THE BORDER AND THE ONTARIO ECONOMY Bill Anderson Ontario Research Chair in Cross-Border Transportation Policy, University of Windsor Presentation for Canada-United States Transportation Border Working Group Ottawa, November 7, 2012
5 points about the Ontario Economy Ontario’s cross-border economy
1. Ontario has an trade-oriented economy (Imports and exports as % of GDP, 2010 data)
2. Exports are focused on the US market (2010 data)
2a Ontario exports 2010 ($million)
2c Highway distance (km) from Toronto
3. Most Ontario merchandise exports are of manufactured goods (2010 data)
4. Most exports to the US move by truck
5. Truck movements are concentrated at a few crossings
Ontario’s prosperity is highly dependent on the performance of a few border crossings
Cross-Border Supply Chains More than just exchange of finished goods, an intermingling of production systems Windsor, Ontario’s largest automotive plants Vans assembled from US parts Engines for US-assembled trucks and cars Just-in-Time: little tolerance for delays, disruptions and high transfer costs Border costs make firms engaging in cross-border supply chains less efficient and competitive
The Cost of the Border
Border crossing costs for goods Duties, fees, tolls Document prep, broker fees (rules of origin) Empty backhauls Average Delay Delay Uncertainty Compliance with trusted trader programs Cross-border business trips
Strategies to mitigate crossing time uncertainty in supply chains Excess Plan Time – Costly because it ties up trucks, reduces the number of turns per day Inventory stockpile – A “just in case” strategy, but it increases inventory carrying costs
Border cost estimates Taylor et al (2004) study found that border costs are equivalent to 2.7% ad valorem tariff (4% for trucks) Carrier costs only about 25% of total Customs administration is a major component Recent study from Fraser Institute makes total cost of pot 9/11 border impacts (lost trade and tourism, government expenditures) at 1.2% of Canadian GDP
Trucking costs as percentage of goods value (Mark Brown, Statistics Canada)
Why are cross-border shipments more expensive? Cross-border trucking costs 8% to 40% higher than comparable domestic (.4 -.9% of value) Border delays and uncertainty Cost of compliance with trusted trader programs Common queue problem Empty backhaul Lack of cabotage rights under NAFTA
Trends in cross-border movement of goods and people Canada-US trade stagnating in 21 st century Ontario Trade values still below 2001 level At national level, Ontario’s decline offset by oil exports Rapid reduction in personal crossings by automobile
Canadian Exports to the US: total and Ontario
Canadian exports to the US: Total and Oil and Gas
Factors that retard trade High and volatile Canadian dollar Slowdown in automotive and other key manufacturing industries Increased competition from China and others Costs of the border
Automobiles entering Canada at Ontario Crossings
Policy
Policy Options Make the border more efficient Infrastructure, personnel Technology (RFID, biometrics, databases) Move functions away from the border Trusted trader (FAST), traveler (NEXUS) IBETs, intelligence The perimeter approach Eliminate border functions through harmonization Problems: no customs union, major policy differences (immigration/refugee, firearms, tax structure)
Perimeter Security and Economic Competitiveness Action Plan Practical steps, short timelines, little legislative requirement Responds well to business interests Greater coordination and cooperation Information sharing (entry-exit) CBP and CBSA operation on foreign soil Joint plans on infrastructure, resilience Not much for the occasional traveler
Directions for Policy Development Aggressive incrementalism Infrastructure where needed Perform border functions jointly Customs administration and data requirements, Plan for border resilience World’s most technologically advanced border Privacy and human rights issues Don’t neglect the occasional border crosser Don’t get complacent because of oil and gas