EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, April 15, 1997

.0912

[English]

The Chairman (Mr. Joe McGuire (Egmont, Lib.)): I'll call the meeting to order, as I see a quorum.

We have with us this morning from the Chamber of Maritime Commerce, Doug Smith; from the Canadian Shipowners Association, Norman Hall, president; from the Shipping Federation of Canada, Captain Frank Nicol; from the Nova Scotia Gypsum Industry Group, Jerry Davis; from the Canadian Petroleum Products Institute, Dave Watson, president; from the St. Lawrence Economic Development Council, Richard Gaudreau; and from Prairie Pools Inc., Rick Dalgliesh.

I want to extend a welcome to all of you. It has been almost a year, I think, since we last congregated to talk about marine fees. You've been dealing with the report since last fall, so we would like to get some response from you. We've talked to the new commissioner of the Canadian Coast Guard and received his suggestions, and we'd also like to get a response from your industry.

We'll start with Doug Smith.

Mr. Doug Smith (President, Chamber of Maritime Commerce): Thank you,Mr. Chairman.

If I could, I'd like to begin by thanking the committee, the chairman and the staff for their assistance in dealing with the matters related to the coast guard fees. As you said, it was a year ago we first came to see you about these issues.

We were pleased with the recommendations of this committee. We thought they were sound. I would say we didn't like the fact that you allowed them to charge us $20 million last year, but other than that, we thought the report was very sound, and we thought the recommendations were very strong.

I think you'll hear the same message from many of us today. But if I may, one of the things we want to stress today is that we appreciate the efforts and support of this committee, and we are going to ask you to continue to be vigilant on coast guard matters and fees. The reason I say that is if you went back and looked at your recommendations, you would see that many of those were in fact not acted on. It has been a year.

.0915

From the minister's announcement and the new commissioner's testimony before this committee last week, we see they now intend to do the things you recommended last year. We fully endorse that position and welcome that action. Of course they've frozen the marine fees to the same level as they were last year, except for the full year impact.

A whole year has gone by without dealing with the issues that last year we all thought were pretty important. These include an examination of the services we need in the industry; what those services should cost; the cheapest way to provide those services, including items such as commercialization or privatization, and what this did to the competitiveness of industry. None of those things were accomplished in either the impact study or in working with the coast guard at the Marine Advisory Board and in other forums during the intervening year.

However, we are gratified the minister and the commissioner have now said they have a program in place and they will be working in partnership with industry to address those issues. We are eager to get on with it. We're fully supportive of those actions. As I said, when you've heard from us and the commissioner, we would like the committee to keep a watching brief on this issue and on what progress has been made before the next set of fees are put in place.

I'd like to move on to the impact study. As you say, it was released some time ago, and there hasn't been a lot of discussion. After hearing from all kinds of witnesses last year, you recommended a thorough impact study be done and that it be done jointly with industry. We were eager to get on with that and to participate. Unfortunately, it didn't happen that way.

Now, we will acknowledge that there was a very comprehensive study undertaken. I know a lot of money was spent on the work that was done. They looked at all the key sectors of transportation and the products that are shipped, but they didn't do what we had hoped they would do. So to some extent what I'm here to do today is to ask you to recognize that the study was not a satisfactory examination of all the issues.

We're not asking you to recommend another study. We've studied it to death. What we do believe, though, is that there were issues raised by industry during the study and even within the study that need to be examined as we go through this work program with the coast guard over the next eight or nine months to examine service levels, etc., where we would be looking at particular competitive issues.

It's a big document, and it's hard for us to understand everything that's in it, but just so you won't think the study was wonderful, we want to mention that, going in, industry wanted to know what was the impact on competitiveness for Canadian industry. We didn't get that answer. My membership was particularly interested in the overall competitiveness of the GreatLakes-St. Lawrence River waterway. It's a huge, important waterway in this country, and it serves industry in Canada and the United States. We wanted to know how these and other fees would affect the competitiveness of the waterway.

We wanted to look at the long-term effects of these changes in costs and fees. We wanted to be assured, and I think the government wanted to be assured, that there would be a net benefit from raising these fees and putting them in place and that in fact the government would wind up getting more money from the fees than they'd lose in tax revenues and other benefits to the economy. I don't think we got answers to those questions in the study.

Very briefly, then, I'd like to tell you why I think we didn't get them. The first reason is that there was no industry participation on the steering committee of the study. It was all government. It was jointly done by Transport and the coast guard. The MAB, the Marine Advisory Board, had opportunities throughout the process to talk about what was going on, but it wasn't as effective as it would have been had there been industry people sitting at the table discussing some of the key analysis points the consultants were undertaking.

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My next point, and this is one where we would have obviously influenced it, is that if you read the study in detail, you will find that the way they measured impact was to determine whether an industry would be put out of business or a product would be completely shifted to another mode of transport - either another direction, such as down the Mississippi River if it stayed on the marine mode for grain, or to another type of carrier, like rail or truck. Their definition was that there had to be 100% diversion or 100% likelihood that a business would shut down before they said it was an impact.

If you read through, you'll see a lot of ``no impact'' conclusions. Industry disputed that throughout, but that's the way the terms of reference drove the consultants.

I think it's fair to say that if we'd known this was how they were going to measure impact when they started the study, we would have said ``don't bother''. We don't expect a lot of businesses to shut down, but we do think there are severe competitive impacts.

The period of the study was limited to four years, so we don't know what will happen after the turn of the century. We don't know whether some businesses might shut down or shut down early. We can give you an example of a case of that later. We didn't look at the impact of competitiveness on industry, on transit modes, or even on specific ports.

Then there were legitimate concerns from industry about the data sources used that were not validated or used in the study. I'll give you one example. The study of grain and the likelihood of its being diverted to the Mississippi River used published rates from two years ago, which were substantially higher than the competitive rates on the Mississippi today. The rates they used had a database related to the year that the Mississippi was flooded, so there was a shortage of barges and a shortage of alternative transportation and the rates were high. If you looked at the rates currently in place, the answers would be quite different. We pointed this out to them and they refused to accept the data source.

I have a couple of specific examples of concerns so you can get a handle on them. When we examined iron ore as a commodity, the study concluded quite correctly - the iron ore companies agreed with it - that there would be no loss of business. The iron ore companies would compete in the world market, as they do today. They have to take whatever the world price is. Canada is a price taker; we don't set price. What would happen is that they would absorb the cost of these marine service fees, but they would continue to try to sell their product. So they agreed that they wouldn't lose any and the product would continue to be shipped by the marine mode.

However, the study also indicated that the fees were equivalent to 15% of the profit of the iron ore companies. As Mr. Dufresne, the president of Quebec Cartier Mining, said, that's equivalent to a 25% tax on his profits. He went on to say that this means the life of the mine is shortened. If there is a 25% reduction in profits before tax, the life of the mine is going to be shortened. That has employment impacts in the next century - very early in the next century, but in the next century. Those issues weren't raised.

They also recognized that grain shipments on the St. Lawrence from Thunder Bay were in a serious competitive situation vis-à-vis the Mississippi River and all rail transit to Quebec City, but they left it at that. Industry is quite concerned with the potential for large disruptions.

Further to that, they didn't look at interconnected cargoes or interrelated cargoes, and I know Norm is going to speak to this in more detail. We found that quite wanting.

The final example I'll give you of where the study failed goes back to the whole definition of impact. I have two members who are the large salt producers in this country. They refused to participate in the study by giving data that would allow the salt cases to be examined carefully, because when they saw how impact was going to be measured, they knew it was a waste of time. They were so concerned about confidential data, when there are only two competitors, that they just refused to participate. They are very concerned with how big an impact these fees have on salt and their competitiveness in the marketplace, because they compete head to head with U.S. salt producers, but they refused to provide data to the study because they knew it was futile.

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Where are we now? We're not asking you to do another impact study. We believe the impact study has created a very good database and we can still use it. We need to work with the coast guard as we examine fees and services needed and the costs of those services. We also have to look at legitimate competitive concerns - not at whether a company goes out of business but whether it is good for competition, for the competitiveness of our industry, to have the fees set in certain ways.

For my wrap-up I would like to go back to what I started with. It's not over for you. We are asking you to continue to watch this. We are optimistic. We think the coast guard now has the message. The new commissioner seems to be very interested in working with industry to resolve the problems. We are prepared to leave the room today...in fact, we've already started working on some of these issues with the coast guard.

We think there's an environment that will allow us to resolve the issues. We just ask you to keep a watching brief on it so what happened last year doesn't happen again and we're not back here a year from now saying the work program wasn't accomplished.

Thank you very much.

The Chairman: Thank you very much.

We have your letter, which was signed by most of you, I think, making that request. We will bring this up with the committee to determine how we will proceed with this brief in the future.

Do you all have that letter? We'll consider this at our next in camera meeting.

Since we have six more presenters, maybe we could limit it to a ten- to twelve-minute presentation. Then we'll have lots of time for questions and answers.

Mr. Hall.

Mr. Norman Hall (President, Canadian Shipowners Association): Thank you,Mr. Chairman.

I won't really get into the impact study - I think Doug has covered that quite well - except for one area we felt should be covered. I think Rick Dalgliesh, from Thunder Bay, wants to talk about that.

The linkage between grain and ore movement was not really covered. We were promised it would be covered. Those two commodities are probably the greatest volume for the Great Lakes-seaway system for the Canadian Shipowners Association. An awful lot of grain moves out of Thunder Bay to the St. Lawrence and the back-haul is iron ore from the St. Lawrence back into either Hamilton or the United States. They go together. If we miss one because of sensitivity to cost recovery it automatically creates a major problem for the iron ore industry or vice versa for the grain industry. Suddenly it will go down the Mississippi or go by rail or some other mode.

Other than that, I don't think it's necessary to pursue anything further on the impact study. I think Doug covered it quite well.

The other main area that should be emphasized was, as Doug referred to, the short-term aspect of the study period. They were not interested in looking at anything beyond three or four years. You don't shut down an industry in three or four years, but you might shut it down in five to ten years if suddenly the pressures of cost force you to make some other decisions.

That's it on that aspect.

The movement by coast guard I think is excellent. I certainly didn't expect this kind of term so quickly. Most of the issues that came out in the press release are exactly what industry had been looking for.

Moving away from fixed-target revenues...as you know, Mr. Chairman, this is something such that everybody - not just the group here but anybody who appeared before you - just couldn't understand where the incentive for cost reduction came if you had fixed revenue targets. It didn't make any sense. We had a perfect example of that on the ice-breaking subcommittee. We found a potential savings of about $40 million. When we went to the coast guard with that they said, well, that doesn't matter, we're going to collect $40 million next year anyway. At that point we said, well, fine, let's have a fleet of 100 gold-plated ice-breakers. There's no incentive here for us to do a thing.

Anyway, they are moving away from that, which is excellent.

