Territory that borders a country (5)
I believe the answer is:
yukon
'territory' is the definition.
(Canadian territory)
'that borders a country' is the wordplay.
'that' becomes 'yon' (archaic term meaning 'that').
'borders' means one lot of letters goes inside another (inserted letters are bordered by others).
'a country' becomes 'UK' (United Kingdom).
'yon' placed around 'uk' is 'YUKON'.
(Other definitions for yukon that I've seen before include "Klondike region of Canada" , "North American territory" , "Canadian territory containing Klondike" , "Site of the Canadian gold rush of the 1890s" , "Territory of northwest Canada" .)