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Weekly UpdatesSeptember 11, 2001, was a seminal date in the young 21st century. The attacks on and collapse of the World Trade Centre in Manhattan was the seed from which grew America's preoccupation with the security of its homeland above all other national policy objectives. Canadians were justifiably proud of their immediate response to this crisis faced by their neighbour and closest ally. They opened their homes to thousands of air travels forced to land on Canadian soil and rallied in impressive numbers on Parliament Hill that same week to visibly demonstrate our nation's support. Within three months of the attacks, both countries issued the Canada-U.S. Smart Border Declaration, leading to the Canada-U.S. Smart Border Accord in 2002--aimed at improving security and border efficiency. In the aftermath of 9/11, however, Canada acquired a new imperative in its vitally important relationship with the United States--trust in a secure 49th parallel is a condition precedent for trade and further trade liberalization between both countries.
Almost seven years later, it is clear that the historical low-maintenance approach to managing the border is over. Security trumps trade for Canada's largest trading partner. This has contributed to what is commonly referred to as the "thickening" of the Canada-U.S. border, characterized by increased wait times, direct border crossing fees, additional and duplicative border programs, inconsistent regulations, and increased inspection times.
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Before examining possible remedial measures, it is important to underscore the magnitude of the Canada-U.S. trading relationhip. Thirty-six thousand trucks and almost 400,000 people cross the border each day. (1) Bilateral trade between our countries, the largest bilateral trading relationship in the world, totaled US$550 billion in 2006, a significant increase from US$163 billion in 1989, the year the Canada-U.S. Free Trade Agreement (FTA) took effect. (2) Some US$1.5 billion in two-way trade the border every day. (3)
It is fair to note that the Canada-U.S. border was becoming a choke point prior to 9/11 as a result of the tripling of trade volumes between the two countries since the signing of the FTA and NAFTA and the failure to build up the physical infrastructure and personal needed to manage the dramatic increase in goods, services and people crossing the border. There is no denying, however, that the border has become even more difficult to cross since 9/11.
This has occurred despite the introduction of several programs intended to expedite the secure movement of goods and people. These include the U.S. Customs-Trade Partnership Against Terrorism (C-TPAT) and joint Canada-U.S. programs such as Free and Secure Trade (FAST) for shipments involving pre-approved importers, carriers and drivers, and NEXUS for frequent travelers. The track record for these programs is, however, uneven at best. According to a recent report produced jointly by The Canadian Chamber of Commerce and the U.S. Chamber of Commerce, these programs are costly and it may take up to two years for participants to be certified. Moreover, the increasing rate of inspections, the imposition of more border fees, and congestion at certain border crossings occur whether or not one is participating in one of these programs. (4) Furthermore, other initiatives introduced by the security-focused U.S.--the Western Hemisphere Travel Initiative and the Animal and Plant Health Inspection Service--will impose higher costs and make cross-border movement of people and goods even more difficult.
Canada pays a big price for a thicker border. A draft paper written by economist Patrick Grady estimates that "Canadian exports of goods, excluding energy and forestry products, to the United States have been 12.5 per cent lower than would have been expected based on estimated relationships. This would amount to a reduction of $30.6 billion in the exports of goods excluding energy and forestry products in 2007 in current dollars." (5) It is fair to conclude, as Grady does, that Canada's advantaged position under the FTA and NAFTA has been "substantially eroded."
Indeed, one of the benefits of the FTA and NAFTA was to entice investors to launch North American operations in Canada rather than following their natural bias to locate in the much larger U.S. market. This comparative advantage is being lost as companies are building warehouses in the United States in addition to keeping inventory in Canada, thus reducing the benefits of just-in-time inventory management, particularly in the auto manufacturing sector in which components of an automobile can cross the border as much as seven times during the production cycle. (6) Moreover, Canadian companies are taking a direct hit on their profit margins, are incurring extra costs to ship goods ahead of time to guarantee on-time arrival, and are losing operational efficiencies. (7)
The difficulty of convincing the United States that Canada can be trusted to do its part to provide a secure border should not be underestimated. This will take time.
Protective measures
One thing the Government of Canada can do is signal unambiguously that the country's relationship with the U.S., economically, socially, and diplomatically, is our top foreign policy priority. This could translate into any number of initiatives, including the development of a more formal institutional structure to oversee and manage the Canada-U.S. relationship. The Security and Prosperity Partnership was launched in 2005 as a trilateral arrangement with Canada, the U.S. and Mexico aimed at forging greater cooperation with a focus on security and enhanced prosperity. While this initiative may be sound, the vital importance of the Canada-U.S. relationship demands a bilateral arrangement.
Canada can also increase the number of customs officials at key border crossings, make significant improvements in border infrastructure, harmonize requirements for FAST, and reduce regulatory differences between the two countries. It is abundantly clear that the onus is on Canada, as the much smaller partner in this relationship, to build trust and reduce the thickening of our border with the United States.
Alan Young (young@tactix.ca) is co-president of Tactix Government Consulting Inc.
(1) What About the Border? Michael Hart. The Canada Institute/Woodrow Wilson International Centre for Studies, One Issue, Two Voices; Issue Eight, February-2008; page 9.
(2) Economic Integration in North America. Gary Hufbauer and Claire Brunel. The Canada Institute/Woodrow Wilson International Centre for studies, One Issue, Two Voices; Issue Eight, February 2008; page 2.
(3) Finding the Balance: Reducing Border Costs While Strengthening Security. The Canadian Chamber of Commerce and U.S. Chamber of Commerce; February 2008; page i.
(4) Ibid.; page 7.
(5) How Much Were Canadian Exports Curtailed by the Post-9/11 Thickening of the U.S. Border? (A work in progress); Patrick Grady; May 30, 2008; page 14.
(6) Finding the Balance: Reducing Border Costs While Strengthening Security; page 5.
(7) Reading a Tipping Point? Effects of Post-911 Border Security on Canada's Trade and Investment; The Conference Board of Canada; June 2007; pages 13, 17.
From the perspective of the business community, higher energy costs will be a critically important factor in all future planning.
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