Transcripts & Minutes - Standing Senate Committee on Banking, Commerce and the Economy (37th Parliament, 1st Session)

Angus	Kroft
*Carstairs, P.C. (or Robichaud, P.C.)	*Lynch-Staunton (or Kinsella)
Fitzpatrick	Meighen
Furey	Oliver
Hervieux-Payette, P.C.	Poulin
Kelleher, P.C.	Setlakwe

*Ex Officio Members

Note: The Honourable Senators Banks, Bolduc, Bryden, Callbeck, Gustafson and Mahovlich were members of the Committee at meetings at various stages during the course of this study.

Staff from the Parliamentary Research Branch, Library of Parliament:
Ms. June Dewetering, Acting Principal and Mr. Alexandre Laurin, Researcher Economics Division.

Note: Mr. Marion Wrobel, Senior Analyst, Economics Division was a researcher of the Committee at meetings and various stages during the course of this study.

Staff from the Committees and Private Legislation Directorate:
Denis Robert, Clerk of the Committee

ORDER OF REFERENCE

Extract from the Journals of the Senate, Tuesday, March 20, 2001:

The Honourable Senator Tkachuk for the Honourable Senator Kolber moved, seconded by the Honourable Senator Cohen:

“That the Standing Senate Committee on Banking, Trade and Commerce be authorized to examine and report upon the present state of the domestic and international financial system;

That the papers and evidence received and taken on the subject during the First and Second Sessions of the Thirty-sixth Parliament and any other relevant Parliamentary papers and evidence on the said subject be referred to the Committee;

That the Committee be empowered to permit coverage by electronic media of its public proceedings with the least possible disruption of its hearings;

That, notwithstanding usual practices, the Committee be permitted to deposit an interim report on the said subject with the Clerk of the Senate, if the Senate is not sitting, and that the said report shall thereupon be deemed to have been tabled in the Chamber; and

That the Committee submit its final report no later than March 31, 2002.

After debate,

The question being put on the motion, it was adopted.”

Extract from the Journals of the Senate, Wednesday, March 6, 2002:

The Honourable Senator Kolber moved, seconded by the Honourable Senator Maheu:

That the date for the presentation by the Standing Senate Committee on Banking, Trade and Commerce of the final report on its study on the present state of the domestic and international financial system, which was authorized by the Senate on March 20, 2001, be extended to Thursday, March 27, 2003.

The question being put on the motion, it was adopted.

Paul Bélisle
Clerk of the Senate

RECOMMENDATIONS

That the Canadian and American governments convene a meeting at the earliest opportunity with a view to developing bilateral initiatives that will efficiently and effectively move low-risk people and goods across the border. Both countries should ensure that these initiatives are utilized to the greatest extent possible by low-risk travelers and shippers.

That the Canadian and American governments work together to determine the feasibility and desirability of moving inspections inland, and to develop joint border facilities and inspection standards.

That the federal government, as a priority, allocate additional funding for needed physical infrastructure at the border, as well as for properly trained personnel in sufficient numbers. Recognizing the extent to which cooperative solutions are needed, the Canadian and American governments should work together to identify infrastructure and personnel needs and priorities, and take prompt joint action to resolve the needs identified.

That Officials from the Canada Customs and Revenue Agency and the U.S. Customs Service, as well as other relevant departments and agencies, meet at the earliest opportunity with a view to ensuring the development and implementation of integrated databases and computer systems that will facilitate the information sharing needed to ensure security and the flow of low-risk goods and people across the border. Customs, immigration, law enforcement and other intelligence-related information should be included in the integrated databases.

That the Canadian and American governments explore the extent to which x-ray, gamma ray, biometric identification, transponder technology, non-invasive vapour-sensing and other technological developments could be usefully used in both countries to meet the joint priorities of national security and ease of movement of low-risk goods and people across the border. Implementation of technological solutions should occur, on a priority basis, at high-volume border crossings.

Introduction

Canada and the United States have the largest and most comprehensive trade relationship in the world, with about $1.9 billion worth of goods and services moving across the border each day and 200 million people crossing the border each year. Canada and the United States are each other’s largest trading partners, and Canada is the largest export destination for 38 of the U.S. states. In 2000, the United States was the destination for 86.1% or $360 billion of Canada’s merchandise exports, and was the source for 64.4% or $268 billion of Canada’s merchandise imports. Trade in services is also significant. In 2000, Canada exported $33.3 billion in services to the United States, and imported $39.4 billion in services from the U.S. In the last decade, trade between Canada and the United States grew at an average rate of 11% annually.

Major exports to the United States include automotive parts, machinery and equipment, energy products, industrial goods and forestry products. Major imports from the United States include machinery and equipment, automotive products, industrial goods and consumer goods. Industry Canada has indicated that such “non-traditional” exports as clothing and textiles, furniture and fixtures, plastics and “other manufacturing” are growing rapidly. For several Canadian industries, the U.S. market is relatively more important than the domestic market. Moreover, over time and in response to market forces, key industries have been increasingly integrated – such as steel, automotive, agriculture and energy – thereby bringing the Canadian and U.S. economies closer together.

With increasing volumes of trade and travelers, the border is often congested and under stress, particularly at key crossings. Enforcement challenges and the levels of risk at the border are also issues, and have been viewed differently since the events of 11 September 2001. Although ease of movement across the border has been an issue for some time, its importance was highlighted in the aftermath of that day as a security focus instantaneously affected trade flows at the border. The Conference Board of Canada told the Committee that “estimates of the added cost of delays at the border range from 5 to 15 per cent on top of the costs of producing and shipping those products.” (Evidence, Issue 24:14) This makes it more costly to operate in the North American context, and can lead to serious and adverse effects on the Canadian economy in terms of productivity, exports and employment.

