Businesses to feel the pain from US sequestration

Beyond the Borders at risk, exports facing hold-ups, business travel hassles.

WASHINGTON — Canada will feel the sting if US Congress fails this week to avert what’s known as sequestration, an array of massive, mandated spending cuts to a host of federal departments and agencies aimed at slashing America’s $16 trillion national debt.

On Feb. 28, $85 billion in cuts for this fiscal year alone are slated to kick in. All told, sequestration would amount to $1.2 trillion in budget reductions by 2021.

For Canadians, that means quick shopping trips to nearby border communities and flying will become a hassle as they’re confronted with waits of several hours at busier entry points.

Canadian exporters, meantime, will face far longer cargo processing times at border entries as well. Business travellers will be ensnared in long lines at the border.

And Beyond the Border, the Canada-US plan aimed at intelligence-sharing, easing and streamlining cross-border trade and harmonizing regulations, could also be shelved with US Customs and Border Protection poised to cut the equivalent of almost 8,000 positions.

“This is such a large reduction in spending that nothing is going to go untouched, and things that are not really essential as far as the US government is concerned will be on the chopping block,” John Manley, head of the Canadian Council of Chief Executives said.

“It’s worrying for Beyond the Border and whether we’ll continue to get the attention from the US in terms of border issues.”

The US Customs and Border Protection agency has already moved from sequestration planning to sequestration implementation, preparing to reduce its work hours by the equivalent of over 5,000 border patrol agents and 2,750 inspectors.

It’s warned those cuts could result in waits for as long as five hours at larger ports of entry, most of them in Ontario, Quebec and BC.

Manley also suspects pre-clearance US customs facilities at several Canadian airports could be in jeopardy.

“It’s an expense for the US government,” he said. “Canada doesn’t have them at US airports, after all, and it’s always easier to cut programs that impact other countries rather than your own.”

The Canadian Manufacturers and Exporters (CME) organization is warning of grim and swift repercussions.

In a memo sent to its members this weekend, the CME noted there’s no evidence that any border contingency plan has been worked out between the US and Canada as sequestration looms, even as officials continue to hammer out a two-year Beyond the Border action plan.

“If they’re not talking, that’s not good, and I can’t get anyone to tell me whether they’re working out a contingency plan,” Birgit Matthiesen, the CME’s Washington-based senior adviser, said Sunday.

“I have asked Ottawa, I’ve asked the embassy as well: ‘Can someone tell me if this is being worked out?’ I’m not getting any answers.”

Matthiesen says she fears both Republicans and Democrats might be willing this time to allow the spending cuts to kick in during the latest crisis to push Americans to the brink of a fiscal precipice.

“This time I wonder if maybe they don’t want to fix it, they don’t want to punt it down the road for a few more months. Maybe they want to slash budgets, and then each side can point fingers at the other,” she said. If so, she adds, the impact on Canada will be enormous.

“The loss of federal contracts will be huge,” she said. “Canadian businesses participate in a lot of bidding for lucrative federal government contracts in the US, so there will be that shrinking of business.”

Manley says the Canadian defence industry will be particularly hard hit given the US Pentagon is staring at a possible $500 billion in cuts across the entire defence department over the next decade.

“It will have an overwhelming consequence depending on how they apply the cuts,” he said. “We’re not a major defence spender as a country, but our industry is very integrated with the U.S. and dependent upon sales to the US Department of Defense.”

Economists are warning that sequestration will also lead to a higher jobless rate and could put the brakes to a fragile US economic recovery, and “that’s obviously never good for Canada,” Matthiesen added.

She agrees that Beyond the Border will take a hit.

“If resources are cut, the ones that remain will be shifted to frontline operational services, so there will be fewer people working on the plan,” Matthiesen predicted. “It’s going to be put on the back burner.”

Manley said Canadian officials are going to have to make the point to the White House that putting the brakes on the Beyond the Border initiatives is foolhardy, even amid a period of domestic austerity.

“Canada’s going to have to be in DC making the case that if you want economic growth, this is part of that,” he said. “You don’t want to kill the growth side or to thwart the supply chains.”

Two years ago, US President Barack Obama and Prime Minister Stephen Harper announced a “shared vision” for the Canada-US border. But both Canadian and American stakeholders have complained that progress has moved at a glacial pace as the US grapples with its budget woes.

Sequestration loomed over a recent Canada-US conference on Beyond the Border when an American official acknowledged budget concerns were hindering progress.

“It is fair to say we are facing some very difficult budget constraints,” Ana Hinojosa, a director at US Customs and Border Protection, told the meeting three weeks ago.

© 2013 The Canadian Press