EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, April 16, 1996

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[English]

The Chairman: We'll call the meeting to order.

We'd like to welcome, first of all, Mr. Lawrence O'Brien, who is our newly elected member from the constituency of Labrador. Welcome, Lawrence.

I believe we're having another new member, Mr. Gerry Byrne, from Humber - St. Barbe - Baie Verte, who will arrive some time this morning.

We want to resume this morning our hearings on the coast guard marine fees and transportation policy. Before we welcome Mr. Robert Bergevin, who is the director of the transportation policy branch for the Ontario government, I'll mention that we have an hour allotted for each witness. We want to keep as close to that as humanly possible, because if we get out of whack on our schedule here, we'll be meeting until 1 o'clock tomorrow morning.

So it's going to be up to the witnesses as to how they want to proceed - whether they want to read their briefs or give capsule reports on the briefs and answer questions. We'll leave it entirely up to the witnesses as to how they want to proceed. So if you want questions, great; we'll have a short presentation and then questions. If you want to make sure your brief is read into the record, that's up to you, but everybody has your brief and we'll be reading and studying it anyway. So we'll leave it up to each witness as they come in as to how they want to proceed, but the hour will be strictly adhered to, because we don't want to get out of whack on our schedule here.

To begin, we have Robert Bergevin, director. Welcome to the committee, and we're open to your remarks.

Mr. Robert Bergevin (Director, Transportation Policy Branch, Ministry of Transportation of Ontario): Thank you, Mr. Chairman. I'll give you a bit of background, but first let me apologize that the documents you have are in English only. We have somewhat of a backlog of translation requirements at our translation services due to the recent labour disruption. Consequently, we did not have those available for this morning.

We really do wish to thank the committee for allowing us to appear before it. We think this is a very important issue. The minister sends his apologies. As you may know, our legislature is sitting, so it's difficult for him to get away, given some of the things that are going on in Ontario now, pre-budget.

That said, I don't intend to read the short brief that you have in front of you. What I'd like to do is basically summarize the main point or two that we make within it, and I'll do that as quickly as I can. I expect it'll take five minutes or so, maybe ten if I get long-winded, but certainly then I'll be available to answer any of your questions.

Before I start, my title is director of transportation policy branch with the Ministry of Transportation. I have the responsibility to advise the government and the minister and to conduct analyses in my branch on issues related to both passenger and freight transportation. So you will see something in the brief about recreational boating and some of the dealings we've had with coast guard on that. We also are responsible for advising the government and minister on issues around trucking, railways, obviously marine transportation, commercial marine, intercity busing, and a variety of other issues that don't seem to ever cease to entertain us.

Nonetheless, I again thank the standing committee for its warm welcome.

You're probably mostly aware that Ontario has had a long history of involvement in issues that affect marine transportation - issues such as the Western Grain Transportation Act and other things. We see marine as a key component of our transportation system.

If you take a simplistic calculation - and forgive me for rounding error and things of that nature... If you look at the tonnage that moves on the system and divide that by a reasonable amount of tonnage that a truck could carry, we're talking probably in the neighbourhood of a million and a half to 2 million truckloads of freight that currently move on the St. Lawrence system and the Great Lakes.

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To put that further into perspective, that is all the truck traffic that travels between Ontario and Quebec, whether it's destined for Ontario or Quebec or whether it's using them as a land bridge to get to the Maritimes, to the west or to the United States. This is a big system to us and it's important to our industry.

We have been active in the marine policy debate from early on to this point, and we are still supportive of most of the thrusts of the marine policy, particularly on commercialization of the St. Lawrence system. We are anxiously awaiting some of the outcomes of the review of pilotage, because we see that as a major cost component for shipping on the Great Lakes and St. Lawrence Seaway. We are watching with interest the disposition of ports in Ontario and the policies with regard to ports across the country. And finally, we have always been interested in coast guard cost recovery, and it's on that that I'm going to spend the next few minutes.

Our basic thrust, and what our minister believes firmly, is that Ontario believes cost reductions must precede cost recovery. In fact, this was a commitment that we feel Ontario had received from the federal government through Transport Canada and the Minister of Transport over the last several years. In the last round of cost recovery, which took place about five years ago, that was our major thrust as well, and it continues to be so.

We recognize the fiscal pressures that the coast guard faces if it does not get the first $20 million this year from users in 1995-96. In all likelihood, the government may turn to the coast guard and say find that out of your programs, to which Ontario will reply that this is okay, so be it.

We also feel the move of the Canadian Coast Guard to Fisheries and Oceans from Transport at the juncture at which it occurred has resulted somewhat in a compromising of the commitment that we thought had been made to us on this particular issue, or possibly it was even overlooked. As I understand it, the minister has to that extent reminded his federal colleagues, through correspondence and discussions with the transport minister, that we are still keenly interested in how the coast guard goes about not only assigning fees and calculating the level of fees, but also in the cost side of the equation. That's where our major point is.

We've made some comment in our short submission about the mechanisms for cost recovery, and we chose to focus - that may be too strong a word - only on the national versus regional treatment. At this point, all we can say is that we're relatively uncomfortable with the current approach. I think that's basically because we're not quite sure of the rigour behind it. I'll leave it to you to read that in our document. We don't think we should be getting into discussions about registered tonnage, cargo, distance and things like that, because that is in fact placing the horse a long way in front of the cart in this case.

Emphasizing Ontario's desire to stick to basic principles on this whole discussion - and we're very glad that the committee seems to be listening when it has come from other witnesses - we have to get back to the basic principles of what services are required and whether or not they in fact fit the need. I think this is probably something that you have heard a lot about in the past. I can't begin to stress to you enough how strongly the Government of Ontario feels about this.

Unless these questions are answered with rigour beforehand, then we feel apportionment becomes arbitrary. In a sense, we think it has been somewhat arbitrary in terms of the allocation of cost based on whether something is a public good or a specific good consumed by a specific individual - and I'll get a little bit into that in just a moment in my next point.

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Our submission also touches on the matter of recreational boating, on boat registration as a mechanism for cost recovery. You may or may not be aware of this, but we allude to it in our submission. Through my branch, the Government of Ontario and the Canadian Coast Guard engaged in quite a broad range of public consultations that took us almost a year, wrapping up in February of this year. We were talking to people about recreational boating safety.

In fact, one of my staff will be at a coroner's inquest this week. Ontario had a tremendous interest and continues to have a tremendous interest in boating safety. We were exploring with the stakeholders in Ontario how best to go about generating revenue for safety. We had done that in good faith with the coast guard and I think it was mutual good faith. Let me stress that. In fact, any program in that regard would address the question of operator training and registering of the vessel itself using the Ministry of Transportation vessel licensing system. It seemed to be a good fit.

However, as we went on in the process it became apparent to us that the coast guard had larger designs on that cost recovery mechanism to offset some of their other program costs. That would have been completely unacceptable to the stakeholders we talked to in Ontario and to the Government of Ontario.

I must say I've seen relatively recent documentation from the coast guard and we have discussed it with them at senior levels, but until recently the coast guard has implied that provincial cooperation was virtually certain. They implied that we would be the host system for a registration system. Let me be very clear: that is not the case.

Furthermore, I think that expectations of windfall revenues that will mitigate the need for program streamlining, which was a sense we received from both Fisheries and from coast guard, are at best fanciful, and I choose that word very carefully, Mr. Chairman, because Ontario certainly went into that program with the intention of dealing strictly with boating safety. And I believe that's how the coast guard initially embarked on it.

Our consultation process is over, and at this point the Ontario government has not in any way made a commitment to apply our vehicle licensing system to boat licensing. I use that as an example because we have the same concerns on the commercial shipping side: revenue generation may in fact be a way to avoid streamlining. I guess that's the tar pit we hope this committee can help the coast guard avoid.

In Ontario we have put extreme cost-cutting first in all departments and that will continue. There is a refusal by the Ontario government to get into a series of user fees without doing the cost reduction first.

Your committee may be interested to know that the recreational boat users also call for an accounting of the services they would in a sense be ``stuck paying for'' - those are their words - before they are called to pay for them. So I think there's the same requirement on the parts of recreational and commercial users for transparency in coast guard costs and for some very significant demonstration of actual cost-cutting into the future.

In conclusion, therefore, Ontario does not oppose cost recovery in principle. We have always said that and maintained that strongly, even in the early days when we received what we thought was a commitment from the federal government to put cost reduction before cost recovery.

We do vigorously oppose the current program. We are not satisfied that the cost side has been adequately dealt with, and that's the bottom line of our submission.

It is easy to criticize consultation exercises. And the committee should know that it seems half my life is involved in consultation exercises, which we take extremely seriously. It's easy to be criticized. It's easier to criticize. That said, we still think there's some distance the coast guard and federal government can go to ensure the consultation ends up with a regime that's fair both nationally and regionally. We think this must happen before policy decisions of this magnitude can be taken.

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At the beginning the chair mentioned that you are pressed for time. That's the end of my formal remarks, but I'm prepared to answer any questions to the best of my ability. If you want to talk about trucks, I'll talk about trucks too.

The Chairman: Thank you, Mr. Bergevin.

Before we go to Mr. Bernier, did you say that coast guard will be doing a boat safety program this summer?

Mr. Bergevin: I believe so. We undertook a joint exercise to see what direction a boat safety program should take, and whether or not a registration system would be appropriate to generate revenue for that. Coast guard -

The Chairman: What cost are you looking at here?

Mr. Bergevin: A reasonable projection of cost would be about $5 million for Ontario in terms of the net revenue you would need to increase enforcement, which is the real cornerstone of recreational boating safety, in our opinion - a police presence on the waterways, much like the RIDE program has had an impact on impaired driving on our highways.

The Chairman: Is that the federal cost?

Mr. Bergevin: No, that would be the cost of the program, whether paid for by the users through a boat registration system... As I said, we have seen revenue projections from coast guard and Fisheries of anywhere from $35 million to $100 million a year, which made us pause. We felt we weren't into that particular angle right then and likely would not be in the future, so we backed away completely.

The Chairman: Okay.

Mr. Bernier.

[Translation]

Mr. Bernier (Gaspé): I would like, first of all, to welcome the witness and to ask him to repeat, if he might, his title and his responsibilities, because this is my first meeting with someone from the Ministry of Transportation of Ontario. If I understood correctly, he isn't a politician, but I would like him to tell me if the Ontario Minister of Transport has had the opportunity to meet with the Minister of Fisheries and Oceans to pass on to him the same recommendations, because I would like some assurance that that has taken place.

[English]

Mr. Bergevin: I am a public servant. I am not on the political side. In the past our minister has sent correspondence to the previous ministers of both Transport Canada and Fisheries. He subsequently followed up on that correspondence, reiterating our position to the new ministers involved. We have spoken with the deputy minister of Fisheries at the civil servant level. Our minister met with the Minister of Transport a week ago last Friday. He has not yet met with the Minister of Fisheries, and I understand that no meeting is scheduled at this point in time. However, I believe the correspondence that he sent and his desire to appear and have Ontario's point of view before this committee - because of the timing that is involved, we thought this was important to get before the committee. Whether or not he will choose or will be able to meet with the Minister of Fisheries is up to them, I suppose.

[Translation]

Mr. Bernier: You're saying that your Minister met with the Deputy Minister of Fisheries and Oceans, but are you talking about Mr. Rowat or about the commissioner of the coast guard, Mr. John Thomas? I would like to know if Ontario has had the opportunity to participate fully in what I would call the consultations Mr. Thomas has held in order to establish his fee structure, because I think that had he heard you earlier, the direction of what he tabled would have been very different.

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The Thomas report doesn't deal at all with the issue of having basic services that fit customer needs, and the same goes for the entire list of fundamental principles that you gave us earlier. What was involved in these relations? Was there an official meeting between the commissioner and your ministry in Ontario? When the last fee structure was tabled, Mr. Thomas came to Montreal and then went on to Halifax. I would like to know if there were any actual meetings with Ontario.

[English]

Mr. Bergevin: Fine. I have met personally with Mr. Thomas and discussed with him Ontario's concerns. At that meeting, which was in January, we had agreed that the Ministry of Transportation of Ontario would be able to sit down with coast guard people and go through its actual cost reduction plans. Again, we've had some disruptions in Ontario. We met with my deputy minister of Fisheries and our deputy minister of Natural Resources to talk about these things. These were official meetings. In the consultation with Mr. Thomas, we did not talk extensively about how the fee structures were arrived at.

With respect to the official meetings you talked about in Montreal and referred to, we had received an invitation to attend a meeting in Montreal. I sent one of my staff. It was during the labour disruption in Ontario, so we all had various strike duties. He was available. He's very knowledgeable in this area. We have always had very close contact with our counterparts in Quebec, and we discuss these kinds of matters on an ongoing basis.

When we arrived in the designated place at the invitation of coast guard in Montreal, we were in a building of the Ministry of Transportation of the Province of Quebec. The people whom we know very well were indeed surprised to see one of my staff there. He was asked why he was there, and it was for the meeting with coast guard. Quebec was under the impression that it was its meeting with coast guard. My manager caucused with my counterpart, as well as their deputy minister and assistant deputy minister, and found that it would be absolutely appropriate for Ontario to sit in on that meeting, which was led by Mr. Thomas from coast guard and some of his officials. We essentially invited ourselves to that meeting.

[Translation]

Mr. Bernier: If I understand correctly the Ontario ministry's situation, despite all of the timing problems and the walkouts that you had to deal with, you nevertheless attempted to pass your message on to the commissioner. It however seems that the proposals he has tabled don't take into account anything you put forward. Could you tell me if you plan on bringing the matter up again with your minister and on moving the discussion up to the next level so that Mr. Mifflin, the Minister of Fisheries and Oceans, who is also in charge of the coast guard, might listen? At the present time, it seems that the commissioner wants to arrive at a decision as quickly as possible in order to put in place a fee structure. I must tell you that we have had somewhat of a stay, because we have been given until April 19th. If you maintain the position as set out in your brief, would I be right in saying that you'll also be influencing the policy of your province so that Mr. Mifflin understands the message, namely that there must be a moratorium in this area next year while we await the results of the impact studies and see how services might be rationalized?

[English]

Mr. Bergevin: Thank you. The minister has met with industry in Ontario, as he does on many issues, and certainly it is our intention that we will not simply make a presentation to this fine committee and leave it at that.

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The minister intends to pursue this initiative and pursue Ontario's position with the full vigour it requires. This is an extremely important issue to the Government of Ontario and to our minister. He has related such to his federal counterparts and will continue to do so.

I will brief him and his political staff as soon as I get back, and they'll decide on which steps they wish to take next. But it is, as I said at the very beginning, an extremely important part of our transportation system.

The Chairman: Mr. Wells.

Mr. Wells (South Shore): Thank you, Mr. Chairman.

I'm just going to ask you for some clarification on some of the points in your brief, particularly when you comment on the regional approach as put forth in the last proposal, and I don't know if ``uncomfortable'' means you disagree with it.

Mr. Bergevin: I think, like a lot of the portions of the recommendation from coast guard, we're not convinced that there has been enough rigour to determine what that could mean to the various parts of the country in terms of the economic impact. There are discussions all around the report that was done for the coast guard. We would prefer a more in-depth analysis of what that would mean for Ontario shippers and carriers in central Canada, shippers and carriers bearing that part of the burden. We're not even sure that the numbers divide up properly. So I think we're not disagreeing with it outright, but we are prepared to say we would like to have a very close look at that and do some more rigorous economic analysis on that.

Mr. Wells: But you are saying in your brief that - this again is on page 4 - only those who use the service should pay for the service; those who do not pay should not pay. So from a regional perspective, and that's why I want to tie that into your comment on disagreeing with - or being uncomfortable with, however you interpret that - the regional approach, if the study was done and it was found that it was cheaper to do business, for example, on the west coast, would you put forth the position that the fees should be evened out if it was going to have an economic hardship on central Canada and have the west coast subsidize it on the economic assessment?

Mr. Bergevin: I think the simplest answer that I would give to that is, in principle, yes. However, the whole issue of fees and cost recovery has to take into consideration ability to pay and a number of other things that have pervaded other debates in other sectors of transportation and other sectors of the economy in Canada, be it western grain or whatever.

I think that ultimately the philosophy we have is that if you can identify with rigour what actually is a nondiscretionary required service by a user, fine. But I don't think we are at the point in the rigour of the analysis that's been done to be able to say, ``Stelco, this is what you use, this is what you're going to pay for, and this is how all of these costs are apportioned to you.''

Mr. Wells: I'm just trying to figure out where you are philosophically. In other words, do you agree with the west coast subsidizing central Canada, or do you agree with what you appear to say, which is that if you don't use the service, you shouldn't pay for it? There's an inconsistency, I think, within your two paragraphs on page 4, and I'm just trying to find out which side you're coming down on.

Mr. Bergevin: In terms of whether or not there's an inconsistency, the basic philosophy is that if you use it and it can be identified that the incremental thing you need to pay for is what you're actually using and you need to use, then, yes, you can pay for it. Right now we're uncomfortable with the regional approach, because we don't think the rigour is there, and at this time we also have some concerns that we're not sure who is subsidizing whom.

Mr. Wells: I understand that. But when that assessment is done, you said in your response that you would take the ability to pay as a factor, as opposed to paying for the service only if you use it.

Mr. Bergevin: They become part of the equation. I'm maybe not answering you directly. I think the direct -

Mr. Wells: I'm trying to get a direct answer to the question as to whether or not you actually believe that the west coast should subsidize central Canada or whether you believe in the true concept of user pay.

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Mr. Bergevin: We believe in the true concept of user pay. We're not sure who's subsidizing whom, but I think it's important that before you start talking about mechanisms, whether a national or regional treatment, you have those questions answered. When those questions are answered, and if it's found that a regional approach is fairer to everybody in the country, I don't see Ontario having difficulty with that.

