Bill C-52 (Historical)

Fair Rail Freight Service Act

An Act to amend the Canada Transportation Act (administration, air and railway transportation and arbitration)

This enactment amends the Canada Transportation Act to require a railway company, on a shipper’s request, to make the shipper an offer to enter into a contract respecting the manner in which the railway company must fulfil its service obligations to the shipper. It also creates an arbitration process to establish the terms of such a contract if the shipper and the railway company are unable to agree on them. The enactment also amends provisions related to air transportation to streamline internal processes and certain administrative provisions of that Act.

[Jeff Watson, Conservative, Essex, ON]

Thank you, Mr. Chair.

Thank you to our witnesses for appearing today on Bill C-52.

You talked about the power disparity, I think, that the shippers face with respect to the rail lines. One of the positives, I would submit, with Bill C-52 is that it gives shippers, not the companies, a unilateral right to trigger an arbitration process, which effectively is a compulsion, at least to a reasonable degree, to negotiate a service-level agreement fairly.

Would anyone disagree with that?

[Ralph Goodale, Liberal, Wascana, SK]

Thank you very much, Mr. Chairman. I appreciate the opportunity to have another panel of witnesses before us on a very important topic.

When you listen to the testimony, particularly as we've heard today from some of the shipper organizations and from one of the railways, it's really a case of black versus white. You often wonder if the ships are just passing in the night.

The government obviously conducted a rail review process. The result of that process a couple of years ago was to agree largely with the shipper perspective that there was an imbalance, and that imbalance needed to be corrected. So we have before us Bill C-52, and we have six amendments to Bill C-52 proposed by the Coalition of Rail Shippers.

I have three questions in particular that I'd like to ask the shippers, perhaps the Mining Association, the fertilizer people, and the chemical people.

The coalition amendment number one talks about a better, clearer, more specific definition of what adequate and suitable accommodation and service obligations really mean in the language of the law. Those phrases, “adequate and suitable accommodation” and “service obligations”, have been in the legislation for a long time. There's still a great deal of ambiguity about what they mean, even after years and years of usage, so the shippers are suggesting an amendment to bring some precision to the use of that language.

If the amendment is adopted by the committee and by the government and by Parliament, you'll get the precision you're suggesting. What if the amendment is not adopted? Will the legislation fix the problem or will the ambiguity continue and the problem will not be solved? That's question number one. How vital is this amendment in providing greater definition of service obligations?

Secondly, what are the service levels you are experiencing now? When the rail review process was conducted a few years ago, they reported a pretty difficult situation. The information provided by Mr. Mongeau would suggest that some of those performance levels have improved, at least in the last two or three years. What is your experience right now with service from the railways? And when I say “right now”, I want to include specifically the period of time since the legislation was tabled. Have you noticed any change in the level of service that is being experienced right now?

My final question is on this issue of administrative monetary penalties versus liquidated damages. The legislation obviously provides for AMPs. It doesn't provide for an expedited way to proceed with actual practical damages.

If you have only the monetary penalties in the legislation and no access to liquidated damages, does that really fix the problem from the shippers' point of view? The AMPs money goes to the government; it doesn't go to you. So what's your preference in terms of remedy?

[Roger Larson, President, Canadian Fertilizer Institute]

Thank you, Mr. Miller and members of the committee.

I'm the president of the Canadian Fertilizer Institute. With me today is Ian MacKay, our transportation legal counsel.

CFI represents the basic manufacturers of nitrogen, phosphate, potash, and sulphur fertilizers in Canada. Our members produce over 25 million metric tonnes of fertilizer annually. We export over 75% of this production to the United States and offshore to over 60 countries.

We are a resource-based industry heavily dependent on the railways to move our goods to domestic and offshore markets. Our ultimate customers are farmers. Delivering fertilizer products to them in a timely and effective manner is critical to the world's food supply.

I am pleased to see my colleagues from the railways here today. We have a partnership, one that is critical to the success of fertilizer companies and to the success of the railways.

Our growth in exports offshore and to the U.S. depends on our members' competitiveness. Our companies are investing in Canada's economic growth, with some $15 billion in potash expansions and about $3 billion to date in nitrogen fertilizer expansion. These investments will require the railways to invest in new rail infrastructure and stronger commitments to their customers.

Our member companies have invested in their transportation partnerships with the railways. One of our member companies has 5,500 railcars. It's the second largest railcar fleet in North America. Our other members have invested in tens of thousands of railcar long-term leases to move their potash and nitrogen fertilizers to the United States.

We are participating in research to build a new and safer rail tank car for the transportation of anhydrous ammonia. Our companies are spending hundreds of millions of dollars to build new port facilities in Vancouver and on proposals for Prince Rupert. At our manufacturing plants and mines, CFI members have built sophisticated load-out facilities with the capacity to load 80 to 140 railcars at a time. That's a train two and a half miles long.

The railways have not always met their service commitments, and it's not always just due to bad weather. While there have been significant improvements in service since the problems we experienced in 2007 and 2008, we need to recognize that recent capacity constraints have not been there due to the economic slowdown. What happens when the economy recovers to full level?

Our industry is investing in dramatic growth. Another 10 million to 15 million tonnes of potash and nitrogen fertilizer will need to be moved to our customers, and virtually 100% of this new product will need to be exported by rail.

Today, our members require sophisticated commercial service terms and agreements to meet their individual business needs. Specifically, they need to negotiate new railway commitments on the service obligations, over what I would categorize as the “generic”: a one-size-fits-all provision of adequate and suitable service as currently set out in the Canada Transportation Act. Today, generic, simply stated, will not work.

CFI is encouraged by Bill C-52, the Fair Rail Freight Service Act. We commend the government for bringing forward this important piece of legislation. We at CFI view this as a crucial step towards a better commercial balance between the railways and their freight customers.

That said, CFI has found areas in the bill that give us some cause for concern. The backstop requiring railways to commercially negotiate and deliver on service commitments with their customers, and enabling arbitrators to establish those agreements if negotiations fail to do so, is provided to some extent in Bill C-52, but it is incomplete. We can strengthen the backstop by ensuring that rail customers can ask for service agreements backstopped by commercial dispute resolution provisions.

