The horrific terrorist attacks of September 11 changed the way we see the world. At that instant, old concerns fell by the wayside.

The Committee’s Pre-Budget Consultation hearings reflected this new reality. Each group and individual had worked hard over the summer preparing their briefs as per the Committee’s request, detailing what they believed needed to be done to make Canada a better place, only to be confronted by a changed world when they finally appeared in front of the Committee. And almost to a person, their reaction was the same. Witness after witness told the Committee that greater attention should be paid to bettering our national security. They, like all Canadians, understood that in times such as these, some initiatives may need to be put on hold in order to deal with the pressing issues of the moment.

As pressing and as real as these security concerns are, a country is built over the long-term, not the short-term. Witnesses warned the Committee of the dangers posed by losing sight of longer-term prosperity objectives. On the morning of September 11 our eyes may have looked upon a changed world, but our ultimate goal of improving the standard of living of Canadians has not changed. The basic rules of sound economic management to create the conditions necessary for Canadians to prosper remain the same.

The Committee’s vision of the budget is driven by these two imperatives: to heighten Canadians’ sense of security today while promoting future prosperity.

Security Issues

National Security: Why it is Top Priority

National security — embodied by Canada’s military, policing and security agencies — is important for many reasons, not the least of which is to assure Canadians of their safety as they raise their families and live their daily lives. From an economic perspective, national security is a form of social capital: it protects the conditions necessary for the efficient functioning of the economy, allowing Canadians to go about their business. One need only look at the chaos caused by the terrorist attacks — economic activity disrupted and the grounding of all civilian aircraft in Canada and the U.S. — to appreciate the role national security plays in safeguarding the economy. With this new threat, national security takes on a new importance.

National security protects the conditions needed to create prosperity. For example, Canada depends on air travel to keep Canadians connected, to move goods and people from Prince Edward Island to British Columbia to California. Its infrastructure — roads, rail, and seaways — must be protected to allow for the safe movement of people and goods. Other parts of the infrastructure — such as computer systems, the electronic payments system, and power plants — need to be considered as well. Increased spending on national security is a necessary investment in light of new threats.

National security is also a true public good: all Canadians benefit from policing services and national defence. As it is impossible to charge each Canadian individually for their share of national security, governments are responsible for providing it. Because of this public goods nature, the private sector does not face sufficient incentives to provide enough national security.

Airline Security

There is a strong economic argument to be made that airline security is a public good. As a reminder, a public good is one whose benefits accrue to all of society and for which it is difficult and costly to exclude others from using. Most of the people who were killed in the September 11 terrorist attack were not in airplanes; they were at their desks in the World Trade Centre and the Pentagon. Clearly, airline security is important not only to airline passengers and crew, but to everyone. Using the same argument, we note that safe and reliable air travel is a vital underpinning to our national well-being. There is, therefore, a clear argument that government should be involved in airline security. Furthermore, the same arguments can be used for the protection of other critical infrastructure, such as hydro dams and nuclear power plants.

We believe that there’s a role for government to play in ensuring and funding [air travel] security in a situation that has transformed what was previously a low profile airline problem into what is a serious national security issue. David Paterson

Intelligence

According to Tony Campbell, a Canadian security analyst, intelligence gathering and analysis are assuming greater importance. He believes that Canada’s analytical capability is underfunded (the Canadian Security intelligence Service (CSIS) has had its budget cut by 28% over the past ten years). Quoted in the October 4 Ottawa Citizen, he remarked that analysts are “inundated with the information flow and are having trouble dealing with it all.”

One of the tools in collecting and analyzing intelligence is the Communication Security Establishment (CSE). Their specific mandate is to provide specialized security advice and support to government in accordance with emerging requirements. At present, the CSE budget is $107 million. In addition, the department has allocated $24 million over two years in funding to support essential information and technology upgrades.

International security analyst and professor of international history Wesley Wark suggests that CSE “will need more resources and a significant technological upgrade to operate at the same level as its sister organizations, the National Security Agency in the United States and GCHQ [Government Communications Headquarters] in the United Kingdom. Moreover, CSE needs to rethink its policy of downgrading analytical reporting in favour of high-tech collection. Most significant of all is the question of whether, in the new world we have just entered, CSE will need powers to spy within Canada — something it is now forbidden by law to do.”[34]

As part of its response to the September 11 attack, the government has announced increased powers for the CSE, allowing it, with the authorization of the Minister of Defence, to intercept communications between a foreign person and someone in Canada. Currently, the CSE can only listen in on communications outside Canada.

The Committee believes that if Canada’s intelligence services are to be called on to do more, they should have additional resources for the task. At the same time, it is important that these additional funds be used in the most effective way possible. In addition to an increase in RCMP and CSIS budgets, the Committee calls upon Canada’s security agencies and their partners to look at ways they could make their current practices more effective, focusing especially on the need for better cooperation and coordination. The RCMP should take the lead in this initiative.

Coordination

In order to heighten security effectively, more coordination is needed among Canada’s security organizations, from the military, RCMP and CSIS to local and provincial police forces.

According to Douglas Bland, Chair of Defence Resources at Queen’s University, “The next-generation national security organization should be built on three premises: (1) Defence and security policy and planning are interwoven activities and operations are more or less continuous; (2) Security issues cannot be separated into domestic and international problems or operations because they flow seamlessly across borders and many jurisdictions; (3) Security operations will routinely bring together the Canadian Armed Forces, police forces, governments at various levels, international organizations, as well as diplomatic, humanitarian, legal, logistical, and intelligence functions.”[35]

Bland argues for “a continuously established security mechanism under one minister with requisite authority and clear lines of accountability to formulate and manage a national security policy and to co-ordinate multi-dimensional security operations in Canada and abroad. The Minister must be directed to unite Canada’s scattered intelligence organizations, establish a modern national security operations centre, and prepare detailed assessments for Parliament of threats, vulnerabilities, and needed resources. The Minister must then be given resources commensurate with his responsibilities and a trained permanent staff to help manage them.”

Wesley Wark also makes the case for a central intelligence-analysis organization. “At present, the material produced by a tiny cadre of intelligence officers hidden away in the Privy Council Office, however good, lacks influence.”

The federal government is now moving in these directions, although not necessarily in the way envisaged by Professor Wark. The Hon. John Manley has been given an oversight and co-ordination role and he has expressed interest in establishing a foreign security agency.

