Commentary: US-Canada Border War, Eh?

My Canadian friend on the phone sounded mystified. He’d read the Federal Maritime Commission’s report on cross-border container shipments, and was asking: What does it mean?

Good question.

Long before the FMC report was issued, similar queries arose on both sides of the 49th parallel. Canadian officials raised concerns of U.S. protectionism. U.S. cargo interests asked why the commission was investigating something that seemed obvious.

Several West Coast senators and representatives requested the FMC inquiry into cross-border shipments on behalf of constituent ports that compete with Prince Rupert and Vancouver, British Columbia.

FMC Chairman Richard Lidinsky Jr. was happy to oblige. He’s been interested in the issue since the early 1980s, when he was at the Maryland Port Administration and wrote a law review article on the subject.

Back then, U.S. North Atlantic ports were trying to stop their region’s cargo from taking a cheaper route through Montreal. The issue eventually faded, only to be revived by the 1986 enactment of the U.S. Harbor Maintenance Tax on waterborne commerce.

Today, West Coast ports contend the HMT, based on the value of imports and domestic shipments, is a big reason Prince Rupert has gone from a startup port in 2007 to one handling more than 500,000 20-foot-equivalent units a year.

Although the FMC found nothing illegal about cross-border shipments via Canadian ports, the commission’s report sympathized with U.S. ports’ claims. It suggested that advantages of Canadian ports may be overstated, and said the HMT appears to tip the scales in their favor.

Exempting U.S. importers from the HMT, or imposing an equivalent fee on imports via Canadian ports, would likely shift some cargo back to U.S. ports, the report asserted. It suggested Congress consider those and other proposals, including one to establish a “national transportation policy.”

Not so fast, said dissenting FMC members Rebecca Dye and Michael Khouri. They said the HMT can’t be viewed in isolation from other market dynamics. Dye called the FMC report “a political policy paper developed to justify a predetermined conclusion” that the HMT causes cargo diversion.

Back to my Canadian friend: He wondered whether the report would spur Congress to impose a cross-border cargo fee or some change to the HMT.

The prediction here is it won’t. The HMT was enacted only after years of deadlock over the funding of dredging. Despite complaints from West Coast ports, there’s no consensus today that the HMT is causing enough difficulties to upset the status quo.

As many shippers and others told the FMC, Prince Rupert’s growth is due less to HMT avoidance than to geography, smooth ship-to-rail transfer and efficient intermodal service to the U.S. Midwest.

One industry commenter told the FMC that the only sure way to stop U.S. shippers from using Prince Rupert would be to “change the curvature of the earth.”

As of this writing, no one in Congress has proposed such a change. But don’t laugh. Stranger things happen in Washington.

Contact Joseph Bonney at Follow him on Twitter @josephbonney.

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