The Pivotal Partnership: Opportunities & Challenges in Trade/Economic Issues

The US and Canada have one of the closest and most extensive bilateral relationships in the world, with bilateral trade accounting for more than $2 billion a day in goods and services. The impacts of issues such as the Trans-Pacific Partnership and other trade and economic factors were discussed by Laura Dawson from the Wilson Center and Eric Miller of the Rideau Potomac Strategy Group.

For the past 20 years, Dr. Dawson has served both the US and Canadian governments, most recently as Director of the Canada Institute at the Wilson Center. She reminded the Forum that Canada has no greater friend or ally than the US. Furthermore, Canada is its nearest neighbor and the biggest customer for US goods.

Key Economic Partners

While the population of all Canada is only 35 million--about the same as the state of California--Canada is still the largest market for US export goods. And most Canadians live near the US border, within 100 miles of a US shopping center, bringing additional revenue into the US, Dr. Dawson observed. Canada is the 4th largest contributor of Foreign Direct Investment (FDI) for the US, amounting to $448.5 billion in 2015, or 44.6% of Canada’s total FDI.

The central US-Canada trade agreement, NAFTA--now 22 years old--needs to be upgraded, Dr. Dawson said. NAFTA was enacted in 1994 before the development of the Internet, the globalization of sales, and the design of third-party logistics supporting cross-border supply chains. Since NAFTA’s inception, trade between the US and Canada has more than doubled. Today, US-Canada trade in goods and services exceeds $2 billion per day. US exports to Canada totaled $375 billion in 2014–16% of total US exports–exceeding total US exports to China, Japan, South Korea, and Singapore combined. Canada is the number one export market for 35 US states.

US-Canada trade in goods and services exceeds $2 billion per day

Nine million (5%) US jobs are dependent on US trade with Canada

US subsidiaries of Canadian firms employed more than 546,000 employees in 2011, for an average wage of over $65,000 annually

One trillion dollars (6.5% of US GDP) is dependent on US trade with Canada

Growth in the US economy translates into growth in Canada–20% of Canada's GDP comes from goods exported to the US

Canada is the largest foreign supplier of oil, natural gas, and electricity to the US

Nearly 40% of US crude oil imports came from Canada in 2014

More Canadians visit the US than Americans visit Canada, especially since a passport is now required to cross the border. Dr. Dawson pointed out that a minority of US citizens have a passport, so she advocated for acceptance of the enhanced drivers’ license.

Open Borders for Trade

Today’s technology-facilitated commerce and manufacturing relies on integrated supply chains and “just-in-time” delivery. Working on the concept of “Who does it best, supplies it,” companies specialize in the parts of an industry where they have the best expertise and can produce the most reliable, highest-quality parts at an affordable price. Parts flow back and forth between US and Canadian suppliers, arriving for “just-in-time” assembly at the next location for production. Some 10% of all Canadian exports include components made in the US. “We build things together,” Dr. Dawson stated.

Government procurement programs that require “Buy American” disrupt these existing supply chains. “US and Canadian labor costs are higher than those of other countries, so we have to compete on innovation and intelligence. Imposing restrictions reduces innovation,” Dr. Dawson said. If the US were to close the border, Canada could focus on its existing diversified agreements with the EU and Asia. But this would be a death knell for the interdependent North American economies, Dr. Dawson predicted.

Secure Borders for Safety

While open borders are essential for healthy trade, security in the post-9/11 world is also paramount. US-Canada information sharing and security cooperation are unmatched among any other two countries in the world. The 2007 Western Hemisphere Travel Initiative ensured that no one crossed our borders without a passport or equivalent proof of identity, Dr. Dawson reported. Subsequently, the principle of perimeter security was institutionalized in the 2011 Beyond the Border initiative, ensuring that travelers and cargo entering Canada or the US through any port–air, land, marine, or rail–is subject to the same high level of scrutiny.

Biometric and biographical data are collected and checked against Canadian and US criminal, immigration, and security databases. The decision to check every applicant against US databases is mandatory and automatic. Information is shared swiftly and seamlessly to relevant security and law-enforcement agencies.

Dr. Dawson concluded that the US takes Canada for granted, and she urged the Forum to give Canada the time and attention it deserves as one of our most important partners.

