DECEMBER 1992 Economic Digest - Importing and Exporting

                                                                                                               

DECEMBER 1992 Edition

NAFTA

            It now seems likely that president-elect Clinton wants to negotiate two side deals with Mexico (and Canada) to rectify "omissions" before signing the NAFTA. He wants to set up two trilateral commissions, one on environmental protection and the other on labour standards. Their mandates would be to uphold and enforce each country's worker safety, wage laws and environmental standards.

            He also wants to insert controversial changes in NAFTA enabling the U.S. to turn back foods treated with certain pesticides and to close the border against Mexican and Canadian goods if a "surge" of imports are harming U.S. producers.

            Understandably, Prime Minister Mulroney would like the deal concluded long before it could become an election issue while

Clinton is unlikely to rush into what is seen as a Bush initiative.

            The government of Quebec, confident that the deal will come to pass, has announced a $3-million action plan to develop more trade with Mexico. Presently, Quebec has a $100-million a year trading deficit with Mexico. The province will spend its money on assistance to Quebec business people who want to develop sales in Mexico; information on specific Mexican markets; promotional activities for Quebec products, technical and financial support for companies entering the market, and closer financial ties between Quebec and Mexican banks. The staff at the Quebec delegation office in Mexico City will increase from four to 26 people. 200 Quebec companies are presently doing business in Mexico.

            The Government of B.C. continues to be less than enthusiastic about NAFTA.  

FTA

            Opponents of FTA seem to have blamed every problem with the economy on free trade, scarcely recognizing the high Canadian dollar, overseas competition and a global recession. Trade figures would seem to tell a different story however.

            Comparing the three years prior to FTA to the three years after, merchandise exports to the U.S. are up 11 per cent, (that with an 85 to 89 cent dollar). September's $13.1-billion in total merchandise exports was an all time high as was the $10.3-billion that went to the U.S.

            Not only do we see traditional Canadian exports such as wheat (up 37% so far this year) and natural gas (up 21%), but also industrial machinery (18%), office equipment (8%), auto parts (19%), heating and refrigeration equipment (19%), electric lighting (16%) and interestingly, textiles and apparel (up 18% and 40% respectively). Critics of FTA said it would wipe out Canadian manufacturing.        Canada's overall share of U.S. imports has grown to almost 20% with increases recorded in 19 of 22 industries and a recent study by the C.D. Howe Institute shows that gains have been greatest in those sectors liberalized under FTA. These increased 16% between 1989 and 1991 while exports of the same goods to other countries declined by 6.3 per cent. 

CROSS-BORDER SHOPPING

            Canadian retailers should get a boost from the decline in the dollar as more and more goods are now the same price as in the U.S. after factoring in the exchange rate. According to the Bellingham Herald, "The number of Canadian shoppers has fallen off sharply this year. If this trend holds, the retail sector in [Whatcom] county could be in for a rough ride." Northwest Washington state retailers employ 15,200 workers, more than a quarter of the work force of the whole of Whatcom County. Economists estimate that the 10% drop in the Canadian dollar will cost  Whatcom County $40-million in reduced retail sales.

            Prompted by falling tax revenues and predictions of a higher deficit, Manitoba has now decided to allow Sunday shopping from noon to 6 p.m. The government claims Manitoba is losing hundreds of millions of dollars in retail sales to neighbouring Ontario, Saskatchewan, North Dakota and Minnesota.

            The Ontario government plans to copy B.C. and have federal officials collect provincial taxes on the foreign purchases of cigarettes and alcohol at the border. It projects that this will add nearly $7-million to provincial revenues.

            In Quebec, the Parti Quebecois plans to block legislation that would lift restrictions on Sunday shopping in Quebec. Allowing Sunday shopping would reduce cross-border trips and increase retail sales by 1%, or about $448-million worth, and create 8,816 jobs according to the government while the PQ claims it would have no significant impact. 

INTER-PROVINCIAL TRADE

            The Conference Board of Canada has concluded that, as a result of FTA, many companies have an easier time doing business with the U.S. than with other parts of Canada.

            Internal barriers range from government procurement policies to restrictions on out-of-province workers, liquor board marketing, pricing practices for beer and wine, and farm marketing boards. In one case cited by the Board, the Ontario pulp and paper industry is not allowed to bring in power from Manitoba, thus increasing costs.

            With the defeat of the referendum, politicians are now turning to the issue of the economy which Canadians all along had said was the most important issue facing the country.

            Industry Minister Wilson is expected to begin a major push shortly to eliminate these trade barriers. New Brunswick Premier Frank McKenna has said that his government will hit back at provinces that refuse to tear down their barriers to trade saying, "We're no longer going to put up with barriers preventing our access to their markets and allow them unlimited access to ours." He considers Quebec, Saskatchewan and B.C. to be the worst offenders.

