Executive Briefings

Increased Delays, Security Checks at Canada-U.S. Border Cost Canadians More Than $19Bn a Year

Canada-U.S. border maintenance costs Canadian governments and taxpayers up to $19.1bn annually, according to a report from the Fraser Institute, a Canadian public policy think-tank.

The report, Measuring the Costs of the Canada-U.S. Border, examines Canada's expenditures on heightened border security since 9/11 and associated reductions in trade and tourism. Calculating the overall annual cost at $19.1bn, or about 1.5 per cent of Canada's GDP, the report notes that the 2011 Beyond the Border Declaration offers both countries an opportunity to eliminate costly border inefficiencies. With the declaration, the two countries agreed on creating an "integrated, multimodal customs and transportation security regime."

"Canadians and Americans are at a crossroads: either we continue with incremental and uncoordinated border programs as we have often done since 9/11 or we begin to create a new border regime," said Alexander Moens, Fraser Institute senior fellow and co-author of the report.

"The current system of border thickening constitutes a serious threat to long-term economic growth in Canada. Moreover, the time has come to link specific border improvement proposals to cost estimates so that the public can obtain performance-based data."

The report calculates that since 2001, the share of Canadian exports destined for the United States fell to 74.9 percent, down from 86 percent in 2000. In addition, the share of U.S.-bound merchandise exports as a component of Canada's aggregate economic output fell to 17.2 percent as of 2010, down from 31 percent in 2000. Even when adjusted for fluctuations in economic activity, border costs appear to impede trade.

The report suggests that the 2011 Beyond the Border Declaration could strengthen North American trade while reducing border costs for taxpayers, traders and travelers. Overall, Beyond the Border offers fairly specific goals and a realistic time-frame (between one and three years) for most initiatives, including:

--  Harmonized border programs: Canada and the United States will begin to jointly undertake criteria outlining how goods are to enter or leave the trade zone. Offshore cargo bound for either the U.S. or Canada will be inspected and cleared once for both countries. The two countries will deepen cooperation on passenger pre-screening for prospective visitors to either Canada or the U.S. Both countries will update their technology to install a complete arrival and departure regime for travelers, and Canada will also update its baggage-inspection technology to harmonize its screening with U.S. standards.

Canada will also emulate the use of radio frequency identification technology in the U.S. so that vehicles crossing the land border can proceed faster.

--  Harmonized regulations: As differences between the two markets shrink, the need for non-security inspection on the border decreases. The plan is to harmonize the various "trusted traders" programs, including the Canadian supply-chain security program, Partners in Protection (PIP), and its American equivalent, Customs-Trade Partnership Against Terrorism (C-TPAT). Harmonizing these initiatives is long overdue and should produce savings by reducing duplicative administration costs.

--  Improved border-crossing infrastructure: One important proposal is the construction of a new bridge between Windsor and Detroit. The frictionless flow of commercial traffic between Southern Ontario and Michigan is vital for an integrated and thriving North American automotive industry. Since 9/11, long wait times at border crossings in the Windsor-Detroit corridor have threatened the integrity of just-in-time manufacturing processes and have added extra production costs to automobile manufacturing, thereby hurting the competitiveness and profitability of the North American automotive industry.

"The building of a new bridge in the vicinity of Windsor-Detroit is a commendable decision as it promises to improve the logistics of North American automobile manufacturing, and thereby strengthen economic prospects for both Canada and the United States," Moens said.

The report notes that the cost of implementing the Beyond the Border Declaration will be substantial. One account suggested that total new outlays would amount to a $1bn bill for Canada.

Moens and co-author Nachum Gabler caution that all associated costs must not only be linked to expected outcomes and time-lines but must also be evaluated in terms of performance: namely, whether the costs incurred by the public sector are reducing expenses for private travelers and traders.

"Based on the experience of the past decade, progress can only be made when specific security and safety initiatives are linked to specific border costs," Moens said.

Source: The Fraser Institute

The report, Measuring the Costs of the Canada-U.S. Border, examines Canada's expenditures on heightened border security since 9/11 and associated reductions in trade and tourism. Calculating the overall annual cost at $19.1bn, or about 1.5 per cent of Canada's GDP, the report notes that the 2011 Beyond the Border Declaration offers both countries an opportunity to eliminate costly border inefficiencies. With the declaration, the two countries agreed on creating an "integrated, multimodal customs and transportation security regime."

"Canadians and Americans are at a crossroads: either we continue with incremental and uncoordinated border programs as we have often done since 9/11 or we begin to create a new border regime," said Alexander Moens, Fraser Institute senior fellow and co-author of the report.

"The current system of border thickening constitutes a serious threat to long-term economic growth in Canada. Moreover, the time has come to link specific border improvement proposals to cost estimates so that the public can obtain performance-based data."

The report calculates that since 2001, the share of Canadian exports destined for the United States fell to 74.9 percent, down from 86 percent in 2000. In addition, the share of U.S.-bound merchandise exports as a component of Canada's aggregate economic output fell to 17.2 percent as of 2010, down from 31 percent in 2000. Even when adjusted for fluctuations in economic activity, border costs appear to impede trade.

The report suggests that the 2011 Beyond the Border Declaration could strengthen North American trade while reducing border costs for taxpayers, traders and travelers. Overall, Beyond the Border offers fairly specific goals and a realistic time-frame (between one and three years) for most initiatives, including:

--  Harmonized border programs: Canada and the United States will begin to jointly undertake criteria outlining how goods are to enter or leave the trade zone. Offshore cargo bound for either the U.S. or Canada will be inspected and cleared once for both countries. The two countries will deepen cooperation on passenger pre-screening for prospective visitors to either Canada or the U.S. Both countries will update their technology to install a complete arrival and departure regime for travelers, and Canada will also update its baggage-inspection technology to harmonize its screening with U.S. standards.

Canada will also emulate the use of radio frequency identification technology in the U.S. so that vehicles crossing the land border can proceed faster.

--  Harmonized regulations: As differences between the two markets shrink, the need for non-security inspection on the border decreases. The plan is to harmonize the various "trusted traders" programs, including the Canadian supply-chain security program, Partners in Protection (PIP), and its American equivalent, Customs-Trade Partnership Against Terrorism (C-TPAT). Harmonizing these initiatives is long overdue and should produce savings by reducing duplicative administration costs.

--  Improved border-crossing infrastructure: One important proposal is the construction of a new bridge between Windsor and Detroit. The frictionless flow of commercial traffic between Southern Ontario and Michigan is vital for an integrated and thriving North American automotive industry. Since 9/11, long wait times at border crossings in the Windsor-Detroit corridor have threatened the integrity of just-in-time manufacturing processes and have added extra production costs to automobile manufacturing, thereby hurting the competitiveness and profitability of the North American automotive industry.

"The building of a new bridge in the vicinity of Windsor-Detroit is a commendable decision as it promises to improve the logistics of North American automobile manufacturing, and thereby strengthen economic prospects for both Canada and the United States," Moens said.

The report notes that the cost of implementing the Beyond the Border Declaration will be substantial. One account suggested that total new outlays would amount to a $1bn bill for Canada.

Moens and co-author Nachum Gabler caution that all associated costs must not only be linked to expected outcomes and time-lines but must also be evaluated in terms of performance: namely, whether the costs incurred by the public sector are reducing expenses for private travelers and traders.

"Based on the experience of the past decade, progress can only be made when specific security and safety initiatives are linked to specific border costs," Moens said.

Source: The Fraser Institute