Collaborative Cross-Border Transportation Planning & Strategies Karen Borlaug Phillips Vice President – U.S. Public & Government Affairs Transportation Border Working Group Meeting Washington, DC April 30, 2004 d

General Environment/Policy Challenges The continued free flow of commerce is essential to both the U.S. and Canadian economies, at the same time that border security is being strengthened to protect against terrorist threats Intense interest by policymakers in strengthening the security of all elements of the transportation supply chain Secure flow of goods Secure infrastructure Coordination & information-sharing The key question becomes one of how to enhance security while ensuring the smooth flow of legitimate cross-border commerce Businesses on both sides of the border depend on this, as do the transportation companies that carry the freight The U.S. & Canadian governments have been active in their efforts to address this dual mandate

CN Overview CN clearly has a key interest in this vital issue CN is the 5th largest railroad in North America (in terms of revenues) with extensive operations across Canada & in the U.S. to the Gulf of Mexico – 2003 revenues of C$5.9 billion CN reaches into Mexico through a Marketing Alliance with the Kansas City Southern Railroad Diversified traffic portfolio, one-third of which is cross-border traffic Security is one of the cornerstones of CN’s operations

CN Network

Railroad Industry Overview Trucks may be more visible at the border, but freight railroads in the U.S., Canada & Mexico form an integrated network that provides service throughout North America Railroads transport an important portion of cross-border freight movements – over 17% (by value) of U.S./Canada movements After the horrible events of September 11, 2001, the rail system remained reasonably fluid – it is important, however, to guard against any future border closures or major slowdowns The railroad industry has undertaken a number of specific security-related activities since September 11: Created task forces on key issues Established 4 alert levels with specific actions to thwart terrorist threats Established a 24/7 railroad security operations center Actively participates in the Surface Transportation Information Sharing Analysis Center

Smart Border Declaration After the September 11 attacks the governments of Canada & the U.S. worked together closely to address cross-border security concerns One of the most visible examples is the December 2001 “Smart Border Declaration” signed by Secretary Ridge and then-Deputy Prime Minister Manley, from which the 30-point Smart Border Action Plan emerged The declaration provides an important framework for collaboration between the two countries on security & facilitation of commerce Both governments can point to progress on all 30 points in the Action Plan The lead agencies have been the Department of Homeland Security (particularly the Bureau of Customs & Border Protection) & Canada Customs (now the Canada Border Services Agency) to further enhance the effectiveness of security efforts

Smart Border Declaration Key principles: Distinguish between high-risk & low-risk people & cargo, allowing government officials to concentrate their efforts where most needed Upgrades of border infrastructure to allow greater speed & facility of cross-border movements A safer & more intelligent border due to significant information & intelligence sharing between U.S. & Canadian government agencies The Smart Border Declaration has provided an opportunity to make needed security enhancements at the border

Major Freight Security Initiatives A number of important freight security initiatives have come out of the Smart Border Accord and through the initiatives of the U.S. & Canadian Customs agencies. Free & Secure Trade (FAST) Container Security Initiative (CSI) C-TPAT Advance Cargo Information Regulations Customs & Border Protection Food & Drug Administration Canada Customs modal requirements to be put into place this year

Major Freight Security Initiatives April 2003 Rail Declaration of Principles U.S. Customs is installing VACIS & radiation detection machines along the U.S./Canada border to screen cargo entering the U.S. by rail Equipment to be installed at 9 border crossing points accounting for 90 percent of rail traffic entering the U.S. from Canada – at 2 locations (Sarnia/Port Huron & Windsor/Detroit) the equipment will be placed on the Canadian side of the border U.S. & Canada Customs agencies have worked together closely on this initiative

Border Security – Key Concerns As a company operating on both sides of the U.S./Canada border, there are 4 issues of critical importance to CN: ensuring that security is enhanced but that cross-border commerce is not impeded; modal equity; harmonized information requirements for U.S. & Canadian government agencies & within U.S. agencies; & utilization of a risk management approach to the maximum extent feasible in all new government regulations It is also critical that infrastructure on both sides of the border is sufficient to ensure smooth commercial flows while implementing security mandates

Role of the Trade Community The trade community has been active in working with the U.S. & Canadian governments on border security initiatives An example is COAC, a 20-member panel with representatives from a broad spectrum of trade-related companies, that advises the Departments of Homeland Security and Treasury on Customs-related matters – COAC has been active in the creation of C-TPAT & in development of the Trade Act advance notification rules Most recently, DHS has asked COAC to form a subcommittee to address various mandates of the Maritime Transportation Security Act – including performance standards for a “smart container” Government interaction with business is essential – not only to ensure that the trade community’s concerns are understood & addressed, but also to assist the government in developing rules that are as effective as possible in promoting security while continuing to allow legitimate trade

Conclusion The outstanding cooperation between the U.S. & Canadian governments that we have seen since September 11, 2001 is essential & must continue Secretary Ridge frequently speaks of his agency’s dual mandate of enhancing security while ensuring the smooth flow of commerce – security & economic conditions throughout North America make success imperative Government consultation with the trade community is essential & it is crucial that businesses on both sides of the border continue to emphasize to our respective governments the importance of the U.S./Canada trading partnership in the context of these security initiatives