Transport Committee on Sept. 13th, 2017

[Vance Badawey, Liberal, Niagara Centre, ON]

As I stated yesterday, Bill C-49 is meant to be injected into the overall transportation strategy establishing, of course, one of the five pillars that Minister Garneau has announced, which is trade corridors. The more information we can have about what your needs are to make more robust the opportunity for our participation and performance in a global economy, the better. Since, as you stated earlier, you are a part of it, we need to hear what those needs are. That way, when we are actually making the infrastructure investments, they will be made appropriately, for better value and a better return, to therefore position Canada better on the economic global stage than is the case today.

[Karen Kancens]

Yes, absolutely.

[Vance Badawey, Liberal, Niagara Centre, ON]

Great. Thank you.

[The Chair, Liberal, Judy Sgro]

Thank you to all of our witnesses. This has been tremendously informative. We thank you for taking the time to participate and helping all of us as parliamentarians.

We will now suspend until the next panel.

[The Chair, Liberal, Judy Sgro]

We're calling the meeting back to order as we continue our study of Bill C-49. We have with us at this panel François Tougas, appearing as an individual, the Canadian National Millers Association, and the Canadian Canola Growers Association.

I welcome all of you. Thank you for coming.

Who would like to start off? Go right ahead, sir.

[Gordon Harrison, President, Canadian National Millers Association]

Thank you very much for the opportunity to appear. It's greatly appreciated. We are very happy to be here after requesting to be here.

The Canadian National Millers Association is Canada's national not-for-profit industry association representing the cereal grain milling industry. Our member companies operate milling establishments across Canada, and a number of them operate establishments in the United States or have affiliated companies with milling facilities in the U.S.

By virtue of where the Canadian milling industry capacity is situated and the regional markets served, the Canadian industry can quite correctly be described as a participant in a North American industry. It is a North American market for this industry, and the industry is integrated much like the rail transportation networks are throughout North America.

We are, however, an independent Canadian not-for-profit organization. We do not directly represent members of the U.S. milling industry except for those who are members in good standing of the CNMA by virtue of their operating facilities in Canada.

In light of the few minutes that are available for everyone to speak, I'd like to start by advising the committee at the outset that the CNMA supports the recommendations that are set out in the amendments to the bill as submitted and presented by the Western Grain Elevator Association. Members of the WGEA are the predominant link between grain producers and our member grain processors and others who are processors in Canada. This is the case for the majority of wheat and oats milled in western Canada.

I would like to touch upon a number of points as context for the committee's consideration of all the submissions you've heard. They are the following.

Our members are primary processors of wheat, oats, rye, and other cereal grains. By “primary processors”, we mean the step in the supply chain at which grain is transformed from a commodity that generally is not consumed to commodities that are consumed and are ingredients in food products and other products at the consumer level.

Top of mind for most people who think of foods that contain such ingredients are bread, other bakery products, pasta, breakfast cereals, and cookies, but I'd like to emphasize that you'll find wheat flour and other products of grain milling in products that are in every aisle of the grocery store, including pet foods, which contain products of grain milling. There are many products that contain or are derived from milled grain products. Those milled grain products are derived from grains across Canada, but predominantly the grains that are produced in western Canada.

There are also very few food service chains or restaurants, if any, whose menus are not largely based on foods based on cereal grains and manufactured from the products of grain milling. During the duration of these hearings, I was reflecting on this. I think Canadians will have consumed approximately 200 million meals containing bakery products, pasta, breakfast cereals, and snack foods, which in turn contain other products of grain milling.

These businesses, from the very largest to the very smallest, operate on a just-in-time delivery basis. The major manufacturing companies or the further processors of milled grain products—such as bakeries for frozen bakery products, or pasta, but principally those further processing manufacturing industries—have only a few days of ingredients in stock, and not just wheat flour and other milled grain products, but all grain products. In that sense, the supply chain beyond the milling industry operates on a just-in-time delivery basis, just like the automotive industry.

