JULY 1992 Edition
NAFTA
The pace of the North American Free-Trade
Agreement (NAFTA) discussions continues. The U.S. views seem to have prevailed on the contentious issue of rules
of origin for vehicles. Canada and Mexico favoured 50% but it now appears that
it will be 60%. This might prompt Japanese and South Korean automakers already
located in Canada to get more of their auto parts from Canadian manufacturers.
It could also induce the off-shore automakers to locate future North American
assembly plants in the U.S.
Under the FTA, Canada has to phase out, by
the mid-'90's, its duty remission and duty drawback scheme for the auto
transplants. Under the auto pact, only the Big Three can import duty-free
across the border. The Asian automakers face a Canadian tariff of 9.2%, but
under the duty remission they have been rebated the duty on every vehicle or
part imported into Canada when it is re-exported, The phase-out removes a
sizeable incentive for Hondas and Toyotas to be built and exported from Canada.
It is suggested that, in conjunction with
NAFTA, Ottawa could restore some of that benefit by dropping its duty to the
U.S. level of 2.5%. Such a move, creating an automotive customs union, would
help attract more Japanese and South Korean auto investment to our shores.
A copy of the energy chapter of the NAFTA
has now surfaced. Ottawa appears to be ready to tie Canadian energy resources
closer to the U.S. while Mexico balks at U.S. demands for concessions.
Presently, in times of shortage, the U.S. would be entitled to Canadian oil,
electricity and natural gas, at market prices in volumes equal to the
proportion of total Canadian production bought in the previous 36 months.
Canada and the U.S. are now proposing to eliminate the 36 month provision.
Mexico insists on maintaining its
constitutional protection of the monopoly position of PEMEX, the state owned
oil company giving it exclusive rights in energy exploration, and investment in extraction, refining and
the basic petrochemical and pipeline industries. Similar protection is being
sought for most of Mexico's electricity system. Even minority foreign ownership
interests would not be allowed. Instead, U.S. and Canadian companies would have
limited rights under the Mexican proposal to receive contracts for energy
operation.
CROSS-BORDER
SHOPPING
According to a report recently released by
the Royal Bank, retailers are at last beginning to win the cross-border
shopping battle. The report says that while shopping trips and spending more than doubled since 1987, the
tide of southbound shoppers is slowing. The report estimates that in 1991, the
"leakage" of retail sales to the U.S. totalled $4.8-billion, or about
3.3% of all Canadian non-automotive retail spending.
While cross-border shopping continues to
drain billions from the economy, April same-day auto trips fell by 1.8%, for
the fourth consecutive month. The Royal Bank suggests that Canadian retailers
are fighting back by restructuring their distribution systems, becoming more
price competitive, stressing superior product and warranty standards and trying
to deliver better customer service and product selection.
The report credits the sharp rise in the
Canadian dollar over the last five years as having had the greatest impact on
cross-border shopping. As growth in same-day auto trips fell in the first three
months of 1992, the dollar's value fell from 86.54 cents U.S. on January 2nd to
83.96 cents on March 31st. However, with 55% of all Canadians living within 60
minutes of the border with the U.S., cross-border shopping will always be a
problem.
GATT
In Geneva, Canada continues to seek the
best of both worlds. While continuing to support negotiating an end to the
ruinous agricultural subsidies that have driven down the price of commodities
produced in Canada, such as wheat and oilseed, which depend on overseas sales,
we continue to support the protection of supply-management and marketing
boards. 45% of Canadian farm income is subsidized at a cost to taxpayers of
over $8-billion a year. Recent concessions by the EC, where there are literally
mountains of surplus dairy products, make it likely that marketing boards will
soon be a thing of the past.
RETAIL
Department store sales rebounded 6% in
April, after plunging in March, a tentative sign that consumers may be
loosening their purse strings. Statscan reported that store sales, including
concessions, totalled $1.02-billion. Through the first four months of this
year, store sales are up about 1.6%. An expert warned that the sector, which
has been in a steady decline since 1989, probably will not return to
pre-recession levels this year, or even in 1993. It is suggested that it will
likely get worse with the new formats such as Price Clubs, Aikenhead's and Toys
R Us and that it will take some pretty dynamic marketing plans to reverse the
erosion of market share.
From coast to coast, Chambers of Commerce
and Business associations are assisting their members to offer better service
and become more sophisticated at pricing and marketing. Stores and malls, and
even groups of malls, are getting together to do joint advertising promotions
and many stores are getting back customers by hard-sell comparative
advertising. In many communities, imaginative schemes have been hatched to
offer discounts to shoppers. Eatons is advertising their "Buy
Canadian" promotion and the Bay is opening their first cut-rate outlet as
an experiment.
SUNDAY
SHOPPING
After bending to enormous pressure from
major stores and reversing an election pledge, the Government of Ontario has
announced that shops in Ontario may now remain open on Sundays. Union leaders
are against it and describe it as a betrayal of faith. New Brunswick is opening
the door to limited Sunday shopping. Legislation has been introduced to allow
Sunday shopping from September until
Christmas and for special local events. Manitoba is now reviewing its
Sunday-shopping legislation after the release of a poll estimating that
Manitobans spent $300-million in the U.S. last year.
TOBACCO
In February, the Federal government
introduced a $1 a pack tax on all cigarettes exported from Canada in an attempt
to reduce smuggling. Seven weeks later, after intense lobbying by the industry
including threats to move tobacco manufacturing jobs from Canada to the U.S.,
Ottawa rescinded the tax. In April, the export of Canadian cigarettes reached
an all time high as smugglers replenished their stocks and it is estimated that
20% of cigarettes smoked in Canada in April were smuggled. In June, the
Province of B.C. announced that, starting in the fall, PST on tobacco and
alcohol would be collected by Customs officials at the border earning
$3-million in revenue for the province.
COMPETITION
FOR CANADA POST
For some time, the government of Manitoba
has been using the services of Interpost, a company owned by the Dutch post
Office and the Netherlands-based airline KLM for overseas mail at a
considerable savings, ($20,000 on a single $90,000 contract). Now we learn that
the Federal government is also using Interpost at a cost of $750,000 over the
last two years. The biggest user is the Ministry of Energy, Mines and Resources
which has spent a total of $301,237.
POLITICS
B.C. Trade Minister David Zirnhelt
announced recently that B.C. stands to benefit from liberalized trade,
including trade with Mexico. Then, Government Services Minister Lois Boone
stated that while supporting free-trade among the provinces, Victoria would
retaliate against provinces that discriminate against B.C. companies when
ordering goods and services. Finally, the Premier has now written to Ottawa
stating, in effect, that Ottawa should abandon the NAFTA talks with the U.S.
and Mexico because the U.S. was not living by the spirit of the commitments
under FTA. He said that B.C. is now a "non-supporting participant in the
NAFTA talks with Ottawa," and that should an agreement be likely, B.C.
will recommend rejection. The business community is understandably confused by
these conflicting messages.
INTERPROVINCIAL
TRADE BARRIERS
National Revenue Minister Otto Jelinek has
complained that no country in the world has imposed more barriers to growth on
itself than Canada. He stated that five hundred interprovincial trade barriers
alone are costing Canada some $6-billion worth of costs. Trade Minister Wilson
still hopes to get something on interprovincial free-trade into the constitutional
debate despite opposition from the provinces.
EMPLOYMENT
While un-employment remains high, the
number of Government employees nation-wide has increased by 72,000 between 1
January 1991 and February 1992.
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