Officials say Prime Minister Stephen Harper and U.S. President Barack Obama will launch formal negotiations Friday to ease the flow of goods and people across the border, while enhancing perimeter security -- and they want a deal completed within the year.

Sources say the agreement would include joint border inspection agencies, relocation of U.S. food inspectors agents to Canadian plants and vice versa, greater sharing of intelligence, and harmonizing regulations on everything from food to manufactured goods.

"This could be the most significant development in terms of Canada's border and trade with the U.S. since the 1988 free trade agreement," CTV's Ottawa Bureau Chief Robert Fife said Thursday night.

Sources said the deal would also include co-operation on building rail-links and bridges, and using biometrics to track travellers.

The meeting between Harper and Obama had been postponed twice, reportedly after Ottawa became concerned over how such a deal would impact Canadian sovereignty.

CTV's Washington Bureau Chief Paul Workman said that "every time the Americans start talking about border security" Canadians become "very concerned and very worried about their sovereignty" -- and tomorrow's meeting has been no exception.

Law enforcement agencies on both sides of the border share information informally. But talk of a formal agreement on the matter has led to fears about protecting Canadian independence.

Liberal Leader Michael Ignatieff has painted the issue as a "stealth deal" in the works because the Conservative government has held the preliminary talks behind closed doors without indicating what a potential deal would cover.

But Colin Robertson, a former Canadian diplomat who has been consulting with government officials on the issue of border security, was less than optimistic about prospects for the negotiations.

"They want as much as we can give them, and we're not going to give them as much as they want," Robertson told The Canadian Press.

Regarding the summit delays, Homeland Security "wanted access to all migration records and a whole bunch of other stuff" but Canadian officials refused, he said.

"It's been resolved sufficiently enough for us to move forward," Robertson added.

Harper and Obama will set about trying to forge an agreement where their predecessors have failed, by attempting to strike a balance between the need to protect against terrorist threats and speeding up cross-border trade.

The summit could see the two leaders declare that they hope to strike a deal before the year's end. The final agreement would touch on a range of issues including intelligence, law enforcement, migration, and mechanisms to speed cross-border transit.

John Manley, CEO of the Canadian Council of Chief Executives and a former Liberal finance minister under Jean Chretien, said he hoped that the talks would help the two governments drag their shared border "out of the 19th century and into the 21st."

When it comes to cross-border trade, shipments by train have sped up due to new technologies but trucks moving between the two countries are "still very slow," he said.

"The things that we do on the border in the name of security as well as enforcement of regulations, most of which makes no sense whatsoever, is ridiculous," Manley said.

With files from The Canadian Press