Historic free trade agreement should spark investment, leading to substantially greater U.S. exports in 1988 - U.S.-Canada Free Trade Agreement

Business America, Jan 18, 1988

Opportunities exist for U.S. businesses interested in finding agents or distributors in the following fields: numerically-controlled industrial controls and machine tools, components (mechanical or electronic) for the aerospace/avionics industry (which accounts for 52 percent of the Canadian aerospace industry's output), and, to a minor degree, textile and plastics machinery. Development plans for doubling total capacity between 1987 and 2000 by Hydro-Quebec should prove attractive to U.S. suppliers of power generating sub-assemblies and for specialized engineering firms. The Quebec Government's procurement policies have now eased to include foreign, non-Quebec-based suppliers in the information technology sector. A specific opportunity also exists in the area of software. Quebec offers vast opportunities for U.S. vendors interested in having a local company repackage the original software and distribute the product in the francophone markets of Europe, Africa, and the Middle East. Such cooperative ventures could be of immense interest to small-to-medium U.S. firms which have neither the time nor the money to travel to France, since the expertise, both technical and linguistic, lies at their doorstep. On a more general scale, approximately one-third of the Quebec companies registered with the U.S. Consulate in Montreal are also interested in forming joint-venture partnerships in manufacturing or sales with U.S. counterparts. This form of cooperation is greatly encouraged (sometimes financially) by the Quebec Government and could represent a worthwile avenue of cooperation for U.S. manufacturers.

Manitoba's real GDP growth of 3.9 percent in 1986 was higher than the national rate of 3.3 percent. This strong performance, however, was expected to moderate to 2.3 percent in 1987 and only 2 percent in 1988. The performance in 1986 and 1987 was led by increased manufacturing output and investment spending on residential and non-residential construction. Employment is expected to grow by 2 percent in 1988, and the unemployment rate should ease to 7.5 percent by the end of 1988. Manitoba's farm sector is expected to experience problems, with reduced production and low grain prices further weakening net farm income, after a 36.8 percent decline in 1986. In other areas of the economy, metal mining production should expand in 1988, mineral fuel output will probably remain stagnant, and mining exploration and development are forecast to decline. Consumer spending will continue to post slow growth in 1988, reflecting drastically reduced farm income and a 1 percent increase in the sales tax announced in the March 1987 provincial budget.

Following economic growth of 3.8 percent in 1986, Saskatchewan's economy recorded little or no growth in 1987. A modest increase in GDP (less than 1.5 percent) is anticipated in 1988. Low grain prices and large grain stocks are primarily responsible. Segments of the economy that directly depend on grain, such as farm implement suppliers and retailers and the banking sector, are also affected. In addition, as the farm sector changes from a major engine of economic growth and a booming exporter to a major rescue operation, the provincial deficit is reaching high levels. Some of the funds diverted to support the farm industry will be recovered from higher taxes (slowing consumer spending even further), and some from cutbacks in other government expenditures. The short-term prospects for the province's important potash industry are not encouraging, given the proposed U.S. countervailing duty on Canadian potash and the production quotas proposed by the Saskatchewan Government. There is one positive light in an otherwise dim view, however, and that is the recent upswing in world oil prices, which will provide some impetus for recovery in mineral fuel exploration and development.