Transport Committee on Sept. 14th, 2017

[Ryan Greer, Director, Transportation and Infrastructure Policy, Canadian Chamber of Commerce]

Chair, committee members, first let me offer condolences on behalf of the Canadian Chamber of Commerce regarding the passing of your parliamentary and caucus colleague, Arnold Chan.

[The Chair, Liberal, Judy Sgro]

Thank you.

[Ryan Greer]

I think we all appreciate the challenge of continuing your work on a difficult day like today, so thank you for having us here.

Thank you for inviting the chamber to take part in your study on Bill C-49. The package of legislative amendments before you affects chamber members of all sizes across our network of 200,000 members.

I'd like to start by commending Mr. Emerson and the review panel for their work on the Canada Transportation Act review report. The report is a comprehensive landmark piece of work. It made important recommendations toward helping to modernize Canada's trade and transportation networks. Bill C-49 touches on some key issues raised by the review.

The lens by which the chamber considers the individual components of Bill C-49 and offers comments is how we see the proposed changes affecting Canadian competitiveness overall. I'll start briefly on the rail side before jumping over to a few remarks on air travel as well.

Canada's historical trend of privatization in rail is a tremendous success story that has resulted in significant private sector investment leading to some of the lowest freight rates and highest levels of service in the world.

To that end, the chamber offers caution about the urge to expand regulation into Canada's supply chains. In a global economy where connectivity has become a key determinant of economic performance, the objective of any transportation system reform should be on continuous improvement to the efficiency of our supply chains. This was a major theme of Mr. Emerson's review.

The network nature of these supply chains, including our rail system, is such that providing a regulated advantage to one customer, one sector, or one part of the network will inevitably take something away from other parts of the network. This is one of the reasons that the last two Canada Transportation Act review panels, in 2001 and again in 2016, recommended against increased interswitching limits and maintaining a system based principally on commercial relationships and market forces.

Specifically, the chamber has concerns about the proposed new long-haul interswitching provisions. I think we should be wary of unintended consequences, including disincentives to investment and reduced productivity. In particular, the economics around remote branch lines serving resource industries is already difficult. LHI could threaten to reduce the income that railways make on these lines, which makes their future even a little more perilous.

Another consequence of long-haul interswitching is allowing U.S. railways to take advantage of Canadian lines without reciprocity. As currently drafted, Bill C-49 includes some geographical exemptions for U.S. access and, at a minimum, those exemptions should be maintained. Without the exemptions, Canada would stand to lose a large amount of rail and port business to the U.S., particularly through Vancouver and Montreal.

Broadly, supply chain competitiveness is better served by having a commercial marketplace that has sufficient provisions in place to protect customers in the event of a dispute. Bill C-49 does include some reasonable amendments to existing dispute resolution mechanisms.

On the issue of level of service decisions from the CTA, the chamber would suggest that the CTA should take into account the impact of decisions on all aspects of a supply chain and not just a single customer in making their decisions.

Moving on, we are supportive of provisions in the bill that will change the framework of the maximum revenue entitlement to remove some of the disincentives that have discouraged the acquisition of new hopper cars. We are also supportive of the measures for supply chain data transparency and some of the additional steps that the government has already taken in this regard.

We also support Bill C-49's provisions on locomotive video and voice recorders, including the proactive use of this data by railway companies. The minister has repeatedly said that his number one priority is safety, and this will help accomplish that.

Last, on rail, the chamber is supportive of increasing the individual share ownership limit for CN from 15% to 25%. This is an issue for fairness compared to other carriers and other modes and is important for accessing the necessary capital for long-term investment for the railway.

Moving on quickly to the air transportation sections of the bill, the chamber is supportive of a new framework for consumer rights. The current complaint-based system is a bit of a mess. It leads to inconsistent application of rules between carriers. A simplification and standardization of those rules is overdue, both for those travelling on the airlines and the airlines themselves. Like all business, our carriers can operate more effectively and efficiently when they have greater certainty of the environment in which they're operating.

As regulations under the framework are developed, we'd recommend that they clearly reflect the fact that airlines are one part of the air transportation system. For instance, security screening delays remain one of the top complaints from air travellers.

The bill also requires more information and data regarding air carrier service. I would offer that increased data requirements should not be limited to our carriers, but specifically include government entities within the network that affect system performance, including CBSA and CATSA.

We are also supportive of the joint venture provisions in the bill and setting up the new approval process for the minister of transport. Moving the authority or creating this new process will allow joint venture decisions to be made with a broader public and economic interest in mind.

We do recommend that some of the joint venture provisions in the bill be amended. Specifically, the allowance of a ministerial review of a joint venture after two years following its approval should be lengthened. The two-year clock begins following the ministerial approval of the joint venture, not from when the joint venture actually commences its operation. Once it's actually off the ground, so to speak, we believe that the two-year time frame will probably not provide sufficient enough time to test the joint venture in the market.