Our members believe that railway service problems should be resolved by commercial processes. CFI has been a leading advocate of commercial dispute resolution since the beginning, since the federal debate regarding railway service started around 2006.

We were the first to develop and present a timely, effective, low-cost mediation and arbitration process to the rail freight service review panel. CFI supports commercial negotiations backstopped by mediation and arbitration. This panel cited CFI's efforts in their final report. We are pleased that the arbitration process contained in the bill mirrors many aspects of CFI's proposals.

The CFI supports all of the recommendations for changes made by the CRS earlier this week. However, today I want to emphasize two of the six recommendations that are of particular concern to the fertilizer industry.

We start with operational terms in the CRS document. This is known as recommended amendment number two. The scope of the service agreements should be extended beyond operational terms to cover all aspects of the commercial relationship between a railway and a customer. Limiting service agreements to operational terms excludes from consideration by the arbitrator a number of important terms and conditions that one routinely sees in commercial agreements. This makes little sense in practical terms and will result in shippers only being able to arbitrate some of the issues they might otherwise choose to negotiate on. The separation of operational terms from non-operational terms does not exist in commercial agreements, so we propose to the committee that the legislation be amended to strike the word “operational” from operational terms. This will allow the arbitrator to include clauses such as force majeure, dispute resolution, and other standard contractual terms found in commercial agreements.

Secondly, the bill needs to make it clear that service agreements may include dispute resolution terms to deal with service failures. This is CRS's recommended amendment number three. Shippers do not wish to undertake costly litigation to deal with a service failure or to wait for the CTA to conduct hearings. In our view, the most effective way to deal with service problems that arise after an agreement is established between a railway and their customer is under dispute resolution terms proposed by the parties themselves and settled by the arbitrator if need be. As presently drafted, the bill would not allow the arbitrator to include dispute resolution terms, meaning the bill is only treating half of the ailment.

In conclusion, the CFI notes that in Minister Lebel's testimony before this committee on February 12, service disputes relating to the Canadian portion of cross-border shipments will be subjected to arbitration under Bill C-52. Almost 50% of the fertilizer manufactured by our members is shipped to the United States. The transportation service challenges and the service issues that our members face on our exports on cross-border rail movements are the same as those faced on traffic movements within Canada domestically or to ports of export in Vancouver. Our policy and regulatory authorities need to work closely with their U.S. counterparts in an effort to establish and harmonize a commercial dispute resolution model that addresses the total shipment on cross-border moves.

It is imperative that this legislation support the new investment our industry is making in the growth, jobs, and future prosperity of our country.

Thank you for your attention, and I look forward to your questions.

[Pierre Gratton, President and Chief Executive Officer, Mining Association of Canada]

Thank you, Mr. Chair, members of the committee, and fellow attendees.

I am Pierre Gratton, president and CEO of the Mining Association of Canada. MAC is the national voice of Canada's mining and mineral processing industry. We represent both large shippers, such as Teck, CP's largest customer by far, and smaller shippers as well.

Accompanying me is François Tougas, our counsel in this matter. Thank you for the opportunity to appear today and to share our perspective on this important piece of legislation.

In 2011 the mining industry contributed $35.6 billion to Canada's GDP, employed 320,000 workers, paid $9 billion in taxes and royalties to federal and provincial governments, and accounted for 23% of Canada's overall export value. I would add, too, that our exports actually reached a record level in 2011, the most recent year for which we have statistics.

Operating from coast to coast to coast, the industry is very important to remote communities and generates prosperity in our major cities, notably, Toronto, Vancouver, Montreal, Edmonton, Calgary, and Saskatoon, each of which serves as a centre for global mining excellence for various types of mining.

Looking forward, proposed, planned, and in-place mining projects in Canada amount to upwards of $140 billion of investment over the next 5 to 10 years. Across the country, major projects are seen in mined oil sands, coal, copper, gold, iron ore, and diamonds, among other sectors, with large investments also occurring in environmental and processing areas.

To enable the industry to become an even stronger contributor to Canadian prosperity, industry needs government policy support to meet anticipated long-term demand for Canadian minerals. The efficiency of the logistical supply chain is a major determinant of industry's contribution to the economy, and rail freight service is a major determinant of the effectiveness of the logistics supply chain.

Although MAC appreciates the government's initiative through Bill C-52, it is our view that the bill, unless amended, will not deliver on the government's promise “...to enhance the effectiveness, efficiency and reliability of the entire rail freight supply chain.”

The Canadian mining industry is the single largest industrial customer group of Canada's railways by far. We consistently account for over half of total rail freight revenue in Canada and the majority of total volume carried by Canadian railways annually. In 2011 the mining industry accounted for 54% of rail freight revenue and 48% of volume. As such, transportation legislation is, obviously, very important to us.

I'll give you another, more specific example. Consider one miner's economic input and the impact that the quality of rail freight service has on the success of the business model. This miner ships 24 million tonnes of coal to ports each year. At about 105 tonnes per rail car, that amounts to 225,000 rail cars annually. At 152 cars per unit train, that equates to 1,500 unit trains per year, or five unit trains per day. At, say, $150 per tonne, that translates to $15,750 per car, or $2.4 million per unit train, for a total of $12 million in coal shipped daily. When placed in context, it becomes clear how much rail freight service failures can cost miners, and, in turn, the Canadian economy as a whole. It becomes very difficult to ship other products if the mining industry is not able to ship theirs.

The biggest issue rail customers have is that they do not know what they are getting for the rail rates they pay. The remote locations of many mining operations often leave miners captive to one of the two railways and frequently stranded without alternative modes of transportation. Their captivity, coupled with railways' power to unilaterally impose rates, enables the railways to influence prices and reduce service quality without the risk of losing customers.

Shippers had anticipated that Bill C-52 would follow on the recommendations of the final report of the rail freight service review panel so that when contracting or otherwise dealing with railway companies for rail freight service, the playing field would become balanced. Although a number of the review's final recommendations are found in Bill C-52, it is the recommendations absent from the bill that present shippers with the greatest challenge.

Currently a railway is not required by the Canada Transportation Act to provide any particular elements of service to a shipper unless the railway so chooses. Furthermore, in instances where a carrier does choose to offer service elements to a shipper, the railway is not required to provide any particular level of service.

