North American Neighbors Are Tearing Down Their Fences

By Lary, Banning Kent | Management Review, September 1989 | Go to article overview

North American Neighbors Are Tearing Down Their Fences


Lary, Banning Kent, Management Review


North American Neighbors Are Tearing Down Their Fences

When the nations of western Europe link economic arms in 1992, the products, and services of all member countries will flow into a single pool, and each country will enjoy the trade status of a favored nation. A similar arrangement is burgeoning between the three principal nations of North America--Canada, the United States and Mexico. The technical aspects of a true North American common market remain obfuscated by cultural and political philosophies, but steps are underway in the economic arena to bring the three countries together, or more specifically, to bring the U.S. closer to Canada and Mexico.

The General Agreement on Trades and Tariffs (GATT), which took effect among the member nations of developed western countries in the late 1940s, governs most international trade in goods and services. Favored nation status encourages trade by making it easier, cheaper and faster--three key adverbs that affect the bottomline. It also creates economic bonds and lessens the effect of boundaries through the symbiosis of mutual benefit: lessened tariff and non-tariff restrictions to trade. Relevant to U.S. Trade relations with both Canada and Mexico are new agreement touting lessened tariffs, investment incentives and other factors designed to attract business and increase trade profits. International opportunities now exist that were not available until this year.

UP NORTH: CANADA

It took years of negotiation, but the Canada/U.S. Free Trade Agreement (FTA) took effect January 1, 1989. The FTA encourages trade in goods, commercial services and investment practices by removing tariffs and other barriers between the two countries whose bilateral trade flow in goods and services if the world's largest--estimated to be $200 billion in U.S. dollars annually, up 20 percent in 1988, according to the U.S. Department of Commerce. The agreement is designed to preserve each country's independence in creating and enforcing industry related laws (such as pollution control or social service efforts), while affording companies and citizens of the other country equal status. The FTA calls for a 10-year phase-out of all tariffs, but traders in at least 50 specific items are trying to speed the process by calling for faster tariff cuts. Some items--including computers, skis and vending machines--are already being traded tariff-free.

Both countries will also benefit from the removal of other trade impediments including quota requirements, discriminatory taxing provisions, uniformity in technical production standards and cumbersome trade remedy procedures. The FTA has also relaxed restrictions on the entry and exit of business, professional and service personnel required to work across the border on a temporary basis.

"The new border-crossing procedures will be especially beneficial to our business," said William Forstial, marketing director for ABC Laboratories, at a recent trade seminar in Kansas City. "Our sophisticated equipment sometimes requires extensive setup, training and follow-up services, which means our technicians must cross the border constantly."

Canada is particularly interested in encouraging U.S. greenfield manufacturing, biotechnology, software and advanced materials efforts--generally research-oriented, highly skilled and job-creating enterprises that can take advantage of an educated population and augment Canada's important natural-resource processing industries. To assist American businesses that are considering establishing a facility there, the Canadian government has set up several programs administered by Investment Canada, a crown corporation, and the Department of External Affairs (Canada's equivalent to our State Department).

The Investment Development Program is designed to acquaint Americans with the way business is done in Canada--legal procedures, introduction to lawyers and accountants, liaison to governmental industries, market research and knowledge about site location alternatives. …

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