Mr. Wells: So if it were shown that the costs on the west and east coasts were less than the costs in central Canada, you would agree on a regional approach to the fee structure.

Mr. Bergevin: The presumption being that wherever they are, the costs are unavoidable and as efficiently provided as possible. Even that is a dilemma that we face now, because we don't have confidence that's been done.

Mr. Wells: Thank you.

The Chairman: Mr. Culbert is next.

Mr. Culbert (Carleton - Charlotte): Welcome.

You indicated that a number of transportation issues in your department were on the table, whether it be highway, railway, marine - there are a number of them. Has your department or branch carried out any recent studies on marine...and our competitiveness, not only within Canada or Ontario but from the U.S. or other areas? If so, what did the results indicate?

Mr. Bergevin: Yes, we have. Prior to this position I was manager of the marine office, and we worked at length on the Great Lakes-St. Lawrence Seaway with various groups in doing comparative analyses, generally focused around the Western Grain Transportation Act debate. In 1989 or so we priced out all the cost elements of the Great Lakes-St. Lawrence Seaway, from elevation, moving grain down the lakes and river, elevation in Quebec and transshipment, and compared that to other routes, including the west coast, Churchill, the Mississippi, etc.

In 1991 or so we looked at the policy questions facing the federal government and all Great Lakes-St. Lawrence Seaway system users from the perspective of what policies needed to be modified to allow the system to compete. I don't think anybody who provides service on the system or uses it wants anything more than that. I can make a number of those studies available to the committee if they so choose.

On a lot of these studies we partnered with other groups, including other provinces. In fact, we just finished participating in a study that looks at the options for grain transportation, whether that be the Mississippi or St. Lawrence. We are a small part of a larger consortium, but we have had a terrific interest in marine for many years - since the 1970s. If the committee would like to see some of those reports, I'll endeavour to supply them.

Mr. Culbert: Thank you.

To follow up on that - and I don't expect that you have those reports today - in general terms, do you recall whether we were reasonably competitive, very competitive or not competitive with our neighbours to the south?

Mr. Bergevin: We're rapidly becoming less so, for a variety of reasons. For example, the way our American neighbours apply charges on the Mississippi system for barging grain - the west coast and Canada has increased the capacity to handle grain. That has changed the economics and we think the changes to the Western Grain Transportation Act have changed the economics somewhat favourably for the seaway.

There have been improvements to the system itself by the shipowners to reduce costs: consolidation of fleets, adoption of new technology, and reduced crewing levels. We've seen that over the years. We've also seen increased competition from rail in the form of unit trains moving grain to salt-water ports, whether it be in Montreal or the location on the north shore where there's been some new elevation provided. Quebec City now has cleaning capacity in its elevators.

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The dynamics of the cost of transportation - which route is naturally the best - continues to evolve, and right now I think transportation in general, whether you're looking at trucks, rail, or marine, is extremely competitive. I'm not going to pretend to tell you that I think a lot of this traffic is divertible to another mode, but the bottom line is that I do not think there is a great deal of latitude in the transportation budgets of many of the users of transportation services or in those who are providing them.

Over the last 10 years we have seen a progressive streamlining of costs, whether it's in trucking, marine, or wherever. Everybody is squeezing the last nickel per tonne out of their markets, because we see products coming in from offshore and what not.

Mr. Culbert: I appreciate that very much, and if there were any consensus reached as far as marine goes, it might be beneficial if in fact you could fax that material to the clerk.

I want to follow up on another point, and Mr. Wells touched on in his discussion with you. Part of the quote was: ``An assessment of fees for services not required or needed by the users would be considered by Ontario as merely a new tax and completely unacceptable.'' I'm wondering, because of that statement, whether any position has come forward as to the services required for safety or perhaps the required assistance to users. And how do the commercial shipper's requirements compare to those of the recreational component? I think I understood you to say that you agree that users pay for these services, provided of course that the commercial... We want to ensure that marine shippers remain competitive, obviously.

Mr. Bergevin: I believe the whole issue of search and rescue and that kind of safety aspect whereby it's an incident-driven type of thing is something the coast guard is not putting on the table for cost recovery. I believe it's backed that out, unless I'm mistaken.

Other users of the system... This is where we got into some discussions with coast guard about how you apportion what is being used for safety in terms of navigation aids, as an example, by the recreational users, who seem to get themselves into a lot more difficulty a lot more often, maybe because there are more of them, as opposed to the commercial user. I don't think you can split it down the middle at this time. I don't know where I would split it, to be quite honest. But at this time, as I said in my opening remarks, we're somewhat concerned about what may be perceived as an arbitrary splitting of costs.

I'm not convinced that anybody truly has a handle on what navigational aids commercial shipping really needs, whether it be on the coastal waters or inland waters, and what would then have to remain for recreational users. It is my guess that with the advancing technologies the commercial shipowners will take advantage of, very soon they virtually won't need any navigational aids. Their use of search and rescue on inland waters, of course with some notable exceptions, is really quite minimal on an annual basis. It's basically the recreational user who is, I guess, the main consumer of that service.

Mr. Culbert: The studies that your department have carried out or looked at for water safety, whether it refers to commercial or whether it refers to recreational, really didn't come to any consensus of the requirements or the needs at this time.

Mr. Bergevin: No. Our studies on recreational boating looked at ways to improve operator skill, not licensing, because we can't do that. They looked at how to improve operator skill and improve enforcement for such things as impaired driving of boats, awareness programs, things of that nature as opposed to looking at navigation aids, because navigation aids are not a purview of the province.

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We don't think that's where the payback is. If you look at the tragic incidents involving boating safety in Ontario and across the country, navigation aids aren't a big factor. Alcohol, high speeds and darkness, the kind of things that come down to the attitude of the boater and the presence of enforcement officials to deal with it on the spot - that's where we focused our attention.

Mr. Culbert: Thank you.

The Chairman: Mr. Scott from the Reform Party.

Mr. Scott (Skeena): I seem to be hearing two distinct messages from you. One is your concern that the industry doesn't know what the coast guard's actual costs are in providing services, and as we've heard from other witnesses, there are a number of services or navigational aids in place that are not required. Is your concern that people doing business in Ontario could end up paying for things they don't need, and that the coast guard needs to get its house in order before it starts levying the user fees? We've heard a lot of testimony and I think most people generally concur with that.

On the other hand, you seem to be saying that until that's done, the user fees should not be broken down on a regional basis. Do you feel the fees should be levied in the same manner right across Canada?

Mr. Bergevin: We don't think fees should be levied at all. The whole discussion of mechanisms and how they're done comes after you've arrived at the first part of your question, and then you would do a rigorous analysis of how to apportion that nationally or regionally or whatever.

We are uncomfortable with the idea of a regional application of something that is still a mystery to most of the users and what not - as you alluded to in the first part of your question. So I don't think there's an inconsistency there. We're saying that we're uncomfortable with discussions about national-regional right now, but preceding that, we don't think the federal government is in a position to decide that now is the time to impose user fees.

Mr. Scott: I think I understand you. You're saying that the government is putting the cart before the horse in terms of attempting to collect the user fees before it defines the service and what is required, and before the shippers and the people who will end up paying the fees have an opportunity to review it and determine what services they could provide for themselves in aid of getting the costs down.

Mr. Bergevin: Precisely, yes.

Mr. Scott: Given that there was a thorough analysis prior to any user fees being levied, from a philosophical point of view, to carry on with what Mr. Wells was asking you, you don't have a problem with the concept of a true user-pay system once the coast guard is rationalized to the point that the shipping industry feels confident they are getting actual services for the money they are paying out, and that they are only getting the services they actually require.

Mr. Bergevin: Yes, but again with the proviso that there are other elements to consider before you set the level of fees, such as ability to pay, economic impact, and impact on society as a whole. But yes, essentially I agree.

Mr. Scott: I am getting a mixed message here. On the one hand, I think you're saying that philosophically you agree with a true user-pay system, but on the other you're saying it should be based on the ability to pay.

User pay is blind. User pay says that if you use the service, you pay for it. It's not dependent on your ability to pay. It's not dependent on anything other than your using the service. It's not dependent on anything other than your using a service and paying for it. There are thousands of things or services that we pay for that we require, whether on an individual or a corporate basis. The ability to pay is something we have to determine individually or on a corporate basis. It's not based on anything other than that if you require a service, you pay for it. So I'm getting a mixed message here.

.0955

Mr. Bergevin: I'm not sure it's a mixed message. It's a belief that in some circumstances there is an imperative upon the consumer to pay the full cost of a service that's provided when they are receiving the entire benefit. That may be what's missing from the discussion.

As in other goods in the economy, there are public goods that yield benefits to a much broader range of folks than just those who are using the service at a given point in time. That level may be debatable. For example, if you imposed a fee on users of a transit system in a large municipality that could not function without a transit system - that is, the person going through the turnstile pays the whole shot - you may in fact lose that transit system and the attendant benefits the people who don't use it have by the virtue of its existence.

Mr. Scott: Let me explain the basis of my question. I have the port of Prince Rupert in my riding. The port of Prince Rupert is very efficient in terms of navigational aids. It is virtually in open water. Furthermore, it has a state-of-the-art grain terminal that was constructed 13 or 14 years ago. It's one of the most efficient grain terminals in Canada today. It's well under capacity right now because grain is being shipped through other ports.

If you look at grain being handled through Thunder Bay, where you have grain terminals... If you had a scenario where Prince Rupert was paying user fees that were partially subsidizing the grain terminals at Thunder Bay, do you not agree that would be an unfair situation in terms of Prince Rupert's competitiveness and their ability to attract grain to their terminal?

Mr. Bergevin: On the face of it, yes. But taking into account the history of the development of grain transportation in Canada, the impact of the Western Grain Transportation Act, the Crow rate and all of that on the development of capacity on the west coast... To take a point in time and ask now how much is apportioned to Prince Rupert and how much to Thunder Bay - I think that is a critical question and policy debate for governments to have. I think that's the next obvious progression for this whole issue. I don't think those debates have been had. That's why our government feels there's tremendous potential for inequity. In fact, the portion the Great Lakes-St. Lawrence Seaway may be requested to pay may be understated. We don't know.

The bottom line to Ontario is that until you have the cost house in order, until you've had those decisions on what is a fair way to disperse costs, discussing mechanisms of whether it's national or regional is premature.

Mr. Scott: Thank you.

The Chairman: Mr. Bernier.

[Translation]

Mr. Bernier: If I understood correctly, the Ontario minister is telling us that we must do our homework all over again. For the time being, we have a political problem because the Minister is getting ready to impose a fee structure. In your recommendation, you are suggesting an outright moratorium on the issue of a rate structure, in other words no requirement to pay fees until impact studies have been carried out and we have a better idea of the whole situation. You therefore have no interim solution to propose. I believe that someone is soon going to find himself with his back against the wall because the federal Minister is going to decide to go ahead with it.

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[English]

Mr. Bergevin: That's correct.

The Chairman: Any concluding remarks then, sir, before you go?

Mr. Bergevin: No. I'll endeavour to get those documents that Mr. Culbert requested to the committee as quickly as possible.

The Chairman: Okay. I have a point of clarification. You weren't invited to the Montreal meeting?

Mr. Bergevin: I'll have to check my files on that. We received an invitation from the coast guard. There was an industry meeting in the morning. There was a government meeting in the afternoon. When we arrived at the government meeting, the Government of Quebec was surprised to see us there. So I don't know if it was just miscommunications or what, but being the gracious hosts that they always are - I mean that absolutely sincerely - they made every effort to make us welcome and to participate in the meeting.

The Chairman: Thank you very much.

We would call to the table now the Iron Ore Company of Canada, Halifax Port Corporation and Wabush Mines.

We have a lot of people here. Maybe you should introduce yourselves and who you represent.

Mr. Francis Sheehan (Assistant Controller, Wabush Mines): I'm Francis Sheehan. I represent Wabush Mines.

[Translation]

Mr. Louis Provost (Treasurer, Quebec Cartier Mining Company): Louis Provost, from Quebec Cartier.

[English]

Mr. Keith Eldridge (Vice-President, Administration and Quality, Iron Ore Company of Canada): Keith Eldridge, Iron Ore Company of Canada.

Mr. Derek Rance (President and Chief Operating Officer, Iron Ore Company of Canada): Derek Rance, Iron Ore Company of Canada.

Mr. David Bellefontaine (President and Chief Executive Officer, Halifax Port Corporation): David Bellefontaine, Halifax Port Corporation.

Captain Randall Sherman (Director of Operations, Harbour Master, Halifax Port Corporation): Randall Sherman, Halifax Port Corporation.

Ms Patricia McDermott (Vice-President, Marketing, Halifax Port Corporation): Patricia McDermott, Halifax Port Corporation.

The Chairman: Thank you very much. We have an hour. To be fair, we have half an hour each for the Halifax Port Corporation and those in Iron Ore. How you want to use that time is entirely up to you in terms of whether you want to use it in your presentation or for answering questions. So we'll just leave that in your hands.

To begin then, we have Mr. Eldridge from the Iron Ore Company of Canada.

Mr. Rance: I'll speak for the Iron Ore Company of Canada.

The Chairman: Mr. Rance.

Mr. Rance: Basically, you have our brief on the three iron ore mines, so I won't bother reiterating the brief. If there are questions there, we will be pleased to answer them.

Speaking strictly from the Iron Ore Company of Canada's viewpoint, we are one of the largest producers of iron ore products in North America, but in tonnage terms we are also one of Canada's largest shippers.

At present, 73% of our products are sold on international markets against international producers, most of whom are two to three times our size, and all of whom are advantaged by their superior ore grades.

Consequently, it is these large producers who totally dictate the international price of iron ore products, with the result that if any additional cost increases are incurred, these must be solely borne by the iron ore company.

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As iron ore is in plentiful supply, intense competition has caused a continuing decrease in the price of iron ore products.

Using acid pellets as an example, since 1982, when Brazilian ore first entered the market, our pellet price has decreased by 33.5%, from $47.57 U.S. per tonne to $31.67 U.S. per tonne at present. During the same period, the IOC's pellet production costs were reduced by an actual 14.1% - on an inflation-adjusted basis we have reduced these costs by 41.7% - but it is obvious that the discrepancy still occurs and that profit margins have become meagre.

Due to the tonnage that the IOC ships, the latest proposal by the coast guard would cost the IOC $1.3 million in the first year, rising to almost $4 million in the final year of the proposal. Over 70% of the IOC's maritime traffic is ocean-going, so the IOC is being asked to absorb $925,000 in the first year and $2.8 million when the $60 million of the cost recovery program is fully implemented. This is in order for the coast guard to tend one buoy at the mouth of the bay at Sept-Îles, which is the singular navigational aid of consequence.

The captains of ocean-going vessels all assure us they do not need, nor do they rely on, other navigational aid services provided by the Canadian Coast Guard. The only reason they use the short-range radio service is because it is required by the coast guard to report in.

Consequently, I personally informed the Hon. Fred Mifflin that the IOC would be most pleased to tend the Sept-Îles buoy at no charge.

Due to time constraints, I do not propose to address the ice-breaking issue. Suffice it to say that during the winters of 1994 and 1995, only 10 of the vessels coming to us required ice-breaking services, which were 135 hours.

Should this become a cost-sharing issue, the preliminary figures indicate that the IOC would suffer a direct cash loss on each iron ore cargo requiring ice-breaking. We would therefore not ship during the period when ice-breaking was required, as we own substantial stockpiling facilities.

To put the matter bluntly, what is being proposed is not cost recovery; it is simply a tax grab looking for deep pockets. What is being proposed is not to pay for services being utilized, as the proposed payments are totally at odds with the actual requirement and level of service utilization.

I would suggest to the committee that while the coast guard has a long and honourable tradition, it is not a business; it is a monopoly, and as such, it is inefficient.

If Canada's governing powers truly believe in the concept of ``pay for service'', with which we certainly do not disagree, then such services should be clearly defined and then competitively contracted out in order to provide the lowest cost base possible.

We fully understand the necessity in Canadian terms of preventing regional disadvantage due to geographical fact, but the solution to this problem does not lie in punitive cost allocations to low-margin industries.

The Chairman: Concisely put.

Mr. Provost.

[Translation]

Mr. Provost: The situation of the Quebec Cartier Mining Company is very similar to that which Mr. Rance has just described. The activity volume and the markets are much the same. I don't think it would be useful for me to repeat what he has just explained in a very clear way and I can but support his statements. If you have precise questions, we will deal with them. Thank you.

[English]

Mr. Sheehan: Good morning, Mr. Chairman, members of the committee. As I mentioned earlier on, I represent Wabush Mines. We're the smallest of the three iron ore companies here. We ship 5.5 million tonnes of pellets per year.

Under the proposed formula for cost recovery based on services based on navigation, we would be charged almost $600,000 in 1996. If the same guiding principles are to be used by the Canadian Coast Guard to implement the ice-breaking fee, we could end up paying almost $2 million per year. To put this in perspective, one very small company, considering the total value shipped in Canada, will end up picking up 3% of the total marine services fee.

Our harbour is ice-free for most of the winter. There are very few aids for navigation in our area. The ocean-going vessels loading at our dock are sturdy, rarely requiring ice-breaking services. The inbound ships start moving, the ones from the lake, after the ice has moved out into the Gulf of St. Lawrence.

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The current proposal is unrealistic, favouring certain regions to the detriment of others. To develop a fair and equitable formula for the recuperation of the marine services fee, an exhaustive impact study must take place. Otherwise, we will obtain a non-equitable, unfair rate, which will have a serious impact on iron ore shipment costs and a great reduction in our competitiveness.