Despite the recommendation of the review to include elements of service in service agreements, and the broader shipping community's request for the same to be included in Bill C-52, the legislation before us today remains silent on this crucial issue.

Giving shippers a statutory right to a service-level agreement, as Bill C-52 has done, only goes halfway: it gives shippers a right to service without defining that service. Without including the specific elements of service a shipper needs, the bill, at best, subjects the quality of a shipper's rail service to the discretion of an arbitrator in a process that, unless amended, weighs heavily in the railway's favour.

The provisions on service in the act are sufficiently weak and vague that they have been unable to address the service failures that gave rise to the review in the first place. Given that these provisions remain unaddressed in the bill, it is our view that shippers will remain disproportionately and unreasonably subject to railway market power, and the service failures will continue into the future.

In the legislative consultation, shippers sought amendments that would establish, first, a base level of service by requiring the railways to provide specific elements of service; and second, a way to guide the Canadian Transportation Agency or an appointed arbitrator in its interpretation of the adequacy and suitability of the level of service provided by a railway company.

Bill C-52 falls short because these critical components of service remain absent. Consequently, neither the agency nor an arbitrator has guidance regarding the adequacy and suitability of a particular level of service, or even of whether an element of service must be provided by a rail carrier.

The government still has an opportunity to get this right and to achieve Bill C-52's stated objectives of economic growth, job creation, and expanded trade opportunities. The amendments we seek correspond to those of the broader shipping community as determined in consultation with the Coalition of Rail Shippers. Specifically, MAC endorses the six amendments detailed in the document tabled before the committee today, with a specific focus on recommendations one, two, and six, as described in our brief.

There is an opportunity to fix this problem. By implementing these recommendations, the government can allow for commercial negotiations, maintain Canada's export success, and deliver revenues and jobs across the country without incurring any cost. Miners want to be able to work in partnership with the railways in the movement of their products. To do so, however, requires a level playing field.

Thank you very much.

[Fiona Cook, Director, Business and Economics, Chemistry Industry Association of Canada]

Thank you, Richard.

As you noted, the key objective here is greater partnership between the railways and its customers. Close working relationships between our member companies and Canada's railways are not only key to our present-day competitiveness in international markets, but they are also crucial to future investment, jobs, and growth in our sector here in Canada.

We need more conversations and planning around demand and supply of rail. CIAC believes that with some key amendments the legislation we're contemplating here today will enable the building of those relationships.

I was here on Tuesday, and I believe members of the committee have received copies of the list of amendments that the CRS has put forward and that we stand behind.

Ultimately, the success of this legislation will be if arbitration is used only as a last resort. That's something we fundamentally believe in. There are two amendments that we believe are critical to setting the stage for that, and I will focus my comments on these.

Amendment 1, which sets out the basic elements that need to be discussed in a negotiation, is fundamental to the spirit of this bill. As members here today know, in its report the panel identified this type of framework as a key prerequisite to better commercial relationships, and frankly, we are a little surprised to see that the core elements of what a service-level agreement should contain are not set out in the bill.

This absolutely needs to be done to achieve the intent of the bill and to ensure that it works as an effective backstop. Without this definition and clarity, both parties will not be able to identify problems and workable solutions. Agreeing on the elements means more commercial settlements and less time before the agency, and I think we all want that. Again, setting out the framework for discussion and partnership is fundamental if successful agreements are to be achieved commercially—and that is the desired result.

Next, and in the same spirit of setting the table for greater collaboration and commercial agreements, we believe that removing the word “operational”, as specified in amendment 2, is critical; otherwise, you limit the conversation and end up with half measures and ineffective agreements that do not include standard clauses, such as dispute resolution—very key—and force majeure, which are found in most commercial agreements.

Removing the word “operational” will broaden the scope of discussion between railway and customers, and it will increase the workability of agreements. It will reduce the need to bring issues to an arbitrator or the courts that could be dealt with through standard and prearranged dispute resolution mechanisms—again, more commercial settlements and fewer occasions before the agency.

To summarize, as Richard stated in his earlier comments, we are pleased to see this bill. It represents many years of hard work, but it needs to be amended to be effective.

Even with the amendments, will it solve all the problems that shippers and railways currently face? No. Does it address all the issues that we identified as key in the service review process? No. Specifically, for our sector, it does not address cross-border service requirements and commitments. This is an important issue for our industry, as 80% of our shipments are destined for the U.S.

However, that being said, we are hopeful that with the amendments that have been tabled, this bill will provide the balance that is needed to work with our railway partners and develop service-level agreements that incorporate the entirety of what a railway offers to its customers, regardless of borders, such as we see in the marine, air, and trucking modes.

Bill C-52 is a necessary first step to greater understanding and partnership between Canada's railways and the multitude of industries that provide food, products, and jobs, and that support communities across Canada. The amendments that we propose will ensure that it delivers on that promise. At the end of the day, this is all about working together.

Thank you.

[Greg Meredith]

There are a number of modernization thrusts. The most significant one is the removal of the single desk. The minister also mentioned Bill C-52, the government's response to the rail freight review. This will provide producers with access to service level agreements, which has been a demand for some time.

With respect to Churchill in particular, what we've done is to establish an incentive program to encourage shippers to use the rail line up to Churchill and to use the port over the course of that four to five-month period when the port is open. This year, that program managed to incent about 412,000 tonnes of grain, including grains other than wheat. In the past, it was simply wheat. It also encourages several other companies to actively look at the rail line and the port as a shipping opportunity, and it attracted two new companies to actually use the incentive.

We expect that this will continue. There is more understanding of how the program works. There's also more understanding of how to market wheat using various ports as export opportunities. We think this year we'll see a very successful year for the Hudson's Bay rail line and the port of Churchill.

[Gerry Ritz, Conservative, Minister of Agriculture and Agri-Food and Minister for the Canadian Wheat Board]

Thank you, Mr. Chair. I appreciate the diligence of this committee. You're actually doing two jobs at once. I can see the headline now in the media, “SCAAF double dips.” We'll have a good story to tell coming out of this, I'm sure.

