the time this article was written Perrin Beatty was President and CEO of the
Canadian Manufacturers & Exporters. He is a former Member of
Parliament and Minister. This is a revised version of an address to the
National Press Club of Canada Economic News Luncheon sponsored by the Certified
General Accountants Association of Canada held on February 26, 2002. This
article is based on a much longer study to be published by the Brookings Institution
in Washington D.C
The September 11, 2001
terrorist attacks against the United States brought traffic at the border to a
screeching halt and Canada’s economy grinding to a standstill. In the immediate
aftermath of the attacks lineups stretching to 12 miles and delays of up to 18
hours were the norm at the 49th parallel. Traffic volumes fell
significantly, some Canadian plants were forced to temporarily reduce or stop
production, consumer and investor confidence declined sharply. This
article looks at what Canadian industry has done to overcome the challenges
posed by new realities at the Canada-U.S. border. It also examines the
larger issue of how to best define Canada’s place, as a sovereign nation,
within an increasingly integrated North American economy?
A million dollars of trade
takes place between Canada and the United States every minute–$1.7 billion a
day–and there are 200 million border crossings a year. To put it in
perspective, the U.S. does more two-way trade across the Ambassador Bridge
between Windsor and Detroit than it does with any other country. We sell more
of our industrial output–63%–to the United States than we consume at home,
making Canada our own second-largest market. In total, the Americans buy
about 83% of our exports of goods and services, amounting to 38% of our GDP.
We are also increasingly dependent on the U.S. for our imports.
Over 72% of the goods and services we import, amounting to 30% of our
GDP, come from the United States. What is more, the U.S. is Canada’s
primary source of foreign investment. It accounts for 64% of foreign
direct investment here and 58% of total foreign investment stocks in this
Canadian prosperity clearly
depends on our trading relationship with the United States. Canada-U.S. trade
is the source of hundreds of thousands of Canadian jobs, and secure access to
the U.S. market is a key factor in attracting vital foreign investment.
In turn, that relationship depends on the efficient flow of goods and
people across our common border.
Border efficiency is a
bottom-line issue for business. Time is money, and border delays
represent major costs. Those costs are mounting as more companies adopt
just-in-time production and delivery systems that result in less inventory at
the business site and a greater reliance on the truck, boat, plane or train as
the inventory warehouse. If the border becomes a barrier to the efficient
movement of goods and people, it will choke off our exports and stem the flow
of foreign direct investment into Canada. Our standard of living will
Following September 11th
the Canadian business community moved swiftly to ensure the free flow of
commerce between Canada and the United States. Our goal was not to return
to border conditions as they were before the attacks but to improve them.
Steady and dramatic increases in cross-border traffic, combined with
benign neglect on the part of governments, had chipped away at border
efficiency over the years, causing serious problems. A study at one of
Canada’s busiest border crossings, Fort Erie, Ontario, completed before
September 11th, estimated that transportation delays at that
crossing alone were already costing shippers $2.5 million a day.
The Canadian Manufacturers and Exporters Association whose members account for
75% of Canada’s manufacturing output and 90% of its exports, has been working
for years to resolve border problems. For example, we helped lead the
development of Customs Self-Assessment and CANPASS, and formed a joint working
group on border issues with the U.S. National Association of Manufacturers.
We spearheaded the formation
of a broad coalition of business associations and individual companies.
Through it, over 50 major business associations and key individual
companies are helping the federal government deal successfully with border and
security issues, performing a key consultative and advisory role.
The Coalition for Secure and
Trade-Efficient Borders was quick to recognize that the events of September 11th
imposed a new paradigm on border management, one in which security and trade
facilitation are mutually reinforcing priorities. Our first report
outlined a set of principles for an integrated approach to the security of
Canada and the United States which aimed to remove pressure from the
Canada-U.S. border by improving Canada’s ability to ensure security
domestically. We proposed a risk-based border management approach that
would enable low-risk travellers and goods to move efficiently while focussing
resources on high-risk travellers and cargo.
A shared Canada-U.S. approach
to managing our borders comprises three lines of security–offshore
interception, first point of arrival, and the Canada-U.S. border. By
expanding its intelligence capacity, and working cooperatively with its
international partners, Canada can take steps to stop high-risk travellers from
getting here in the first place. People and cargo arriving in Canada,
including those passing through on their way to the United States, must be
properly assessed and dealt with to ensure, to the extent possible, that they
pose no threat to either country. Meanwhile, the Canada-U.S. border can
be made smarter by moving as much processing away from the 49th
parallel as possible.
