Transport Committee on Sept. 22nd, 2016

[The Vice-Chair, Conservative, Luc Berthold]

I call the meeting to order.

Good morning, everyone.

Thank you very much for attending the meeting this morning.

We are pleased to welcome the Honourable David Emerson, who kindly accepted the committee's invitation. Mr. Emerson, thank you for coming to answer the various questions that the members will want to ask you this morning.

We will also be hearing from Murad Al-Katib. He is in Regina, Saskatchewan, and is joining us by videoconference.

Good morning, Mr. Al-Katib. Thank you very much for joining us.

[Murad Al-Katib, Former Advisor, Canada Transportation Act Review Panel, As an Individual]

Good morning. Thank you very much for having me.

[The Vice-Chair, Conservative, Luc Berthold]

Without further delay, I give the floor to the Honourable David Emerson, for his opening remarks.

[David Emerson, Former Chair, Canada Transportation Act Review Panel, As an Individual]

Thank you very much, Mr. Chair and honourable members. It's really good to be here.

I have to say that the report we're really focused on today was initiated nearly two years ago, and was submitted to the Minister of Transport about eight months ago, so I've had lots of soak time or gestation time to reflect. I have intentionally stayed away from the media and I've stayed away from conferences and symposia. I really did not want to become the object of the report, as it were. I wanted the report to be debated as a document of substance.

If I can say so, while many people refer to it as the Emerson report, it is actually not the Emerson report. A five-person advisory panel worked with me. I chaired the panel. Murad Al-Katib was one of the experts on the panel. He has a deep knowledge of the agricultural sectors in Canada. We also had on the panel Duncan Dee, a former senior executive at Air Canada; Marcella Szel, a former senior executive at CP Rail; Marie-Lucie Morin, my former deputy minister when I was in trade and foreign affairs, and she's actually in the back of the room today; and David Cardin, who was a senior executive with Maersk, the largest shipping company in the world.

The report was really intended to look out 25 to 30 years. It was not intended to be a micro here and now to-do list. What we tried to do was place Canada in the context of some of the major geopolitical forces that will affect our country and our economy over the next few decades and ask what we need to be doing today to be ready to be globally competitive and economically successful two or three decades out. I can tell you that two or three decades is not a long time in the world of transportation. Most of you will be all too familiar with infrastructure projects that are in the planning stages and approval stages for sometimes multiple decades or until they die, whichever comes first. Usually they die, as we saw with the Mackenzie Valley pipeline. It's the same with regulation. When you're changing regulation in the transportation sector, you really have to be looking out at a very, very long-term perspective in order to enable what is a very, very complex transportation system to adjust to any changes that are material in terms of the right policy and regulation.

I would really just focus on the emphasis in the report. There are a couple of things I would note rather than take you through any detail. The first is we have attempted, as I've already suggested, to link transportation issues and transportation policy, regulation, and so on to the Canadian economy. The linkage is through trade. Transportation has now, in my opinion, become actually more important than trade policy to trade success, because in reality there is so much international investment that allows commercial footprints to span the globe, and tariffs have been relatively low these days, that transportation actually is a larger component of overall cost structures than almost anything you can think of on the trade front. If you get transportation right, that will be the number one way to ensure the competitiveness of the country going forward.

Linkage to trade and economic success.... Of course, transportation is the glue that in many respects binds the country together. We are a hugely expansive country with a thin population spread among three oceans, and transportation is absolutely critical to the unity and cohesion of the country. It is vital to the national character, if you like.

Rather than pointing to a specific recommendation, I believe the most important thing for the government to do is get decision-making right. That's why I urge you to pay close attention to the chapter on governance. Governance is all about decision-making—from big policy decision-making that has to span all of government, right down to the minutia of regulatory decision-making—that you have to get right, that has to be in real time, and that has to be extremely well informed by good information. Yes, we have individual recommendations throughout the report, but if you don't get governance right, you're really not doing very much. You're playing around at the edges.

With that, I will rest my case and respond to questions, Mr. Chair.

[The Vice-Chair, Conservative, Luc Berthold]

Thank you very much, Mr. Emerson.

I want to thank you and your entire team for the excellent work you have done, and all the time you have spent in preparing this report. The members of the committee have very much looked forward to having you here so that they could discuss it with you.

I have a clarification for the members with us today. We are dealing with two topics this morning. There is no precise order. We will have two hours with Mr. Emerson. Feel free to move from one topic to the other; that is not a problem. That is what we agreed with the clerk here. There will be no second round of opening remarks this morning. We want a dialogue with Mr. Emerson in the two hours in which we are fortunate enough to have him with us.

For the first round of questions, I give the floor to Kelly Block.

[Kelly Block, Conservative, Carlton Trail—Eagle Creek, SK]

Thank you very much, Mr. Chair.

I appreciate this opportunity to have this dialogue with you, Mr. Emerson. I want to welcome you to the committee.

