulatory difference between the United States and Canada. Since you have a significant amount of railway in the United States, can you tell me whether the argument that there is a significant amount of captive shippers holds true in the United States as it does in Canada? I think you know the definition of a captive shipper in Canada now, since you've been in the railway business here for some time.

Mr. Burkhardt: Yes.

Mr. Nault: There has been some argument and there have been some suggestions in this committee that Canada has a highly regulated environment because we have many captive shippers whereas the U.S. has none. Can you tell me whether in fact that's true?

Second, can you tell me the differences, since you've done business in both regulatory environments? How do you see the regulatory environment in the U.S. working versus the regulatory environment in Canada?

Mr. Burkhardt: If you compare, we both came from very much of a common origin. In the 1950s all rail business was done by tariffs and the pricing was created in rate committees under a monopolistic arrangement between the railroads and put into tariffs. There were no rights of contract.

Canada originally pulled way ahead of the United States in terms of a movement toward deregulation. I'm not sure when this occurred, but I think your original contract rate legislation must have come in during the 1960s or thereabouts, which was 15 years before it took hold in the U.S.

Unfortunately, in both countries - and I guess this is a political process - it required pretty severe conditions to allow that liberalization. In the U.S. case when the Staggers Act was passed in 1980 nearly half the mileage in the United States was in bankruptcy and the railroads were in very poor shape, and the rest were not too healthy either.

At that time the United States leap-frogged over the position of Canada and opened up, essentially except in very narrowly defined places. They got the regulators completely out of rail pricing and allowed the carriers to conduct all of that themselves, except in the case of a finding of a captive shipper, and that was very narrowly defined. In fact there's been very little regulatory action in that area. U.S. railroads today essentially do their own pricing.

In Canada there are probably fewer captive shippers than people think, for the simple reason that a railway has to keep their shippers competitive or else there's no rail business. We find that in many places we will be dealing with a shipper on a business that naturally moves by rail and where the shipper probably couldn't very well use trucks, ships or some other means to move their business.

We're very much constrained in our pricing because we want that shipper to be successful and to expand his markets. We probably have the ability to prevent that from happening, which would be a pretty stupid thing for us to do. Many of our shippers that may on the surface look like they're captive to rail in fact have very favourable pricing arrangements and are forever coming in asking for more favourable pricing arrangements and are successful in getting it.

In my view, I would like to see the government out of this regulation completely, except in some very extreme cases.

Mr. Nault: You have the largest railroad in the state of Wisconsin. Can you tell me how many railroads you're competing with in the state of Wisconsin?

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Mr. Burkhardt: There are other railroads in the state, but they are generally in areas where we're not. We do have a couple of stations in Wisconsin where we come into town and another railroad comes into town, but that's very limited. In most places we're the only railroad.

Mr. Nault: So you in essence are the only shipper. Therefore is everyone with whom you do business captive to you in that particular area?

Mr. Burkhardt: Except that we have a massive motor carrier industry. The largest truckload carrier in the United States, Schneider Transport, is headquartered right in the middle of our territory and runs a very successful business. So we have lots of competition, but it generally isn't rail.

We're always playing catch-up. We have about a 20% market share in our territory and the trucks have the rest.

The Chairman: I thank our witnesses, Edward Burkhardt and Susan Norton, for their presentation to the committee. If anything, the message I've heard being delivered by Mr. Burkhardt - and you can correct me if I'm wrong - is one of a team approach that has to be taken among the shippers, the producers, and the railways, etc.

Mr. Burkhardt: Very much.

The Chairman: Everybody needs each other in this market.

I invite to the table representatives of the Federation of Canadian Municipalities. We will have its report translated, as the federation's submission got wrapped up at about 11:30 last night, so there hasn't been time to have it translated yet. For that I'm sure the federation apologizes. We'll move on and hear their representation, because they will be reading it.

Gentlemen, welcome.

[Translation]

Mr. James Knight (director general, Federation of Canadian Municipalities):Mr. Chairman and members of the committee, thank you for giving us this opportunity to present to you our position on bill C-101.

My name is James Knight and I am the director general of the Federation of Canadian Municipalities.

The FCM has been recognized since 1937 as the national voice of the municipal governments. It represents the interests of all the municipalities on issues pertaining to policies and programs within federal jurisdiction.

The 600 municipal governments that are members of the FCM represent more than 20 million Canadians living in centres larger than rural municipalities.

I have at my side the deputy mayor of London, Ontario, Mr. Grant Hopcroft, who is the chair of our standing committee on national transportation and communications. This committee includes representatives of each province and territory and is one of the most important of our committees. Also beside me is Mr. Daniel McGregor, chief policy analyst with responsibility for transportation.

Mr. Chairman, I am sorry that our summary is available only in English. Because of an extremely busy schedule, we had to work very late last night to complete these notes. Our secretariat is now preparing the French text, which will be ready this afternoon. We will send a copy to the clerk of the committee in a few hours.

I will now give the floor to Mr. Hopcroft. Thank you.

[English]

Mr. Grant Hopcroft (Chairman, Federation of Canadian Municipalities): I'd like to thank the committee, and particularly the chair, Mr. Keyes, for the opportunity to present FCM's views on Bill C-101 to you this afternoon.

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I'd also like to thank Mr. Fontana for his graciousness in being here. Mr. Fontana and I share the same constituency back in London, and I'm very pleased that he was able to be here today.

I should point out that FCM had an excellent meeting last week with the Hon. Doug Young, Minister of Transport, at which we were able to discuss marine and air transportation matters in depth. We will therefore focus our comments today on elements of Bill C-101 pertaining to rail transportation.

FCM is pleased with the general direction of the bill. Municipal governments support the federal government's efforts to reduce unnecessary regulation and to balance the interests of shippers, railways, and the public. In particular, we applaud the emphasis in shifting from destructive demarketing of rail lines and subsequent abandonment to the facilitation of a viable short-line industry and the maintenance of rail services essential to our communities.

Municipal government priorities in assessing the bill are maintenance of freight and passenger rail service for communities, adequate protection of the public interest, and fair treatment for municipal governments.

On the issue of transferring and discontinuing the operation of railway lines, we support the concept of railways providing three-year plans that would give stakeholders the information they need to plan for rail-line rationalization. We agree that the sale of rail lines should be done first and foremost for continued rail operations at market value and, secondly, to governments for net salvage value. We recommend, however, that net salvage value should be clearly defined in the act. We have heard a number of different interpretations as to what constitutes net salvage value, ranging from fair market value for land and assets at one extreme to the other, which we obviously would support, which is the net asset value of movable assets less environmental clean-up costs, excluding the cost of land.

FCM is concerned that once a portion of CP or CN track is sold to a short-line operator operating wholly within a province, that portion of the railway line immediately falls under provincial regulation. As most provinces have no restrictions on disposal of rail lines, there is no guarantee that a recently transferred federal line will not be discontinued and sold off without consideration of transportation needs and public sector interests.

We recognize that this is a provincial responsibility, but we recommend that the bill should provide statutory support for possible future agreements with the provinces to apply parts of the federal regulatory schemes to provincial short lines.

Clause 145 provides that lines that are not sold for continued rail operations must then be offered to the federal, provincial, and municipal governments in succession. Subclause 145(2) does not recognize that two tiers of municipal government exist in several provinces. Examples include the Montreal Urban Community, the Regional Municipality of Ottawa-Carleton, and the Greater Vancouver Regional District.

We recommend that subclause 145(2) be amended to provide that rail lines be offered to regional municipalities where they exist before they are offered to the first tier or local municipalities. Further, we recommend that regional municipalities be granted the same timeframe for consideration as the federal and provincial governments and the first-tier municipality. This would help prevent the fragmentation of valuable rights-of-way that could be used for future public transportation and infrastructure such as commuter rail.

It's not clear under clause 145 whether a municipality has the right of first refusal for that portion of a rail line that lies within its boundaries during its time limit for acceptance of offers. If the segment of rail line being offered to a municipal government crosses two municipalities, for example, can one municipality purchase the portion of the line located in the other municipality before the other has made its decision? We believe a free-for-all between neighbouring municipalities must be avoided, and therefore recommend that municipal government should have the exclusive option to acquire that portion of the line that lies within its boundaries during the time limit for municipal acceptance.

Speaking of that time line, we are concerned that 15 days might be inadequate for many municipal governments to render a decision on acceptance of an offer to purchase. Most urban municipal councils meet only weekly, and many rural councils bi-weekly or monthly. We recommend that the period for municipal consideration be extended to 30 days in recognition of the capacity of municipal councils to render such decisions quickly relative to federal and provincial transport ministers.

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FCM accepts that with the passage of Bill C-101 it will become incumbent on all municipalities with federally regulated railways to become aware of the railways' three-year plan and to prepare an advance for possible transfers. The federal government should recognize, however, that it will take some time for regional and other municipalities to consult with each other and prepare a coordinated response in the public interest.

Therefore, we recommend as a transitional measure that CN and CP be required to provide their three-year plans six months before the new provisions for transfer and discontinuing of rail lines comes into effect. Rail infrastructure in Canada has been built up over the decades on land owned by municipal governments and vice versa. Municipal streets have accommodated rail lines that cross them while municipal infrastructure and utilities have crossed parcels of lands owned by the railways. As long as railway activities continued these large municipal investments were secure. However, with large-scale rationalization, which the bill will facilitate, municipal governments are worried about the security of these investments. Many of the facilities constructed on railway lands either have no registered right-of-way for historical reasons or have a licence that can be cancelled on relatively short notice.

Unless specific protection is provided, municipal governments across the country may find themselves scrambling to relocate expensive municipal infrastructure or having to negotiate rights-of-way at public expense and with possible disruption to municipal services. We therefore recommend that the rail line transfer and discontinuance procedures in division V of Bill C-101 guarantee municipal governments access to rights of way corridors for installation and maintenance of the municipal infrastructure.

Mr. Chair, on the issue of passenger and commuter rail, FCM is concerned about a possible negative effect that the bill may have on passenger rail transportation. There is no provision for conveyance of existing passenger and commuter rail agreements between an entity such as VIA or GO or CN and CN-CP, should a portion of the rail line be sold by one federally regulated railway to another. So we recommend that existing rail agreements be transferred to the new owner of a rail line in the event that ownership moves from one federally regulated railway to another.

We also recommend that the committee ensure that the bill does not jeopardize existing or future VIA Rail services on main-line or short-line track and that it ensure that the bill does not impede the ability of VIA to meet service needs with better infrastructure accommodating faster train travel.

From our reading of the bill the discontinuance of non-VIA Rail passenger services will no longer require approval from the NTA. These services include the Quebec North Shore and Labrador Railway, the Algoma Central and the Ontario Northland. Further, there is no indication as to whether and under what authority federal subsidies to non-VIA Rail passenger services will be maintained, so we recommend that the matter of federal subsidies to non-VIA Rail passenger services be clarified in the bill.

FCM, Mr. Chair, strongly supports the inclusion of clause 160, which provides access to final-offer arbitration for passenger and commuter rail operators.

As to the balance between shippers and railways, we can't comment on which measures are necessary to strike the proper balance between shippers and railways except to stress to the committee that no changes should be made to the bill that would jeopardize the establishment of a viable short-line industry in Canada. Mr. Chair, FCM is concerned that provisions of the NTA 1987 providing the National Transportation Agency the authority to grant standing to provinces, municipalities and others for agency hearings have not been carried over in this bill. We recommend that authority to grant standing to provincial and municipal governments in subsection 36(2) of the NTA 1987 be carried over to this bill.

Mr. Chair, that concludes our remarks. We would be happy to respond to any questions the committee may have.

