JUNE 1994 Economic Digest - Importing and Exporting

JUNE 1994 Edition

 

GENERAL AGREEMENT ON TARIFFS & TRADE

            After seven years of work, more than 125 countries recently signed the Uruguay Round of the GATT which the OECD estimates will eventually result in $250 billion extra in global economic growth. The final document totalled 26,000 pages and weighed 175 kilograms. The anticipated implementation date is next January 1st but it could be delayed until July 1995.

            The biggest gains are in four areas:

Textiles & Clothing: Trade will gradually become freer in this sector. The so-called Multifibre Agreement will be phased out over 10 years. Countries like Canada will no longer be able to impose import quotas in this area.

Agriculture: Quotas and outright bans on food imports will gradually disappear to be replaced by declining import tariffs and government subsidies should fall. It will become easier for developing countries to sell to developed countries. It will be more difficult for the rich economies to flood the world with cheap, surplus food.

Minerals. Tariffs will fall to zero on many metals and other minerals, allowing developing countries, with their lower production costs, to export more.

Manufactured goods: Many countries, especially in East Asia, have become major exporters of finished goods. The broad decrease  in tariffs agreed in the Uruguay Round--40 per cent overall--will make these goods cheaper for consumers in the industrialized world. They gain, we gain.

CROSS-BORDER TRIPS

            Canadian shopping excursions to the U.S. remained near a five-year low in March despite a seasonally adjusted 0.4 percent increase over February. Statistics Canada attributed the decline partly to a drop in the Canadian dollar against its U.S. counterpart. It said another factor was rising U.S. gasoline prices. Before adjustment for seasonal factors, same-day car trips to the U.S. were down 17 per cent from a year earlier.

            Trips by visitors to Canada of one or more nights have been increasing gradually over the past year. Overnight travel into Canada increased 2.7 per cent in March to 1.3 million trips. This type of travel was relatively constant between late 1986 and early last year but has been inching upwards since April 1993 because of the low Canadian dollar.

JAPAN

            Hands-on assistance to foreign businesses looking to gain a foothold in the lucrative Japanese marketplace will soon be available through Import Promotion Centres in four cities: Yokohama, Nagoya, Osaka and Kobe. This follows the positive response to the Business Support Centre which opened in Tokyo a year ago.

            The wide range of services provided include: private offices with telephone, fax, desk and cabinets; access to exhibition halls, personnel and a library. Further information is available from the Japan External Trade Organization (JETRO) office in Vancouver at 604-684-4174.

INFOCENTRE

            A new interactive fax information service (FaxLink), operated by Foreign Affairs and International Trade, Ottawa, can now be reached by dialling 613-944-4500 from an office fax machine (24 hours a day, seven days a week). Once connected, callers will be asked either to request an index of available faxables or to input the product code associated with the desired document(s). FaxLink presently includes information on the Access North America program and various documents on the GATT and NAFTA. The service will soon be expanded to include documentation on up-to-date foreign policy matters, and additional market information and intelligence of particular relevance to Canadian exporters. For additional information, there is a toll-free line 1-800-267-8376, from 09:00 to 17:00 (EST).

RETAIL

            During the first three months of the year, the amount of money Canadians spent in retail outlets took off. Sales in dollar terms were up more than 3 per cent from the final quarter of 1993, and with the consumer price index falling during that period, the real increase was closer to 4 per cent. The country hasn't seen such a jump since the late 1980s. By comparison, retail sales increased by less than 3 per cent in all of 1993.

            B.C. consumers spent $2.6 billion in both February and March. The March figures were a healthy 6.9 per cent higher than same month in 1993. National sales went from $16.94 billion in February to $17.16 in March.  Alberta had the strongest annual gain in retail sales at 13 per cent, followed by Nova Scotia at 9.4 per cent and Ontario with a 7.6 per cent increase. Experts say fashion sales have improved after lagging behind in recent years, though some fashion chains have not yet made the proper adjustments to inventory and pricing. Big-box retailers are doing well at the expense of the middle of the road, middle-size, middle pricing outlets.