  

TOURISM

            This vital part of the economy had a third quarter deficit of $2.2-billion. Spending by Canadian travellers to other countries was $4.23-billion against $2.02-billion spent in Canada by visitors.

            In a curious move, if the provincial government is serious about international trade and investment, the minister of tourism for B.C. has said that only B.C. firms can bid on a $1.5-million tourism marketing contract. Further, it seems that foreign owned companies are not entitled to bid even if they have offices in B.C. (Seems like a trade barrier). 

'TIS THE SEASON

            Shoplifters are expected to be out in droves this Christmas season, snapping up everything from jewellery and clothing to cameras and compact disc players.

            Theft is a growing problem for retailers. siphoning off about $2-billion from their tills annually. Shrinkage, which includes shoplifting, employee theft and sloppy bookkeeping, rose to 1.8 per cent of sales this year from 1.28 per cent in 1989,

            Book and card shops had the highest shrinkage, at 2.75 per cent of sales, followed by 2.25 per cent for drug stores, 2.05 for department stores, 1.87 for clothing retailers and 0.5 for supermarkets.

            Retailers have at their disposal an array of hardware--surveillance cameras, mirrors and electronic tabs that gush ink if the customer tries to remove them. But the most effective deterrent is to make shoplifters aware they are being watched.

            A survey by Ernst & Young in the U.S. found that theft prevention programs are less effective at Christmas, primarily because of increased store traffic and an influx of untrained part-time employees who are less adept at spotting suspicious behaviour.

                       

THE ENVIRONMENT

            The environment is a $6-billion a year industry in Canada and according to a study by Employment and Immigration Canada it is threatened by a shortage of technically skilled workers and management. The study says that the industry's 60,000 strong workforce must grow by 5,000 to 7,000 new workers by 1995, including up to 3,000 skilled workers, to meet growing demand for products and services and increasing government legislation. Without the development of these human resources, the industry won't be competitive in a worldwide environment market valued at $250-billion.

            As Canada's economic base moves from natural resources to manufacturing, environmental concerns will only continue to grow. Canada's environmental industry plans, through a newly established council, to team up with educators to teach students the needed skills and develop customized business management courses for those in science and engineering. The study also found that few students have a clear understanding of career opportunities in the environment field or of the educational requirements to enter the industry. 

GATT

            The Uruguay Round has been deadlocked for two years by a dispute over demands by the U.S. and other exporters for cuts in the EC's huge agricultural subsidies.

            Now, the U.S. and the EC have tied up the last details of a key farm trade deal opening the way for final talks to revitalize world commerce into the 21st century. This is the last major barrier to concluding six years of talks on a broad range of goods and services under the General Agreement on Tariffs and Trade which could pump as much a $200-billion into the global economy over the next ten years.

            Canada stands to gain significant increases in wheat sales abroad and when the

marketing boards are replaced with tariffs, as is proposed, the consumer will benefit from lower prices for dairy products, up to now a highly protected industry.

            Fierce opposition to the deal has come from the French government which is faced with angry demonstrations by their farmers. France is the EC's top farm producer and some French politicians have suggested vetoing the accord, even at the risk of triggering a crisis in the EC.

VANCOUVER PORT CORPORATION

            The corporation is preparing for an expansion which will double its container-handling capacity by building a new $206-million facility at Roberts Bank. VPC's two terminals handled 383,563 containers in 1991, a gain of 18.9 % over 1990. This year, traffic is up by 20%. Delta Port will eventually have a capacity of 400,000 a year. Experts claim that Vancouver will have arrived as a port when it is handling a million containers a year.

            However, the U.S. West Coast rivals are also moving ahead. The ports of Tacoma and Seattle take most of the estimated 70% of inbound Canadian containerized cargo routed  through the U.S. Seattle is planning a $220-million expansion allowing it to take an estimated 1.2-million containers and Tacoma which topped a million containers in 1991 is hoping to reach two million by the year 2000.

THE ECONOMY

            The recession is over and we are now into recovery, such as it is, so say the experts. Economists predict that all 10 provinces should post growth in the coming year with the biggest growth being in the West influenced by:- Low interest rates, Currency depreciation, In-migration and House prices.

            According to the British Columbia Ministry of Finance and Corporate Relations, the outlook for the province is as follows:-

*  Real GDP will be up by 3% 

*  Employment up 2.5%

*  Unemployment Rate will be about 10.5%

*  Housing Starts, 41,500.

