2. Purpose
Outline the benefits of North American integration in agri- food sector
Describe new type of impediments to integration
Discuss ways policymakers could cooperate to minimize these new impediments

3. Over past decades, North American governments have removed barriers to greater integration…
Source: USDA, ERS.
Reduced border costs through regional trade agreements
reduced/eliminated tariffs, reformed support
facilitated dispute resolution
Policies have contributed to increased regional agri- food trade
Trade within North America growing much faster than trade with rest of world

4. …enabling industry to increase investments, build efficient continental supply chains
Industry has restructured to take advantage of North American opportunities
Foreign direct investment in North American agri-food tripled over last decade
Many agri-food businesses depend on open borders for access to inputs and to markets
e.g. meat packing facilities in Northern U.S. depend on supplies of Canadian slaughter cattle
Source: Bureau of Economic Analysis, USDA, ERS.
Billions US$
Canada
Mexico

5. Integration is broad but asymmetrical
Source: USDA, ERS.
All three NAFTA countries have changed and benefited from integration
But the benefits and changes are deeper in Mexico and Canada, given relative size of industries
Risks are also greater in Canada and Mexico

6. We face new impediments to integration
In past, integration has overcome traditional frictions
Trade distorting domestic support
Tariffs
Border administration
AD / CVD
Exchange rate volatility
New frictions emerge from time to time – e.g. COOL
But now integration faces a new type of challenge – risk of complete loss of market access
BSE
Bioterrorism?
Another disease?

7. As integration deepens, the cost associated with new impediments increases
Border closures do not simply divert trade, they disrupt supply chains
Once industry has re-structured on basis of integrated market, border disruptions become very difficult to manage

8. BSE has clearly highlighted new challenges to integration
Industry disruption policy-induced, not consumer-driven
North American beef consumption held steady or increased
Policy response inside North American affects how other countries respond
Unilateral action cannot solve problems in a heavily integrated market
Interaction of domestic policy with international negotiations
Harmonized NA approach on SRM, BSE testing
Common position on OIE changes
Impact of BSE event was felt most acutely in Canada, where cattle producers and feedlot operators lost more than $2 billion dollars in revenue.
Impact on the US has been more moderate, though some elements of the sector were heavily dependent on open border and therefore more vulnerable.
US packers and processors suffer from underutilization of capacity and reduced margins when they lost access to Canadian slaughter cattle.
Impact on US cattle producers more moderate, even positive, as domestic beef prices rose.
Mexican ban on US and Canadian beef/cattle imports caused shortages of prime beef cuts and dairy cattle in Mexico.

9. BSE shock is motivating industry to limit exposure to future access risk
Dis-integration of cattle market a deep shock
Canadian industry looking at increasing domestic beef packing capacity
Feedlots and packers in northern U.S. continue to diversify sources of cattle
Alberta vs. U.S. Weekly Steer Price
Discovery of BSE in Canada
Alberta Steer
U.S. 5 Market 65-80% Choice Steer
Discovery of BSE in the U.S.

10. Future of integration hinges on industry perception of “closure risk”
Further integration requires industry confidence in gov’t management of border risks
If not, industry may self-insure against risks
Supply chain dis-integration
Trade in final products rather than intermediate goods
Source: Kerr, 2003
Status quo policy may risk unintentionally eroding integration and losing its benefits

11. …and maintain access to world markets
Challenge for policymakers is to work together to minimize perception of this risk…
Domestic policy ineffective unless reality of North American integration taken into account
World increasingly views NA as one market
Agri-food markets already so well-integrated that it is difficult to contain hazards within national boundaries
Need to cooperate, recognize to create food safety “perimeter” around North America
Reduce risk of food safety event in any of three countries
…and maintain access to world markets

12. Options for enhanced cooperation
Agreement on “behind-the-border” measures to prevent food safety events
Co-ordinated standard setting, harmonization, mutual recognition
Development of agreed procedures for timely response to food safety events should they occur
Establish timelines for bilateral/trilateral consultation, exchange of information, and announcement of joint measures
Minimize duration and scope of border closures and establish clear criteria for border re-opening

13. Options for enhanced cooperation
Build on existing mechanisms for trilateral/bilateral collaboration
NAFTA committees and working groups, bilateral/trilateral agricultural accords, BSE committee, etc.
Champion NA approach as template for future multilateral agreements
Multilateral negotiations on food policy (WTO, Codex, OIE) progressing slowly and with difficulty

14. Issues for discussion
How best can governments work together to reduce the perceived risk of complete border closures in future?
Where are the remaining opportunities to strengthen coordination of food safety and border policies?
What changes are possible to facilitate greater co-ordination of regulatory processes?
Are existing forms of institutional cooperation adequate or do we need new ones?