SURREY

            Waugh Research was recently commissioned by the City of Surrey to undertake a survey of Surrey businesses on economic and development issues. 2354 survey packages were mailed which yielded 789 completed questionnaires, a remarkable 33.5 per cent response. Among the conclusions: 42 per cent of businesses are presently exporting products and services outside B.C,. 44 per cent to the U.S., 43 per cent to other Canadian provinces, 3 per cent to Europe, 2.5 per cent to Asia, 2 per cent to Japan, 1.6 per cent to China and 0.7 per cent to Mexico. 83 per cent of those exporting wish to increase their exports, with 82 per cent interested in the U.S. 63 per cent of companies plan to expand in the next three years, of which 69 per cent will increase employees, 54 per cent increase product\service lines and 50 per cent plan to expand their facilities. More information on this survey is available from Bruce Riddick, City of Surrey at 591-4333.

SHOPPING

            Supermarket lines could become a thing of the past according to a South African research group that wants to put microchips into shopping carts. The Pretoria-based Council for Scientific and Industrial Research recently demonstrated its "Supertag," a cart containing 50 different items imprinted with microchips that would take only one second to be scanned and priced. The CSIR described the device as a single integrated circuit chip which can broadcast its identity despite interference from other tags in the vicinity. This means that unlike products with barcodes that have to be read one at a time, products with the Supertag chip can be read at the same time, even when they are jumbled up with others in the cart.

OPPORTUNITY

            Cracking the Japanese market can be hard but Nu Skin International, a U.S. cosmetics manufacturer, has shown that selling door to door can yield spectacular results. After entering Japan less than a year ago, that country is already Nu Skin's top overseas  market. The company expects Japan sales to total some $100 million during the first 12 months, representing around one-fifth of its total sales. Nu Skin now has some 100,000 Japanese sales agents representing its products. The reasons for this success are attributed to Japan's population density and emphasis on relationships and family ties.

TRANSPORT

            A Memorandum of Understanding signed March 1st between Canada and Mexico allows Canadian trucks to travel 20 kilometres

into Mexico. Trucks originating in Canada may now load further goods in the U.S. for drop-off in Mexico and, even more usefully, load goods in Mexico for distribution in the U.S. as well as Canada on the way back. The quantity of trucked goods directly from Mexico for Canadian receivers is relatively light; having products for the U.S. markets makes the return journey more viable. It is the first time foreign trucks have been allowed into Mexico. By the end of 1995, commercial trucking to virtually any area in North America will be open to trucks from NAFTA countries.

AGING

            People over 50 now make up about 26 per cent of the population but own 80 per cent of financial assets in Canada. This group also control 55 per cent of discretionary income. They purchase 43 per cent of all new cars and 48 per cent of new luxury cars. The value of real estate owned mortgage-free by this age group is about $500 billion, approaching the total Canadian yearly economy. 60-plus people have an average income of $27,000 to 35,000 per person putting their average household income in the $60,000 range. Most of that income is disposable since most people in this age bracket are debt-free. Seniors in Canada hold about a trillion dollars in assets. Big marketing areas for the grey group involve financial services, pharmaceuticals, travel, automotive, health and fitness.

WORLD MARKETS

            World Markets at Your Doorstep is a one-day trade show and seminar that has proved successful in the East. Continuing across Canada, it will arrive in Vancouver December 8th. The Market helps exporters and potential exporters tap into the global networks, contacts and expertise of Canadian and International trading houses. To date, manufacturers who have attended the events have generated an estimated $25 million in new export sales and ventures. Their success is due to one objective: introducing qualified suppliers to selected trading houses and their extensive overseas contacts and expertise. Interested B.C. suppliers should contact Dale Harvey of the B.C. Institute for Studies in International Trade. Tel: 844-1905, Fax: 660-3917. Trading houses should contact Mike Reshitnyk at Foreign Affairs and International

Trade, Ottawa. Tel: 613-996-1862.

