From Site Selection magazine, November 1999
M A N A G E M E N T    S T R A T E G Y

The Canada You Don't Know

Despite the clout of its southern neighbor, Canada is forging its own free trade

accords and works harder than most Western markets to ensure a high quality

of life for its citizens, according to native in the know.

In early August, Canada's Consul to Atlanta, Randolph C. Stansfield, visited the offices of Conway Data, publisher of Site Selection Magazine, to shed some light on issues of interest to business and economic development professionals in both countries. Following are his remarks. - Ed.

It is natural for Canadians to know a lot about the USA -- the world's most powerful economy. Everybody in the world does. All the more so since 90 percent of Canadians live within 100 miles of the US border.

But it is not so obvious why Americans would or should know much about Canada. Alas, for many, Canada is that place that the weatherman is always blaming for the cold arctic air that occasionally chills an American winter morning.

I would like to provide a few reasons why Canada is of some importance to the United States, and I would like to provide a few snap shots of the current Canadian economy and of the substantial trade and investment that takes place across our border.

At the fifth year anniversary date of the North American Free Trade Agreement (NAFTA) and the tenth anniversary of the Canada-USA Free Trade Agreement, I would like in particular to assess the value of those initiatives to date, and look ahead at where we might go from here.

It is vitally important to Canada that Americans understand us well. Decisions taken in the USA affect Canada every day. Federal Reserve Chairman Greenspan's interest rate changes affect ours. Misunderstandings of the nature of our economy have affected the value of the Canadian dollar. Those who believe that resource-based industries account for the majority of the Canadian economy are living in the 1960's. Resources remain important but now account for less that 35 percent of our exports. But the perception that Canada is a resource-dependent exporting country drove the Canadian dollar to record lows last year. Of course that has its positive side as well, as our export statistics and tourism numbers can testify. But it sure doesn't help when we are trying to buy American goods and services.

New Economic Reality
Real GDP Growth 1999-2000 Now, let me provide that snapshot of the Canadian economy. It was not too long ago that Canada was plagued with economic problems -- inflation, slow economic growth, high unemployment and annual government budget deficits that were far too high.

All that has changed -- dramatically. Today, Canada has one of the lowest inflation rates in the world and interest rates lower than even here in the United States, which was not the case in the past.

Economic growth in Canada has been outstripping other members of the G-7 for the past several years. These trends appear to be continuing.

And as for those whopping budget deficits, Canada wrestled that problem to the ground faster than any other country.

Add to this other positives like Canada's preparations for the 21st century by becoming one of the most "wired" countries in the world. We have put money into creating outstanding educational institutions, and as a result, we have a bountiful supply of "knowledge workers". And we have relatively low labor costs. This all adds up to a formidable report card.

Underlying all of these positive factors is a very high quality of life in Canada. You might have noticed newspaper reports in recent weeks noting that for the sixth consecutive year, Canada placed number one in the United Nations Human Development Report on best places to live. The UN survey ranks 174 nations according to how people live, factoring in health care, life expectancy, education and income.

Balance of Trade
So what does this mean for trade between Canada and the United States? For Canada, it means extraordinary good luck. Geography has placed us at the very doorstep of the world's most powerful economy. For Canada, the United States offers a vast market for our goods and services. Some 86 percent of all Canadian merchandise exports worldwide find a US market. And to a degree many Americans find surprising, Canada offers a substantial market for American goods. In recent years, almost a quarter of all US exports worldwide were sold in Canada.

In fact, Canada is by far the United States' largest export market. More goods and services are sold to Canada than to your next two largest trading partners, Mexico and Japan, combined. More is sold to Canada than to all the members of the European Union combined. More is sold to just the Province of Ontarion in Canada than to Japan. It is a vast, rapidly growing, and highly beneficial trading relationship for both countries.

Economists will debate for some time the finer points of benefits flowing from the free trade agreements -- the FTA between Canada and the USA now ten years old, and the NAFTA involving Canada, the USA and Mexico, which is now five years old. Both agreements are looking very good from the perspective of trade. Two-way trade between Canada and the USA has doubled in ten years under the FTA. Trade has grown by 50 percent in just the five years since the NAFTA was signed.