The CNMA's interest in rail transportation policy in Bill C-49 is that the cereal grain milling industry is heavily reliant on rail transportation, not only for inbound unprocessed grains but for outbound processed products. Two-thirds of Canada's wheat milling capacity is located off the Prairies, outside of Alberta, Saskatchewan, and Manitoba, and is situated in B.C., Ontario, Quebec, and Nova Scotia primarily. These mills require rail service to receive approximately three million tonnes of wheat and oats annually. This represents a very predictable demand for rail transportation: in my estimate, 34,000 cars annually for inbound grain, and perhaps another 6,000 to 10,000 cars for the movement forward of milled grain products and by-products.

This demand doesn't fluctuate significantly by crop year, is not variant on the size of the Canadian crop for any commodity. Rather, it can be easily forecast a year in advance because it's based on a domestic and a nearby export market, the United States of America.

Having noted some of the ridings held by committee members, it might interest you to know that during the dramatic shortfall in service in the 2013-14 crop year, there were mills in Mississauga, Montreal, and Halifax that actually ran out of wheat, in some cases more than once. That meant that major bakeries were within two to three days of running out of flour, and major retail grocery establishments probably within four to five days of running out of bread on shelves.

In hindsight—and that is now a long time ago and we're not here to whine about what happened back then—we came very close to having a serious interruption in our grains-based food supply. How would we have explained that to Canadians who had gone to the store and found no bread, or to fast-food restaurants which would have had nothing to put their ingredients on in those menu servings?

Other than the extended switching rights, the provisions of the Fair Rail for Grain Farmers Act did not recognize or assist the rail service requirements of Canada's milling industry. The same can be said for U.S. establishments. In fact, that intervention provided an impediment to service to our industry. As we see it, there are no provisions of the CTA that presently speak to the very predictable and forecastable service needs of the Canadian milling industry, and in most respects the same can be said about the amendments proposed by Bill C-49. The act, as it exists and even as amended, doesn't really speak directly to or recognize the needs of domestic processors.

Those processors really do not have the capacity to receive and unload grain in the way that grain elevators have on the way to export markets. Almost all mill locations are urban. They're in multi-mix environments, in some cases surrounded by residential development, commercial development, and they are equipped to handle only a few cars at a time. The largest capacity of a mill that I'm aware of, without using a transfer elevator nearby, is about 15 cars at a time.

In regard to Bill C-49, it really remains important that under the amended act the definition of “shipper”, as I understand the proposed amendments, will remain, “a person who sends or receives goods by means of a carrier or intends to do so.” That's an extremely important aspect of the legislation as it exists today, and that does ensure that processors, including millers, have access to the benefits of the same provisions of the act.

The key point I want to make is that grain rail service is not only about moving grain to port for onward movement to export markets. It's about moving grain to mills in Canada and the United States, meeting the needs of Canadian and U.S. consumers. The Transport Canada question-and-answer document that was circulated about 10 days ago speaks of global markets. I want to emphasize that North America, Canada and the U.S. combined, is a global market of 400 million people. From our investigation, the recommendations of the WGEA and those carefully considered points of the crop logistics working group will go a long way to meeting the substantial improvement that is described by the WGEA in these amendments. We are supportive of those recommendations.

I must emphasize, however, neither their submission, nor any other that I've read to date, speak to the importance of rail service to cereal grain milling establishments. There are actually many, and the Canadian population relies upon the timely operation of those facilities and the delivery of foods from those facilities.

I've provided some very brief correspondence to the Honourable Marc Garneau, to the clerk, which I gather will be subsequently distributed once it is translated.

Thank you for your attention.

[The Chair, Liberal, Judy Sgro]

Thank you very much.

Now we`ll go to the Canada Canola Growers Association.

[Jack Froese, President, Canadian Canola Growers Association]

Good afternoon, Madam Chair and members of this committee.

I am Jack Froese, the president of the Canadian Canola Growers Association. I farm at Winkler, Manitoba. Thank you for inviting me here today to speak with you about Bill C-49, the transportation modernization act.

CCGA is a national association governed by a board of farmer directors who represent the voice of Canada's 43,000 canola farmers from Ontario west to British Columbia. In any given year, over 90% of Canadian canola, in the form of raw seed or the processed products of canola oil or canola meal, is ultimately destined for export markets in more than 50 countries. We are the world's largest exporter of this highly valued oilseed.