Second is the idea of an arm's length review mechanism. I'm not sure what form that will take yet, but again, this is something industry talked about: some sort of independent body to look at the impact of various charges that might come down the road and what they might do to industries or communities. We think that is a very good move and that there should probably be a group reporting directly to the minister as opposed to the coast guard or anyone else.

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Another move that has been suggested is a review of the current financial plan. I must say that we had a major problem trying to find out just exactly what that plan is.

At a meeting in Quebec City about a month or two months ago, Mr. Watters, the new commissioner, made a presentation to SODES, the St. Lawrence economic group represented here today. It was questioned on the pilot document, which used to be the old part III of the budget. I'm told now that the pilot document doesn't mean anything, that you can throw it away. I'm not quite sure...if that's the case, why do we produce it? In any event, there were a whole bunch of numbers in there that didn't make any sense whatsoever and the only response we got was, don't worry about it, it doesn't mean anything; it's just to let MPs know what's going on.

Earlier, in January, at the last Marine Advisory Board meeting, a financial table was presented to the board. Following questioning on the numbers, because all of a sudden there seemed to be a $100 million difference between what we'd heard in December versus what we heard in January, suddenly it was withdrawn. So since January - in fact, since last year - we have not seen any document that tells us exactly where we are with respect to the cost of running the Canadian Coast Guard.

So what's the base? Where do we start from if we're going to start looking at cost reduction? Looking at cost reduction is recommended and it's indicated in the press release. We must have a place to start from. We have a meeting tomorrow with the MAB and to date we don't have an agenda.

There were two major ideas put forward by industry, quite apart from the ones I already mentioned. One was to get an idea of the true costs of running the coast guard. I'm glad we're now talking direct costs. It makes it a lot easier, because we weren't getting anywhere trying to find out what the heck the cost of administration was or what the cost of capital was. So we hear the direct costs and that's fine.

But we've had a situation going on since last summer where our industry did a lot of work on looking into how many aids we really need. For example, with respect to the GreatLakes-St. Lawrence, we did a lot of work on that. We came out with a study that indicated that we could reduce it by 40% to 50% on average and still have a safe operating system. Our own captains did this, not office people.

But we can't find out what the cost is or what the savings are if we reduce coast guard navigation aids by 50%. What are the savings? They don't know.

We're proposing that we get more active in that and find out just exactly how we can get to the bottom of it so we can look forward...if this is a transition year, then let's get all the homework done in the transition year so that we know where we're going in 1998. I think that aspect needs an awful lot of work.

Last, the alternate service delivery, which was mentioned in the press release, is again something that industry talked about. We would like to examine ways and means of delivering the service. If it can be done cheaper and better or just as well by privatizing it or commercializing it, let's do it, the same as we're looking at doing with the seaway. There may be other services provided by the coast guard that could be done better if they're contracted out.

We'd like to examine all of those.

In closing, I just want to say that I am pleased with where we are going. I ask you not to abandon it. As Doug said, there's still work to be done. We ask that this committee monitor what's going on with respect to the coast guard and monitor some of the impact studies on grain trade and ore trade, for example, to make sure that we're not going to find ourselves in a difficult position in three years to four years.

That's basically all I have to say, except that I will add a little bit of humour to this meeting. There was a letter yesterday from one of our members who was talking about the new marine services fee. This is a company that trades an awful lot into the Arctic. And as you know, above 60 there's no charge. But if you load in Montreal and you go above 60 for the rest of the summer, you still pay because you loaded in Montreal.

The part that was rather interesting, thirdly, on a separate issue altogether - and this is a letter to Mr. Watters, copied to Mr. Mifflin - was this:

...we would like to draw to your attention the fact that our major Eastern Arctic client, namely, the Canadian Coast Guard Northern, was invoiced for the Marine Services Fee for their cargo, and after much time and deliberation, refused to pay these invoices.

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The Chairman: Thank you, Norman.

From the Shipping Federation, we have Captain Nicol.

Captain Frank Nicol (President, Shipping Federation of Canada): Good morning,Mr. Chairman and members of the committee.

I guess everyone is familiar with the role of the Shipping Federation. Our members represent the majority of the ocean tonnage which carries our imports and exports through eastern Canadian ports.

Before I begin, I would just like to say I echo most of the sentiments expressed by my two colleagues who have already spoken. I will try not to delay the proceedings by reiterating a lot of the things they have already covered.

I would like to begin by acknowledging the moratorium, or quasi-moratorium, the minister announced on the nav aids fee. We're very pleased about that. We also appreciate it that no ice-breaking fees will be introduced this year. This is going to give us all some time to work on reducing costs and developing, after we have reduced the costs, an equitable fee structure.

On the impact study, we believe it's a fair basis on which to proceed. However, we are concerned about some of the results of the study. As I said, I won't echo what my colleagues have already said, but for example we're concerned about the $40 million level having little impact. This is not true. We do believe there will be an impact at the $40 million level. But before we think about the $40 million level, our number one priority must be cost reduction. Any further consideration of the impact study should not delay the cost reduction exercise. This is number one. In our opinion it's paramount.

I don't believe the impact study alone can justify higher levels of cost recovery, basically because there are a couple of flawed assumptions in there. Ice-breaking is one. For example, in the study there was an assumption that the ports of Montreal and Quebec...the container traffic in wintertime was underestimated by close to 50%. This understates the impact of the ice-breaking fees on that sector.

Pilotage was another area where the study developed a theory that there would be no substantial impact. This isn't quite true. In the St. Lawrence alone there's going to be a significant impact. Right now the pilotage authority is looking at a 5.5% increase for next year and a 3.5% increase for the year following that. I'm not protesting the magnitude of these increases, but I am saying that's an increase of $3 million in the St. Lawrence, which is equivalent to the dredging. The dredging costs $3 million. If the dredging is significant, surely the pilotage is significant too.

The other item that concerned us in the study was the long-term impact. Norman has touched on that. I would just like to support his remarks by saying that our industry is a long-term industry. We build ships to last fifteen years, we plan fifteen years ahead, and here's the business these ships are going to conduct planning only a couple of years ahead. We have to look at something a little more long term in that respect.

I will turn for a moment to the government's response to the study. We certainly applaud the measures to mitigate the fee levels for gypsum and aggregates. It was something that was really needed and we're pleased to see some action was taken there. Unfortunately, similar measures were not extended to grain from the St. Lawrence or for the crude oil trans-shipments through Port Hawkesbury, another important trade.

For the future, as we've said previously, we have to look at cost reduction. I believe that is something this very committee has stressed on several occasions: cost reduction must come first. We must establish levels of service and look at all the alternative methods of delivering these services, such as buoys, ice-breaking, all kinds of things out there that can be examined.

We're very pleased to see the government move from a fixed revenue target towards a direct cost basis. It's going to be up to the coast guard and the industry together to work at trimming the fat and coming up with a percentage level of recovery of the direct cost that will be acceptable and fair to everyone.

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I think I'm going to cut it off at that, Mr. Chairman. Things seem to be moving along. That we're looking forward to a busy year may not be the right thing to say, but we're going to have a busy year whether we're looking forward to it or not. I thank you for your help and cooperation over the past year.

The Chairman: Thank you very much, Captain.

From Nova Scotia Gypsum, Mr. Davis.

Mr. Jerry Davis (Nova Scotia Gypsum Industry Group; Member, Maritime Seacoast Advisory Board): Thank you, Mr. Chairman.

Just for the record, I would like to state that I am representing the Maritime Seacoast Advisory Board in addition to the Nova Scotia Gypsum Industry Group.

There are three key messages that I want to leave you with today. The first is that the fee for foreign-flag vessels in Nova Scotia should be set between 2.2¢ and 4.3¢ per tonne, the rate recommended by the Maritime Seacoast Advisory Board.

The second message is that the Booz-Allen study suggests that there is no potential for disruption as long as the fees do not exceed 3% of commodity value. Not only is this threshold too high to maintain a viable gypsum industry, it will cause the complete elimination of the industry in Nova Scotia. Even a fee set at 2% of commodity value - the threshold proposed by the coast guard - will steadily erode the gypsum industry in Nova Scotia.

The third message is that in this transition year, the gypsum industry can accept the coast guard's proposed interim rate, which ranges from 7.5¢ per tonne for the Bay of Fundy to 9.5¢ per tonne for the east coast of Nova Scotia, but only as a short-term step in moving towards the implementation of the MSAB plan.

To elaborate on those three messages, I'll start with the first one, the MSAB standard. Before turning to the specifics of the MSAB recommendations, however, I would like to set out the specific challenges faced by the gypsum industry.

The Booz-Allen gypsum case study confirms that Canada is the second largest exporter of natural gypsum in the world. Nearly 80% of the total production is in Nova Scotia. Clearly, the viability of the gypsum industry and jobs that it creates must be preserved.

Gypsum is a high-bulk, low-value commodity. Our costs of transporting gypsum to market often exceed the value of the mined rock. Because of the cost structure of the gypsum industry, we are forced to pass on the costs of the marine service fees to our customers. As a result, a high fee will make it virtually impossible for Nova Scotia producers to be priced competitively against other producers. We face serious competition from international producers in Jamaica, Mexico and Spain. In addition, there are new land-based sources of synthetic gypsum. Therefore, as the cost of natural gypsum increases, the incentive to replace Nova Scotia's suppliers with offshore or synthetic sources of gypsum becomes more compelling.

The availability of competitively priced foreign sources of natural gypsum and low-cost synthetic gypsum, combined with the increased costs of Nova Scotia gypsum as a result of the marine service fees, will irreversibly erode the market for Nova Scotia gypsum. If the gypsum industry is to survive in Nova Scotia, costs must be minimized.

The MSAB recommendations are the product of collaborative effort of the maritime commercial shipping industry. The three provincial maritime governments appointed representatives to the commercial shippers in the region, and the maritime communities were consulted throughout during the MSAB evaluation of coast guard services.

In developing its recommendations, the MSAB considered the navigation services currently provided, the actual usage of these services by commercial shippers, and the coast guard's costs in providing these services.

The MSAB's recommendations are based on the proposition that separate foreign-flag rates should be established for each coast guard subzone, with the special case exemption of Chatham and Newcastle. On this basis, the MSAB has developed foreign-flag rates that range from 2.2¢ per tonne for cargo loaded and unloaded in the Bay of Fundy, to 4.3¢ per tonne for cargo loaded and unloaded in eastern Nova Scotia. The MSAB recommends that all foreign-flag rates be capped at a maximum of 50,000 tonnes times the area rate, with a minimum of $250 per port call, regardless of cargo loaded and unloaded.

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The most important consequence of the MSAB recommendations is that they meet the declared objectives of the coast guard while fully addressing the anomalies identified in the Booz-Allen economic impact study.