The Chairman: Thank you very much, gentlemen, for your presentation to the committee. It was very thorough and very clean, and the recommendations were well put. We appreciate that. I think we'll go in reverse order this time, starting with the parliamentary secretary.

Mr. Fontana: Thank you, Mr. Chairman, and thank you to Grant, Jim and Daniel for their submission.

I think you raised some points that obviously you might be able to help your sister provincial organizations with. We had a number of provincial transport ministers from the western provinces here yesterday, as well as the minister for Ontario a couple of weeks ago. There's no doubt that with the advent of Bill C-101 and the new regulatory framework, especially as it relates to the creation of short lines, a number of these provinces are going to have to have mirror legislation that in fact is complementary to ours. In fact, what we provided for in terms of shipper rights or certain running rights on federal short lines means that they will have to have complementary legislation.

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I'm happy to see that Ontario is moving in that direction and a number of western ministers have indicated that they intend to do so. So I think you can also be helpful by tying into your provincial organizations to ensure that they press their provincial governments to do likewise, because I think you're right on the point here.

With regard to the definition of municipality, I take it that while we recognize that there are first-tier and second-tier municipalities within the general definition of municipalities, that shouldn't cause a problem. I don't know. I think it's problematic to the municipalities. I'm not sure if it's problematic for the railroads and/or the federal government. We'll ask about that.

Mr. Hopcroft: Mr. Fontana, given the friction that exists in some parts of the country between the regional and the local levels of government, we felt it would behoove the federal government to recognize that fact and in fact provide a pecking order, if you will, to avoid that kind of dispute locally. Looking at these corridors for their transportation value, it would appear obvious that the regional municipality would have a greater interest in maintaining that transportation corridor because of the fact that it does cross local municipality boundaries.

Mr. Fontana: Thank you. I think you raised a very good issue on the 15-day provision. It has come up again. For some, 15 days seems to be problematic and obviously we would want to take that into consideration.

There are two additional items. First, with respect to passenger and commuter rail, you will know that the minister, by way of a news release, indicated that clause 49 in Bill C-101 gives him the authority to negotiate those non-VIA Rail subsidies and he's given the assurances to those three railroads in those communities and those passengers that in fact those subsidies will continue. But if you were looking for the statutory authority under Bill C-101, it's clause 49 that essentially doesn't legislate it any more as per the old Railway Act, but in fact allows the minister to negotiate those specifically with the railroads. I think you might want to take a look at that.

Lastly, with regard to the standing at hearings, if you look at the reading with regard to who has standing at the new CTA, it talks about anyone who has a direct interest. Therefore, I believe - and I could be wrong - that if in fact one could prove that a municipality, as an example, had a direct interest in that matter, then the CTA could give leave for standing at the hearing.

So while you're right that we haven't carried over subsection 36(2), for some very good reasons I might indicate to you, there is provision, I think - I don't have the exact wording in front of me - that there may be a possibility, if one can prove a direct interest, that there could be standing at the hearings.

Mr. Hopcroft: In response to that last point, Mr. Fontana, our concern would be that direct interest could be construed very narrowly by the agency to mean only those who are actual shippers of goods. If municipalities were not able to show that they actually were shippers, they would have difficulty speaking to the public interest on the part of the community as a whole. I think given the fact that there have been such interpretations of similar legislation in the past, it would be better to have that explicitly stated if that's indeed the government's intent. We think very strongly, obviously, that as representatives of the local public interest we should have that standing.

Mr. Fontana: Thank you.

Mr. Collins (Souris - Moose Mountain): Mr. Chairman, having been involved with FCM some years ago, I can say from Saskatchewan's point of view that we'd have a little problem with your proposal with regard to this tiering and pecking order. I don't know that I would want to see us get involved with SARM, and then before the Saskatchewan Association of Rural Municipalities has an opportunity, maybe SUMA would move in. That might be fine for where you're talking about regional areas. Do you perceive that these -

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Mr. Hopcroft: I'm sorry. I think you've misunderstood our point. It's whether there is two-tier government in a particular area.

Mr. Collins: You may not see it as two-tier government, but I can assure you the people from SARM see themselves as a level of government that may have a real concern for some transportation system in Saskatchewan. I wouldn't want to see SUMA stepping in there and then someone saying, well, we'll first make the offer to SUMA before we do it to SARM. We would end up in a jackpot.

Mr. Hopcroft: This would not apply, in our view, to associations representing municipal governments. It would be in a situation where you had two-tier government only, a regional government and a local government with split jurisdiction within a particular geographic area.

Mr. Collins: Do you see that as a necessity in here, and us enshrining that in the legislation?

Mr. Hopcroft: What we're asking from you is to state in an explicit way the pecking order. If I can use the example of here in Ottawa-Carleton, there's the Regional Municipality of Ottawa-Carleton and then within that the City of Ottawa and others. We feel it should be offered to the regional municipality first, and if they do not exercise the option, then the individual local municipalities would have the option to pick it up.

Mr. Collins: It's an interesting concept. I'd have my own personal concern about providing that kind of leverage to any group.

Is FCM interested in short-line rail?

Mr. Hopcroft: We're very supportive of the concept of short-line rail because, quite bluntly, we see it as the only opportunity for many communities to maintain a viable rail service to those communities and to the businesses and the economic interests in those communities.

Mr. Collins: How do you see your provincial counterparts and their involvement? Do you see them being involved?

Mr. Hopcroft: We have certainly approached a number of our members, through our provincial associations such as AMO and SUMA and SARM in Saskatchewan, to in fact request their assistance to ensure that provincial legislation does not stand in the way of the formation of viable short-line rails.

Mr. Collins: I was thinking about provincial governments.

Mr. Hopcroft: We do not, as an association, deal directly with provincial governments, other than through our provincial associations, be it SARM or SUMA. We really don't wish to be seen as overstepping our bounds as a national organization in dealing directly with provincial governments, other than through those local associations that are represented on our board.

Mr. Collins: Three ministries were here yesterday, and they all showed a strong disinterest, I think, in even getting involved in any way, shape or form, other than what would come in legislation.

That's all.

Mr. Gouk: I'd like to go into that same subject a little more. Because of the layout of my area, I can see a need for what you're talking about. We're looking at a potential discontinuance down the road. It goes through three cities and countless numbers of little hamlets and villages and bends in the road.

I'm having problems figuring out something you said. When it goes to a municipality or a city, they have rights to buy that exclusive area only, where it goes through their town, and not those that go through other municipalities. Am I reading that correctly?

Mr. Hopcroft: Assuming a regional municipality does have an interest in maintaining a transportation corridor in their region and the adjoining region also has an interest in that transportation corridor, if there's a dispute, we're simply saying the pecking order should be that the region through which the rail line passes should have the first option and the other municipality, to maintain that continuity, would only have the option if the first one did not take it up.

Mr. Gouk: So you're talking about regions that adjoin. You're saying the railway might adjoin your region but wouldn't actually run through it, and they'd be interested in preserving it for the economic development of the area.

Mr. Hopcroft: Or it could be one that runs through the region, but there's another link required to get it to the main line that runs through an adjacent municipality.

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Mr. Gouk: What about an adjacent municipality or regional district that the railroad doesn't run through? Should it have some rights in this if the district or municipality the railroad runs through either doesn't wish to or can't afford to take that option? Should it also be given to adjacent municipalities that would be impacted by the discontinuance?

Mr. Hopcroft: That's certainly a logical extension and one we would support.

Mr. Gouk: I agree with that, but when we talk of increasing the time from 15 days to 30 days, on the surface it certainly seems reasonable, and I've been involved in municipal government. But that suggests we should look at it at the provincial level and the federal level. Then if we add the regional district to the municipalities and go to adjacent ones, pretty soon we've stretched a 45-day process to as much as a year. It's a matter of trying to rationalize all these things.

Mr. Hopcroft: I don't think it would go that far. I would see it as adding two additional steps at the most - the regional municipality and the local municipality. The time limit for all the local municipalities would tick at the same time so there wouldn't necessarily be any extension of the length of time involved.

Mr. Gouk: You would basically pick up an extra 15 days for your step and combine it with the local municipalities.

Mr. Hopcroft: On our option it would be an extra 30 days, which we think reflects the need for an adequate timeframe for the community to look at.

Mr. Gouk: I want to make sure I have this right. Right now, the municipalities have 15 days.

Mr. Hopcroft: Our proposal is that we should have 30 days.

Mr. Gouk: You're proposing you come in at a step above them, and the two of you together would have 30.

Mr. Hopcroft: No. We're suggesting that the first tier have 30 days and then an additional 30 days.

Mr. Daniel McGregor (Senior Policy Analyst, Federation of Canadian Municipalities): Maybe I can clarify this. We have suggested, if you look at our recommendation, that the municipal level have 30 days instead of 15, and of course that would apply in most provinces in Canada. But in those few provinces that have an additional level of municipal government, or regional government, there would be an extra step and therefore an extra 30-day period.

Therefore, it is my understanding that in three provinces we would be adding 45 days to the 45-day period as a result of our proposal. In the other provinces we would be adding 15 days only.

Mr. Gouk: What are the three provinces?

Mr. McGregor: Quebec, Ontario, and British Columbia, as far as I'm aware have regional governments.

Mr. Gouk: Moving to your concerns about rights-of-way, is there any reason why municipalities that do not have their rights-of-way registered for service corridors and so on could not negotiate that now with the railroads and get those things registered before it goes any further? It seems astounding that someone would put a major sewer line, water line, or whatever across railway properties and not have that security, unless it happens to be a very old railway.

Mr. Hopcroft: The issue is about the old railways. To suggest we would have to negotiate for those would obviously imply we should bring something to the table. Given historical precedent on the issue and the fact that those services have been there, we don't feel it should be an added burden on municipalities to place those rights-of-way in jeopardy. It would follow, if you can't negotiate an agreement, that you could be asked to remove it or lose the right to maintain that infrastructure.

Mr. Gouk: Would virtually all those be older agreements and any modern or new agreements would have registered rights-of-way?

Mr. Hopcroft: I can only speak personally of practice in our area of Ontario where newer agreements would be registered. In some cases when I talk of ``old'', we're talking of only 20 or so years ago, when many of these grade separations were started, for example, or where there was major expansion of sewer infrastructure. So it is really a ticking time bomb out there, and there's a great deal of infrastructure to which this would apply.

Mr. McGregor: I might add that you have to look at the historical development of communities. In many cases, since the turn of the century, both of these infrastructures were built up at the same time. It's not only the case that municipal infrastructures have been located on rail property; the reverse is also true, yet rail properties or infrastructures are not in jeopardy. The municipalities generally aren't closing their streets down or abandoning or discontinuing the streets.

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We're saying that surely in all fairness these public investments in infrastructures shouldn't be jeopardized. Surely we shouldn't be creating a situation where municipal governments across the country are going to have to scramble to protect public infrastructure.

Mr. Gouk: Thank you. Good point.

The Chairman: Mr. Nault.

Mr. Nault: Thank you, Mr. Chairman.

Has the organization you represent looked at the issue of definition? My sense in reading your presentation is that you look at the railway industry as a utility rather than a business. Is that fair? Is the particular direction and intent of your argument to suggest that this is more of a utility than is any business you might have in your municipality?

Mr. Hopcroft: I suggest that we recognize it's both. Clearly since it is a business it has to operate with a view to the bottom line, but at the same time there is an overriding public interest in the existence of that service for many of our communities.

Mr. Nault: One of the obvious scenarios that should be put to municipal organizations is that on the one hand you are very supportive of the short-line industry process, but on the other hand municipalities have been very reluctant to agree that one of the main reasons why the main line and larger corporations are getting out of these lower-density lines is the taxes municipalities charge.

