Risky business: U.S. border security and the threat to Canadian exports. (The Border Papers).In this issue ... As recent border restrictions related to the expected war in Iraq have highlighted, a major share of Canada's exports, jobs and investment are vulnerable to border disruptions due to feared or actual terrorist attacks. The federal government should announce loudly and unequivocally that enhancing security is a top priority. The Study in Brief Although fears that security concerns might impede Canada-U.S. trade were prominent after the terrorist attacks of September 11, 2001, there has been little systematic examination of the vulnerability of different Canadian exports to future security-related border disruptions, nor of the challenges those differing exposures present. This Commentary assesses the vulnerability of different Canadian exports and the associated jobs and investment to future security-related border disruptions. We use five criteria to assess this vulnerability: physical characteristics of the exported goods, mode of transport, ease of substitution by U.S. production, time sensitivity and the importance of complementary movements of people to different exports. Our results suggest that, in the event of future actual or feared attacks, border disruptions threaten key sectors of the Canadian economy--sectors that, by the vulnerability thresholds we select, account for as much as 45 percent of Canadian exports, 390,000 jobs and $3.7 billion of Canadian investment. Ontario, Quebec, Manitoba and PEI have the greatest shares of highly vulnerable exports relative to their total exports. In fact, fears of another terrorist attack led the U.S. to tighten border security on March 18 in advance of its anticipated attack on Iraq. If this assessment is correct, effective "thickening" of the border by extra security measures could deprive Canada of the advantages--in particular, investment by producers seeking to serve the entire North American market--that trade liberalization has conferred. The federal government, provincial governments and the private sector all have important roles to play in reducing that risk. The federal government should move ahead with the remaining items on the Smart Border agenda and move key border functions away from the Canada-U.S. frontier. The dangers of an exclusively incremental approach--too low a profile to register with U.S. opinion-makers who see their border with Canada as a security risk; inadequate momentum to overcome bureaucratic inertia--however, suggest the need for forceful statements of support by Canadian leaders. The border will only remain open if U.S. leaders know that Canada treats the security of Americans no less seriously than it treats the security of Canadians. The federal government should announce loudly and unequivocally that maintaining a free flow of goods across the Canada-U.S. border is an integral part of its efforts to enhance North American physical and economic security. Which Canadian industries are most vulnerable to security-related border closures or disruptions? Which regions are most vulnerable? And who should bear the costs associated with making Canada's exports more secure? Despite considerable emphasis on facilitating trade across the Canada-U.S. border after the unprecedented terrorist attacks on New York and Washington on September 11, 2001, there has been little systematic examination of the ways in which different Canadian exports are exposed to security-related threats or of the challenges those differing exposures present. Washington's decision to effectively close the Canada-U.S. border on the day of the attacks, as well as to tighten the border on March 18 in advance of the planned U.S. invasion of Iraq, starkly illustrate Canada's economic vulnerability to security concerns at the border. Drastic border-closing measures and more intensive screening may become standard U.S. procedure, not just in the wake of a future attack, but whenever policymakers receive credible information about the potential for one. The possibility of U.S. defence and protectionist interests finding common ground and erecting new border-crossing constraints in the name of greater domestic security is a threat Canadians must take seriously. Security-related barriers increase the cost of cross-border trade and make locating in Canada less desirable for a business seeking to sell in the U.S. market, costing Canadians many of the advantages that trade liberalization within North America has gained them. Although several initiatives to keep trade moving and improve security are under way, the sense of urgency on the Canadian side that prevailed immediately after the attacks has dissipated. There has been little if any study of Canadian export vulnerability across the board and Canadians have not discussed the principles that ought to shape enhanced border security nor examined the allocation of the related costs. This Commentary takes a close look at a key aspect of this issue--the extent to which security-related disruptions threaten different Canadian industries--and, in light of that assessment, offers some recommendations on how Canada should reduce those threats. The centrepiece of our investigation is a survey of vulnerability of Canada's exports using a number of criteria, ranging from physical characteristics through ease of substitution by U.S. production to the importance of complementary movements of people to trade in the item in question. We also survey the limited evidence so far available on trade flows, costs, and financial indicators in the wake of the particular events of September 2001. Our vulnerability indexes and these other data allow some tentative conclusions about which sectors are both vulnerable to disruptions and significant to Canada's economy and about the implications for jobs, investment and various regions if actual or threatened border closures occur in the future. Our principal conclusion is that future border disruptions threaten key sectors of the Canadian economy--areas that, by one set of benchmarks, account for as many as 400,000 jobs and $3.7 billion in Canadian investment annually. In some cases, the presence of a relatively small number of leading companies in an industry suggests that private sector coordination can reduce this vulnerability. In others, however, potential security-related concerns are less amenable to coordinated action, which suggests a role for Canadian governments in facilitating collective action. Beyond this, we point out that the tight links between--and mutual vulnerability of--Canada and the United States make it legitimate for each partner to insist that the other devote no less attention to the security of citizens on the other side of the border than to the security of its own. At present, many influential parties in the United States feel that Canada does not take security concerns seriously enough. In the event of another threatened or actual terrorist attack, the steps Canada has already undertaken may not protect its economic interests as effectively as if Americans saw Canadians as more enthusiastic security partners. Because many of the needed security measures are incremental changes to existing arrangements that may do little to change this U.S. perception, we expect that Canada will gain more by making a commitment to security part of a higher profile announcement by the Prime Minister, or a broader agreement on North American economic and security integration. Insecurity and the Canada-U.S. Border Canadians tend to think of the Canada-U.S. border as a minor impediment to trade and travel. U.S. perceptions, however, are quite different. September 11, 2001 The terrorist attacks on New York and Washington reminded Canadians that the Canada-U.S. border is a major focus of U.S. security concerns. (1) The fact that the perpetrators of the 1993 bombing of the World Trade Center had links with Canada, that two would-be bombers of the New York City subway in 1997 entered through Canada (cited in Sands 2002a) and that an attack on Los Angeles Airport was foiled at the Canada-U.S. border in late 1999, received much less attention in Canada than in the United States. The U.S. reaction to September 11, however, brought home the fact that when Americans feel threatened, they will treat the Canada-U.S. border as a front line of defence. Immediately after the September 11 attacks, the United States closed its airports, seaports and land crossings with both Canada and Mexico. When the Canadian and Mexican borders re-opened, U.S. customs officials subjected traffic to intense inspections, delaying trucks for 12-to-18 hours for days afterwards. Some companies on the Canadian side of the border quickly announced shutdowns, with automobile-assembly plants among the first and most seriously affected. It was weeks before the volume of cross-border traffic returned to pre-September 11 levels. Though homeland security was a concern prior to September 11, 2001, the attacks made it a top U.S. preoccupation. President Bush appointed a Homeland Security Advisor, with an office across from the Oval Office, and in June 2002 he announced a new Department of Homeland Security, which Congress later approved. In the weeks and months following, U.S. newspapers described weak Canadian border and immigration policies as a security threat, including the false rumour that one or more of the hijackers passed through Canada (Sands, 2002b). Possible Al-Qaeda links to Canada got exposure in U.S. media. (2) Prominent voices urged the U.S. government to improve security by encouraging Canada to tighten its immigration system (see, for example, O'Hanlan et al. 2002, 32). U.S. media coverage of Canada's so-called lax policies persists, and repercussions affecting the Canada-U.S. border continue. The U.S. Patriot Act mandates an entry-exit system by 2005, whereby foreigners will have to sign in and out of the United States when they cross the border. In January 2003, the U.S. Customs Service introduced proposals for transport companies to file cargo data with customs officials 4-to-24 hours before shipments destined to the United States are loaded on trucks and trains, a requirement that would add to the costs of the many Canadian companies that depend on just-in-time logistics. In February 2003, the United States Food and Drug Administration (FDA) proposed requiring a minimum of 12 hours notice before food is imported into the United States. Maximizing Physical And Economic Security Though initially hesitant, Canadian officials reacted to U.S. security concerns when cross-border traffic began to seize up. The federal government followed up its statements about Canada's intention to establish more rigorous vetting of immigrants and refugee claimants with an additional $9 million to increase the number of employees assigned to front-end examination and security screening, more detailed scrutiny of refugee claimants already in Canada and increased detention and deportation activity. (3) The December 2001 federal budget contained new money for policing and infrastructure along the border and the Canada-U.S. Smart Border Declaration (SBD) of December 2001 outlined 30 actions designed to create a "North American zone of confidence." (4) Canadian officials developed many of these joint solutions--understandable, considering Canada's greater vulnerability to disruptions at the border. U.S. security concerns do not rank high in Canadian polls, however, and the passage of time without another serious terrorist act inside North America reduced the sense of urgency surrounding this issue in Canada. Though many of the Smart Border adenda items have been implemented, often despite some U.S. resistance, (5) remaining obstacles to the movement of goods, services and people across the border--such as the new entry-exit requirement--are being addressed piecemeal. If flagging interest impedes progress toward measures that both improve security and are seen by Americans to do so, another incident could cause a more serious and persistent jam at the border, resulting in layoffs and depressing output in Canada in the short run, while discouraging investment--with more profound consequences for Canadian prosperity--in the long run. Assessing Canadian Vulnerability How vulnerable is Canada to future security-related disruptions of cross-border traffic? We start our exploration of this question with some basic background on cross-border trade. We then assess the characteristics of exports that make them more or less vulnerable to security-related disruptions. We next use the post-September 11, 2001, disruption as a test--albeit an inexact one--of the actual impact that security-related disruptions could have on the border, looking at export volumes, aggregate revenues and expenditures in various industries, as well as equity-market data. Finally, we attempt to draw links back from key affected exports to output, employment and investment to discern their importance to the national and regional economies. Background on Canada-U.S. Trade As many Canadians are aware, the United States and Canada have the world's largest bilateral trading relationship. In 2001, Canada exported an estimated $350 billion in goods to the United States, while importing $218 billion in goods. Service exports to the United States amounted to $33 billion, while imports totalled $39 billion. Since September 11, 2001, the United States has focussed more on security concerns than on trade. While U.S. trade with Canada is large in dollar terms and cross-border trade is highly integrated, making disruptions painful to both sides, (6) it is not surprising that Canadians have paid more attention to economic matters. Eighty-six percent of total Canadian exports of goods go to or through the United States; U.S. goods exports to Canada represent 23 percent of the U.S. total. Canada receives 73 percent of its imports from the United States; the corresponding figure on the U.S. side is 19 percent. (7) Canadian exports to the United States represent almost 40 percent of Canadian gross domestic product (GDP), while exports from the United States to Canada represent around three percent of U.S. GDP. Canada's greater trade dependence has long made reductions in barriers at the Canada-U.S. border a priority in economic policymaking, with the 1965 Auto Pact, the 1989 Canada-U.S. Free Trade Agreement and the 1994 North American Free Trade Agreement (NAFTA) being signal efforts in that regard. The border still matters, however. Because the Canadian and U.S. economies are similar in many respects, with parallel resource endowments in the west and similar industrial profiles in the east, north-south trade volumes are highly sensitive to costs at the border (Fairfield, 2001). A relevant fact about Canadian exports to the United States is that over 60 percent of them originate in Ontario. Together, Ontario, Quebec and British Columbia shipping points accounted for 88 percent of exports in 1999. Although there are an estimated 75 land ports along the border, most vehicle crossings occur on the Ontario-Michigan and Ontario-New York borders, as well as on the British Columbia-Washington border (Canada, 2001). Figure 1 shows the top 10 land border crossings--by truck, rail and pipeline--with the size of each "bubble" representing the value of Canadian exports at each crossing in 2000. (8) The map highlights the concentration of cross-border export value in Ontario, where the Great Lakes limit the availability of land crossings. The Nature and Vulnerability of Canadian Exports We now turn to an assessment of the vulnerability of Canadian exports to border disruptions. Our explicit focus is vulnerability of exports of goods to security concerns at the border. (9) We rank Canadian exports to the U.S. against five characteristics that affect their vulnerability to security-related border disruptions. 1. Physical Characteristics. The ease with which a terrorist could introduce a threatening substance or device into a shipment without detection affects the item's vulnerability to a border disruption. Electricity creates no such opportunities. Also relatively invulnerable are oil and natural gas in pipelines. Homogenous items shipped in bulk that are easy to inspect, such as grains, are one step further along this spectrum. Relatively vulnerable are large, complicated machines that offer greater opportunities to hide dangerous substances or devices, or certain foods that are difficult to inspect or are packaged in ways that make inspection cumbersome. 