Canola farmers critically rely on rail transportation to move our products to customers and keep those products price-competitive within the global oilseed market. Farmers occupy a unique position in this grain supply chain, and that is what fundamentally differentiates this supply chain from other commodities. Farmers are not the legal shippers, but we bear the cost of transport as it is reflected in the price we are offered for our products from the buyers of our grains and oilseeds, who are the shippers.

Simply put, farmers do not book the train or the boat, but they pay for it. Transportation and logistics costs, whatever they might be at a point in time, are passed back and paid for by the farmer.

Farmers independently strive to maximize both the quantity and quality of their production each year. Once harvested, they sell their grain into the system, based on their particular marketing plan, with the overall goal of capturing the highest possible prices at a given time in a dynamic and ever-fluctuating global commodity market.

Transportation of grain is one of several commercial elements that directly affect the price offered to farmers in the country. When issues arise in the supply chain, the price that farmers receive for their grain can drop even at times when commodity prices might be high in the global marketplace.

In periods of prolonged disruptions, space in grain elevators becomes full and grain companies stop buying grain and accepting deliveries. This can occur even when the farmer has an existing contract for delivery, seriously affecting farmers' ability to cash flow their operations. This is a major reason that western Canadian farmers have such an interest in transportation. It directly affects personal farmer income, and beyond that, they critically rely on the service of Canada's railways to move grain to export position. We have no alternative.

It is a complex system, transporting western Canadian grains an average distance of 1,520 kilometres from the Prairies to tidewater, but we need to make it work to the benefit of all parties and the broader national economy as a whole.

The competitiveness and reliability of the canola industry, which currently contributes over $26 billion annually to the Canadian economy, is highly dependent on this supply chain providing timely, efficient, and reliable service. In terms of direct impact on Canadian farmers, canola has been the number one source of farm revenue from crops every year for over a decade. It is a major contributor to grain farmers' profitability.

The 2016-17 crop year that just passed at the end of July set new record levels of canola exports and domestic value-added processing. Strong performance by the railways absolutely supported this achievement. Overall, it was a banner year for railway movement of grain and its products.

That stated, we need to remain future-oriented when we consider public policy changes. The last several years of reasonably good overall total movement and relative fluidity of the supply chain should not lessen our focus on seeking to improve, as fundamental issues still exist beneath the short-term positive headlines.

Spring 2017 saw a record level of canola planted in Canada, the largest single field crop in the country, for the first time surpassing wheat. The most recent, late August, government estimates of production for this fall is 18.2 million tonnes, down slightly from last year due to challenging weather, but still surpassing the five-year average by over one million tonnes.

We are an optimistic and goal-oriented industry with a record of achieving success. When we look forward to 2025, we see demand for our products rising further, both domestically and internationally. In this future, rail transportation will be even more important as our industry strives to reach our strategic goal of Canadian farmers sustainably producing 26 million tonnes of canola every year.

To support this, Canadian farmers and the industry will need an effective and responsive rail transportation system, not just for transportation of the current crop sizes but for those of the future. Moreover, farmers will not be able to capitalize on the opportunities from Canada's existing and future trade agreements without a reliable and efficient rail system that grain shippers and our global customers have confidence in. That is a key point: with such a strong reliance on exports, we do need to remain cognizant of the customer service aspect of our export orientation in the agricultural sector.

Canadian canola and other grains are well known for their quality characteristics and sustainable supply, which are market differentiators. But at the end of the day, they remain fungible commodities, and alternatives exist. The reliability of our transportation system affects buyers' confidence in the global Canadian brand. We know, because we hear directly about it.

For the remaining comments, I'll defer to Steve Pratte.

[Steve Pratte, Policy Manager, Canadian Canola Growers Association]

Thank you.

Just very briefly, Bill C-49 attempts to address several long-standing issues in the rail transportation marketplace. You've heard from grain sector representatives, including grain shippers and farm groups, yesterday and this morning, regarding their perspectives on various commercial and legal aspects of the bill, including around reciprocal penalties, long-haul interswitching, and other elements. You've clearly heard from witnesses in other sectors that Canadian class I railways are in monopoly positions. Most grain shippers are served by only one carrier and are subject to monopolistic pricing and service strategies.

