AUGUST 1996 Economic Digest - Importing and Exporting

AUGUST 1996 Edition

TO OUR READERS

            With this issue, we start the fifth year of our Economic News Digest. It began with a circulation of under 100 which has now grown to over 1000. It appears on the Internet and parts are translated and published in a Chinese language business paper each month and we know that many readers copy or fax it and send it to friends. We are grateful to those who have taken the trouble to contact us to make suggestions or to tell us you enjoy receiving succinct information regularly on economic issues which are important, sometimes arcane and occasionally humorous.

            We hope that we impart to our Canadian readers the almost unlimited opportunities which exist to get into the international marketplace and the many resources available to those who wish to try. Also, we hope that, through the Digest, our American readers learn more about the country to your north and your largest trading partner.          As the Digest had grown so too has    A & A Contract Customs Brokers. In the last four years we have increased our staff by nearly 20 per cent, opened four offices in Ontario and Quebec and before this summer ends, we expect to have another one in B.C. and one in Manitoba. This last quarter has seen us make many new friends as A & A has become a major player in issuing thousands of export permits in a timely manner on behalf of the Canadian lumber industry under the Canada-U.S. Softwood Lumber Agreement.

       Sincerely, Graham H. Robins, President.

CANADA

            According to the United Nations, Canada has the world's most advanced overall human development. The Human Development Report, first published in 1990 as a way to measure countries' progress, goes beyond gross domestic product to factor in life expectancy, education, and adjusted real incomes. The index ranks countries by health, sanitation, the treatment of women and other aspects of life to give what the authors believe is a truer picture of day-to-day existence. Canada was followed by the United States, Japan, the Netherlands and Norway. On a list of 174 countries, Russia ranked 57th, China 108th and Niger was last. When the list is adjusted to reflect the status of women, Canada drops to second behind Sweden.

PASTA

            Canadian pasta makers contend their industry is vulnerable to a flood of cheap imports from Italy. A Revenue Canada investigation had concluded that pasta was being subsidized and dumped by Italian manufacturers at discounts of up to 50 per cent and imposed a 20 per cent duty. However, the Canadian International Trade Tribunal ruled in May that the imports had not caused damage and ordered the duty removed. This blow was compounded by a U.S decision in June to slap duties of up to 50 per cent on Italian pasta which will probably cause them to divert efforts to the Canadian market. The Canadian share of the domestic pasta market has eroded to 80 per cent from 90 per cent over the past four years as U.S. companies have established a beachhead and Italian brands have doubled their share of the market to 13 per cent nation-wide.

SOCIAL WELFARE

            The Netherlands, which has been  spending about 46 per cent of its gross domestic product on social welfare and public service payments, is looking for ways to cut Europe's most lavish benefits. For example, it has now abolished the right of a Dutch person whose spouse has died to collect that spouse's salary.         

HOT DOGS

            Rent for the privilege of parking a hotdog pushcart outside New York's Metropolitan Museum of Art will soar to US$316,200 annually by 1997. Rents have skyrocketed because of a bidding war between the Makkos brothers which doubled rent on the coveted south side of the Met's steps to $288,200 in 1995 from $114,200 in 1994. Just to meet the rent last year, the cart had to take in $790 a day, the equivalent of selling 226 hotdogs, 226 pretzels and 225 soft drinks. And that does not include food costs, salaries, insurance and sales tax. In 1979, New York got just $80,000 for all 60 concessions in and around Central Park. In 1997, the Makkos brothers will become the park's second biggest revenue producer with fees of $612,400.

FREE TRADE?

            A preliminary ruling by a five-member free trade panel is allowing Canada to keep its market for dairy and poultry products protected from outside competition by tariff walls of up to 351 per cent. As a consequence, the U.S. will probably be able to keep its own barriers around the American sugar and peanut industries. While this ruling represents a victory for a small group of farmers, it is a loss for Canadian consumers who are forced to continue paying higher than necessary prices.

INNOVATION

            Skin cancer is the fastest growing cancer in Britain. Now, a company has developed a range of T-shirts that give a warning to sunseekers when they are about to receive an overdose of ultra-violet light.The T-shirts look black and white in a room but once exposed to light outdoors it turns into 16 different colours which become darker according to the level of ultra-violet light in the environment. The company also markets sun-check monitors,  clear stickers that can be attached to clothing or wristbands which darken as levels of ultra violet light increase.

FUEL

            British and U.S. scientists have discovered a way to make a clean fuel from sugar that could revolutionize the energy industry. The process uses enzymes from bacteria that live near hot underwater vents to convert glucose into hydrogen and water. A clean and cheap way to produce pure hydrogen has long been sought after by energy researchers seeking ways to replace pollution-creating fossil fuels and atomic reactors.