Both Canada and the US have seen their economic relations with Mexico grow significantly. And, importantly in light of some of the economic difficulties Mexico has since faced, NAFTA locked in Mexico's economic reforms and prevented any U-turn in the face of difficulties.

Canada's Strong Suit
There is one story which I think illustrates well the effect of free trade. The clothing industry in Canada was for many years a political 3rd rail. As it was heavily implanted around Montreal, you not only had employment and unions to worry about, you also had the cultural political factor. It is to the credit, then, of the Government in the early '80's that it was decided that Canada could no longer justify protecting an inefficient industrial sector. The government opted to provide this industry with assistance for a few years of "adjustment" after which the assistance was terminated.

The industry adjusted. It modernized, buying the latest machinery and finding a niche where they could compete -- high-end products, fashions and men's suits. Their product was so good that they were soon beating Italian handmade products for both price and quality. All the big names started buying Canadian suits, and we were delighted to see many millions of dollars a year in extra exports to the USA. U.S. consumers benefited, too. Suits that were in the $500 range were now sold for $200 to $300.

The FTA and the NAFTA incorporate this hard-won Canadian advantage, and the agreements provided further impetus to the trade. Because free trade drives this kind of market efficiency, there is little question that the FTA and NAFTA so far have been great for the North American economy. The question remains: How do we build on such success? What should the next steps be in further cementing this progress and perhaps forging some additional, forward movement? The most immediate prospect for expanding free trade is the Free Trade Area of the Americas (FTAA).

Total Government Defecit Why this push for hemispheric free trade? Why look to Latin America and the Caribbean? Because future growth is there. The jobs are there. The opportunities are there. By the year 2000, the region will have a population of nearly 500 million -- 50 million of which will be middle- and upper-income earners. It will have a GDP of US$2 trillion.

And it is also a very young population. With an average age of between 17 and 21, their prime productive and consuming years are still ahead of them. We know what the baby boom has meant to the North American economy. In demographic terms, Latin America and the Caribbean stand today where the United States and Canada stood in 1967.

So this really is a ground-floor opportunity, and we must get in on it.

Setting the Pace
The FTAA also provides us with an opportunity to develop a framework for a more open, transparent and predictable trading system in the Americas -- a system that will ensure that the playing field is fair, the rules are clear and the opportunities shared. Canada has already moved forward and negotiated a NAFTA-style bilateral agreement with Chile, so Canadian-based business is benefiting from lower barriers when conducting their affairs with Chile.

Canada is taking the lead in the discussions about a Free Trade Agreement for the Americas (FTAA). These negotiations were launched a year ago April in Santiago by 34 leaders, including President Clinton and Prime Minister Chrétien. The target is to conclude negotiations by 2005. Canada is Chair of the 18-month start-up phase of negotiations and will host the next ministerial meeting in November 1999.

Nine FTAA Negotiating Groups have been established: market access; agriculture; services; investment; government procurement; subsidies, countervail and antidumping; competition policy; intellectual property rights; and dispute settlement. As well, three groups have been formed to examine broader issues of smaller economies, electronic commerce and the participation of civil society.

However, from Canada's perspective as chair, there are four key challenges that must be addressed, and sooner rather than later: U.S. fast-track authority, business facilitation, the involvement of civil society and the unequal size of the various players. Let me just touch on each of these.

First, U.S. fast-track authority. While is it not critical at the moment, the lack of fast track has clearly had an impact on the level of engagement by the United States. This, in turn, could affect the engagement of others, including Canada, for no country will want to run the risk of having to negotiate twice with the USA, once with the Administration and again with the Congress. More generally, it sends an unhelpful signal about American commitment to the principles of freer trade. It would be unfortunate indeed if the United States, which has been both an architect and a beneficiary of trade liberalization over the past 25 years, were now to slacken its vigor or to abdicate its leadership. The world needs the United States to remain committed to the principles of freer trade. Fast track would provide an important reassurance.

Second, we need to make progress in the area of business facilitation. The FTAA negotiating committee has worked on proposals for reducing red tape and other costs of doing business in the hemisphere. One area is simplified customs procedures, and that is certainly a step in the right direction. Our goal must be to make it as easy for a firm in Nashville to do business with Santiago as with Saskatchewan or Loas Angeles.

