Walk through the baby food aisle of any Canadian grocery store, and you’ll find big cans, not the convenient single-serving size U.S. consumers prefer. It’s not that Canadian consumer preferences are much different, but the government doesn’t allow fruits and vegetables to be packed in anything other than a one-size-fits-all container.
It’s just one example of the subtle differences in food safety and regulatory structures that can make a big difference for manufacturers and shippers that sell and operate in the world’s two largest trade partners.
“There is a tyranny of small differences that make it complex if you’re trying to make a product in one country and sell it in the other,” said Kelly D. Johnston, vice president for government affairs at Campbell Soup. “Canada is the only country I know that dictates the size of those cans. If you’re making fruits or vegetables, you have one size can in Canada, and you have the other size can in the U.S. because that’s what consumers like. It would be nice if we could use the same can size.”
For Campbell Soup and other companies like it, business is about to get a whole lot easier after President Obama and Canadian Prime Minister signed a U.S.-Canada border agreement last week that combines regulatory reform with efforts to speed the movement of cross-border cargo.
One likely way that will happen is allowing customs clearance in Canada at a separate location from the crossing station as a way to relieve congestion. Campbell itself has 7,000 truck crossings a year, and that doesn’t include truckloads of ingredients shipped to soup factories from other suppliers.
Another key element of the border agreement is harmonization of regulations. Johnston, vice chairman of the Canadian American Business Council and a former secretary of the U.S. Senate, said companies strongly support the idea of regulatory change, but are skeptical of the new plan until they see the details. “Structurally, what they’re talking about sounds really exciting for us. It sounds like there is complete buy-in from the regulatory agencies, which we didn’t have three or four years ago,” he said.
In 2005, the U.S., Canada and Mexico signed the Security and Prosperity Partnership of North America, which was intended to break down the same regulatory barriers. The idea didn’t take root. “We had clear pushback from agencies in the U.S. and Canada,” Johnston said. This time there appears to be strong leadership in Washington and Ottawa behind the effort.
“There are going to be clear deadlines, with clear deliverables and clear accountability,” Johnston said. “They’ve talked openly about pilot projects, which I think is extremely important. We test-market almost everything we do, but in the federal government, there has been pushback. We can test a regulatory idea and see what works before we roll it out on a permanent basis.”
The Obama administration’s National Export Initiative is driving the action plan, Johnston said. “They realize how many impediments there are,” he said. “They began to realize that the U.S. and Canada make things together. These two countries have the most integrated supply chains in any marketplace in the world with the possible exception of the European Union.”
Canada and the U.S. are working toward “perimeter security” for North America in which there would be a bilateral security effort for goods and passengers traveling from abroad, but with fewer constraints on cross-border travel, said Birgit Matthiesen, special adviser to the Canadian Manufacturers and Exporters, the country’s largest trade and manufacturing association.
“We will be looking to see how the agreement supports the bilateral trade across the border, supports the manufacturing sector and what real-life benefits will come to our most trusted corporate citizens,” Matthiesen said. “These companies have spent millions of dollars to participate in such programs as C-TPAT. The time has come for us to recognize that these companies have done their part. We’d like to see the programs expand, but we would like to see some real benefits.”
Security measures since September 11 have “thickened” the U.S.-Canada border, making the movement of people and goods more difficult. Border compliance costs Canadian companies $13 billion a year, about 1 percent of the country’s GDP, the Canadian Manufacturers and Exporters group estimates. Now the U.S. government has increased by 60 percent Customs and Border Protection’s merchandise processing fee. The increase is intended to offset revenue that will be lost as a result of the recent free trade agreement with South Korea.
“That will have a disproportionate impact on Canada-U.S. trade,” Matthiesen said. “U.S. companies buy our products at the rate of one every one or two seconds.” U.S. and Canadian manufacturers will bear the brunt of the fee increase, while competing against Korean goods that now have favorable access to North American markets, she said.
The U.S. and Canada shouldn’t throw away 18 years of progress under the North American Free
Trade Agreement, Matthieson said. “That’s why the border announcement is so important, because the border has become more expensive,” she said.
Ironically, the drive for a more open border comes at the same time as a U.S.-Canada skirmish over alleged diversion of containers from U.S. West Coast ports to Prince Rupert, British Columbia. The Federal Maritime Commission is accepting public comments until Dec. 22 on factors that may contribute to shippers’ choices of a port in the U.S., Canada or Mexico.