EVIDENCE

[Recorded by Electronic Apparatus]

Wednesday, March 27, 1996

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[English]

The Chairman: I call the meeting to order.

First of all, I want to welcome everyone here. I also want to tell you that we have a vote at 5:30 p.m., so we'll try to get as much in before the vote as we can. If we have to, we can come back if the committee wants to do that. We have approximately two hours to see four groups of witnesses.

We'll begin with the Chamber of Maritime Commerce. Doug Smith is its president.

Mr. Smith, if you could introduce your colleagues, we can begin.

Mr. Doug Smith (President, Chamber of Maritime Commerce): Thank you, Mr. Chairman. The Chamber of Maritime Commerce is pleased that you've taken the opportunity to hear from us and have given us an opportunity to present our concerns about what's been going on in the Canadian Coast Guard cost-recovery initiative.

I am accompanied by Jean-Paul Sirois of Canada Steamship Lines Inc., and Mr. Al Hamilton of Sifto Canada, located in Goderich, Ontario. We thought that with a shipper, a carrier and myself - since I'm here on behalf of the Chamber of Maritime Commerce - we could give you a perspective from all sides of this issue.

This hearing came up fairly quickly, and in short order we have provided written material for you, along with some materials that you can take away with you. I apologize,though, because with the exception of the proposal that we submitted some time ago, unfortunately everything is in English and we haven't had a chance to provide it in French.

The Chamber of Maritime Commerce represents about a hundred major shippers, carriers and ports to which an effective and cost-competitive marine transportation system is critical in delivering raw materials for our production processes and for delivering products to both domestic and international markets. Our major focus is on the Great Lakes and the St. Lawrence River, as they are the centres of commercial activity in Canada for our members and the major waterways for connecting our members to the international marketplace.

Our membership includes grain, potash, iron ore, coal, aggregate, steel, salt and cement producers, utilities, ports, and domestic and foreign-flag carriers from across the country. This issue of coast guard cost recovery is critical to our members because they operate in a highly competitive marketplace that has little or no room for price increases that are driven by costs to which our competition is not subject. That's one of the key issues that we see here: the competition has not been looked at in terms of what our producers and manufacturers have to deal with and the competitive marketplace in which they operate.

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Our members have actively supported the initiatives of the government to reduce deficits and improve the nation's finances. In particular, we supported the transportation initiatives related to ports, the seaway, pilotage, and coast guard cost recovery. However, as you have seen, the chamber has recently gone on record opposing the current proposals of the coast guard, and it has proposed that a much more rigorous joint industry-coast guard approach to this issue be undertaken. We have also proposed that implementation of cost recovery be deferred. My purpose today is to explain why we have taken this position and what our concerns are.

You heard from Mr. Thomas just last week that he is doing all of the things that we have requested under the auspices of the Marine Advisory Board and that he's had extensive consultation and sees no merit in the positions we have raised. He has intimated that we're merely trying to stall and delay this process. What I can tell you is that this couldn't be further from the truth.

We support the cost-recovery initiative and are prepared to work with the coast guard. But as you know, we issued a press release last week - it's in the package - along with seven other organizations that represent thousands of jobs and hundreds of millions of dollars in commerce in this country. If we were satisfied with the process that has gone on to date, we wouldn't have needed to issue that press release and we wouldn't all be clamouring to be here before you and trying to get the minister to listen to our positions.

Mr. Thomas has characterized it as a broad consultation that the majority of the country is satisfied with. I'm telling you that eight large organizations, among others, are not satisfied with it.

What I hope to do today is give you an opportunity to understand our position, to better understand the marine transportation and commodity movements in the context of the Great Lakes and the St. Lawrence River. Mr. Sirois will be discussing that. I'd then like to give you a background on how our position has evolved, outline what our specific concerns are, give you some examples of potentially harmful effects of the current approach, and outline what specific commitment the Chamber of Maritime Commerce and its members are prepared to make in order to develop this process further.

With that I'd like to step aside in order to let Mr. Sirois make a small presentation on the Great Lakes and shipping on the Great Lakes.

Mr. Jean-Paul Sirois (Director of Commercial Development, Canada Steamship Lines Inc.; Member, Chamber of Maritime Commerce): Mr. Chairman, my role as a carrier today is to inform the committee of the uniqueness of the Great Lakes-St. Lawrence Seaway system, the commodities, the routes, and the types of vessels that transit the system. I have some overheads that I will speak to.

The Canadian-flag dry bulk fleet is composed of roughly 85 vessels. They're rather unique vessels in that they're very long and thin. They're generally 730 feet long by 78 feet wide. Nowhere else in the world will you find vessels like this. They're designed specifically for the system in the lakes and the St. Lawrence Seaway.

If we switch to the next overhead, you'll see the types of commodities and tonnes that are moved. What you have here are 1994 data. The data for 1995 are just being compiled. The types of commodities that we move include iron ore, coal, grain, limestone, salt, gypsum, coke, cement and potash. There is also some general cargo and some miscellaneous bulk, but primarily the Great Lakes and the St. Lawrence serve grain companies and steel companies.

If you have a look at the next overhead, these are the total values of the commodities that are moved. Generally, on the Great Lakes you have very low-value commodities that cannot sustain increased government taxes.

The coast guard has asserted that the total value of all goods floated in Canada is $60 billion and that $20 million in additional taxes is therefore not that onerous. In fact, the total value of goods floated on the Great Lakes and the Seaway is just $3.2 billion, and we're being asked to pay $8.7 million out of that $20 million.

You can see, Mr. Chairman, that we're moving roughly 5% of the cargo, but the coast guard expects the Great Lakes to bear 45% of the tax. We don't consider that to be fair and equitable.

I'll give you just a quick overview of where these commodities move, and we have included a map for you.

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As Mr. Smith said, we're not opposed to the concept of cost recovery. In fact, we're very much in favour of deficit reduction and we're willing to pay for the services we consume.

Here you see the ports of Thunder Bay and Duluth. Just by way of example, Canada Steamship Lines moves well over a million tonnes of oats from Thunder Bay to Duluth every year. This is a region in which no navigational aids are used; zero.

Similarly, if you look at the map, we'll use the port of Cleveland. There are several ports in that range on the south side of Lake Erie, out of which we ship coal for Stelco and Dofasco in Hamilton and Ontario Hydro in Nanticoke. It's a very short run across Lake Erie. It's approximately six hours. Again, zero navigational aids are encountered on that run. You can see back in the tonnage table that is 10 million tonnes of coal being moved without the use of a navigational aid provided by the Canadian Coast Guard.

Canada Steamship Lines specifically has made great investments, as have all Canadian-flag companies, in this particular system. We are the world's largest owner and operator of high-tech self-unloading vessels, maintaining offices in Montreal, Boston, Winnipeg, Halifax, San Francisco, Mexico City, Rio de Janeiro, London, Singapore, Tangshan, and Shanghai.

When I say ``high-tech vessels'', these truly are high-tech vessels, known as ``self-unloaders''. They literally carry discharging equipment in the belly of the ship so little or no port infrastructure is required. In fact, there are many places in the world where we can literally unload products right onto a beach.

I've included a brochure for your information. You will see this is technology that was pioneered by Canada Steamship Lines in 1925, with our first coal vessel, named the Collier. There is a picture of that vessel on the inside cover.

If committee members flip to the second-last page of the brochure they will see a diagram, a cut-away, of a self-unloader. It explains how those operate.

As I've said, we've invested a good deal of money in this technology. As a matter of fact, we have gone to the next generation of this technology. We have three Panamax-size ships on order, and they even improve on this specific technology. It is something Canadians can be proud of. It is a technology we have exported literally around the world. However, oddly enough, we find it increasingly difficult to compete on the Great Lakes, where the technology was invented, and we'll find it even more difficult as greater government fees are imposed.

We're a little concerned about the coast guard's message of cost reduction. In fact, when we analyse their numbers, we see the reductions are actually quite small.

In our industry, just three years ago there were six bulk-commodity shipowners on the Great Lakes. Today there are three. Canada Steamship Lines was forced to cut its overhead by 50% in one fiscal year. The government's proposal is to cut 14% of their costs over a six-year period. We don't find this fair, equitable, or nearly aggressive enough.

To close, I noted that during Question Period the Minister of Fisheries was quite emphatic in stating that no decisions on cost recovery had been made. I can tell you Canada Steamship Lines, along with our customers and competitors, met with the head of the coast guard last Tuesday and last Friday and was told quite emphatically by him that $20 million would be imposed in this fiscal year and $40 million in the next. In fact, stated the commissioner of the coast guard, it would take a cabinet decision to undo this.

The Chairman: Mr. Smith.

Mr. Smith: The first thing I'd like to do is to give you some background perspective on why our concerns have developed. I'm going back to the initial stages of this cost-recovery process, back to April 25, 1994.

This started under the auspices of the Minister of Transport. The minister, Doug Young, then responsible for the coast guard, stated that coast guard commercialization required a progressing series of three efforts: one, the coast guard must become efficient in the delivery of services; two, the coast guard must work with industry in assessing the types and levels of services needed; and, three, a cost-recovery fee structure would be developed with industry to pay for those assessed services.

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We were supportive of the minister's clear understanding of the issue and that pragmatic approach.

In May of last year the Standing Committee on Transport released a comprehensive study on the marine industry in Canada. The commercialization of the coast guard formed an important component of that study. The coast guard last week referred to specific recommendations in that report and suggested that they had met most of those requirements.

However, he did not mention two key ones that we feel have not been met to any extent at all.

One is that recommendation 23 from that report said that no cost-recovery program should be implemented until the coast guard has clearly identified its costs for services and the future levels required and demonstrated that it has its costs under control and is down to being the lowest-cost operation possible.

Recommendation 25 said that the coast guard and users should proceed jointly, as rapidly as possible, to reduce the number of aids to navigation through the introduction of new technology and equipment, and then consider commercialization of the remainder.

In this context our members and the industries we represent supported the report and the initiatives. But these commitments have gone by the wayside. The coast guard has been transferred to Fisheries and Oceans, and since that time arbitrary revenue targets and dates to get those revenues have been announced.

Since that date, the focus of the coast guard has been on getting that money and getting a revenue-generating tool. Mr. Thomas, in his testimony to you last week, admitted that two-thirds of the efforts of the Marine Advisory Board process had been dedicated to developing a cost-recovery mechanism.

I have a few slides I'd like to put up.

There's nothing magical about this; it's in your package. It illustrates what the industry thought it was getting into when we embarked on cost recovery. I have some numbers in there. They're illustrative except for the first number at the top, which is $97 million, which is the amount of cost the coast guard has identified for aids to navigation that are provided to commercial shipping.

So what that graphic is attempting to show is that in a parallel process there would be an effort by the coast guard and industry to rationalize the services and remove obsolete and redundant assets, thereby reducing their costs. Further, they would identify the services needed and industry would accept certain levels of service.

We would also introduce technology and optimize the cost of providing the service. At the same time, an impact study would be conducted, a total economic impact assessment. Those parallel activities would come together and determine how much money would be appropriate to recover and what kinds of services industry had agreed were needed and were prepared to pay for.

My next slide demonstrates what we think has been happening. You'll see there that what happened was that, in a parallel but unconnected process, the coast guard arbitrarily identified revenue targets of $20 million in the first year, $40 million in the next two years, and $60 million in the fourth year.

We believe they have not done any kind of economic assessment yet and therefore there's no connection of the economic impact to the revenue targets.

Very little effort has been made to optimize service, to identify the services that industry needs and is prepared to pay for, or to determine what the costs will be when they finally get their house in order. So what we see is a process that's been focused on revenue generation.

The last item in terms of perspective is that there's a Treasury Board guideline relating to the development of user fees. It says that before implementing fees departments must conduct an assessment of the impact of charges to ensure that there are no unintended effects, including the impact on domestic and international competition.

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We have discussed with Treasury Board the position we have put forward to the coast guard, and they agree with the majority of our position.

In our press release, which you have and which was produced jointly with seven other organizations, including SODES, the Canadian Shipowners Association, the St. Lawrence Ship Operators Association, and others, we outlined four major points we felt needed to be done.

The first was to undertake an independent assessment of the socio-economic impact of all fees imposed on industry, with industry assisting in the terms of reference and the funding of the study. So we're prepared to pay for some of this activity. We think it's very important that industry be at the table at the very outset of this study so we have an appropriate agreement that when the results of the study are completed it will in fact have looked at all the economic factors that are relevant.

The study that has been done to date, the IBI study, if I can call it that, we contend is not an economic impact study. It was a survey, relating fees to the commodity value. It did not look at price sensitivity or margins. It did not look at the competitive situation of the industries affected.

The consultation process was severely flawed. We looked at lists of members of ours who were supposedly contacted, and the contact involved a phone call to ask, are you aware we're looking at these methods and we're going to make a proposal at some of the consultation? Others were asked to pick one of the three methods that had been on the table. They weren't asked to discuss whether this had severe economic impacts for them.

We think it's imperative the coast guard do a detailed study before they implement these fees.

There are just a few other things that weren't done in that study. Particularly, and Mr. Thomas has acknowledged this, we need to look at all the fees that are going to be charged to the marine transportation sector, not just the coast guard fees. The coast guard has identified cost recovery for nav-aids and ice-breaking, but they are also going to be charging for dredging, in a different form. Port charges are going up. A number of factors are there to affect the competitive position of industry, and we feel all of this needs to be looked at.

Regional effects have not been studied. There's been no assessment of what can be afforded or if in fact there's a net benefit to charging for these services. By that I mean will there be a decline in business on the Great Lakes from which the coast guard is trying to recover money.

We haven't looked at the impact of differing rates on different parts of the country. We haven't looked at the impact of charging only cargo originating in Canada or destined for a Canadian port. Lots of traffic on the Great Lakes uses nav-aids but doesn't touch a port in Canada.

The current proposals are much larger than the impacts that were even purported to be studied in the original study. We had a member write to the minister from the Quebec Cartier Mining Company, indicating that the study they looked at - now they are seeing charges three to eight times higher than the ones they were asked to comment on six months ago.

Mr. Thomas has said he's confident the $20 million won't bother anybody, but in fact the proposal he's put forward has closer to a $30-million impact. Because he has a short period in which to collect the money, the effective impact is more like $30 million. I don't know how he has confidence it's not going to have an impact.

Mr. Thomas also has trivialized the amount of money he's collecting by suggesting it's one-thirtieth of 1% of the cargo value that transits Canadian waters. I can't speak for all the cargoes that transit Canadian waters. Mr. Sirois has given you some information in his slides. Let me just tell you that just for the Canadian fleet operating on the Great Lakes and the St. Lawrence River the impact is 18 times higher than that, and we have members of my organization that have a much bigger impact than that. Mr. Dufresne of Quebec Cartier Mining has mentioned that it's 8 times. We have members who move stone and aggregate; the impact is 30 times what Mr. Thomas has claimed. The salt impact will be 15 times what Mr. Thomas has said. My associate here in this year will have a bill of something like $400,000 added to his costs of moving salt. The steel companies will incur bills of $500,000. In many cases they are not going to get one service at all, but they're going to pay $500,000. Ontario Hydro will be hit with a $300,000 to $400,000 bill and will receive very little service for its coal run across Lake Erie.