I have with me today my deputy minister, Suzanne Vinet; Mary Komarynsky, executive vice-president with the Canadian Food Inspection Agency; Pierre Corriveau, assistant deputy minister, corporate management branch at Agriculture and Agri-Food Canada; and Greg Meredith, assistant deputy minister, strategic policy branch at Agriculture Canada. On the other side, I have Peter Everson, vice-president, corporate management, Canadian Food Inspection Agency; and Paul Mayers, associate vice-president, policy and programs, CFIA.

It's always a pleasure to be at this table. I thank you for your kind invitation to be here with you today. This committee continues to do important work for the sector, including your current work on grains and oil seeds as part of larger study on the food supply chain here in Canada.

The 2013-2014 main estimates you have before you are the starting point for a transformative shift as a result of the new Growing Forward 2 agriculture policy framework that starts in just over a month from today. This new framework will invest more than $3 billion over the coming five years—that's $600 million a year in both federal and cost-shared initiatives. This is an increase of 50% in funding for cost-shared strategic initiative compared to the predecessor, Growing Forward 1.

The future prospects for the sector have created an opportunity to focus on proactive investments to generate growth and productivity across the sector from coast to coast to coast.

I would note that funding for these Growing Forward 2 cost-shared initiatives is expected to be presented to Parliament in supplementary estimates and is therefore not reflected in these main estimates. I will repeat: these estimates do not reflect the future moneys that will be invested in food safety under Growing Forward 2. To suggest that the figures you have before you represent any sort of decrease in food safety—and I know that's been done—would be playing loose with the facts, something that Canadians do not deserve. These figures will be bolstered in the supplementary estimates once federal, provincial, and territorial GF2 spending agreements are finalized in the coming days. As well, the estimates reflect the lowered draw on our demand-driven BRM programming, due to strong commodity prices.

We've had a busy agenda year since we last met. We passed amendments to the Canada Grain Act to drive the continuous modernization of Canada's $16 billion grain industry. We introduced Bill C-52 to strengthen our rail system by giving shippers the right to a service agreement with the railways that serve them. We have backstopped that process by renewing the mandate of the crops logistics working group to improve the performance of the supply chain for all crops across Canada.

We're also now more than halfway through the first crop year under marketing freedom. Already, marketing freedom is re-energizing the western grain industry. We're seeing good movement of wheat, durum, and barley, with higher volumes through the system and higher exports year-to-date. Farmers were able to take advantage of high prices selling off the combine while using risk management tools like pooling through the new reinvigorated CWB. It's called choice, it's called freedom, and it's working. Marketing freedom is only one part of our efforts to drive a prosperous market-oriented agricultural industry that will continue to help drive the Canadian economy.

Over the past year we have made some real and tangible progress, including expanding our access to the Japanese market for our high-quality beef products, a move that will double the annual value of this market, some $150 million; cutting red tape by eliminating duplication and extra cost; negotiating and putting in place a new federal-provincial-territorial framework with no gaps in federal programming; achieving a positive decision from the WTO on country of origin labelling; and forging ahead on new international opportunities for our Canadian producers and processors. Looking ahead, the outlook is bright, with a strong farm economy, growing global demand, and world-class producers here in Canada. They are, of course, one of our most valuable resources.

Yesterday, Agriculture Canada released the annual farm income forecast, along with the outlook for the medium term. I know, Mr. Chair, that we have enough copies to hand them out to everyone in both official languages and I'm happy to do that.

This news is positive for a number of key indicators of the health of the farm sector overall. Once again, the sector will report record high income levels for 2012 and can count on a continued positive outlook for 2013. For 2012 net cash income for the entire sector is expected to rise 14%. The average net operating income for Canadian farms is expected to rise 50% above the past five-year average. This is good news, Mr. Chair.

The average net worth is expected to grow by 8% to $1.8 million per farm. Over the next decade, strong global demand, particularly from major emerging economies, will underpin continued strong pricing and growth for our agricultural sector. Canadian grain and oilseed prices are expected to remain at higher than historical levels over the medium term, with modest growth for cattle and hog producers.

There is good news on the export side as well, Mr. Chair. The numbers are just in and show that fiscal 2012 was Canada's best export year on record for the agriculture and agrifood sector. The industry posted a 7.4% increase, to $47.7 billion, a new record, which is not bad with the global recession still on.

The bottom line is that it's a great time to be involved in Canadian agriculture. Our government will continue to work with industry to maintain this positive momentum so that farmers can stay ahead of emerging competitors and take full advantage of growing opportunities both here and abroad.

As a government, we must foster the right conditions that farmers require to succeed, and we'll do that by continuing to drive market development with a strong trade agenda that includes new bilateral and regional free trade agreements. We'll modernize the legislative tools that the sector requires to remain competitive by reforming the regulatory framework to strengthen the agricultural sector's capacity to take advantage of market-based opportunities here in Canada and abroad, and by focusing on transformative, proactive investments, especially innovation under the Growing Forward 2 framework, as I said, starting in just over a month.

During my more than five years as agriculture minister I've been across the country meeting face to face with producers, and the message I'm hearing loud and clear is we need to move beyond the status quo, and the time is now. We need to look ahead, not backward, toward positive, proactive initiatives that will move the industry forward.

It's this kind of proactive vision that lies behind Growing Forward 2, the new five-year framework for agriculture that came out of our FPT ministers meeting in Whitehorse in early September of last fall. Growing Forward 2 sets the right conditions for success. At its core is a 50% increase in cost-shared strategic investments in innovation, competitiveness, and market development. That's a $3-billion increase over the next five years, or $600 million a year in targeted, strategic investments to move the industry forward.

Growing Forward 2 marks a major shift in our focus toward realizing the high economic and productive potential for the Canadian agriculture and agrifood sector. GF2 kicks in on April 1, as I said, and three federal-only programs are AgriInnovation, AgriMarketing, and AgriCompetitiveness. As I said, those are federal-only programs.

AgriInnovation is now taking applications. It will focus on investments that will help the industry get new products and technologies off the boardroom tables and out into the marketplace. It will continue to support the science cluster model, which has done a great job of driving industry-led research across a number of sectors.

The new AgriMarketing program will help producers and processors gain and maintain access to markets, both at home and abroad. We'll do that by breaking down trade barriers, responding to consumer demands for food safety and traceability, showcasing on the world our top quality agricultural products here in Canada, and by showing our lighter environmental footprint.

