Canada: Trade Law Aspects Of Transportation

Transportation, NAFTA, Trade Law, LTSS, security, borders
Last Updated: October 27 2007

Article by Simon V.Potter and Gene Kruger1

A. The Pre-9/11 NAFTA Framework:

1. The Land Transportation Standards Subcommittee

  • NAFTA was drafted according to a pre-9/11 conception of the increasing irrelevance of borders. In this vein, article 913(5) of the NAFTA2 created the Land Transportation Standards Subcommittee ("LTSS"), mandated under Annex 913.5.a-1 to implement measures to harmonize aspects of transportation among the three NAFTA countries.
  • On March 30, 1995, Canada, the US and Mexico agreed on a Memorandum of Understanding (MOU) on Science and Technology Cooperation in the Field of Transportation, intending "…to improve the three nations' transportation-related scientific and technological capabilities, to solve common transportation problems, and to improve the safety and usefulness of their transportation systems."3
  • The last meeting of the Land Transportation Standards Subcommittee was in 2002. The Subcommittee appears to have been, unofficially, abandoned. The Canadian government website has not been updated in 5 years.4 According to policy analysts Mary R. Brooks and Stephen Kymlicka,

There remain outstanding regulatory barriers to trade even though the institutions that can make the necessary changes exist. However, there appears to be little appetite for resurrecting the LTSS as a policy forum, and a successor to LTSS has not been created. The related Web sites in both Canada and the United States do not have concluding write-ups. It is as though the participants had gone to lunch and never returned.5

2. Accomplishments of the LTSS6
  • Commercial Driver's Licenses - agreement on a common age for operating a vehicle in international commerce (21 years);
  • Drivers' Logbooks and Hours-of-Service - agreed on safety performance information each country will require from motor carriers;
  • Driver Medical Standards - recognition of several binational agreements as the basis for achieving reciprocity of driver medical standards;
  • Language Requirements - agreement on a common language requirement, i.e., the driver is responsible for being able to communicate in the language of the jurisdiction in which the operation is being conducted;
  • Safety Regulations - compiled an updated side-by-side evaluation of motor carrier safety regulations;
  • Rail Safety - completion of a comprehensive analysis of regulations affecting rail safety in the three countries. Through this work it has been determined that regulatory differences will not significantly affect the safety of rail operations in cross-border service;
  • Vehicle Weights and Dimensions - completion of a side-by-side comparison of the three countries' national, state, and provincial requirements with respect to truck sizes and weights. Significantly this work identified vehicle configurations commonly in use, which can be used in cross border operations in all three countries under existing regulations;
  • Performance Criteria - agreement to consider the role of performance criteria in truck size and weight limits;
  • Traffic Control Devices - a comprehensive comparison of standards related to traffic control devices that found only minor differences in the devices used in each country and that existing discrepancies would have little or no impact on cross-border movement of cargo and vehicles;
  • Traffic Control Devices - publication of information pamphlets in the three official languages containing a core three-country comparison of traffic control devices and providing additional country-specific information for road users as desired by each country;
  • North American Emergency Response Guidebook - joint publication of the 2000 North American Emergency Response Guidebook in the three official languages to ensure that authorities engaged in responding to accidents involving hazardous materials will have consistent and adequate information. (In addition to its distribution to responders in the NAFTA countries, the guide has been translated into 9 languages and is currently used in several Central and South American countries as well as a number of nations in the Eastern Hemisphere.)
  • Achieved a high level of continued trilateral cooperation on decisions taken by the United Nations Committee of Experts on the Transport of Dangerous Goods and the Globally Harmonized System of Classification and Labelling. These efforts promote consistency in the legislation relating to the transport of hazardous materials through North America, enhance trade by decreasing the regulatory compliance burden on industry and promote seamless transportation of dangerous goods throughout the NAFTA countries.
  • In April of 2002, publication of NAFTA Resource Manual, "Canadian Operating & Border Access Requirements For Foreign Motor Carriers."7
A. NAFTA generally: an unqualified success
  • The period since NAFTA has resulted in remarkable economic gains for Canada. According to Foreign Affairs and International Trade Canada:
    • Canada's merchandise trade with its NAFTA partners was up 122% since 1993, hitting $598.7 billion in 2005;
    • Canadian merchandise exports to the United States grew at a compounded annual rate of 6.0% between 1994 and 2005.
    • Regarding trade in services with our NAFTA partners, we have had growth at an average annual compounded rate of 5.4% to reach $82.7 billion in 2004, up from $46.4 billion in 1994, with trade in services with the US at $81.2 billion in 2005, up from $42.3 billion in 1993.
    • Foreign direct investment results are also impressive, amounting to $415.6 billion in 2005, more than 64% coming from our NAFTA partners.8
B. Border Delays Continue to Undermine North American Competitiveness9
  • A just-in-time supply chain is crucial to maintaining North American competitiveness because of the cost-savings associated with less on-site inventory. The automotive industry is perhaps the most dramatic case in point owing to the large size of auto parts deliveries, which results in particularly high inventory costs. Recent events have thrown the interdependence of the American and Canadian auto industry into particularly sharp relief: following a US auto worker strike, GM temporarily shut its two Oshawa plants due to lack of parts.10
  • Approximately 1/3 of trade consists in intra-company shipments. There is a tremendous amount of trade in intermediary products. In other words, the private sector has seized upon the competitive advantage that geographic proximity is supposed to afford.
  • With the uncertainty of border delays, however, the efficacy of just-in-time delivery is jeopardized. According to a 2004 Report by the Ontario Chamber of Commerce ("OCC"), increasingly, companies have decided to return to maintaining large inventories, while some US companies have turned away from cross-border suppliers altogether, in favour of domestic producers.11
  • Over 70% of goods are transported by truck. According to the North American Competitiveness Council, "Between 2000 and 2004, the application of new layers of security and more complex rules and regulations has tripled the processing time to enter the United States from Mexico and Canada by truck. The costs of these efforts have been estimated at up to US$11.5 billion in Canada and the United States alone."12
  • This is an issue that affects North America as a whole because, to use Ambassador Wilson’s terminology, turning the border into a checkpoint as opposed to a gateway undermines North American manufacturers’ ability to compete with other global players.
  • Using the auto industry once more as a paradigmatic case, each North American manufactured vehicle crosses the border more than 7 times during the course of its manufacture.13 As these border crossings become more time-consuming and costly, overseas manufacturers, who only face a single customs transaction, will benefit.
  • In many cases, increased delays can be attributed to security measures that are insufficiently tailored to on-the-ground realities. For example, the US Trade Act of 2002 requires inbound trucks to pre-notify US authorities 1 hour in advance of their arrival at the border. As a study prepared for Transport Canada notes,