2. Mode of Transport. Exports can be shipped by truck, ship, air, rail, mail, pipelines and power lines, all representing different probabilities of disruptions at the border. Transport through electricity power lines and pipelines represent modes that are unlikely to cause a border disruption. Highly vulnerable are goods transported by truck, which are difficult to inspect thoroughly (10) and are susceptible to delays because they share roads with other traffic that may slow them even when they are carrying clearly harmless loads. (11) Since most truck crossings are concentrated at a few points and routes to alternative crossings can quickly congest, much cross-border truck traffic is vulnerable to hold-ups arising from only a small portion of shipments. Sea transport is also extremely vulnerable. Container documentation typically provides only sketchy details about contents, sender and ultimate recipient (Flynn, 2002), and suspicions about one container on a vessel could affect all containers on that vessel. Despite security upgrades since late 2001, air transport remains highly vulnerable, as the closure of air space for four days following the terrorist attacks showed. Rail is somewhere in the middle. Though trains have a limited number of operators and run on dedicated corridors which are relatively simple to monitor, containers are often not well-tracked and may sit idle in rail yards where they could be tampered with, while the inspection of one container on a train delays all shipments on that train. 3. Time Sensitivity. Vulnerability also depends on the degree to which delays render various items less useful to the buyer, either because of changes in the product itself or because of production or sales processes. Less vulnerable are shipments of minerals or grains, where inventories are inexpensive to carry and production processes are easier to speed up or slow down. Highly vulnerable are fresh meat, perishable fruits and vegetables that cannot physically survive delays, components for industries that operate on a just-in-time basis--automobile assembly being a key example (12)--and inputs into production processes that are difficult to adjust in the face of disruption, as is the case with many chemical industries. (13) 4. People Sensitivity. Some exports are vulnerable by virtue of the centrality of movements of people to their usefulness. Most raw materials and manufactures are useful to buyers out-of-the-box and require no human expertise to accompany them. Some manufactures, however, depend on a regular flow of engineers to support production. And capital goods often require people to accompany them to provide installation and service support. 5. Location Sensitivity. The final source of vulnerability we consider arises from the ease with which U.S. products could substitute for Canadian products. (14) We adopt a two-year time frame as a sensible period for thinking about such shifts of production, since many contracts and production cycles make shifts within a year problematic even when no physical constraint exists. Least vulnerable would be products, such as furs, for which Canada's climate or natural resources provide unique advantages, energy or products that are in short supply in the United States by virtue of capacity constraints (although these assessments are obviously sensitive to the state of U.S. demand) and highly concentrated industries with geographically dense networks of related industries. More vulnerable are manufactures and services that are produced under similar conditions on both sides of the border, often by the same companies, and for which U.S. producers could easily step up their output to replace supplies from Canada. To develop an overall measure of vulnerability to border disruptions, we assign values to each export category on a scale of one (invulnerable) to ten (highly vulnerable) for each of the five measures. (15) Our measure of overall vulnerability is simply an arithmetical average of the five. Since we categorize as vulnerable those industries that would be directly affected by security concerns, we exclude at this point those that are indirectly affected--energy providers to auto manufacturers, for example--though we take up this aspect of vulnerability later. Table 1 shows our vulnerability figures for the top 30 exporting industries ranked by value of domestic exports (i.e., excluding re-exports) in 2001. (16) Appendix A shows values for all 108 export categories. Our preliminary assessment of Canada's priorities in thinking about border security emerges from Figure 2, which ranks all U.S.-bound exports worth more than $10 million in 2001 by vulnerability scores on its horizontal axis and by value on its vertical axis. The shaded area represents those industries that rank above 6.5 on our vulnerability index and exported more than $1 billion in 2001. This figure provides a convenient snapshot of the areas where Canadian policy ought to emphasize improving the resilience of border shipments to terrorist threats; industries in the "hot corner" of the figure are those that are both highly vulnerable and highly valuable. (17) [FIGURE 2 OMITTED] The 25 industries represented in the "hot corner"--out of a total of 108 industries that export goods--represent 45 percent of total domestic goods exports from Canada to the United States. Not surprisingly, auto assembly and parts manufacturing figure prominently. Many of the other industries represented in the upper right corner involve machinery and equipment manufacturing. These include aerospace, communications and semi-conductor equipment, computers and industrial machinery. The highly integrated, time-sensitive nature of these industries, combined with the relative ease with which U.S. production could fill gaps in the medium term, make delays at the border a significant threat to current Canadian exports and to future Canadian investment. Though the most valuable and vulnerable exports tend to be machinery and equipment manufactures, various food products, especially meat and seafood, are also both vulnerable and valuable. There is nothing unique about Canadian locations for food processing and many manufacturing processes are highly integrated cross-border--for example, Dairy Queen in the United States makes key ingredients for its ice cream cakes in Canada. The Economic Consequences of Border Vulnerability Dollar values of vulnerable exports are likely to be closely related to other measures that Canadians care about: jobs, incomes and investment. For a given degree of border vulnerability, jobs, incomes and investment will be more exposed to disruption in industries that export larger shares of their output. As it happens, 92 percent of the export value of the highly vulnerable and valuable industries identified has export intensities of 50 percent or more (Table 2). (18) Indirect Effects Our aggregate measures of vulnerability may underestimate the true impact of potential disruptions on Canada because they take into account only those exports that are directly vulnerable. A variety of industries, however, contribute to the exports of vulnerable industries and would also be affected by any serious disruption. Using Statistics Canada's input-output tables, we perform a rough calculation of the use of other domestic resources by highly vulnerable industries by multiplying export intensities by the value of inputs associated with each highly vulnerable and valuable industry (subtracting the portion of inputs that are imports). Table 3 shows the results. This admittedly rough calculation suggests that $70 billion in production is indirectly vulnerable, compared with $141 billion in exports that are associated with the directly vulnerable industries. Not too much weight should be placed on this exact number as the input-output data and the trade data do not match perfectly industry-by-industry. (19) It seems reasonable to interpret the result as an upper bound on the magnitude of vulnerability, rather than its precise value, because these industries contribute to non-exported goods, as well, and would require less adjustment than those directly vulnerable. Employment and Earnings Combining data on employment in the industries most at risk with measures of export intensity provides a rough estimate of the number of jobs potentially affected. Matching employment data are available for 21 out of the 25 industries in the "hot corner" of Figure 2. Table 4 provides estimates of the number of jobs that are associated with these at-risk industries through multiplying each one's export intensity by the number of employees in that industry. (20) [FIGURE 2 OMITTED] The highest number of vulnerable jobs is in auto and parts manufacturing, followed by aerospace parts, general-purpose machinery manufacturing and seafood-product manufacturing. The 21 vulnerable industries for which we have employment data represent 23 percent of total employment for all goods-producing industries. If the ratio of exports to employees is the same in the four valuable and vulnerable industries for which we have no separate employment data, the total jobs represented by the products in the upper right corner of Figure 2 would be about 390,000. Based on our earlier rough calculation that found a 2:1 ratio of direct to indirect vulnerability, a maximum of about 200,000 jobs may be indirectly vulnerable. Investment Another natural focus of concern is investment. If security concerns make the border more of an obstruction to commerce, some companies that previously planned to produce in Canada to serve their U.S. operations or their U.S. consumers may add to their capacity in the United States instead. Although a less permeable border might tip some location decisions the other way--as would be the case if a supplier to a Canadian assembly plant feared delays of time-sensitive shipments--the greater size of the U.S. market makes this risk far greater for Canada than for the United States. Table 5 shows, in similar fashion to the jobs data in Table 4, estimates of the amount of Canadian capital expenditures associated with the highly valuable and vulnerable industries. We estimate that $3.7 billion of annual Canadian investment is associated with the export portion of the at-risk industries. (21) Again, based on a 2:1 ratio of direct to indirect effects, just under $2 billion of investment might be indirectly at risk. The Regional Dimension Another chronic Canadian concern is regional differences in economic prosperity. Industries of different degrees of vulnerability are not uniformly distributed across the country, suggesting that some regions are more vulnerable to disruptions of border commerce than others. Table 6 shows a breakdown by province of the dollar value of exports in categories with vulnerability rankings greater than 6.5, as well as these values as percentages of both total provincial exports and output. (22) Not surprisingly, given Ontario's weight in exports to the United States and the importance of manufacturing (which we rate as relatively vulnerable) in those exports, Ontario ranks first in terms of export value at risk, not just in absolute dollars, but also when value at risk is scaled to total exports or provincial GDP. Highly vulnerable exports also matter greatly to Quebec and Manitoba, constituting 46 and 38 percent respectively of provincial exports. British Columbia, Alberta and Saskatchewan appear to rely more on exports that are less time-sensitive, such as lumber, or cross the border in more secure forms, such as fossil fuels in pipelines. The vulnerability of the Atlantic provinces varies. We estimate that time-sensitive seafood exports dominate the highly vulnerable category. Just over one-fifth of Newfoundland's exports are highly vulnerable. Almost four-fifths of Prince Edward Island's exports--in which food preserving and specialty foods are important and which we judge are potentially substitutable by U.S. production--fall into this category. Nova Scotia and New Brunswick's exports are more diversified, putting those provinces less at risk. There are no regional input/output data to enable calculations of indirect vulnerability on a provincial basis, but rough estimates can be calculated based on a 2:1 ratio of direct to indirect effects. A further dimension of vulnerability shown in Table 6, somewhat speculatively, is provincial jobs at risk. (23) We expect that investment would follow the same pattern as exports and employment, with the worst effects as a share of provincial exports in Ontario, Quebec, Manitoba, PEI and Newfoundland. What Happened After September 11, 2001? How reliable are our vulnerability rankings and the measures of economic impact we derive from them? In turning to that question, we note that, while we feel these rankings capture five key dimensions of vulnerability to a closed border, they are largely untestable except through a series of terrorist incidents that would simultaneously affect a wide range of goods exports and modes of transport. Happily, no such evidence is available. The events immediately following September 11, 2001, are all we have to go on in seeking evidence about the correlations of our rankings with actual experience. In looking at those events, we are able to make some adjustments for other developments, such as a cyclical downturn in the North American economy, which occurred at that time. The specific set of reactions to those attacks, however, means that we do not get a clear picture of vulnerability to disruptions that would occur in the wake of a different event. As always, the available data also impose limits. Employment numbers are not available to match all the categories of exports; some quarterly and annual data are still not available in usable form and monthly export data may mask the dislocations caused immediately after September 11, 2001. Exports An obvious place to start the investigation is with exports themselves. (24) Vulnerability will not necessarily be signalled by large and sustained declines in exports, since some industries that were particularly vulnerable likely devoted extra effort and expense to getting their shipments through the obstructed border. (25) Also, there is no way to calculate the volume or value of less vulnerable shipments that may become subject to disruptions if they are backed up, or displaced, by more vulnerable ones, though the mode of transport category may capture some of these effects. Because the terrorist attacks primarily provide evidence on temporary disruptions to exports, we drop two elements of our vulnerability index for this investigation. Location sensitivity would not affect exports in the short timeframe we are considering. And some time-sensitive goods may have moved faster than their less time-sensitive counterparts on that occasion, making the impact of this variable on shipments unclear. Because we wish to control for the possibility that seasonal factors, changes in the overall economic climate and price movements will make dollar values of exports hard to interpret, we compare the year-over-year change in value of each export category between September 2000 and September 2001 to the year-over-year change between the average for August and October 2000 and for August and October 2001. (26) The result is shown in Figure 3: vulnerability scores (averages of our indexes for mode of transport, physical security and people sensitivity) are on the horizontal axis, and changes in export growth are on the vertical axis. [FIGURE 3 OMITTED] The first point to note about Figure 3 is the diversity of experience from industry to industry. Overall, the value of merchandise exports to the United States dropped 1.4 percentage points more between September 2000 and September 2001 than it did between the comparison periods (August-to-October 2000 and August-to-October 2001). A large number of export industries, however, fared better than during the comparison periods--the difference in year-to-year growth was positive for 60 of the 108 categories we measure here--and in some cases the margin was dramatic. Within this varied picture, there is some evidence that industries rated as more vulnerable by our measure did relatively worse. The figure shows a tendency for less-vulnerable industries (toward the left) to record better September results (toward the top), while those more vulnerable (toward the right) recorded worse ones (toward the bottom). The dotted trend line in Figure 3 shows the statistical relationship between vulnerability and changes in exports calculated from all industries with changes in year-to-year shipments of less than 100 percentage points (since some smaller categories occasionally have monthly readings that are very small or even zero, resulting in massive percent changes). (27) Income Statements Ideally, the income statements of various industries would provide evidence about the correlation of our rankings with adverse effects following the terrorist attacks. Vulnerable industries, especially those that made extra efforts to move affected goods, would probably have seen their operating margins compressed by a mixture of lower revenues and higher costs and the higher costs of transportation services would probably have persisted for some time as negotiated prices changed to reflect some costs that shippers initially absorbed. Although there is evidence that the attacks contributed to higher worldwide transportation expenses, (28) data limitations make