Mr. Hopcroft: I obviously dispute that.

Mr. Nault: Do you concur that it would be a lot cheaper to reduce your taxes than it would be for municipalities to buy short lines? In some cases you're suggesting municipalities might be interested in buying short lines. That's the first part of that question.

Here's the second part. Are you aware of any municipality that has any resolution and/or by-law that explains in detail how they would go about canvassing their constituents on whether they would buy a railway within their jurisdiction? I have not, at this point, and I am not convinced that any municipality will ever buy a railway as long as I'm around here, and that in fact the intent of municipalities in coming forward is more to protect their self-interest. They're not at all interested in buying a short line.

Mr. Hopcroft: To deal with your second issue first, the interest of municipal governments would be protecting the transportation corridor, be that for commuter rail, a Toronto Transit Commission or some similar municipal transportation operation.

As far as operation of railroads as such, that is not our overriding interest. I think that generally the municipal view would be that it's best left to private enterprise to operate a business in that fashion. We certainly have an interest if there's not going to be a railroad in some situations, and that should be a local decision to preserve that transportation corridor.

On the issue of taxation treatment, I anticipated that we'd probably get asked that question at some point during this presentation. We feel that while there may be concerns - there certainly are concerns among the railroads about the level of taxation - we have a very different regime of taxation in Canada than in the U.S. and in many of the other jurisdictions cited by the operators.

In fact, we have a very different relationship among the levels of government in Canada than is available, for example, in the U.S., where municipalities have resort to payroll taxes, income taxes, sales taxes and a number of other sources of taxation to which we do not have access in Canada. To pin a target on municipal property taxes and the effect on railroads is really not looking at the whole picture.

We support working with the other levels of government to consider that picture as a whole, but we feel it's really unfair to target municipal property taxes as the straw that broke the camel's back or is breaking the camel's back, as has been said in certain quarters. That's not something we accept.

Mr. Nault: Here's the last question I wanted to present. There is a significant difference in your proposal about the relationship with municipalities as it relates to a sale of a short line versus an abandonment of a particular line.

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If the provinces don't want the particular abandoned right-of-way, nothing is stopping the municipalities from getting first crack at buying the right-of-way to protect their infrastructure. I believe you will end up with abandonment if the corporation, be it CN, CP or some other small short line, decides it no longer wants to operate that line and lets it go because nobody wants to buy it after the corporation goes through the process. As I said before, I suspect that will happen because I don't think there is a municipality in this country that will buy a short line if the province doesn't want to get involved, and if there is no private enterprise individual who thinks he can make a profit.

So I ask you, does your organization have a position on rights-of-way within municipalities? I think it's a major issue and it is one you have pointed out, but there is within the legislation the ability for municipalities to in fact buy these abandoned lines at salvage value. Does the association - and municipalities in general - have a position on whether or not you should be creating by-laws to deal with that? In some instances this property is of course very valuable, but only if you chop it up in pieces for one process or another.

In the long run, the corridor itself may be useful for redevelopment of a railway after it in fact becomes obvious that it does have a need, and the protection of that falls within your jurisdiction if you so choose it. So I'm interested in your views on that.

Mr. Hopcroft: We certainly feel that should be an option locally. If a community wished to buy it for those transportation purposes, it is an option that should be available to them if the province or the federal government doesn't exercise the option.

I guess our concern is that we don't feel municipalities should be placed in the position where they're forced to acquire the asset purely to protect rights-of-way or as infrastructure for the municipality. If I've understood the question correctly, if we have sewer line running down a rail corridor or if we have several road crossings going across a rail corridor, we don't feel we should be put into a position where we have to buy the corridor simply to preserve those assets. We hope that's something that would be protected in the transfer provisions. However, if there is a local interest, obviously we feel it should be pursued locally.

Mr. Nault: Let me get back to what I asked you. The issue is not when it is sold. I think you have a legitimate concern that if it is sold and stays in operation as a railway, then those services should be protected under agreement. But I'm asking about what happens when nobody wants to buy this line and it is abandoned. You don't expect the government to keep that abandoned line and deal with the liability in perpetuity, do you?

Mr. Hopcroft: No, certainly not.

Mr. Nault: Then what is the position of the municipalities? That's the question I'm asking, because it is now being abandoned. That means nobody wants to buy it. The railway can now either sell it for salvage value or it can get its real estate arms out in order to start chopping it up to sell it for residential property in some cases. I'm interested in what your position is on that as a municipality.

Your main concern when you got here was the transportation corridor, but that's not necessarily what a private entrepreneur will want with that particular abandoned line in your municipality of London, for example. He'll want to wander in there and be able to use that valuable property, which is worth millions of dollars more if it becomes residential real estate property or something of that nature, as opposed to a corridor for transportation or snow machines or whatever is suggested in your presentation. I'm trying to get a handle on where the municipalities sit on that particular issue.

Mr. Hopcroft: I guess I'll speak to two aspects of that. First of all, if there's an apparent interest from a private operator - a short line, for example - to purchase the asset, that may lead a community to forgo its interest because it sees a private business in a position where it would move forward.

We would obviously like to see some regulatory mechanism to protect against a private operator who has bought it ostensibly to operate a railroad but who changes his mind and decides to dispose of the asset in a piecemeal fashion. That's why we want to ensure that the government does what it can to ensure that there is that mechanism, in place: So that before this happens, there is another opportunity for someone to step in to continue to operate the asset.

If that doesn't happen -

Mr. Nault: But that's my point: there isn't anybody.

Abandonment is the same as resale. The bill allows you the same opportunities as a municipality to purchase that abandoned line at the salvage value. It will go up the line: province first, municipality second, private entrepreneur third. That's in the bill whether it's abandonment or whether it's sale to a short line.

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Is your attitude going to change about the right-of-way once it's abandoned because nobody wants it versus your opinion now if it goes to a short line? What is your position on an abandonment versus a short-line operator coming in and buying a particular line? You want the services that you have there already protected to continue to be protected, but if nobody in their right mind wants to start a short line there, including the municipality, then it will be put out for abandonment.

The Chairman: I think we got the question, Mr. Nault. They're speaking of a provincial short line. Their response to you is on the provincial short line, and that would require mirror legislation provincially. You're asking a question, but they're answering with a different question.

Mr. Nault: No, you don't, Stan. That's not the point.

The Chairman: I understand your point, but they're answering from the provincial short-line perspective. You're asking from the federal short line perspective.

Mr. Nault: No, I'm not. I'm asking if once we get by the short line debate....

Nobody wants to buy it now. Get that in your mind. It's going to be put up for abandonment.

Once we go through that process in the bill and nobody wants to buy it, which is probably going to happen 95% of the time.... Don't kid yourself, people are not going to jump out there as short-line operators and say, boy, I'm going to buy all these beat-up old lines. That's not going to happen.

The question to municipalities that is more important than the short line itself is that if it goes to an abandonment process, you will get the option to buy.

What's FCM's position on that? Are they saying to the municipalities that they should protect that particular corridor because it's important for transportation purposes?

Mr. Hopcroft: We'll leave that to local discretion, which is where it should be. If there's a local interest in maintaining that as a transportation corridor, then they have the option to protect that. If they don't have that local interest and none of the other local municipalities have that interest in maintaining that corridor, then it should proceed on an abandonment.

Our concern at that point, though, is that our interest in infrastructure, our road crossings, our service crossings, will be maintained so that in fact that investment in municipal public infrastructure will not be lost.

[Translation]

Mr. Guimond (Beauport - Montmorency - Orléans): Of the 600 member municipalities, how many are in Quebec?

Mr. Knight: About 90.

Mr. Guimond: All right. I would just like to deliver a little message to you concerning the second paragraph of your brief. I am going to quote it in English:

[English]

First, I would like to apologize for providing our speaking notes to you in English only. Due to the extreme crowding of our agenda,

- etc.

[Translation]

I simply want to let you know that I regularly thank the good Lord for giving me life; I thank him also for giving me a good memory. In March, we met in room 705 of the La Promenade building, when we were examining the national maritime policy, and the Federation of Canadian Municipalities came with exactly the same reason. I wrote to the member municipalities in Quebec to complain about the situation, and I want to tell you that you are under heavy surveillance, because you are doing that in several other committees. I have heard echoes of it.

I am tired of this. Is that clear? There are two official languages in Canada. It is clear in our rules of procedure, when you testify before a committee, you file your briefs in the two official languages of Canada. You love us, Quebec and Quebeckers. So prove it to us from time to time!

Thank you, Mr. Chairman.

[English]

The Chairman: The FCM did come in and apologize, Mr. Guimond, but you weren't in the room. They did their apology in French, in fact. Had you been here, or had you been here over the course of the last three weeks of hearings, you would be -

Mr. Guimond: It's not an apology that I want.

The Chairman: The witness might want to respond, but I'm not going to carry the debate any further.

Mr. Knight, did you want to respond to this?

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Mr. Knight: Mr. Chairman, I would like to inform the committee that every document published under the auspices of FCM appears at the same time in both official languages. We are the only national body association that I'm aware of that provides simultaneous interpretation at board meetings, and at committee meetings on occasion. We have a very strong membership in all parts of Canada where French is spoken because we provide an excellent service in French.

On occasion documents are produced for committees only in French or only in English. Ideally our documents should always appear in both official languages, but when work is done literally minutes or hours before, on occasion one or the other language is the language we are able to produce at the time. This afternoon the staff will have the French text.

Mr. Hopcroft: This is not a regular practice. Because I flew in this morning and reviewed the brief with our staff, there were revisions made to this brief up until 25 minutes before we were scheduled to be here. We were simply not able, within those time constraints, to have the translation in both official languages. We certainly mean no offence.

The Chairman: We'll leave the logistical complications to your organization.

Just for your information, there's no reason that any particular witness who isn't fully prepared to come before a committee can't ask for a postponement of a day or two, if it's that important to the organization.

A voice: I agree, Mr. Chair.

The Chairman: Are there any further questions?

Mrs. Cowling (Dauphin - Swan River): I have a very brief question; it's a follow-up to Mr. Nault's question.

In Manitoba I believe municipalities have planning statements. I'm wondering if, within your planning statements or official statements, as Bob tells me they are in Ontario, you have provisions, for instance, that would look after the interests of your infrastructure, should a line be abandoned.

Mr. Hopcroft: Typically an official plan would outline transportation corridors. We would leave it to our servicing plans to determine the location of our in-ground services.

Our concern is a legal one concerning protection of the easement rights for those services. If there is no protection of those easement rights, then in fact there may be a legal question as to whether a road crossing over a rail corridor could be closed or whether a sewer line crossing a rail corridor could be closed off or access refused for us to maintain and repair it. Our concern is that we continue to have that right in the event of a change of ownership.

Mrs. Cowling: Thank you.

The Chairman: Colleagues, thank you for your questions.

Gentlemen, thank you for your report to the committee. We appreciate it.

Mr. Hopcroft: Thank you very much for your courtesy and consideration, Mr. Chair.

The Chairman: Colleagues, we invite to the table representatives from Air Travel Services Distributors.

As a matter of courtesy to other witnesses, we're running about 45 minutes behind, so be indulgent. We had a vote that interrupted our proceedings, so we'll try to catch up.

We welcome José Leroux, president and CEO of Air Travel Services Distributors.

Welcome, sir. I wonder if you could introduce the gentlemen you've brought with you and give your report to the committee in fifteen minutes or less so we have time to ask some questions.