Third, another key agenda item is the issue of civil society in the negotiations. There is a great divergence of opinion across the hemisphere as to how -- or even whether -- to engage civil society in the FTAA process.

Why Trade Matters
The challenge we face is to bridge the gap between nations like Canada and the United States, which welcome that active engagement, and others that harbor suspicions about the civil society agenda.

This will not be an easy task, and we will be breaking new ground. But we cannot expect to establish an historic 34-country pact without involving our people. Canada, and I'm sure the United States, would find it impossible to sell such an idea at home or to promote it abroad.

Randolph Stansfield We must never lose sight of the simple fact that trade should be about more than enhancing the bottom line of a nation. It must be about enriching the lives of its people. We do not seek freer trade for its own sake. We seek it because it will provide our people with rewards for their labor, markets for their products and hope for their future.

Our fourth challenge is to address concerns raised by the enormous disparity in size among the various FTAA participants. If you are Trinidad and Tobago, with a population of about 1.3 million, and you look at Brazil, with a population of 161 million, you might get a little worried.

Above right: Randolph C. Stansfield is Canada's Consul to Atlanta.
Canada understands this. After all, we entered into a free trade agreement with the United States -- a partner over 10 times our size. But our experience has been positive, in part because we have seen the benefits of bringing our trade under rules where might does not equal right and where the outcome of a trade dispute is decided on the strength of the argument and not the size of the participants. And we will certainly be sharing these experiences with the smaller economies of the FTAA.

Canadian Health Care Is Not a Headache
In closing, let me return to the subject of misunderstanding and myth. I am continually surprised at the amount of misinformation that we take for granted. In American history, it absolutely abounds: were the Pilgrims really seeking freedom or religious conformity? Did they really land at Plymouth Rock? Did Paul Revere ride to Lexington and Concord as Longfellow's poem describes, or did he ride, as some say, to the nearest tavern and get drunk? Those true or false legends are your interesting problems.

But the myth which I would like to put to rest today is the misinformation surrounding the Canadian health care system. Some in the USA would have you believe that you have no choice of doctor in Canada, that we have antiquated equipment, that there are long waits for procedures during which people commonly die, that the system is far more expensive than that of the USA, and that it is not effective.

In Canada, I want to assure you, you go to whatever doctor you choose, provided that he has the time to see you. Waits for routine appointments could be three to four weeks, yet urgent appointments are handled usually the same day.

The waits for some procedures can be long, but there are almost always ways around the problem. For example, a few years ago, some critical newspaper articles pointed out that the waiting period for heart bypass surgery in Ottawa was around one year. What they failed to mention was that in Kingston, a city 75 miles from Ottawa, the waiting period was six days. The obvious answer was to get someone to drive you to Kingston.

My mother needs regular glaucoma surgery for which there is a four-month wait at the specialist hospital in Toronto. Her doctor simply will figure out when she is due, and four months in advance, he will book it.

Modern equipment and procedures? We have everything that you do at roughly the same time, and sometimes our specialist units, such as Toronto's Sick Children's Hospital, are ahead of the world. We sometimes have fewer pieces of equipment; I was once informed that Michigan had more MRI machines than Canada. True, but in Michigan, the hospitals were competing with each other and had overbought for the population. The hospitals wound up trying to get doctors to use the machines for extra procedures, because they had to economically justify their existence. During the '90s, Canadian health budgets were severely cut as we slashed our budgetary deficits. This created hardships and lately some labor problems. But both the federal and provincial administrations are in the process of re-establishing higher budgets, easing the pressure on the system.

Is the Canadian system effective? Canadians on average live two years longer than Americans. Efficient? We pay 2 percent less of our GDP for health care than the USA does. That's a lot of money.

Medicine in the USA can be wonderful, but expensive. You have to decide what you want in the way of health care in the USA. It would be to our advantage if you don't copy us, because our system is a major selling point when we are trying to attract outside investment. I want to tell you, though, that if you want to live in Canada, your health will be in good hands, and you are always covered by an excellent system that does not require someone to pay a premium.     SS

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