EVIDENCE

[Recorded by Electronic Apparatus]

Wednesday, April 17, 1996

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[English]

The Chairman: I see a quorum, and the rest of the members will be in shortly. But we can start, if you so desire. We have presentations from Georgia Pacific, Strait-Highlands, Stora Forest and Martin Marietta.

So if you would take your places, we can start hearing your presentations.

Mr. Phil MacDonald (Executive Director, Strait-Highlands Regional Development Agency): Mr. Chair, we understood there was a slight difference in the scheduling. The Strait-Highlands Regional Development Agency would make their presentation first, followed, I believe, by Martin Marietta, Georgia Pacific, and then Stora Forest Industries.

The Chairman: That's fine with us.

Mr. P. MacDonald: Okay, thank you. I'd like to start by thanking the committee for allowing us to come here and appear on this very important issue.

Our agency put together this particular promotional piece, and it's quite descriptive of our area. It covers a large part of rural Cape Breton and a piece of mainland Nova Scotia. The scenery is quite nice. If you haven't been there, perhaps you should make it down sometime.

The Chairman: I've been there.

Mr. P. MacDonald: Yes, and you know what I mean.

The Chairman: I have a son at Antigonish.

Mr. P. MacDonald: I see, yes. Well, we have a few X-men at the table here.

But jobs are very important to us down there as well. This marine service fees is a very critical issue to the shipping industry based in the strait. The people at the table here are well prepared today to make that point to you and the committee.

I'd like to start by introducing Mr. Blaine Gillis. He is with our agency, and he's going to make a presentation on behalf of Strait-Highlands.

Mr. Blaine Gillis (Port Development Officer, Strait-Highlands Regional Development Agency): Thank you.

The Strait of Canso Superport is strategically located on established international and coastal shipping lanes of the North Atlantic. Just off the great circle route, the Strait of Canso provides convenient access to eastern United States ports, the Gulf of St. Lawrence and the St. Lawrence Seaway.

After a decade of decline the Strait of Canso Superport has a second lease on life. Before the year 2000 industry will invest approximately $1 billion along the harbourfront. The industries located on the Strait of Canso generate an economic impact in the order of $250,000 annually in a region where the unemployment rate exceeds 25%.

In the past year the Strait of Canso Superport had the largest tonnage increase in international cargo of any port in Canada, a throughput of 12.2 million tonnes.

As a result of the discovery and development of east coast offshore hydrocarbons, the Strait of Canso has focused on offshore development and its potential opportunities for the superport. For example, Statia Terminals' petroleum storage facilities could become an integral part of the storage requirements for the $2 billion Sable gas energy project. The Strait of Canso Superport could also become a regional supply and service centre for the offshore in eastern Canada.

The following points pertain to the impact of the marine service fees on the Strait of Canso Superport, and we offer them for your consideration.

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The first poimt concerns cost recovery. We believe in the principle of cost recovery, user pay. The principle of cost recovery has been lost in this process. The process is flawed. Although one can reasonably understand that the Canadian Coast Guard's position and fee formula will change throughout this evolving process, the formal communications and consultation process has been ad hoc at best.

Information presented at several meetings has been taken out of context and used by the Canadian Coast Guard to support a variety of fee proposals. Fees were changing so quickly in the past month that it was an embarrassment to the shipping community. Instead of the flavour of the month we had the fee of the week.

We are now dealing with a contribution formula being developed by the Canadian Coast Guard to extract revenue, taxes, fees and whatever from the shippers. It has no relevancy to the costs of navigation aids to individual shippers or individual ports. What are the navigations aids costs on a port-by-port or even shipper-by-shipper basis?

We would recommend, as others have, an independent outside party to undertake a review of Canadian Coast Guard cost allocations with specific emphasis on the direct and indirect costs on a port-by-port basis.

Further, cost reductions and navigation aid system options must be examined by the end-user, the customer, the shipper, or the port. We recommend that a private and public partnership be established to evaluate the cost and relevancy of navigation aid systems, which have been overbuilt, duplicated, and in some cases are obsolete, given today's technologies.

Our second point is on fee formulation. The first fee recommended by the IBI consultants and proposed by the Canadian Coast Guard for low-value bulk commodities was less than 4¢ per tonne. The fee at the time of preparing this presentation was 22¢. It appears that the target is constantly evolving. At 22¢ per tonne for crushed stone shipped from the Strait of Canso Superport, this would be a 550% increase from the original proposed fee for low-bulk cargo.

Is it fair? Is it equitable? We think not. Whatever the formula configuration used, whatever the cap, whatever the number of navigational aids used, whatever the reduction in harbour miles, the bottom-line fee should be reduced per tonne for low-value bulk commodity.

If certain low-value bulk commodities such as gypsum and crushed stone become non-viable to ship from the Strait of Canso Superport, not only does the economy as a whole suffer, the remaining shippers will have their marine service fee cost increased, thus weakening their viability and that of the port.

Our third point is on the accumulative economic impact. There has been very little economic impact analysis or accumulative effect analysis on a national, regional, provincial or port basis undertaken by the federal government before or during this process.

The accumulative effects of marine policy changes such as harbour dues increases, the creation of energy response organizations, port divesture and marine service fee introductions have not been analysed. The accumulative impacts are not well understood by the marine community and the general public. In many cases it is not well understood by government, as different departments have not harmonized the impacts of their policies and the accumulative effects and impacts on shippers at a given port.

What are the accumulative effects on shippers and ports when the Canadian Coast Guard ice-breaker fees are added? The total cost impacting on shippers and ports should be known now, or we'll all go through another frustrating round of discussions.

We would recommend that a greater economic impact analysis be undertaken by the federal government on the accumulative effects of the marine service fees and other marine costs to shippers resulting from federal government policy changes.

The fourth point refers to revenue determination. The revenue generated by an individual port in the Canadian Coast Guard's latest formula has little to do with the direct costs for navigational aids for that particular port. The cost for navigational aids on an individual port basis must be determined. Only then will we have sufficient insight to implement a true cost-recovery process that is fair and equitable to commercial shippers and ports.

If the Strait of Canso Superport knew its navigation aid costs, the port community could formulate revenue targets among shippers to pay the Canadian Coast Guard. If revenue increases above navigation aid port costs in the future, shippers could reduce their cost, or the port and shippers could use these revenues to develop, manage and market Canso Strait Superport, thus encouraging economies of scale, additional shipping activities, and reducing the cost to shippers in the port.

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If ports cannot become commercially viable under the new realities, then the non-viable ports will require public policy to decide if provisions for subsidies will be provided, on what basis, and by whom. The private sector shippers and commercially viable ports should not be asked to subsidize other non-viable shippers and ports. That is a public policy issue, not a private sector issue.

We believe the Strait of Canso Superport, with its natural competitive advantages, can be a commercially viable port. Give us chance.

Thank you.

The Chairman: I want to say that we have an hour for presentations and questions. We can spend it all, or as little as possible, having presentations, but we have to keep to the schedule, or we're going to be here until midnight.

I think it's Georgia Pacific and Martin Marietta next.

Mr. Mark MacDonald (Attorney, Georgia Pacific, and Martin Marietta Materials): Thank you, Mr. Chairman.

My name is Mark MacDonald, and I'm legal counsel. With me is Mr. Michael Power, general manager of the company. I will make some introductory comments, and Mr. Power will be available to respond to questions, as appropriate.

We have provided a written submission to the committee, and I trust that members have it. My presentation will follow the outline in that written submission.

Martin Marietta's project, the Porcupine Mountain Quarry, is a truly unique natural resource project located at the Strait of Canso. It's unique because it's an export industry, and the exported product of the industry is simply rock, Nova Scotia granite, which is processed on site and at the end of processing comes in sizes ranging from sand sizes to 20-tonne particles.

The project was originally developed in the late 1970s without any government assistance. What makes the project possible are the features of the Strait of Canso port: deep-water, ice-free water, proximity to shipping lanes, and the fact that the quarry is situated immediately adjacent to the water of the Strait of Canso so no overland transportation is necessary.

Sixty people are employed there. About 75% of the product is exported, mainly to markets developed by Martin Marietta in the east coast U.S.A. Martin Marietta acquired the quarry in 1995, spending many millions of dollars to do so.

It may go without saying, but the rock product that is being shipped out is low in value but high in volume. As an illustration, the average sale price is $4 to $6 a tonne. That's also the average cost of shipping the product to the east coast U.S. market.

What has rendered the project viable is its marine transportation advantages. As mentioned, it's located immediately adjacent to the strait, and there's good shipping access from the Strait of Canso to east coast U.S. markets. Without those natural advantages, the business simply wouldn't be a viable one.

As Mr. Gillis has indicated, there have been many proposals on the table. It is the position of Martin Marietta that no fee of this kind should be imposed on the industry unless it's absolutely certain that the cost base of the service provider - in this case, the Canadian Coast Guard - has been reduced to the minimum reasonable level. This has not taken place here.

Similarly, there must be a mechanism for the payers to scrutinize the cost base of the service providers and have input on an ongoing basis. No such mechanism has been proposed here.

The company's written submission focuses on the last two fee proposals. One of these, the March 28 proposal, costs Martin Marietta $286,000 per year, based on an assumption of export shipping volume of 1.3 million tonnes.

In the April 10 proposal, there are two alternatives. One is a fee per tonne-mile with a variation for bulk cargo, which results in a cost to Martin Marietta of 13¢ a tonne or $169,000 a year. The other, which is the interim proposal based on cargo weight, is 17.6¢ a tonne, for a total annual cost of $227,500.

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In the third section of our submission to the committee we've outlined the basic consequences of the fee proposals, the most recent ones to the Porcupine Mountain operations. The committee has to look at it in this context.

Martin Marietta has invested millions of dollars in the last year without any government subsidization of any kind, in the hope of turning what has mostly been a non-profitable business into a profitable one in an area of high unemployment. It wouldn't have invested the money if it hadn't seen the prospect of profitability, and like any other business, it must achieve a satisfactory financial return.

Forward projections have been made for the current calendar year and 1997. Assuming continued growth of the business and pricing stability, the before-tax projected return on sales is between 5% and 8%. Remember this is a before-tax figure. To put it in context, after transportation costs the sales are expected to be in the order of $10 million a year. The margins are therefore minimal. To put it further in context, Martin Marietta's average return on sales for similar U.S. operations is 18% after tax.

Having regard to these minimal margins, additional costs in the order of $200,000 to $300,000 per year - that would be the consequence of the proposals now on the table - are simply not sustainable by the operation.

The company was particularly distressed at one recent exchange at an information session in connection with these fees. Their representative complained to Mr. Thomas that the company will be put to the wall by the proposed fees, which would consume the company's entire profit margin. The reply, which left the company's representative speechless, was that it was all right that the company be put to the wall so long as it wasn't put over the wall.

Mr. Chairman, this government is relying on companies such as Martin Marietta, Statia, Stora, Georgia Pacific and others to invest money without government help to create badly needed jobs in areas like the Strait of Canso, and it simply can't deal with industry in this way.

It's not worth it for Martin Marietta or anyone else to invest in Nova Scotia or Canada, if the result is simply to make enough money to pay coast guard user fees.

In the fourth section of Martin Marietta's submission, we briefly addressed the position of shippers in Martin Marietta's category - that is, shippers of low-value, low-margin, high-volume cargoes.

A shipper of a dump truck full of rock worth less than $100 shouldn't pay the same amount as a shipper of a container containing precision equipment worth millions of dollars but weighing the same amount or considerably less. Yet that would be the effect of the March 28 proposal and the second option of the April 10 proposal.

Similarly, it isn't fair or reasonable to lump all bulk cargoes in the same category. A tonne of metal concentrates will have a value many times higher than a tonne of rock. Remember, the export product here is simply rock, Nova Scotia granite.

In the IBI December report, some recognition was made of the position of shippers of this kind of cargo, low-value, low-margin bulk cargoes. The suggestion was that a fee of up to 4¢ a tonne could be absorbed. The position of Martin Marietta is that even 4¢ a tonne amounts to $50,000 a year. Even fees at that level would be unfair, and would significantly hurt the operation.

Some basic fairness issues are addressed in the fifth section of our submission. On behalf of the development agency, Mr. Gillis has already put some of those in context. Briefly, Mr. Chairman, the strait enjoys many natural advantages as a port and is a low user of navigational aids.

As pointed out in our submission, Mr. Thomas did suggest at one of the information sessions that the port could be serviced at a level that is 70% less than the present level of navigational aids. That again raises the question of scrutiny of the cost base.

We think the committee should consider three points. First, under the March 1996 proposals a shipper of rock aggregate from Thunder Bay, nearly 2,000 miles inland, would pay 15¢ a tonne. Martin Marietta, on the Strait of Canso, right on the international shipping lane, would pay 22¢ a tonne.

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Secondly, to the extent the proposals are based on deemed port mileages, those mileages don't make sense. The Strait of Canso, as a coastal port on the international shipping lanes, has a deemed mileage of 37; Saint John, New Brunswick, inland on the Bay of Fundy, is 17; Cornerbrook, western Newfoundland, is 37; and Surrey, P.E.I., is 15 miles.

Reference is also made to the fact that in allocating the Atlantic Canada share of the cost, no consideration is given for the fact that seaway and river traffic are also users of navigational aids in Atlantic Canada.

The concept of user fees seems to have been abandoned in favour of an attempt to allocate the revenue on the least objectionable basis, without regard for the level of usage of services. This, in our submission, is taxation, not user fees. The result is to negate the natural geographic advantage of Atlantic Canada and the Strait of Canso in particular. It is those advantages which caused companies such as Martin Marietta to invest in Atlantic Canada in the first place, and the Canadian Coast Guard shouldn't negate those advantages.

In conclusion, the current proposals are unfair and very detrimental to the low-margin business of Martin Marietta and others in a similar position. The result of the current proposals could be closure of the Porcupine Mountain operation or diversion of business to quarries outside of Canada, either of which could result in the loss of up to sixty jobs.

User fees must be fair, rational and based on actual usage. The level of user fee that can be absorbed by Martin Marietta and others in a similar position is minimal. User fees must be a last resort, and before they are applied there must be analysis of economic impact, detailed review of the cost base of the service provider and analysis of the need for the services provided.

In light of the potential consequences of these fees, some of which we've outlined, the government should consider a delay in implementation in the order of one year so proper study can be undertaken.

Finally, if marine service fees are to be imposed at this time, the Canadian Coast Guard must consider the following.

First, in setting its formulas, it should give greater recognition to the natural geographic advantage of the Strait of Canso and the low usage of navigational aids. If mileage is a component at the end of the day, the Strait of Canso mileage should be much less than 37.

Second, the coast guard should give specific and special recognition to the circumstances of shippers of certain low-value, low-margin, high-volume products, such as rock produced by Martin Marietta.

Thank you for hearing our submissions, Mr. Chairman.

The Chairman: Thank you, Mr. MacDonald.

Mr. Graham is next.

Mr. Jim Graham (Manager, Georgia Pacific): Thank you, Mr. Chairman. My comments will be brief.

My name is Graham. I'm representing Georgia Pacific. We have been exporting gypsum on the Strait of Canso for the last 35 years, at a rate of approximately a million tonnes a year. We are a small operation. We have eighty people on our payroll and we spend around $9 million a year in the local economy.

We are located on the Strait of Canso primarily because of transportation. There is no gypsum on the eastern seaboard of the United States, where the big centres of population are, and it is cheaper to move gypsum by ship from Nova Scotia to the U.S. than it is to bring it in from the interior. That is the reason we are there.

We note that the IBI recommended the gypsum industry could stand a 10¢-a-tonne increase. I am not speaking for the gypsum industry, but I can say our operation could stand that. If you move that up to 17¢ or 18¢ a tonne, that will make our operation less viable, and I can tell you it will start the process of Georgia Pacific looking for other supplies, probably in Mexico and the Caribbean. In the long term it will mean a reduction in shipments from the Strait of Canso.

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The Chairman: Thank you, Mr. Graham.

Mr. Rick Ceccetto (Manager, Internal Sales, Distribution and Accounting, Stora Forest Industries): Thank you for this opportunity to appear.

I'd like to tell you something about our company. As you heard earlier, we are located on the Strait of Canso. We have one of the finest deep-water ice-free ports on the eastern seaboard. We produce about 175,000 tonnes of market pulp and 185,000 tonnes of newsprint per year. Of that, 80% is exported.

The pulp mill was constructed in 1961 and the newsprint mill in 1971. Last year we had revenues of $340 million. We employ about 950 individuals, with another 1,300 who work exclusively for contractors who work exclusively for Stora Forest Industries. It's been estimated that there are an additional 3,700 jobs in the area as a result of our presence - this is in an economically depressed area with unemployment of approximately 25%.

We recently announced a $650 million expansion. Beginning in 1998 we will produce 350,000 tonnes of magazine- and catalogue-grade paper. There are two main reasons why we are there and why we continue to grow - the availability of raw material at competitive prices and natural transportation advantages.

To start, we are very frustrated with the process to date. Let me see if I can give you a sense as to why. This may sound like crying over spilled milk, but we bring it to light because we hope it doesn't continue. The proposals to date have been based on a perceived ability to pay and what is politically acceptable, not what is fair. The proposals have been difficult to keep up with. It takes considerable effort to analyse a proposal and at times we've received revised or new proposals before we've been able to look at the last one.

