As Target Corp., the mass retailer of trendy housewares and clothing, prepares to open hundreds of stores across Canada in its first non-U.S. expansion, it has started to grapple with the realities of doing business across the border. In a letter to U.S. Commerce Secretary Gary Locke, dated April 18, two Target executives bemoan conflicting regulations between the U.S. and Canada in areas such as product standards, testing facilities, customs procedures and documentation. “For example, the safety requirements and test methods applicable to camping tents are markedly different between the U.S. and Canada, making it difficult and cost prohibitive to provide the same product in each country,” wrote the vice-president for government affairs, Matt Zabel, and vice-president for compliance, Canada, Anthony Heredia. “These differences may result in higher consumer costs, or reduced selection.” They called on the Obama administration to focus on “greater regulatory coherence” with Canada that would “increase cross-border investment.”
The Target letter was one of 30 submissions the Commerce Department received after asking for public comments on “regulatory co-operation that would help eliminate or reduce unnecessary regulatory divergences in North America that disrupt U.S. exports.” The request for comments came after a February meeting in Washington at which President Barack Obama and Prime Minister Stephen Harper launched two joint initiatives to ease cross-border trade and travel: an overhaul of border management aimed at creating a system of “perimeter security”, and an attempt to harmonize some regulations between the two countries to help ease trade. The leaders created two working groups, one on border management and the other on regulatory co-operation, led by senior government officials, whom they instructed to hold public consultations and produce detailed action plans for each government.
The stakes are high. Canada and the U.S. have the world’s largest two-way trade relationship, worth $645 billion a year. Three-quarters of all of Canada’s exports go to the United States, and border delays cost the economy billions each year. As well, Canada is America’s largest market, accounting for one fifth of all exports, and Obama is also searching for ways to boost that trade. In his state of the union speech last year, he set a goal of doubling overall U.S. exports in five years in order to spur job creation in the struggling American economy.
But critics in both countries have long warned that binational efforts to ease trade and travel barriers could compromise national sovereignty, and that “harmonizing” regulations could lead to a “race to the bottom” in weakening regulations for food safety, consumer protection or environmental standards. Opposition parties have also complained that the Harper government has been pursuing the agenda secretly behind closed doors.
And so it is that the Commerce Department letters, which have been released publicly on a U.S. government website, provide the first window into the kind of proposals government officials are receiving. They address a multitude of specific regulations as well as sweeping proposals for changes to the way the border is managed. While any member of the public could comment, the letters came largely from business associations and corporations (although both governments say they are actively seeking the opinions of groups outside of the business world). And the vast range of topics the letters address underscore the challenge the governments face in setting clear priorities for action.
For example, the Express Association of America, a group representing the shipping companies DHL, Federal Express, TNT and UPS, recommended that Canada raise the dollar value of packages that can cross the border without duties or customs clearance from $20 to $200 to reduce paperwork and costs for U.S. exporters. As well, several U.S. agricultural groups asked for harmonization of the maximum permissible pesticide residue levels for produce. The Consumer Electronics Association asked for harmonization in the way in which the power consumption of televisions is measured, and requested that Canada move from third-party testing of energy-efficiency performance to self-declaration by manufacturers. The biotechnology industry association asked that both countries adopt “consistent science-based processes that would significantly decrease the time required for authorization of biotech crops and their products.”
The Campbell Soup Co., whose brands include Campbell’s, Pepperidge Farm and V8, submitted a seven-page letter identifying a variety of problematic issues, from lack of consistent regulation for fortification of foods with vitamins and minerals to Canada’s unique container-can size regulations for fruits and vegetables. Campbell also called on the U.S. to harmonize the weight limit for commercial trucks on U.S. highways with Canada’s higher weight limit. With heavier trucks, Campbell would drive 23 million fewer miles, use 3.8 million fewer gallons of fuel, and eliminate nearly 40,000 tons of carbon emissions, states the letter from Campbell vice-president Kelly Johnston.
A letter from the U.S. Chamber of Commerce noted that Health Canada is in the process of modernizing regulations, and suggested the U.S. government set up a working group that would be tasked with “examining wherever possible what can be done to align health care regulatory frameworks between the U.S. and Canada for medical devices and pharmaceuticals.”
Other proposals called for broad changes to border management. In a detailed 38-page submission, the Pacific NorthWest Economic Region, which represents states, provinces and businesses, suggested mutual recognition of agricultural inspections, which are now done separately by each country. “If cargo is inspected by a U.S. agent, there should be no need for a re-inspection by a Canadian agent, and vice-versa,” wrote PNWER. It also proposed “embedding” agricultural and customs inspectors with each other to gain experience and build trust. As well, the group pitched the creation of a joint “two-country” visa that would “allow business or pleasure travellers into both countries on the basis of a single visa issued by either country.”
Another ambitious proposal is being prepared by a coalition of exporters and manufacturers called B3—Businesses for Better Borders—that includes the Canadian Manufacturers and Exporters association (CME), the U.S. National Association of Manufacturers, the Canadian Vehicle Manufacturers Association, and the American Automotive Policy Council. The group is planning to make a pitch after the Canadian election for non-stop border crossing for trusted manufacturers that have been screened by security agencies in both countries. The trucks of these companies could cross the border without waiting for a physical inspection. Instead, their warehouses would be inspected periodically, their drivers would pass background checks, and the trucks could be sealed. “We are asking for something which no one has asked for in the past—a real, true non-stop, non-transactional entry for trusted shipper-manufacturers. Trusted shippers should not have to stop at the border and account for every box in every truck,” said Birgit Matthiesen, the Washington-based adviser on U.S. government relations to the CME. “These are our best corporate citizens, our true trusted shippers, who have invested millions in the security of their cross-border supply chain. Trusted shippers have earned trust.”
In Canada, the job of wading through proposals on border management falls to the Beyond the Border Working Group, composed of bureaucrats from several government departments including Industry, Public Safety, Foreign Affairs and International Trade, and Transport. It is chaired by Simon Kennedy, the senior associate deputy minister at Industry. Submissions to the Canadian group have not been released publicly. However, officials are working on a report that will be made available online summarizing the input they receive. Separately, both countries have created a Regulatory Co-operation Council. In Canada, the effort is led by Bob Hamilton, associate deputy minister at the Treasury Board Secretariat. In the U.S., parallel groups are chaired by senior officials from the National Security Council and the Office of Management and Budget.
In some cases, officials from both governments have held joint meetings. For example, during the Toronto auto show in February, auto manufacturers were able to make recommendations to officials from both governments. However, there is a concerted effort this time around to not limit discussions to business groups, but to seek input from a wide variety of stakeholders, such as think tanks, environmentalists and other groups.
The government working groups were expected to make their recommendations within four months, but the process in Canada was suspended during the election campaign. Matthiesen said business groups hope the process groups will be back on the front burner after the election is over, and that Washington and Ottawa re-engage quickly. “We anticipate that there will be a leaders’ meeting soon afterwards,” Matthiesen said.
Time is running out, according to Colin Robertson, a former Canadian diplomat to the U.S. In a speech prepared for a border conference in Bellingham, Wash., he warned Ottawa that the governments have a year until presidential politics take over, and with it, a reluctance to talk trade. “The American election cycle will effectively shut down the process in January with the onset of the Iowa caucuses and New Hampshire and South Carolina primaries,” he said. In many key battleground states, he noted, “NAFTA is a dirty word.”