.1555

You may or may not be aware of this, but Ontario Hydro has agreed to a rate freeze for the foreseeable future, at least five years. So they, like many of our other members, will not be able to pass these costs along in their prices.

The second point we made in our press release is that an assessment of services is required for the safe and efficient movement of ships through Canadian waters to ensure that only those services will be paid for. The coast guard continues to suggest that they are charging the industry only for services that are provided. What we suggest is they should be charges for services that are needed, not those that the coast guard is prepared to provide or says it provides.

We have requested that a marine services client group be formed. What we see here is a coast guard, as a service provider, that's in a monopoly position, charging a consumer for services, when what we're looking for is consumer protection.

We haven't seen specific services identified and costed. It's a very generic approach. Total costs are allocated broadly across regions. No options have been identified to give users a choice of how to get or to replace a service.

In fact, Mr. Thomas recently told us that their costs were not specific enough to allow one of my members to do his own ice-breaking or provide his own navigation aids and see any change in the fee that he was going to be charged under this marine services fee. In other words, it's so general that even if you were in a position to opt out, you would still be charged.

The third point of our press release asked us to find the least-expensive way to deliver the services, including looking at the option of privatization; in other words, removing the obligation from the coast guard to provide the service or bear the costs.

This is where I want to put up some more slides and talk about a different perspective on what the coast guard have been telling you and telling the minister and the public about their dedication to reducing their costs.

This graph displays cumulatively the savings the coast guard has identified in its budget for the next six years. Without getting into great detail, they are going to save $550 million, and they've told everyone who will listen that it's a tremendous achievement. At the same time, their total budget for that period will be over $4 billion. That's a 14% reduction in their costs over six years.

Every industry that we represent has been dealing with much more difficult problems than that.

The next slide shows the annual changes in costs. Mr. Thomas disagreed with me when I characterized their cost-reduction initiatives as petering out, but, as you can see, the numbers at the end of that period, in the last three years, are truly trivial. They're $10 million a year; they are 1% of their budget in those years.

This is just a graph that shows those cost reductions as percentages of their budgeted costs. It's all in your book. Because we're short of time, I won't belabour it.

The last thing we've asked is that there be developed, in partnership with the coast guard, a fair and equitable cost-recovery formula with an opportunity for a formal right of appeal. This comes under the heading of consultation and whether we can in fact believe and trust that there's an appropriate process. Right now the process is voluntary and represents a broad spectrum of people at the Marine Advisory Board but no one else. We have no control over future revenue targets or the fee structure. We have no control over the services used or provided. We have no assurance legitimate concerns will be acted on.

.1600

We've heard Mr. Thomas say this experiment, this process, this first $20 million he wants to put in, is a one-year experiment; he'll look at impacts and he'll adjust. The same week he told a meeting of the executives of the Canadian Shipowners Association and some of my members that in fact, as Mr. Sirois has said, the only way $40 million won't be the fee next year is if the minister seeks approval from cabinet not to put that fee in place.

So on the one hand he assures us it's an experiment. On the other hand the truth is we'll have to go through every lobbying effort, every influence effort, we can make if we are not satisfied that $40 million is the number. There is no process, there is no partnership, for consultation with the coast guard. We have no assurance alternatives will be offered or allowed.

The Chamber of Maritime Commerce has offered a constructive and productive option to the coast guard to work with. So far we haven't had any takers.

I've put up a slide there, and it's in your package. Our proposal has been characterized as something that gives control over the coast guard or the government to us. What I have there is an example of a precedent that has existed where in the gazetting of the rates there was also an agreement to a process for how those rates would be reviewed, how costs would be reviewed, in partnership with the industry involved. This happens to be related to veterinary drugs, but it's something that's very similar to the proposal we have put forward to the coast guard. What we're looking for is a better consultation process, with some teeth in it.

What is my membership prepared to do in this issue? We have outlined in our press release the four bullets we want: an impact study before implementation, plus the three points related to identification of costs, reduction of costs, and development of an appropriate fee.

Mr. Thomas has said we're just stalling. On Friday I offered Mr. Thomas a proposal that would in fact conduct those four steps in partnership with industry; the impact study in parallel with a detailed cost review. I offered that we would commit to schedules and implementation dates such that industry couldn't stall. We would do whatever we needed to do, including setting up an arbiter to resolve disputes in a timely manner, if that's what it came to, if he would give us the opportunity to do this in an appropriate manner. That also was not accepted.

In conclusion, we are concerned with the proposed implementation in 1996. We feel a much more in-depth assessment is needed before we agree to any cost-recovery scheme. We need to focus the coast guard on cost reduction and identification of the services needed. We need a means to ensure industry is at the table in the future, because it's one thing to be looking at $20 million, it's another thing to be looking at $40 million, $60 million, and beyond, without an appropriate partnership between industry and the coast guard.

The Chairman: Just before we go to questions, members of the committee, I'm at your disposal. We had a whole hour devoted to this presentation. We've gone a little over that now. If we want to continue with a round or more than one round of questions, it's up to you.

Mr. Scott (Skeena): I think we should have at least one round.

The Chairman: Mr. Bernier, go ahead.

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[Translation]

Mr. Bernier (Gaspé): Mr. Smith, I apologize for being late. After the brief sitting in the House, I had a few points to settle. Mr. Rocheleau has fortunately taken good notes since the start. I am going to ask a first question which Mr. Rocheleau will complete within the 10 minutes that are allotted us.

First of all, I would like to thank the President of the Chamber of Maritime Commerce for presenting us a brief. I thank him as well for attracting the general public's attention when the debate started up again after the Christmas holidays. If they had not sounded the clarion call in La Presse and the various media, the Standing Committee on Fisheries and Oceans would perhaps have spent a little more time addressing the matter.

I thank you and the other members of the industry whose remarks we will be hearing.

You told us that the document we have in hand was filed with the Commissioner, Mr. John Thomas, last Friday and that you have not yet received an acknowledgment of receipt. Was no comment made either by Minister Mifflin or by Mr. Thomas? Is that what I am to understand?

[English]

Mr. Smith: No, and if I misled you, I apologize.

We submitted that proposal, or a version of it, in December of last year and followed it up with a minor amendment early this year.

We have received a response. First it was acknowledged that we had sent it, and then we received a letter from the minister basically saying that in his view the consultation process through the Marine Advisory Board had been satisfactory and that there was no need to look at the issues raised in our proposal before cost recovery would be implemented.

Last Wednesday the group of eight companies that raised the alarm about this issue issued a joint press release, wherein we made four key points that we feel are critical before cost recovery can take place. In response to Mr. Thomas's position that all we were doing was stalling, I offered to turn that four-point proposal into a definitive schedule for implementation, with commitments by industry, so we could not be accused of dragging this out and not being cooperative. That part of it is what Mr. Thomas has not accepted as a valid position at this time.

[Translation]

Mr. Bernier: Earlier you spoke of regional impacts. I know that you can't include everything in the proposal, but I would appreciate receiving a set of examples on paper, if you have a few, for the benefit of all committee members.

You said earlier that, in certain places, this could represent an impact 20 times greater than what the proposed navigational aid would cost at the present time. Once everything is compiled, the impact could be 20 times greater. I would like us to be able to receive concrete examples if your members can provide them. That would be a great benefit for the members of this committee and also for the press here present, which could give figures to the public.

[English]

Mr. Smith: We would like to give you more concrete examples, and we will undertake to provide those. Of course you are going to hear from a number of our members two weeks from now, in further hearings, where they will be offering up their particular concerns as these affect them.

Mr. Sirois is offering to give a specific example at the moment, as well.

Mr. Sirois: If you will refer to the map in your package, I can show you the impact this will have on the north shore of Quebec, for example.

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Canada's largest integrated steel-maker, Stelco, based in Hamilton, a customer of Canada Steamship Lines, has the option of moving iron ore from Sept-Îles, Quebec into Hamilton. They also have the option of moving U.S. iron ore from Duluth, Minnesota into their plant at Nanticoke. The marine services fee on Quebec and Labrador iron ore will be roughly three times the marine services fee on U.S. iron ore moving from Duluth to Nanticoke.

That is an example of a regional impact. This fee makes it far more attractive for Canada's largest steel-maker to consume U.S. iron ore than Quebec iron ore.

The Chairman: Mr. Rocheleau.

[Translation]

Mr. Rocheleau (Trois-Rivières): First, I would like to congratulate you, Mr. Smith, you and your team, for your efforts. As we also told the witnesses yesterday, I find one needs a certain amount of courage in the face of the ``serenity'' of Commissioner Thomas, who came to testify last week and who received congratulations, in particular from the parliamentary secretary, for the ``marvellous'' work that he had performed to that time.

The two witnesses we have met to date have expressed considerable dissatisfaction. There is an enormous and obvious difference between the Commissioner's opinion on the matter and those of users.

You did not speak on one of the aspects of the issue, that of a regional tariff as opposed to a uniform tariff from coast to coast. Where does your association stand on this issue? That is my first question.

My second is much broader and will perhaps inspire my colleagues. Suppose that we are not here today. Suppose that you have not expressed your attitudes and your dissatisfaction and that we bear away.

Cuts of $20 million are imposed this year and $20 million next year. When we reach $60 million in a little while from now, what will happen to the competitiveness of Canada's economy, in particular that of the St. Lawrence, which is a particular concern of ours, and the Great Lakes? What scenario could we imagine for increasing the awareness of the government, the Commissioner and the Minister once and for all?

So I have two questions: the uniform tariff and the regional resources and effects that there would be if we did not address the matter. This is a hypothetical situation.

[English]

Mr. Smith: The first one is around uniform tariffs.

We have not argued for a national fee. In fact, many of our arguments would support a more regionally based fee when a fully implemented and thought-out process was developed.

I'm not trying to be dodgy here, but we think a regional base allows you to look at the very specific services offered and the need for them and to drive those costs down. So it may well be that in the end the amount of services offered in the Great Lakes and on the St. Lawrence may be driven down dramatically below what they are currently said to be by the coast guard, and that might be different from what they do on the west coast and the east coast. So we think in the end the right way to go is to attack the specific costs of the specific services. However, the pace at which this is going and the arbitrary nature of the revenue requirement that's being put in place, with the fact that there has been no attention to cost reduction in specific services, raises a concern for us about the regional impact being different with the proposal that sits on the table today.

A very good example of that - I can't translate the B.C. option that's been put on the table exactly, but I believe for a tonne of grain exiting Vancouver it will work out to something between 4¢ and 5¢ a tonne on grain. For a tonne of grain exiting Thunder Bay, that number could be as high as 30¢ a tonne. Since we're in the very early stages of implementation, it's not clear to me that we should accept that kind of a difference until we know whether that difference is in fact going to have an impact on grain movements on the Great Lakes, east-west or to another transportation corridor.

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So my organization is basically saying that the proper way to go about this is to get at a very specifically oriented delivery of service in the area you work in and receive the service. But we are concerned that the early implementation, as it's done at a very non-specific level, is going to create regional disparities, and we would argue that in the interim -

Our argument is, don't implement it yet. But if they're going to implement, then we are concerned about those regional differences. We think it's premature to introduce those.

I've almost forgotten the second part of your question.

[Translation]

Mr. Rocheleau: If the process continued unopposed, what would be the scenario in economic terms? What would its impact be?

[English]

Mr. Smith: I don't know, and we need to have that impact study done to find the answer to that.

We are concerned about it, though. The impact will be very different for different industries, and we think it really needs to be looked at.

Certainly the iron ore industry, which exports great quantities of iron ore, will have a competitive disadvantage. We don't know what that will translate into in their business, but they're worried about it.

Until you actually have industry participating in the study, really looking at it, we won't know the exact answer.

Mr. Scott: I'd like to thank Mr. Smith for coming here, and the people who are with him, and tell him as honestly as I can that this has to be the best presentation that has ever been made to this committee. It is concise, to the point, and underlines the point you're making, which is that the coast guard is concerned about cost recovery and revenues without looking at its own way of doing business and without proper consultation with the industry.

As a former business person, when I listen to your presentation it makes me really angry - and it probably makes other people around this table angry - that we have this intransigent bureaucracy that is unwilling to move.

It's incumbent upon this committee - and I'm sure there are members around the table who would agree with me - to ensure that the commissioner for the coast guard will take these concerns seriously. This is because it's not just the shipping industries and the shipping lines that are going to be hurt; it's going to be the companies and the industries that are actually producing and shipping product. A lot of jobs are at stake. There's a big downside, and right now it's all sitting on the head of the commissioner for the coast guard.

You covered the gamut pretty well. You talked about the fact that there are movements on the Great Lakes that involve the use of Canadian shipping aids, aids to navigation, but that never land at a Canadian port. I don't know if you will be able to answer this, but is that a significant volume? Is there a significant usage of Canadian aids to navigation without any stopping at Canadian ports?

Mr. Smith: Mr. Sirois would like to answer that one.

Mr. Sirois: If you will refer to your map, a significant number of tonnes of steel slabs, or semi-finished steel, would be brought in from the ARA, that being the area of Amsterdam, Rotterdam, and Antwerp, going into Hamilton and Chicago. Then that semi-finished product is finished and is sold generally to auto makers.

If you were to bring a tonne of slab from Amsterdam into Chicago, because you're not stopping at a Canadian port, although you've used navigational aids all the way up the St. Lawrence Seaway system, you would not pay the marine services fee. If you were to bring that same tonne of slab into Hamilton, you would. You're then putting Canadian steel companies at a disadvantage relative to the American steel companies, even though you've been transiting Canadian waters.

Mr. Scott: Mr. Smith, you've said that, given that a process was adopted that reflected your concerns in the four points you've raised with Mr. Thomas, the commissioner, if that was followed and you felt confident that you were actually going to have a regime you could live with, a cost-recovery proposal you could live with at the end of the day - Am I correct in understanding in your response to this gentleman's question that you see a more port-specific way of determining that cost and collecting those revenues, as opposed to fees that are broader in scope and more regional or national in character?

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Mr. Smith: I'm not sure I would go so far as to say it would be port specific. A lot of the services are out there in the lakes and in the river. You could go to a number of different ports. It's more that we could focus on what we really need. Our sister organization, if I may call it that, the CSA, the Canadian Shipowners Association, has estimated they could do without 80% of the floating aids in the Great Lakes and the St. Lawrence River, for example. It's more of that kind of very specific thing.

When you get down to designing the right fee, our organization has been criticized because we haven't come out and said we like one of the methods that have been offered. One of the difficulties we have - and I gave a very brief rundown of the impacts on some of the industries we represent. Not to make the answer too long - You have a stone industry that moves stone around on the Great Lakes, perhaps cement on the Great Lakes, salt on the Great Lakes. We have wheat moving from Thunder Bay all the way down to Quebec City and beyond. How do you charge those people equitably for the fee?

There are those who would argue the further you go, the more you should pay. There are those who would argue the more valuable your cargo, the more you can afford to pay. If you do it on a broad cents-per-tonne basis, then the fellow who's moving a $5-value product takes an awful beating. It really hurts his competitive position.

