Doing business across the Canada-United States border: gateway or checkpoint?

• Author: Rose, Ronald L.

Session Chair-Ronald L. Rose

Canadian Speaker-David Bradley

United States Speaker-Jason Conley

Canadian Speaker-Thomas Garlock

INTRODUCTION

MR. ROSE: My name is Ron Rose, and I am acting as chairman of this session. Just a few remarks. I want to say how honored I am to be here. As the other speakers have said, this is a very timely meeting. It is an important and necessary dialogue in the time from my viewpoint as a corporate bankruptcy lawyer, probably the only one in the room. Our economy in the United States is as bad as I have seen it in my 40-year career. And for the community in which I live and work, and the automotive industry, which is Detroit, the economic union between the United States, Mexico, and Canada is of crucial importance to our economic future. (1)

As we have already heard-and we will hear throughout the conference-there is bound to be tension between the need for security on the one hand, and open, free, efficient, and dependable border crossings on the other. And those of us from Detroit have always told our children instead of, "come home on time," we say, "come home just-in-time." There are a couple of articles in the front of the materials that talk about the thickening border. As the last speaker has talked about it, one trucker said that he could go through immediately or would end up waiting seven hours.

Drilling down a little bit further into the problems caused on a plant level, in Detroit today, the shutting down of a production line can cost a supplier between $500,000 and $1 million an hour as fines. (2) So that is just an indication of the absolute necessity of being able to get product across the border on a timely basis because whether it is paid or not paid, those are the damages that our OEM suffer because of the failure to get products across the border.

CANADIAN SPEAKER

David Bradley *

MR. BRADLEY: I will say a little about who we are. CTA is a federation of the provincial trucking associations in Canada. (3) We represent over 4,000 trucking companies across the country, (4) and most of those would be involved as part of their day-to-day business in cross-border trucking. (5)

I expect that virtually all the sessions at this conference will either end or begin by saying that we understand the validity and the concern around security. And then there is the big "but" that will follow. I want to say that as well. Truckers are patriots, and certainly the patience and calmness that they demonstrated, particularly in those days and weeks immediately following 9/11 was quite exemplary. Animals should not be put through what they were put through, having to sit forever in lines, not in the best of conditions. (6) So the trucking industry understands the security imperative, but we also believe that accords need to mean something. The Smart Border Accord of December 2001 enunciated what we thought was a clear policy, that yes, we need to have improved security and we need to have improved trade facilitation that is based on risk management. (7) That is something that we subscribe to, we bought into, and the "buts" will now follow.

But before we do that, I think it is worthy of saying and repeating, I do not care how many times, that Canada and the United States still are this world's largest bilateral trade relationship. (8) How much longer that is going to continue with the rise of China remains to be seen. In fact, in the last couple of years, there has been the odd month where China's trade with the United States actually exceeded Canada-US trade for the first time. (9) But, still, overall Canada is the number one trading partner. (10) And we have seen a literal explosion of trade between the two countries since the first Canada-U.S. free trade agreement was signed back in 1989. (11) Even today with slower economic growth, we are still seeing about a $1.5 billion in value of trade a day crossing the border. (12)

Something that Canadians believe in very much is we like following the rules. We sometimes are called the Boy Scouts of North America. (13) That is the way we are as a people. We like rules, and we like following rules, and so the relationship between Canada and the United States in terms of trade has been one that is based on rules and rules-based trading. Instead of trade wars, our bilateral trading relationship is founded on dispute resolution mechanisms. From our perspective under NAFTA, maybe those mechanisms have really not worked the way we thought in all cases, but that is the way that we like to approach things.

Our economic relationship is one based on integrated production, and you have heard the speaker from Ford previously talking about that. And you know, a piston will cross the border between Ontario and Michigan up to six times before you have a finished vehicle, so it is very much based on integrated production.

U.S.-Mexico trade is based on something different,--low wages. (14) Canada is not a low-wage country, we are a high-wage country. (15) We need to pay for our medical system, and that is paid for through the individual taxpayer. Canada is a very high tax and relatively high wage country. (16) So we are not a threat in terms of siphoning off of jobs the way that some of these other countries are. Where things are produced in North America between Canada and U.S. depends on capacity utilization, productivity, those factors, those sorts of things. Forty percent of Canada-US trade is intra-firm, whether it is the Big Three or other manufacturing operations. (17) So we are very, very highly integrated and operate on quite a different basis than say trade with Mexico; however, in recent years there has been so much fixation on the southern border that Canada has been sometimes caught in the whiplash.

For Canada, trade is not only something that is important to us, our economic survival depends upon it. 25 percent of our GDP is dependent upon trade with the United States, (18) so when the elephant sneezes, we get a cold. And so it is extremely important to us, we are very vulnerable in that regard.

However, trade is a two-way street, and this is something that I wish some of the more protectionist politicians in your country were more aware of. Canada is the top export market for the United States and has been for decades, certainly since the end of World War II. (19) A quarter of all U.S. exports go to Canada. (20) For 39 of the U.S. states, Canada is their number one export market, and it is in the top three for eight of the others. (21) And this is something that is interesting, and I am not sure if anybody in the room knew this or not, maybe you did, but Canada is the number one supplier of energy to the United States, including oil. (22) And when you look at all of the conflicts in the world that may or may not have something to do with oil, it has been a pretty good relationship I think between Canada and the U.S., and there is more crude to come out of the oil sands than out of Saudi Arabia. (23) It is just a little more expensive, but we are pretty free and open about sharing it with the United States. (24)

The U.S. sells more to Canada than it does to all 25 countries in the EU even though the population of the EU is 15 times that of Canada, five times more than they sell to Japan, half of all U.S. auto exports come to Canada, and the U.S. sells more agricultural exports to Canada than anywhere else in the world, about $400 per person per year. (25) So we are a good customer as well.

Just in the last few weeks, a new study has been released by Brookings Institution that I thought was sort of interesting for this particular conference because it looks at the Great Lakes states and provinces. (26) And this is a real, an economic powerhouse that A: I do not think we are tapping into our potential, and B: I think perhaps we are letting it slip away because if you took those jurisdictions and put them together as a country, they would be the second largest economic unit on Earth after the United States and bigger than Japan, Germany, U.K., China and all the other ones that seem to get the headlines.

One of the quotes that I like from the study is that it says the region occupies the front lines in global restructuring. (27) I think that is true. And how we restructure and how we approach that I think will depend on how wealthy and prosperous we will be in the future.

Trucking plays a key role in this integrated production process. In fact, we see ourselves as part of the manufacturing process. We are not a stand-alone industry out there carrying air, clogging the highways. .

Our vehicles haul 62 percent of Canada-U.S. trade by value, and 80 percent of U.S. exports to Canada are moved by truck. (28) A truck crosses the border about once every two-and-a-half seconds on average. That is 24 hours a day, 365 days a year. More than 20,000 a day enter the United States from Canada. (29) And the reason for that again is that we are a key component in the supply chain. The just-in-time inventory system which really has been a competitive advantage for North American manufacturing over the last 30 years developed around the trucking industry, so we have seen spectacular growth in our industry over that same period. (30)

As part of the supply chain, the message that I would like to impart is that --and we are starting to hear people talk about the supply chain a little more these days than they have recently. But anything that impacts upon the reliability and the predictability of the North America's supply chain or the regional supply chain that operates in this immediate area ultimately impacts upon direct investment in North America.

Certainly for Canada we have seen examples where because of concerns over the border, manufacturers have decided, "well, we will just avoid the whole thing, and we will set up shop in the U.S". And clearly, that is a challenge we face in Canada, and there are those in the United States, and I would be doing...