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EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, April 18, 1996

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[English]

The Chairman: Order.

We'll begin our final session of hearings on the proposed marine fees for the Canadian Coast Guard.

Our second-last presenters are from the Seaway Self Unloaders, Mr. Wayne Smith, andMr. Al Hamilton from Sifto Canada, and Mr. M.T. Jennings from Algoma.

We'll begin with Mr. Smith.

We have one hour. We can take it just on your presentations or as a combination of questions and presentation, whichever you prefer.

Mr. Wayne A. Smith (Vice-President and General Manager, Seaway Self Unloaders): I have prepared a presentation. I have a formal copy, which has already been distributed, and I was going to speak to it and just try to overview the highlights.

The Chairman: Okay.

Mr. Smith: By way of introduction, my name is Wayne Smith. I'm the vice-president and general manager of Seaway Self Unloaders.

Seaway Self Unloaders is a partnership of Algoma Central Corporation and ULS Corporation. We manage Canada's largest fleet of self-unloading bulk carriers. Our primary area of operation is the Great Lakes and the St. Lawrence River systems, which is the area that the coast guard now calls the east inland area.

In 1995 Seaway Self Unloaders carried over 25 million tonnes of cargo. These cargoes included a wide variety of commodities, including iron ore for steel production, coal for industrial energy and electricity generation, stone products for road-building materials, salt for road safety, and agricultural products. Over 75% of the commodities we shipped were either imports from or exports to the United States, and that's an important factor that I'll talk about later.

The question we're here to address before the standing committee concerns the expected impacts of the coast guard's marine service proposal. At the outset I'd like to state that the question of impacts goes beyond just the marine services fee. Presently there are a number of proposals by Transport Canada and Fisheries and Oceans that involve new or increased cost recovery, and our point is that they have to be considered together with the marine service fee.

What I'd like to do today is take you briefly through the impacts that we see and believe are of significant concern, and also to support the proposals that we, together with the membership of the Chamber of Maritime Commerce, had developed and that the chamber had presented to this committee earlier.

I'd like to talk about the consultation process. It appears to us, from statements by the coast guard, that this is the sole basis of the support that they have for implementing the marine services fee as of June 1. In part it derives from the December 29, 1995 impact study, which found that the industry could absorb costs as proposed by the coast guard.

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I think the coast guard has acknowledged in a press release on March 15 that the original impact study was limited and that there was a need to conduct more studies. If we go back to the original study, the finding is simply not valid. Industry and those who have come and spoken before me have universally condemned the consultation process and the impact assessment study.

Just to get it into terms of reference, I think only about 15% of Seaway Self Unloaders shippers were contacted by the consultants. We were not contacted. We approached the consultants late in December when it appeared that we weren't going to be contacted and advised them of our concerns about the depth of the consultations and their conclusions and recommendations. We subsequently identified these concerns to coast guard and to the Ministry of Fisheries and Oceans.

We did receive information from the consultants that they simply did not have the scope or were not given the scope of study by the coast guard in order to expand their study. We have received no reply to our concerns from Fisheries and Oceans.

Based on this information and the acknowledgement by the coast guard that further study is needed, it's irresponsible in our view to implement the fee at this time before the studies are completed. By doing so we risk irreparable harm to the industry, with an uncertain outcome.

There are other reasons to reassess the impact of the proposed fee. I think one of the important reasons is that the present proposal significantly differs from the original assumptions of the coast guard and the consultants. One of the serious concerns of industry is that the coast guard has altered its assumptions and plans frequently without notice or consultation and has certainly caused us great difficulty in trying to analyse the proposals.

Depending on how one looks at the present proposal, we've determined that it is either very close to the maximum level of fees that consultants identified as possible to recover, or in certain other respects it exceeds them. The issue here is that through the consultants' own findings they did anticipate, at those sorts of fee levels, that there would be and could be some serious and significant losses of cargo.

To be specific, they identified that at that maximum cost-recovery level, which we believe the fees can lead to at this time, there's a potential loss of over seven million tonnes of cargo. Most of this loss occurs in the east inland area and that's why it's of great concern to us.

The consultants also identified other commodity movements that could be seriously impacted, but at the time of the study - and you have to bear in mind that the assumed fee level at that time was lower than the fee level is at this time - they believed the impacts wouldn't occur. I think the question that goes unanswered, and should be answered now before it's implemented, is what will the impact be at the current level of proposed fees?

Another reason to reassess the fee at this time is that in the east inland area, the methodology to pass through the fee on a fair and equitable basis has not yet been determined. The east inland area represents nearly one-half of the coast guard's annual cost of navigation aids, yet this important issue hasn't been addressed. They believe industry should resolve this problem. We certainly welcome the opportunity and the challenge to work towards a resolution of that issue, but the bottom line is that it hasn't been done yet. It's going to take considerably more time, study and consultation within the industry to reach a conclusion.

I mentioned at the outset that it's not just the marine services fee that we have to be concerned about. There are certainly other programs and proposals that are also going to cost the industry considerable sums. I'll just quickly go through these.

In terms of dredging, the coast guard has announced that it will no longer fund its cost. That's an annual value of about $10.5 million.

With regard to harbour tariffs, Transport Canada has announced new tariffs with the objective of increasing tariff rates by $3.5 million per year. Strangely, the proposal includes a new methodology that has the impact of increasing some costs to my company by over 600%.

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Port privatization is a major program. Transport Canada calls for the restructuring of 572 ports under its jurisdiction. I think while Transport Canada has clearly stated its intention not to disrupt long-standing commercial activities in these ports, the bottom line impact of the restructuring has yet to be determined. It is certainly probable that more and more costs will be transferred to the industry.

Certainly pilotage is an issue for Canadian-flagged carriers, who absorb about $10 million annually in pilotage fees in this area. It's the equivalent to about 50¢ per tonne of cargo. All east inland areas are navigated without pilots, except the Laurentian area between Montreal and Escoumins, Quebec. For several years Canadian carriers have sought to mitigate these costs and the artificial necessity for pilots, but without any results. Eliminating these costs would represent a major cost savings for industry.

Certainly seaway commercialization is an issue and is impacted by marine services fees. Part of Canada's national marine strategy includes commercialization of the seaway. The seaway authority has produced a revenue surplus in recent years. But the further impact of cargo losses due to the imposition of new fees and the marine services fee in particular leads to the greater possibility of losses in the seaway and the lower probability of successful commercialization.

I also mentioned at the outset that I'd like to talk a little bit about international trade. As mentioned, 75% of our cargo is either imported from or exported to the United States. These cargoes are extremely price sensitive. Charges and new fees have the possibility of impeding exports of Canadian goods. A prime example concerns the movement of Canadian iron ore to U.S. steel mills. This movement has grown tremendously in the last three years. But it's clearly price sensitive. Canadian ore could be as much as $2 to $3 more expensive than U.S. sources. The bulk of this difference represents existing system costs for the St. Lawrence Seaway and pilotage. I think it's naive to assume there may not be significant dislocations of commodity movements to and from the U.S. with the imposition of these new Canadian fees.

Another important consideration is whether the U.S. would respond to the introduction of these fees. They presently do not charge for U.S. locks in the St. Lawrence Seaway and at Sault Ste. Marie.

To contrast the Canadian situation with the U.S. situation, the U.S. has presently initiated a five-year incentive program reducing harbour fees for operators who provide new vessels of seaway size standards. Also, at a recent international conference on Great Lakes shipping, the U.S. coast guard announced its plan to add new vessels to its fleet. It also reaffirmed its commitment to serve U.S. commercial shipping needs.

Finally, I have several issues I'd like to briefly touch on.

One I'd call competitive dislocations or an uneven playing field. The coast guard's approach to regional cost-recovery methodologies across Canada has the effect of establishing an uneven playing field. There is competition between western versus eastern versus U.S. Mississippi movements of commodities such as grain, potash and coal. Seaway Self Unloaders estimates the annual cost of user fees in the east inland area would be about $90,000 per year for a typical laker. Charges for this size of vessel trading off the west coast may only be $20,000. There are no similar costs for carriers on the Mississippi system.

There's also a different methodology proposed for Canadian- and foreign-flagged vessels within the east inland area. This may discriminate against Canadian carriers. Within the east inland region there are different fees for both Canadian-flagged and foreign-flagged vessels and there are no fees for U.S.-flagged or other foreign vessels operating in U.S. coasting or international trades. This means the U.S. or foreign-flagged vessel will be less expensive in Canadian trades at levels up to 600,000 tonnes per year. Canadian vessel movements of all cargoes such as grain and coal for transhipment at Canadian east coast ports to ocean-going vessels may be replaced by ocean-going foreign-flagged vessels that aren't subject to any fees.

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Another issue concerns equity among shippers within the region. The coast guard argues regional fees are justified so the regions do not pay more than their fair share of costs. Seaway Self Unloaders estimates 55% of our movements use little or no coast guard navigation aids. Using the coast guard's own argument, we certainly question the fairness of making these shippers pay for aids that aren't used.

Because the current coast guard proposal in the east inland areas is based on a vessel GRT methodology, the cost incurred by each carrier will vary depending on the utility and trading pattern of the vessels of each carrier. This variable impact may be discriminating among carriers.

In conclusion, I'd like to sum up in the following way.

Many speakers have talked about the economic concerns of their own industry. I'd like to talk a little bit about the economic health of the marine transportation industry.

At this time we estimate earning levels generate only about two-thirds of the revenue necessary to replace the existing aging fleet of Canadian lakers. I think industry has fought back in recent years and has managed to be able to refit and recondition some of the fleet to extend vessel life and enhance utility.

The industry has not gained sufficient strength to be able to absorb this kind of cash grab. Industry has shown, though, that it will work hand in hand with government to reduce costs and will invest to achieve this objective. Importantly, by the start of the 1997 season the partners in my company, Algoma Central Corporation and ULS Corporation, will have spent approximately$3 million on differential global positioning systems and electronic charting. These systems are estimated or expected to eliminate the need for about 80% of the coast guard's navigation aids in the east inland area.

In conclusion, we reiterate the need for an independent assessment of the coast guard's marine service fee proposal before the fee is implemented. There are ample reasons to support this course of action, including the inadequacies of the original study. The cumulative effect of all fees and impacts on marine transportation should also be studied to properly assess the impacts. Industry should be directly involved with the study in order to ensure it is meaningful.

On this point, I was advised today that the coast guard is proceeding now on these studies, again creating the same problems and difficulties of the first study by not directly involving industry in the terms of reference and through participation in the study.

The goal of reducing coast guard costs must be pursued with vigour. Industry has come to the table with ideas and dollars. This process should be allowed to continue so the actual costs of the coast guard can be identified and these costs can be minimized before user pay is introduced. Lower-cost alternatives, including privatization of coast guard services, may be found for the delivery of these services.

Finally, a fair and equitable recovery method must be determined for the east inland area. It must not discriminate between regions in Canada, between marine service users within each region, and between foreign and Canadian carriers.

Finally, to the extent the coast guard remains a monopoly supplier of some services, industry needs a formal review process to be able to direct the use and the withdrawal of coast guard services and to determine a reasonable and fair pass-through of costs.

That is the extent of my comments.

The Chairman: Thank you very much, Mr. Smith. Mr. Hamilton.

Mr. Allan Hamilton (Chemical Business Manager, Sifto Canada Inc.): I'm Al Hamilton, the chemical business manager for Sifto Canada Incorporated. I thought I'd start by just telling you a little bit about Sifto.

We have four operating locations in Canada. We have three evaporation plants where we make salt for human consumption, animal feed and that kind of thing. One of them is located in Amherst, Nova Scotia. We have one at Unity, Saskatchewan and one in Goderich, Ontario. We also have a rock salt mine in Goderich, Ontario where we make salt used for highway de-icing. It's used in the chemical industry and has a variety of other uses.

It's primarily the two Goderich locations that will be affected by the marine services fee because we ship salt from both these locations on the Great Lakes.

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The town of Goderich is located on the shore of Lake Huron and has a population of about 7,500 people. We are a major employer in the town, and between our two locations we have about 375 employees. We produce over 3.7 million tonnes of salt each year, and approximately 2.5 million tonnes is shipped by vessel to markets on the Great Lakes and in the St. Lawrence Seaway system on both sides of the border.

I would like to start my comments on the marine services fee by saying we're not in disagreement with paying our fair share through user pay systems, as long as they are fair and equitable for users on both sides of the Great Lakes and there's a mechanism in place to keep them that way.

We have five main issues about the marine services fee. First is the quality of the impact study that was done. Second, we're concerned about where the fee will lead to in the future and what control there will be over it. Third, we're concerned about the compounding of fees in the marine industry. Fourth, there seems to be a real inequity here because Canadian shippers pay and U.S. shippers don't, the way I understand the proposed legislation. Finally, we're concerned about the level of cost improvements proposed by the coast guard.

On the first issue of the impact assessment, we have a concern about the depth of the study. For example, there is a comment in the study that the Canadian salt producers face very little competition with U.S. producers who tend to ship locally. The fact is that about half a million tonnes of salt are imported annually into the Ontario-Quebec market where we compete. Approximately 1.8 million tonnes of our production are exported into the U.S. There are no tariffs on salt - it is a free market - so competition is intense in this business.

About 75% of our salt goes into what we call the highway market. It's used by municipalities, provinces, and states for highway de-icing. This is done through a tendering process. All the producers on the lakes can generally meet the quality specifications, so salt is sold on price. Bids are won and lost by a penny and can involve thousands or tens of thousands of tonnes. So costs are very important to us.

We have remained competitive in this business to this point, and we've done it like any successful business, through product quality, our service and costs. We have been involved in constant cost improvements. When we do that, we first of all try to understand the situation and the impact before making any changes. Because we're trying to reduce costs, like any other business, we're obviously concerned about any costs that are going up, but that's particularly true in this case due to the lack of apparent depth and understanding in this study.

I also have a concern about being listed as having been consulted in this study. I received a phone call and got a brief update over the phone. I wasn't asked about the subject and didn't offer any opinions because I really didn't understand it well enough at that time. Quite frankly, I thought it was a courtesy call and that was the extent of my consultation. I have heard that other people in the industry received similar types of consultation, and I believe that is a serious problem.

Secondly, I'm concerned about what the mechanism will be to control this type of fee in the future. We at Sifto are very sensitive to this issue due to the current situation we have with wharfage. I recognize that there are real problems in the port system in Canada, but we aren't the problem. In our opinion, we're in a situation where we've gone from having a user charge to having a tax. When this fee or tax is increased there is no real input from the users, and once it's changed it's very very difficult to try to reverse.

So our experience with wharfage makes us very concerned about any new fee that's imposed without having the proper analysis done on what it's going to do to the competitive position and without any mechanism to control it in the future.

Thirdly, we're concerned about the compounding of fees. I recognize that when I talk about wharfage it's really a different part of the government, but to us it really doesn't matter. They're all charges that flow through to our bottom line as costs to us.

In our case, wharfage is currently 61¢ and it's proposed now to go to 64¢. I think the harbour dues will add about 5¢ a tonne to our costs. Quite frankly, I have been unclear all along on the impact of the marine services fee, but the last estimate I have is 5¢ a tonne. So the total is 74¢ a tonne.

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Mines that we compete with in the U.S. pay 4¢ or a little less for the harbour maintenance tax. We do receive more services, including the dock we use, but I'm not convinced.

We've done a great deal of analysis ourselves, and the 70¢ differential we would pay under this scenario is not justified. It amounts to $1.75 million per year on a commodity the government gave a value of $30 to the last time the wharfage increase was made in June 1995.

The fourth point is quite simple. We compete directly with producers in the U.S. In many shipments they'll use similar services to Sifto Canada Inc. Under the current proposal, as I understand it, we would pay and they wouldn't. I don't think that's fair and I don't think it's good for Canadian business.

The last issue is coast guard costs reduction. As I mentioned before, industries such as ourselves have done an awful lot of work in the last few years to try to reduce costs. Quite frankly, we don't consider the level of cost improvements by the coast guard to be a serious attempt at cost reduction.

We believe a complete analysis of the services that are required should be done and then a system should be designed to provide those services. If that were done, costs would be reduced to the lowest possible level and users would have some real input into the process. I believe the bottom line on this is if industry is expected to pay the cost, the coast guard must do this to show it's serious about controlling the costs.

In summary, first of all, a proper analysis should be done of the fee, including the compounding effect of all government fees in the marine industry and the uneven playing field that's being created between Canadian and U.S. producers. I believe there are better mechanisms required to control fees in the future, and an analysis needs to be done of the coast guard requirements and services provided, based on the needs of the users.

I'd like to thank the committee for the opportunity to speak to you today. I believe it is a step in the right direction to get some real input from the users in the process.

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

Mike Jennings.

Mr. Mike Jennings (Division Manager, Raw Materials, Purchasing and Material Handling, Algoma Steel Inc.): Thank you. I'd first like to start by reviewing our geographic area of operations and markets. It's on the second page of the brief.

