The success of Canada’s Asia Pacific Gateway and Corridor Initiative (APGCI) and other gateway strategies have provoked emulation and envy south of the border, as they bring significant rewards in trade, especially with Asia, to both countries.

The APGCI combined Canada’s geographic advantage, smart strategic infrastructure investments linked to international trade, unprecedented federal-provincial-stakeholder partnerships, vigorous marketing in the United States and East Asia and a vision of Canada’s West Coast as the gateway of choice for Asia-North American trade. Based on Canada’s excellent ports and railways, it is an essential instrument in making Canadian trade diversification a reality as well as serving North American economic integration.

Unfortunately, allegations by a few Congressional figures of diversion of U.S.-bound container traffic from U.S. West Coast Ports through Canadian ports and railroads have persuaded the U.S. Federal Maritime Commission (an American regulatory agency reporting to the Congress and Administration) to carry out a formal official inquiry on the issue. Scores of Canadian and American stakeholders have submitted detailed filings to the FMC addressing the economics of this traditional border commerce, and addressing loose talk of new border fees, Canadian tax avoidance and unfair subsidies, and weak container security.

The commission will soon issue its final report. One hopes it will recognize without reservation that free choice by North American consumers, producers and shippers is the engine driving container trans-shipment from Asia through Canada to and from the United States. Choice also brings Canada-bound container cargoes profitably to Eastern Canadian markets through U.S. East Coast ports.

No American private sector importer, exporter or shipper has ever complained about the U.S.- Canada-Asia supply chain. As in the XL pipeline delay, the risk of U.S. transport protectionism has come as a surprise to Canadians. Our economies are historically integrated. There is no closer friend and ally of the United States than Canada in trade through the WTO, FTA and NAFTA, and in handling international marine container security at many stages in the supply chain.

Container security is strong and multi-layered in North America and will be further enhanced by the historic agreement between president and the prime minister on the Beyond the Border action plan.

We have been full partners in the U.S. Container Security Initiative for years, and the relationship and cooperation between U.S. and Canadian customs and security agencies is intense. This is not surprising given our history of uniquely close Canada-United States political, security and people-to-people relations through two World Wars, Korea, NATO, continental defense through NORAD, comprehensive domestic security and intelligence cooperation since 9/11, fighting the war in Afghanistan together, and huge investments of people and treasure in the domestic struggle against terrorism.

Canada’s ports and railways, while carefully regulated by government, are run on strict market principles. Their highly-competitive performance is not the result of direct subsidization, which is a specific term in international trade law that applies to goods and not to services. It is not applicable to generally available public economic services and facilities like road, rail and port transportation.

Services are not subject to trade remedy measures. Neither NAFTA nor the WTO provides for countervail or dispute resolution in the circumstances under discussion, other than exhorting freer trade in services. Canada and the United States have pledged repeatedly in Summits to resist protectionist tendencies and cut red tape, a message that has apparently not reached those supporting action against Canadian ports and railways.

Essential transport infrastructure receives government investment and support in the United States, Canada and all other countries. There are myriad examples of US government support for transportation infrastructure, including ports.

The U.S. Department of Transportation’s TIGER (Transportation Investment Generating Economic Recovery) grants attempt to address inter-modal freight bottlenecks, but US corporate and other officials have spoken even more highly of the effectiveness of Canada’s APGCI investments, which better reflect national stakeholder priorities.

Last year, a senior Port of Seattle representative testified before the Senate Subcommittee on International Trade, Customs and Global Competitiveness: “If we were to emulate the Canadians and execute a national goods movement strategy, we could improve and make the most of our existing trade infrastructure, create jobs, save billions of taxpayer dollars by ensuring that investments are made in the right place at the right time, and we can do it in a way that minimizes global carbon emissions.”

Further U.S. subsidies will flow to the transport sector as Congress considers new legislation. The Recent American Recovery and Reinvestment Act and new pending funding bills (especially the long term surface re-authorization bill that includes a National Freight Strategy) have or will pump billions of public dollars into transportation facilities. Department of Transportation Secretary Ray LaHood has underlined the need to invest in ports, and major U.S. private and public investment is now flowing into U.S. ports and rail corridors.

