Tuesday, June 10, 2008

Border Paranoia

(GlobendmailOnline – Barrie McKenna)

Keeping Americans safe has become an insidious economic killer

Delays and heightened security have made flying such a hassle that people are apparently going to great lengths to avoid it. Air travellers dodged 41 million trips in the past 12 months, costing the economy $26.5-billion (U.S.), according to a new survey by the U.S. Travel Industry Association. Nearly one in three travellers reported ducking at least one trip.
This hefty toll doesn’t appear in the official reading of gross domestic product. But the cost of avoidance is no less real, calculated in losses to the airlines, hotels, restaurants and government taxes.

A remarkably similar phenomenon is steadily chipping away at Canada-U.S. trade. Businesses have complained bitterly about a gradual “thickening” of the border since the 2001 terrorist attacks. Increased fees, delays, redundancy and inspections have compounded the cost of doing business in the United States.

Even more disquieting is the trade that isn’t happening.

The cost of lost trade is steep, according to new research by Ottawa economist Patrick Grady. Mr. Grady set out to determine how significantly Canadian exports of goods and services had been affected by the thicker, post-9/11 U.S. border.

So he applied econometric tools to estimate what Canadian exports might have been in the absence of tighter U.S. security, based on established trading “relationships.”

Mr. Grady excluded energy exports, which have surged since 2000 and are largely unaffected by border controls. He also hived off softwood lumber exports, which have been subject to U.S. restrictions throughout this decade.Unlike earlier studies, he calculated the impact of tighter security, not just on goods, but on exports of services, including travel, shipping and various other commercial services.

The sobering findings suggest that Canadian goods exports are 12.5% lower than they should be. Services are off 8%. That equates to roughly $30.6-billion (Canadian) in lost goods exports in 2007 and another $3.1-billion in forgone service exports, according to Mr. Grady’s model.

That isn’t just thick. For a substantial amount of trade, the border is apparently impervious. Read the complete article.