Our steelworks located at Sault Ste. Marie is on the headwater of the St. Marys River. It was located there almost 100 years ago by an entrepreneur because of its proximity to raw materials, mainly limestone, iron ore, electric power and water. To the north of Sault Ste. Marie we show a port of Michipicoten, and Algoma has operated an iron ore mine and sintering plant there. That is 150 miles north of Sault Ste. Marie.

To the west, in the United States at Marquette, Michigan, Algoma Steel has a 45% interest in an iron ore pellet plant. Just to the south of Sault Ste. Marie, on the American side, in northern Michigan, we purchase our limestone. Our coal comes to Toledo, Ohio, which is on the western end of Lake Erie, at the bottom of the map.

We have indicated that Algoma, and we'll mention it in our brief, is at a geographic disadvantage - I don't have to tell anybody here - in that the major market is in the so-called golden horseshoe or the area from Oshawa to Chicago. Our competitors are also in this same area, so they don't have this freight disadvantage. We cannot afford to give up our advantage on raw materials.

Algoma Steel is the largest employee-owned company in Canada. It is managed in partnership with the United Steelworkers of America. We operate the third-largest integrated Canadian steel plant and an iron mine at Wawa, Ontario.

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In 1995 we produced two million tonnes of steel in the form of sheet, plate, structural, and seamless tubular products. In February there were 5,033 people employed in Sault Ste. Marie and 213 people in Wawa. A very large element - 32% - of Algoma's operating cost is the cost of our raw materials. As I mentioned earlier, one of the prime reasons for our original location was the proximity to our raw materials at the head of the St. Marys River and our availability of water transportation.

We ship five and a half million tonnes of iron ore, coal, and limestone to our steel works atSault Ste. Marie, 80% delivered by water. An additional half a million tonnes of limestone, solid fuel, and iron finds are delivered to Michipicoten Harbour for use at the Wawa sintering plant. All of it is delivered to Algoma by self-unloading vessels marketed by Seaway Self Unloaders.

The United States railways have offered competitive rail rates from our pellet plant at Marquette, Michigan to Sault Ste. Marie, which is about 200 miles. Any additional cost-recovery burden on the marine industry could be enough to remove this tonnage from the marine sector. This would be about half of our total raw material volume.

All of our major raw materials that move by water originate in the United States. We are above the locks in Sault Ste. Marie and, as has previously been mentioned, they're operated by the corp of engineers of the U.S. government. We estimate that our vessels are in American waters 84% of the time. Since 1987 we, like our colleagues, have contributed large amounts to the U.S. harbour maintenance tax, and in 1996 this will be about one-third of a million dollars.

We believe the Canadian government should take into consideration when settling cost-recovery fees that vessels should be paying only for the time they enjoy the benefits of the Canadian system. Algoma's location in Sault Ste. Marie is 430 miles from the major Canadian market and 342 miles from the nearest U.S. major market, the Detroit area. This is a major competitive disadvantage in delivering finished steel, and this is why we absolutely have to maintain economic raw material rates.

The combined effect of increases in public harbour dues and an ice-breaking fee that has not yet been disclosed leads Algoma to strongly support the position of the Chamber of Maritime Commerce, which is that more consultation and study is required before implementation of the cost-recovery measures. In particular, the Canadian Coast Guard must become efficient and identify the services necessary to the marine industry and ensure they're implemented in a way that is fair and equitable to all.

Algoma believes it should be contributing only to costs that are necessary, that are cost-efficiently delivered, and that affect us. This is not in the direct realm of this committee, but the government channel serving the Canadian locks at Sault Ste. Marie has 22-foot draft, while major competitors enjoy loading 26-foot seaway draft. This makes a major difference in the freight rates we pay.

Approaches by Algoma to government requesting channel dredging have not been successful in the past. We've always been told we're responsible for our own dredging. We have had little benefit or use of the Canadian Coast Guard operations. There are four marker buoys leading into our plant, and that's the total of what we use. We'd be quite happy to put them in ourselves every year if this would help.

The Chairman: How much are you going to pay for them if fees come in?

Mr. Jennings: We would probably pay one-third of a million dollars. It can be seen that Algoma's geographic location and draft places us at a cost disadvantage. Any additional cost penalties without evaluation to ensure that a least cost approach is taken will erode our competitive position.

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In summary, water transport is very important to Algoma Steel. We are not a heavy user of services provided by the Canadian Coast Guard. We believe any system of tariffs should recognize the integrated economies of Canada and the United States in the steel industry. We strongly support the Chamber of Commerce position that cost-recovery programs require more work before implementation in order to identify the services necessary and the most efficient delivery system.

I can repeat that we have a disadvantage in draft, which Transport Canada in the past has said is our responsibility, and now they're saying, ``But you're in the Sault Ste. Marie harbour, so pay''.

We have always provided our own dredging and ice-breaking. We do not believe we should be subject to a harbour fee.

Thank you very much for your time and attention.

The Chairman: Thank you.

The coast guard may say that you and all the previous witnesses we've had over the past two weeks really have no intention of paying any fees for anything, that this is a delaying tactic and if it's for a year, then $20 million saved is $20 million saved.

How would you respond to that for yourselves and maybe for your colleagues who have been here before?

Mr. Smith: I was at a meeting in Montreal a few weeks ago to review the latest version of the coast guard proposal, and this notion of a delaying tactic was first tabled by the coast guard. They had called a meeting in Montreal. One of the significant concerns was that we weren't briefed on what the new proposal would be until the night before, yet we had to assemble in Montreal.

I don't think, by saying ``delaying tactic''...industry is not being indefinite, without limitation. What we've put on the table - and I think it's been consistent across the board - is that first we should look in a comprehensive, detailed way at cost reduction and identify that. We think that we, the industry, representing the carriers, can help to identify the services of the coast guard that are required and reduce the cost of delivery of those services. Let's examine in detail the impacts on industry of introducing a fee and come up with a solution that is not going to discriminate amongst carriers, amongst shippers, or amongst the industries or regions of Canada.

I'm sure there will be a better answer than the one we presently have before us.

So it's delay in the sense that what we're asking for is due consideration and due process of trying, as a first objective, to reduce costs and then studying in considerable detail what impacts this will have on the industry. I think the assumption is that by going through that process we'll come together with the coast guard and with the government on a solution that will work.

Regarding the impact of the fee, I find it a bit ironic that the carriers are already spending that much money on introducing DGPS to their ships, which will obviate the need for navigational aids. So you have industry coming to the table and spending money, I think because they believe it's a better system and also because of the reduced coast guard costs. I think that's tangible proof that we're serious and we're committed.

So I don't think it's a delay for the purpose of never achieving any kind of implementation. We want cost reductions as much as government does. It's really so that due process will be followed.

We want to say very clearly here that it's our view that due process hasn't been followed at this point.

The Chairman: Thank you very much.

Does anybody else want to try that? No?

Mr. Bernier.

[Translation]

Mr. Bernier (Gaspé): What the witnesses are saying is very clear. I conclude that they are asking for a moratorium.

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These are not necessarily delaying tactics. They come here to warn us about some risks they know about because they are in close contact with the American market. They warn us that some things may not be equitable.

In the statements by the Coast Guard, there was no reference at all to a study of the impact on industries. Industry representatives have every right to be concerned.

We have heard from many people and you are our last witnesses today. Everything seems clear to me.

Let's take the example of a father who wants to teach his son to save money and to make ends meet. On a Friday night, should he give him $2, on top of the $20 he gave him on the Monday, so that his son can go out, or should he refuse and tell him that he should have managed his budget better?

Isn't that the message the industry is trying to give us? Should we teach the Coast Guard to make ends meet? Then, if it is short by $2, the father, that is the industry, will give it the money. The best way to teach the Coast Guard to save money may very well be to refuse to give it those $2.

[English]

The Chairman: Who wants to tackle that?

Mr. Jennings: I think we are saying that we would like to work with the coast guard to find a way to identify the essential services, because our feeling at the moment is that the coast guard has taken their services, divided the costs, and said, ``Here's your share''.

Mr. Hamilton: Let me add that if we don't tackle the costs now, what comes after the first $2 in your scenario?

The Chairman: Mr. Scott.

Mr. Scott (Skeena): Thank you, Mr. Chairman.

I'd like to begin by thanking these gentlemen for making presentations. As my colleagueMr. Bernier said, you're the last in a long line of presenters who have come before the committee to present your case, and I certainly hope the majority of the people on the committee have very clearly understood the message you've been trying to convey to us. I'm confident that your message has been heard.

The remaining concern that I have with respect to the coast guard is this: I'm still unclear in my own mind as to how you can ever get a monopoly organization that operates on a budget basis rather than on a competitive basis to ever operate on an efficient basis in terms of ensuring that what you pay and what's going to have a real impact on your bottom line, on your profitability and in many cases on your ability to stay in business, is actually a fair and reasonable cost to pay for the service provided. I have a difficult time understanding how that can happen unless there is some kind of competitive principle introduced into the coast guard's operations. If anybody has any comment on that, I'd sure be pleased to hear it. I appreciate the fact that it may be an area you don't want to comment on.

Mr. Smith: You raise an interesting point. One of the reasons why this committee is holding these hearings is that the coast guard wasn't accountable for listening to the industry it serves, so how will it be accountable to the industry for its actions? That's the dilemma we face with government-established monopolies. I think they can be overcome. Certainly monopolies are regulated. I think that introduces...I'd hate to suggest that or propose that as an alternative because it brings with it all sorts of other difficulties and delays, but I think if there were a process....

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One of the proposals put forward by the membership of the CMC is that there actually be a formal process where an advisory board or a council not only assembles itself to listen to the coast guard but also to make decisions and to direct activities. I think that's where the economies and the competitive nature come into play. If you can have the committee give direction on what services aren't required and should be eliminated, I think that puts the issue squarely on the table. If they're not accountable to listen and they're not accountable to act, I think you're right when you say that we just have a dilemma of government spending without any real controls. If you look at the CMC proposal...I think we need a joint industry-coast guard or government forum where these types of issues can be decided and action to minimize costs can be directed.

Mr. Scott: Is it most appropriate for government to be delivering the services that it intends to charge you for, or would it be more appropriate for a private sector business to be delivering that service on the basis that they have to be in competition? If they don't deliver the service in a cost-effective way, there will be somebody else right behind them who will be willing to do so.

Mr. Smith: There's certainly a great number of activities that can be done commercially, and it's our view that they perhaps should be done commercially. There is the example from my associate at Algoma Steel, Mr. Jennings, about paying the charge for the four buoys. The commercial cost of laying and tending to those buoys is quite negligible, so it should certainly be undertaken privately if that's the way it would go.

There are services that can and should be commercialized. I think the government would have to decide on other issues and on the general social requirements for emergency response and for the needs of recreational boaters, commercial fishermen and commercial shippers. I think a lot of things could be commercialized, though.

The Chairman: Walt.

Mr. Lastewka (St. Catharines): Thank you, Mr. Chairman.

I just wanted to clarify a couple of items. I think Mr. Smith mentioned at one point that he had received no response to their concerns from the Ministry of Fisheries and Oceans. I take it these were letters for consultation or recommendations on how to.... What was in your letters that you didn't get a reply to?

Mr. Smith: Initially, as I mentioned, the consultation process was ongoing. We maintained regular contact with our shipper group. It became apparent that the majority of shippers were not being contacted. We ourselves weren't contacted.

So it was really about mid-December to late December, at the time the study was being completed, that we approached the consultants to identify our concern that they weren't getting sufficient input from industry. Shortly after that, or within ten days, they published the report. We identified our concerns to the commissioner of the coast guard and we identified the same concerns to the Minister of Fisheries and Oceans in early March.

Mr. Lastewka: In the various studies that have been taken and in your remarks today, there are many recommendations for improvement and reduction. Your reports kind of centralized that there wasn't enough partnering in getting a resolution on this from the coast guard, from the users and so forth. Some people mentioned that this may be a delay tactic. I want to make sure that I understood it's not a delay tactic.

.1625

If the proper resolution procedure - what we've heard from you three gentlemen today, what we heard this morning and what the committee has heard in the past - were put into place and decisions were made, then you would have no problems even back-dating the resolution you had? Let's say it took nine months to get to where you gentlemen said, with the cost being whatever is agreed upon at that time. Having a back-dated effective date is another thing.

Mr. Smith: Going back in time, it's difficult to recreate business retroactively. The shipping trade is conducted on a voyage-by-voyage basis; once the voyage is done, it's done. So the retroactivity aspect of it would certainly be very difficult to administer and absorb. Solutions have to be identified and implemented from a point going forward, but applying it retroactively is very difficult.

Mr. Lastewka: One of our presenters this morning talked about the coast guard total moneys and said with all the work on cost reduction and efficiency and doing the proper things, it would have been maybe 20% or 30%.

I didn't catch Mr. Bernier's question and the answer completely, but if the coast guard put through an interim rate - because you're saying you can't reconstruct and then go through the process - would that satisfy the industry?

Mr. Smith: Part of the problem we have is with the proposal they have. Even if you were to say it's interim, subject to all the other impacts, in our view significant dislocations are going to be created right from the get-go. Where once something was traditionally a Canadian carrier's business, just because of the implementation of a fee, now it's a foreign-flagged ship's. We have other impacts where customers who use virtually no aids but move a lot of tonnage are now paying upwards of $250,000.

The real problem is the flaw in every part of the program up to this point in time. You have to almost just walk away from that and start building it again. The way you build it is by zeroing in on the cost, using impact assessment methods to assess how it could be spread fairly without creating these kinds of dislocations, putting companies out of business or into business, and then following up with some sort of mechanism that will be able to enforce the proper reactions from coast guard and a reasonable level of costs.

Mr. Hamilton: I'd also like to comment that it would be difficult to accept a new fee without some kind of control mechanism. I hark back to my example of wharfage. Once the fee's established, how do we know where it goes, if there's nothing established before it goes into place? I have a problem with that.

The Chairman: Thank you very much.

Paul.

Mr. Steckle (Huron - Bruce): Mr. Chairman, I'm not a regular on this committee and therefore I really don't have a long background, but one of the disturbing things I've recognized this afternoon is what seems to be a basis of concern by the industry of not having been properly consulted.

To my mind, at least in some of the observations that have been made by you, Mr. Smith, the coast guard's basis of support for the notion of increases in the services fee would be that the industry could support it. I find that rather difficult to understand. I have to accept your observations, but I believe it's in the government's best interests to ensure that industry remains strong in this country. If we want to have a viable economy, it would be in the government's best interests, of course, to ensure that industry, and your industry particularly, remains strong.

Taking the example of Mr. Hamilton, the product they market is a very low-dollar-value product, and a lot of that product ends up actually being bought by government. By raising these fees and the cost as it pertains to this particular industry, again reflecting back to the cost the government pays for that particular product, I'm wondering if we are in the process of putting an industry here in Canada out of business, where we now can turn to other sources to find this product.

.1630

I think there needs to be consultation. At least to us as committee members, there appears to be lots of consultation going on, but today I find that the industry itself, the ones who are doing the paying, have not been consulted. I find that rather disturbing. Do you want to comment on that?

Mr. Hamilton: Certainly that's been our position. I think I mentioned the consultation that went on in my case. I received a phone call and I got a bit of an update on some of the options that were being looked at. I knew the person who called me. I thought it was a courtesy call and that was it. Then the report came out and my name was on it as one of the people consulted. To me that's not proper consultation. To be consulted you need to have the information to make some kind of informed input into the process, and certainly we didn't have that. That's my problem with it.

Mr. Jennings: We're all familiar with this famous word ``restructuring''. Algoma Steel has been bankrupt, and we all sympathize that you have to take costs out of government, but you have to attack the cost side before you decide how to distribute it. This is a major concern of ours.

Mr. Smith: I was just going to add to the comment on the consultation side. I did elaborate a little bit more in the report I submitted, but I think at the time of the consultation the numbers and the formula.... It's not so much the overall revenue target that's the issue but how it's applied, because each new formula has a very different impact. I don't think industry has ever had the opportunity to latch on to a formula to really identify and exhaust to death all the impacts that could occur. The formula just keeps changing, so how can we ever assess the impacts?

Mr. Steckle: I have a concern for industry. Basically, industry must remain strong. We all understand where we're going in this economic period, but I find it particularly disturbing when costs are increased and when we rationalize those costs against a competitor, who happens to be a foreign competitor, who appears not to have those costs and whose margins are small. For us to be doing this to an industry that could potentially be put out of business seems asinine to me. I find it rather difficult to understand why we've done that and whether there shouldn't be a re-evaluation of that whole situation.

I don't want to be a problem creator here at this committee, but that's what committees are for. We're here to understand the problems and for you to be able to address your concerns to the committee so that if incorrect measures have been taken we can correct this.

Obviously we can understand that some may have lesser costs than others, but we shouldn't assume that someone's costs are less because they own a wharf or perhaps have a different way of approaching this. I think there should be a rationale as to how that whole scenario is established. Once those facts are on the table, then I think we can understand from both perspectives how we've arrived at that. There's an understanding and perhaps we can go on from that point.

Mr. Smith: I agree.

The Chairman: Thank you, Paul.

Last but not least is Mr. Culbert.

