The North American economic relationship from the Canada-United States auto pact to the security and prosperity partnership: public perceptions and economic realities.

• Author: Kolundzic, Daniel
• Position: PROCEEDINGS OF THE CANADA-UNITED STATES LAW INSTITUTE CONFERENCE on An Example of Cooperation and Common Cause: Enhancing Canada-United States Security and Prosperity Through the Great Lakes and North American Trade: Cleveland, Ohio April 2-4, 2009

Session Chair--Daniel Kolundzic

Canadian Speaker--Birgit Matthiesen

United States Speaker--Paul Storer

Canadian Speaker--Nikita Nanos

INTRODUCTION

MR. KOLUNDZIC: In his welcoming remarks last night, Dan mentioned that the first thing he learned from Henry King, when he took over direction of the conference, was that the conference was intended to be forward-looking. Our first panel will hopefully set the tone for the conference as forward-looking. In order to be forward-thinking, one needs to first get a sense of where we are and where we have been. The panelists, from what I gathered after looking over their presentations, will focus on where we came from, where we are, and where we should go. Without further ado, let me introduce Birgit Matthiesen.

CANADIAN SPEAKER

MS. MATTHIESEN: My name is Birgit Matthiesen, and for those of you who may not know me, I am with the Canadian Manufacturers and Exporters Association. (1) I worked with the Canadian Embassy in Washington, D.C., for many years, in the Economic and Trade Policy Division. (2) I see an awful lot of friendly faces in the room, including Mr. Brereton, Mr. Noble, and former colleagues of mine, and I am very happy to be in the same room with you all again.

I was asked to give you the Canadian private sector view of where we have been and hopefully where we are going. I like the title of the panel, because I think it identifies some of the key economic timelines experienced since the Auto Pact, (3) and those same timelines that will be a challenge to us as we move forward. The question for this panel, and particularly for members in my association fight now is, "are we moving forward?" Especially, when we are concerned in 2009 about issues, like when Chrysler may be going down the tubes in Canada, (4) that GM might be declaring bankruptcy, (5) that there are supply chain and delivery problems in Tier II and Tier III in the auto supply. (6)

We all know the story, Henry Ford, probably with one of his cars here on the floor, opened up his first plant in Windsor, Ontario, (7) and the integration of the cargo and assembly supply chains led us to the Auto Pact signed in 1965. (8) That was the transformational change between our two economies. Companies became integrated, (9) and supply chains became mature, (10) dedicated to a production shift. (11) Then we saw other industrial sectors follow of the same business model, particularly the electronics industry (12) and the Agricultural Food industry. (13)

Then we moved away from the Auto Pact, because we realized that the Free Trade Agreement worked well and reduced our tariffs. (14) Then, in 1994 we said, "Oh my gosh, United States and Mexico signed the North American Free Trade Agreement (NAFTA), let us get onboard with that," so we signed NAFTA. (15)

Many of my members think when they look back that the NAFTA was the best of times, because the border costs and border issues were so much simpler. Yes, the average tariff was about three percent, (16) but for the most part the biggest hassle crossing the border was the three percent tariff, (17) a couple of border fees, (18) and some brokerage fees. (19) Further, these hassles were essentially transparent, you could calculate them, see them, and transfer the costs.

During the 1990s the border environment changed. We had huge deficits, especially in the United States, (20) and there was a new move to recoup cost recovery and inspection fees through the private sector. (21) Therefore, border fees became a bottom line additional cost, like a tax on our production chain. (22) Then in 2001, after September 11, (23) security trumped trade, (24) Now it is 2009 and security still trumps trade. "Risk management" was and is the new code word for the border, which means the private sector has to assess risk. (25) Border agencies need more information and data about us, and it was the requirement for more data that intruded into our production chains and suppliers from all over the world. Further, that data needs to be sent to border agencies quickly and electronically. "Risk Management" means more inspection fees, (26) which mean more inspections and more inspectors, which in turn, from our point of view, means even more inspection fees.