it hard to say much about the effects for particular Canadian industries. Cost breakdowns detailed enough to show transportation exist only on an annual basis. Quarterly income-statement data are also awkward: they are too aggregated to enable industry-export matching and have the further disadvantage that, because the attacks occurred toward the end of the third quarter, there is no obvious comparison period. Cash operating margins--revenue from sales less cash operating expenses--in manufacturing deteriorated between the third quarters of 2000 and 2001 by more than they did between the quarters bracketing them (the averages of the second and fourth quarters of 2000 and of 2001). But without data fine-grained enough to permit a comparison of margins by export category, we cannot distinguish between changes in margins arising from border disruptions and those attributable to other industry characteristics, such as different ratios of fixed to variable costs at a time of weakening demand. (29) Transit Times Another way to gauge the extra costs incurred after the attacks is to look at time delays and assess how concentrated they were for highly vulnerable and highly valuable industries. Such costs are potentially very important: the Ontario Trucking Association estimates that it costs $65-to-$75 per hour to operate a truck and Hummels (cited in OECD, 2002) estimates that an extra day of shipping time is worth on average 0.5 per cent ad valorem. According to a May 2002 survey of 31 cross-border truck carriers, they experienced a 20-percent increase in border delays crossing southbound and 12 per cent northbound, compared to May 2001. Most of the participants in the survey carried machinery and equipment, industrial goods and petrochemicals. Over half carried either high-risk goods, such as hazardous materials, or high-value goods such as just-in-time or perishable items (KPMG, 2002). Because the surveyed carriers chose to participate in the survey and are probably more likely than others to have found delays to be long, they may overstate the disruptions faced by carriers on average, though they are likely indicative of the delays faced by highly vulnerable and valuable industries. Transport Canada has undertaken a pilot study in Ontario, based on an auto-sector company and a food-industry company--both industries that we rank as highly vulnerable--to track transportation times from point of origin to destination between December 2000 and April 2002 for the carrier of food products and from January 2002 to April 2002 for the carrier of automotive products, using GPS transponders and other tracking technologies. Although the complete results are not available at the time of writing and the study is based on a sample of 3,400 one-way trips, preliminary evidence shows that there was no statistically significant difference between transit times in the months before and after September 11, 2001, at the Ambassador, Queenston-Lewiston and Bluewater bridges. (30) Awkwardly, this evidence may also be "contaminated" by temporary measures that would not apply to a more sustained situation of heightened security. Border delays and therefore transit times might have been much worse at the end of 2001 had it not been for the extra presence of the U.S. National Guard at the border. When these extra agents were removed in July 2002, delays became more frequent and their length more variable, despite traditionally lower truck volumes in July. (31) The increased personnel to handle border movements may also have muted the expected relationship between vulnerability and falls in export levels. Equity Prices Another type of information that could shed light on the impact of border disruptions after the attacks is share prices. Unlike some of the data we have examined so far, which might not convey information about time-sensitivity or substitutability of U.S. production, share prices ought to convey information about all aspects of vulnerability. We try to distinguish the impact of border disruptions from other effects of the terrorist attacks on the economic outlook in two ways. For one thing, we compare the behaviour of the prices of shares in border-dependent industries with those of shares in less border-dependent ones. We also compare Canadian and U.S. stock indexes on the basis that Canadian share prices are more likely to capture vulnerability to border disruptions than U.S. prices, given the proportionally greater importance of border-related trade to the Canadian economy. We start by examining the behaviour of those stock sub-indexes with products that feature prominently in cross-border trade. Figure 4 illustrates the behaviour of these selected Toronto Stock Exchange indexes relative to the TSE 300 Composite Index in the aftermath of the attacks. All indexes are re-based so that their September 10 close equals 1.00. (32) [FIGURE 4 OMITTED] The TSE 300 fell after September 11, with a large number of sector-specific concerns overlaying a generally gloomy assessment of the attacks' expected impact on the economy. After trading resumed on September 14, the index closed down a little more than six percent from its level on September 10 and at its post-attack trough on September 21, it had fallen slightly more than 11 percent. As Figure 4 illustrates, the index regained its pre-attack levels by mid-November and finished the year roughly five percent above its September 10 close. Interestingly, the most trade-sensitive sectors did not fall dramatically more than the overall index, which was itself sent lower by declining share prices among financial-services companies, department stores and hospitality industries in the wake of the attacks. Transportation equipment was an exception; the sub-index fell relatively sharply immediately after the attacks and still had not reached its pre-September 11 level by the end of the year The post-attack trough seems an obvious point at which to compare share prices. It is long enough after the attacks for much of the initial confusion at the border to have dissipated, but short enough that the attacks should still have a major influence on prices. Figure 5 shows how the same sub-indexes illustrated in Figure 4 had moved by September 21 relative to the TSE 300. [FIGURE 5 OMITTED] The high level of aggregation of share indexes makes it difficult to see whether new assessments about the border specifically had a decisive influence on investor perceptions. Transportation equipment, which we rate as relatively vulnerable, performed worst and oil producers, which we rate as relatively invulnerable, performed best. But some of the other relatively well-performing indexes would not, on our assessment, have fared well if investors saw border considerations as critical. Border considerations might also result in declines in the price of shares in Canadian companies relative to those in U.S. companies engaged in the same line of business. Unfortunately we do not have industry data for U.S. sub-indexes that correspond to our TSE 300 sub-indexes and, as a second-best option, we compare the performance of the S&P 500 index to that of the TSE 300. Figure 6 shows the performance of the TSE relative to the S&P (both rebased so that their September 10 close equals 1.00) in the aftermath of the attacks. [FIGURE 6 OMITTED] On the face of it, one might expect the index in the country that was attacked to fall by more than the one in Canada. Interestingly, relative to September 10, the TSE 300 fell by more than the S&P composite for most of the month following the attacks, though the difference in the relative size of the declines was small. The underperformance of the Canadian index might reflect the fact that Canadian equity markets are more leveraged to global demand than are U.S. markets because of the greater importance of resource industries in Canadian output, as well as the possibility that investors considered border disruptions to be problematic and disproportionately lowered their expectations for earnings in Canada. Employment Did September 11, 2001, have any noticeable immediate impact on jobs in the affected industries? In answering this question, we are able to draw on monthly data that better match the export categories. (33) We use the same type of comparison--changes in employment from September 2000 to September 2001 versus changes between the August-October average for 2000 and for 2001--which we used for trade. Overall employment dropped by only 0.3 percentage points more between September 2000 and September 2001 than it did between the comparison periods. As with our export data, there is considerable diversity of experience from industry to industry. While 24 of the industries in our employment sample declined by more than the overall figure, 38 fell by less; most showed job growth. Although there is a slight tendency for industries rated as more vulnerable to show worse employment numbers, the correlation is not tight. (34) Some industries rated as more vulnerable by our measure do relatively worse. Motor vehicles and parts manufacturing, semiconductor and other electronic component manufacturing, as well as food processing, are all export-intensive industries that showed disproportionate employment losses. Again, however, it is possible that vulnerability to disruptions resulted in short-run efforts that would confound the expected longer-run relationship. Employment in many industries in the upper right corner of Figure 2 (employment data are available for 21 of the 25) did better than the overall average. One possible reason for the better results in those industries is that vulnerable industries were willing to make special efforts to get merchandise shipped. Such a response would obviously not accurately forecast the impact of prolonged actual or expected border disruptions. Investment Statistics Canada's survey of investment intentions for 2002 collected responses from October to January. (35) The October 2001-to-January 2002 period captured in the data was one when potential border disruptions would have been much on the minds of executives. Overall, when comparing intentions for 2002 to figures for 2001, industries rated as more vulnerable by our measure registered relatively larger declines. The same is true when comparing intentions for 2003 to figures for 2001. Investment for all industries rose by an average of 2 percent from 2001-to-2002 and by an average of 4 percent from 2001-to-2003. By contrast, investment in vulnerable industries fell by an average of 13 percent from 2001-to-2002, and though it rebounded slightly in 2003, overall it declined by an average of 9 percent from 2001-to-2003. It is worth emphasizing that many factors other than the border influence these figures, and patterns within groups show striking variations; while the survey showed sharp investment reduction in communications equipment manufacturing, for example, it indicated an increase in auto parts investment for 2002 and then an anticipated decline in 2003. It would be interesting to include in future surveys a question that could help distinguish different reasons for changes in investment levels to determine how important the perceived permeability of the border is, relative to other key factors, such as the state of demand in an industry, changes in taxation or the launching and completion of major projects. Implications and Options To this point, we have devised a measure of the vulnerability of various Canada-U.S. exports to border disruptions, provided some rough estimates of the size of the threat this vulnerability represents to Canadian jobs and investment, and examined the actual impact of the September 11, 2001-related disruptions on various measures of activity. Data limitations and the particular nature of the September 11, 2001, attacks and their aftermath make it difficult to subject our vulnerability rankings to a proper test. Implications We do feel, however, that they provide a useful background for some observations about the policy implications of Canada's economic vulnerability. The Stakes for Canada are High The key starting point for our observations is that Canadians have an enormous economic stake in limiting future security-related disruptions to cross-border trade. The 390,000 Canadian jobs and the $3.7 billion in Canadian investment that are represented in the "hot corner" of Figure 2 indicate the scale of activity in Canada that would be affected if the border began to look like a major obstacle separating producers from their markets. As the new Department of Homeland Security takes shape, we should anticipate more border controls, increasing the likelihood of security-related border disruptions. The point about the scale of activity that is potentially vulnerable is worth emphasizing, because there is a danger that Canadians' tendency to see economic issues as central to border management can lead them to downplay the U.S. preoccupation with security, without adequate attention to the fact that Canada's economic vulnerability is intimately tied up with U.S. security concerns. If Canadians, as business managers and policymakers, do not address U.S. security concerns in ways that are both effective and high profile, protests about economic damage will carry little weight in the face of another threatened or actual terrorist attack. Security "Spillovers" and the Case for Collective Action Thinking about how to protect Canada's economic interests by addressing U.S. security concerns requires distinguishing between problems that are susceptible to private solution and those that require collective action. The key here is the familiar idea of spillovers. Exporters and others who bear the full cost of security risks related to their own shipments are likelier to invest sufficiently in security-enhancing measures than are exporters and others who, should they create security-related risks, will impose at least some of the resulting costs on others. The case for collective action arises when the decisions of one individual, business or government do not take full account of externalities, including the costs or benefits imposed or conferred on other individuals, businesses or governments. One important spillover that matters here is the exposure of individual Canadian exporters to border problems that arise because of security-related risks caused by other exporters. If this exposure is limited to an industry or cluster of related industries where the number of companies is relatively small, companies may be able to undertake collective action in response. In those cases, the imperative for government is mainly to ensure that it does not impede these private-sector collaborations. Where the number of companies in an industry is large, by contrast, the fact that some benefits from each one's investments in security are enjoyed by others may make the overall investment in security lower than the companies would undertake together if they could coordinate. Possible policy responses include compulsory insurance coverage for a sector: risk premiums for such coverage will provide an incentive for each business to improve its own security measures. A similar problem arises when exporters in one industry expose those in an unrelated industry to risks arising, for example, from delays in a commonly used mode of transport. Here also, governments could help overcome coordination problems by, say, investing in improved screening technology to divide low-risk from high-risk shipments, fast-tracking exports from companies that make investments in their security, moving functions away from the border towards point of entry into North America or point of origin, or by expanding the capacity of transportation infrastructure. We note that responsibility for these investments is not necessarily federal. The first three of these functions are appropriately carried out by the federal government; the last is at least as much a provincial- and local-government concern, which implies a larger provincial or local role in more border-dependent provinces, such as Ontario, Quebec and Manitoba. The most critical externality of all is the risk that neither Canada nor the United States invests adequately in security measures that help protect the other against attack. Each country has a legitimate interest in ensuring that the other devotes the same resources to protecting its neighbour's citizens that it does to protecting its own. If that assurance requires common policing of embarkation and entry points to North America, or at overseas points of origin, Canadian concerns about sovereignty must be tempered with consideration that reassuring the United States is an indispensable condition for keeping the border open. Options In more than a year since the terrorist attacks, much has been done to address the security-related concerns that threaten commerce across the border. A major outstanding question, which will become more acute if the political support for security measures fades in Canada, is whether the