Mr. Culbert (Carleton - Charlotte): Good afternoon, gentlemen. I appreciate your presentation. It was well done.

I want to follow up on what my colleague Paul had initiated. You would be familiar with this report, the Assessment of the Impact of Marine Services Fee Options on Commercial Shipping Interests. It was a final report, dated December 29, 1995, by the IBI Group in association with the Mariport Group. That's what you're referring to.

I'm looking at certain parts of the executive summary of that, and I just want to detail for my own mind that what's being stated here is accurate. When I read something I assume it's fairly accurate and I can depend upon it.

.1635

I would like to quote to you a couple of paragraphs:

I just wanted to touch base with you on that. I assume that's what you're referring to when you say you were contacted by telephone very briefly and that this was the only type of input from the industry point of view that you might have had.

Mr. Hamilton: You're correct. It was the first input. When the report came out - this is the report that I'm referring to - I was listed as one of those consulted on that report. You're again right that when it came out, it stated that there had been interviews. I did not consider my discussion to be an interview. It was an update. It said there was individual analysis, but I pointed out during my presentation some of the flaws that I saw in the analysis on our particular product.

Also, I agree with what it states at the end about the conflict with other fees. I've also addressed that because the conflict of all these fees is one of the major issues. So I guess I agree with some of what is said there, but not all.

Mr. Culbert: Are there any other comments?

Mr. Smith: I guess the only thing that I can add about the announcement of October 6 that you referred to is that the industry understood that the consultation would occur during November. At that time, there were various attempts to organize lists that were dispatched from the associations, such as the CMC and the CSA, to the consultants identifying interested parties. What happened was that those lists weren't followed. The consultants did meet with or did speak to those listed in their study, I assume - Mr. Hamilton spoke of his encounter - but didn't meet with vast numbers of others.

The consultation period was to be extended into December, and that was at the time.... At some point in time you don't sit and wait at your phone any more, so we contacted the consultants in order to identify some of these concerns that I mentioned here today. We did speak with them at that time, and I think they basically identified in the extended consultation period that they weren't really given the resources to have extended consultations and were primarily working on completing their report.

I think some of the examples and references in the study, where they determined that costs could be absorbed at certain levels.... The point I was trying to make earlier - and there were several examples in the report - was that where there were levels that were assumed, maybe to the order of 4¢ per tonne, for example, they did identify that there could be dislocations and loss of cargoes between 6¢ and 10¢ in the case of something like stone. We don't know what the actual impact to the charge will be because of the methodology problem, but it at least exceeds that level at which the consultants identified that there would be problems.

.1640

I think when you read that the industry could absorb it at certain levels, you have to look at what the level was, what the detail of study was, and whether the circumstance we're in now is different.

Mr. Culbert: Thank you.

Just to follow up a little bit further with people from the business sector, I assume from what you said in your reports that you would support the general principle or general methodology of the user paying for required or needed services. In general, do you support that concept?

Mr. Smith: I think we do, yes.

Mr. Culbert: Following up a little bit more, those three or four buoys that were mentioned as, to the best of your knowledge, all that were needed are pretty costly under the proposal that is forward now. You might do well to buy them with the capital costs and look at maintaining them over a long period of years, whether you do it yourself, it's done commercially, or it's privatized. I'm just wondering whether you have done any cost analysis at all on that scenario.

Mr. Jennings: No. It would be under $20,000 per year for the same service, and we have people in Sault Ste. Marie who could provide it.

Mr. Culbert: Exactly.

In other words, you're suggesting that, from your perspective, what's required could be done much more efficiently or just as efficiently and much more economically either by yourselves or by someone that you could contract to ensure it was done on a....

Mr. Jennings: Just as we do our dredging and ice-breaking at this moment.

Mr. Culbert: Exactly.

The other thing I wanted to fall off on, gentlemen, was an impact study or a process established to prove that there are certain reasonable costs to the industry. If that were done and if the evidence indicated - and I know it's somewhat hypothetical at this time - that there were certain needs of those navigational aids in each one of your respective regions and there were certain costs attributed to them, would that be supportable by industry in your opinion?

Mr. Jennings: We believe there should be safety issues, especially in the shipping industry, when they're necessary.

Mr. Culbert: I understand that it would be up to the ships' captains or those who were working on them in a lot of cases - no question.

Mr. Hamilton: I think the other thing is that these things can't be looked at in isolation - and we already pointed that out - because there are a series of fees that will certainly have an impact.

Mr. Smith: Identifying the actual need of the service I think is the first requirement. I think through that exercise and diligence, we'll find out exactly what is needed. Through a process of looking at need, there are already ways that have been used for years - reporting markers at the Welland Canal, for instance - which serve no navigational purpose other than to tell boats they're two miles off the canal, and that are going to be removed and should have been removed years ago if they're there at all. The improvements in the navigation systems in the carriers are going to obviate the need for many more buoys.

At some point through that rigorous process you may end up with other issues, such as requirements of recreational voters and things beyond commercial shipping, but I think you have to start it and make everybody accountable to come to the table and make decisions and be bound by them. I think industry would support that process.

Mr. Culbert: Thank you, gentlemen.

The Chairman: Thank you very much for coming in this afternoon. Your presentation was very lucid. Again, thanks very much for appearing.

We'll call to the table our final witness, the commissioner of the Canadian Coast Guard,Mr. John Thomas.

.1645

Mr. Thomas has a handout. It is in one language only. Do we agree to accept the handout as prepared and the translation will follow?

[Translation]

Mr. Bernier: Mr. Chairman, thank you for your kind consideration. You are referring to the Coast Guard document. I can understand that industries which come here to make a presentation don't always have the time or the services required to have their documents translated. Since we want to submit our report as quickly as possible, I won't make a fuss this time. I hope that, in the future, government agencies will give us, at the same time, a version of their brief in both official languages.

[English]

The Chairman: You're absolutely correct, Mr. Bernier. It is government policy to have presentations in both official languages. Unfortunately, in this case we don't. Thank you for your cooperation in the matter.

Mr. Thomas, you were the first and I guess you're going to be the last. I know you've been kept up to date on what has been reported to the committee over the two weeks of hearings, in terms of the problems the industry identified over that period of time. We look forward to your presentation this afternoon and the questions that will follow.

Mr. John F. Thomas (Senior Assistant Deputy Minister, Department of Fisheries and Oceans; and Commissioner, Canadian Coast Guard): Thank you.

Good afternoon, Mr. Chairman and members of the committee. Thank you for giving me the opportunity to come back to you again regarding the marine services fee. I'd like to commend you for the amount of time you've put into listening to a broad cross-section of marine interests in this regard over the last several weeks, from the end of March until now. I'm certain that you now have a heightened appreciation since we started two months ago in terms of the complex nature of the marine transportation system and the vital role it plays in the continued prosperity of this country.

The coast guard was presented with the unique and very difficult task of building consensus around the notion of cost recovery. We have achieved virtually unanimous consensus that there should be cost recovery. It has been much more difficult to reach agreement on how to best collect the fees. There is agreement that we should do it, but I cannot say there is agreement as to how we should do it.

We have been consulting for almost a year, but I guess it bears saying that consultation doesn't always result in consensus. In fact, if I could quote a colleague of mine, Frank Nicol from the Shipping Federation, there's absolutely no magic bullet for cost recovery, and why would one expect there to be a magic bullet? It is just too difficult to think that various interests from across the country would have exactly the same perspective on how one should approach it.

I've been following submissions made by industry during these proceedings and I welcome this opportunity to clarify some of the points they have made. If one were to believe everything that's been said here, we'd be collecting about $100 million instead of the $20 million the coast guard is looking for. There would be tens of thousands of jobs, people actually put at risk. Single-handedly, according to some, the coast guard would be destroying the commerce in eastern Canada. That is clearly an exaggeration of the worst kind. It's what I would term scaremongering. I think it's based on being ill informed.

Let me give you three examples. We talked with Hibernia, which estimated its cost would be $1.6 million to $2.8 million. After meeting with them and spending a few hours we reached agreement that in fact the total cost to them with a $60-million fee would be $750,000, roughly one-quarter of what they thought it would be.

Mr. Sirois of Canada Steamship Lines estimated the cost to the Great Lakes and seaway was $8.7 million. The total cost for domestic in those same areas is $5.7 million.

.1650

Glenn Mifflin, when he came in from NARL, said he could save $20 million in Newfoundland. Well, the total cost in Newfoundland of all aids to navigation is only $11.9 million.

I believe people are coming forward with information and putting forward statements to you that have been somewhat misleading in exaggerating certain points. To address those inaccuracies and concerns, I'd like to provide you with more detail regarding why we are implementing the marine services fee now. I'd like to demonstrate some of the measures that we have taken to reduce costs. I'd like to look at the approach we have taken towards consultation, and finally give some consideration to the cumulative impact of the cost recovery. All of those subject areas are issues of ongoing and continuous concern voiced here at the committee.

If we look at the marine transportation system as a whole, we know that the global economy is dependent on international marine trade and that around the world, in order to be more competitive, governments as a whole have moved to reduce their costs, that is, what they would consider to be subsidies, while implementing some form of fee for services. The United States, the United Kingdom, Australia, Sweden, Finland and Norway have all implemented cost recovery. In fact, in many respects Canada is the last one to implement cost recovery.

So the notion that we are doing something that will move us to a competitive disadvantage with the rest of the marine trading partners is wrong. They're already there, charging fees.

In order to remain competitive, Canada is implementing a number of changes to further commercialize the marine services provided by the government - a broad range of services. They are doing this primarily because I believe it's generally recognized that we have an overbuilt and heavily subsidized marine transportation system.

If we look at public ports, we clearly have overcapacity and significant inefficiency. Eighty percent of marine traffic passes through only 40 of the 572 sites that are under the responsibility of the Minister of Transport. The Government of Canada is therefore looking to commercialize the public ports. They want to withdraw from direct operation and enable users to have more say in how it's going to work. While the commercialization of public ports may have impact on some communities, there should be a neutral to a positive impact on shipping.

As the ports become more efficiently run by the private sector, the cost to industry has to go down. That's the whole point in doing it.

If we look at the St. Lawrence Seaway, the seaway is currently able to fund its own operations. The government is going to retain responsibility for the assets and any major maintenance of those assets so that the commercialization of the seaway should provide benefits to the shipping industry. The tolls should either be able to be held or even reduced. The private sector is going to run the seaway even more efficiently than it's run now, and, again, that's the whole reason for doing it.

We are reducing the subsidies on ferries. The annual federal contribution to Marine Atlantic, for instance, is going from $113 million to $70 million by 1997-98. At the same time, the ferries are expected to pay their fair share of the marine services fee.

Pilotage across the country is virtually 100% self-sufficient, except for the Laurentian pilotage. There is a deficit that has grown over a number of years until it has reached a total of about $5 million. One would expect to see that disappear over time either through a combination of cost reductions and/or increased fees, but that's $5 million for all of the shipping in the Laurentian.

So if you look at all of those changes that are being made to the marine policy area, the marine mode, it's hard to see that the cumulative impact from these marine initiatives, which people have been worrying and sweating about, will harm them. In fact, they are intended to be generally positive for industry and will definitely be of benefit to the taxpayer.

We turn now to the coast guard. We are taking bold steps to help reduce the deficit while continuing to meet the high standards for safety that we're known for. In doing so we have a rigorous plan to move to a more commercialized operation through three parallel activities - not sequential, but parallel activities. We are reducing the cost of operations and fleet size. Through consultations with the industry, we are asking them: ``Are these the correct levels of service, and if they're not, how can we best reduce them to meet your needs?'' Third, we're reaching agreement on what is the best way for charging for those services, the marine services fee.

.1655

During these proceedings the Chamber of Maritime Commerce has characterized the coast guard's cost reductions as trivial, stating that we are only reducing our costs by $10 million a year in the last three years. This is false and misleading.

In fact in 1998-99 we will be nearing the end of our reductions in the programs and still we will reduce our annual expenditures by $16.8 million, with a further $48.9 million in 1999-2000 and a further $14.5 million in 2000-01. In total the coast guard will be reducing its costs by $200 million per year. That's not $200 million cumulative; that's $200 million per year.

If we include revenues, the coast guard's government appropriations will be reduced by$271 million. For the taxpayer that's a 50% reduction in appropriations. That is not a trivial exercise in anyone's imagination.

In addition to the program review and the strategic reductions, the ones that make up the$200 million, our share of the department's corporate overhead reductions - that is, things that are not within the coast guard but provide us personnel, financial and informatic support - is a further $18 million. So clearly the coast guard is cutting its costs harder and faster than the demands that are being placed on industry for revenue generation.

In my first meeting with you I provided some information regarding the reductions to show that by the time we have moved to a $60-million cost recovery - that is, where we have the cumulative $120 million from industry - the coast guard will cumulatively have $550 million in reductions and growing. So we're cutting harder and faster.

If we look at the details, there continues to be this question about the coast guard costs. People who say they don't know about that haven't asked or haven't been party to it. We have provided the information in great, gory detail to the Marine Advisory Board, looking at all of our cost reductions. It's public information. It's available. If somebody wants to know or they don't believe, ask; we'll provide it for them.

Some of them are clearly well understood, such as the de-staffing of the light stations and the integration of marine communications and traffic services. People know because they see us moving out of facilities, for instance from Yarmouth as we moved to Saint John, and in many other areas across the country.

They know we have implemented the environmental response organization, because industry is now charging for the fee. They know we have reduced our services in the Arctic and the south by removing a number of ships.

They know we are putting in place precision navigation because they are helping to fund it as we put the equipment on their ships. They know we are working at the automated information system because again they're helping to fund it.

These are not secrets or things that are not known. I think it's just that some people would prefer not to recognize them.

In terms of consultations, we started with the Standing Committee on Transport about a year ago. There was a comprehensive study that looked at the whole of the marine transportation sector. They went across the country and heard from interested parties, including provincial governments, municipalities, labour, shippers and marine industry. Many of the people you've heard from actually took part in those studies.

In its final report the committee made six recommendations for the coast guard. A number of those recommendations have already been implemented or have begun to be implemented, particularly in the area of cost reductions, dredging, ice-breaking and search and rescue. Those are all being implemented.

Of note was the committee's recommendation regarding cost recovery and the role of the Marine Advisory Board. They recommended that there must be full and open consultation on the development and implementation of any national cost-recovery program for marine services and that the Marine Advisory Board should play a pivotal role in the process.

.1700

The Marine Advisory Board, established in 1994, assists the coast guard in matters of strategic policy and planning and provides a forum in which the coast guard commissioner can meet with the coast guard's clients to discuss specific marine issues. It is an open forum in that respect. The membership is comprised of individuals representing a cross-section of marine interests across Canada.

We have met with the Marine Advisory Board for about a year and a half. Over the last several months we have met monthly on the subject of the marine services fee. We have had full and open consultation using the Marine Advisory Board as a focal point but then going beyond the board to do validity checks, if you like, to go out and talk to other parts of industry.

Part of the consultations came back to say that we should expand the Marine Advisory Board. We have done that, or are in the process of so doing, depending on how the responses have come in. We have taken six people off the Marine Advisory Board and we are adding six people to the Marine Advisory Board. We have invited the Chamber of Maritime Commerce, SODES, and the north shore of Quebec. We have invited Newfoundland and New Brunswick, and they have responded. We have invited Nova Scotia, and we're still awaiting a response.

So the Marine Advisory Board will continue to be the focal point for our consultations with the industry as we modify and shape it to make sure it reflects the broad needs out there.

In October 1995, after discussions at the Marine Advisory Board, a consultation paper was widely distributed that set out the various fees and charging proposals. Then, in November 1995, we announced that we would extend the consultations to a greater number of individuals. We wanted to bring more people into the discussions than were involved around the Marine Advisory Board.

We sent that paper out to about 150 people, and we have had more then 350 submissions back from individuals and organizations. We have extended the consultation period. We initially had hoped to target the introduction of the marine services fee for April 1, but we moved it to June 1 in order to allow time to build further consensus around the fee proposals.

In keeping with the principle of user pay, user say, the coast guard has modified its fee proposal to ensure that it remains fair and equitable. Consultation means that you establish a starting point and then, through discussions, you modify that starting point to try to take account of the needs of everyone to whom you're talking, which is what we have been doing.

The coast guard has been criticized for changing the proposals. In the same breath, it has been accused of not listening to the users. You can't have it both ways. The key principle of consultation is that you have to listen to the concerns and modify the proposal, which is what we've been doing. I maintain that we've adhered to this principle and have remained flexible throughout the entire process.

If we look at the principles around the marine services fee, the government's position on cost recovery is clear. Those who benefit from a public service should pay a portion of the costs of providing that service. Consistent with the government's strategy to reduce the deficit by reducing costs and shifting the burden from the taxpayer to the user, we do look forward to implementing the marine services fee.

This is the first time that industry will be paying for these services. They pay nothing for the services now. This will be the first time.

Because of that, we are phasing in the fee over four years. We are starting with a revenue target of $20 million in 1996-97. We plan to move to $40 million in 1997-98 and 1998-99. Then finally, it will go to $60 million in 1999-2000.

