As Paul Martin prepares to improve relations with the United States, a new study dramatically reveals how costly deteriorating ties have been to Canada's economy. The Fraser Institute's 2003 Trade Survey, The Unseen Wall, released today, shows that a remarkable 96 percent of Canadian exporters surveyed believe that Canada/US relations have worsened over recent months and - far more worrisome - two-thirds believe it has damaged their ability to sell to the United States.

As a result, a significant number of Canadian firms reported moving production to the United States or ceasing export activity.

"As protectionist sentiment builds in the United States and even business friendly media run anti-trade features, this survey shows how much bad relations have cost Canadians in prosperity and jobs," says Fred McMahon, principal author and director of the Institute's trade and globalization centre.

The survey examines non-tariff, non-quota trade barriers: discriminatory use of regulations, border delays, and buy-national policies. The number of exporters who reported facing such barriers has dramatically risen from 45 percent in 2002 to 72 percent in the 2003 survey.

"A third of everything produced in Canada is exported to the United States, with the trade surplus alone equal to nearly 10 percent of our economy," McMahon noted. "That surplus puts the lie to the view the United States is a trade bully, but provides a rich target for US protectionists and nationalists who, like their Canadian counterparts, invoke cries of 'sovereignty' to protect national interests and jobs."

Results

• 72 percent of survey respondents reported facing unofficial trade barriers.
  
• 96 percent said Canada-US relations have worsened over the last 12 months and two-thirds said this has negatively affected their ability to export into the US market.
  
• 100 percent of defense and aerospace firms said US buy-national policies formed a barrier to trade.
  
• The automobile sector reported the fewest barriers, with 45 percent of respondents saying they faced no unofficial barriers.
  
• 13 per cent of firms facing discriminatory regulations and 8 percent of firms challenged by buy-national policies withdrew from the US market. 12 percent of firms facing buy-national policies opened up US production facilities.
  
• 72 percent of respondents found the NAFTA dispute settlement mechanism either very effective or somewhat effective; 57 percent found the WTO mechanism very effective or somewhat effective.

Recommendations

• Harmonize regulatory standards to eliminate the use of discriminatory regulations.
• Improve Canadian security measures to alleviate border delays related to security concerns.
• Launch negotiations to broaden and deepen NAFTA, with an emphasis on developing a more effective and speedy dispute settlement mechanism. Also negotiate clauses to eliminate buy-national and buy-local policies on both sides of the border.
• Initiate discussions about developing a customs union with the United States.

Survey characteristics

Five hundred companies were surveyed and 107 firms responded (a 21.4 percent response rate). Very small to very large exporters are represented in the survey, from companies with US exports of $10,000 to $2 billion. Responding firms represented a broad range of dependence on the US market, with US exports representing from 0.5 percent to 100 percent of company sales.

As Michael Hart, Simon Reisman Professor of Trade Policy at the Norman Paterson School of International Affairs, Carleton University, writes in his foreword, the study "provides valuable information on how those on the frontlines of Canada's trade with the United States view at least some of the barriers they face in exporting."