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North American Free Trade Agreement: a perspective from Canada.

The recently signed NAFTA will create one of the world's largest trading blocs and major uncertainties among its three partners.

In the North American scheme of things, Canada's population is one-tenth that of the U.S. and one-third that of Mexico. Naturally, the total labor force figures parallel these numbers, as well. Other facts about Canada are shown in Table 1.

But trade statistics are what help to focus on the importance of trade to the three nations that share North America, particularly Canada. In 1989, Canada's exports were $143.7 billion--equal to over 33% of the total for the U.S. This is quite an impressive number, considering Canada is 90% smaller in population than the U.S.

The strong interdependence between these two countries is further highlighted if we consider the larger picture of trade among the world's leading trading partners for 1989 (Table 2). Here, you can see that trade between the U.S. and Canada represented over 5% of the total of all world trade. While Canada ranked as the number one trading partner to the U.S., its trade between the U.S. and Mexico ranked ninth.

What must be kept in mind, however, is that the U.S., and now Germany, both hold five places on this top 10 table.
Table 1. Facts about Canada (1989)
Population: 26,200,000 Canada
 252,800,000 United States
 84,300,000 Mexico
Labor Force: 13,503,000 Canada
 123,870,000 United States
 25,570,000 Mexico
Total Exports: (Billions of dollars--Canadian)
Exports: $143.7 Canada
 $431.0 United States
 $30.2 Mexico
Imports: $143.5 Canada
 $583.7 United States
 $31.5 Mexico

In other words, trade ties for Canada and Mexico with the U.S. far overshadow American trade with other nations. Access to the huge U.S. market in North America is critical to Canada's future as well as. to Mexico's.

Canada's survival as a nation is tied to trade to a greater extent than any of our trading partners. Exports, per capita in 1989, totaled $5475. In the U.S., this figure was only $1725.

Canadian Considerations

So what is the mood in Canada with regard to the Free Trade Agreement (FTA) and, in turn, the NAFTA?

Obviously, the government's position is one of full support for both. However, the 1990 and 1992 results of a survey of manufacturers by the Canadian Manufacturer's Assn. tell another story.

As shown in Table 3, support has slipped and in some respects it undoubtedly mirrors the recession during the time frame involved. The survey results show that Canadian manufacturers are more guarded than ever in their support for NAFTA, down from 46% in 1990 to 36% in 1992.

Also, the increase from 29-44% of those who consider it a threat shows that the Canadian government has its work cut out to sell NAFTA as a positive step toward the development of a timely global village.
Table 2. World's Biggest Bilateral Trading Partners (1989)
 Value % of
Trade Partners $U.S. Billion World Trade
1. U.S. - Canada 170.9 5.55
2. U.S. Japan 136.5 4.43
3. W. Germany - France 73.4 2.38
4. W. Germany - Italy 60.0 1.95
5. Hong Kong - China 57.8 1.88
6. W. Germany - Netherlands 55.9 1.82
7. W. Germany - Britain 55.3 1.80
8. W. Germany - U.S. 45.1 1.46
9. U.S. - Mexico 44.0 1.43
10. U.S. - Britain 42.4 1.38
Total of above: 741.3 24.08
Grand Total: 3078.5 100.00
Source: Statistics Canada

On the positive side, the majority of those manufacturers did not blame the FTA for their current problems of lower sales, profits, employment, etc. Of the respondents, 56% experienced no loss of market share and 39% indicated their exports to the U.S. had increased. In addition, 38% bought more U.S. goods and services.

On the employment side, 42% of respondents expect lower employment levels this year and 58% forecast still lower employment in 1993. It needs to be noted that this same Canadian manufacturing sector has seen a loss of 350,000 jobs in the past two years.

Of particular interest to U.S. equipment manufacturers is that nearly 75% of the Canadian manufacturers surveyed have no expansion plans for the next two years. This is obviously a hangover from the current worldwide recession as much as any reflection on either the FTA or NAFTA. An informal survey of Canadian Foundry Assn. (CFA) members also reflects these sentiments.

The Trade Handicap

Will NAFTA be productive or destructive for Canada? Only time will tell. Obviously, the jury is still out on whether the FTA can and will deliver all the promises made when it was signed in 1989, so it is difficult to predict the future of NAFTA.

Since the inception of the FTA, there has been a growing list of continuous trade battles that receive far more press in Canada than in the U.S. Even with the dispute settlement mechanism available through the General Agreement on Tariffs and Trade (GATT) or the FTA, and while current "bones of contention" cover less than 5% of our total bilateral free trade, they are cause for concern.
Table 3. Canadian Manufacturers' Assn.
Free Trade Survey Results
Will NAFTA Be:
 1990 1992
Opportunity? 46% 36%
Threat? 29% 44%
No Opinion 25% 20%

While these issues have been raised from both sides of the border, the aggressive use of current U.S. trade laws by American business has not been matched in Canada. Undoubtedly, it will be.

If industry truly has an FTA and wants a NAFTA, why is it allowing the legal profession on both sides of the border to become richer?