*  Retail Sales up 6.5%

*  Inflation 2.5%-3.0%

           

TRIVIA

            No doubt we can all take comfort knowing that in 1991 our tax dollars were spent on the following Social Science and Humanitarian Research Council grants:-$79,000: To study the repertoire and ethnology of singing in an Ottawa valley community. $208,286: To write a treatise on knowledge and power; religious and historical practice among northern Malagasy speakers. $34,028: to study women as tragic heroes: nineteenth-century stage cross-dressing. $19,520: to study the linguistic consequences of `creolization' in Sango, `langue nationale' of the Central African Republic, and, $44,010: To write an index of Canadian lesbian reviews 1970-1990.

NOVEMBER 1992 Economic Digest - Importing and Exporting

NOVEMBER 1992 Edition

NAFTA

            It remains to be seen if president-elect Bill Clinton will ask to have the NAFTA agreement reopened. He suggested during the election campaign that, while he supported NAFTA, he wanted to review the effect of the pact on U.S. labour and the environment. Canadian and Mexican officials have said that they will oppose any changes to the deal.

            According to Canadian External Affairs, one of the most important, and overlooked, benefits of NAFTA to Canada is the opening up of contract opportunities with Washington which will rise to $78-billion (US) from the present $20-billion under the Canada-U.S. free trade agreement.

            Under NAFTA, purchases by U.S. federal departments and agencies (including bodies such as Amtrak and the Tennessee Valley Authority) of $25,000 for goods and $50,000 for services will be open to bidding by Canadian companies. Under the FTA, Canadian companies were not eligible to bid on services.

FTA

            One of the benefits of FTA not often mentioned is the fact that American trade associations are now increasingly accepting Canadian companies as members.

            In Toronto, Grey Tool Co, a manufacturer of hand tools and metal forgings selling into the U.S. for 12 years, has joined an U.S trade association and is now able to exhibit at major trade shows south of the border. Last year, at its first trade show, Grey Tool picked up 17 new customers and has boosted U.S sales to 40% of total sales compared to 25% a few years ago. 

            The Canadian Trade Commissioner Service and consulates in the U.S. can be very helpful in this regard. If any of our readers wish the address of a Canadian consulate in the U.S. or details concerning a particular trade association, please let us know and we shall endeavour to track down the information.

            Meanwhile, an American flour milling company has quietly slipped into Vancouver, which it was unable to do before FTA, and is reporting sales of over $300,000 a month after one year in business.

JAPANESE INVESTMENT

           

            After a decade of investing heavily in B.C., Japanese investment in the province has recently ground to a halt. According to a report released by the Japanese External Trade Organization (JETO), the number of companies setting up shop in Canada has declined from an average of 17 a year in the 1980s to just one in 1991.

            The purchase of the Chateau Whistler early in 1991 was the last major purchase in that area where the Japanese own about 40% of all hotels. Two major projects have recently been abandoned.

            The JETO report blames the GST, the strengthening Canadian dollar, the Canada-U.S. free-trade agreement and the world recession for the declining investment.

            Local financial analysts blame this year's real-estate and stock market crash in Japan suggesting that the Japanese have been spending far beyond their means throughout the 1980s and have been selling off assets up and down the Pacific Coast in order to pay back the banks.

RETAILING

            Experts are cautiously predicting a retail sales growth of around three per cent this Christmas over last year. A survey conducted by Deloitte & Touche showed that more than 70% of retailers expect higher sales this year and 40% of consumers reported that they had already started their Christmas shopping.   Besides slightly increased consumer confidence, sales are expected to increase because, for the last six months, same day trips to the U.S. have dropped due to the declining Canadian dollar and Canadian retailers are increasing service and decreasing margins, thus becoming more competitive.

            In September, department store sales were up 11.5% in B.C. over the same month last year. Nationally, sales were up 4.4% for the same period.

EMPLOYMENT

            A job creation boom boosted B.C. employment by 16,000 jobs in October, the greatest number of jobs created in the province since August of 1991. Over-all, B.C. employment has increased by 1.1% while Canada has seen a decline of about one per cent. According to Canada Employment and Immigration, immigration from other provinces and countries continues to fuel B.C.'s economic growth where the population is growing twice as fast as the rest of the country. Most of B.C.'s employment growth was in public administration, primary industries and the wholesale trade.

            Meanwhile, in Toronto, Canada's largest city, more than 200,000 people have lost their jobs since the start of the recession. Toronto bankruptcies in the period January to August were up 13.8 per cent compared with the same period in 1991.           

            Canada's unemployment rate is now down to 11.3 per cent while the U.S. Labour Department says that unemployment in the U.S. inched down to a six month low of 7.4 per cent in October even though employers hired few new workers. The rate reduction probably occurred because many teen-agers returned to school, shrinking the labour force, not because more people found jobs.

CASCADIA

            A & A Contract Customs Brokers recently attended a meeting with retiring Washington State Congressman John Miller who, with Canadian M.P. Bob Wenman, is promoting the Cascadia concept--the corridor of urban centres running from Vancouver to Portland.