Canada’s Vital Role for US Interests

Eric Miller, President of Rideau Potomac Strategy Group, is an expert on North American trade, economic, and security issues. “We need to create a vibrant and competitive cross-border community,” Mr. Miller said, “unfortunately, the US and Canada have grown tired of one another, and they take each other for granted. But the world is changing too dynamically to allow this lethargy to persist,” he added. The information technology revolution and corresponding shifts in economic activity have opened gaps in our pre-internet-era commercial framework. These shortcomings leave North America vulnerable to intensifying competition from the new powerhouses of Asia and the recovering European economies. “We must leap forward on how we trade and implement efficient processes to facilitate trade,” Mr. Miller said.

Applied Technology for Efficiency

“We need to ‘process engineer’ the border,” Mr. Miller pointed out. For example, every day, more than 10,000 trucks and 4,000 autos cross the Ambassador International Bridge, a 1929 suspension bridge that connects Detroit, Michigan with Windsor, Ontario, Canada. It is the busiest international border crossing in North America in terms of trade volume: more than 25% of all merchandise trade between the US and Canada crosses the toll bridge. More than 150,000 jobs in the region and $13 billion USD in annual production depend on the Detroit–Windsor international border crossing.

Applied technology could speed the border crossings and reduce costs. Mr. Miller recommendations included:

Collect data in advance and use it efficiently by issuing digital tags for validation

Provide IPads to customs officers so they have access to previously collected data

Use “big data” to develop a partnership for secure and efficient supply chains

Complete the harmonization of trusted trader programs across North America

Apply the principle of “inspected once, accepted thrice” to inbound cargo

Create a single window for customs procedures in each country and apply it across North America

Agree on a common set of advance data required for cargo screening

Provide enhanced import and accounting benefits to the most trusted traders

Significantly expand customs pre-inspections for high-volume shippers

Experimentation

Congestion and lane closures at borders are costly. Transportation planning requires innovative, cross-border, public-private partnerships to fund the infrastructure upgrades that are needed.

Mr. Miller remarked on the improvisation and innovation that occurred when local entities made decisions about improving border crossings. He recommended convening a trilateral group of experts on financing cross-border infrastructure involving public-private partnerships, noting the urgency to improve the physical layout and workflow at major border crossings. He suggested tapping the massive Canadian pension funds, which are managed by private professional money managers who look to invest in long-term infrastructure projects.

Border crossings are just one part of the journey, and their impacts are far-reaching, Mr. Miller pointed out. Policy makers need to map the transportation corridors that link Canada, the US, and Mexico in order to prioritize their efforts and predict the effects of changes. For example, 80% of the Canada-to-Mexico trade flows through the Laredo, Texas, corridor. Efficiencies in that corridor would have strong positive impacts. And the proposed new bridge linking Michigan and Ontario could bring new manufacturing jobs to Ohio.

Moving People and Jobs

It is not only goods that need improved cross-border facilitation, Mr. Miller said, but policy makers must also expedite cross-border movement of workers who do business across the borders and also to enhance opportunities for training and skills development. He suggested that NAFTA’s list of professionals eligible for temporary entry be updated and that the NEXUS and Sentri programs for facilitating advanced “trusted-traveler” initiatives be enhanced. As cross-border travel is eased, job development will expand, Mr. Miller noted, and he proposed that local governments, educational institutions, and industry could experiment with specific, needs-based matching of jobs and skills.

Coordination

Moving people and goods requires energy and coordination. Mr. Miller noted that the US and Canada are among the world’s largest producers of oil. He reported that Canadians could not understand the American backlash against the Keystone Pipeline. Currently, there are 84 pipelines that cross the US-Canada border and 95 pipelines are needed to transport new reserves developed from Bakken fields, Alberta, and western Pennsylvania. The current pipeline infrastructure was built for an import model. Now, North America is exporting oil. “We have to weave the pipelines together to create an integrated flow of transport and distribution,” Mr. Miller opined.

Mapping the transportation corridors and creating an energy pathway to meet energy needs will require better coordination, Mr. Miller observed. The regional interdependencies have to be recognized, as the US-Canada energy infrastructure is interconnected. Electric grids, for example, cross the borders. “The linkage between climate, energy, and the environment makes it imperative that we learn to use energy optimally to protect the environment and reduce the risks of climate change,” Mr. Miller said.

Achieving an adequate level of integration and coordination requires dialogue between states and provinces to harmonize common standards and processes for certifications and accreditation. Regional, subnational regulatory cooperation can reduce the costs of doing business and improve North American competitiveness in the global economy.

Mr. Miller concluded by advocating a new “Made in North America” brand.

Discussion

Sen. Tonya Schuitmaker (MI): What is the potential impact on job creation in Michigan of a proposed rail link between Detroit and the expanding deep-water port of Halifax, Nova Scotia? Picture

Mr. Miller: The train and shipping investments linking Halifax and Detroit through the Michigan corridor could be affected by the Canada-EU Free Trade Agreement. Currently, 60% of the parts Michigan supplies to Ford plants outside the US are now shipped through Baltimore.