The second message deals with the proposed commodity value targets. The Booz-Allen study and the MSAB recommendations diverge significantly in their assessment of the fee level that can be sustained by the gypsum industry. We believe the fee level of 2.2¢ to 4.3¢ per tonne as set by the MSAB accurately states the fee that the gypsum industry can support without serious dislocation.

Because of our actual experience with the MSF in the last year and with the competitive pressures I have outlined above, the gypsum industry vigorously disputes the Booz-Allen study's conclusion that the viability of the plants would be threatened only if the fee exceeds 3% of commodity value. This would translate into a fee in excess of 30¢ per tonne for the gypsum. Even at 2% of the commodity value - the maximum 1997-98 rate proposed by the coast guard - the gypsum industry would be uncompetitive when compared to certain synthetic gypsum of foreign gypsum suppliers.

Nova Scotia gypsum producers are already feeling the fee's effect. In 1996, Fundy Gypsum shipped 130,000 tonnes of gypsum to a customer on the eastern seaboard of the United States. We had every indication that this order would increase to 200,000 tonnes annually. However, we recently lost this account when the effect of the fee was included in our costs of providing the product to our customer. We were told that Nova Scotia gypsum could not compete on a price-per-tonne basis when compared to suppliers in Spain and Mexico. It is clear that the competitiveness of the Nova Scotia gypsum producers is compromised even at the current rate of 17.6¢ per tonne, which is below the 2% threshold proposed by the coast guard.

The third message deals with the interim rate. The coast guard's 1997-98 proposed foreign-flag fees, ranging from 7.5¢ per tonne for the Bay of Fundy to 9.5¢ per tonne on the east coast of Nova Scotia, are acceptable interim rates. The gypsum industry accepts that 1997-98 is a transition year and that the coast guard must consider carefully the recommendations from industry and the results of the economic impact study before establishing a final rate structure. However, the final rate must be in the range proposed by the MSAB, and not the threshold level suggested by the Booz-Allen study or by the coast guard, if the future of the gypsum industry is to be assured in Nova Scotia.

Thank you, Mr. Chairman.

The Chairman: Thank you, Mr. Davis.

Mr. Watson.

Mr. Dave Watson (President, Canadian Petroleum Products Institute): Good morning. I'd like to thank the committee for the invitation. This is the first time the Canadian Petroleum Products Institute has attended one of these meetings, so I'll just take a moment to tell you about us.

CPPI is a national association. We have some fifteen members involved in the refining, marketing and transportation of oil products. Our member companies most actively involved in marine transportation are Ultramar, Imperial Oil, Petro-Canada, Shell Canada, Sunoco and Chevron. Our members are the major shippers in Halifax, a major shipper in Quebec, and many of the eastern Canadian communities, and we are major users of ice-breaking services.

We believe the March 20 announcement of a new approach for coast guard marine services, made by Minister Mifflin, has taken a large step towards removing barriers to a fair, equitable and affordable approach to marine service fees. We had been concerned with the absence of any strategy linking the government's cost recovery to services valued by the user and provided in an efficient and cost-effective manner. The proposal of a fee based on the direct cost of providing the service is a positive change away from the fixed revenue target.

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MAB and the coast guard must work to delineate a common agreement of what constitutes direct costs, as there are significant costs that are not direct in that they are a layer of costs associated with a government - and a monopoly at that - providing the service, as opposed to the cost of the service itself. We look forward to constructively resolving this issue.

We also encourage that the coast guard will continue with its internal cost reduction activities, which have been considerable to date. We feel strongly that MAB can provide support to the coast guard in this regard. Regrettably, the focus of MAB's attention for the past 18 months has been user fees, to the exclusion of any activity on cost reduction initiatives. Like others around the table, we consider that the major objective of the coast guard and MAB should be to make service offerings more efficient and cost-effective.

We are still of the opinion that an opportunity and outstanding challenge exist in demonstrating that costs are under control and lowest-cost operations are in use or are targeted, while marine safety and the protection of the environment are maintained.

We support the decision to defer the introduction of fees for ice-breaking at this time. The Hickling report does not properly present the reality of the coast guard's provision of ice-breaking services. I'm chairman of the MAB ice-breaking working group, and the analysis of Hickling was a step backwards for the work done for the MAB ice-breaking working group by my report inApril 1996. Without a proper representation of the services provided, it's difficult to devise a fair and equitable fee process and to properly assess the impact on the users. MAB should determine the value-added work that is outstanding and direct the ice-breaking working group accordingly.

CPPI does not oppose the increase in nav aid fee revenue from $20 million to $26 million or$27 million in 1997-98. We note that the revenue is geared towards an equitable rate of recovery across all regions. We are encouraged that the improvements to the 1997-98 fee level will be subject to further consultation before coming into effect.

Our association is not fully on-side with some of the aspects of the zonal fee structure for the maritimes, and we wonder how far this concept should progress. With every shedding of costs by one port, somebody else has to pick it up, another industry player must absorb more costs. In our view, we wonder if we aren't trying to satisfy too many interests while fracturing the industry as a result.

CPPI needs to be advised regarding the coast guard's intention for the Miramichi. The Hickling report assumes that marine traffic will be ended, and so does the Maritime Seacoast Advisory Board. I do not believe there has been any dialogue or discussion with the industry members on this assumption. One of our members is a major user of the river - that's Ultramar Inc. This issue must be reviewed, I believe, by the federal and provincial governments and industry in order to understand what the coast guard will be doing in that area, and at what time.

Finally, we support the government's intent to explore with industry the creation of an arm's length review mechanism for marine fee structures and annual fee levels. We can't offer any suggestions at this time, but we think it's a meaningful work activity for MAB and the coast guard in this upcoming year.

We look forward to achieving a satisfactory conclusion to all of the marine fee issues in 1997-98, the transition year. This discussion has gone on far longer than makes sense for us to spend on it.

Again, I thank you for inviting CPPI to participate in this meeting.

The Chairman: Thank you very much. I extend to you another welcome to the committee hearings, since this is your first time being involved in one of these things.

Mr. Gaudreau.

[Translation]

Mr. Richard Gaudreau (Chairman of the Board, Saint-Lawrence Economic Development Council): Mr. Chairman, committee members, thank you very much for inviting us today.

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When industry representatives appeared before your committee for the first time, a little over a year ago, they were extremely depressed. At the time, the federal government was proposing a regional taxation system bearing no relation to services actually delivered. Every region in Canada started pulling the blanket over to its own side of the bed - there was no serious policy underlying the proposed fee structure.

Sodes represents a variety of economic interests devoted to enhancing the use of the Saint-Lawrence Seaway as a marine shipping route. But today, I am not here to speak on behalf of the shippers, most of whom are Sodes members, since they are already very well represented by the others who spoke before me here.

However, there is something I should point out: since your report to Minister Mifflin, since your letter dated April 22, 1996, and since Mr. Watters' appointment as the new Commissioner, we have come to consider your committee as a link between all the interests, a group committed to gaining a more comprehensive understanding of the situation. We also believe that Mr. Watters wants to take a comprehensive view, and to determine Canada's important economic interests this issue.

Sodes has already made written representations, and I would like to draw your attention to some documents tabled with the clerk. First, we have tabled a document dated April 10, summarizing the Sodes position. Mr. Watters also received a copy of the document when we met with him in Quebec City. The document will be translated into English, and I encourage you, Mr. Chairman, and all committee members to give it your best attention. I will not be reading it before you today, because I would simply be repeating many remarks already made here by my colleagues. That would be a waste of time. However, the document provides an overview of Sodes' position on the issue, and I would very much encourage you to read it.

I have also submitted another study carried out by Professor Pierre Fréchette, of Laval University. Professor Fréchette assessed the impact study commissioned by the Coast Guard. He has examined the Hickling study on the basis of economic rather than accounting principles, and has arrived at conclusions very similar to those reached by Hall, Smith and Nicol. Professor Fréchette's report is 20 to 25 pages long, and will also be translated and sent to you. I would invite you to read it carefully: because not only it contains a criticism of the Hickling report - positive criticism, in my opinion - but also because it has the advantage of looking at the problem from a slightly different angle, an angle not considered in the Hickling study which focuses on a very short four-year period. Moreover, the Hickling study failed to consider one very essential and fundamental aspect, which must be understood by our government and reflected in any policies or corrective measures applied to the costs recovery system.

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This aspect, which was brought up by some of my colleagues, though not considered in the report, is competitiveness - the competitiveness of companies that settled along the shores of the Saint-Lawrence so that they could ship their goods, both for export and import. They settled there because they knew marine transportation was available at a certain price, but now they are facing significant additional costs that might seriously threaten their international competitiveness.

And another very important issue - an economic rather than an accounting issue - is the competitiveness of the Saint- Lawrence - Great Lakes system in relation to other transportation routes. No one should be saying that marine fees will have no impact on the competitiveness of our businesses and of the Saint- Lawrence - Great Lakes system. That's not true. It can't be true, because any additional costs affect competitiveness. And that is an issue we will continue defending to ensure that, in future, solutions are fair and reasonable, and provide economic benefits for Canada as a whole.

And, at the risk of repeating what my colleagues have already said, I would like to say that I hope your committee will continue listening to the industry and keeping an eye on developments in the cost recovery process. We started working together a little over a year ago, at a time when everyone on this side of the table was very anxious, as I said at the beginning of my remarks. But we are all far more optimistic today, and we would like to work hand-in-hand with the Coast Guard to ensure implementation of a fair system that poses no threat to one or more important aspects of our economy.

I will conclude on that, and I would be very happy to answer any questions you may have, in French or English. Thank you for your attention, and for all the time committee members are devoting to us. Thank you.

[English]

The Chairman: Thank you very much, sir.

We'll hear from Mr. Dalgliesh, and then we'll go to questions.

Mr. Rick Dalgliesh (Manager, Terminal Division of Manitoba Pool Elevators, Prairie Pools Inc.): Thank you, Mr. Chairman and members. I'd also like to thank you for the opportunity to make a presentation to you.

Just so you have an understanding of what Prairie Pools Inc. is, we are the government relations arm for Alberta Wheat Pool, Saskatchewan Wheat Pool Manitoba Pool Elevators and the pool subsidiary companies. Collectively, the pools account for more than 60% of the grain that is shipped from western Canada. Together, we have over 100,000 member owners, and we employ more than 5,000 Canadians.

Through our jointly owned company, XCAN Grain Pool Ltd., the pools are Canada's largest exporters of oilseeds and special crops. Individually and through XCAN, the pools act as agents for the Canadian Wheat Board to export prairie wheat and barley. Individually, together or in partnership with others, the pools are involved in wheat and oats milling, baking, malting, oilseed crushing and processing, livestock sales and fertilizer manufacturing and distribution.

The three pools, together with their subsidiary joint venture companies, also own export facilities in the ports of Vancouver, Prince Rupert and Thunder Bay.

