Y2K Impact on NAFTA Infrastructure

by Peter B. Aikat

The year 2000 is abbreviated as y2k, however it is also the name of a computer glitch which is associated with the year 2000. The glitch or problem is that computer companies, in order to save memory, adopted a voluntary standard in the beginning of the computer era. The voluntary standard was that all computers automatically convert any year designated by two numbers such as 98 into 1998 by adding the digits 19. If you fill in 98 in a computer memory (such as salary program) the computer will automatically convert it into 1998. Your charge card only shows two numbers but the computer does the conversion automatically.

This saved enormous amounts of memory because large data bases containing birth dates or other dates only needed to contain the last two digits such as 48 or 58. But it also created a built in flaw which makes the computers inoperable from January 1, 2000. The problem is that most of these old computers are programmed to convert 00 (for the year 2000) into 1900 and not 2000. This means the computer will refuse to issue pay checks or carry out transactions if we enter 00 for the year 2000. In effect the computer will be useless and all systems depending on the computer will grind to a halt.

The y2k problem is pervasive and every one is affected by it because computers, integrated chips and systems software are used everywhere. The problem is unprecedented in human history and correcting it is also not an easy task. If the problem remains un corrected then we can have a catastrophic failure in many spheres of the economy when January 1, 2000 rolls around. Something like the recent problems at HongKong's brand new airport but in every airport, bank, government, utilities etc. But correcting it is not so easy even though we may be aware of it.

One expert has pointed out that just knowing about the problem does not mean we can correct it. He says that after all we can all see the moon every night but how many of us can actually land on it?

In an earlier article the subject was introduced by the author. In this article the author conducts an analysis of its impact on the infrastructure upon which NAFTA trade is carried out.

Impact on the NAFTA infrastructure

There seems to be four basic elements which can be called the infrastructure upon which cross border trade is conducted. They are: Banking, Telecommunications, Transportation and Customs. If any one of these elements is not functioning then cross border trade will be affected. However there is a fifth element which is the overarching element without which none of these functions will work and that is the availability of Electricity; which we often take for granted.

Here we look at why these elements are crucial to trade. We analyze the impact of the y2k problem on each of these elements briefly. We also look at where the responsibility lies for readiness in each of these areas.

Banking

Trade is conducted for remuneration and no one will sell goods and services if they do not get paid. In other words goods flow has to be supported with a concurrent flow of money in the other direction. If a plant in the US receives goods and does not pay the supplier in Canada, then the Canadian supplier cannot pay his employees and other suppliers.

However modern Banking is basically transfer of funds from one bank to another or debits and credits of sums or numbers which are basically entries in computer accounts. If computers fail then these debits and credits cannot be carried out. All Banks have to upgrade their computers to y2k compliance. The task is massive.

In some banks even the vaults are controlled by computer chips and they are programmed to not open on Sundays and at night. This is controlled with embedded switches. They also have problems on the consumer side because ATM machines would also have problems.

Most large banks are looking at this problem so that they are ready; according to their annual reports in the US and Canada. Although it is not clear what is the stage of their preparedness. There is less known of what is happening in Mexico.

Responsibility: The responsibility to get ready for January 1, 2000 is largely with the Banks or the private sector. The government or central banks can only advise or ask for reports on the state of readiness.

Telecommunications

Telecom is crucial for conducting of trade. Sales and purchases cannot be made without voice, fax or internet service. Furthermore other functions such as invoicing or tracing orders are all done through phone or fax.

The Telecom network works through a combination of central switches and control software for control of traffic routing, timing calls, invoicing etc. The control software needs to be brought into compliance through reprogramming which requires actual searching of line codes and changing them. The size of this task is immense. Some of the major companies may have to correct over one million lines of code.

The other problem are the switches which have embedded computer chips which are non compliant. This is also a massive task. A medium size Telephone company has half a million switches that have to be checked and corrected.

Companies are working individually to correct their problems. However there are several other issues here. If Canadian networks work but Mexican networks do not; then we know that long distance calls will not go through. The full impact of this problem is not clear.

However even if all networks are working, it does not mean that we will be able to communicate. Every large office has its own PBX machine which is called customer premises equipment. In fact there are numerous pieces of equipment called terminal attachment equipment such as Facsimile machines, desk phones which are owned by the customer and have to be fixed by individual customers.