Infrastructure

Responding to possible domestic terrorist attacks is another area in which we believe the government should concentrate. To this end, we acknowledge the formation in February 2001 of the Office of Critical Infrastructure Protection Emergency Preparedness (OCIPEP). OCIPEP was created to better prepare Canada to respond to the challenges posed by asymmetric threats.[36] Encompassing the function of the former Emergency Preparedness Canada, OCIPEP’s job is to provide national leadership on the issue of critical infrastructure protection, in collaboration with federal and provincial departments and agencies and in partnership with the private sector. Its mission is to promote the safety and economic security of Canadians by enhancing the capacity of individuals, communities, businesses and governments to effectively manage risks to their physical and cyber environment. Its budget is $24 million.

The nature of the terrorist threat also calls for a refocusing of how and who responds to terrorist attacks. Attacks of urban terrorism involving biological or chemical agents, and weapons of mass destruction, place municipal and provincial workers, like firefighters and police officers, on the front lines. In its all-too-prescient brief to the Committee (submitted 8 August), the Canadian Association of Fire Chiefs remarked that “in the early hours following a terrorist attack, municipal emergency responders (fire, police, ambulance, medical) will have to address the results of the attack without any substantial outside assistance.” They recommend that the forthcoming budget contain funding and support for the Canadian Fire Services to enable appropriate preparation for and response to acts of terrorism.

It is an open question as to whether Canada’s municipal forces are sufficiently prepared to deal with a terrorist attack, and as terrorism falls under the scope of national security, the Committee believes the government has a role to play in assuring their readiness. As we note in the “Government Actions to Date” section, the government has already made a contribution to first-responder emergency preparedness. With that in mind, we echo the recommendation of the Canadian Association of Fire Chiefs to provide more resources to aid in the training of municipal first responders, and recommend that the government work with the provinces and municipalities to assure that Canada’s first responders to terrorist attacks and the medical community are sufficiently prepared to cope with such an emergency.

National Defence

The Finance Committee has had a long-standing interest in the financial health and viability of Canada’s armed forces. In New Era, New Plan, the Finance Committee’s 1999 Pre-Budget Consultation report, the Committee remarked that Canada’s military, as a result of increased commitments and decreasing resources, “have increasing difficulty in keeping pace with new military technology. As a strong supporter of the United Nations, and given our long tradition of peacekeeping missions, further demands are likely to be placed on the Canadian Armed Forces.”

The Committee recognized then that budgetary reductions were “posing a challenge to our commitment to our allies and United Nations peacekeeping missions.” In its recommendation, the Committee wrote:

“The Committee supports Canada’s military, its traditions and its role in promoting peace and security. This role should be supported with appropriate levels of funding. The Committee requests that the Government of Canada embark upon a five-year plan for the revitalization and modernization of the Canadian Forces, which would significantly increase the budget of the Department of National Defence as a percentage of GDP.”

The government responded to the Committee’s recommendation by providing in its 2000 Budget an increase of $2.3 billion through 2002-3, and the Defence Minister says the government has provided the Department of National Defence (DND) with $3 billion over the last three years.

According to the Conference of Defence Associations (CDA), Canada continues to underfund its military. In Caught in the Middle: An Assessment of the Operational Readiness of the Canadian Forces, a report concluded before the September attack, the CDA found that “a significant portion of the DND budget was not available for expenditure on military capabilities. Moreover, Canada spends only $265 per capita on defence. The NATO average is $589. The study concluded that, notwithstanding recent increases, an additional $1 billion per annum needs to be added to the DND budget merely to check the decline of the Canadian Forces.” Furthermore, the Canadian Forces “currently inhabit the worst of two worlds: conventional military capabilities are in decline; and, new capabilities are unaffordable.

“In terms of the three basic commitments stated in the 1994 Defence White Paper, the protection of Canada role is still viable, but in a reduced fashion. The cooperation in the defence of North America role with the United States presents serious shortfalls in relation to all three services. However, it is in relation to the contributing to international security commitment that the most telling weaknesses appear. Canada can now contribute only token forces to NATO, United Nations, and coalition operations. Recent examples in the Balkans, Eritrea and East Timor prove the point.”

Caught in the Middle was completed before September 11. The Committee believes its conclusions are even more valid in light of the new demands that will be placed on our forces. The Committee further believes that Canada faces an additional challenge to assure that our armed forces remain relevant to our allies by further embracing the latest technology, and reshaping our forces in order to deal with such issues as cyberterrorism, nuclear, biological and chemical warfare, and counterterrorism. Before the Committee, National Defence Minister Art Eggleton remarked that we already have some of the pieces in place, such as the Joint Task Force 2 commando unit, and the Nuclear Biological and Chemical (NBC) teaching unit at CFB Borden. “Those are all areas that are under consideration and we are currently fleshing out and reviewing plans with respect to them.”

Minister Eggleton told the Committee that even before September 11 the government is in the midst of upgrading its forces, and reviewing the 1994 Defence White Paper.

According to the Minister, “Obviously, the answers to the current crisis are not all on the table at this point. Therefore, what we need to do, and what we are preparing to do, is conduct a government-wide analysis of the way ahead, an analysis that will include all departments and agencies that work to ensure the safety and security of Canadians. I can assure you that the Department of Defence, as a key instrument of domestic security, will be an integral part of that careful and balanced assessment. In the end our response will require hard choices. It will also require more funding, not only on the part of my department, but on the part of all Canadians.”

Canada’s commitment to the American-led engagement against Osama bin Laden’s forces and supporters represents a major proportion of our fighting capabilities (see “Government Actions to Date” section). Despite this commitment, the expected performance of some of our committed hardware is in doubt as a result of insufficient equipment upgrades in the past. A serious commitment to this military endeavour will entail significant costs.

The House of Commons Standing Committee on National Defence and Veterans Affairs came to a similar conclusion in its November 2001 Interim Report, State of Readiness of the Canadian Forces: Response to the Terrorist Threat. This report raises grave concerns about the readiness of the Canadian military. “The committee has repeatedly heard testimony that today’s army could not mount a full brigade. Indeed, some have argued that even if all Canadian troops serving abroad were brought home, Canada would still be unable to meet the commitments set out in the 1994 Defence White Paper.”

