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Stakes are high for new Canada-U.S. border deal

Canada-U.S. trade peaked in 2000, and has basically stagnated in the years since. A former Canadian trade negotiator said the heavy transaction costs at the border are a major contributing factor, along with the sharp rise in the Canadian dollar.

Ryan Remiorz/The Canadian Press/Ryan Remiorz/The Canadian Press

The focus was all on Canada and the United States as Stephen Harper and Barack Obama met in Washington this week to reinvent the busiest border in the world.

But the spectre of China – the exporting colossus that's reshaping global trade patterns – wasn't far from the minds of business executives digesting the fine print of the leaders' sweeping border-security pact.

"My big worry is failure," acknowledged Birgit Matthiesen, a former Canadian customs inspector who now works as a lobbyist for the Canadian Manufacturers and Exporters in Washington.

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"If we can't get this right between two neighbours in a highly competitive world, where jobs in both countries depend on each other, then we don't know what the plan should be. We have to succeed."

Canada is fighting for survival in a global marketplace that is increasingly dominated by a new generation of industrial powers led by China.

And this deal may be the last, best hope to save what's left of the integrated North American market and reclaim the promise of continental free trade. For the past decade, the Canada-U.S. model of economic integration has been breaking down – victim of a border choked with traffic, heavy-handed post 9/11 security, steep fees and often pointless regulation.

Free trade has become thick trade. Efficiencies have become costs, sapping an estimated $10-billion a year or 2.7 per cent from the value of two-way trade.

Among other things, the agreement aims to cut overlapping inspections, speed passage of trusted shippers at the border, harmonize product regulations, and create a single online portal to replace multiple layers of bureaucracy. The two sides have also agreed to more closely share security information, including the movement of people as they leave both Canada and the United States.

U.S. Ambassador to Canada David Jacobson acknowledged Friday that a key motivation for the border deal was to ensure the Canadian and U.S. economies keep up with others in Asia and elsewhere.

"We are in a very global economy," he told The Globe and Mail's editorial board. "We have to do as much as we can to make the economies of our two countries as competitive as we can make them. This is a part of it."

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It is hard for the North American auto industry, for example, to be competitive when components and parts shipped back and forth across the border have to be inspected over and over again, he said. By contrast, cars arriving from Japan get just one inspection.

Mr. Jacobson said the border project gained momentum when officials grasped that security and trade issues are not mutually exclusive. "[We realized] that perhaps the only way that we were going to have a secure border was to have a more efficient border," he said.

A decade has already been lost as Canada and the United States dithered, explained Michael Hart, a former Canadian trade negotiator. The rest of the world has charged ahead.

"These things have been on Canada's agenda for a long time," pointed out Mr. Hart, who now holds the chair in trade policy at Carleton University's Norman Paterson School of International Affairs.

"Is it too late? People have already made investments to deal with the thicker border. Some of these things have already taken place and we can't recover from them. It's been 10 years."

Many Canadian companies have stopped exporting to the United States, focusing instead on more distant, but riskier overseas markets. Others have shifted operations across the border, or are needlessly stockpiling goods on both sides of the border.

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Canada-U.S. trade peaked in 2000, and has basically stagnated in the years since. Mr. Hart said the heavy transaction costs at the border are a major contributing factor, along with the sharp rise in the Canadian dollar.

Recent trade patterns paint a devastating picture. Between 2001 and 2010, Canada's dominant share of key U.S. imports has fallen precipitously across a range of products – from furniture and electrical equipment to printing and plastics.

Market share worth billions of dollars now belongs to China, which overtook Canada as the leading exporter to the United States in 2009.

Recapturing what's been lost won't be easy, or quick. And many questions surround the deal unveiled Wednesday in Washington.

The deal is essentially an action plan of steps the two governments say they will undertake to enhance trade and security. It could be months or years before many of the changes are implemented, stretching the process well beyond next year's U.S. elections.

"There's a bit less than meets the eye here," said Michael Kergin, who was Canadian ambassador to the United States from 2000 to 2005. "It will depend so much on continued political momentum, which, given timetables and schedules, will be lacking."

Securing funds from the U.S. Congress could also jeopardize vital border infrastructure projects, including access roads, worried Paul Frazer, another former Canadian diplomat who now works as a consultant on cross-border issues in Washington.

"The proof of it all will be in the eating," Mr. Frazer said. Get it wrong, he said, and vast supply chains could vanish forever, lost to overseas competition.

"If we screw up that extensive supply chain operation, both countries lose," he said.

With files from reporter Richard Blackwell in Toronto

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