By Carlo Dade
Published in BIV Magazine, Gateway issue
August 2, 2022
Canada can enhance its competitiveness through joint infrastructure improvements with its largest trade partner
Preventing flooding in Sumas Prairie, laying high-speed cable in the Cascadia Corridor, building customs and border clearance facilities in Vancouver harbour and, of course, southbound highspeed rail from Vancouver are all specific, anecdotal arguments for the creation of a North American Infrastructure bank. In each case, a bi- or tri-national body would provide missing, objective, independent, long-term data on trade flows, on integrated production and supply chains, on environmental impacts and on other factors to identify needed investments. And, yes, the bank could also provide financing. These types of projects tend to fall outside the mandate of the Canadian Infrastructure Bank, so there really is no mechanism to collect the data and advise – let alone fund – critical projects.
This is not just an irritant to enhancing integration between two economies – where US$2 billion a day crosses the border – and within a trade bloc that accounts for nearly 75% of Canada’s exports, 45% of its imports and 42% of the country’s gross domestic product. It is a competitive disadvantage for Canada’s global trade.
The North American trade bloc is one of the only ones without a dedicated, independent, third-party entity that collects data on the flow of goods, people and services throughout its integrated supply and production chains. We make things together in North America. Companies and some government agencies have limited window into the movement of goods and people within their sector, but no one has a complete picture, and very few have long-term data. No one has expertise in how to invest to make integrated supply and production chains more efficient and productive. It’s a process of re-learning and reinventing the wheel from one project to the next.
This is not (or is less) the case in other trade blocs. The countries of the Pacific Alliance – Mexico, Colombia, Ecuador, Peru and Chile – use the resources, expertise and data of the Inter-American Development Bank to make their trade bloc more competitive. Likewise, the Association of Southeast Asian Nations has the Asian Development Bank and, more recently, the Asian Infrastructure Bank. This repeats in Africa, in the Caribbean and in Europe. But not in North America, despite the fact that Canada and the U.S. fund (and in some cases are the largest shareholders in) regional banks that help other trade blocs enhance their competitiveness through trade infrastructure improvements.
Thirty years ago, a deliberate decision was taken to not build robust tri-lateral institutions. After 25 years of trade integration, the three national governments barely exchange information on critical infrastructure plans, let alone work together to ensure cross-border infrastructure development meets the needs of producers, shippers and travellers. It’s time to revisit this.
The U.S. is moving massive amounts to fund infrastructure and Canada has the Canadian Infrastructure Bank, which will have $19 billion unspent at the end of its mandate, according to the Parliamentary Budget Office. Work by the George W. Bush Institute and the Canada West Foundation show that a North American Infrastructure Bank would need to be capitalized with US$4.5 billion. Assuming that the bond markets and rating agencies would accept a paid-in capital of 15%, then only US$675 million would be paid in cash, with half (US$335.5 million) coming from the U.S. and the rest from Mexico and Canada. Around US$168.75 is an amount that Canada can easily afford – less than 1% of projected unspent Canada Infrastructure Bank funds.
This is a minuscule price to resolve all of the problems along the Cascadia and Detroit-Windsor corridors, and to seize all of the potential along the Canada-U.S. border. In a world where trade has become difficult and downright hostile, and where competitors like China are spending to make their trade blocs more competitive, physically strengthening our North American trade bloc is an idea whose time has finally come. And fixing Sumas Prairie is a good place to start.
Carlo Dade is director of the Canada West Foundation’s Trade & Investment Centre.