[Translation]

Me Dan Fiorita (counsel for the Air Travel Services Distributors): Thank you,Mr. Chairman. My name is Dan Fiorita. I am accompanied by Mr. José Leroux, president and CEO of V.I.P. Inter-Transit Inc.

We are here on behalf of four other guests who are called the Air Travel Services Distributors, but it is not an official group. We make up an informal group solely for the purpose of presenting our brief today.

[English]

I would like to thank this committee for having given us the opportunity to make this presentation.

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Our purpose for being here is twofold. First, it's to address what we consider to be a lack of proper statutory authority for current regulations dealing with the computer reservation systems.

[Translation]

In French, those are the computer reservations systems.

[English]

The second purpose is to indicate that the law as it is, and the regulations as they have been adopted, create a situation that makes it very difficult from the point of view of our group to have effective competition with the airlines and among the group. I should specify that the group, while we do not represent the travel agent as such, is included in the concept of air travel distributor.

In our brief we have a three- or four-page quote that describes the CRS regulations. With the permission of the committee, I will not read that. I simply want to give a very encapsulated explanation of what a CRS system is for the information of the committee.

I'm sure many of you already know. If you do, please let me know, and I won't proceed on that basis.

Mr. Nault: I wouldn't mind an explanation.

Mr. Fiorita: In a nutshell, a CRS is nothing more than a periodically updated, central database that is housed in one or more mainframe computers that contain information about schedules, fares, rules and the seat availability of airlines.

These systems are offered by system vendors to subscribers such as travel agents, consolidators, who are also referred to as wholesalers, or grossistes in French.

It's these computer terminals that enable the making of reservations, assignment of seats and issuance of tickets.

There are normally three parties involved. The system vendor owns, controls, operates and/or markets the CRS system. The air carrier has a contract with the system vendor to provide data to the vendor for loading on the CRS for the making of reservations and issuance of tickets. The subscriber has a contract with the system vendor to sell services to the public or travel agents.

CRSs, or computer reservations systems, have emerged as the key distribution tool for air transportation. It has replaced individual air carrier distribution systems, which is when the passenger goes directly to the airline for a ticket.

Although this continues to exist, it is now no longer a major player.

There is no longer any need to go to the air carrier, since the travel agents, through a CRS, have all the necessary information. This has become even more so in light of the hosting of the air carriers in the CRS system.

In essence, the CRS system is a facilitator for the distribution of air travel services.

Our first point relates to the proper statutory authority for the existing regulations. We requested permission to appear before this committee in order to argue our point that there is no proper statutory authority under the existing Aeronautics Act to justify the CRS regulations as they have been adopted.

We say this because, in essence, CRS regulations deal with the subject of consumer protection from an economic perspective, competition between air carriers, and competition between CRS vendors, who may or may not be air carriers.

The Aeronautics Act is not concerned with any of the three items I have just mentioned. It is concerned with consumer protection from a safety point of view. In essence, the Aeronautics Act is concerned with the regulation of the providers of the air transportation services, not the distributors of the air transportation services, except in the case in which the airline distributes it itself.

By way of example, travel agents are subject to, and are creatures of, provincial legislation. They are involved in the distribution of air transportation services as well as other services.

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That is our first point. On that point, we are not really addressing CRS regulations as such; we are addressing the lack of statutory authority in the existing Aeronautics Act and the fact that Bill C-101 does not address that lack of statutory authority.

We would hope that after our comments there will be some analysis and consideration of the fact that perhaps this is a time to cure this lacuna in the Aeronautics Act and provide for a proper statutory basis under the Canada Transportation Act that would address the power to promulgate the CRS regulations in a way substantially the same as the ones that have been promulgated.

Also - this is the second part of our argument in our submission - we have found a very negative impact on the business of the air travel distributors, such as the business operated by Mr. Leroux, who is here with me. Mr. Leroux will answer any questions you may have that are of a technical nature. I will limit myself to the legal side of the issue, if any questions are asked on that basis.

The problem is that we have a provision in the current CRS regulations that is entitled ``marketing information''. It requires or enables the CRS vendor to generate information that could be considered to be what we call ``carrier specific''. In other words, information generated by a CRS vendor could be identified with respect to a particular air carrier. In doing so, it could also identify a particular air travel distributor, because there are commercial contracts between the airlines and the air travel distributors, as there are contracts between airlines themselves, as there are contracts between the airlines and the CRS vendor.

The issue came to light some time ago, but this is an opportunity that we thought we should not let pass in making our case before this committee, given the proposed amendment to the National Transportation Act, which is Bill C-101.

The preamble to the CRS regulations gives the purpose and objective of those regulations, which is to guarantee air carriers a fair and neutral presentation of their services and to ensure that travel agents and consumers have access to comprehensive and neutral information.

The CRS regulations also enable the CRS vendor to generate very valuable marketing, booking and sales data. His system is involved in millions and millions of different transactions, all of which provide certain information relating to marketing, the booking of flights, as well as sales. That data can then be sold to the airlines.

The data is sold on a non-discriminatory basis to the airlines, but it is not made available to the air travel distributors. There is no requirement to make it available to the air travel distributors. In making it available to the airlines, the confidential nature of the relationship between the air travel distributors and one airline becomes the knowledge of all the airlines.

So we have a negative negotiating position in which the air travel distributors are placed vis-à-vis each airline that it will negotiate with in the future for other contracts.

We are proposing that in the context of the amendments to the National Transportation Act through the Canada Transportation Act, consideration should be given toward including in that particular legislation a power to make regulations providing for the confidentiality and the protection of commercially sensitive information that is in the hands of the CRS vendor or the airlines. This can be done either by way of regulations or by way of a statutory provision providing for such a protection. In our view, either route would be viable.

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Contrary to what we say in our brief, we are not pronouncing on whether the responsibility for that should be the Minister of Transport or the new Canadian Transportation Agency.

Mr. Chairman, those are my comments, except that in conclusion I would like to say that we are here dealing with an issue of competition, and we think it's sufficiently important, given the national transportation policy as set out in paragraph 5(b) of Bill C-101, which states that:

competition and market forces are, whenever possible, the prime agents in providing viable and effective transportation services....

We believe that if the consideration is given to providing protection to the confidential information we address, we will go a long way to enabling and fostering competition among all the players - not just the airlines - involved in the air travel business.

Thank you.

The Vice-Chairman (Mr. Comuzzi): Thank you, Mr. Fiorita.

Do you have something to add to that, Mr. Leroux?

Mr. José Leroux (Air Travel Services Distributors): No.

The Vice-Chairman (Mr. Comuzzi): Thank you.

Good morning, Michel.

[Translation]

Mr. Guimond: Thank you for your presentation. I must confess that it is fairly technical for some non-initiates, but I will nonetheless try to find my way.

I don't want to fall into acute "constitutionitis" since I don't want anyone to get angry with me, I will not talk about federal-provincial relations but I wonder, in reading your brief and listening to you, Mr. Fiorita, if there isn't a problem of jurisdiction.

I imagine there are other provinces, such as Quebec, that have laws concerning the protection of information. Is this an intrusion into an area of provincial jurisdiction? Such intrusion would not be exclusive to Quebec, as you can imagine.

Me Fiorita: Your question is perfectly understandable. We have not taken a close look at the issue of constitutionality, but I do think you are making a rather interesting point.

Normally, travel agencies, which are air travel services distributors, are subject to the provincial law. But, and this is something unique, Quebec is the only province in which, under articles 35 and 36 of the new Civil Code, confidential and trade information is protected in the hands of third parties. In the other provinces, the laws covering access to information or the protection of privacy are limited to records governed by the provincial governments or the federal government. Quebec, then, is the only province in which there is protection for information in the hands of third parties.

For us, the problem lies in the fact that such information is distributed across the country and we cannot just rely on the only province that has had the wisdom to guarantee its protection.

Mr. Guimond: What do they do about confidential information in the hands of third parties in the provinces governed by the common law? Is it protected?

Me Fiorita: Let's say that one can refer to the case law to find out what decisions have been handed down where an individual has disclosed some relevant information, but in this case there are federal regulations that say he is allowed to do so.

Although there were some precedents in the common law, the federal regulations say that the information may be provided to the carriers. The issue, then, is which of the two levels of jurisdiction has priority over the other.

Mr. Guimond: What amendments should we be making, then? What should they say? Should we avail ourselves of some provision or special amendment for Quebec?

Me Fiorita: Not especially for Quebec. I think the amendments should apply to the entire country. The ones we would like to see made to bill C-101 "a rather well known number in Quebec!" should, first, give extensive authority to the minister or the Canadian Transportation Agency or the agency to regulate computer reservation systems.

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Second, they should provide effective protection to information produced or provided by the carriers or by the other distributors.

Mr. Guimond: Thank you very much.

[English]

Thank you, Mr. Chairman.

The Vice-Chairman (Mr. Comuzzi): Thank you, Mr. Guimond.

Mr. Gouk.

Mr. Gouk: Thank you, Mr. Chairman.

I don't have any questions. I've gone through it. As my colleague said, it's fairly technical, but you've raised certain points and I'll look those over and probably be discussing it with other members of the committee to see what accommodation could be reached.

Mr. Fiorita: Thank you.

The Vice-Chairman (Mr. Comuzzi): Mr. Nault.

Mr. Nault: Mr. Chairman, I just want some clarification from the witnesses.

My understanding of the argument you're making is that it shouldn't be in the Aeronautics Act. Does that mean you don't fall under the Competition Act for the abilities to protect businesses' well-being? This information obviously would be sensitive in your abilities to succeed commercially. I'm trying to get a handle on whether it should be in Bill C-101. Or is it that the Competition Act itself is so weak you don't have any protection there? Can you fill that blank in for me?

Mr. Fiorita: Thank you. I'll certainly try.

Yes, there is a provision in the current CRS regulations that says these regulations are subject to the Competition Act. However, there's a clear wording in section 27 that says the information provided or available or generated by a CRS vendor ``shall'' be made available ``on a non-discriminatory basis'' to all the air carriers, all the participants. In this case it happens to be air carriers.

Our problem is that there is a secondary level here, which is the air travel distributors not addressed by that particular provision. So the airlines get the information but the air travel distributors don't.

We're saying if you're going to give it to the airlines, at the very least give it to the air travel distributors too. Preferably the information should not be made available to the airlines if it identifies a specific commercial transaction or commercial relationship between airline A and distributor B, because then airline C will know exactly what was negotiated between airline A and distributor B. That's our problem.

Mr. Nault: When these aeronautic amendments were made - and of course they were published in the Canada Gazette - did you intervene?

Mr. Fiorita: I did not intervene personally, but I understand the Alliance of Canadian Travel Associations did intervene in the context of the adoption of the CRS regulations but was unsuccessful in getting that particular issue addressed.

Mr. Nault: From your own experience in the industry, can you tell me why you think the government doesn't feel that this is sensitive information? It seems to me that having a list - God only knows, politicians will tell you lists of voters and their preferences are always pretty valuable - of individuals and their travelling patterns in this particular case.... I suspect this is all about who flies where and the significant amount of lists generated. When you intervened, I'm sure the argument was put that this is sensitive commercial information.

What's their argument? Can you give us a general sense of what the two sides are saying?

Mr. Fiorita: I don't purport to speak for the department, nor can I purport to accurately reflect their position. That's not my mandate.

Our impression of the position of the department is that essentially they say the information in question is available in the United States and in other countries and therefore it should be available in Canada. Our position is that perhaps Canada should be different as long as the principal objective is met.

We think the principal objective of the CRS should be that the CRS vendor or the airline participant should not do anything or have anything that would negatively affect the commercial interests of all the other participants. This is really what we're talking about. That's the only objective we have, and at the moment it doesn't meet that objective.