I know that a lot of the statements that have already been made are included in our presentation, but I think it bears repeating that we are also pleased with Minister Mifflin's statement. There is definitely a need to abandon the notion of fixed revenue targets, which provided no one with any incentive to reduce costs within the system. Further, some time will be required to work out how this new approach can be implemented. Therefore, the one-year postponement for fee increases is appreciated.

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Also, the arm's length review mechanism for marine fee structures and annual fee levels is an important addition to this process. We wholeheartedly support this.

We also believe the government and the coast guard should work with the industry to determine the manner of implementation of the cost recovery process and should explore alternative service delivery opportunities. As such, we're very pleased with the recommendations.

Our most fundamental concern about the marine services fee is that the manner in which it is implemented can distort the competitiveness of the marine transportation system and therefore our competitiveness in the international markets.

As shippers of bulk commodities through the marine transportation system, we also have an interest in how these increases in fees may affect all commodities moving through the system. If the increased cost of moving any one commodity through the system puts it at a competitive disadvantage, total volumes will be impacted. If this occurs, other users would have to bear an increased portion of any fee structure introduced - for example, iron ore and grain, as Norman mentioned.

In addition to the competitive issue, we are required at the present time to look at least-cost transportation methods, and as such, we are looking at direct rail to port and also Mississippi markets.

The economic impact study dealing with wheat shipments from Thunder Bay clearly identified this movement as being vulnerable to diversion on both the Mississippi River and rail movement north of the Great Lakes. It did not consider the potential for grain to be diverted to U.S. ports, such as Duluth, where it could be shipped on foreign-flag vessels and thus escape the charge. The study clearly says shipments of wheat on the St. Lawrence are threatened by the cost of marine initiatives and the low rates offered by competing modes.

We wish to note that since this study was completed, there has been greater evidence of the potential to ship on competing modes. The Canadian Wheat Board's use of rail was the largest in several years, and it has made more sales on alternative routes through the United States.

We believe the government must respond to these findings in the study, and implementation of any new structure must take into account that vulnerability.

Two other factors regarding implementation of the marine services fee have come to our attention, and we believe they also impact on the competitiveness of the seaway. We understand it is being proposed that outbound foreign-flag vessels carrying grain loaded in Montreal or Halifax would not pay the marine services fee and that only 12% of the grain on such vessels carrying grain out of Quebec City would be subject to the marine services fee. This proposal is intended to reflect the fact that the largest portion of grain shipped to elevators in Montreal and Halifax and subsequently trans-shipped to ocean vessels arrived on lake vessels, and therefore they have already paid the marine services fee. At the same time, the proposal suggests that a significant portion of grain shipped out of Quebec City arrives by rail, and therefore the foreign-flag vessels receiving this cargo should pay the marine services fee.

Clearly, the imposition of the arbitrary percentages on how grain on foreign-flag vessels will be subject to the marine services fee creates a distortion in favour of rail movement to these ports over movement by lake vessels.

We also understand that vessels carrying grain out of the port of Churchill are not and will not be subject to the marine services fee. It should be noted that the catchment area for Churchill overlaps to a certain extent with the catchment areas for both Thunder Bay and Vancouver. By excluding traffic from Churchill from the marine services fee, the government is bestowing an artificial cost advantage on that port. We do not believe the coast guard's cost recovery exercise should distort the advantage to any one possible export routing.

We feel also that we do not want to lose any type of alternative for shipping, as was demonstrated in the past few months with the rail disruption through the west coast. As such, we feel that the marine services fee should be looked at on a cost recovery type of basis, and we endorse the minister's findings.

Thank you very much.

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The Chairman: Thank you very much, everyone.

We'll go immediately to questions. Mr. Rocheleau.

[Translation]

Mr. Yves Rocheleau (Trois-Rivières, B.Q.): First, I would like to thank all the witnesses who accepted the committee's invitation and came to meet with us this morning. My questions - quite legitimately, I think - are for Mr. Gaudreau, who's a Quebecker like me.

I'm referring to the press release by Sodes dated March 20th, 1997. You seem to deplore that the current cost recovery system is still based on regionalized fees, in spite of the impact study carried out, whose results and methodology, by the way, are contested. Under this system, Canada is divided into three major regions: the West, Central Canada - including the Saint-Lawrence and Great Lakes - and the Maritimes. You say that this system penalizes the Saint-Lawrence and pits Canada's different regions against each other.

Could you give us more details on this? I have the impression that during the other meetings that were mentioned earlier, marine shipping representatives were very much against the government's proposed measures. One fundamental issue and the criticisms many groups, including Sodes, have expressed is that we are seeing the government sticking to its position. I would like you to elaborate on your views and to describe the concrete impact that the system would have on day-to-day life, the economy of Quebec, and the economy of Canada.

Mr. Gaudreau: Sodes has always considered the principle of regionalized cost recovery fees to be fundamentally flawed. We believe - and time has proved us right - that a system which divides the country into regions must lead to sub-regionalization, since everyone wants to defend his particular interests.

This makes the system very complex, very costly and hard to administer. It penalizes the Saint-Lawrence, because the Saint-Lawrence's geographic situation is completely different from anything in Eastern or Western Canada. The Saint-Lawrence - Great Lakes system is an inland navigation route that needs dredging, that needs more, and more specific, navigation aids, that needs more deicing, more piloting, and so on. Because of its inherent characteristics, it needs more services. It is costlier, and we concede that.

However, no one's to blame for how the Saint-Lawrence is. The Saint-Lawrence is one of Canada's lifelines, just like the railways that cross its vast reaches, and without which the country could not function. We thought that a uniform base fee that would apply from coast to coast, without completely excluding a tax or specific fee for certain services, would probably be the most beneficial and cost-effective way to go.

Since then, the Coast Guard has introduced a concept whereby cost recovery would be related to services delivered or requested; that brings fees down a bit. However, I believe that Mr. Watters is still thinking about a relatively low uniform base fee, with additional fees for services actually delivered.

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It's clear the present system costs more for the ships carrying cargo through the Saint-Lawrence - Great Lakes system than for the ships going up the east or west coasts. It's more expensive to manage because there are a huge number of exceptions that will only increase. However, that criticism having been voiced, I repeat that we're on the right track by at least tying in cost recovery to the cost of the services actually rendered.

Mr. Yves Rocheleau: In that same vein, are we to understand that despite the studies and the efforts made by the Coast Guard, we don't know anything more than before on what services are really made available to the users, as well as their costs, although the proposal is to forge ahead with the user pay concept? We're going about it rather arbitrarily again. Is that the proper conclusion, despite a full year's discussions and negotiations between the federal government and the users?

Mr. Gaudreau: At this point in time, that is the situation, in effect. We don't know what the specific cost of the different services is and there have been no very targeted discussions on the nature of the services to be rendered. On the other hand, some discussions have been initiated and are well on the way to delivering valid results as the regional boards, or small MABs as they're called, whether in Quebec, out West or down East are working and will hopefully continue to work on those specific local needs and specific local costs.

Where there's a problem that's going to be very difficult to solve is where you look at the enormous costs of the Coast Guard's central management services. The Coast Guard is extremely costly to manage and it is extremely difficult, if not impossible, to get specific figures on how much central administration costs. That's where it's hard to cut and it's quite understandable. The senior officials' interests - and if I were in their shoes, I'm not sure that I wouldn't do the same thing - is to not commit hara-kiri and slash one another's jobs. There's a lot of housecleaning to be done at that level. I know that the Coast Guard and the advisory groups or small regional MABs are co-operating and doing excellent work, at least in the Laurentian region. At that level, there's excellent co-operation with a view to studying locally what the services are and other matters. Where there's a problem, and we hope that Mr. Watters' modified MAB will be able to contribute to settling it, is where you have the central administration costs that are way out of proportion. If there were to be some kind of decentralization of the Coast Guard down to the regions, maybe some moneys could be saved.

Mr. Yves Rocheleau: I heard a comment on the Hickling report, the impact study, that I found a bit annoying. It seems this study is a step forward that partially satisfies the users, in other words the stakeholders, but apparently the bean-counter approach was favoured over a more global method that could be called the socioeconomic one. What I find with pleasure in this document are the impacts, amongst others those for the Quebec Cartier Mining Company which means the mine could be worked two and a half years earlier. That's very important in all respects and especially in the socioeconomic area. I'd like you to be more specific about this comment on the socioeconomic aspect as compared to the accounting approach.

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Mr. Gaudreau: I'll address that question briefly. Basically, the Hickling study asked if the marine fees that were being proposed, a recovery rate of some 25 to 40 million dollars, for example, were going to affect marine transport. They looked at a certain number of examples. Basically, it's an accounting study. If you recover so many dollars, will such or such a business be affected? The study did not consider the long term economic effects of the marine fee in question and that's why I mentioned it was an accounting or a bean-counter study rather than an economic study examining the loss of income to the federal State over the long term as well as the federal government's expenditures.

The Quebec Cartier Mining Company is a good example. If the mine's useful life is shortened by two and a half years and the provincial, federal and municipal levels are losing over $250 millions in taxes, how does the federal level figure it's going to get its money back by imposing a marine fee?

As that was not the mandate given the Hickling firm, they can't be blamed for not answering that question. But the government, with an economic study of that nature, could have said: well, to get back 100 million dollars, we'll be losing 25, 50 or 75 million dollars in taxes and the operation's result will be a net profit. No one, not even the government, knows whether there is going to be a net profit or a net loss. That's what I meant.

[English]

The Chairman: Michael.

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

I'd really like to thank the witnesses from the various associations and organizations representing Canadian shipping interests. It seems as if we've gotten to know each other pretty well over the last year. At least some of us spent a lot of time together.

I'd like to say that while listening to your opening comments, Mr. Smith, I was becoming a bit concerned. I thought maybe we were way off track. It seems as if we're still not totally on track, but we're getting closer to reality, which is heartening. I appreciated your comments.

I have a couple of questions. The first one is for Mr. Gaudreau. In your news release,Mr. Gaudreau, you talk about the fact that you believe the total spending, including administrative and management costs, of the coast guard should be included in the equation. Is that not the case at the present time? As well, do you have information to the effect that administrative and management costs are a significant part of the entire coast guard budget? If there were a restructuring of administration and management, would it have a fairly major impact on what the actual cost of doing business is?

Mr. Gaudreau: I'm not working on a committee studying the actual costs of the Canadian Coast Guard, but the information I was given is that it has been impossible for the industry to obtain accurate and precise figures that reflect the budget of the Canadian Coast Guard when it is split among the top management, the various services, etc.

But we all know that the central management of the Canadian Coast Guard is extremely expensive. We all know the central management of the Canadian Coast Guard is no doubt reluctant to drive towards the various regions the administration of local services. We do believe if there were discussions at the level of the regions concerning the level of services the quantity of services would be reduced and the cost of those services would be reduced, but if the regions are working in each part of the country without the same approach at the centre that costs are to be reduced, that a better administration is to be introduced, the results will be so and so.