On high-tonnage, low-value projects such as iron ore, a change in competitiveness only means fewer Canadian iron ore sales and more sales for other competing countries.

The impact on the Canadian treasury in loss of revenue can be greater than the revenue derived from the marine services fee. I therefore reiterate that an impact study must take place and only then a formula applied that will be as fair as it can possibly be.

Thank you.

The Chairman: Thank you very much.

From the Port of Halifax we have Mr. Bellefontaine.

Mr. Bellefontaine: Mr. Chairman, thank you very much. I beg your patience; the paper I have is a little longer than the two preceding papers.

Just to clarify, Patricia McDermott is our vice-president of marketing; and Captain Randall Sherman is our director of operations, harbour master. They are the specialists.

First of all, thank you for allowing us to appear here today. The marine services fee has great implications and concerns for the Port of Halifax, and we would like to spell those out to the committee.

First of all, the Halifax Port Corporation is a federal crown corporation established in 1984 by the Minister of Transport.

Our mission is to develop, market and manage assets in the Port of Halifax in order to foster and promote trade and transportation, and to serve as a catalyst for the local, regional and national economies.

The economic spin-offs from this port equate to 7,000 jobs, over $300 million of revenue and over $240 million of direct income impact. So it has a major impact on the economy.

The port's reach extends throughout the Atlantic region. The wide range of shipping services calling Halifax greatly benefits the Atlantic region exporters, primarily the exporters of fish, forest products, and fruits and vegetables. The breadth of shipping services offers local shippers cost-effective and frequent access to many export markets.

On the import side, many of the region's manufacturers, such as Michelin Tire and Volvo, also depend on the port.

Clearly the future of the Port of Halifax will impact on the entire region's exports and manufacturing and related economic benefits.

We are Canada's third largest port for container tonnage, and the country's only east coast gateway with sufficient draught and tidal conditions to efficiently handle post-Panamax ships, a new and larger generation of ships coming on the high seas.

Last year the port handled 13 million tonnes of cargo, represented by 3.6 million tonnes of general cargo, which includes container and breakbulk; and 9.5 million tonnes of bulk, principally petroleum, cargo and gypsum. We also handle cruise passengers - last year 30,000 - and some 40,000 vehicles passed through the port's automobile facility.

Throughout the discussion on marine services fees much reference is made to the port's international container business. Although accounting for 23% of our total cargo tonnage, this portion of the business constitutes two-thirds of our revenues and has the most impact on the economy.

It is also very vulnerable, subject to intense competitive pressures. From our past experience we are only too well aware that there are competitive alternatives for the shipping lines calling the port. These alternatives exist south of the border.

As a matter of interest, U.S. ports do not assess such fees as those proposed for navigational aids.

Over the past several years various port service providers in Halifax have made considerable financial concessions to keep the business in the port. The HPC has not increased port fees in six years despite a 16% rise in the CPI.

We have also put in place financial concessions to attract new cargo. As well, the port's labour force has made concessions in this area. The City of Halifax has extended tax relief, and a major investment on behalf of the Province of Nova Scotia has been made in rail equipment.

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The port is ice-free, deep-water, and one of the largest natural harbours in the world. We are located just six miles from the open ocean, which is an advantageous location to attract shipping lines on the great circle route, as it's known, between Europe and North America. The port's natural advantages also suggest that use of navigational aids by commercial shipping at Halifax would be minimal.

At the same time, the port's inland markets are a considerable distance away. Montreal is 800 miles, Toronto is 1,100 miles, and Chicago is 1,600 miles away. Those are our three main markets.

Our prime concern, Mr. Chairman, is that Halifax remain a competitive gateway for Canada's international trade. In this respect, it is critical that the port's geographic location translate into economic advantage for users who must pay substantial inland transportation costs to get their cargo to its final destination.

To my knowledge, Mr. Chairman, the subject of marine user fees has been a matter of study since 1974. To the best of my recollection, we have been following the issue since 1989 when the matter was examined by Transport Canada, culminating in what is referred to as the phase two discussion paper.

We presented our views on the subject as well in March 1995 before the Standing Committee of Transport, chaired by Mr. Stan Keyes, whose studies culminated in the report, A National Marine Strategy, in May of last year.

Finally, we have been intensively involved in the discussions of the past several months, beginning with the release of the Canadian Coast Guard's paper, Public Consultation Paper: Proposed Options for a Marine Services Fee, which was released last October.

With respect to the consultations and proposals over the past several months, I can say two things. Firstly, port of Halifax users and other Halifax interests, including the HPC, are extremely dissatisfied with the process of consultation to date. Secondly, we find the outcome - that is, the proposal now on the table - unacceptable. I'd like to say a few words on each of these, if I may.

I would like to point out that the coast guard, by their own admission, have relied heavily on the advice of the Marine Advisory Board in determining an approach to the application of these fees. The Marine Advisory Board's 23 members did not include a representative from Halifax or from the Province of Nova Scotia.

I do understand there are steps now being taken to rectify the situation; nonetheless, we believe the program has been set by this flawed process of consultation. We should have been there to represent the interests of Nova Scotia and Halifax.

In terms of the outcome, since last October there have been several proposals, each with dramatically different financial consequences for Halifax. I'll give you an example.

Several options in October for cost recovery were proposed. Halifax favoured a fee based on the cargo tonne mile. Based on this fee, the cost for a typical container vessel at Halifax would be $140 per call, which was found to be very acceptable.

Since then, three more proposals were made: for the same vessel the fee has varied from $6,000, to $500 and now to $1,000. Based on the present proposal, one container line in Halifax will pay as much as $1,400 per vessel call.

The final outcome, based on 17.6¢ per cargo tonne, is unacceptable. For those of you who are not familiar with the proposal, it represents a uniform fee or tax for all Atlantic Canadian ports based upon a regional cost recovery target. The target is not related to actual navigational aids costs at the various ports.

The approach, which is based on cross-subsidization of ports in the region, has succeeded in injecting a highly political element into the already controversial process, pitting small regional ports, who depend on coast guard services for economic development, against the larger commercial ports, which are vulnerable to competitive forces.

Further, this regional approach, which is based on current levels of cargo tonnage, not based on actual costs, exposes the industry to a high degree of uncertainty as to future fee levels. The fluctuations in cargo volumes in Come By Chance or in Port Hawkesbury, for example, would have a dramatic effect on the outcome.

This outcome is unacceptable to Halifax users for three reasons. Firstly, it bears no relationship to costs of service. Secondly, it is simply too high. Thirdly, it promises uncertainty about future fees, which risks future business development.

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I would like to reflect back for a moment on our basic position of cost recovery, which we adopted in 1989. In general, we support a move towards cost recovery for marine services. National goals involving debt reduction are clearly desirable. We also agree that some level of cost recovery, if implemented on a user-pay, user-say basis, will result in improved cost control and better discipline with respect to demand for services.

However, if cost recovery is to be implemented, the fees must relate to the cost of the services received. This means that commercial interests, which do not use ice-breaking services, for example, should not have to pay for them.

Fees for navigational aids should be proportional to use. For example, in Halifax, which is six miles from the ocean, the fee should reflect a lesser consumption of navigational aids compared to inland ports, which are hundreds of miles inland.

I would like to make reference to the standing committee report of May 1995, recommendation 23, which states:

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

We support this view. However, we submit that this criteria has not been met for the port.

In the absence of transparent cost information, Halifax port users have supported the notion that the cost of service principle could be met by incorporating the distance element.

In its October 1995 discussion paper, the coast guard presented various options and only the fee per cargo tonne mile implemented on a nationwide scale represents a proportional usage. It fits that principle.

This proposal was supported by Halifax, but was ultimately rejected by the coast guard as being ``too administratively complex''. If you go back to a 1990 Transport Canada phase two discussion paper on cost recovery, this very methodology is endorsed:

For international shipping it is suggested that the cost-of-service principle be recognized by including a distance element.

Furthermore

Administration of the proposed fees would not be complex. Charges for international shipping could be calculated easily by applying standard distances for particular routes to the tonnage for each type of cargo loaded or unloaded.

Since 1990 it is obvious our coast guard has moved away from the user-pay concept to the endorsement of a general tax, and the present proposal is essentially a general tax.

As a result, the users don't know what they're paying for, and they don't know if the fee is fair. The method does not promote user discipline, nor is it a starting point for cost reduction for coast guard services.

Another specific sector of our business is the cruise trade. Under the present proposal, the cruise ships will pay on a monthly basis 19¢ per GRT of the vessel, and this certainly gives us concern as well.

The cruise business is seen as a growth opportunity for the Atlantic region, and we believe government policy should encourage further development and expansion of this business on the Atlantic coast.

It is notable that this business has significant economic benefit for the region. This year we will see benefits in the range of $3 million for Halifax alone from the cruise business.

In 1996 we will have 46 cruise calls. As the fee is paid once a month and is uniform irrespective of the number of Canadian port calls, the financial consequences vary.

We have an example of the QE II, which calls Halifax; it will pay $13,000 for one Canadian port call.

Another major cruise line calling Halifax as its only Canadian port, with 21 calls, will pay $36,000 in navigation fees. We were informed just last week that on the basis of these fees, the cruise line will reconsider its Canadian port call for 1997.

We take this seriously. We suggest that this scheme be reviewed to differentiate between vessels making multiple port calls and those making single Canadian stops. This problem has been addressed with the coast guard.

Finally, Mr. Chairman, no one from Halifax would be worth his salt without saying something about ice-breaking, and this will bring our presentation to a conclusion.

To date, the coast guard has not put forward a plan for ice-breaking charges. It is our understanding that the coast guard's ultimate cost recovery goal of $60 million will include a target of $27 million for ice-breaking. As such, the present navigational aids fee, based on a $28 million target, should not increase substantially.

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However, we now understand that the completion of an economic impact study will precede implementation of any ice-breaking charges.

We strongly recommend to the committee that a complete and exhaustive economic analysis be completed prior to any implementation of charges, and that fees for both navigational aids and ice-breaking be introduced simultaneously so that all users can be aware of the immediate, medium- and long-term implications for their business.

In conclusion and summary, we respectfully request that this committee recommend to the Minister of Fisheries and Oceans a suspension of the present unacceptable process that is now under way until a port-specific assessment of costs is completed, and a thorough socio-economic impact assessment has been carried out. We believe that the coast guard should be directed to adopt user-pay, user-save principles with respect to future cost recovery goals.

Mr. Chairman, I apologize for the length of the document, but I thought it would be worth while for the committee to hear all the points. Thank you.

The Chairman: Thank you, Mr. Bellefontaine.

Is there anyone else with comments before we go to questions?

We will begin with Mr. Bernier.

[Translation]

Mr. Bernier: I would like to start off by thanking the witnesses. We have before us an important group of witnesses and even if they come from different regions of the country, it seems that they have all arrived at the same conclusion. Everyone seems to agree on the fact that impact studies must be carried out. As far as navigational aids are concerned, we must see beyond the month of June.

I don't know if it is the representatives from Wabush Mines or those of the Iron Ore Company of Canada who will answer my question.

As for the numbers given, what percentage do they correspond to? I am quite the novice in the area of transportation. Could you tell me what percentage this revenue of 2.8 million dollars accounts for for your company?

You work in a context of market globalization, but every time the coast guard wants to increase the costs that are passed on to the private sector - and you are among the users - what impact does that have? Would it be 1 per cent, 2 per cent, 5 per cent?

Could you tell us what the gross profit margin for mining companies such as Iron Ore is ? Would it be 5 per cent or 10 per cent? This would help us understand.

Mr. Provost: I will give it a try. If you refer back to appendix 1 of our brief, you will see the importance of the iron ore sector as far as shipping in the Gulf is concerned. This is an industry that employs more than 5000 people.

We also manually handle, from the ports of Port-Cartier and Sept-Îles , slightly over 37 million tonnes, 30 per cent of which go up the St. Lawrence and 70 per cent of which go out to sea, in which case we share the same problems as the port of Halifax. It is clear that very few services are supplied directly by the coast guard.

The value of the cargo shipped by our three companies amounts to approximately 1.4 billion dollars.

Therefore, compared to revenues, one could say that the fees that the coast guard will eventually charge won't account for a very important percentage. However, the profit margin is much lower.

Indeed, last year IOC declared profits of approximately 31 million dollars U.S. Québec Cartier had profits of roughly 23 million dollars Canadian.

As for Wabush Mines, which are a joint venture, the notion of profit is completely different: the costs are shared by the participants. It is therefore much more difficult to describe.

Mr. Bernier: Do the 2.8 million dollars mentioned in the document involve only IOC?

Mr. Provost: Only Iron Company of Canada.

Mr. Bernier: That same company which had profits of some 30 million dollars last year?

Mr. Provost: Yes.

Mr. Bernier: If I round out the numbers, 3 million dollars out of a total of 30 million dollars represents 1 per cent, would you agree?

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Mr. Provost: No, 10 per cent. It represents 10 per cent.

Mr. Eldridge: That only covers navigational aids. It doesn't cover ice-breaking. The first document, tabled last October by the coast guard, talked of costs of about 6 million dollars for ice-breaking services and navigational aids, which represents more than 20 per cent of our net profits last year.

[English]

Approximately 20% of the net profit IOC made in 1995 would have been taken away by the coast guard charges that were proposed in the October document, including the ice-breaking and the aids to navigation.

Mr. Rance: That was a good year. The previous years before that were very lean.

[Translation]

Mr. Provost: What is true for IOC is also true for Québec Cartier, whose 23 million dollars profits last year followed on the heels of profits of 13 million dollars the previous year, following two years of losses of approximately the same amount. Overall, Québec Cartier's profits for the past four years are nil. So 0 per cent of 0...

Over the past four years, Québec Cartier has lost 24 million dollars and 13 million dollars and then has had profits of 12 million and 23 million dollars.

Mr. Bernier: So it's this year that the coast guard is going to have you pay. That is the way I understand it. You aren't using their services much either.

Mr. Provost: Indeed, but our market is cyclical and we can't expect these good years to keep coming. We are simply taking advantage of a wave in which the prices are high and the Canadian dollar is weak, which you all are aware of. These are advantages for us, of course, but our competitive advantage over our international competition is very small indeed. We extract ore that is very low-grade and it must be enriched. Our costs aren't the best in the market, in the free market. Some 400 million tons of iron ore are shipped and the Canadian iron industry doesn't play a major role. We sell about 30 million tons per year on the world market. That accounts for...

Mr. Bernier: Less than 10 per cent?

Mr. Provost: ...less than 10 per cent of the world market. For what we sell on the market, we are subject to a world price that is determined on the basis of the ore shipped to Rotterdam and which we must compete against. Therefore anything that affects our costs directly affects our profitability. Whether it is shipping, fees for navigational aids or internal costs, it's all the same. All of that has a direct impact on our benefits and has no impact on our client who is simply going to pass on to us all of these costs.

Mr. Bernier: Given what you have said, I believe I can now ask you what you are expecting from the department. I asked for a moratorium and he didn't seem opposed to the idea of participating to some extent, of making some contribution. Could you quickly tell us what the mining industry's position is right now vis-à-vis the timelines that have been set? Should we call for a moratorium or do you have something in your bag of tricks that might enable the Minister to avoid the issue for now?

Secondly, if I understood correctly, you would like to see economic impact studies carried out. Would you like these to deal with everything Transport Canada is planning on including in its new transportation policy? You want to know the middle-term impact, but we must look at the short-term because the deadline is the end of the week and we must know what we are supposed to say to the Minister.

Mr. Provost: We could tell the Minister that our industry's impression is that it will be paying too great a share of what the Minister wants to recover on the cost side. Our industry is a low-value added one, a primary industry, and in our view the studies that have been carried out to date are not extensive enough to support the approach chosen by the coast guard.

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We would therefore suggest that the coast guard undertake an economic study covering all aspects, unlike the one it tabled last October. It must be an economic study covering the effects not only on the transportation sector but also on the Canadian mining sector and on all the industries that need transportation and that are captive clients of Canada's shipping channels.

It seems to us that this should be carried out before any specific fees are imposed. However if the funding needs of the government are so great that it must impose fees or some charge to users of marine transportation, then we are of the opinion that this contribution should be applied nationally and equally to all participants.

Mr. Bernier: Because there is nothing to justify a division.

Mr. Provost: Precisely.

Mr. Bernier: But what do we do now? I believe that now we will be faced with another syndrome, the ``not in my backyard'' syndrome. Some people will say that they prefer such and such a place and that they're satisfied with the regional rate whereas others will say that it doesn't suit them at all. If you're asking money of people, the arguments used in Halifax won't at all be the same ones that will be used in Vancouver. And the arguments put forward in Halifax will also be very different from those used for the Port of Montreal.

Mr. Provost: That is why we came here. I believe that one is never better served than by oneself. This is why we chose to make our own representations rather than letting the people from the Port of Montreal represent the Laurentians.

Up until now, the coast guard has been regionalized. This was in response to a first request coming from the west coast, that initially wanted two fee structures, and then three and four. If we follow the same approach, why not have a port-by-port study? Each port has a different system and a different market.

As for us, we all - including the Port of Sept-Îles and the Port of Port-Cartier - belong to the administrative region of the Laurentians, in other words Eastern Land, in which we don't really recognize ourselves, because we are in the Gulf and we offer services that are very similar to those of the Port of Halifax as far as navigational aids are concerned.

Mr. Rance mentioned earlier that there is only one buoy. That is also true for Port-Cartier, and we have offered to purchase it from the coast guard. But there are also regional differences within regions, and the proposal put to us by the coast guard doesn't recognize the level of service and is not at all based upon user-specific user costs. It is simply a regionalization of a national rate.