There have been a number of inconsistencies and omissions in the data. For example, the mileage reported for each port has not been consistent from discussion paper to discussion paper. We've never been able to get an answer to the question as to how regional costs have been determined. The information has been fragmented, provided on short notice and not always provided to all shippers. On occasion we've had to invite ourselves to meetings.

To properly assess a proposal and respond requires study, consultation with other shippers in the industry and within our area, and travel from our remote location. For example, we received the latest proposal late last Wednesday afternoon and arranged to attend a meeting in Saint John at noon. This required ten hours of travel by car from our location.

One of the stated objectives of this marine services fee is ensuring that users pay their fair share - I'm quoting the coast guard there. We and most of the other shippers in the region have been stating from the beginning that satisfying this objective requires a fair allocation of your costs of the service provided to each shipper. We appreciate that this is a complex job, but we believe that with proper study by a qualified independent, objective cost consultant, you could determine a fair allocation of those costs on a reasonable and fair basis. Unfortunately, to date that's not been done. Instead, we've had a continuous stream of proposals that have been based on ability to pay and perceived political solutions. Each attempted to solve the problem, but created new ones.

A further stated objective is to create efficiencies by removing subsidies. We feel that to date the approach has violated this principle. Each proposal has merely shifted fees from one group of shippers to another.

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The latest proposal of last week does not satisfy the coast guard's own objectives. In Saint John last week I believe Mr. Thomas recognised the shortcomings of this latest set of options, but feels there's no time for further study with June 1 approaching for the collection of fees.

There was also an indication at that meeting of an intent to go to a port- or service-specific fee as of April 1, 1997, after a proper assessment of costs and a socioeconomic study. The coast guard finally appears to be accepting our suggestions - after six months - but it appears we're being told that it's too late for its practical application.

It appears we're being told that they will get it right the next time, but please live with the inequities in the interim. With the problem of time running out, my answer is that this is the result of the refusal to listen to shippers or to follow the coast guard's own stated objectives. I ask this question - are we responsible for the shortfall of revenues until we get it right?

Option A from the latest proposal is clearly not acceptable to Stora. Mileage is not a suitable or reasonable approach to determining the cost of aids to navigation on a regional basis. It results in a wide range of fees for shippers in the region - even within the same industry. A further result is that Strait of Canso shippers incur fees almost three times those of shippers in central Canada.

Option B, although preferred over option A, still results in the following anomalies. Shipments from the extreme of the central region, such as Thunder Bay at 15¢ per tonne, incur lower fees than the Strait of Canso at 17.6¢, and this even though we're located directly on the Atlantic Ocean.

Fees raised from the Strait of Canso equate to 12% of the region. This doesn't seem fair. It seems to be a disproportionate share.

In an attempt to get it right between now and April 1, 1997, we would suggest that the following points be considered:

Fees should be based on a reasonable assessment of a shipper's actual cost, not on the cost of a region or an arbitrarily defined zone. If a regional approach is continued, a reasonable assessment of a shipper's costs should begin with a proper determination of the region's costs.

The process should be fair and open.

All shippers should be responsible for contributing a similar share of their allocated costs in fees. That doesn't mean that we all have the same rate per tonne, but that we all have the same share of our costs.

A shipper's viability, if that is affected, or if a shipper is vulnerable due to fees - we don't believe private shippers are responsible for subsidizing that. Should a group of shippers require special consideration due to matters such as public policy or constitutional issues, again, we don't feel a private shipper should subsidize that.

The coast guard must take a strong lead in steering the process between now and then. The approach to date has been of determining the revenue required, and leaving it to users to decide. We feel they are just washing their hands of the problem.

To summarize, Stora is obviouslya key player in the economy of our area. We continue to grow in the area. We have been very frustrated with the process to date. We feel the approach to date has not been consistent with the coast guard's own stated objectives. We think we have such a mess on our hands that we should all step back and do further study and delay. The latest proposal is not acceptable to Stora and we hope that our points will be considered for further study. Thank you.

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The Chairman: Thank you very much. We'll go immediately to questions from the Bloc Québécois.

[Translation]

Mr. Bernier (Gaspé): I'd like to start by apologizing to our witnesses for arriving a little late. Unfortunately, I did not fully read my notice of meeting, and I went to our former meeting room. I will try to read my information more carefully for our next meetings.

My first question will be to the representatives from Stora.

In your conclusion, you mention a date of April 1, 1997. You suggest that the government delay the introduction of the fee structure until the impact studies have been completed and each of the companies concerned can measure the impact on their operations. Did I understand you correctly?

We have a problem as well. This is a race against the clock, because the minister isn't giving us much more time, and from what I have been able to understand, he will not pay much attention to the report we table. Nevertheless, I would like the witnesses to say what they want us to do on Friday.

What message should we give the minister? Are you prepared to live with that, or are you requesting a moratorium so that the fee structure is not imposed while the studies are under way? As some other witnesses have mentioned, would you be prepared to make a contribution to enable the Coast Guard to partially meet the financial debts that have been imposed on it?

You represent three solid companies or financial groups. You are business people and you take the time to evaluate certain things before making a decision. So I need you so we can send a clear message to the Coast Guard and to the minister. What do you want exactly? A moratorium or something else?

[English]

Mr. Ceccetto: Stora feels it is unreasonable to levy a fee on our company or any user without first assessing what our true costs are. If it is a true cost-recovery approach, you have to begin with a reasonable assessment of what a shipper's actual costs are. Until you do that, you really can't determine what a fair fee to charge me would be.

If that can be done before June 1 - I don't believe it can - then do it. But for whatever period it takes to get it right, we're saying let's get it right the very first time. Let's recognize the features of the region, the port and the cargo of the various individual shippers in determining a proper rate structure. Anything else is just a guess.

[Translation]

Mr. Bernier: The representatives from Martin Marietta Materials and from the Saint John Gateway Council also requested a moratorium. They don't want anything to happen until they know the impact of these fees on your transportation costs. Of course, there could be other transfers in the future.

So I want to be sure that I understood all of you correctly.

[English]

Mr. Gillis: I believe a cost analysis and a social economic impact analysis should be done before the fees go in. If the fees have to go in with some formula base - whatever that is - until the cost studies are done in a private-public partnership, those revenues should go into some kind of trust until private and public partners agree, before releasing them to the government. Some portion of those costs should probably be put in trust until the studies are completed.

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Mr. Michael R. Power (General Manager, Martin Marietta Materials Canada Ltd.): Martin Marietta feels that there should be more cost analysis. We also feel that we should have further submissions on this. We are at the bottom of the low-value commodity and we just can't afford the fees proposed at this point.

[Translation]

Mr. Bernier: I think that is clear, Mr. Chairman. I don't know whether my colleagues opposite have any questions they would like to ask.

[English]

The Chairman: Mr. Verran from Nova Scotia has a question.

Mr. Verran (South West Nova): I would like to thank the witnesses for appearing here today.

As Canadians, but as Nova Scotians as well, we are particularly interested in your companies, in the cost factors involved in trying to do business, and in the new regulations being proposed by the department. All of us around this table recognize that you are not the first people to appear before the committee with these very same concerns about this proposal and about the fees. It is not something new. We've been hearing that from other witnesses and other companies in the last couple of days and before, as we visit our constituencies.

I believe it would be helpful to the committee and certainly to me - and I direct this to Rick - if you would be kind enough to list some of the inconsistencies and omissions that have been made by the representative of the department; where, and if possible, what part of the department or who the invitation would come from with 48 hours' notice to attend meetings in another province. This seems very inconsistent and unfair. Those types of things would be helpful to us so that we could be specific. We have been told as members, as individuals and at meetings, that there has been consultation. That has been a main question of your representatives, that those meetings and consultations have taken place. We have heard time and time again that this is not the case.

As one member of the standing committee, I feel this has worked backwards. The cost analysis should have been done first and then your fees struck, because it would hurt people like you who are in business with high bulk and marginal profits.

I would ask if you could comply with the individual items rather than the broad statements to the chairman of the committee. I know he will bring it to us and we will certainly bring it to the minister and the deputy.

Mr. Ceccetto: We would be happy to provide you with some information subsequent to this.

Mr. Verran: Thank you. In general I just want them to know we are very concerned, as you are, and we intend as a committee to push through and get some more answers.

The Chairman: Mr. Wells.

Mr. Wells (South Shore): I'm going back through my table of fees. They keep throwing different options at us, and we know we've been through a number of variations. If you had been here last night, you would have found me very confused because I didn't know what fee structure I was dealing with. But I have to apologize to Mr. Thomas because he did send me a letter with the new fee structure last week. Unfortunately I didn't see it until late last night; it was in my file. So for the record, I apologize to him.

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So I now have the up-to-date fee structure. I am referring now to the Stora proposal and then I want to ask Mr. MacDonald or Mr. Power a question.

We were talking about option B as preferable to option A. Are we talking, first, about the Canadian-flagged vessel or the foreign-flagged vessel? What type of vessels would your company be using? I want to know because there are two different structures, as you know. I'd like someone from Stora, whomever can answer that.

Mr. Ceccetto: We only have foreign-flagged vessels.

Mr. Wells: Okay. I just want to know on which side of the table to be.

Am I correct in that the proposal you referred to as option A was the one based on the fee per tonne-mile?

Mr. Ceccetto: Option A is a fee per tonne-mile; option B is a flat rate per tonne, yes.

Mr. Wells: Okay. The tonne-mile would have been a disadvantage to you because of the distance.

Mr. Ceccetto: We definitely have no support for that.

Mr. Wells: Even with the cap?

Mr. Ceccetto: The cap has no relevance to us.

Mr. Wells: Okay.

Mr. Ceccetto: Mr. Thomas has said himself that distance is not a proxy for estimating the costs of aids to navigation. I think those were his words.

Mr. Wells: Prior to that fee per tonne-mile that was tried on, I think they were simply looking at the gross registered tonnage, were they not? that's the present proposal before us now as option B.

Mr. Ceccetto: Option B is 17.6¢ per tonne, period.

Mr. Wells: Right.

Mr. Ceccetto: That's for only your cargo on that ship.

Mr. Wells: Is that based on the cargo or on the size of the vessel?

Mr. Ceccetto: On the cargo.

Mr. Wells: On the cargo.

Mr. Ceccetto: I understand it to be cargo.

Mr. Wells: Is that the same way it had been initially proposed at the beginning of the consultation process before they went to the mileage component?

Mr. Bill MacInnis (Superintendent, Internal Sales and Distribution, Stora Forest Industries): They had different variations at the time of the mileage component, but I think if you went right back to square one, it would be GRT. But then they made a variation in that and went to tonne-mile. They kept adding and making variations.

Mr. Ceccetto: A key difference between the latest round and the earlier ones, I believe, is that we are now on a regional basis.

Mr. Wells: Yes.

Mr. Ceccetto: Originally, we were on a national basis. Now there are many others, but that is one of the key items.

Mr. Wells: Okay. As for the whole question of cost recovery and whether or not there should be cost recovery, we certainly have been getting different comments on the different formulas, but there seemed to be a general agreement. Everybody agreed with the concept of cost recovery and that in fact it was a fair concept to ask the people using a service to pay if the people getting the service could have some say in how it worked and be sure that it was a cost-efficient service. But just on the concept of user pay, do you reject that or do you accept that the users of the service should be paying at least a portion, if not all, the cost?

Mr. Ceccetto: With some caveats, I believe that's the position I've taken here today. We advocate that we should pay our share, no more, no less. If we're paying, say, 30% of our costs, then everyone should pay 30% of their costs.

Mr. Wells: Okay. Would you, then, reject the national fee structure, preferring not only perhaps a regional fee structure, but one that's more port-specific?

Mr. Ceccetto: I'm actually advocating a shipper-specific approach. I can't speak for my colleagues here today.

Mr. Wells: So it's to be as narrow as you could get it.

Mr. Ceccetto: Yes. Tell me what it costs to come to my dock.

Mr. Wells: Okay, so you would not support the national rate that will be applied across the country as central, west -

Mr. Ceccetto: That just becomes basically a tax by another name.

Now, if you chose to call it that, then let's call it that.

Mr. Wells: No, because most of the witnesses yesterday from central Canada were suggesting they would prefer a national rate. So I'm just trying to find out where the agreements are with respect to presenters and the differences.

Mr. Ceccetto: The rate may be acceptable and palatable, but I don't know how you can do that and say you've been consistent with your own objectives of user pay, fair share.

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Mr. Wells: I guess the same sorts of questions.... I'm not sure if Mr. MacDonald or Mr. Power wants to answer the question with respect to.... We understand the low-value problem of your product. We've heard yesterday from other people in the gypsum industry with the same types of concerns, but I'm just trying to get some clarification on the user-pay concept. You accept that if you use a service provided by the government, then you should be paying for that service in some way.

Mr. Power: We accept the user fee as long as the cost is kept to a minimum.

Mr. M. MacDonald: If I can add, Mr. Power, this is as long as the user fee is applied only after the parties are satisfied that the cost base of the service provider has been cut to a minimum. In other words, it's a last resort.

Mr. Wells: And I think we have to ask some more questions on that. I think that's fair comment. I think we've been hearing that from everybody, and I think we want to explore that more.

But what about the national rate as opposed to a regional rate, port rate or an individual shipper rate? How would you see a fair formula in those four options? Which one would you prefer: a national rate, regional rate, port-specific rate, or, as Stora said, company-specific rate?

Mr. Power: I would support a company-specific one. As we mentioned earlier, any fee relating to the low value of the stone is almost a burden. Basically, something in the range of 2¢ per tonne to 3¢ per tonne would be acceptable, probably with a cap, in our particular case.

Mr. M. MacDonald: I think I'll just add to that, Mr. Wells, that it would be fair to say that the slot you put the fee in, whether it's national, regional or otherwise, isn't what's important to Martin Marietta, so much as the fact that there has to be, at the end of the day, a recognition that their bulk low-value, low-margin product can only bear so much. Mr. Power can again elaborate if he wishes, but at the end of the day, the important thing is that fee structure, however it's determined, is one that's not going to render their operation unviable.

Mr. P. MacDonald: I might, Mr. Chairman, address Mr. Wells's question. I think it's been very difficult for the shippers in the region to address some of these problems. We've been working in this issue from about October, when it was brought to light. The problem is that we haven't been given the costs of what it takes the coast guard to operate the navigational aids within our port, within our whole region.

We've requested that information from the commissioner and from the regional offices, but apparently the coast guard hasn't been able to assimilate it. The coast guard's accounting system still works that way, but it's very difficult to ask people to commit to a certain type of cost and revenue-producing structure before they know what the cost will be associated with that.

To get into a port-by-port specific fee, you would actually have to know what the cost of maintaining and operating these fees are within the port. We haven't had any satisfaction in getting answers to those questions, so it's very difficult for us to -

Mr. Wells: Have you asked those questions directly to Mr. Thomas?

Mr. Gillis: We've sent several letters to Mr. Thomas and also to several ministers requesting costing information on the Strait of Canso Superport so we could do some proper analysis. Just in principle, if you're looking at a cost-recovery system, you've got to get down to shipper-specific or port-specific. When you get to a regional or national basis, you're basically looking, in all senses, at a tax system, whether it's sales tax or shipper's tax that they're requiring. If you're looking at true cost recovery, you have to break it down to shipper-specific or port-specific.

.1635

Anything beyond that is not really cost recovery, but more of a tax. If that's a public policy decision, fine, but -

Mr. Wells: If we're doing true cost recovery and we're looking at shipper-specific, we're going to hurt that person with the low-value cargo, are we not? That's because the costs will be the same whether it's a low-value cargo or a high-value cargo. So if you're looking at true cost recovery and looking at the actual cost, isn't that going to hurt your client's company, Mr. MacDonald?

Mr. M. MacDonald: If there's no differentiation between cargo type. Again, going back to our example of a dump truck full of rock compared to a container containing a $2 million piece of equipment, both of which weigh the same, obviously it is going to hurt companies such as Martin Marietta and to a lesser extent, but in a similar way, companies like the gypsum companies.

Mr. Wells: So when we as a government put a fee in place, we have to consider not only the actual costs, but to some degree, I think you would agree anyway, the ability to pay. If we put in something that simply reflected the cost, it may put you out of business or you may do all right.

Mr. M. MacDonald: Yes, exactly.

Mr. Wells: That's part of the dilemma we have when you say it has to be shipper-specific. If we do that, I can't see how you could accept that, because the costs to both of you are the same, but your margins are different.

Mr. Ceccetto: We appreciate that. There are a couple of points I'd like to make. One is that the nature of the cargo will lead to a different rate structure for both of us. Just so you know, I'm a high-value, low-volume shipper.

Mr. Wells: We have the comparison for that reason.

Mr. Ceccetto: We bring in ships of 3,000 tonnes. We take them in and out. They may bring in 30,000 tonnes. Just that volume in itself will lead to some economies of scale, I would assume. I don't know the costs, but I think that's probably a fair assumption.

The second point is if because of one's ability to pay it's decided that another company needs a break, then I don't think other shippers should pick that up. I don't begrudge my neighbour getting a break; I begrudge my pockets being picked, basically.

Mr. Wells: How are we doing for time?

The Chairman: We've run out of time.

I want to thank you all for coming in and enlightening us from your point of view from the Strait of Canso. I understand you don't have dredging or ice-breaking in your particular port, so it's really navigational aids only that you're -

Mr. Wells: Do we have time for one other question, Mr. Chairman, just to finish up?