It was within this context that the Standing Senate Committee on Banking, Trade and Commerce initiated a study of the economic effects of the “clogged” borders on Canadian business and the economy. This report identifies the economic – as distinct from security – issues raised by witnesses in their appearance before the Committee, and their proposed solutions. Although our hearings concluded on 20 February 2002, we continue to monitor the range of government initiatives taken in both countries to facilitate movement across the border.

While delays at the border today are substantially shorter than those immediately after 11 September, this may be the result of increased staffing levels and considerably lower volumes of goods and people crossing the border. In fact, the Canadian Trucking Alliance informed the Committee that “(c)ar traffic is down about 45 to 50 per cent at the major border crossings, and down a smaller amount, probably 8 to 9 per cent, in terms of commercial truck traffic.” (Evidence, Issue 27:2)

Thus, it is important that we not assume that life has returned to normal or that it is “business as usual” at the border, for it has not and is not, and we must not become complacent. Some of the problems encountered at the border prior to 11 September continue to exist and must be resolved in order that goods and people are able to move easily and efficiently across the shared Canada-U.S. border. If this is to occur, security must become a priority for the Canadian government – as it is for the U.S. government – and programs and other measures designed to facilitate bilateral trade must be developed in this context. The strong link between security and trade must be recognized, and the proper balance struck between them. Trade will be facilitated if there is confidence about border security.

PRE-11 SEPTEMBER 2001 - EFFORTS TO FACILITATE MOVEMENT ACROSS THE BORDER

With the implementation of the Canada-U.S. Trade Agreement (CUSTA) and subsequently the North American Free Trade Agreement (NAFTA), trade between Canada and the United States increased significantly – and at a faster rate than the border infrastructure and personnel required to facilitate the increased trade. Nevertheless, our governments have taken actions to expedite trade.

Recognizing the importance of our bilateral relationship, in October 1999 Prime Minister Chrétien and President Clinton established the Canada-U.S. Partnership (CUSP) to examine the future of Canada-U.S. border management. Three guiding principles were identified:

Ø streamlining, harmonizing and collaborating on border policies and management;

Ø expanding cooperation at, and beyond, the border; and

Ø collaborating on common threats from outside Canada and the United States.

Bilateral meetings were held in Niagara/Buffalo and Vancouver/Blaine, and contributed to the first CUSP report. Completed in December 2000, the report recommended that the CUSP continue a Canada-U.S. dialogue with public and private stakeholders on these issues. It also encouraged greater cooperation through such bilateral mechanisms as the Shared Border Accord, Border Vision, Cross-Border Crime Forum and Motor Carrier Consultative Mechanisms.

One impetus for these efforts has been the desire by business travelers to ease their movement across the border. From the Canadian perspective, some business travelers have highlighted U.S. temporary entry issues as a key irritant associated with doing business in the United States. Problems appear to be the result of: no provision under the NAFTA covering a specific business activity; if there are provisions, a person may not meet the general qualifying criteria; or, if they do meet the qualifying criteria, they may lack the required documentation to present to U.S. Immigration and Naturalization Service officers.

While most Canadian business persons do not experience problems at the border, some do. While Immigration and Naturalization Service officers must balance the enforcement and facilitation aspects of their duties, and generally appear to apply the rules fairly and appropriately, there are reports of inconsistency in the level of awareness of NAFTA rules among Immigration and Naturalization Service officers and across different border crossings. With the U.S. decision to eliminate its advance adjudication service, Canadian travelers are unable to ensure their passage before getting to the border. Moreover, officers do not always adequately explain the reason for denial of entry.

The most significant effects of U.S. temporary entry problems appear to be delays and unpredictability. Problems may exist on both sides of the border: Canadian business persons may lack adequate knowledge or understanding of the NAFTA cross-border provisions, while on the U.S. side there may be issues related to interpretation and the “enforcement versus facilitation” role of Immigration and Naturalization Service officers.

Also important from the perspective of facilitating trade is attention to trade corridors. In recent years, various local governments, businesses and trade-related organizations have formed corridor associations, often with participation from their American counterparts, to promote the economic interests of their regions by facilitating transportation and thereby foster trade, tourism and investment.

An important contributing factor in the formation of these corridor associations has been the United States Transportation Equity Act for the 21^st Century (TEA-21), which has authorized up to US$218 billion for surface transportation programs over the 1998 to 2003 period. Of this, $700 million in total ($140 million annually) is directly dedicated to corridor and border projects. These programs are financed through the Highway Trust Fund, which collects a portion of the fuel tax and sets it aside for highway improvements.

Within Canada, in 1997 the federal government formed the Interdepartmental Working Group on Trade & Transportation Corridors, which serves as:

Ø a focal point for consultations and the exchange of information with provinces, stakeholders and corridor groups; and

Ø a mechanism for coordinating efforts with the U.S. Department of Transportation, particularly with respect to the border infrastructure and corridors program, but also vis-à-vis Intelligent Transportation Systems (ITS) deployment, reciprocal recognition of standards, research and data compilation.

Announced in the February 2000 Budget, Canada’s Strategic Highway Infrastructure Program will allocate $600 million to highway infrastructure beginning in 2002, with $63 million allocated specifically for improvements at or near border crossings. Moreover, funding for ITS deployment will be available to promote more efficient use of existing infrastructure. The December 2001 Budget announced $600 million over five years for a new border infrastructure program to ensure there is sufficient infrastructure capacity to assist trade at our major border crossings. Through partnerships with provinces, municipalities and the private sector, the federal government will help finance infrastructure improvements at or near the border. These improvements might include: new or improved highway access for border crossings; processing centres for commercial vehicles to expedite clearance times; and intelligent transportation systems. It will also work with the United States to ensure a coordinated approach with respect to border infrastructure.

