THE BORDER AND THE ONTARIO ECONOMY

Bill Anderson (bander@uwindsor.ca)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)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

2004 2005 2006 2007 2008 2009

Domestic Export Import

Percent

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 21st

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 1972-2010

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