The Chairman: A small one.

Mr. Wells: This is a good point. We could just get some sense of the navigational aids that are in fact used. You would all use pretty much the same ones, I would think. Could one of you give us some idea of the aids you all use?

Mr. Graham: There are range lights and buoys, that's all.

A voice: I think it's 14 miles, but there's a discrepancy there.

Mr. Gillis: It's anywhere from 14 to 37 miles, depending on how it's interpreted. We have a list, but we're trying to get some -

Mr. P. MacDonald: The pilots are taken out to approximately 10 miles from the Marietta wharf, which is the farthest inland. It's 10 or 12 miles, maximum. So although we have 37 miles in our port, there are only actually about 10 miles of actual navigational aids that the ship uses.

The Chairman: Based on the latest fee structure, what would be the total cost to your three companies of operating those navigational aids?

A voice: That's what we've been trying to find out.

Mr. Power: We don't know.

The Chairman: So you don't know, based on your business over the past year.

Mr. Power: Not from asking the coast guard. We haven't been able to find out.

Mr. MacInnis: What would the cost or the fee be to us?

The Chairman: Yes.

Mr. MacInnis: It would be $450,000, I think.

Mr. Ceccetto: Option A is $726,000. Option B is $635,000.

The Chairman: Did you use the latest option?

Mr. Ceccetto: Yes.

The Chairman: So it's $600,000 for you. How much -

Mr. Ceccetto: That's for all of us.

The Chairman: That's for all. So out of the $20 million national recouping fee, you're paying a little over $500,000 on that.

Mr. MacInnis: On one port on the Atlantic seaboard directly on the great circle route. I guess that's why we're here.

.1640

The Chairman: We were discussing this last night, and if we added up what everybody thinks they're going to be paying, we'd have about $100 million by now, and we haven't heard half the people.

We're saying we're going to recover $20 million next year, but if you people are right in your calculations -

Mr. MacInnis: Those are the coast guard's calculations.

The Chairman: If that's correct, and if everybody else's calculations are based on the coast guard's calculations, we're going to have lots of money next year to run the system.

Mr. Wells: It's rather difficult, Mr. Chairman. Yesterday we didn't have the figure from the coast guard, and this shows Port Hawkesbury $634,947 from the foreign flag revenues. Are there any domestic vessels using Port Hawkesbury?

Mr. P. MacDonald: There are.

Mr. Wells: So that figure is right, and I think it would have been nice if we had had this yesterday. We did, but we didn't know we had it. Your number is right on from the coast guard; it's $634,000.

The Chairman: We now have to go to our next set of witnesses. Thank you all again for coming.

Ultramar has declined to come, so next are N.M. Paterson & Sons Limited and the Upper Lakes Group Inc. Joe Comuzzi is a special guest here, too.

Mr. Paterson, perhaps you would introduce your colleague. We'll hear your presentation first.

Mr. Donald C. Paterson (Vice-Chairman, N.M. Paterson & Sons Limited): Thank you, Mr. Chairman, and good afternoon. Good afternoon to members of the committee.

N.M. Paterson & Sons Limited welcomes the opportunity to present our position regarding the coast guard's cost-recovery proposal.

With me today is Alexander Paterson, director of finance and administration.

N.M. Paterson & Sons Limited has two distinct divisions in the grain and marine transportation industries.

The grain division of Paterson owns and operates seven bulk carriers on the Great Lakes and St. Lawrence Seaway System. The primary activity of these vessels is the movement of western Canadian grain from the port of Thunder Bay to domestic customers or eastern transfer elevators for eventual export. We also move raw materials for the integrated steel mills in Canada and the United States.

Our vessels operate only on the inland waterway system. Our company has one of the last independently owned and operated bulk carrier fleets in Canada.

The grain division of Paterson operates 45 stations in Manitoba and Saskatchewan, with a licensed capacity of 195,000 tonnes. Paterson also has a network of independent grain dealers to cover areas not serviced by our country elevators.

We're also engaged in a program of expansion, which focuses on the development of inland terminal facilities. These terminals have a combined capacity of 30,000 tonnes and are all equipped with machinery capable of offering ``export standard'' cleaning of grain products.

This background on Paterson is provided today to both introduce ourselves to the committee and demonstrate the depth of our perspective on the issues to be discussed, our perspective being that of both the shipper and carrier affected by a cost-recovery program.

N.M. Paterson & Sons Limited belongs to a number of trade groups and industry associations, some of whom this committee has received delegations from, namely the Chamber of Maritime Commerce and the Canadian Shipowners Association.

The committee is therefore familiar with the opposition these two organizations have expressed towards the marine services fee as it is currently proposed by the Canadian Coast Guard.

We will not labour the points these presenters have illustrated, but do wish to be very clear that we support the four-step process outlined by the Chamber of Maritime Commerce and share their concern for the lack of attention to some of the recommendations made in the SCOT report.

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In particular, we're distressed by the total disregard received by the recommendation that no cost-recovery program be implemented until the coast guard has clearly identified its cost for services, whether it is required in the future, and can demonstrate that costs are under control. Further, we are particularly concerned by the pace at which cost recovery is being pursued with regard to aids to navigation.

Commercial shipping interests are investing hundreds of thousands of dollars in new navigation technology, which will render redundant a significant percentage of both long-range and short-range navigation aids. Until this process is complete or at least well advanced, it's premature for the coast guard to attempt to put a cost to navigation or a cost to the aids to navigation. Much more time is required to establish what is truly necessary to commercial shipping.

Paterson also shares the Chamber of Maritime Commerce's concern for Treasury Board guidelines that appear to have been ignored, particularly those that require departments to assess impacts to avoid unintended effects, including impact on domestic and international competition.

We wish to emphasize our concerns regarding potential impacts of these proposed fees on our business and ability to remain competitive with other modes of transportation. The emphasis is therefore on the system's ability to remain competitive. Each component must be able and willing to react to market change quickly and decisively, and provide services that users need and can afford. This appears to be the underlying premise as we move from government-regulated and financially supported infrastructures to one much closer to the commercial world.

The beginning of this process saw the abolition of the Western Grain Transportation Act. This eliminated the freight subsidies paid directly to the railways on behalf of the western Canadian farmer. So in effect a long history of one mode being subsidized within what is a very long chain of transportation providers came to an end and was welcomed by the marine industry.

It's hard to say what the long-term results will be because of this change, but what we do know is that the Great Lakes and St. Lawrence Seaway system must be competitive now that we have moved to real costs of transportation.

The SCOT report looked at four areas that are key to a healthy system and how deregulation and rationalization should occur. Three of these areas are the port structures in Canada, the four different pilotage authorities, and the St. Lawrence Seaway Authority. These three regulated service providers already present a cost to the carriers and shippers that use the waterways of Canada. An opportunity to rationalize each to the point where they only offer service that is required at an affordable price is welcomed.

All efforts made so far indicate that these costs should and will go down in order to preserve and enhance the competitive nature of water transportation in Canada. We have provided a chart that illustrates the costs these services present to our company and we remind the committee that these are costs we cannot control and in reality form another level of taxation to us. This example will be addressed in a few moments.

The fourth area the SCOT report dealt with was that of the Canadian Coast Guard. This is an area where the users have historically paid very little for the services provided, except in the very specific sectors such as ship inspection. The main point here is that the changes that are taking place within the Canadian Coast Guard and the philosophy being applied represent huge increases in costs that were not there before, and judging by the magnitude of the numbers being talked about will more than offset the savings being achieved in the other three areas already mentioned.

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To reiterate, ports, pilotage and seaway will be rationalized and become more cost-effective. As we've said before, this is welcomed and is what's required for our industry to be competitive. Yet the coast guard is being rationalized by passing on costs that the system cannot afford.

In the following section of this presentation we wish to point out, by using cost analysis, what these increases mean to our business and our customers' businesses and the vulnerabilities that exist.

Mr. Alexander M.S. Paterson (Director, Finance and Administration, N.M. Paterson & Sons Limited): Mr. Chairman, as mentioned, our company is principally a carrier of grain within the Great Lakes and the St. Lawrence River. We then carry iron ore back up into the lakes for the integrated steel mills.

There are three organizations that operate in this market: Seaway Bulk Carriers with 24 ships, P&H Shipping with 2 ships, and Paterson with 7 ships. We would like to give the committee a feel for the sensitivity of any cost increases on this segment of the trade on the Great Lakes and St. Lawrence Seaway system.

All three organizations listed are privately owned and therefore do not make their financial data public. We will therefore present the trends in our costs and our freight revenues - by our freight revenues I mean the cost of our services to shippers - that will illustrate these points. We believe these trends to be reflective of the other participants in the industry, at least as a rough approximation.

I brought some overheads today and we don't have an overhead projector, but the schedules I'm going to refer to are at the back of your presentation. There are four schedules there, labelled A, B, C and D.

Schedule A illustrates the trend in our gross freight revenue - as I said, the cost of our services to shippers - going back to 1984. You will note that the freight rates provided to grain and ore shippers on the lakes have been virtually static in the past five seasons. In some cases they are actually lower now than they were in 1985.

A major contributing factor to keeping freight rates low has been the availability of competing transportation modes and/or routes. For example, the Great Lakes and St. Lawrence Seaway system handled about 30% of Canada's $6 billion grain export business in 1995. This was done in direct competition with the Canadian west coast route and a possible route through the United States. The result is that cargo availability for our ships has been highly dependent on disciplined and unrelenting cost control over this time period.

Schedule B demonstrates the trend in some of the government charges our ships are faced with, including, as Donald mentioned, pilotage in the St. Lawrence River, seaway tolls and port fees. We have virtually no influence on these charges. You can see how these kinds of unchecked costs have escalated since 1984 as shown in schedule B. It is precisely this type of expense regime that we are trying to avoid by requesting that the coast guard cost-recovery program currently under way be re-engineered.

Schedule C illustrates the trend in our general vessel operating expenses since 1984. You will note the success we have had in controlling our costs.

Schedule D illustrates the trend in the financial contribution to our vessel maintenance and renewal and our other overhead. It is important to note that our company built the last bulk carrier in the Canadian fleet at a cost of some $30 million at the beginning of this period. The vessel was built over the 1984-85 season. Current estimates for replacement of a vessel would be between $40 million and $50 million. This represents an increase of somewhere between 30% and 60%. Clearly, as shown in schedule D, the cashflow from vessel operations has not kept pace with vessel replacement costs.

These trends all support the fact that it is imperative that shippers require the absolute minimum freight costs if they are going to continue to use the Great Lakes and St. Lawrence Seaway system. Therefore all industry participants are forced to vigorously defend any potential cost increases that will have to be passed on to shippers. It is this reaction you are witnessing through the many presentations to your committee.

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We've illustrated the period 1984-85 in a separate handout, which you should have a copy of. I'd just like to point out that in 1985 there were actually ten choices for shippers to choose from that moved long-haul grain and long-haul iron ore on the Lakes. Since 1985, seven of these companies have exited the business. Some of those companies have exited by choice or amalgamated with partners, but a number of them have simply gone out of business for pure financial reasons.

What is Paterson's solution to the problem of how to pay fees for services? We are supportive of the overall national objective to rationalize government expense and reduce our national debt. We would, however, point out that the current proposal for cost recovery works against this national mandate. It focuses on shifting the burden of costs from one party to another rather than focusing on cost reduction through improved efficiency. Improved coast guard efficiency will serve best to increase exports and our overall goal, which is increasing national wealth.

What is the mechanism that should be used to support this objective in the case of coast guard rationalization? The answer is highly complex for many reasons. For example, our segment of the industry is only one of many that uses coast guard services in the Great Lakes and in fact in the entire Canadian system. Each segment can be differentiated by features such as length of operating season; geographic operating area; value of cargo, as was pointed out by some of the previous presenters; and of course type of vessel used.

A simple illustration of how the current cost recovery proposal fails occurs in our segment of the industry. It is common for vessels to deactivate periodically during the shipping season, depending on the grain crop. In extreme situations, active vessels may only operate for, say, sixty days in a season. The fact that, based on the fee structure proposed in year one, a particular vessel would pay roughly $80,000 for only minimal usage of the applicable coast guard services clearly does not make economic sense.

The whole cost recovery process has been oversimplified since Minister Young established the mandate in April 1994. The flip-flop between proposals put forward by the coast guard exemplifies the lack of economic rationale in the cost recovery recommendations we've seen to date. In fact I was just advised prior to this meeting that a fourth revision in fees was presented by Mr. Thomas this morning to the Marine Advisory Board. We'd like to make a couple of comments on that at the end of our presentation.

Due to the complexity of solving the cost recovery problem, we are not able to provide you with a specific implementation recommendation today. However, we are highly supportive of the process to develop a solution as proposed by the Chamber of Maritime Commerce, and we ask that you pay particular attention to the two following points.

All users of applicable coast guard services should be divided into industry segments. For example, our segment is the grain-iron ore bulk carrier fleet. Each industry segment should be then put through the four-step process proposed by the Chamber of Maritime Commerce.

To conclude, after many decades of a relationship between the coast guard and the users of its services, which has developed without regard for economic realities, the task of creating an economic framework for this relationship is obviously highly complex and will require much more mutual effort between users and the coast guard than what we have seen to date.

We'd like to make a couple of comments on the proposal that was handed to the Marine Advisory Board this morning by Mr. Thomas.

Mr. D. Paterson: Thank you, Alexander.

Mr. Chairman, I'd like just another moment of your time.

Earlier in his presentation Alexander referred to the number of flip-flops in the offers that have been coming from the Canadian Coast Guard. As he mentioned, we now have a fourth proposal, which went to the Marine Advisory Board on April 16 and only came to the Canadian Shipowners Association this morning.

.1700

We are concerned that Mr. Thomas at the coast guard has introduced a proposal that he will ask the minister to approve next week. All of this material is being reviewed by your committee, and Mr. Thomas is assuming that you will report on Friday, two days hence, and that the minister will make a decision next week. We're wondering what ideas he has on the legitimacy of this sort of process. We think he's only paying lip service to the idea of industry input.

My understanding is that he has not called a meeting of the Marine Advisory Board, but I would guess that when he gets one organized he's not going to have much time - say it's half a day. That doesn't strike me as nearly enough time to deal with the number of issues that are on the table or collect the kind of information that's going to be needed.

Thank you for your time.

The Chairman: As everybody knows, we are on a fairly tight timeframe. We'll probably be reporting on Monday, not Friday, so we'll have the weekend to work on this. We have the minister's word that he will be considering before he makes any decision. Everybody has their own schedule, and I suppose Mr. Thomas has to proceed according to his until he's told differently. If our report tells him differently, I think he will take into consideration what we say in our report - whichever way it turns out. I don't want to presuppose the results of these hearings, but we have the minister's word that he will not move until he has the report. Then, as minister, he'll be giving Mr. Thomas instructions as to how to proceed.

Mr. Thomas has certain instructions and as far as I know he has to follow them. He can't stop and wait for everything to come into place before he continues, because he too has a schedule given to him by a higher power.

Thank you.

Mr. Marcel J. Rivard (President and Chief Executive Officer, Upper Lakes Group Inc.): Good afternoon, Mr. Chairman and members of the committee. I would like to thank you for giving us the opportunity to review our concerns with regard to the Canadian Coast Guard marine service fees as they are presently being considered.

I'm here with Captain John Greenway, who is our general manager of operations. We're a privately owned company, and like our friends the Patersons, we're one of the last Canadian-owned carriers on the Great Lakes. We've been in shipping and shipping-related businesses for the past 64 years. We currently operate 21 ships on the Great Lakes and the St. Lawrence Seaway. We employ approximately 800 crew members, all of whom are Canadian. Our cargoes include grain, iron ore, coal, cement, limestone, salt and various aggregates. Our fleet is made up of both self-unloaders and conventional bulkers, and our ports of call range from Thunder Bay right through the St. Lawrence River to Belledune and les Îles-de-la- Madeleine.

Upper Lakes Group also owns and operates a grain elevator in Trois-Rivières, Quebec, and we jointly own two shipyards with Canada Steamship Lines, one in St. Catharines and one in Thunder Bay.

We're also one of nine companies that form the Seaway Users Group, which is currently involved in the commercialization of the seaway system. So we are very much a part of Canada's marine industry.

The imposition of marine service fees as currently proposed would be very harmful to our industry. The negative impact of these fees will be compounded because they are being imposed in addition to all of the other government charges such as pilotage, seaway tolls, harbour dues, government inspection costs, spill response fees and future dredging costs. All of these fees and taxes must be considered collectively in a thorough study before the implementation of one more tax. Otherwise, our competitive position will suffer greatly, because a significant portion of our business involves lower-valued cargo - for example, salt, limestones and aggregates. This severely limits our ability to pass on additional costs to our customers without damaging their competitive position vis-à-vis their American counterparts.

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Unlike the coast guard, Upper Lakes has had to find real efficiencies in its operations and cut costs drastically over the last two recessions in order to remain competitive and to survive.

Our specific concerns regarding the current proposals can be summarized as follows:

First, although discussions concerning user fees have been ongoing for well over a year, a proper independent impact study addressing not only the coast guard user fees but the total impact on all fees currently being transferred by the government to the user companies has never been carried out.

Second, the coast guard keeps referring to the fact that under the current proposal they are charging the industry with only a portion of the services provided. We have repeatedly stated to the coast guard that we should only be charged for services that are needed, not those the coast guard is currently providing. As a carrier who's plied the trade in Canadian waters for decades, we know what marine services we need from the coast guard, and more importantly, we know what we don't need.