An efficient and cost-effective transportation system over our shared border is needed – whether using ground (highways, bridges and rail), air or marine transportation – in all regions of Canada. One of the challenges associated with trade corridors is the partnerships needed among and between federal departments, federal and provincial governments, Canada and the United States, and the private and public sectors. A greater focus on a broad-based infrastructure program would support the quest of many for a comprehensive, integrated, intermodal national and North American transportation system. It would also demonstrate to the United States our commitment to facilitating trade, and would enhance opportunities for binational transportation links. This might be particularly important in such transportation sectors as rail, where it is felt that an integrated North American rail industry is developing, and trucking, where both countries are striving for harmonized regulation and the seamless movement of goods.

POST-11 SEPTEMBER 2001 - ACTIONS BY THE CANADIAN AND U.S. GOVERNMENTS

In the aftermath of 11 September 2001, it is probably accurate to say that no single issue is more important to Americans than their national security. Within that context, the United States has taken – and is expected to take – a number of actions that will disrupt the movement of goods and people across our shared border. Consider, for example, the announcement that National Guardsmen will be deployed to the Canada-U.S. border, the indication that an entry/exit registration system would be implemented, and tightened airport security measures.

The unprecedented tightening of border controls by U.S. authorities along the “longest undefended border” highlighted problems that had existed for a number of years. From an economic perspective, some of the problems were associated with inadequate infrastructure or personnel resources. Although trade increased significantly after the signing of the CUSTA and the NAFTA, funding for infrastructure and personnel had not kept pace, leading to border concerns even prior to 11 September. As a consequence, border delays were already occurring at such crossings as the Ambassador Bridge linking Windsor and Detroit; this bridge alone facilitates an annual volume of trade equivalent to that between the United States and Japan.

Following 11 September, Prime Minister Chrétien asked then Minister of Foreign Affairs Manley to coordinate discussions with the United States about management at the border. Governor Tom Ridge was appointed by President Bush as the Director of Homeland Security to coordinate initiatives on the U.S. side. The Canadian objective was the enhancement of security so as to ensure – to the extent possible – the unimpeded flow of low-risk goods and people across the border.

Governor Ridge met with then Minister Manley – now Deputy Prime Minister and Finance Minister – in Ottawa on 11 December 2001. On 12 December, Canada and the United States signed a declaration for the creation of a “Smart Border for the 21^st Century.” The 30-point Action Plan – based on the four pillars of the secure flow of people, the secure flow of goods, secure infrastructure, and coordination and information sharing – is designed to lead to collaboration in identifying and addressing security risks while efficiently and effectively expediting the legitimate flow of people and goods across the shared border (see Appendix). In essence, it balances economic security and national security. The declaration includes 21 new objectives and expands on nine other Canada-U.S. initiatives set out in the eight-point 3 December 2001 Joint Statement of Cooperation on Border Security and Regional Migration Issues and in the RCMP-FBI agreement to improve the exchange of fingerprint data. Initiatives contained in the 12 December Action Plan will be supported by the December 2001 Budget announcement of about $7.7 billion over time for such security-related expenditures as border infrastructure, enforcement, intelligence and policing.

From the American perspective, in January 2002 President Bush announced that his Administration would be seeking US$10.7 billion specifically to address border security; these funds would be in addition to increased defence spending. Moreover, the President’s January 2002 State of the Union address indicated that additional entry/exit controls would be introduced for visitors to the United States. Quoting Mr. James Ziglar, Commissioner of the U.S. Immigration and Naturalization Service, the Canadian Customs Excise Union told the Committee of plans to implement an entry/exist registration system recording the names of all who enter and leave the United States at airports and seaports by 2003 and at the 50 largest border crossings by 2004. (Evidence, Issue 23:2) On 26 October 2001, President Bush signed the USA Patriot Act containing a measure that would accelerate implementation of a registration system for controlling individuals entering and exiting the United States.

Unfortunately, mention of these controls brings to mind Section 110 of the 1996 U.S. Illegal Immigration Reform and Immigration Responsibility Act (IIRIRA), which would have required the U.S. Immigration and Naturalization Service to create a system for documenting the entry to and exit from the U.S. of all aliens. Had it been applied to Canada, section 110 would have substantially hampered the movement of people across the border and could have added many hours to the time needed to pass through the busier crossings. For these reasons, section 110 was opposed by many, in particular northern U.S. states and the Canadian provinces, and major Canadian and U.S. corporations.

Cooperation between our countries continues. Deputy Prime Minister Manley and Governor Ridge continue to meet to review progress on each of the Action Plan’s 30 items. Other actions have also been taken in Canada since 11 September, including: a state of alert at our border crossings; greater security at Canadian airports; funding for security-related detection technologies and personnel, as well as border infrastructure, enforcement, intelligence and policing; measures designed to suppress the financing of terrorism; and efforts to freeze the assets of known terrorist groups.

IMPACT OF 11 SEPTEMBER 2001 ON TRADE: SELECTED SECTORS

One of the most immediate and visible effects of the enhanced U.S. focus on security following the events of 11 September 2001 was the kilometres-long line-up of trucks, with just-in-time deliveries delayed and consequences for production disruptions and employee layoffs. Canadian Manufacturers and Exporters told the Committee that “(i)n the world of just-in-time production, Canadian companies rely on the problem-free movement of planes, trains and trucks, as well as the mobility of people to service the goods sold on both sides of the border. … Our American customers will continue to expect just-in-time delivery and they will choose suppliers who can provide it. Whether those suppliers will be Canadian or not will depend on whether we can resolve the issues surrounding the border. … If the border becomes a barrier to the movement of goods and people, it will not only choke off our exports, but also stem the flow of foreign direct investment into Canada. Without easy access to the U.S. market, companies will be reluctant to establish operations here in Canada.” (Evidence, Issue 24:14,15)

A similar sentiment was expressed by the Canadian Trucking Alliance, which said that “(t)he cost savings from just-in-time … are simply too enormous for the North American manufacturing sector to walk away from. The key is that it does not mean that the parts and other inputs into business processes have to be sourced in Canada.” (Evidence, Issue 27:2) Within this context, the ability of Canadian firms to meet contracted delivery schedules has significant implications for our prosperity as a nation.

