Mr. Speaker, as I was saying before my speech was interrupted for statements by members and oral question period, both CP and CN provide service to Thunder Bay and points further east of that city.
Grain from Thunder Bay can be shipped directly to export in ocean vessels, by lake freighter for consumption in eastern Canada, or for export to world markets from ports on the St. Lawrence River. All rail movements passing through Thunder Bay are covered by the revenue cap up to Thunder Bay. Eastbound movements over CN's north line are also covered by the revenue cap, as far as Armstrong, Ontario, which is north of Thunder Bay. Armstrong and Thunder Bay are approximately equidistant east of Winnipeg, Manitoba.
Eastbound movements by rail east of Thunder Bay or Armstrong are subject to commercial freight rates. There are separate revenue caps for CN and CPR. The revenue caps vary from year to year and take into consideration factors related to inflation, traffic volumes and changes in the average length of haul. Compliance with the revenue cap is monitored by the agency, which compares the railways' eligible revenues to the amounts they were entitled to earn under their caps.
The agency is required to make its determinations by December 31 each year. In determining compliance, the agency will reduce the railway revenues to account for incentives, rebates or other reductions negotiated between railways and shippers. If the agency determines that a railway has exceeded its revenue cap for the crop year, the railway must repay the excess amount plus a penalty.
In crop year 2003-04, about 24.5 million tonnes of western grain were moved under the revenue cap. This was about 50% higher than the western grain volume for the previous crop year, when drought conditions prevailed. Of course, we all remember the drought in western Canada.
In crop year 2003-04, about 11 million tonnes of western grain moved to Vancouver, 9.5 million tonnes to Thunder Bay and Armstrong, and about 3 million tonnes to Prince Rupert. CN's revenue cap in 2003-04 was $322 million and CPR's $310 million.
I will now turn to the U.S. trade complaint. On March 31, 2003, the U.S. officially requested a WTO panel to examine U.S. allegations respecting the consistency with international trade obligations of the activities of the CWB in relation to the disciplines on state trading enterprises set out in article 17 of the GATT, and certain policies affecting the importation of grain, including the rail revenue cap, rail car allocation, grain entry authorization and grain mixing in relation to GATT article III.4.
Article III.4 of the GATT 1994 requires in the relevant part that:
The products of the territory of any contracting party imported into the territory of any other contracting party shall be accorded treatment no less favourable than that accorded to like products of national origin in respect of all laws, regulations and requirements affecting their internal sale, offering for sale, purchase, transportation, distribution or use.
This is generally referred to as the national treatment obligation.
Before I go on further about Article III.4 and the revenue cap, I want to reiterate that the WTO ruled in favour of Canada on the CWB issue. It is important to repeat this, particularly to the Conservative Party over the way, which still does not understand that aspect. The WTO found that the CWB and its activities are consistent with Canada's international trade obligations. That is clear.
In other words, the WTO confirmed that the Canadian Wheat Board is a fair trader, consistent with Canada's position at the WTO negotiating table. A number of members over there have claimed otherwise and I do not find it at all surprising that they were wrong.
In its complaint, the U.S. alleged that the revenue cap favours domestic grain over imported grain, and therefore is inconsistent with Canada's obligations under Article III.4.
The basis of the U.S. complaint was that the rail revenue cap applies only to western Canadian grain and that no imported grain is eligible to receive the benefits from the revenue cap. The U.S. argued this discriminatory treatment provides more favourable conditions of competition for Canadian domestic grain than for imported grain. In other words, we were accused of overprotecting western Canadian grain producers.
In its decision, the WTO panel noted that it may be the case that the revenue cap does not currently restrain railway rates, and that it is unlikely to do so in the future. However, the panel noted that it is not necessary to demonstrate actual adverse trade effects in establishing a violation of Article III.4, since Article III:4 protects conditions of competition and not trade effects.
The panel also noted that, according to GATT/WTO jurisprudence on Article III.4, the mere fact that an imported product is exposed to a risk of discrimination is sufficient to conclude that it has been treated less favourably. As such, the panel concluded that the revenue cap provisions of the CTA were not consistent with Article III.4 of the GATT.
The government considered various options to bring the revenue cap into compliance with the WTO ruling. One option would be to simply repeal the revenue cap provisions. That is not my personal preference. However, the government indicated in Straight Ahead , its vision for transportation in Canada released in 2003, that it would continue to monitor the impact of its grain reforms of 2000 before making decisions on further policy changes.
Let me assure members that the government has no intention of repealing the revenue cap in response to the WTO decision, and that is a good thing.
Instead, the government will bring the revenue cap into compliance with the WTO decision by extending the revenue cap to foreign grain that is legally imported into Canada. That is far more logical. This is the option that has the least impact on the grain handling and transportation system. Foreign grain would have to meet all of the existing requirements in order to be eligible for coverage under the revenue cap.
In January 2005, the Parliamentary Secretary to the Minister of Agriculture and Agri-Food held extensive consultations in western Canada on the government's proposed approach to address the WTO decision, including the proposed approach to the grain revenue cap. There was strong support for Canada to meet its WTO obligations and broad support for the government's proposed approach.
I would encourage this House to pass this bill as soon as possible, so that Canada can fulfill its obligations in accordance with the WTO decision.