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Canadians assess impact of global trade.

by Alice H. Oshins As Canada's sole French-speaking province, Quebec has always taken a keen interest in international issues. And today, in light of the U.SCanada Free Trade Agreement and Europe's emerging common market, global trade issues are popular topics among Quebec's business community. Such was the theme of the RIMS Montreal chapter's annual I-Day last March, Europe 1992, Free Trade and Challenges to Risk Management. "1992 is not a final date. It is a process," said Roger Paquette, assistant deputy minister of Quebec's International Affairs Ministry. He said that Quebec industry should expect a more competitive and independent Europe in 1992 and counter these changes with innovation and technology. "The changing world economies will impact and alter the structure of the economy of Quebec, which, with only 6 million people, is a relatively small but open economy," he said. While Mr. Paquette said Quebec manufacturers want to develop trade ties within Europe, 75 percent of Quebec's exports currently end up in the United States. Francois Bourassa, an attorney for the National Bank of Canada, said that the creation of major trading blocks within Europe and North America "will lead to super-trading blocks and ultimately to true globalization."


When dealing internationally, Mr. Bourassa said, Canadian companies should be aware of the potential for political, economic and trade risks. Political risks include the potential for war or revolution in a country, economic risks involve exchange rates and inflation and trade risks could be a buyer's inability to pay.

Yet, Mr. Bourassa added, one risk companies do not usually consider when entering into a trade agreement with a foreign firm involves contracts. He recommends that a company requests a contract clause outlining the law and the jurisdiction to govern in the event of a dispute.

"If there is no jurisdiction specified in your contract," Mr. Bourassa said, "then you have a problem, because you haven't identified and managed the risk from the start."

He said that in such an agreement, companies can opt for arbitration instead of taking the case before the courts. Arbitration," he said, "is confidential-there is no published result for the record. It is also much faster."

Free Trade As for the free trade agreement between the United States and Canada, Mr. Bourassa said that issues to watch for are countervailing duties, which are established to offset government grants or subsidies, and control mechanisms such as anti-dumping measures. George Balcer, director of risk management for Stone Container Corp. in Chicago, offered a risk manager's perspective of globalization. He said that the new global trade environment will require risk managers to aggressively re-market their risks. "Risk management departments may also be reviewed to fit the new global format," said Mr. Balcer. "All policies, for example, may be streamlined. In addition, risk managers may take a closer look at insurance alternatives and risk management captives." Ken Davey, manager of International Risk Services for Arkwright Mutual Insurance Co. in Boston, said that Canadian companies should "think global but act local." He described the key aspects of a global risk management program as having worldwide consistency, adequate limits, excellent communications from headquarters to subsidiaries, competitive and stable pricing, long-term relationships, deductible funding mechanisms and thorough training of risk management staff.

Export Credit With the European common market, said Alan Paiement, manager of the eastern region of the Export Development Corp. in Ottawa, there will be a need to cover exports through export credit insurance. "In cases where exports originate from several member states, there should be one single insurance policy to cover differences in language, legal systems and other complexities in an insurance deal," he said. "The convergence of prices and common standards will present a competitive obstacle for Canadian companies," said Mr. Paiement. "Canadian products will have to compete with imported products from Europe." He said European exporters may have an advantage over Canadian exporters as a more integrated market takes shape within the community. "European companies will be concerned with survival and internal market share," he added. In the wake of the free trade agreement, Mr. Paiement said that Canadian companies can expect to see more competition on the home front. "Canadian companies need to prepare for an invasion of competition on domestic companies," Mr. Paiement concluded. "The impact of free trade on Canada will be similar to what the Europeans will feel in 1992, but will be less significant on Canadian society than the common market on European society."
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Author:Oshins, Alice H.
Publication:Risk Management
Date:Apr 1, 1990
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