Although a wide variety of firms were affected by the events of 11 September and the resulting disruption in trade, the Committee limited its study to an examination of the impact on the automotive, trucking, air and rail industries.

The Automotive Industry

The North American automotive industry, like many others, was immediately affected by the 11 September terrorist attacks. Border uncertainties added costs for the North American industry at a time when severe actions were being taken simply to remain globally competitive. The Canadian Vehicle Manufacturers’ Association informed the Committee that, in the immediate aftermath of the terrorist attacks, parts shipments were delayed at the border and more than 20 automotive assembly plants in Canada and the United States were temporarily shut down, affecting thousands of workers on both sides of the border.

The Association added that the unplanned production loss resulting from parts shortages is an estimated $1 million to $1.5 million per hour, or $25,000 per minute. The border shutdown disrupted just-in-time delivery practices, and led some automotive firms to increase their inventories by as much as 5% to address supply fluctuations. (Evidence, Issue 27:23) In turn, higher inventory carrying costs were incurred and money was tied up in parts and goods sitting in inventory that could have been earning a return elsewhere.

The Trucking Industry

The trucking industry felt the impact of border delays acutely, with 15-kilometre-long lineups at some border crossings. The Canadian Trucking Alliance told the Committee that 70% of Canada’s bilateral trade with the United States – representing about one-third of our Gross Domestic Product – moves by truck, which makes border delays particularly serious and of direct economic consequence for the country. (Evidence, Issue 27:1,2)

The Canadian Trucking Alliance presented a variety of recommendations for resolving issues at the border, including those that existed prior to 11 September. It also stressed its key role in just-in-time delivery, and told the Committee that “(t)he just-in-time systems are built around trucks because of the flexible service that trucks can provide.” (Evidence, Issue 27:10) These systems are important to the economic viability and profitability of a number of North American businesses.

The importance of trucking as a mode of transport for certain industries was highlighted by the Canadian Vehicle Manufacturers’ Association. Speaking from the perspective of the automotive industry, the Association informed the Committee that “(f)or over 35 years, the … industry in (Canada and the United States) has relied upon the relatively unimpeded transportation of parts and finished vehicles across the border to sustain the industry in both countries. Over that time, (the) industry has evolved to a just-in-time delivery system that effectively makes the trucks crossing the border a fundamental component of a vehicle assembly plant’s production process.” (Evidence, Issue 27:22)

The Airline Industry

Since the airline industry plays only a relatively minor role in transporting goods, it is with respect to passenger business and insurance costs that 11 September had the greatest impact on the airline industry. In the wake of the terrorist attacks, passenger business dropped precipitously, and the Air Transport Association of Canada told the Committee that insurance costs increased by 200% to 300%, if it was available at all. Moreover, the airline industry has advised the government that additional security costs as a result of 11 September will exceed $1 billion. (Evidence, Issue 27:16)

In response to the high cost and unavailability of insurance, on 22 September the Minister of Transport announced that, for a maximum period of 90 days (that is, until 21 December), the federal government would provide an indemnity for third-party war and terrorism liabilities for essential aviation service operators in Canada. The action, designed to ensure the maintenance of uninterrupted aviation services, was taken in response to the decision by international insurers to no longer provide the levels of war risk liability that had been in place prior to 11 September. The offer was made to all Canadian air carriers, airports, NAV CANADA, the Air Transport Security Corporation and to other essential service providers at airports such as ground handlers and re-fuellers, provided they already carried such coverage at the time of the cancellation. As well, the indemnification was provided only to the limit of the amount covered under their insurance policy immediately before the effective cancellation time and to the portion of existing coverage not offered in commercially available insurance policies. On 6 December, the Minister announced that the indemnification would be extended until 4 February 2002. On 1 February it was announced that the indemnity would be extended, on the same terms and conditions, for a period of 45 days (that is, until 21 March). The indemnity program was subsequently extended until 20 May.

Another issue of concern to air carriers is the exchange of information about passengers. The Air Transport Association of Canada indicated that “(t)he transborder market is not a good market for the transmission of passenger information. Most flights between Canada and the U.S. are typically less than two hours. That is usually not sufficient time to transmit individual files, have them compared to databases, and be ready to interdict a specific individual. (Evidence, Issue 27:14) The result could be delays, even though the U.S. Customs Service based in some Canadian airports already pre-clears Canadian passengers bound for the United States.

Although not exclusively the result of the 11 September attacks, the Air Transport Association of Canada told the Committee that airlines worldwide have reduced capacity by at least 20%, although transborder traffic fell by probably 25 to 30%. (Evidence, Issue 27:15) This loss of passengers is particularly troubling given the financial pressures being experienced by many air carriers even prior to 11 September.

The Rail Industry

The Railway Association of Canada told the Committee that rail was probably the mode of transport least affected by the terrorist attacks. Within two to three days, trans-border train shipments were “quasi-normal”. In recent years, the railways have committed approximately $10 million to improved security. Cameras have been placed in tunnels at border points, and most of the larger railways have their own security police forces; they have also implemented centralized control centres and an “electronic interface” with the U.S. Customs Service. (Evidence, Issue 25:2,4,5)

The Association also indicated that the industry does not share its rail infrastructure with non-commercial users as truckers do, since it operates on “dedicated, private and controlled corridors.” (Evidence, Issue 25:2) Moreover, following 11 September, passenger volumes on Via Rail increased because of concerns about the safety of air travel, and at some border crossings the railways have witnessed an increased demand among commercial users for their services. (Evidence, Issue 25:2,8)

ACHIEVING AN OPEN BORDER WITH ADEQUATE RESOURCES: WHAT MUST BE DONE?