VISITORS

            The number of non-U.S. overseas visitors to Canada hit a record high in May with visits by a total of 378,000 overseas residents. In May, compared with the same month last year, there was a 28 per cent jump in the number of Asian visitors, a 14 per cent increase in Europeans and a 16 per cent increase in Australians. Overseas visitors have increased their trips to Canada by 52 per cent since mid-1992.

SOUTH AFRICA

            Two-way trade over the 1993-95 period surged over 145 per cent, from $229 million to $739 million, and those figures do not include services and direct investment. Canada's exports to South Africa increased 42 per cent in 1995 to $321 million. Canadians expanded sales of goods and services across a wide range of categories, with impressive growth in non-traditional fields, including many manufactured products. Access to the South African market will be further opened in the months and years ahead as trade liberalizing measures take effect.

PRODUCTIVITY

            A University of Illinois study of 256 clerical and administrative workers found that listening to their favourite music on a personal stereo headset at work increased productivity by 10 per cent.

SILK

            Thousands of years ago silk built the road connecting East and West and it became a hard currency. To this day, 20 million households across China depend on silk and the country commands three-fourths of the world market. But China's trademark industry is losing its lustre. Obsessed for a decade with increasing output, China has made the fabric of royalty into cheap underwear and T-shirts. The image of silk has sunk, exports have dropped and silk makers can't make a profit. Unable to earn their keep selling raw silk at market prices, last year Chinese traders saw exports of raw and processed silk decline by 20 per cent and overseas sales dived a disastrous 42 per cent in the first quarter of this year.

DISPUTES

            Recently, U.S. and Japanese trade negotiators have focused largely on disputes over semiconductors and film, but the next one could be over Japan's construction market. Few markets contested by foreigners are worth more than Japan's construction market which is valued at US$866 million a year in tendered contracts. Of the 613 major new construction contracts issued in Japan last year, only one went to a foreign company. In 1994, foreigners won contracts valued at only 0.13 per cent of the total market value.

SWEATSHOPS

            A U.S. Labour Department study suggests that clothing manufacturers can reap higher profits by training workers to be more versatile and investing in technology than by contracting out to low-wage sweatshops. In fact, innovations that make manufacturers more flexible and responsive may be necessary for survival in the rapidly changing, fickle and competitive garment industry. The most innovative companies reaped operating profits that were on average 50 per cent higher than so called non-innovators.

AUTO PARTS

            Sales by Canadian auto parts companies to Japan-based vehicle manufacturers rose more than 40 per cent to $1.3 billion in 1994, up from $900 million the previous year. The figure is expected to rise to $3.5 billion by 1998 when Japan-based companies complete expansions of North American operations or build new plants. The $1.3 billion in sales represents about 6.6 per cent of Canadian auto parts shipments.

CLOTHING

            The Glen Echo Nudist Park of Pottageville, Ont, is in the middle of its fifth annual clothing drive for charity. Last year, members were able to fill 60 large bags with their castoff clothes.

WEALTH

            Despite 15 years of global economic growth, 1.6 billion people---nearly a third of the world's population-- have seen their standard of living decline. A recent U.N. study shows that over the last 30 years, the economic share held by the world's poorest 20 per cent of the population dropped to 1.4 per cent from 2.3 per cent. During the same period, the share of the richest 20 per cent rose to 85 per cent from 70 per cent. Perhaps the most staggering statistic is that the combined assets of the world's 447 billionaires exceeds the total annual income of 2.3 billion people or 45 per cent of the global population. In the last five years, the number of billionaires in Asia has risen from 26 to 82.

GENETACEUTICALS

            This is the name Futurist magazine gives to the potent combination of genetic research and the pharmaceutical industry. This will be a booming industry in the next decade as genetic research closes in on treatments for a host of illnesses, from allergies to AIDS. The magazine also says it's possible that within 20 years individuals will carry a smart card containing their entire genetic makeup.

RUSSIA

            Trade talks have yielded tax breaks and other commitments for U.S. and Canadian companies in a sign that the Kremlin is moving to create a friendlier environment for foreign investment. Immediately affected are the six U.S. and Canadian joint oil ventures. Among the first large investors in Russia five years ago, the joint ventures have seen taxes steadily rise despite initial promises by Russia of tax holidays until investment has been recouped. The increases were threatening to shut down some of the projects but the lowered excise taxes are better than trade officials expected.

PARENTING

            When his teenager wanted to sleep rather than mow the lawn, a man in Belton, Mo. pushed the mower into his son's bedroom and started it, cutting clumps from the bedroom carpet. The son threw a fan at the mower and called the police who arrested the father and charged him with assault.