The Finance Committee agrees with the Defence Minister that new funds will be needed. Spending on new security requirements should not be allowed to derail the achievements of past budgets, such as debt reduction, a five-year tax reduction plan and re-investment in health care. As we have already suggested, the government should look to finance much of this, where possible, from already-existing programs.

The ultimate cost of this new kind of war is highly uncertain. While continuing to recognize the need for new financing, as stated above, we believe that a redirection of funds toward activities that are more appropriate to today’s world is also necessary.

The Committee recognizes that improving our defence and security infrastructure is not a job that can be done overnight. This project will take several years. We therefore call on the government to treat national security as a serious, long-term project.

The Committee recommends a fast-tracking of the review of the 1994 Defence White Paper to determine its continued relevance, an acceleration of the replacement of out of date equipment, and additional funds to DND.

I think I have indicated on a number of occasions that I will need more dollars, but I think we also have an obligation to make the organization as efficient and effective as we possibly can. Hon. Art Eggleton

We have a counter-terrorism plan in this country... We have to continue to improve upon that plan, but there are no quick fixes. Hon. Art Eggleton

North American Security

Enhancing security is not something Canada can, or should, do alone. It is something that draws us into a common cause and natural co-operation with the United States, because we stand for the same basic ideals as do Americans. Also because the United States is going to undertake a variety of initiatives designed to enhance their security. They could take these decisions unilaterally, considering only their own needs. Or they could take those actions bilaterally, with Canada, so as to benefit all North Americans.

The security of the U.S. mainland will be their paramount consideration. Canada’s economic well-being depends to a large extent on the U.S. market. How, then, will Canada be affected by the United State’s newfound need for continental security, and what can Canada do to deal with U.S. concerns? As David Stewart-Paterson remarked in a 1999 roundtable on Canada-U.S. bilateral relations, “The defence and security issues highlight the need for early and serious bilateral discussions on the question in principle of whether Canada wants to be inside or outside the American tent.”[37]

Canada and the United States have always shared some common security concerns. In 1940, President Roosevelt and Prime Minister Mackenzie King signed the Ogdensburg Agreement, which acknowledged the indivisible nature of continental security and pledged mutual assistance in the event of hostilities. The United States pledged not to stand by if Canada were attacked and Canada pledged not to allow our country to be used as a base of attack on the U.S. Since then, Canada-U.S. defence cooperation has persisted through more than five decades of evolving challenges. The North American Air Defence system of early warning stations was one example of this co-operation. The events of September 11 are going to force us to take a serious look at some major security issues in a very short period of time.

Keeping the border open is the greatest immediate economic challenge facing Canada. One-third of our GDP is the direct result of exports to the United States. Seventy per cent of this moves by truck, the mode of transportation most adversely affected by any border obstructions. Much of that trade is with firms that rely on just-in-time inventory systems to keep production costs low. If Canada is to continue to be an attractive place to invest, firms must continue to have confidence that the border will not be a barrier to the timely and efficient flow of commerce.

Unfortunately for Canada, the United States now has a different set of incentives regarding the border than we do. Clearly, the United States is the more likely of the two countries to be a target of terrorist attacks. That country has an incentive to make the border more secure. Canada, on the other hand, has a much greater economic incentive to open up the border, as we are much more dependent upon trade for our prosperity. Canadians and Americans might place different levels of importance on security and economy when it comes to the border, but it must be said that the border’s economic and security roles are important to both Canadians and Americans. Canada is not served at all by an insecure America, and the United States does not benefit by complicating trade with its largest trading partner.

From an economic point of view, Canada’s response to the September 11 attacks and the need for increased security should have three goals:

• (1) restoring confidence to consumers, businesses and investors;
• (2) keeping the Canada-U.S. border open for trade; and
• (3) strengthening Canada’s position as a good place to invest.

The Economic Perspective on September 11

Business Confidence

One of the benefits for Canada of the North American Free Trade Agreement was that it would make Canada attractive to foreign investors wishing to set up in Canada to serve the North American market. It is important that this type of investor confidence does not become a casualty of September 11. As economist Dale Orr remarked to the Committee, the terrorist attacks and subsequent border closures “sent out a message to people that build plants in Canada,” namely, a firm will be subject to more disruptions if it puts a plant in Canada than in the United States, if the goal is to serve the North American market. This occurs because more of total output is going to cross the border and be subject to any adverse border effects. Removing much of that effect was a goal of the Free Trade Agreement.

So that was a very difficult and troublesome message that has gone out to people who are saying to themselves, ‘I want to build a plant to serve the North American market, should I put it in Canada or should I put it in the U.S.?’ It’s a situation that can be very, very expensive for us over the longer term. … I know the situation is quite a bit better now and hopefully it can stay that way. This is the second source of very troublesome downside risk that the Canadian economy faces at this point in time. Dale Orr

On a micro level, confidence and the feeling of safety are essential to the smooth functioning of the economy. Peter Smith (President and Chief Executive Officer, Aerospace Industries Association of Canada) told the Committee about the Catch-22 situation faced by airlines when it comes to security; “You have to build up the confidence of the passenger, and make sure that everything possible is done to improve on the security and give the confidence that is necessary. That creates, obviously, a critical situation with respect to the time delays. Hence, you begin to see such things as corporations putting embargos on commercial air travel for security, time, and cost purposes, but you can also see a tendency toward their using corporate jets to get their executives around.”

As Smith’s testimony makes clear, ensuring airline security (and security in general) makes sense from an economic as well as a security point of view. According to Anthony P. Pollard (President, Hotel Association of Canada), security of person is essential to the well-being of his and other industries. “The Canadian public must be convinced of their own safety and security, period, end of discussion, point final.” Mr. Pollard told the Committee that, “Necessary funds must go to the Canada Customs and Revenue Agency, Citizenship and Immigration Canada, Transport Canada, and others. We must enhance our close relationship with the United States while maintaining our values.”

Keeping the Canada-U.S. Border Open

Keeping the Canada-U.S. border open is vital to our economic prosperity. Canada is a trading country, and our largest trading partner is the United States. We send fully 87% of our exports across the 49th parallel. A third of Canada’s GDP is the result of exports to the United States. Canada needs to convince Americans that the border with Canada does not pose a security threat. We need to continually remind Americans that none of the suspected September 11 terrorists entered the United States via Canada.