This phasing in was to allow time for industry to adjust to these new costs. It wasn't blindly stated that we were going to impose it and do it now. We were thinking in terms of how to - not soften the blow - work with industry to put it in the fairest way.

The level of revenue that the proposed 1996-97 charge will generate constitutes only a small portion, in fact 10%, of the cost of the services we're providing to the commercial sector. We're having this difficulty of going from zero to 10%.

When I listened to the last speakers, there was this question about having to reduce the cost before starting to charge. Well, do I have to reduce the cost by 90% before I can start charging anyone? That seems to be the implication.

.1705

We are only charging 10%. We are continuing to make cost reductions, but that doesn't mean you have to do all of one before you even start the other.

The fee is small relative to the service being provided to the commercial sector. Initially, the fee will be applied to aids to navigation. We're still planning, with your concurrence and with the minister's approval, to implement it on June 1, 1996.

The fee will be extended to ice-breaking in time for the 1997 season. The phase-in period came out of our initial study, the IBI study, as it's referred to, as the most appropriate way of implementing this. We need more time to examine ice-breaking. It was realized to be a more sensitive and difficult area. That's why we separated aids to navigation and ice-breaking in the first instance.

But here's a point to remember. While it's the most sensitive, the majority of the ice-breaking services are currently dedicated to providing public benefits and the costs associated with those services are not going to be charged to the commercial sector.

That's exactly the way it is now. Separate fees are being established for aids-to-navigation services and ice-breaking services. We want to ensure that only those who benefit from ice-breaking will contribute to the recovery of the costs associated with the service.

To reflect actual costs, we have separated the fee structure for the west coast, the central and Laurentian regions, and for the Atlantic coast, with each region paying the same share of their region's cost. That is seen as being an incentive for the regions to work with us to help reduce costs. It would reduce their share of the total package, so there is an incentive in it.

We also have incentives for practices such as double-hulling and upgrading navigational systems to encourage environmentally friendly practices and to promote a safer and more efficient marine transportation system.

For double-hulled tankers, we are making an allowance to relate more closely to the effective cargo space. So it's not an incentive, except when we measure the size of the ship. We are taking into account that it does have a double hull and you can't carry cargo into it. That's part of the regulations. In general terms, that means that for tankers, there is about a 13% reduction over what they may have assumed as being the basis for the cost.

Virtually all of industry would like to see an implementation delay of one year. And why not? It would mean they would save $20 million. However, based on the current proposal to implement the fee this year, I believe that the feelings of industry could be summarized as follows.

The west coast industry supports the regional proposal. More importantly, they've taken progressive steps to develop a self-management approach to cost recovery. They are working now on a system to do the invoicing and billing and to recover the costs. Their aim is to reduce the administrative costs - in fact, their estimate is about $100,000 - because they also have to pay for their own administration. So they have taken this in hand. They've taken a very strong stand with it.

If we move to central and Laurentian, while the foreign-flagged shipping would prefer a national fee, they will generally support the proposal. Domestic-flagged shipping would prefer to see a national fee and a delay until the economic impact study is completed.

However, it's important to note that the difference between a national fee versus a regional fee is about 1¢ per tonne. So to argue for a stop as we move to one fee structure or to force a disagreement by forcing one fee structure, means a difference of 1¢ per tonne.

If we look at the Atlantic proposal, it has gone through some significant changes. The other two have remained the same for the past month or two, in fact. As for the Atlantic people, we have met with them almost on a biweekly basis. We met with them initially when we talked in terms of the tonne-mile approach. There was general agreement that, over the longer term, we should move away from the tonne-mile approach to look at something that was port-specific.

In the meantime, it was agreed that we should look at putting a cap on the maximum tonnage charged. Everyone realized that the mileage wasn't fair, so we had to make some adjustment, either a sliding scale or a cap there. We had to look at something for the low-value bulk.

.1710

Around the table there was general agreement that we had to make allowances for all these factors. We continued to do that, and that's why the proposal was changing. A week ago in Saint John we finally put forward two options to them. We said here is as far as we can go with the tonne-mile basic formula with all the adjustments made to it, but what we would prefer to see - and we would like your input on this - is something much more equal, something fair across the whole of the Atlantic, and that is the same fee of 17.5¢ per tonne with a cap and through shipment and so on.

We had invited something like 30 representatives from industry to the meeting, representing all the provinces, as well as provincial officials. I would say that once again people don't want to pay the money, but if they have to pay the money, on the basis that we are moving to seriously consider port-specific, the vast majority of the people there do accept moving to the proposal that's on the table now.

There are some notable exceptions to that, and in fact the exception is primarily Halifax. Halifax would prefer some form of port-specific fee in the first instance. We have said that we will seriously consider that with them and we'll move to it as quickly as we can. We're targeting April 1997. We do have a costing model in place. We do know what the costs are. What we have to do is reach agreement on principles.

For instance, if you're travelling from Yarmouth to Halifax, who picks up the cost of the aids in between? If you move the marine communications traffic system from Saint John to Halifax, what share should be carried by Saint John? They still receive the service, even though it's remoted. Those are the principles we have to go through, as well as the detailing of the specific aids.

In the Atlantic there's only one other significant holdout, and that's Come By Chance. It's not that they agree with Halifax; quite the contrary. What they want is a national fee, because it's their lowest fee, but that's an anathema to Halifax. We cannot work to get a unanimous consensus. At the table of the 25 people who were there, Halifax was outstanding. Come By Chance wasn't there, but I have talked to Glenn Mifflin since then and I know he's outstanding.

There is strong support in the Atlantic for the proposal that's on the table because it's the fairest one. It removes the inequities that the mileage component brought in and that were generally accepted by everyone. Most significantly, the Saint John Gateway Council was supportive of this approach at the meeting. Again, they would prefer port-specific and they'd like to move to that, but at the meeting I had with all the players, that was their indication.

We turn now to the impact. We had an independent impact study carried out in 1995. One of the members was reading from part of it. It concluded that the marine shipping industry could absorb the costs of the various options originally proposed by the coast guard. That assessment was based on interviews with some 150 people. Some of the interviews were more extensive than others. We wanted to get a broad base. It was a survey, not an in-depth study, and it has never been portrayed to be an in-depth study. What we wanted to do was get some feedback from the industry as to what approach seemed best for them and what was the financial impact on them.

We are now looking to go further. It's clear - and the study recommended this - that before we move to ice-breaking and before we move to the $40 million, we should do a more broad-based study. We have taken steps to put that in place, but before a study can be done you have to know what the fee structure is, because that significantly changes the impact. With the degree of firmness that we have now around the fee structure for aids to navigation we are able to start the study. We plan to start the study in May. We hope to determine the ice-breaking fee structure by about June and we would be able to continue with the rest of the study into September.

.1715

We are undertaking a comprehensive impact study. We will be looking at all of the sectors across the country. We will be looking at those sectors in the 28 top ports across the country. We will be building up what the economic impact is on each of the commodity sectors, whether it's aggregate, coal, grain or general cargo. That will be coming out of it.

We are also going to look at the cumulative impact on all of the items I mentioned at the beginning of the study: the privatization of the ports, the commercialization of the seaway, and the pilotage.

But we are also going to be looking at the pollution response fee, which is a fee from one private sector organization to another private sector organization, because it is under the regulatory purview of the coast guard.

We will also be looking at dredging. Through that we hope to determine the combined impact or the cumulative impact of these various fees.

We expect the report to be complete in September in order that you, Mr. Chairman, your committee, and possibly members from the Standing Committee on Transport - because it is a joint study with the Department of Transport - will be able to look at the results of that study before there's any decision to move ahead with the ice-breaking and the next phase of the work.

So when we look at what the impact is in dollar terms, which is less than 2% to 3% of the cost of a ship coming into a port...when we look at it in dollar terms such that it's one-thirtieth of 1% of the value of the cargo and it's only a few percentage points of the actual voyage cost for the trip, when we look at what's happening with the other policy initiatives, which should result in lower costs, not higher costs, for industry from the seaway, from the private station, the ports and so on.... It was that plus the IBI results that brought us to the conclusion that overall we could move ahead with the$20 million, but we would do the more in-depth study before moving to the $40 million and then to the $60 million.

If clear inequities are shown through the study, it is our intention to make adjustments to ensure that the marine services fee solution remains fair and equitable. We do intend to do that.

In conclusion, you've heard from industries that there is a general recognition and acceptance that they should contribute towards the cost of the marine services that support their specific operations. Let me remind you again that this is not a dollar-for-dollar exercise. We are looking for a small portion. We are looking for 10% of the costs in this first year. That's all.

The notion of cost recovery for the marine sector is not a new concept. It's been around for about ten years and has been constantly fought by industry, and up until now industry has been winning. There has not been a headlong rush to impose fees on the marine sector. Anyone in the marine sector can go back and quote from various studies, and in fact some of the witnesses have done exactly that.

You've heard from groups like the Canadian Shipowners Association that previous attempts in the mid-1980s to early 1990s resulted in the status quo. Industry countered the government's proposal for cost recovery with arguments related to the lack of consultation and to improper evaluation of the services required by the clients. Their arguments have not changed - they quoted them again - but we have. I hope you see that the extensive consultations that we have been in, that we are in now, and that we continue to be in, overcome what seems to be one of their major concerns.

Likewise for the examination of the service: the task force examining ice-breaking is made up of the industries and is led by industry. They're examining the level of service. Mr. Hall is part of that task force. He said at the last meeting that they do not require ice-breaking in the Great Lakes in the winter so we won't provide ice-breaking in the Great Lakes in the winter. If they don't need the service, why would we provide it?

I'm sending out a letter to all of the members of the CMC in Ontario to confirm that they in fact don't want the ice-breaking services, in which case we will just cancel them. We are listening and we do provide the services they require.

.1720

Industry has sent a resounding message that they should not pay for services until we reduce our costs and our levels of service. We are reducing our costs by $200 million. We are reducing our levels of service. Ten ships are being decommissioned out of the coast guard. Forty-one ships are being decommissioned out of Fisheries and Oceans. They're being taken off the books. Ten of them relate to ice-breaking and aids to navigation. Three large ice-breakers are coming out of service in the east. That's the only way to reduce costs and reduce level of service.

Industry can no longer use the excuse that the services are too rich or the costs are too high. We are bringing our costs down drastically and we're asking for only a small portion of the cost. We're asking for 10%.

The government's position on cost recovery is clear. Those who benefit from a public service should pay a portion of the costs associated with providing that service. All other transportation sectors are already doing that. Most of the other modes are already at 100% cost recovery. That's why CN and the air navigation system have been privatized and that's why we can look at privatizing the seaway. If you look at the roads, if you look at rail...all of it has moved to 100% cost recovery or as darn near to 100% cost recovery except for the marine mode, and now it's our turn. It is our turn now to help contribute to the deficit reduction and to reducing the burden on the taxpayer. That's what this is all about.

You've heard countless stories of the death blow that will be delivered to industry when this fee is implemented. Let's be clear about it. Other countries have had their various fees on marine shippers for many years. To suggest that this fee of 10% of the cost, $20 million across this country, will place our own industry at a competitive disadvantage simply doesn't stand up to closer scrutiny.

Many of the changes in the marine policy, such as the privatization of ports and commercialization of the seaway, should in fact reduce costs and be benefits. It's not something that should be fought. People should be eagerly embracing it. The marine services fee in virtually all cases represents only a small percentage of the cost of bringing the ship into port.

I would like to add that Mr. Dominique Taddeo, president and chief executive officer of the Montreal Port Corporation, has stated in the press that the issue of marine services fees has been under discussion since the 1970s and that it's time users got used to them. He said, and I quote, ``It's a reality. It's there. The question now is how best to deal with them.'' It's accepted.

Comments have been made to this committee with respect to the lack of consultation. That comment is very misleading. Our clients have participated in many formal and informal forums to voice their concerns and support, starting with the Standing Committee on Transport and including the Marine Advisory Board, several consultation meetings and telephone conversations.

I met personally with well over 800 people from virtually all sectors of the marine industry, in Victoria, Vancouver, Toronto, Montreal, Saint John, Halifax, Charlottetown and St. John's. I've been there talking to the industry. In some cases I've been there several times talking to the industry. I responded to over 300 letters. I can't count the number of phone calls. So when they continue to say that there has been a lack of consultation, I say I don't understand what consultation is about then.

Mr. Ron MacDonald was here for my first appearance in front of this committee and stated that the coast guard's consultation efforts should be held up as a model for other governments. We have been bending over backwards to be flexible, to listen and to adjust to the concerns expressed to us.

Now your committee has provided yet another forum for industry input. Few initiatives receive this level of public comment or input. This input doesn't end with these hearings. After all, it's really counter-productive to change our programs without listening to those we serve. We intend to do that.

The marine industry in Canada has long enjoyed one of the safest marine transportation systems in the world, but this system comes at a price. We've taken exhaustive steps to maintain this important safety net while dealing with economic realities. We're going to continue to explore with industry opportunities to reduce our costs through adjustments to our levels of service and through the use of available and proven technologies. In doing so, we will ensure that those who benefit from this public service pay a portion of the cost associated with providing that service.

.1725

Today I'm challenging industry, in the spirit of cooperation, to work with us to implement a fair and reasonable marine services fee.

Mr. Chairman and committee members, I thank you for this opportunity to speak with you again. I trust my comments will help clarify this very complex issue and provide you with some of the information you may require for your deliberations.

Thank you.

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

We'll start immediately with Mr. Bernier.

[Translation]

Mr. Bernier: In our case, we are reaching the end of what I could call a marathon. When you are in a marathon, you sometimes run out of breath and you hear or experience things which are sometimes painful. However, let me reassure Mr. Thomas and tell him that I am enough of a big boy to know the difference between fibs and the truth.

We had a succession of some 50 people come before us, and what they had to tell us doesn't boil down to only fibs. On top of that, we are all familiar with the saying that where there is smoke, there is fire.

I am not saying that all the work that was done has no value. I was a bit sceptical at the outset, when I heard that you were going to come back and plead your case again, but I don't regret it.

I still have my doubts and wonder in my mind whether the industry's concerns about the impact study and the charges it will have to pay are justified. Some established the cost of navigation aids at 30% and others, at 10%. I don't want to get into a number fight, but I understand that you cannot measure the impact this proposal will have on the various sectors of the industry. To me, that a serious thing.

The Coast Guard is saying that only navigation aids are involved, but I think it's only the tip of the iceberg. We hear about charges to be implemented later on for dredging and ice-breaking, we hear about the privatisation of ports which will add further costs, and this is in regard of only one element, that is the transportation costs which will be charged to industries. We have to remember that industries are also charged, or taxed, by other sectors.

These people were asking us to help them clarify things and assess the problem over time, but we can't do anything at the moment.

I was also very impressed to see that the industries which came before us had a very mature attitude and were good corporate citizens. I know that most of them want to contribute their fair share to the deficit reduction.

Right now, there is no consensus about the overall impact of the proposal. This concern has to be taken into consideration, and you have not managed to do that up till now. I don't know what else to tell you.

Your recognize that you have not reached a consensus about ice-breaking and dredging and, to be logical, you decided to establish more committees and to delay a decision about this. You were right to do so but, if we follow the same logic, why not delay the first stage, that is the charge for navigation aids, and wait until we could present the industry with a fee package? This would also allow us to control the risks and the concerns that people have.

.1730

I don't know how the billing is done in other countries and to what it could be compared here. Most likely, many companies don't know either. However, several of them have showed us that their profit margins were very small and that, as a consequence, they had to move large cargoes and therefore use marine transportation.

We should not put in jeopardy the advantage there is in being located near water, an advantage sought by many because it solves a lot of transportation problems.

So we have to take these concerns into consideration. Are you really under any financial constraints set by Treasury Board, or do you just want industries to get used to the idea of paying a portion of the costs?

[English]

Mr. Thomas: Mr. Chairman, I'm proceeding with this quite simply because I was directed to by the minister, and the minister was directed to by the government.

The government took a decision in the budget of 1995 that the marine services fee was going to be implemented. Since that time I've been working with the industry to find the fairest way of doing that, putting it in slowly at 10% of the total cost. When we finish it will be 30% - that's where the 30% comes from. But we're starting at 10%, the $20 million. It's seen as a slow, methodical way of going about it, but again it is only $20 million out of the total costs that are coming in from the industry.

I'd like to go back to some of the points Mr. Bernier raised, Mr. Chairman. Not everyone is trying to mislead this committee. I didn't say that and I don't want to imply they were. I said there were some statements that could have been misleading, and I mentioned what some of them were. But sometimes it's misleading when someone takes a calculation and, in all honesty, thinks that's the fee. I'm saying that because of a lack of understanding, it wasn't the right fee. That's why you end up with a feeling that the cost is $100 million when it's only $20 million.

When you say there's no smoke without fire, why would the industry want to pay $20 million? It doesn't want to pay $20 million. If it could be delayed, that would be a benefit to it. There's no earthly reason why industry would want to, so why would you expect it to come here and say, ``Of course, we want to pay $20 million, and we want to do it right now''? It just won't happen. It agrees with the principle that it should pay, so I'm saying if it agrees with the principle then it's a first step. Could we get 10% of the cost, because it's not a very big step?