Canadian agriculture has a tremendous story to tell, as I said, from that lighter environmental footprint to many new value-added products.

AgriMarketing will leverage that advantage and help the industry turn sales leads into closed deals. We'll also be strengthening the Market Access Secretariat. Mr. Chair, as you know and as the committee knows, they're basically our SWAT team. They're helping to take down trade barriers to technical, science-based solutions, and they've done an excellent job for us.

Trade is critical to the farming sector in Canada. A full 60% of pork, 70% of wheat, and 85% of canola and canola products are shipped beyond our borders every year. Trade brings jobs and growth to our economy. That's why our government continues to pursue the most aggressive trade agenda in Canadian history. During our time in office so far we've concluded negotiations for six free trade agreements with nine countries. We're pushing hard in other agreements, like CETA, where we continue to work toward a positive outcome. Negotiations are ongoing with more focused and frequent meetings to resolve outstanding and sensitive issues, including agricultural market access. Likewise, Canada's membership on the TPP will improve Canadian farmers and processors' access to critical emerging Asian markets.

Finally, the AgriCompetitiveness program will strengthen industry's capacity to adapt and be profitable in domestic and global markets. Through directed investments, we will work with the sector to adapt to rapidly changing and emerging global and domestic opportunities and issues they face, respond to market trends, enhance business and entrepreneurial capacity, and, of course, attract the next generation of farmers.

Of course, none of this is to say there aren't risks and challenges to farming. There always will be. Governments will continue to offer an extensive suite of business risk management programs to help farmers cope with severe market volatility and of course weather-related disasters.

Likewise, we continue to take concrete steps to ensure our food safety systems are effective, responsive, transparent, and accountable to the Canadians they serve. To that end, last fall the government passed new food safety legislation with the Safe Food for Canadians Act. The act provides the Canadian Food Inspection Agency with new and enhanced authorities to deliver effective food inspection services. It also strengthens the agency's enforcement and compliance capabilities. This new legislation is the foundation for a modernized inspection service. These estimates reflect a new investment of $11 million to modernize Canada's food safety inspection system.

So my message to this table today is that with our continued hard work, Canadian agriculture will continue to prosper and grow. Global demand, as you know, is growing for food, food that will come from highly progressive and productive farms across Canada. We are creating the conditions to unlock the potential of agriculture as a continuing economic driver by modernizing our grain industry through marketing freedom, Canadian Grain Commission reforms and, of course, rail service reforms; driving regulatory reform to spur innovation; and making proactive investments in innovation and market development under Growing Forward 2.

It's an exciting time to be involved in agriculture. Young people are once again looking seriously at a career in agriculture, either on or off the farm gate. There's much to do. Our government is committed, like you, to growing Canada's agriculture and food industry and helping it reach its full potential as an economic powerhouse in this great country.

Thank you, Mr. Chair, and as always, I look forward to the committee's questions.

[Gordon Bacon, Chief Executive Officer, Pulse Canada]

Thank you, Mr. Chairman and members of the committee.

Thank you for the opportunity to speak to you today on your discussions around the comprehensive economic partnership agreement between Canada and India.

Pulse Canada is the national industry association representing pulse growers as well as the processors and exporters of pulse crops that are exported to 160 countries around the world.

Pulse Canada has, for more than 15 years, been focused on market access as one of the members' top priorities. Access to markets in a predictable and stable trading environment is a prerequisite to building an export-oriented resource economy for Canada. For this reason it may be that no market in the world is more appropriate than is India when Pulse Canada speaks about the issue of market access and the importance of pursuing more formal agreements.

It will come as a surprise to some Canadians and to some citizens of India that Canada's biggest export to India is pulses. In 2011 Canadian pulse exports to India were valued at $633 million, or 24% of the value of Canada's total commodity exports to India. In 2012, pulse exports from Canada to India were valued at $504 million, or 21.5% of Canada's export trade.

India is Canada's single largest market for pulses, and the single largest crop that Canada sells to India is yellow peas. The range of pulse crops grown and consumed in India is wide and diverse. Yellow peas from Canada compete with peas originating in Australia, France, and the United States, but more importantly, they compete with other pulse crops like desi chickpeas, which may be grown in India or imported from Australia, or pigeon peas, which may be grown in India or imported from countries in Africa.

India is a very complex market. Some of the market demand for pulses reflects religious beliefs of the citizens who consume only vegetarian food. But a great deal of demand is economically driven. Plant protein, like that from a range of pulse crops grown and imported into India, is more affordable than is higher-priced protein from dairy and meat. Canada became the biggest supplier of pulses to India primarily because yellow peas offer the most economical source of plant protein. Price is key. One of the reasons for a drop in exports of pulses from Canada to India in 2012 was that the Australians had a big chickpea crop and moved a large quantity of the crop right after harvest, at the end of 2012.

India is also predicting a big winter season crop of pulses, perhaps as much as a million tonnes more than last year, all of which combines to mean a change in demand for Canadian peas. But while tonnage may change from year to year, what we cannot change is our focus on competitiveness, which means we must ensure that Canadian farmers and Canadian companies are in a position to be competitive. The role of government can be to assist industry to be competitive by creating an enabling environment.

The Canadian pulse industry is very supportive of the development of comprehensive economic partnership agreements at the government-to-government level, because they provide the opportunity to create a more permanent and lasting trade policy framework that puts Canada on a level playing field with other exporting nations. They also ensure that yearly fluctuations in domestic production are not met with yearly fluctuations in import or access policy.

India would like to be self-sufficient in pulse production and has recently increased support to Indian farmers to grow more pulses. But India also needs to import pulses to meet demands. Even with a rise in Indian imports in recent years, the per capita consumption of pulses has dropped significantly in the past 40 years. Malnutrition is a problem in India, and food imports are part of how India will provide adequate and balanced nutrition. Predictable trade policy is a vital component of food security, and equally important, a vital component of affordable food.

Here is a list of things that the Canadian pulse industry has faced in trade with India that would be on our list to be discussed and resolved in an agreement between Canada and India.