Sen. Sandy Pappas (MN): What is the status of Taiwan’s bid to join the Trans-Pacific Partnership (TPP)?

Dr. Dawson: Taiwan would be a good gateway offering the benefits of an Asian partner but with more security than China. Unfortunately, Taiwan’s politics are fraught. For Taiwan to join the TPP, China would have to see Taiwan as a partner rather than a threat. The US leadership is advocating for Taiwan’s inclusion, and the US currently has a bilateral trade agreement with the country. But Taiwan needs to dance with China. Other countries such as South Korea and the Philippines are more likely to find acceptance in the TPP.

Sen. Troy Fraser (TX): Canadian Prime Minister Justin Trudeau’s policies are confusing. On one hand, he supports Kyoto and attends the Paris Climate Change Conference. But on the other hand, he supports exploiting tar sands. How do those policies go together?

Dr. Dawson:  Mr. Trudeau is rebranding Canada as a positive player in addressing the climate issue, but he still must support the oil economy that is the major growth sector of his country.

Mr. Miller: Mr. Trudeau got advice from President Obama’s advisors on strategies to balance oil and the environment.  He learned from the failure of the 2010 US Congressional Energy Bill, which imposed no price on carbon. Today, 20% of Canada has a price on carbon under a cap- and-trade exchange. Alberta imposes a $15/ton carbon tax. British Columbia’s strategy is revenue-neutral, having raised the carbon tax while lowering other taxes.

Mr. Trudeau has focused on innovation as a solution to energy issues. He stated “A pipeline has no place in our rain forest.” However, 20% of Canada’s GDP came from oil when oil traded at $100 per barrel. Mr. Trudeau needs to find a politically acceptable, environmentally sustainable way to get Canadian oil to market.

Dr. Dawson: Mr. Trudeau cannot be considered purely “progressive.” He also went to the US Chamber of Commerce to establish connections with the business community.

Sen. John Cullerton (IL): Trade unions and labor leaders oppose the trade agreements. What information would help them to reconsider their position?

Dr. Dawson: I understand the need to preserve jobs. But protectionism will allow the jobs to last for 5 years or so, and then the industry will collapse. People have to see the changes in the global economy, the impact of China. They need to understand that automation and technology are changing the economy and altering job opportunities. There is no guarantee of future employment in assembly jobs. We have to be at the front edge of innovation and provide retraining and “rebalancing of social equities,” so that people can thrive in the new economy.

Mr. Miller: I think it is imperative to have plenty of constructive dialogue with labor leaders and to focus on core interests and opportunities. The year 1950 is not coming back. We need training programs to attract investment and build new industries. We are competing against Chinese trade practices, where they will manipulate the currency, engage in cyber-attacks, and do whatever they can to supplant North America as a major trading entity.

Tom Finneran (Moderator): What happens if a truck is delayed for a few minutes at a border customs screening?

Mr. Miller: Local and long-haul trucking represents 60% of commerce. Trucks may travel 7 times per day from Ohio to Canada to deliver bumpers. They pay an electronic border fee in Canada and speed through customs. Canada allows importers to report electronically a self-assessment of their imports once a week. In the US, they must stop and file paperwork every time they come through. It should be easier to have predictable supply chain and make intra-company transfers, which could be done electronically.

Dr. Dawson: There are too many hoops to jump through when doing business across the border and every obstacle adds cost to the products. Today, we can do electronic commerce with overnight delivery, but not for cross-border shipments. They go through Louisville, Kentucky first for inspection, adding incremental costs and delays.

Tom Finneran (Moderator): It seems as though foolish impediments are allowed to stand. Why is that?

The big trade agreements have been penned. But the details–the “condominium association issues”–have not been decided, such as what poultry wash is acceptable, the width of seat belts, the criteria for Fish and Wildlife inspections…

Mr. Miller: These are local issues and they have to be pursued by state and local governments who can advocate to the federal government. Cross-border issues are local issues. People at the state level need to educate federal decision-makers on how blockages and delays at cross-border exchanges damage the local economy, along with the downstream economies that are affected.

Dr. Dawson: It is highly important to focus on the principle of free movement of goods, services, investment and people.