The aids are not just the tip of the iceberg, with ice-breaking coming in behind it. The ice-breaking would be coming downstream, but I suspect the ice-breaking costs would be significantly less than the cost for aids, because so much of the ice-breaking is done for the public good.

There are some simple examples one might not think of. For instance, the Constitution agreement with Newfoundland didn't just include the ferry between Newfoundland and the mainland. Part of the Constitution agreement is that the province should not pay for any services we provide. There are services we provide to provincial ferries, for instance, so it would be difficult to charge for provincial ferries unless we go back and change the Constitution. So there are a lot of costs.

Flood control, for instance, isn't just in the St. Lawrence. We do flood control in the Great Lakes, in the St. Marys River and in the St. Clair River. In fact, that's exactly what's going on down there now and why there has been such a problem. So the cost for ice-breaking is fairly large.

When we met with industry, we asked how many ice-breakers it needed for the commercial sector. We were told it needed five large ice-breakers - that's a type 1200 - and five or six of the type 1100s, which is the next step down. It also needed the air-cushion vehicle for flood control and something at certain periods in the Great Lakes, at the end of the season and the beginning of the season.

In fact, because we are taking the ships out, we will only have five ships for ice-breaking, which is what industry said it requires. We will have only the six 1100s, which is what they said they require. Three will be taken out and the rest will not be used for ice-breaking, period. Having said this is a service they need, that is the level of service we will provide.

.1735

When we talk about the tip of the iceberg, it's almost as if something more and bigger is going to come. We're providing the service that industry says it wants, and no more than that. We're charging for a small part of it, starting at 10%. The maximum we're looking at is $60 million at this stage, which under our current budget relates to about 30%.

You mentioned dredging. I know that question has been raised about the St. Lawrence River a number of times. I mentioned earlier that we met with the ports on the St. Lawrence River. To look at the impact, what is the cost of this dredging going to be? It is something like $200 per vessel, per passage. The cost of a vessel coming into port can be in the order of $80,000 to $90,000, depending on the ship. So we're talking about $200 for the vessel and its contribution to the dredging.

[Translation]

Mr. Bernier: As I mentioned, I don't want to engage in a number fight with you, because I don't have the staff I would need to double check everything. All I know is that the industry is being charged.

The industry is not opposed to that, but they would like their concerns to be taken into consideration. These are businessmen who want to be able to make long term forecasts, which is quite commendable.

Everything you said to justify the fees, which will amount to $20 million this year, has nothing to do with the user-pay principle. Rather, it's some kind of tax. I am not really familiar with tax law language, but I know that there is no feedback process. Right now, the client can't say whether it's okay or not. So, this is a tax.

Also, do you think it's a good idea to use the Financial Administration Act to achieve your objective? I would like to know what you think about that. Do you have any legal grounds to say that this is the right instrument? You should know that some witnesses have told us that they would ask the courts for an injunction if you ever tried to go that way. If we come to that, I am afraid lawyers will have to be involved and the costs will be much higher that those which were disputed at the outset.

[English]

Mr. Thomas: I'm glad you raised that point. What I find intriguing is that industry is supportive of cost recovery and agrees with the principle, but now it's going to fight it with an injunction. That means to me there's a good degree of cooperation there.

You say it's a tax. If it were a tax and we put the fee in and the volume of shipping went up, then our revenues would go up. In fact, the reason the fee is going down in the Atlantic and the central Laurentians - it has gone down by about 0.5¢ in the Atlantic and by something in that order in the central Laurentians - is because we've updated the data. The volume has gone up by about 4.5%. Because we're only looking for that amount - it's a fee for service - the actual fee structure is going down.

As Hibernia and the other oil fields come on line and Come By Chance continues to grow, the actual fee will go down. In discussing this with Hibernia, if it were a tax the government would leave it where it was and continue to collect more and more revenue. It is not a tax. It is a fee for service. We know what the services are. The services are being provided and it's a fee for those services. We relate it to the cost of providing those services. We know specifically what the costs are. The costs become the basis for the revenue we're collecting and everybody pays the same. In this first instance, it's 10% of the cost of providing those services.

.1740

[Translation]

Mr. Bernier: Mr. Thomas, what's the difference? Since the client doesn't have the choice to use one service or the other, the user-pay principle doesn't apply. This is why people call this a tax. They have no control whatsoever and, on top of that, the 10% you are talking about is on actual costs. This is why I can't buy your argument.

[English]

Mr. Thomas: Because it's the wrong assumption. I mentioned to you concerning the Great Lakes that the CSA, Norm Hall, who was sitting here at this table - not at this table, but at the task force on ice-breaking - said that the people in the Great Lakes did not need ice-breaking. We won't be providing ice-breaking, so therefore they won't pay for ice-breaking. If it was a tax, they would be paying. If they don't use the service, they won't be paying.

One of the reasons we're taking as long as we are and being as thorough as we are on the fee for ice-breaking is that not all ships that go through in the winter require ice-breaking. There are large vessels coming to Montreal from CAST, and it's the same with Ultramar and others, that by and large don't need an ice-breaker. We are working through a fee so that they don't have to pay if they don't need it.

One thing we've considered is that we would have a flat fee. For instance, we provide ice information that shows them the easiest way of getting through the ice, so everybody would pay for that information. But you would only pay for ice-breaking if you actually use it - fee for specific service. That was the kind of thing being discussed at the steering committee on ice-breaking. It is a fee for a specific service and if you don't use the service you don't pay for it.

There are a lot of services there, like aids to navigation, that are part of the safety net. Yes, you pay for those. I know there have been some people at the table who have said they don't need pilots. When it gets to the point where the pilots and the captains of the ships agree that we don't need pilots, then I suspect we would seriously listen to that. That's not my concern anyway; I don't have anything to do with it. But my point is that you have to talk to the people who are using it, because it is there for safety. You have to talk to them, not somebody who is a lobbyist and not somebody who is managing books. There's a big difference.

Most of the aids we have in place are there because they were asked for. Maybe they'll change their minds now that they have to pay for them and maybe they'll be reduced. But the aids that are in Halifax are there because they asked for them. The aids that are in Hantsport, which happened to be the second-last one I checked on today, were there - and I have the letter; here's what they asked for and here's what they got. We provide the service they want.

If it can be removed safely and that's agreed by the people who are the users, we will remove them. It's not a tax.

The Acting Chairman (Mr. Culbert): We'll go on to Mr. Scott.

Mr. Scott: Mr. Thomas, yesterday in a transportation issues public forum held here in Ottawa, you apparently made the statement that 75% of industry is behind this proposal of yours. As for the evidence we've heard here in this committee, I'd like to show you the briefs we've received. This is your brief. This, for the most part, contradicts that. That's what we're dealing with here on this committee.

I would suggest to you, sir, that 75% of the industry is not behind your proposal. I would further suggest to you, in your arguments that you've had consultation, that we've had industry after industry after industry tell us before this committee that they have not been consulted. They may have received a brief phone call at some point along the way, but they have not been consulted in a meaningful way.

We have received representations from people in the grain industry, aggregate industry, salt industry, petroleum, steel, iron ore, gypsum, fertilizer, coal, electric power, forestry products and aluminium industries, and I'm not sure I have them all. By and large the evidence we've heard from many of these industries is that their viability in some cases is undermined and in some cases is threatening the very existence of the businesses they are attempting to operate.

.1745

In the case of Mr. Mifflin, who you mentioned in your presentation, he has informed us that the refinery he's working for is an extremely marginal operation. It has been teetering on the brink for some time, and it can flat out not afford to pay for services it doesn't require.

The main point that industry has been making is that the coast guard is attempting to implement cost recovery far ahead of when it is implementing its own moves towards efficiency within the structure of its own organization.

I have a lot of sympathy for industry, because I was in business before I took on this job and I know what it's like to have government come along - and in this instance you are government - and impose a fixed cost onto your balance sheet or onto your income statement that you have no control over. If it's a significant cost and it's in point of fact threatening the viability of your business, I can understand why there is such a furore within industry.

I would like to suggest to you that, until you can tell your clients what the cost of specific services are and assure them and have them agree that these costs are in line with what the service should be worth, what you are doing is not engaging in cost recovery; you are engaging in taxation.

This is a point that has been made not only for me. I have copies of Hansard here from when the former Minister of Fisheries and Oceans and the minister who started this whole process, Mr. Tobin, filibustered for eight hours in the House of Commons back in 1986 when the Conservatives were trying to implement cost recovery, and he said these very things: Taxation without representation is undemocratic, and the people who are going to be faced with the reality of these additional fees have to have input.

I would round out my remarks by saying that what it comes down to, in the long run, is how are the taxpayers of Canada going to be best served? First of all, I have no confidence right now that we on this committee know what the impact of this cost recovery is going to be on industry. We've had a lot of industries tell us that they are marginal, and we've had some industries tell us they don't know whether they can stay in business. You are telling us that they're fearmongering. We don't know. We've got nothing to base that on. We don't have a socio-economic impact analysis - an independent one.

You're talking about a new socio-economic report. I'd like to know who's doing it. I'd like to know whether industry's been consulted with regard to this report. I'd like to know whether it's independent. I'd like to know who's setting the terms of reference.

That has to be the starting point. For goodness' sake, the last thing we need to do here in Canada is start implementing cost recovery before we know what the impact is going to be on industry, because if in fact we're penny-wise and pound-foolish - in other words, if we're going to try to collect in the 1996-97 fiscal year $20 million and the net result is that we put some businesses out of work or put them in a situation whereby they have to downsize and they have to suspend winter operations and so on - are we serving the taxpayers well when these people who are dependent on these businesses and these industries for their livelihoods, the people who work in those industries, are out on the street because they've lost their jobs?

I think as a committee and as a government we need to know what the impact is going to be and we need to be reassured that, before we make any final decisions, the industries that Canadians depend on for their jobs, for their livelihood, and for the economic spin-offs they create are not going to be forced into uncompetitive situations whereby we're not going to be diverting traffic to the United States or to other ports.

.1750

We need to know these things before we implement this, and I'd suggest to you, sir, that we don't know that. Until we can identify the specific costs for the services that the coast guard is going to supply, in fact we are not engaged in cost recovery; we are engaged in taxation.

I'd like a response to at least my questions on the socio-economic report that you've announced. Who's doing it? Has the industry been involved? Is it done at arm's length? What are the terms of reference, and has industry been involved in setting those terms of reference?

Mr. Thomas: I'll go through a number of points here.

When I say that 75% of the industry is behind the proposal, I believe that. If I look at the west coast, they would support the proposal. That's 30% of the traffic right there. The Shipping Federation, while they would prefer a national system, will support this proposal, and they have done that here. That's about 25% of the traffic. If we look at the east coast and we take out Halifax and Come By Chance, that's about 15%. All together, that's about 70%. So it's of that order.

Now, when you come to the table here, we have one member from the west coast, where 30% of the traffic supports it. They don't bring one after another saying we support it, we support it, but believe me, we've had several members here - and having read Hansard it looks like they all got the same script - saying exactly the same thing. They're from the same organizations.

So what you're getting are people who are saying no, and therefore that's the picture you're getting on the side here because those are the ones who want to come here. As I said before, nobody wants to pay $20 million, and everybody would like to have it delayed for a year, or two years would be nice. I wouldn't expect them to come forward and say they are anxious to do this, but I would expect people to come forward and say they are anxious not to have it happen.

Mr. Scott: Mr. Thomas, with all respect, I'm familiar with the shippers on the west coast and I know the reason they are not here protesting what is going on right now. They feel they have a partial concession. The fact that the coast guard has at least agreed to break the nation up into three or four regions - I guess the latest proposal is for four regions - gives these people some degree of comfort that they're not going to be cross-subsidizing other parts of Canada that are not as efficient.

But believe me, those people are concerned about the cost of the coast guard's operations and the fact that they want to have cost recovery tied to the real cost of providing those services, as opposed to just pulling numbers out of the air.

Mr. Thomas: I have no difficulty with the last part of what you're saying. We know exactly what the costs are. They're not pulled out of the air; it's not a pro rata from headquarters. We know exactly what the costs are.

We spend money in the region. We know what the budget is for the ships, what the budget is for the shops, etc. We know that. It is a clear-cut fact. In each region we know that. That's the basis for the cost. We have a costing model now so that we can say this is what the cost is for this range of lights, this is what the cost is for this buoy, this is what the cost is of MCTS. We can break it down to that. It's just that we've never managed it on a port basis before.

I can give you whatever degree of detail you want on the information. We have the cost information. No, they don't have it; they haven't asked for it, and there's never been a need for them to have it.

We talk about the witnesses not being consulted, and you went through a number of sectors. There are three or four that stick in my mind. There is a member from the Coal Association of Canada on the Marine Advisory Board. There is a member from Cargill who is on the Marine Advisory Board. He also happens to be on the Chamber of Maritime Commerce. There are two members from pulp and paper, and there will be two more after this change. There is a member from the oil industry, from CPPI. We are changing that now to put CAPP in, because it has a broader base. It includes the producers, and that will include Hibernia and so on.

I don't know what more I can do than have the members of the national associations on the committee. No, I didn't talk to every producer and every shipper, but I have talked to a large number of them and I expected the association to talk to them. We tried to go this way and this was the way we were directed by SCOT to do it, through the Marine Advisory Board.

In terms of cost recovery before cost reductions, I can understand why the people out there, the last three who were at the table, wouldn't know. Again, there's no reason for them to know, but it's not a secret. We can explain to them what we are doing in terms of cost reductions. Before cost recovery, last fiscal year, there was a $36-million reduction. It's not hard to demonstrate that. It was cut out of my budget - it's gone - and I can do that for each of the next years. It shows cost reductions are more than cost recovery - significantly more - and growing faster.

.1755

I've got to come back to my former boss's comment, Minister Tobin, or rather, former minister. You will recall when he had the filibuster he was in opposition, and I think the reason they're called the opposition is they are there to oppose, and he was opposing it at the time. That's what his job was.

Mr. Scott: You mean he changed his mind when he became the minister?

Mr. Thomas: That happens from time to time; it does, because you have a broader base of information and knowledge available to you and you become more aware of what are the right things, and you agree.

The impact study will have the input from industry. In fact, I hope tomorrow to send out the draft terms of reference to the Marine Advisory Board - the new Marine Advisory Board, as constituted - to get their input. The study is going to be done by a contractor; it's going out for a request for proposal. We're looking at four of the large, Canada-wide economic analysis contractors. We have spelled out specific requirements to make sure they subcontract - or maybe they already have it - regional expertise, transportation and economics expertise, the ability to compare our fees with the American fees so we can look at international competitiveness. We've laid out a whole series of things we want; the terms of reference are quite comprehensive. Industry will have a chance to look at that.

As I said, I think May 6, or about that time, is when we have the next Marine Advisory Board scheduled.

Mr. Scott: The industry is not involved in putting those terms together?

Mr. Thomas: I'm sending a draft out to them for review and input at that time. So they are having an input into it. That was agreed at the Marine Advisory Board some while back, and it's always been the case that, again, we will use the Marine Advisory Board as our focal point for input from industry.

So it's four large firms. Undoubtedly there will be a lot of subcontracting in order to bring the particular expertise. We've asked for regional expertise and we've asked that they must be bilingual. We've asked for a whole series of criteria.

The terms of reference will look at every commodity - essentially every commodity of any substance. They will look at the commodity and the impact on that commodity. They'll come at that from 28 ports across the country as a way of focusing their energies into that and determine the impact on the carrier, specifically. We've asked for the shipper specifically and we've asked for the commodity specifically. We've ranged a whole series of them. We've asked them to take into account developing industries that aren't there yet but are under way, like Hibernia, for instance; there are a number of others as well.

We've asked for quantitative as well as qualitative.... We're asking them to look at the$20 million, $40 million, $60 million, ice-breaking.... We've asked them to dice and slice so we can get a picture of it. I've mentioned that it is a cumulative impact study; that is, we will look at all the other factors as well to see how they are combined together. We hope to have that done by mid-September.

The point the minister has made clear is that he does not intend to proceed to the next phase without that study being considered here, at the standing committee or at a joint standing committee, by a number of the members.

The ice-breaking component clearly is a part of that, so ice-breaking doesn't go in either until that study is done.

Mr. Scott: What would be so terrible about waiting to get the results of that study before any cost recovery is implemented?

The other question I have for you is, when you start targeting cost recovery on $20 million,$40 million and $60 million, you're not targeting based on costs; you're targeting based on your internal requirements because Treasury Board has reduced your funding.

Mr. Thomas: No, it is based on cost. If I was at 100% cost recovery, the implication would be correct. But I'm looking at 10%, moving to 20%, moving to.... It's starting at a very small level. What we're asking is whether or not we can build it up to some reasonable amount of cost recovery. Roughly, that one-third of the 180 was seen as being reasonable. So it's based on taking a small portion of the cost. It is based on costs, and $20 million-$40 million, $40 million-$60 million was a way of phasing it in over four years.

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The Chairman: Thank you, Mr. Scott.

Mr. Culbert.

