Mexico Trucker Online

‘Security’ at the cost of free trade

To the federal government, nothing is more important than Canada’s economic relationship with the United States. Our foreign policy – including our decision to fight in Afghanistan – is designed to keep the borders open at Windsor and Fort Erie. So is our security policy.

Ottawa is instituting its controversial no-fly list this week less to protect Canada than to convince Washington that we are onside with the war against terror. The fact that no-fly lists are almost certainly pointless (real terrorists use aliases) is irrelevant. The aim is to put on a show that keeps the Americans happy and the borders open.

Alas, it seems that our determined pandering isn’t working. A report by the Conference Board of Canada says that post 9/11 restrictions at the border are subtly but significantly subverting the free-trade arrangements that Ottawa says are so crucial.

To its horror, the business-linked research organization found that companies in both Canada and the U.S. are reverting to pre-free trade practices in order to avoid hassles at the border. So far, this hasn’t affected the volume of Canadian exports. But it has made Canada-U.S. trade more difficult and expensive.

This is not trivial. The key to free trade is integrated production. A valve, for instance, might be built in Mexico and trucked to an Ontario firm that makes carburetors. The carburetor is then shipped to an Ohio plant that builds engines for a car that is assembled in Windsor and trucked to Florida for sale. By the time the car leaves its Miami showroom, the original Mexican valve will have made five international border crossings.

It is a complex system that requires fleets of trucks moving among all three countries to make deliveries at precise times. In the jargon of business, this is known as just-in-time delivery. If the truck delivering fuel injectors is late, the engine plant shuts down. Yet if the truck arrives too early, the engine plant has to store these fuel injectors somewhere, which costs it money.

From her survey of 60 firms, study author Danielle Goldfarb has concluded that this system is breaking down. In some cases, weary drivers are refusing time-consuming, cross-border runs. Most trucking companies have abandoned full international runs because they are too troublesome.

Instead, they routinely deliver their loads to the border to be picked up by truckers from the other side – which costs more. As parts move back and forth across the border during the assembly process, these costs are multiplied.

The net result is a dagger placed at the throat of the North American Free Trade Agreement. Without integrated production, there is little point in having a Canada-U.S. free trade deal in manufactured goods. That’s because without integrated production, it’s usually cheaper to build things where they are sold – which in North America means the U.S.

Ottawa has tried to deal with this by negotiating special pre-clearance arrangements for cross-border shippers. But as Goldfarb points out, such procedures are confusing, expensive and of limited benefit.

So we are in an odd situation. After having bet the farm on the grand idea of North American free trade, we now find that it is not working – regardless of how much we try to please Washington. This isn’t because the U.S. is unreasonable. Countries have every right to protect their borders. Rather it is because free trade was based on twin illusions: that economic efficiency trumps all and nation-states don’t matter.

It doesn’t. They do. We need another grand idea

SOURCE:Toronto Star