Mr. Nault: Thank you, Mr. Chairman.

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The Vice-Chairman (Mr. Comuzzi): I thank you very much, Mr. Leroux and Mr. Fiorita, for bringing those submissions to us today. As Mr. Gouk has said they will be taken under consideration in the final drafting of the legislation.

Mr. Fiorita: Thank you very much, Mr. Chairman.

The Vice-Chairman (Mr. Comuzzi): The next witnesses are Mr. Cliche and Mr. Grenier, from the Conseil québécois sur le transport ferroviaire.

Are you going to make the presentation, Mr. Cliche?

[Translation]

Mr. Janvier Cliche (president, Conseil québécois sur le transport ferroviaire): Yes, we are ready.

[English]

The Vice-Chairman (Mr. Comuzzi): Do you want to introduce your colleague?

[Translation]

Mr. Cliche: First of all, I will introduce you to Mr. Réjean Laliberté, the vice-president of the Conseil québécois sur le transport ferroviaire. He is replacing Mr. Louis Grenier, whom you announced previously, and who is on sick leave.

I would like to begin by drawing special attention to the presentation of the Conseil québécois sur le transport ferroviaire. Although it is a fairly new body, it nevertheless includes seven major players in Quebec: the Association des professionnels en développement économique du Québec; the Union des municipalités du Québec; the Union des municipalités régionales de comté du Québec, which represents all the municipalities in Quebec; the Association des manufacturiers du Québec; the Syndicat national de l'automobile, the Quebec section of the Canadian Auto Workers; the Association des p'tes et papiers du Québec and the AMF, which is a manufacturing and repair firm.

As a result of the numerous rail line abandonments that have occurred since 1993, it became evident to the different players that the formation of this council was necessary in order to promote the economic interests of the regions affected or about to be affected by the changes in railway service.

But in addition to the desire to protect each of the regions wrestling with abandonments or applications for abandonment, the Conseil québécois sur le transport ferroviaire also hopes to promote a comprehensive solution aimed at integrating all modes of transportation.

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Room must also be made in some way or other for the concrete involvement of the concerned regions and municipalities, as well as employees.

In our opinion, the Canadian Transportation Agency should be mandated in the bill to protect the public interest, the users and the regions, particularly the regions.

I am now going to let Mr. Laliberté present the different approaches we are proposing and the amendments we are suggesting to bill C-101.

Mr. Réjean Laliberté (vice-president, Conseil québécois sur le transport ferroviaire): Thank you, Janvier.

First, it is important to explain that the Conseil québécois sur le transport ferroviaire shares the Canadian government's concern about the fate of the railway, but it is more concerned with its preservation in some remote regions which could, economically, be severely handicapped if it were to disappear.

The model we are proposing and the initiatives we have taken so far at all levels of government tend to indicate that it is possible to establish regional task forces "and this has already begun" composed of financial partners and users, to provide a new role for the short lines that are to be abandoned.

With bill C-101, the regions are unable to react effectively to protect the branch lines that ought to be protected, because they do not have the time to establish genuine development plans or to go looking for investors capable of buying them.

Furthermore, in bill C-101, the role of the Canadian Transportation Agency is relegated to that of a tribunal, which is not sufficient given the issues at stake. We think the Agency should be much more than a tribunal. It should have a number of powers, and even be the government's proxy, to enable us to establish some elements that could protect the branch lines.

We note as well that bill C-101 is based on the assumption that there will be no transportation monopoly in Canada and no collusion between the carriers. We think it is somewhat wishful thinking to advance such an assumption, since it is well know that there will be some collusion, some agreements between distributors, particularly in regions in which there is only one distributor. It will then be very easy for this distributor to do pretty well what it wants, to the detriment of the shippers.

Our major concern, throughout our brief, is to preserve small businesses and the possibility of using rail transportation as a development tool.

In fact, it was rail transportation that allowed the country to develop, and we think that in the years to come, in view of the fact that small businesses will have to export to more and more distant markets, it will be essential to maintain and develop an economical means of transportation.

Now, this observation conflicts to some degree with the message conveyed by the railway companies during the numerous regional hearings, namely, that they lack the capacity to use the new technologies or to adapt to the new market conditions.

Accordingly, we are of the opinion that the Agency should play a key role on four levels. First, it should provide technical assistance to the small shippers, that is, those who have only one shipping point. When these small shippers suffer some damage, they have to prove it. This burden of proof is quite onerous financially. In our view, the Agency, given its substantial expertise, can contribute technical assistance to the small shippers.

We also think the Agency should, in some instances where abandonment is requested, be the Crown's proxy. Indeed, it can happen that applications for abandonment are made within such short periods that the people concerned do not have the time to react by promoting attractive projects. As we know, the philosophy of the railway companies is to view rail services solely from the business standpoint.

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It is true that railways must be considered within a business perspective, but it is also necessary to take account of the fact that railways are an important development tool. If you deprive some regions of a significant means of transportation, you may have to assume much higher costs to society in the course of the following years.

We think that things have to be balanced, and this can only be done with the collaboration of the regions. However, at some point an important buffer is needed, and we think the Agency should play that role.

The other important element is the supervision of the rail transportation companies in financial matters. There are all kinds of provisions in the Act allowing the companies to abandon lines. We will be coming back to this later in detail, but we think it should not be necessary to wait until a company files its balance sheet before reacting. Some supervision should be carried on to try to foresee these situations and take some remedial action. But there is no provision for such a role in the Act.

There is more talk about the regions when it comes to preserving public service. The problem is much less acute in the major centres. Where there are main lines, there is no problem. Of course, those lines are profitable.

However, in a large number of regions of Canada, and particularly in Quebec because we are more acquainted with that area, railways must be considered a public service. The government should not necessarily be supporting their operation, but it must at least provide a sufficient transition period for the regions to be able to implement some remedial plans.

We have some possibilities. We have been working on plans for a year, but given the speed with which the whole thing is developing, it is virtually impossible in the regions to position oneself in that scenario.

Bill C-101 is, in our view, the instrument that could enable us to develop a position on these matters with some regional partners.

Likewise, there is a danger that the government's excessive haste will stifle local initiatives. There has been no talk about bill C-89 since the spring, but there is the whole phenomenon of the CN's privatization that is under way. The review of bill C-101, which has been conducted at an accelerated pace, and this will probably have some significant consequences for a number of regions. We fail to see the need to do this so quickly.

Some time frames should be established. There are organizations that are now being established and financial partners who are ready to get involved in some financial scenarios, but time is needed to achieve these things and protect these regions.

By and large, we want to enable the regions to take their place. We want to make the main lines profitable through an increase in traffic.

Over the last ten years, the railway companies have not increased the traffic; they have decreased it. They have engaged in a marketing on a number of lines, strictly for reasons of profitability in terms of large volumes.

The market conditions and economic development of the next 20 years will not be the same as those we have known over the last 20 years. Small businesses will play an important role. There is an enormous amount of potential traffic for these lines, but we must take the necessary time and give ourselves the necessary tools. It is obvious that this is not part of the vision of the major railway companies at present.

The operators must also be given some time to get broken in and to adapt. There will be new technologies to use, and new businesses will become involved in that scenario. So we must give ourselves a little time to set it up.

Let us turn now to our comments on particular clauses of the bill.

Let us refer to clause 7, which deals with the composition of the Agency. It provides for representation of three people. This seems somewhat limited to us, since it leaves little room for the regional representatives.

We think that a representation of nine members would be desirable, that is, one member per region of Canada and four members appointed by the Governor in Council.

A tribunal to manage conflicts is desired. When there is a conflict affecting a particular region, the member representing that region should of course sit on this tribunal.

Clause 27 of the bill states that a shipper must demonstrate prejudice, in which case he must go to arbitration. I referred briefly to this. We believe that shippers will not have the means to do this and will therefore be placed in an extremely difficult situation.

We think the Agency should play the role of an expert assistant, to help these small shippers, whom we define as shippers having only one point of shipment.

Their main business is not transportation. Their main business is the plant in which they are producing. If we put them at a disadvantage in terms of transportation, we will be creating problems in the plant, which will probably entail some loss of jobs.

We have some significant concerns about the financial operations of the railway companies.

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When a railway company falls prey to financial difficulties, what happens to the lines that exist? The line abandonment application procedures are very rapid.

The Agency must to some degree be the Crown's proxy in protecting these public services. When a company gets into difficulties, there are two things at stake. We should ensure that the Agency to some degree plays a watchdog role in anticipating the blow.

And, when it is impossible to avoid bankruptcy, the Agency should be able to be the Crown's proxy in salvaging the line, finding a new purchaser and keeping the line operating.

The Agency does not have these roles under bill C-101 and, in our opinion, these are extremely important protective roles.

We have not really taken a position on the issue of prices, rates and services. We preferred to let the specialists, the CITL and the Canadian Pulp and Paper Association, take a position in this sector.

Another aspect that is of great interest to us is the protection of the branch lines. We are at clause 141.

Clause 141 provides for a three-year plan which is to be prepared by the companies, who are to predict which lines are going to remain in operation. However, the clause also provides that the company will keep this plan in its drawers. So no one will hear of it.

We think this plan is important and we also think that the Act should require the companies to disclose it in accordance with precise rules and standards that would be developed by the Agency, so we would be informed in advance of forthcoming abandonments.

Now let us talk about the periods provided. In clause 143, the bill provides that a company that wants to sell will manage the entire sales process on its own.

In Estrie, in the case of Canadian Pacific, we had great difficulty in getting the information, because Canadian Pacific was in charge of the process and was willing to provide only what it actually wanted to provide. What happened? Canadian Pacific was able to engage in a transaction that no one is sure will benefit the region. Furthermore, it is long term and we do not know what it contains. It was all done in secrecy.

We think the Act should prevent this, and that the Agency should be mandated to supervise these sales proceedings so that the rules of the game are public, known, and that one can obtain the necessary information to prepare submissions.

I read that anyone can make a bid on a branch line. Making a bid on a branch line when you don't have the necessary basic information is a little like making an offer of $200,000 for an industrial firm that is worth $3 million, because you don't know what is inside. It's a bit ridiculous!

I think the Agency has an extremely important role to play. We are well aware of the objectives of the major railway companies. They don't give you the necessary information when you want to put together something serious. In Quebec, we have a lot of people who are interested in acquiring branch lines, but these people do not have the necessary information. They are unable to get it, and there is no way, under the Act, that they can get it. We think, therefore, that the Agency ought to play an extremely important role at that level.

Let's discuss clause 144. We were telling you of lines that are located in the regions and that will be declared public services. Obviously those lines, in terms of profitability, have problems. In the context of bill C-101, any company holding them will promptly make an application for abandonment and there will not really be any way to save them in the short term.

However, they can be an extremely important development tool for the regions affected. In those circumstances, the Agency should be mandated to call for bids, supervise the entire process and sometimes even become the temporary owner of these lines, to enable the regions to take them over and put together some development plans.

Let's talk about the time periods. In bill C-101 there is a five-month period from the expiration of the period allowed for the announcement, where it deals with a line abandonment. Five months, for a region, is extremely short since many partners are involved. There are municipal partners, industrial partners, financial backers and regional organizers. It is impossible for a region to react to an application for abandonment in five months. We know this, since we have tried to do it in a number of cases: often it takes more than a year.

We are therefore asking the Agency to extend that period to enable the regions to respond in a serious way.

It is somewhat similar to when a company is for sale. If you want to make a serious offer to purchase, you have to have a minimum of information and time in which to prepare a business plan. No one is going to purchase a line if he cannot prepare a business plan. Making a business plan on the basis of the current activities of the railway companies.... I was in the oil business and, as a former extensive railway user, I know what that means. We threw the idea overboard because of a host of problems that should not exist.

