AUGUST 1992 Edition
NAFTA
Negotiators are optimistic that agreement
on a NAFTA is near. Final issues to be agreed are: rules of origin for clothing
and automobiles and foreign investment in Mexico's energy industries. But there
are no guarantees that the free-trade agreement will go into effect.
Experts suggest that even when an agreement
is signed, the proposal will become hostage to the political process in Mexico,
Canada and particularly in the United States where the proposal cannot take
effect until the middle of 1993. Signatures on the document mean nothing until
legislators in all three countries ratify the agreement.
In Mexico few troubles are anticipated. In
Canada, the government might find itself going into an election amid yet
another free-trade debate. In the United
States, both Bush and Clinton support NAFTA but in the new Congress, which will
have the largest number of newcomers in decades, no one can tell how they will
view NAFTA, especially after the special interest groups begin their lobbying
efforts.
CROSS-BORDER
SHOPPING
Between 1970 and 1986, same day trips to
the U.S. were remarkably stable in the range of 20 to 26 million a year. The
floodgates opened in 1987, four years before the introduction of GST, and in
1991 there were 59 million trips, 15 million of them from B.C. A Fraser
Institute study suggests that a major cause for the higher costs of goods in
Canada is due to labour costs. (A product that costs $29 to produce will cost
$61.50 in the U.S. and $154 in Canada). Other important factors are high
distribution costs and government regulation. (Bilingual labelling; tougher
safety standards; tariffs and quotas causing a lot of paperwork, and trucking
regulations which require U.S. trucks delivering to Canada to return home
empty, all contribute to higher Canadian costs). The study recommends passing
laws to reduce the strength of unions and advocates freer trade, not only with
the U.S., but with Mexico and Europe which would force the government to loosen
up crippling regulations.
As a means to combat cross-border shopping,
B.C. Agriculture Minister Bill Barlee is unofficially proposing the removal of
the provincial sales tax and regional transit levy on the price of gasoline:
this represents 13 cents a litre and would make Canadian gasoline far more
competitive with that in the U.S. Instead, the province would collect its
revenue through an annual road tax, likely through the cost of automobile
insurance. The Liberal Finance critic seems to be sympathetic to the
suggestion. Such a road tax would likely discriminate against the elderly who
drive very little over the course of a year.
RETAIL
Analysts tell us that what is happening is
nothing short of a revolution in Canadian retailing. After decades of putting
up with higher retail prices compared to the U.S., Canadians have said "no
more". The surge in cross-border shopping proves the point. The lingering
recession has transformed passive Canadian consumers into zealous bargain
hunters. Also, the emergence of a single North American market under free trade
is forcing manufacturers to meet a continental price or perish. " I think
that within 18 months Canadian retail prices will be very close, if not identical to prices in the
U.S.," predicts Toronto retail analyst John Winter
At Eatons, prices have fallen across the
board under its "Everyday Low Prices." With just-in-time"
delivery from its suppliers, it has closed its mattress warehouses passing on
savings to consumers. At Sears. men's suits are $100 less than last year. At Loblaws,
Campbell brand soups are cheaper because the chain is now using Canadian
packaging. In the East, the latest Consumers Distributing catalogue lists 2,000
products which are priced lower than last year. And on it goes.
Traditional department store chains have
typically operated with a 40% gross margin on sales. Mass merchants like
Zellers and K-mart are in the 33% to 36% range. Supermarkets are between 20%
and 25%. But warehouse type stores have gross margins of 20% and Price Club has
12%. That's the competition!
EXPORTS
TO THE U.S.
One of the more contentious issues between
Canada and the U.S. in the NAFTA negotiations has been in the area of textiles
and apparel. At the heart of it has been the insistence by the Americans that
clothing not only be sewed in North America from fabric made in North America
but that the yarn the fabric is made from also be from North America--a triple
rule of origin.
The reason for his seems to be that under
FTA, Canada has been particularly successful in exporting wool suits to the
U.S, using fabric imported from Europe. The number of Canadian-made wool suits
shipped to the U.S. has soared to 380,000 last year from 50,000 in 1988. The
exports to the U.S. in 1991 were worth about $50-million and represent a 6-per
cent share of the U.S. men's suit market. The powerful U.S. clothing lobby has
been putting severe pressure on U.S. officials to beat back this competitive
threat from Canada.
PATENT
PROTECTION FOR DRUG FIRMS
Legislation has been introduced to give new
brand-name drugs greater protection from cheaper versions. The bill will
provide full patent protection for 20 years, three more years than is presently
the case. Ottawa claims that this is line with the latest GATT proposals,
though it is suggested that it has more than likely been influenced by the
NAFTA deliberations.
Provincial health ministers have warned
that such a move will add tens of millions of dollars every year to the cost of
their health plans. Canada's brand -name drug companies promptly announced
$400-million in capital and research spending over the next five years, Quebec
being the major beneficiary. Brand-name drugs are a $4-billion a year business
while generic sales are about $440-million annually.
FOREIGN
INVESTMENT
A study by Peat Marwick Thorne of 115
foreign owned firms operating in B.C., indicates that they employ more than
14,000 British Columbians and have invested nearly $2-billion in the province.
The participating companies came from 19 countries: 37 from the U.S.; 19 from
Japan; 13 from the U.K.; seven from France and seven from Finland. According to
the study, the decision to locate in B.C. as opposed to other Canadian
provinces was most often determined by proximity to key industry\markets,
followed by acquisition\joint venture opportunity and potential for economic
growth. The companies were concerned, nationally, with the Canadian economy,
GST, PST, corporate taxation and exchange rates. Locally, their major concerns
are labour productivity, provincial and municipal taxation, labour quality and
provincial and local leadership.
AN
ASIAN TRADING BLOC?
Malaysia is pushing hard for an East Asian
Economic Caucus in order to combat a global tendency by industrialized nations
to create regional trading blocs, but Indonesia, Singapore, Thailand,
Philippines and Brunei are not overly enthusiastic. They are concerned that a
new trading bloc, which could eventually include Taiwan, South Korea and Japan,
could worry the U.S. where protectionist sentiment is already common. Such an
arrangement would split the Pacific Ocean economically with North America on
one side and a Japan-led Asia on the other.
EMPLOYMENT
Unemployment benefits reached nearly $2
billion in March, up 20 per cent over the same month last year. 31,000 jobs
were added to the economy in May but the unemployment rate still rose to the
highest level in over 7 years, 11.2 per cent, as the labour force grew by
56,000 people. In June there was a healthy growth of 78,000 full time jobs.
In July however, the Canadian economy lost
129,000 full-time jobs, the largest monthly drop ever according to Statistics
Canada. Part-time employment added 100,000 jobs but the overall loss of 29,000
jobs shows that the recovery remains
extremely fragile.
According to Nuala Beck in the Globe and
Mail, there have been some employment surprises during the recent recession.
The biggest job losses have been: restaurants, 113,280; building construction,
96,450; food stores, 44,974; general contractors, 37,930, and employment
agencies, 25,640. Job gains have been made in: Insurance carriers, 8,153;
accounting, 7,346; advertising, 5,100; furniture and appliance stores, 4,821
and offices of paramedical personnel, 1,982.
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