The grain sector, from farm groups through the value chain to exporters, has been consistent in its discussions with government since the 2013-14 transportation crisis, and there's been a consistent message. Canada must address the fundamental problem of railway market power and the resulting lack of competitive forces in the rail marketplace. In our view, the government has a clear role to establish a regulatory structure that strikes a measured and appropriate balance and, to the greatest extent possible, creates the market-like forces that do not exist, which in theory should create more market-responsive behaviours of all participants.

This is the reality, a long-standing fact that has led to over a century of government intervention to varying degrees in this sector. Bill C-49 is the current approach before us to bring a more commercially oriented accountability into this historically imbalanced relationship. Bill C-49 appears to make progress in several areas towards this goal, and does reflect a consideration of what Canadian rail shippers and the grain industry have been telling successive governments for years about the core imbalanced relationship between shipper and railway. For that, we thank you.

In our view, the true impact and success of this bill and the measure of its intended public policy outcomes will only really become apparent and known once the shipping community attempts to access and use the remedies and processes this bill will initiate. As Bill C-49 was designed to balance two competing interests—that of the shipper and that of the rail service provider—a true measure of success will likely take several years to fully gauge and appreciate.

In closing, two areas that CCGA would like to briefly highlight, from a farmer's perspective, are the themes of transparency and long-term investment, specifically as they relate to data disclosure and the economic regulatory environment of grain transport in Canada.

One element of Bill C-49 that is of particular importance to farmers is the issue of transparency.

The publication of new railway service data, received by the minister of transport or the Canadian Transportation Agency, is important not only for stakeholders and analysts monitoring the functioning of the grain handling and transportation system but also for government itself—for the twin functions of on-going monitoring and assessment of the system, and when required, the ability to develop prudent public policy and advice to the minister in times of need.

This new information, in conjunction with the comprehensive reporting of the existing grain monitor program, will provide farmers with valuable insights into the performance of the system. As the bill currently reads, clauses 51.1, 77(5), and 98(7) specify timelines associated with this reporting. CCGA would respectfully submit that these timelines are too lengthy and that consideration should be given to shortening them.

In addition, the new proposed annual railway reports to the minister at the beginning of each crop year, contained in clause 151.01, are very positive. CCGA would respectfully submit that the minister of transport consult with the minister of agriculture as to what those reports could specifically contain to be of greatest utility to both government and grain stakeholders.

Lastly, modernizing the economic regulatory environment to stimulate investment, such as the suite of actions aimed at the maximum revenue entitlement, is well intentioned.

One of these policy objectives is to spur investment in grain hopper car replacement by the railways through the calculation of the annual volume related composite price index, as effected by clause 151(4).

CCGA would submit that consideration should be given to having the Canadian Transportation Agency closely monitor these actions and, during its annual administration of the MRE, include a summary comment within its determination.

We appreciate being here to address the committee this afternoon, and we do look forward to the question period.

[The Chair, Liberal, Judy Sgro]

Thank you very much.

Mr. Tougas.

[François Tougas, Lawyer, McMillan LLP, As an Individual]

Thank you for the invitation to appear before the committee today.

I should start by commending the members for their non-partisan approach to this bill, as well as for their fortitude, doing this all week long, and the hours that you're maintaining.

I'm here in my capacity as counsel to shippers, railways, governments, intermediaries, and investors in the areas of rail law and policy. My credentials are attached to my formal submissions.

I should say also that my comments today are informed by more than 60 negotiations and processes with the Canadian National Railway Company and Canadian Pacific. I'm speaking from the position of having seen these negotiations and processes among different categories of commodities as well as railways. Transport Canada consulted with me extensively in the run-up to Bill C-49. Unfortunately, Bill C-49 leaves many shippers without access to a viable remedy. While I have many things to say about the act and the bill, I'm going to confine my remarks today to two areas in particular on data disclosure and rail service, and I'm also going to try to address some points that have arisen since the beginning of the week.

My first point is on costing data. Bill C-49 looks to gather some data similar to that available in the United States. However, the bill will not change the fact that data about CN and CP is much more readily available to shippers in the States than to shippers in Canada. Shippers in the States have access to detailed rail costing data to calculate a carrier's costs of transporting goods, without invoking a proceeding before the U.S. Surface Transportation Board.

