The Canada-U.S. border: free trade in a time of enhanced security.

Position:Proceedings of the 101st Annual Meeting of the American Society of International Law: The Future of International Law - Discussion

The panel was convened at 9:00 a.m., Thursday, March 29, by its moderator, Jonathan Fried of the International Monetary Fund, who introduced the panelists: Ambassador Michael Wilson of the Canada Foreign Ministry; Jon Johnson of Goodmans; and Peter Lichtenbaum of BAE Systems.

REMARKS BY AMBASSADOR WILSON

Thank you for your kind introduction, Jonathan. It is great to be here at the American Society of International Law and to have the opportunity to address you today.

You will consider today the intersection between free trade and security. A border, like the joint Canada-U.S. border, can be seen as either a gateway of a checkpoint. For the bulk of our shared history, Canadians and Americans have seen our joint border as a gateway. Since 9/11, we have seen that joint border viewed by some as more of a checkpoint.

Canada and the United States share a common concern about security. The escalation of regional conflicts and terrorism in the 1990s, culminating with 9/11, awoke all of us to new dangers. Canada and the United States have a joint interest in protecting freedom, democracy, human rights and the rule of law.

Canada, like the United States, therefore has increasingly allocated resources to border security and infrastructure. Canadian and American police forces man the integrated border enforcement teams, we share information and intelligence every day, and we cooperate extensively on immigration activities. While we once proudly said that the Canada-U.S. border was "the longest undefended border in the world," we really now should be saying, "We share the longest secure border in the world."

It is not made secure because we have extensive physical barriers. It is secure because, in large part, our peoples are peaceful and law-abiding and because we have focused, risk-based, and highly professional policing, intelligence, and immigration teams working effectively behind our borders. Canada and the United States will continue to ensure that we have a safe and secure border. The question before us today is how best to do that, given the particular nature of the Canada-U.S. relationship and the complexity of our economic relationship.

Let me speak a bit to the characteristics of the Canada-U.S. economic relationship.

The NAFTA has served Canada, the United States, and Mexico exceedingly well. The certainty and predictability flowing from the rules-based system established by the NAFTA has reduced irritants at the border. Before NAFTA, there were usually some 30 bilateral irritants occupying the Canadian and U.S. governments. Now, there are far fewer (a handful) commercial irritants, particularly in areas like customs classification and rules of origin, which had caused delays and complications at the border. The integration and increased competitiveness spurred by the NAFTA stimulated capital flows, promoted the spread of technology, and contributed to increased productivity, higher wages, lower prices, and more choices for consumers.

Let me give you some numbers. From 1993 to 2005, trade among the NAFTA partners grew an astonishing 173 percent, from $297 billion to $810 billion. Services trade has increased, and so has investment. By 2005, foreign direct investment by NAFTA partners in the NAFTA region had reached close to $539 billion, almost four times the $136 billion figure registered in 1993.

The Canada-U.S. trade relationship is characterized by a remarkable level of both volume and integration.

* Each year, there are over 70 million cross-border visits.

* Every day, $1.6 billion in commercial transactions cross the joint border. That is over $1 million every minute.

* Over 70% of Canada-U.S. trade is transported via truck, one of which crosses the northern border every 1.5 seconds.

* We sell goods and services to each other, but more and more we make things together. More than one-third of our trade is comprised of intra-company shipments.

In addition, auto parts, plastics, equipment, and machinery figure among the top ten bilateral exports for both Canada and the United States. This trade in intermediate products provides inputs which feed into the North American manufacturing process and supply chains. Clearly, our economies enjoy a very high degree of integration.

The inevitable conclusion of all this is that the management of our joint border is an extremely important element of the Canada-U.S. trade and investment relationship. This must be maintained carefully. It is absolutely essential that the proper balance be achieved between economic and security objectives, between legitimate and illegitimate travel, between our joint border as a gateway and a checkpoint. This is not only important to ensure the flow of commerce and people within North America. The NAFTA has helped make our companies and economies more competitive globally. Those firms who use North American inputs, and the workers they employ, depend on the North American supply chains to compete in a larger world. They face new challenges from players like China, India, and Brazil who are positioning themselves as sources of production, innovation, and investment.

A challenge facing policy makers in the NAFTA countries is to maintain an economic policy framework and an approach to border management, which sustain the economic expansion and improve the international competitiveness of our economies. How do we accomplish this? Of course, we need to maintain a robust framework of rules for international trade and finance that will best allow North American businesses to grow and succeed in the global economy. And, certainly, a key to North American competitiveness has been and will continue to be, the interlinked nature of our economies--the technology and sophistication of many of our products and, yes, where needed, low cost inputs from Mexico.

This high level of integration, complexity, and immediacy of our economic relationship means that we have to be constantly vigilant and guard against policies in each country that would have adverse effects on North American supply chains. So while our economies are working well, Canada is concerned about legislation and regulations that may inadvertently sideswipe these building blocks of the successful NAFTA and Canada-U.S. bilateral economic relationship.

By way of example, I would like to draw on the automotive sector, which has been adversely affected by a "thickening" of regulations and legislation in recent years. For this sector, any consideration of new border measures should take into account that the Big Three, as well as Honda and Toyota, are tightly integrated within our markets.

This places significant pressure on efficient border management, in order to keep our current manufacturing capacity productive, as well as provide for efficient allocation of future investment to support North American production. Auto industry analysts note that the industry's standard practice to manage a border crossing was a 20-30 minute window. One can get a fascinating insight into the effect on inventory and carrying costs from delayed cross-border shipments.

Every additional hour of inventory to cover the risk of shipment disruptions of Canadian parts...

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