So we have undertaken that we are going to have to sit down with all our shippers and carriers and figure out what we would do to come up with an equitable system, when and if we get these other issues dealt with.

The Chairman: Mr. Gouk.

Mr. Gouk (Kootenay West - Revelstoke): I can understand some of your frustrations. I come from the other side of this. I'm actually the transport critic. I've met many of you in that particular area.

It's rather ironic that government generally - and I don't mean the Liberals when I say this - laments the amount of lobbying that's done, yet it creates a bureaucracy that requires companies to lobby. They have no choice. We're creating the need for that.

I also understand your frustration when you talk about the need for an economic impact study and can't seem to get that. I've talked to Transport Canada on another reduction they were going through, with the air traffic control system, prior to privatization. I asked to see a copy of their cost-benefit analysis, and they informed me they hadn't actually done one; they were doing it on an intuitive approach. I guess they're using something like that on you.

I have a position I've taken on ports and user-pay. It's that they should pay, but pay only for what they use. They should use only those things they require, as decided by them, and then they should pay for those things, on a commercially fair and reasonable basis; in other words, what industry would likely provide those things for.

In keeping with that, I would like to ask if you have looked at or would consider looking at either completely taking over the services provided by the coast guard or, at the very least, doing a fast study to determine at what price you could provide those things, using that as a comparison for the fees you're getting charged by the coast guard.

Mr. Smith: The short answer is yes, we would. I'm not so sure we would want to run the entire coast guard in this country, but on a regional basis, for the kinds of services we're talking about at this point, navigational aids, that is something we think should be considered as an alternative to this continued process.

Mr. Gouk: Are you prepared to go ahead with a fairly fast study to determine if you are prepared to take them over, and to generate from that what you believe are actual costs to operate that system if you were to run it?

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Mr. Sirois: It's very, very difficult to get actual cost numbers out of the coast guard. As a carrier we trade vessels all the time. Vessels trade on time. You hire a vessel by the day and you pay by the day. It's known as a ``time charter''. In asking the coast guard what it would cost us to time-charter or to lease, if you will, vessels from them, they couldn't give us a price.

Mr. Gouk: In terms of nav-aids and nav-aid servicing, though, do you require coast guard vessels, or do you have other vessels available to you that could be utilized for that?

Mr. Sirois: No. We would require coast guard vessels as buoy tenders. Those are very specialized.

Mr. Gouk: This is more of a comment than anything. You mentioned the disadvantage that certain companies, steel mills in particular, were put at because there is no cost recovery from U.S. ports. What about an additional cost penalty they would have if the coast guard is recovering all their costs, not only collecting money from the Canadian side and not the American side but taking the cost of the benefits they are providing to the American side? I assume that's being built into their operating costs, which they are then asking you to pay for.

Mr. Smith: That's quite correct. In fact, we're not exactly sure of what the volumes are, but Mr. Hall, when he's before you in another hour or so, I believe would tell you that on the Great Lakes, U.S. lakers, which transit the same waters and use some of the aids, would carry in excess of 100,000 tonnes of cargo a year. The allocation of cost the coast guard has currently identified for the Great Lakes and St. Lawrence is based on a cargo of about 120,000 tonnes. So your point is absolutely correct.

Whether we charge them or not, if you include those tonnages in the allocation, the amount of cost they would charge the Canadian fleet would be somewhat lower. We understand it's a complicated issue actually to charge them, but we think you should at least identify how much of those costs -

Mr. Gouk: And take them out.

Mr. Smith: Exactly.

The Chairman: Mr. Culbert, sharing with Mr. Wells.

Mr. Culbert (Carleton - Charlotte): Welcome, Mr. Smith. I listened very closely to your comments, and certainly your written presentations. I had an opportunity to read them while other questions were being asked. I'm going to touch on four or five things. Because of the time element, perhaps you could just make note of them.

I too was very interested in the competitive situation as it existed with our Great Lakes ports and the situation with U.S. competitors as it exists today.

The other thing is I wondered if you were familiar with Mr. Thomas's statement of March 15, in which he indicated two studies would be undertaken: first a comprehensive impact analysis, and second, a study to look at the cumulative impact of cost recovery on communities in the whole industry. Of course that being said, I would want to point out that I believe what he was suggesting would be done during the first year, after implementation of the first phase.

The other thing is I want to be sure I understand correctly - Your comments suggested that on the Great Lakes basically no navigational requirements would be provided for the fees that were going to be charged, or required for the fees. I assume that would include things such as ice-breaking and the whole gamut of things provided.

The other thing is I wonder if you could explain to me what is meant by ``formal right of appeal'' in your fourth comment.

Finally, the types of studies you are proposing for the first year of the program, or Mr. Thomas proposed for the first-year program - if I understand correctly, you agree with those types of studies, but your point of view is they should be done up front, prior to any implementation.

I know those are quite a few things.

Mr. Smith: Let me deal with the last one first. Yes, I believe they should be done up front, before implementation. The situation of competition with U.S. suppliers is pretty complex, but in fact many of the people we represent, people who are part of our organization, are in competition with U.S. suppliers of the same product. Mr. Hamilton is in competition with U.S. suppliers of salt. Not only are they not faced with coast guard costs, they are not faced with some of the other costs that are coming along on the Great Lakes.

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He may want to elaborate on that.

There are many instances of that. Recently I saw a statement that the employment situation in Canadian cement was dependent on being able to export cement to the United States, and if their competition doesn't have these costs, then that's another hurdle they have to cross. It's those kinds of things that are out there.

I'm aware of Mr. Thomas's position on the study that needs to be done. Again, our position would be that we think it should be done first, particularly since there are many other fees that could affect marine transportation and the viability of parts of the industry. Even more importantly, we don't think he should have another study done by economic groups and government agencies without industry being at the table right off the bat, developing the terms of reference and making input.

Quite frankly, many of our industries feel quite sensitive about their information on prices and competition and their profitability, and if they're not part of the original terms of reference, then they'll probably be reluctant to provide that information. So you'll have done another study the results of which industry won't buy into.

So that's important.

If I misled you by saying that no one on the Great Lakes is benefiting from navigation aids, I apologize. What we meant to say or demonstrate is that unless you get specific about this, or get something that's acceptable even though people don't get some service, there are key commodities and movements where no services are provided, but, given the way the process has gone to date, they're going to get charged for them anyway.

The example we raised was Stelco and Ontario Hydro moving coal across Lake Erie. Quite frankly, if and when we get ice-breaking, they might have to pay for that if they move coal in winter months, whether they receive any ice-breaking service or not. This is a great concern to us.

I think those organizations - because I am here speaking for them - would be prepared to pay some reasonable fee, but it's certainly going to cause difficulty when you get on the one hand the coast guard saying, ``We've been very specific; you're paying only for what you use'', and on the other hand a shipper saying, ``Gee, I don't think I can make that run in my pleasure boat - or I can jump on a CSL boat and ride across the lake and I don't see any buoys. I don't see anything that's helping me here. Yet I'm going to pay $500,000 a year for that privilege?'' It's a concern.

For the general good, they might be prepared to agree to something, but it's when you get into this thing -

There are many instances in which they receive no service or very limited service but the bill will be quite substantial.

But the vast majority of shippers on the Great Lakes will receive some benefit from navigation aids.

Mr. Wells (South Shore): Thank you for your presentation. It is much appreciated. I think it clarified some of the questions we may have had.

I'll perhaps clarify, though, the minister's response in Question Period that you mentioned earlier. He didn't say today that the $20 million would not be collected. It has always been a given that that is the intention. He didn't contradict that today. What he said was that there's no final decision on the method and he will not decide on the method of collection until these hearings are completed. So that should be made clear.

I want to clarify something. You're not objecting to cost recovery generally, then, because your brief stated that you accept that premise. I think you said that you agree with the regional rate concept. Is that something you do agree with, the three regions as far as the rates are concerned?

Mr. Smith: What I said was, yes, we support cost recovery and we believe that in the long run you should get specific about the areas in which you receive the service there. It shouldn't be a matter of one person paying for something that somebody else gets.

We're not quite ready to say that we buy the three regions that have been identified, but generally that's narrowing it down and we think that's the right way to do it. I believe we have some difficulty, which Mr. Hall will talk about in his presentation, with the three regions but the Canadian fleet being charged for services in both regions.

The Chairman: One short one for Mr. Comuzzi to finish.

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Mr. Comuzzi (Thunder Bay - Nipigon): I thank you, Mr. Chairman, for allowing me this opportunity, and I thank my colleague.

Mr. Smith, with what we've heard here today, the message screams out that with the inequities we're going to create through the proposed cost recovery, with the inequities that will be created with our American friends, this Great Lakes and seaway system has to go to our binational panel, if for nothing else then so we maintain an equal footing. Do you agree with that?

Mr. Smith: I certainly feel that issue has to be looked at, yes.

Mr. Comuzzi: Well, do you agree? It just seems as if we're going to be paying for ice-breaking and putting buoys in - I know the American arm of the St. Lawrence Seaway has its own tenders to do this. They don't rely on the coast guard, and they've offered us that service on a gratis basis. Why the hell aren't we accepting it? Why aren't we getting into the negotiating process so there is no inequity between the American ports and the Canadian ports when it comes to, as Jean-Paul says, bringing in steel from Amsterdam? It just doesn't make any sense why we wouldn't.

Mr. Smith: There are a number of those issues that could be dealt with, and we would like to see them dealt with, yes.

The Chairman: Thank you very much. Our other witnesses have been very patient. Mr. Hall doesn't know we're going to be breaking for a vote before we talk with him.

I want to thank you, Doug, for coming in. Your presentation, in tone and content, is quite different from what we've heard in the past. We'll be meeting with other members of your organization over the next while to refine your points.

Mr. Bernier wants to present a point of order.

[Translation]

Mr. Bernier: I'll try to be brief as we change witnesses. I would merely like to remind you that the last sitting that we held may not have ended in a suitable manner for everyone. I would invite you, Mr. Chairman, to reread the ``blues'' from the last assembly.

The purpose of the point I am raising is to have it recognized that the opposition's rights were violated and that the wording of the proposals and amendments was not clear. I would ask you to reread the ``blues'' and to check with the clerk or any other person you consider qualified as to whether the procedure was correctly followed or not and, if it was not correctly followed, what procedure will have to be used when other incidents of this kind occur.

I don't intend to start a political debate on this point since the House today settled the problem that had arisen. However, I would like this technicality clarified for the benefit of all committee members. If you wish to rule only at the next sitting, I will be satisfied, unless you are prepared to do so now.

[English]

The Chairman: Mr. Bernier, I have discussed what happened yesterday with our clerk. He's our parliamentary expert. Some mistakes were made in how your motion was dealt with. I think in the future we'll take our time. We'll take more time to deal with these things. If possible we'll have the motions translated and sent around to all members so there will be no misunderstanding in the future.

I think how it ended up was the same as you wanted it to end up. It was just the getting there. I think you had a problem with how we got there.

In the future we'll take more time. I will take better advice here and we'll slow it down for you.

[Translation]

Mr. Bernier: Good. I nevertheless expect, Mr. Chairman, that you will reread the "blues" and clearly establish the proper procedure. I know it should not have been done while the witnesses were being heard. I took advantage of the changing of the witnesses to raise this point of order. I would nevertheless like you to come back to it when we have the time. Thank you.

[English]

The Chairman: Good. Thank you.

Mr. Richard Gaudreau and Mr. Marc Gagnon of the St. Lawrence Economic Development Council, welcome to the committee. You may begin your presentation immediately. We have only 40 minutes before the bells go. We'll try to get you dealt with before that time is up.

Mr. Henri Allard (President, St. Lawrence Economic Development Council): Thank you very much, Mr. Chairman and members of the committee, for having invited us to make a presentation. I believe we were informed last Thursday or Friday that we should present the views of SODES members.

We have prepared a short brief in French, which I'm going to read in that language. Of course, if any member of the committee wants to have explanations, I'll be very pleased to answer any questions in English.

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We are not coming with precise figures on the whole fee system, but we have limited ourselves to the principles behind the scheme proposed by Mr. Thomas and the eventual consequences of that.

[Translation]

Mr. Richard Gaudreau (Council Chairman, St. Lawrence Economic Development Council): The St. Lawrence Economic Development Council has been in existence since 1985. It is a non-profit corporation grouping representatives of all sectors of the St. Lawrence marine community. Its mandate is to promote and protect the economic interests of the St. Lawrence.

SODES' membership is varied. It is not an organization that necessarily exists for the defence of ship owners' interests. It is an organization that exists mainly to defend industries that need the St. Lawrence as a means of transportation and a means to realizing their commercial objectives.

To prepare this brief, SODES conducted an extensive consultation of the representatives of the St. Lawrence shipping industry, particularly carriers and shippers, to determine their reactions to the Coast Guard cost-recovery initiative.

We emphasize that our position was developed in close cooperation with the representatives of the river-related industries, the aluminum, pulp and paper, logging, mining and petroleum products industries that regularly use the St. Lawrence. There must be an awareness of the importance of these industries for the economy, not only those of Quebec and Ontario, but of the entire country as well.

Owing to circumstances of which you are aware, the representatives of these industries will not be able to heard this week before your Committee despite their willingness to testify.

The groups and individuals that we represent are greatly concerned by the fact that the Government of Canada has adhered to an accounting approach and is attempting to impose a cost-recovery formula before assessing its effects on the competitiveness of Canadian industry and without taking into account its importance for the country as a whole. They are also very much concerned by the fact that the government is acting in accordance with a timetable that makes it impossible to make an informed decision.

I wish to emphasize, Mr. Chairman, that the work of your committee is of great importance. The question that you have to consider, and you will no doubt understand this as you hear the witnesses, is very broad and complex in economic terms. Thus, although your committee is in a rush to hear the witnesses, it has an extremely important job to do, in our view.

Reducing Canada's deficit: First, it is important to clarify one fundamental point. SODES is not opposed to the principle of recovering a portion of the Coast Guard's operating costs. On the contrary, we are entirely of the view that the industry must contribute to reducing Canada's deficit in the same way as other taxpayers. However, before having a recovery method imposed on it, the industry demands that it be able to ensure that that method is fair and equitable and that any negative impact on its activities is as limited as possible.

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From the outset, SODES is certainly not opposed to cost recovery, but its position is that no tax or fee must be imposed without very thorough impact studies or a study of the consequences of such a fee on the industry being conducted.

Risks for the St. Lawrence: I would now like to describe some factors that show how important it is that all the necessary precautions be taken before imposing a recovery initiative that could undermine our industry's competitiveness and make shipping on the St. Lawrence uncompetitive relative to other maritime systems.

The St. Lawrence is a transportation system that benefits the Canadian economy as a whole, not only its immediate region. Furthermore, it accounts for about 30 percent of Canada's trade with overseas countries.

To fully play its role as an interior waterway in the service of Canadians' domestic and international trade, the St. Lawrence must be able to rely on an effective ice-breaking system.

These elements are essential to our promotion offshore, and a number of shippers that have set up on our shores rely on this service to maintain their use of the St. Lawrence. To benefit from this advantage, Canada must be able to rely on ice-breaking service that makes it possible not only for carriers to ship their goods to foreign markets, but also to prevent ice jams from causing floods that result in extensive damage to surrounding areas.