I know a focus of the report is around interswitching, so I'm going to start with some of my questions around interswitching. On page 165 of the report, the review recommends that the Government of Canada allow the extended 160-kilometre interswitching limits to sunset.

I want to ask you a little about that. This is the second day of our study. We've heard from some producers, and I've heard from individuals in my riding since the report was made public—my riding is a very large rural riding—that they are concerned that this was a recommendation within this report, specifically, I guess, because of the changing landscape in the Prairies when it comes to the number of places where you can load or unload your grain. One of the members from the CTA on Tuesday stated that interswitching is a tool used to address a market failure.

First, would you define what happened in 2013 as a market failure or just simply a number of extraordinary events coming together to create the pressure we saw in the Prairies when it came to moving grain?

Second, would you comment on the changing landscape, and why you thought it appropriate to recommend the sunset of this length of interswitching.

[David Emerson]

Thank you very much for that question.

I take you back to the foundation upon which we developed our thinking on transportation issues, and that was to look out 25 to 30 years. The interswitching debate is really a very narrow debate because interswitching, as you know, applies only to certain provinces and only applies to grain. It is an attempt to add a dimension of competition into a system that, to be very blunt, is rife with power imbalances between major service providers and small shippers.

Throughout the transportation system, not just in rail, there is an enormous range of issues that involve near monopolies, or natural monopolies as they're referred to. You do get a tremendous amount of friction in the system that results from power imbalances between service providers and their customers. Interswitching is one small tool to help the agricultural sector around that.

Our view was that, yes, we should have provisions for interswitching, but over time, and I'm talking about over decades. We really should be not just focusing on interswitching as it relates to grain, or as it relates to three provinces; we need to look at interswitching in a larger sense.

Part of the recommendations of the report call for a re-mandating of the Canadian Transportation Agency, and an enhanced resource base for the agency so that the agency could make determinations across a whole range of shippers who feel they are disadvantaged by their local situation or local service provider, and give the agency the flexibility to mandate interswitching. It could be 160; it could be more than that or less than that. Ideally, it should probably cover other commodities as well. Our view was that the 160 is arbitrary. It's narrow in terms of public policy considerations forward and it should be broadened.

[Kelly Block, Conservative, Carlton Trail—Eagle Creek, SK]

Thank you very much.

From reading the piece of legislation, Bill C-30, it's my understanding that interswitching can be applied to other commodities and take into account the various regions across the country. It's my understanding that there are various rates also contemplated. Interswitching goes back to 1904. It started with a four-mile distance. Now there are a number of distances contemplated.

If 92% of producers now have access at the 160-kilometre distance for interswitching, more than they did have before that was implemented, why wouldn't you just keep it in the legislation and then go ahead and contemplate longer distances if that made more sense?

[The Vice-Chair, Conservative, Luc Berthold]

A quick answer, please, Mr. Emerson.

[David Emerson]

I don't think it's a big problem to leave it in, to be honest with you, but I do think it's a big problem if there isn't consideration to a longer-term evolution to allow a broader interswitching capacity going forward.

Mr. Al-Katib is actually our expert on the panel. Murad, do you want to make a quick comment on interswitching?

[The Vice-Chair, Conservative, Luc Berthold]

Unfortunately, the time is up.

I will ask Mr. Al-Katib to keep his answer for a little later.

I must now give the floor to Mr. Badawey.

[Vance Badawey, Liberal, Niagara Centre, ON]

Thank you, Mr. Chairman.

Mr. Emerson, welcome. It's a pleasure to have you here this morning.

I'm going to start off with a question with respect to the role of the federal government. What role do you think or envision the federal government should take to ensure that the private sector, municipal and provincial governments, and other stakeholders, customers, passengers, and so on and so forth...? What role and what steps should be taken and be necessary to ensure that the Canadian transportation system stays globally competitive?

[David Emerson]

In the report, as I indicated earlier, there is a whole chapter on governance. Part of the governance improvements would include the establishment of a transportation and logistics advisory council that would incorporate all of the different shipping interests, as well as provincial and local governments represented in some way in terms of an ongoing, well informed, almost real-time reflection on the transportation system and how it evolves going forward. That is critically important.

As I said earlier, a re-mandated CTA is extremely important. The transportation system and transportation policy have evolved over the last few decades from a deeply regulated, government-heavy transportation system to one that is highly market-oriented these days.

[Vance Badawey, Liberal, Niagara Centre, ON]

Let's dig down on that a bit more, because that was my next question with respect to the CTA. The CTA has a legislated mandate. Do you find that as part of that legislated mandate they can include what we're discussing here versus another body?

