VANCOUVER, British Columbia (Reuters) - Canadian National Railway is hindering efforts to improve rail safety with a "culture of fear," according to a government report released on Friday.

The report, begun in 2006 in the wake of several high-profile accidents, said Canada's railways are safe, but it expressed concern that "overall safety" has not significantly improved since 1999 when regulations were last overhauled.

"We think it should have," said the panel set up by the federal transportation minister to review rail safety legislation.

The rail freight industry is dominated by Canadian National, the country's largest carrier, and No. 2 Canadian Pacific Railway, both of which also have significant operations in the United States.

Nearly all of the intercity passenger trains are run by Via Rail, a government-owned corporation.

The panel praised Via and Canadian Pacific for developing a "healthy safety culture," but took aim at Canadian National -- which is often credited by stock market analysts as being North America's most efficiently run major railway.

"CN's strict adherence to a rules-based approach, focused largely on disciplinary actions when mistakes are made, has instilled a culture of fear and discipline and is counter to an effective safety management system," the panel said.

A spokesman for Canadian National said the company was still studying the report and the panel's direct criticism, but noted CN's statistics on accidents and worker injuries indicate its record has improved over the past seven years.

"Our position is that CN has taken comprehensive steps to foster an effective safety culture at CN," Jim Feeny said.

The head of the Teamsters Canadian Rail Conference, which represents some employees at both railways, said he was pleased with the panel's comments.

"They were right on the mark in their assessment," Dan Shewchuck said.

The panel said railways should be required to obtain a rail operating certificate once they meet regulated baseline safety requirements, and regulators should be given the power to impose fines for violations.

In addition to CN and CP rail, Canada has more than 40 smaller railways.

(Reporting Allan Dowd, Editing by Rob Wilson)

© Reuters 2008

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