An important aspect of the ice-breaking service is that it is an essential service for purposes entirely different from the purposes of assisting commercial navigation. Ice-breaking service has always been offered on the St. Lawrence by the Canadian Coast Guard because it is a service provided to Canadians.

Increasing the cost share of St. Lawrence carriers and shippers during the winter to finance ice-breaking services will make the St. Lawrence less competitive. The situation will result in a loss of traffic not only, though mainly, in winter, but rather 12 months of the year because shippers and carriers want a stable situation and must be able to provide their customers with service at regular prices.

Shippers: The St. Lawrence is a transportation route used by many businesses that import and export industrial goods in large quantities. These businesses represent thousands of jobs on both sides of the St. Lawrence and constitute the core of the Quebec economy, which is based to a large degree on the exploitation of natural resources.

They have chosen to set up on the banks of the St. Lawrence because they rely, among other benefits, on the availability of shipping rates low enough to maintain their competitiveness against their international competitors.

The Coast Guard's new policy constitutes a change in the ground rules that will set up a major barrier to the St. Lawrence's position as a factor in locating industries in the future. The departure or closing of a single one of these major industries on the banks of the St. Lawrence would be enough for Canada to lose much more in economic and tax impacts than the gains sought through cost recovery.

Cumulative effects: In its cost-recovery approach, the Government of Canada has shown a serious lack of overall and long-term vision. The Coast Guard is acting as though it were the only body to increase its revenue from the Canadian shipping community. However, this is far from the case. This is definitely one of those issues that cause the greatest fear for the future of our industry.

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The Canadian Coast Guard's cost-recovery initiative comes at the same time as the ports reform. Although it is far from complete, this reform will necessarily have an impact on port fees, since all ports will henceforth be responsible for covering their expenses.

To do so, they will have no other choice but to charge their customers higher rates. Cost recovery also comes at the same time as the Coast Guard is abandoning responsibility for dredging navigable waters, as it has always done in the past.

Regardless of who takes on responsibility for it, the dredging bill will have to be submitted to users and will be added to other increases. If we add to that the commercialization of the St. Lawrence Seaway as well as the reform of the pilotage system and the probable cost increases as a result, we can entertain serious fears about the future competitiveness of our transportation route. And that's not counting the effects that the decline in traffic that will no doubt result will have on rates.

For all these reasons, we are extremely concerned about the cost-recovery policy as it has been presented. I now come to the recommendations that we would like to make to you and which, we hope, will help resolve the current impasse.

First, SODES very strongly recommends that the Coast Guard adopt a national cost-recovery approach. The Coast Guard must not yield to the temptation to split the country into various regions and even different sub-regions, in order to develop a billing system because, no matter the arrangement decided upon, it will not be possible to guarantee fairness in the system and there will be endless requests for exemptions.

Canada's marine regions must be treated on an equal footing. Citizens from all regions of the country are entitled to receive marine services, and these services require the Coast Guard must intervene in order for these services to be provided. One region's geographical conditions must not be considered as grounds for imposing a greater financial burden on it than on other regions.

The approach recommended by SODES is based on the existence of a national maritime network. A uniform rate must prevail which will allow us not to encourage our international partners to favour one region to the detriment of the others. The Coast Guard's legitimate wish to increase its self-financing and to have the shipping industry take part in reducing Canada's deficit must not automatically result in a change to the principles of fairness on which the Coast Guard must operate.

As a result of the proposed system, there will have to be an incalculable number of exceptions. There is currently talk of three major regions, but, within each of those regions, there are specific overall characteristics that will have to be taken into consideration and there will be an ever-increasing number of special arrangements. If we truly wish to apply the user-pay concept in full, there will be an enormous number of exceptions, which will lead to a tax that is extremely difficult or costly to collect and an ineffective system.

Recommendation 2: SODES recommends that the Canada Coast Guard continue and even step up the process of rationalizing its costs and services. When the Canadian Coast Guard announced its intention to proceed with the rationalization of its operations, industry representatives accepted its invitation to work with it to reassess its services as a whole.

SODES' position is and has always been that the Coast Guard must complete the cost and service levels reduction process before moving on to the cost-recovery stage. However, it is the general view in the shipping industry that the Coast Guard is still far from having made all possible reductions to both services and management.

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The industry must be able to participate fully in this process, the ultimate objective of which must be to reduce services to a specific level corresponding to the industry's needs and their costs to the lowest possible level.

Recommendation 3: SODES recommends that the Coast Guard accept the principle of linking cost-recovery objectives to the savings realized through rationalization. The Coast Guard has announced that, even if it manages to reduce its costs, the savings will not be used to reduce the objectives of recovering $40 million over two years and $60 million between 1996 and 1999. At best, but there is no guarantee, this could help prevent the recovery rate from increasing. This approach is not logical because it entails no incentive to encourage the Coast Guard and the industry to cooperate in reducing operating costs and rationalizing services.

We believe that the government must change the approach it has adopted to date and allow cost reductions to be used to reduce cost recovery targets. In other words, the savings realized by the Coast Guard through, among other things, the industry's cooperation and, potentially, privatization should be deducted from the cost-recovery bill.

Recommendation 4: SODES recommends that the Coast Guard adopt a one-year transitional measure designed to recover the $20 million planned for the fiscal year commencing in 1996. This transitional measure could be based on the application of a uniform tax throughout Canada on ship movements in Canadian waters. This method has the advantage of maintaining the system's fairness by applying the objective of making the shipping industry take part in reducing Canada's deficit to all businesses and regions. The recovery method should be weighted so as not to penalize very frequent users.

A few explanations on recommendation 4: SODES would agree to having the sum of $20 million be recovered by the government, but the government must not, because it is in a rush to recover its costs, embark on a taxation system that would be unfair and fail to take into account the consequences that such a tax could have on the industry and on the economy in general.

Thus, if it is absolutely necessary that $20 million be recovered now, the government must comply with the fundamental principle that is always observed in taxation, that is that the tax must be equal for everyone, and any necessary exceptions will be made subsequently.

However, instead of relying on a uniform basic rule and possibly making the necessary exceptions to it on the basis of regional needs, the specific needs of an industry or the consequences that the tax could have on the competitiveness of certain Canadian industries, Mr. Thomas takes into account a certain number of exceptions, which will necessarily increase the number of exceptions. He will never be able to make such a tax cost-effective and everyone will be unhappy.

The economic and political objectives will thus not be achieved.

Recommendation 5: SODES recommends that the Coast Guard agree to cooperate with the industry in having an independent economic impact assessment conducted by experts. It is absolutely necessary that this study be conducted before a final cost-recovery method is imposed on the Canadian shipping industry.

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In other words, when we know where we are headed, we will establish a taxation or cost recovery method that will be fair. But less us wait to see where we are going and, in the meantime, as in any other field of taxation, let us adopt a uniform rule. Then we will see about introducing exceptions if necessary.

The Government of Canada will have to contribute to this study and it will have to wait to learn the impact before making a final decision on the Canadian Coast Guard's cost-recovery objectives and method.

SODES is asking to cooperate with the Coast Guard in defining the parameters of this study, which must focus on the economic impacts of cost recovery and on the cumulative effects of the various existing and future federal rate structures on the industry. The studies in question must be conducted independently by one or more firms with expertise in this kind of analysis. In order to ensure the process is credible, the industry is prepared to contribute to its funding.

In other words, for such a study to be truly conclusive and for its conclusions to be accepted by everyone as far as possible, it will be essential that the industry take part in establishing its objectives and its parameters and take part in its development so that all parties subsequently feel more bound by its conclusions. In this way, we have a chance of developing a better system.

In conclusion, we believe that forcing a regionalization of the country is a dangerous precedent that could have serious consequences for Canada's future. This initiative violates the operating principles that Canada has always complied with in the past.

The Coast Guard is requiring that the industry immediately accept a cost-recovery method and principles, whereas too many factors in this matter remain unknown. We do not know, for example, what recovery levels will be established when the annual amounts sought are larger and when ice-breaking costs also have to be recovered.

Obviously, $20 million does not seem to be an enormous amount, and it is certainly not an enormous amount compared to the Coast Guard's total costs. However, we are talking about $20 million at the outset. In one year, the figure will be $40 million, then $60 million and, when we reach that point, we will have recovered only a portion of the recoverable costs. Thus, if the door is opened to a taxation method or to fees that are not fair - Everyone could agree to submit to an unfair method for a matter of only $20 million, but, in 10 years, the amounts involved may be enormous and the problem will be even greater.

The stakes are too great to make final decisions precipitously and without conducting all the evaluations that are absolutely essential if we are to avoid very serious consequences. For this reason, SODES firmly requests that the Government of Canada suspend its plans to adopt definitive cost-recovery measures starting in 1996, as it has announced its intention to do.

In order to make a positive contribution to this effort as a whole, SODES has, together with industry representatives, established a working committee on navigation on the St. Lawrence. Its mandate is to establish the actual needs for navigational services of the St. Lawrence marine community by analyzing the services actually provided by the Coast Guard. We hope that the resulting proposals will help the Coast Guard reduce its operating costs in the Laurentian region. The Coast Guard's regional authorities, moreover, have been informed of our effort and our actively cooperating in it.

SODES is also working with the Quebec Ministry of Transportation developing a study on the economic effects of the Coast Guard's cost-recovery initiative designed to identify the sensitivity levels at which there is a risk of losing traffic on the St. Lawrence.

Lastly, given the little time that we had to prepare this presentation, we ask you Mr. Chairman, to permit us to appear again before your Committee in a few weeks to make a presentation containing more statistics on Mr. Thomas' proposal as he explained it to you last week.

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So if that is possible, we would be available to complete the work that we are submitting to you because we consider it is a very important matter.

I am now at your disposal to answer your questions.

[English]

The Chairman: Thank you very much, Mr. Gaudreau.

Mr. Bernier.

[Translation]

Mr. Bernier: For the benefit of the committee members here present, I would like to have you confirm the following remarks. In your conclusion, you ask the government to suspend its final cost-recovery proposal. However, in your proposal 4, you explain that it is possible, as a transitional measure, to apply a one-year tax that could be equal or at least fair for all ships navigating in Canadian waters.

Mr. Chairman, the people of the industry are even providing, and this is the beauty of this effort, for a weighting method that would make it possible to reduce this tax for infrequent users. I wish to draw your attention to it.

The second point that I wanted to emphasize ``because this is the beauty of the SODES proposal'' is that, in its proposal 5, the industry is proposing to assist the government in establishing the parameters of the study that the government will have to conduct. It proposes an agreement between the industry and the government.

Furthermore, Mr. Chairman it is important to repeat what the industry stipulates in its proposal 5, it is even prepared to make a financial contribution to the conduct of this investigation. I would ask Mr. Gaudreau to confirm it because I want these remarks to be heard by the Minister and all the members here present.

Mr. Gaudreau, if you please.

Mr. Gaudreau: I confirm, without any doubt, that the industry would be prepared to make a significant financial contribution to these impact studies. We have said so in writing, we are saying it, we have said it and we repeat it, after consultation with the industry: this much is certain.

Now the SODES position is to ask the government for a moratorium on the tax or fee proposal as presented by Mr. Thomas. We are not telling the government to wait one year before recovering anything. We are telling it not to recover this $20 million amount under the proposed arrangement which makes no sense. We are telling it that it does not know where it is headed, that it is taking risks and that it may perhaps endanger the international competitiveness of extremely important industries. The $20 million figure may perhaps be only peanuts compared to what the Canadian economy could lose, but we propose that the government await the findings of thorough studies before deciding on a taxation method.

In the meantime, it should apply the fundamental rule in the field of taxation, that is the rule of uniform taxation for any movement across the country. Of course, we are prepared for there to be an exclusion for Canadian ships, which could be taxed on an annual basis, for example, so as not to penalize them relative to foreign ships, but we propose that the same rule apply everywhere in Canada.

Mr. Bernier: Thank you, Mr. Chairman.

The Chairman: Mr. Rocheleau.

Mr. Rocheleau: I congratulate you, Messrs. Gaudreau and Gagnon, for the quality of your presentation and your report. I am very impressed by how clear it is, given the short deadline that you had.

I have a two-part question. How do you react to Mr. Thomas' claims that he has rationalized the Coast Guard's operations by deciding to reduce expenses by $133 million over five years? Do you find that credible? You must have read the document. Do you find it credible?

.1710

Second, what do you answer to what was reported in La Presse on Wednesday, March 20, concerning the stormy meeting held in Montreal? When questioned on the uniform Canadian tariff, the Deputy Minister, Mr. Thomas, answered:

It would be unfair, Commissioner Thomas stated in an interview: ``A uniform tariff for the entire country would mean that the west coast would be subsidizing shipping trade on the east coast, in short, the competition, Montreal and Halifax.'' Mr. Thomas stated that his formula would cost Ontario and Quebec users about 15 cents per tonne on average, only one cent more than the uniform tariff they are claiming.

How do you react to this claim that the regional tariff would cost only one cent more than a national tariff?

Mr. Gaudreau: Your first question concerned the credibility of Mr. Thomas' remarks on the rationalization of the Coast Guard's costs.

As I mentioned, we have set up a committee to study the services offered by the Coast Guard and the rationalization of those services.

As a preliminary remark, I would say that obtaining specific figures from the Coast Guard on the cost of ice-breaking services, for example, is an extremely complex problem. The accounting principles applied to government expenses are quite different from those used in the industry. It is therefore difficult to obtain figures on which we can rely to determine whether those services are provided at the lowest possible cost. For example, we were given the figures on the costs of maintaining such and such a kind of buoy, and so on.

However, a preliminary study has been conducted and Mr. Thomas has it in hand. It is a thorough study. It very quickly concludes that, with a few changes in ice-breaker operations, it would be easy to save about $80 million a year. Relatively simple measures could be taken immediately to reduce costs very appreciably and to provide a better structure for the essential services that must be given.

Your second question concerns the difference between the services provided by the Coast Guard in the west and those provided in the central part of the country, that is Quebec and Ontario, as well as in the east.

Mr. Rocheleau: Mr. Thomas said that the west was favouring the competition.

Mr. Bernier: The west does not have to pay the additional costs that the central part of the country pays.

Mr. Rocheleau: That is correct.

- the west coast would be subsidizing shipping trade on the east coast, in short, the competition, Montreal and Halifax.

Mr. Gaudreau: That is taking a very short-term view. First, if we want to apply the user-pay principle ``which is what Mr. Thomas recommends'' we must apply the principle as a whole, that is to say ``user pays and user says''. According to this principle, if you pay for services, you have the services you request at the lowest possible cost.

At present, Mr. Thomas is telling us that the Coast Guard spends 48 percent of its budget on the ``east inland''. There is no way of checking these figures, but let us assume that they are true - and I have no reason to doubt it. What services do we need in the central region of the country? Don't we have more than we need? Are they properly administered? We don't know.