Mr. Culbert: Thank you very much, Mr. Chair.

Mr. Thomas, good afternoon.

First of all, I should just comment that there was a situation that arose - I think it was on Tuesday - with the latest presentation of your figures dated April 10. I think Mr. Wells, a couple of others, and I had mentioned that we hadn't received them. I must apologize to you because they did come into our offices. As you can recall, there was a break, during which we also got a multitude of other material that came into our respective offices from various sources, all on the same subject. They somehow got put into that pile, so we do apologize via that statement because we did receive them.

However, having said that, I have a number of questions. Mr. Chair, I hope you'll be patient with me because I think it's very important as we wind down.

Whether it's 10% or 100% of the fee, Mr. Thomas, who's paying it right now as we speak today?

Mr. Thomas: The taxpayer is paying for the services provided to industry because the taxpayer is providing for the funding of the coast guard and the coast guard is provided to industry for free. So the taxpayer is paying for the ice-breaking for ships coming into port and for the aids to navigation.

Mr. Culbert: So as we speak, whether we've attributed a specific cost to a buoy or any other aid to navigation that we have out there right now, there is no cost against the commodity shipper, the shipping lines, or any other body for any of these coast guard navigational aids at the present time.

Mr. Thomas: That's exactly correct. There is no charge to industry for any of the aids to navigation or for any of the ice-breaking costs.

Mr. Culbert: In other words, as a taxpayer, I'm paying a portion of that subsidization in a sense?

Mr. Thomas: As a taxpayer, you're paying 100% of that subsidization, because nobody is paying anything else.

Mr. Culbert: I just wanted to clarify that point.

I think your comment was absolutely correct - I would venture a guess because I didn't total them up, but I did ask most of them the question - in that the figure is probably in the high nineties when it comes to the percentage of all of the presenters who agreed with the philosophy of a user-pay system. Most of them, though, clarified that - and you also indicated this - by saying that user pay must also mean user say. If they're going to pay the shot, they want to have some input. That's fair ball, and I would concur with it.

I wanted to get clarification on several of the things that came up during our presentations. I think one thing that came up at our meeting this morning was the difference.... Perhaps it's just an oversight or a typographical error, but it's very difficult to justify, for example, in the presentation that was made this morning by the group from Belledune and Dalhousie on navigational aids. Belledune, for example, was listed at 18 aids; Dalhousie was listed at 26 aids. In fact, they indicated to us that in the case of Belledune, from their perspective the actual number was 4, and for Dalhousie the actual number was 13. I think getting these types of differences is an example of the things that really cause difficulties with the industry and with the port authorities. This is what brings on criticisms.

Mr. Thomas: I can explain that. In fact, I can do so fairly precisely.

I was concerned about the fact that Belledune and Dalhousie were slated to pay twice the rate of Halifax because of the mileage component. I wanted to find some way of disabusing people of the notion that mileage was a proxy for service, so I phoned a fellow in Halifax and I asked how many aids there are in Belledune, how many in Dalhousie, how many in Halifax and how many inSaint John. He said he would look and see. He came back somewhere along the line and set 4 as the right number. He said 4 somewhere. It wasn't to me; it went to a third person. It came out of 16. I don't know about Dalhousie.

.1805

In any case, the point you're making only supports my argument even more. If you had Belledune paying twice the fee of Halifax, and they had 4 aids and Halifax had 50-odd aids, plus MCTS, plus they have the differential global positioning system there, plus they have something like 20...a large number of electronic aids. They have three lighthouses or lights coming in. There clearly was something wrong that Belledune was paying twice the rate when they had a small fraction of the actual number of aids.

That was the point I was trying to make down there, and that's why virtually everyone agreed that mileage was off the table. That's why we moved to this different rate. It isn't clear that everybody wants to move to port-specific, but certainly Halifax and Saint John do. Until we move to a port-specific, can we have a level playing field?

Saint John, the port most significantly impacted by the difference in total amount of money, had met the previous day. Bob Youden is, I think, the president of the Gateway Council and he had pulled them together to discuss this. When they came to the table there were about five of them. Again they said that they would accept this option. They preferred port-specific and they said that if we agreed and could commit that we would consider and move to port-specific in April 1997, they would support that this year. That's the largest shipping port in the Maritimes and they agreed to that.

I consider that a really significant breakthrough. From my point of view it showed a port that was not looking after its own self-interest but at what was best overall. In fact, the Government of New Brunswick has subsequently written to the minister saying how pleased they were that it turned out that way because they think it is being the fairest overall.

Mr. Culbert: I will carry on with some other things that came up in our various presentations to get clarification on them. For example, I want to quote one paragraph from a presentation by the Seaway Competitiveness Study, the Seaway Bulk Carriers and the Thunder Bay Harbour Commission. The presentation was made to us this morning, as a matter of fact. On page 8 they said:

The study that was conducted by the IBI Group in association with the Mariport Group, for which the final report was dated December 29, 1995 - in your opinion does that study cover that intent? It was new to me, but was that a Treasury Board guideline to your knowledge? If so, does that study meet that guideline?

Mr. Thomas: It is a guideline as opposed to a policy. We felt that the IBI study was adequate to address that as far as it went. It went as far as the $20 million. They came back looking at all of it - that is, the whole $60 million, including ice-breaking. In that study they do identify that there are some sensitive areas for that whole package.

.1810

We do recognize that it was a survey. It wasn't in depth - it didn't go into detail - but it clearly stated that we could go ahead with the first part of that, the $20 million, without looking at there being any transfer to American ports or without its damaging in some way domestic shipping.

So the IBI study was intended to address the intent of this guideline. One of the main reasons for going ahead with this more detailed study is that the actual fee structure has to be determined in order to do the study, because you can pay quite differently. So we have proceeded, and we're at the stage now at which we have defined, to my satisfaction, that the fee structure for the first $20 million is as fair and as reasonable as it can be at this time.

When we look at the impact of that fee and others, I believe it will meet the intent of this guideline. With that new fee structure, we would have the more in-depth study before we went further. If the study shows that in moving to 60 or in moving to whatever their share of the full ice-breaking costs might be - that it would be damaging - what we would look at is how you would mitigate those problems. It may be through some other ships, or it may be through capping the actual revenue that would come in. I don't know yet; we'll see what that is.

By doing it over four years, there's a feeling that industry would be able to adapt to that new cost. It is a new cost structure that's being put on industry. They haven't paid for it before, and it would give them time to adjust to that.

Mr. Culbert: I have two other points here that came up in presentations, again referring to the presentation of the Baies des Chaleurs marine task force. In two sections, under their founding principles, it reads:

Below, on that same page, it reads:

I assume that was a transport committee report they were referring to. Can you -

Mr. Thomas: I want to make sure that all of these references to reports and so on are correct. There was a recommendation in the Standing Committee on Transport - the Keyes report - that related to the fact that we had to have a plan in place for these reductions before we went to cost recovery. We have a plan in place. We have implemented the first year. We have achieved$36 million in reductions. We are now into the second year of it. Overall, the plan will result in a $200-million savings. Not only do we have the plan, but it's implemented before we start the cost recovery.

In terms of the commercialization, in Fraser River, as an example, we have had discussions with them with respect to their taking over the dredging. Further to those discussions, we've also asked them to consider taking over the rest of the navigation aids in that port, and they were looking favourably on that.

Whether or not you call it a commercialization - and that's my only hesitation - it's a port taking over its own services, which I think is the intent of the comment you made. One-third of all of our buoys are contracted out now. Again, I don't know whether or not that's considered commercialization. It's done by contract - one-third of all of our navigation aids.

We are looking, with this cost reduction plan we have in place, to put in precision navigation. Our feeling is that somewhere, depending on which body of water you're in, the number of floating and fixed aids will be reduced by 50% to 70%, maybe even 80% in some bodies of water. We have confirmed that ourselves. We have looked at the Canso area and it's 70%. We are doing the Bay of Fundy now. We are going to do the St. Lawrence River as soon as we can clearly get through there all the time. We have checked on the west coast and it's a lower amount simply because of the nature of the aids.

So we agree that we'll probably end up with something in the order of a 50% to 70% reduction in aids across the country. Once we've done that reduction, because we need to put in that new technology, then one would look at further commercialization or contracting out. But to contract out something that we know starting next year we're to remove doesn't make any sense.

.1815

That's only the buoys. When we look at the marine communication traffic services part of it, we are currently working in partnership with industry in the river, in the Great Lakes, and on the west and east coasts, with respect to precision navigation and new technology called automated information systems.

Part of what we've been looking at, which is the information that has value for the commercial sector, could be privatized. We have demonstrated the system to one of the Great Lakes shipping companies. I believe it was Paterson, but I might be mistaken. They were quite taken with that system because they were looking at developing something similar. My understanding is that he's bringing some of the rest of his management team to look at that, so there might be a joint development. There is a commercial value to the information. They were already developing it, and maybe there are some savings. Commercialization of part of the marine communications and traffic services is not only a possibility, but it's something we are working towards.

Whether or not we're talking about the fact that we have one-third of the aids contracted out now or the fact that after we introduce the new technology and the numbers go down, we're certainly open to that. In some ports, like the Fraser River, we are already doing that. If somebody else came forward we would do the same thing; we would discuss that with them.

So if Halifax comes forward and says we want to take over the aids in Halifax, we'll talk to them about it. But I really want them to understand what all the aids are. I believe they're thinking that if they take out a number of the small aids, they've solved their problem. I'm saying fine, but are you also going to look after the electronic aids? Are you going to look after MCTS? You just keep going through the whole business. We'll certainly talk to them about it, or anybody else who comes along with a back-to-nature proposal. We've had a number of them.

The Chairman: Mr. Byrne.

Mr. Byrne (Humber - St. Barbe - Baie Verte): Thank you, Mr. Chairman.

I appreciate your testimony, Commissioner. It is important, I think, that some of the issues and the opinions are clarified. Just yesterday we received a brief from an industry player who suggested to me that there were no cost reductions going on within the coast guard, and I'm pleased to hear from you that there are cost reductions in the order of $200 million at the end of the cost recovery program review period. I think that's a responsible move. I think there will be a revisiting of this issue by some of those industry players who, after they realize there is cost cutting going on in the coast guard, will probably think it's too much. That's probably a subject for a future standing committee meeting.

I would also like to say that you were questioned on a previous filibuster by an old colleague of mine as well, now Premier Tobin. I would like to point out as a matter of record that under that previous bill there was a filibuster on the basis that the cost-recovery mechanisms were an open-ended affair. There was no upper limit, and, quite frankly, I think this proposed measure within regulation is quite responsible in that it puts finite limits. It invites you to do your research. It's timely in that this particular proposal on the table does set upper limits to what is expected of industry so that they do understand what cost and what recovery will be placed on their shoulders.

In regard to opposition, I believe you have to be an effective opposition. I wonder whether or not we'll have an effective opposition for corporate citizens receiving a service that costs in the range of tens of millions of dollars who are not expected to make any contribution towards those services. I guess we'll have an interesting discussion during the weekend, as we prepare our report, about whether or not corporate citizens will be defended in regard to not paying any sort of consideration towards services that are paid for exclusively by taxpayers but are for the specific use of companies and not the general public.

.1820

There is a point that was brought up in the SCOT report on which I have a specific question. The SCOT report articulated a specific philosophy: user pay, user say. You mention that most of the navigational aids that are in place now were put in place by industry, by lobbying by the industry.

User pay, user say, when there is a cost-recovery mechanism in place, would imply that they would want to reduce their costs, and the best way to do so would be by reducing the number of navigational aids - in other words, reducing the cost of the service to create the argument that they should be paying less.

Do you foresee any problem in the future with a reduction in the level of navigation and therefore a reduction in the safety of both the domestic and the high seas?

Mr. Thomas: First, I'll comment on one of the points. I wouldn't say that the aids were put in place by lobbying. I think the aids were put in place because they were asked for, and if you didn't have to pay for them there was no sense of value for money.

If somebody said they wanted an aid and they said it was necessary, we provided that aid to them. But I think things have changed now, and, yes, there's a very strong move afoot from the industry. It isn't clear to me that they're the users. They're certainly the people who pay, but it's not clear to me yet that they're the users of the aids, there being a difference in my mind.

There will be a reduction in aids, but there's a large part of the reduction that I think could happen quite safely. I think when we put in the precision navigation system...when I talk about the 50% to 70% reduction, there is no resistance or hesitation from the coast guard in doing that. It is a new technology that's coming in - precise navigation - and it will provide the same level of safety. We feel very comfortable with that.

The same thing applies to the marine communications and traffic services. The difference there is that the technology is really reasonably embryonic and it will be a number of years.... Then you have to have mandatory carriage requirements on ships before you can actually do it. So we're not talking about something tomorrow; it's downstream. But again there will be a further cost reduction and no impact on safety.

What we have to watch out for is smaller, almost port-specific areas, where Halifax says they can go from 50 buoys to 26 buoys, for instance. I don't know whether there would be an impact on safety. We would ask the pilots, the users and our own experts, and if they can come out safely we could agree to that, but if they couldn't come out safely then they won't be taken out.

We'll be working with them, but so far we have found that the seafarers, the captains and the pilots are not fools and they don't do things to reduce safety. I think we'll be working very closely with them. I don't think we're going to end up with a reduced safety if we follow through, because we don't intend to do anything that is not safe.

Mr. Byrne: My colleague does his research. It's clause 4 where I think you'll find your information.

You say the articulation of the direction of the coast guard has been on the table now for about a year or a year and a half.

In my opinion, the testimony we've seen at this committee thus far seems to be fairly well orchestrated within the industry. There are a number of different organizations within the seafaring industry, within the marine industry, the shipping community. They've come together with what I think are some fairly consistent ideas about this particular issue that we are reviewing. I think there's been strong communication among the industry players.

During the course of your discussions with them, have they offered to you their own independent socio-economic survey study of how they feel this type of proposal will impact on their industry?

Mr. Thomas: I'm not aware that industry has done any economic studies of the impact on them as an industry. They may have.

.1825

I know that some industry groups, like SODES in Quebec, have been working with the provincial government to do a study. I've seen the terms of reference, which are not dissimilar to what we are looking at, by the way. In fact, they're very close, except it's tailored specifically to Quebec. I don't know that the study is under way; that's the only one I'm aware of. I suspect they have looked at their own particular firm, and maybe even groups of firms, but the other part of it is that it's a very competitive industry. They may be in the same association, but I doubt very much that they're going to be talking to each other about what the real impact is on them.

In fact, when we went out to meet with industry, when IBI did, it was almost impossible to get a real handle on what the financial impact is on the company. Only one has come forward and presented me with information, and that was only when it was very close; nobody else would.

Mr. Byrne: So generally speaking, if you were to put a value on the shipping industry in Canada, which this particular proposal would effect, could you put a ballpark figure on it for me?

Mr. Thomas: We know what the value of shipping is in Canada; it's about $80 billion. It's of that order.

Some ports, some areas, have been increasing significantly. Come By Chance, for instance, had a 400% increase. Other areas, like the port of Montreal, went down a bit. Halifax went down a bit. At the same time, I believe everybody thinks that Halifax and Saint John will be growing significantly over the next few years. Overall there is about a 4.5% growth in Atlantic Canada and a 6% growth in cargo from 1994 to 1995.

Mr. Byrne: Who's paying for this socio-economic study that is being developed?

Mr. Thomas: Transport Canada and Fisheries and Oceans, plus the three economic agencies, are considering paying for it. So the federal government, if you like, is paying for the study.

Mr. Byrne: The $80-billion industry is not contributing anything to the socio-economic study?

Mr. Thomas: I think the industry would be willing to contribute to it, but we're talking about probably a few hundred thousand dollars in the study. The problem with having too many fingers in the pie of funding is that there are too many fingers in the pie. What we would like to have is industry's involvement in the terms of reference, which they will have. We would like to have industry involved in the progress reviews, which they will do through the Marine Advisory Board. Industry will see the study developing as it progresses, and of course they'll see the result.

Assuming we get the study under way on May 1 or thereabouts, we will be looking at progress reports at the end of May, the end of June, and the end of July. I'm not talking about once when the study is done, but regularly.

The Chairman: Thank you.

Mr. Thomas, I have a comment I'd like to make before we continue with Walter. The testimony you've been giving here this afternoon is, to say the least, starkly different from what we have heard previously this week and in the previous week that we held hearings.

We're all fairly new to this process; we just got responsibility for the coast guard quite recently. None of us are experts in the marine industry. We're elected representatives of the Canadian people, but we're expected now to figure out what is true and what is not true, whether your testimony is true or whether the previous witnesses' testimony is true.

You yourself have just admitted that this $20-million fee assessment has suddenly blown into $100 million. If you calculate what all the previous witnesses say they're going to be charged, they think it's going to be in excess of $100 million, yet the bill is $20 million or $28 million, depending on whose figures we use. I'd like to know how we got to this position, where there is such a vast misunderstanding of what is being assessed here. Are they right that it is $100 million, or are you right that it is $20 million or $28 million?

