Journal Article

A Survey of Cross-Border Trade at a Time of Heightened Security: The Case of the Niagara Bi-National Region

Macpherson, Alan D., McConnell, James E.

2007

Overview

Soon after 9/11, Robinson and Goldfarb (2002) prepared a paper for the C. D. Howe Institute that explored the possibility that security-related tie-ups at the Canada-U.S. border could significantly impact location decisions. To assess the vulnerability of Canada's exports to U.S. security-related measures, the study collated 23 categories of goods that were both highly valuable and highly vulnerable against five characteristics that affect vulnerability: physical security, mode of transport, time sensitivity, susceptibility to disruptions in the movement of people, and ease of substitution by U.S. production. These goods included food products, motor vehicle parts, electrical equipment, semiconductors, and aerospace products. The study concluded by noting that for Canadian companies in vulnerable industry sectors, it was conceivable that those that had previously planned to invest in production facilities in Canada to serve their U.S. operations or to accommodate American consumers might react to higher perceived or real border-related costs by adding to their capacity on the U.S. side of the border instead of in Canada. Hence, for any of the above-mentioned situations, the outcome for individual companies could result in a trade-off between increased security-related costs and more cost-efficient locations for production and warehousing on the other side of the border. What evidence exists that the current costs of border management are likely to result in the necessity for such trade-offs? According to [Taylor, Robideaux], and Jackson (2003), the current system of border management is costing the U.S. and Canadian economies between US$7.5 and US$13.2 billion per annum as a result of organizational inefficiencies. The equivalent estimate by the Ontario Chamber of Commerce (OCC) is C$13 billion (OCC 2004). In a more recent study, the OCC estimates the annual cost of border delays to the U.S. economy to be C$4.13 billion, or more than C$471,000 an hour (OCC 2005). And, finally, a recent estimate by the authors puts the cost at roughly US$6 billion for Canada alone ([ALAN MACPHERSON] and McConnell 2005). Although methodological contrasts likely explain much of the variance in these estimates, our key point is that most of the recent empirical studies point to additional post-9/11 costs of at least US$5 billion per annum for the Canadian and U.S. economies combined. At the Peace Bridge that links Buffalo with Fort Erie, for example, average wait-times for inbound shipments from Canada are on the order of 59 minutes per truck. If these wait-times were reduced to 14 minutes (which is the key goal of the bi-national Peace Bridge authority over the next few years), then transportation carriers would realize more than $ 1 billion in time savings (Regional Institute 2007). For example, if a Canadian company is seriously considering relocating some of its U.S. production operations back to Canada, or moving new investment capital into the U.S. to acquire or construct a new production facility, what are the factors being considered, how are these factors being evaluated, and what is the likelihood that the company will actually follow through with a particular course of action? What is needed is a well-structured, longitudinal investigation that would track a set of companies and their executives over a sufficiently long period of time that a comprehensive assessment could be made of how increased security costs are affecting production networks, supply chains, and logistics management. These are key issues deserving of more empirical work, and some of these concerns are currently being pursued by research underway at the Canada-US. Trade Center through personal interviews with executives who indicated in the previous survey that they were seriously considering such actions. Preliminary evidence from Vance (2007) indicates that most of these firms are still thinking about these issues, though several executives anticipate that future rounds of border-hardening will necessitate strategic adjustments over the next few years. These new rounds of border-hardening include the possibility of mandatory passport entry for all travelers to the U.S. from 2009 onward (including U.S. citizens entering the U.S. from Canada), stricter security clearance for truck drivers, more stringent enforcement of the 2002 Bioterrorism Act (which regulates imports of food and other biological materials), and the deployment of larger numbers of security personnel at U.S. ports of entry. Although many U.S. and Canadian exporters have successfully climbed the learning curve in terms of regulatory compliance in the post-9/11 era, as predicted by Industry Canada (2004) and recently reported by Vance (2007), the security regime continues to tighten on an incremental basis.

• Publisher: Taylor & Francis Group,Taylor & Francis Inc
• Subject: Averages / Biological & chemical terrorism / Biological & chemical weapons / Biological materials / Border regions / Borders / Boundaries / Business / Canada / Canada-US relations / Capital / Chambers of Commerce / Commerce / Companies / Consumer goods / Consumers / Costing / Costs / Counterterrorism / Defence policy / Deployment / Economic Development / Enforcement / Enterprises / Executives / Exports / Food / Geopolitics / Import substitution / Imports / Industrial enterprises / International trade / Investments / Logistics / Management / National security / Passports & visas / Peace / Polls & surveys / Ports / Production / Regions / Security / Security personnel / Semiconductors / September 11 terrorist attacks-2001 / Supply / Susceptibility / Terrorism / Time / Trade / Trade barriers / Transportation / Truck drivers / Trucks / U.S.A / United States of America / Vulnerability