BUILDING

            A $28 billion effort to rebuild post-war Lebanon could be a huge opportunity for Canada's construction industry if it makes an effort. However, most Canadians ignore the Middle East market in favour of the U.S. and the Pacific Rim. As Iraq, Israel and Gaza rebuild their cities, Canadian businesses have a 10 year window of opportunity to sell concrete forming panels, two-by-fours, trusses, flooring, wall coverings, paint, shutters, blinds and epoxies. Saudi Arabia will spend $56 billion during the next five years to build homes, schools, commercial centres and health care facilities. Kuwait, which by law provides free homes for all nationals, has a current backlog of 60,000 units, a $4 billion market for  construction materials.

BOEING

            Several Canadian companies have a big stake in Boeing Co.'s newest aircraft, the Boeing 777, which was officially rolled out in April. The landing gear, fairings, aerodynamic coverings for struts holding the engines, control columns and other aluminum components are supplied by 15 Canadian companies with contracts worth $635 million, so far. To date, 16 airlines have announced 147 orders and 108 options for the new aircraft.

HOOVER: THE FINAL CHAPTER

            Readers may recall that we reported last year on the marketing fiasco by Hoover, the UK appliance manufacturer, a division of Maytag Corp. Consumers were offered two free return tickets to Europe or the U.S. if they purchased any appliance valued at $150. The campaign created an enormous response by consumers who were better at maths than were Hoover executives, three of whom lost their jobs. It also created a gigantic second-hand market in unused Hoover products.

            The final bill has been tallied and the cost is around $99 million. By the time the promotion ends this spring, Hoover will have flown more than 220,000 people free. A year ago, Maytag reduced profits $40 million to help resolve the problem but the bill turned out to be much higher. Even now, Hoover is not certain all the bills have been paid.

E-MAIL

            It is estimated that by 1995 North America's top 2,000 companies will exchange 14.3 billion E-mail messages. In a recent legal action over intellectual property in Palo Alto, California, the E-mail messages of four key corporate executives were ordered up by an attorney; the printout was 100,000 pages long.

MAY 1994 Economic Digest - Importing and Exporting

MAY 1994 Edition

CHINA

            China will phase out import quotas by 1997 in an effort to comply with international trade standards. China is seeking membership in the GATT, the world trade body, and its application has been held up for eight years because of China's non-market economy. China currently imposes quotas or import licence requirements on about 50 products and has pledged to cut the number of products needing import licences by two-thirds to ease its entry into the GATT. China wants to join the GATT in time to qualify to be a founding member of the planned World Trade Organization, which will replace GATT in 1995.

BAD, BAD CANADA

            The annual review of foreign trade practices released by the Office of the U.S. Trade Representative includes 12 pages of complaints about federal and provincial policies found to hinder the interest of U.S. companies seeking to do business with Canada.

            Complaints include brewers not being given fair access to provincial markets, problems with a range of agricultural practices, including the subsidization of Canadian durum wheat exports, and the level of protection of Canadian dairy, egg and poultry markets. Also, "buy national" or "buy local" procurement practices are seen as discriminating against U.S. companies. Other issues include cultural protections at the federal level and the increased use of trade legislation against U.S. companies alleged to be dumping goods in Canada.

            Ira Shapiro, the USTR general counsel admitted that it is a two-way street as the Canadian government has expressed the same concerns about increased trade actions by U.S. authorities. "I'm not going to differentiate now between our law and their law," he said. "They don't think much of our law I'm afraid."

BAD, BAD U.S.A.

            The federal Department of Foreign Affairs and International Trade has released its own annual list of trade irritants that Canadian exporters face in the United States.

            Canadian exporters face a myriad of problems from U.S. federal, state and local authorities, some of them inconsistent with U.S. commitments under the NAFTA and the GATT. Canada has 32 trade actions outstanding under the Canada-U.S Free Trade Agreement and another six pending before the GATT. Barriers range from subsidy practices in the defence industry to the use of anti-dumping duties.