.1830

Another example is on page 8 of your draft. At the third star, you said:

Yet, witness after witness from Atlantic Canada, with the exception of those from St. John's who brought the ropes in last night, varying lengths of rope...I don't know if they indicated we might hang ourselves with them. Belledune this morning...and Oceanex is in Newfoundland today saying they will be out of business if this fee is implemented.

What is going on? How can you be so confident that this is not going to be such a big deal? It's only 10% of the costs; yet the industry, time after time, with the exception of two sets of witnesses I think, says the very opposite.

Could you enlighten us a bit on how we came to this impasse?

Mr. Thomas: Yes, Mr. Chairman. I think there are a number of factors.

For their boats the federal government will receive $20 million for their coffers this year, no more, no less. I hope it's no less, but it's certainly no more. In order to get $20 million you set the fee at about $25 million. That $28 million was from another thing. It's set at $25 million. That includes the cost of administration. That includes receiving money and paying it back to the ships that deserve an incentive for precision navigation. It includes paying the shipping agents or whoever is actually going to do the collection. The federal government receives $20 million.

I think what's happening is that you've had layers, in some respect, where you've had an association come in and then you've had various members come in from the same association. The association might say this is going to be the impact and then each of the members might say the same thing, so you perhaps get double counting. Perhaps that's one aspect. I don't know.

There's another aspect. I'll use the example of the five Hibernia gentlemen I met with. The five gentlemen are from the main consortia of Petro-Canada and the various oil companies. They believed their cost was between $1.6 million and $2.8 million. They didn't do anything wrong and it wasn't false or anything like that. That's what they believed. It was an interpretation of a whole bunch of things. They had not included the cap that everyone else knew about. They had not allowed for through shipment, which of course from Hibernia is half of the cargo. It comes into a port and goes to a smaller ship and there's no value-added. They only pay once, so through shipment for Statia, for Come by Chance, a little bit of it in Irving...but because there is no value-added to the product we've said they only pay once. They hadn't allowed for that. Well, that cut it in half to start with. It went from $2.8 million down to $1.4 million and you put a cap on it and it comes down....

They had not allowed for the incentive for precision navigation. That was 5%. They have two ships being built - the company isn't operating yet - and they have everything that a mariner could want in terms of precision navigation, so they automatically get the 5%.

The ships are all double-hulled. They were basing it on the ship size as defined, but in fact we had already discussed the fact that when measuring the ships you have to take account of the double hull for tankers. That was another reduction of 13%.

The long and the short of it was that the maximum they would pay, assuming the ships were flagged in Canada, was something like $740,000. This hasn't happened just once. It's happened a number of times. When I talked to Mr. Mifflin on the phone about Come by Chance it was the same thing. He had a number. We discussed it and the number came down.

That wasn't done by changing things. It was done by applying the rules and understanding what's there. I don't expect Mr. Mifflin or the guy who's heading Hibernia to understand the details of this. I can understand why they are doing it, but it is misleading when you start getting the whole picture.... I'm not implying that they are purposely misleading. I know that when Hibernia came in they weren't misleading anybody and they came to see us about it, for goodness' sake.

.1835

So I think it's just the way it goes. Not everybody knows all of the details, but they're all there and they're available.

The Chairman: It would have saved a lot of pain and a lot of time for us if somebody in the coast guard or the Marine Advisory Board had spoken to the people they represented about how much this was actually going to cost. They keep saying the targets are shifting and that there are different formulas. We're told one day this is it. We have a meeting the next day. We can't get to the meeting.... You've heard the testimony. You know what's been said.

Is all of this grief we're going through here with the people with whom you have to cooperate in the future worth $20 million in order to get our deficit down and so on?

Mr. Thomas: I think it's worth more than $20 million.

The industry has not paid one cent for these services in the past. It doesn't matter what you're changing or how you're changing it. If it's new, and especially if you're paying money, you don't like it and you'll oppose it. You can agree with the principle; it's one thing to do that and another to then say ``Not in my backyard''. I can agree that there should be a prison built for women, but not in my backyard. That's happened all across the country, and it's exactly the same thing here: We can agree in principle that we should pay, but, no, we really don't want to pay. It would be good if it can be delayed for a year or two years, because all it is is money saved out of the pocket.

You mentioned Oceanex. I met with Oceanex in St. John's and they agreed to the proposal, black and white, pure and simple.

An hon. member: They came in here and said -

Mr. Thomas: I don't know who was here.

An hon. member: One of the strongest proposals against it came from Oceanex.

Mr. Thomas: I sure would like to back up against the wall the guy who was talking to me inSt. John's at a meeting with industry. They were there and they agreed to it, and so did Corner Brook Pulp and Paper.

The Chairman: So we need the wisdom of Solomon here.

Mr. Thomas: Well, no. Oceanex isn't one person.

The Chairman: Yes, I know. But they're down in Newfoundland, today - it was on CBC radio - saying that they're going to be broke if the government goes ahead with this proposal. Right in the minister's backyard and on the CBC, they're telling everybody that they're going out of business. Are they doing this to save a couple of hundred thousand dollars or less?

Mr. Thomas: The same thing happened with the cruise lines. It turned out that one of the agents in Halifax went to the press and said: Here's the story. We're going to go broke and the cruise lines are going to stop coming to Halifax.

It turns out that the same day I got the press clipping, I got a letter from the agent, so I phoned him. There were two days' difference between the time he wrote the letter and the time I received it and he'd been on the radio. So I talked to him about it and told him the fee per visit was about $800, or of that order. He said that was not a problem.

So $800 is not a problem for a cruise ship coming into Halifax or going into Bayside so that they can golf at St. Andrews. If you're making several stops and you pay $800 a stop, I suppose it would be a problem then, and I mentioned this to him. He said they have some that do make several stops because they start in the Arctic - they're small vessels - and work their way all the way down. I said that we don't charge until they get into Newfoundland, because they're in the Arctic and we don't provide any services until they get down there. He said there is only one stop at L'Anse-au-Meadow before they come to Halifax. So I said they would be paying $800 for the cruise. He responded that this was not a problem either. So there was an issue that got blown up in the papers: All of the cruise lines are going to move out of Halifax and they won't come back. After discussions...well, that's not the case.

We had the same thing happen with Secunda, the offshore supplier. When we initially went out with the fee for tugs and barges, we had combined the tugs and barges into a package and then put the total cost against the tug. In talking to the tug and barge industry on the west coast, they clearly wanted it that way. They thought it was the best way to operate because it was the tug that would actually pay.

On the east coast, they absolutely do not want it that way. Through consultations we said, fine, we'll charge the tug separately from the barge. What that does is bring it down to $3.40 a tonne, the same as everyone else, and now that's not a problem.

.1840

So it's a matter of what is the problem; talk to us. We didn't make up the numbers. They were put that way because we were advised, in this case by an industry sector, that it didn't seem applicable overall. That's because Secunda doesn't tow barges. That's a fundamental fact. They supply the offshore drilling rigs and they supply Sable Island, so they're not towing any barges around with them. That's why it was unfair for them. We agreed, so we charged the tugs and the barges separately and it's reasonable.

The Chairman: Okay, Walter.

Mr. Lastewka: Mr. Chairman, my question was along your line. It's unfortunate that we have the server and the customer so far apart. I think that's really going to cause continuous churning.

I know you went through consultations and there's various debate on that, but eventually you got to a plan where you are today. How long has that plan been, and has it been communicated to everybody so they understand what the latest official plan is?

Mr. Thomas: That depends on the region. On the west coast there has been no change in the plan since about January, almost from the beginning. On the west coast we have been working on implementation details, building a system for invoicing and so on, so no change at all.

In central and Laurentian there has been no change in the basic structure. The fee per se has changed. When we went from two regions with all of eastern Canada to three regions, the fee in central Canada went down to about 15¢ a tonne. As we update for the 1995 data, it will probably go to 14.5¢ or something like that. But the basic structure hasn't changed.

The only area where the structure has been changing is in Atlantic. For domestic shipping, Canadian-flagged shipping, I just mentioned what the changes were - around the tugs and the cruise lines. That has been as a result of consultation. But it has always been on the basis of fee per GRT. That's how you define it.

The foreign-flagged is where we've had the big changes. Initially the vocal demand was for a mileage component. The only way that could be achieved was if we went to three regions, because it was not acceptable anywhere else. When we went to three regions the Atlantic region said, well, now that we are a separate region, which is what we wanted all along, we would consider moving to something different like port-specific; we would prefer that. That's generally where we're going. What we tried to do, though, was minimize the impact of the mileage component.

So the changes have been dealing with putting all the perturbations around...reducing the impact of having mileage as a fundamental piece of a structure. We got to the point where no matter how you changed it, some ports were still paying twice the rate of other ports - fundamentally unfair.

That's when we put the final option on the table, which was a week ago Friday. That was the one communicated to you...no, in fact a week ago this Friday. I communicated that to you on April 10, as well as to about 30 or 40 members from the industry that I had previously met in Halifax. I wanted there to be an ongoing group of them and they represent a broad range. They represent the low-value bulk cargoes like gypsum and potash. They represent the cargo ships like Maersk and Zim. They represent the ports of Port Hawkesbury, Saint John, Halifax...about 30 were invited to the table as well as provincial government officials.

At the table the Port of Saint John, as I mentioned, accepted that on the basis that we're moving to port-specific. In other words they see it as a transitory stage. It provided the lowest fee that had been on the table previously for everyone else, except Saint John and Halifax; their fees went up. It's not that Halifax opposes it; it's that Halifax wants to move straight to a port-specific fee. It takes some time to move to it. We manage on the basis of the region. We've never managed the costs on the basis of a particular port. We can do that. We have the cost and we have the model, but it will take some time. It will take several months. It's a very complicated thing.

.1845

What I've said to them is that we are willing to pursue that with the industry. That change was communicated to all the people that were at that meeting, and of course it has now gone out. Subsequently, I wrote earlier this week to all the members of the Marine Advisory Board to provide them with an overall status of what was happening on the fee structures, what was happening here at the standing committee, what was happening with the economic study, and what was happening on the ice-breaking study. It was just a general update so that they were fully aware of them. We are planning to meet on May 6, and that's when we'll do our next in-depth round.

Mr. Lastewka: Let me just get some confidence in the fact that by going forward and implementing the $20-million fee the way it is in the three regions, you will still be going through each of the incremental costs that are applied to that region and will be working with the industry to see how you could even lower the costs. Am I being led to understand that?

Mr. Thomas: That's correct. For example, on the west coast, there is a group that's called the Western Marine Community. It's chaired by industry, and the coast guard sits as a member, if you like. But it's an industry group. It has structured itself to look at precision navigation, marine weather, and AIS technology. There's a cost reduction and a cost recovery. There are about five subgroups. Its objective is to drive down costs working with the coast guard. It is working extremely well and has been for about four months - very well developed.

In the Atlantic, they have started to come together. Bob Youden, I would say, has taken the leadership role out of Saint John to pull people together from the various provinces. They've had one meeting to put together a kind of agenda. There has been correspondence back and forth. What I have said clearly to them is that who's on it, the numbers, and how it's run is totally up to them. It's an industry-led and industry-managed group. We would be very happy to be invited to it. The main objective is to reduce costs, but one of the major objectives with that group will in fact be the consideration of a port-specific basis. That's what they want to drive towards, and we've agreed to that.

In central Laurentian, we have not moved yet, and there has been no indication of any desire at this stage to move towards some kind of an industry group. There are industry groups like SODES, the Chamber of Maritime Commerce, and so on, but they are looking at it, I would say, at a macro level and they are definitely not working at it with the coast guard in terms of how we actually reduce the costs within this region. I would like to think that will follow, because it is working well on the west coast, and I believe it's going to work well on the east coast. It's off on the right foot. I think we just need to do the same thing in central Laurentian. Their objective is to drive down costs.

The Chairman: Thank you, Walter. We have a final question from Mr. Culbert.

Mr. Culbert: As you recall, Mr. Thomas, when you were here initially concerning the cruise ship situation, you had asked a question or given an answer to me indicating that it would probably be on average somewhere around $3,800. When the group was in the other day from Halifax, they indicated that, using the Queen Elizabeth as an example, they were talking about $13,000. You just indicated now that it was in the area of $800. I need some clarification on that to make sure of what's happened between then and now.

.1850

Also, just to follow up on something that our chair said, and numerous people had indicated, and I thought you might like to speak to, there have been complaints about meeting notification, not ample advance time to prepare or to attend, and in some cases those who were invited or neglected to be invited to those meetings.... I think some that were particularly referred to were Halifax,Saint John, and I think there was a reference to the meeting in Montreal as well. You might wish to address that.

The other thing I'm concerned with as part of that.... You were talking about areas of concern. In the IBI study that was done last fall, they indicated that - I'm quoting from the top of the page of the final executive report:

Mr. Thomas: Yes, I can, Mr. Chairman.

On the cruise ships, as far as the difference in the numbers, the initial fee was looking at a full cruise; that is, a ship would make any number of stops. There's an amount of money to come from cruise ships - about $165,000. So the question is, what's the fairest way of distributing that? When we looked at that initially - and again we had talked to the industry - we looked at the full cruise. We took the number of cruises, divided into that, and that's how we came up with the number.

The question came up then - and the large ship, the Queen Elizabeth, had never been there. So the number that I gave you - the $3,800 - was about what the cost of the ships would be. When you apply that rate of 19¢ to the Queen Elizabeth, that's when you come up with this horrendous fee.

In the meantime, having done our planning on the basis of the cruise lines that make a number of stops, another sector of the cruise industry came to meet with us. They made the point in Halifax and in Saint John, and they wrote and they said, ``But we only make one stop in Canada'' - at Bayside, for instance - or ``We only make a six-hour stop in Halifax, and this isn't fair''. We looked at it and it wasn't fair, because they were being charged as though they were making a number of stops.

So we said, what is the fairest way we can do this? We took the same $165,000, went back to last year and said, how many stops were actually made? We divided it up and it came out to $800 a stop.

Now it may end up that some of the smaller vessels, for instance, with 100 passengers, may say that's not fair, compared to the Queen Elizabeth, which comes in with however many they have - perhaps several hundred. That may come out of the woodwork and maybe they'll want to change later on. Right now the $800 seems fair. You may have one exception with theQueen Elizabeth, but by and large it seems to be reasonable.

In terms of the meeting notification with Saint John and Halifax, in particular, if I start with Saint John, yes, that was fairly rushed. I had been talking to some individuals about the meeting and getting the notice out and letting them go, but still it was short notice and I acknowledge that. But because there was such a high degree of unfairness to the mileage component, I felt that I had to go back to them with another option that was fair. I wanted them to do that so they would have a chance to come and talk here. The only way I could do that was if I went down last Friday in order that they could come here this week. I wanted to have the meeting with them to explain that there is another possibility. In fact there was a much higher degree of buy-in, except with Halifax. That's the reason for the short notice.

As far as the IBI report, in terms of some commodities being at risk, low margins and so on, there are two different aspects to it. One is the low-value bulk cargo, and depending on how you end up charging, for instance, they're right. Things like aggregate might have a 40¢- or 50¢-per-tonne margin, which is relatively low compared to something like newsprint. So depending on what the fee is on a per-tonne basis, it's a fair amount. You try to see if there isn't some way to reduce it.

.1855

You really are taking into account ability to pay as opposed to what services you use and, depending on who you are, how fair that is. So there was some concern about that. What we wanted to do, in a reasonable way and in a way in which we could get industry to agree, was give the breaks we could. That's why we put a cap on for the large bulk carriers, which helped out the iron ore and oil industries in particular. The cap wasn't part of that.

The second thing we did to give them a break was to say that through shipment, they only pay once. Again, that was for oil in particular, but it also applied to grain and other commodities.

The third aspect - in fact, it's an aspect that is behind most of those areas - is that they were looking at the impact on ice-breaking on some of these low-value bulks. What we're doing about that is conducting an in-depth study before ice-breaking is put in place. That's what we took as a caution, that's why we separated them, and that's why we're having this study done.

What we are doing now is looking to see how we can drive down the cost of ice-breaking before it is implemented even more. For instance, one of the aspects there was potash on the Great Lakes. The difficulty there is that they need it in the United States in the spring, when the lakes are still iced in. The concern was over the cost of ice-breaking in getting the potash across, but my understanding is that they have already started to move it by rail anyway because it is a more efficient method overall.

In terms of pulp and paper, they were thinking in terms of Newfoundland - Botwood, for instance, Corner Brook, Stephenville - with respect to ice-breaking. That's in the study. We'll examine that.

So when you look across all of them, ice-breaking tended to be the concern for those commodities.

Mr. Culbert: I'll just ask one quick question if I may, Mr. Chair.

We have a notice of motion that Mr. Scott has put forward and that we will be dealing with. It recommends that a moratorium be imposed on the coast guard recovery fees plan for a period of one year. We obviously will be dealing with this motion, but I guess there is one point of clarification that I would want to have before dealing with it. If that was in fact our decision and it doesn't go ahead on June 1, 1996, as tentatively scheduled, but is held off for a year, who pays that $20 million during the 1996-97 fiscal year that we're currently already in? Where does it come from?