This new requirement puts an end to the "load-and-go" approach whereby drivers could simply load, pick up their paperwork and show up at the border unannounced. In the case of loading points located less than one hour away from a border port, the implications are significant. Once you add customs broker transaction times, the pre-notification time can increase to two hours in most cases.14

C. Efforts to Accommodate Security Concerns but Ease Border Wait-Times

Under the present circumstances, it is impossible to conceive of the border as a gateway in the pre-9/11 sense. We have to accept that, in Ambassador Wilson’s terms, it is a checkpoint as well as a gateway. Given the advantages and realities of continental integration, the key challenge is to address security concerns in a way that is effective but sufficiently sensitive to the needs of efficient trade. In the following two programs, one with a security emphasis (C-TPAT) and one with a trade emphasis (FAST), will be briefly described and followed by an outline of some assessments of them.

1. The C-TPAT program:15

  • To tailor security concerns to trade, the US Customs and Border Protection (CBP) has launched the Customs-Trade Partnership Against Terrorism (C-TPAT) program. It is a joint U.S. government-private sector initiative intended to promote cooperative relationships among various stakeholders in the supply chain: importers, carriers, brokers, warehouse operators and manufacturers. C-TPAT is a fundamental pre-requisite to becoming FAST approved.16
  • To become a member of C-TPAT, an importing company must be either an active US importer or non-resident Canadian importer into the US. This includes the requirement of having a staffed office in the US, an active importer of record ID number, and an import bond registered with US CBP.
  • Applicants must commit to undertaking a thoroughgoing self-assessment of the security of their supply chain.
  • According to Transport Canada, C-TPAT presently has 7,000 members.17

2. The Free and Secure Trade (FAST) program:18

  • The FAST program is intended to expedite border crossings. As FAST approval requires membership in C-TPAT for entries into the US, and in the Partners in Protection and the Customs Self-Assessment programs for entries into Canada, it works as an important incentive for the private sector to comply with the security requirements. According to the "Cumulative Impact Report" prepared for Transport Canada, membership in C-TPAT makes access to FAST something of a formality.19
  • Inasmuch as the inbound pre-notification time-line for FAST truckers is only 30 minutes (as opposed to 1 hour for non-FAST truckers), the program would appear to offer clear advantages for businesses less than 1 hour away from the US border.
  • According to the Canadian government website, FAST reduces costs for the private sector by:
    • Reducing the information requirements for customs/border clearance;
    • Eliminating the need for importers to transmit data for each transaction;
    • Dedicating lanes for FAST clearances;
    • Reducing the rate of border examinations;
    • Verifying trade compliance away from the border;
    • Streamlining accounting and payment processes for all goods imported by approved importers (in Canada only).20