The economic integration of our two economies has been underway for some time. More and more, Canadian and U.S. companies straddle the border, locating offices and factories where it makes the most sense for them. According to the U.S. Department of Commerce, approximately 43% of the total trade between the United States and Canada is between related parties. Intra-industry and intra-firm trade has been particularly evident in the automotive industry, which accounts for more than 30% of Canadian exports to the U.S. and about 25% of U.S. exports to Canada.

Determining the effect of border delays on the Canadian economy is difficult, especially as Canada was already in the midst of an economic slowdown. The Conference Board has forecast that a one percent decline (at annual rates) in exports is likely in the third quarter due to border delays. Even before September 11 it was becoming clear that the ever-increasing amount of cross-border traffic made the border-management status quo unsustainable. There can be no question that a closed border would have a devastating impact on our economy.

Roughly 70% of Canada’s merchandise exports to the U.S. travel by truck; these are generally the time sensitive cargo associated with “just-in-time” production techniques that allow firms to operate with reduced inventories, thus reducing costs. For such a system to function in an integrated North American market, Canada requires an open border with the United States. The degree of severity of this issue is driven home by Christopher Sands, an expert on Canada-U.S. relations with the U.S.-based Center for Strategic and International Studies. In a November 1 lecture in Ottawa, he remarked that on September 11, the Canada-U.S. border was closed for only 20 minutes, but in that time 12 auto plants closed for the afternoon and thousands of workers lost pay. Our economy works on an hour-to-hour basis.

Keeping the border open makes clear how economic and security interests are linked. Millions of jobs in Canada and the United States depend upon the efficiency of the border. Efficiency requires that procedures and physical capacity prevent congestion and that security concerns be met so that unnecessary, and unnecessarily lengthy, inspections are avoided. To protect Canada’s trade interests and to facilitate the flow of goods and services to the U.S. requires a combination of spending on security and physical infrastructure

Delays in shipments mean increased costs for Canadian firms in terms of higher inventory costs. According to David Bradley (CEO, Canadian Trucking Alliance), “Sectors like automotive, which account for so much of our trade with the Untied States and that rely on just-in-time inventory systems, which is built around the truck, have taken on 5% higher inventories. This is a hard cost and at some point will be taken into account when making investment decisions. And I would say to you that when the current supply contracts come due, they will be taking consideration of the reliability of supply and the impact that the border is having on that. And a 64-cent dollar won’t be enough, perhaps, to bail us out this time around.”

The Conference Board remarks that, “Some truck traffic is being diverted to rail, which is not facing the same delays at the border. Finally, it appears clear that some method of pre-clearance for truck cargoes will be instituted as the economic costs of border delays pile up, not only for Canadian exporters but also for the U.S. customers who are relying on shipments of Canadian goods.” Nevertheless, any further security problems have the potential to seriously affect Canada-U.S. trade.

Effective border management continues to be a long-standing preoccupation of the government. In 1995, Canada, the U.S. and Mexico signed the Shared Border Accord, “which established new mechanisms for managing the trans-boundary movement of goods and persons; … promoting the use of joint or shared border facilities; and introducing new technologies to detect drugs and to enable remote inspection of travellers.”[38]

To highlight one of the many economic measures being undertaken or considered, in October 2000, Transportation Minister David Collenette signed a Memorandum of Cooperation with the then-U.S. Secretary of Transport, Rodney Slater, to strengthen collaboration on surface transportation matters, with the goal of coordinating our efforts and establishing priorities for border projects. In a June 20, 2001, speech to the Canada-U.S. Cross-Border Crime Forum, Solicitor General Lawrence MacAuley remarked that “We now have so many close partnerships it’s unprecedented,” citing “the many law enforcement investigations, multi-agency task forces or just day-to-day information sharing” on a variety of criminal and security issues. Canada and the U.S. have a history of cooperation. Now, more than even, this spirit of cooperation must continue, in economic and security issues.

According to the Montreal Gazette, “many immigration specialists [say] it is often easier for foreigners to obtain visas to enter the U.S. than Canada”. Immigration Department data “… reveal that asylum seekers who file their refugee claims upon entering Canada are far more likely to do so after travelling here overland via the U.S. … . The data reveal that a decade ago, 37% of all asylum seekers who filed claims upon entering Canada did so after travelling here overland through the U.S. By last year, that figure had risen to 63%. When it comes to those who filed refugee claims upon arriving here from countries where bin Laden’s organization is active, even higher proportions got here via the U.S. Five years ago, 56% of such asylum seekers got here via the U.S., now that figure had shot up to 72%.”[39] It is clearly a mistake to think that Canada is necessarily the weak link in our common security.

Joint Security Needs

Greater security of our borders is, in and of itself, a laudable goal. Canada may be a target for terrorism, though security experts and the 1999 Report of the Special Senate Committee on Security and intelligence suggest the probability is low.

The Committee would like to focus on the economic dimension of the border-security issue. As the Committee has noted, Canadian exports to the United States account for a third of our GDP so maintaining an open land border with the U.S. is vital to Canada’s well-being. This will require the cooperation of the United States, whose customs officers are responsible for the flow of goods and people into the United States. Already, the United States is increasing the number of customs officers at the border. While increased resources could enhance the free flow of traffic at the border, it could just as likely impede it should they tighten their security procedures. Finance Minister Martin warned against this in a recent speech in Ottawa. “Part of the terrorist agenda is to see governments turn borders into barriers — to erect walls behind which people live in fear and economies stagnate.” Thus Canada must undertake actions that instil confidence in the security of the border with Canada.

In our view, we must maintain American confidence in Canadian screening procedures. One approach is outer border security. The concept is vague at the moment, but one can think of it as any approach that produces equal levels of security for people or cargo entering North America, whether by sea at Halifax or by air at Los Angeles, so that all North Americans are confident that any Canadian port of entry poses no greater risk than any American port of entry. What matters is not the methods or techniques used to achieve equal levels of security but the results, a security equivalent of total quality management. From an economic perspective, more stringent checks at North American airports and seaports will allow for greater ease of movement at the internal Canada-U.S. border

The Committee believes that Canada can tighten its border security by being more vigilant in our security checks, possibly through more extensive use of technology. Such a plan would not erase the border so much as it would improve its efficient functioning. The personnel of Canada Customs and Revenue Agency and Immigration and Citizenship Canada are performing their duties well, but it is essential that they receive the tools, the personnel and the funds needed to tighten our border security. Witnesses appearing before the Committee suggested that a greater reliance on technology could be one way in which Canada could run the border more efficiently, as well as greater use of pre-clearance.