resulting improvements in security will be effective enough and visible enough to Americans to reduce Canadian vulnerability in the event of another attack. Incremental Steps Among the key actions undertaken by Ottawa since September 2001 are new immigration and anti-terrorism bills, an allocation of $1.2 billion in the December 2001 federal budget for "border security and infrastructure" and a joint announcement with the U.S. government of the Smart Border Declaration (SBD) in December 2001. (36) Progress to date includes the opening and expansion of the NEXUS program, which had been suspended after the attacks, to speed low-risk travellers through the border, (37) joint posting of customs officials to oversee marine containers destined for either country at their first port of arrival in North America, (38) joint posting of customs and immigration officials at Vancouver and Miami airports, and an agreement to formally consult each other in developing the list of countries whose citizens require visas. The governments have also signed a safe third-country agreement, requiring that refugee claimants apply in the first of the two countries in which they arrive. As well, the countries are implementing a common approach for the screening of international air passengers and working on common standards for biometric identification (United States, 2002). In terms of container security, Canada and the United States have committed to "deploy interoperable technologies in support of other initiatives to facilitate the secure movement of goods and people, such as transponder applications and electronic container seals." In November 2002, the U.S. government introduced Operation Safe Commerce, a program to fund business initiatives designed to make the U.S. container-cargo system more secure. Transport Canada is monitoring this program and the Canadian government is undertaking a study of security and the marine transportation system in order to develop a national marine security strategy. In March 2002, Canadian and U.S. officials came to an understanding for pre-screening of vessels before they arrive in the St. Lawrence Seaway and Great Lakes systems and for onboard inspections of vessels before they proceed to port. (39) A new bi-national Planning Group was announced on December 9, 2002. (40) The government also announced additional funding for maritime security in the February 18 federal budget. Canada has also committed $50 million in fiscal 2003/04 and $25 million in 2004/05 towards a Security Contingency Reserve, which could include border security. All these actions address externalities presented by security-related threats at the border. The Canadian and U.S. governments have also implemented the Free and Secure Trade (FAST) program, which is intended to encourage businesses to invest in their own security by providing them with dedicated lanes and expedited clearance at the border after importers, shippers, carriers and drivers have all been pre-approved. The program is based on the Canadian Customs Self Assessment (CSA) program. To date, few companies have made the investments required under the CSA to take advantage of the expedited clearance, although the auto industry, a relatively vulnerable one, is a notable exception. If the FAST program does deliver expedited clearance, businesses that are highly vulnerable or valuable will be the primary beneficiaries and will, therefore, have the greatest incentives to internalize these security costs. Governments in this case play an appropriate facilitative role, and should ensure that companies are aware of this option, and that dedicated lanes are in place far enough away from the border to make the program effective. Looking ahead, eliminating or moving border functions could build on existing SBD initiatives. Hart (2002) has suggested that harmonizing tariffs for the thousands of products for which the levels of Canadian and U.S. duties against third countries are already close would eliminate the need for complicated "rules of origin" tracking by border officials, facilitating traffic and allowing resources to be redeployed on security risks. Common tariffs would also assist the establishment of joint customs inspections, which would facilitate traffic of goods between Canada and the United States, and could have a confidence-building effect as the countries' officials got used to working together. If rules of origin are too hard to eliminate, one step in a similar direction could be establishing low-, medium-, and high-risk categories of shipments, classified by place of origin. This distinction could enable more focussed inspections, and encourage companies to invest in the necessary security measures in proportion to the risks their shipments involve. (41) Importantly, moving functions away from the border towards points of entry into North America need not imply uniform laws and standards. Mutual recognition of key standards--as in the European Union, where national standards vary more than they typically do between Canada and the United States--could enable goods cleared for Canada to be fast-tracked at the border. There are other avenues for improving the resiliency of cross-border commerce in the face of security threats. In September 2002, the Canadian and Ontario governments committed $300 million over five years as part of a joint investment to upgrade existing infrastructure on the Ontario approaches to the Windsor-Detroit border crossings. In March 2003, the Canadian and B.C. governments committed $211 million for eight highway accesses leading to border crossings. Further infrastructure investments, such as additional capacity at the Peace Bridge between Fort Erie and Buffalo or the bridge linking Sarnia and Port Huron, with more easily accessed, dedicated commuter lanes, would also help (Papademetriou and Meyers, 2001). There is scope for further within- and between-country integration of databases dealing with immigration, customs, law enforcement, public health and intelligence activities. A Larger Framework Effective though such incremental steps are, their lack of profile and technical nature pose risks. The easy items on the SBD agenda have been agreed and implemented. The complexities of the U.S. political system and the less security-oriented attitude in Canada mean that further progress, for example, on moving border functions away from the border will be increasingly difficult. If and when the SBD is fully implemented, U.S. priorities are likely to shift elsewhere, leaving many of the border vulnerabilities we have described little changed. In the event of another attack, moreover, Canada will again be a target of U.S. complaints, partly because of legitimate concerns about inadequate security north of the border, but also because many Americans will be reluctant to accept blame for failings on their own side. In the current sensitive context, one small security flare-up linked to Canada could have major economic consequences. A key drawback of incremental measures in strengthening border security is that they do not create headlines and register with opinion leaders; as a result, Canada risks getting little credit for the improvements it makes. The need for a broader, more compelling agenda that can attract business and political support on both sides of the border underlies proposals for a larger agreement on North American economic and security integration, such as a "strategic bargain for physical and economic security" (Dobson, 2002) a "grand bargain" (Gotlieb, 2003) and a "common frontier" (Hufbauer and Vega-Canovas, 2002). Such a vision is compatible with continued incremental progress--indeed, it may be the most effective way of preserving the momentum behind incremental improvements. Such a vision must make security its focal point in order to attract U.S. attention and especially the attention of the U.S. Department of Homeland Security. Given the size of the economic stakes for Canada, and the substantive and optical drawbacks of an exclusively incremental approach, a loud and unequivocal high-level announcement that Canada treats the security of Americans no less seriously than it treats the security of Canadians, combined with a larger approach to enhance North American physical and exonomic security, are appropriate priorities for Canada's federal government. (42) Conclusion Our assessment of the vulnerability of Canada-U.S. exports to security-related disruptions shows that large amounts of trade and associated jobs and investment are vulnerable in the event of future threats or actual acts of terrorism. Although data limitations and the particular nature of the events of September 11, 2001, make firm conclusions difficult, our measures receive some support from indicators of trade flows and other economic activity following those attacks. If our assessment is correct, effective "thickening" of the border by extra security measures threatens to deprive Canada of the advantages--in particular, investment by producers seeking to serve the entire North American market--that trade liberalization within this continent has conferred. The appropriate response to this vulnerability varies by industry, location and level of government. In many instances, individual companies and industry groups can make and are already making necessary investments. In others, coordination problems require governments to induce extra security-oriented investments. And there is a clear case for public investments in infrastructure and border security that will expand the capacity of chokepoints and shift resources away from inspections that slow down legitimate trade and toward activities that will detect and neutralize security threats. There is also a case in favour of moving border functions away from the Canada-U.S. frontier towards points of entry into North America or towards points of origin. The clearest case for public action arises from the mutual vulnerability of Canada and the United States to security lapses in the other country and, more particularly, from U.S. concern that inadequate Canadian attention to security issues poses a threat to U.S. citizens. Incremental improvements to border security, no matter how effective, may fail to register with U.S. leaders and opinion-makers, depriving the project of momentum and raising the risk that a future threat or act of terrorism will cause disproportionate harm to Canadian trade. The United States has been, and will probably continue to be, relentless in the pursuit of both perceived and actual weak links. The federal government should acknowledge loudly and clearly that better border security is essential and make that acknowledgment a centrepiece of a major effort to enhance North American physical and economic security. Our work on the vulnerability of exports to security-related disruptions illustrates that the costs for Canada of not doing so would be very high indeed.
Appendix A: Indexes of Vulnerability to Border Disruptions
NAICS
4-Digit
NAICS 4-Digit Description Code Mnemonic
Oilseed and grain farming 1111 GRAIN
Vegetable and melon farming 1112 VEG
Fruit and tree nut farming 1113 FRUIT
Greenhouse, nursery and 1114 FLOR
floriculture production
Other crop farming 1119 CROP
Cattle ranching and farming 1121 COW
Hog and pig farming 1122 HOG
Poultry and egg production 1123 EGG
Sheep and goat farming 1124 SHEEP
Animal aquaculture 1125 AQUA
Other animal production 1129 ANI
Forest nurseries and gathering 1132 FOR
of forest products
Logging 1133 LOG
Fishing 1141 FISH
Hunting and trapping 1142 HUNT
Support activities for crop 1151 SUPC
production
Support activities for animal 1152 SUPA
production
Oil and gas extraction 2111 OIL
Coal mining 2121 COAL
Metal ore mining 2122 ORE
Non-metallic mineral mining 2123 MIN
and quarrying
Electric power generation, 2211 ELEC
transmission
Animal food mfg. 3111 ANFD
Grain and oilseed milling 3112 MIL
Sugar and confectionery 3113 SUG
product mfg.
Fruit and vegetable preserving 3114 PRSR
and specialty food mfg.
Dairy product mfg. 3115 MILK
Meat product mfg. 3116 MEAT
Seafood product preparation 3117 SEAF
and packaging
Bakeries and tortilla mfg. 3118 BAKE
Other food mfg. 3119 FDMNF
Beverage mfg. 3121 DRNK
Tobacco mfg. 3122 TOB
Fibre, yarn and thread mills 3131 FIBRE
Fabric mills 3132 FAB
Textile and fabric finishing 3133 TXF
and fabric coating
Textile furnishings mills 3141 TXM
Other textile product mills 3149 TXO
Clothing knitting mills 3151 KNIT
Cut and sew clothing mfg. 3152 CLTH
Clothing accessories and 3159 CLOTH
other clothing mfg.
Leather and hide tanning 3161 LTHR
and finishing
Footwear mfg. 3162 SHOE
Other leather and allied 3169 OLTHR
product mfg.
Sawmills and wood preservation 3211 SAW
Veneer, plywood and engineered 3212 PLY
wood product mfg.
Other wood product mfg. 3219 OWD
Pulp, paper and paperboard mills 3221 PULP
Converted paper product mfg. 3222 CNVP
Printing and related 3231 PRNT
support activities
Petroleum and coal products mfg. 3241 PPR
Basic chemical mfg. 3251 CHEM
Resin, synthetic rubber, artificial 3252 SNTH
and synthetic fibre
and filament mfg.
Pesticide, fertilizer and other 3253 PESTIC
agricultural chemical mfg.
Pharmaceutical and medicine mfg. 3254 DRUG
Paint, coating and adhesive mfg. 3255 PAINT
Soap, cleaning compound and 3256 SOAP
toilet products mtg.
Other chemical product mfg. 3259 OCHM
Plastic product mfg. 3261 PLAS
Rubber product mfg. 3262 RBBR
Clay product and refractory mfg. 3271 CLAY
Glass and glass product mfg. 3272 GLAS
Cement and concrete product mfg. 3273 CEM
Lime and gypsum product mfg. 3274 LME
Other non-metallic mineral 3279 NMM
product mfg.
Iron and steel mills and 3311 IRON
ferro-alloy mfg.
Steel product mfg. from 3312 STL
purchased steel
Alumina and aluminum 3313 ALM
production and processing
Non-ferrous metal 3314 NFM
(except aluminum)
production and processing
Foundries 3315 FND
Forging and stamping 3321 FORG
Cutlery and hand tool mfg. 3322 CUTL
Architectural and structural 3323 ARCH
metals mfg.
Boiler, tank and shipping 3324 TANK
container manufacturing
Hardware mfg. 3325 HDW
Spring and wire product mfg. 3326 WIRE
Machine shops, turned product, 3327 MACH
and screw, nut and bolt mfg.
Coating, engraving heat treating 3328 MTC
and allied activities
Other fabricated metal 3329 METAL
product mfg.
Agricultural, construction and 3331 AGR
mining machinery mfg.
Industrial machinery mfg. 3332 INDUS
Commercial and service 3333 COMM
industry machinery mfg.
Ventilation, heating, 3334 AC
air-conditioning and commercial
refrigeration equipment mfg.
Metalworking machine mfg. 3335 MTL
Engine, turbine and power 3336 PWR
transmission equipment mfg.
Other general-purpose 3339 GMCH
machinery mfg.
Computer and peripheral 3341 CMPT
equipment mfg.
Communications equipment mfg. 3342 COM
Audio and video equipment mfg. 3343 AVEQP
semiconductor and other 3344 SEMI
electronic component mfg.
Navigational, measuring, medical 3345 NAV
and control instruments mfg.
Mfg. and reproducing magnetic 3346 MAG
and optical media
Electric lighting equipment mfg. 3351 LGHT
Household appliance mfg. 3352 APL
Electrical equipment mfg. 3353 ELEQ
Other electrical equipment 3359 OELQ
and component mfg.
Motor vehicle mfg. 3361 CAR
Motor vehicle body & trailer mfg. 3362 CARBDY
Motor vehicle parts mfg. 3363 CARPRT
Aerospace product & parts mfg. 3364 AER
Railroad rolling stock mtg. 3365 RAIL
Ship and boat building 3366 SHIP
Other transportation 3369 TRNPT
equipment mfg.
Household and institutional 3371 HFRN
furniture and
kitchen cabinet mfg.
Office furniture (including 3372 OFRN
fixtures) mfg.
Other furniture-related prod. mfg. 3379 OFRR
Medical equipment and 3391 MDEQ
supplies mfg.
Other miscellaneous mfg. 3399 MMAN
Physical Mode of
Security Transportation
NAICS 4-Digit Description (1-10) (1-10)
Oilseed and grain farming 4 10
Vegetable and melon farming 5 10
Fruit and tree nut farming 5 10
Greenhouse, nursery and 6 10
floriculture production
Other crop farming 5 10
Cattle ranching and farming 4 10
Hog and pig farming 4 10
Poultry and egg production 4 10
Sheep and goat farming 4 10
Animal aquaculture 4 10
Other animal production 4 10
Forest nurseries and gathering 4 10
of forest products
Logging 4 9
Fishing 4 10
Hunting and trapping 4 10
Support activities for crop 7 10
production
Support activities for animal 7 10
production
Oil and gas extraction 1 1
Coal mining 3 4
Metal ore mining 4 4
Non-metallic mineral mining 3 4
and quarrying
Electric power generation, 1 1
transmission
Animal food mfg. 5 10
Grain and oilseed milling 4 10
Sugar and confectionery 5 10
product mfg.
Fruit and vegetable preserving 6 10
and specialty food mfg.
Dairy product mfg. 6 10
Meat product mfg. 7 10
Seafood product preparation 7 10
and packaging
Bakeries and tortilla mfg. 5 10
Other food mfg. 6 10
Beverage mfg. 6 10
Tobacco mfg. 4 8
Fibre, yarn and thread mills 4 8
Fabric mills 4 8
Textile and fabric finishing 4 8
and fabric coating
Textile furnishings mills 4 8
Other textile product mills 4 8
Clothing knitting mills 4 8
Cut and sew clothing mfg. 4 8
Clothing accessories and 5 8
other clothing mfg.
