Not so long ago, the Canadian-American border was routinely referred to as the world’s longest undefended border. On September 11, 2001, this per- ception came to an abrupt end. In the last five years, it has become increasingly clear that security controls at the bor- ders are " and will remain for the foreseeable future " an unavoidable fact of life in North America. In the immediate aftermath of the terrorist attacks on New York and Washington, US customs and immigration agencies increased the level of scrutiny and control for all merchan- dise and passenger traffic across the border.
Since 2001, several programs have been put in place to control the flow of merchandise trade between the two countries, and new measures will come into effect in the coming months, adding new constraints for individuals entering the United States from the western hemisphere.
Altogether, these measures entail considerable costs for the Canadian economy. How much? This remains an open question, but this article seeks to identify some of the major components of these costs, both as they relate to the impending passport requirement and with regards to the existing programs aimed at securing merchandise trade. This summary examination shows that, although the total costs are difficult to estimate with precision, they are significant and likely to become even higher.
Since September 2001, the tightening of security controls at the Canada-US border has already had enormous econom- ic repercussions. Many of these costs have been borne by tax- payers in the two countries, where gov- ernments have increased spending on border security by hundreds of millions of dollars. In addition to these direct expenses, however, increased scrutiny at the border entails other important economic costs.
For both countries, particularly Canada, an important potential cost of enhanced security is unrealized cross- border trade or investment due to the perception of prohibitive border security requirements. Although such impacts are difficult to quantify, it is possible that the recent increase in security-related scrutiny at the US border might act as a deterrent to potential exporters to the United States or to investors seeking the best location to invest in a pro- duction facility. For the small prospective exporter, for example, uncertainties attributable to long border delays " or to the perceived costs of compliance with border-risk management schemes " may contribute to preempt the initial investments needed to expand distribution into the US market. Similarly, in the era of ”œjust-in-time” manu- facturing, firms operating on a continental scale might be more reluctant to invest north of the border if they perceive a high likelihood of considerable delays in their supply chains. For the moment, however, available evidence does not allow us to quantify these effects.
Another important economic bur- den of border security is the increase in shipment costs directly attributable to security-induced waiting times at the border. Longer wait-times impose ship- ment costs that industry has to absorb. In 2004, 6.9 million trucks crossed the border from Canada into the United States. According to a 2005 Canadian trucking survey report commissioned by Transport Canada, security-induced delays increased the time spent at bor- der crossings by an average of 32 min- utes per shipment, costing Canadian exporters an estimated $290 million.
The time and uncertainty associat- ed with security-induced wait times or denial of access at the border can be mitigated for exporters by gaining accreditation in US risk-management programs, but this is expensive. To avoid costly waits or denial of entry, shippers must gain accreditation in the Free and Secure Trade (FAST) program, while exporters and their suppliers must pay for certification in the Customs-Trade Partnership Against Terrorism (C-TPAT) program. C-TPAT costs vary from approximately C$40,000 for smaller exporters to hun- dreds of thousands of dollars for the largest firms. As there are more than 40,000 exporting firms in Canada, the total potential costs are substantial.
Although they are large by any meas- ure, the costs of security controls at the border must be compared to the global value of trade between the two countries. In 2005, Canadian merchan- dise exports to the US totalled C$369 bil- lion, while imports totalled C$258 billion. Moreover, security is not the only source of costs associated with the border. For example, a study by published in the fall of 2004 in the Journal of Transportation, based on 2002 data, estimates the total cost of the existence of the border between Canada and the US to be in the vicinity of US$10 billion. This, however, is not the end of the story.
The second stage of introduction of new border security measures will involve the imposition of passports or some other type of secure travel docu- ment for hemispheric travel. In 2004, the US Congress passed the Western Hemisphere Travel Initiative (WHTI), as part of a sweeping anti-terrorism bill. From a Canadian perspective, the key provision of this initiative is the requirement that all individuals " including US citizens " present a passport or some other secure document when entering or re- entering the United States.
At present, US, Canadian, Bermudian and Mexican citi- zens do not need a passport for entry from the western hemi- sphere. Under the rules pro- posed by the WHTI, these exceptions are scheduled to be lifted on December 31, 2006, for air and sea travel, and one year later for land travel. Not only will everyone be required to show proper forms of identifica- tion when entering the US from anywhere in the world " including the friendly neigh- bour to the north " but stan- dards governing the production and issuance of passports (or alternative forms of secure identifica- tion) will be even more stringent. The goal of the policy is to tighten the net at the border, identify and intercept any individual who may be considered a security risk.
The heart of the problem, makes the effects of the policy highly uncer- tain and potentially costly, is that a sig- nificant number of Canadians and Americans do not own valid passports, which are costly and difficult to obtain. Consequently, the new requirement could severely affect travel and busi- ness between the two countries, as well as between the US and other hemi- spheric destinations.
US residents made 31.6 million trips to Canada in 2005 (including 15.7 million same-day auto trips), bringing in C$9.1 billion. These numbers declined between 2004 and 2005, partly due to currency fluctuation, but also to the false perception that the passport require- ment was already in place. For their part, according to Statistics Canada, Canadians made 37.8 million trips to the United States in 2005 (including 22.3 million same-day auto trips), spending a total of C$12.2 billion .
A 2005 Conference Board of Canada survey indicates that only 34 percent of adult US residents and 41 percent of adult Canadian residents hold a passport. However, these figures increase, respectively, to 44 percent and 60 percent among same-day cross- border travellers, 50 percent and 60 percent among overnight auto trav- ellers, and 67 percent and 75 percent among overnight air travellers.