There exist several options available for expediting travel between our two countries, including greater use of pre-clearance. Serge Charette (National President, Customs Excise Union) recommended to the Committee “the introduction of special lanes that would be identified for Canadian residents returning to Canada, perhaps even North American residents returning to North America, and lanes basically that would deal more specifically with passports and immigration issues, things like that. We could ensure that the individuals manning those particular booths or entry points had more training in those areas and were well equipped to deal with those specific concerns.”

Because of the importance of an efficiently functioning border to the economic well-being of Canadians, and recognizing the United States’ legitimate security concerns, the Committee recommends that the government undertake the necessary improvements in our border, customs and immigration procedures to safeguard Canada’s vital economic interests. As well, the Committee recommends that infrastructure investments be made to facilitate the flow of goods and people across the border. This would protect our commercial interests while at the same time allowing new security-related procedures to work effectively.

Government Actions to Date

While the Committee expects and calls for continued attention, we commend the government for its response so far to the September 11 tragedy. The government’s response has, appropriately, involved both legislative actions and spending initiatives.

Spending

While the final shape of new government spending on national security remains unclear, the government has already announced an initial $280 million in new spending as part of its Anti-Terrorism Plan. This plan brings to $1.8 billion the amount the Government of Canada has invested in policing, security and intelligence since Budget 2000.

The new spending includes the following.

$54 million in new measures to strengthen Canada’s ability to prevent, detect and respond to existing and emerging national security threats. These measures include the following:

• $35 million to enhance analytical, intelligence sharing, and operational technical support such as high tech crime forensics.
• $5 million to the protection of designated persons and sites in Canada. This is in addition to the recent redeployment of 2,000 RCMP officers to national security duties.
• $4.9 million to the Department of the Solicitor General for enhancements to the Canada Public Safety Information Network (CPSIN) which will link criminal justice agencies and other agencies across Canada, and the Counter-Terrorism Operational Readiness Program, to help increase local, regional and national organizations’ state of readiness against attacks.
• $9 million will go to immediate staffing requirements in priority areas to provide a greater capacity for coordinated law enforcement responses and targetting of cross-border criminal activity, including staffing for:
  • Integrated National Security Enforcement Teams (INSETs) to collect, share and analyze information and to create enhanced enforcement capacity; and,
  • Integrated Border Enforcement Teams (IBETS) to enhance border integrity.

Some $10.25 million has been allocated to enhance security activities at airports. This includes funding for:

• New equipment to be used by the RCMP at airports, major centres, ports and border crossings;
• The purchase of fingerprint card conversion technology to upgrade the Canadian Criminal Records System; and,
• RCMP Emergency Response Team to undertake tactical response capabilities.

On the immigration side, the government has announced $49 million to accelerate work on a five-part security strategy for Canada’s Citizenship and Immigration system. These measures include:

• Around $18 million for new, high-tech identity cards to Canada’s landed immigrants. The plastic, photo-ID card — similar to a driver’s licence or health card — will replace the paper document now issued to all of Canada’s landed immigrants, also known as permanent residents. This secure proof of status will facilitate international travel, as well as access to services in Canada. The House of Commons Standing Committee on Human Resources Development has earlier examined the issues of “smart” SIN (Social Insurance Number) cards, in particular their use as a potential national identity card. The lessons learned from that investigation could provide a model for secure proof of status cards for new immigrants. Targeted completion time: June 2002. The program will likely cost between $5 million and $10 million a year to administer. The Committee recommends that the government implement effective measures to protect against identity fraud; these measures should be consistent with the aims of recommendations 8 and 14 of the unanimous report of the Human Resources Development Committee in respect of the social insurance number system dated May 1999.
• Increasing front end security screening for refugee claimants.
• Increasing Canada’s detention capacity.
• Increasing Canada’s deportation activity.
• Hiring new staff to enforce upgraded security at ports of entry.

Additional resources, including $9 million for additional employees, are being assigned to key enforcement activities, such as examination and security screening at ports of entry, more detailed screening of refugee claimants already in Canada, and increased detention and deportation.

Almost $91 million for new equipment and supporting activities at Canadian airports, ensuring that Canada’s aviation system remains among the safest in the world.

• $55.7 million for the purchase of advanced explosives detection systems (EDS) and related state-of-the-art electronic security capabilities for Canadian airports.
• More than $3 million to deploy 27 additional airport security inspectors across Canada, to strengthen regulatory capacity for responding to new and emerging security threats and to support the implementation of new technologies through employee training programs.
• $750,000 for an analysis of advanced and evolving security practices and technologies for airport security operations, including the use of various technologies such as biometrics.
• $6 million for leading-edge technology and information systems to better connect front-line officers to Customs data banks and those of other law-enforcement agencies, both foreign and domestic.
• $6 million for technology such as x-ray machines to facilitate better screening of goods.
• $9 million for 130 additional customs officers, mainly at seaports and airports.
• $8 million for new equipment such as scanning units for use by the RCMP at airports, border crossings, ports and offices for the electronic transmission and analysis of fingerprints, palmprints and photographs.
• $1.5 million for the purchase of fingerprint card conversion technology to upgrade the Canadian Criminal Records System.
• An investment of $770,000 to increase the ability of the RCMP Emergency Response Team to undertake tactical response capabilities.

In addition, $12 million is being allocated annually to the Canada Customs and Revenue Agency and Transport Canada to meet staffing requirements related to public security and anti-terrorism programs.

Out of the $280 million total, $37 million will go to the Communications Security Establishment (CSE). This money will boost CSE’s budget, now $106 million a year, by roughly a third. These funds include:

• $26 million to upgrade information technology
• $6 million to support research and development; and
• $5 million for equipment to counter cyber threats.

Some $10 million will go to CSIS to upgrade special equipment and increase its investigative and analytical capacity.

Finally, it should be noted that of the $280 million, $64 million dollars was allocated to the RCMP.