Leather and hide tanning 4 6
and finishing
Footwear mfg. 5 6
Other leather and allied 5 6
product mfg.
Sawmills and wood preservation 4 10
Veneer, plywood and engineered 4 10
wood product mfg.
Other wood product mfg. 5 10
Pulp, paper and paperboard mills 4 10
Converted paper product mfg. 5 10
Printing and related 5 10
support activities
Petroleum and coal products mfg. 5 8
Basic chemical mfg. 4 7
Resin, synthetic rubber, artificial 5 6
and synthetic fibre
and filament mfg.
Pesticide, fertilizer and other 5 6
agricultural chemical mfg.
Pharmaceutical and medicine mfg. 7 7
Paint, coating and adhesive mfg. 7 7
Soap, cleaning compound and 7 7
toilet products mtg.
Other chemical product mfg. 7 8
Plastic product mfg. 5 7
Rubber product mfg. 5 7
Clay product and refractory mfg. 5 7
Glass and glass product mfg. 5 7
Cement and concrete product mfg. 4 6
Lime and gypsum product mfg. 4 6
Other non-metallic mineral 4 6
product mfg.
Iron and steel mills and 5 7
ferro-alloy mfg.
Steel product mfg. from 5 8
purchased steel
Alumina and aluminum 5 7
production and processing
Non-ferrous metal 5 7
(except aluminum)
production and processing
Foundries 5 7
Forging and stamping 5 7
Cutlery and hand tool mfg. 7 7
Architectural and structural 5 10
metals mfg.
Boiler, tank and shipping 7 10
container manfacturing
Hardware mfg. 7 10
Spring and wire product mfg. 6 8
Machine shops, turned product, 5 8
and screw, nut and bolt mfg.
Coating, engraving heat treating 5 7
and allied activities
Other fabricated metal 5 7
product mfg.
Agricultural, construction and 9 10
mining machinery mfg.
Industrial machinery mfg. 9 10
Commercial and service 9 10
industry machinery mfg.
Ventilation, heating, 9 10
air-conditioning and commercial
refrigeration equipment mfg.
Metalworking machine mfg. 7 10
Engine, turbine and power 7 10
transmission equipment mfg.
Other general-purpose 9 10
machinery mfg.
Computer and peripheral 7 10
equipment mfg.
Communications equipment mfg. 7 10
Audio and video equipment mfg. 7 10
semiconductor and other 7 10
electronic component mfg.
Navigational, measuring, medical 9 10
and control instruments mfg.
Mfg. and reproducing magnetic 9 10
and optical media
Electric lighting equipment mfg. 8 10
Household appliance mfg. 9 10
Electrical equipment mfg. 9 10
Other electrical equipment 9 10
and component mfg.
Motor vehicle mfg. 7 10
Motor vehicle body & trailer mfg. 7 10
Motor vehicle parts mfg. 7 10
Aerospace product & parts mfg. 7 10
Railroad rolling stock mtg. 9 8
Ship and boat building 9 9
Other transportation 9 9
equipment mfg.
Household and institutional 7 8
furniture and
kitchen cabinet mfg.
Office furniture (including 7 10
fixtures) mfg.
Other furniture-related prod. mfg. 7 10
Medical equipment and 9 8
supplies mfg.
Other miscellaneous mfg. 7 8
Time People
Sensitivity Sensitivity
NAICS 4-Digit Description (1-10) (1-10)
Oilseed and grain farming 3 1
Vegetable and melon farming 9 1
Fruit and tree nut farming 7 1
Greenhouse, nursery and 9 1
floriculture production
Other crop farming 9 1
Cattle ranching and farming 10 1
Hog and pig farming 10 1
Poultry and egg production 10 1
Sheep and goat farming 10 1
Animal aquaculture 9 1
Other animal production 9 1
Forest nurseries and gathering 5 2
of forest products
Logging 3 1
Fishing 10 1
Hunting and trapping 4 1
Support activities for crop 7 9
production
Support activities for animal 7 9
production
Oil and gas extraction 9 1
Coal mining 3 1
Metal ore mining 3 1
Non-metallic mineral mining 3 1
and quarrying
Electric power generation, 9 1
transmission
Animal food mfg. 7 1
Grain and oilseed milling 4 1
Sugar and confectionery 6 1
product mfg.
Fruit and vegetable preserving 6 1
and specialty food mfg.
Dairy product mfg. 10 1
Meat product mfg. 9 1
Seafood product preparation 9 1
and packaging
Bakeries and tortilla mfg. 7 1
Other food mfg. 7 1
Beverage mfg. 7 1
Tobacco mfg. 5 1
Fibre, yarn and thread mills 3 1
Fabric mills 3 1
Textile and fabric finishing 3 1
and fabric coating
Textile furnishings mills 3 1
Other textile product mills 3 1
Clothing knitting mills 3 1
Cut and sew clothing mfg. 3 1
Clothing accessories and 3 1
other clothing mfg.
Leather and hide tanning 3 1
and finishing
Footwear mfg. 3 1
Other leather and allied 3 1
product mfg.
Sawmills and wood preservation 3 1
Veneer, plywood and engineered 3 1
wood product mfg.
Other wood product mfg. 3 1
Pulp, paper and paperboard mills 3 1
Converted paper product mfg. 5 1
Printing and related 3 2
support activities
Petroleum and coal products mfg. 3 1
Basic chemical mfg. 7 2
Resin, synthetic rubber, artificial 7 2
and synthetic fibre
and filament mfg.
Pesticide, fertilizer and other 4 2
agricultural chemical mfg.
Pharmaceutical and medicine mfg. 7 3
Paint, coating and adhesive mfg. 5 1
Soap, cleaning compound and 5 1
toilet products mtg.
Other chemical product mfg. 5 3
Plastic product mfg. 5 1
Rubber product mfg. 5 1
Clay product and refractory mfg. 5 1
Glass and glass product mfg. 5 1
Cement and concrete product mfg. 5 1
Lime and gypsum product mfg. 5 1
Other non-metallic mineral 4 2
product mfg.
Iron and steel mills and 5 2
ferro-alloy mfg.
Steel product mfg. from 4 2
purchased steel
Alumina and aluminum 4 2
production and processing
Non-ferrous metal 4 2
(except aluminum)
production and processing
Foundries 5 2
Forging and stamping 5 2
Cutlery and hand tool mfg. 4 2
Architectural and structural 5 2
metals mfg.
Boiler, tank and shipping 5 2
container manfacturing
Hardware mfg. 4 2
Spring and wire product mfg. 4 2
Machine shops, turned product, 4 2
and screw, nut and bolt mfg.
Coating, engraving heat treating 5 2
and allied activities
Other fabricated metal 5 2
product mfg.
Agricultural, construction and 5 2
mining machinery mfg.
Industrial machinery mfg. 6 4
Commercial and service 5 4
industry machinery mfg.
Ventilation, heating, 5 4
air-conditioning and commercial
refrigeration equipment mfg.
Metalworking machine mfg. 5 4
Engine, turbine and power 7 4
transmission equipment mfg.
Other general-purpose 7 4
machinery mfg.
Computer and peripheral 9 4
equipment mfg.
Communications equipment mfg. 8 4
Audio and video equipment mfg. 8 3
semiconductor and other 9 4
electronic component mfg.
Navigational, measuring, medical 7 4
and control instruments mfg.
Mfg. and reproducing magnetic 7 4
and optical media
Electric lighting equipment mfg. 7 2
Household appliance mfg. 6 2
Electrical equipment mfg. 8 3
Other electrical equipment 8 4
and component mfg.
Motor vehicle mfg. 9 4
Motor vehicle body & trailer mfg. 9 4
Motor vehicle parts mfg. 10 4
Aerospace product & parts mfg. 8 5
Railroad rolling stock mtg. 4 3
Ship and boat building 5 6
Other transportation 7 5
equipment mfg.
Household and institutional 5 2
furniture and
kitchen cabinet mfg.
Office furniture (including 6 2
fixtures) mfg.
Other furniture-related prod. mfg. 6 2
Medical equipment and 8 5
supplies mfg.
Other miscellaneous mfg. 6 2
Overall
Location Index of
Sensitivity Vulnerability
NAICS 4-Digit Description (1-10) (1-10)
Oilseed and grain farming 1 3.8
Vegetable and melon farming 4 5.8
Fruit and tree nut farming 3 5.2
Greenhouse, nursery and 7 6.6
floriculture production
Other crop farming 3 5.6
Cattle ranching and farming 7 6.4
Hog and pig farming 7 6.4
Poultry and egg production 9 6.8
Sheep and goat farming 7 6.4
Animal aquaculture 4 5.6
Other animal production 6 6
Forest nurseries and gathering 2 4.6
of forest products
Logging 4 4.2
Fishing 1 5.2
Hunting and trapping 1 4.0
Support activities for crop 7 8.0
production
Support activities for animal 7 8.0
production
Oil and gas extraction 1 2.6
Coal mining 1 2.4
Metal ore mining 1 3.0
Non-metallic mineral mining 1 2.4
and quarrying
Electric power generation, 9 4.2
transmission
Animal food mfg. 9 6.4
Grain and oilseed milling 1 4.0
Sugar and confectionery 9 6.2
product mfg.
Fruit and vegetable preserving 10 6.6
and specialty food mfg.
Dairy product mfg. 7 6.8
Meat product mfg. 7 6.8
Seafood product preparation 7 6.8
and packaging
Bakeries and tortilla mfg. 10 6.6
Other food mfg. 9 6.6
Beverage mfg. 9 6.6
Tobacco mfg. 9 5.4
Fibre, yarn and thread mills 9 5.0
Fabric mills 9 5.0
Textile and fabric finishing 9 5.0
and fabric coating
Textile furnishings mills 9 5.0
Other textile product mills 9 5.0
Clothing knitting mills 9 5.0
Cut and sew clothing mfg. 9 5.0
Clothing accessories and 9 5.2
other clothing mfg.
Leather and hide tanning 7 4.2
and finishing
Footwear mfg. 9 4.8
Other leather and allied 8 4.6
product mfg.
Sawmills and wood preservation 6 4.8
Veneer, plywood and engineered 6 4.8
wood product mfg.
Other wood product mfg. 6 5.0
Pulp, paper and paperboard mills 6 4.8
Converted paper product mfg. 6 5.4
Printing and related 7 5.4
support activities
Petroleum and coal products mfg. 3 4.0
Basic chemical mfg. 5 5.0
Resin, synthetic rubber, artificial 7 5.4
and synthetic fibre
and filament mfg.
Pesticide, fertilizer and other 7 4.8
agricultural chemical mfg.
Pharmaceutical and medicine mfg. 9 6.6
Paint, coating and adhesive mfg. 9 5.8
Soap, cleaning compound and 9 5.8
toilet products mtg.
Other chemical product mfg. 7 6.0
Plastic product mfg. 7 5.0
Rubber product mfg. 7 5.0
Clay product and refractory mfg. 7 5.0
Glass and glass product mfg. 7 5.0
Cement and concrete product mfg. 6 4.4
Lime and gypsum product mfg. 5 4.2
Other non-metallic mineral 5 4.2
product mfg.
Iron and steel mills and 7 5.2
ferro-alloy mfg.
Steel product mfg. from 7 5.2
purchased steel
Alumina and aluminum 5 4.6
production and processing
Non-ferrous metal 5 4.6
(except aluminum)
production and processing
Foundries 7 5.2
Forging and stamping 7 5.2
Cutlery and hand tool mfg. 10 6.0
Architectural and structural 9 6.2
metals mfg.
Boiler, tank and shipping 9 6.6
container manfacturing
Hardware mfg. 9 6.4
Spring and wire product mfg. 9 5.8
Machine shops, turned product, 9 5.6
and screw, nut and bolt mfg.
Coating, engraving heat treating 7 5.2
and allied activities
Other fabricated metal 7 5.2
product mfg.
Agricultural, construction and 7 6.6
mining machinery mfg.
Industrial machinery mfg. 7 7.2
Commercial and service 7 7.0
industry machinery mfg.
Ventilation, heating, 7 7.0
air-conditioning and commercial
refrigeration equipment mfg.
Metalworking machine mfg. 7 6.6
Engine, turbine and power 7 7.0
transmission equipment mfg.
Other general-purpose 7 7.4
machinery mfg.
Computer and peripheral 9 7.8
equipment mfg.
Communications equipment mfg. 9 7.6
Audio and video equipment mfg. 9 7.4
semiconductor and other 7 7.4
electronic component mfg.
Navigational, measuring, medical 9 7.8
and control instruments mfg.
Mfg. and reproducing magnetic 9 7.8
and optical media
Electric lighting equipment mfg. 9 7.2
Household appliance mfg. 9 7.2
Electrical equipment mfg. 7 7.4
Other electrical equipment 7 7.6
and component mfg.