            Now we have learned that the U.S. Congress has passed legislation in support of an international forum to manage growth in the Cascadia region and pledged $400,000 (US) to help set up the commission which will deal with issues such as transportation and the environment in the corridor which is also known as the Georgia-Puget Basin. 

            Congressman Miller has said, "The Cascadia corridor is exploding. If federal, state, provincial and local governments do not work together our region will lose the living quality that makes us want to live here."

            In a related development, there has been talk of reviving rail service between Seattle and Vancouver. The Washington State legislature has approved $5-million (US) to begin upgrading tracks and level crossings and Amtrack has pledged enough rolling stock to run two trains a day in and out of Vancouver.     Also, the U.S. government has designated the Portland-Seattle-Vancouver axis as a high speed rail corridor, freeing up about $1-million a year in federal grants for the next five years to improve tracks. No detailed planning has yet been done on the Canadian side of the border.

COMMERCIAL ESPIONAGE

            With the Cold War over, it seems that it is no longer the KGB we have to worry about. According to U.S. intelligence officials, the French government and its agents are the new foes. It is alleged that they have :-

*  Steered American defence officials and businesses to bugged Air France seats and Paris hotel rooms.

*  Tapped French phone lines to obtain faxed  contract bids and new product designs from U.S. companies.

*  Placed moles in U.S. computer firms in Paris and Silicon Valley to obtain breakthrough technology and stolen garbage in Houston in search of industrial secrets.

*  Recruited French nationals employed by the U.S. embassy in Paris to spy on visiting American VIPs.

*  Posed as non-defence customers to obtain classified U.S. "stealth" technology.

*  Exploited inside knowledge of an intended U.S. dollar devaluation to make a killing on international currency markets.

            Japan, Britain, South Korea, Taiwan and China were also named before a congressional committee as countries that have targeted the U.S. for spying. The head of the French equivalent to the CIA was remarkably candid in admitting, "In the technological competition we are competitors, we are not allies."

EXPORTING

            The U.S. Department of Commerce recently invited A & A Contract Customs Brokers to act as a resource at a workshop they sponsored in Seattle to educate U.S. businesses about international transportation and documentation. This was clearly an attempt by the U.S. government to encourage companies to consider the opportunities that exist for exporting to Canada.

            If there is sufficient interest among our readers, we would be pleased to consider organizing a similar workshop for Canadian companies wanting more information about the paperwork required to export to the United States.

FORESTRY

            A recent survey of the world's 50 largest forestry firms ranks Canada's  major forest companies as the industry's worst financial performers in 1991, a Price Waterhouse report says. Finnish companies were the only other to report net aggregate losses but they lost much less than their Canadian competitors.

            Net losses for Canada's five largest forestry companies were $950-million (US) and $289-million for Finnish firms. The Canadian companies ranked in the top 50 internationally by sales were Noranda Forest Inc. and Abitibi- Price Inc, both of Toronto; MacMillan-Bloedel Ltd of Vancouver, Domtar Inc. and Canadian Pacific Forest Products Ltd. of Montreal.

                       

LABOUR LAW

            The Government of B.C. has at last introduced its labour legislation which includes proposals to allow certification without secret votes, restrictions on replacement workers and secondary boycotts.

            A coalition of major business groups is objecting strenuously to the proposals and threatening to stop co-operating with the government in several areas if the bill is not amended. They intend to refuse to accompany the Premier on international trade missions, participate in a joint labour-management institute or to attend any talks on the economy or other issues.

            In Ontario, where such legislation has been in effect for some months, the government is now turning to the most far-reaching employment-equity legislation in North America.

            The province's Bill 79--introduced in June-- would have all companies with 50 or more employees set goals and timetables for the hiring and promotion of women, visible minorities, natives and the disabled. The business community is quoted as being generally "positive about employment equity but worried about the implementation process." Two lobby groups have sprung up in recent months claiming the law discriminates against white males.

            If this legislation is successful, can B.C. be far behind?

TRIVIA

            Ottawa has helped itself to ever-greater portions of income over the past eight decades.

* In 1920, the federal share of personal and corporate income tax was $87 million. In 1960 it was $3,161 million and $70,997 million in 1990.

* In 1920 personal income tax as a percentage of total direct taxes was 37%. In 1960 it was 60% and 81% in 1990.

* In 1958 federal MP's earned $8,000 plus a $2,000 tax free allowance. In 1970 it had risen to $18,000 and an allowance of $8,000. In 1990 the minimum salary was $64,400 and $27,300 in allowances.

* The total cost of Parliament per MP in 1990 was $770,000 and it required a 476 page manual to detail the "allowances and services for MP's."

* A Senator can earn $75,000 a year just for showing up once for every two consecutive sessions of Parliament.