Rail carriers in the States are required to report detailed financial and statistical data, which is available publicly on the STB website. CN and CP must provide these reports to the STB too, but Canada does not require it, so shippers in Canada are at a considerable disadvantage in relation to their U.S. counterparts. The STB established the uniform rail costing system, URCS, to “provide the railroad industry and shipper community with a standardized costing model [that can be] used by parties to submit cost evidence before the Board.” Shippers can, by this and yet other means, assess the freight rate competitiveness of CP's and CN's American operations, but not their Canadian operations.

In Canada, the only situation in which a shipper can get rail cost data is in the confidential final offer arbitration, FOA, process. FOA has become increasingly difficult to use for a number of reasons. As you've heard already from other witnesses, an FOA arbitrator has the right, under the act as it presently stands, to get information from the agency but generally will not do so without first getting that class I rail carrier's consent. That's the problem that I think you have an opportunity to fix. CN and CP can merely refuse to consent, leaving the arbitrator in such cases without a critical piece of evidence to make a final offer selection between the shipper's offer and a carrier's offer. In this manner, CN and CP can neuter the FOA process, making it less available and less viable.

While shippers in Canada should have access to the same quantity and quality of information available to the shippers using CN and CP services in the States, for now, I'm advocating something simpler; just require CN and CP to co-operate with the agency in providing the cost of shipments that are submitted to final offer arbitration. I have some recommended language there before you. This committee is already amending subsection 161(2), so this would be the addition of a paragraph (f). It would just add one more item to the list of items that a shipper has to submit to start a final offer arbitration. With this amendment to the act, the FOA process has a better chance of avoiding disputes, reaching good conclusions, and satisfying the parties.

I'll move on to performance data. Railway performance data is also not available in Canada. Bill C-49 proposes to compel the disclosure of a subset of certain U.S. information. As a result, U.S. shippers will end up with more data about CN's and CP's operations than shippers in Canada. Ideally, each class I rail carrier would submit all data from every waybill, including the information required by proposed subsection 76(2), which is dedicated right now just to the LHI remedy.

This information is readily accessible to the rail carriers in real time and is easily transferable. That would allow any so-inclined shipper in Canada to assess the extent to which a rail carrier is providing adequate and suitable accommodation for its traffic without having to resort to a legal process, which is what is required right now.

Currently the agency and arbitrators must determine service cases in the absence of performance data. The creation of a database and publication of all waybill and clause 76 information would settle or eliminate many disputes. However, I propose something more modest. I propose three things. First, give the agency the authority and the obligation, as it has for other parts of the act, to make regulations in this area, given its wide-ranging expertise. Second, require service performance information for publication for each rail line or subdivision. System-wide data as presently contemplated by Bill C-49 will do nothing to identify service failures in any region or corridor, much less those faced by any shipper. Third, Bill C-49 seeks to limit commodity information. I've added paragraph (11) to current subclause 77(2)—you can see the language before you—to require each class I rail carrier to report their service performance in respect of 23 commodity groups, just as is required by the STB of CN and CP in the United States—no difference.

Moving on to service levels, both the level of service complaint remedy and the SLA process were designed, along with the statutory service obligations, to compel railways to do things they would not otherwise do. The agency has done an admirable job of determining the circumstances in which it will determine whether a rail carrier has fulfilled its statutory service obligations. This is not a system that needs any further inclination toward rail carriers, which have been performing very, very well financially. Only the most egregious rail carrier conduct gets attention from shippers, which are otherwise prone to sole-service providers and very reluctant to bring proceedings.

Personally, I would not have amended the LOS provisions, but if it must be done, I'd make a few changes—three of them, in fact.

First, I'd change the opening words of proposed subsection 116(1.2), as presently contemplated in Bill C-49, to reverse the logic. Right now, it doesn't say what happens if a rail carrier doesn't provide the highest level of service they can provide. I would reverse the finding requirement so that the level of service is no less than the highest that can be reasonably provided in the circumstances.

Second, Bill C-49 would require the agency, in both the LOS and the SLA process, to consider the rail carrier's requirements and restrictions, which are all outside the control of the shipper and well within the control of the rail carrier. For example, a rail carrier decides how many locomotives to acquire, whether to terminate thousands of employees, eliminate or reduce service, limit infrastructure, or invest in technologies. It is entirely inappropriate for the agency to have to determine whether a shipper should receive a portion of the capacity that has been restricted by decisions of a rail carrier. I would strike the offending provisions entirely, just as you have it before you there.