Canada enjoys an economic advantage available to no other country in the world: our access to the U.S. market. Unfortunately, this access also represents perhaps our greatest economic vulnerability given our reliance on trade with the United States. Following the 11 September 2001 terrorist attacks, heightened border security led to border delays that were particularly serious for Canadian border communities and for certain sectors highly dependent on the ease and efficiency of cross-border access, including trucking, automotive production and tourism. There was a clearly-identified need for stakeholders in Canada and the United States – legislators, bureaucrats and business, labour and community leaders, among others – to cooperate bilaterally in addressing the heightened border concerns in the new security environment.

A clear priority identified by the Committee’s witnesses was the development of a plan to address some of the problems that have existed at the border for some time, including insufficient and inadequate infrastructure, outdated equipment and technology, poor bilateral coordination and a shortage of trained personnel. These problems have created difficulties on both sides of the border and have meant increased costs. What was formerly considered by many to be a “trucker’s problem” is now everyone’s problem.

Many of the goods that cross the border each day involve intra-firm trade, for example where parts made in a company’s operations in Canada are shipped to another of its locations in the United States. Bilateral trade also involves such intermediate goods as capital equipment, automobile parts and other intermediate products. This type of trade requires efficient border crossing to allow firms to use the just-in-time production techniques that enable them to maintain lower inventories as a cost-saving measure. Firms have integrated their production processes across national boundaries because of cross-border economic integration and confidence in the ease and efficiency of movement across the border. Consider, for example, the automotive industry, which is now fully integrated on a North American basis. The Canadian Vehicle Manufacturers’ Association informed the Committee that more than 85% of the vehicles and major components assembled in Canada are exported to the United States. (Evidence, Issue 27:21) For the benefit of industries that are integrated or have just-in-time inventory systems, an open border with unimpeded access for low-risk goods and travelers is a necessity.

Also needed is a border with sufficient infrastructure and personnel resources. The Committee was told that border infrastructure failed to keep pace with the growth in bilateral trade in the 1990s. One particular problem shared with us by the Canadian Trucking Alliance was the automated systems used by the U.S. Customs Service, which we were told date from the 1970s and 1980s. These systems, it was alleged, suffer from brownout and blackout, and are unable to handle current trade volumes, let alone volumes anticipated in the future. With Congressional support for funding lacking, the Customs Service has estimated that about $1.2 billion is needed to update their systems and to enable them to process current volumes of trade. (Evidence, Issue 27:5) The Canadian Customs Excise Union indicated that, from the Canadian perspective, “(w)e are not doing the job we should be doing. We do not have the right people, we do not have enough people, and staff members are not properly trained. They are not properly equipped either. Many do not have the right powers of enforcement. Almost half lack access to computers, while others are not provided real-time access to lookout and other intelligence information.” (Evidence, Issue 23:2)

A number of modes of transport are responsible for the movement of goods and people across the border: trucks, rail, ships and air. The infrastructure and personnel needs of each of these modes must be considered in order that Canadian producers are able to maximize their global market share. The trucking industry, in particular, has been central to the development of just-in-time delivery; in fact, the Canadian Trucking Alliance told the Committee that the location of distribution centres has been based on the distance a truck can travel in a certain period of time. (Evidence, Issue 27:7)

From another perspective, Canadian Manufacturers and Exporters commented on the extent to which the Canada Customs and Revenue Agency expedites north-bound traffic and staffs the border to a proportionately higher level than the United States. The Committee was told that U.S. staffing levels at the border had been unchanged since 1980, despite the growth in the volume of bilateral trade, and that at least 50% of the lanes to the United States were closed in recent years for staffing reasons. (Evidence, Issue 24:22)

Border delays can lead to increased inventory carrying and cross-border congestion costs. Again, while border delays were more problematic after 11 September, it should not be assumed that they were non-existent prior to that date. It is difficult to quantify the economic impact of the border disruptions associated with 11 September. Some data are still unavailable, while other figures are aggregate, reflecting both the economic effects of that day and the economic slowdown that was already underway.

Additional costs associated with border delays, together with uncertainty about future border policy and possible disruptions in the free flow of goods and people, can negatively affect investment in Canada, as the attractiveness of Canada as a location for industries that serve the North American market is diminished. The importance of efficiency, reliability and consistency at the border was repeatedly stressed by witnesses.

The United States is now very focussed on our shared border, particularly from a security perspective. The challenge is to view security concerns and trade facilitation as complementary goals, rather than as competing requirements. What is needed is the joint development and implementation of a revitalized border management plan that would address the security and trade facilitation concerns of both countries.

Since many of the border problems pre-date 11 September, the Committee’s witnesses had already given considerable thought to the solutions needed to facilitate bilateral trade and maximize our nation’s prosperity. Most argued that an integrated, holistic approach that is developed through bilateral cooperation is needed, rather than piecemeal solutions. Consider, for example, that improved transportation infrastructure at Canadian border points will not improve the flow of goods and people across the border if the United States lacks adequate physical infrastructure or personnel. Such an approach should contain: a focus on high-risk goods and travelers; inland inspections; improved border infrastructure; integrated database and computer systems, and information sharing; and the use of appropriate technological innovations.