            Among major trade barriers cited in this report: The U.S. has reinstated subsidies under the Export Enhancement Program on U.S. wheat exports to Mexico. A price-support system for sugar keeps U.S. prices above world prices. U.S. trade remedy legislation, which is cumbersome and costly to fight, has recently targeted softwood lumber and magnesium. The U.S. does not follow GATT rules when it imposes anti-dumping or countervailing duties. The U.S. has reinstated Section 301 of the U.S. Trade Act, known as Super 301, allowing its Trade Representative to unilaterally retaliate to boost access for U.S. goods which has affected Ontario beer and softwood lumber. And the "Buy America Act"  discriminates against Canadian firms bidding on certain contracts on federally funded mass transit, airport, highway and defence projects. 

HONG KONG

            While Ottawa's last budget gave us $3.5 billion in new taxes over the next three years and promised to add $100 billion to the half-trillion national debt, the Hong Kong Financial Secretary announced a tax decrease in his March budget. Taxes will go down this year for 1.1 million of the British-run territory's six million residents. The proportion of wage earners paying no tax at all will rise from 43 per cent to 58 per cent and a family of four on one income will not begin paying taxes until its earnings reach $31,280. The top personal tax rate remains at 15 per cent. It is estimated that by 1997, Hong Kong will have $46 billion in fiscal reserves--not to mention foreign exchange reserves which now stand at $38 billion, sixth highest in the world over all and second highest per capita.  

PIRACY

            Publishers lost $7.4 billion US worldwide last year from the piracy of business software, down about one-quarter from the $9.7 billion in 1992. Despite the decline, the loss is sizable, eclipsing, in some cases, revenue from sales. For instance, in 1993, $6.8 billion was made in software sales in North America. The most frequent forms of piracy are when a company buys one program and makes it available through a network of computers, copies the program or passes the program around to others.

            The U.S. had the largest dollar loss, $1.57 billion, from piracy in 1993, followed by Japan with $650 million and France with $435 million. Piracy is growing at the highest rate in India and Pakistan, up 95 per cent in 1993, followed by Korea and Brazil, up 89 per cent, and Malaysia, up 88 per cent over the year.

COMPUTERIZATION

            Daffodil pickers on Vancouver Island have traditionally been paid on an hourly basis and consequently acres of flowers have been left to rot each year.

            Now, computers have profoundly changed the way the harvest is conducted on at least one farm with the introduction of a $40,000 automated payroll system which individually tracks each worker's production in the fields. As a result, the average picker's output has doubled; labour costs have shrunk; production costs are down sharply; inventory controls have improved and profits are up.

            The technology includes a fleet of portable, rechargeable hand-held computers; bar-coded packaging tags; bar-coded employee identification and a customized software program. Crews are dispatched to various locations and supervisors simply scan each picker's bar-coded I.D. badge and a bar-coded tag attached to each batch of flowers which are then boxed on the spot instead of at the warehouse. A running tally allows supervisors to keep track of each worker's output. At day's end, the data is dumped into the office computer where it is reformatted before being fed into an accounting program which issues the cheques.

            This has resulted in a 20 per cent reduction in the farm's unit costs this spring--to about 18 cents a bunch from 22 cents in 1993, and a 40 per cent drop in the farms $250,000 spring payroll which was previously inflated by less productive hourly workers. In other words a $100,000 savings. That's a 150 per cent return on the farm's $40,000 investment in new technology this spring alone. And the pickers like it too. Many are now earning 80 per cent more than under the previous flat hourly rate.

            At the end of each working day, the farm knows precisely how many flowers have been picked and can estimate what still remains in the fields. The next step will be to track bulb production and relate it to actual flower production.