If a US company sends a fax to a Mexican company and the Mexican companies fax machine has not been corrected, then they will not receive the message. Even if all the networks are working perfectly. Same applies for voice and internet communications. So even if the network is working; if a company has not corrected its own equipment, they will be cut off.

Responsibility: The responsibility for getting the networks compliant is with the private sector. Regulatory agencies such as the FCC, CRTC and SCT can play a coordinating role and can demand reports on the readiness from each of the service providers.

Transportation

About seventy percent of goods trade within NAFTA is conducted by trucks. The rest is shared by rail, ship and air. However services trade such as Tourism is heavily dependent on Air traffic.

Road: Road traffic is dependent on the proper functioning of traffic lights. Traffic lights are all controlled by computers. About a year ago the city of Phoenix did a roll over test to see what will happen with its control system if the date was moved up to January 1, 2000. The entire system shutdown and remained so for 2 days.

Responsibility: Border cities such as Laredo, Buffalo and Niagara Falls handle most of the road traffic. Responsibility for readiness is clearly at sub federal level with the various city governments. There may also be other problems such as opening and closing of bridges etc.

Air: Air transportation is vulnerable due to a variety of reasons. All air traffic control is computer dependent. All airport systems including instrument landing systems use computers. Individual aircraft also have on board computers which are used for, from showing movies to flying the plane or telling how much fuel is in the tank.

All airline ticketing and reservation systems are also computer dependent.

Responsibility: The responsibility for preparedness is shared by government and industry. Industry has to correct its own problems such as aircraft or reservation systems. Governments on the other hand have to correct the navigation and airport systems.

Rail: Railways also use computers for controlling their traffic, scheduling and also tracking freight.

Responsibility: Mostly in the hands of individual companies to get ready. Government agencies may have some guiding role.

Shipping: Shipping is dependent on individual companies but also on the running of port facilities. In both cases there is extensive computer usage.

Responsibility: Ship operators have to be ready. However Port authorities which are sub federal jurisdictions also have to get ready. Federal government agencies such as DOT, SCT and Transport Canada can play a coordinating role.

Customs

Customs has to work in order for goods to cross borders. Generally this is a 24 hour and seven day operation. Customs agents use computers for looking up tariffs and for other purposes. Custom agents also collect fees and fines etc. which requires use of cash registers or verification of charge cards. All these equipment have to be y2k compliant.

There is also use of EDI by customs for handling customs claims.

Responsibility: This is mostly in the hands of government agencies. However some private entities such as border brokers, bonded warehouses etc. also have to get ready.

Electricity

Of course none of the above four elements can work if there is a problem with the supply of electricity. Even if all the computers are corrected but electricity is not available, then the infrastructure will grind to a halt.

The production and distribution of Electricity is heavily dependent on computers. As in the case of Telecommunications there are control software related problems and also there are equipment or hardware related problems. Also as in the case of Telecom there is a network of Electrical supply which is shared by various private and semi private entities. The network is dependent on its individual elements.

Each and every utility company has to correct its own problems. This includes correcting line codes in operating software. It also includes correcting embedded chips in all machinery which are not y2k compliant.

A very well publicised case exists of a utility which corrected its problems and did a roll over test. All its systems came to a halt because they had forgotten about embedded chips in their production equipment. This case has given additional knowledge to other utilities.

Responsibility: Due to the presence of private and government producers, the responsibility is evenly spread between government and industry. Federal regulatory agencies such as the DOE and NRCAN can also play a guiding role.

Conclusion

There seems to be a definite risk to the trade infrastructure from being affected by the y2k bug. Any infrastructural problems would affect trade, just as a week's computer problems in HongKong caused a loss of about a billion dollars in trade. That is about how much trade that can be affected in one day of disruptions in NAFTA countries. A complete disruption of one day would wipe out about a billion dollars in trade.

Although it is hard to tell whether there will be a complete disruption or sporadic problems, the best bet is to safeguard against it.

It is also clear from some of the examples given above such as the city of Phoenix and the case of a utility company that these are learning experiences for all. One can learn from the problems of others and there is a need for more cross border dialogue both among industry and government.

It is worth repeating here that there has never been such a pervasive technological problem in human history that is poised to strike almost at the same hour across all borders. For this reason no one or no organization should feel embarrassed to ask for help or discuss the issues for a better understanding of the problem. An issue such as this would require all aspects of the economy to pull together to mitigate its effects.

Peter B. Aikat peter.aikat@extott14.x400.gc.ca

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