These investments will contribute in the same way as do Canadian federal and provincial government infrastructure investments to the overall effectiveness and competitiveness of the North American productivity platform.

The container diversion debate in the U.S. now seems to be focusing on the Canadian “loophole,” avoiding the Harbor Maintenance Tax (HMT) a tax on the value of cargo in incoming containers. This is an American matter and a divisive one internally. The widelycriticized tax feeds a fund that accumulates large surpluses, and when dispersed pays mainly for dredging of East Coast ports and recreational channels. The HMT is anathema to the U.S./West Coast ports as they pay it, but do not benefit. The tax needs reform not a new border tax (which would of course be illegal under NAFTA and the WTO) aimed at the so-called “Canadian loophole.”

Canada simply has a different system of financial plumbing to maintain harbours on its side of the border. Shippers, carriers and port operators pay market price for the use of our ports, including “harbour maintenance,” which is usually paid for by the port. Obviously, maritime containers transiting Canada could not be subject to extra-territorial double taxation for U.S. harbour maintenance.

What next?

Despite the advantage of rationality in Canada’s case, it would be unwise in the current context of U.S. weak growth, election campaigns and toxic relations between the administration and Congress to dismiss the possibility of attempted congressional action, an issue that the FMC inquiry has regrettably raised.

Transport and trade fluidity with the U.S. is a core Canadian interest. Billions of dollars of trade pass weekly through these supply chains, and anything that would reverse the Canadian, and with it North American, success of recent years would be highly damaging to North American consumers, producers, exporters, importers and shippers. However positive this scuffle may be in marketing the Canadian option in the United States (particularly with labor peace on our West Coast), it may also affect partners’ confidence in Canada’s carriers and ports, so it needs to be resolved quickly and in a civil way.

In the short run, Canadian private and public stakeholders with the support of International Trade and Pacific Gateway Minister Ed Fast, Transport Canada, DFAIT and Canada’s missions in the U.S. have worked well together to present the facts to the FMC, particularly shared arguments and data. Equally important, American consumers, importers, exporters and shippers have been mobilized to submit briefs in support of market-driven North American transport networks and against vocal local protectionism.

In the longer term, the current swirl of Canada-U.S. economic issues should remind Canadians of some fundamental truths in the relationship: the fundamental asymmetries of size and political system; the frequent occurrence of unexpected, painful issues like the XL pipeline debacle coming from south of the border; the futility of linking issues when dealing with a multi-headed superpower; the importance of activating congenial U.S. domestic constituencies; the constant attention required to regional factors; and the importance of utilizing trustful personal relationships at all levels.

There is nothing more important than strongly supporting the two governments’ shared bilateral vision for perimeter security and economic competitiveness, which is embodied in the Beyond the Border initiative announced by Prime Minister Stephen Harper and U.S. President Barack Obama.

Based on past experience, there will be difficulties in mobilizing American attention, political will and inter-agency cooperation, especially in an election year. As it did in the Ridge-Manley 9/11 border process and the trilateral Security and Prosperity Partnership, Canada will have to do much of the heavy lifting and will pay the price if it does not do so. Ideally, better mechanisms will develop to channel and handle issues of stealth protectionism like the XL pipeline or current maritime container disputes. Perfection will remain a goal, not a fact.

However important the goal and practice of trade diversification, the United States is, and will always be, Canada’s most important trading and transportation partner. Our rail, port, highway, air, pipeline and electrical links with the United States are a bilateral treasure–the physical expression of our huge historic bilateral economic relationship. These north-south links need even greater high-level government attention and support through bilateral negotiations and discussions.

John Higginbotham is a senior distinguished fellow at Carleton University who works on transport and international issues. He served for six years as minister (political – transboundary) at Canada’s Embassy in Washington, as well as in Hong Kong and Beijing. He was an assistant deputy minister in Transport Canada and Foreign Affairs and International Trade Canada. A longer version of this article appeared in a recent issue of Policy Options magazine.