The St. Lawrence is also made up of various sub-regions. The river portion of the St. Lawrence - and the St. Lawrence pilots will tell you so - begins at Escoumins or Tadoussac. That is where navigational aids really become important, to such an extent that pilotage is necessary.

On the eastern side, the situation is different. We have very deep water.

[English]

The Chairman: Mr. Scott, please.

Mr. Scott: Thank you, Mr. Chairman.

My question is for anybody who would like to answer it.

Are you familiar with Bill C-98, the legislation we were dealing with prior to the prorogation of the House? Effectively, it was going to give the Minister of Fisheries and Oceans responsibility for management of the coast guard. There were provisions in the bill for coast guard cost recovery.

Mr. Eldridge: I'm familiar with it to the extent you have indicated. Our understanding is that there was a possibility that the bill would be presented for third reading in the House later this week.

Mr. Scott: Yes.

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Mr. Eldridge: We understand the coast guard has the option of recovering marine services fees under the FAA, the Financial Administration Act, or by including the coast guard marine services fees as an attachment to Bill C-98, the Oceans Act or the Law of the Seas. I don't have any more detailed knowledge of that bill than I've indicated.

Mr. Scott: As the bill stands...and we haven't seen it in the form it's going to be reintroduced in, but in the last form the committee was dealing with there was really no description of how fees were going to be recovered. It was very open-ended. The idea was that the coast guard was going to come up with a recovery structure outside the legislation. Do you take the view that this is the right way to do it or would you prefer to see, within the body of the legislation, provisions that would ensure the coast guard (a) was running an efficient operation and (b) was levying fees on a basis that was fair and equitable?

In other words, do you think the legislation is an appropriate mechanism for ensuring that your concerns are addressed, and addressed in legislation, or do you take the view that this is better dealt with through consultation with the coast guard after the legislation is passed?

Mr. Eldridge: Mr. Scott, as far as we're concerned, and I think we heard this from Mr. Bellefontaine from the Port of Halifax, we don't believe it has been an efficient review that the coast guard has carried out.

The iron ore industry on the north shore, as well as other industries on the north shore, including pulp and paper and aluminum, was not included in the initial review process that Mr. Thomas and his colleagues carried out. It was only later, after the October report came out, that we began to have some discussions with the coast guard.

Our feeling, which is indicated in our brief, is that a true socio-economic study based on the impact on ports and industries by region should be carried out. The IBI report submitted at the end of December, as far as we were concerned, did not deal adequately with the industrial review. Before we talk about Bill C-98, I think we believe further consultation is required with the coast guard.

Mr. Scott: I'm very sympathetic to your position on the coast guard getting its house in order or a proper impact analysis or cost-benefit study being done and so on. The committee has heard a lot of testimony to that effect to date, and I'm very sympathetic to that.

The reality for the committee and the House is that the bill - it won't be Bill C-98, but it will still be the Oceans Act - is coming back to the House. Because there are provisions in the bill with respect to coast guard cost recovery, do you have a position now with respect to it? Do you have concerns about the bill as it is at the present time?

I'm not sure whether your company has, but I know others have made recommendations with respect to clauses 41 through 49 of the bill. Would you have any comments to make with regard to that?

Mr. Eldridge: I think I tried to answer that earlier, Mr. Scott, perhaps not well, but we would prefer that the bill not be processed at this time.

Mr. Scott: Okay.

Mr. Eldridge: With what's covered in that bill in terms of the recovery of marine services fees...until that issue has been adequately dealt with, we don't believe that bill should be processed.

Mr. Scott: I have one more question for you.

You did say in your brief, and when you were speaking, that as far as the iron ore is concerned - and I'm not sure whether the other witnesses agreed with the position or not - if you were going to be paying for ice-breaking you would just as soon stockpile inventory and deal with it when there was no ice to deal with. Is that going to present a hardship to your company or is it something that is not very consequential?

Mr. Eldridge: The hardship it's going to cause is going to be for our employees. If we close down our terminal operation in Sept-Îles, from the time the seaway closes in December until the end of March, we have three months when we don't need a good number of the employees who operate our dock terminal in Sept-Îles.

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A voice: Would that be seasonal workers?

Mr. Eldridge: I might say that not only do we have the stockpile capabilities in Sept-Îles, but we also have had some discussions with customers about doing some stockpiling in Rotterdam or in other locations in Asia. We can put that inventory there on a consignment basis. That speaks for the -

Mr. Scott: So you have employees working year-round right now who would end up being affected by this, who might end up being -

Mr. Eldridge: That is correct, sir. There are people in the dock terminal who operate and handle ship loaders and reclaimers to load the vessels we load from January to the end of March.

Mr. Scott: How many employees might be affected by that?

Mr. Rance: Roughly 160, but I might add one point. Right now, in terms of ice-breaking, I'll reiterate that the fees you've seen proposed in the preliminary discussions, if applied to a ship, would cause us to suffer direct cash loss on a boatload.

In other words, with the fees we've seen proposed, it would be senseless for us to ship out a boat if ice-breaking was needed. In some cases, we've calculated as much as a $20,000 loss per boat.

Mr. Scott: Yes, I see.

The Chairman: On the government side, Mr. O'Brien, would you like to start?

Mr. O'Brien (Labrador): I'm brand new to this job. I started the task yesterday. I certainly look forward to working particularly with the IOC and Wabush Mines. I am representing Labrador, and this is of major concern to me and my constituents. Certainly you are a part of my constituency.

I'd like to ask Mr. Rance, the representative from Wabush Mines, what direct impact this particular plan would have on the workers in Labrador City and Wabush in the mine sites.

I just heard what you said about the site in Sept-Îles. If you were to stockpile, would this have a direct impact on Wabush and Labrador City? If it would, how? Barring the economic impact study, if the government were to move ahead and implement a policy as discussed, what would it do to the overall operation vis-à-vis the certainty and uncertainty of the operation?

Mr. Sheehan: If I can answer for Wabush Mines, Wabush Lake, in the winter we don't ship. We can stockpile a certain amount, about 3 million tonnes, so we're probably good until the end of March or mid-April. If we're not going to ship and they charge for ice-breaking up to May 31, it's just too bad. We're going to shut it down for two months.

Mr. O'Brien: So Wabush Mines will be shut down for two months based on the kind of thinking we're dealing with here.

Mr. Sheehan: Yes, for sure. We cannot ship to Europe because of the price on the shipping. They'll select some other country to pick it up from. That's my view.

Mr. Rance: In terms of the Iron Ore Company, it would have an impact. It's hard to say how much of an impact it would have. It certainly wouldn't put us out of business, but every marginal business - the business to China, for example, is extremely marginal; the business to Taiwan to Korea is extremely marginal. Basically those people don't want to pay any more for iron ore than they pay for the close-by Australian ores.

We therefore have to reduce our price very dramatically in order to sell in those areas. It makes that business marginal.

How much of an impact? Whether we would be prepared to suffer much leaner profit margins I couldn't tell you, but we certainly would not operate at a loss. I think it would have some impact, but not as nearly as dramatic an impact as it would have on Wabush Mines.

Mr. O'Brien: Thank you very much.

The Chairman: Mr. Culbert.

Mr. Culbert: Thank you, Mr. Chairman.

Good morning and welcome, ladies and gentlemen. First of all, I'm going to target my colleagues on the Atlantic coast in the port of Halifax, if you don't mind.

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I particularly want to touch on an area that I don't think any of my other colleagues touched upon, and that was your comments and presentation on cruise ships and the importance they play in tourism in Atlantic Canada and our Atlantic Canada economies. As we all know, they certainly injected a tremendous amount in recent years, and quite frankly we want to ensure that we are and remain competitive with our U.S. ports of call.

I'm going to touch on four or five issues, Mr. Chairman, and perhaps I could follow up on them.

The other thing was your emphasis on ice-breaking costs and those services. I'm assuming from your comments that you really wouldn't be supportive of paying any part of ice-breaking costs since you don't require the services; nor do we in the Bay of Fundy region, over on the New Brunswick side, to be very frank with you. Also, I would like you to touch on that.

As well, are you aware of any navigational aids that are not required by commercial shipping, let's say, other than those that would be there for safety reasons or safety standards, as are required?

The other think I want to touch on perhaps refers to everyone. A number of our presenters before we had the Easter break indicated that there should be some sort of economic impact study completed. If it were to be completed, various users were certainly wishing to and prepared to participate in that impact study, from two points of view: from the economic or financial point of view, and from the participation or particip-action point of view.

Finally, I was very interested in the suggestion that in some cases maybe we should own and maintain buoys, since they're required as navigational aids.

That's food for thought, as far as I'm concerned, so perhaps you can start.

Mr. Bellefontaine: I'll take those a little out of order.

First, on ice-breaking, there's no way we're prepared to pay for ice-breaking. Halifax is an ice-free port. We've been concerned for many years that on a regional basis we may in fact be faced with an ice-breaking charge. That's one of our concerns about the regional approach to this coast guard fee. Under no circumstances should we be paying for ice-breaking.

On the cruise vessels, maybe Patricia can give you a comment in terms of the impact.

Ms McDermott: I'm not quite sure of the questions on cruise vessels.

Mr. Culbert: The point was to ensure our competitiveness with the possible U.S. points of entry or stops that the cruise ships obviously have, to ensure that we're competitive, can maintain those stops, and actually have an opportunity to increase them in subsequent years as cruise ships become more viable and more in demand.

Ms McDermott: I think that's true. The cruise business is a growing business on the Atlantic coast. Halifax is the only Canadian port of call for cruise lines. They originate on the U.S. east coast and make a Canadian stop as their foreign port of call. The way the fee is structured now, the vessels will pay once per entry into Canadian waters. For vessels such as the Queen Elizabeth II, at $13,000 a vessel call, that certainly is a level that would keep them away.

Mr. Bellefontaine: May I ask Captain Sherman to respond on the buoys, on the navigational aids?

Capt Sherman: Regarding the navigational aids, I've sat with the Halifax pilots, and we have a little over 50 short-range nav aids - I'm talking now about buoys, range lights, lighthouses. We identified 26 that are used by commercial carriers on a constant basis, so really 26 would be the requirement for a commercial vessel. The rest would be for pleasure boats primarily and for small fishing vessels.

Mr. Bellefontaine: What we're saying is that a number of buoys could in fact be removed, when you look at the commercial aspect of running the port - probably about half. With those that remained, a large proportion of use would be entertained by non-commercial ships, such as pleasure crafts.

Capt Sherman: Yes, the remaining ones would be used jointly by all users, not only by the commercial users but by the others as well. This would not affect safety in any way.

Mr. Culbert: Maybe I can point the question to you. Do you see the opportunity of owning and maintaining buoys and perhaps other nav aids as a potential option?

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Mr. Bellefontaine: Absolutely. As a matter of fact, we wrote John Thomas, I think it was early in the year, and made a proposal that the Port of Halifax would be looking at the feasibility of taking over the coast guard services in the port. That's nav aids and VTS. We have to meet with the coast guard to determine their interest in that, but we've made the pitch.

Mr. Culbert: The other question was aimed, I guess, at everyone. It was about participation in an economic impact study, from both the particip-action point of view and the financial point of view.

Ms McDermott: One of the very contentious issues in all of this discussion with the coast guard is the economic impact study. The other is an appropriate assessment of costs on a port-by-port basis. Port of Halifax interests have sat around the table on a number of different occasions with interests in New Brunswick, Newfoundland, and Nova Scotia. My assessment of those discussions is that nobody around that table would be adverse to evaluating their port costs on a port-by-port basis and are willing to address that situation, whether it be on a commercial basis or an economic development basis.

As it's regionalized now, the fee proposed is a uniform fee. It pits one port against another port. Nobody knows what their costs are, nobody knows if they're fairly assessed. Because it affects their livelihood and their business, it's a very acrimonious situation. Everybody obviously wants an economic analysis of the situation, but they also want a fair and accurate assessment of costs on a port-by-port basis. That's the starting point that everybody seems to be willing to accept to deal with in this whole issue.

The Chairman: In the short time remaining, Mr. Wells.

Mr. Wells: How short?

The Chairman: Very.

Mr. Wells: I have a couple of questions. I'll address them initially to David.

Does your brief represent all of the interests out of Halifax? Is it specific to your organization? I know we're going to hear later...and I can ask the same questions to other representatives from Halifax.

Mr. Bellefontaine: Yes, Mr. Wells, I think you'll find that the briefs from the port that follow ours are very similar in terms of user-pay, port-specific costs and economic studies in advance of any fee. I think you'll find they are very, very common.

Mr. Wells: What about the rest of the ports in Nova Scotia, particularly the small ports? I'm thinking now of ports such as Shelburne, Liverpool, and Bridgewater. I'm thinking of some of the smaller ones that are perhaps not quite as inland as Port Hawkesbury. Have you had any contact with the groups from those areas as well?

Ms McDermott: Yes. As I said, the uniform fee affects some ports differently than others. We have had some contact with those groups and, as I said, people are willing to address the issue on a user-pay, port-specific basis, but their issues may vary from one port to the next.

Mr. Wells: As they do, of course.

Ms McDermott: Yes.

Mr. Wells: What about the economic analysis? Have you done any economic analysis on your own?

Mr. Bellefontaine: Well, it depends on how you define it. We've done analyses by line. Based on those analyses, on the latest proposal, we've had a great concern expressed by a major line that if this in fact goes through, they're going to reconsider calling at Halifax. If you look at it from that point of view, it's an economic analysis, but in terms of job loss and things of that nature, no, we haven't done that.

Mr. Wells: But that's the kind of analysis you would like to see done before the implementation.

Mr. Bellefontaine: That's correct.

Mr. Wells: With respect to the 26 aids you said you used, do you have any idea what the costs of those aids would be? Has the coast guard given you the information -

Capt Sherman: We've asked the question, but they haven't yet been able to provide us with figures on those aids.

Mr. Wells: Of those 26, you mentioned 3 or 4. Do you need all of those 26? Those are the 26 you need. Is that what I understood you to say?

Capt Sherman: That's correct. It would eliminate approximately 50% of the buoys in Halifax for commercial use.

Mr. Wells: You talked about taking over all the costs, including those 26 aids. You'd simply take them over.

Mr. Bellefontaine: That's right...maintenance.

Mr. Wells: Have you determined what that would cost you?

Mr. Bellefontaine: Not yet. We're working on that.

Capt Sherman: We're looking into that now. We're investigating it.

Mr. Wells: Is it wise to make that offer without knowing what it's going to cost you?

Mr. Bellefontaine: Well, we never made an offer. We said we were looking at the feasibility. We were very careful.

Mr. Wells: Okay.

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Ms McDermott: Maybe I can add something to that question. We've had a lot of discussion about costs of nav aids in Halifax. In fact, probably every meeting we've had ends up in an hour-long discussion trying to determine what the costs are.

The critical question for commercial interests in Halifax is what is the cost that should be assessed to commercial shipping. On the VTS system in Halifax, last year there were something like 55,000 incidents of use on the system, and 3,500 of those were commercial ships. That's a critical question. How much of the cost should be applied to commercial shipping?

In the discussions we've had with the coast guard, the closest total cost at Halifax is something in the range of $3.5 million. That is a number that's highly disputable. In fact, many Halifax interests would say that the number is closer to $500,000. This is the total cost of the system, keeping in mind that commercial use is somewhere in the range of 6% of that.

Mr. Wells: Of the $20 million that is expected to be raised by this proposal, do you know how much of that would come out of Halifax and how much would come out of Nova Scotia?

Ms McDermott: You can't subdivide it port by port in every case, because there's a different fee that applies to domestic shipping and a fee that applies to international shipping. For international shipping, the recovery in Halifax is estimated to be $1.6 million. However, for domestic flagged vessels in Halifax, coast guard would also recover another $1.5 million.

Mr. Wells: Do those numbers include the cruise lines?

Ms McDermott: Yes.

Mr. Wells: It's in the international figures.

Ms McDermott: I'm sorry. It includes domestic shipping and other foreign flag ships, including cruise lines. That $1.5 million can't be applied directly to Halifax, because some of those domestic vessels may have other ports of call. But for international shipping, it's about $1.7 million.

Mr. Bellefontaine: If I may add one point, what it shows you is that Halifax will be paying close to 100% of its costs, and not 30%. It's 100%. If the true cost is $3 million to $3.5 million and the fees are based on a $3 million recovery, it's almost a 100% recovery.

The Chairman: Our time is up. I want to thank you all for coming. Your briefs were very well presented. We'll try to get to the bottom of that single buoy and the cost of that single buoy at Seven Islands. Thank you all very much.

We'll call to the table the Halifax Longshoremen's Association, Secunda Marine Services Ltd., and North Atlantic Refining Limited.

Could you identify yourselves, please? We'll start with the Halifax Longshoremen's Association.

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Mr. David Nauss (President, Halifax Longshoremen's Association): Good morning. My name is David Nauss, and I'm president of the Halifax Longshoremen's Association. With me is George Briand, vice-president.

Mr. Donald A. MacLeod (Vice-President, Secunda Marine Services Limited.): I'm Don MacLeod, vice-president of Secunda Marine Services. I'm also a member of the Canadian Offshore Vessel Operators Association.

The Chairman: And a name we're familiar with: Mr. Mifflin.

Voices: Oh, oh!

Mr. Glenn Mifflin (North Atlantic Refining Limited): Thank you, Mr. Chairman. I'm Glenn Mifflin with North Atlantic Refining Limited.

The Chairman: We'll call upon Mr. Nauss first. For your presentation you have one hour among the three presenters. Thank you.

Mr. Nauss: Thank you very much for the opportunity to appear before this distinguished committee to make these submissions today.

The Halifax Longshoremen's Association is the largest organization of working men and women in the shipping industry in the Atlantic Region. The Halifax Longshoremen's Association has 375 members, and regularly employs approximately 450 persons on a weekly basis.