INVESTMENT

            Last year, foreigners bought a record $48 billion worth of Canadian bonds, treasury bills, and stocks, almost as much as they bought in the previous two years combined. They bought $27 billion worth of bonds, $9 billion worth of treasury bills and $12 billion worth of stocks. With all the money coming into the country, it would be reasonable to expect the Canadian dollar to soar, yet it dropped by about 3 cents (US). One reason for the decline is the growing tide of money that Canadian money managers have been sending out of the country to buy securities abroad. In 1993, Canadians spent almost $13 billion on foreign stocks and bonds--$4 billion on bonds and $9 billion on stocks--almost as much as they bought in the previous two years.

PATENTS

            For the first time in nearly a decade, a U.S. corporation has dislodged a Japanese company from first place in the top 10 list of companies receiving patents in the United States. While the Japanese still held six of the top ten positions on the list released by the U.S. Patent and Trademark Office, the IBM Corp. jumped into first place with 1,085 patents in 1993, up from sixth place in 1992. Throughout the 1980s, the list stood as a sharp illustration of how the U.S. trailed Japan in the race for discoveries leading to new products and services. The list is watched closely as a barometer of the research, development and innovation emanating from the creators and manufacturers of technology around the world. Eastman Kodak and General Electric have moved into fourth and fifth spots giving Americans three of the top five spots.

JAPAN

            Japan has opened its first bonded warehouse, a selling centre where foreign companies can bring in products duty-free for display to Japanese retailers. Foreign exporters have cited Japan's complicated distribution system as a barrier hindering access to its lucrative markets. The new market in Osaka is the first of six such facilities to be built in Japan during the next three years. An official of the Ministry of International Trade and Industry's Import Division says the move is part of Japanese efforts to open its market wider to foreign companies. Japan's trade surplus in 1993 was a record $120 billion (US), about half of which was with the United States.

OPTIMISM

            Another survey of entrepreneurs confirms that confidence is rising in this sector of the economy. Ernst & Young's poll of 125 respondents in the east shows that 82 per cent believe economic conditions will improve for their businesses this year. A year ago, only 60 per cent of respondents felt this way. The number of respondents who feel conditions will worsen fell to 4 per cent from 12 per cent.        

PROCUREMENT

            The United States and the European Union have reached an agreement to open up each other's government procurement markets which are worth more than $200 billion (US) on both sides of the Atlantic. The agreement excludes telecommunications contracts and some Buy American provisions, including those covering mass transit and highway steel.

TRUCKING

            Trucking industry associations in Canada, Mexico and the United States have formed the North American Transportation Alliance to pursue common research and policy goals across the continent. The new group will support integration of freight transportation under the North American free trade agreement.

PROGRESS

            PCs are now so cheap that companies can afford to put one on everyone's desk. In 1970, it cost $7.00 a transistor to create a processor. Today, the cost is 4,000 millionths of a cent per transistor. You can now buy gift cards that play Christmas or other jingles, and then you throw them out. When you do, you throw out more computing power than existed in the entire world before 1956.

MUSIC

            Canada is the sixth-largest market for music; globally, the industry was worth about $39 billion in 1992. The top 10 markets for recordings are: the United States (31 per cent of world sales), Japan (15.2 per cent), Germany (9.2), Britain (7.0), France (6.8), Canada (3.0), Italy and the Netherlands (both 2.3), Spain (2.0) and Australia (1.7).

BUREAUCRACY

            In the past, bureaucrats at the European Community in Brussels have come up with directives that banned curved cucumbers and defined the carrot as a fruit. Now, feeding stale crusts to the Queen's swans is illegal. Britain's hundreds of bakers who give leftover bread to swans and wildlife charities could end up in court.

            An EC directive means bakers will have to pay for a licence to give bread away and charities will have to pay for a licence to receive it. Brussels defines leftover bread as "food waste" and all waste must be tightly controlled. The shop that provides waste food is a "waste producer" and waste must be disposed of by an "authorized person." To be an authorized person you have to fill in lots of forms and apply for a licence which for an animal charity could cost $4000.00.