You're close, but here's a thought experiment to help you along.
Say your 10 mile PB is 52 minutes. Let's say you have a sponsor that will pay you $20 every day you go and run your 10 mile training loop in under 60 minutes. That should be a solid tempo run for you but something very doable, generally.
However, any day you run over 60 minutes you have to pay your sponsor $20.
So you wake up one morning and feel a bit tired and sore and figure breaking 60 minutes is going to be a stretch that day but that an easy 65 would do wonders for your base.
What do you do? Do you head out the door knowing that doing this run will not only not pay you $20 (your primary source of income) but will also end up making you pay $20? Or do you decide to be financially safe and not run at all, ensuring you won't be dinged a hard-earned $20?
In the big picture, this is what AC faces. The metric they are being evaluated by Sport Canada (their primary source of income) is what percentage of the team places top 12 (or top 8 or medals) and compared that to other sports demanding Sport Canada funding (your swimming, trampolining and synchronized solo mountain biking).
If they select a team only of athletes capable of top level A standard performances (those days you know you can cruise a sub-60), their metric will be better than if they also brought along B standard athletes (those days you don't feel so hot).
Just like your overall performance would improve by being able to do an easy 10 regularly, pretty much everyone will agree that sending B standard athletes will help their development and that of the domestic sport.
However, because of the funding model both you and AC are under, where you are 'punished' financially for not going for sub-60 or top 12, you are less likely to want to take the chance on those long shots.
AC's standards and criteria are simply a rational response to the financial constraints placed upon them.
Bitching about those criteria is likely a pointless exercise because AC unilaterally loosening them is only going to hurt them when it comes time to get taxpayer funding from Sport Canada.
The real key is to be able to make the argument to Sport Canada, the federal government and the taxpaying Canadian public as a whole why athletics should get more money (especially if it comes at the expense of that money going to other sports, particularly those that are actually producing Olympic medals, even if they are obscure and less practiced that track and field).
Reality is very, very few countries in the world follow this principle.