JULY 1996 Economic Digest - Importing and Exporting

JULY 1996 Edition

AGRI-FOOD

            Japan is already the largest net food importing country in the world and the Canadian government believes Japan offers unprecedented opportunities for Canadian producers, processors and exporters seeking foreign markets and investment opportunities.

Farming is changing in Japan due to the limitations of the agri-food sector such as: the small size of farms, high land costs, a high proportion of part-time farmers and an aging farm population. The Yen has appreciated 240 per cent in the last decade, tariffs will decrease by a third by the year 2000 and there is an increasing acceptance of "western style' foods. In 1992, agri-food, fish and beverage imports were US$38 billion and rose to US$52 billion in 1995. Last year, Canada ranked only sixth as a supplier to the Japanese market with imports of under US$3 billion, accounting for only 5.3 per cent of Japan's food and beverage imports. Japan has 125 million wealthy consumers waiting for reliable foreign suppliers.

DOWN AND UP

            In the first five months of 1996 at least 250,000 job cuts were announced by big American companies, half as many again as in the same period last year. However, something odd is happening. Some of the most enthusiastic downsizers of the 1990s--among them IBM, AT&T, Xerox, Boeing, Chase Manhattan, K-Mart and Sears--are hiring again. Together, these companies plan to recruit well over 50,000 workers during 1996, close to a fifth of the 280,000 or so employees that have been let go during the past few years. Some experts claim that this is because of the success of downsizing. Companies have slimmed down, made themselves more efficient and refocussed on their "core competences" and can now start growing again. Others claim this is a result of the failure of downsizing.

VALUES

            Prime Ministers or Chief Political Officers are paid: in Canada $98,000, the UK $122,000, Germany $160,000 and the U.S. $200,000. In Singapore, he earns $780,000. 

COMPETITIVENESS REVISITED

            Last month we reported that the Swiss-based International Institute for Management Development had ranked the competitiveness of 46 countries in terms of the mechanisms that help create wealth. The United States was first, followed by Singapore, Hong Kong and Japan. Canada was ranked 12th, after New Zealand and before Chile.

            Now, the World Economic Forum, also in Switzerland, has published a similar survey, with radically different results. Singapore, Hong Kong and New Zealand, with small open economies with relatively small governments, take the top three spots, with the U.S. slipping to fourth. Canada climbs to eighth and Germany which had ranked 10th drops to 22nd. The one thing upon which both studies agreed was the fact that Russia was at the bottom of both lists.

MUSTARD

            Canadian producers supply more than 95 per cent of the 25,000 tonnes of seed used every year in French mustard production. In Dijon, farmers are being encouraged to grow mustard again--currently, they can make more money with other crops.

PIPELINE

            A 17-member consortium is proposing a $3.4 billion high-pressure natural gas pipeline running from eastern British Columbia to Chicago which will force down transportation costs, cutting a disadvantage for Western Canadian producers. The plan is to build a 914-millimetre pipeline stretching 3,000 kilometres that will initially carry at least 30 million cubic metres of natural gas daily, adding about 14 per cent to exported gas pipeline capacity. The next step is to gain regulatory approval in Canada and the United States.

TRUCKS

            Canada's transportation minister has approved the idea of a high speed NAFTA super-highway linking Canada, the U.S. and Mexico. There are several trade highway proposals currently vying for attention, and money, from the public and private sectors which could cut the driving time border to border by as much as 12 hours. Trade between the three countries now amounts to C$1 billion daily and growing. There will be no final decision on a route until 1997 when Congress votes on a sweeping highway authorization bill.

HONESTY

            According to the anti-corruption group Transparency International, Nigeria, Pakistan and Kenya are perceived by the international business community as the most corrupt places to conduct business among the 54 countries surveyed. New Zealand had the best reputation for honesty, followed closely by Denmark, Sweden, Finland, Canada and Norway.

MARKETING TRENDS

            According to Northwestern University in Chicago, these are the six major shifts in marketing today:

* Mass marketing to micromarketing. Products are being pitched to segments and niches, instead of broad markets.

* Customer acquisition to customer retention.

* Market share to customer share. The idea is to attract a lot of business from a smaller, more select group of customers.

* Standardization to customization.

* Intermediary marketing to direct marketing. Sales people play less of a role in selling.

* Face-to-face marketing to electronic marketing, using Internet and other new media.

WAL-MART

            This giant U.S. retailer has all but ruled out bringing its popular Supercenter concept to Canada claiming the grocery market here is already crowded enough. While this may be good news for grocery chains, it means Canadians will miss out on one of the hottest trends sweeping the retailing industry. Supercentres--airplane hanger sized emporiums that contains a discount store and supermarket under one roof--are the fastest-growing part of the Wal-Mart business. However, some industry observers feel the move is inevitable. By adding food, consumers could be visiting Wal-Mart 50 times a year. As of January, 239 Supercentres were operating in the U.S., 13 in Mexico, two in Brazil and one in Argentina. There are presently 134 Wal-Mart discount stores in Canada.