3. Critical Assessments:

  • According to a survey conducted for Transport Canada and completed in 2005, representing fully 5% of the total Canadian for-hire industry in trans-border trucking, "[T]he total cost impacts on the Canadian trucking industry to become C-TPAT compliant are at a minimum $5.0 million/annum to a maximum of $10.0 million/annum."21
  • Despite these costs, the study’s survey reported that,

On the benefit side, the carriers were unanimous in their opinion that they have not seen any benefits (e.g., less delay at the border) as yet from the introduction of the U.S. security measures. Potential benefits from the use of FAST lanes for example is still "down the road" until a much greater percentage of shippers and to a lesser extent drivers, become FAST approved.22

  • According to the OCC 2007 Report, "Easing the Chokepoints,"
    • The US reports only 26 percent of their total imports are C-TPAT compliant.
    • Only 35 percent of cross-border shipping companies are C-TPAT FAST certified.23
  • The OCC concludes that this low participation can be attributed to the arduous requirements necessary for membership in these programs. This is a difficulty faced particularly by small to medium sized businesses. Moreover, its research indicates that small to medium sized businesses do not perceive the programs as offering sufficient benefits.24

D. Government Needs to Take the Lead

  • In the face of increasingly costly and time-consuming border delays which are eroding the competitive advantage expected of continental integration, the two programs described above are mired in a vicious circle: the programs cannot offer tangible benefits until a critical mass of participation is attained, but the relevant actors do not want to participate because they cannot perceive sufficiently tangible benefits.
  • As a first step, public authorities must aggressively invest in marketing the value of these programs to stimulate further participation.
  • More, however, needs to be done. The marketing must have substance to market. Small and medium sized businesses with limited resources have a legitimate economic rationale for neglecting to participate. The right economic incentives have to be in place to justify their participation.
  • In considering the appropriate measures the government should adopt, to facilitate the private sector in this regard, it is worth bearing in mind that enhancing supply chain security amounts to a form of national defence spending. As national defence is a traditional responsibility of government, it is an excessive cost, and simply not fair, that the private sector be obligated to shoulder the burden alone.

E. Border Fees

The private sector is presently bombarded by a series of border fees that, in addition to being significant in and of themselves, cumulatively function to hamper North American competitiveness. The following are two significant examples.

1. The US Harbour Maintenance Tax (HMT):

  • The principal problem with this tax is that it creates incentives for the private sector to avoid marine transport, thereby augmenting truck congestion at the border:
    • The tax is assessed in relation to the value of the cargo. Consequently, although traffic jams on the Ambassador Bridge would make the Detroit-Windsor Truck Ferry the more logical option for auto-part manufacturers, the tax acts as a disincentive to the ferry.25
    • As the Ontario Chamber of Commerce notes in its 2007 Report, in testimony before the US House Committee on Ways and Means, a Canadian steel producer wanted to ship 360,000 tons of cargo but, realizing the HMT tax would cost $270,000 USD, the producer instead chose truck transportation.26
  • It makes little sense to retain the tax because of the surplus already collected. The tax is designed to finance port maintenance. However, having collected in excess of $3 billion USD as of the fiscal year of 2006, this laudable purpose is unlikely to be adversely affected by the creation of exemptions or even outright removal.

2. The Animal and Plant Health Inspection Service (the "APHIS")

  • Historically, the APHIS exempted Canadian commercial conveyances and travelers from user fees related to inspections. In August 2006, they announced an interim rule reversing this policy. This decision is expected to burden business and travelers with an added cost of $75 million per year.27


  • Both the WTO and the NAFTA allow member countries to contravene their trade obligations for national security reasons.28
  • The wording of the national security exceptions is notoriously ambiguous.29
  • The phrase "it considers necessary" leaves open the question as to whether a WTO or NAFTA panel30 would even have jurisdiction over a trade dispute where a party has invoked the national security exception. Read literally, this phrase may allow the party invoking the exception to auto-determine whether the exception applies, thereby insulating it from review by a WTO or NAFTA panel.
  • With regard to NAFTA, there is an added ambiguity as to whether the dispute settlement mechanisms apply to national security claims. Article 1138 of the NAFTA holds that a state’s use of the national security exception "…to prohibit or restrict the acquisition of an investment in its territory by an investor of another Party" shall be exempt from dispute settlement mechanisms. As far as disputes between NAFTA partners are concerned, Article 1138, in effect, codifies the ambiguity noted above.31
  • The upshot of this ambiguity is that it provides incentives for states to resolve trade disputes involving national security claims through diplomacy rather than adjudication, which compounds the uncertainty for successive disputes.


