Much has happened on the bilateral trade front over recent decades. One would think that with intense competition from across our shores, Canada and the United States would have found a way to make the most of our comparative advantages and forge an economic partnership that would vigorously spur job growth and product innovation. But we haven't. We may have come close but we have yet to ring that shiny bell. We have spent many years courting each other, but neither has wanted to actually commit to the wedding.
In 1965, Canada's Lester B. Pearson and U.S. President Lyndon B. Johnson signed the Automotive Trade Agreement, or the APTA. (1) These two leaders realized that the auto sector was bound to lead economic growth in both countries and decided to eliminate tariffs on each other's autos and auto parts--a move that launched the world's most integrated and successful cross-border manufacturing supply chain.
The APTA was eventually followed by the Canada-U.S. Free Trade Agreement (2) in 1987 and then the North American Free Trade Agreement in 1994, which brought in Mexico. (3) Both the ("FTA") and the North American Free Trade Association ("NAFTA") pursued tariff reduction as the main driver to reduce import costs and various rules of origin were designed to designate a product as NAFTA-originating. (4) By the mid 1990's, duties on these originating goods had been virtually eliminated. (5) True, companies still complained about the onerous NAFTA Certificate of Origin but for the most part, border costs were a small percentage of the shipment invoice total. Exactly what the NAFTA had intended--goods produced in one country were deemed "preferred" by the other.
By the late 1990's, policy thinkers and academia began thinking of a Fortress North America and some even contemplated eliminating the physical border between Canada and the United States. (6) No official pronouncements of course, but one could certainly see the writing on the walls. If the border was no longer a duty revenue collection exercise, one pondered, then why a border at all? Or, if we had to keep our border, could we not design a no-stop "green lane" for originating goods and a more intrusive "yellow lane" for transshipped goods or those with component parts made elsewhere? (7) And shouldn't we combine our agency forces around our "perimeter" so that we together guard against the illegal or the illicit from offshore while reducing the costs to our governments?
Those were heady days. Manufacturing production in Canada and the United States took great benefit from a more efficient border process. (8) Foreign direct investment in the NAFTA countries was drawn to this vibrant economic partnership and millions of new jobs were created. (9) No sucking sound. Not a hint of any erosion of sovereignty, just the sound of new plant construction. The NAFTA was where it was at.
Then September 11 occurred and the world changed. We started to hear about nuclear devices hidden in marine containers bound for U.S. seaports--the "nuke in the box" scenario. (10) Canadians and Americans were required to show passports for the first time in our shared history. X-ray machines were installed at our ports of entry and a new border agency called the Transportation Security Administration was created by the U.S. Congress. (11) It seemed that anything "foreign" or imported equaled "bad" or "unsafe."
Talk quickly faded about eliminating the border. Every person and every shipment destined to the United States was suspect and the workforce of our border agencies doubled if not tripled in very short order. (12) We struggled in our conversations on how to describe this new reality. Our border had "thickened" somehow. Security imperatives now "trumped" the need to "facilitate" legitimate trade--those same shipments from the same companies who were well known by our border personnel for decades. Yet from one day to the next, those companies and their carriers were no longer deemed "preferential" in any real sense. They were just part of a huge "haystack" of suspects our border agencies faced in this new world of terrorism and violent jihad. America was at war and Americans looked to their border agencies, including those along their northern land border, to guard them against the next terrorist attack which they felt was sure to come, and continue to feel this way. (13) This sentiment must be understood by Canadians because it explains to a large extent why our border with the United States now looks the way it does--more inspectors and more inspections and more inspection hardware.
Fast forward towards the end of that tumultuous decade and a new trade development had emerged, this time from far flung regions of our globe. China became the new economic powerhouse. (14) Imports of retail-ready consumer goods started arriving at Canadian and U.S. harbors by the millions--in direct competition to our (now) highly integrated manufacturing supply chains. (15) The elimination of our cross-border tariffs, by then de minimis, could scarcely compete with low production costs in Guangzhou. (16) The future of North American manufacturing looked grim.
In 2007, the U.S. Congress began a series of congressional hearings based on complaints from their constituents that some of these new imported goods contained unsafe elements such as lead in children's toys or tainted ingredients in food products. (17) The U.S. Congress moved swiftly and passed sweeping legislation such as the Food Modernization Improvement Act (18) and the Consumer Product Safety Improvement Act. (19) In many ways, Canada's Parliament reacted with a similar fervor in their effort to ensure the integrity of goods sold and consumed by Canadian households. (20) The world was getting bigger and we somehow lost a sense of our own neighborhood. No one was trusted any longer. Every import and every box was suspect. Regardless of origin--many households started to think that if it wasn't made in America then it wasn't safe for Americans.
The combined consequences of September 11 and the surge of imports from overseas not only demanded more physical inspections at our ports of entry but also required more information about an imported product (or traveler for that matter) and how and where it was manufactured. Importers now are required to provide reams of new required data, sent electronically, matched to the actual shipment and to the truck and truck driver, before the cargo even arrives at the border. (21) Border agencies need this data to reduce "the haystack" of shipments and be able to target "high risk" shipments. (22) Risk assessment became the newest addition to our trade lexicon. (23) Risk assessment mind you, not trust accreditation. Our shared border turned into a "wall of data."
Every shipment is now considered a stand alone transaction. The fact that a product comes from Canada is given little if any preference. Every product is treated just as another--with the same amount of data required, the same need for testing and the same compliance burden imposed as a shipment from anywhere else in the world. We have moved away from geographic preference to global risk avoidance where no one country gets a break. For security specialists, this may be an unavoidable burden. But for those in the business community, this has raised unnecessary costs for our North American manufacturing sector to new levels--at a time we can least afford.
Again, we have tinkered with the problem. Lots of media ink and official person hours have been dedicated in those efforts--from the Shared Border Action Plan, (24) the Smart Border Action Plan, (25) the Security and Prosperity Plan (26) and now the Beyond the Border Action Plan. (27) Each of these efforts have been important and each have, in their own way, advanced the cause for a more efficient cross-border supply chain for North American manufacturers and their customers.
But are they too little or even worse, too late? We must first begin with debunking two long-cherished notions.
First--our border protects us. For Americans and Canadians alike, our borders represent the first and last line of safety against illegal or unsafe products. If polled, most consumers would likely reply that they fully expect their border agencies to ensure that virtually everything is inspected at the border before it's allowed into the retail stream. For those of us following import issues, we know this is hardly the case. It cannot be given the millions of containers and truck shipments arriving every day at our ports. (28) Commerce would shut down and consumer prices would hit the roof. Border agencies guard data on how much is, in fact, inspected, but the general consensus is about one to two percent of the global trade volume undergoes physical, crate-opening, inspection. (29) The lesson we have learned is that the border is one line of defense but it cannot be the sole deterrent against those who wish us harm. For example, good intelligence sharing among our security agencies can be an effective weapon in our arsenal which can prevent an incident before it's too late.
Second--borders encircle our social and community values. Our two countries take much pride in our modern regulatory systems and we fully expect that the products offered on our retail shelves are manufactured in a way that reflects our moral and social underpinnings here in North America, e.g. labor codes and environmental stewardship. But those values we cherish within our sovereign territories no longer end at our shoreline. Instead, we demand that our trading partners around the globe replicate those norms by applying upon them our extraterritorial values. The United States has been especially aggressive on this front. (30) These efforts have been laudable but have at...