Purpose

2. Purpose • Outline the benefits of North American integration in agri-food sector • Describe new type of impediments to integration • Discuss ways policymakers could cooperate to minimize these new impediments

3. Source: USDA, ERS. Over past decades, North American governments have removed barriers to greater integration… • Reduced border costs through regional trade agreements • reduced/eliminated tariffs, reformed support • facilitated dispute resolution • Policies have contributed to increased regional agri-food trade • Trade within North America growing much faster than trade with rest of world

4. Source: Bureau of Economic Analysis, USDA, ERS. …enabling industry to increase investments, build efficient continental supply chains • Industry has restructured to take advantage of North American opportunities • Foreign direct investment in North American agri-food tripled over last decade • Many agri-food businesses depend on open borders for access to inputs and to markets • e.g. meat packing facilities in Northern U.S. depend on supplies of Canadian slaughter cattle Billions US$ Canada Mexico

5. Source: USDA, ERS. Integration is broad but asymmetrical • All three NAFTA countries have changed and benefited from integration • But the benefits and changes are deeper in Mexico and Canada, given relative size of industries • Risks are also greater in Canada and Mexico

6. In past, integration has overcome traditional frictions Trade distorting domestic support Tariffs Border administration AD / CVD Exchange rate volatility New frictions emerge from time to time – e.g. COOL But now integration faces a new type of challenge – risk of complete loss of market access BSE Bioterrorism? Another disease? We face new impediments to integration

7. As integration deepens, the cost associated with new impediments increases • Border closures do not simply divert trade, they disrupt supply chains • Once industry has re-structured on basis of integrated market, border disruptions become very difficult to manage

8. BSE has clearly highlighted new challengesto integration • Industry disruption policy-induced, not consumer-driven • North American beef consumption held steady or increased • Policy response inside North American affects how other countries respond • Unilateral action cannot solve problems in a heavily integrated market • Interaction of domestic policy with international negotiations • Harmonized NA approach on SRM, BSE testing • Common position on OIE changes

9. Alberta vs. U.S. Weekly Steer Price Discovery of BSEin Canada Discovery of BSEin the U.S. U.S. 5 Market 65-80% Choice Steer Alberta Steer BSE shock is motivating industry to limit exposure to future access risk • Dis-integration of cattle market a deep shock • Canadian industry looking at increasing domestic beef packing capacity • Feedlots and packers in northern U.S. continue to diversify sources of cattle

10. Further integration requires industry confidence in gov’t management of border risks If not, industry may self-insure against risks Supply chain dis-integration Trade in final products rather than intermediate goods Future of integration hinges on industry perception of “closure risk” Source: Kerr, 2003 Status quo policy may risk unintentionally eroding integration and losing its benefits

11. Challenge for policymakers is to work together to minimize perception of this risk… • Domestic policy ineffective unless reality of North American integration taken into account • World increasingly views NA as one market • Agri-food markets already so well-integrated that it is difficult to contain hazards within national boundaries • Need to cooperate, recognize to create food safety “perimeter” around North America • Reduce risk of food safety event in any of three countries …and maintain access to world markets

12. Options for enhanced cooperation • Agreement on “behind-the-border” measures to prevent food safety events • Co-ordinated standard setting, harmonization, mutual recognition • Development of agreed procedures for timely response to food safety events should they occur • Establish timelines for bilateral/trilateral consultation, exchange of information, and announcement of joint measures • Minimize duration and scope of border closures and establish clear criteria for border re-opening

13. Options for enhanced cooperation • Build on existing mechanisms for trilateral/bilateral collaboration • NAFTA committees and working groups, bilateral/trilateral agricultural accords, BSE committee, etc. • Champion NA approach as template for future multilateral agreements • Multilateral negotiations on food policy (WTO, Codex, OIE) progressing slowly and with difficulty

14. Issues for discussion • How best can governments work together to reduce the perceived risk of complete border closures in future? • Where are the remaining opportunities to strengthen coordination of food safety and border policies? • What changes are possible to facilitate greater co-ordination of regulatory processes? • Are existing forms of institutional cooperation adequate or do we need new ones?