Free Trade Agreement

With the coming of the Free Trade Agreement (FTA) there
have been very serious implications for Canadian business
and for that matter, Canada as a whole. Many aspects of the
previous economic climate have changed such as the
reduction or eliminatation of tariffs and the restrictions
on subsidies to name only a few. There has been much heated
debate on the pros and cons of this deal: whether Canada
will prosper or become the 51st. American state. This paper
will not take this approach to the issue of whether or not
it is a wise agreement, but will look at what business can
do to better itself with the existing FTA.
 
If Canadian business is to survive and prosper in this
radically changed North American and Global atmosphere of
easier trading, then it must adapt. Some of the main areas
that will have to be addressed is the need for more
productive and efficient operations, a new focus by
business on the new trading reality, and a change in
policies by Government to enable Canada to function better
with the FTA.
 
The FTA stands to alter Canadian business which has grown
rather relaxed and inefficient behind walls of tarrifs.
While these may have initially spurred industry, they have
after time encouraged complacency. With these rapidly
disappearing walls, business will have to become "lean and
mean" in order to compete in a very competitive global
market. Looking at the present state of affairs our status
in research and development (R&D), labour costs and
expansion, there is much that must be done. Compared to the
other industrialized western nations we lag far behind in
nearly all areas.
 
Take for example R&D. In 1990 Canada spent approximately
2.1% on R&D. Japan spent 5.6% and Germany 4.8% Even the US
spend more at 3.1%. Given these statistics, it will be very
difficult for Canada to compete in any form of new
technology if all parties are on a level field with less
protective trade barriers. Another reason for a dire need
for an increase in efficiency is the trade relationship we
are currently involved in. While countries in say the EEC
are in more or less the same economic power bracket between
Canada and the US, there is a major size difference. So if
we are to have any hope of competing with a power so large
clearly we must become more efficient even more so than
other countries.
 
Another key aspect which business must deal with is that of
becoming better suited to dealing with the North American,
and to a lesser extent, other foreign markets rather than
only to Canadian or even in some cases, to provincial
markets. Corporations which do so stand far better of to
gain from the FTA than those that do not. It would be wise
for the example of Northern Telcom Ltd. to be followed.
Where production and market presence are global and not
just Canadian. Unfortunately many companies are not
following this example and are still very much "Canadian"
in their outlook. According to a Toronto Management
consulting firm - Ernst and Young 62% of all Canadian
manufacturers have no significant exports to the US. As Al
Lituka a Professor at York, says: "The FTA has gven a
strong phsycological impetus to thinking North American". 1
 
One trend of becoming better oriented for new markets is
that of specialization. By taking a "niche" in the market
and becoming very profficiant in it has proven to be very
successful, as has also been the case with Northern Telecom
Ltd. with its many hi- tech telecommunications equipment.
Another example, albiet one in Europe, is Aerospatible, a
French areospace firm. Through creating a superior product
the Airbus commercial passenger plane, they have been able
to capture a large share of the market even though France
has never been considered a large power in production
before and lacks the manufactuing ability of the US or
Germany.
 
Another trend is that of US and Canadian firms banding
together. This makes a great deal of sense since not only
can they handle the North American market in a more unified
fashion, but they are stronger and thus more able to
compete with Japanese and EEC competitors. Many
multi-national corporations are following this continental
incorporation to take advantage of the realigned tarrifs.
One such company is Procter and Gamble. Before the FTA they
had separate US and Canadian offices for marketing and
production which resulted in a considerable duplication of
tasks. As their director, David Elliot says: "We
increasingly look at North American business on a unitary
basis." 2 This method is beneficial for both countries as
with the rationalization of production efficiency is
increased.
 
Canadian business can do many of the things listed above
such as become more efficient but is not entirely up to the
private sector to make a successful adjustment to the FTA.
Government is an integral part of any major change and in
the case of the FTA it is even more so.
 
Certain fields of the economy will be helped or hurt by the
FTA. This will also be the case among various businesses
within certain fields. depending on how well they can
adapt. To aid this adaption the government should by giving
financial and other forms of assistance to businesses that
will have to change substantially to meet the new trade
climate. This should at least limit the need for costly
programs such as unemployment insurance if they cannot
adapt successfully.
 
Another major aspect that the Government controls is that
of the dollar. The value of the Canadian dollar will have
an equal effect on small business as the FTA will. Even
small changes in the dollar can mean the difference between
success and failure. Says Carl Beigie: "If the dollar
continues to go up, it will wipe out any benefit from the
deal." 3
 
There are also numerous other government policies which
must change to better Canada's standing in international
trading. Some of only a few are the retention of
interprovincial trading barriers, shortages of skilled
workers and a mounting and excessive debt at both the
provincial and government levels. The defecit, in
particular, is a very serious problem. The many aspects of
a high defecit will not be examined here, though. Its
impact on the FTA is that is that it keeps interest rates
high which thus greatly increases the cost of borrowing.
Which is critical in that business will have to borrow in
order to change to become more efficient with the FTA.
 
In summation, the FTA has provided Canada with access to a
market of over 250 million people at much kinder terms than
before. How well this market can be utilised depends on how
well we can adapt to it by meeting the conditions outlined
here. As Jim Conrad, a Canadian economist says: "What
Canada really needs is a window of the world to leap out
of". 4 The window has come and it is up to business and
government to make this great leap and allow Canada to
reach its full potential. Bibliography
 
Cameron, Duncan. The Free Trade Papers. James Lorimor &
Company,
 
Publishers, Toronto, 1986
 
The Canada and US FTA (Complete Doccument), External affairs
 
Canada, Ottawa 
 
Laxer, James. Leap of Faith: Free Rade and the Future of
Canada.
 
Hurtig Publishers, Edmonton, 1986
 
The Case Against the Critics of Free Trade. John Miora.
Finanical
 
Post, Feb. 8, 1986
 
Brave New World. Marc Tait. Maclean's, Jan. 9, 1989
 
Firms going continental. Jennifer Sachsa. Globe and Mail,
June
 
12, 1990
 
Roundtable: The Canada-US FTA. Fred Swift. Globe and Mail.
August
 
12, 1988 
 
End Notes
 
1 Firms going continental. Jennifer Sachsa. Globe and Mail,
June
 
12, 1990
 
2 Brave New World. Marc Tait. Maclean's, Jan. 9, 1989
 
3 Firms going continental. Jenniger Sachsa. Globe and Mail,
June
 
12, 1990
 
4 Roundtable: The Canada-US FTA. Fred Swift. Globe and Mail.
 
August 12, 1988