A. Cabotage

  • Cabotage is the transportation of goods or people to two separate locations within the same country.

1. Maritime:

  • Chapters 24 and 27 of the US Merchant Marine Act of 1920 (also known as the "Jones Act")32 prohibit marine cabotage.33
  • In July 2003, the US and Canada signed a Memorandum of Cooperation on Sharing Short Sea Shipping Information and Experience Between the Transportation Authorities of the United States of America and Canada, an agreement intended to promote the sharing of knowledge and information.

2. Trucking:

  • Trucking cabotage is likewise prohibited in the US, with the U.S. Customs and Border Protection and the Immigration and Naturalization Service (INS) charged with enforcing cabotage restrictions.34
  • The issue has recently emerged as a matter of concern for Canadian truckers in light of comments by John H. Hill, administrator of the US Federal Motor Carrier Administration, suggesting that enforcement of cabotage restrictions will soon actually tighten.35

B. Arbitration

United Parcel Service of America, Inc. ("UPS") v. Government of Canada, Arbitration under NAFTA Chapter 11, decision released to the parties June 11, 2007.36

1. Factual Background:

  • UPS claimed Canada had violated articles 1102, 1103, 1104, 1105, 1502(3) and 1503(2) by virtue of the various advantages it accorded to Canada Post. More generally, invoking the concept of fairness as fundamental to the NAFTA, UPS claimed unfairness in:
    • Canada’s enforcement of its customs law;
    • Purolator’s access to Canada Post’s infrastructure;
    • Canada Post’s misuse of its monopoly infrastructure;
    • Canada’s use of the Publications Assistance Program under which publisher’s wishing to get the subsidy for which it provides must use Canada Post;
    • Canada Post’s retaliation against UPS in respect of a possible contract with Fritz Starber for raising this NAFTA claim.

Holding: (one tribunal member dissenting) UPS’ claims were rejected.


  • Concluding that Canada Post is not a "party" to the NAFTA within the meaning of articles 1102 to 1105 or 1502(3) and 1503(2), the Tribunal rejected UPS’ claims regarding Purolator’s access to Canada Post’s infrastructure, Canada Post’s misuse of its monopoly infrastructure and Canada Post’s retaliation against UPS with Fritz Starber. This determination also entailed the rejection of UPS’s national treatment claim based on the actions of Canada Post.
  • The Tribunal rejected the Chapter 15 claims on the basis that the actions in question were commercial activities, not the exercise of governmental authority.
  • Concluding that UPS and Canada Post are not "in like circumstances" because of the distinction between courier traffic and postal traffic, the Tribunal rejected the article 1102 claim.
  • The Tribunal concluded that Canada Post’s actions in relation to the Public Assistance Program assist the Canadian publishing industry, thereby falling within the cultural industries exception. Moreover, the Public Assistance Program does not violate article 1102 because Canada Post and UPS do not receive treatment "in like circumstances" as only Canada Post is capable of delivery to every address in Canada.


The justifiable concern for security at the borders has been allowed to breed a series of measures and obstacles which doubly detract from the very goal of the NAFTA, efficient integration: the security measures themselves bring delay and administrative burden, and the cost of the measures is foisted onto manufacturers, shippers and transporters.

Despite considerable promise to put technology to the task in order to meet the security concerns without hampering trading deliveries, the promise has yet to be kept.

Considerable work is still needed to preserve our borders as gateways rather than as checkpoints, and there is no reason why this could not be accomplished by partners willing to do so.


1. Simon Potter is a partner of McCarthy Tétrault who specializes in commercial and administrative litigation as well as in international trade law. Gene Kruger is an articling student. The former is greatly indebted to the latter.

2. North American Free Trade Agreement, 17 December 1992, Can. T.S. 1994 No. 2, 32 I.L.M.

3. "Initial Five-Year Plan for Increased Cooperation in the Field of North American Transportation Technologies," available at, a report prepared by one of the LTSS Working Groups in 1998.