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In the case of regional activities, there is a way to operate some short lines at lower cost and to increase the traffic rather than decrease it, and thus contribute to development.

As to the role of the Agency, we are of the opinion that it could, in some critical instances, be mandated to become the owner of a line. It would take it over by paying the salvage value, and would own it for three years to allow time for establishing turnaround plans. If, after three years, there is no buyer, the Agency could sell the line, which would then be of no further use.

On the basis of our experience throughout Quebec, we can tell you that very few lines will be abandoned, because there are plans to develop them and we know they can be made to yield a profit. But in the context of the bill, and at the speed with which the issue is being examined, it is impossible to respond adequately. We are in the process of mortgaging the next 30 years simply because we are trying to go too fast.

What we are asking is that the Agency play a role that genuinely assists the regions instead of promoting a quick settlement of the issue.

Those are our comments, by and large. Our brief explains our approach in detail: protecting the branch lines in order to promote economic development.

With regard to economic development, you must be aware that, judging from the new shape of things internationally, small businesses will be exporting to markets that are further and further away. We understand the problem of the rail transportation companies. That is why, back in the spring, we proposed a model to the Minister's office, saying: Let us organize some regional groups; we will increase the traffic while making do with the main lines and we will make the operation profitable.ä We don't know what happened, but the wind changed. We didn't have time to organize and now they are getting ready to begin the process of abandoning lines that are extremely important to some municipalities without leaving anyone time to react.

Why go so fast? Six months to allow a region to assemble its partners and develop a recovery plan would be a lot more profitable over the next 20 or 30 years than what they are doing now.

That is what we write in our brief, which is, incidentally, the reflection of a regional consultation. At present, there are councils being formed in Estrie, in Montreal, in the Outaouais and in Northern Quebec. Many of those involved are users and investors who tell us they are ready to play the game, but they must know the rules.

Take CN, for example. It plans to abandon 4,000 miles of lines, but we don't know which ones. How can you make a deal when you don't know what you are going to end up with the next morning? Why not take the time to spell out the rules of the game? We already have the investors. It is to the government's advantage financially, and to the advantage of the small businesses in terms of economic development, to provide an adequate transportation service.

Mr. Cliche: In closing, I would like to point out to you that the Conseil québécois du transport ferroviaire is working with the regional development boards. I am the chair of one of these boards, the Conseil régional de développement de l'Estrie. Now, it is obvious that the regions are finding themselves somewhat strapped. They are even beginning to take legal proceedings. One need only mention the Regional County Municipality in Argenteuil, or the Regional County Municipality in the Haut-Saint-François which, relying on the Land Use Planning and Development Act, have attempted to take steps to protect the existing infrastructures.

We can expect, in the coming months, some significant resistance on the part of many voters in Quebec, who do not want the coming privatization transactions to occur without their having a say in the matter.

This is the sense of our comments today, and the amendments we would like to see made in the bill would help ensure a coherent and proper process for all the citizens of Quebec. Thank you.

The Chair: Mr. Guimond.

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Mr. Guimond: I would like, first, to congratulate you on the quality of your brief. You are in agreement with a position I have had occasion to take several times here. My colleagues in the transport committee will recall this. I said that the railway service, like airports or ports, is a regional economic development tool. It is indissociable and you bring this out in your brief.

At page 3, in the second paragraph, you state:

With bill C-101, the CTA is nothing but a tribunal, and it is toothless.

Could you perhaps tell me quickly about the old Transportation Agency, because I am not sure I liked it in the Old Testament! In fact, we know that the applications for abandonment that were made were accepted almost automatically. I even had occasion to say so to Mr. Rivard, the chairman, with respect, having regard for his title. I do not know whether he will remain chairman because he was appointed by the Conservatives.

Mr. Laliberté: We meant that in the bill, the role of the Agency is, when all is said and done, limited to that of a tribunal. We would like the Agency to have some teeth. We would like it to be able to play a genuine regulatory role and, in some cases, to be able to act as a proxy with the necessary powers to do so. That is the role we would foresee for the Agency, and we do not find it at present in the bill.

Mr. Guimond: That's different from its former role?

Mr. Laliberté: A little bit, yes. It has some teeth.

Mr. Guimond: Its former role, you agree with me, was not completely to our liking.

Mr. Laliberté: Exactly. There must be a happy medium. Where regions and small shippers are completely at the mercy of the railway owners, we want the Agency to be in a position to help them.

Mr. Guimond: With regard to preserving the public utility, you state at the top of page 5:

...any transportation infrastructure...remains a public utility and as such must be subject to some control by the government.

I hope you are aware that that statement, with which I agree, by the way, runs completely against the flow. You are trying to go up the Montmorency Falls, in my riding.

Mr. Laliberté: We are aware of that. Let us say that the government seems to us to have a very short-term view of the railway issue, a view that is dictated, in fact, by monetary considerations alone.

We make so bold as to say that it is necessary to take a longer look, that it is necessary to think about economic development. By way of example, we know that there is, in Northern Quebec, a line that runs close to a deposit that has not yet been worked by the Société de développement de la Baie James. Now, if you go by the government's way of doing things, it is clear that it will allow this line to be dismantled, so the deposit will never be worked.

There are many places in which the railway lines have not been used to their full capacity, but before doing anything, it is important to situate this under-utilization within a long-term development perspective. And that is, to some degree, why we say that it is necessary to recognize the railway service as a public service. However, it is still possible that the regions and the government will agree to demolish a line that is not being used over a particular territory. But there are not many such lines in Quebec, we can assure you!

Mr. Guimond: With regard to the composition of the Agency, in clause 7, you state:

- 1 member per economic region of Canada...

Maybe this is the new Canada that the Reform party has been telling us about! This member would be appointed by whom? Would he also be appointed by the Governor in Council? The fact that the four members are appointed by the Governor in Council poses some problems for me. In fact, whether there are three members appointed by the party in power or nine members appointed by the party in power, it's Tweedledum, Tweedledee, in my view.

Mr. Laliberté: Yes, I agree.

Mr. Guimond: So, the members from the economic regions would be appointed by whom?

Mr. Laliberté: In all honesty, we haven't gone that far. We stopped at the composition. But it would be necessary, in fact, for the members to be representative of the regions.

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Mr. Guimond: The minister can appoint his bagman in Western Canada. He can appoint him to be a member of it.

Mr. Cliche: Ideally, what we would like is that each of the regions have its own railway board and that it be the person appointed or mandated by the railway board in each of the provinces that would sit on it.

Mr. Guimond: You are combining four of them?

[English]

I will come back in five minutes, please.

The Vice-Chairman (Mr. Comuzzi): I don't know if we'll have time. The presentation was over 25 minutes.

Mr. Gouk: You posed some interesting ideas in terms of alternatives to abandonment, but you say you require more time. What time-span are you realistically looking at to come up with these alternatives?

Mr. Laliberté: Do you mean starting when the company decides to announce it will have an abandonment?

Mr. Gouk: You're looking at reacting to a proposed abandonment as opposed to having a contingency plan in the event of an abandonment.

Mr. Laliberté: Within a year of the date when we have all the information concerning a short line and its abandonment, we think we can prepare a business plan for that short line. Very often the company doesn't supply the information. How can you prepare a business plan if you don't have the information? So we need one year to prepare a business plan, find some investors and make a deal with the area to do something with that short line. This is why we would like the office to be a partner to help us get the information we need.

Mr. Gouk: So you're looking for a period of somewhere between a year and a year and half, depending on how long it takes to get the information, after the notice of intent to sell has been given.

Mr. Laliberté: Yes.

Mr. Gouk: I'm having a little difficulty with one thing. You say you need this time to put it together in order to get information from the rail line. I put an offer together on a very large company just prior to the election. I did not rely on the company itself. I went to the various sources that were involved and various clients to determine certain information. I put the offer in based on my valuation of it, and not on the owner's valuation, or in this case the rail company's.

If the rail companies put out three-year plans - and these are the ones we're looking at - and within a particular region you said this is one of the ones they were considering, keeping in mind that even if the rail company hasn't officially put them out it would certainly be prepared to look at somebody coming forward who is interested in buying this line, could you not start at that point to put your plan together?

Mr. Laliberté: Yes, we could. By law the company makes a three-year plan, but it keeps it in its desk, so we will not know about it. We'll probably know about it the day before they do it. This is why we said in that condition we need more time. But if we know about it three years before and can get the information to prepare something, there's no problem. We can live with a five-month period.

Mr. Gouk: I have just one other point with regard to your definition of small shipper. A small shipper is one who ships his goods from a single point.

Mr. Laliberté: That's right.

Mr. Gouk: So would that include a pulp mill, a smelter, or anything, regardless of size?

Mr. Laliberté: No. The pulp mills have different points where they can ship from. Companies like Domtar or Kruger can ship from different points.

Mr. Gouk: We have a pulp mill in my area and -

Mr. Laliberté: Maybe we can define it more precisely, but what we have in mind is the small company that maybe ships one or two containers a week to Mexico or -

Mr. Gouk: I can see it on the basis of volume. I was going along with that until I came to your definition and said that could be a pretty big small shipper.

Mr. Laliberté: It can be based on volume instead in that definition.

Mr. Nault: I just want to clarify something for the presenters. First of all, my understanding of the bill is you can't abandon the line unless you put it up for sale. The 60-day deadline you talk about is only necessary to show interest. Once you have shown interest as a region, as an individual, or as a private corporation, you then go to the next phase, which can take up to five months before the decision is made. So in essence you have seven months already. After that, if nothing takes place, then the railway can apply to the agency for abandonment and then there's another process. But they can't go to the abandonment process until they go through the sale process first.

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Based on that information, do you think seven months plus, not including the abandonment process, would be acceptable to find out exactly what the scenario is?

Let me make something very clear. If this bill passes, the first thing I'll do as a member of Parliament is write to the railways myself and say give me your three-year running list of the lines that you are either going to put up for sale or abandon. The next day I'm going to send it out to every single municipality in my region to make sure they're aware, because quite frankly, that's my job.

Mr. Laliberté: We want that to be right on -

Mr. Nault: They're supposed to.

Mr. Laliberté: Yes.

Mr. Nault: Those are my comments on that.

Based on that, have you talked to any of the short lines in Quebec about this timeframe?

We've heard from other short lines and they say five months is plenty of time to show an interest in that if they want to buy something. That might be acceptable for a short-line railway that already exists and wants to buy another line, but what I would like to know is whether you think that's a little short for someone who's never been in the railway business before and might need a little more time to look at the issue. Wouldn't you think the railways would be interested in giving you that time? I'm sure they'd rather have someone buy it than have to go through the abandonment.

Mr. Laliberté: The reason we think it will take a little bit more time is that when we want to buy a short line, first of all, we're not people who work in that business so we don't know too much about that business. We have to analyse that.

We also have to analyse the fact that if you cannot actually make money with a short line, you will have to change something to make money. What we'd change is probably to use new technology and put more people on it so you have a lot more market study to do before interesting people. This is why we feel it's short; we will try to build a business plan based on new things, not on what is actually going, because we know that if we only use the same traffic as we had before, we'll probably come to the same result.

This is why we feel that to build that, to find the partners, it would take a bit more time. We have a lot of people to consult and put together.

Mr. Nault: So you have at least seven months already and the railways have done everything within their power to make the region aware they don't want to own this line but they're not opposed to someone else owning it. Based on that, do you believe there's a role for the province to play at that point? Under the act that's proposed, the province can then go to the railways themselves and purchase that line.