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Our belief is that the industry has had a lot of problems obtaining those costs from the Canadian Coast Guard. It's harder for the industry or the local MABs to work with the various regions of the Canadian Coast Guard and discuss figures for the costs of services.

Mr. Mike Scott: I believe this speaks pretty much to what Mr. Hall was saying as well, that because of the lack of information on budget and actual costs it's almost as if you're in the dark. You really don't know what the costs are and where the opportunities are for cost savings or cost reduction.

Am I hearing that right, Mr. Hall?

Mr. Hall: Yes.

I'll give you an example of the overhead problem. As I mentioned in the presentation, in the ice-breaking subcommittee, which David Watson chaired, we came up with a reduction...if I remember correctly, what they allocated to the commercial sector for ice-breaking was $80 million plus. We did a very detailed study, region by region - the Great Lakes, the St. Lawrence - and by the type of ship: do we need big ice-breakers or small ice-breakers, for how many days, by month, and all the rest of it. We really did quite a study. Basically, it reduced that cost by over $40 million.

That was operating costs for days of use of ice-breaking, and accepting the per diem costs they gave us. I don't necessarily accept per diem costs. I think they are inflated as well.

The big problem was this. Let's say we came from $88 million to $48 million or something like that. Most of the rest, 50%, was overhead. I don't know any businesses that are alive today with 50% overhead; but that's the problem we had with the coast guard. If it's 50% for ice-breaking, God knows what it is for the whole department.

Mr. Mike Scott: Mr. Gaudreau is singing from the same song sheet. I suppose everybody here believes that's pretty much the case.

Mr. Hall: No question. The only thing I say, though, in fairness, is that the news release of March 20 makes it very clear they are moving to direct costs as opposed to total costs, which means we eliminate overhead and we eliminate capital, so it's no longer a worry. If we're going to get into the day-to-day operating costs of running a coast guard ship or fixing up the buoys or whatever it is, it would be much easier to control and it would save Mr. Gaudreau and everybody around this table a hell of a lot of time trying to figure out overhead for the coast guard.

Mr. Mike Scott: I appreciate that you no longer have to worry about it as a shipper, but as Canadian taxpayers we still have to worry about it.

Mr. Hall: Yes.

Mr. Mike Scott: I have one more small question. I'm really curious as to why there's no representative from the B.C. shipping federation here. I wonder if anyone here is actually representing that interest. I know they were actively involved. I know Mr. Dalgliesh represents a western perspective on shipping, but I'm a little concerned the B.C. shipping federation doesn't have a representative here.

The Chairman: They were contacted and they did not respond.

Mr. Mike Scott: I see. Have you received any response from them at all?

Does anybody here know whether or not they are more or less in agreement with what you gentlemen have said here today?

Mr. Watson: I think one area of potential disagreement the western interest will have is that they perceive the deferment of charges for ice-breaking and what they perceive as a resulting increase in the nav aids fee as being in effect a subsidizing by non-ice-breaking areas of ice-breaking users. So I think they have indicated disappointment with the fact that ice-breaking hasn't stepped forward to take its share of the government's expected revenues. As a result of that being deferred, the interim step of moving nav aids from $20 million to $27 million - in reality no change in the unit cost, but in the actual annual cost - is negative for the western areas. That's the only comment I can make.

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The Chairman: Otherwise they appear to be happy out west.

Mr. Watson: They're not here.

The Chairman: Harold.

Mr. Harold Culbert (Carleton - Charlotte, Lib.): Good morning, gentlemen, and for the most part, welcome back once again. It seems like a long process. I know this committee has spent a lot of hours on this subject matter that we discuss again this morning.

This is just to refresh my memory and perhaps play the devil's advocate a bit, but one has to do that from time to time. One thing we had to resolve in our minds when we started this whole scenario a year and a half ago was the mythology. Do we believe in cost recovery, or a portion of cost recovery, for the services being provided? That would be my first question to those gathered, and anyone can speak to it. I assume that most people do agree with it, but I think that's an overview we have to discuss.

Of course, I understand that's providing a lot of balances to assure that there's fairness and that you're paying for the services you get, and then resolving what the percentage should be.

Mr. Chairman, the other thing I would like to know is how we arrive at a consensus on those needs - and I know what's being said this morning - from your perspective, for the navigational aids that you require for shipping industries, that the Department of Fisheries and Oceans may require for fishers, that the recreation and pleasure craft community may require, and from the perspective of general safety. How do we arrive at a consensus on what service level should be there if we're talking nav aids? Then how do we arrive at the percentage of that total that you require for your particular operations and what the costs of those are? I know we're talking about the direct costs of providing those services. There will have to be a lot of discussion, I think, between all of the players to come to that type of consensus.

I agree with you, and always have, that we have to decide what your needs are, what the costs of those needs are, and then what is a fair percentage of that cost for the user to pay. I think we've all agreed with that from the outset, and that's what we're trying to derive. I would like someone to speak on that.

Then I have a particular question for Jerry Davis from gypsum.

The Chairman: Doug, would you answer the question?

Mr. Smith: I will try, and I welcome my colleagues to pick up what I've missed.

First of all, my members have instructed me all along that they support initiatives to reduce the deficit of this country, and if that involves a sensible and equitable cost-recovery scheme, they're quite prepared to pay it.

I think the points you've raised that we've been asking about repeatedly for two years will go a long way to closing the gap. I'm not saying it will be a perfect solution, but if we look at what services we need, the real costs of delivering those services, and what those costs should be, we're going to narrow down the differences considerably. If you do that in a cooperative way, I believe there's a way to get some kind of consensus on those issues.

I'm not putting blinkers on and saying it's going to be easy, but I haven't heard any people say they oppose cost recovery, period, and don't ever want to pay it. If you had those kinds of people at the table it would be difficult, because they could always take that position. I believe if you have a methodical process and start whittling down those issues, you will get closer to a consensus.

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The other thing we've heard the minister and the commissioner say is that they want to establish an as yet undefined mechanism for resolving disputes. In my background that can be as simple as working your way towards a solution and when you can't, asking for binding arbitration. I don't know if that's what he is proposing. There are lots of other ways. You could have a permanent commission to examine these things, as there is under the national transportation organization. We're going to discuss that with the commissioner tomorrow, I believe, among other opportunities to talk about how that could be done.

That is one of the things we asked for here a year ago, that they not be set up as the final arbitrator except on matters of safety, because they have that responsibility. We need an independent body that can look at legitimate areas where the parties can agree to resolve them. I think if we go through that methodical process of examining what we need and what it should cost, we will go a long way towards solving those issues.

The one area that may be difficult is with common users of the same service, fishermen and recreational boaters. We would make a couple of points on that. There are a lot of aids out there that have been identified as strictly for commercial shipping, and we believe they can be substantially reduced. If we're the only ones paying for them, we should be able to get to the point of saying, here's what it is and we'll pay for that.

The ones that are common, and where the other two parties aren't going to pay anything, create a problem. Our position would be that if we don't need them and they do, then the coast guard shouldn't charge us for any of them. I can't speak for everyone here because we haven't talked about that issue very carefully, but I think from a reasonable businessman's standpoint, if we say we don't need it and they say they can't take it out because the recreational boaters need it, then we tell them not to charge us for it - particularly if they're not going to be charging them for it. At this point they are not charging for those things.

One of the questions here was about where the B.C. group sits on this. I won't say that I know enough about their system to be able to say it, but they have much more of an integration of fishing, recreational boating and commercial shipping on the west coast than perhaps we do in other parts of the country. They are always saying that we need to get the three parties together to resolve some of those issues. Ultimately that's what will have to happen if there are common services that all parties are using. I think it can be done, especially with the right to have a dispute resolution process.

Mr. Gaudreau: The apportionment of the expenses among commercial navigation, pleasure and fishing is an exercise that is extremely hard to do. Second, we all believe that at the end of the day, commercial carriers will be paying their share of the coast guard expenses. But it is not for tomorrow that pleasure boats and fishermen will be paying their reasonable share.

The apportionment of the expenses among the various services - commercial, pleasure, fishing and public services - is not an easy task for the coast guard to work on. As I've said, I don't think anybody is satisfied with the figures that have been provided by the Canadian Coast Guard, or not provided by the Canadian Coast Guard, to the industry. Mr. Watters is extremely interested in having accurate figures, and he mentioned to us in Quebec City that he would push his people to get accurate figures.

There is a big difference to be made between public services and what I would call private services. For example, the St. Lawrence River is to be dredged every year. The cost of that is$3 million. The Canadian Coast Guard has walked out of that operation and it said to the industry last fall, well, we are not spending $3 million any more; we are not giving dredging contracts to anybody; the industry or the ports should take care of that.

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The dredging of the St. Lawrence River is certainly a service rendered to commercial shipping using the St. Lawrence River. So what the industry and the ports on the St. Lawrence River have done is they have grouped together and they are cooperating with the Canadian Coast Guard. A special fee is to be imposed on the commercial ships to cover that specific expense of dredging that is related to a local need, and that local need is a need of the commercial ships. So this is an easy one.

On the other hand, ice-breaking, but mainly the aids to navigation, is pretty close to being a public service.

It's very hard to pinpoint the costs of aids to navigation and dredging that are to be passed on to commercial shipping. Till now we haven't had any accurate information on that. This is why, rightly or wrongly, we have always said a flat uniform fee could be the answer for those costs that you cannot apportion among public, fishing, pleasure, and commercial ships. It will be a hell of a problem for a long time, for sure.

The Chairman: Do you see the new commissioner being more open to working with the industry on costs?

Mr. Hall: I do, Mr. Chairman. I think he's trying hard. I think there's going to be a completely new approach here.

I would like to clarify a point, one I think Doug referred to as well. Certainly in recent times, anyway, this industry has not indicated it's not in favour of paying its fair share of cost recovery. I think we have all said that. I happen to have with me my presentation of last March 27 before this committee. In it we emphasized the fact that we're already paying a lot of money we don't get credit for. We pay for the cost of the St. Lawrence Seaway. We pay for Ports Canada. We pay for harbours and ports. We pay pilotage. Last year alone somewhere in the range of $400 million was being paid for those services.

We accepted the $20 million in principle. The majority of us have now accepted the $26 million in principle. The question, sir, is what is affordable? What can we do here without going bankrupt and without putting the whole region, in our case the Great Lakes-St. Lawrence region...asMr. Gaudreau referred to, all of a sudden you're going to be closing down industries.