Further Spending Measures

On top of this amount, the government has also announced the following:

An additional $10 million will be provided this year to the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). FINTRAC was established in July 2000 with a mandate to collect, analyze, assess and disclose information in order to assist in the detection, prevention and deterrence of money laundering. It operates at arm’s length from law enforcement agencies. On November 8, 2001, it began to receive suspicious transaction reports from financial institutions and intermediaries, analyze the reported information, and disclose suspicions of money laundering to police authorities and others under the Proceeds of Crime (Money Laundering) Act. Bill C-36 also proposes expanding FINTRAC’s mandate.

$16 million to help respond to the emerging needs of Afghan refugees and internally displaced people in the region. This includes:

• $1.5 million for food aid;
• $1.5 million for the International Committee of the Red Cross;
• $1.2 million for the United Nations High Commission for Refugees;
• $500,000 for CARE Canada; and
• $300,000 for the United Nations Office for the coordination of Humanitarian Affairs.

$160 million to the airline industry as compensation for the September 11 grounding of aircraft, $105 million of which went to Air Canada. The balance was shared among the competing airlines.

A loan guarantee of up to $75 million to respond to the cash flow problems being experienced by Canada 3000, Canada’s second largest airline and a critical competitor in Canada’s air industry.[40]

$20 million to the Canadian Tourism Commission to deal with September 11-related effects in the tourism industry. Of this total, $12 million will be targeted to US near-border states.

We support the government’s just-announced $20 million to the Canadian Tourism Commission, as a one-time fee to promote travel in Canada and from close border states into Canada. Randall M. Williams, President, Association of Canadian Travel Agents

In response to the possibility of biological warfare, the government has also announced $11.59 million for initiatives designed to improve the health security of Canadians. This amount includes:

• $5.62 million to buy antibiotics to treat people exposed to biological agents such as anthrax and chemical antidotes for those who have been exposed to chemicals or gases. These purchases will increase the existing stock of pharmaceuticals in the National Emergency Stockpile System;
• $2.24 million to purchase sensors and detection equipment for key locations across Canada and establish a database of information which will provide improved responses to radio-nuclear terrorist incidents;
• $2.12 million to enhance a Canada-wide network of laboratories and better equip them with the necessary materials to quickly diagnose biological agents; and
• $1.61 million to provide emergency response training for front-line emergency response staff in order that they might better recognize, diagnose and treat suspicious illnesses resulting from a terrorist incident.

Legislative

While the government’s anti-terrorism legislative agenda is not yet complete, the government’s main legislative initiative to date is Bill C-36, the Anti-Terrorism Act, which, once enacted, would amend several other bills and institute sweeping changes to Canada’s justice system. The proposed law:

• Defines, for the first time, “terrorist activity.”
• Creates a list of terrorist groups as compiled by the federal cabinet. Participating in or raising funds for a listed group would be illegal. The list must be reviewed every two years by the Solicitor General.
• Establishes sentences of up to life in prison for instructing anyone to carry out a terrorist activity; up to 14 years for facilitating terrorist activities; up to 10 years for participation in an activity of a terrorist group; up to 10 years for harbouring terrorists or raising money for terrorists. Allows for consecutive sentencing for terrorist offences. An offender convicted of any indictable offence that is also a terrorist activity would be liable to life imprisonment.
• People convicted of terrorist crimes would be eligible for release only after serving half their sentence, up from the usual third.
• Allows police to carry out “preventive arrests” against people who they think are about to commit a terrorist act. The person would be brought before a judge within 24 hours, and could be detained for a maximum of 72 hours. The Attorney General of Canada, and those of the provinces, as well as the Solicitor General of Canada and the ministers responsible for policing the provinces would be required to report publicly once a year on the exercise of preventive arrests that took place under their jurisdiction.
• Permits “investigative hearings,” by which police could compel someone with information on a terrorist activity to appear before a judge and answer questions. The Attorney General of Canada, and those of the provinces, as well as the Solicitor General of Canada and the ministers responsible for policing the provinces would be required to report publicly once a year on the exercise of investigative hearings that took place under their jurisdiction. Both the investigative hearings and preventive arrests sections of Bill C-36 would be subject to a five-year sunset clause, subject to a vote of the House of Commons and the Senate to renew these sections.
• Allows police to obtain one-year surveillance warrants on suspected terrorists, up from 60 days. The requirement to notify a target after surveillance has taken place could be delayed for up to three years.
• Makes it easier for police to obtain warrants for wiretaps.
• Increases the powers of the Communications Security Establishment, allowing it to intercept communications involving Canadians.
• Creates a review mechanism by which listed groups could appeal their inclusion to the Solicitor General. The list of terrorist groups would be reviewed every two years.
• Makes it easier to remove or deny charitable status to those who support terrorist groups under the Income Tax Act.
• Toughens measures against hate crimes. Creates an offence with a maximum 10-year prison sentence for mischief in relation to religious property. It would also be easier to remove hate propaganda from the Internet.
• Amends the Official Secrets Act to take into account new computer technologies and fighting intelligence-gathering activities by foreign powers and terrorist groups.
• Amends the Canada Evidence Act to protect information obtained by foreign intelligence agencies, when used in a Canadian court.
• Amends the Proceeds of Crime (money laundering) Act to authorize the Financial Transactions and Reports and Analysis Centre (FINTRAC) to detect financial transactions that may constitute threats to the security of Canada and to disclose this information to CSIS.
• Amends the Firearms Act to allow armed air marshals, mainly from the United States, to fly into Canada.
• Extends the DNA warrant scheme and data bank to include terrorist offences.
• Imposes a review of the legislation in three years.

On October 25, Parliament passed Bill S-23, An Act to amend the Customs Act and to make related amendments to other Acts. Though it was introduced in the Senate far in advance of September 11 attacks, it contains important measures for strengthening Canada’s monitoring capacity at the border.

Just as it is for the legitimate economy, financing is the lifeblood of terrorist organizations. Cutting off terrorists’ access to financing weakens their organizations. On October 2, Finance Minister Paul Martin and Foreign Affairs Minister John Manley implemented tough new regulations aimed at suppressing the financing in Canada of terrorism. The regulations establish a list of any persons and organizations that have committed, attempted to commit or participated in a terrorist act or facilitated the commission of a terrorist act, freezes the assets of these listed groups and organizations, prohibits them from fundraising, and requires persons and financial institutions to report any dealings with the assets of the listed groups or organizations. These regulations implement a key measure in United Nations Resolution 1373, which was unanimously adopted by the UN Security Council on September 28, 2001. Finance Minister Paul Martin also said the federal government has frozen assets worth $150,000 so far in its efforts to choke off the financing network of terrorist networks.