Once the study has been conducted, perhaps we will discover that we need only 20 percent of the services. Why pay for 48 percent by applying Mr. Thomas' principle? There is no relation between the taxes or fees and the services. How do you want this to operate? He says that central Canada uses 48 percent of the services and so we are going to charge it 48 percent of the costs. However, we are not entitled to examine them and demand those we want. In this case, we will reduce them to perhaps 15 percent, 20 percent or 30 percent of total services.

.1715

[English]

The Chairman: Mr. Scott, please.

Mr. Scott: I want to thank you very much for your presentation. I think there's a lot we are in agreement with you on. There are a couple of areas where I disagree with you.

First of all, I can't think of this as a tax. I certainly agree the way the coast guard has approached this to date has been wrong. The people who presented before you made that abundantly clear, and much of your presentation is just agreeing with what they said.

But I must say, coming from British Columbia and representing a riding that does have two major ports within my riding, the principle of ``user pays and user says'' must be adopted. I'm just making the point that it's unfair for ports in one region of the country to end up subsidizing or cross-subsidizing other ports that may require more services and may require more navigational aids from the coast guard. I heard that point of view expressed in Halifax as well, when I was there a couple of months ago.

I just want to make that point with you. Yes, we have to get to user pays, user says. We have to go through the rationalization of the coast guard to ensure it's efficient and it's only providing services that are actually required. But at that point I think you would agree with me we are at a stage of true user pays, user says, and the particular ports requiring those services should pay for them.

Mr. Gaudreau: The problem with the application of the user-pay, user-say concept is the following. Either you apply it or you don't apply it. If you do apply the user-pay, user-say concept, the requirements for navigational aids, ice-breaking, etc., are different for virtually every port in the country.

On the west coast, where both ports are on the ocean, the two major ports you are talking about, maybe fewer services are rendered by the Canadian coast guard. Maybe you are in a very special geographical situation. But if you take ports on the Saguenay River, ports on the Great Lakes, ports in Newfoundland, in Nova Scotia and New Brunswick, on the St. Lawrence River, each of them has a different geographical position and different needs. So it will be impossible. The tax would be so complicated that every company, every port, would be taxed on a different form.

What you are aiming at - and I think you will agree with me - You certainly agree with cost recovery. Cost recovery means, on the bottom line, a tax less what it costs to collect the tax. Then you have a bottom line, and everybody agrees $20 million is the bottom line.

What I'm saying is if we have a tax that is different for every part of the country, we may end up collecting $20 million, but the cost of recovering the tax will be extremely high. Nobody will be happy. There are too many differences all over the country.

.1720

In the meantime, until we can have a reasonable, profitable taxation system for the marine cost, we are saying let's apply a uniform rate all over. Let's make the studies, and then we may end up having a profitable scheme or system.

Mr. Scott: We'll just have to agree to disagree, I suppose. I'll turn it over to my colleagues.

Mr. Gaudreau: You may disagree, of course.

Mr. Gouk: I can agree with a lot of what you said. I think the coast guard is moving in a general direction that ultimately may end up with something that is fair and workable, but it's very premature to be implementing it at this time.

As my colleague did, I have to take issue on the national tax, as it were. As I'm sure you're aware, on the west coast Vancouver has to compete with Seattle and Portland. They have already lost potash shipments out of Vancouver to Portland. It's very competitive; as little as a dollar a container can move it from one country to the other, on both the east and the west coasts.

If we had a geographical anomaly in this country - and God forbid this, because I'm from B.C. - whereby B.C., the west coast, in particular Vancouver, was frozen up for three months in the winter and required massive ice-breaking and Montreal was in the banana belt and required no ice-breaking, would you be sitting here suggesting that you are prepared to pay part of the cost of Vancouver's ice-breaking?

Mr. Gaudreau: It could be.

The potash, for example, that you were shipping out of Vancouver originates from where? From the prairies?

Mr. Gouk: From the prairies and B.C.

Mr. Gaudreau: If the port of Vancouver was ice bound and nobody in the rest of the country wanted to pay for the de-icing of the western coast, then our friends in the prairies would not be able to sell and ship the potash outside of the country.

What you need to look at are the consequences of deciding not to offer certain services.

Montreal or Toronto deciding that they won't contribute, or pay for the cleaning of the ice on the west coast, if it was possible, would hurt the producer of the potash, to use your example. That would hurt a company from the middle of the country, from the prairies.

I won't say that it is narrow-minded, but it is short-sighted to say, ``If we don't have this need, we won't pay for it'' or ``If we don't have that service, we won't pay for it''. The problem is a lot broader than that.

Read section 3 of the National Transportation Act, which was certainly never read by Mr. Thomas. That section gives an idea of how the national transportation policy should be dealt with, and one example of that is potash.

Mr. Wells: I have a copy of the brief. I don't have an English copy. Is there an English copy?

Mr. Gaudreau: No, we didn't have time to -

Mr. Wells: Okay, that's fine. I followed most of it.

I'm having trouble in reading your recommendation 3. My French is not very good. If you could help me with it -

While you're doing that, the only other question I have is this: when you recommend a uniform national rate, can you tell me the method and the amount you would propose? I'd like to have more specifics on what you're proposing when you talk about a national rate.

.1725

Mr. Gaudreau: What we are proposing is a flat, uniform, rate for every ship movement in Canada, without making any difference because of the size of the ship, the amount of cargo, etc. Of course there should be a cap at both ends, presumably, in the sense that ships below a certain number of tonnes should not be participating. We propose a flat, uniform, rate for every ship movement in Canada, for every ship that is calling at a Canadian port.

Mr. Wells: What would that rate be? Have you calculated that?

Mr. Gaudreau: No. We are not putting down any figure.

Of course this should be part of a study, but we are saying that Canadian-registered ships should be taxed on an annual fee.

Mr. Wells: You're saying in item 4 that you want to adopt a transitional one-year measure to raise the $20 million - so you're accepting that we will raise the $20 million - with a flat, uniform, rate for every ship movement, but you can't -

Mr. Gaudreau: We have not quantified it. That flat, uniform, rate was proposed by Mr. Thomas for the west coast. A flat, uniform, rate was proposed for the west coast.

Mr. Wells: That's fine.

Mr. Gaudreau: So I'm saying that a similar rate should be applied all over.

Mr. Wells: If you can help me with recommendation 3, I will be grateful.

Mr. Gaudreau: Recommendation 3 is that there should be a link between the tax and the saving of costs by the coast guard itself. In other words, if the principle of user pay, user say was to be applied, then the level of tax should, to a certain extent, be influenced by the savings that the coast guard may make in cleaning its own house, in reducing its own costs.

Mr. Wells: I understand. I just had trouble with the translation, that's all.

Mr. Culbert: Thank you, Mr. Gaudreau, for being here today and for your presentation.

From the presentation you made, my understanding is that you agree with the theory of cost recovery or at least cost recovery of a portion of the costs involved in Canada's coast guard. If that were not the case, who would you consider should absorb that cost? I hope it is not the taxpayers of Canada.

The other point is if these services, as provided by the Canadian Coast Guard, were provided commercially, with the user paying those costs, is it your feeling that they could be done more efficiently and more economically than perhaps is the case now? I took it that you were at least suggesting that.

The other point was on your proposal that a national approach or a uniform rate should keep all the regions on the same level. So you believe that there are cost advantages from dividing the costs on a national level with all regions contributing to that and, from that perspective, it would benefit the St. Lawrence region.

Finally, you recommended, as previous presenters did, that the impact study should be carried out prior to decisions being taken. I understood from an answer to Mr. Bernier's question that you're certainly prepared, or the various bodies in this industry are certainly prepared, to participate financially in that study.

There are four or five questions there. Perhaps you can touch on all of them at the same time.

.1730

Mr. Gaudreau: One of the important questions you have raised is if it is our impression that the services actually rendered by the Canadian Coast Guard would be less expensive if they were to be privatized, or rendered by private enterprises. It is evident that the application of a user-pay, user-say concept and the study of the actual operations or management of the Canadian Coast Guard, and of its ships and buoy systems, will lead to dramatic changes in the way in which the coast guard operates now, and will certainly lead to the privatization of several of the coast guard services and to an important reduction of costs.

Were the other points you raised questions? I think they were just comments on our own recommendations.

It is for sure that the services of the Canadian Coast Guard would be much less expensive if certain of them were to be privatized - and certain of them should be privatized.

To give you an example, the ice-breakers that are serving the Gulf of St. Lawrence and a part of the St. Lawrence River are based down east, in Halifax, and they are operated, crewed, by Halifax residents, or whatever. They are operated from Halifax, but they serve the gulf and a part of the St. Lawrence River.

If those services were to be privatized one day, then maybe, instead of having six or seven ice-breakers based in Halifax, a private company would base one ice-breaker in Sept-Îles. Of course a lot of cost would be saved.

The Chairman: Thank you very much.

Our time is running out. The bells are ringing.

We have to deal with two things before we leave.

We'll hear the Canadian Shipowners Association at 6:15 p.m.

We will consider your request to return to the committee and let you know.

The last request to the committee is that the Chamber of Shipping of British Columbia have asked to come back in the morning. They didn't expect that we would be going over time; they had made other plans. Is it agreeable to the committee to hear B.C. at 9 a.m. tomorrow, and we'll hear the department at 10 a.m.?

Some hon. members: Agreed.

The Chairman: We'll see you at 6:15 p.m.

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.1821

The Chairman: I call the meeting to order.

Our next presenters are Mr. Norman Hall and Captain Réjean Lanteigne from the Canadian Shipowners Association. Welcome to the committee.

I expect there will be more members coming in. I assume the Reform Party will be coming back because they have a motion we want to deal with.

You have a written brief, so maybe we'll begin and the members can pick it up as they come.

Mr. T. Norman Hall (President, Canadian Shipowners Association): Thank you, Mr. Chairman. As you can see, our paper says ``good afternoon'', but I guess it's now good evening to all of the members of the standing committee. We sincerely appreciate your agreeing to hear from us on this very important issue, namely, the marine services fee for coast guard services.

With me is Captain Réjean Lanteigne, manager, marine operations, who joined us from the coast guard last summer. He has a certain amount of inside information here that's helpful.

A voice: It's funny you should hire him.

Mr. Hall: The best defence is a good offence.

While we appeared before this committee last November together with the Chamber of Maritime Commerce with respect to Bill C-98, the Oceans Act, we appreciate the fact that the make-up of the committee has changed. We congratulate you, sir, on your appointment as chair of the committee and express to you and your associates every good wish in your new responsibilities on the important issues that will face you in the months and years ahead.

I might mention that the presentation appears to be a bit on the long side. We thought we should give you some factual information. Second, with all due respect, I know that many of you are from the west coast or the east coast and really don't know the Great Lakes-seaway system that well.

First, I thought it might be useful to give you a very brief review of the history of the CSA. The association has been in existence since 1903, and I should mention right away that despite what you might hear from my detractors I was not one of the founding members. It was incorporated as the Dominion Marine Association and the name was changed to Canadian Shipowners in the latter part of the 1980s when the whole concept of a dominion seemed to disappear.

Currently we have 12 members operating 96 ships under the Canadian flag, with Canadian crews, and five ships operating under foreign flag in worldwide trade.

We are primarily carriers of bulk commodities such as grain, ore, coal, salt and petroleum products, to name a few, although some of our members are engaged in the movement of general cargo and containers. Our area of operations includes the Great Lakes-St. Lawrence system, the Maritimes and the Arctic.

The following tables will give you some historical data on both the volume of commodities moved by our members and changes in the fleet. I won't waste all of your time. You can read this at your leisure. But as you can see, we move a substantial quantity of cargo. The 1995 numbers aren't quite ready yet. I suspect they'll be about the same, if not somewhat higher than 1994. We seem to have turned the corner after many years of moving downhill.

The second table gives you a breakdown of the ships. It's a ten-year profile so you can see that from 1986 to 1995 the fleet has decreased by 30 ships. Again, I'll leave it to you to read the tables in detail.

Marine service fee, the recent history.

This is the third attempt in the past ten years at imposing some form of cost recovery. The first attempt in 1985-86 was poorly researched and flawed. Following considerable representation by the CSA and others, it was dropped. In 1990-91 there was a second attempt, and at that time there was more research carried out in developing a user fee formula and more resolve on the part of government to impose a user fee no matter what the consequences were for Canada's domestic and international trade.

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Industry groups from across Canada banded together and hired a consulting firm to develop a response to the proposed cost-recovery plan. The major flaws in both of these past attempts were a lack of proper consultation with users, the lack of any serious attempt by the coast guard to examine and reduce levels of service and associated costs, and, most importantly, the lack of any socio-economic impact analysis to determine whether or not the economic benefits of implementing a cost-recovery policy outweighed the cost to the Canadian economy as a whole.

We attach as appendix A a copy of the covering letter of the industry response report dated January 31, 1991, which was addressed to the then Deputy Minister of Transport, Madame Huguette Labelle. It summarized industry's concerns, which were the impact analysis and the need for the coast guard to get its act together. Again I'll leave you to read the letter that is inside the folder at your leisure. It's a very thorough letter, done well by the firm of KPMG Peat Marwick Thorne.

The 1996 edition of marine services fee.

Here we are five years later and we're facing yet another attempt at implementing some form of marine service fee or user fee. We can see that the coast guard did listen to industry's 1991 concerns in some key areas.

First, there is greater consultation with users. Their main advisory board, the MAB, was created in 1994 to assist the coast guard in determining the levels of service required by commercial marine users of such services. The MAB, of which I am a member representing Canadian flagship owners' interests, consists of some 22 persons representing shippers, shipowners, ports, ferries, fishery, pleasure boaters, and union interests from coast to coast.

Second, the coast guard is now seriously attempting to reduce costs and become a more efficient and effective service. A major example is the amalgamation of the coast guard fleet with the Fisheries and Oceans fleet. This is a recommendation we made five years ago with little success.

There is no question that there is duplication of services and unnecessary costs to the taxpayers. It is only the sudden awakening to the reality of Canada's serious deficit situation and the current government's resolve to bring it to heel that forced those protecting their respective empires to look at the bigger picture. Regrettably, however, the coast guard has failed to pay heed to the most fundamental requirement of imposing a marine services fee, and that is a proper, professional and independent impact analysis.

The marine industry stressed this point ten years ago in our brief of February 1986 and again in 1991. The so-called impact analysis carried out in the fall of 1995 was in fact more of a survey than an in-depth impact analysis. Many key users were not consulted to begin with and, second, the numbers used, i.e. the level of the proposed marine services fee, were well below what is being contemplated today.

As you are well aware, the coast guard is to collect fees on an escalating scale commencing with $20 million in 1996, $40 million in each of 1997 and 1998, and a further $60 million in 1999. These are numbers picked out of the air. They are not in any way related to or associated with anything specific other than recovering a portion of the costs of navigational aids and ice-breaking.

The CSA acknowledges the exhibits contained in the discussion paper of March 13, 1996, which I believe Mr. Thomas presented to you earlier. Total costs of services subject to cost recovery by a marine service fee are $263 million for aids and $130 million for ice-breaking. Those costs being allocated to commercial shipping are roughly $98 million for aids to navigation and $83 million for ice-breaking.