While India has not applied an import duty to pulses in many years, an agreement between Canada and India should remove that existing policy option from the table. Partnerships need predictability. Food security needs predictability. A permanently open market would remove that potential restriction from ever re-emerging.

Canada's largest pulse trade challenge with India over the last nine years has been related to a sanitary and phytosanitary issue. This issue, at times, has stopped the loading and unloading of Canadian vessels. It has cost Canadian exporters hundreds of thousands of dollars on single shipments that had to be diverted after leaving Canada to be fumigated in third countries.

For many years Canada has been the beneficiary of a succession of derogations of Indian policy on fumigation as it applies to Canada. But some of these derogations have come at the last moment for a business that has a six-to-eight week lead time to get peas moved from farms in western Canada to Vancouver, and ultimately to ports in India.

The market access issue is not over. Pulse Canada recognizes that an economic partnership can't anticipate and address this level of detail but an agreement can address the timeliness and process that will be used bilaterally when issues emerge. That we are nine years and counting speaks to the challenges that have been faced with SPS issues. Partnerships need predictability, and processes with timelines to address SPS issues need to be part of that partnership agreement.

A bilateral comprehensive economic partnership also allows us the opportunity to sit down with India to discuss solutions to challenges that arise from underperforming third-party processes. India defers to Codex Alimentarius to establish tolerances for levels of chemical residues that, through extensive testing and with high safety margins, establish acceptable levels that are indicative of proper use of crop protection products and at levels that are proven to be safe.

Yet because Codex is chronically underfunded and mired in a process that ensures it is always behind in providing approvals, we're left with a situation where Canada's PMRA will approve crop protection products for use in Canada, but both Canada and India are reliant upon an international body to provide timely responses in order to make that partnership work well. There are alternatives that we need to address and perhaps consider including in the CEPA.

The precedent already exists with another UN body, the World Food Programme, where residue tolerances established in the country from which they purchase a commodity could be the guideline. This could be suggested to India: recognition that a standard developed in Canada for Canadians be acceptable to the Indian government when an international standard does not exist. Perhaps India will ask Canada to consider a reciprocal agreement, where Canada would be asked to accept tolerances established by an Indian regulatory authority for a product like tea.

Partnerships need predictability, and while it may be challenging for Canada and India to address food safety tolerance issues, it's even more challenging to think that this can be left to Codex, which has shown us that it is simply not up to the task of fixing multilateral trade issues on a timely basis.

I want to be clear to all committee members who may not be familiar with the policy and processes around the establishment of crop protection product tolerance levels. Canada is among the toughest regulators in the world when it comes to establishing safety margins. Canada currently works closely with other regulators, such as the EPA, in the United States, and the European Food Safety Authority.

Asking India to consider accepting Canadian standards is not asking India to compromise food safety—far from it. In fact, a recent Codex decision, which followed a decision by the European Food Safety Authority, set a tolerance level for a product used in Canada at two and a half times higher than what had been set by Canadian regulators. This is an issue of regulatory harmonization and not about deciding what is safe. The safety margins are in place, and this is about harmonizing the timing and methodology of policies used to establish tolerances.

Mr. Chairman, it is important for me to note that trade agreements are only the starting point to being a competitive exporting nation. Everything that impacts our ability to be competitive at destination while still providing a high rate of return to the Canadian manufacturer or farmer has to be part of the holistic approach to ensuring competitiveness.

We need trade agreements that eliminate tariffs and quota restrictions. We need a logistics system that is performing at a level that is the envy of the world and not held out as an example of one of the things that limits our ability to get products to market. We need to proactively address market access issues that arise from an asynchrony in approaches and timelines to establish maximum residue limits. The key point I'm trying to make is that addressing one essential element without this holistic approach to tackling all of the impediments to trade is akin to building an eight-lane highway that is served by a single-lane on-ramp.

Yesterday a coalition of rail shippers representing lumber, mining, agriculture, and more—products that account for 80% of rail traffic—presented a united position on amendments to Bill C-52. Trade agreements that provide market access and an efficient logistics system in Canada are all essential elements of building a competitive Canadian economy. Access and transportation are the building blocks for growing a strong Canadian export sector.

Thank you, Mr. Chairman.

[Ed Holder, Conservative, London West, ON]

Thank you, Chair.

I'd like to thank all of our guests for being here today and providing their testimony and suggestions. I think it's fair to say that, as we look at the suggested amendments, it strikes me that you probably all could have come together and just done one laundry list. That might actually have been a little simpler and have provided better clarity. But we have your written submissions, so we'll certainly consider your amendments as you presented them to us.

I was struck when Minister Lebel came before us and introduced Bill C-52 and gave us some descriptive references and answered questions. And here I want to acknowledge your support, in broad terms, for our effort to put this in place. It has been a long time coming; I think you'd all acknowledge that. But if I get the best sense of what you're trying to do, it is that you're trying to take what is now going in the right direction and make it a bit tighter. That's certainly how I feel you have presented yourselves today.

I want to make reference briefly to a couple of things, and then I have a couple of questions.

What the minister said was that he felt strongly that the bill will pave the way for better commercial relationships between railways and shippers, which is ultimately the best outcome for everyone. I'm going to stop there, though, because that prompted me to ask a question recently in a previous committee meeting about how things were going as a result of this proposed bill, that is to say, in the relationship between shippers and railways.

Mr. May, you were fairly emphatic in response to Mr. Toet when you said that service has not improved. That is certainly not the impression I have received. One might collectively sense that as a result of this kind of pending legislation, stronger efforts might come forward.

Can you and maybe those who have been impacted briefly elaborate on whether you think those relationships have improved?

Mr. May, since you were so strong one way, can you briefly comment on that? Bring some clarity to my mind, please.

[Robert Aubin, NDP, Trois-Rivières, QC]

In a press release, you gave the bill a passing grade. I have repeatedly heard people from various organizations call it a step in the right direction. But we all know a step is not enough. If the goal is to walk, we need more than a step.

If we were able to include the three priorities you identified as valid amendments to Bill C-52, do you think it could walk on its own, so to speak?

[Robert Aubin, NDP, Trois-Rivières, QC]

Thank you, Mr. Chair.

Thank you to our witnesses for joining us this afternoon. I would, however, like to say that I'd prefer to have fewer witnesses at our next meetings. That way, we would have more time to benefit from each witness's expertise. I would greatly appreciate that.