The same study estimated that US residents would make 12.3 percent fewer visits to Canada in 2008, mostly due to a reduction in same-day visits created by the passport requirement. This would result in an estimated net loss of $905 million in travel-related receipts to the Canadian economy. The corresponding drop in Canadian visits to the US in 2008 is put at 1.7 million, leading to a loss of C$319 million .
A different study commissioned by the Ontario Ministry of Tourism esti- mates the lost receipts for Ontario alone at $652 million in 2008 (3.2 million fewer US visits), or a net loss of 6,500 tourism jobs. The costs are not limited to Canada, as tourist destinations in the Caribbean and Mexico are likely to suffer from the additional constraints imposed upon American tourists, who will need a valid passport or some alternative secure document to re-enter their own country.
One of the problems that might arise from the implementation of WHTI with the current deadline is the difficulty, both in Canada and in the United States, of maintaining high standards of security verification while substantially increasing the number of passports issued. In Canada, demand is expected to double within the coming year, which puts the passport agency under considerable strain. In the United States, passport issuance also has risen sharply since 2001, and it is expected to increase significantly when the WHTI comes into effect.
Acquiring a US passport is expen- sive (about US$100 ) and cumbersome. Therefore, alternative solutions are cur- rently being considered. First, the Department of Homeland Security (DHS) has proposed a less expensive I.D. card (dubbed ”œpassport-lite”) that would meet WHTI requirements for about half the cost of a passport. However, most observers agree that relatively few peo- ple would obtain the new card, which might not justify the extra administra- tive costs of running a parallel program.
Business groups that have been active in this debate, such as the Business for Economic Security, Trade and Tourism (BESTT) Coalition, would prefer to set national standards for secure drivers’ licenses, along the lines of the US Real-I.D. Act of 2005, which seeks to force states to include enhanced biometrics and citizenship information on drivers’ licenses. However, the law is facing strong opposition from civil-lib- erties groups. In its trenchant criticism of the Real-I.D. project, the American Civil Liberties Union calls this measure an unacceptable invasion of privacy, which opens the door to dis- crimination and to a ”œBig- Brother-like” centralized registry. Critics also contend that this new measure would in no way eliminate fraud and identity theft.
In a recent article on opposition to Real-I.D. in New Hampshire, the New York Times reported that opponents, conservatives and liberals alike, were prone to hyperbole, conjuring up images of Nazi Germany or Orwell’s 1984. The same report also notes that the cause of opposition to Real-I.D. was even embraced by evangelical Christians, who claim that a number for each citizen, according to the Book of Revelation, presages the Apocalypse.
More pragmatically, the Real-I.D. program would impose heavy costs on states, and most are actively resisting its implementation. For example, as report- ed in the same New York Times article, Virginia estimates the start up cost of its program alone would be $169 million, with ongoing annual costs of up to $63 million. Projecting from these figures and from a comparable evaluation for the state of Washington, critics of Real- I.D. have estimated the annual costs of implementing the program throughout the continental US at between $9.1 bil- lion and $12.8 billion, which far exceeds the more modest estimates of the Congressional Budget Office (about $100 million). It is unlikely that more than a handful of states will implement its provisions by the statutory 2008 deadline.
In the spring of this year, there has been a great deal of mobilization in favour of at least a delay in the imple- mentation of the WHTI passport require- ments, but this issue has been caught in the congressional cross-fire over the much more politically salient and con- troversial issues of illegal immigration. On May 17, the US Senate passed an amendment to its immigration bill that would delay implementation of the pass- port requirement for land border cross- ings in the WHTI until June 1, 2009, implicitly recognizing the complexity of the policy challenges entailed by the measure. Most interested parties would welcome a delay, but uncertainty remains as to whether the controversial immigration bill to which it is attached will survive a House-Senate conference committee.
Meanwhile, Canadian officials and politicians have taken very dif- ferent stances on this issue. Although the Canadian embassy in Washington has been active in lobbying Congress on behalf of Canadian and border-state interests, and provincial premiers have mobilized the support of US border- state governors, Conservative Prime Minister Stephen Harper has not made this issue a priority in his direct con- tacts with the US administration. At the Cancun summit with Presidents Bush and Fox in March, Harper plainly stated that Canadians should get used to the fact that they will need passports to cross the border, seemingly accepting with resignation President Bush’s admission that nothing could be done at that stage to change the law. Tightened border controls have increased rates of interception for illegal drugs, smuggled goods and wanted criminals. However, there has not been another incident like the December 1999 interception of Ahmed Ressam, who intended to plant a bomb at Los Angeles International Airport. Although the June 2 terror arrests in Ontario have heightened concerns south of the bor- der, there is no indication that the alleged plotters intended to attack tar- gets outside Canada.
Whether the imposition of pass- ports or some other complex form of identification at the Canada-US border will make a difference commensurate with its costs is impossible to assess, but cost-benefit considerations matter little for American legislators who feel compelled, in the current context, to do " or appear to be doing " every- thing they can to shut the borders tight to terrorism, regardless of the econom- ic fallout. What is certain is that these measures will have negative implica- tions for the process of North American economic integration and, perhaps, for the sentiment of community between the two countries.
An earlier, shorter, version of this article was published by Oxford Analytica, on June 13, 2006. This article also relies in part on research conducted jointly with Linda Lee, Estelle Ouellet and François Vaillancourt, and published in a report sponsored by the Fédération des chambres de commerce du Québec (http://cepea.cerium.ca/article318.html)