The Halifax Longshoremen's Association, Local 269 of the International Longshoremen's Association, has had a long-standing interest in the development of the port of Halifax. The professional members of this local who work daily in this industry have a deep appreciation of the nature of the industry and the issues confronting it. Local 269 is very concerned about the security and viability of the shipping industry in the port of Halifax.

The men and women of our local have worked very closely with shipping lines and shipping agents as well as with inshore-based employers in developing a port that is recognized around the world as being one of the most efficient and productive of operations.

The port of Halifax is responsible directly and indirectly for in excess of 6,000 jobs in the region. Any interference with the flow of shipping into the port of Halifax will have a significant impact upon the economy of the region. It is the severe consequences we can foresee that cause us to make this presentation to you.

You need only be reminded that the port of Halifax has only two significant advantages. One is its excellent workforce, and the second is its geography. The port of Halifax's primary competition is with the U.S. east coast ports. It competes particularly with New York, one of the busiest harbours in the world.

If Halifax loses its competitive advantage, it would not be difficult for shipping lines to stop calling in Halifax, and proceed directly to New York. Practically all the shipping lines in Halifax call at New York. There is a necessity to call in New York, but there is no necessity to call in the port of Halifax.

They call at the port of Halifax because of our advantages. If costs become prohibitive in the port of Halifax, then they will stop calling at the port of Halifax. Please remember that New York is 700 miles closer to Montreal than Halifax, and it is 1,100 miles closer to Toronto than Halifax. Indeed, it is 1,000 miles closer to Chicago than Halifax.

However, because of the close cooperation between the unions and employers in the port of Halifax, and with the introduction of the Sarnia tunnel, containers that land in Halifax can arrive in Chicago faster than if they are shipped via New York.

In order to attract this new business to the port of Halifax, however, they require concessions by the union for the shipping lines to use the port of Halifax as a transshipment point for U.S. midwest cargo. The economic spin-off to the region of Halifax, the province of Nova Scotia and indeed the Government of Canada is significant through the operations of the port of Halifax.

The precarious balance upon which we, the employees, recognize that the employer is operating is always questioned when there are significantly increased costs attributable to the employers' operations. We believe that the proposal for the marine services fee for aids in navigation is just one of those issues that calls the financial viability of the port of Halifax into question.

I would like to outline our position. If we accept that the Canadian Coast Guard must recover the cost of the operation of its navigational aids, then the Halifax longshoremen will propose the following solutions.

First, user-pay should be the guideline upon which any criteria are based, according to the actual cost and use of services.

Second, as the alternative, a mileage-based system should be adopted.

On the first option, Local 269 believes that any proposal that does not take into account the geographic conditions of the port is inherently unfair. We believe that the port of Halifax must be able to be competitive, and cannot in any way be burdened by the costs of operating in any other ports.

The allocation of the revenue target at the port of Halifax should be based on the port's share of the total national navigational aids cost.

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The Canadian Coast Guard knows the true cost of maintaining its navigational aids in the port of Halifax. Provided that a very viable system could be introduced whereby the port could be satisfied as to these true costs, the cost of navigational aids should be borne directly by those persons using the port of Halifax.

If there is a decision to put the port of Halifax in a regional formula, then our position remains the same: the regional formula should be based upon actual costs in any port.

Therefore, in conclusion of our first option, the position of the Halifax Longshoremen's Association is that the actual costs attributable to operating navigational aids within the port of Halifax should be the basis for the allocation of the revenue target paid by the users of the port of Halifax.

The port of Halifax should in no way be responsible for the costs incurred by any other port. It goes without saying that the same formula imposed with respect to the port of Halifax must be imposed with respect to every other port in Canada.

With respect to our second option, as an alternative, the Halifax Longshoremen's Association Local 269 would propose that the user-pay costs be measured not on the actual costs but on the amount of usage a vessel makes of the navigational aids. In the costs of travel, distance is a principal factor.

The principle that has been suggested in the past, a common regional rate for the Atlantic region, is wholly unacceptable. It does not take into consideration considerable variation in the use of navigational aids services from one port to the next. A port-specific solution is the only solution worthy of consideration.

Landing fees at airports differ, berthing fees at ports differ, pilotage fees at ports differ. Why would there be uniformity with respect to the fees for navigational aids? Halifax would suffer significantly if there was an increase in the amount of fees payable by the shipping lines.

Letters to Commissioner John Thomas of the Canadian Coast Guard from one particular shipping line, dated January 30, 1996, said in part that ``...Halifax would drop from our schedule completely and today's cargo would be re-routed via New York...''

When the Port of Halifax and this union were confronted with increased competition from American ports, other Canadian ports did not come to the rescue of the port of Halifax. It was the Port of Halifax itself that had to make adjustments to its method of operation.

As a result, Halifax in some of its darkest hours was successful in convincing major lines to remain operators within the port of Halifax, but at the same time, the stakeholders in the port of Halifax had to adjust their operating practices to compete globally.

The cost of this was borne only by the port of Halifax. Now it has been suggested the port of Halifax ought to bear the cost borne by other ports for their navigational aids. This is both unfair and inequitable.

When you reflect upon this matter, you ought to be convinced that in order to treat everyone fairly with respect to navigational aids, it is then incumbent to have an equitable system for measuring the costs to be imposed upon each party. That is why we are recommending as the alternative a mileage-charge-based system in relation to usage of navigational aids.

Our proposal takes into account the concerns of the government in reducing its debt, placing the burden on those persons who utilize the service, and at the same time does not impose unfair advantages or disadvantages on any party.

Let me turn to other considerations. For reasons of consistency and fairness, there must be simultaneous introduction of ice-breaking and navigational charges.

In conclusion, it is therefore our submission to you that the recommendation of this committee ought to take into consideration six factors.

First, it should take into account the fragile economy in the port of Halifax.

Second, it should acknowledge the need for fairness, equity and even-handedness in the method of implementing any system.

Third, it should recognize that user pay is the only system to operate.

Fourth, the actual costs incurred in the operation of navigational aids in the port of Halifax ought to be the basis for the allocation of the revenue target.

Fifth, as the alternative to the fourth option above, costs ought to be based on mileage travelled, which result in a figure similar to that outlined in the fourth option.

Sixth, the Port of Halifax should have representation on the Marine Advisory Board for purposes of determining the appropriate rate to be charged for the use of navigational aids in the port of Halifax.

Thank you for the opportunity of making these submissions to you. We would be pleased to entertain any questions you might have afterwards.

The Chairman: Thank you very much.

I would just like to remind you, Mr. Mifflin and Mr. MacLeod, that you both have very extensive presentations to make. We only have an hour for the three of you, so if you want to summarize, it's up to you. If you want to present your briefs in their entirety or summarize so we can go to questions earlier, we'll leave that option up to you. We can proceed from there.

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Mr. MacLeod: Thank you, Mr. Chairman. I will outline in brief form the main points contained in our presentation.

I represent Secunda Marine Services Limited, which is an offshore supply vessel involved in ocean salvage, rescue tows and the like on the east coast of Canada and elsewhere in the world.

I would like to basically tell you a little bit about our company and our industry; deal with the broad principles and the process involved in this proposal by the coast guard with respect to aids to navigation and ice-breaking fees; fill you in on some of the initial proposals that have been changed - thank heavens - as a result of the consultation process; and then deal with some of the specific issues that are of serious concern to us under the current proposals.

First, with respect to our company, Secunda Marine Services is the rarest of endangered species. It is an Atlantic Canadian shipping company that operates ships from Canada primarily under the Canadian flag. As a result, we're far and few between.

We primarily had our genesis in the offshore about ten years ago when things were very active in the offshore on the east coast.

Necessity has dictated that we diversify both geographically and into other areas of related endeavours such as salvage, ocean towage, and so on. One of our most recent exploits that you may recall had to do with the salvage of the Greek tanker, The Amphion, which was abandoned in mid-ocean last February. It was our company that went out and towed in the vessel after the coast guard performed its rescue services.

We operate through the world. We have vessels currently in Africa, South America, the Caribbean, the North Sea, and, of course, on the east coast of Canada.

I have indicated in my brief that we are the sole and remaining member of the Canadian Offshore Vessel Operators Association, COVOA. About 10 years ago there were approximately 40 Canadian-flag offshore vessels situated on the east coast of Canada, and at that time the organization was a very vibrant one. We are what is left.

Hopefully in the next couple of years, with the major projects off the east coast of Canada, we will see a great deal more activity, and the association will spring back to greater life.

With respect to the aids to navigation and the proposed fees for ice-breaking, these costs will be a direct additional cost to our operation and will affect our international competitiveness. However, in this day and age, with the requirement for deficit reduction, we acknowledge that governments have a responsibility to provide services efficiently and to seek cost recovery with regard to the services that are offered. We do not have a problem with the concept of paying for the services we use.

I would like to address five main concerns, some of which are general and will echo earlier presentations, and then some that are specific to our situation.

First I will address the consultation process. The Marine Advisory Board, which the minister and the coast guard have relied upon with regard to the various proposals that have been brought forward, at the outset did not have one Nova Scotian representative on it. In addition, all other Atlantic Canadian representation on that board represented national industries or associations where the bulk of the activity was elsewhere than in Atlantic Canada. So from the outset the make-up of the board was flawed and, as a result, created a flawed process.

We are encouraged by the fact that Mr. Thomas and the coast guard have acknowledged that the board should be reconstituted and representation from Atlantic Canada added.

Just to give you a hard, cold fact of how this flawed process could affect a company and an industry such as ours, the entire offshore industry was forgotten in the process. Our type of ship was not considered whatsoever.

Sort of halfway through the process, all of a sudden a proposal came out to say that Canadian tugs should be charged a rate of $23 per gross registered tonne, and that the barges that tugs tow around would be given a holiday.

Now, that makes sense on the west coast of Canada because there's a large tug and barge industry, the tugs are small, and the barges are big. On the Atlantic coast we don't tow barges. We have offshore supply vessels and ocean-going salvage tugs that are very high gross registered tonnage. As a result, the fees that would have been imposed on us under the original scheme would have amounted to approximately $255,000 right off the top, as opposed to our being treated like other vessels where the rate would have been roughly $50,000.

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Thank heavens, the coast guard listened to our concerns, and they have agreed to treat tugs the same way they treat all other vessels on the Atlantic coast. But it exemplifies the problem of the process and the fact that because industries such as ours did not have a voice on an influential body, their concerns were not brought to the forefront in the consultation process.

The second major issue is one on which we have heard from virtually every other witness to date. That has to do with the question of impact studies and the impact these fees and the proposed ice-breaking fees will have on Canadian competitiveness.

In every area, whether it's Canadian ships, exporters, industries, whatever the case may be, the Canadian Coast Guard is acting in isolation. They've been given a mandate to collect x amount of money, and they have not been given the mandate to consider the economic impact. That is something that somebody else in government should be doing, I suppose.

But when you go to the coast guard and you ask what is the cost of this service, they cannot tell you. I think if you're going to be charged for a service, the least you can expect is to be told how much that service costs.

So we believe that a full economic impact study or an analysis should be done so they know what the impact will be prior to introducing proposals that may have dramatic and devastating consequences. The coast guard has made a commitment that before the introduction of the second year of fees they will have this study done, but the damage may already be in hand.

The third point has to deal with the question of user pay for services used. Essentially we are prepared to pay for the services we actually use. We support the idea of moving to port-specific fees. We think that is the only way there can be an accounting done.

Currently the coast guard builds its budget for these fees by going from their operating base to a regional budget to a national budget. But they cannot break it down the other way and tell you to go into Halifax harbour it's going to cost you this much because you used these many aids to navigation. We think the coast guard should be able to tell us that before they impose an arbitrary fee.

The other prong of this issue has to do with the question of whether the service and the aids are being delivered in an efficient and cost-effective fashion. We look upon the coast guard, because it's in transition from government to a sort of quasi-service agency that's responding to industry, as having a monopoly. There's no market discipline. There's no standard against which the service can be compared.

The coast guard is like a public utility. It has the monopoly as far as service is concerned, but on the question of accountability, there's no regulatory body that looks over what they're proposing to introduce and to which they have to defend their costs, the level of service and the fee structure.

So before the fees are introduced, we want to know how much it costs for them to deliver the services they're asking us to pay for. I think that's only reasonable.

The next issue or prong in this major argument deals with the question of tracking domestic vessel movements. You will note there is a different treatment depending on whether a vessel is a foreign-flag vessel or a domestic vessel.

In Atlantic Canada, as you've heard from the Port of Halifax, they have supported the idea of how we get a fee related to service. The best alternative of the proposals on the table is the one based on tonne measurement, so you can see the distance travelled, the aids used, and come up with some kind of a formula.

As far as the domestic side is concerned, there has not been a split between central and Atlantic Canada. They have picked a target for all domestic ships from Thunder Bay to St. John's, Newfoundland. They've picked the number of vessels as a target, they divide amongst those, and they come up with a fee that should be charged for domestic-flag vessels.

If you take, for example, our type of operation, if we're in a salvage operation, that vessel may make one, two, three moves in the course of a year because it's going to do one big salvage. Yet a bulker in the Great Lakes comes in and out of the system several times from east to west and gets charged the same GRT rate based on that.

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One of the reasons they say they can't break down into user-specific fees for domestic-flag vessels is that the coast guard says it can't track the movement of domestic vessels. If you have a foreign-flag vessel, when it leaves port to go international, they fill a customs form and therefore they can track it. Well, I don't accept that, because every time a vessel moves you phone the traffic movement centre and tell them where you're going, and they log that movement. Or you can reintroduce the coastal licence system that used to be in existence. Surely the coast guard can track the movements of domestic vessels as they can international vessels to determine what fee is reasonable to be imposed on Canadian vessels.

As a final point, I guess that as a domestic operator we look upon the fact that if you've got a foreign-flag vessel that has a cap placed on it and a lower GRT rate of 19¢ as opposed to $4.34, why not give us the same treatment as them? That's probably too simple.

In any event, one of the recommendations we'd make is that the coast guard and its fleet and aids to navigation be privatized. There's no reason why it cannot. I'll show you a picture here. This is a picture of one of our ships. We have two ships, actually. This was built in Marystown and it's your basic standard industry supply vessel. The coast guard has an identical ship to this called the Mary Hichens.

I look out my window in Dartmouth across the bay to the coast guard yard, and they have the red ships there. I look at the Mary Hichens,and I compare it to the number of movements our ship makes. It's commercially based, because we take work that can employ the vessel as opposed to having a specific regime of services that a vessel in the coast guard is used for.

So while the coast guard ship sits there crewed probably three or four times the amount of our ship... For example, this vessel would take a crew of 10 people; the coast guard probably has 30 on it. You can see the inefficiencies of a fleet being operated on a governmental basis as opposed to being driven by private sector factors.

There are a host of other issues that I could go on about - the fiasco that was involved in the Irving Whale, for example. We have the only dynamic-positioning dive support vessel Canadian flagged in the country. That vessel was ideal to provide the diving platform for that operation. The coast guard imposed a regime... We're also in the salvage business as a sideline, and we do know a little bit about salvage. As part of the process, we couldn't get them to deal with the concept of the liability involved.

Then when it came to the platform from which the diving could be done...this vessel can stay on location because of its high technology of reference systems regardless of the weather and so on and so forth. It's more expensive than the vessel they used, but they spent $8 million and didn't do any diving because the weather was too bad. If they had used our vessel, we probably could have done it in a fraction of the time anticipated originally for that vessel, and the Irving Whale would be raised now.

Those are just some of the types of examples of having the right people doing things motivated on the right basis - on a commercial basis - so you don't have these types of fiascos and wastes of money. When you see $8 million thrown out the window and then you're asked to collect that same amount in the form of aids to navigation, you start wondering whether this is reasonable or fair. I'll leave you to draw the conclusions.

In conclusion, I guess as a Canadian operator that has to work internationally, all of these fees drive up our costs, which make us less competitive. We recognize that fees have to be collected, but let them be fair and let them tell us how much it costs to use what we use.

I have two small points before I close. With respect to the current proposal that is on the table, namely that offshore supply vessels and tugs be treated in Atlantic Canada like all other vessels, we want to have the fees charged on a pro rata basis - on a monthly basis. If you work one month or you work two days for that one month, you pay the month. If the vessel leaves and goes and works international for six months, you pay for only the six months that you're in Canada.

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They're proposing the same treatment with respect to foreign-flag vessels that enter Canada on a temporary flag waiver. They pay on a pro rata basis at the domestic rate for the time they're in Canada, and when they leave they don't pay anything more.

We think it would be unfair for a Canadian-flag vessel, just because it's Canadian, to pay a full year even though it's there only half the year.

I think I've covered most of the points. I would be pleased to take any questions.

The Chairman: Thank you.

Mr. Glenn Mifflin (North Atlantic Refining Limited): Mr. Chairman and committee members, I've circulated a summary of the points that I wish to hit this morning. There are three major points that you've probably not heard about before. One is the consultative process. I want to talk about the economic impact on North Atlantic refining, and an approach to the marine services fees issues.

The background stands for itself. I want to point out that the Canadian Coast Guard has represented the cost recovery as non-negotiable. They've been effectively commanded to collect these fees through the federal budget process.

In addition, John Thomas suggested to this committee that the March 15 proposals, which have substantively changed since that time, were developed from input received from a consultative process and reflected a broad consensus of industry views.

With regard to the impact on the refinery in that proposal, which was the first phase of a $60 million proposal, they estimated the impact to be $700,000. The actual impact was $2.6 million. Those numbers have been revised.

A lot of members this morning have made the same observations on the consultative process that we have. We feel the whole process has been fundamentally flawed. The Port of Halifax and Nova Scotia have commented that they were was not represented on the Canadian Marine Advisory Council, and we have the same comments.