Risk Assessment

A number of the Committee’s witnesses supported pre-clearance for low-risk commercial transportation and travelers. Canadian Manufacturers and Exporters, for example, argued for “dedicated lanes for shippers whose paperwork is in order or who have been pre-approved for Customs clearance”. (Evidence, Issue 24:18) Similarly, the Canadian Vehicle Manufacturers’ Association and the Canadian Trucking Alliance advocated dedicated or expedited lanes for low-risk travelers and goods, which would require a capital investment. (Evidence, Issue 27:4,24)

Some efforts to facilitate pre-clearance have been taken in Canada. On 6 December 2001, the Customs Self Assessment (CSA) program was formalized; previously, it had been operating on a trial basis for certain sectors. The program, which is similar to the existing CANPASS and NEXUS programs for individuals who frequently travel across the border and are both low-risk and pre-approved, is built around an identification card that indicates to customs officers that truck drivers and their goods have met rigorous security standards. In order to obtain a card, trucking firms and their drivers must undergo security checks, obtain pre-approval or pre-clearance for their goods, and pay duties monthly instead of each time they cross the border. A number of the Committee’s witnesses supported these systems; the Canadian Trucking Alliance referred to these programs as “risk management systems.” (Evidence, Issue 27:4)

The importance of focusing on high-risk traffic was also highlighted by a number of witnesses. Canadian Manufacturers and Exporters argued for “expediting legitimate goods and legitimate people so that we shrink the size of the haystack in which we look for that needle.” (Evidence, Issue 24:20) Similarly, the Railway Association of Canada recommended that “any new spending on border measures distinguish between high risk and low risk, both in terms of people and of freight. If we focus on the high-risk movements, it will facilitate better movement of low-risk traffic. … (P)re-qualifying low-risk freight and people … will allow customs agencies to focus their resources on the higher-risk movements.” (Evidence, Issue 25:3) From the perspective of the Canadian Vehicle Manufacturers’ Association, the flow of high-value, low-risk goods should be a priority. In its view, the first step that should be taken to achieve this goal is the allocation of “sufficient human and monetary resources to ensure the existing border crossing infrastructure is maximized.” (Evidence, Issue 27:24)

Given resource constraints and the significant volume of goods and travelers who do not present any risk, the Committee believes that it is not possible – nor is it desirable – to search fully all goods or people crossing the Canada-U.S. border. Resources and efforts must, as a consequence, be focussed on those goods and individuals believed to be high risk. In our view, such existing initiatives as the CSA, CANPASS and NEXUS programs are useful in expediting low-risk goods and travelers, and also move processing away from congested borders. For maximum benefit, however, companion initiatives are needed in the United States. We are aware of the Customs – Trade Partnership Against Terrorism – or C--TPAT – initiative announced in the United States in April 2002. We hope that this new undertaking will meet its goal of protecting the security of cargo entering the United States while improving the flow of trade. The Committee believes that these types of initiatives should form the basis of bilateral programs designed to expedite the movement of low-risk goods and people across the border, and from this perspective recommends:

The Committee also feels that the elimination of the advance adjudication service within the United States has resulted in unpredictability for Canadian travelers entering the United States. As a consequence, we urge the U.S. government to consider its re-introduction.

Moving Inspections Inland

A number of witnesses advocated reaching an agreement with the United States that would allow inspections and clearance away from the border. The Conference Board of Canada told the Committee “more has to be done away from the border so that officials are better able to assess the risk at the border to prevent problems in the first place. … Assessing risks away from the border … will lead to better confidence building on both sides. It will likely go far towards accomplishing the twin goals of enhancing trade and efficiency at the border, while improving security.” (Evidence, Issue 24:12,13) The Canadian Customs Excise Union argued for perhaps six “massive” commercial inspection facilities near higher-volume ports a few kilometres inland from the U.S. border, perhaps jointly staffed or staffed by U.S. Customs Service officers who would inspect, clear, seal and bond Canadian loads before sending them to the border for unimpeded crossing. (Evidence, Issue 23:4,6) Alternatively, a single inspection consistent with the standards of both countries could occur.

Cooperation among stakeholders and joint staffing were also mentioned by Canadian Manufacturers and Exporters when arguing for “increased integration of Customs inspections and facilities between Canada and the United States; … closer cooperation between Customs agencies and exporters, importers, brokers and shippers to simplify and clarify rules and information requirements; and a strengthened Canadian and American commitment to a shared border agreement.” (Evidence, Issue 24:18,19)

The Committee believes that moving inspections inland would help to alleviate unacceptable and costly congestion at the border. We also feel that, given resource constraints and the extent to which bilateral cooperation is needed, allowing U.S. Customs Service officers to undertake inspections in Canada or allowing Canadian inspectors to undertake their work in accordance with standards acceptable to both countries would be an efficient and effective solution to many problems that existed even prior to 11 September. For this reason, the Committee recommends:

That the Canadian and American governments work together to determine the feasibility and desirability of moving inspections inland, and to develop joint border facilities and inspection standards.

The Committee believes that the construction of pre-clearance facilities near congested border crossings will ease congestion and expedite the movement of goods and people across the border with minimum delay, particularly if proper risk-assessment and pre-clearance systems are developed and implemented, and these facilities are properly staffed.

Improved Border Infrastructure

Many of the Committee’s witnesses identified border infrastructure deficiencies as a significant impediment to the efficient movement of goods and people across the border. These deficiencies are, in part, a result of investments in the border that did not keep pace with the growth of bilateral trade throughout the 1990s. From this perspective, sufficient human and financial resources must be allocated to maximize strategic investments at border crossings.

The need is, perhaps, particularly acute at certain crossings. In written testimony, the Deputy Secretary of Plans and Consultations at the Privy Council Office informed the Committee that, of the 147 land border crossings, six handle 70% of total truck traffic in terms of volume and 65% in terms of value. Moreover, nearly 30% of Canada’s exports by road cross at Windsor/Detroit. As a consequence, strategic investments should perhaps occur at these important crossings.

The Committee agrees with the witnesses. Having both adequate infrastructure and trained personnel at the border are critically important to assuring security and the cross-border flow of trade, particularly if inland inspections are not to occur. While we believe that recent announcements by the federal government are positive steps, more must be done. Moreover, to the extent possible and recognizing both resource constraints and the need for bilateral cooperation, we believe that there are opportunities for joint development and management of border infrastructure, and for border personnel to undertake inspections in accordance with standards determined bilaterally. As a result, the Committee recommends:

The Committee believes that serious consideration should be given to identifying, as a priority, the infrastructure needs of the economic regions in which trade is concentrated, since this may reflect geographic proximity and some complementarities in production.