Third, Bill C-49 imposes an obligation on an arbitrator to render decisions in a balanced way. Now, I would have thought they were already doing that. They enjoy a reputation for fairness and impartiality, and they have enjoyed deference from the appellate courts. Arbitrators are rarely appealed. There's no need for such a provision. The SLA process exists precisely because a rail carrier will not provide what the shipper requires. If it turns out, upon examination, that a shipper doesn't require the service it seeks, the shipper won't get it. That's what the agency will decide. I would strike that proposal altogether.

I've been asked a few times, and contemplated that this would arise, which one of these I would take if I could only take one. Well, it may be that the LHI provisions, if they're amended in accordance with the requests of various parties who've appeared before you, will be helpful to some people. But for sure I would make sure that my priority one amendment is made—that is, demand and require of a railway that it provide its consent to a rail carrier costing demand by the shipper in the FOA process.

Finally, we should return to a periodic review of the act. I would recommend at least every four years. I heard Mr. Emerson say two, and I'd be content with that too.

Thank you very much.

[The Chair, Liberal, Judy Sgro]

Thank you very much.

Thank you to all of you.

Ms. Block.

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

Thank you very much, Madam Chair.

Thank you to all of you for joining us here today.

I want to make the statement that I appreciate the balanced testimony we've heard from all of our witnesses over the past three days in terms of pointing out where things have been structured very well and then identifying those places where they feel the bill needs to be amended. I also appreciate the common themes that have arisen over the past number of days.

With that, I want to ask a couple of questions of you. First, what will be the long-term implications for your industries, and the industry as a whole, if the amendments that you've suggested aren't made?

[Gordon Harrison]

I think the amendments that have been proposed by the major grain supply chain stakeholders have been very carefully considered based on a great deal of experience. I believe they are worthy, have merit, will improve the efficiency and the responsiveness of the system, and speak to the need that has been spoken to by the last presenter, which is the transparency of data that is obligated to be provided, gathered, and published in a very timely fashion. I really appreciate the remarks that it should be no less robust and transparent than users of the system, shippers, have in the United States.

The implications would potentially be lost opportunity. Secondly, there's potential for another precipitous and perhaps economically damaging intervention in the future if we ever again face the kind of circumstances we did three crop years ago. Ultimately, an awful lot of time and effort were wasted in doing better. Doing better is absolutely essential to our economy.

Thank you.

[Jack Froese]

I would say our future depends on it. We can ill afford to go back to what we had in the past. If we look at where agriculture is going, with biotechnology we're raising better crops and bigger crops using every technology available to us. We're going to be looking at more volume to be handled in the future. We have set the lofty goal of 26 million tonnes by 2025. We've always achieved our goals in the past. We are going to have to make sure that we can do all the trade agreements, and if the transportation system isn't there to back it up, the trade agreements don't mean a whole lot.

To have the timing of the transportation to meet, to coincide, with the needs of the consumer is extremely important. I know we have had consultations with our Japanese buyers, and they tell us it's extremely important that they get their shipments on time.

[François Tougas]

Let me answer you by posing a question to you, which is, why aren't the remedies used? I know some of you have asked that question. If you approach it from that perspective, you can see what's going to happen to industry over time.

If we look at the Canada Transportation Act as a constant work in progress—which I think we have to admit has been going on for about 100 years or more—then the process that we're in now is really an opportunity to try to get further ahead than where we were. What's actually happening is that the remedies are being eroded, and that's why I'm talking about the things that I'm talking about today.

This can't be surprising. We have a market structure that lends itself to a natural monopoly occupied by the two railways. I wouldn't blame it on their conduct; it's a market structure problem. We address that with remedies in the act. When those remedies are weakened, when they do not do the job that they were intended to do, it makes it hard for those shippers to deliver on their production. That's the simple point I would make.