In addition, Canadian Coast Guard, through their consultancy IBI Group, from whom the coast guard got their information - their consultation in Newfoundland was a 15-minute phone call with a representative from Corner Brook Pulp and Paper. That is not a consultative process reflecting a broad consensus of industry views.

We don't feel that the process allowed for proper assessment of the economic, financial or social impacts of these fees in the Atlantic region. These fees are designed to collect $20 million. They put a title on it of ``marine service fees,'' but it's merely a $20 million tax grab.

As to the economic impact on North Atlantic refining, the original proposal was for $2.5 million in the first year alone. The latest proposal, which we received on Thursday, has reduced that estimate to $1.1 million. Frankly, it's going to have a detrimental impact on any competitive advantage that we may have enjoyed at the refinery.

Coast guard did not realize that the impact was so great. When they did their estimates, they used 1994 numbers. It's well known that in 1994 the refinery encountered severe financial distress and was closed. We had 50 people on payroll who were not getting pay cheques. They were volunteering their services, hoping the refinery could recover and find a new shareholder, which we did.

Those are the numbers they used to determine our shipping volumes. At the same time, we were discussing the response organization fees with coast guard. We were telling coast guard personnel that our volumes, when they introduced the fee, would be 8 million tonnes, but they were using a number like 3 million tonnes for us.

They subsequently proposed several other fee structures, ranging from an impact of $1.2 million to $2.7 million. After meetings with John Thomas in Newfoundland they recognized that their numbers were wrong, so they revised their numbers and proposed a new formula. The new formula was received last Thursday. They've suggested that the impact on us is $552,000, but we suggest that it's $1.1 million.

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Based on the application of the fee proposals in the March 15 and April 10 proposals, if we use the fee proposals for Atlantic we'll pay $1.1 million, but if we use the fee proposal for east inland, which goes up to Montreal, we'd only pay $900,000. If we use the fee proposal for the west coast of Canada, we'd pay between $500,000 and $600,000. So there is a $200,000 competitive advantage in bringing the crude oil to Montreal and shipping it out as opposed to bringing it in to Come By Chance.

We'd also argue that the cumulative impact of the marine services fees, along with the port charges, the oil spill response organization charges, the pilotage fees and the dredging costs, were not considered by coast guard and will have a crippling effect on us and on the marine services industry in Atlantic Canada and Canada.

The coast guard's own study suggested that the petroleum industry is at risk. Like the iron ore company that was here earlier, it has large volume and very poor margins.

In addition, exports form an important and essential element in the economy of the Atlantic provinces, and they are one of the building blocks that Canada has been touting. They've said that it's because of our competitiveness that Canada has grown and been able to reduce its deficit.

These costs for our refinery - we can't pass them on to our customers. The price for petroleum products in Boston harbour is the same whether they come from Trinidad, Venezuela or Newfoundland. These costs are taken directly out of our pockets. We cannot pass them on to Canadian consumers or to our American customers.

I think this proposal to put additional fees on our competitiveness will severely harm the ability of Canadian manufacturers to compete in international markets. For example, for a 40,000-tonne ship coming into Come By Chance, currently we pay, excluding the response organization fees and these proposed fees, an amount comparable to Boston harbour. With the proposed fees it will be a $7,000 bill just for the marine service fees on that one ship. Effectively, that ship will pay 24% more coming into our harbour than going into Boston. That is a competitive disadvantage.

If you add in the response organization fees, which are greater than the marine service fees, any ship coming into Canadian waters is clearly at a severe competitive disadvantage. It doesn't make economic competitive sense to do this sort of thing.

The natural geographic competitive advantage of Newfoundland will be damaged by the imposition of this proposed cost recovery system, it will reduce the competitiveness of Canadian products on world markets, and it will add to the high transportation costs Newfoundland companies already pay.

What do we think about it? We disagree with the proposal for separate fees for western, central and eastern Canada. We don't advocate regionally specific fees. We do propose that should fees be imposed, they be levied on a national basis on a uniform fee approach, but only after all expenditure reductions have been implemented.

Secunda Marine talked about a vessel across the harbour. We have provided coast guard with similar examples of where they could recover the $20 million they're trying to foist on Canadian exporters by reducing costs - just in Newfoundland - without going through this fuss of trying to foist this over on us.

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We support the government's steps to reduce the deficit through expenditure reduction. User fees can be an effective means of commercializing federal programs, but only if those services are efficient and they represent an efficiency and level of service the users are willing to pay for. Unfortunately, the monopoly power of federal government departments is being foisted on industry. They're pushing up regulatory compliance costs for business in spite of the government's commitment to reduce the regulatory burden. They will weaken employment, investment and innovation by businesses in Canada.

I'll talk about the business impact test. We are a proponent of having this impact test done. In fact, the Minister of Supply and Services, in an address last year, suggested that by 1996 all federal regulatory departments will conduct a business impact test or its equivalent for all major regulatory changes for 1996. The impact study by the IBI Group was not such a test.

In summary, we do not think the imposition of these fees is an appropriate step at this point. It will severely damage our competitive position. It will add to our costs and to the costs of all Canadians exporting, and it will damage our competitive position. Thank you.

The Chairman: Thank you.

Mr. Wells.

Mr. Wells: I'll try to be brief.

Mr. Nauss, I have a couple of questions on your presentation. You talked about the labour costs and some of the concessions your union made to make the port more viable. Do you have any idea how your labour costs would compare to other areas in Canada, particularly central Canada and western Canada?

Mr. Nauss: I don't think there's a big difference in labour costs. In central Canada I think some of the unions have guaranteed wage contracts, so their costs would probably be substantially higher because of that. It's the same in the U.S., but they're cutting back on those guarantees, so they're becoming much more competitive. We don't have a significant advantage over them.

Mr. Wells: Can you expand on the second paragraph on page 6 of your brief? You say Halifax would suffer significantly if there was an increase in the fees, and you talk about a particular shipping line that said it would reroute by New York. Can you give me more specifics on that? Who was this shipping line? Are they a significant carrier into Halifax?

Mr. Nauss: Most of the major shipping lines that call in the port of Halifax also call in New York, so they classify Halifax as an optional port. It's no trouble for them to transfer their whole operation to New York because they already call there. I believe it was Zim Container Service and Atlantic Container Line that made that comment. They have looked at Halifax as being a possible load centre, but if these fees are implemented and the costs make us uncompetitive with New York, they can quickly transfer their business to New York.

Mr. Wells: Do you think this is an idle threat? Do you think this might happen?

Mr. Nauss: I think they're very serious. They've had discussions with the Premier of Nova Scotia and with us, and the costs are going to be prohibitive if they can't be competitive. We already have such a fragile difference in cost between New York and Halifax. It stills costs more to rail to the U.S. midwest, but they're still calling here.

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Mr. Wells: Since that letter - I think the letter you refer to is dated January 30 - wasn't there a change in the fee structure?

Mr. Nauss: There has been, but I think it's gone from better to worse. There were three or four proposals. I think the last one was detrimental as well.

Mr. Wells: The letter you do refer to is under the old fee structure. We don't know what their... I'm just trying to find out what their position would be under the new -

Mr. Nauss: What the current position would be. I don't know, because that position just came out in the last few days. We haven't had any discussions with anyone.

Mr. Wells: I just say there's been a number, and sometimes it's hard to keep track. I don't think we've been briefed on the latest one, although I've read some things in the paper on it.

Mr. MacLeod, do you have any idea how much the current proposal would cost your company? I think you said what the initial proposal might cost.

Mr. MacLeod: The current proposal, broken down... Because all the ships are treated the same, I had originally broken it down between our tug fleet and our other vessels. If you look at the total fleet based on... This thing is so convoluted it's hard to tell you. For this coming year, they're using a rate of 3.4, but in the next year they're going to be moving to 4.4, so I'll use that rate. The total cost would be $71,000.

Mr. Wells: As opposed to the initial proposal, which was $255,000?

Mr. MacLeod: The total initial proposal would have been $263,000.

Mr. Wells: So the reduction has been significant for your company.

Mr. MacLeod: That's correct.

Mr. Wells: What would be the impact of this $71,000 fee on your company?

Mr. MacLeod: It's like my vice-president of finance tells me. He says, ``Don, when you've got an expense, you've got to get ten times the revenue.'' That means I've got to get an additional $700,000 worth of revenue to cover this additional expense.

Mr. Wells: How does this proposed fee compare to...? You say you do business internationally. Do you pay for navigational aids in any other parts of the world?

Mr. MacLeod: That's an interesting question. I haven't looked at that. I don't know what the answer to that is. I believe it probably would be related to the service that was used. You do pay port fees when you go into a foreign port and so on. Whether they're wrapped up in it, I don't know.

In our case, we're going to be asked to pay a flat fee regardless of what we use, how much we use it, where we use it, or whatever. For example, in our industry, going out of Halifax harbour to support the Sable project off Nova Scotia, it's a simple in and out. You can count the aids, you can see them. It's clearly defined. But we're going to be paying a rate based on a target set by coast guard for all the aids and navigation for central and Atlantic Canada.

Mr. Wells: What services that are supplied - navigational aids - do you actually need and use?

Mr. MacLeod: That's a good question. I guess that -

Mr. Wells: Two in a row, that's pretty good.

Mr. MacLeod: Yes. They'd be the necessary buoys. You heard the Halifax people say they can cut those in half. Probably when you get the SATNAV system, they're going to eliminate a bunch of additional buoys. You've got Halifax traffic. Essentially, that's probably it.

Mr. Wells: What buoys?

Mr. MacLeod: The buoys in Halifax traffic, which is your logging in that tells you what vessels are coming and going.

Mr. Wells: The other people said they use 26; you use 2.

Mr. MacLeod: No. There are buoys and then there's the vessel traffic management system, which is... In Chebucto Head, they have the radar system that shows you... They're in control of the traffic coming in and going out of the port, and they tell you what's coming and where you are in position to everything.

Mr. Wells: Thank you.

The Chair: Thank you, Mr. Wells. Mr. Bernier.

[Translation]

Mr. Bernier: The briefs of the three groups we have before us are very explicit. From what I can see, all of you are asking for impact studies and that the coast guard clean up its own affairs first. But I don't see any definite position. We must table a report with the Minister before the end of the week. What are we going to say? You want a moratorium until all of this is done?

Furthermore, as far as the urgency for Mr. John Thomas of recovering the 20 million dollars, do you have a short-term plan to suggest? Or else do you prefer to say that you want a moratorium and that you will only pay once the impact studies have been done and he has put his own house in order? Or do you have something to suggest to him for the coming year, which is our time frame? From what I've heard, everyone agrees that some house cleaning must be done, but our deadline is Friday. How should they organize their fee structure? Do we ask for a moratorium on the fee structure or do you have something else to suggest for the transition year?

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Could you give us a quick answer to these three questions?

[English]

Mr. Mifflin: I'll respond first. I frankly think the imposition of a fee would be a mistake, period. A moratorium will not help. The fee structure is damaging to our business, it's damaging to Canadian competitiveness, and should not be imposed under any circumstances, even withstanding a moratorium.

If the coast guard wishes to recover $20 million in the current year, I think it can well do it within its current expenditure budgets. This should not be foisted on Canadian industry. A large number of these services are public goods. If the coast guard needs to get its house in order, that should be done first. Regardless of whether the coast guard can get its house in order first, the imposition of this fee is damaging.

The only increases the refinery has had in the last two years have been government increases. Our employees have not taken increases, our suppliers have not given us increases. We were in financial distress in 1994. We have a new shareholder. We're trying to build a business. We have had no profits, and the imposition of this fee is damaging. There should be no fee.

Thank you.

Mr. MacLeod: In anticipation of your question, Mr. Bernier, which you presented previously, I wrote down four points.

I think the Government of Canada should know the impact these fees will have on all industry. The coast guard should tell us what the cost of the services are. Users should pay only for the services used, and if they tell us what the services cost, we will know whether it is fair, reasonable, and acceptable and be able to institute whatever processes are necessary to ensure they are. It should be on a port-by-port basis.

Mr. Bernier: Is it the same for the other witnesses?

Mr. Nauss: We believe the process was flawed from the beginning and that at this time it should be stopped in its tracks and an impact study done. We have no problem with the recovery as such and with having users pay for the services they use, but we believe that should be established before this fee is put into place.

Mr. Scott: I'd like to thank the witnesses for appearing before the committee today. I've appreciated their points of view. I have just one question for Mr. Mifflin.

You were saying that you don't agree with the fee at all. Some arguments you have made I totally support, which are that the coast guard should not be imposing fees before it knows what its costs are and before it can demonstrate it's running an efficient operation and that the people paying or who will have fees levied should pay only for services they actually require. Beyond that, you're saying you disagree with the notion of user pay.

Do you think Canadian taxpayers should be subsidizing ports, as they have been up until now, or do you accept the principle of user pay? That's my first question.

My second one is on the notion of a uniform national fee. Would you not agree that would lead to cross-subsidization, whereby some ports would be paying an artificially higher fee and some ports would be paying an artificially lower fee and that in fact in these ports in some cases more shippers might be in competition with each other at the same time?

Mr. Mifflin: Let me address user fees first.

They have cloaked this in the gown of an aid to navigation, and I frankly think that's just a convenient title for a convenient piece of material they found over here. The real users for these services are the Canadian consumers. This is just another means of transport into Canada. So if goods can come in over the roads, by rail, or through the waterways, what we're doing is sticking a convenient tax on the water roadway and not on other roadways.

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Second, user fees to some extent are an effective means of commercializing government practices. Government will probably find that as they impose user fees, the users will find it much easier to privatize and provide the services themselves. It's a consultative process to say, here is a bundle of services, let's see if we really need it any more, and if we don't need it we can reduce that service.

As to the issue of cross-subsidization, frankly, we feel this is a public good. It's as much a public good as other roadways, north of 60, south of 60. The entire Canadian competitive advantage is to provide a Canadian infrastructure that will allow Canadian businesses to compete in a fair and equitable way across Canada.

You can always drive a wedge through each part of Canada and say, for example, that Newfoundland has a small population, which is spread across this enormous island, whereas in Montreal or Toronto you have a concentration of...a large base to spread the costs over. You can always argue that the users should pay for the services. In Toronto, they'll have a competitive advantage and everyone will pay a penny. In Newfoundland, everybody will pay $10. You can always drive that wedge down through Canada. You can pick any number of services to do that with.

There are certain public goods for which we have to pool as a country; the country will have to pay for them and say it's good for the country. You're going to make Canadian businesses, particularly in Atlantic Canada, uncompetitive. Ontario is fine. They can ship it back and forth on the public roadways, upon which there's no toll.

In answer to your question, yes, it may be that some regions of Canada will be cross-subsidizing other regions of Canada. With this current proposal, the rest of Canadians will be subsidizing north of 60. That's part of what we are as Canadians, to provide a level of infrastructure across Canada whereby all Canadian businesses can compete in the world on an equal footing.

I don't know if that answered your question.

Mr. Scott: In a way, yes. I guess my problem with your premise is that the way it is right now, and the way it is going to be north of 60, the ports south of 60 aren't going to be subsidizing. It's going to be the Canadian taxpayers. If that is done under the notion that it's for the public good, as you suggest - and I'm not arguing with that. I think there are times you have to look at it and say the bigger picture is more important than the component pieces. But when it comes to user fees levied against ports south of 60, Atlantic Canadian ports, ports in British Columbia and so on, you can easily see that if you had a ``one size fits all'' user-fee policy, some ports would in effect be subsidizing other ports. You would have one fee, but some costs would be higher and some would be lower, depending on the geographical circumstances of the particular port.

Mr. Mifflin: You are correct. What in fact will happen is that by imposing this fee - and we're called the users because we happen to be a convenient target - the real users...if you're a Canadian consumer in Atlantic Canada, these fees will be passed on to you. Instead of being called a taxpayer, you'll be called a consumer. It's the receivers of those consumer goods across those water roadways who are going to be subsidizing or paying for those services, not ``the Canadian taxpayer''.

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The users of the service, which are Canadian businesses exporting to international centres, will not be able to pass those costs on and will absorb the costs themselves. To some extent, you're right. Those users of the services will be paying their fair share of that service and will eventually go out of business; they won't be paying their share of taxation and may not survive in business.

Canada's marine industry has shrunk from what it was in the 1970s to one company in 1996. Eventually, you're going to be left with this one company...you're the user of all these coast guard services. That's not correct. The Canadian taxpayer, the Canadian consumer, is the user of the services. What you're doing is driving the people who are driving the economic engine of Canada right now, which are the exporters, particularly the commodity businesses such as iron ore and petroleum and grain, out of business. Grain and all of these other commodities have to compete in an international market.

I'll go back to my example of my fees for a 40,000-tonne vessel coming into Come By Chance or Boston. Before the imposition of either the response organization charges or these proposed marine service fees or the dredging costs or the proposed port charges - before all of that, we're about par with a 40,000-tonne ship coming into Boston Harbour or Come By Chance. So I'm on par with my Venezuelan and Trinidadian competitors bringing oil into Boston. That's the cost.

This marine service fee alone is going to foist $7,000 on that ship, a 24% increase to us. That makes us uncompetitive. You add to that the response organization fees, which are more than 24%, and all of a sudden we're going to ask why we are doing business here. It just doesn't make economic sense, when I can bring the oil into Boston harbour for x dollars.

Are we going to be a user of the fees? Yes, we're going to be a user of the fees until they take their business to the United States, and then there is no user of the fees. Then there are no jobs.

The Chairman: Thank you very much, Mr. Mifflin. You had the last word.