Ice-breaking fees will not come into effect until the 1996-97 ice period. An MAB subcommittee is reviewing ice-breaking costs, the beneficiaries of such services, and the form of cost recovery. The $20 million in fees being sought in this fiscal year will therefore be applied solely to navigational aids.

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While admittedly $20 million is a small portion of the cost of navigational aids allocated to commercial users, the total fees proposed to be collected over the next four years - that is, $160 million - amount to 88% of the total cost of nav-aids and ice-breaking allocated to the commercial users. The MAB is a long way from determining what services the commercial sector really needs for both nav-aids and ice-breaking.

The homework is not finished. With proposed new electronic navigational aids, the current costs could be reduced significantly over the next two to three years.

Thus in our opinion this rush to impose a $20-million fee is putting the cart before the horse.

Mr. Rocheleau: Is it possible for the witness to slow down a bit?

Mr. Hall: Sorry about that. I just didn't want to take anybody's time in case you're all going to the Senators' game. I hear others are going.

This is further reinforced by the coast guard's admission that last fall's so-called impact study was limited, thus prompting two more studies to determine the true impact of marine service fees as well as the cumulative impact of cost-recovery measures in other areas, for example pollution response fees, dredging, port, and harbour fees. These studies are due to be completed this fall.

The original implementation date was supposed to be April 1, 1996; next Monday. Because of continuing refinements and a desire to seek greater consensus, the coast guard is now looking at a June 1 date, if that is legally possible.

Thus to collect $20 million over the shorter period, the annualized revenue target is $28 million, or a 40% increase, which artificially inflates the rate per tonne for user fees. As we all well know, taxes or government fees rarely go down. Thus the benchmark is established for 1997.

The impact on the Canadian-flag fleet. I have a sentence to add here.

In Mr. Thomas's testimony last week, the numbers he was using really only covered the deep-sea fleet, the foreign-flag fleet. There was no real mention of the domestic fleet, and there was a lot of talk about this 1¢-a-tonne difference. The formula for domestic-flag is not the same as foreign-flag. We can get into that in questions.

The vast majority of the CSA fleet cargo tonnage is carried between April 1 and late December; i.e. in the St. Lawrence Seaway season. If the implementation date is June 1, we are then forced to pay our share over seven months, which further inflates the rate per tonne.

When we first examined charging options late last fall, the rate per tonne was less than 8¢. The latest scenario increases that figure significantly, depending on the particular trade. I now cite the report given by the coast guard on March 13, which says the rate to generate the domestic-flag fleet share of $28.1 million is $4.48 per gross registered tonne. GRT, for your information, is the measurement of the size of the ship.

The following tables demonstrate the cost of this latest proposal. I divide it into three groups: bulk vessels, which are flat-decked ships, used primarily to move grain and iron ore, grain one way east and ore one way west; self-unloaders, which are self-discharging vessels, more expensive, somewhat larger, involved in many trades; and there is an awful lot of short-haul trade across the lakes. We probably cover more than 90% of the cross-lake trade with the United States. The tankers are much smaller.

So the GRT is there. It gives you the size of the ship, which is how the fee is to be charged. Then I show you the cargo capacity of each of these classes of ships, and this is an average all the way through. So you can see what the annual charge per ship would be under this latest proposal.

The next table shows you what the cost per tonne would be for the cargo. I should mention, as I said before, that we operate only nine months of the year. If the collection season, because the implementation date is stalled - that means we cannot move what we normally would move in a full seaway navigation season.

.1835

If you look at the column covering bulk ships, 600,000 tonnes is probably the maximum we could move in the course of nine months, i.e. April 1 to late December. We might be able to go to 650,000 tonnes in some cases. If they're lucky and they get good turnarounds they might even go to 700,000 tonnes, but that's roughly the maximum.

If we start only on June 1 and if there are any problems at all with delays in cargo, that suddenly jumps from 13¢ to 20¢ and if it gets down to 200,000 tonnes - if I were a ship operator, I probably wouldn't bring the ship out if it were that low - it comes to 40¢ a tonne. The same applies across the board to the self-unloaders and the tankers.

As I mentioned, since the self-unloaders tend to have shorter runs they can move as much as one million tonnes in the course of a full year, but not in the course of a six-month or seven-month year. So the cost would tend to be on the lower scale of cargo, not on the upper scale of cargo.

Second, it should be noted that for the tankers - 400,000 tonnes is about the maximum a tanker can move in the course of a full year - an oil spill response charge is being implemented. It is $1.85 per tonne in the Great Lakes and 45¢ a tonne east of the Great Lakes. That's why I put the note in.

As may be observed, the shorter the collection period, the higher the cost per tonne. Further, these costs do not reflect any cargo shortfall. For example, if the movement of grain, which is very important to us, was interrupted due to poor sales or poor crops, it would have a very serious impact on the rate per tonne.

The concept of an annualized rate to cover the later implementation is therefore seriously flawed, particularly for the Canadian domestic fleet. Experience demonstrates that there is normally a very heavy demand in the late fall to ensure export cargoes are delivered and inventories are in place, particularly at the steel companies, to cover them over the three-month closure of the St. Lawrence Seaway during the winter.

The seaway route is not the only option open to shippers. The system competes with rail movement in certain trades, the west coast alternative and the southern route, either all rail to New Orleans or rail and barge via the Mississippi. Shippers closely monitor transportation costs via these competing routes. When we are dealing with hundreds of thousands of tonnes of cargo, a few cents a tonne can add up to a significant gross saving.

A recent article dated March 14 in the Manitoba Co-operator, a Manitoba grain trade paper, quoted a senior official with the Canadian Wheat Board saying that a direct rail movement from Winnipeg to Quebec City, thus by-passing Thunder Bay and the seaway, is a promising alternative route that the board is exploring to reduce transportation costs to farmers.

As a result of the recent privatization of CN, I am convinced that sooner or later CN and CP will revisit the concept of running only one main line between Winnipeg and Montreal. This would provide substantial economies of scale.

Another article referred to the proposed new grain elevator at Roberts Bank in Vancouver. Grain executives suggest, and I quote, ``that the greatest risk or greatest downside is for Thunder Bay and the Great Lakes''.

The southern route, or the Mississippi option, is always there. Much depends on U.S. domestic demands for cargo movement. If that demand falls, barge rates fall and the route becomes competitive with the seaway.

Another factor often overlooked is that shippers who can use the U.S. option are also looking at a 70¢-plus Canadian dollar. Thus, any new charges imposed on the system must be sensitive to the possible diversion of cargo to other modes or other routes and the impact that may have on the whole Great Lakes-St. Lawrence infrastructure of ports, shore facilities, jobs and the Canadian fleet.

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Financial profile.

While the general public, on seeing these large ships serenely sailing past, may believe any company that can afford such ships must be wealthy and profitable, I suggest they disabuse themselves of such notions. The fact is the fleet is shrinking. Companies have disappeared and new corporate alliances have formed to reduce costs.

The various unions have been most cooperative in assisting management to cut costs and remain viable. Crew sizes have been reduced and wage demands in recent years have not been excessive.

No new ship has been built since 1985. Most of the fleet was built in the decade following the opening of the seaway in 1959. Thus overall the fleet is approaching an average age of thirty years.

Because we operate in fresh water primarily, steel deterioration is not as prevalent as in salt water trading. However, over the next ten years decisions will have to be made on fleet renewal or fleet upgrading. The last I heard, a replacement vessel could cost in excess of $50 million, depending on the type of ship ordered.

A major problem facing the domestic fleet is the limitation on size imposed by the dimensions of the seaway locks. The ships are limited to roughly 736 feet in length, 76 feet in breadth, and 26 feet 3 inches in draft. Why the seaway fathers did not build a larger seaway or match the Panama Canal, which by the way was built in 1910 and can accommodate ships of 45,000 tonnes, I don't know. But at a cost of over $5 billion for a new seaway, I certainly won't see it in my time.

The U.S. domestic Great Lakes fleet has ships 1,000 feet in length, 105 feet in breadth, and capable of carrying 65,000 tonnes. However, they are landlocked and can operate within the Great Lakes region only as far east as Lake Erie.

Our problem therefore has to do with the unit cost per tonne. Apart from doing some of the things mentioned above, we can still carry only so many tonnes per trip. Over time, costs increase. The consumer price index is the barometer used by many in negotiating costs and contracts, be they with unions or customers. As opposed to other modes - the railways can add more cars or can double-stack, as in the container trade; airlines buy larger planes; and trucks are now pulling two trailers instead of one, thus reducing unit costs - we cannot. Every penny counts if we are to maintain our competitive position.

Over the last number of years there have been constant increases in government charges: pilotage fees, port and harbour fees, government inspection fees, seaway tolls - although I confess they have been frozen for the past few years. All this negates what we have been trying to do internally.

For years the CSA produced a confidential financial profile of the dry cargo fleet. We had to discontinue this report as a result of the amalgamation of different companies and fleets, which, because of the reduced number of companies, breached confidentiality guidelines. It wouldn't take a rocket scientist to figure out what the other guy was doing.

However, I present the following excerpts from the last financial statement, covering the years 1983 to 1992.

The first is the aggregate income statement. You can see there that over the past ten years there have been three years when the companies made a profit.

The profit in 1991 is a bit misleading. If you will observe, interest costs dropped considerably. That was due to reorganization. We had the bankruptcy of one company. Therefore the interest disappeared from the numbers.

I should also mention that if you want to examine it carefully, you really have to look at the number of operating days, because as you can see, those also vary. In the last year, 1992, they were down to less than 18,000 days versus over 20,000 the year before. If you divide the various cost elements by the days, you get a true idea of what happened.

The second graph shows the income after taxes as a percentage of revenue. I'm not so sure anybody would want to invest in the shipping industry if they saw these kinds of results. A return of 0.04% is not much.

.1845

The third is working capital. You can see that over ten years in only one year were we above the line. In every other year we were below the line. People ask how you manage to keep on doing that. You borrow more. That's exactly what happened.

As mentioned, both in this paper and from Mr. Thomas, the Marine Advisory Board consists of 22 members from coast to coast representing all sectors of the industry. Time does not permit a review of the many meetings since the MAB was formed in May 1994.

In brief, the MAB was created to assist the commissioner in determining the levels of service required by the marine industry and to assist in reducing the cost of operating the service in concert with the government's program review mandate generally to reduce the federal deficit.

The commercial users group - that is, the shippers and the shipowners - agreed that it was willing to cover a reasonable share of costs attributable to the commercial sector. However, the emphasis had to be on cost reduction.

It soon became clear that the two areas that required immediate attention were the cost of navigational aids and ice-breaking, as these greatly impacted on commercial shipping.

As navigational aids represented close to 50% of the operating budget, $265 million, we felt they offered the greatest potential for cost reduction. The shipowner representatives formed regional working groups, both on the east coast and the west coast, to determine how savings could be achieved. It was soon determined that if we invested in state-of-the-art electronic navigation systems, we could dispense with between 50% and 80% of existing floating aids, at a saving estimated in the tens of millions of dollars.

It is not just the buoys themselves, but it is the cost of the ships, the buoy tenders, and the shore-based supporting infrastructure that services them. In the east this is substantial, as they are removed every fall to avoid ice damage and then returned in the spring.

It was also determined that with this new technology other related services could be downsized or be removed entirely, such as vessel traffic services, and be replaced by less costly electronic systems. Shipowners agreed to invest in digital global positioning systems - i.e. satellite navigation - electronic chart display systems, and automated information systems. Shipowners are therefore looking at a cost of about $75,000 per ship.

For its part, the coast guard would complete the installation of the radio beacons required by the DGPS technology.

Pilot projects are currently under way on the west coast and the St. Lawrence. We, together with the shipping federation and the coast guard, have purchased various units for comparison purposes as to accuracy and reliability.

On the question of ice-breaking, it was soon determined that this was more complex. It involves various classes of ships or ice-breakers, different tasks, maybe multitasking in some cases, and some confusion on the daily cost of each unit, the latter point being a non-commercial approach to accounting by the coast guard; for example, differentiating between fixed and variable costs, which has not been done.

As a result, it was agreed to postpone any charges for ice-breaking by a year, and a subcommittee was formed to determine clearly the beneficiaries, the levels of services, costs, and a cost-recovery formula.

The focus on cost reduction changed in the fall of 1995 and the focus then was on cost recovery or a marine services fee. It was clear that the coast guard had an agenda and was to have a formula in place as soon as possible so they could proceed with the necessary authority and paperwork to implement the fee as of April 1, 1996.

Over the winter various new formulas were developed in an attempt to attain consensus. It soon became obvious that the April 1 implementation date was mission impossible. The concept of a national fee was not acceptable to all. The next step was an east-west split, which again was not fully endorsed. The latest proposal is a three-way split.

.1850

All these proposals and calculations flowed from the coast guard. I quote from a memo from the chair of the MAB, Madam Johanne Gauthier, and dated early February:

The MAB noted that it had no input in:

a) the allocation of the costs imputed to commercial shipping;

b) the type of service for which the CCG was seeking to recover its costs;

c) the level of recovery or amount which should be paid by the shipping community.

The memo also refers to the fact that the MAB insisted that any cost-recovery program had to be linked with specific cost reductions. There is no reference to such linkage in the coast guard press release of March 15, 1996.

A copy of the above memo is attached as an appendix to this report.

Government charges.

Mr. Chairman, since the coast guard has only recently been transferred to Fisheries and Oceans from Transport, obviously you need time to understand the relationship between the coast guard and Canada's commercial marine community. I suspect there is also a perception that when one looks at the coast guard costs in isolation, one could conclude that the marine industry is really not paying much for government-owned and -operated services. I would like to correct such perceptions with the following summary of the marine industry's contribution to these other services.

As you can see, the table lists the St. Lawrence Seaway Authority - we pay tolls, and obviously we're paying enough that they're making a profit - harbours and ports, which are under the direction of Transport Canada - They are the smaller ports. There they have a problem, but as you can see from the notes, they are being devolved and will be got rid of as much as possible. Next is the Ports Canada system. Those are the larger ports, such as Vancouver, Montreal, etc. There they're making a profit. In pilotage there are four regions. I think this year the Atlantic region should break even. In the Laurentian they have a bit of a problem. They have a loss there. The Great Lakes region made a profit. The Pacific broke even.

The notes here cover the fact that the seaway revenues do not include non-toll income. With pilotage, Transport Canada decided they will no longer fund any deficit, and this is reflected in the 1996-97 budget.

As may be observed, the marine community is paying its way. Harbours and ports are those smaller ports that are operated by Transport Canada, many of which are not used by the commercial sector; Transport Canada intends to commercialize them or shut them down.

Pilotage.

I appreciate that pilotage remains the responsibility of Transport Canada. However, since we are discussing government service fees, it deserves your understanding. Our ships, our captains, our officers, have been sailing the Great Lakes-St. Lawrence system for years. Thus not only have they had many years of experience in ship handling, but they also possess thorough local water knowledge.

We do our own piloting on the Great Lakes and have no problem in obtaining certificates in the Maritimes. In the Laurentian district - that is, the St. Lawrence River - not only is it compulsory that we use pilots, but pilots operate under a monopoly regime. Pilotage on the St. Lawrence River costs the CSA fleet in excess of $10 million a year. It's a service we don't need and don't want.