Speaker Biography

Laura Dawson

Laura Dawson is Director of the Canada Institute. Named one of Canada’s Top 100 foreign policy influencers by the Hill Times in 2014, Dawson is a speaker, writer, and thought leader on Canada-U.S., NAFTA, TPP, and international trade issues. Previously, she served as senior advisor on economic affairs at the United States Embassy in Ottawa and taught international trade and Canada-U.S. relations at the Norman Paterson School of International Affairs. Dawson continues to serve as Emeritus Advisor at Dawson Strategic, which provides advice to business on cross-border trade, market access and regulatory issues. She is a Fellow at the Canadian Defence & Foreign Affairs Institute and serves on the board of the Council of the Great Lakes Region. Dawson holds a PhD in political science.

Major Publications

Current Publications (2015-Present):

Managing the Canada-US Relationship from the Honeymoon to the Long-term

Slow and Steady Will Not Win the Race: Trade Negotiations, IP Protections and Canada’s Pharmaceutical Industry

Chasing China: Why an Economic Agreement with China is Necessary for Canada’s Continued Prosperity

Wilson Perspectives: The Trans-Pacific Partnership

The Trans-Pacific Partnership: Setting the Standard and Raising the Bar


Eric Miller

Eric Miller is President of Rideau Potomac Strategy Group, a cross-border consultancy that advises clients on government affairs, trade issues, technology challenges and geopolitical developments.

He previously served as Vice President of Policy, North America and Cybersecurity at the Business Council of Canada, which represents the CEOs of the 150 largest companies in Canada. He was also responsible for leading its work in the United States and Latin America and on border/supply chain issues, transportation policy, and anti-corruption rules. He led the Council’s policy work on cybersecurity, technology and telecom issues.

Before joining the Council in 2013, Mr. Miller represented Industry Canada at the Canadian Embassy in Washington, DC. He was responsible for advising senior Canadian officials on U.S. economic, political, and technology issues. He served as a member of the Canadian negotiating teams that designed Canada’s 2009 investments in the restructuring of the Chrysler and General Motors and the 2011 Canada-U.S. Beyond the Border Action Plan.

Mr. Miller has extensive international experience, having advised 40 governments in Latin America, the Caribbean, and Asia-Pacific on trade and economic policies. He worked for 8 years in the Integration and Trade Division of the Inter-American Development Bank and served as a USAID Chief of Party in Panama. Mr. Miller has testified before the U.S. Congress and the Canadian Parliament.

Separately, Mr. Miller is Chair of the Cybersecurity Advisory Board of Ridge Canada Cyber Solutions Inc., a leading provider of cyber insurance solutions and cyber advisory services.

He is a Global Fellow at the Woodrow Wilson Center, a Fellow with the Canadian Global Affairs Institute and a Non-Resident Fellow with the Stimson Center’s Trade in the 21st Century initiative. He also serves on a number of advisory boards, including the Canadian Cyber Threat Exchange.

Mr. Miller holds a Master’s Degree in International Affairs from Carleton University, a Graduate Diploma from the Bologna Center of the Johns Hopkins School of Advanced International Studies, and a Bachelor’s Degree (Honors) from Saint Mary’s University. He is fluent in Spanish and French.

Other Summer 2016 Forum Highlights articles:

Laura Dawson

Director

Canada Institute

Wilson Center

Eric Miller

President

Rideau Potomac

   Strategy Group

• US-Canada trade in goods and services exceeds
$2 billion per day

• Nine million (5%) US jobs are dependent on US trade with Canada

• US subsidiaries of Canadian firms employed more than 546,000 employees in 2011, for an average wage of over $65,000 annually

• One trillion dollars (6.5% of US GDP) is dependent on US trade with Canada

• Growth in the US economy translates into growth in Canada–20% of Canada's GDP comes from goods exported to the US

• Canada is the largest foreign supplier of oil, natural gas, and electricity to the US

• Nearly 40% of US crude oil imports came from Canada in 2014

Today’s technology-facilitated commerce and manufacturing relies on integrated supply chains and “just-in-time” delivery.

Congestion and lane closures at borders are costly. Transportation planning requires innovative, cross-border, public-private partnerships to fund the infrastructure upgrades that are needed.

Regional, subnational regulatory cooperation can reduce the costs of doing business and improve North American competitiveness in the global economy.

Sen. Tonya Schuitmaker

We have to be at the front edge of innovation and provide retraining and “rebalancing of social equities,” so that people can thrive in the new economy.

Tom Finneran

There are too many hoops to jump through when doing business across the border and every obstacle adds cost to the products.

It is highly important to focus on the principle of free movement of goods, services, investment and people.

Laura Dawson

Eric Miller

Senate Presidents’ Forum

Phone: 914.693.1818

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