The chamber is also supportive of the CATSA cost-recovery section of this bill, with the major caveat that this is very much a band-aid solution, while the government continues to correct or tries to correct the CATSA funding model. We must look to end the chronic underfunding of CATSA to ensure that air travellers can receive the efficient screening services that they are already paying for on their tickets.

We are also in favour of the foreign ownership provisions for airlines in this bill. The minister has stated that the objective of this change is to help promote more competition and bring down airfares. I would just add that if Canada wants to get serious about lowering airfares, it is time to review the government-imposed costs on ticket prices. This of course includes airport rents, security charges, Nav Canada fees and other taxes, all of which impact the competitiveness of Canadian air travel.

I'll wrap up by commending the minister, his team, and the department for the work they've put into transportation 2030 and Bill C-49, and this committee for all the work that you are doing this week. As the minister said this morning, Bill C-49 is only the first step in a long-term transportation plan and the Canadian Chamber of Commerce looks forward to continuing to work with the government on improving Canada's trade and transportation competitiveness.

Thank you.

[The Chair, Liberal, Judy Sgro]

Thank you very much.

Mr. Schaan is here to answer questions as a representative and the director general of the marketplace framework policy branch, strategic policy sector, so if any of you have any questions, you can direct them directly to Mr. Schaan.

On to questions, Ms. Raitt.

[Lisa Raitt, Conservative, Milton, ON]

I don't know who's going to take the question, and you will have to help me with that, officials, but I'll ask for commentary depending upon how you answer.

Here's my problem. The process that's put in place for the minister to make a determination on whether there are significant public interest considerations is so broad and so open-ended I don't know why any companies would ever try to do a joint venture in this country. I'll bring you through the process. Here's what bugs me.

The very first part of it, it's 120 days. This bears repeating because I don't think people understand exactly how difficult this is going to be. The minister or somebody finds out that there is this proposed arrangement. The minister has 45 days after that in order to make some kind of decision as to whether or not to move forward, and then the real time starts. The commissioner of competition has 120 days, and then after that the minister has another 150 days to send a report to the parties. The parties have 30 days to send the response back. The minister has 45 days to give a preliminary decision. The parties have 30 days to respond to the preliminary decision. The minister then within 30 days of those responses has to give a final decision. But wait, there's more, because he then has the ability two years after the deal has been approved to go back and say that he doesn't like that deal on the basis of public interest consideration. The final caveat to all that is found in the proposal, where it says, by the way, all of this timing, the minister can extend it by himself.

On my count, we're looking at 13 and a half months of a flat out process before you get a final decision, which isn't final, and you have no certainty that it's going to get handled in 13 and a half months.

How is that even possible to get investment in this country if that's the kind of process we're going to put companies through?

[Mark Schaan, Director General, Marketplace Framework Policy Branch, Strategic Policy Sector, Department of Industry]

I'll start, and my bureau colleagues may want to intervene.

One of the reasons we introduced the joint venture provisions in Bill C-49 as they are now is that currently joint ventures in this country actually don't have any set timelines necessarily, because they are subject to the commercial collaboration provisions of the Competition Act, which the commissioner of competition can initiate at any time and invoke a review of at any time. That does not allow for any certainty or predictability for proponents unless it's a notifiable merger.

We've taken the merger provisions that currently live under the CTA, which allow for a public interest consideration, and we have actually made those timelines more explicit and shorter. If I take the merger timelines, for instance, it's important to think about the time that leads up to a merger notice being given, but essentially you can take that same time frame and, say, 42 days to inform parties, and, where there is public interest, another 150, and then there's a TBD on all of the steps that follow thereafter.

With respect to the joint venture provisions, one point I want to clarify is that the 120 days for the commissioner of competition are parallel to the 150 days for the minister of transport. Really, in this particular set of time frames we are trying to balance providing predictability and certainty with the need for a robust competition consideration by the commissioner of competition and a robust public interest consideration by the minister of transport. We actually think this particular measure right now allows for an international competitiveness that Canada currently can enjoy like its other comparators.

To your point on the two-year minimum immunity period, I would stress that it's a two-year minimum period, so unless it is otherwise stipulated in the terms and conditions, joint ventures will not have an expiry date and will continue to operate in perpetuity while being monitored annually. That being said, we believe the two-year minimum is sufficient. It's worth noting that in other jurisdictions, such as the United States, antitrust immunity can be reconsidered at any point by the transportation authorities, and so there is actually no certainty to pardon. Therefore, in the joint venture provisions in Bill C-49, we've tried to provide for a balanced and thoughtful consideration of competition and public interest considerations and as much predictability and certainty to parties as possible while ensuring that at all times there's due process.

[Lisa Raitt, Conservative, Milton, ON]

Okay. Thank you.

I take your point on the parallel, and thank you very much for clarifying that. It does make it a little more palatable, but still the overriding rule is that the minister can extend any time and any place.

In your experience, what is the definition of public interest consideration?