4. According to the website, "Three LTSS working groups are still engaged in trilateral harmonization efforts [LTSS 1 - Driver and Vehicle Compliance, LTSS 2 - Vehicle Weights and Dimensions, LTSS 5 - Dangerous Goods/Hazardous Materials]. There are also four related Transportation Consultative Groups (TCG) addressing issues not specifically assigned to the LTSS. For example, TCG 1 addresses issues relating to cross-border operations and facilitation" available at

5. Mary R. Brooks & Stephen Kymlicka, "Unfinished Business: A NAFTA Status Report," May 2007, a study prepared under the auspices of the Atlantic Institute for Market Studies, available at

6. According to the Report of the 2001 Plenary Meeting, available at

7. This manual is available at A corresponding manual has been published by each other NAFTA country. The US manual is available at, with the Mexican available at

8. These statistics are available at

9. In the following, we are greatly indebted to the remarks made by Ambassador Michael Wilson at the American Society of International Law’s 101st Annual Meeting on March 29, 2007 in Washington D.C.

10. "GM shuts 2 Oshawa car plants due to UAW strike", CBC News, Tuesday, September 25, 2007, available at

11. Ontario Chamber of Commerce, Cost of Border Delays to Ontario, prepared by the OCC Borders and Trade Development Committee, May 2004, pp. 17-18 available at

12. "Enhancing Competitiveness in Canada, Mexico, and the United States," Initial Recommendations of the North American Competitiveness Council, p. 19, available at

13. Ibid.

14. "The Cumulative Impact of U.S. Import Compliance Programs at the Canada / U.S. Land Border on the Canadian Trucking Industry", prepared for Transport Canada by DAMF Consultants Inc. in association with L-P Tardif & Associates Inc., May 24, 2005, available at, hereinafter the "Cumulative Impact Report."

15. The US provides extensive information about C-TPAT on the CBP website at

16. Free and Secure Trade (FAST). FAST is a voluntary program designed to facilitate trade between Canada and the United States.

17. "Cumulative Impact Report," supra note 14.

18. For further information, see the Canada Border Agency Services website at

19. Supra note 14.

20. Supra note 18.

21. "Cumulative Impact Report" supra note 14.

22. Ibid.

23. Available at

24. Ibid.

25. Mary R. Brooks, "NAFTA and Short Sea Shipping Corridors" November 2005, available at

26. Supra note 23.

27. Supra note 12.

28. According to article 2102 of the NAFTA (substantially the same as GATT 1947):

1. Subject to Articles 607 (Energy - National Security Measures) and 1018 (Government Procurement Exceptions), nothing in this Agreement shall be construed:

(a) to require any Party to furnish or allow access to any information the disclosure of which it determines to be contrary to its essential security interests;

(b) to prevent any Party from taking any actions that it considers necessary for the protection of its essential security interests

(i) relating to the traffic in arms, ammunition and implements of war and to such traffic and transactions in other goods, materials, services and technology undertaken directly or indirectly for the purpose of supplying a military or other security establishment,

(ii) taken in time of war or other emergency in international relations, or

(iii) relating to the implementation of national policies or international agreements respecting the non-proliferation of nuclear weapons or other nuclear explosive devices; or

(c) to prevent any Party from taking action in pursuance of its obligations under the United Nations Charter for the maintenance of international peace and security.

29. See generally, Peter Lindsay, "The Ambiguity of GATT Article XXI: Subtle Success or Rampant Failure?" 52 Duke L.J. (2002-2003) 1277.

30. In any event, one must have concerns as to the efficacy of NAFTA dispute settlement in the wake of the experience in softwood lumber from Canada (in which Simon Potter represented the Québec industry), in which over-litigiousness was taken to such an extreme that the process was prevented from having any real on-the-ground effect and in which an eventual "diplomatic" solution, though favoured by an exhausted Canadian industry, effectively erased many of the gains had at the hands of the NAFTA panels.

31. The article begins, "Without prejudice to the applicability or non-applicability of the dispute settlement provisions of this Section or of Chapter Twenty (Institutional Arrangements and Dispute Settlement Procedures) to other actions taken by a Party pursuant to Article 2102 (National Security), […]."

32. 46 U.S.C. 883, 19 CFR 4.80 and 4.80(b). For Canada’s own, less onerous restrictions on coasting, see the Coasting Trade Act, 1992, c. 31.

33. For a comprehensive look at the history of this prohibition in the context of trade, see Mary R. Brooks, "The Jones Act Under NAFTA and Its Effects on the Canadian Shipbuilding Industry," September 2006, a study prepared under the auspices of the Atlantic Institute for Market Studies, available at

34. For a user-friendly guide to these restrictions, see "How Do I Enter the United States as a Commercial Truck Driver?" prepared by the CBP, available at

35. See "Canadian Trucking Alliance Will Be Watching US Cabotage Enforcement," July 31, 2007 press release available at

36. The full text of the decision is available at

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions