Trade

Canada and the U.S. Try to Cuddle Up Again


Relations with Canada, America’s largest commercial partner, have suffered since Sept. 11, 2001. To U.S. officials the 5,525-mile border, once celebrated as the longest and least protected in the world, became a potential entry point for terrorists, drugs, and illegal aliens. The U.S. response of surveillance drones and passport requirements, as well as increased inspections, paperwork, and regulations, has slowed the annual $1 trillion flow of trade and investment across the border.

With trade between the two countries supporting some 8 million U.S. jobs, Washington now seems eager to improve the movement of goods. Over the next few weeks, officials are expected to release a joint plan for closer cooperation in such areas as overseas inspections and security clearance.

The proposals stem from an ambitious “Beyond the Border” pact announced by President Barack Obama and Prime Minister Stephen Harper in February. Along with streamlined security, U.S. Ambassador to Canada David Jacobson says a goal is to harmonize “dumb” regulations like different food safety rules that force General Mills (GIS) to make two versions of Cheerios. Jacobson, who consumes both, says “I do not feel any healthier or cheerier in one country or the other.” In the auto sector, multiple customs inspections and border delays can add several hundred dollars in costs to each vehicle. As Jayson Myers, president of Canadian Manufacturers & Exporters, says: “It’s not so much the delays at the border as this wall of data that’s required.”

The plan comes at a time when some question Washington’s commitment to reducing trade barriers. Obama campaigned as a critic of the North American Free Trade Agreement and added a “Buy American” clause to the 2009 economic stimulus package that strained relations with Canada, which eventually won some exemptions. Even as the President was calling for closer ties in February, he came out with a budget that proposed charging a $5.50 fee to Canadians crossing the border by air or sea. More telling, perhaps, the American Jobs Act released on Sept. 8 contains new Buy American provisions that prompted Canadian Trade Minister Ed Fast to note that protectionist measures “kill jobs.”

John Manley, chief executive officer the Canadian Council of Chief Executives, is waiting to see the actual plan. “Overall, it’s been fairly disappointing since 9/11,” says Manley, who was the counterpart to Tom Ridge, the first U.S. Secretary of Homeland Security. Manley says that a 10 percent increase in trade with Canada could create more U.S. jobs than America’s pending free-trade pacts with Colombia, South Korea, and Panama combined. “It’s easier: There’s a lot of low-hanging fruit,” he says.

Canada comes to the negotiating table with its own strengths, including a healthier economy than the U.S. and prized energy supplies. It is also less reliant on its southern neighbor, as the U.S. share of Canada’s trade fell to 65.5 percent in 2010 from 76.3 percent in 2001. And while the U.S. delays its free-trade deals, Canada has forged ahead. When the country’s pact with Colombia came through in August, Grupo Nutresa, a Colombian manufacturer of food products, said it would switch from U.S. to Canadian wheat.

The bottom line: The $1 trillion flow of business between Canada and the U.S. could get a much-needed boost if promised reforms take place.

With Andrew Mayeda
Brady_190
Brady is a senior editor for Bloomberg Businessweek in New York.

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  • GIS
    (General Mills Inc)
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