Integrated Databases and Computer Systems, and Information Sharing

A number of the Committee’s witnesses argued for greater information sharing and compatible computer systems between Canada and the United States. According to them, the Canada Customs and Revenue Agency and the U.S. Customs Service should work together to develop an integrated database and computer system. The Conference Board of Canada advocated the sharing of information between customs and other domestic and foreign enforcement agencies, and told the Committee that “governments need to ensure the existence of adequate staffing and information systems at the border. Companies need to provide adequate information about the contents, origin and destination of the goods being moved.” (Evidence, Issue 24:12,13) The Railway Association of Canada, for example, recommended that “Canada customs and U.S. customs combine forces to create a more integrated database and computer system that all carriers, brokers, importers and exporters would use to file information pertinent to cross-border traffic for both customs and immigration purposes. That would both create cost savings and more clearly facilitate security and other, related inspections.” (Evidence, Issue 25:4)

In order to focus limited resources and efforts on high-risk goods and people, the Committee believes that intelligence, information and computer systems between our countries must be integrated and shared, to the extent possible, so that both countries can distinguish between low-risk and high-risk traffic flows. While our focus here is on economic and trade concerns, since the events of 11 September many have called for this type of database creation and integration, and information sharing, in a range of areas. Trade – involving both the flow of goods and people – must be included in such systems. From this perspective, the Committee recommends:

Some witnesses advocated closer compatibility with the United States, including perhaps harmonization on customs and maybe immigration. In the view of the Conference Board of Canada, however, “(i)f we take that route, hopefully it can be done in partnership with the U.S. as opposed to letting the U.S. dictate the terms.” (Evidence, Issue 24:13) The Committee concurs, and believes that the development of programs, policies and initiatives must involve negotiation and collaboration between our countries.

Technological Solutions

Finally, several witnesses told the Committee that the government should invest in large x-ray and gamma ray machines that would enable the efficient verification of the contents of containers without having to open them. The Canadian Customs Excise Union, for example, indicated that “some of the answers lie in an increased use of technology.” (Evidence, Issue 23:9) This type of technology is already used by the United States in a number of locations. While costly – about $1.5 million would be spent at each facility if a gamma ray machine were to be installed – the Railway Association of Canada said that such technology could save a minimum of half an hour at the border. (Evidence, Issue 25:6) Joint development of automated technology-based systems was also recommended by the Canadian Trucking Alliance. (Evidence, Issue 27:4)

The Committee is aware of the 27 March 2002 announcement that the Canada Customs and Revenue Agency has started a procurement process that will result in the order of high-energy x-ray equipment, such as truck-mounted x-ray systems and stationary cargo/pallet x-ray systems for implementation at marine, air and highway ports. Moreover, while we welcome the funding allocated in the December 2001 Budget and the message it sends to our southern neighbour, we believe that the funding priorities must be those border points with the highest volumes of goods and people. Moreover, we believe that technological solutions that would enhance security and facilitate trade must be used whenever possible, and by both Canada and the United States. For this reason, the Committee recommends:

In developing and implementing technological solutions, however, the Committee believes that privacy concerns must be respected to the extent possible.

CONCLUSION

While the tragic events of 11 September 2001 will be ever in our minds, governments must re-evaluate their priorities in order to ensure that these types of situations do not occur in future. National security has become the priority for many nations. However, trade is also a priority, and it is important that national security and trade be viewed as complementary objectives. Border issues must be managed through bilateral cooperation designed to achieve our shared goals through mutual recognition of – and confidence in – each other’s policies and procedures. To the greatest extent possible, these should be integrated and harmonized. Nevertheless, if integration and harmonization are not possible or desirable – for whatever reason – then our policies and procedures, while different, must have equivalent effect.

The Committee believes that the adoption of the recommendations outlined in this report – and a bilateral commitment to a revitalized, risk-based border management plan that involves an integrated and coordinated approach – will enable the events of 11 September 2001 to be viewed as a catalyst, leading to beneficial changes to the border and a positive result from an unspeakable tragedy.

WITNESSES

Air Transport Association of Canada (Ottawa, December 5, 2001, 37^thParliament, 1^stSession, Issue 27):

Mr. Clifford J. Mackay, President;
Mr. Warren Everson, Vice-President, Policy and Strategic Planning.

Canadian Manufacturers and Exporters (Ottawa, November 22, 2001, 37^thParliament, 1^stSession, Issue 24):

The Honourable Perrin Beatty, President and Chief Executive Officer;
Mr. Mark Boudreau, Senior Director, Policy and Research.

Canadian Vehicle Manufacturers’ Association (Ottawa, December 5, 2001, 37^thParliament, 1^stSession, Issue 27):

Mr. Mark A. Nantais, President;
Ms Faye Roberts, Manager, Government Relations, General Motors of Canada Limited;
Mr. Doug June, DaimlerChrysler Canada Inc.;
Ms Eda M. Cross, Manager, External Affairs and Public Policy, DaimlerChrysler Canada Inc.

Canadian Trucking Alliance (Ottawa, December 5, 2001, 37^thParliament, 1^stSession, Issue 27):

Mr. David H. Bradley, Chief Executive Officer;
Mr. Graham Cooper, Senior Vice-President.

Conference Board of Canada (Ottawa, November 22, 2001, 37^thParliament, 1^stSession, Issue 24):

Mr. Gilles Rheaume, Vice-President;
Mr. Andrew Shea, Policy Analyst.

Customs Excise Union (Ottawa, November 21, 2001, 37^th Parliament, 1^stSession, Issue 23):

Mr. Serge Charette, National President.