SAND

            Miami, known worldwide for its famous beaches is running out of sand. Officials are considering hauling in truckloads of sand from distant mines to rebuild the eroding shoreline and keep Miami's $8 billion annual tourism industry afloat. In some places, waves have eroded up to 270 feet of beach in the last four years and some beaches have been rebuilt a dozen times since 1970. Officials are even considering buying sand from Caribbean islands or mining the ocean floor off the coast. 

TRAVEL AGENTS

            Canada's two largest airlines are capping travel-agent commissions, a move that is expected to drive up ticket prices and push small agencies out of business. Airlines will probably pay agents a maximum of $30 for a one-way ticket and $60 for a round trip. A result may be that independent agencies could be forced to consolidate into chains and charge ticket buyers a fee to make up for the lost commission. They were capped in the U.S. last year and some U.S. agencies now charge $15 to $35 every time they sell a ticket. In response, travel agents are threatening to book customers into cheaper seats and onto competing U.S. air carriers if the airlines do not roll back the cap. Canada has around 5,700 agencies and 28,000 travel agents. Canadian Airlines expects to save $15 million annually and Air Canada about $25 million.

ECONOMIC POWER

            A new U.S. study indicates the immense economic power wielded by the 57 million Chinese living outside China. Overseas Chinese control economic activity which ranks only behind the GDP of Japan and the U.S. in size. They are the top investors in Southeast Asia and account for 80 per cent of foreign investment in China. In Indonesia, the four per cent of the population who are ethnic Chinese control 70 per cent of the economic activity. In Thailand, the three per cent minority controls more than 60 per cent of the economy and in the Philippines, the respective figures are four per cent and 70 per cent. There are one million ethnic Chinese in California and in Vancouver they now account for close to 20 per cent of the population. Their success is attributed to the fact that they are superb entrepreneurs.

USER PAYS

            A hospital in Willimantic, Conn. allows patients to pay off their medical bills with "sweat equity"---working in the cafeteria, organizing X-ray files, answering the phones, wheeling patients to surgery and so on.

PENNIES

            For years the Canadian one-cent coin has cost more than a penny to produce. Under the terms of the NAFTA, the Royal Canadian Mint was required to offer the contract for a new coin not only to Canadian suppliers, but also to those in the United States and Mexico.

Two U.S companies submitted the lowest bids for the contract and when they go into production on Canada Day they will reduce the cost of a penny from 1.4 cents to 0.9 cents. By significantly reducing the copper content, the Mint expects to save $3.4 million a year without affecting the 20-year life of the coin.  

RECYCLING

            The U.S. Parks Service, which must sometimes remove large, dead animals swiftly from locations such as recreational areas, has determined that nine kilograms of explosives will disperse a carcass, while obliteration takes 25 kilograms. The most important safety tip is to remove all horseshoes beforehand.

CHARITY

            Giving to U.S. charities rose more than 10 per cent to nearly $144 billion in 1995 as American generosity surged, spurred by a stock market rally, higher wages and talk in Washington of ending tax breaks which prompted people to give more. The increases resulted in 17 per cent more in donations to philanthropies that help society and the public, including research institutes. There was a 12.5 per cent increase to environment and wildlife groups, 9 per cent more to health groups and 8 per cent to educational institutions. Personal giving rose 11 per cent while corporate contributions rose about 7 per cent. 

LOSSES

            Bad cheques and shoplifting account for the bulk of the U.S. retail industry's $26 billion in yearly losses. However, it is estimated that "return fraud"--purchasing goods with the intention of temporary use--accounts for $1 billion. USA Today reports that stores want to crack down on such brazen "borrowing" tricks as returning electronic gear after a vacation, expensive clothing after party season, air conditioners after a heat wave and computers after term papers are written.

WORK

            For Canadian workers, the average length of a new job was 3.8 years in the period 1981-85, 3.4 years in 1986-90 and 3.8 years again in 1991-94. However, in 14 years the average job length declined significantly for workers over 45 and for workers in Atlantic Canada both of which had exceptionally large declines in the proportion of jobs which lasted beyond one year.

PSYCHOLOGY

            According to the New York Times, supermarket shoppers will buy more soup if the varieties are shelved out of alphabetical order. If stacked alphabetically, sales drop 6 per cent.

CORDON BLEU

            The U.S Army has developed a pound cake that is tough enough to survive a fall from an airplane, can withstand temperatures from 50 to -50 Celsius and will last for years.

OLYMPICS

            According to the Medical Post, competitors in ballroom dancing, a new sport at the Olympic Games this month, have been warned that they may have to give specimen samples for drug testing after their routines.