For example, the vessel traffic system, referred to as VTS, which is part of the aid to navigation, is totally redundant and not required by our industry. Some inspections carried out by the coast guard duplicate inspections that are currently carried out by Lloyds, and those are forced only on lake vessels, even though they're not required.

The current buoy system is extremely costly to the coast guard and not required in its present form by our industry. For example, during the winter months in the St. Lawrence River, up to 80% of the floating navigational aids are removed due to ice conditions. Ships that are three or four times the size of our lakers move in these waters safely and efficiently. Why are these aids needed in the river in July and not in February?

Third, the coast guard has repeated several times that the $20 million cost recovery will represent a very small percentage of the value of Canadian marine cargoes and can be easily absorbed by the industry. This, according to Mr. Thomas again, was one of the conclusions reached in the IBI study. This is the same study that, again according to Mr. Thomas, has several flaws and will require a proper impact study prior to finalizing any cost-recovery fee program after the first year. The IBI study was incomplete and did not include consultation with our own people, and we own and operate over 25% of the Canadian fleet.

How can this study be used to draw any conclusions about the impact of the marine fees presently being considered? When we're talking about a cost per tonne, for example, one has to assume the tonnage will be there to be carried in the first place. So what happens in a bad year when tonnage is substantially reduced and the coast guard is still trying to recover the same amount of money from the industry?

One has to assume that the cost per tonne will be increased to make up for the shortfall. This scenario would happen in a year when the users are facing tougher times. Fluctuations in cargo volumes from year to year is already a major challenge for anyone in our business because we have to supply a fixed number of ships. The additional costs that would result from the current coast guard proposal would have a devastating impact under these types of circumstances.

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Fourth, another aspect of the current proposal that is totally unfair and unacceptable is the fact that the total fee is to be recovered from the domestic fleet and the foreign ships that call at Canadian ports. Foreign ships that use the system while calling to American ports only would be exempted.

This is discriminatory and puts the Canadian fleet and its customers in a negative position when competing against those vessels. For example, in the Great Lakes, where the American and Canadian domestic fleets share one another's nav aid systems, only Canadian flagships will pay for their use.

In conclusion, we would like to present you with our recommendations.

First, undertake, before the implementation of this new fee, an independent and thorough assessment of the impact of the coast guard marine services fee and a thorough assessment of the cumulative effect of all fees imposed on industries that depend on a reliable and competitive marine transportation mode. Industry wants to work with the coast guard in the development of terms of reference, and we are willing to help fund such studies.

Second, we want you to assess the level of services required for the safe and efficient transit of ships through Canadian waters and ensure that only those services will be paid for by the marine industry.

Third, find the least expensive way to deliver these services, including the option of privatization. The Keyes report recommended that other opportunities should be sought for the delivery of services currently provided by the coast guard. This includes contracting out the delivery of services to the private sector.

The coast guard has ignored alternative service delivery options and has relied solely on generating revenues to support a status quo delivery environment. Instead the coast guard should work with industry to evaluate the level of services required and assess the most effective and efficient means of delivering those needed services.

The coast guard requires an objective third-party review from an outside agency to undertake an assessment of cost-cutting and efficiency opportunities. This would help in assessing its own operations during the period in which it is endeavouring to transfer its operations to a more commercial environment.

Fourth, arrange a meeting with the Minister of Fisheries and Oceans to advise him of the genuine concerns of the business people in our industry. We were not consulted previously by either the coast guard people or the organization they used for their survey, and other major users were also ignored.

Fifth, develop with industry a fair and equitable cost recovery formula with the opportunity for a formal right-of-appeal process. Regardless of the cost recovery formula developed, it must not distort the fragile marine transportation economics found in many regions of the country.

If the fee is not related to the service required, then it is in fact a tax. If it is a federal tax, it should not benefit one part of the country over another, as the current proposal does. In a right-of-appeal process, industry is simply looking for consumer protection. In other monopoly-based service industries - for example, cable, telephone and natural gas - there are regulatory checks and balances to protect consumers. We are only asking for the same type of protection.

This summarizes the major concerns we have as a major player in the Lakes and St. Lawrence shipping business. Our industry is already being forced to use services such as pilotage on the St. Lawrence River at a cost of several million dollars per year, when in fact this is a service we neither need nor want. We're prepared to pay only for services we need, and at a competitive price.

We expect the coast guard to make the essential reductions in their costs to help meet the goals established by the Treasury Board. Placing all the onus on commercial shipping is unfair and unacceptable.

We feel it is imperative that the points outlined above be given serious consideration prior to the implementation of any fees.

Thank you very much.

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The Chairman: Thank you very much.

How much is this going to cost your company? If we proceed with the new schedule that came out yesterday or today, or whenever, how much is it going to cost both your companies?

Mr. Rivard: It's several million, I know that.

The Chairman: It's going to cost you several million, next year, this year?

Mr. Rivard: Yes, several million of the $20 million would apply to our company.

The Chairman: Is that $2 million, $3 million?

Mr. A. Paterson: It would cost Upper Lakes about $2 million, and it would cost Paterson about $560,000.

The Chairman: That's $2.5 million there.

With respect to pilotage in the Great Lakes, is pilotage not required? It comes under a different act, doesn't it? How much is it costing you now for pilotage?

Mr. Rivard: It cost the industry, and by that I mean the ship-owning companies such as ourselves, Paterson, and Canada Steamship Lines, about $8.5 million to $9 million in the past year.

The Chairman: So you don't need that?

Mr. Rivard: Over the last five years.

The Chairman: So you don't need pilots?

Mr. Comuzzi (Thunder Bay - Nipigon): Mr. Chairman, it also costs the Canadian taxpayers about $7 million or $8 million to provide that service, in addition to what these folks pay here. It comes out of general revenue because they can't get the costs in line. I think our standing committee report on transport addressed the pilotage issue, and we suggested that we eliminate it.

The Chairman: We're going to have other questions.

Mr. Bernier.

[Translation]

Mr. Bernier: I understand the concerns of our two groups of witnesses, particularly those representing N.M. Paterson & Sons Limited, who are really wondering whether all the work that's been done from the beginning will be taken into account. In light of the Coast Guard's hurried approach, I can understand that people are nervous.

I am pleased the committee decided to listen to people. Our hearings have shown us that the Coast Guard did not do its homework and did not listen to people before presenting this cost recovery proposal regarding aids to navigation.

I feel like I'm opening up a can of worms. We see that different companies pay different fees, as was just mentioned to pilotage costs. If they are equipped with the necessary staff to no longer use these services, why is this structure being maintained?

It's very important that we continue to listen to our witnesses. The minister is going to get a lot more than he bargained for. This exercise has enable us to gather information on many other points.

I would like each group to answer the same question. We are supposed to be drafting a report and doing so rather quickly. I understand that two of the groups are requesting that we ask the minister to impose a moratorium, because the costs are unknown, both to you and to everyone else. In addition, we don't know the impact of these costs on the various companies involved.

Perhaps Mr. Rivard will be able to answer this question more easily. In the conclusion of its brief, the Paterson company says that Coast Guard Services could be broken down by industrial sectors. There was a reference to grains, iron, and so on. I'm less familiar with this aspect.

You also refer to a document published by the Chamber of Commerce, which I do not have with me. I just wanted to know what its implications were. I don't know whether the president of a Chamber of Commerce or the director might have another copy to help me understand better. I would like the representatives from Paterson to provide me with some information, and tell me exactly what they're expecting of us on Friday, when we meet in camera to draft our report.

.1720

If I understood correctly, you are good corporate citizens ready to do your part, but you're not being given an opportunity to do so. Between you and me, Mr. Chair, Mr. Thomas can wait a while for the $20 million out of the $842 million at issue here. I look forward to your answers.

[English]

Mr. D. Paterson: I think what we are asking for is a moratorium. As an industry, we have said from the beginning that it is not our intent to avoid user fees. We think the idea of recovering costs is sound. We see it as being inevitable, so we're not trying to escape it. We are saying it has to be a rational approach. We have to be asked to pay for services that are reasonable and necessary, so we do need a process first that will establish what is necessary and what it is going to cost.

Once we've had a chance to look at it and to give our input into what is important to our business and what we think those services should cost our business, I think the coast guard will be in a position to say here's what the rate's going to be.

Yes, we think you should put a moratorium on it until a thorough economic impact study has been done, in full consultation with industry and full consultation with those who have to consume the services. The process for that is outlined in the Chamber of Maritime Commerce submission. I think it's a pretty rational approach.

[Translation]

Mr. Rivard: There is no doubt that our company, like all companies involved in the cost transfer from the Coast Guard, fully supports the government's desire to reduce the deficit. We know that if the deficit continues to grow, some day the cost to us will be much higher.

So we understand that, and we understand that we must pay for what we use. If these are things we really need and that are offered to us at genuinely competitive prices, we are prepared to pay. On a number of occasions, we have asked Coast Guard representatives, including Mr. Thomas, to do a study before the costs are transferred.

Once again we don't want the cart to be put before the horse. That's what has been done for the last year and a half. Before the first series of costs is imposed, we would like a study to be completed and its total impact studied thoroughly. We want to ensure that by trying to correct a financial shortfall problem, the Coast Guard is not creating an even bigger problem by forcing companies into bankruptcy. It that should happen, freight would no longer be transported on the Great Lakes or on the St. Lawrence River. By reducing the amount of freight, the tonnage would automatically be lower and the problem would get worse each year.

Mr. Bernier: Both of your groups have asked for analysis and impact studies. You have not made any suggestions regarding the short-term problem, that is the $20 million that the Coast Guard wants.

You are not telling it to recover its costs according to a uniform national cost-recovery formula, but rather to wait and see what happens. You told the Coast Guard that you were good guys. I believe it was your group, Mr. Rivard, that said it was prepared to pay for part of the costs of the study. Did I understand that correctly?

Mr. Rivard: Yes, that is correct.

.1725

Mr. Bernier: So you are not changing your position regarding the $20 million.

Mr. Rivard: No. To be honest, when I look at the $20 million compared to the 800 million dollars at issue, I think that if the Coast Guard had done what companies like Paterson and Upper Lakes Group Inc. have had to do in the last 20 years, namely cut costs in order to survive, rather than trying to impose fees, I'm sure they would have been able to handle the $20 million at issue without turning to us.

[English]

The Chairman: Thank you.

Mr. Comuzzi, please.

Mr. Comuzzi: Thank you, Mr. Chairman.

Let me start my remarks by stating what happened this morning in one of the very important areas of the Great Lakes. Two long-time users of the Great Lakes and St. Lawrence Seaway system announced this morning that they were closing their doors: Ogilvie Mills Limited and Manitoba Pool Three. I don't know what Manitoba's capacity is, but it's somewhere around 200,000. They're doing it because they can't control costs. The very reason we're here today is that we're trying to control costs.

Now for me to sit and listen to these, and I've read other reports.... We have a coast guard director who wants to recover x dollars, without giving a customer the option of what to buy or what he needs. And not going through the process of making sure that what's being sold is cost-competitive really shows a lack of administrative skill on the part of the person who heads the coast guard in this country. It's unfair to ask the users of the system for that. I would hope, Mr. Chairman, that would be a preface of your report.

The second aspect is that if the minister responds to the direction the leader of the coast guard is suggesting, it would show that the minister is showing a pretty fair lack of economic sense of business acumen with respect to the future of the Great Lakes and St. Lawrence Seaway system. The way they're trying to recover the costs on the backs of the people we've heard here and at prior presentations is just not acceptable.

At another transport committee, we addressed the issue of ports. I think you've seen some changes in the ports in the last little while. Costs have been reduced; pilotage has been addressed. We're trying to address the St. Lawrence Seaway costs. That comes to the question I'd like to pose to both of our presenters.

Obviously we're going to have to do something drastic. Now there's a move afoot to turn over the seaway to a group of users. I think you're involved. But we also know that's only a partial step. Since it's a binational waterway, the full implementation should be a consolidated effort. Our Canadian and American administrators of the seaway should join for the purposes of using the economies of scale available, in order to get all the costs - the ports costs, the pilotage costs, the seaway costs, and now the coast guard's costs....

What is to prevent us as a group of users, in combination and in cooperation with our friends in the United States, from providing those services now being offered by the coast guard through some independent or private agency? I'm talking about placing the buoys, ice-breaking, and any other service. Can you people in this industry provide those services?

.1730

Captain John E. Greenway (General Manager, Operations, Upper Lakes Group Inc.): In a quick answer, yes, there are all kinds of private companies.

An example is the placement of buoys. There's not a reason in the world that commercial companies - certainly not our type of industry, but, for example, commercial tug companies, which are located right from Thunder Bay all the way down the St. Lawrence River - could not become involved in placement of buoys. Absolutely it can be done, probably with a structure of companies already in existence.

Mr. Comuzzi: Mr. Paterson, do you want to comment on that?

Mr. D. Paterson: I agree. I don't see any reason that sort of exercise couldn't be commercialized, particularly when one considers the technology available today for precise navigation and precise placement of aids to navigation, and the reduced numbers that would be required.

Capt Greenway: To expand on that, the Canadian Shipowners Association met in January with active masters - not executives, but masters who sail on the rivers and on the Great Lakes. We reviewed the buoy system for the Great Lakes and the St. Lawrence River. I don't want to be quoted on the exact number of floating aids, but for the St. Lawrence River I think it was somewhere around the 360 mark. Those masters said they could safely navigate with a 50% reduction in those aids. We don't need those aids.

As Mr. Paterson pointed out, technology is changing rapidly. We now have satellite navigation systems and electronic charts that are going to take a year or two to prove themselves and become accepted, but once that is in place and accepted, the total aids to navigation system is going to change. It will certainly not be needed to the extent it is now.

Mr. Comuzzi: I have one final question, Mr. Chairman.

We know the St. Lawrence Seaway Development Corporation has perfected the global positioning system with respect to displacement of pilotage on the St. Lawrence and so on. They have offered us that technology, which they've been in the process of developing for the last two and a half or three years, on a no-cost basis.

All of the expenditure that the United States arm of the seaway has spent on research and development has been offered to us at no charge. We've not accepted it. That's a tremendous assistance in these costs the Canadian Coast Guard is trying to recover. We're not working together. We're not looking at this thing as good, sound, intelligent people should be looking at it.

The Chairman: Do you mean, Mr. Comuzzi, that the present government is deliberately -

Mr. Comuzzi: Oh, we sometimes.... Any government goes off track a little bit.

The Chairman: - setting fees that are going to put companies out of business?

Mr. Comuzzi: We can't fool around when we have elevators closing, Mr. Chairman. We can't fool around and wait for another two or three years to make up our minds about what we're going to do. It's imminent.

Mr. Dromisky (Thunder Bay - Atikokan): Mr. Chairman, I thank you very much for your invitation to attend this session. I'm not a member of this committee, but I do represent a riding at the head of the Lakes, Thunder Bay - Atikokan. I'm here also to listen to one of our very responsible corporate families, the Paterson family, making their presentation.

I have no questions to ask the presenters, because I am appalled by the kind of information that appears in these documents. The fact that we can be going ahead, as a government, and making decisions without any input whatsoever from the chief players in the game....

Why not $50 million? Why not $25 million? This new figure, $20 million, seems to be drawn out of a hat, because there is no substantial information presented to the major users of the seaway as to why the $20 million is being demanded.

I'm appalled by the lack of sensitivity, the lack of use of intelligent....

A voice: Thinking.

Mr. Dromisky: Whatever.

Some hon. members: Oh, oh!

Mr. Dromisky: I won't say it, but you know what I'm talking about. We need to come to some kind of rational conclusion regarding an extremely serious problem.

The transportation committee has been dealing with these problems for quite some time. This whole country has been watching to see what's going to happen, and we have not yet got to first base in dealing with this in a most rational manner. Everything so far leads to one conclusion, and that is to destroy the industry as quickly as possible.

.1735

A great number of changes have taken place in the technical aspects and so forth. You talked about the satellites. Let's not try to solve the problems of the 21st century with the techniques, technologies, and the policies of 1930. But that seems to be the way we're going through this committee and this ministry.

I strongly recommend that there be a curtailment and some form of obstacle be placed in the path of the ministry in its quest for a quick solution to this problem. We must provide some type of input -

The Chairman: To whose benefit are we destroying companies? Why are we destroying companies? Why would the government deliberately go out and destroy the infrastructure of the country they're charged with governing? These are pretty wild accusations.

Mr. Dromisky: I don't think they're wild accusations if we continue to make decisions pertaining to cost without any input that is reasonable, fruitful and valid. Who is making the decisions regarding the cost? We're not getting it from the people who are actually involved in the use of the seaway. I'm not going to get into an argument on this whole issue of the cost.

The Chairman: Do you have a question?

Mr. Dromisky: I think they're unreasonable and I think we should put some type of embargo or obstacle in the master plan of the ministry. Let's provide the users the opportunity and meet the requests. The requests are quite simple. This government has been claiming it's listening to the people and getting input from the users and the decision-making processes. I think that's what we should be doing.

The Chairman: That's a statement, not a question.

Mr. Dromisky: I'm presenting my feelings regarding this very serious problem and I'm hoping you people will give it consideration.

The Chairman: Are there any other questions?