Mr. Thomas: The coast guard would pay the $20 million. In order to get $20 million out of this year, you virtually have to stop operations, because we already have the programs in place for the reductions - the $200 million.

Technology is involved in a lot of it. We've already brought it ahead as fast as we can. It's on a fast track, if you like. You can't bring the differential global positioning system ahead any faster than we're doing it. I believe no one in industry would argue with that. It can't happen faster. What we're doing on MCTS cannot happen faster.

In terms of the reductions, more than half of our budget is related to ships: the people - because half of our staff are onboard ships - and the actual fuel and use of the ships. We can't lay them off because we can't afford the severance. That's a year's salary, so that doesn't do us any good. In order to get that kind of money, we have to tie up the ships, send the people home and say there's no work. So we end up with the salary and with the ships not being operational. That's the only way in this case.

One who understands the government would argue that we can get that out of capital. There is no capital - none - available for next year that either isn't under contract or.... In fact, there's $31 million already plugging a hole where there's no money. The capital is already cut or is fully contracted for this fiscal year. So capital is not a source either.

Right now, the impact is.... It's a beautiful sunny day. Well, we have ships that are having a hard time getting through the St. Clair River and St. Marys River because of the ice. There is a lot of ice in there. It isn't anywhere else, but it sure is there simply because of the way it's set up.

.1900

There are two Canadian ships and an American ice-breaker going flat out all the time. I don't know whether they are out now - they may be - but there were several days when they were stopped. It was exactly the same thing at the beginning of the year and it could be again this December. There were 120 ships that we had to get out of the Great Lakes before they got iced in. If you don't have the ships, they are not there.

Whether it's ice-breaking, which is one that everybody sees.... I don't know what we'd do on the aids to navigation. I don't know how we would do it, in other words. I don't know how you would get $20 million this fast out of this year. That's the only source.

The Chairman: Mr. Scott.

Mr. Scott: Mr. Chairman, the minister always has the option of going back to the government and explaining the very serious nature of the situation and asking for additional appropriations, does he not?

Mr. Thomas: In this case the government has no additional funding for this. In fact, I believe the minister may already have sought out whether there was any flexibility. I wasn't there so I can't speak to it specifically. My understanding is that it is a downright, absolute no - there is none.

This is not the only issue in Fisheries and Oceans. As you are well aware, there are other issues that some would see as being at least as critical on the west coast. There is no money forthcoming. So I don't see that as an option. There is just no reserve. There used to be reserve; there is no reserve.

Mr. Scott: Mr. Chairman, Mr. Thomas is making the point that as far as he's aware, there is no reserve and there's no way but to go ahead and collect effectively $28 million out of the Canadian shipping industry in fiscal year 1996-97.

Based on the testimony this committee has heard, we may very well be in danger of putting some of the businesses that appeared before the committee out of business or diverting traffic to the United States. Those were the concerns and the suggestions made to the committee about the consequences of proceeding in the manner the coast guard is proposing.

Mr. Chairman, I would like to ask Mr. Thomas if he has considered the impact on cost-recovery plans if they reduce the number of players simply because they squeezed them out of the business, either by outright putting them out of business or by diverting traffic to other ports.

Mr. Thomas: There are three points I would like to comment on. It's $20 million this year, not $28 million. The fee is set at a higher rate because it is a shorter period of time. So it's $20 million that we're getting from industry.

The second thing is that if it can be demonstrated to the minister - and I don't mean a sob story, I am talking about a demonstration - the minister can issue a waiver. If the industry came in and said ``I am going to be bankrupt; you're driving me out and it's caused by the marine services fee'', he has the ability to issue a waiver. He can do that. One just has to prove it.

The government and the minister and I have absolutely no intention of trying to drive somebody out of business. Why on earth would we do that? That's why we're supposed to be here - to support industry. I believe there will not be any harmful effect on industry with the $20 million. I believe that. I am saying there are safeguards and if it can be demonstrated that there is a problem, the minister can waive the fees. There are safeguards in place.

Mr. Scott: I have a final comment. The bulk of the testimony we've heard from witnesses would contradict what Mr. Thomas is saying about the impact. We have heard over and over again that a proper impact analysis needs to be done. I am very concerned that the coast guard will proceed with plans prior to carrying out that impact analysis, and the motion I've put before the committee will be dealt with. How it will be dealt with, I suppose we'll have to see.

.1905

Nonetheless I feel very strongly that if we as a committee were serious about doing our jobs and were serious about listening to the testimony of the witnesses, I don't see how we have any option but to take that kind of a position or message back to the minister, based on the testimony we've heard.

The Chairman: I suppose, as Mr. Thomas said, people in opposition oppose.

I'd like to make one comment before we go. If the coast guard doesn't have any options here, if the minister has no options, what are we doing here? If we never had any alternative but to go ahead, and if there is no money anywhere for this either within the coast guard resources or within the government resources, why have we put everybody to the expense of flying here and giving their testimony and going through this thing?

We agreed with the minister. The minister said he would wait till we reported -

Mr. Thomas: I'd like to respond to that.

The Chairman: - and if we report against the proposal and he goes along with the proposal, where does the money come from then? If there are no alternatives now, what will the alternative be theoretically if he changes his mind?

Mr. Thomas: I think there are a number of things, Mr. Chairman. Significant value comes from these hearings simply in terms of information exchange, for a start. A lot of information has been put on the table by various players giving feedback. I use Hibernia only as an example because it was a meeting yesterday. They came out of the meeting saying they felt much better about it than they did when they started because now they understood. Until you come and discuss, you don't understand.

Second, if the committee were to recommend a moratorium I have no doubt that the minister would have to go to cabinet and to the Prime Minister. He doesn't have much choice other than that, because he would then be going against what he was directed to do by cabinet, by the government, in the budget. He can't overturn the budget statement, not on his own hook. He would have to come back to cabinet.

When I look at the motion on the four points, items two, three and four are happening. I don't need a moratorium to do that. Assess the level of services that are required for safe and efficient transit....

[Translation]

Mr. Bernier: I have of point of order. I don't understand why the witness should be involved in the discussion regarding Mr. Scott's motion. Quite frankly, I don't understand. I believe this concerns only MPs.

[English]

The Chairman: Mr. Scott has given them the motion. Somehow it got in here and it has been proposed and responded to a number of times. I can't see why he can't continue at this time.

[Translation]

Mr. Bernier: So, Mr. Thomas will not have to vote on Mr. Scott's motion. I'd like you to give me some clarifications about the discussion which is taking place here at this time.

[English]

The Chairman: He has been asked to comment on it.

Mr. McWhinney (Vancouver Quadra): I have a point of order. I think the examination of the witness has gone well beyond the normal scope of a constitutional committee of Parliament. Since he was asked the question, Mr. Scott raised his motion, he properly replied. I would have advised him, if he had asked, that he did not have to reply because it seemed to me it was beyond the mandate of this committee at this stage -

Mr. Byrne: The motion was circulated to the witness.

Mr. McWhinney: But he has given a response and Mr. Scott hasn't objected to his responding as such.

The Chairman: To be fair, it was not Mr. Scott who initially brought this to the attention of the witness. It was Mr. Culbert. It then went to Mr. Scott for further questioning and now we want to shut it off. Constitutionally or unconstitutionally, the motion -

Mr. McWhinney: [Inaudible - Editor]...this motion, but I think frankly it passes the competence of the witness to reply and it perhaps should not have been put to him.

The Chairman: Perhaps it shouldn't have, but it was and it was responded to.

A voice: He did it very well.

The Chairman: Are there any further questions? If not, we will cease our hearings.

Mr. Byrne: Since testimony began, since this standing committee started discussing this particular issue, how many times has the coast guard changed its position or modified its position in terms of the fees? Has there been any modification in the period since the standing committee began discussing this issue?

.1910

Mr. Thomas: As I mentioned to Mr. Lastewka, there's been no modification to the west coast, no modification to Central/Laurentian. The modification in the Atlantic has taken place, and it was the same modification, it followed the same discussion as in my first presentation, where I outlined that there was an agreement to see if the tonne-mile would work with a number of factors changed. The modifications taking place take all of those changes to the end point - to the limit, if you like - and then advise them that maybe there was another option they should look at.

That was the change, and that was one that I advised all of the Atlantic MPs about, because it was in the Atlantic region.

Mr. Byrne: Perhaps there's some value, then.

The Chairman: Thank you very much. It's been very informative.

I wanted to give everybody a chance to question you, because everything has been condensed and very intensive. I wanted to get as many questions to you as humanly possible. Our time is up. Thank you once again for coming, Mr. Thomas.

Mr. Thomas: Mr. Chairman and members, thank you very much for the opportunity.

The Chairman: We'd like to go in camera, which means the members and their assistants can remain.

Mr. Scott.

Mr. Scott: Mr. Chairman, I circulated a motion - I believe all members of the committee have it - and I would prefer that we deal with that motion prior to going in camera.

I feel that the committee is in a position, after having heard the testimony of all the witnesses, including Mr. Thomas and all the other presenters, to deal with this motion. It might in fact determine how the committee is going to conclude its deliberations on this matter.

The Chairman: It's entirely up to yourself. You may be putting the members of the committee in a position where they would like to.... But it's up to you. We'd have to take a vote on it. We can discuss it first.

Mr. McWhinney: I would suggest that this be deferred until after our consideration of at least the descriptive part of the report, because part of this will depend on an analysis of the cumulative weight of the evidence lent to us and the descriptive part of the report, not the prescriptive part. I would find it premature to vote on this until I've heard that analysis. So I would view that as a procedural motion.

The Chairman: That's a debatable. That's an amendment. Do you want to amend the motion, or are you just suggesting we do this?

Mr. McWhinney: I think it's a procedural motion and it's non-debatable.

The Chairman: It's non-debatable. Any further discussion?

Mr. Bernier.

[Translation]

Mr. Bernier: Mr. Chairman, please, take all the time you need if something is not clear enough for you. Remember the confusion the committee was in the last time someone tabled a motion.

Mr. Scott has tabled a motion. To show you that the Official Opposition is not partisan when it comes to working on this committee, I second Mr. Scott's motion right now.

So, take your time to consult the clerk and ensure that this time, we don't have any problems.

[English]

The Chairman: Mr. Bernier, the motion has been tabled, but it hasn't been moved, to my knowledge. So you can't second something that hasn't been moved.

Mr. Scott: Mr. Chairman, I believed at the time that I circulated it that I was moving it. If you need me to officially move it, I so move it.

The Chairman: Okay. It's now moved.

Mr. McWhinney: I have a point of order. In view of the fact that there's now a procedural motion...that it be deferred until after the descriptive part of the report has been considered.

.1915

The Chairman: I'll need a few more seconds here.

Mr. Scott: Mr. Chairman, what is the clerk doing right now?

The Chairman: The clerk is putting into words the amendment Mr. McWhinney has made to your motion.

Mr. Scott: So you have in fact accepted my motion as seconded?

Mr. McWhinney: No, it's not an amendment. It's a procedural motion. You have discussion on your motion after the substantive, descriptive part of the report has been discussed. I understand the substantive, descriptive part, which is a non-prescriptive part, has basically been written. That's why you have a technical staff.

Mr. Scott: I'm just trying to understand, Mr. McWhinney, whether or not my motion has been accepted by the committee.

Mr. McWhinney: For the purposes of this motion, it doesn't need to be. It will be perfectly proper at the completion of that phase envisioned in this motion to move it, or entertain further motions. It's the non-prescriptive part the staff have been analysing. Whatever conclusions we recommend I assume will go in pretty much unchanged, unless anybody feels they have not done the job competently.

The Chairman: Gentlemen, the motion has been accepted and it's before the committee. It's been amended by Mr. McWhinney. Is there any discussion on the amendment? I can read the amendment.

An amendment is moved by Mr. McWhinney: That the motion be suspended until further discussion on the descriptive parts of the report are discussed.

Is there any discussion on the amendment to Mr. Scott's motion?

Mr. Scott: Mr. Chairman, that's not an amendment to my motion.

Mr. McWhinney: Mr. Chairman, I submitted that as a procedural motion. This was the plight Mr. Scott and I were discussing. It's not an amendment. It is a procedural motion to defer debate on a motion, which has not officially been moved until after the descriptive part of the report has been submitted and discussed.

The Chairman: Are you saying that you want to suspend debate?

Mr. McWhinney: Suspend or defer. You'll make the judgment.

The Chairman: You want to suspend the debate.

.1920

Mr. McWhinney: I do until the descriptive part of the report has been considered.

The Chairman: Basically what Mr. McWhinney wants to do is suspend discussion on this motion until we're into discussing our report.

Mr. McWhinney: I want to take the descriptive part of the report first.

The Chairman: Right.

Mr. Scott: I would defer to the clerk, because -

The Chairman: Oh, I'm deferring to him.

A voice: It's all part of the debate.

Mr. McWhinney: It can be done either way, but I think this is a better way, because it will enable you to move your motion as soon as the descriptive part is over.

The descriptive part is when we decide on what our recommendations are, and yours is a key option among them, obviously.

The Chairman: If the members are settling this among themselves, it's fine, but there are now two motions before us, and we'll have to take votes on both motions unless you want to do something. I will take Mr. Scott's first, but....

Mr. Byrne: I have a point of privilege. Mr. Chairman, this particular motion implies a conclusion to a process that has been ongoing now for several weeks, and I think that to take a conclusion without discussion within committee is against the procedures of the normal practice of committee. Quite frankly, I don't think it's very just to the cause we're trying to serve, nor do I think it's very fair to the members of the committee. I'd just like to register that.

Mr. Scott: Mr. Chairman, the member is quite right. This motion does imply a conclusion and we are at the conclusion. We are at the conclusion of I don't know how many hours of testimony of witnesses, and this motion substantially represents the recommendations of the witnesses who testified before the committee.

It's certainly a matter that we can debate. We can debate this motion. We can discuss the fine points of it. It can be amended. We can debate it and we can vote on it. If the members choose to support it, it will pass, possibly with amendments, and if they choose to turn thumbs down on it, it will be defeated. Nonetheless, it is a concluding motion to the work of this committee.

The Chairman: It's a concluding motion to everything if accepted.

Mr. McWhinney: [Inaudible - Editor]...again, constitutionally so. This is one of the dilemmas. If you move it now and it is defeated, that option disappears. It could not be revived in identical or substantial form. That would be the problem. So at least you can serve the options. It is clearly an option among our prescriptions, but one of the effects of yours, if it were adopted, would be to kill the report - the 80%, which is the descriptive part that presumably we want on the record.

Mr. Scott: Mr. Chairman, could you give me thirty seconds before -

The Chairman: I sure can.

Mr. Lastewka: I'd like to follow with a point of order then.

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English]

The Chairman: Mr. Scott.

Mr. Scott: Mr. Chairman, with your indulgence, I propose that I would read the motion into the record. Then we would do as Mr. McWhinney suggested, which is that we would move on to discussion and deal with voting on the motion later so that we don't close off.... If that's acceptable to everybody.

The Chairman: Is that agreeable?

Mr. McWhinney: Yes. I suggest then that we put it in a motion that we defer until after the descriptive part. If you put the motion, I'd be prepared to withdraw and rephrase. You move the motion, I will then move a procedural motion that voting on it be deferred until after the completion of the discussion and debate of the descriptive part of the report.

Mr. Scott: Very good.

The Chairman: Excuse me, if Mr. Scott just wants to get this on the record and discuss it later, I don't think we need any further prompting from anybody.

Mr. McWhinney: If he wants it in the record, he has to move it.

Don't you want it moved?

Mr. Scott: Yes, I want to move it. I want to read it into the record, but we don't necessarily need to deal with it right now.

Mr. McWhinney: You can put it in the record without moving the motion, but then you'd have to move the motion later, okay?

Mr. Scott: Okay.

The Chairman: Why don't we just table this motion as read, unless you want to read it.

Mr. Scott: I want to read it, Mr. Chairman.

The Chairman: We can proceed from -

Mr. McWhinney: You can put it in the record, Mr. Chairman.

Mr. Scott: I do have a small change, so I would like to read it into the record.

The Chairman: Go ahead, Mr. Scott, read it.

Mr. Scott: Mr. Chairman, I move that the Standing Committee on Fisheries and Oceans recommend to the minister that a one-year moratorium be imposed on the coast guard cost-recovery plan, and furthermore, that the coast guard be instructed to, one, undertake before the implementation of cost-recovery fees a thorough socio-economic impact analysis, including a thorough assessment of the cumulative effect of all fees on industry; two, in conjunction with the maritime industry, assess the level of services that are required for the safe and efficient transit of ships and ensure that only those services will be paid for by the marine industry; three, find the least expensive way to deliver these services, including the option of privatization; and four, develop with industry a fair and equitable cost-recovery formula with the opportunity for a formal right-of-appeal process; and that these four points be completed during the moratorium and prior to any fees being imposed.

The Chairman: Mr. Scott, do you want to table this until a further time?

Mr. Scott: Yes.

The Chairman: Is everybody agreed?

Motion allowed to stand

The Chairman: We'll reconvene at 8 o'clock.

[Proceedings continue in camera.]

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