It's not just marine aids. We're ready to look at that. As I say, we would like to reduce the cost of that, but we haven't been able to get the numbers to tell us how much it can be reduced by. There's dredging, which Mr. Gaudreau just referred to. It's another item that is strictly going to have to be absorbed by people using the St. Lawrence River. You can't expect the east coast or west coast to touch that one. Ice-breaking is coming in next year. That's a big cost. The other one that hasn't been resolved yet, although there has been a lot of discussion and dispute about it, is the oil spill response organization, which was estimated to cost something like $25 million.

So there are all these things coming down the tube, and it's not a question of asking if we are against cost recovery, it's whether we can afford it. Can we pay our share and stay alive? That's the bottom line.

Capt Nicol: Mr. Chairman, the board of the Shipping Federation unanimously decided they would endorse cost recovery. In these days of closing hospitals, reduced social services, and large deficits we felt it was the best thing to do to be good corporate citizens in that respect.

Of course we were very much concerned about competitiveness, and that's something Richard brought up on several occasions. We represent probably 70% of the revenue for the major ports in eastern Canada and about 75% of the pilotage dues for the pilots in eastern Canada.

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The competitive issue is very much on the front burner now. In the United States, the ports of New York and, I believe, Philadelphia and Boston are so concerned about how competitive Canadian ports are that a study is being carried out to see what can be done about the erosion of U.S. cargo through Canadian ports.

I'm not sure if the committee is aware of this, but about 50% of the containers that go through Montreal - that's the high-revenue cargo for the port, the cargo that generates the money - 50% of that cargo, I believe, is generated in the U.S. midwest.

The Americans are very concerned about this competitive edge that we have, and our members, although they endorse the participation in the cost recovery project, are very concerned that they might lose the competitiveness. The Americans are about to complete a study, which may result in some methods being introduced in the States that would reduce our competitiveness. I'm not sure; it could be subsidies to ports or it could be a host of things. But I would just like you to bear that in mind when you're giving consideration to the whole project.

The Chairman: Will that be subject to the free trade situation?

Capt Nicol: I'm not sure that it would.

The Chairman: If you're getting subsidies here that they're not getting in their ports, would that be -

Capt Nicol: There are different ways they can do the subsidies. Where our ports pay taxes, the U.S. ports often have taxes collected on their behalf by the municipality. I think Seattle is one area where -

Mr. Hall: Municipal bonds.

Capt Nicol: Municipal bonds, I believe, yes.

So there's a difference there. All I'm cautioning you about is that the Americans are very conscious of our competitive edge and right now they're looking at it to see if they can do something about it. As I understand it, it's in the hands of MAR-AD now.

The Chairman: So there wouldn't be a trade action taken because they accuse us of receiving a subsidy their ports are not getting or -

Capt Nicol: Perhaps something could be done there, but obviously the Americans think they can do something about it. They're looking at it, anyway. So I give you that for your consideration.

With regard to the nav aids, I think it's going to be very difficult. It would be easy enough to divide the pleasure boat people in some instances, but if it came to a buoy and Norman's ships claimed they didn't use it and our ships claimed they did... I'm pretty sure that when his ship went past, he wouldn't hide his eyes from our buoy.

Voices: Oh, oh!

Capt Nicol: He would use it. It would be kind of difficult in those circumstances. They're not going to shut their eyes.

The Chairman: Mr. Watson, do you want a crack at this?

Mr. Watson: Yes. Obviously CPPI has been strongly supportive of playing our part in the user fee. I'd just like to zero in a little on difficulties in getting financial information from the government. I think it's a systemic problem. It's not a problem of reluctance to give information.

The coast guard is changing from a cost sink to having to be more explicit in where its costs are going and where they're coming from. And I've found that in the just over a year that we've spent on the ice-breaking committee, we have progressed quite considerably in terms of getting information in a way so that from a business perspective we can understand it. If you can't measure it, it's very difficult to control it. The measuring of costs in a way that can be clearly aligned with what the user is getting from the services is an important first step before you even start anything.

I think the coast guard has been starting with a systemic problem. They've been very open in trying to resolve that and provide information to the ice-breaking committee. Once you get it and you're able to start measuring it, then you get into the areas and the opportunities for cost reduction.

Just to add to the comments that Norman has made, we started off with $80 million dollars or so. That's what you're costing the coast guard - commercial people. When we took a look at it using their numbers and finished up, putting a grassroots approach as to what is required for commercial shipping in ice-breaking terms, not for fishing, not for recreational, but just focusing in on our own business area, we came to that $40 million or so versus the $80 million or so.

At that particular time, we then started to see opportunities. We put our usual requirements in place. Since we started this exercise three ice-breakers have been tied up or assigned to other uses.

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So positive results have been coming out from being able to measure it and being able to identify what your requirements are and seeing assets of the coast guard being set aside. Once you've finished up properly measuring, once you've finished up looking at the opportunities for cost reduction when you know and understand the numbers, then comes the issue of allocation, which is what you... How do you allocate the costs when there's a multi-user requirement?

It gets even more complex than that, in a way, because within the coast guard the coast guard has multi-use vessels. A ship may lay aids today and is going to be ice-breaking at another time. So they have a challenge in their multi-tasking.

So certainly a big challenge still exists even in the ice-breaking area for getting a buy-in between the ice-breaking working group and the coast guard on what the proper allocation is for commercial interests. I think that same challenge is before us for the nav aids area. Certain regions, certainly the Maritimes sea coast, have done a lot of work in identifying and trying to pin down who the real users of navigational aids are.

In the past, in a no-cost scenario, everybody wanted more. If somebody said we'll put some buoys in place, everybody would say all right. Now we're in a position where we're really trying to ask what the added value of those buoys is. What's the added value of those services? We're challenging whether they really are needed, and that's an area that is new.

From that perspective I think the whole structure and the work of the boards, working with the coast guard, identifying and being able to measure first, able to look at cost reductions and then to look at proper allocation... We would have said theoretically all that should have occurred before you started putting user fees in place, because you could then work on a sound foundation. But we are already into the user fee scenario. I hope our learning in the ice-breaking area is of use to you.

One last thing is competition. The impact of a tax is at least common across everybody. The impact of marine service fees within my industry, for example, the oil industry, does introduce competition.

For example, Ultramar is a large refinery situated in Quebec City. It's totally reliant on marine supply for its crude. It's competing with other members of my association, the Shells, the Petro-Canadas and the Imperials and the Suns, whose refineries are fed by pipeline. So suddenly this initiative creates a new change in the competitive structure for people in my membership.

It's even worse when you move towards the ice-breaking, because Imperial Oil happens to have a refinery in Halifax such that you don't have to force ice to get there, whereas Ultramar does have to force ice. So again, when you get into the ice-breaking, Ultramar is going to have a double hit. This is a competitive scenario, but the Hickling report said, you have a good bottom line, you can afford it. That's primarily the result. And maybe it is. But at the end of the day these fees are changing the competitive structure of industries within Canada, not just internationally.

The Chairman: So the Miramichi has recommended that Ultramar switch to a different mode altogether?

Mr. Watson: That's correct, and that may be a totally appropriate way to go. But again, it's the Miramichi interests. Repap are having problems there, if I read the headlines, and Ultramar... Suddenly there's a $4-a-tonne premium to change your mode from marine to rail and it's only affecting one member of the industry that's competing in the community.

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The Chairman: So at the Miramichi their problem is dredging and ice-breaking.

Mr. Watson: Yes, the Hickling study looked at dredging in some detail. It didn't look at ice-breaking. With respect to ice-breaking on its own, I think it's still not set as to how it's going to be charged. Primarily, at this particular point in time you can only ask what the kinds of options are or what the worst case is that you could be looking at from the ice-breaking point of view.

Certainly, with regard to ice-breaking to get into the Miramichi, it's one of the most difficult areas, and if the focus of ice-breaking fees is directly on a user, i.e., 100% on whether you need an ice-breaker or not, then Northumberland Strait, Baie des Chaleurs and the Miramichi would be significant contributors to the revenue objectives.

As far as the dredging is concerned, I believe the dredging of the Miramichi for the small commercial volume that goes up there relates to approximately $9 to $10 a tonne compared to the 14¢ or 15¢ or whatever we've been talking about as far as a nav aid fee goes. So yes, there's going to be a change if you go ahead there. Maybe we should go ahead, but primarily we need to do a lot of development work with those impacted industries. They have to find new ways of staying in business and a new way of being competitive in that area.

The Chairman: Mr. Rocheleau.

[Translation]

Mr. Yves Rocheleau: Mr. Gaudreau, you said and wrote in your document, in paragraph 10, that the scope of the studies done by Mr. Hickling was very narrow and that as far as the methodology was concerned, he had used an accounting-based approach. You also mentioned the concept of return cargo and using national Canadian averages to set the tariffs.

Are we to understand from that that at the end of the day, the committees and all the different stakeholders who came forth as witnesses have not managed to convince the federal government what dangers there are for the Canadian and Quebec economy if the federal level carries on regardless and imposes those tariffs? Does that mean they're totally insensitive to the danger waiting around the corner?

You've given us examples, more specifically the Quebec Cartier Mining Company. That's what everybody wants to know and it's in the public interest. You also mentioned Ultramar. Why not talk about Canadian Pacific, in Montreal, with all its installations? I live along the river and I know that they have container carriers that may be even more powerful than our icebreakers. I suppose we'll have Canadian Pacific paying icebreaking fees even though the St. Lawrence river is going to have the icebreaking done in part by Canadian Pacific.

The situation is almost loony. Our basic concern doesn't seem to be taken into account and that's the competitivity of the St. Lawrence ports compared to their American competitors we spoke of earlier.

Does that mean we've missed the boat? Does it mean that the community effort made by the committee of users with a view to advising the government all went for naught? The government is making noises about being interested in the whole thing, but then comes to us with a very narrow mandate and a methodology that's perhaps unacceptable. What verdict are we to reach together in view of the government's attitude in a matter that's so important for everyone no matter what our political stripes?

Mr. Gaudreau: That's a difficult question. I must say that Sodes has always agreed to the principle that the users of marine transport services should contribute to cost recovery and improvement of public finances. Sodes was the first to say: If you recover $20 million and share them out equally all across the country, then there will be no drastic consequences in any one place. That's what we suggested at the outset.

I must admit we've lived to regret it. When we saw the regionalized system that was being imposed without any long term impact studies being done, we became extremely worried.

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However, to answer your question, I think that everyone here, around the table, and certainly all those who are at the same end of the table as I, have an enormous amount of work to do in 1997 during the moratorium that was granted us by Minister Mifflin. Our work is beginning. We will have special need, Mr. Chairman, of your committee's help. You'll have to serve as the link between the industry, the Coast Guard and...

I would repeat that our work is just beginning. This marine services fees system may very well threaten the transportation of all products as well as containers. As everyone knows, the difference between the user fees charged by the Port of Montreal and those charged by certain New England ports to ship containers to the United States is marginal, a difference of only a few pennies.