Mr. Comuzzi: Will you folks pursue and assist us in trying to put together whatever is necessary in order to move quickly to the binational, international administration of the Great Lakes and St. Lawrence Seaway?

Mr. D. Paterson: We're always available for service.

Mr. Comuzzi: You agree with that.

Mr. Culbert (Carleton - Charlotte): Good afternoon, gentlemen.

I listened intently to your presentations and to the various answers to your questions. There are a number of things from your presentations and from those of presenters who came earlier this week and before the Easter break that I want to have clarified.

First, would I be correct in stating that in principle you agree with the user-pay philosophy? Is that a fair statement?

Mr. Rivard: Yes, for services that are required and are provided at a competitive price. We agree.

Mr. Culbert: We understand all of that, and of course those services, until now, whether any of us agrees that they weren't particularly necessary or that all of the services that were given were necessary.... Obviously somebody must have asked for them or they wouldn't have been there, although previously they were 100% paid for by the taxpayer.

I want to touch base on a couple of things you stated in your respective presentations.

Are you familiar with the study entitled Assessment of the Impact of Marine Services Fee Options on Commercial Shipping Interests? It is the final report done by the IBI Group in association with Mariport Group and dated December 29, 1995. Are you familiar with that report?

Mr. Rivard: Yes.

Mr. Culbert: Do you agree with any of the contents of that report?

Mr. Rivard: It's hard to agree with the content of the report because we, as one of the major ship owners on the Great Lakes, were never consulted as part of that report.

Mr. Culbert: I understand that.

Mr. Rivard: It certainly loses some flavour right from the beginning when a company like Upper Lakes Group is not even consulted.

.1740

Mr. D. Paterson: We'd have to say the same thing.

Mr. Culbert: So you weren't consulted as part of that study or consulting report, but are you familiar with the report?

Mr. D. Paterson: Yes, we've copied it.

Mr. Culbert: Do you have any comments on the report itself? Regardless of whether you or your company were contacted, is it reasonably accurate? Is it inaccurate? I'm trying to find out for myself. I read this material and unless somebody tells me differently I take it as gospel.

Mr. A. Paterson: From what I can recall, there was a considerable lack of economic analysis in that report. There was a lot qualitative, anecdotal discussion, but there was a lack of economic analysis. I think that results from a lack of proper consultation with industry.

Without going through the report - I don't have it in front of me - I really can't comment on it much more than that.

Mr. Rivard: It's a fact that Mr. Thomas himself has stated that his report was not the way it should be, that it was flawed.

Mr. Culbert: So the report or study tentatively intended to go ahead sometime in the 1996-97 fiscal year - to be completed before the end of this current fiscal year, let's say - you would be very supportive of getting all of that information.

Mr. Rivard: If it was done properly, yes.

Mr. Culbert: Yes, and all the various impact studies. And obviously contact with yourselves and others like yourselves perhaps.

Mr. Rivard: Yes.

Mr. Culbert: All right.

I heard both of you say it today and I've heard others say it this past week - that you're prepared to pay 100% if necessary, for what is necessary. Do you know what is necessary in your particular case?

If I were a consultant and I said let's get down to brass tacks and put some dollars and cents on this, and you tell me what's necessary. We know that some things are required because of safety regulations and we must have them whether we like it or not. We have to decide who pays for that. Maybe we have to cost share it somehow. That's certainly been the case in the past. If we were to do that, could that be done?

Capt Greenway: Yes, very simply, and we have already started that process through the Canadian Shipowners Association. We've been looking at what buoys we need, at VTS systems that are redundant and are being replaced with new technology. A VTS system across Canada costs us as taxpayers $70 million a year. Of that, $9 million is spent in central region.

We said from day one that VTS is not required. The technology is now on the ships or through the satellite systems to make it a silent VTS, so the empire can be downsized. The process is already started, but we have to tackle the coast guard and improve the consultation process to make it successful.

Mr. Culbert: That's excellent. The other point I want to mention - we want to be fair in our statements - is are you aware that as a result of the 1995 budget, coast guard put into place a reduction schedule of $200 million in the department?

Capt Greenway: Yes.

Mr. Culbert: As I understood your comments, you said you're being asked to pay service fees at a time when we really haven't addressed cutting our own department. I want to make you aware that schedule has been put in place and it's intended that they meet that schedule or exceed it.

Thank you, gentlemen.

The Chairman: Thank you, Mr. Culbert.

You stated in your testimony that neither of you were consulted. Did you belong to organizations that were consulted - to the Chamber of Maritime Commerce, for example? Did you know this was going on?

.1745

Mr. A. Paterson: The Canadian Shipowners Association.

The Chairman: So what was happening here wasn't a surprise, you just weren't individually consulted and you didn't individually give your reaction to these proposals.

Mr. A. Paterson: Right.

The Chairman: If you don't have anything else to say, we're finished for now. We'll return at seven o'clock.

We are now adjourned.

EVENING SITTING

.1911

The Chairman: I call the meeting to order.

A number of our members are attending a [Technical Difficulty - Editor] that comes into Ottawa every year from high schools across the country, so they will be showing up eventually. It should be over in ten minutes or so.

I'd like to welcome you all here. Please introduce yourselves, and then we'll begin hearing briefs. We have an hour or so, I believe, for the presentations and questions.

Mr. Donald A. Hall (Member, Saint John Gateway Council): My name is Donald Hall. I'm with Kent Line and the Saint John Gateway Council.

Mr. Blaine Higgs (Member, Saint John Gateway Council): My name is Blaine Higgs. I'm with Irving Oil Limited and the Saint John Gateway Council.

Mr. Joseph Day (Coast Guard Recovery Task Force, Saint John Gateway Council): My name is Joseph Day. I'm legal counsel at J.D. Irving, Limited, and I'll be presenting the formal part of the Saint John Gateway Council brief this evening.

Mr. Donald Roberts (Member, Saint John Gateway Council): I'm Don Roberts, general manager of the New Brunswick division of the Potash Corporation of Saskatchewan, representing the Saint John Gateway Council.

Mr. Brian Collinson (Director of Transportation, Canadian Manufacturers' Association): I'm Brian Collinson, director of transportation for the Canadian Manufacturers' Association.

Mr. Ted Zier-Vogel (Chairman, Transportation Committee, Canadian Manufacturers' Association): I'm Ted Zier-Vogel, vice-president, transportation, Noranda Metallurgy Inc.

[Translation]

Mr. Pierre-Yves Melançon (member, executive committee, City of Montreal, and member, executive committee, Regional Development Council of the Island of Montreal): My name is Pierre-Yves Melançon, and I am a member of the executive committee of the City of Montreal and of the executive committee of Regional Development Council of the Island of Montreal.

Mr. Stéphane Brice (Economic Advisor, Economic Development Section, City of Montreal): My name is Séphane Brice and I work for the Economic Development Section of the City of Montreal.

[English]

The Chairman: We'll begin with the Saint John Gateway Council.

Mr. Day.

[Translation]

Mr. Day: Mr. Chairman, committee members, we will be presenting our statement in English, but if there are any questions in French on our presentation, we will answer them in French.

[English]

Mr. Chairman, I have provided you and your clerk with a formal copy of the presentation in written form. Since a number of the members of your committee are not here, we would like to ensure the other members of the committee have the opportunity to get a copy of it, so with your permission, perhaps we could deem it read into the record. I could then save some time this evening by not going through each word of that report.

The Chairman: Every member will get that. I think it's a good idea, if you want to summarize the presentation. It will give us more time for questions.

Mr. Day: That's what I thought, Mr. Chairman.

We have with us today three individuals, who have identified themselves. Mr. Hall is with the Kent Line, a shipping company, and also Atlantic Towing, another tugboat company operating out of the city of Saint John.

Mr. Blaine Higgs is marine distribution manager of Irving Oil Limited, operating a world-class Canaport activity in the harbour in the port of Saint John.

Mr. Don Roberts is the general manager for the New Brunswick division of the Potash Corporation of Saskatchewan, which also has a potash facility in the city of Saint John that ships potash out of the city of Saint John.

These gentlemen will be here to answer any questions you may have following the formal presentations.

.1915

The four points we've decided to restrict our submission to are outlined on page 3 of the report. They are basically, Mr. Chairman, our opposition to a national tax; our support for a regional, port-specific approach to cost recovery; the need for fairness and equality in the cost-recovery program that is implemented; and the importance of providing a credit to the specific port for its share of domestic flag traffic and of trans-shipping traffic.

The primary ongoing cost-recovery discussion has been in relation to foreign flag vessels. There is another aspect to the commissioner's proposal, which is that there would be a fixed fee for domestic flag vessels. We believe that some of the adjustment that has to be done, particularly for the smaller ports in the Atlantic region, can be done through a credit process if there are a number of national flag companies' ships operating out of a particular port. We can get into that in more detail later, but that credit system is important, we believe, to the overall scheme.

The port of Saint John has the largest volume of traffic in the Atlantic region, and the Saint John Gateway Council speaks on behalf of virtually all of the activity within the port.

Our opposition to the national tax can probably best be demonstrated if we look at ropes that represent the distance from the port over which the coast guard has a responsibility and a duty to provide navigational aids. That is the option A that you recall was discussed earlier in the presentations here. Option A talked about miles and tonnes. The miles are the miles from the port to international shipping lines and international shipping waterways over which the coast guard provides navigational aids if necessary.

St. John's, Newfoundland, is represented by a rope this long; Saint John, New Brunswick - maybe Mr. Higgs can help me here - by a rope this long. Halifax is very similar to Saint John, New Brunswick, in terms of distance of navigational aids.

Then we get into Port Hawkesbury; you heard from them this afternoon. That's their distance representation. I'll ask Mr. Roberts to help me here as well. That's Corner Brook, Newfoundland. Belledune, New Brunswick, northern New Brunswick - you'll hear from them tomorrow morning - that's their distance. And here is Charlottetown, Prince Edward Island, close to the heart of the chairman, I'm sure.

These ropes represent the distance over which coast guard has responsibilities in the Atlantic region. I'd like to -

The Chairman: That rope is long enough to hang you.

Mr. Day: You haven't seen anything yet, Mr. Chairman.

Some hon. members: Oh, oh!

Mr. Day: I remind you that we're talking about a flat-rate national tax.

Perhaps my friends from la Ville de Montréal could help me with respect to Montreal. This is the representation for Montreal. I've shown these in a different colour because it's a different region from the Atlantic region. And this is la Ville de Québec.

Now, I would like to go even further up into the Great Lakes. Talking about a rope that could perhaps hang you, this is Thunder Bay, Mr. Chairman, and the room is not large enough to stretch this rope out.

By showing you these ropes we hope to demonstrate to you that it would make absolutely no sense, Mr. Chairman, for a ship that has this amount of service from the coast guard to pay the same amount as a ship that gets that amount of service from the coast guard. That is the point we try to make with this demonstration, to try to convince you that the recommendation should certainly not be that a national tax would be appropriate or fair.

.1920

Certainly, if you were operating a ship out of Thunder Bay and you were paying the same as someone in Saint John to take your ship in there, you can understand why they would be very happy and urge upon you that there should be just a flat tax. You can understand why. You can understand the advantage they would receive.

We are suggesting to you that there should be a regional approach whereby there are regional interests, and that a regional approach should go to port-specific as quickly as possible. Why? It's because of the distinctive nature of the transportation costs that relate to a particular area.

We would also ask this committee, Mr. Chairman, to have in mind that the maritime freight rate subsidies have recently been cancelled. We have that impact to carry. You must consider the entire transportation cost when thinking about a product that comes from upper Canada or lower Canada through the Atlantic region to worldwide markets, or comes in to go to upper Canada or lower Canada. We must think of the overall transportation costs that are involved there.

Mr. Chairman, the third aspect we have highlighted in our written report - we ask you and your committee members to consider this in your deliberations over the weekend coming as you prepare your report for the minister - is the need for fairness and equality. Coming out of your earlier deliberations - we've had the opportunity to listen to some - the fairness and equality aspect, in our view, is important such that there must not be a built-in disincentive to cost reduction, which is, after all, what we're trying to achieve.

There should be participation by industry in what services are needed. You heard from many people who said that industry hasn't been consulted to the extent to which they would have liked in determining what navigational aids are actually necessary.

If, for example, those in the Bay of Fundy region, which includes the port of Saint John, work hard to reduce their costs, working in conjunction with the coast guard, then they should reap the benefits of that by lower fees. That's an important feature that must be built into any program.

Each year, the percentage of recovery the coast guard looks for should not be greater in any particular area. We support dividing the country up into three regions - western, central and Atlantic - but the percentage of recovery of overall costs should be the same for each region. The areas that demonstrate a commitment to reducing costs should reap the benefits of that.

Finally, Mr. Chairman, as I mentioned earlier, there's the importance of taking into consideration domestic flagged traffic and trans-shipping.

There is going to be an allocation of costs to a port, such as the port of Belledune in northern New Brunswick or Charlottetown for the Gulf of St. Lawrence, for navigational aids there, but the ships may be just passing through there and going up the St. Lawrence. Shipping through that area should be a credit given against the costs the port would be expected to carry. That will have to be worked into whatever program is in place.

Likewise, if there's a lot of domestic traffic out of Newfoundland, for example, out of St. John's, then they should get credit for that because the ships, the domestic flagged ships that are operating out of there will have already paid the annual registration fee.

Those are generally the highlights, Mr. Chairman, of our submission.

We understand that there has been a socio-economic joint study, the terms of reference of which, I understand, are now back for revision and review. The information we have been picking up here and there is that the requests for proposals would have gone out today, which is what we had hoped for, but that the terms of reference are now back for further review. If that is the case, then clearly there's going to be some delay in that socio-economic study.

.1925

We also wish, hope and expect that any socio-economic study undertaken has, as part of those terms of reference, a consultation process with industry. We haven't seen the terms of reference, but we certainly hope that your recommendation will be such that industry has an opportunity to participate in any such study.

We have also worked closely with the coast guard to ensure that they're moving down the road toward some type of realistic cost analysis and putting in place the accounting system that will allow for a port-specific analysis of the services being offered and the cost of those services. We do hope and expect that this will proceed and that your recommendation will support that.

Mr. Bernier has asked this question a number of times. We know a lot of people have asked for a moratorium, a delay, in the implementation of the program. We're not here asking for that, but we are asking for as much information as we can get as to the actual cost. We are prepared to support an interim program for nine months on the understanding and the assurance that by April 1, 1997, there will be an opportunity for us to know, on a port-specific basis or a grouping of ports, what the actual costs are and to participate in determining the level of service that is required.

If you are convinced through the urging of many others that your recommendation to the minister should be for a delay, our urging for you at this time is for you to make the recommendation that we move toward a regional, port-specific allocation of costs so that we won't have to get into the debate later on of a national tax or no national tax. That debate will be over and we will be moving toward an accounting on a port-specific basis.

Those, sir, are our submissions. I have only one comment as legal counsel, and it flows from the discussions that came up yesterday. This has to do with the commissioner hoping to gazette the fees. This is some variation perhaps of option two, which we've heard so much about in the April 10 letter from the commissioner. There's some suggestion that there may be a gazetting of that in the very near future.

If that is the case, I am wondering, from a legal point of view, about the legality of that. If it's proceeding under the Financial Administration Act, then perhaps this standing committee might want to get an opinion from the Department of Justice as to whether in fact that would be a proper means of collecting the fees.

The Chairman: We're told that the gazetting story that came out of yesterday's hearings is in fact not true.

Mr. Day: Well, there you have it. We were all reacting to an untrue story.

The Chairman: If things proceed as the coast guard wishes, it would be gazetted on June 1.

Mr. Day: If it is gazetted, Mr. Chairman, under the Financial Administration Act, I still have concerns of the legality of such gazetting. Thank you.

The Chairman: Thank you, sir. Mr. Zier-Vogel.

Mr. Zier-Vogel: Brian Collinson will present our report.

Mr. Collinson: Mr. Chairman and hon. members of the committee, I'll be presenting a brief presentation, and then both myself and Mr. Zier-Vogel will entertain questions from the committee.

The Canadian Manufacturers' Association appreciates the opportunity to provide its comments and suggestions to the standing committee regarding the proposed marine services fee.

The CMA functions as the voice of the Canadian manufacturing sector and is deeply concerned with all issues that impact the health and competitiveness of that sector. As Canada's oldest national trade association, CMA has offices and members in every province. Together, our members produce almost 75% of the nation's manufactured output.

Manufacturing constitutes Canada's economic engine, accounting directly for 18.5% of Canada's GDP, which is the largest economic contribution of any business sector in Canada. The indirect contribution in the manufacturing sector is even greater through the demand created for goods and services from all other sectors of the economy, as a major source of fixed capital investment and as a major contributor to public revenues. The sector employs about 1.8 million people directly, and about 3 million more have jobs that depend directly or indirectly upon this sector.

.1930

Issues related to import and export and marine transportation have always been of central importance to manufacturers and processors, and their importance is steadily increasing.

To remain competitive in the export market it is necessary that the goods of Canadian manufacturers retain their competitive pricing. Often this competitiveness is based on very small margins. Transportation costs, while not very large in percentage terms, may nonetheless be a determining factor.

Similarly, to ensure the continuing competitiveness of Canadian goods, it is essential for the commercial environment to remain stable in Canada. Canadian manufacturers must be able to enter into arrangements for the sale and transportation of goods secure in the knowledge of what consequences they will face as a result of their contractual commitments. The twin factors of competitive pricing and commercial stability make the marine services fee a matter of concern to Canada's manufacturing and processing industries.