These regulations complement the already established FINTRAC, which is designed to track money laundering. The size of the money laundering problem in Canada is estimated to be anywhere between $5 billion and $17 billion per year.

Military

In support of the U.S. campaign against terrorism, the government has committed 2,000 forces (including a small contingent from Joint Task Force 2, our anti-terrorism specialists), six ships and six aircraft to the Middle East. This represents the largest deployment of Canadian forces since the Korean War.

As well, CF-18 fighter jets are patrolling the skies around major population centres to enforce a warning that pilots must not deviate from their flight plans, and, according to media reports, CSIS agents are already working at Pearson Airport to prevent terrorists from entering the country. Intelligence officials are also working at border crossings in Niagara Falls and Windsor and hope to expand their presence to every airport and border crossing in the country. Canada also is experimenting with efforts to place officials in overseas airports to screen would-be refugee claimants for false documents

Border Management Options: It’s All About Efficiency

The immediate concern for Canada is to ensure the free flow of goods and services across the Canadian-American border, in a timely and predictable fashion. The success of the NAFTA was straining the capacity of the border well before September 11. Two-thirds of the goods traded between Canada and the United States pass through southern Ontario crossings with the Ambassador Bridge in Windsor being Canada’s major trade portal. These points have already been subject to congestion due to heavy volumes and old and inadequate infrastructure. Congestion is also due to inefficient processes. For example, 20% of the trucks crossing the border are empty and a system of pre-clearance could speed up traffic significantly.[41] Similarly, the use of transponders and other high-tech devices could allow high-volume and low-risk shippers to move quickly across the border.

These measures undoubtedly could play an important role in speeding up border crossings while maintaining security. Nevertheless, border infrastructure and border corridors leading to and from those crossing points are at least as important. Forty percent of trade passes through Windsor or Sarnia, while another third passes through the Niagara region. These small numbers of crossings see very large volumes of traffic (40 million crossings through the Detroit port of entry, another 30 million through Buffalo and 20 million through Seattle). It is easy for congestion to arise, especially as the border facilities are old (30 years at Windsor-Detroit) and the highways (I-94 at Detroit) are crumbling. As the Canadian Trucking Alliance’s David Bradley told the Committee, these are the new rivers of trade. It is vital that they continue to be free flowing.

Thus there are two basic ways to deal with border congestion. One is to build better infrastructure, roads to the border, and border crossings such as bridges and tunnels. The other is to make the process of clearing the border more efficient.

While free-trade proponents highlight the tariff-reducing benefits of such agreements, there are other significant border costs. According to the Conference Board of Canada, “Even before September 11, the average non-tariff border cost could represent approximately 5% of the final invoice price of a given product and for more trade-sensitive industries the cost could be as high as 10-13%.”[42] In recognition of this, Canadian and American officials have “agreed to work on a ‘concrete’ plan of action that will see border traffic return to — and improve upon — the levels seen before September 11.”[43]

The Canada Customs and Revenue Agency (CCRA) has made available some recent statistics regarding delays at select border crossings in the days just after the terrorist attacks, both into Canada and into the United States. According to the CCRA, wait delays of 30 minutes or less are considered normal for entry into Canada — no comparable normal delay is provided for entry into the United States. The case of the Windsor Bridge crossing is instructive as it is a vital crossing point for the auto industry.

While the length of the reported delays has been disputed by some, the data presented by CCRA clearly show a significant difference with respect to commercial traffic entering the United States and commercial traffic entering Canada. There are more instances of delays entering the U.S. than Canada, and they are far more extreme. The evidence shows that Canadian “delays” were generally within the normal length of 30 minutes or less. American delays of four and five hours were recorded over the same period (September 13 to September 22). Delays in excess of one hour occurred several times. In addition, there rarely appears to be a common thread explaining delays on both sides of the border. Instead, they are likely explained by unilateral and unpredictable security alerts. Any Canadian plant trying to deliver goods in a timely fashion, under a tight schedule, will face enormous challenges and higher costs getting across the American border.

Roughly 70% of Canada’s merchandise exports to the U.S. travel by truck and these are generally the time sensitive cargo associated with “just-in-time” production techniques. For such a system to function in an integrated North American market, Canada requires an open border with the United States.

Christopher Sands suggests that what the United States wants from Canada is a major contribution to North American security. The American public has become so fixated on the terror attacks that they judge politicians by their responses to that event and tend to support any security measure, whether good or bad. Canada needs to be pro-active in initiating measures that enhance North American security or face politically motivated initiatives that blame Canada and impede border crossings. U.S. Treasury Secretary Paul O’Neill noted that the Canada — U.S. border plan will “… attempt to separate valid complaints from vague accusations.”[44]

Canada has already undertaken a number of measures, such as Bill S-23, to improve border efficiency, while at the same time improving security. According to David Bradley, “we believe that Canada has something to offer in this regard and I’m not sure that we have to spend all kinds of money. One area where Canada has excelled is in terms of the automation of our customs processes … . We’ve done a very good job of making it easier for you as imports to get into Canada.” Border delays are a bigger problem going into the United States than coming into Canada. It would be beneficial to disseminate to Americans our accomplishments, to show them our techniques and to convince them of the security that it provides.

What we need to do is to work with our American partners. Their security concerns are not new. If we weren’t aware of them, we certainly are aware of them now. What we need to do on an urgent basis and in an unambiguous fashion sit down in bilateral discussions with them to develop the customs systems going forward. And again I think that Canada has something to offer.

Bill S-23 … talks about electronic pre-clearance. It talks about registration electronically of drivers of companies and of importers. That sounds like security to me. Perhaps we need to repackage it and bring it to our American trading partners. But most importantly we need a bilateral approach and we’re starting to see some of that now but so far many of the initiatives and many of them good ones have been more or less unilateral. We’ve got to get face to face with our partners. David Bradley

Canada-United States Accord on Our Shared Border

In February 1995, Canada and the United States announced an accord on the shared border, designed to manage the border efficiently while improving security. The management of the border was based on principles of co-operation and co-ordination.