Mr. Briand: Mr. Chairman, I don't know if we responded to Mr. Bernier's question of whether or not we supported studies, but we, the longshoremen of the port of Halifax, do support studies to respond to the concerns about the potential impact of the fees, Mr. Chairman. There should be other studies as well - I could go on - on the navigational aids and the ice-breaking components. We support those studies, Mr. Chairman.

The Chairman: Thank you very much. I know we're missing out on a lot of questions, but time is a very limiting factor. We'll have to rely on your written presentations. I want to thank you all very much for a very informative session.

May I now call to the table the Canadian Fertilizer Institute and the Saint John Port Corporation.

Mr. Larson, would you please introduce yourself and your people. Mr. Krauter, perhaps you would do likewise.

You have one hour. We'll begin our presentations as soon as everyone is identified.

Mr. Larson, please.

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Mr. Roger Larson (Managing Director, Canadian Fertilizer Institute): Thank you, Mr. Chairman.

With me today are Mr. Bud Foley, the vice-president of planning and distribution for the Potash Company of Canada; and Brian Murphy, the manager of transportation operations, Potash Corporation of Saskatchewan.

These companies operate potash mines in New Brunswick and, in the case of PCS, several mines in Saskatchewan. Mr. Walter Rozum, the transportation manager with Nutrite, a major fertilizer importer based in Montreal, was planning on being here as well, as part of our delegation. However, he is ill with the flu. He has participated in the development of this brief.

The Canadian Fertilizer Institute represents the manufacturers and exporters and most of the retailer and distributors or importers of nitrogen, potash, phosphate, and sulphate fertilizers. I want to emphasize the national character of our industry: we have port users in the Great Lakes and St. Lawrence and in the east coast and west coast regions.

In 1995 CFI members used marine services to export 5.7 million tonnes of potash and over 300,000 tonnes of urea and other nitrogen fertilizers. They also imported 850,000 tonnes of nitrogen and phosphate fertilizers from outside continental North America and almost 300,000 tonnes of phosphate fertilizers from the southeastern United States, much of which is transported by marine mode into the St. Lawrence area.

An estimated 2 million tonnes is shipped out of the Atlantic region, primarily Saint John; 500,000 to 750,000 tonnes in the Hamilton and Montreal port areas; 200,000 at Kitimat; and most of the balance, around 4.5 million tonnes, through Vancouver.

The CFI closely followed the Canadian Coast Guard's proposals during 1995 and 1996. We wrote to the coast guard commissioner, John Thomas, on December 7, 1995, and the former fisheries and oceans minister, Brian Tobin, on December 20, 1995. In these letters, CFI outlined our concerns with the proposals and urged acceptance of guiding principles, which we felt were essential to developing a reasonable cost recovery program. These letters are attached to our brief.

In his March 1996 letter to the CFI, Commissioner Thomas addressed several of CFI's concerns. We do recognize that there has been some effort to address the issues we advanced. CFI believes that further efforts in defining the coast guard's proposals will enhance Canada's international competitiveness. We suggest that the following principles be implemented:

1. Cost identification of required services should be as specific as possible with respect to regions and ultimately individual ports. This is essential to ensure that only those who benefit from services provided are asked to pay for the costs.

2. It is vital that each region pay no more than the national recovery target based on its own local costs. For example, if the national recovery target is 30% of total commercial costs, each region should be assessed at no more than 30% of its own commercial costs.

3. The U.S. harbour maintenance fee has been ruled unconstitutional with respect to export cargoes. This ruling is currently under appeal. However, it reinforces Canada's need to be conscious of the international competitiveness of our ports.

4. Regional advisory councils encompassing major stakeholders such as owners, agents, ports, shippers, etc., should be established. These regional councils would assist in identifying needed marine services and the most cost-effective methods of delivery.

5. Where the coast guard is able to reduce their cost of delivering services, such reductions should - perhaps ``must'' - be used to reduce the cost recovery objectives, and the savings should benefit all stakeholders.

Mr. Chairman, CFI is very appreciative of the interest this committee has shown in this matter. We believe your report should assist the fisheries and oceans minister, Fred Mifflin, and the coast guard in implementing the marine services fees proposal in a manner that will minimize the cost impact on Canada's shippers and will be consistent with the government's cost recovery principles.

I'll leave more specific comments for the question-and-answer period. Thank you, Mr. Chairman.

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The Chairman: Thank you, Mr. Larson.

Mr. Krauter.

Mr. Kenneth R. Krauter (General Manager and Chief Executive Officer, Saint John Port Corporation): Thank you.

Mr. Chairman and members of the standing committee, I would like to thank you on behalf of the Saint John Port Corporation for the opportunity to appear before you and submit our brief. We commend the Minister of Fisheries and Oceans for undertaking a review of coast guard cost recovery and marine services fee proposals. We appreciate that through the hearings being conducted by the standing committee, we are being given an opportunity to express our views and contribute to the development of a fair and equitable means to implement coast guard cost recovery initiatives and the related marine service fees.

Mr. Chairman, we realize the committee is conducting hearings and receiving submissions from many organizations. We will endeavour to focus on providing constructive comments on the cost recovery policy issues that are the subject of your terms of reference. However, before focusing on that part of our submission, we would like to provide the committee with a brief overview of the Saint John Port Corporation.

The Saint John Port Corporation is a federal crown corporation established on December 31, 1986, pursuant to the Canada Ports Corporation Act. The corporation is responsible for the management and administration of the port of Saint John. The port features a full range of cargo handling facilities for liquid bulk, dry bulk, container and general cargoes. The corporation has assets with a book value of approximately $64 million, and the scope of the corporation includes seven deep-sea marine terminals, approximately 5,000 metres of berthing for ships, 120 hectares of property and 230 square kilometres of harbour.

The growth and development of the port is determined not only by its infrastructure, but also by its ability to service international trading markets. The port of Saint John serves importers and exporters in the maritime provinces, Ontario, Quebec and the New England states. Through shipping lines calling at the port of Saint John, international markets are served in the United Kingdom, northern Europe, Mediterranean, Caribbean, Central America, southern Africa, Southeast Asia and the Far East.

The port of Saint John is one of Canada's major ports. In 1995 the port handled 18.7 million tonnes of cargo. Saint John has the fourth largest throughput in the country.

In terms of the challenges to the port, during the eight years since incorporation we have overcome a difficult set of circumstances, and through a board of directors of local people working as a team with port management, we have accomplished a great deal and added value for the shareholder - the federal government.

We continually encounter the challenges of an ever-changing global marketplace, and we have demonstrated our capability to meet those challenges and fulfil our mandate in support of Canada's international trade. However, our ability as a port to compete even more competitively and responsibly will be reduced by increasing costs for users of the port arising from coast guard cost recovery. We are particularly interested that the marine services fees are implemented in a way that takes into account the characteristics of our region and does not disadvantage the port of Saint John relative to other ports in eastern Canada and the Atlantic seaboard of the United States.

Over the last seven years transportation economics in the Maritimes have been significantly affected by changing government policies regarding transportation subsidies and regulations. As Canada has moved away from an earlier posture of subsidization and significant regulation to a more market-driven deregulated environment, there have been important financial and logistical changes in the regional transportation system.

The elimination of the At and East rail subsidy for grain was a major factor in the loss of all grain exports via the port of Saint John and the eventual abandonment by CP Rail of rail service from Montreal to Saint John. The removal of the ARFAA-MFRA regional freight subsidies resulted in significant cost increases for maritime producers shipping to Central Canada, by adding millions of dollars per year to the freight bills of regional shippers.

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In February of this year the Saint John Port Corporation was advised that the coast guard will no longer consider any further funding of channel dredging after the close of the fiscal year on March 31, 1996. The average annual cost of dredging the main channels to the port is approximately $1.8 million. The Saint John Port Corporation does not have the financial capability to assume added costs of this magnitude. While we understand that coast guard is intent on pursuing a policy of increased cost recovery, it is our view that the policy is unreasonable when its implementation seriously jeopardizes the future of one of Canada's major ports.

Another area of concern with respect to cost recovery is a proposal from Environment Canada to significantly increase the costs for an ocean dumping permit for disposal of dredged sediments. A current estimate is that the fee for environmental monitoring of the disposal of sedimentation from port berths will be $18,000 per year. The related cost recovery amount for main channel dredging is expected to be in the order of $60,000 per year. So it will be almost $80,000 in the future as compared to around $24,000 at the present time.

These changes emphasize the realities of the maritime transportation environment. The federal government has moved out of subsidizing these costs and the Maritimes have been forced to adjust.

In terms of implementation principles that should be applied to coast guard cost recovery, the Saint John Port Corporation advocates that full consideration be given to adopting the following principles with respect to the implementation of coast guard cost recovery and marine services fees.

First, user pay, user say. There should be a direct relationship between the services provided by coast guard, the cost of providing those services and the users who benefit from the services. Simply stated, users should not have to pay for services they do not use or do not require. To ensure that this principle is applied in a meaningful manner, there must be open and factual consultation between coast guard, as the provider of services, and the shipping interests that use the services.

Second, with respect to definition of region, a number of proposals have been put forward over the past months with respect to the geographic basis for collecting the marine services fees. In our view, regions should be established that have similar characteristics with respect to navigational requirements. This will also serve to recognize similar market characteristics and competition factors within a region, minimizing cross-subsidization among regions and providing for increasingly focused user-pay, user-say consultations.

In this respect the identification of a region that includes the maritime provinces is a step in the right direction. However, we believe the regions should be even more closely defined. Our preference is for a Bay of Fundy region that would include a number of ports in the bay, and then to work with coast guard toward a port-specific region.

The third principle is the fair sharing of costs. Coast guard has estimated that the 1995-96 full cost of navigation services to commercial shipping is $97.8 million, of which $29.4 million has been allocated to the Atlantic region. The revenue target has been initially allocated to the three regions based on their respective share of the costs of aids to navigation. This cost analysis indicates that each region will incur an equal percentage of approximately 28% of the annual national revenue target for navigational services attributable to commercial shipping.

This establishes an important principle that should apply to cost recovery - each region should pay the same percentage share or cost recovery rate for the services provided in the region.

Fourth, on regional representation, we are advocating a user-pay, user-say approach that is based on a local region. In adopting these principles there is a need to establish an Atlantic sea coast region marine advisory board that would represent commercial shipping interests in the region. The board would work with coast guard and the shipping community to identify a minimum level of required navigational services and associated costs, and a mutually acceptable means of delivering the services and administering the recovery of costs.

The cost recovery task force of the Saint John Gateway Council has recently put forward proposals to coast guard on the composition of the board, and those proposals seem to have been favourably received by coast guard.

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Fifth, on regional-based fee structures, users should only be required to contribute to the cost of services required. It is axiomatic that vessels travelling long distances in coast guard supervised waters will use more coast guard services than vessels travelling short distances. Travelling to Great Lakes ports, for example, requires more coast guard services than travelling to Saint John.

It is unreasonable to impose a fee structure that would result in Atlantic coast ports subsidizing central Canadian ports, which enjoy much lower inland transportation costs at the expense of maritime ports. It is for this reason that we strongly oppose any form of national fee structure that would average out the high costs of services in the central and lakes regions at the expense of coastal regions.

Sixth, on economic impact study, implementation of coast guard cost recovery policies and marine services fees will have significant consequences for commercial shipping. However, other initiatives of government also have consequences for shippers and shipping interests. The cumulative effect of these initiatives could create disparities between regions of Canada at additional costs for shippers, creating inequities in the competitive position of ports and adversely impacting trade through Canadian ports in relation to the United States ports.

For these reasons it is important that the government undertake a socio-economic impact study of these initiatives. We were encouraged to learn recently that this study will soon be commissioned.

In conclusion, later this week members of the cost recovery task force of the Saint John Gateway Council will appear before the committee. The task force is comprised of representatives of shippers and shipping lines using the port of Saint John. The group will emphasize a number of these principles for the committee's consideration with respect to the marine services fee.

I'd like to thank the committee for the opportunity to make this presentation and I wish you well in your deliberations.

I have two parting comments to make. We understand that coast guard intends to move to a part I gazetting process of their proposed fee structure. We also understand that it proposes to undertake an economic impact study, the terms of reference of which are currently being finalized, but we understand that study is to be completed in September of this year.

Third, I expect that following these hearings your committee will be moving to produce a report within a fairly short timeframe. If there's going to be an economic impact study and the Standing Committee on Fisheries and Oceans is going to be issuing a report in the near future, some consideration should be given to holding off on the implementation and gazetting process until the shipping interests, shippers and ports across this country have the benefit of those reports. This is an important issue that warrants thoughtful consideration.

Thank you for the opportunity to appear before you.

The Chairman: Thank you, Mr. Krauter. On the gazetting comment, were you told by somebody in the department that this procedure is being started?

Mr. Krauter: This is our understanding from a meeting with coast guard officials last week in Saint John. They seem to be on a fast track to move to gazetting.

The Chairman: Mr. Bernier.

[Translation]

Mr. Bernier: I am glad to hear the comments made by the last witness. Although he has been in the shipping industry for longer than me and probably has more friends in the coast guard than I do, he reaches the same conclusion we do, that one shouldn't put the cart before the horse; in other words, the impact studies have to be done before deciding on a fee structure. I understand why he is upset to hear that the coast guard wants to fast track. This is why the Standing Committee on Fisheries and Oceans chose to hear from industry witnesses in order to make members of Parliament and the Minister aware of the issues and, together with the industry, get the attention of the media.

Everything you said this morning, everything people said before you and everything people will say later this week will be reported to the general public. I hope that, this way, the coast guard will find it more difficult to proceed unilaterally.

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Indeed, nobody understands what all the rush is about and everybody agrees on the fact that the coast guard still has a lot of work to do to put its own house in order. Everybody wants to have their say. The user-payors want to have their say in this matter.

I would like to direct a final question to the last witness who expressed a position different from everything we heard this morning. He agrees on doing an impact study and having a moratorium for as long as it will take, even if it means a one year delay, but I understood him to say that he doesn't want a cost structure at the national level. But if we don't have a fee structure at the national level, I would like to be able to make comparisons. It is true that we don't yet know the impacts, but once they're known, it could be that some regions will be disadvantaged because they will have to pay more than others.

You are telling us here that you would like a regional cost base, a regional fee structure and other witnesses have also requested port specific and region specific cost structures. How could this be reconciled? Maybe I'm not expressing my question properly and maybe it's my way of putting the cart before the horse, but it's a foregone conclusion that we will find cost differences between regions and between ports. How can this be reconciled in the future with the competitiveness that everybody wants to retain?

I would like to know the views of our witnesses because I'm sure there will be cost disparities once we will know the cost on a region specific basis. I expect there will be large differences. How can we reconcile these later on? How will they be able to remain competitive? Maybe the gentleman from the Saint John Port Corporation could answer first and the people from the Canadian Fertilizer Institute could follow.

[English]

Mr. Krauter: Thank you very much.

One of the fundamental principles we've put forward - and it's not just the Saint John Port Corporation but the port of Saint John community of shippers and shipping interests - is that we very firmly believe in a user-pay, user-say approach and one that is directly linked to the services that are provided within our area.

As I mentioned in our comments, I think we have a significant level of support locally to have a Bay of Fundy region. We know from discussions and consultations with coast guard and within our port that the navigational aids and navigational services that are provided in the bay are commonly used by the ports within the bay, not only Saint John but the ports of Bayside and Hantsport, so we feel there's a lot of commonality in terms of services provided.

As a shipping community and port community in the Bay of Fundy, we want to focus on what specifically we need for deep-sea commercial shipping to access ports in the Bay of Fundy, and that's what we're prepared to pay for on the basis of the national recovery rate. If it's a 30% recovery rate, then that's all we're prepared to pay as our percentage of the costs of navigational services needed in the Bay of Fundy.

Of course, there are many services in the Bay of Fundy that we feel are not required, and we feel there are significant cost reductions that can be achieved in the level of services provided in the Bay of Fundy.

From other discussions with other interests in the maritimes and people in the Bay of Chaleur, they have similar kinds of interests. Ports in the northern part of the province want to focus on what their specific requirements are for navigational aids and pay only for that which they need, again on a national share basis. We think that's eminently equitable and fair.

[Translation]

Mr. Bernier: I'm not sure I have understood all you said since you spoke a little bit fast.

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On page 4 of your document, in the last paragraph, you indicate it might cost $600,000 a year. Would that be the cost of dredging the harbour of Saint John?

Let's say dredging in Saint John costs $600,000. I know that for the time being the fee structure will cover only navigational aids. However, I think the coast guard wants to establish the principle of user pay and once that is done, don't you think it would be a disadvantage for Saint John to have to pay a $600,000 bill or 30 per cent of $600,000? One would have to compare with another port like Halifax which doesn't have such high dredging costs, I'm sure. There could be quite a competitive disadvantage.

I don't know if my question is any more clearer now.

[English]

Mr. Krauter: To clarify with respect to dredging, there are two types of dredging conducted in the port. One is dredging of the berths. That is conducted annually by the Saint John Port Corporation and has been for many years. That averages about $600,000 per year.

The second dredging program is dredging of the main channels. That dredging is the responsibility of the Canadian Coast Guard and is conducted on their behalf by the Department of Public Works through a tendering process, using private contractors. That dredging amounts to, on average, $1.8 million per year. It's vitally important to the port. Approximately 10 million tonnes of our cargo access the main channels.

We said to the commissioner of the coast guard very firmly, very strongly, that we, the Saint John Port Corporation, cannot afford to pay $1.8 million for main channel dredging. We just do not have the financial resources to do it. Given that, we would have to then recover that amount, $1.8 million per year, from the users of the port. I think it draws into question as to continual efforts at cost recovery... If you take cost recovery to its ultimate limit, not just coast guard services but also the whole range of government services provided, you're going to find, in our view, that there are some corporate entities, enterprises and activities that just cannot be economically sustained.