Privy Council Office (Ottawa, February 20, 2002, 37^thParliament, 1^stSession, Issue 29):

Mr. Robert Fonberg, Deputy Secretary to the Cabinet, Plans and Consultation;
Mr. Phil Ventura, Assistant Deputy Minister, Borders Task Force, Plans and Consultation.

Railway Association of Canada (Ottawa, November 28, 2001, 37^th Parliament, 1^stSession, Issue 25):

Mr. Bruce Burrows, Vice-President, Public Affairs and Government Relations;
Mr. Chris Jones, Director, Federal-Provincial Government Liaison.

APPENDIX

ACTION PLAN FOR CREATING A SECURE AND SMART BORDER

1) Biometric Identifiers

Jointly develop on an urgent basis common biometric identifiers in documentation such as permanent resident cards, NEXUS, and other travel documents to ensure greater security.

2) Permanent Resident Cards

Develop and deploy a secure card for permanent residents which includes a biometric identifier.

3) Single Alternative Inspection System

Resume NEXUS pilot project, with appropriate security measures, for two-way movement of pre-approved travelers at Sarnia-Port Huron, complete pilot project evaluation and expand a single program to other areas along the land border. Discuss expansion to air travel.

4) Refugee/Asylum Processing

Review refugee/asylum practices and procedures to ensure that applicants are thoroughly screened for security risks and take necessary steps to share information on refugee and asylum claimants.

5) Managing of Refugee/Asylum Claims

Negotiate a safe third-country agreement to enhance the managing of refugee claims.

6) Visa Policy Coordination

Initiate joint review of respective visa waiver lists and share look-out lists at visa issuing offices.

7) Air Preclearance

Finalize plans/authority necessary to implement the Preclearance Agreement signed in January 2001. Resume intransit preclearance at Vancouver and expand to other airports per Annex I of the Agreement.

8) Advance Passenger Information / Passenger Name Record

Share Advance Passenger Information and agreed-to Passenger Name Records on flights between Canada and the United States, including in-transit flights. Explore means to identify risks posed by passengers on international flights arriving in each other's territory.

9) Joint Passenger Analysis Units

Establish joint units at key international airports in Canada and the United States.

10) Ferry Terminals

Review customs and immigration presence and practices at international ferry terminals.

11) Compatible Immigration Databases

Develop jointly an automated database, such as Canada's Support System for Intelligence, as a platform for information exchange, and enhance sharing of intelligence and trend analysis.

12) Immigration Officers Overseas

Increase number of Canadian and US immigration officers at airports overseas and enhance joint training of airline personnel.

13) International Cooperation

Undertake technical assistance to source and transit countries.

THE SECURE FLOW OF GOODS

14) Harmonized Commercial Processing

Establish complementary systems for commercial processing, including audit-based programs and partnerships with industry to increase security. Explore the merits of a common program.

15) Clearance Away from the Border

Develop an integrated approach to improve security and facilitate trade through away-from-the-border processing for truck/rail cargo (and crews), including inland preclearance/post-clearance, international zones and pre-processing centers at the border, and maritime port intransit preclearance.

16) Joint Facilities

Establish criteria, under current legislation and regulations, for the creation of small, remote joint border facilities. Examine the legal and operational issues associated with the establishment of international zones and joint facilities, including armed protection or the arming of law enforcement officers in such zones and facilities.

17) Customs Data

Sign the Agreement on Sharing Data Related to Customs Fraud, exchange agreed upon customs data pursuant to NAFTA, and discuss what additional commercial and trade data should be shared for national security purposes.

18) Intransit Container Targeting at Seaports

Jointly target marine intransit containers arriving in Canada and the United States by exchanging information and analysts. Work in partnership with the industry to develop advance electronic commercial manifest data for marine containers arriving from overseas.

SECURE INFRASTRUCTURE

19) Infrastructure Improvements

Work to secure resources for joint and coordinated physical and technological improvements to key border points and trade corridors aimed at overcoming traffic management and growth challenges, including dedicated lanes and border modeling exercises.

20) Intelligent Transportation Systems

Deploy interoperable technologies in support of other initiatives to facilitate the secure movement of goods and people, such as transponder applications and electronic container seals.

21) Critical Infrastructure Protection

Conduct binational threat assessments on trans-border infrastructure and identify necessary additional protection measures, and initiate assessments for transportation networks and other critical infrastructure.

22) Aviation Security

Finalize Federal Aviation Administration-Transport Canada agreement on comparability/equivalence of security and training standards.

COORDINATION AND INFORMATION SHARING IN THE ENFORCEMENT OF THESE OBJECTIVES

23) Integrated Border and Marine Enforcement Teams

Expand IBET/IMET to other areas of the border and enhance communication and coordination.

24) Joint Enforcement Coordination

Works toward ensuring comprehensive and permanent coordination of law enforcement, anti-terrorism efforts and information sharing, such as by strengthening the Cross-Border Crime Forum and reinvigorating Project Northstar.

25) Integrated Intelligence

Establish joint teams to analyze and disseminate information and intelligence, and produce threat and intelligence assessments. Initiate discussions regarding a Canadian presence on the U.S. Foreign Terrorist Tracking Task Force.

26) Fingerprints

Implement the Memorandum of Understanding to supply equipment and training that will enable the RCMP to access FBI fingerprint data directly via real-time electronic link.

27) Removal of Deportees

Address legal and operational challenges to joint removals, and coordinate initiatives to encourage uncooperative countries to accept their nationals.

28) Counter-Terrorism Legislation

Bring into force legislation on terrorism, including measures for the designation of terrorist organizations.

29) Freezing of Terrorist Assets

Exchange advance information on designated individuals and organizations in a timely manner.

30) Joint Training and Exercises

Increase dialogue and commitment for the training and exercise programs needed to implement the joint response to terrorism guidelines. Joint counter-terrorism training and exercises are essential to building and sustaining effective efforts to combat terrorism and to build public confidence.