JULY 1993 Edition
MEXICO
As we have mentioned before, regardless of whether a
NAFTA is signed or not, Mexico is open for business. In the last five years,
Mexico has spent billions on infrastructure as
the country prepares to compete with the U.S. and Canada.
A new international-quality road has just opened that
cuts travel from Mexico City to the Pacific Ocean to about four hours. Since
1989, more than $10-billion has been spent on 1,800 kilometres of highway and
another 2,100 are to be constructed in the next few years. The completed roads
have made it easier to truck goods to the U.S. (and Canada); the primary method
for exporting Mexican products.
Modernization efforts are also planned to improve port
facilities and airports, increase mass transit services and make the national
electricity grid more efficient by breaking down the federal electricity
commission (CFE) and allowing private sector companies to compete which is
expected to reduce electricity costs by 10 per cent.
Privatization is the common theme. Federal, state and
municipal governments in Mexico are turning to the private sector to build and
run the operations. Almost all the work has been done by Mexican companies
providing a significant boost for the country's 19,000 construction companies.
AUTO PARTS
Since 1986, motorists have had much lower price increases
for auto parts than other consumer products, thanks to the Canada-U.S. free
trade deal and GST. Prices for parts ranging from batteries to tires and spark
plugs climbed 1.5 per cent annually while all other items in Canada's consumer
price index jumped 4.5 per cent a year, according to an Automotive Industries
Association of Canada study. During the last year, there has been actual price
deflation. Prices tumbled 3.6 per cent while the CPI which includes everything
from groceries to mortgage rates increased 1.6 per cent. The study attributes
the lower prices to elimination of the 9.2 per cent duties on many auto parts,
cheaper raw materials and the replacement of the old 13.5 per cent
manufacturers sales tax with GST.
NO PLACE TO HIDE
[From a speech by Scotiabank chairman Cedric Ritchie].
"When Fishery Products International of Newfoundland
had to find a replacement for northern cod, it bought from Alaskan freezer
ships. The fish were then shipped to China to be processed and sold back to
North America. That's global competition.
Advanced training is no longer limited to the privileged
classes in developing countries. Mexico graduates more engineers per capita
than Canada. Software for Holiday Inns is written in India by college graduates
whose wages are only a 10th of ours.
The message is clear: in the global economy, there's no
place to hide. Competition isn't just across the border; it's across the
street.
Responsibility for competing rests mainly with
individuals. There's a role for government, but we need both less and more from
it. Less deficits and taxes and anti-competitive rules; more of what can only
be provided collectively--e.g. demanding and relevant education and more public
spending to boost our research capabilities.
Cutting government spending is essential, but it has to be
done in line with a strategic plan. Slashing our representation in foreign
markets is very myopic--especially in a global supermarket where we have to
fight for every inch of shelf space."
B.C.TRADE
A new service has been announced for the 200 B.C. exporting
companies, including A & A Contract Customs Brokers, that have exhibits at
the B.C. Trade Showcase at 601 Cordova Street in Vancouver. Using the new
Kalman Technologies faxback system, potential importers anywhere in the world
can dial 604-775-1832 from a fax phone and obtain information by company or
sector 24 hours a day, 7 days a week. B.C. Trade's International Offices can
dial in from their offices and have material sent to their fax machine at no
cost. The material can be updated by Showcase staff, thereby allowing only the
most current information to be distributed.
WHEAT
For the first time, the U.S. is using Export Enhancement
Program (EEP) to challenge Canada's export of wheat to Mexico. This weapon is
usually confined for use by the US in food trade wars with the 12-nation
European Community. Canadian farmers, who have long complained of being caught
in a transatlantic crossfire, are seen by some as having cheated its way to
success in U.S. wheat markets since the Canada-U.S. free-trade agreement took
force 3 1\2 years ago, even though Mexico is considered to be a traditional
Canadian market. The EEP provides cash bonuses to exporters to bridge the gap
between U.S. domestic prices and the lesser prices necessary to sell overseas.
The tonnage eligible for bonus for Mexico is 1.4 million tonnes, roughly equal
to that country's entire import market.
Canada has about one third of the Mexican import market,
511,000 tonnes in the last crop year, and is accused of subsidizing grain
transportation to Mexico. A spokesman for the Canadian wheat board stated that
moves like this "makes the whole concept of free trade a tough sell for a
lot of doubters."
In better news, The European Community will permit Canada
to more than double its annual export of high-quality durum wheat into the
12-nation market in return for Canada supporting its plan to retain parts of
its oilseed subsidy. This will increase Canada's duty-free exports of durum
wheat by 300,000 tonnes. Canada's annual world wide sales of all wheat are
about 30 million tonnes.
RETAIL
Two North American warehouse retailers, Price Club and
Costco Wholesale Corp, are joining forces to create a discount superpower that
will have a coast-to-coast presence in Canada. This merger of the two U.S. titans
will present a formidable challenge to Canadian retailers, particularly
supermarkets.