Since I have just five minutes, my questions will be for the Forest Products Association of Canada representatives. Hopefully, I will be able to get a better sense of the problems that shippers in my riding face.

If Bill C-52 were to come into force in the near future, what would it mean for you? Clearly, you couldn't take advantage of the measures set out in the bill with respect to existing contracts.

Does that mean that, for your association, the measures would apply in a year or two?

When the minister appeared before the committee, he told us that the reason current contracts did not qualify was to respect the confidentiality of businesses in relation to railway companies.

Do you share that opinion, or on the contrary, do you think it would be possible to apply the rules set out under Bill C-52 to current contracts?

[Lawrence Toet, Conservative, Elmwood—Transcona, MB]

So you've had a change of perspective on that.

Basically what I wanted get at is the fact that this legislation has to strike a balance with the needs of the shippers. As I said, I've done a lot of shipping in my lifetime, so I'm very cognizant of the need to get things in a timely manner, and how frustrating it is when it doesn't happen, and the challenges you face going forward.

I also want to put into context the fact that competition doesn't necessarily negate every negative factor you have in shipping. I've had many occasions where on a Friday a truck didn't show up that I needed to be move my product to the States that afternoon. It coming on Monday didn't do me any good; I missed my delivery and I probably lost a client from it. Those things happen in the trucking industry, where you have a lot of competition. I've had firms that have served me well for five or six years, and then dropped the ball three or four months in a row—continuously.

The reason I brought that up is that we're looking at what a reasonable expectation ought to be of a competitive environment that everybody should be able to accept, whether a shipper or the railways. That's the balance we're trying to find in Bill C-52. To some degree, we've found a good balance. We'll look closely at what you brought forward as your amendments, but it's important to acknowledge that.

Mr. May, you said that you found three months to negotiate a contract to be extremely long. In my business, I would be extremely happy with that. Mr. Foran can probably speak to that, because he's probably been involved with a lot of contracts. That three months is a pretty quick turnaround for a service contract. These things can take a lot longer than that in the normal commercial environment.

Would you not agree?

[Ralph Goodale, Liberal, Wascana, SK]

Thank you very much, Mr. Chairman.

Maybe I'll just run over three or four questions to start with all at once.

For efficient use of time, wait for your answers. Again, thank you to all of you for coming to talk about this legislation.

At our hearing with the minister, there were questions raised about the existence of confidential contracts already. Some shippers have them. There is language in the bill that would appear to prevent access to an arbitrated SLAs if an existing confidential contract is there.

I wonder if you could just give us some idea of how many of those contracts currently exist and how long they typically run. Is it one year, two years, or ten years? What impediment is there to accessing the arbitrated procedure? That's question number one.

Secondly, Mr. Chair, you went through the five items that the shippers have typically argued for. I gather from your testimony that those five areas are to some extent covered in Bill C-52, but they're covered only up to your level of expectation if the five or six clarifying amendments are in fact adopted. So some of your expectations are covered, but the five or six amendments here would actually make that coverage more effective and more complete. I wonder if we could have a little more explanation of that. Thirdly, there is a difference between AMPs, the administrative monetary penalties, and liquidated damages. The act provides for AMPs; it doesn't provide for liquidated damages.

Mr. Sobkowich gave us a practical example of why having access to liquidated damages is also a crucial part of the enforcement procedure here. I wonder if there are examples other than simply that of the train being late. I think it would be useful to hear some other examples. Also, in the case of grain, if we were able to find the right way to get liquidated damages into the legislation, obviously grain companies would have access to that remedy. Would some of that remedy also be shared with farmers? Would it be reflected back to producers, or is it a benefit to the grain companies that is maybe or maybe not making its way through the chain to producers? I'd like to hear a little more about that.

Reference has been made to removal of the word "operational". I think I know the point you're trying to make there, but I think we need a little more explanation as to why the use of the word "operational" in one of the sections in Bill C-52 is such a limiting legal matter.

Finally, with respect to your last two amendments and proposed section 169.37, are your fifth and your sixth recommendations for amendments alternatives to each other? I'm just trying to fully understand their legal effect. If you got amendment number five, would you also need amendment number six, or are you arguing for amendment number six only if you don't get amendment number five? Are they both necessary, or is it one or the other in sequence?

I know that's a lot of questions to dump on you at once.

[Olivia Chow, NDP, Trinity—Spadina, ON]

Thank you for taking the time to come.

Mr. May, I have a very specific question for you. If the six recommendations in front of us do not pass, is Bill C-52 still worthy of support? I don't want to prejudge if it would or wouldn't, but given that we've been down this road for five years now, whether it's the stakeholders' review or the negotiations and mediation, I think every side understands the issues. I don't think there is anything that is not clear, and the recommendations we have in front of us are very specific.

It's all about the balance of power and who has it. Is it the 5,000 shippers, or is it CN and CP?

If these recommendations don't pass and you were a member of Parliament, what would you do?

[Greg Cherewyk, Executive Director, Pulse Canada]

Thank you very much, Mr. Chair.

I appreciate the opportunity to be here today to discuss Bill C-52 and the enhancements that we believe will help this piece of legislation become a tool that contributes to the competitiveness of pulse and special crop shippers, Canadian businesses, and the users of the rail freight system in Canada.

I'm going to refer throughout the course of my discussion here to the six amendments that you have from the CRS, so you might want to keep them handy.

In order to encourage agreements that raise the bar, that allow Canadian businesses that drive our export-dependent economy to maximize their production and their marketing capacity, without having to work through costly legal proceedings, this bill must first provide sufficient clarity, definition, and guidance so that railways and shippers understand the framework within which they're being asked to negotiate agreements. If, and only if, they cannot reach an agreement in the commercial environment, the bill must provide appropriate clarity and guidance to the parties and the arbitrators so that the legislative backstop is quick, fair, and cost-effective.

We've been consistent with our recommendations leading up to the Dinning facilitation process, throughout that process, and indeed throughout the consultation process on Bill C-52, that clarity, definition, and guidance upfront in the legislation would increase the probability of commercial agreements being reached between rail carriers and their customers. While not all of our concerns have been addressed in the current version of this bill, we've also been consistent in saying that we'll remain firm on ends and flexible on means. There's more than one way to get where we're going.