Both governments committed to promoting trade, facilitating the movement of people, enhancing protection and reducing costs to governments and the public. As well, they committed to modernizing facilities, addressing mutual threats and efficiently managing increasing volumes, governed by certain guiding principles. These include:

“…streamlining and harmonizing border policies and management, expanding cooperation at and beyond the border, and collaborating on common threats outside the United States and Canada.”[45]

Some of the Accord’s initiatives include:

Process: The Commercial Vehicle Process System established on the Canadian side of the Peace Bridge in 1999 to distinguish between prepared and unprepared carriers heading to the United States. It is a traffic control measure designed reduce congestion caused by carriers who have not properly compiled their paperwork.

Infrastructure: Joint border facilities that are state of the art

Process: The In-Transit Highway Simplification Project that halves the number of stops that truckers must make in crossing the border.

Security: the joint development and use of high-tech methods of spotting contraband, including vapour detection techniques, potassium-based detectors, x-ray systems, infrared imaging and ultrasound detection.

Process and Infrastructure: CANPASS, PORTPASS and NEXUS systems that allow pre-screened and low-risk travellers to use dedicated lanes and modern technology (licence plate readers, identification cards and proximity cards) to permit speedy border crossings.

Possible Steps to a More Efficient Canada-U.S. Border

In general, the border could be made more efficient by using better screening to assess risk and direct appropriate resources where they are needed. Priority should be given to the following stages of assessment and interdiction.

Priority 1: assess risks and prevent entry into North America of undesirable traffic. This is done outside of North America.

Priority 2: assess risk and take appropriate action at the first point of entry into North America. This process would take place at major airports and seaports.

Priority 3: assess risk and take appropriate action at the Canadian — American border.

If sufficient resources are allocated, and effectively deployed, to the first two priority areas, few resources would be needed at the border and little in the way of assessment and inspection services would be required.

Process Options

• Sort low-risk from high-risk traffic as early as possible in the border-crossing process.
• For very low-risk traffic, inspections could take place at point of loading, with containers sealed thereafter. Where cross-border movements constitute intra-firm shipments, security arrangements could be established within the firms in question to obtain pre-clearance at point of departure. The auto industry would be a perfect test subject.
• Move inspection activities away from the physical border to the first point of convenience.
• Use technology to pre-clear low-risk traffic when possible. NEXUS is a joint Canadian-American pilot project that has been put on hold as of 11 September. CANPASS is a purely Canadian pre-clearance program, also on hold. NEXUS is preferred by many border organizations because it holds the promise of a single pre-clearance mechanism for border crossings, using common eligibility criteria.

Infrastructure Options

• Improve transportation corridors to and from border crossing points.
• Provide dedicated lanes for frequent and low-risk traffic such as commuters and other frequent travellers. The least prepared carrier should not be able to delay pre-cleared vehicles. Upgrade crossing points consistent with new security concerns and border management processes.
• Deploy state of the art scanning technology such as gamma ray screening.

Canada-United States Co-operation

• Undertake risk assessment and interception offshore, in collaboration with American authorities by sharing information on a real time basis. This could be extended to the sharing of facilities and staff.
• Create unified ports of entry, staffed jointly by American and Canadian officials. Approximately two-thirds of the goods arriving at Canadian seaports is in transit to the United States.
• Let Canadian and American officials co-operate in pre-screening foreign nationals.
• A border security deal could be negotiated to create an outer limit security zone.
• A central database could share immigration and intelligence information.

Such an approach would be consistent with what is identified as priorities 1 and 2 above. Starting with the initial application to come to Canada, risks would be assessed at the various control points along the route to North America.

Canadian and American officials should meet regularly to monitor the efficiency and security of the Canada-United States border.

Promoting Prosperity: Opening the Dialogue on the Canada-United States Economic Relationship

Border efficiency is not the only economic issue between Canada and the United States. The terrorist attacks of September 11 have generated a new urgency with respect to a wide range of Canadian-American relations. On a personal level, all the witnesses we met over the course of our pre-budget consultations were horrified by the attacks. To a person, everyone sensed that something important changed that day, and that the ramifications for Canada-U.S. relations would be multifaceted and significant.

On the surface, the debate has been over a possible “Canadian connection” to the attacks, over such issues as border security, immigration and refugee policy, as well as the economic cost of long waits at the border to satisfy American security concerns. However, we believe that these issues are only part of the much larger issue: The United States is in the midst of redefining its relationship with North America (including and, it could be argued, especially Canada) and the world.

The Canada-U.S. relationship is varied and complex, involving issues like security, culture and economics. The Committee believes that the events of September 11 will force Canadians to reconsider all our assumptions about our relationship with the United States, and that a dialogue and study on this topic is vital, lest we be overtaken by events. As a Finance Committee, we wish to concentrate our thoughts on the economic dimension of September 11; in particular, the fact that the fallout from the terrorist attacks has focused our attention on the implications of the Canada-U.S. border and the broader Canada-U.S. economic relationship.

In order to come to terms with the events of September 11, we believe it is necessary to study the entirety of this important relationship. Where should we be heading? What, post-September 11, is possible? These are the tough but necessary questions if we are to redefine the Canada-U.S. economic relationship.

Conclusion: An Agenda for Discussion

This is clearly a time to consider, evaluate and study the public policy options facing Canadians. We must consider those options that make the existing policy framework operate more efficiently. We must consider those initiatives that are being driven by current events and where decisions must be made quickly. And finally we must consider those options that address the changing nature of the global economic environment and have an impact on our long-term economic prospects. But first we must understand the issues, which include such topics as: labour mobility, tax competitiveness, regulation and competition policy, environmental and resource policies, customs union, currency and intellectual property.

When all is said and done, the ultimate goal of any public policy debate is to increase the standard of living of Canadians. One way of doing so is to maintain Canada’s attractiveness as a place to do business and to invest in the most up to date capital. We must maintain Canada’s attractiveness as a place where the best and brightest minds wish to live and work. Investors view North America as a single market and seek to serve its consumers in a single fashion. The border matters more to those servicing North America from Canada than those doing so from the United States. The border effect is a serious challenge to the Canadian standard of living. The events of September 11 have made the border effect even more pronounced.

The Committee gives notice that it will undertake a comprehensive study in 2002 of all aspects of the Canadian-American economic relationship to ensure that Canadians are aware of all options available to them and recognize the challenges and choices they face.