The Mexican Factor

Opening up Mexico's market of 84 million people has to be viewed in a positive light. Trade between Canada and Mexico, however, has been fairly limited, totaling only $2.4 billion. The potential gains for both Canada and Mexico are there. However, from a Canadian perspective, the potential loss of American market share because of Mexico's access to the U.S. market is of concern.

Manufacturing industries, including metalcasting, share the same concerns as U.S. counterparts in what the NAFTA negotiations hold for the future. Increasing the buying power of 84 million people is positive. Doing this with the loss of manufacturing capacity and jobs in Canada and the U.S. is negative.

Another major poll taken by the Angus Reid Group, which conducted the polls in Canada earlier this year on NAFTA, gave pointers to the government on selling the agreement to Canada.

Canadians will support the deal if they are convinced that the Mexican economy will improve, and with it, their environmental and labor standards. They also want some proof that more companies will invest in Canada as a result of NAFTA--and that proof also extends to being sure that the Mexican market means new markets, sales and jobs for Canadian companies.

The poll indicated that 40% of the current opponents to NAFTA would change their votes to support it if the FTA was improved.

Canada: Anti-dumping Threatens World Trade

This column, published in a July issue of the Globe and Mail, Canada's national newspaper, bears repeating in the context of trading nations:

As the Economists |magazine~ put it to back in 1989, "anti-dumping suits are emerging as the chemical weapons of the world's trade wars." Read that line carefully because it is easy to jump to the wrong conclusion. The threat to world trade is anti-dumping, not dumping itself. The actual business of dumping, the selling of low-priced products across national borders, is in fact global free trade at its best.

On the monumental scale is the petition by the U.S. steel industry against steelmakers in 21 other nations, including Canada. The industry filed 84 trade complaints, claiming that foreign steel companies are selling steel in the U.S. that is either subsidized at home or being illegally "dumped" into the U.S. market. The industry--chronic trade complainers over the past 10 years--wants the U.S. government to impose duties of $1 billion on $2.5 billion worth of flat-rolled steel imported last year.

Other U.S. industries have been busy, tackling cheese imports from Switzerland and auto imports from Japan. Fortunately for consumers, a U.S. trade panel recently rejected a "Big Three" auto industry request for heavy new duties on mini-vans allegedly being dumped into the U.S. by Japan.

Canadian industries also frequently resort into anti-dumping measures. This week, Canadian officials began investigating a claim by a British Columbia farm marketing agency that U.S. cauliflowers are being dumped into Canada. Among other Canadian industries seeking to hide behind anti-dumping laws over the past year or so are manufacturers of beer, carpets, flat toothpicks, lettuce, bicycles, sugar, Christmas trees, drywall, aluminum coil stock, finished article graphite electrodes and connecting pins.

Europe has about 20 dumping investigations under way into claims that everything from potash from Canada to compact disc players from South Korea are being dumped on Europe.

Both GATT and consumers allow countries to impose dumping duties on products that bureaucrats and lawyers determine are being imported at prices below cost or below selling prices in the home market. Making these international price determinations is an international bureaucratic scam in itself, mostly involving calculations based on numbers that are not available. How much does it cost to produce a ton of steel in Mexico compared with China or Canada? You can make a career out of trying to find out.

In the case steel, the simple truth is that there is too much steelmaking capacity in the world, and an international steel sale--buy now at below-cost prices--is one way to sort out the market.

The U.S. steel action has been launched against 47 steel companies in 21 countries, which means tying together the links of a predatory conspiracy of unprecedented, not to say farcical, proportions. Could this be the global blowout event in dumping proceedings, the Big One the exposes anti-dumping laws for what they are?

An Expensive Fight

Keith Bradsher, New York Times News Service, noted that while times are tough for industry during the trade wars, at least one area is smiling--law firms.

In an article titled, "Steel Case Brings Out Hired Guns," Bradsher wrote, "In a perverse confirmation of American competitiveness in at least one sector of the economy, the U.S. capital in one day created an export that could reduce the trade deficit by $100 million or more over the next 12 months."

He noted that it consists of legal and lobbying services to be contracted by the 21 foreign countries and 47 foreign steel companies who must defend themselves against trade complaints filed by struggling U.S. steel producers. To avoid punitive customs duties of up to 165% on shipments to the U.S., each company and each country has hired or plans to hire at least one Washington law firm.

"The firms charge $500,000 to $3 million for such jobs with the average bill paid by a company or a government likely to run around $1 million, said lawyers involved on both sides of the cases," Bradsher wrote. "Add this to the $20 million war chest that the six major U.S. steel companies have assembled to file and fight the cases and the new trade war over steel imports, at roughly $120 million, is almost certain to be the most expensive ever fought."
COPYRIGHT 1992 American Foundry Society, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:includes related article
Author:Kennedy, Donald P.
Publication:Modern Casting
Date:Oct 1, 1992
Previous Article:Refractory coatings: making the right choice.
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