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 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