CMA has been very vocal in its support for the steps the government is taking to reduce the federal deficit through expenditure reduction. Cost recovery programs will play a key role in the government's expenditure reduction process. User fees can be an effective means of commercializing federal programs and services and making them more responsive to actual users of the service.

Nonetheless, CMA has communicated to the President of the Treasury Board on several occasions. User fees must take the form of a fair and equitable fee for a specific, identifiable service, rather than an arbitrarily levied indirect tax.

CMA is deeply concerned that so-called user fees could represent an inappropriate form of revenue-gathering conducted in the name of cost recovery. Cost recovery might be used by federal departments simply as a means of restoring revenues cut from the federal budget. User fees might be imposed by departments to cover the costs of administrative overhead, including costs that may not be directly related to specific programs, without improvements in efficiency or level of service. The monopoly power that many federal departments exercise in charging user fees could be readily misused.

Such so-called cost recovery from business threatens to push up costs for business. New user fees, which increase costs without reducing the tax burden, will further weaken employment, investment and innovation by businesses across Canada. According to the coast guard, the marine services fee, at the $20-million level, would be one-thirtieth of 1% of the value of cargo. At $60 million, it would be one-tenth of 1% of the value.

Although these percentages might be small, CMA is of the view that the only way to determine whether the amount of the marine services fee is of economic significance would be through a thorough in-depth study of the socio-economic impact of all the elements of projected user fees in conjunction, including ice-breaking, navigational aids, port privatization and dredging, commercialization of the seaway, pilotage, and the pollution response fee. The marine community will be paying for all of these in conjunction. At present, it seems unlikely that taxes will become correspondingly lower.

A year ago, the coast guard started consultations on the marine services fee. A key element in increasing efficiency was to be the reduction of costs in the coast guard, with a reduction of the burden on the taxpayer for services directed at specific users. However, the coast guard has had real little alternative but to approach the issue of the relationship between user fees charged and services by simply dividing up the present cost of each service by region.

The Marine Advisory Board has accepted the 1996-97 revenue target of $20 million on the understanding that the fee is to be imposed for a one-year period for the aids-to-navigation service only. Nonetheless, the $20-million sum appears to be an arbitrary figure imposed on the coast guard by its political masters without the benefit of any in-depth study of its potential impact. The coast guard has been given very little alternative but to recoup revenue through the implementation of a graduated $20-million, $40-million, $60-million cost recovery scheme of the type it has proposed.

.1935

There has been agreement to undertake a detailed socio-economic study that will be national in scope before moving to the $40-million or $60-million levels of cost recovery.

Nonetheless, CMA believes that the socio-economic impact should be ascertained before even the $20-million level of recovery is implemented.

Implementation of the marine services fee on June 1, 1996, will create great commercial uncertainty. By implementing the fee as of that date, the rate will effectively be $28 million, annualized.

It is unclear what the effect of imposing that fee on that date will be on vessels sailing now, since it is uncertain at this point as to what the rates on those vessels will be.

CMA understands that the annualized rate for the marine services fee will essentially continue to be calculated at the $28-million level in subsequent years.

Ice-breaking charges will simply be calculated by subtracting the $28-million marine services fee from the $40-million total amount.

Such an approach to the calculation of the user fee for ice-breaking is simply an exercise in the levying of an indirect tax, with no attempt to calculate and assign the true cost of ice-breaking to the user.

The proposed approach to implementation of the marine services fee will generate uncertainty, which will affect the Canadian economy. The only question will be the degree of that effect. For instance, it is unknown whether existing contracts will be invalidated.

CMA believes the only fair and equitable approach would be to give notice now that the marine services fee for navigational aids will be calculated on a fiscal year basis, commencing at the beginning of the 1997 fiscal year, which is April 1, 1997. Only with this amount of notice will minimum damage be done to the commercial arrangements currently in place.

Thank you very much, Mr. Chair, and hon. members.

The Chairman: Thank you very much. From Montreal, we have Mr. Melançon.

[Translation]

Mr. Melançon: The participation of the City of Montreal in this committee meeting is consistent with our previous appearances on transportation issues, in particular during the hearings of the Royal Commission on National Passenger Transportation and those of the National Transportation Act Review Commission.

More recently, Montreal took part in the consultation process on the commercialization of the Canadian National and appeared before the Standing Committee on Transport regarding the new Canadian marine policy.

In addition, at the time of the last consultation process on the cost-recovery proposal of the Canadian Coast Guard, the Mayor of Montreal submitted a brief which stated our position.

Our consistent involvement is related to the fact that the transportation industry plays a significant role in the economy of Montreal. The fact is that the steps taken by the government of Canada to withdraw from the transportation sector sometimes have fortunate consequences and sometimes unfortunate consequences for us.

In its effort to put its financial house in order, the Canadian government ordered the Canadian Coast Guard to adopt a commercial approach. It was then asked to increase its level of cost-recovery for marine services, but also to rationalize its expenditures.

Last fall, the Coast Guard held a consultation process on a range of fee proposals for the commercial navigation sector. In its brief, the City of Montreal expressed its opposition to all types of fee structures that were too specific, such as breakdowns by cargo, by type of service or by distance. It showed the arbitrary nature of such proposals and the harm they could do to navigation on the St. Lawrence river.

Subsequently, in early January, the Coast Guard quickly decided in favour of certain general principles that went against our position. It decided to distinguish between aids to navigation and ice-breaking services and to regionalize the fee structures.

Because of the different regional interests, these proposals generated a great deal of controversy. In our view, the Coast Guard fell into a trap by adopting this approach. Making a distinction between services and introducing regional fee structures opened the door to opting out, to challenges regarding the geographic breakdown and even to a rejection of the method of calculating the fees.

Last March, the Coast Guard, having been told to do its homework, started by proposing a fee schedule for aids to navigation services. Rather than standardizing the fees, it chose to introduce more differences in the fee structures.

On the one hand, the Coast Guard proposed the creation of three fee zones rather than two, and on the other, it got bogged down in an incredibly complex fee structure that came very close to being arbitrary.

.1940

Not only are the anticipated revenues broken down into three regions, but there are different rates, terms and conditions, criteria and limits for each of the three regions. In addition, there are different systems for vessels flying the Canadian flag and those flying foreign flags.

Port activities are an important part of the economy of Montreal. They are in fact the cornerstone of the entire intermodal cargo transportation industry.

As far as containerized traffic goes, the activities of the Port of Montreal reach beyond the limits of Quebec to include Ontario and New England, and extends as far as the American Midwest.

Consequently, this is not a captive market, but one subject to intense competition from Atlantic ports, particularly in the United States.

The competitiveness of the Port of Montreal definitely lies in the intermodal integration activities and in the efficient ground transportation network surrounding the city.

However, the greatest comparative advantage of the Port of Montreal is its inland location, close to the North-American industrial heartland. The St. Lawrence River makes it possible to transport cargo further by water, thereby avoiding more expensive land transportation. The St. Lawrence River also presents a number of problems such as the draught available, ice and mandatory pilotage.

In any case, the shipping lines have used Montreal's unique situation to their advantage by adapting their fleet and by successfully occupying certain market niches.

The figures speak for themselves. Montreal is first in Canada for containerized traffic and second among Atlantic ports on the continent. In this context, any increase in navigation costs on the St. Lawrence could have harmful consequences on the marine activity and Montreal's role as a hub for cargo transportation.

The approach advocated by the Coast Guard is probably an attempt to respond individually to regional pressures. The most disturbing aspect of the approach is probably the fact that the proposed more complex fee structure tends in all cases to put the largest part of the cost on the St. Lawrence River.

First of all, distinguishing between ice-breaking services and aids to navigation means that the recoverable costs of almost all the Canadian ports on the ocean will be reduced by half. In addition, the amount paid by the Laurentian ports will increase correspondingly, even though they will not have a say on how the services are delivered.

The next point is that the geographical breakdown inevitably disadvantages the St. Lawrence River. But placing the Great Lakes zone beside the St. Lawrence zone, the cost for aids to navigation are increased, but the amount paid by users is not increased very much. This means that the St. Lawrence River, which represents 56% of the cost, will contribute $9 million of the $13 million to be recovered for the region, which amounts to 72%.

The geographical breakdown augurs even worst for the recovery of ice-breaking costs, since navigation on the Great Lakes is suspended during the winter.

The introduction of a system with different fee structures for three regions suggests that most of the ice-breaking costs will be recovered from navigation on the St. Lawrence River. The current proposals made by the Coast Guard seem to spare the Northern zones completely, including Hudson Bay. What will happen to commercial navigation serving the Port of Churchill, Manitoba?

The authors of the latest fee structure proposal decided to have all the other regions pay for some of the costs of aids to navigation for Newfoundland. We are wondering about the basis of this cross-subsidization.

For aids to navigation alone, the March 1996 proposal of the Coast Guard penalizes Montreal more than the initial proposal put forward in January of this year. It advocated a rate according to the Gross Registered Tonnage. For example, the following table calculates the fee for a vessel with a Gross Registered Tonnage of 30,000 tonnes, flying a foreign flag and needing handling for 24,000 tonnes of freight in the ports of Halifax, Montreal and Vancouver.

In the case of containerized traffic the real disparity will probably be greater, if we take into account the fact that Montreal is a port where vessels are usually completely unloaded and loaded. Halifax and Vancouver, on the other hand, would be considered as ports of call where vessels are partially loaded or unloaded on each visit. One visit to Halifax will therefore costs less and each visit will be billed according to the number of tonnes handled. In the case of Vancouver, the fees will remain unchanged, because it takes into account the Gross Registered Tonnage only. However, after 12 visits in a year, the vessel could benefit from the ceiling on contributions which is proposed for the West Coast only.

In any case, the new fee structure for the aids to navigation service is biased against the St. Lawrence region. Even the Coast Guard figures, which you will find in the table, confirm this fact. The last table shows clearly that navigation in the Laurentian region subsidizes navigation on the Great Lakes. With the exception of Newfoundland, the other regions have cost recovery rates that are close to the Canadian average.

.1945

The city of Montreal, like the St-Lawrence River marine community, is not opposed to the principle of cost recovery, provided it is fair and rational.

The fee structure must take into account the competitive environment in which the Canadian marine industry is developing. Differences in transportation costs are looked at in minute detail by shippers and are a determining factor in the choice of navigation routes.

The geography of North America is such that U.S. ports are in most cases in direct competition with Canadian ports.

The fee structure must also take account the precarious profitability of some marine carriers, otherwise, there is a danger of reducing the number of users of the services.

The mission of ports is to meet the requirements of Canada's foreign trade. This is particularly true of ports such as Montreal which are part of the network of Canada Port Authorities which are being set up at the moment. I believe they were considered of national importance. It is therefore important that the proposed system not penalize port activities to the extent of threatening the competitiveness of Canadian exports and imports.

While the cost recovery proposal claims to have been made in an effort to achieve commercialization, the Coast Guard has still done very little to rationalize its expenditures or adopt a commercial approach in the delivery of its services. A commercial approach would mean that clients could have some influence on the level of service provided and be able to make certain substitutions.

For example, the idea of locating in the port of Halifax the fleet of ice breakers that ply the distant waters of the Gulf of St. Lawrence deserves to be looked at. Not only is this inefficient, it is also unfair for the St. Lawrence River marine community, which will pick up the tab without enjoying the benefits of any economic spinoffs.

The system of different fees for different regions is inappropriate and arbitrary. It suggests that the levels of service available are the same within a region. The fact is that it is impossible to attribute correctly Coast Guard expenses to a particular region, to a particular part, to a shipping lane or to a single vessel. That is why all the fee structure proposals could be challenged.

We recommend that the Coast Guard adopt a transparent and consistent approach that better meets the concerns of the marine sector.

First, given the diversity of regional interests and the difficulty of correctly attributing expenses relating to Coast Guard services, we recommend the most uniform fee structure method possible. It would probably have some shortcomings, but it would nevertheless be the fairest, least arbitrary method. It would also make it possible to keep costs as low as possible for everyone.

Second, the introduction of a cost recovery system will be harmful to the competitiveness of the Canadian marine industry. Within the industry, the competitive margins are very small. We must also realize that the merchant marine is a volatile sector in which sea routes can easily be changed from one port to another and from one country to another.

We recommend that a genuine economic impact analysis be done, otherwise, we are proceeding blindly, without any navigational aids, so to speak.

The Coast Guard is headed down the path of commercialization for its fee structure, even though nothing has been done about service delivery. Despite the directives from the government of Canada in this regard, the agency has not been able to reduce its expenditures and has not reorganized its services to any great extent. If it is now asking for help from the marine community, it must expect the community to demand efficient services geared to meet its needs.

We have attached to our brief a resolution passed by the regional development council of the Island of Montreal. The council is composed of the main economic, social, community and industrial players on the Island of Montreal. They opposed the Coast Guard proposal from the time it was first introduced in January.

Thank you.

[English]

The Chairman: Thank you very much. We'll begin our questioning with Mr. Bernier.

[Translation]

Mr. Bernier: First of all, I would like to thank our witnesses for appearing before us. As is my practice, I will try to ask questions sometimes of a particular group, and sometimes of all the groups.

.1950

But first of all, Mr. Chairman, you will allow me to express my pleasure at having a listener here from the Port of Saint John. I didn't know that the comments made by the Bloc Québécois were heard so far away.

Mr. Day: Sometimes.

Mr. Bernier: Having started in this way, I will ask my first question of the witness from the Port of Saint John.

Were you at the last meeting with John Thomas, last Friday, sir?

Mr. Day: In Saint John?

Mr. Bernier: Yes.

Mr. Day: Yes, I was there.

Mr. Bernier: Despite all that, you seem to still be fairly optimistic about the definition of regional costs. However, when I look at the latest fee structure, I see that the bill for your area alone jumped by close to $400,000.

When we talk about regional fee structure, we see that the figures can increase and change quickly, but I still don't see anything that would suggest that one regional cost could be better than another.

Unless John Thomas let you in on something, I see nothing that would allow us to base a decision on regional cost or on a national cost. That is why I would like you to develop your idea further. Why should we adopt a regional cost when we don't have the documents we need to support such a proposal with respect both to the Coast Guard costs and to the probable impact of their implementation on various businesses using the Port of Saint John? We have heard from other witnesses from your region, and this does not seem clear to me. Could you tell me a little bit more about this, please?

[English]

Mr. Roberts: One of the primary reasons to support a regional approach rather than a national tax is that it represents the opportunity to work with the coast guard to reduce coast guard costs and to work towards the right amount of expenditure for the services that need to be provided.

On a national fee structure basis, that opportunity simply does not exist. An example of that can be seen in the United States. They had a harbours maintenance tax, which was initially set at 4¢. It went from that to 12¢ in a very short period of time. The fee was not related to the services provided. In the United States the courts have declared that to be unconstitutional. The same type of thing would apply to cargoes in Canada as well.

You say that we don't seem concerned about the levels. Well, we certainly are. We have stated that we support the commissioner in an implementation schedule; that is, we are prepared as a port for a period of nine months. During that period of nine months, we would expect to see the commissioner come forward with good cost systems that are well defined in terms of where the costs are in port-specific areas. We would expect at the end of that nine months to be into a port-specific...the port of Saint John or the area of the Bay of Fundy.

We have stated that we support user-pay, user-say principles. Without getting to that, we cannot support the recovery process.

.1955

[Translation]

Mr. Bernier: I'm not here to judge your comments. If that is your opinion and you are prepared to proceed along those lines, so much the better.

However, I'm somewhat surprised that the commissioner gets off so lightly, because I've had a hard time finding people who said they were prepared to go ahead with the proposal and to give him a blank cheque to proceed one way or another.

The witnesses that I found the most cooperative to date were businesses that described themselves as good corporate citizens. They said that they were prepared to help reduce the Canadian deficit by paying part of the $20 million according to a transitional formula. However, they refused to accept a final formula until they see the results of the impact studies. What impact will this measure have on the businesses that use your ports and what will be the costs directly charged to your regions. That's why I say I'm somewhat surprised.

From what the presenter of your brief said, I understand that you're not interested in talking about a moratorium or anything else. You are prepared to go ahead with this proposal. So I will ask my questions to the other two groups of witnesses.

Unless I misunderstood, on page 2 of the brief presented by the Canadian Manufacturers' Association, you seem to be saying that you would like to see an impact study done before going any further, so that you have some idea about all the stages that lie ahead.

I will ask the same question to the witnesses from the city of Montreal. We have to produce a report around the weekend. People are smiling, but we will be locked up here over the weekend. I would mention in passing that maybe you could leave me a piece of your rope so I can tie up the chairman properly over the weekend. I would just like to know what it is you want in concrete terms.

I understand that the representatives from St. John are prepared to give Mr. Thomas a blank cheque, but I am speaking now to the two other groups of witnesses. What message do you want us to pass on to the minister and to Mr. Thomas? Are you prepared to give them a blank cheque, or do you want a moratorium? What transitional measures could be offered?

[English]

Mr. Zier-Vogel: One of the things that we said early on and will be repeating when my company makes its presentation tomorrow is the problem we have with the tax in and of itself. In effect what's happening is that for all companies in Canada that use shipping services in whatever form, taxes will rise, period.