You suggested in your presentation that the new CTA purchase the line and keep it sitting there for a three-year period as people develop it. Do you not think, on the regional development side of the issue, that the province itself should have a more important role to play than the CTA, which is an agency but is not really in the business of operating lines or running lines?

Mr. Laliberté: It could be a solution. The way we see things, it's a small area and small partners need some help to do that kind of deal. It can be the agency but it can also be the provincial government, as long as somebody can help those people to buy it and not let it go because we can't develop it.

Mr. Nault: This is my last question. Does the Province of Quebec have a policy as it relates to abandonment and what they would do if there were an abandonment process for short lines or potential short lines? We know that other provinces are in the process of trying to develop legislation. Is the province of Quebec, through your presentation to them -

Mr. Laliberté: We know they're working on that, actually, concerning the new context. We know they're working on what the new law will be and the new way to do things in Quebec. They're working on that.

Mr. Nault: Okay, thank you.

Thank you, Mr. Chairman.

The Vice-Chairman (Mr. Comuzzi): Mr. Collins.

Mr. Collins: First I want to thank you for the presentation and your interest in short lines in the province of Quebec.

I have a couple of observations after reading through your brief. On page 5 you say that the rate at which we're proceeding is ``incomprehensible, unjustified, and irresponsible''. We have some groups saying to us the government's going too fast and others saying it's going too slowly.

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What speed would you like? We have to move along. We're going into the 21st century, not the 19th. I think we'd better stay focused or we could spend all our time reviewing and no time proceeding.

I understand that you need some additional time, as Mr. Nault has said, and I think that's right. Certainly where you have an interest in short lines, that possibility should be there, so that in the interests of your province, when we make those changes -

Mr. Laliberté: Yes, but provinces and regions cannot be organized because we don't even know what will be abandoned or not. In CN sales, we know 4,000 miles will be abandoned, but we don't know which ones. If we want to build regional and provincial plans, we must have that information, but now everything will be sold before we get the information.

As an investor, how can you be interested in putting some money in CN when you don't even know what the law will be in regard to that? How can you be interested in doing that?

Mr. Collins: In the province of Saskatchewan, we understand there are going to be lines abandoned. I've gone to RMs, whether it be SARM or any group, and said look, if you have any interest, let me know. Theirs is a working partnership.

Whether it be Mr. Guimond or whoever, you're certainly going to stay in contact with your MPs and say, hey, look, this is a partnership.

Mr. Laliberté: We did let the government know we were interested in buying the short lines that would be abandoned, but we don't even know which ones will be abandoned.

And we have another problem. The other problem is called CP. CP will also abandon some short lines. If you buy a short line and you cannot plug into another one, what do you do with that? We must do that on a provincial pattern. We have partners, areas are there, a lot of developers are there to do something, but we must know the rules.

Mr. Collins: I have just one other question. On page 7 of your brief you mention you would like to see a point of origin for the traffic rights up to the point of interchange. On that point of interchange, are you talking about the first competitive interchange or just the first point of interchange?

Mr. Laliberté: The first point of interchange.

Mr. Collins: So you don't have a problem with whether it's a competitive interchange?

Mr. Laliberté: No.

Mr. Collins: I thought that. That's fine. Thank you.

The Vice-Chairman (Mr. Comuzzi): Gentlemen, thank you very much for your presentation this morning.

The final presenters are from the Halifax Port Corporation. We have Mr. Bellefontaine,Mr. Russell and Ms McDermott.

A witness: Ms McDermott gets to make the presentation because she's the best-looking.

The Vice-Chairman (Mr. Comuzzi): Mr. Russell, we think the youngest person of your trio should make the presentation.

Mr. Merve Russell (Chairman, Halifax Port Corporation): I have a feeling I'll probably be eliminated.

The Vice-Chairman (Mr. Comuzzi): Go ahead.

Mr. Russell: Thank you, Mr. Chairman and members of the committee. My name is Merve Russell. I'm the chairman of the Halifax Port Corporation. With me today are Mr. David Bellefontaine, who is our president and chief executive officer, and the youngest of the trio, Ms Patricia McDermott, who is our vice-president of marketing. We thank you for the opportunity of being here today.

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We're on a mission of concern. I think you might find our message today somewhat familiar. We have submitted our written presentation in the appropriate form, and between Mr. Bellefontaine and Ms McDermott, we have about a five- or six-minute summary. We'd like to present that verbally at this time, and then if any questions are called for, we'd be most happy to answer them.

Perhaps we can start with Patricia.

Ms Patricia McDermott (Vice-President, Marketing, Halifax Port Corporation): On May 30 we appeared before this committee on Bill C-89. At that time, we provided some background on the business of the Halifax Port Corporation, so right now I want to be very brief and just give you an update to refresh your memory and provide an update on our activities and concerns.

The Port of Halifax is a significant generator of economic activity. We provide 7,000 jobs in the region, $233 million in income, and $305 million in direct expenditures. Halifax is Canada's third-largest port for containerized tonnage and Canada's only east coast gateway with sufficient draft and tidal conditions to handle post-Panamax ships. Those are the new larger, deeper generation of container ships.

Halifax will handle over 14 million tonnes of cargo this year. Our diverse range of cargo includes bulk, principally petroleum and gypsum; breakbulk, such as forest products, steel, flour and rubber; and passengers on cruise ships, vehicles, and other roll-on/roll-off traffic.

The most important part of our business is the container business. It represents the most jobs, the most economic spin-off, and also most of our own revenue at the Halifax Port Corporation, about two-thirds.

So far this year our container business has increased by almost 30%. The reasons are many: continued improvement in traffic levels of our current customers, acquisition of new shipping lines, but most importantly the expansion of the load centre concept. That is the development of new, expanded markets for our business. This includes, for example, serving the New England market by feeder vessel and developing the U.S. midwest business.

As a result of the opening of CN's St. Clair Tunnel, the U.S. midwest business is the fastest-growing portion of the port's business. This traffic has increased by over 300% this year. It now accounts for a remarkable 10% of our total port business. This is remarkable, since in 1993 we didn't have any midwest business at all and we had only a very small amount last year. This business is increasing still.

The port business continues to be extremely competitive for container traffic. Our competition comes from the U.S. eastern seaboard ports, especially New York, which is served by CP. The Port of New York and CP have made huge investments, and we've detailed some of these in our paper to you.

Basically, the future of rail service at the port will determine our future. Most of our container cargo, 75% of our international business, moves between Halifax and inland terminals. The distances make trucking uncompetitive. Rail costs make up between 65% and 82% of the cost of moving a container from dockside in Halifax to destinations in Montreal and Toronto. It's pretty clear that we need a competitive rail service to reach these destinations.

The Vice-Chairman (Mr. Comuzzi): How much has CP invested in the port of New York? Do we have that figure?

Ms McDermott: I believe the number in our document is $92 million.

The Vice-Chairman (Mr. Comuzzi): They pulled out of your area, Saint John, and invested that in New York?

Ms McDermott: They invested in the Delaware and Hudson rail line.

Rail service is not only critical to the port's future, but also to the future of the Atlantic Canadian economy. We believe the pursuit of international container traffic is critical to the continued operation of rail service in Atlantic Canada and that loss of this business would have a domino effect on the economy of the entire region.

We estimate that the total port of Halifax business associated with CN's main line, all of their operations in Atlantic Canada, accounts for one-third of CN's operations in the Atlantic regions. The port of Halifax cargo, then, serves as a linchpin for rail operations in eastern Canada.

The Vice-Chairman (Mr. Comuzzi): David.

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Mr. David Bellefontaine (President and Chief Executive Officer, Halifax Port Corporation): I would like to get right to the point of why we're here, and then perhaps rationalize why we've reached that point within a very few brief remarks. I would like to read this so I will not miss any word, because every word is important.

We are here to solicit your support in recommending an amendment to Bill C-101 declaring the Montreal to Halifax line to be an essential part of the CN transcontinental system, and prohibiting the abandonment of operations over that line during the first five years following the enactment of Bill C-101.

We also ask the committee to recommend to those who conduct the statutory review of the CTA, mandated by clause 54, to specifically consider and report upon the need to continue prohibition of abandonment of the operations over this line after the initial five-year period.

Our written submission to you today contains a proposed amendment statement for your consideration, which I will not read at this point. I would like to offer a few points in addition to those offered by Patricia.

First of all, clause 5 of Bill C-101 preserves the essential elements of Canada's national transportation policy, which is currently in section 3 of the NTA, 1987. Specifically included as a fundamental element of our national transportation policy is the goal of furthering regional economic development objectives, and protecting the movement of traffic through Canadian ports.

Paragraph 5(d) of Bill C-101 reads:

transportation is recognized as a key to regional economic development and that commercial viability of transportation links is balanced with regional economic development objectives so that the potential economic strengths of each region may be realized,

Furthermore, clause 5 refers to a movement of commodities through Canadian ports, and this is entirely consistent with your committee's report, A National Marine Strategy, which specifically recommends that the federal government continue to have direct responsibility for the national ports system.

The objectives of the national ports policy, as presently constituted under the Canada Ports Corporation Act, also specifically include reference to the importance of regional and local economic and social objectives and the use of Canadian ports.

Our minister, the Hon. Doug Young, in his June 2 address in St. John's stated that the ``national ports system will be an autonomous viable partner in a coast-to-coast intermodal transportation network''. Without Halifax, a coast-to-coast intermodal transportation network would not be possible, thereby forcing overseas container traffic to use U.S. ports.

Attainment of the above-noted vital national policy goals can only be accomplished if there remains a national rail presence in Halifax. The port of Halifax is the only port on the east coast of this great country capable of handling post-Panamax-sized vessels. Protection of the viability of the port of Halifax is therefore an essential transportation policy objective.

Can you imagine how difficult it will be for the port to seek capital funds from the external market if there is no guarantee of continuity of rail service to the rest of Canada and beyond?

In our written submission, we have outlined our concerns about a traditional short-line railway operating between Montreal and Halifax. Very briefly, the issues we've noted include the erosion of confidence our customers presently have in the integrity of the inland system, the considerable distance factor of 800 miles in length, the requirement for continued federal jurisdiction, interchange logistics that would impair efficient service, the less than satisfactory experience with a short-line railway at the port of Saint John, and finally the fragility of short lines to withstand financial volatility.

One option that may be worth while to pursue is the creation of an internal short line within the CN transcontinental system. It appears that CN has been successful in establishing such a short line in Quebec and has renegotiated collective agreements to permit greater flexibility.

The line continues to be operated by the national carrier as part of its national system, but with many of the advantages traditional short-line carriers enjoy.

Mr. Chairman and members of the committee, we urge you to consider seriously our submission to you here today. The future of 7,000 jobs in one of Canada's most successful gateway ports depends upon it.

Thank you.

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The Vice-Chairman (Mr. Comuzzi): Thank you.

Mr. Gouk.

Mr. Gouk: Thank you, Mr. Chairman.

Thank you for bringing your submission before us. I've heard many of your arguments before under Bill C-89. As it happened, I did agree with them.

We recently had Mr. Tellier in to do his presentation to the committee and answer questions. I asked him if they had any thoughts whatsoever of abandonment of the line between Montreal and Halifax. The argument I heard before when I proposed an amendment that would provide for continuance between Montreal and Halifax was that it ties down CN and may make it a problem to market their shares.

I thought it would be appropriate to find out from the head of CN whether or not that would in fact interfere with their plans. He stated unequivocally that they have made large investments in that line and have absolutely no intention of selling it. I asked specifically if they had plans to sell within a period of five years and he said none whatsoever.

