Border Facts and Economic Impact

UNCLAS SECTION 01 OF 03 OTTAWA 000789

SIPDIS

STATE FOR WHA/CAN, EB/TRA

WHITE HOUSE FOR Homeland Security Council AND NSC

Department of HOMELAND SECURITY FOR Kinney and Schreiber
Hughes

STATE PASS USTR FOR JOHN MELLE

USDOT FOR JEFF SHANE, SUSAN MCDERMOTT

DHHS, Office of the Secretary, BILL STEIGER

USDOC FOR 4320/OFFICE OF NAFTA; 3134/OIO/WESTERN HEMISPHERE

E.O. 12958: N/A
TAGS: ETRD ELTN ASEC EINV PREL CA
SUBJECT: Border Facts and Economic Impact

REF: (A) 02 Toronto 2657 (notal)

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Summary
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1. The Canadian-U.S. border is a key life-line in the
functioning of a large part of our economy. The economic
relationship between Canada and the United States is
unparalleled. It is the largest merchandise trade
relationship in the world with over US$1.1 Billion in goods
crossing the border every day, with Canada enjoying a
surplus. Any heightened security effort along the border
should take into account how to minimize economic disruption
to our economy, for instance, by ensuring that FAST, CT-PAT,
NEXUS and other secure, facilitative systems operate
efficiently. Private sector groups that depend on trade
across the border, such as the automobile industry, have
asked for guidance on what to expect if the U.S. moves to a
code "red" terrorism threat level. The Embassy strongly
suggests as full coordination as possible among federal,
state, provincial and municipal authorities, as well as key
industrial sectors. U.S. and Canadian industry agree: their
operations can be modified if necessary to accommodate
security concerns - it is unexpected actions of undetermined
duration that causes the most havoc in trade flows, not
increased security measures by themselves. End summary.

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American and Canadian Economic Security Intertwined
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2. The stakes are large: Thirty-five American states have
Canada as their leading export market. Total two-way trade
in goods between the US and Canada is larger than total US
merchandise trade with the entire 15-country European Union.
In 2001, merchandise trade between the two countries was
US$383 billion, translating into over US$1.1 billion in
goods crossing the border every day.


3. The US traded US$223 billion in goods with the province
of Ontario alone in 2001 - only US$11 billion less than
total goods trade with Mexico. Michigan alone conducted
US$62 billion of trade in 2001 with Canada. Twenty three
percent of all US merchandise exports go to Canada. The
bottom-line is Canada is our largest market, accounting for
three percent of US GDP, and we are Canada's largest market,
accounting for over 30 percent of its GDP.


4. About 65% of this trade (by value) in goods is
transported across the border by truck, 16% by rail, 9% by
pipeline, 8% by air and 2% by marine. The border
infrastructure can be a massive bottleneck. Three border
crossings, the Windsor ON -Detroit MI Ambassador Bridge, the
Fort Erie ON - Buffalo NY bridge, and the Sarnia ON - Port
Huron MI bridge account for approximately US$160 billion
annually, or nearly 65% of the value of all the truck-borne
commerce between the two countries. Below are some examples
of trade interdependencies in key sectors.

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Automotive Manufacturing & Just-in-time delivery
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5. The massive North American automotive manufacturing
sector is unalterably integrated across the Canada-U.S.
border. Michigan and Ontario's automotive industries are co-
dependent, exchanging close to US$47 billion worth of
automobiles, trucks, and auto parts in 2001. A key feature
of this integration is "just-in-time" delivery and inventory
management (Ref A). In practice this means that assembly
plants do not have warehouses, but rely on the hourly
arrival of deliveries, the majority of which are intra-
company transfers. Significant border delays wreak havoc on
this finely-tuned system. In the case of 9-11 and
subsequent days in 2001, because of border closures, some
assembly lines shut down for hours, and a few plants shut-
down for a day or longer - albeit the border closure also
coincided with an existing slump in the auto industry. The
auto industry has told us they fully support all necessary
security measures, but they also strongly urge us to
remember that the more information we can provide them, the
easier than can adjust their methods to changed
circumstances.

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Produce, Fish, Meat and Livestock
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6. US exporters are the dominant suppliers of Canadian
agricultural imports, accounting for nearly two-thirds of
the total, while Canadian exporters ship more than half of
their agricultural exports to the United States. Canadian
exports of perishable food items, namely fresh and frozen
meats, fruits and vegetables are vulnerable to spoilage and
deterioration under lengthy border delays. Major delays can
also severely affect the health of livestock in transit.
About 7.0 million live cattle and hogs are exported to the
United States annually. Almost 2.5 million of these are
destined for U.S. processing plants whose operations are
heavily dependent on the timely availability of Canadian
animals. According to the Ontario Food Terminal, Canada's
largest produce terminal, virtually all U.S. exports of
fresh produce to Canada are by truck. Rather than return to
the United States empty, the trucks commonly return with
backhaul. In fact, their original departure from U.S. points
is often dependent upon timely backhaul arrangements.
Canada exports about US$1.8 billion worth (FDA estimated
retail value in 2001) of fresh and frozen seafood to the
United States. The major metropolitan markets of the
eastern seaboard are particularly conspicuous consumers of
Canadian products and delays of only a few hours
significantly diminish the quality and marketability of
fresh/live seafood.

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Critical Medical Products
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7. Disruption to the timely and reliable supply of essential
medical isotopes from Canada to the United States could
result in the cancellation of some of the approximately
36,000 medical diagnostic procedures conducted daily or in
the cancellation of treatments for cancer. An Ottawa-based
company, MDS Nordion, is America's largest supplier of
medical isotopes, highly time-sensitive products. This
company's products include molybdenum-99, an isotope for
diagnosis used in about 80% of nuclear medicine procedures,
and "radio-iodine" (iodine-131) used for diagnosing and
treating thyroid conditions including cancer. Due to their
short radioactive half-lives, any delay in transporting
these isotopes, even if it is for a few hours, can have a
serious impact on their reliability for diagnostic and
therapeutic purposes.

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Critical Professionals: Health care workers
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8. Many Canadian nurses work at hospitals in Detroit and
live in Windsor Ontario. In the wake of 9-11, Detroit
hospitals suffered due to border delays that prevented staff
from making it to work. To continue to function, hospitals
in the U.S. took special steps to arrange transportation for
staff coming from Canada.

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Concern About "Threat Level Red"
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9. Industry and transportation associations on both sides of
the border have expressed concern about possible confusion
and resultant border delays if the U.S. moves to Threat
Level Condition Red. Representatives of the automobile
manufacturers, among others, have asked for specific
information about what they could expect under threat level
red. Lacking other information, the American Trucking
Association has posted its own interpretation of what
truckers can expect to encounter.

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Comment
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10. We recognize that specific information about what to
expect under various threat scenarios is difficult to
provide. Speculation aside, these days of heightened
tension seem a good time to point out that it is in the
interest of ourselves and the Canadians to maintain travel
and trade across the border, consistent with security needs.
There is no question on either side that the border should
remain open for legitimate purposes, but closed to
terrorists. A major motivation for business and other
frequent users to enroll in FAST, CT-PAT and NEXUS has been
to support this goal by simplifying border use while
enhancing security. We have worked for more than a year and
a half through the Smart Border Action Plan to make the
border smart and secure. Our challenge is to maintain this
in the high threat environment that lies ahead.

Kelly