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Article Excerpt
Abstract
This article examines the levels of trade and transportation on the U.S.-Canadian border, and the cost impacts that border and bilateral trade policies impose on that trade. More importantly, the article focuses on the causes of those impacts, and suggests a number of short- to medium-term approaches to reducing these costs. Finally, long-term strategies, including a North American "external perimeter" approach, are reviewed and discussed. Border and related trade policies are found to be costing the two economies US$10.3 billion per year, or 2.7 percent of total 2001 merchandise trade. The primary cause of the delay and uncertainty related portion of these costs is found to be institutional and staff related, and not infrastructure related. Consequently, solutions need to address many of the institutional causes before long-term investment in new infrastructure is addressed. An alternative to major investment would be movement towards an "external perimeter" strategy that would de-emphasize the physical U.S.-Canadian border. The research provides insights into the savings that might accrue if an external perimeter border management strategy were adopted.
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Since passage of the Canada-U.S. Free Trade Agreement (CUSFTA) and North American Free Trade Agreement (NAFTA), the U.S. and Canada have witnessed explosive growth in trade and increased specialization and integration of the two economies (Canada-U.S. Partnership 2000, 11). However, while the agreements liberalized trade and investment policies, they did little to facilitate free flows across the border, and actually increased the processes and paperwork required for bilateral trade (Prokop 2003, 252; Zuckerman 1995, 18). These processes serve as an impediment to the free flow of transportation, and the resulting costs are in effect another form of non-tariff barrier that drives up logistics costs (Brown and Anderson 2002, 101-104).
The transportation literature recognizes the importance of reliable borders and the potential border cost impacts on traders' logistics systems (Heavor 1992, 63-72, Taylor and Closs 1993, 6-11). For instance, Stank and Crum (1997, 31), speaking about the U.S.-Canada border, observe that "Border crossings create delays in transportation and add uncertainty to transit times as customs clearance, traffic congestion, and other operating procedures are often highly variable with respect to time."
Reliability of transportation is of course critical to modern logistics management practices such as JIT and make-to-order (Rao, Grenoble, and Young 1991, 105-122; Harper and Goodner 1990, 22-31; Anderson and Quinn 1986, 68-87; Bookbinder and Dilts 1989, 50-65). Any impediments to this reliability serve as a "tax" on the flow of people and goods and contribute to the "border effect" on bilateral U.S.-Canada trade reported on by a number of economists (Globerman and Storer 2003, 6-10; Brown and Anderson 2002, 99-120; Hillberry 1998, 1-17; Helliwell 1998, 115). This "border effect," observed in comparisons of inter-provincial vs. provincial-U.S, trade levels, suggests that U.S.-Canada trade is several times lower than might be expected given the level of provincial trade flows. Post-9/ 11 tightening of the border could contribute to an enhanced border effect and reduced trade growth.
Deeper integration of the two economies will require several issues to be addressed, including, according to Hart and Dymond (2001, 5), "the costs of compliance at the border, and the potential costs created by delays." But what are these costs, and what is the size of the overall "tax" on cross-border flows? And, more importantly, what are the causes of, and possible solutions to, the cost impacts from the border? The purpose of this article is to report on research aimed at determining the costs of the U.S.-Canadian border, the causes of these cost impacts, and options for reducing the cost impacts. (1) An understanding of the information and options presented in this article could be useful to transportation and border management policymakers as they consider future border management strategies.
THE U.S.-CANADA RELATIONSHIP: TRADE AND TRANSPORTATION
The U.S. and Canada have the world's largest trading relationship. For 2003, merchandise trade between the two countries totaled US$393 billion. However, following strong double-digit growth in bilateral trade throughout the '90s, there was little year-over-year growth in trade from 2000 to 2003, and the 2003 figure was actually down US$12 billion from 2000 (U.S. Department of Commerce 2004, 1-2). Nevertheless, the U.S. is still Canada's most important market, and Canada is the destination for 23 percent of U.S. exports. The U.S. and Canada are also major sources of foreign direct investment for each other, and travel between the two countries is extensive. This activity results in a large volume of border crossings. Table 1 indicates that in 2003, 60.4 million personal vehicles crossed the border, along with 13.5 million trucks.
From 1984 to 2003 commercial traffic grew 124 percent, while personal vehicle travel was up 10.5 percent. However, between 2001 and 2003 personal vehicle traffic actually declined 11.5 percent, and the growth in truck traffic slowed to just one tenth of one percent over the two years (Statistics Canada 2002, 1-75; U.S. Customs Service 2002, 1-59; U.S. DOT BTS 2004, pp. 1ac, 8ac). To put this traffic volume into perspective, consider that during 2003, truck traffic averaged 3,351 units per hour, while auto traffic averaged 10,518 units per hour. Figure 1 (McCray 2003) points out the extreme concentration in traffic at several crossings, while Table 1 indicates the changes in traffic at these key crossings.
[FIGURE 1 OMITTED]
For instance, out of 130 border crossings, the three Ontario-Southeast Michigan crossings and the Peace Bridge and Lewiston-Queenston crossings in the Buffalo-Niagara area accounted for 55.5 percent of all 2003 truck border volume. It is also important to note that the bulk of the trucks cross the border at locations that turn out to be key points for auto traffic as well. The five crossings described above also accounted for 41.9 percent of all auto crossings on the Canadian border. This concentrated volume of truck traffic at equally congested auto crossings points out some of the problems in trying to increase border security while facilitating trade.
Canadian exports to the U.S. grew dramatically in the 1990s but declined 8 percent between 2000 and 2003 (Canadian Embassy to the U.S. 2004). These recent declines in exports to the U.S. suggest that post-9/11 border security may indeed be having an impact on trade. This fall-off in Canadian exports to the U.S. by land will be of great concern in Canada, where trade associations have been concerned about a border impact (McFarlane 2001, 1; Dobson 2002, 16; Lawson 2002, A5; Windsor Star 2002, A10). It is also important to note that the major declines in border traffic since 2001 also suggest a significant impact on U.S.-Canadian interaction.
METHODOLOGY
The research approach used a combination of secondary and primary sources to obtain the necessary information on cost impacts, causes, and policy options. As part of the secondary research, some 45 reports on border management issues were reviewed, along with a number of studies on causes and possible solutions to border problems. In addition, a content analysis of 750 articles from 43 newspapers was also undertaken to help gain an understanding of local issues. Government data on trade, traffic, tourism, and border transit times were also used. (2) Where possible, these statistics were checked for consistency with other sources, and in the case of border transit times, checked via researcher observation. The secondary statistics incorporated into this study were utilized because they were found to be comprehensive, consistent, and conservative.
Primary data were collected through two qualitative research methodologies: the structured observation technique and in-depth convergent interviewing. The structured observation technique was especially useful in this study because border activities are visible and measurable and researcher influence is negligible (Carson et al. 2001, 134). To gain a better understanding of the nature of various border crossings and the extent of transit time and uncertainty, site visits to seven key crossings were conducted during the summer of 2002 to make observations and conduct interviews.
Primary data were also collected via in-depth convergent interviews. The in-depth convergent interviewing method is particularly useful when a topic area has little existing theoretical methodology, and where the parameters of the research topic are not clearly known (Dick 1990, 4). Both of these conditions applied to this study. The basis of convergent interviewing is to find experts in a topic area who will not only help establish the research parameters, but also lead researchers to other experts who can provide more detailed information (Carson et al. 2001, 86). After some number of interviews with people in similar lines of work (e.g., customs brokers), one would expect the in-depth interviews to "converge," that is, to generally corroborate previous interviews and provide little new information. This approach was followed for a number of expert groups, such as brokers and carriers.
Using the convergent interview framework, 173 personal and telephone interviews were conducted to develop information on cost impacts, the causes of these impacts, and possible solutions. Interviews were conducted with manufacturer, carrier, broker, trade development, trade association organizations, and various individuals with knowledge of border issues. Structured interview guides were prepared for each of these types of organizations to facilitate the process. The information gathered from both primary and secondary sources was then used, along with a variety of assumptions, to develop categories of impacts and costs, and to prepare analyses of the causes of and possible solutions to border problems.
LITERATURE REVIEW
In recent years there has been considerable publicity about border problems and the need to "secure" the northern border. Border crossing processes and procedures, and related impacts, were coming under scrutiny pre 9/11 and have received even more attention since 9/11 (Macdonald (a) 2001, B3; National Post 2001, 16; Trickey 2001, A12; Brooks 2003, A1). This research identified 750 press articles that often dealt primarily with various economic and socioeconomic impacts of the border, and speculation about the reason problems existed and possible solutions. In addition, over the years, a number of government-funded reports and articles have examined the extent of delays, border impacts resulting from delays and uncertainty at the border, causes of delays, and...
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