[Mark Schaan]

Public interest considerations can mean a number of things. The way Bill C-49 is laid out is there will be a guideline-setting process that will essentially be open for consultation to allow for parties to help inform that, but that can include things like safety, tourism, connectivity, economic benefits, and a number of other considerations that potentially provide both increased economic impact and connectivity for Canadian passengers.

[Lisa Raitt, Conservative, Milton, ON]

So a government or a minister in the future can probably pick anything out of the air and it will become a public interest. Who tests it if it's not written down?

[Mark Schaan]

The guidelines will be very clear about what constitutes a public interest benefit, and there will be a necessity to be able to manifest those public interest benefits with the possibility from the minister to continue the manifestation of those benefits as the joint venture becomes real.

[Lisa Raitt, Conservative, Milton, ON]

You and I both know that guidelines are never prescriptive and there's always a catch-all at the bottom, and anything else that the cabinet would deem to be of public interest is going to be public interest.

[Mark Schaan]

I would suggest that the goal of this is to try to ensure that parties on both sides of the equation, the minister of transport on one and the commissioner of competition on the other, and the parties themselves have clarity about what the expectation is and that it can then be communicated to Canadians how and why we are choosing to proceed with a given transaction.

[Lisa Raitt, Conservative, Milton, ON]

I want to ask about the ability to negotiate. I know that's an important part of the Competition Bureau's work. The ability to negotiate is taken away in this process. There's no negotiation, because the commissioner just provides the summary and then after that, it's in the hands of the minister. That's my read of the legislation. If I have it wrong, you can enlighten me.

[Mark Schaan]

My bureau colleagues may want to intervene, but the remedial orders rest with the minister of transport, because ultimately those remedial orders are subject to the minister's decision to approve or not. The actual negotiation of those remedial orders is informed by both the commissioner of competition and the minister of transport. The negotiation with parties to get to sufficient undertakings that would manifest itself to a good decision that satisfies both public interest considerations and competition considerations would be informed by both the commissioner and the minister of transport.

[The Chair, Liberal, Judy Sgro]

Thank you very much.

Mr. Hardie.

[Ken Hardie, Liberal, Fleetwood—Port Kells, BC]

I had a visit from a couple of airlines prior to these sessions. They were concerned about things being vague with respect to joint ventures and what would be approved and what wouldn't. I actually had some advice for them. I said find out what the trigger points are that attract the interest of the Competition Bureau and don't do that.

Seriously though, looking at it from your vantage point, Ms. Fisher, what are the trigger points? At what point does behaviour become predatory?

[Melissa Fisher]

Actually, Mr. Durocher will answer your question with respect to the predatory pricing provisions in the Competition Act.

[Anthony Durocher, Deputy Commissioner, Monopolistic Practices Directorate, Competition Bureau]

Predatory pricing is something we take very seriously at the Competition Bureau. There was a major court case involving Air Canada in the early 2000s which dealt with that type of behaviour.

The starting point for us in looking at this is that it's a very fine line between what is vigorous pro-competitive, aggressive conduct that we want to see in the economy and what crosses the line to being predatory. Predatory conduct is really aimed at the elimination of a competitor, typically on a specific route, by pricing in such a way that losses can be recouped once the competitor has exited the market.

The jurisprudence from the courts in Canada provides that there's an avoidable-cost test that needs to be met to show predatory pricing in any given case. These are very fact and evidence-based exercises that require a lot of quantitative and financial data about the company to try to assess what its costs and revenues are on a specific route.

[Ken Hardie, Liberal, Fleetwood—Port Kells, BC]

Briefly, you really don't want the equivalent of dumping, where someone takes a loss in order to drive a competitor out of business.

[Anthony Durocher]

Again, I think it really depends on the facts. It's normal for companies to react and drop their prices when there's competitive entry on a given route. The question is this: at what level does the lower price represent a predatory tactic aimed at eliminating the competition? That really is a case by case assessment.

[Ken Hardie, Liberal, Fleetwood—Port Kells, BC]

Thank you for that.

We talked a lot about airlines with respect to competition, but we're jumping through hoops, or trying to—the previous government and this government—when it comes to the railways. The competitive line rates aren't used anymore because they refuse to compete. Does the Competition Bureau have any influence or observations on what appears to be price-fixing by the railroads?

[Anthony Durocher]

The Competition Bureau provided a very comprehensive submission in 2015 to the review panel on the Canada Transportation Act. In doing so, it consulted with a number of major stakeholders to get the lay of the land with respect to competition issues. A significant issue that came up was competitive line rates not being an effective means for captive shippers to benefit from—

[Ken Hardie, Liberal, Fleetwood—Port Kells, BC]

It's the fire alarm. Hold that thought.

[The Chair, Liberal, Judy Sgro]

Well, we did want to go outside at sometime during these four days. We may have an opportunity.

I will suspend the meeting.

[The Chair, Liberal, Judy Sgro]

We will reconvene our meeting, and we'll try to make up our time.

Mr. Hardie, you have about a minute.

The idea would be for everyone to have five minutes and, if witnesses could try to be concise with their answers, we could still give everyone a chance to get their questions in.