Although it is not a requirement on the Great Lakes, for the Laurentian region we are prepared to invest in a simulator program with the Quebec Marine Institute at a cost of some $500,000, to train our officers further and have test results validated by independent professionals.

The government can't have it both ways. They cannot impose marine services fees based on arbitrary numbers just because they are part of a program review, on the one hand, and force us to continue to pay $10 million a year for a service we don't need.

New government charges.

Apart from the marine services fee, the marine industry is facing significant other cost increases as part of the overall cost-recovery approach.

Fees for oil-spill response. These organizations were mandated by government and are operated by the oil industry. We believe the fees to be exorbitant and the rationale behind the development of such fees, we believe, is flawed. It primarily affects our tanker fleet, and already we are losing business to rail and truck, where there are no such fees. I'm sure all of us have heard of rail derailments or truck accidents where there was severe risk to the public.

.1855

The government has declared that it will no longer pay for dredging. In the St. Lawrence River this could amount to a further cost to the industry of $2.9 million per year.

On port and harbour fees, following roughly a 25% increase last year, further increases are to be imposed this year. I can't quantify it quite yet, as it depends on many factors. One example is there was a cap where vessels were charged for five visits a year; this is to increase to five charges per month per port visited.

Earlier in this paper we referred to the serious impact the proposed marine services fee would have on the domestic industry. To our minds, this frenzied, head-long rush to meet a self-imposed deadline is at best not very business-like and at worst a complete manipulation of the whole consulting process.

There are very serious flaws in the whole approach to establishing a marine services fee:

One, the MAB had no input into the allocation of costs imputed to the marine industry.

Two, while there were regional consultations, the flood of various formulas were developed internally by the coast guard with little opportunity for industry to analyse data developed to determine various calculations. We believe some of the background data could be flawed.

Three, because of the nature of the domestic trade, which primarily uses the St. Lawrence Seaway, the CSA is forced to determine a cost-recovery fee over nine months. A delay in implementation compounds the problem, to the point where in some trades it cannot be absorbed. I direct your attention to earlier calculations of the level of fees.

Four, there is no clear indication that there will be a direct link between cost recovery and cost reduction.

Five, proper, independent socio-economic impact studies have yet to be carried out.

Six, with respect to the St. Lawrence River and the Great Lakes, which account for close to 50% of the cost of navigation aids targeted for cost recovery, the whole cost falls on the domestic fleet and the foreign ships that call at Canadian ports. Through-transit vessels - i.e. overseas to U.S. ports direct and return - are exempt, at least to date. In the Great Lakes, where the U.S. and Canadian domestic fleets share one another's navigation aids, only Canadian ships will pay the Canadian fee.

Seven, it was agreed with the MAB to postpone ice-breaking for one year and create a special task force to examine ice-breaking services and that the $20-million marine services fee would be applied fully to navigation aids. Now the coast guard appears to be looking towards adding an ice-breaking fee this year. Is this now to be included in the $20 million?

Eight, there are a number of trades where there are few or no navigation aids; i.e. buoys involved in entering or leaving ports. Users would therefore pay a disproportionate amount of the cost-recovery fee.

I quote from a letter co-signed by the president of the Canadian Chamber of Commerce and the president of the Business Council on National Issues to the Hon. Art Eggleton, the President of the Treasury Board, on the cost-recovery issue:

The most serious concern of business is that departments may be increasing user charges in order to offset the recent budget reductions without first taking the steps which are needed to streamline operations and reduce costs as much as possible.

A copy of the letter is enclosed in this presentation.

The legal regime for imposing and collecting such fees.

The coast guard proposes to use the Financial Administration Act, the FAA, as the vehicle to impose and collect the user fee. We believe this to be the wrong approach, for the following reasons: there is no appeal or investigation process; there is no relationship between fees, services, and the clients being served; there is no enforcement mechanism.

What the coast guard is proposing here is a fee for services that are imposed on the marine industry.

The marine industry did not ask for all these services. Many are provided because of international agreements or government decisions to implement certain services for safety or environmental reasons.

The FAA approach is appropriate if we ask for a certain service. For example, if I want some navigational charts, then I would pay the government agency that produces that service.

There is clearly a fundamental difference in asking for a service and having a service imposed.

.1900

Some members of this committee may recall that last November, in a joint submission with the Chamber of Maritime Commerce, we provided this committee with our thoughts on the proposed Oceans Act. This legislation died on the order paper, but we understand that it will be reintroduced shortly. We trust this committee will seriously consider our recommendations when the bill is reintroduced. I believe Mr. Scott of this committee had also moved some amendments.

We therefore suggest that this act be a more appropriate legislative vehicle to implement the marine services fee for coast guard services.

In summary, the CSA both directly and indirectly through the Marine Advisory Board is committed to working with the coast guard to develop a fair and equitable cost-recovery regime.

We are not prepared, however, to be bulldozed into participating in a cost-recovery program that could be devastating to our industry just to meet self-imposed deadlines. We have tried very hard to cooperate with government in developing a formula, but it is a moving target. We have witnessed three proposals in less than three months. It smacks of cost recovery at any price.

An example of proper consultation and cooperation in developing a cost-recovery regime may be found in the veterinary drug evaluation fees regulations published in part II of the Canada Gazette on March 12. That is included in this document, and I notice the Chamber of Maritime Commerce referred to it as well, so I won't go any further. It is not a bad model.

Canada needs a competitive, safe and reliable marine transportation system to service the many industries that rely on this form of transportation. We continue to work with various government agencies to ensure the well-being of the Canadian economy.

In closing, however, for the many reasons cited in this presentation, we have no choice but to advise that we cannot accept the current cost-recovery proposal. We suggest a moratorium until such time as we clearly know the impact of such fees on Canada's domestic and international trade.

I see that Ms Payne is here. Is that correct?

I have to close with a little Newfoundland expression here. To use an old Newfoundland expression, we would like the commissioner of the Canadian Coast Guard to say to us, ``Stay where you're to b'y, and I'll come where you're at''.

Thank you.

An hon. member: Would you repeat it slowly because it's not translatable?

Some hon. members: Oh, oh!

An hon. member: Try it again.

An hon. member: He's never going to get it.

Mr. Hall: What we would like the commissioner of the coast guard to say to us is, ``Stay where you're to b'y - or boy - and I'll come where you're at''.

The Chairman: We'll get George Baker to translate that.

Thanks very much, Mr. Hall.

Mr. Hall: Thank you very much, Mr. Chairman.

The Chairman: We're ready for questions.

Mr. Rocheleau.

[Translation]

Mr. Rocheleau: Thank you, Mr. Hall, for your powerful testimony. You denounced the Commissioner's attitude as the other witnesses have done thus far. I would like to give you my impression on this subject and I would ask you to comment on it.

It is my impression that, despite his important mandate, despite the Coast Guard's very important economic role and despite the fact that we are in a sector of economic activity that affects all regions and sub-regions of Canada, the Commissioner, Mr. Thomas, is not at all sensitive to the consequences of this proposal and that, to use SODES' expression, he is merely taking an accounting approach devoid of any socio-economic vision.

I would like to hear you comment on that and also on Mr. Thomas' opinion of the uniform tariff from coast to coast. Mr. Thomas thinks that introducing a regional tariff rather than a uniform and Canadian tariff would represent an additional cost to the central region of only one cent per tonne.

[English]

Mr. Hall: Thank you, sir.

I tend to agree with your first point that the coast guard is marching to somebody's drum, and I presume that's the minister's drum and maybe cabinet's drum, because cabinet has said very clearly that - In the budget there is a line item that refers to a $20-million cost recovery for marine services fees.

.1905

I would have to accept that it is an accounting measure. The study that was done by the IBI group last fall was really not a study. It was a survey, using a number that had been developed only at that point, without getting into all the other details that came along later on. Therefore it's doubly flawed.

Maybe at 6¢ or 7¢ a tonne people could live with it, in certain cases. But I think Mr. Smith, of the chamber, referred this afternoon to some of the lower-value cargoes where they just couldn't afford the levels of cost recovery the coast guard was talking about.

So yes, I think it's an accounting exercise. What I'm surprised at is that there is no flexibility whatsoever. When it was determined that it would not or could not be implemented by April 1, because of all these meetings going on and complete changes of the formula, with no time to digest - For example, the last formula came out just prior to an MAB conference call on March 13. The conference call was at 2 p.m. The fax I got, giving me that document, that discussion paper, started at 13:55 p.m. and ended at 2:05 p.m. So we had lots of time to analyse the paper.

One of the points we raised with Mr. Thomas was okay, if you can't impose this until June or July, would it not be only fair that if you're knocking off a quarter of the year, you knock off a quarter of the $20 million? Make it $15 million; maybe it would be easier to live with. No, I still need my $20 million. And this annualization idea came in, which just threw the whole thing off.

It's easier for deep-sea ships, which are operating year-round, going to Montreal, for example, or on the west coast, where they are operating year-round. But the point I try to make in this paper is that the CSA fleet, the domestic fleet, whether it's our fleet or the operators on the St. Lawrence, Mr. Gagnon's group - we can't do that. We're stuck with a nine-month year, like it or not. If you keep on shortening that because of delays in the implementation date, it becomes absolutely impossible to collect.

I think Mr. Thomas at least realizes that. I think he realizes if it goes beyond July he has to stop. But in our case June is a problem.

The national rate.

We looked at that last fall. In fact, I tend to agree with Mr. Gaudreau, to a point. We looked at the concept of a national rate. Our point of view, and I think Mr. Gaudreau said the same thing, was this is only the first slice. They're looking at forty-forty-sixty. You can refine as you get into those higher numbers.

The $20 million - and it's clear, and I'd like our west coast people to understand it, there is no suggestion on the part of anybody that we anticipate or expect west coast people to pay for ice-breaking services. I think that fear still exists. They think somehow or other they're going to get caught and they will have to pay or subsidize or cross-subsidize. That was never the intention. It's only the user. Whoever uses the service would pay for ice-breaking service.

So the national approach for the first $20 million to my mind made some sense, in that everybody has nav-aids, right across the country. If we're a country and if we're trying to make this thing work, why can't we at least start there, get into detailed studies - as we've mentioned here, there are no detailed studies - and then start looking at it in specific terms: west coast, central, Maritimes.

The Maritimes thing was sprung on us just in mid-March. There was no talk about that before. It was east-west.

There are different formulas for each area. That's crazy. Certainly we would never accept the tonne-mile thing, and I suspect before too long some of those ports in Halifax or others are going to look at it and say, I don't like the tonne-mile idea either. I don't know. I'll see. They're different elements.

The regional aspect and this 1¢ spread that was talked about was misleading, in my opinion, because it was referring strictly to the deep-sea charge of 15¢ a tonne. It was not referring to the domestic fleet. I think to a certain extent that is right. If you look at just a deep-sea operation, it didn't make much difference to the shipping federation or to the east coast deep-sea operators. It was only about 1¢ a tonne, but it had no bearing on and no relationship to the Canadian fleet.

.1910

Ours, as it says here, is $4.48 a tonne of the ship, the GRT of the ship. There they're talking about 15¢ a tonne of the cargo. It's apples and oranges. It's not the same thing at all.

I think it's misleading in saying that, but I have to say, in fairness to the west coast, that if you are going to get very regional, it would have cost them more than that. It would have been maybe only a 1¢ charge to the eastern operators, but more to the western ones.

Does that answer your question, sir?

Mr. Rocheleau: Yes.

Mr. Scott: If I understand you right, what you're asking for is a moratorium for the time being -

Mr. Hall: Correct.

Mr. Scott: - until these elements that you are recommending are put in place.

Mr. Hall: That's right.

Mr. Scott: They are very similar to the recommendations that were made here earlier this afternoon by the -

Mr. Hall: Chamber of Maritime Commerce?

Mr. Scott: - Chamber of Maritime Commerce.

Mr. Hall: We're not using exactly the same wording, but the principle is the same. I think everybody agrees that a proper impact study has to be done. One hasn't been done. To me, it's compounded by the idea of a later implementation date. It can't happen on seaway trade. It just can't happen, period.

We say there should be a moratorium. I didn't put a date beside it. All I'm saying is that if you're going to wait until the study is to be done, and those studies are not going to be complete until this fall, then you can't have a charge this year. You just can't do it.

Mr. Scott: The impression I'm left with - and this you can either confirm or not - is that the coast guard was given a job to do in terms of coming up with a cost-recovery plan -

Mr. Hall: Yes.

Mr. Scott: - and they went ahead with that, but they didn't consider, in any real way, what the impact of that was going to be on industry. That's why we're at the point we're at right now. They've gone off in one direction, but industry is saying, ``Wait a minute, it can't go like this''.

Mr. Hall: It gets back to the previous question. That was not a very professional study last fall. It certainly wasn't a true impact study. It was a survey - no more, no less.

As I say, I'm on the Marine Advisory Board. It became very clear to us - I think Mr. Thomas alluded to this in his presentation. We started off very well. We were working together trying to see what we could do to help the coast guard reduce the levels of services, to tell them what we need and don't need, and to get rid of the Cadillac and get the Ford again, and it was working fine. Last fall, all of a sudden it changed. Why? There was an agenda there that ``I've got to get a cost-recovery formula agreed to as quickly as possible so I can put it in on April 1, come hell or high water''. That's what happened. So all of a sudden we were spending 90% of our time, if not more, at these MAB meetings talking about different types of formulas. There was no discussion on cost reduction. That suddenly disappeared.

Captain Réjean Lanteigne (Manager, Marine Operations, Canadian Shipowners Association): I would like to complement Norman's answer in relation to the study or the survey that was done to justify the $20 million.

That study identified that, as a result of the cost-recovery initiative of the coast guard, up to 7 million tonnes of cargo could be sensitive to shifting geographically - shifting to the U.S., or shifting modally, to trucks or rail.

Our freight rates for the cargo we carry - Thunder Bay to tidewater in the St. Lawrence for grain and iron ore back - are around $13 a tonne. So take 7 million tonnes at a low figure of $10 a tonne: that's an immediate impact of $70 million, which is far beyond what the coast guard wanted to recover in the first place. And this is only in a survey perspective, not in a total impact analysis perspective. So just looking at what they had already done gave us real concern about geographical shift and model shift.

.1915

Hence our preoccupation with why a full study should be done in the first place.

The Chairman: Mr. Dhaliwal.

Mr. Dhaliwal (Vancouver South): First of all, welcome. I had the opportunity to sit in on other presentations, and I'm starting to wonder what ``fair and equitable'' cost recovery is. I think it means the least amount to pay, as long as someone else pays. That's what ``fair and equitable'' means. If I don't have to pay, it means it's fair and equitable. If I have to pay, it's not fair and equitable. It's hard to nail down what ``fair and equitable'' really means.

I'm trying to figure out what formula we could come up with that would mean ``fair and equitable''. The fact that we have come up with many different formulas - Obviously the commission has attempted to come up with a formula with the input provided by MAB, which I understand you've been working on for almost a year now.

Mr. Hall: On cost recovery, yes, since last fall.