In 2005, the Security and Prosperity Partnership of North America (SPP) was created. (27) It was the first, substantive effort that brought us closer to the "perimeter." (28) It looks at what companies can do, away from the border, to make the cross-border transaction more efficient; for example the size of a can of soup, or the pesticide tolerance levels in a food product. (29) What we were trying to do with the SPP is harmonize the regulatory environment for United States, Canadian, and Mexican companies, and, of course, the whole security chapter. (30)

To my government colleagues here, the SPP, for the private sector, is not dead. We would like to return to the table on it, but it was also the first effort, which we started publicly discussing, the North American economic space. (31) Well, the North American economic space with a $141 dollar barrel of oil made the logistic change on the delivery chain that much more expensive. (32) So we still have inspection fees, as we have not harmonized "the can of soup", and now company's storage and transportation costs are higher than the manufacturing of a product.

To use Ambassador Wilson's term, the border got "thicker." (33) We have non-traditional border agencies like the United States Department of Agriculture, the Food & Drug Administration, and Consumer Product Safety Commissions from Congress, issuing rules on import safety and product safety. (34) The Lacey Act, (35) for example, is all about illegal logging in Indonesia. (36) It has nothing to do with lumber in British Columbia, but the Lacey Act still imposes a global requirement for more data, such as where did the log come from, who cut it down, was it illegally logged, and does it meet international logging statutes? (37) There are twelve data elements for the Lacey Act, alone, for any product that contains anything close to lumber, (38) which, for Canada, means a lot of products. (39)

One data requirement is that a broker on the northern border charges one dollar. (40) That is twelve dollars per shipment of a furniture shipment. (41) A paper company in Canada, one of our largest, ships twenty thousand shipments of paper into the United States. (42) Twenty thousand times twelve dollars is a lot of money and that is the bottom line.

I only have five minutes left, and I really want to take a look forward. "Buy America" is now our single biggest issue. I think, and certainly members in the manufacturing agree, that the Recovery Act (43) dramatically expanded on the 1930 statute "Buy America." (44) Not only in the product coverage but also projects that are now covered by "Buy America." North of the border, Canadians see it popping up with its ugly realism for our provincial governments and our municipal governments.

So, not only in our view has Canada and United States seemed to have taken a one-hundred eighty degree turn from the North America economic space, we seem to be moving further and further to a transactional approach to border management. (45) It is not that my shipment is low-risk, because I ship gadgets from Canada with high safety, regulatory, and security regimes; instead it is because I have spent millions of dollars applying for Partners in Protection, Free and Secure Trade (FAST), and Customs Trade Partners Against Terrorism (C-TPAT) to secure my cargo supply chain. Those are important initiatives. Most of my members are approved for FAST and C-TPAT, however we long for the days when the Canadian, United States, and Mexican governments automatically identified each other as a low-risk trading partner in the North American economic space. (46)

I am going to end with this one quote from Secretary Napolitano's presentation at Brookings and Washington last week, (47) and I invite all of you to read it if you did not read it in the paper. She said, "that is what we have to continue doing, moving forward. We have to make our decisions not based on assumptions, presumptions, stereotypes, or any of the like. We have to make our decisions based on actual data, data points that allow us to proceed and really conceive now of this border. And let's not ignore that we can just wave a magic wand and we have a shared border management structure. It is not an easy thing to accomplish." (48) I would have been happy if she had said, "But we can embark on shared border management planning." (49) However, those are not the words that she said, and thus it was a little bit chilling for the private sector to hear her words. We look forward to the next couple of years, but the time now is to reengage with the administration and with Ottawa because things are looking bleak for the private sector. On that cheery note, I pass it back to the panel. Thank you.

MR. KOLUNDZIC: Thank you, Birgit. Next we have Paul Storer, Professor of Economics at Western Washington University. (50)

(1) See Canadian Manufacturers & Exporters, CME President Jayson Myers and US Advisor Birgit Matthiesen (May 4, 2009), http://www.eme-mec.ca/national/media.asp?id=1415 (last visited Sept. 16, 2009).

(2) See Canada United States Law Institute, Panelists--Biographies, http://cusli.org/conferences/anunal/annnal_2008/bios/matthiesen.html (last visited Sept. 16, 2009).

(3) See Canada-United States Auto Pact (1965), http://www.canadianeconomy.ge.ca/english /economy/1965canada_us_auto_pact.html (last visited Sept. 16, 2009) (outlining the history of the Auto Pact).

(4) See Chrysler Threatens to Pull Out of Canada, WASH. POST, Mar. 13, 2009, at D03 (explaining the potential loss of Chrysler's production in Canada).

(5) See Bill Vlasic & Nick Bunkley, Obama is Upbeat for G.M. Future on a Day of Pain, N.Y. TIMES, June 2, 2009, at AI (describing General Motors'...