Adapting to the Continental Market

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Adapting to the Continental Market

• 7 March, 2002

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Outline

• Status of Harmonization
• Trade Trends
• Infrastructure and Technology
• Policy Framework
• Policy Themes
• Policy Options
• Conclusions

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NAFTA Motor Carrier Harmonization

• Federal in U.S. / Provincial in Canada
• Regional size weight standards
• Safety rating system and database?
• Some standards diverging
• Roads and traffic control standards done
• Successful automation depends on harmonization

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NAFTA Rail Harmonization

• Class 1s federal in all 3 countries
• Class 1s have harmonized technical stds
• Short lines harmonized via interchange
• Govnt safety standards were largely harmonized,
  but little progress on oustanding issues since
  1994
• Tax differential (13 vs 6 of revenues)
• Economic regulations

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Harmonization More Important Than Ever

• Border Processes
• Competitiveness
• Investment
• Plant consolidation
• Intrafirm Trade

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Trade with U.S. in U.S.
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GDP U.S.
8
Exports / GDP
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International vs Interprovincial
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Infrastructure

• Ontario accounts for 66 of Can trade with U.S.
• U.S. 6.1 billion cost to expand trade highways
  and border crossings along eastern border
• Who should pay for this?
• Road as a public good, rail as a business?
• President Bushs 2003 budget proposes U.S. 8.8
  billion for transport security while cutting
  highways 8.5 billion (-26)
• Thus, need better use of existing road and rail
  infrastructure via modal integration

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Information Technology

• IT is the key to streamlining the border,
  improving safety compliance and recovering
  highway costs
• Who should pay 2.3 billion Canadian road IT bill?

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Mode Characteristics

• No good or bad modes of transport
• Different modes have different advantages in
  different circumstances
• Combined transport makes the optimal use of each
  and matches tool to task, maximizing system
  competitiveness
• Competition between intermodal service providers

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Policy Framework

• NAFTA LTSS to harmonize land transport standards
  (U.S. is dominant economy)
• Synergy between NAFTA Internal Harmonization
• Multiple jurisdictions, multiple regulations,
  multiple information systems

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Policy Themes / Challenges
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Policy Principles
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Harmonization

• Establish federal standards for extraprovincial
  motor carriers and make the regulatory system
  more consistent with the U.S. and across modes.
• Harmonize fiscal (tax) policies for
  transportation to improve competitiveness
• Harmonize to the U.S. intermodal policy framework
  to provide a more seamless transport system
  across the border and across modes
• Expand the use of information technology for
  safety and security in order to level competition
  and resolve border access

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Balanced Investment

• Electronic road pricing to recover costs from
  commercial goods vehicles, which would stimulate
  investment in other modes and intermodal
  solutions.
• Second best option would be to give other modes
  and intermodal connectors access to road funds.
  Examples
• Shadow tolls to road and rail infrastructure
  providers
• Intermodal criteria for infrastructure funds
  (e.g. U.S. TEA)
• Consider environmental effects in infrastructure
  investment allocations

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Competition

• The most economic solution would be to implement
  electronic road pricing for commercial goods
  vehicles. This is compatible with NAFTA
  harmonization if implemented across borders. If
  done only in one country, would require revenue
  recycling that is not trade distorting.
• If not road pricing, the second best option would
  be to make public costs more transparent.
  Examples
• Internalize public costs in transport charges
  (debits/credits)
• Shipper tax credit for alternatives to road
  haulage

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Innovation

• Electronic road pricing would lead to better
  allocation of resources and new service packages
  combining modes.
• Electronic border processing and safety
  compliance would facilitate border access, level
  competition between motor carriers and reduce
  barriers to combined transport
• There are already a number of intermodal
  innovations. Examples include freight
  forwarders, logistics firms, short line
  intermodal service, and railcar/intermodal
  equipment pooling. Policy reform would allow
  more to be done.

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Relevant Comments

• Canada Transportation Act Review Panel proposed a
  more cohesive framework for motor carriers,
  implementing user pay for roads, allowing other
  modes to compete for road funds and internalizing
  environment costs
• Transportation Climate Change Table did a very
  detailed analysis of changes to transport
  operations and taxes, but did not examine major
  policy reform
• Millennium Conference speakers advocated
  continental fiscal and regulatory harmonization,
  that the federal government play a stronger role
  in motor carrier regs, and integrated intermodal
  transportation policies.

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Conclusions

• Assess options in dynamic continental market
• Harmonization includes tax reform, federal motor
  carrier standards and intermodal policy
• IT is the key to improving efficiency, security
  and sustainability
• Best option is road pricing. Second best would
  make government funding available to other modes
• Fiscal and regulatory harmonization, along with
  reforming government freight subsidies, would
  stimulate innovation, efficiency and private
  investments.