You said that the Canada Maritime boats will continue icebreaking for everybody. This is not necessarily true. The day when there is hardly any traffic left on the Saint-Lawrence, the icebreakers will still have to be there to prevent ice jams, etc. Canada Maritime will pay a little bit more for pilotage. It will pay for dragging. The few pennies...

Perhaps the traffic will go elsewhere. We will practically have to forget about navigation on the river in winter the day that the traffic of powerful containerships coming to the Port of Montreal heads elsewhere. The government will have to foot the entire bill for the icebreakers that prevent ice jams in order to maintain other public services.

You are quite right, this is a comprehensive problem that has not been examined. This is what we must all be looking at in 1997. That is clear. There is a lot of work to do, Mr. Rocheleau.

Mr. Yves Rocheleau: The government should be putting public interest above all else. If any others wish to make comments, they may do so. Is it in the public interest to charge marine carriers fees? The more I learn about this, the less convinced I am. Where is the public interest in collecting 40, 50 or 60 million dollars only to lose a 100 or 250 million dollars? Therein lies the difference between the short term and the medium or long term. Therein lies the difference between having a vision and applying poultices.

Mr. Gaudreau: I apologize to my colleagues, Mr. Nicol and Mr. Hall, but we must stop thinking in terms of marine carriers. That is not the basic issue. The basic issue concerns the users of marine transportation services. Whether the shipowner is paying $10,000 or $100,000 per year or even $500,000 in marine service fees, in macroeconomic terms, it really does not matter whether or not the shipowner has to pay these fees. What is important is to determine if our economy and those who use the services of shipping lines... Does the shipping line have the ability to pass these costs on to its client? And if it does, what impact will this have on our own economy?

That is the crux of the issue and that is what we are going to have to look into.

[English]

The Chairman: Mike.

Mr. Mike Scott: Mr. Rocheleau makes a point in terms of the public interest, and I suppose that's a decision that the minister has made or the government has made in terms of announcing the fee for service to begin with. So I'd just like to follow up on that a little, Mr. Gaudreau.

Would you agree with me that if you have a true cost recovery, you actually should only be paying for the services that you get? Would you agree to that? If cost recovery is really cost recovery, you're in fact paying for a service much as you would any service in the private sector, and the price you pay should be in line with the service and what it actually costs to provide it to you.

Mr. Gaudreau: My answer will be yes and no.

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Mr. Mike Scott: I don't think you can give a yes-and-no answer to that question.

The Chairman: Sure you can.

Mr. Gaudreau: First of all, it would be extremely difficult to establish what the costs would be for specific services. If we take aids to navigation, de-icing, etc., those would be problematic areas. If it were possible to pinpoint the cost of a service required by a ship under certain circumstances, we would not be against that idea, but it's an objective that is impossible to achieve except with certain services that you can relate directly to commercial activities, such as dredging of the river. For the rest it will be extremely difficult.

Mr. Mike Scott: Maybe it will be very difficult on a company-by-company basis or a shipper-by-shipper basis. I think that's the rationale for going to the regions or the zones, something I know you're not in favour of. But it's a better way to identify costs in different regions and to levy the cost recovery on that basis.

If we get away from that, I think you would agree with me that what happens in fact is that you're not involved in true cost recovery any more, you're involved in cross-subsidization, where in fact ports such as Vancouver, which have no ice-breaking costs and very low aids-to-navigation costs, would end up paying a higher fee than they would if it were done on a zonal basis, which means some other port somewhere in Canada is paying a lower fee and cross-subsidization is going on. The problem that brings to the fore is that there may be some additional competitiveness Vancouver would lose as a port, for example, and it wouldn't if it was true cost recovery.

That's what I was getting at with Mr. Rocheleau. I believe if the government wants to look at something and say it's in the public interest to have the public purse pay for this and not the user, that's one issue. But when it has determined and industry seems to have agreed that cost recovery is something that's acceptable to industry, then the cost recovery has to be fair and equitable and some ports are naturally going to face higher costs than others.

I wonder if you would agree with me on that.

Mr. Gaudreau: Certainly we are not against a cost recovery system based on the services rendered in certain places, for example, the dredging of the St. Lawrence River. I repeat, we are not suggesting and we will not suggest that those costs should be paid by traffic going through the port of Vancouver. No. But other fields, such as ice-breaking, such as aids to navigation, should be at least partially equalized, because it will be difficult to manage. It will be quite impossible to say this ship, passing abeam buoy 72, must pay so many cents, so many dollars. How can we relate the services to that ship or that company or that group of companies or that region?

Mr. Mike Scott: Your premise was that Vancouver doesn't require... Actually, dredging goes on in some parts of Vancouver harbour.

Mr. Gaudreau: In the port.

Mr. Mike Scott: Yes.

Mr. Gaudreau: In the Fraser River -

Mr. Mike Scott: Yes.

Mr. Gaudreau: - which actually will be paid by the federal government until 1999.

Mr. Mike Scott: Right. But Vancouver, for example, has absolutely no ice, and never has, and unless we get another ice age it will not have any ice to deal with. So it would be patently unfair to expect Vancouver or Prince Rupert, which is in my riding, to pay for ice-breaking that is not required.

Mr. Gaudreau: If you look at it in a very short term you may be fully right. If you look at a longer period, you may be wrong in the sense that grain is a very important cargo at the port of Vancouver. If, because of additional costs in the [Inaudible - Editor] the grain pools lose an alternative for shipping their products, they will have to go through the port of Vancouver by train. Fine. Of those companies, the CN has been privatized. There will be less competition to carry the wheat to the port of Vancouver, and that wheat may go through U.S. ports. Everybody may end up losing in the end.

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It may sound a bit ridiculous to you, but on a macro-economic situation and on a longer term, those things are to be looked at. It's fine for the Port of Vancouver to say it's not going to pay, because there are very few buoys in Vancouver, there is no ice-breaking, no dredging, or anything else. The St. Lawrence route may be priced out of the market and there won't be any alternative for the grain producers, who provide the main cargo at the port of Vancouver.

Who has paid for the tracks in the mountains to the port of Vancouver? We all paid for them, and they are one of the reasons why the cargo out of the port of Vancouver has grown. In Newfoundland or in Halifax, we don't need the double tracks like the ones from the prairies to Vancouver.

The Chairman: Rick, do you want to take a crack at that before we go on?

Mr. Dalgliesh: First of all, I would like to comment that we don't want to lose any potential transportation route for grain commodities or bulk commodities through the system. We can't afford to lose any type of movement through the east, nor can we afford to lose it through the west.

You mentioned cross-subsidization. I beg to differ that your port is possibly getting cross-subsidization because of the fact that you're getting a reduced rate from the railways and the Canadian Wheat Board when grain is moved through Prince Rupert. At the same time, as an industry, we can accept that in order to ensure we have that alternative there. At the present time, Vancouver does not have the capacity to handle all the export grain that is going to be generated in the western provinces. As such, we feel we want to see the St. Lawrence remaining, with other alternatives available to us. If we limit ourselves to just one port of exit, we are going to tie ourselves up in a situation in which we are limiting the markets that we can access.

I wanted to touch on the cross-subsidization, and also on the fact that if we lose alternative routes, we're limiting our opportunity to export the volumes of grain we're going to be growing in western Canada.

Mr. Gaudreau: And you'll go through the States.

Mr. Hall: This is just a small point, Mr. Chairman. Getting back to the question of cross-subsidization or what to do about user fees, I refer to Mr. Gaudreau's comments. Here's a simple example: the dredging of the St. Lawrence River. It costs $3 million a year just to maintain it. We don't need it. Our ships are only going at 26 feet because we're going up the seaway, but the river is being dredged to 37 feet in the Montreal-to-Quebec region, and I believe it's 40-odd feet east of Quebec.

However, if we started acting that way, we would get into exactly the same problemMr. Gaudreau's talking about. You're going to get little pockets of people saying they're not paying for this or that, they're not doing any of that. We're prepared to pay something. We haven't figured out a formula yet, but we're saying that we are part of the system. We don't need the dredging, but we're part of the industry and we should contribute something. That's the problem you get into - not only regional, but subregional and almost modal.

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The Chairman: What happens if pools decide to use the Mississippi a lot more?

Mr. Hall: Exactly.

The Chairman: Who suffers then? Is it the west coast, Vancouver and Prince Rupert?

Mr. Hall: No, they do not. It's the St. Lawrence system that suffers with the Mississippi.

The Chairman: Do you suffer individually or together if you go south?

Mr. Dalgliesh: There are also the alternatives of Seattle or Portland in that respect, as well. You have to keep them in mind. There are alternative routes. As an industry, we do not want to limit ourselves to, first of all, one port; and secondly, if the markets change again, we want to allow ourselves the flexibility to switch back to an east coast destination. We want to have that available to us.

Mr. Mike Scott: Could I make one more comment very quickly?

First of all, Mr. Gaudreau, I want to say that I hear where you're coming from. However, I think you have to remember that when it comes to CN, for example, we paid for it but got the money back when we sold CN. I don't know what the cost was and what the sale was, but as taxpayers we theoretically got the money back.

When it comes to the Port of Prince Rupert, I think there's a lot about Prince Rupert that we could go on about for a long time. Prince Rupert is a much more competitive port than what it currently gets credit for being, and due to a number of circumstances - and you're probably aware of them all, or at least some of them. Prince Rupert turns a grain car around in a day and a half, whereas it takes three and a half or four days in Vancouver. Prince Rupert only has to berth a ship once, whereas you have to berth it three or four times in some cases in order to take a cargo in Vancouver. And Prince Rupert is 400-some-odd miles closer to most markets in the Pacific Rim. Really, the cost of doing business for Prince Rupert and the competitiveness of Prince Rupert don't reflect those competitive advantages at the present time. Hopefully, they will down the road.

I agree that we need to leave our options open, but if you make Vancouver's cost of doing business artificially high through cross-subsidization, there is in fact other cargo - and it may be bulk cargo that has a very low value but it's still very valuable to British Columbia, such as timber products and paper products and so on - that may be diverted to Seattle or Tacoma, and Vancouver would lose that cargo. So yes, there's a balancing act there.

That's what I say about Mr. Rocheleau's comments about the public interest. I think that's what government has to decide. When is it in the public interest to levy a user fee, and when is it in the public interest to subsidize an infrastructure? You can almost look at that as being an infrastructure.

Because there's no B.C. representation here today in terms of the B.C. shipping association, I thought I should raise that matter.

The Chairman: Thanks.

Mr. Watson.

Mr. Watson: I have just one quick comment on regionalization.

Our association supports that user charges should be linked to the cost of coast guard services in the regions in which they operate. What I'm a little concerned about is what is becoming the definition of a region. Clearly, MAB's starting point of east and west regions resolved the issue of ice-breaking, and primarily we were coming out with eastern Canada and western Canada. Through consultation, in terms of individual regional areas, that has been taken through to at least two regions in the east, and we are now moving towards zones, i.e., breaking regions down into specific areas. It would be like separating our Prince Rupert from ``the west'', and that's the kind of process that is under way in eastern Canada. Conceptually it's fair, but from a perspective of division between one area and another area, I'm not sure whether it's positive or not.

You can take that one step further. If it's a region versus a sub-region, versus a zone, versus a port, versus the inner harbour of the port, versus the back end of the port - because it costs more to get into Bedford Basin in Halifax than it does to get into where my refinery is... It's just a trend that I think we should have a caution flag on. I can see ``me too, me too, me too'' all the way through the province of Quebec. Why should Seven Islands be lumped in with the port of Montreal or Baie Comeau or something such as that? Conceptually, it might be totally appropriate, but it does seem to introduce a fractured approach to what was a cohesive marine industry. It's an approach that I think we should be cautious about as we go forward.

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The Chairman: Is that why Miramichi is paying 17¢ per tonne while Halifax is paying 9¢? Is that from breaking it down to port?

Mr. Watson: Yes, that's an example. In a proper use of government funds in this, that and the other, I think the Miramichi is perhaps a study of where we should be challenging whether or not it should continue. I think it would be appropriate.

But to have 14¢ everywhere from Thunder Bay to Baie Comeau and 17¢ in another area, and to then create changes in zones where, within an area in the Atlantic, one port might pay four or five times as much as another... Yes, it's right, somebody has looked at what it does cost to go into this port. You can't challenge the philosophy or the concept. It's just whether or not having a region determined and having squabbling between this section of ports and that section of ports is the right output. At what point do you stop breaking down regions?

The Chairman: Jerry.

Mr. Davis: Mr. Chairman, I'd like to address that question and some previous questions.

I'm also a member of the Maritime Seacoast Advisory Board, which is an advisory board to the coast guard and represents the three maritime provinces. At the time when it was formed, Commissioner Thomas and other coast guard officials led us to believe that if we basically did our homework and determined where there were some inequities within the current fee structure that was being proposed at the time, there would be some adjustments made. As a board, we did choose to work with the coast guard. We looked at various zones, at what navigational aids were being used, what was required by commercial shipping - basically, the allocation to commercial shipping - and what the costs were.

We have probably had a different experience with the coast guard than did the rest of the presenters here today. We had very good cooperation from the coast guard in terms of being provided with the information that we requested in order to do our very in-depth analysis of the costs of the services being used by the commercial shipping industry in the maritime provinces. Along those lines, as was echoed earlier, our analysis found that the costs - basically overhead costs, administrative costs - are very high. They're in the neighbourhood of two to three times what the industry average would be. So we are very glad that they have decided to go to more direct costs.

Through our analysis, we came out with a very substantial difference in what the true costs of the services being used were and what we were being charged for the first year. Our analysis showed that, on average, the charges for those services were four times what they actually cost. What the coast guard is proposing in the second year is still double what they should be.

Through our analysis throughout the past year, we have had extensive consultation with the marine or commercial shipping interests in the maritime provinces. We had almost unanimous support for the recommendations of the MSAB coming out with a new fee structure. We are very disappointed that the coast guard did not see fit to act on our recommendations. With the delay in ice-breaking services, the charges for those services have increased the recovery from navigational aids. We are very disappointed in that. Ports such as Saint John and Halifax, which are very similar to Vancouver, are all ice-free. They do not feel they should in any way subsidize any inland ports, because the ice-breaking services are not being charged for in this coming year. So they more or less support the comments this gentleman has made, in that they are not in favour of any cross-subsidization whatsoever.

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I just want to emphasize that in general we have almost unanimous support from the commercial shippers in the maritime regions.

A question was raised about Miramichi. The rest of the commercial users in the maritime region are paying the high costs of that service. My understanding is it's in the neighbourhood of $5 million to provide services to Miramichi when approximately 250,000 tonnes are being shipped out of that area. The rest of the users in the Maritimes are subsidizing that port.

One other point of interest that came out of our analysis was that the Magdalen Islands nav aids and services for that area were lumped into the maritime region. That clearly is not part of the maritime region. Initially the coast guard was allocating nav aids on the Saint John River system, where there has not been any commercial shipping interest for two to three years, at least. Through our in-depth analysis some of these inequities did come to light, and to some extent the coast guard have acknowledged that in their proposed 1997-98 fee structure.

The Chairman: Thank you. We do have a gypsum question coming here.

Mr. Harold Culbert: Thank you, Mr. Chair. The conversation was going on so well in my previous question that I didn't have an opportunity to get it in. But that's great. I think the discussion we've just had has been excellent as well. It shows you where the concerns really lie.

In the previous questions a number of you answered on how you ascertain fairness. Basically, as I understood it, everyone said if we require nav aids out there, we're prepared to pay our fair share of the cost of them, providing it's fair and equitable; however, we're not prepared to pay the share of recreation or the share of the fishing industry.

That's fair. The same thing is being said here now: look, if you have a port that's ice free, that has deep water, that doesn't require dredging, we're not prepared to pay the cost of it somewhere else. It's regionalized. So there's a bit of fairness both ways there. I use that analogy for some of the challenges.

I wanted to put a question to Jerry Davis. I'm deeply concerned about a comment he made during his original presentation. I understood him to say he felt his business had lost a client as a direct result of the marine service fees in the U.S. That would concern me.

One of the reasons it concerns me, Jerry, quite obviously, is that Westroc Industries is in my riding. They ship a great amount of gypsum across the Bay of Fundy over to the port of Bayside. It's in bulk and it goes into the manufacturing of gyprock and so on. I'm certainly concerned both directly and indirectly about this supply and about the competition. As you and everyone in this room would know, in Atlantic Canada our competition is not elsewhere in Canada, quite frankly, our competition is with New York and Boston, mainly, and other New England area seaports, so we have to be on our toes all the time.

I would like to address that particular one about the loss of business, because that's certainly not the intent, and that would concern me. As you can tell, my background is in business. If someone tells me they lost a business for a specific reason my ears pick up very quickly, so I want to know more about that.

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Mr. Davis: The gypsum industry in Nova Scotia over the last ten plus years has lost close to two million tonnes of business that is still out there but is being supplied by other sources, i.e., Spain and Mexico. The new and bigger threat is the availability of synthetic gypsum in the U.S.

That's two million tonnes of business that could have been shipped out of Nova Scotia had we remained competitive. Prior to any marine service fees being impacted on our costs, we have lost that business.

I am also the president of the Fundy Gypsum Company. That example I gave in my opening presentation was an actual example. Last year we had obtained that business in the New York area. We had obtained that business prior to the marine service fees coming into effect in June of last year. We had quoted that particular customer with no marine service fee in our quote. We had to absorb that marine service fee ourselves in 1996. In 1997, we quoted him again and we included the marine service fee in our quote. We lost that business. That customer has decided to obtain his supply from Spain.

It's hard to think that with Nova Scotia being 500 miles or so from New York, Nova Scotia has lost that business to a Spanish supplier that is a couple of thousand miles away. That is not a hypothetical situation. That is factual. We did lose that business in 1997. There was also indication from that particular customer that in 1997 he did see his business growing, so instead of the 130,000 tonnes that we shipped last year, there was a possibility of shipping him 200,000 tonnes in 1997.

The Chairman: You have one small question left.

[Translation]

Mr. Yves Rocheleau: Mr. Gaudreau, in your document dated April 10, in item 3, which deals with the Canadian Marine Advisory Board, you said:

The Board [...] has not fulfilled its mandate which was to analyze service levels, industry requirements and management of the Coast Guard and to provide advice on ways to rationalize the Coast Guard.

You said that the Board had instead become an instrument controlled by the Commissioner and that you hoped that it would go back to its "initial mandate which was to advise the Commissioner on the review of service levels and on the rationalization of the Coast Guard".

Suppose that this turns out to be lip service. First of all, could government decision-making have an impact on the Board? If not, what will happen? Suppose that the Board continues to be an instrument controlled by the Commissioner. What will happen to the intentions of the government and what will the ramifications be? Are our concerns justified? If so, what should we be doing to get the government to understand that it may very well be trading not four quarters for a buck but instead four quarters for two and a half bucks?

Mr. Gaudreau: I think that the Marine Advisory Board will undergo a transformation. Many are hoping that this will happen, because the Board had become a forum where the various regions, groups, etc. expressed their desires and aired their grievances. Nothing very constructive went on there. We have been told that the Board will be changed. I feel that the Board's role will be more and more to advise the Coast Guard on the level of services and to work with the regional boards in order to link services and cost recovery.

As to who will carry the torch and make the State understand that the cost recovery system may be dangerous to our economy and result in a loss and not in savings, your committee is without doubt an important forum.

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It is clear that the marine industry, through its various associations, will continue working in the same direction. As I said earlier, as far as I'm concerned, the work is just beginning; it is not over. However, it may not be the Marine Advisory Board that will be the vehicle for conveying the message. I wouldn't count on that at all, Mr. Rocheleau. Instead, the Board will be a body that, in practical terms, examines the operations of the Coast Guard, and costs.

[English]

The Chairman: Thank you.

Are there any other questions?

Mr. Mike Scott: Mr. Chairman, I'm not sure how long you're going to let the meeting go, but the committee did agree to have Mr. Matkin appear. Mr. Matkin is the person who was appointed to review the aboriginal fishing strategy on the west coast. The committee did agree to have Mr. Matkin appear before the election. Time is very short. I understand that nothing has transpired yet in terms of organizing that. Will the committee go ahead and organize it for next week so that we can haveMr. Matkin appear before the committee prior to the election?

The Chairman: Have we contacted him yet, Eugene?

The Clerk of the Committee: Do you want him for next week?

The Chairman: You can try to get him for next week. I think next week will probably be our last opportunity.

Mr. Mike Scott: I'm sure that both I and my colleague Mr. John Cummins, and I think other members, would be interested to hear what Mr. Matkin has to report. The committee may very well want to make some recommendations in hand with that report.

The Chairman: Is this report available?

Mr. Mike Scott: I'm sure he -

The Chairman: Do you want to meet on that report about why he reported as he did?

Mr. Mike Scott: Yes. We should have the opportunity to ask him questions on that report and then maybe make some recommendations to the minister to be attached to that report.

The Chairman: We'll give it a try.

Mr. Mike Scott: Thank you.

The Chairman: Gentlemen, I want to thank you all for coming here. A year ago the coast guard was brand-new territory for us. It was a concern of the committee on transport before that. We have managed to learn a little bit about your industry over the past year. We are certainly not experts yet on the importance of the shipping industry, the marine industry, to this country.

If we have helped out in your liaison with the coast guard in this time of change, we are very grateful for being able to provide that service to you. We look forward - if we all return - to working with you in the future, probably in the fall.

Thank you all.

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