The two giants, which sell everything from frozen food to
tires and stereos, are projecting 1993 sales of around $3-billion. Canadian
supermarkets, led by Loblaw Ltd, with 1992 sales of $9.3-billion, are trying to
lessen the impact of warehouse clubs by objecting to proposed new sites while
copying the clubs' merchandising strategy.
Meanwhile, an hour after the new 27,000 square foot
Yaohan Asian Supermarket opened last month in Richmond, B.C., police shut its
doors fearing someone would be killed in the crush of several thousand
shoppers. The 350-space parking lot overflowed and traffic was tied up for
blocks in every direction. It was later reported that the store took in
$500,000 in the first four days.
TOURISM
Tourism is the Number 1 industry in Greater Vancouver and
it provides the equivalent of 63,607 full-time jobs according to Tourism
Vancouver. A total of 5.59-million overnight visitors spent $1.76-billion in
Vancouver last year, a 2.2 per cent increase over the previous year. However,
the numbers are down from Vancouver's biggest U.S. markets of Washington, California and Oregon. Tourism
B.C. recently closed its offices in Seattle and Los Angeles as a cost-cutting
measure. The largest numbers of overseas visitors were from Japan, the
U.K., and Germany, the fastest growing
market--up 10.3 per cent from 1991.
MANAGEMENT
Schneider Corp, the Kitchener, Ontario meat processor has
compelling evidence of the success of their worker decision-making program.
Topping the list is the $20-million saved in the past three years as a result
of worker suggestions and the redesign of processes. Last year, they registered
a 24 per cent rise in profit--to $6.3-million on sales of $650-million during a
sharp industry downturn.
Over the past year,
Schneider has managed a 40 per cent reduction in the use of internal paper,
including order forms and memos.
Early retirement programs in large companies are often
followed by a rash of hiring, evidence that companies cut too deeply or lost
the wrong staff. A survey of 1,100 U.S. firms showed 50 per cent were hiring
replacements within a year.
THE ECONOMY
With an unemployment rate of 11.4 per cent and meagre
growth in the job market, it is understandable that 89 per cent of Canadians
recently surveyed by Gallop felt that the recession is still not over, even
after two years of economic growth.
Unemployment is a major issue in all the industrialized
countries with something like 23-million unemployed in the U.S., Canada,
Britain, Italy, France, Japan and Germany. The biggest challenge is to provide
greater incentives for people to work and stay off the unemployment rolls.
Compared to the other G7 countries, Canada is in pretty
good shape and has the fastest-growing economy among the major industrialized powers and the OECD has
predicted that Canada's economy will lead the pack in 1993 and 1994. In the
latest quarter, our 3.8 per cent growth rate is significantly better than those
of the other three growing economies, Japan, Britain and the U.S. The other
three G7 economies are shrinking and Germany fell 5.6 per cent in the first
three months of this year.
Over the past year, Canada's 1.7 per cent growth is
second only to the US. Britain grew slightly while Japan, France and Italy
stagnated. Production in Germany fell by 2.8 per cent, due in part to the
problems of unification. The OECD forecast is for Canada's economy to grow by
7.7 per cent over the next two years, while the U.S. will grow by 5.8 per cent,
Britain's by 4.8 per cent and Japan's by 4.3 per cent. Those of Germany, France
and Italy will scarcely grow at all. All things considered, Canada is doing
well compared to some of our trading partners.
THE PRICE OF PEACE
Investors in base metals mining companies are used to the
bad news: prices for nickel, copper, aluminum, zinc and lead stay depressed.
The end of the Cold War has had the same impact on metal prices as the end of
hot wars. Military hardware is made of metals. When governments no longer need
to devote huge shares of the GDP to cannons, missiles, warships and tanks,
demand for metals falls sharply. In this year's first quarter alone, Pentagon
procurement was down 25 per cent from a year earlier, a trend that will likely
continue for a long time to come.
TRIVIA
Last month, we neglected to advise readers that on June
30th, they should have set clocks and watches back by one second. The Paris-based
International Earth Rotation Service ordered an extra second at midnight to
bring timepieces in line with the erratic rotation of the planet. We regret any
inconvenience that this oversight may have caused.
ABOUT OURSELVES
This is the twelfth issue of our Economic News Digest,
which has grown from a circulation of about 75 to over 600 a month, and we
thought we would take the opportunity to write a little about our company.
A & A Contract Customs Brokers was founded fourteen
years ago with a staff of three working out of a small office at the Pacific
Highway crossing in British Columbia. Now, we have six B.C. offices and one
each in Blaine, Washington and Mississauga, Ontario, The staff of over 50
collectively average more than 10 years of customs experience and the
management group average over 25 years in the industry.
Each employee is dedicated to our philosophy of total
commitment to our clients, and our strong growth over the years has been
achieved without a sales force. We continue to be at the leading edge in
utilizing technological advances in our business and are constantly exploring
new Electronic Data Interchange (EDI) applications to facilitate relationships
with our clients, suppliers and Canada Customs.
At A & A Contract Customs Brokers, we believe we are
big enough to get the job done but small enough to ensure that each of our
clients receive personalized service.
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