I know some of you also asked, is it this reason or that reason that this remedy is being used or not being used? On Monday I heard the railways talk about this subject. The reason why the remedies aren't being used is that it gets harder and harder to use each one of those remedies. The shippers are primarily scared of retribution from the carriers for exercising those remedies, and they're expensive. I'm part of the problem, right? I'm a lawyer, and lawyers are people, too, but it costs a lot of money to engage counsel. The harder the process is, the more money it's going to take to solve the problem.

You heard testimony this morning about how much it might cost to do an FOA process for one shipper. Other shippers can exercise some of the remedies for cheaper, but very few shippers have access to a lot of remedies. Most shippers have access to one, sometimes two remedies. You have to make them usable. That's really the point I would emphasize, and I would make that point about LHI as well.

Sorry to go on so long.

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

No. Thank you.

[The Chair, Liberal, Judy Sgro]

Mr. Graham.

[David Graham, Liberal, Laurentides—Labelle, QC]

Thank you.

I want to stay on remedies and look for remedies for the remedies. Can you go into a bit more detail on the remedies? Where did they originate? Take a couple of specific examples. Where did they originate, and how did they die?

[François Tougas]

Many of the remedies we have in the act today actually came as a result of possibly a maverick, Don Mazankowski, back in the eighties. The advent of the National Transportation Act of 1987 introduced final offer arbitration and the competitive line rate mechanism. It changed the interswitching mechanism to the thing we have today. Those were bold.

CLR, as you've heard, doesn't work. The railways have refused to compete with one another on that basis. They don't have to. There's no law that requires them to compete with one another. What we're talking about, again, is a market structure problem. When you create a remedy, you want that remedy to be effective, to act as a surrogate for what the market is not going to be able to do.

I practise in the area of antitrust law, and in antitrust economics, the main thing we want is for competition to occur. In a natural monopoly environment, like the one we have here with the railways—not for their entire systems but for large parts of their systems—you want every mechanism available to allow those rail carriers to compete without restrictions. That's where I would say LHI has largely gone wrong. It imposes a bunch of unnecessary restrictions that really will keep those railways from having to compete with one another and with others.

Have I answered that adequately? I may not have.

[David Graham, Liberal, Laurentides—Labelle, QC]

Yes, that's a pretty good start.

As for other solutions, yesterday Teck talked to us about running rights, and I noticed a lot of people didn't know what that was. I know you have some knowledge about this. Can you talk a bit about this?

[François Tougas]

Yes. I've written in this area probably the least read articles in Canada on this subject.

There are many types of running rights regimes. It's a good scaremongering tactic by the carriers. I've heard on numerous occasions about how it would devastate the economy. As the Teck witness mentioned yesterday, running rights are already used throughout North America every single day. There are lots of running rights mechanisms, and there are lots of different forms of them. What they are particularly afraid of is wide open access, with anybody running over anybody's lines. I think there are lots of steps on the way there.

I could go on for days on this subject, but I think in Canada, we have some opportunities to correct our transportation system to introduce direct competition, that is, running rights. But if we're not going to do that, then we should have remedies that provide indirect competition that is effective and viable for the shippers to use.

[David Graham, Liberal, Laurentides—Labelle, QC]

One of the issues that came up earlier today was a concern about premature discontinuance of the line. I wonder if you had thoughts on that and remedies for that.

[François Tougas]

I think right now the railways have obtained the ability to discontinue rail lines on a basis that I think is reasonable for the rationalization of their networks. I've always been a little bit concerned about how easy it is for them to go through that process, but that is the process.

What happens now is that if you allow them to discontinue service before that process is run, you're essentially stranding a bunch of shippers on those lines that are about to be abandoned. I think that's a mistake. Reasonable people can differ on that issue. That might be a place where you allow communities to take over those lines immediately or for other parties to come in and run them, on a reasonable basis, as short-lines.

Short-lines get squeezed for both their operating revenue and their capital requirements. This is probably worth spending some time on, probably more time than we have today.

[David Graham, Liberal, Laurentides—Labelle, QC]

We heard from the short-lines yesterday that their operating ratio is in the 98% range, as opposed to the large carriers being in the 50% range.

I'll come back to another question I've asked a number of panellists, and I'll open it up to everybody.

We were told by the large railways that any company that has access to trucks is basically not a captive client. I'm wondering what your thoughts are on that.