Motor vehicle mfg. 9 7.8
Motor vehicle body & trailer mfg. 9 7.8
Motor vehicle parts mfg. 9 8.0
Aerospace product & parts mfg. 9 7.8
Railroad rolling stock mtg. 7 6.2
Ship and boat building 7 7.2
Other transportation 7 7.4
equipment mfg.
Household and institutional 7 5.8
furniture and
kitchen cabinet mfg.
Office furniture (including 7 6.4
fixtures) mfg.
Other furniture-related prod. mfg. 7 6.4
Medical equipment and 9 7.8
supplies mfg.
Other miscellaneous mfg. 7 6.0
Total Domestic
Exports to U.S.
NAICS 4-Digit Description (2001; $mn)
Oilseed and grain farming 1,169
Vegetable and melon farming 655
Fruit and tree nut farming 119
Greenhouse, nursery and 560
floriculture production
Other crop farming 228
Cattle ranching and farming 1,666
Hog and pig farming 555
Poultry and egg production 51
Sheep and goat farming 14
Animal aquaculture 436
Other animal production 154
Forest nurseries and gathering 8
of forest products
Logging 304
Fishing 750
Hunting and trapping 5
Support activities for crop 0
production
Support activities for animal 21
production
Oil and gas extraction 41,911
Coal mining 200
Metal ore mining 2,001
Non-metallic mineral mining 1,753
and quarrying
Electric power generation, 4,220
transmission
Animal food mfg. 410
Grain and oilseed milling 1,268
Sugar and confectionery 1,207
product mfg.
Fruit and vegetable preserving 1,273
and specialty food mfg.
Dairy product mfg. 211
Meat product mfg. 3,405
Seafood product preparation 1,876
and packaging
Bakeries and tortilla mfg. 1,022
Other food mfg. 1,011
Beverage mfg. 1,412
Tobacco mfg. 87
Fibre, yarn and thread mills 236
Fabric mills 1,190
Textile and fabric finishing 182
and fabric coating
Textile furnishings mills 373
Other textile product mills 381
Clothing knitting mills 596
Cut and sew clothing mfg. 1,953
Clothing accessories and 177
other clothing mfg.
Leather and hide tanning 31
and finishing
Footwear mfg. 105
Other leather and allied 90
product mfg.
Sawmills and wood preservation 10,192
Veneer, plywood and engineered 4,023
wood product mfg.
Other wood product mfg. 1,745
Pulp, paper and paperboard mills 16,456
Converted paper product mfg. 2,510
Printing and related 1,609
support activities
Petroleum and coal products mfg. 9,274
Basic chemical mfg. 5,094
Resin, synthetic rubber, artificial 5,518
and synthetic fibre
and filament mfg.
Pesticide, fertilizer and other 1,028
agricultural chemical mfg.
Pharmaceutical and medicine mfg. 1,781
Paint, coating and adhesive mfg. 540
Soap, cleaning compound and 6
toilet products mtg.
Other chemical product mfg. 1,211
Plastic product mfg. 7,646
Rubber product mfg. 3,127
Clay product and refractory mfg. 119
Glass and glass product mfg. 953
Cement and concrete product mfg. 773
Lime and gypsum product mfg. 205
Other non-metallic mineral 841
product mfg.
Iron and steel mills and 2,379
ferro-alloy mfg.
Steel product mfg. from 1,400
purchased steel
Alumina and aluminum 6,202
production and processing
Non-ferrous metal 4,725
(except aluminum)
production and processing
Foundries 293
Forging and stamping 760
Cutlery and hand tool mfg. 423
Architectural and structural 1,764
metals mfg.
Boiler, tank and shipping 886
container manfacturing
Hardware mfg. 1,199
Spring and wire product mfg. 609
Machine shops, turned product, 384
and screw, nut and bolt mfg.
Coating, engraving heat treating 1
and allied activities
Other fabricated metal 1,451
product mfg.
Agricultural, construction and 1,965
mining machinery mfg.
Industrial machinery mfg. 1,847
Commercial and service 2,197
industry machinery mfg.
Ventilation, heating, 1,463
air-conditioning and commercial
refrigeration equipment mfg.
Metalworking machine mfg. 1,664
Engine, turbine and power 4,184
transmission equipment mfg.
Other general-purpose 3,857
machinery mfg.
Computer and peripheral 3,998
equipment mfg.
Communications equipment mfg. 6,584
Audio and video equipment mfg. 191
semiconductor and other 3,470
electronic component mfg.
Navigational, measuring, medical 1,836
and control instruments mfg.
Mfg. and reproducing magnetic 570
and optical media
Electric lighting equipment mfg. 561
Household appliance mfg. 1,000
Electrical equipment mfg. 2,418
Other electrical equipment 1,656
and component mfg.
Motor vehicle mfg. 62,766
Motor vehicle body & trailer mfg. 1,080
Motor vehicle parts mfg. 16,773
Aerospace product & parts mfg. 10,181
Railroad rolling stock mtg. 663
Ship and boat building 700
Other transportation 437
equipment mfg.
Household and institutional 3,457
furniture and
kitchen cabinet mfg.
Office furniture (including 3,371
fixtures) mfg.
Other furniture-related prod. mfg. 87
Medical equipment and 314
supplies mfg.
Other miscellaneous mfg. 2,262
Appendix B: Data Issues
There are three main classification systems for grouping Canadian
exports. We use the North American Industrial Classification System
(NAICS) because it allows for the most exact matching between exports
and other data. The following table identifies the advantages and
limitations of available data and illustrates the advantages and
limitations of our approach (shaded).
Price/
Volume Services
Classification Breakdown Data
System Grouped by Available? Available?
Harmonized Commodities Yes No
System (HS)
The Standard Industries. No Services exports
Industrial Data are available at 1-2
Classification available at digit level on a
(SIC). either the quarterly basis.
Each HS code enterprise or
is assigned the plant
an SIC code. level, and
these two
groupings are
not easily
comparable.
North American Industries No Only for some
Industrial export codes
Classification
System (NAICS).
Each HS code is
assigned an
NAICS code.
Matching Data Available?
Classification U.S. Income
System Figures Statement Employment
Harmonized Internationally No No
System (HS) comparable at
6-digit level
The Standard No No No
Industrial
Classification
(SIC).
Each HS code
is assigned
an SIC code.
North American NAFTA countries At 2-digit Majority of
Industrial are in process level for all industries
Classification of transferring industries, at available on
System (NAICS). from SIC to 3- or 4-digit NAICS basis
Each HS code is NAICS, which level for
assigned an will be manufacturing
NAICS code. comparable industries
across NAFTA
Matching Data Available?
Classification
System Output Investment
Harmonized No No
System (HS)
The Standard No Only at 1-2
Industrial digit level
Classification on annual
(SIC). basis.
Each HS code
is assigned
an SIC code.
North American Output data are Available in
Industrial available in NAICS only
Classification System of for Canadian
System (NAICS). National Investment
Each HS code is Accounts (not FDI);
assigned an (SNA)-NAICS data for most
NAICS code. form. Each but not all
SNA-NAICS code NAICS 4-digit
concords with categories
one or more available.
NAICS codes
Table 1: Vulnerability of Top 30 Export Industries
to Security-Related Border Disruptions
Exports Physical Mode of
Industry (a) in 2001 Security Transport
(measure of
($ billions) vulnerability) (b)
Motor vehicle manufacturing 62.8 7 10
Oil and gas extraction 41.9 1 1
Motor vehicle parts manufacturing 16.8 7 10
Pulp, paper, and paperboard mills 16.5 4 10
Sawmills and wood preservation 10.2 4 10
Aerospace product and
parts manufacturing 10.2 7 10
Petroleum and coal
products manufacturing 9.3 5 8
Plastic products manufacturing 7.6 5 7
Communications equipment
manufacturing 6.6 7 10
Alumina and aluminum
production and processing 6.2 5 7
Resin, synthetic rubber,
artificial and synthetic
fibre, and filament
manufacturing 5.5 5 6
Basic chemical manufacturing 5.1 4 7
Nonferrous metal (except
aluminum) production
and processing 4.7 5 7
Electric power generation,
transmission, and distribution 4.2 1 1
Engine, turbine, and power
transmission equipment
manufacturing 4.2 7 10
Veneer, plywood, and engineered
wood product manufacturing 4.0 4 10
Computer and peripheral
equipment manufacturing 4.0 7 10
Other general-purpose
machinery manufacturing 3.9 9 10
Semiconductor and other
electronic component
manufacturing 3.5 7 10
Household and institutional
furniture and kitchen cabinet
manufacturing 3.5 7 8
Meat product manufacturing 3.4 7 10
Office furniture (including
fixtures) manufacturing 3.4 7 10
Rubber product manufacturing 3.1 5 7
Converted paper product
manufacturing 2.5 5 10
Electrical equipment
manufacturing 2.4 9 10
Iron and steel mills and
ferro-alloy manufacturing 2.4 5 7
Other miscellaneous manufacturing 2.3 7 8
Commercial and service industry
machinery manufacturing 2.2 9 10
Metal ore mining 2.0 4 4
Agricultural, construction, and
mining machinery manufacturing 2.0 9 10
Time People
Industry (a) Sensitivity Sensitivity
(measure of vulnerability) (b)
Motor vehicle manufacturing 9 4
Oil and gas extraction 10 1
Motor vehicle parts manufacturing 10 4
Pulp, paper, and paperboard mills 3 2
Sawmills and wood preservation 3 2
Aerospace product and
parts manufacturing 8 5
Petroleum and coal
products manufacturing 3 2
Plastic products manufacturing 5 2
Communications equipment
manufacturing 8 4
Alumina and aluminum
production and processing 4 2
Resin, synthetic rubber,
artificial and synthetic
fibre, and filament
manufacturing 7 2
Basic chemical manufacturing 7 2
Nonferrous metal (except
aluminum) production
and processing 4 2
Electric power generation,
transmission, and distribution 9 1
Engine, turbine, and power
transmission equipment
manufacturing 7 4
Veneer, plywood, and engineered
wood product manufacturing 3 1
Computer and peripheral
equipment manufacturing 9 4
Other general-purpose
machinery manufacturing 7 4
Semiconductor and other
electronic component
manufacturing 9 4
Household and institutional
furniture and kitchen cabinet
manufacturing 5 2
Meat product manufacturing 9 1
Office furniture (including
fixtures) manufacturing 6 2
Rubber product manufacturing 5 1
Converted paper product
manufacturing 5 1
Electrical equipment
manufacturing 8 3
Iron and steel mills and
ferro-alloy manufacturing 5 2
Other miscellaneous manufacturing 6 2
Commercial and service industry
machinery manufacturing 5 4
Metal ore mining 3 1
Agricultural, construction, and
mining machinery manufacturing 5 2
Overall
Location Index of
Industry (a) Sensitivity Vulnerability
(measure of vulnerability) (b)
Motor vehicle manufacturing 9 8
Oil and gas extraction 9 3
Motor vehicle parts manufacturing 9 8
Pulp, paper, and paperboard mills 6 5
Sawmills and wood preservation 6 5
Aerospace product and
parts manufacturing 9 8
Petroleum and coal
products manufacturing 3 4
Plastic products manufacturing 7 5
Communications equipment
manufacturing 9 8
Alumina and aluminum
production and processing 5 5
Resin, synthetic rubber,
artificial and synthetic
fibre, and filament
manufacturing 7 5
Basic chemical manufacturing 5 5
Nonferrous metal (except
aluminum) production
and processing 5 5
Electric power generation,
transmission, and distribution 9 4
Engine, turbine, and power
transmission equipment
manufacturing 7 7
Veneer, plywood, and engineered
wood product manufacturing 6 5
Computer and peripheral
equipment manufacturing 9 8
Other general-purpose
machinery manufacturing 7 7
Semiconductor and other
electronic component
manufacturing 7 7
Household and institutional
furniture and kitchen cabinet
manufacturing 7 6
Meat product manufacturing 7 7
Office furniture (including
fixtures) manufacturing 7 6
Rubber product manufacturing 7 5
Converted paper product
manufacturing 6 5
Electrical equipment
manufacturing 7 7
Iron and steel mills and
ferro-alloy manufacturing 7 5
Other miscellaneous manufacturing 7 6
Commercial and service industry
machinery manufacturing 7 7
Metal ore mining 1 3
Agricultural, construction, and
mining machinery manufacturing 7 7
(a) Industry description according to the four-digit-level
North American Industrial Classification System (NAICS).
(b) Vulnerability is measured on a scale of 1
(invulnerable) to 10 (highly vulnerable).
Sources: Industry Canada Trade Data Online; authors' calculations.
Table 2: Export Intensities for "Hot Corner" Industries
Export
Intensity,
Industry (a) 1999 (b)
(%)
Fruit and vegetable preserving and
specialty food manufacturing 25
Meat product manufacturing 25
Seafood product preparation and packaging 76
Bakeries and tortilla manufacturing 21
Other food manufacturing 22
Beverage manufacturing 17
Pharmaceutical and medicine manufacturing 33
Agricultural, construction, and mining
machinery manufacturing 50
Industrial machinery manufacturing 92
Commercial and service industry machinery manufacturing 100
Ventilation, heating, air-conditioning, and commercial
refrigeration equipment manufacturing 60
Metalworking machinery manufacturing 58
Engine, turbine, and power
transmission equipment manufacturing 100
Other general-purpose machinery manufacturing 74
Computer and peripheral equipment manufacturing 100
Communications equipment manufacturing 78
Semiconductor and other electronic
component manufacturing 53
Navigational, measuring, medical, and
control instruments manufacturing 55
Household appliance manufacturing 57
Electrical equipment manufacturing 79
Other electrical equipment and component manufacturing 54
Motor vehicle manufacturing 88
Motor vehicle body and trailer manufacturing 27
Motor vehicle parts manufacturing 64
Aerospace product and parts manufacturing 75
(a) Industry description according to the four-digit-level NAICS.