Now comes the question. Which side do we have to go by? Do we tie someone down to do something they say they're going to do anyway or do we put something in place that provides a greater assurance for Halifax?

I suggest that if we tie down CN we're not putting any undue limitations on their ability, given their statement. But it does provide some creditor confidence.

I do have a concern. Are you not now going to have to go to the marketplace for all your funds, with no government backing whatsoever? Is that the case you are projecting you will be in?

Mr. Russell: That's what is being suggested at this stage. We're preparing ourselves accordingly.

Mr. Gouk: Have you had any kind of communication with financial experts or potential creditors regarding their concerns about whether or not you could ensure that you would have that connection to the American mid-west?

Mr. Russell: We have not pursued that independently. We've had some preliminary sessions with such financial people, but it's been for another source.

But we find a certain amount of comfort in Mr. Tellier's response to you and to the issue. But what's the problem with making sure it is there? It's nice to say these things now, and I believe Mr. Tellier's words. But after the fact, when the legal beagles sit down and sort through the nonsense, it doesn't happen, and goodness knows, we went through a rough week this week in Canada. After the fact is too late.

Mr. Gouk: Yes.

Mr. Russell: That's too late. This is our lifeline we're talking about for the port of Halifax and the 7,000 jobs. Without the rail, we don't have a port. We might as well pave it over. It's that simple. It's an 800-mile run to our markets and we need the rail.

So if there's no discomfort for the president of CN Rail in saying that here, then I'm sure there's no discomfort in confirming it.

The Vice-Chairman (Mr. Comuzzi): On that point, Mr. Gouk, if you want to stay on that - and I don't want to interfere with your submission, but it's not only important that there be a commitment to keep the line intact. It's also the accessibility, as we heard from some presenters last evening from your area. The ability to use that line to handle the increased volumes that you anticipate.... Possibly it's not there. I think that's the critical issue. I'd like you to address that, if you will.

I'm sure you were going to get to that in your next question, Mr. Gouk.

Mr. Gouk: I think I'll leave that for your time.

Actually, the only thing I have left is the statement that the last time this was brought up, we were talking 10 years. I've talked with you since and I understand you're comfortable with the five, and it was a split decision at that. We were right down to the wire with a tie-breaking vote deciding it.

I hope, given your reasonable reduction to five years, and Mr. Tellier's statement that it is not a problem for them, that this time when it's resubmitted it will in fact pass.

Mr. Russell: We would find comfort in that. Thank you.

Mr. Gouk: I'll leave the other part to you, Joe.

The Vice-Chairman (Mr. Comuzzi): I will address that at the end.

Mr. Collins.

Mr. Collins: Mr. Chairman, there has been some discussion, certainly from the west, about the transportation feature and the port of Halifax.

I must say that I haven't been to the port of Halifax, but I went to the port of Vancouver and I was very impressed with the efficiency of the port. Unfortunately, not enough people realize what goes on there and what service is provided for all of us as Canadians.

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Do you see an opportunity at some point in time for us to have container traffic coming from Europe over to Halifax, unloading on the rail cars and moving across to the Pacific to get to the Asia-Pacific market? That was really a very strong recommendation. Is it creditable? Are you doing it? How do we enhance it?

I take your point about maintaining that link being very important. You have to have some assurance for yourself and for the people out there, but I would like to know.

Mr. Bellefontaine: We did some homework about three years ago on what we call land-bridging, Vancouver to Halifax, Asia to Europe, and vice versa. At that time the economics just weren't there with respect to the inland move. The rail cost was too expensive, it wasn't as efficient as it should have been and so on and so forth.

The economics are changing. The ships are getting larger. I made a reference to post-Panamax ships, which will not be able to go anywhere on the east coast of Canada but Halifax. Vancouver is capable of handling post-Panamax ships. These ships would handle much more cargo than do the vessels currently calling those ports.

So in the very near future that's going to be a very valid situation. Ships will call Vancouver from Asia, they'll offload the entire vessel, destined for Europe, and Halifax will be a very attractive partner to handle that cargo, and vice versa.

Mr. Russell: There is a caution, however. Mr. Longstaffe and I work quite closely together.

If we're not competitive, drop one port just below the border and you have Seattle and Tacoma on the west for entry to a land bridge, and New York on the east. So we must remain competitive, and in order to remain competitive in this new post-Panamax era, we have to be assured that our house is in order. That's why we're here today.

Mr. Collins: In order to bridge that gap and have that component, at what point in time would you be putting a package together with Ron and your Asian and European partners so that it's not hypothetical but becomes a real concept? Then you could say, look, some of these people who are looking at it are on the way, and because of their interest, we think you'd better make sure that, as partners in this whole affair, you get it locked into this bill. Where are you at in that?

Ms McDermott: Halifax has to increase its business and has to look to new markets to be viable, because the volumes along the eastern seaboard are such that the U.S. eastern seaboard ports are becoming more and more efficient.

The dynamic of the international shipping business right now is in transition, because it's just now that the move towards post-Panamax ships is really becoming apparent. So it's difficult to answer your question in that context, but it is something to be looked at in the near future.

Mr. Bellefontaine: At the present time in the United States, ports have invested in post-Panamax cranes already. They are taking the gamble, mostly through state funding, I should add. They're taking the gamble to get ready for post-Panamax ships. The port of New York is spending $500 million to dredge their harbours to get ready for post-Panamax ships.

Mr. Nault: Let's deal with the issue of public interest. I think it's important to deal with it.

Do you in general agree that the legislation is favourable to the port of Halifax in the sense that it will deal with some of the rationalization necessary to make the lines - and I'm talking most importantly about the main lines, such as the one from Montreal to Halifax - more efficient and commercially viable, because of the cuts and changes in this bill and the abilities to rationalize the track?

I'm under the impression that you agree with that.

Mr. Bellefontaine: Yes, exactly. We agreed with the privatization of CN and we're in favour of more commercialized practices, indeed.

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Mr. Nault: Okay. This bill deals with the necessity of CN and CP being treated more in a business-like fashion, so your interest in this particular presentation is to get some undue protection for the port of Halifax. On the one hand you feel comfortable that this bill is going in the right direction, but you want that extra protection. Would that be fair?

Mr. Bellefontaine: That's right, yes.

Mr. Nault: I understand why you're asking for that, and I'm one of those people who saw CN's books when we went on the privatization front - the density on your line is one of the highest in the country. Frankly, I don't think you'll ever have to worry about it, and I'd like to know if you have received other advice from somebody who's creating a rumour mill that you should be concerned.

My question is this: if we gave you that protection, would we not have to give it to other ports and/or lines across the country that have even greater concerns about this ongoing rail rationalization process? Second, because we're taking the public interest away from the railways in Bill C-101.... The statutes presently in Bill C-101 enable the minister to do a complete study and review before you can go to short line and/or abandon. Is that not enough comfort for you?

Mr. Bellefontaine: In response to the first question, on the guarantee about other ports, Halifax has no competition to rail except U.S. competition. We are rail-dependent. Of our cargo, 70% goes inland and comes from inland by rail. The ports of Vancouver and Montreal, on the other hand, are both served by two railways - CP and CN. So that's one of our problems - we have a railway, one that is being privatized.

Mr. Nault: Let's use Churchill as an example, because it is comparable to yours. They could come to us tomorrow and say that if we're going to give Halifax protection, we'd better give them protection too. You know what kind of shape they're in - much worse than you are. So given a choice between what you're asking for versus leaving it, if we had to be fair to Churchill, for example, where would you want to go?

Mr. Russell: Wouldn't you have to make an extreme case to compare Churchill with Halifax? I'm not being unkind.

Mr. Nault: No, you're not, but the point is that the folks from Manitoba could make the same case that they're dominated by one rail line - CN.

Mr. Russell: I agree. I'm on the board of Canada Ports Corporation, so I understand the significance of the ``Churchillian'' situation, but I think we are comparing apples and oranges in this scenario.

You have to stretch it to make Churchill an international port. Brazil - two to three shipments a year? I think we're talking apples and oranges here. I don't know of any port other than Churchill where you could use that example.

Mr. Nault: Okay.

The second question was about the minister's ability under existing statutes, which are maintained in this bill. A lot of us have been arguing that the public interest should be maintained by the politicians, but not by hindering a business's ability to be competitive, whether it be a railroad or a port. If a line is not commercially viable or you have a problem in the port and you're not successful, it will fall back on our laps anyway, but that's a different argument. Don't you think that's the best place to put it, as opposed to forcing railroads to have a public interest and maintain lines that are not competitive simply because we forced it on them?

Mr. Russell: The competitive aspect that rail has to face is not unlike the competitive aspect the port of Halifax has to face - without a railway, we're not competitive, we're not a port; we are a regional port servicing Newfoundland and other areas around Nova Scotia. In order for us to maintain our international status as an export and import port, we must have rail.

There is comfort in what you say, but I really have difficulty understanding the reluctance from any quarter on why that can't be in the act.

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We just went through a rough week this past week. We know what would happen. We were that far from it. Where the hell would we be today?

Mr. Nault: Building a track through the Northwest Territories.

Mr. Chairman, all I am getting at and I want to reiterate again in my final remarks is that it is in the bill, but it's in a different place from where you might want it. Protection is there, and that protection relates to the fact that we know what regional development is all about and the importance of it. In fact, we know the importance of rail to Atlantic Canada and the port of Halifax. That's why I'm arguing that in the end if there's a problem it's going to fall to the politicians, one way or the other; but if that doesn't take place, then I think it's appropriate that CN, like CP or any other short line, have the ability to make its decisions based on good economic sense.

Mr. Gouk: As a supplemental to what Mr. Nault said, in terms of what's in the bill, I think what you're asking for is an absolute solution and what is in the bill is a potential solution. That's essentially the difference.

Mr. Bellefontaine: That's correct.

The Vice-Chairman (Mr. Comuzzi): I asked a question earlier, Mr. Russell, about the ability to expand your market, the capacity of the rail system going in. We heard some evidence last night that with the increased volumes there may be some hesitancy to expand the ability of that rail line to handle the product that you have. Do you want to comment on that?

Mr. Bellefontaine: We understand that the line is used at 30% of its capacity. Those are the figures that we were given from the railway. So there's lots of capacity to expand in terms of utilization.

The Vice-Chairman (Mr. Comuzzi): David has pointed out that they were talking about the facility of what CN has in Chicago, not being able to take the capacity that you folks have.

Mr. Bellefontaine: I see, the inland yard. That can certainly expand. CN has expanded the yard in Halifax. They've created a Halifax intermodal terminal because the market was there.

The Vice-Chairman (Mr. Comuzzi): But didn't the province give some support in that?

Mr. Russell: They did indeed, but it's been a very successful operation for CN.

Mr. Bellefontaine: [Inaudible - Editor] ...million on a tunnel to have a roadblock just beyond that. I think they would have to address that indeed, and they will. I am sure they will.

Ms McDermott: CN has an inland terminal. I think you're making reference to CN's inland terminal in Chicago. Because of the rapid increase in business, there have been suggestions that the capacity needs to be expanded on the terminal, but terminal capacity is a different thing from rail capacity and a lot easier to solve, I would think, in terms of dollars.

The Vice-Chairman (Mr. Comuzzi): Lastly, has your port ever given any consideration to going into the rail business?

Mr. Bellefontaine: Softly. We haven't taken it to our board yet, but we may have to.

The Vice-Chairman (Mr. Comuzzi): Have you discussed it?

Mr. Russell: Oh, in an airy-fairy way.

Mr. Bellefontaine: Nothing concrete.

Mr. Russell: If you have to, you have to.

The Vice-Chairman (Mr. Comuzzi): Thanks very much for coming.

The meeting is adjourned.