Mr. Dhaliwal: So it's been almost a year to work on cost recovery. Let me tell you, Mr. Hall, there are some departments in government where - one program I can think of is $150 million in cost recovery, and there has been very little consultation with the groups that have to pay for it. I think more consultation has been done in this area than anywhere else I've seen in the cost-recovery area of government in the budget we've had. If there's been a year of consultation, I find it hard to believe you're saying you have to have still more consultation than what's happened in a year.

The one concern in the industry was we don't want a national formula. We have to make sure the regional effects are reflected. Then we developed the regional formula. Then some people were saying, well, it has to be more port-specific. Then it has to be more specific about the services required.

Coming from business, I recognize - and I don't like taxes more than anybody else. I think businesses and individuals are overtaxed with burdens we've put in, as governments. But unfortunately the budget reality is that we're trying to deal with a budget deficit and we're trying to make sure those costs that can be paid, where they legitimately need to be paid by the private sector and individuals, are being allocated.

Now, as a percentage of the total expenditures $20 million doesn't seem to me a huge amount. But I agree in terms of your competition it's very important, because you're competing with the American ports. The people in Vancouver have made that clear to me. But perhaps you can tell me what the $20 million would be as a percentage of your expenditures.

Part of the impact of this was to learn from MAB, the Marine Advisory Board, what the impact was. They are obviously the people who are going to be more aware of what the impact is. Part of MAB is for the government to take in their concerns. Correct me if I'm wrong, but I think the reason the formula has been changed all this time is as a result of the input by MAB where we've had these changes. Obviously we can't get a formula that is satisfactory to everyone at the end of the day, no matter what we do. We can't have a formula that will be satisfactory to everyone right across the country.

Mr. Hall: I'll start with your last point first.

You're right. Part of the problem was trying to satisfy too many people. There's no question about it. That's why I said earlier if the west coast, who were really against the old idea of a national fee, had agreed last fall, as a first run at a cost-recovery service, maybe we could accept a flat fee across the country - not the way it was suggested by Mr. Gaudreau, where it was a flat fee regardless of the size of the ship, but say we had so many cents a tonne of cargo or so many cents a tonne of ship, or whatever the arrangement was. If I remember correctly - and I don't want to waste time digging out papers - I think we were talking about a spread of maybe 2¢ or 3¢ a tonne. That was about all. If you took an east-west split versus a national split, the west coast costs would have gone up about 2¢ a tonne and the east coast maybe down 1¢ or 2¢ a tonne, if you had the flat fee.

I agree with you, $20 million is not a hell of a lot of money. But until we had an opportunity really to study what all this means - because it's not just the $20 million. The $20 million is only the beginning, and if you cave in at the beginning that means you're in effect buying the $40 million, $40 million, $60 million to which MAB has said no. MAB has said they'll review it after one year and see how this $20 million is working and then they'll look at the $40 million, $40 million and $60 million. And Thomas has accepted that.

.1920

All I'm saying is that it could have been resolved last fall. It would have been in place April 1. It would have given the government the $20 million they're looking for. Maybe there was a slight penalty to the west coast, but the west coast has this major concern and major fear that somehow or other they're going to cross-subsidize. In that sense they would have been cross-subsidizing, but it was strictly for nav-aids.

I think Mr. Gouk asked Mr. Gaudreau a question about it this afternoon. It has to be clearly understood that ice-breaking is completely separate. This $20 million is for nav-aids. There is no talk of ice-breaking. I've said it before and I'll repeat it again: there is no one in the St. Lawrence or the Maritimes or the Great Lakes or anywhere suggesting that anybody on the west coast should pick up one cent of ice-breaking fees. It's not there.

Mr. Dhaliwal: Is the present formula much more regionally based than the original one? Is that not correct? It's much more sensitive.

Mr. Hall: No.

Mr. Dhaliwal: That is what some of our members wanted. They wanted much more regional pricing. Many members who came before us also wanted more regionally sensitive pricing.

Mr. Hall: Trying to get consensus is what caused all the problems. It just kept going around and around in circles. As I say, there were three different formulas in less than three months. I'm not sitting around all day twiddling my thumbs waiting for another bloody formula to come in. I've got other things to do. To propose a new formula two minutes before you're going to be discussing it in a conference call to me is not right.

There is a mad rush to get this thing done because of this pre-set timetable. If it can't be done properly, don't do it. Business people don't do that. If something's not working all of a sudden, you drop the idea, revisit it, and see what you can come up with.

To my mind that's what's going on. The question was asked before. It's strictly this: somebody set a timetable, it's an accounting exercise, and it has nothing to do with what it's going to do to Canada's salt trade or Canada's stone trade or some of the grain trade or whatever. No one has really looked at that. And if they did look at it last year in this survey -

Mr. Dhaliwal: But it must be a very tiny percentage of your overall expenditure. Do you have a figure you can give me?

Mr. Hall: I'll try to give an example of one particular company. By the way, it's a public company.

Capt Lanteigne: The gentlemen from the Bloc Québécois asked whether this was an analyse comptable. I did one in the last few days for one of our member companies, a publicly traded company that owns 22 ships. They trade between the head of the Great Lakes and Port-Cartier and Baie-Comeau with grain, and up with iron ore to Hamilton and the steel mill in the Great Lakes. Eleven of the 22 ships are self-unloaders, eleven of them are straight deck bulk carriers, and they're basically all the same size.

Under the latest formula their cost is $4.48 per GRT. Their costs for 22 ships annually would be $1.9 million. For the last financial year, which is a calendar year - their annual report came out a few weeks ago - the gross revenue of the company was $151 million. Their gross income before tax was $15.4 million, so it's 10%. The marine service fee at $1.9 million will represent 12% of their income before tax. That's not exactly insignificant from their perspective.

In relation to government services, this company already pays seaway ports pilotage. Last year this company paid $8.6 million for government services for 22 ships, which is close to 56% of their income before tax. Again, this is not an insignificant amount of paying their own way.

.1925

Mr. Dhaliwal: So what you're telling me is one company basically would have 10% of the business of the shipping because they're paying 10% of the charges of $1.9 million.

Capt Lanteigne: Yes, and as Mr. Hall was explaining, if you compress that $1.9 million over five months of operation, which is from June until December, you're into 40¢ or 50¢ a tonne for these ships, which is way beyond the profit margin on the freight, which in some cases is 5¢ or 6¢ a tonne. It's way, way beyond.

Mr. Dhaliwal: Why do we start on January 1 or July 1 if the thing is to have it for this year? I understand where you're coming from, because they have to allocate it for that fiscal period.

Mr. Hall: I can't remember if I covered all your points. I can't comment on that non-consultative $150 million. I don't know what it's all about and what all the parameters are. They're apples and oranges, and I'm not sure if they'd both be the same.

Mr. Dhaliwal: My point is there are other cost recoveries where there has been hardly any consultation. It seems like a lot of consultation, but -

Mr. Hall: Maybe there isn't a major economic impact.

The Chairman: Mr. Bernier has a little question.

[Translation]

Mr. Bernier: The witness is entirely entitled to give a long answer if he wishes, Mr. Chairman, and if we do not have the time to finish, I wonder whether Mr. Hall or Mr. Lanteigne would agree to come back a little later or to send us another written brief.

Personally, it was page 23 of your document that drew my attention. When you refer to the former bill, the Oceans Act, you seem to tell us that this bill could have enabled the Canadian government to solve this cost recovery problem. I must tell you that this goes back a little far in my memory. When the government eliminates bills, I delete them from my diskette as well. I do not know whether you could refresh our memory in a few sentences or send us another document.

For the moment, we are seeking solutions to the impasse that we've reached and these gentlemen are saying that there was already something in a previous bill. If something good can exist in the government's statutes, I would like someone to tell me because I still have doubts, Mr. Chairman.

[English]

Mr. Hall: Maybe Réjean could comment, because he was in the coast guard, so he knows a little bit more about it than I do.

We did make a presentation last fall to this committee. I'm not sure how many were still on it at that time. I was absent. I couldn't do it, so Réj made the presentation for me. We attacked two areas, section 41 and section 49. If you'd like, we could send you a copy of the brief we presented so you can see what it says. Mr. Scott may have already seen it.

A number of points we raised there really go back - and this touches on the authority to charge in the first place, which we talked about in this brief today - to the Financial Administration Act. We attacked this way back in the first attempt at cost recovery, which was in 1986, and it's still there. The way section 49 reads is not acceptable.

We've proposed certain amendments and I think Mr. Scott has proposed some amendments, so we'd be happy, sir, to send you a copy of the brief we presented and you could have a look at it and see what you think.

The Chairman: Your brief is on the public record. Mr. Bernier can get it any time he wants.

[Translation]

Mr. Bernier: I would like to know whether Mr. Lanteigne could add two lines, which would enable us to continue our work.

Captain Lanteigne: I can even add five lines. First of all, as is written here, we find that the Financial Administration Act is a poor legislative vehicle. Last fall, Parliament introduced this oceans bill, with which this association and a number of others agreed, because the country in fact needs an Oceans Act for a number of reasons.

However, two clauses in the bill concerned us and we submitted certain recommendations to improve them. One of the clauses concerned the legislative recognition of the Coast Guard. On this point, we recommended that certain things be deleted or added. The other clause was clause 49, which provided for the authority to establish tariffs for the Coast Guard's services and for which we recommended a certain number of improvements concerning an appeal mechanism, a review mechanism, a relationship between the services and costs and so on.

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You can find all this in our brief. We therefore think that the Financial Administration Act is a poor vehicle for the aforementioned reasons and that the Oceans Act would be a better vehicle because it would make it possible to establish a relationship between the client, the service and the costs, as well as an appeal mechanism for a certain number of the Coast Guard's clients which are certainly not satisfied with the mechanism currently in place, that is to say with the legislative basis of this tariff.

The Financial Administration Act now provides this basis, but there is no direct relationship between customer, service and tariff. For example, two weeks ago, we established under this Act the tariffs for the purchase of nautical charts from the Canadian Hydrographic Service. Our shipowners buy charts, millions of charts. They request them and, consequently, the customer requests the service. The chart is sold for $20, which is entirely reasonable. However, in this case, there are services provided by the Coast Guard for which we must pay the asking price. It is this customer-service-cost dynamic that does not exist.

The second problem we see in the Financial Administration Act, and which is really fundamental in this case, is that there is no enforcement mechanism.

A voice: Appeal?

Captain Lanteigne: No, an enforcement mechanism. If a foreign ship comes into the country, this tariff applies and it should pay $3,000 or $4,000 for its visit. If the ship decides not to pay, the government can do nothing. We can't arrest the ship and detain it. In short, we can't do anything because this client-service relationship does not exist as in the case of an agency that would offer its services at a particular tariff.

The Oceans Act contained this enforcement mechanism and there were possibilities for retaining or detaining a ship or for taking measures against a client that did not pay.

[English]

The Chairman: Yes, it did take five minutes for that particular answer.

Gentlemen, thanks very much for coming. We'll be looking at your brief again before we make our recommendations.

Mr. Hall: Thank you. If it would help the situation and if you'd like, we'd be happy to appear again and maybe get into other details. We're certainly willing to do that.

The Chairman: For somebody who had short notice, you did very well.

Mr. Hall: Thank you.

The Chairman: We have one more agenda item before we finish our meeting tonight.

Mr. Scott.

Mr. Scott: I think everybody has a copy of the motion I'd like to move. Maybe I'll just speak to it for two minutes before we go on.

I appreciate that the committee intends to hear more witnesses; I understand we will be hearing more tomorrow morning and more when we come back after the break. However, I've heard enough in the time we've been here to convince me beyond any shadow of a doubt that this is the recommendation this committee should be making to the minister, among other recommendations it may make or may choose to make prior to April 19. Therefore I would like to move this motion and suggest strongly that the committee take to the minister this recommendation on the marine services fees.

The Chairman: You've all read the motion. Is there any further discussion on it?

Mr. Culbert: Mr. Chair, I'd like to speak on the motion before we go any further, if that's where we're at.

The Chairman: Go ahead.

Mr. Culbert: While Mr. Scott's motion may in fact at some point in time be appropriate for the committee to consider, one would think it very inappropriate for us to consider it at this point in time, when he himself has just stated that we have other presenters coming before us. I understand from what our clerk has indicated there's a number of them, and we'll be working some pretty late nights when we come back after the break.

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I would think that, while we might want to consider this to be our recommendation as we wind down and make our report to the department or to the minister, we certainly might want to consider it then. But I think it would be very inappropriate for us to make that decision at this point in time, when we know full well that additional presenters will be coming to us who might have a point of view different from those we've heard today.

I agree with what you're saying. Overwhelmingly, I think, everyone we heard today said that they should have the impact study carried out prior to implementation. What we will hear during the week when we come back might be completely different from that. So I would like to keep an open mind on it.

Mr. McWhinney (Vancouver Quadra): I have one complementary point. We've already adopted a substantive motion on this issue. It seems to me this covers the same ground and in parliamentary terms it really would amount properly to asking for a recommittal of the motion, in which case appropriate notice must be given.

Mr. Dhaliwal: I agree with both my colleagues.

The other thing is that we heard one of the gentlemen say that in fact the formula they have put forward now is much more regionally sensitive. The member from Skeena had articulated very well that he would like to see the formula based much more regionally, and that's what this formula is. I'm sure some of those things were changed because of his representations, because his view is very well respected. We listen to the views of Mr. Scott. Now he doesn't want that formula, which he helped to put forward, asking for the cost recovery to be more on a regional basis.

I think this is not appropriate at this time. I'm surprised that now Mr. Scott doesn't like the formula that he was articulating he wanted in changes in the original formula. So I can't support this motion.

Mr. Wells: I agree with my colleague.

Particularly, to make a decision now as to what our recommendation is going to be is almost an insult to the people who will be coming later. It's almost as if you're going to convict someone after you hear the prosecution - to hell with the defence.

The motion might be what we shall recommend, but not at this stage. I'm sorry. Give it to us on April 19 and maybe we'll endorse it, but not now.

Mr. Scott: In response to Mr. Dhaliwal, if he will read the motion, there's nothing in here that talks about not liking the formula. This goes to a very different issue altogether, which is the issue of the coast guard trying to implement a cost-recovery program when they haven't got their own house in order. They certainly haven't yet convinced industry that they are moving in that direction.

What we're hearing from industry is ``Wait a minute, we want to know that our concerns are going to be dealt with prior to the implementation'' - which has nothing to do with the formula.

I think the formula now is much better than the one we were dealing with before. I certainly agree with you on that. I don't know if it's because of anything I've said.

Mr. Dhaliwal: I'm sure it had a lot to do with it.

Mr. Scott: If it's the feeling of the group right now, then I'm certainly willing to stand this motion down until we've finished hearing from the witnesses. But I would put the committee on notice that, from my point of view right now, I intend to -

The Chairman: They all agree with you. Then could you withdraw? Will you request that your motion be withdrawn?

Mr. Scott: I will withdraw the motion for the time being. I will be prepared to move this motion or one very similar to it at the end of our deliberations.

The Chairman: Thank you very much.

We'll meet again at 9 a.m. tomorrow.

This meeting stands adjourned.

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