(b) Data on export intensity are combined from
two different sources that are not fully comparable.
Source: Industry Canada Trade Data Online.
Table 3: Estimates of Output Indirectly
Associated with Vulnerable Exports
Inputs to
Production
Process Import
(Including Content
Imports), of Inputs,
1998 1995
Industry (a) (1) (b) (2)
($ millions) ($ millions)
Crop and animal production 34,848 6,621
Fruit and vegetable preserving and
specialty food manufacturing 4,810 1,106
Meat product manufacturing 14,427 3,318
Seafood product preparation and packaging 3,157 726
Miscellaneous food manufacturing 15,185 3,493
Beverage manufacturing 13,267 3,051
Pharmaceutical and medicine manufacturing 5,371 1,343
Machinery manufacturing 23,449 12,193
Computer and peripheral
equipment manufacturing 5,386 1,885
Electronic product manufacturing 20,601 9,476
Household appliance manufacturing 1,892 662
Electrical equipment and
component manufacturing 7,286 2,550
Motor vehicle manufacturing 59,117 33,697
Motor vehicle body and
trailer manufacturing 2,691 1,534
Motor vehicle parts manufacturing 26,326 15,006
Aerospace product and parts manufacturing 9,784 3,424
Total
Average Estimate of
Export Indirectly
Intensities, Associated
1999 (c) Production
Industry (a) (3) (4) (d)
(%) ($ millions)
Crop and animal production n/a
Fruit and vegetable preserving and
specialty food manufacturing 25 934
Meat product manufacturing 25 2,737
Seafood product preparation and packaging 76 1,845
Miscellaneous food manufacturing 21 2,489
Beverage manufacturing 17 1,746
Pharmaceutical and medicine manufacturing 33 1,320
Machinery manufacturing 76 8,580
Computer and peripheral
equipment manufacturing 100 3,501
Electronic product manufacturing 75 8,333
Household appliance manufacturing 57 700
Electrical equipment and
component manufacturing 66 3,138
Motor vehicle manufacturing 88 22,449
Motor vehicle body and
trailer manufacturing 27 309
Motor vehicle parts manufacturing 64 7,295
Aerospace product and parts manufacturing 75 4,758
Total 70,131
(a) Industry description according to the NAICS.
(b) Inputs refer to the total value of commodities consumed as an input
to each industry's production; 1998 is the latest year available for
input data. Categories for input data are sometimes available only at
a higher level of aggregation than the NAICS four-digit categories.
Therefore, in a small number of cases, not all industries in a given
input grouping are highly vulnerable and valuable. In such cases,
figures on indirectly vulnerable production are overestimates.
(c) Data on export intensity are combined from two different sources
that are not fully comparable.
(d) The estimate of indirectly associated production is column 3
multiplied by the difference between column 1 and column 2.
Source: Statistics Canada, Input-Output
Division; authors' calculations.
Table 4: Jobs "at Risk"
Export
Employment, (b) Intensity,
2000 1999
Industry (a) (1) (2)
(number of jobs) (%)
Fruit and vegetable preserving and
specialty food manufacturing 25,206 25
Meat product manufacturing 56,545 25
Seafood product preparation and
packaging 30,535 76
Bakeries and tortilla manufacturing 42,874 21
Other food manufacturing 25,326 22
Beverage manufacturing 30,298 17
Pharmaceutical and medicine
manufacturing 23,755 33
Agricultural, construction, and mining
machinery manufacturing 23,749 50
Industrial machinery manufacturing 18,281 92
Commercial and service industry
machinery manufacturing 4,387 100
Ventilation, heating, air-conditioning,
and commercial refrigeration
equipment manufacturing 7,582 60
Metalworking machinery manufacturing 26,530 58
Engine, turbine, and power transmission
equipment manufacturing 21,681 100
Other general-purpose machinery
manufacturing 35,203 74
Computer and peripheral equipment
manufacturing 14,669 100
Communications equipment manufacturing 26,695 78
Semiconductor and other electronic
component manufacturing 27,371 53
Navigational, measuring, medical, and
control instruments manufacturing 28,149 55
Household appliance manufacturing 7,511 57
Electrical equipment manufacturing 20,037 79
Other electrical equipment and
component manufacturing 18,499 54
Motor vehicle manufacturing 54,556 88
Motor vehicle body and trailer
manufacturing 5,597 27
Motor vehicle parts manufacturing 98,154 64
Aerospace product and parts
manufacturing 49,073 75
Estimated total
Estimated
Number of
Jobs "at Risk"
Industry (a) (1) x (2)
Fruit and vegetable preserving and
specialty food manufacturing 6,357
Meat product manufacturing 13,933
Seafood product preparation and
packaging 23,173
Bakeries and tortilla manufacturing 8,888
Other food manufacturing 5,531
Beverage manufacturing 5,178
Pharmaceutical and medicine
manufacturing 7,782
Agricultural, construction, and mining
machinery manufacturing 11,832
Industrial machinery manufacturing 16,744
Commercial and service industry
machinery manufacturing 11,387
Ventilation, heating, air-conditioning,
and commercial refrigeration
equipment manufacturing 4,565
Metalworking machinery manufacturing 15,425
Engine, turbine, and power transmission
equipment manufacturing 21,681
Other general-purpose machinery
manufacturing 25,987
Computer and peripheral equipment
manufacturing 14,669
Communications equipment manufacturing 20,908
Semiconductor and other electronic
component manufacturing 14,583
Navigational, measuring, medical, and
control instruments manufacturing 15,443
Household appliance manufacturing 4,275
Electrical equipment manufacturing 15,759
Other electrical equipment and
component manufacturing 9,962
Motor vehicle manufacturing 48,178
Motor vehicle body and trailer
manufacturing 1,493
Motor vehicle parts manufacturing 63,250
Aerospace product and parts
manufacturing 36,716
Estimated total 386,981
(a) Industry description according to the four-digit-level NAICS.
(b) Where employment figures are unavailable, we estimate employment
assuming the ratio of exports to employees is the same as in other
"at risk" industries.
Sources: Statistics Canada, Survey of Employment, Payroll and Hours;
Industry Canada Trade Data On-line; authors' calculations.
Table 5: Canadian Investment "at Risk"
Capital
Spending
Intentions, Export
2003 Intensity
Industry (a) (1) (2)
($ millions) (%)
Fruit and vegetable preserving and
speciality food manufacturing 247 25
Meat product manufacturing 246 25
Seafood product preparation and packaging 57 76
Bakeries and tortilla manufacturing 193 21
Other food manufacturing 116 22
Pharmaceutical and medicine manufacturing 592 33
Agricultural, construction, and mining
machinery manufacturing 79 50
Industrial machinery manufacturing 50 92
Commercial and service industry machinery
manufacturing 77 100
Ventilation, heating, air conditioning,
and commercial refrigeration equipment
manufacturing 39 60
Metalworking machinery manufacturing 73 58
Engine, turbine, and power transmission
equipment manufacturing 48 100
Other general-purpose machinery
manufacturing 101 74
Computer and peripheral equipment
manufacturing 121 100
Communications equipment manufacturing 210 78
Semiconductor and other electronic
component manufacturing 241 53
Navigational, measuring, medical, and
control instruments manufacturing 124 55
Household appliance manufacturing 50 57
Electrical equipment manufacturing 43 79
Other electrical equipment and component
manufacturing 85 54
Motor vehicle manufacturing 2,174 88
Motor vehicle body and trailer
manufacturing 46 27
Motor vehicle parts manufacturing 561 64
Aerospace product and parts manufacturing 234 75
Total
Estimated
Annual
Investment
"at Risk"
Industry (a) (1) x (2)
($ millions)
Fruit and vegetable preserving and
speciality food manufacturing 62
Meat product manufacturing 61
Seafood product preparation and packaging 43
Bakeries and tortilla manufacturing 40
Other food manufacturing 25
Pharmaceutical and medicine manufacturing 112
Agricultural, construction, and mining
machinery manufacturing 39
Industrial machinery manufacturing 46
Commercial and service industry machinery
manufacturing 77
Ventilation, heating, air conditioning,
and commercial refrigeration equipment
manufacturing 23
Metalworking machinery manufacturing 42
Engine, turbine, and power transmission
equipment manufacturing 48
Other general-purpose machinery
manufacturing 75
Computer and peripheral equipment
manufacturing 121
Communications equipment manufacturing 164
Semiconductor and other electronic
component manufacturing 128
Navigational, measuring, medical, and
control instruments manufacturing 68
Household appliance manufacturing 29
Electrical equipment manufacturing 33
Other electrical equipment and component
manufacturing 46
Motor vehicle manufacturing 1,920
Motor vehicle body and trailer
manufacturing 12
Motor vehicle parts manufacturing 361
Aerospace product and parts manufacturing 175
Total 3,660
(a) Industry description according to the four-digit-level (NAICS).
Note: Since investment data classifications do not accord one-to-one
with four-digit NAICS export data, the categories here do not
correspond exactly with those in other figures and tables. For
example, beverage manufacturing is excluded from this table because
capital spending data are available only as part of NAICS three-digit
aggregates. Data are calenderized and expressed in current dollars.
Sources: Industry Canada, Trade Data On-line; Statistics Canada,
Survey of Investment Intentions; authors' calculations.
Table 6: Vulnerability by Province
Exports
Exports "at Risk" as a
above Proportion of
Vulnerability Provincial
of 6.5 Output
($ millions) (%)
Newfoundland and Labrador 465 4
Prince Edward Island 417 15
Nova Scotia 648 3
New Brunswick 864 5
Quebec 22,809 11
Ontario 108,321 28
Manitoba 2,503 8
Saskatchewan 559 2
Alberta 5,453 5
British Columbia 3,221 3
Exports
"at Risk" as a
Proportion of Estimated
Provincial Number of
Exports Jobs "at Risk"
(%)
Newfoundland and Labrador 22 600
Prince Edward Island 79 500
Nova Scotia 14 500
New Brunswick 12 600
Quebec 41 56,400
Ontario 68 624,600
Manitoba 35 1,300
Saskatchewan 8 400
Alberta 11 6,400
British Columbia 15 1,700
Note: For the provincial analysis, we examine all categories
over 6.5 on the vulnerability index. We do not set out a
dollar value threshold as we do for the national analysis.
Therefore, the numbers in this table do not correspond
directly to the national numbers.
Sources: Statistics Canada; authors' calculations.
Figure 1: Top Ten Border Crossings
Legend to Figure 1
Exports
to U.S.
($ billion)
Canadian Port U.S. Port 2000
1. Windsor Detroit 66.6
2. Sarnia Port Huron 60.7
3. Fort Erie-Niagara Falls Buffalo-Niagara Falls 50.2
4. Lacolle Champlain-Rousses Pt 16.7
5. Lansdowne Alexandria Bay 11.0
6. Surrey Blaine 9.9
7. Emerson Pembina 7.7
8. St. Armand Highgate Springs-Alburg 6.8
9. Coutts Sweetgrass 6.6
10. North Portal Portal 5.7
Source: U.S. Bureau of Transportation.
