The rail supply chain is the backbone of our economy. Not only is the Canadian freight rail system the safest, most efficient, and environmentally friendly means of transporting goods and commodities, it achieves these goals while maintaining the lowest freight rates in the world. This is a key point. A healthy rail system is critical to Canada's international competitiveness, given our vast geography. Without a competitive, economic, and efficient rail system that can move products thousands of kilometres to ports for export, at the lowest cost in the world, much of what Canadians sell on international markets could not be priced competitively.
Canada's freight transportation system has been successful because the legal and regulatory environment, particularly in recent decades, has recognized that competition and market forces are the most effective organizing principles. These principles are articulated in Canada's national transportation policy declaration, contained in section 5 of the Canada Transportation Act.
It is important not to lose sight of these principles when reflecting upon legislative changes to the framework that has been proven to be so successful in delivering economic benefit to Canadians. CP is pleased that the government has decided to allow the extended interswitching regime of the previous government's Bill C-30 to sunset, as it was based on what we saw as a deeply flawed rationale, and it generated a number of harmful public policy consequences that ultimately disadvantaged the Canadian supply chain.
Similarly, however, the proposed new long-haul interswitching, LHI, regime contains a number of problematic elements. Most fundamentally, the LHI regime, like the extended interswitching regime it is replacing, is non-reciprocal with the U.S. As such, American railroads would be granted significant reach into Canada, up to 1,200 kilometres, to access Canadian rail traffic, but Canadian railways will not have the same reciprocal ability under American law.
The LHI regime is constructed in such a way that it is asymmetrical in its impact, both in terms of non-reciprocal access for American railroads vis-à-vis CP and in terms of CP and CN, because CP's exposure to American railroads under this regime is much greater than is CN's, given the geographical location of our respective networks, further compounded by the two excluded corridors.
The LHI regime could undermine the competitiveness and efficiency of the Canadian supply chain by incentivizing the movement of Canadian traffic to American railroads and supply chains, thereby eroding traffic density for Canadian supply chains.
The negative consequences to the Canadian economy will not be limited to the rail industry. If Canadian rail traffic is diverted to American trade corridors, it will also dampen shipping volumes at Canadian ports. For CP alone, there is a significant amount of our annual revenue that could potentially be moved to American railways and trade corridors under this proposed LHI regime.
A decision to allow non-reciprocal access for American railroads represents a significant concession by Canada to the U.S. while NAFTA is being renegotiated. This strikes us as an unwise public policy choice for the Canadian economy. The proposed LHI regime ought to be reconsidered in that context.
As drafted, Bill C-49 also imposes an obligation on connecting carriers to provide rail cars to the shippers in addition to their other service obligations. It has been well understood that as part of its common carrier obligation, a railway is required to furnish adequate and suitable accommodation for traffic. However, in some cases, the provision of railcars by a connecting carrier is not practical. For example, tank cars are typically owned by the customer, not the railway. The Canada Transportation Act already addresses a railway's car supply obligation, so it is important to clarify that the railway does not have a higher standard to provide car supply under LHI than already exists.
Since the LHI rate is to be determined by the agency, based on the commercial rates charged for comparable traffic, it follows that traffic moving under an LHI rate or any other regulated rate, such as grain under the MRE, should be excluded from the LHI rate determination since those rates cannot be considered commercial.
Further, American railways operating in Canada and regulated by the federal government should also be compelled to provide rate data to be used by the agency in determining LHI rates.
We will conclude our opening remarks there. I know there are many other elements of Bill C-49 that we have not discussed this morning. Our letter highlights some considerations on those points, and, of course, we are happy to take questions on any element.
Thank you, Madam Chair.