CROSS BORDER

TRADE

October, 2004

M O V I N G F O R W A R D

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Outline

Cross Border Trade Important to both Canada & the US Importance of transborder trade to CPR The rail advantage The Transborder Shipping Today US CBP’s Trade Act 2002 FDA’s Bio-terrorism Act VACIS Impact of Border Inspections– cost of delays What have we learned

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Cross Border Trade Important to both Canada and US

Canada: Exports to US 83% of Canada’s goods in 2003 (Statistics Canada)

Canada: Imports from US 70% of all imported goods in 2003 (State of Trade, DFAIT)

US: Exports to Canada 23% of US goods in 2003 (US Census Bureau) Canada was the lead export market of goods for 39 states in

2002 (DFAIT)

US: Imports from Canada 18% of all imported goods in 2003 (US Census Bureau)

In 2002 the total value of Canada – US merchandise trade by rail US$60 billion (US Bureau Transportation Statistics)

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Transborder Trade is Important to CPR

Transborder business is very important to CPR with 2004 volumes expected to exceed 800,000 loads

Transborder shipments account for over 30% of CPR’s total business

Transborder traffic is projected to continue to grow – most of this growth can be attributed to the international intermodal segment of the rail business.

CPR has integrated, advanced electronic processing with both Canada and US Customs (ACROSS and AMS)

CPR has the following transborder/security accreditations: C-TPAT - US Customs – Trade Partnership Against Terrorism

PIP – Canada Customs Partners in Protection

CSA – Canada Customs Self Assessment Program

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The Rail Advantage

Environmentally friendly Cost competitive Time sensitive & competitive service Dedicated corridors that are a safe alternative to increasingly

congested highways System wide police force - security The rail industry has integrated, advanced electronic processing

with both Canada and US Customs Becoming more and more seamless with other railroads Routing advantage through Canada to access US / NAFTA

markets

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Canadian Pacific Railway

Provides freight transportation over a 22,000 kilometer network in Canada and the US

Eight Canada/US border crossings

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Transborder Shipping Today

Since September 11, 2001 we have seen many changes that have impacted rail and rail’s transborder customers

US Customs and Border Patrol (CBP) now have over twice as many inspectors across the Northern border with plans to add additional officers.

We have seen the publication and implementation of increased reporting requirements from CBSA, CBP and the FDA

US CBP has implemented ATS - the Automated Targeting System.

Implementation of VACIS (Vehicle and Cargo Inspection System) at all major rail crossings across the Canada / US border

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US CBP Trade Act of 2002

As of July 12, 2004 rail must provide electronically a complete train consist to US CBP at least 2 hours in advance of border arrival

Customers must provide complete shipment information including

Precise cargo descriptions Complete names and addresses of actual shippers and

ultimate consignees Seal numbers

Expected later this fall the US Export reporting implementation. Rail exporters must file via the Automated Export System at least 2 hours prior to border arrival. Rail customers will need to provide the ITN (Internal Transaction Number) prior to in-gating the container at the rail terminal.

Exporters need to ensure that they are using the correct port codes with AES

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Food and Drug Administration BioTerrorism Act

2 parts to this regulation Registration of Food Facilities Prior Notice of Imported Food

Customers must submit electronically to the FDA no fewer than 4 hours before arrival by rail. Intermodal customers must have completed the PN prior to in-gating the container at the rail terminal.

Rail encourages customers to submit their PN via the ABI/ACS system (US Customs Automated Broker Interface of the Automated Commercial System)

There has been a phase in period for compliance – the compliance policy guide is available on the website

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VACIS Vehicle and Cargo Inspection System

Under a declaration of Principles signed in April 2003, both CPR and CN have committed to work with Canadian and US customs agencies to install VACIS at all major rail border points.

VACIS uses gamma ray technology to scan rail cars as they pass by at 5 to 7 mph

Non-intrusive inspection technique, Safe due to very low radiation dose per scan

VACIS will expose any trade or compliance errors - mattresses versus steel poles

100% screening of all rail traffic is not consistent with the Smart Border Accord principle of risk based targeting

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Border Inspections - Impact Cost of Delays

Point #15 of the Smart Border Accord states - Develop an integrated approach to improve security and facilitate trade through away-from-the-border processing for truck/rail cargo (and crews).

Today rail has seen an increase in the number of inspections at the border points

Rail infrastructure at the border locations was not designed for switching and setting out cars and containers for inspections

Rail switching costs are not the main issue. Actual cost of switching is variable and depends on circumstance. Costs are thousands of dollars per occurrence.

Product delay is the biggest impact:

•Delay to several containers, not just one. It’s not as easy as taking one container off.

•Minimum delay to a series of containers is 48 hours and up to two weeks or more. Less competitive with truck.

•Impact to importing and exporting customers.

•Impact to other customers.

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What have we learned

Rail is cost competitive, environmentally friendly, and is the safe answer to a congested highway system.

That advanced electronic information that is complete and accurate is the key to moving shipments across the border, northbound and southbound.

Increasing border congestion, due to the significant tightening of US Security, has delayed shipments and has added cost to the transborder trade network. It is expected that as we move forward we will see more security programs implemented.

By following the Smart Border Accord principles of implementing a risk based targeting solution, border security will be enhanced while continuing to promote the flow of legitimate trade.

Trade is critical to both Canada’s and the US’s economic performance.

CROSS BORDER

TRADE

October, 2004

M O V I N G F O R W A R D

2 0 0 4