The authors would like to thank Alan Alexandroff, David Andrea, Wendy Dobson, Michael Hart, Jeff Heynen, John Higginbotham, Gary Hufbauer, Stephen Laskowski, Jack Mintz, Reid Morden, Chris Sands, several federal, provincial and U.S. government officials, and the participants in a June 17, 2002, Osgoode Hall Law School seminar on border issues for helpful comments on a previous draft of this paper. Responsibility for any errors is ours alone. The Border Papers "The Border Papers" is a project on Canada's choices regarding North American integration. It is produced with financial support from the Donner Canadian Foundation and guidance from an advisory board drawn from business, labour and research organizations. (1) This paper focuses on security-related disruptions at the border rather than other types of disruptions. Gridlock at the border had long been a problem prior to September 11, 2001 (see, for example, the 2000 Canada-U.S. Partnership Forum report). (2) As in "U.S. Identifies a Canadian as taker of martyrdom pledge," New York Times on-line edition. January 26, 2002. (3) Citizenship and Immigration Canada. News Release. October 12, 2001. Further information on the Canadian government's actions in response to the attacks of September 11, 2001, is available on the Government of Canada website at http://canada.gc.ca/united-states/security_e.html. (4) Many of these actions were discussed between the two governments prior to September 11, 2001. A confidential Canadian government memorandum on March 8, 2000, enumerates many of the joint security measures contained in the SBD, including joint investigations and operations, intelligence sharing, coordination of visas, asylum and removals issues and front-end refugee screening. It also referred to $354 million in expected funding between 1999 and 2003 on these and other initiatives. The request under the Access to Information Act was made by lawyer Richard Kurland and published in the October 2002 edition of Lexbase (Rekai, 2002). (5) In late January 2002, for example, Robert Bonner, the commissioner of the U.S. Customs Service, opposed plans to pre-clear low-risk trucks before they reach the border (see "Canada wants some trucks exempt from border inspection," New York Tunes, February 1, 2002). Bonner has generally emphasized security over trade, while Secretary of Homeland Security and former Homeland Security Advisor Tom Ridge has been a stronger proponent of risk management and trade facilitation. (6) One piece of evidence of the degree of cross-border integration is that in 1998, exports and imports within the same industries accounted for the majority of trade in almost all commodity groupings (Sawchuk and Sydor, 2002). (7) http://www.usembassycanada.gov/. (8) We use data from the U.S. Bureau of Transportation on the volume of U.S. imports at each border crossing. Statistics Canada data on Canadian exports are organized by port of clearance, not port of entry, which means, for example, that goods that physically cross the border at Detroit-Windsor may be recorded as having entered at Toronto's Pearson airport. (9) This focus keeps the discussion manageable, but neglects some important potential disruptions to commerce. Oil and gas pipelines and electricity cables, for example, are economically important potential targets of terrorism, but securing them is a very different task from managing flows at the border. Another physical flow from Canada to the United States that might create vulnerability to terrorist attack is Canadian garbage going to U.S. disposal sites--technically speaking, however, this is an import by Canadians of a service from the United States. A further limitation of our analysis is its inability to precisely measure Canadian service exports. Data on service exports are highly aggregated (at the 1-2 digit Standard Industrial Classification level), inhibiting a breakdown fine-grained enough to enable us to distinguish between those, such as transport services, that are highly vulnerable to border disruptions and others that are almost untouchable. Services that must be delivered face-to-face and at a particular time, such as a musical performance, will suffer more from border disruptions than those that must be delivered face-to-face, but where several hours of delay does not appreciably affect usefulness to the buyer. The latter are more vulnerable than services where personal contact is desirable but not essential; least vulnerable of all are services, such as data processing, that do not require anyone to cross the border. Sorting these categories out remains a task for the future. (10) It requires, on average, five inspectors three hours to conduct a thorough physical inspection of an 18-wheel truck (Flynn, 2002). (11) Our classifications are obviously made according to current practices, which are subject to both regulatory and behavioural changes. For example, one source of vulnerability to delays for goods transported by truck arises from Canadian regulations that require truck drivers to switch shifts after eight hours, even if those eight hours are spent idling at the border. Current U.S. customs proposals requiring transport companies to file shipment details 4-to-24 hours before trucks and trains arrive at the border will also affect the vulnerability of goods shipped by certain modes of transport. As for behaviour, shippers of vulnerable goods may switch modes or crossing points if delays appear likely. (12) Automotive parts are frequently delivered to a plant across the border within hours of an order--an engine leaving the Ford Motor Co. plant in Windsor, Ontario, will typically be in a vehicle in Michigan four hours later. Successful integration of parts, such as seats, depends on tight adherence to a just-in-time production schedule and is vulnerable to border disruptions (Andrea and Smith, 2002). The Canadian Vehicle Manufacturers Association estimates that unplanned production losses resulting from parts shortages cost manufacturing facilities $1-to-$1.5 million per hour (Canada, 2001). (13) We note, though we do not pursue the idea, that dependence on imported components that may themselves be subject to disruption at the border may increase the vulnerability of some exports. (14) Other countries, Mexico in particular, can also fill U.S. demand unsatisfied by Canadian suppliers, but it seems reasonable to assume that security-related disruptions in trade will be at least as great for Mexico as for Canada. (15) We base our mode of transport values on transport data available from Transport Canada. These data are in categories more aggregated than our export categories, necessitating some judgement on our part. (16) Data provided by Statistics Canada on Canada's exports to the United States are overstated because they include some shipments to third countries via the United States. Even though these "transhipments" should not technically be counted in Canada-U.S. trade, the exports still matter to output and jobs in the Canadian economy and are appropriately included in our analysis. (17) The descriptions of the mnemonics for each industry are in Appendix A. (18) The export intensity measure is for overall exports, not just exports to the United States. However, because of the dominance of the U.S. market in Canadian exports for most industries, the figures should be representative. Inconsistencies in the data sources used by Statistics Canada to calculate export intensity mean that the data should be interpreted with caution. (Some values slightly exceed 100 percent; we have rounded those numbers down to 100 percent.) (19) The import-content data are more highly aggregated than both the trade and input-output data and matching required some judgement on our part. We also note that the input-output figures we use may include some double counting. (20) Output per worker tends to be higher in exporting industries (Cameron 1999 estimates the margin at one-third in 1995). If this contrast holds within industries--that is, if output per worker is higher in companies producing a given good for export than in those producing it for the domestic market, Table 4 will somewhat overstate the number of jobs at risk. The toll in terms of wages and salaries would, in either case, be more proportional to the export intensities. (21) For foreign direct investment (FDI), there are no data available in the same categories as our trade data, and the most highly disaggregated data available only yield 17 categories. We focus here on Canadian capital expenditures rather than FDI because total FDI figures do not capture the differences between green-field investment, which creates new jobs and output in Canada, and purchases of existing assets. (22) We note again that these trade data are customs-based: they capture the province from which exports were shipped, rather than the province of origin. They may, therefore, overestimate the vulnerability of exports from Ontario, Quebec and British Columbia, and underestimate that of exports from other provinces. In the case of exports that are vulnerable because of time- or people-sensitivity, trans-shipment and therefore the size of this bias will be less important. (23) We base our estimation on 2001 employment Data. Provincial employment data are not available for many highly vulnerable industries and the coverage is quite poor, particularly for the smaller provinces. For industries where employment data are unavailable, we apply a province-specific, jobs-to-exports ratio based on the assumption that highly vulnerable exports have similar ratios within each province. We use the jobs-to-exports ratio associated with seafood manufacturing for PEI, which has no employment data for any of its highly vulnerable industries. We multiply this province-specific ratio by the value of vulnerable exports at risk to come up with tentative numbers of vulnerable jobs by province. We used province-specific ratios, rather than national ratios, to account for industrial and export intensity differences among provinces. (24) The choice of category codings involves some awkward tradeoffs. Price and volume breakdowns of trade data are available using the Harmonized System (HS) categories; however, the most readily available aggregations are not suitable for our purposes and these data complicate efforts to trace the effect on employment. Because monthly export data on a NAICS basis are in nominal dollars, both price and volume changes will affect the figures. See Appendix B for a chart highlighting the trade-offs involved in our data selections. (25) For example, DaimlerChrysler used a cross-border rail shuttle service set up by the Canadian Pacific Railway to transport plant-stopper components normally shipped by trucks over the border (Canadian Pacific Railway 2002). We are grateful to Dan Trefler for discussion on this point. (26) At least two implications of this approach warrant comment. First, differences in the number of working days may affect some exports and there was one fewer working day in September 2001 than in September 2000 (there were the same number in both Augusts and one more working day in October 2001 than in October 2000). Second, the impact of the border disruption likely dissipated faster in some affected categories than in others; if disruptions were still affecting some industries but not others after the end of September, using October-over-October figures as a control will distort the results. (27) We get similar results when we perform a regression comparing the changes in Septembers to those in August. As another check, in addition to regressing on the average vulnerability index, we perform a multiple regression using the individual indexes. We find that the coefficient on people sensitivity is high and the other variables do not really come in strongly; their coefficients are small compared with their standard errors, but the correlations among our vulnerability indexes mean that not much should be made of this result. When we regress on each of the indexes individually, we find that all coefficients are small and negative as we might expect. The strongest results are for people sensitivity and physical security. (28) According to the OECD (2002), worldwide transportation costs, in particular the cost of airfreight, stabilized six months after the attacks. But the sharp drop in aggregate demand since 2000 and the drop in fuel costs following the attacks should have led to a steep decline in freight costs, suggesting that the attacks, in fact, contributed to higher transportation costs. (29) Monthly data on inventories do not show any obvious pattern attributable to border-related slowdowns in shipments. (30) The null hypothesis that the mean crossing times from December 2000 to September 11, 2001, and September 12, 2001, to April 19, 2002, was the same was not rejected at the 95-percent confidence level. (31) We thank Stephen Laskowski of the Ontario Trucking Association for this information. (32) We use share-price indexes rather than total return indexes, which could affect our comparisons. (33) Employment data for selected industries only are available from Statistics Canada. However, these selected industries tend to represent the higher value categories. Data are from the Survey of Employment, Payrolls and Hours and are not seasonally adjusted. Since the reference period for this survey is the last week of every month, the September 2001 data would capture consequences of the border disruptions and the October 2001 data would capture the situation a month and a half after the attacks. (34) Since we are interested in temporary disruptions, we use the same measure as for our export analysis, dropping time- and location-sensitivity from the index. (35) No comparable data exist on investment intentions by foreigners. Actual FDI for 2001 showed large increases for three of the four industry categories that correspond more closely to our most vulnerable group: transportation equipment, machinery and equipment and electronics. Actual data for 2002 will not be available for some time. (36) For a complete description of progress on the SBD, see United States, 2002. (37) Participants in NEXUS are pre-approved by both Canada and the U.S. as low-risk travellers who use dedicated lanes at border crossings and are not regularly subject to the usual customs and immigration questioning. (38) Despite the joint posting of officials, adding an extra car to a train already cleared at a port may make the initial inspection invalid from a security perspective. (39) Transport Canada email communication with the authors, November 28, 2002. (40) "Canada and the U.S. Enhance Security Cooperation" <www.canadianembassy.org/homepage/index-en.asp, visited December 10, 2002>. (41) We are grateful to Chris Sands for discussion of this point. (42) Given the unique set of issues on the Canada-U.S. border, it would probably make more sense to pursue a bilateral Canada-U.S. framework that would be open to, but not require, Mexican accession. References Andrea, David J. and Brett C. Smith. 2002. "The Canada-U.S. Border: An Automotive Case Study." Center for Automotive Research at the Altarum Institute. Prepared for the Department of Foreign Affairs and International Trade, Government of Canada. January. Canada. 2001. Standing Committee on Industry, Science and Technology. "Getting Back to Business." House of Commons. November. Canadian Pacific Railway. 2002. "Security: Economic Impact of Cross-Border Trade." Presentation to 2002 Border Trade Alliance International Conference, February 2. Cameron, Grant. 1999. "Exports, GDP and Jobs." Perspectives on Labour and Income, Statistics Canada Catalogue 75-001-XPE, Winter. Fairfield, J. Elton. 2001. "An explanation of the Canada-U.S. Border Effect." PhD thesis. University of Western Ontario. Flynn, Stephen. 2002. "America the Vulnerable." Foreign Affairs. January/February. Gotlieb, Allan. 2003. "A grand bargain with the U.S." National Post, March 5, 2003. Hart, Michael. 2002. Testimony to Standing Committee on Foreign Affairs and International Trade. 37th Parliament, 1st Session. House of Commons. February 5. Hufbauer, Gary and Gustavo Vega-Canovas. 2002. "Whither NAFTA: A Common Frontier?" Mimeo. June. KPMG. 2002. "Report on the Survey of Canadian Commercial Carriers on Border Crossing Issues." August 21. Survey conducted by KPMG LLP and International Road Dynamics Ltd. O'Hanlan, Michael E. et al. 2002. Protecting the American Homeland: A Preliminary Analysis. Washington, DC: Brookings Institution Press. Organisation for Economic and Security Cooperation (OECD). 2002. Economic Outlook No. 71. Chapter 4: Economic Consequences of Terrorism. Paris: OECD. Sands, Christopher. 2001. Presentation to "Canada's Policy Choices: Managing our Border with the United States." Public Policy Forum. November 29. --. 2002a. "Rising Power or Fading Power: 11 September and the Lessons of the Section 110 Experience." In Maureen Appel Molot and Norman Hillmer, eds., A Fading Power: Canada Among Nations 2002. Don Mills, Ontario: Oxford University Press. --. 2002b. "The Eavesdropping Problem." Canada Focus. Centre for Strategic and International Studies. Volume 3, Issue 2. January. Sawchuk, Gary and Aaron Sydor. 2002. "Mexico's and Canada's Changing Trade Specializations with the United States." Mimeo. January. Pastor, Robert. 2001. Towards a North American Community. Institute for International Economics. Washington, DC: IIE. Papademetriou, Demetrios G. and Deborah Waller Meyers, eds. 2001. Caught in the Middle: Border Communities in an Era of Globalization. Carnegie Endowment for International Peace. Rekai, Peter. 2002. "U.S. and Canadian Immigration Policies: Marching Together to Different Tunes." C.D. Howe Institute Commentary No. 171. Toronto: C.D. Howe Institute. November. Transport Canada. 2000. Transportation in Canada: Annual Report. United States. 2002. White House Press Release. "U.S.-Canada Smart Border/30 Point Action Plan Update." December 6. Danielle Goldfarb is a Policy Analyst at the C.D. Howe Institute. William B.P. Robson is is Senior Vice-President and Director of Research at the C.D. Howe Institute, and a part-time instructor in public finance and public policy at the University of Toronto. |
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