national farmers union

MAY 25, 2000

NO RAILWAY COMPETITION WITHOUT COMPENSATION

ROSSENDALE, Man.--Transportation legislation announced last week will not lead to railway competition. One reason is the merger talks between CN and Burlington Northern, and CP and Union Pacific. The Wall Street Journal predicts that these and other mergers may reduce the number of railways in North America to two. A second reason that the government will fail to create competition is the North American Free Trade Agreement (NAFTA).

NFU Vice-President Fred Tait pointed out: "The majority of CN and CP shares are owned by U.S. investors. If we interfere with those investors' assets by forcing CN and CP to let other carriers use their tracks, those investors will quickly avail themselves of the NAFTA agreement. If we remove the rate cap, we may never be able to re-implement it without paying compensation. Farmers and politicians need to fully understand these issues before we give up the rate cap and bet our futures on half-baked hopes of competition or ill-conceived revenue caps."

Willard Estey, in his transportation and handling review, recommended "open access": forcing CN and CP to allow each other, and any other railway, to move freight on their lines. However, If Ottawa tries to force open access or similar competition-creating measures onto CN and CP, government, farmers, and taxpayers may have to pay hundreds of millions of dollars in compensation or risk a suit under Chapter 11 of the NAFTA. (See Backgrounder)

In 1996, Ethyl Corporation sued the Canadian government under chapter 11 of the NAFTA for $200 million [U.S.] for restricting the distribution of Ethyl's manganese-based gasoline additive MMT. MPs--concerned that manganese causes neurological damage, infertility, and aggression in humans, and damages the emission controls of cars--banned the import and interprovincial transport of MMT. Ethyl claimed that the government's actions were "tantamount to expropriation under the NAFTA." In 1998, after losing three preliminary decisions before a dispute tribunal, the government paid Ethyl $20 million [Cdn.], removed restrictions on the import and transport of MMT, and issued statements that there was no evidence of harm from MMT.

The final report from the Kroeger process states, under the heading of "Expropriation and Property Rights", that:

The railways argue that full open access would be tantamount to expropriation of their infrastructure assets, without adequate compensation. In their view, compensation would be inadequate unless in included their "opportunity costs" incurred by the loss of revenue they would have made from future movements over their lines that will be lost to other carriers. [Emphasis added] (Page 25 of Appendix C, Working Group #3)

In 1998 and '99, the NFU corresponded with the Canadian Department of International Trade. The NFU cited the Ethyl case and the seeming need to pay compensation to foreign investors if a government action affected the profitability of a foreign corporation. The NFU correspondence included the following questions:

If Canada legislated that CN and CP railways had to allow other carriers to use their rails, would Canada be compelled to pay compensation to foreign investors under the NAFTA?

If we remove the current rate cap and wish to re-impose it in a few years, would affected foreign investors be able to request compensation under the appropriate NAFTA articles?

Over a 16-month period, and despite numerous attempts, the NFU was unable to gain clear answers to these and other questions.

"Any government measure that forced real competition onto the railways would clearly affect the railways' profits and their use of their assets. This would seem to imply that, under the NAFTA, they might have grounds for an Ethyl-type suit against the government. Paying the railways for forgone revenue and profits and paying another railway to haul the grain means that farmers pay twice," said Tait

"The power of the railways, the prospect of mergers, the need to include all commodities when implementing open access, and the very real threat of a NAFTA suit makes real competition extremely unlikely. That's why you won't see it in this legislation, or in the future," concluded Tait.

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For More Information:

Fred Tait, NFU Vice-President: (204) 252-2773

Darrin Qualman, Executive Secretary: (306) 652-9465

Backgrounder to the NFU's May 24, 2000 News Release

Chapter 11 of the NAFTA states:

Article 1110: Expropriation and Compensation

1. No Party may directly or indirectly nationalize or expropriate an investment of an investor of another Party in its territory or take a measure tantamount to nationalization or expropriation of such an investment ("expropriation"), except: