This issue we focus on Canada’s relationship with its NAFTA partners, the U.S. and Mexico, in the context of trade and transportation. Where are we one year beyond the 20th anniversary of NAFTA?
Canadian Shipper looks at current perceptions and realities around the deal, where relationships are being forged or strengthened, and the practical realities of being a trade stakeholder in the North American context.
NAFTA as a trade deal is still held in high regard. North America is a more integrated economy than ever before. In some ways also the tighter borders that resulted after 9/11 have opened up, via increased efforts at customs and trade harmonization, such as the Canada-U.S. Beyond the Border Action plan, single window initiatives, and increased participation in trusted trader programs.
Canada and the U.S. continue to forge a stronger, if occasionally contentious, relationship in the trade arena. The U.S. and Mexico have also been taking steps to modernize their shared border and improve regulatory cooperation. A recent meeting under the U.S.-Mexico High Level Economic Dialogue looked at supply chain security. The two sides are working to expand the mutual recognition arrangement between the Customs-Trade Partnership Against Terrorism and Mexico’s Nuevo Esquema de Empresas Certificadas.
U.S Customs and Border Protection and Mexico’s Tax Administration Service (SAT) are developing a single, shared customs manifest for use in both countries for all transportation modes. Efforts are also underway to strengthen border infrastructure and customs training.
However the cost of harmonization has not been insignificant. As Canadian Shipper was going to press, Stats Canada released a study on moving goods by truck across the Canada-U.S. border.
The study, “How Much Thicker Is the Canada–U.S. Border? The Cost of Crossing the Border by Truck in the Pre and Post 9/11 Eras” is based on the first data produced to estimate the costs associated with trucking goods across the border before and after 9/11.
From 1994 to 2000, it cost, on average, 16% more to move goods across the Canada-U.S. border by truck than to move the same goods the same distance domestically. After 2000, the premium paid to cross the border rose steadily to 25% in 2005 and remained at about that level until 2009, StatsCan found.
The two main factors in cross-border trucking costs are fixed costs per shipment of moving goods across the border (facilities, insurance and terminal costs) and higher line-haul costs of trucking cargo over longer distances. Delays at the border and other border compliance costs add to the fixed costs per shipment incurred by trucking firms, the study said.
Differences in fuel prices or difficulties finding ‘backhauls,’ that is, cargo for a return shipment, can also add to the line-haul costs of shipping to and from the United States. Whether these additional costs are imposed on the export or import leg of the cross-border journey depends on the balance of cross-border trips. The export leg bore these costs until about 2005 and, increasingly, the import leg thereafter.
In 2005, the premium on the export leg was 30.0%, while the premium on the import leg was 20.3%. By 2009, the premium on the export leg had fallen to 17.1% and risen on the import leg to 25.6%. The extra cost associated with cross-border trucking added about 0.3% to the value of exported and imported goods, on average, from 1994 to 2000.
From 2005 to 2009, the extra costs of cross-border trucking added about 0.6%, on average, to the value of goods crossing the border. While these additional costs are relatively small on a percentage basis, their effect is larger for goods such as autos and auto parts that pass over the border several times as they move through the various stages of the production process, said the report.
A recent C.D. Howe Institute report looking at the high costs of complying with Rules of Origin (ROO) requirements found that small and medium-sized firms (SMEs) often find it cheaper and more efficient to pay customs duties instead of producing the paperwork that would allow them access to preferential, often zero tariffs under trade agreements.
In “Making Free Trade Deals Work for Small Business: A Proposal for Reform of Rules of Origin,” author Dan Ciuriak outlines a ‘presumption of origin’ proposal that would improve SME access to free trade agreement (FTA) preferences by modifying a specific feature of how ROOs are applied. This, says the author, would help improve the performance of SMEs under Canada’s existing FTAs, and should be incorporated in FTAs currently under negotiation, such as the TPP, or Trans-Pacific Partnership. The Trans-Pacific Partnership, or TPP, is currently being negotiated among a dozen countries: Canada, the United States, Mexico, Australia, Japan, New Zealand, Malaysia, Singapore, Vietnam, Chile, Peru and Brunei.
(Most of Canada’s traders are SMEs, but they face greater barriers to taking advantage of FTAs than do larger domestic competitors. Hence it is important for Canada to remove barriers to SMEs, making the best use of the new opportunities that its hard-won trade agreements provide.)
For the trade community whose job it is to peel off the myriad layers of sticky red tape, it would be perhaps idealistic to see protectionist policies become a thing of the past.
But in the context of global trade there is no way to go but forward on seeking the maximum benefits trade deals, and harmonization efforts, can potentially provide.