To the extent that companies have downsized and slimmed down and cut as much fat as they can find to survive through the early 1990s, it makes it very difficult to keep themselves whole with where they were, say, last year when it turns out that now they have to pay something else in another form perhaps - not as income tax but as a user fee, if you will - for a service they already get. The question would then be, where is the added value for the extra money spent? The answer would seem to be that it is our contribution to paying down the deficit.

Well, fair enough. If that's the way the government intends to proceed, then so be it. But I would ask whether it's fair to single out one sector of an economy that happens to use ocean freight and say that it should bear some burden that other people shouldn't bear.

With regard to what should happen, whether or not there should be a moratorium, we have said there should be, because we're a little concerned about what happens down the road. For example - and again I'll scoop myself for tomorrow - my company enters into contracts with companies as represented by Kent Line and other shipping companies. We don't use Kent Line directly, but you understand the problem we get into. We get into year-long and multi-year contracts and at the time we bid, we run very real risks of not knowing what the full costs are going to be. We're under no illusion that while the tax as currently set up is going to apply to shipping companies, this will be passed on to us in the form of higher rates.

.2000

The problem we get into is that if the shipping companies don't know what, for example, the fee will be to a region or a port because that is not yet known, or if the shipping company doesn't know what the total of the navigational aids fee and the ice-breaking fee will be, then how can it give a realistic rate? In effect what that company will do is throw something into the rate to cover itself. You can bet it's going to be padded because they'll always want to err on the side of being too high. The problem we're going to get into as shippers is that this will increase our expenses. If you strip it all the way down to the guy who is at the margin, who can't stand much more by way of higher costs, you will drive that person out of the marketplace.

It's pretty important to us to see the socio-economic impact test done first. What are you going to do if you levy the tax as of June 1 and the socio-economic impact study says it's bad? Are you going to take it off? Are you going to refund the money? We're not sure, but our sense is that you probably won't. Our sense is that if the socio-economic study does say things are bad, you're going to be in a bit of a mess.

All of this is done purely and simply to raise a fixed set of money that was set by cabinet, I guess, in 1994. There is no magic to the $20 million. There is no magic to the forty, forty, or sixty. They're pretty arbitrary as far as we can see. It makes it much more difficult for commercial people to plan their lives even as much as nine months in advance, given that it appears the tax is going to be applied June 1.

At the same time, we would begrudge somewhat the ability of people who are shipping between April 1, when the tax was to start, and June 1, when it is now supposed to start, to get a bit of a free ride. Those who happen by circumstance or happenstance to be shipping after June 1 through until April will have to pay and carry that bill. They're not going to be paying, as you know, at the rate of $20 million; they'll be paying at the rate of $28 million.

Mr. Day: Mr. Chairman, on a point of privilege, if we're allowed one in this forum, I am concerned about Mr. Bernier's suggestion that we come here to agree to give a blank cheque to the commissioner. That has to be clarified. We are saying that if the funds have to be collected, if Parliament says those funds must be collected, and this commences as of June 1, then we prefer option B to any of the other options we have discussed thus far.

We believe the costs are far too high. We're not at all happy with the figure that appears in option B. We believe that working with the commissioner and the coast guard, we can bring that figure down significantly. The point we're trying to make here, and perhaps we didn't make it as clearly as we should have for Monsieur Bernier and the other members, is that we believe the way to do this is to work on a port-specific basis to determine what the costs are, and work with the users to bring those costs down.

[Translation]

Mr. Bernier: I asked the same question of the representatives of the City of Montreal, but they did not have an opportunity to say whether they preferred an impact study or a moratorium. I would have liked the City of Montreal to have an opportunity to answer as well.

[English]

The Chairman: I think they already answered that in their briefs, that they did want one.

Mr. Bernier: Are you sure?

The Chairman: You had 15 minutes, Mr. Bernier, and we have to go to Mr. Scott. You can come back if there's any disagreement.

Mr. Scott (Skeena): Mr. Chairman, my question is to Mr. Day or anybody else who would like to answer it.

Mr. Day, in your presentation you were talking about June 1 being the ``gazetting'' day. I wondered if you were aware of an act going through the House right now called the Oceans Act.

Mr. Day: I am familiar with that. I understand it's in the Senate at the present time.

.2005

Mr. Scott: No, it's not in the Senate. It has passed the committee stage and is now going into the House at committee stage for a vote. I understand that it was introduced in the House today, but we're not sure when the House will actually be dealing with it again.

You will be aware that there are provisions in that bill for the collection of marine fees.

Mr. Day: I'm quite aware of that, Mr. Scott. Once that passes I think there would not be a difficulty if the gazetting was based on that rather than the Financial Administration Act.

Mr. Scott: Right.

Mr. Day: That was the point I was making. That may be part of the reason why the gazetting has been delayed, if it has been delayed. It's now a different date.

Mr. Scott: For your information, I have long been concerned about that particular piece of legislation. For the most part it's a good piece of legislation, but clauses 41 through 49, which deal with the coast guard, empower the minister to collect fees but do not describe what the government or coast guard are going to do to ensure that it's only delivering services that are actually required, and on an efficient, cost-effective basis, and ensuring that it only charges for services that are actually used by specific users in port-specific areas. That has long been a concern of mine.

Are you in the process of making any recommendations to this committee with respect to those provisions of the bill so that we might be able not only to deal with the issue now, but for once and for all - through Bill C-98 or whatever number it's given when it's re-introduced - so that we can ensure the coast guard operates with discipline? I think the concern we all share right now is that to date no financial discipline has been introduced into the equation. Have you looked at that?

Mr. Day: Mr. Scott, we'd be very pleased to provide you with a written submission in regard to those particular sections. I don't have a further comment to make on that at this time, but I understand the importance of what you have said in terms of the discipline that must be there. Our entire submission is based on the cooperative effort that we see developing, but we want to make sure it does develop because the only way this is going to work in terms of cost recovery is by allowing industry, which is paying the bill, to have something to say as to what they need.

Mr. Scott: We can come to terms with this issue now, and hopefully we will. When I say ``we'', I mean between the coast guard, the standing committee and the users - the shippers and so on. But until there is some ongoing requirement on the part of the coast guard to continually monitor its costs and the efficiency of the services it's providing, there is no constraint and no way of ensuring that the coast guard's costs will not get out of line in the future. I'm simply asking whether you have looked at it from that point of view.

I view this particular piece of legislation as a window of opportunity, so that we're not just dealing with regulation. Regulations can be changed at a moment's notice. They don't have to come back to this committee and they don't have to go to the House of Commons. Fee structures can be changed at the whim of the minister and the coast guard commissioner, but the legislation, once it's in place, is a guideline that must be adhered to. In order to change it, it has to come back to the House of Commons. That's why I believe this is a window of opportunity and why I think it's important for shippers and interested parties such as yourself, who are going to end up paying the cost of this, to look at that legislation and see whether there's an opportunity to ensure discipline in the future.

Mr. Day: To ensure discipline - thank you, Mr. Scott, we'll look into that.

Mr. Scott: If any of the other -

[Translation]

Mr. Melançon: If I understood the intent of the bill correctly, it was to ensure that the legislation require that the Coast Guard be effective, efficient, economical and so on. Under the user-pay principle, would those who are involved in marine transportation, but who do not or could not use Coast Guard services be exempt from paying? The user-pay principle is this: if you use my service, you will pay for part or all of its cost.

.2010

You know that in Montreal there are some vessels with reinforced hulls that don't need icebreakers. Municipalities along the St. Lawrence River need an icebreaker, because they're important for preventing floods. I've been told that this had some impact on Ontario as well. If a vessel comes to Montreal and does not have to pay for the service because its hull is strong enough to get through the ice without assistance from an icebreaker, all the other vessels will follow this one and we will be calculating the difference between the first vessel and the others to determine whether or not they are using the service.

I would now like to answer Mr. Bernier's question. You asked whether we want a moratorium. We want a moratorium, because at the same time as the consultation process, we would have expected the Coast Guard to do some analysis and impact studies, particularly since the tabling of the federal budget.

In Montreal, our officials would get their knuckles rapped if they were to make proposals without analyzing their impact. Thus, I think this should be done. At the moment, the proposed fee structure is clumsy and complex to the point that it would be better to withdraw it and come back to it once the economic analysis is complete.

We see no objection to the principle of cost recovery, but when you speak with private firms, they say that they are not concerned about the cost recovery formula. They say that once it is presented, they will do their own calculations, and if the figures are too high, they will simply go to United States, to American ports. If that is what is done, we're not shooting ourselves in the foot, but rather below the water line. There will be unemployment in all the ports in Canada, and that is not what we want.

At the moment, on this issue, it seems like we're drilling a hole below the water line and sinking ourselves.

[English]

Mr. Scott: We'll have to wait to see what are the final deliberations of the committee, but you have a lot support for a moratorium right now. Many witnesses have appeared before us saying, as you have pointed out, that the project is off on the wrong foot and needs to be re-thought before it progresses. Many people hold that opinion.

You asked what the Oceans Act means. The Oceans Act is an umbrella act that deals with a lot of existing legislation in other areas and brings it together under one umbrella. If you haven't had an opportunity to review that act, I would suggest that you do, and we can provide a copy of it to you. I'd be very pleased if you could provide input on clauses 41 through 49, which deal with how the coast guard will collect user fees.

You asked what the legislation means, and I suppose the best way to answer that is that it will mean whatever it says when it passes through the House of Commons at third reading and goes to the Senate. If we have an opportunity to change it, and I believe we do, it's important that the right wording is adopted. That's why I would like input from you and anybody else who might care to look at the legislation.

Once more, I think this is a window of opportunity to ensure the long-term discipline remains there for the coast guard.

The Chairman: Mr. Higgs.

Mr. Higgs: I would like to just have a little background here. I'm very concerned with the discussion about Saint John's support on the blank cheque, and I'd like to follow up on Mr. Day's comments.

The Irving Oil operation has the largest refinery in Canada. We've shipped more petroleum products by ship than anyone. We shipped 13.5 million tonnes out of the port of Saint John last year - crude imports and product exports. This fee imposition will probably be greater on our operation than on any other single shipper, certainly as far as petroleum products are concerned. This fee alone amounts to $850,000 a year to our operation.

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When you look at the fact that dredging is coming down the road.... We are not an ice-breaking port, but we deliver products to many ice-laden ports. So we will have that coming upon us.

In upcoming years we will really be impacted by potentially $2.5 million over our current operating costs. We are not offering any blank cheque. We see this as an opportunity to get to the level of a port-specific operation and avoid a national tax scheme.

Our refinery was placed in Saint John, New Brunswick because of its natural location for ocean-going ships. We can get crude delivered there to our port by the largest ships in the world to supply the refinery. However, there aren't many people in Saint John, New Brunswick. In the 250,000-barrel-a-day refinery, we have to export 60% to 70% of everything we produce, and that goes by marine.

So our marine transportation is absolutely vital to our operation. Our products are going up the St. Lawrence River. They're going through the New England coastline. Sixty to seventy percent of everything we make is leaving via marine.

So it has tremendous impact. The geographic location we're in is paramount to our operation. That's why we are supporting a system where we eventually get control of the costs that are actually being incurred to provide the services. This is so we can identify the services at the end of the day, identify what we need, and have an impact on them. A national tax does not allow us to do that.

The Chairman: Thank you, Mr. Higgs. The Irving companies don't have a reputation for throwing their money away -

Mr. Higgs: Exactly.

The Chairman: - and I think you know what you're doing. We'll trust that you know what you're doing. You have in the past. I think you will in the future

Mr. McWhinney.

Mr. McWhinney (Vancouver Quadra): I'd like to assure Mr. Higgs and Mr. Day that I don't think it was necessary to take any point of privilege.

The rules of examining witnesses before parliamentary committees are not those of the United States congressional committees. I think we slipped into cross-examination, which is impermissible.

I might have taken a point of order, but I thought Mr. Day handled himself with such vivacity in his early presentation that it was a pleasure to listen, so I didn't take the point.

Since you were cross-examined, I will take the privilege of re-examination and ask you to recapitulate some points just to make them clear.

On page 16 you have given us a very lucid summation of your brief. There are some very fertile points here, and I'd like to read them into the record. By the way, perhaps you can come back later to the point Mr. Scott has raised.

Your brief is basically rooted in the user-pay principle, which is a principle of the free market economy that this government and others espouse today.

I understand from your brief that you would be prepared to go into the plan as it now stands, that you're not asking for a moratorium, and that the points you put forward you think sensibly could be part of the review, could be proposed nine months from now, April 1. Is that correct?

Mr. Day: That is correct with two qualifications: first, that the plan is implemented across the country; and second, that the recovery is the same everywhere. Everybody pays. We don't want to be paying when someone else isn't, of course.

Mr. McWhinney: I felt you made that clear, and if I could just repeat, you are against a single national tax. You're supporting the principle of a regional tax - the three regions - but within the regions you're making the point that the ports that reduce costs should reap the benefits.

You don't want to create disincentives to efficiency, and that's a good free market principle. Again:

The cost recovery program must provide for an allocation of credits to ports for the best deflagged traffic and trans-shipments.

So the joint specific allocation of costs is crucial to your adherence to the plan -

Mr. Day: Yes, sir.

Mr. McWhinney: - and you would like that built into any review?

Well, I congratulate you on the lucidity of your position.

Incidentally, be not disturbed one way or another by statements of evidence, heard one way or another. Justinian made the point that evidence is non a numero, sed a pondere: it's the weight of the evidence that is the key thing, and we'll each make our assessments of weight.

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Now let me come back to this issue, though I was going to ask you to read into the record, in one or two lines, simply your view on the Financial Administration Act. Do you think you could give us about a minute on that simply to have it on the record?

Mr. Day: My concern is that the basis for the coast guard collecting these fees should flow from the Oceans Act, which has not been passed into law yet. Therefore, if it's delayed for any reason and they go ahead and gazette, it would have to be based on the Financial Administration Act.

My view is that that is not the proper piece of legislation for collection of these fees, and it will be challenged as soon as it happens.

It may well be that the Oceans Act will pass through and form the basis for the gazetting, but if it gets into the Gazette before the Oceans Act is passed, it will have to be based on the Financial Administration Act. And that would be challengeable.

Mr. McWhinney: I'm glad to have that on the record.

Just picking up on the point made by Mr. Scott, the act that was revived - I think that's the word to use this afternoon - by the minister...but the disposition of parliamentary time rests with the House leader. So we understand that before we recess, it will be dealt with.

I should counsel you, though, Mr. Day and others, that the Oceans Act does have certain criteria of relevance. It is more oriented towards adoption of international law principles that are really very vital to the case to be made against the United States on the inland passage, to adoption of elements of the Law of the Sea Convention.

It is not an omnibus, catch-all bill so there will be criteria of relevance attached to it. In particular, the aspects devoted to the coast guard are in a certain sense limited by the overall purposes of the Oceans Act. It may be that something should be done with the coast guard separately - separate legislation - but there are limits to what we can do there.

But I'm glad to have that on the record, and I compliment you again on the very clear brief.

As I say again, I myself as a supporter of the free market principle recognize the candour and optimism with which you approach a difficult task that is enjoined on all of us by the necessity to apply the use of a principle at a time when Canadians are committed to reducing the budget deficit, when every department is faced with rigid economies. Thank you.

The Chairman: Thank you, Mr. McWhinney.

Our newest member, from Humber - St. Barbe - Baie Verte, has his first question.

Mr. Byrne (Humber - St. Barbe - Baie Verte): Thank you, Mr. Chairman.

I'd like to start with just a series of quick questions to each of the witnesses and ask what has been the calculation of fees that would be paid by each of your member companies or collectively by the organization as a whole under this current fee structure for this year? What's been your calculation?

I would like to ask each of the witnesses to answer that question.

Mr. Day: According to the coast guard's calculation that has been done - it appears as annex B to the coast guard's letter of April 10 - the total for the port of Saint John, commencing June 1 through March 31, 1997, is $1,514,748.

Mr. Byrne: Is it for this fiscal year, this coming year?

Mr. Day: Well, it's only for nine months, starting June 1. That's the proposal by the commissioner of the coast guard.

Mr. Byrne: Could we go around then.

Mr. Zier-Vogel: We don't have it for the CMA, but we do have it for the Noranda Metallurgy and Noranda Mining and Exploration on a million and half tonnes a year.

This fiscal year, if things start up June 1, it will be $180,000. That will not include ice-breaking, as you can imagine. By the time 1999 rolls around, if the ice-breaking cost for us is $1 a tonne, it will be $900,000 a year. If it's 50¢ a tonne and we do half the amount of shipping in ice-breaking season, it will be closer to $500,000 a year.

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[Translation]

Mr. Melançon: Unless Mr. Stéphane Brice has made an error, the figure would be approximately $2.25 million.

Mr. Brice: Our port would be among those that feel the greatest impact if such a measure were to be introduced.

[English]

Mr. Byrne: Have you actually done an analysis of how much you would be paying out?

[Translation]

Mr. Brice: Approximately $2.2 million, according to the fee structure put out last March.

[English]

Mr. Byrne: I have one other question. In terms of your own industry, I take it you've done some extensive consultations within the industry as a whole in Canada.

I'd also like to ask if there has been consultation with your ships' captains in terms of safety.

It appears that in terms of the regional, port-specific structure, which has been advocated by some members and by some witnesses from whom we've heard testimony, a user-pay, user-say system would also incorporate a reduction in costs. Part of the reduction in costs, of course, would be reductions in services. Has there been consultation with vessel captains and with pilots as to whether or not there are any safety implications for reductions in services?