That being said, I want to turn to what we believe must be done to improve the bill, once again with the goal of enhancing competitiveness of Canadian businesses by encouraging improved levels of service, better reliability, and better consistency.

We all recall the emphasis that shippers placed on having the elements of service defined so that shippers and carriers could focus their attention on negotiating the level of service associated with each element. This was a key part of the recommendations of the rail freight service review, and they actually put elements in the final report to the government. On the first day of meetings, the committee asked if this was addressed in Bill C-52. I'll point out where you can find some of these elements and I'll also highlight what needs to be done to complete the picture.

First, let's quickly review the five core elements of an agreement, as stressed by the rail freight service review panel and by shippers throughout the Dinning process, as well as through the consultation process on Bill C-52.

First are the service obligations. To be clear under service obligations, I also include communication protocols as part of a service obligation. Service obligations are the definitions of the services that will be provided.

Second are the performance standards. The standards or commitments associated with each one of those obligations.

Third is performance measurement. The tool that allows you to determine if standards and commitments have actually been met.

Fourth are the consequences. If a party is failing to meet the standards or commitments, some form of consequence shall hold them accountable.

Fifth is dispute resolution. The mechanism that helps determine if there has been a breach and how consequences shall apply.

Under service obligations, currently section 113 of the Canada Transportation Act refers to the railways' obligation to furnish adequate and suitable accommodation for all traffic offered for carriage. During the first committee meeting, it was made clear that the framing of railway obligations in Bill C-52 links back to section 113 and the reference to adequate and suitable accommodation.

Ladies and gentlemen, we have spent the past five years demonstrating that adequate and suitable is not an adequate definition of service obligations. It's time to modernize this act; it's time to bring it into the 21st century and appropriately define the obligations of the railway to make them consistent with modern supply chain operations.

I'm sure you'll agree that the definitions of service obligations provided in our proposed section 115.1 are reasonable. They're reasonable for an agreement between a service provider and its customer in a logistics industry today. Modern supply chains in this age of the Internet are driven by information. The expectations that shippers have for the provision of information about their plans and ongoing operations could not have been conceived of when the current language of the act was first written.

It is imperative that these items are defined so that when a service agreement is considered, it is clear that these are the obligations against which standards and communication protocols will be applied. The addition of 115.1 will provide clarity and guidance, and it's a simple and effective way to encourage more commercial solutions. Finally, it will also address the antiquated language of the act that has everyone wondering how they would ever know if they'd been furnished adequate and suitable accommodation.

With regard to performance standards, the reference to performance standards is found in proposed paragraph 169.31(1)(a). Again, to make this work, to make it effective, it must link back to more than section 113; it must link back to something like section 115.1, which we have proposed. If not, the result will most likely be inadequate and unsuitable.

Turning to performance measurement, it's the tool that's needed to determine if performance has met the performance standard. While it's not referenced directly in the bill, the second key amendment that we've proposed—that is, the removal of the term “operational” from proposed subsection 169.31(1)—will allow parties to include this essential element of an agreement in their SLA.

The term “operational” unnecessarily limits the elements that can be included. The simple amendment we've proposed would broaden the scope of an agreement to include a range of critical service-related elements.

With regard to consequences, once measurement has highlighted a failure, we look for a mechanism to confirm that a breach has occurred and to ensure that an appropriate consequence is in place to hold the offending party accountable—if that is what shippers wish to include in their framing of their SLA request.

The third amendment we've proposed simply gives the shipper the right to choose to include a mechanism that would help determine if a breach has occurred and how damages shall be assessed.

With amendments that would allow for such elements as performance measurement, the sharing of information on performance metrics, and dispute resolution mechanisms, we wouldn't expect a lot of opposition. After all, these are the terms that were routinely offered to shippers by carriers in collaboration agreements; they were key recommendations of the panel; and in the case of dispute resolution mechanisms within an agreement, it was the only type of dispute resolution that the railways considered discussing in the context of the Dinning facilitation process.

The remainder of the amendments we have put forward are critical, and will contribute to a fair and cost-effective arbitration process that is set up to achieve the desired outcomes.

Amendment four is well defined in our submission, and is an obvious gap that needs to be filled. If a railway, immediately following the establishment of an agreement, can apply a tariff or a charge that cannot be challenged, it has the ability to completely subvert the intent of this bill. The arbitrator will have made a decision within a specific context. If we do not amend section 120.1 as outlined in our proposal, a railway, through a limited distribution tariff or other such means, could apply a charge that completely changes the context of that agreement after the fact.

Amendment five in our proposal also addresses a key gap. In the minister's opening remarks to the first committee meeting, he was clear that the intent is to allow the shipper to frame the issues of an agreement under this act. The bill in its current form has a gap that will allow carriers to impose conditions or inject issues that were not raised by the shipper, which is contrary to the stated intent of this bill.

Finally, amendment six stresses that proposed paragraphs 169.37(1)(d), (e), and (f) must be eliminated. With these provisions, the arbitrator must consider a wide range of issues that are often characterized as network effects. The railways will always raise the issue of impacts on the network, and an arbitrator, quite frankly, has the ability to consider their case. But compelling him or her to consider these impacts unfairly disadvantages a shipper who has virtually no way to dispute these claims, adds expense and complexity to a process that should be quick and cost-effective, and places undue and disproportionate emphasis on the railway's needs.

Railways should not have the sole right to determine what is optimal in the context of service. The objective is not to assist railways in achieving record low operating ratios, it is to maximize the production and marketing capacity of Canadian businesses and thus the Canadian economy.

Achieving that goal may mean that the railways won't always have the most profitable configuration of their network. But then, Canadian economic performance is not synonymous with railway profitability.

Our national transportation policy reminds us of this—in section 5 of the act—when it states that:

a competitive, economic and efficient national transportation system that meets the highest practicable safety and security standards and contributes to a sustainable environment and makes the best use of all modes of transportation at the lowest total cost is essential to serve the needs of its users, advance the well-being of Canadians and enable competitiveness and economic growth in both urban and rural areas throughout Canada.

Thank you for your time.