We feel that the port of Saint John is a major port in this country. To continually download costs to the port of Saint John jeopardizes its viability and jeopardizes the shipping interests of all of those who use the port of Saint John, such as our potash customers, who are represented here today.

I think we need to look as well at what's going on across the border in the United States. Quite recently the president of the American Association of Port Authorities appeared before the House appropriations committee's energy and water subcommittee. In his comments to the House appropriations committee, he urged and stressed the importance of main channel dredging and the need for funding to ensure that commercial ports can be maintained at full project depth. So in contrast, in the United States they recognize that deep water ports are a national asset and there is a role for the federal government to be involved in maintaining deep water ports. They're fundamental to the viability of the commerce of the nation.

I think that's a principle that should be considered by the Canadian government. To continually download costs, one after another, which we're seeing in successive streams, particularly in Atlantic Canada - we say there has to be a limit.

Particularly what concerns us with main channel dredging is that we were advised on extremely short notice that after years and years of main channel dredging, as of March 31 that's it; the coast guard is out of main channel dredging. It's all ours in Saint John to undertake in the future.

We think that's unreasonable. There was no consultation whatsoever. It was a very unilateral approach that placed significantly adverse economic hardships on users of the port. Let's start by talking about the issues.

The Chairman: Mr. Murphy, do you want to respond to that?

Mr. Brian Murphy (Canadian Fertilizer Institute): We at PCS ship from both coasts and through Thunder Bay. Our general approach is that the differences between these immense regions are just too great to be treated on a national basis. We have a great fear that a national fee would very quickly become nothing but a revenue generator with little or no reference to the costs involved.

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We are in support of the position the CFI has taken, that any recovery should be based on the costs actually experienced in the region and on the ability of that region, in cooperation with the coast guard, to decide on what level of services are needed in that region.

We feel there is another possibility. We know there is an area of public good, such as Mr. Krauter has just mentioned, that is another consideration that may have to be treated in a different way. But on navigation aids, and on many of the other items that are coming downstream, it's our firm belief that the only rational way to treat them is by taking similar regions with similar problems and similar opportunities and, to use an expression in terms of a competitive situation, to let the chips fall where they may between the regions.

The Chairman: Thank you very much. Mrs. Wayne.

Mrs. Wayne (Saint John): Thank you very much, Mr. Chairman.

Mr. Krauter, when Mr. Thomas came before our committee he stated that the Saint John Gateway Council had agreed and that Port of Saint John had agreed on the $1.8 million dredging fee. I can see from your presentation that this is not accurate. Has this been straightened out with the Saint John Gateway Council, who I believe is supposed to make a presentation here sometime this week?

Mr. Krauter: We have spoken out very strongly on Mr. Thomas's position on main channel dredging. We wrote to Mr. Thomas on March 7, indicating that his position was completely unacceptable to the Port of Saint John. There was a letter written from members of the Saint John Gateway Council. I think it was perhaps somewhat ambiguous or ambivalent in terms of the position that was stated at the time.

Let it be very clear that the Saint John Port Corporation - and I think I can speak for most of the port of Saint John community - finds the position of the Canadian Coast Guard on main channel dredging to be unacceptable. That view is shared not only by the port community in Saint John but also by members of Parliament, members of the legislative assembly in the province of New Brunswick and by the board of trade in Saint John. So there is very strong support that the position taken by Mr. Thomas and the coast guard on main channel dredging is not acceptable.

Mrs. Wayne: My only other comment at this time is that I have a major concern - and I'm sure you, Mr. Chairman, have a major concern - over what Mr. Krauter has told us about gazetting the fees.

I'm wondering, was it stated at that meeting at the Saint John library, Ken, that this was -

Mr. Krauter: Yes, it was.

Mrs. Wayne: Then, Mr. Chairman, I think I would ask you if you could inform each and every member here if you could look into that and get back to us.

The Chairman: I'll ask the coast guard right now if they want to respond to that.

Diane, do you want to come up to the table and respond to that?

Ms Diane Cofsky (Team Leader, Revenue Generation, Canadian Coast Guard): It's true that last week in Saint John Mr. Thomas met with the industry. He's still going with the plan to introduce the fees on June 1. Otherwise, the year would be too short to amortize the whole $20 million.

Mrs. Wayne: Then what are we doing here, Mr. Chairman?

The Chairman: That's a good question.

Ms Cofsky: He's not taking a decision before the report of this committee.

The Chairman: What is he doing?

Ms Cofsky: He's going to wait for the report of this committee, which he expects on the 19th, and then proceed next week.

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The Chairman: Proceed under what conditions - regardless of the report?

Ms Cofsky: Obviously not.

The Chairman: What did he actually say to Mr. Krauter, then?

Ms Cofsky: Depending on the report of this committee, if the fee is going to be in place he's aiming for June 1.

The Chairman: If the fee, as he stated in the past -

Mrs. Wayne: Mr. Chairman, I think it's so important that the government understands that an economic impact study has to be undertaken, and it isn't coming back until September 1996. How could we gazette a formula and fees at this point in time until we see the economic impact study, which could be devastating for your area, Mr. Chairman, and all of our areas back east? How could they proceed without that being done?

That's the whole point of what everybody has been saying to us this morning, that the economic impact study has to be done and nothing takes place until it is done, until we see whether this has a negative impact or no impact or a positive impact. I think what we're hearing from the people is it's going to have a bloody negative impact.

We have to ask you, Mr. Chairman, to please step in and not allow anything to happen, not to gazette anything, until we get the report from the economic impact study.

The Chairman: It's been my understanding from the department that we wouldn't be going ahead until the committee made their report. Whether Mr. Thomas wants to go ahead or not...

You're shaking your head; he's not going ahead until he receives the report.

Ms Cofsky: No, obviously not. It has to be a ministerial decision, and the minister will wait for the report of this committee.

Mrs. Wayne: Of this committee. But what about the economic impact study report of September?

The Chairman: That will be part of our report, what we recommend on the impact study.

Okay, Mr. Culbert.

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

Welcome, Mr. Krauter. Even if you are a thorn, welcome here. It's nice to have you in Ottawa. I was very interested in your presentation, especially as it relates to the Bay of Fundy region and your comments on the port of Bayside and so on. I might say that this is a deep water port that requires little or no dredging at any point in time. I had to get in my word in, you see.

Number one, with the port corporation and its existence, I know you've looked at many things to ensure that the port is indeed competitive with our competition in the U.S. seaboard ports. We know Boston and New York are always right there, looking over our shoulder saying, ``What can we steal today?'', so to speak. They are our competitors and we always have to be aware of that.

Has your port corporation done any type of comparisons or economic spin-offs? I'm interested in each ship, for example, that comes in and is unloaded, or each ship that is loaded at the port. Have you ever done any spin-offs of what that does economically to the community and to the region, and for that matter to New Brunswick, first of all?

Mr. Krauter: Yes, we have. We've conducted a number of economic impact studies. I don't have those studies or data with me, but I would certainly be more than pleased to provide copies of that to the committee on a priority basis within the next day or two.

Mr. Culbert: But in generalities, can you recall what that suggested, what types of values economically to the region that was put there, whether it be in jobs associated with the loading, unloading or whether it be associated with the economic spin-off?

Mr. Krauter: There's direct and indirect employment related to the activities in the port of Saint John of some 3,000 or 4,000 direct jobs. When we've assessed the spin-offs in economic terms of property taxes, incomes and corporate taxes paid, it comes to several hundred million dollars.

The port of Saint John is a major economic generator, not only in the city of Saint John and southeastern New Brunswick but also throughout the province as a whole. It's vitally important to many producers in our area in petroleum products, in potash, in forest products.

So I'd be pleased to provide you with the specifics of those economic impact studies.

Mr Culbert: Great.

Some of the earlier presenters here in fact have suggested that services currently provided by coast guard should perhaps be commercialized. They even said in certain cases they would be prepared to take over the full cost, 100%, of the buoys and their maintenance and operation. Of course, as you would know, areas such as ours in the Bay of Fundy are ice-free ports and don't require that service, but there are other services.

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So have you ever given that any thought, or has you corporation during this whole process given that any thought?

Mr. Krauter: Actually, that's a very topical question. We met just last week with regional representatives of Canadian Coast Guard to view specific services and aids to navigation that are provided within the Bay of Fundy, encompassing the long-range aids, short-range aids and the marine communications systems.

In terms of long-range aids, it's predominantly LORAN-C. The people who attended that meeting from shipping lines said that substantially commercial shipping doesn't use LORAN-C. So I think really significant savings can be made there.

In terms of short-range aids to navigation, again it's composed of a number of buoys, whistle buoys, bell buoys, lighted buoys and the like. Again, the shipping interests said those could be significantly reduced.

When it came to marine communications services, some of the high-level coverage, particularly radar, was commented on by coast guard as being particularly expensive because it's a manned service. That could be reduced.

So as we went through the specific services currently provided by coast guard, I think there was mutual agreement that there are significant savings to be accomplished, and secondly, many of those services, particularly with respect to maintenance of buoys, could be undertaken by the private sector. By example, there are substantial tug services available directly in Saint John. At times the tugs are idle, and certainly they could be used and employed in maintaining aids to navigation. I think substantial savings could be made.

Of course, that's what we expect. Hand in hand with cost recovery is a reduction of the services and the cost of the services being provided. We didn't focus on that in our presentation, but I think it's implicit. It goes without saying. We expect that there are cost reductions. The coast guard by their own admission says there can be significant cost reductions to the benefit of the whole cost recovery program, and particularly for shippers and users of the ports.

Mr. Culbert: If I may, when you referred to the user-pay, user-say system, I certainly got the message that you meant that you wanted some input, direct input. Assuming that, I assume as well - because again, other presenters have made that case and have come forward with it - that certainly during any economic study or any study that went forward they would like to have the opportunity for ``particip-action'' in the study, first of all for direct input into the study, and as a partner in the economic study, in the cost sharing of such a study. It it fair to say you would support that type of scenario as well?

Mr. Krauter: We certainly strongly support the economic impact study. Many feel the study should have been undertaken much earlier than this. An economic impact study was done a little earlier in the process. Certainly port and industry representatives felt it was quite inadequate.

From talking to people in the area of the port of Saint John, I know many people weren't consulted or were given very short notice by the consultants and sometimes had the consultations over the telephone. Certainly the study was inadequate in terms of its scope and in terms of the consultations that went along with it.

So we strongly support and advocate that this socioeconomic study be done as soon as possible. We would like to see the results of that available to the industry and available to the committee before irrevocable decisions are made on implementation of marine services fees.

Mr. Culbert: Finally, Mr. Chairman, just to follow up on one final area, which perhaps wasn't touched on but certainly is near and dear to my heart, as you would know, tourism plays a very important role and is taking on a greater role in our economies, especially in Atlantic Canada, and more specifically in New Brunswick. My concern is also on the cruise ships that come into our regions.

Can you touch briefly on the economic advantages of having those cruise ships come into our areas?

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Mr. Krauter: I think we have benefited mutually in recent years with the growing level of cruise ship activity into the port of Bayside and the port of Saint John. I think it has been most welcome and well received and supported by our respective municipalities and the province. It's greatly added particularly to retail sales and to return tourism business, which is another important and perhaps unseen long-term benefit that comes from cruise ship activities. In Saint John it's grown over the years from really no traffic a few years ago until now it's become in fact a profit centre for the Saint John Port Corporation. I'm sure the people in Bayside feel the same way.

So we're very cognizant of the effect this marine services fee may have on cruise ship activity, and we certainly wouldn't want to feel cruise ship activity would be deterred from coming to maritime ports such as Bayside and Saint John as a result of this fee. Of course it hasn't had nearly the attention cargo and other deep-sea commercial interests have had in the discussion so far.

Mr. Culbert: But you do feel it would have an effect.

Mr. Krauter: Yes. It's a cost-sensitive business.

The Chairman: Mr. Foley, we've missed you here. You wanted to ask something a while ago.

Mr. Bud Foley (Canadian Fertilizer Institute): I did. Actually, I would like to address an answer to Mr. Bernier's earlier question about the necessity to maintain competitiveness among various users. I'd like to suggest there might be a need for it, but it's not necessary. It's not necessary because maybe the government shouldn't be involved in it at all...or at least as much as possible. What should dictate that competitiveness should be the marketplace.

Let me give you a comparison. We produce and ship potash out of New Brunswick. People produce and ship potash out of Saskatchewan. The Saskatchewan producers supply Japan. I can't, because my transportation costs are too high. There's a marketplace there that is determining where I can market my material based on my transportation costs.

If you take as a corollary and compare Saint John, New Brunswick, or any east coast port with an inland port and let the marketplace dictate the costs associated with distributing transportation services among those, the government would then back off and maybe let some of the services that are in an inland port shift out to the east coast - or anywhere, for that matter. Let the marketplace decide what those transportation costs are going to be and let users of those distribution channels, such as myself or other people, make their economic decisions about what services they will use and where they'll be located.

I know the government as a matter of course does get involved in those types of decisions. The St. Lawrence Seaway is an example. It's for very good reasons, very valid reasons, at the time. But I think an objective should be to minimize that involvement as much as possible. Economically, I don't think the government should be dictating that the Atlantic seaports or the Vancouver seaport should be cross-subsidizing somebody else. The necessity is not there.

[Translation]

Mr. Bernier: I'm glad to hear your views. I have to admit that I rather lean towards private business. I'm not necessarily left or centre, I tend to lean towards private business.

Before we conclude, Mr. Chairman, I would like to put another question to the representatives of the Canadian Fertilizer Institute. In terms of the work we have to do this week, what is the position of the Institute regarding the proposed fee structure for navigational aids? Many witnesses have asked for a moratorium until the impact studies will be finished.

I noted that you also ask in your brief for regional studies and even for port specific studies. These data are not available at the present time and we don't know the socio-economic impact of these costs on the various industries. What is your position here and now, if you have one? Are you requesting an outright moratorium or would you be willing to pay part of the bill and, if so, how much? We heard the commissioner is ready and is only waiting for the go ahead to press the button.

[English]

Mr. Foley: We haven't necessarily made a comment about the impact study and postponing it. Probably if I were to make a comment right now I would say it would be better to postpone it. I think we'd wind up with a better decision if we did.

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We addressed certain things and said we want this, we want that, and we want that. I think to achieve those things it would be better, frankly, if more work were done on it. In the timeframe we had, and since we'd also heard about this April 15 deadline, we knew some of the suggestions we made just could not be adequately identified.

So if it were necessary to postpone implementation, we wouldn't jump up and complain about it. We're not running here to volunteer to pay additional charges.

Mr. Murphy: I would tend to agree with that. It's very much our position that we... We thought we didn't have much time, but if it can be put off and done... It's better to do it right the first time than to try continually to put it right later, because if you don't get it right the first time, you'll never get it right afterwards.

The Chairman: I remind the committee members that Mr. Thomas will be returning here Thursday evening as the concluding witness, so if we want to make that plain to him at that time, you should show up and do so.

Mrs. Wayne: Mr. Chairman, I have a point of clarification. Mr. Thomas, when he was before this committee, stated that with the cruise ship business it was a charge of about $3,800 per ship. I know the QE II is much larger than our normal cruise ship, but today we heard $13,000 was the cost that would be attributed to bringing in the QE II. Does Mr. Krauter have any figures on what the charge for those cruise ships that come into the port of Saint John would be under this formula?

Mr. Krauter: I think the Port of Halifax mentioned $13,000 for the QE II. The QE II also calls at the port of Saint John. We're very happy to see it.

Mrs. Wayne: Not $3,800.

Mr. Krauter: No, it certainly isn't. The rate it would pay in Halifax, if it were on a flat basis, would be the same rate as it would pay in Saint John. I think if you were with the Cunard line and you started looking at $13,000 a port call, you might stop to cost out the whole itinerary and whether it's worth calling in Atlantic Canada.

Mrs. Wayne: As for the other cruise ships, Ken, do you have a figure on what it costs for those ones that aren't quite as big?

Mr. Krauter: I don't have specific figures. It varies considerably, depending on the size of the ship.

Mrs. Wayne: It varies. That's what I figured. It wasn't standard.

Mr. Krauter: One of the difficulties the industry encounters in the experience of this whole process is always working towards a deadline. The question is where is the deadline arising from, who set the deadline, and is the deadline really sacrosanct here or not.

On top of that is a multiplicity of proposals. We found in some of our own meetings if on any given day you went around the table and said ``state the current proposal'', some people would have a little difficulty saying what the current proposal is, because it changed in the last few days or it changed in the last week.

So it's always been a case of we're in a rush, we're in a rush, there's a deadline, there's a deadline, the proposals keep changing, and industry is continually trying to assess the latest proposal for what it means specifically to a shipper or a shipping line or a port, and what the regional cross-subsidization and other consequences are which might arise from the latest proposal. It's very difficult for industry and port representatives to deal continually with this moving process while trying to get on with the other business of the day.

The Chairman: Does anybody want to make some concluding remarks?

Mr. Larson: On that point, we have worked very hard as an industry to try to establish a few guiding principles, such as costing individual ports - that this should not be viewed as a revenue base but rather as a cost recovery base and as being to turn attention away from the tax aspects. If cost savings are achieved, they should flow back and benefit all stakeholders involved.

If a detailed study is undertaken to review costs and develop a consensus approach for a proposal, the fertilizer industry would be pleased to recommend participants in different regions to help with that exercise. We would hope the coast guard would look for input from a broad base in developing this kind of program.

.1300

Thank you, Mr. Chairman.

The Chairman: Thank you very much. Thank you all for coming.

We'll reconvene at the same place at 3:30 this afternoon. The meeting is adjourned.

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