Mr. Day: In our group there certainly has been. One of the board members of the Atlantic Pilotage Authority is on our gateway council.

We also have Mr. Don Hall, who runs a shipping company. He also sits on the gateway council and is here today.

In addition to shippers, we have ship operators. So we're very conscious of the environmental aspects as well as the safety aspects of any cost reduction. That always goes into our considerations.

Mr. Byrne: But there has been direct consultation between your industry organizations and the captains on vessels?

Mr. Day: Yes, and Blaine Higgs as well. Absolutely, and we know what the captains can do, what they need, what navigational aids they need, and what they're not using.

The Chairman: Thank you, Mr. Byrne.

We'll go to Mr. Tremblay.

Mr. Tremblay (Rosemont): Thank you Mr. Chairman. I just wanted to make a point.

Our witness from Saint John stressed the need for fairness and equality. As you seem to say that it is very important to have those regional fees, I just want to tell you that we know it's very difficult to know the exact cost.

Then there is the question of where the money is spent. As the City of Montreal points out, why should the home port of the ice-breaker be in Halifax if we pay for the costs?

As your owner could be interested, and if we had those people from Quebec City, it is certain they would ask why those ice-breakers should be built in St. John's if we are to pay for using them in the St. Lawrence.

If you start on a regional basis, this type of question will come up very soon, and maybe tomorrow. It's more difficult when you go to cost-benefit on a regional basis.

Maybe we can have the whole picture and not just a narrow picture that you now seem to be presenting to us. As we have the same owner, it could be very interesting to have a discussion with those people on a larger basis and discuss those aspects of the problem.

I am sure people in Quebec are also very concerned with fairness and equality, in the larger sense too. You understand that we are in politics.

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I'm not speaking only.... It would be the same if I would be a Liberal from Quebec City. The fact is that we don't have any Liberal in Quebec City, because maybe people feel that it's not so fair. As I see the proposal now, they want to see more fairness in the proposal than we have had until now because they just closed the shipbuilding plant near Quebec City.

A voice: Well, perhaps -

Mr. Tremblay: I understand your question and I don't want to...it's not an aggressive comment.

I just understand your position, and you do your work. But you have to understand politically how we'll live with that kind of situation. I think you can understand that. That's the only thing I want to register here.

Mr. Day: I understand your comment. There are going to be a lot of judgment calls and some difficulties in implementing this cost recovery. Perhaps the fact that only a percentage of the actual costs incurred is to be recovered is an indication that there will be some national interest issues that can't be dealt with.

Our position with respect to fairness and equality was that if there are difficult situations such as you've heard earlier.... If we decide, for example, to subsidize an industry such as Martin Marietta in Nova Scotia because of high unemployment, we subsidize an industry that has low margin for the sale of product to its parent company in the United States.

If that's something we want to subsidize for employment purposes, then let's do it up front so everybody understands it. But don't ask industry to subsidize another part of industry in that regard. That's our point about fairness and equality.

The Chairman: Thank you.

Mr. Tremblay, I think Mr. Turner from the coast guard appeared a few weeks ago and addressed that very question. If you wanted to look at the record to see how he answered it, feel free.

Mr. Tremblay: We'll come back to that.

The Chairman: Mr. Culbert.

Mr. Culbert: Thank you, Mr. Chairman.

Welcome, gentlemen. It's good to see you. I apologize for being a bit late.

I should tell you, Mr. Chair, as you're well aware, we had the Forum for Young Canadians attending and, of course, young people from back in New Brunswick. I might say we're here this evening and certainly had to take the opportunity to meet with them, and have a bite to eat with them actually.

So welcome. It's good to see you again.

I will say, first of all, that your report was in some cases a bit different from Mr. Krauter's. I believe he was here yesterday on behalf of the Saint John port commission. But we won't get into that. That would be redundant.

I guess from -

Mr. Day: Let's get into that. That would almost be provocative.

Mr. Culbert: It might. It might be a real challenging area, but I think we'll leave that for another day.

From what I gathered in your report, you're saying basically that you believe in the philosophy of a user-pay or a fee per service provided that those services are there, are required, and are needed.

From your particular perspective in the case of the port of Saint John, have you done any analysis on shipping with respect to those services that are actually required, whether it be for safety or whether it be from the captains of the ships coming in and requiring it in order to get in and out of the harbour, and so on? Have you done any analysis on those kinds of cost factors?

Mr. Day: We've already said, Mr. Culbert, that we won't compromise environmental matters or safety. But the short answer to your question is yes, on a regular basis we are discussing what aids are necessary, what activity is necessary, what pilotage is necessary, and what isn't.

We discuss that regularly on various subcommittees within the Saint John Gateway Council. Maybe one of my colleagues would like to be a bit more specific.

Mr. Higgs: There's just one item that I would mention in looking at the whole scope of marine transportation, an area about which we've asked our people....

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There's one example that goes outside the marine services fees, but it reflects our fees as a shipper. We are dealing with our captains and with our people on-board our crude ships as they come into the port of Canaport. Briefly, our operation puts a fully certified mooring master on-board the ship, who is there for the entire duration of the discharge. One of the areas we have been promoting to change is that we would like to have that fully qualified mooring master, who has a master foregoing certification, to be qualified as a pilot. He does each and every ship and he knows the local area better than anyone. But regulation doesn't permit that because he has to be a member of the crew, even though there is no question about his qualifications.

Our interest is that we have the liability. We know the concerns if we mess up. In the petroleum business if the ship goes aground or we have a problem, we bear the brunt of it. We don't want any part of having that happen, so we're not going to jeopardize safety. We're going to improve the standards for the people we have working with us.

That is one example where I state that this is what we're heading towards, and we'd like the flexibility to do it in all sectors. We feel that in the direction we're heading, to get a handle on the actual services being provided, we can look for ways to provide them every bit as well, but more efficiently. We want the opportunity to do that. That's why we are putting our hands out and saying we're willing to work with the coast guard, but we have some very conditional agreements that must be in place first.

Mr. Day: We believe, Mr. Culbert, that the important thing is to work together. There will be checks and balances on both of us. If it were just industry doing it, they might want to drive it down a little farther than they should. We want to work together with the regulators and with the coast guard to bring those costs down.

Mr. Culbert: To the Saint John Gateway Council, you're well aware, from the perspective of the port of Saint John and also up the way a little to the port of Bayside, of the importance of the cruise ships that come in every year - not specifically perhaps for the big dollar you're going to gain in either of those ports, but for the spin-off they have into the communities. From what I'm told, when those people come in and spend a day or two in the respective communities, they spend a lot of dollars, which helps our economy and complements the tourism industry. Do you see any major effects on the cruise ships coming in as a result of user fees?

Mr. Day: That certainly is a good question. We've talked about that and it's clearly one of the areas we would want to look at. We wouldn't want to discourage any economic activity, but if there is the economic benefit in the community, then maybe municipally or provincially that benefit could be recognized in the municipal taxes the port facility is paying. There are trade-offs that can be worked where both parties are winners.

Mr. Culbert: Mr. Chairman, I'm just looking back in some of my notes. One goes on this for a long while and tends sometimes to forget; you have to review your notes. I'm looking back at a statement made by Mr. Thomas on January 5, and I would ask all of you if you might like to comment on it. It will take me a couple of minutes, Mr. Chair, but if you'll bear with me I think it's important.

I'm going to read a certain section of it, dated January 5, 1996:

The marine services fee is built on the following principles developed by the Marine Advisory Board:

Safety standards will be maintained;

Separate fees will be established for aids to navigation services and for icebreaking services. This will ensure that only those who benefit from icebreaking will contribute to recovery of the costs associated with the service;

To reflect actual costs, there will be separate fee structures for the West Coast and Eastern Canada;

As we know, there's an additional one since because of the input that has been provided.

Incentives for practices such as double-hulling and upgraded navigational systems will be incorporated to encourage environmentally friendly practices and to promote a safer and more efficient marine transportation system;

The fee will be charged to the ship based on ship size, an approach which adopts the most prevalent international practice; and

To ensure no undue burden on frequent traders, there will be a cap on ferry operators and the coasting trade which are required to make frequent stops.

``These principles are consistent with the government's commitment to user pay-user say,'' said Mr. Thomas.

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I have a couple more quotes from that same piece of correspondence, if I might, Mr. Chair, and then I'd like the comments of our presenters.

It goes on to say:

The Coast Guard is committed to a plan of achieving $133 million in cost reductions per year over a five year period. In addition, the Coast Guard will work in close collaboration with industry to significantly reduce our costs in the enroute services provided to this industry by adopting new aids to navigation and traffic management technologies and new icebreaking practices.

With the marine services fee, Canada joins other countries including the United States, the United Kingdom, Australia, Sweden, Finland and Norway that have implemented cost recovery measures on the commercial shipping industry.

I'd like to have your comments on those statements that were made by Mr. Thomas.

Mr. Day: Maybe we can let one of our colleagues go first, and we'll gather our thoughts together.

Mr. Culbert: I guess the point is whether you feel comfortable with those statements, or if there are concerns in specific areas in those statements, what might they be.

[Translation]

Mr. Brice: What you read was the message released by the Commissioner of the Coast Guard in January. It was a little more in line with our thinking than the most recent fee structure published last March. It really bore no similarity to the announcement made in January. It said among other things that the fee structure would be based on the size of the vessel, which is yet another poor choice. But they went even further. They distanced themselves from that because they are now talking about regional billing, billing according to the number of tonnes of merchandise carried, unloaded and loaded, all of which has nothing to do with the use made of the services.

Whether a vessel unloads 5% or 100% of its cargo has nothing to do with... So they're getting quite far away from the principle that was announced at the beginning.

There was also talk about introducing incentives. The last thing we heard about concerned a possible 5% reduction in fees, which is not a very strong incentive... The incentives will have to be a little more attractive for mariners. There should be provision for some substitution method, for example. If some shipping practices are less costly for the Coast Guard, this fact should be better reflected in the incentives.

At first glance, we did not find the principle satisfactory in all respects, but they were stated better and much more clearly than those that followed.

M. Melançon: It goes without saying, that we see some potential for a constitutional debate on this matter, and naturally, we have no intention of getting involved in that. We felt that in the context of Canadian logic, it might be necessary to recover part of the Coast Guard costs. From there, some thought a coast to coast policy was required.

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I would not want the user pay principle to be different for the west coast and the east coast, or for what may be seen as a Canadian river, namely the St. Lawrence River.

That was the approach we tried to take. In preparing our brief and the one that we submitted last December, we tried to set the basic parameters.

The city of Montreal has worked in cooperation with all of the economic stakeholders in Montreal, but also with Sodes, the St. Lawrence Economic Development Society.

We're familiar with the problem, including that of ice breaking. If the vessels on the St. Lawrence have to pay all the costs, why should there not be some provision for opting out? The Canada port authorities in Montreal and Quebec City, and perhaps even in all the others ports and harbours that would be devolved to local authorities, could establish their own ice-breaking services. We could simply withdraw from the ice-breaking service and the Coast Guard would no longer do ice-breaking on the St. Lawrence river. We would do it ourselves, according to the needs of the industry and the various ports.

However, as a municipal authority, I do have a problem. I have neighbours that use the Coast Guard for protection against flooding. So the Coast Guard would be in a difficult position.

As far as marine and commercial activities go, the Coast Guard would not send us a bill, because we would have set up our own service. However, in the case of floods, the Coast Guard would be available. We have a problem, and it's important that we have some time to think about all of these policies. We could have done so, but from what I understand, we were missing certain pieces of information. Today we have come to tell you, as have a number of other witnesses, that we need a little time to do a proper analysis of these activities.

If you go too far, we will see how the Quebec government, the other port authorities and the Montreal port authorities will get involved. Moreover, if businesses think that travelling through the St. Lawrence river and through canadian ports is costing them too much, they will go to the United States, particularly to ports along the Atlantic seaboard. I'm less familiar with the situation on the west coast, but I think the risk there is the same.

If we want a canadian economic development policy, and if we want to maintain jobs, we will have to be very careful about the fees we charge for the services, particularly under the user-pay principle.

[English]

The Chairman: The hour is getting late. Do you want to respond to that also?

Mr. Day: Yes, Mr. Chairman, rather quickly, I believe.

Mr. Culbert, a lot has evolved since the statement by the commissioner. One of the items that evolved was our recognition that as users of the services from the coast guard, we needed representation on the Marine Advisory Board. We've now achieved that. We have also convinced the commissioner that there should be an Atlantic region advisory board to deal with common interest in the Atlantic region. We're in the process of developing that, I am pleased to say.

On the comment in relation to cost reduction internally, we fully agree that the coast guard must internally - I think the Department of Fisheries and Oceans and the coast guard combined have a budget of somewhere around $1.3 billion this year. Certainly they should find some cost savings in there somewhere, in addition to the cost-recovery aspect.

On the other items and the principles you went through, I can tell you you're quite right. We're now into three regions. The beauty of the west coast, the central region, and the Atlantic region is that each region can devise its own approaches and there can be some fine-tuning within that region. Maybe the people of Montreal want to subsidize someone in Thunder Bay, because they're all in the same region. Maybe the Atlantic region can see some desire to take certain approaches in terms of not charging for different ship sizes. Maybe the west coast will want to have a standard fee for each port rather than different fees. That's the beauty of the approach...rather than trying to create one standard across Canada.

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We're pleased there are three regions, and we want to move in the Atlantic region to port-specific. We want to get right down to the port or grouping of ports that have common interests, such as the Bay of Fundy, Canso, northern New Brunswick - you're going to hear from them tomorrow morning - the Chaleur Bay area.

There are groupings, and the Bay of Fundy, Mr. Culbert's area, has a lot of the same interests we have, as has Hantsport across in Nova Scotia. We're pleased that we have been able to work with the commissioner as far as we have. There is a long way to go, a lot farther to go, but we're working together now and in a positive manner.

Mr. Zier-Vogel: Mr. Culbert, I'm a member of the Marine Advisory Board, so I was there. I heard all that and I participated in the drafting of those words, so clearly I support the words as far as they go. It's perhaps unfortunate that the commissioner could go only a certain distance given his mandate, and we would say it didn't really go far enough in terms of respecting the needs of the business community in Canada.

The Chairman: Mr. Wells.

Mr. Wells: I'd like to ask a very small question. I'll make one small comment and ask one smaller question.

On the question of regional rate versus national rate, it's an interesting debate, but if you look at the actual rate, the rate for the Atlantic is actually higher than the rate for east inland. We'd be better off in the east with the national rate, because presumably it would be lower. The rate in the centre is in fact lower.

The perception seems to be that there's a higher rate because it's regional in east inland and Great Lakes, when in fact it isn't, based on the table I have.

I have just one question to the Saint John people. I'm confused. Who speaks for the port of Saint John? The Saint John Gateway Council or the Saint John Port Corporation? Maybe you can tell me what the difference is between the two groups. Are you part of the Saint John Port Corporation as well, or are you totally independent bodies?

Mr. Day: The gateway council represents the users of the facilities at the port. The port of Saint John is under Ports Canada. It's appointed by the minister and we work with them. They run the port. We're the users.

Mr. Wells: Who speaks for the port of Saint John? Which voice should we be listening to, if there's a difference between your positions? I'm not suggesting there's any difference between your positions, but -

Mr. Day: We would hope, Mr. Wells, that those who pay the bills would have some say in what is happening, and we are the ones who pay the bills.

Mr. Wells: You speak for the people.

Mr. Day: We speak for the users.

Could I comment on your comment, please. You're quite right. The latest proposal is that in the Atlantic region it's 17¢ per tonne, whereas, as I understand it, in the central region it's 15¢ per tonne. That's the price we in the Atlantic region are prepared to pay in order to get control of our destiny because we know that if we can participate in this, we can bring that cost down. We know it.

Mr. Wells: My concern is that we have been hearing now for three days about how hard-done-by the central region is with regional rates, whereas they seem to be gaining from regional rates. I thought it should show on the record.

The Chairman: This is not a very good time to get into an argument, but Mr. Bernier obviously disagrees.

[Translation]

Mr. Bernier: Two points have woken me up at this late hour, Mr. Chairman. I find that we have some partners in decentralisation around the table, when we advocate working for a region. We in Quebec, would like nothing better than to have a good discussion with the lawyer for the Irving company.

For the record, Mr. Chairman, I would like to question Mr. Wells' figures.

I would be very glad if it were cheaper for the central region, but the latest figure we have, $0.176, was released by Mr. Thomas on Friday in Saint John when he spoke about the new breakdown of the $28 million. If you take the same figures and apply them to the central region, you will probably come up with different answers.

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We should emphasize the quarrel that's going on at the moment about principles. Mr. Thomas said himself that people were not talking about exactly the same figures. At the beginning, the figure was $0.14 for the Maritime region, and approximately $0.15 for the central region. Those were the figures that led to the whole controversy at the first meeting in Montreal.

I haven't yet seen the latest table, but I will be seeing it, Mr. Wells. The fact remains that the large companies that came to testify all said that they did not see how it could be justified.

However, I am prepared to get into a discussion at any time with the representatives of Irving to talk about decentralization, and so on. That will be great, but if we worked together on this issue, we will have to work together on all the rest as well. Then we will really have a lot of fun.

An hon. member: Then we'll have a real partnership.

[English]

The Chairman: Thank you all for coming. It was a very interesting evening.

The meeting is adjourned.

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