Building on those principles,
the Coalition’s second report presented an integrated plan of action to
fundamentally change the way our borders are managed, and set forth a detailed
set of recommendations.
The December 2001 federal
budget and the joint announcement of the Canada-U.S. Smart Border Declaration
and its 30-point action plan signalled acceptance of the Coalition’s principles
and its specific recommendations. Furthermore, nobody has challenged us
on the substance of our principles or recommendations, and there has been very
positive reaction on the American side as well.
I cannot recall any
other instance, during my 21 years as a Member of Parliament and Cabinet
Minister, where business came together in such immediate solidarity on a
critical issue, and where the federal government responded so swiftly to its
We are encouraged by the
government’s response, and optimistic the measures announced to date could go a
long way towards resolving problems at the 49th parallel. But
we cannot afford to be complacent. The sense of crisis may have
diminished but the crisis itself is far from over. Commercial
cross-border flows have broadly normalized since the terrorist attacks, but at
lower levels of economic activity. Passenger traffic is still down significantly
from previous levels, and when it returns to normal, there will be further
delays unless measures are taken now to avert them. The participation of
business, represented by the Coalition for Secure and Trade-Efficient Borders,
will therefore continue to be important during the critical implementation
phase, when the government seeks to transform its announcements into concrete
Sovereignty and Integration
While government works with business
and with the American administration on the nuts and bolts of Canada-U.S.
border improvements, the attention of the Canadian public has shifted to the
broader issue of North American economic integration. As we try to keep
the door open to cross-border trade, we have started to ask ourselves:
how wide are we prepared to open it? This question is something of
a Pandora’s box. The challenge is to determine how we can manage our economic
and policy relationships with the United States, and with Mexico, in a way that
ensures continued economic growth in this country, and at the same time
guarantees Canadians the ability to shape our own economic, social and cultural
How the Canada-U.S.
border is managed can either facilitate North American integration or serve as
an obstacle to it.
Integration is already a fact
of life for the Canadian economy, and has for some time been a critical aspect
of the strategic planning and the competitive realities of Canadian business.
Canada has been undergoing a process of economic integration that has
accelerated rapidly since 1989, when the Canada-U.S. Free Trade Agreement
came into effect.
Free trade has opened
tremendous market opportunities for Canadian businesses across North America.
It has also opened the Canadian market to intense competition that continues to
drive down prices and requires Canadian companies to restructure to remain
profitable and to secure competitive advantage in a larger marketplace. That
restructuring has entailed measures to cut overhead and reduce unit production
costs, and investments in new and higher-value products and services, as well
as outward investment and the widespread consolidation of business activities
and organizations across North America.
Much of the economic integration
that has taken place is informal, so Canadians in general may not be aware of
the degree to which Canada’s economy has already become integrated within North
Few companies today produce a
variety of products to be sold only on the Canadian market. Most
manufacturers–large and small alike–produce a limited number of products and
sell those goods across North America. Many of the largest ones are also
importing goods from the United States and distributing them across Canada.
About 60% of Canada’s two-way trade with the U.S. is intracorporate–flows
of goods and services across the border but within the same company. More
and more, business and financing decisions are being made on a North American
basis–and are being paid for in U.S. dollars. In larger companies,
investment and senior management decisions are more frequently being made in
the United States. And companies in Canada are competing for product
mandates, investments, and skilled personnel with other companies, or other divisions,
south of the border.
Where formal integration has
taken place, the process has been piecemeal and pragmatic. The widespread
support for improved cooperation in managing Canada’s borders with the United
States since September 11th reflects that pragmatism: the
economic well-being of Canada required it, and Canadians saw little that
threatened their sovereignty in the measures proposed to achieve it.
But before committing to further
formal integration which goes beyond the borders, Canadians must deal with a
variety of issues, some of which have little to do with integration itself.