[David Emerson]

No is the short answer. In government there is a lack of a cross-government mechanism for policy in the various departments. Whether it's international trade, global affairs, environment, environmental issues, or northern issues, there is a need within government for a broader focus on transportation as a key foundation of government economic policy. That has to be beyond the CTA, which has a more restricted regulatory focus. I believe you need advisory mechanisms that include the various elements of the transportation and logistics system, and you need a significant amount of input from financial institutions as well. To enable the transportation system to grow and thrive in the future takes a lot more money than the government can possibly throw at it, and you're going to need the private sector to come to the table. Government is going to have to learn how to enable the private sector to make a bigger contribution.

[Vance Badawey, Liberal, Niagara Centre, ON]

With respect to those investments, and aligning the strategy with infrastructure investments, you make great mention in the report about how important it is to align those infrastructure investments with the transportation strategy, and with that better returns, better outcomes, and performance measures.

When you look at those investments, and you look at some of the decisions that this committee is looking at now, do you find that a lot of decisions are being made too quickly versus coming out with a strategy first and then making those decisions? What I'm getting at, with respect to the interswitching, to sunset it too early may not be to the best advantage of the industry. Do you find it would be advantageous to look at a strategy first and then sunset it post-strategy?

[David Emerson]

I generally believe, apart from crisis management, which is by its very nature immediate, you're always better off to have a strategy and make your individual decisions within the context of a strategy.

[Vance Badawey, Liberal, Niagara Centre, ON]

With respect to the gateways—you mentioned trade corridors and gateways in your report—Canada, to some extent in the early part of the century built a railroad, but never necessarily integrated the railroad with water, road, and air. Do you find that moving ahead it's advantageous to begin the process of establishing gateways, establishing trade corridors based on the strengths of the different parts of our country, and then from there making those investments with respect to infrastructure?

[David Emerson]

There is no doubt in my mind that trade corridors and gateways are critical to the efficiency of the transportation system and the way it supports international trade going forward. In the report we have talked extensively about trade corridors and gateways. We've spoken of the need for the Government of Canada to play a leadership role in ensuring if not the sanctity, then at least the durability and preservation of critical transportation and logistic corridors going forward. Urban encroachment and various other disruptions can create bottlenecks and true competitive crises and problems if those corridors are not preserved and enabled to operate fluidly and efficiently.

[Vance Badawey, Liberal, Niagara Centre, ON]

Great. Thank you, Mr. Emerson.

[The Vice-Chair, Conservative, Luc Berthold]

Thank you very much.

The floor now goes to Robert Aubin.

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

Thank you, Mr. Chair.

Mr. Emerson, Mr. Al-Katib, welcome. It is a pleasure for us to get your insight and expertise on the work we are doing.

Mr. Emerson, as the new arrival in the Standing Committee on Transport, Infrastructure and Communities, I spent the last few days reading your report. So feel free to correct me if my understanding of what you said is in error.

If we proceed from the general to the specific, it seemed to me at first that the entire report is based on the fact that our market is already competitive. After hearing from a number of witnesses, I get the impression that we can at least question Canada's competitiveness in transportation.

What leads you to the assertion that the market in Canada is competitive?

[David Emerson]

I think once you have a chance to reflect on the report in its entirety, you'll see we do not argue that the transportation system is entirely competitive. In my opening remarks I alluded to enormous and numerous power imbalances in the system because of the nature of transportation and the natural monopolies that prevail, whether it's airports or railways or ports. There are some significant elements where competition is really not effective.

However, the Canadian economy is a trading economy, one of the most trade intensive economies in the world, and our transportation systems compete with the transportation systems in the U.S. and other countries. In that sense, there's a tremendous amount of competition between our railways and American railways, between our ports and American ports, between our airports and American airports, and between our airlines. Even if, for example, Air Canada is in an oligopoly situation in Canada, it's in a highly competitive international market. You have a combination of micro-competitive imbalances with macro-competitive forces that are actually very strong.

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

Thank you.

In your answer to a previous question, you talked about the importance of the influx of private sector funds. You mentioned it In your report, even highlighting the percentage of potential foreign participation in the airport industry.

However, one reality will never change in Canada, certainly not in the next 25 years. That is our geography. We have a vast country with some remote regions, the northern regions, for example.

If we open the door to the private sector wider, how do we go about reaching those regions and making sure that they will have equivalent services, knowing as we do that profitability will probably never be in prospect?

[David Emerson]

That's a really good comment. The report is quite emphatic that isolated communities, with particular reference to the north, will not be served effectively by free market competition. The distances are huge. The passenger loads are very thin or small. The ability to finance transportation infrastructure in isolated communities is just not there. You won't get private investment, so we are quite emphatic that government must play a much bigger role, particularly in some of the more remote parts of the country.

I don't know if that answers your question.

In reference to more private sector investment in major transportation facilities, we have called for the advisability of allowing institutional investors—not public markets, but institutional investors—to play a bigger role in financing airports and ports, for example. We believe that can be done with government guidelines and contracts and arrangements that would actually enable massive amounts of long-term stable money to flow into Canadian infrastructure. In fact, the Caisse is doing that in Quebec, as you know.