Free Trade 2 Essay, Research Paper
Free Trade Agreement and Its Affect on Canadian Business
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 gainfrom 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
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 thedollar. 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
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.
Cameron, Duncan. The Free Trade Papers. James Lorimor & Company,
Publishers, Toronto, 1986
The Canada and US FTA (Complete Doccument), External affairs
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
Roundtable: The Canada-US FTA. Fred Swift. Globe and Mail. August
1 Firms going continental. Jennifer Sachsa. Globe and Mail, June
2 Brave New World. Marc Tait. Maclean’s, Jan. 9, 1989
3 Firms going continental. Jenniger Sachsa. Globe and Mail, June
4 Roundtable: The Canada-US FTA. Fred Swift. Globe and Mail.
August 12, 1988