Chief among them is our traditional fear of economic, political and
cultural domination–the most contentious issue for Canadians by far is
Ottawa has yet to define a
blueprint for the country’s relationship with Mexico that extends beyond
economics, and political fears have prevented it from promoting closer
cultural, diplomatic or military alignment with the United States. Without a
clear vision for the future of the North American partnership, Canada must
respond to external events and other countries’ agendas. It is still undecided
about participation in National Missile Defense, and the Canadian dollar’s
continuing weakness has incited debate about whether adopting the American
currency is either desirable or inevitable.
This is new ground for all of
us. While the European Union is sometimes suggested as a model, the European
philosophy of union differs greatly from North America’s approach. Increased
political integration has been an explicit goal of the European exercise from
the outset, while the Canada-U.S. Free Trade Agreement and NAFTA were
proposed as a means to increase trade without jeopardizing political
Just as Canadians have tended
to define themselves as a people by what we are not–by focusing almost
exclusively on our differences from our southern neighbours–the question of
what constitutes integration is often answered in the negative. Rather
than defining the parameters of closer ties between Canada, the U.S. and
Mexico, the Canadian response is generally confined to what the relationship
should not be–not a customs or monetary union, not a North American EU, not a
junior defence partner, not a 51st state. But we cannot map out
future directions solely in terms of where we do not want to go.
The events of September 11th
have forced Canadians to reexamine whether it is possible to pick and
choose when it will be engaged with its southern neighbour. The post-September
11th border crisis forced immediate decisions about a common
strategy of border management. It was clear that the United States would
fortify its perimeter approaches: the issue for Canada was whether it wanted to
be inside that perimeter or outside. For the vast majority of Canadians, the
decision was straightforward.
The need for Canada to decide
what role it wants to play in North America has gained urgency since September
11th. Without a clear vision of how it wants to engage its
neighbours, the country will be forced to react to events, instead of driving
If Canada does not know what it wants, it is
unlikely to get it. When the relationship is determined through a series of
disconnected negotiations, the country bargains from weakness. That shortcoming
is also reflected in the domestic debate, with opponents scrutinizing every
proposal in terms of the cost to Canadian sovereignty, instead of measuring it
against the benefits achieved.
The bolder and more rewarding
strategy would be to develop a coherent vision of how Canadians can participate
fully in a North American community and to enter the discussions as a
demandeur, and not as a reluctant respondent. Each country brings unequal assets
to the table, but Canada’s successes with NORAD, free trade and, most recently,
the Canada-U.S. border, demonstrate that the country can succeed when it knows
what it wants and enters into the relationship as a full and willing partner.
North America is a
continent in transition. It will be impossible to sit out the changes, so the
wiser policy is to anticipate and direct them.
Canada’s greatest successes–in
trade, in war, in diplomacy and in culture–come from its engagement with the
rest of the world. Canadian sovereignty assumes its fullest meaning when Canada
sets the course, but when the country lacks vision, it can only follow where
others lead. The political challenge is to move beyond defining the country in
terms of what it is not, and to offer a confident and compelling picture of
what Canada’s role in the world can be.
Whatever form a North American
partnership takes, the defining feature will continue to be the massive size
and power of the United States. A relationship with the world’s only remaining
military and economic superpower is, by definition, a marriage of unequals.
However, no attempt to create a continental community can succeed unless each
country feels it is a full participant and is seen by its partners in that
light. The political and cultural differences between countries must be
respected, or the price of participating will be too high.
A new round of negotiations
can break down barriers that continue to distort investment and trade, and
drive up costs to consumers. Despite participating in the world’s most
important trading relationship, Canadian business frequently finds itself
subjected to trade obstacles that are more the product of politics than
There are many unfinished
issues from the FTA and NAFTA, including anti-dumping, countervailing duties,
agriculture, and softwood lumber. Integration cannot move forward without
mechanisms both parties will consider impartial and fair. The political and
economic dominance of the U.S., combined with inter-jurisdictional problems
within Canada, makes developing such institutions particularly challenging. In
addition, it is critical to design such institutions with a view to ultimately
Finding the appropriate
balance between autonomy and integration will not be easy, but a properly
structured agreement can benefit all three countries. The primary driver will
continue to be economic, building on the success of NAFTA, whose potential for
growth remains untapped.
As we continue to take
positive action on Canada-U.S. border issues and deal with the ongoing economic
effects of the events of September 11th, we must take up the broader
challenge of carving out a new place for Canada within the North American