WASHINGTON -- Paul Tellier, president and chief executive of Canadian National Railway, delivered a most interesting speech recently to the Canadian Club in Ottawa, Canada's capital. It contained lessons that could be applicable on the U.S. side of the border with Canada, writes Lawrence Kaufman in a Journal of Commerce Online editorial.

Tellier proposed that the Canadian federal and provincial governments take the fuel tax that the railroad already pays and give the money to shippers in the form of tax credits for shifting their freight to Canadian railroads.

The tax credit/subsidy would divert about 100 million metric tons of freight from highway to rail annually, the equivalent of 3 million truckloads. The increased line density that would result would allow railroads to reduce their rates by hundreds of millions of dollars.

Canada, in turn, would save about $500 million annually in highway maintenance and construction costs, Tellier said, adding that greenhouse gases would be reduced by some 9 million tons annually.

Tellier spoke in a Canadian context, and I'm neither going to say that it's the right course for Canada to follow, nor that it would be applicable in the United States. In fact, I can think of a couple of obvious objections. Canadian truckers, although eligible themselves for the shipper tax credit if they shift some of their business to intermodal, are likely to oppose the plan vigorously. And, if something similar were proposed in the U.S., it would run afoul of the railroad industry's efforts to get a 4.3-cent-a-gallon diesel fuel tax repealed.

The Tellier plan, however, demonstrates the kind of creative thinking the French-speaking, Oxford-trained Canadian lawyer-turned-railroad executive brings to the table. He is not hung up on a century of tradition. Refreshingly, he recently said that if he knew in 1992 when the Canadian government sent him to privatize and run the former state-owned railroad, he would have moved twice as fast.

In his sure-to-be-controversial proposal, Tellier recognizes and deals with certain realities that some of his railroad colleagues - and their customers - in the U.S. might prefer to ignore.

For example, there is growing realization that while railroads must pay the fully allocated cost of owning and maintaining their infrastructure, including the privilege of paying ad valorem property taxes on that infrastructure, since other transportation modes with which they compete not only do not bear the same costs, they also receive public right-of-way subsidies.

But, whenever the suggestion is made that railroads receive competitive equity, a howl goes up that the railroad right-of-way is a closed, private system, while anyone can put trucks, barges or airplanes out on the public-owned highway, waterway and airway systems. Railroads, therefore, deserve no public assistance, critics say.

Tellier's proposal neatly gets around the issue by giving the tax credit directly to the shipper as an incentive to change its commercial behavior. The railroads would continue to be a less direct beneficiary than today's motor, water and air carriers.

The railroad fuel tax was created as a deficit-reduction measure many years ago when the federal government was running huge annual budget deficits. Since then, a comparable trucker diesel fuel tax has been reallocated directly into the highway trust fund to benefit the truckers.

The Tellier approach wouldn't even cost the government any money because there no longer is any justification for taxing railroads on their fuel to reduce a deficit that doesn't exist, so it would amount to taking railroad money and giving it to railroad customers to generate new railroad business.

As for the U.S. railroad industry's desire to get the fuel tax repealed, the industry's own economists and pricing experts probably would determine that the benefit of increased traffic and density in a capital intensive industry would be greater than the tax now paid. As a corollary, if fuel tax were repealed, would railroads reduce rates sufficiently to generate new business on their own?

Again, the point of this discussion is not to shill for the Tellier proposal. It is to recognize that with creative thinking comes creative ideas.

This is the same Tellier who appeared before the National Industrial Transportation League earlier this month to seek its support for the proposed acquisition of Wisconsin Central Transportation Corp. Addressing representatives of some of the largest and most sophisticated shippers in the country, Tellier promised that the planned merger would not be anti-competitive in any way, and would increase single-line scheduled service for shippers.

He promised to preserve bottleneck rights to access other carriers, both physically and economically, in perpetuity, with switching charges adjusted only by some pre-arranged index. He said that CN will offer guarantees of service at least as good as it is now, with penalties for failures, which he clearly does not expect, given CN's successful merger with Illinois Central in 1999.

An executive who attended the NITL rail committee meeting said: "As an example, Paul said if a shipper wanted to use another railroad beyond Chicago to a point also served by CN, he would certainly compete for the move, but would not require the shipper to use CN. In response to a question I posed to Paul as to how long CN planned to maintain this arrangement, he replied 'forever. I am not afraid to compete with any railroad out there.' Now, here we have the CEO of a major class one railroad 'walking the talk' that organizations like shippers have been asking for."

Edward M. Emmett, NITL president, said: "This demonstrates that railroads and their customers can work together, seeking marketplace solutions for a better rail transportation system. The old ways of doing business are, hopefully, giving way to a new vision."

To which I add a fervent "amen."