CHAPTER I. Commercial Overview (Executive Summary) A. Overview of Canadian Import Market The Canadian import market, already the most favorable for U.S. goods and services of any in the world, should see continued growth through 1995 and beyond. The U.S.-Canada trading relationship is the largest in the world, with well over US$250 billion in two-way trade each year. U.S. goods and services account for an overwhelming share of the import market in Canada, and the United States remains by far Canada's largest export market and import supplier. Despite some well publicized trade disputes, overall market conditions are unlikely to experience any significant changes, and U.S. companies will continue to find Canada an extremely attractive and easily accessible place to do business. The extremely high awareness in Canada of U.S. goods, services, business practices and products, is reinforced by almost constant exposure to a full range of U.S. media and other influences. Although Canada is the second largest country in the world in geographical terms, 90 percent of Canadians live within 100 miles of the U.S. border, and traditional ties with U.S. states and regions on a north-south axis remain very strong, as well as with many other distant parts of the country. The United States is the most attractive Canadian tourist and business destination, and few Canadian businessmen are unaware of U.S. economic and commercial developments. Most Canadians take a very keen interest in the full range of political, economic, and commercial developments in our country. This results in an extremely favorable market for U.S. imports, and makes Canada an ideal destination for most U.S. goods and services. B. Brief Synopsis of Commercial Environment in Canada With a population about one tenth of that of the United States, the Canadian economy mirrors that of the United States in approximately the same ratio, and has developed in many ways along similar lines. This has made Canada an ideal export and investment destination for many U.S. companies, who have found an environment and marketplace very similar to that of the domestic United States. It also offers an ideal first stop for U.S. businesses seeking to begin export marketing, with business practices, attitudes, conditions and environments here more similar to our own than any other country worldwide, but with significant differences in the Canadian market to allow first-time U.S. exporters to develop a good feel for overseas marketing. Experience gained here can be the basis for success in markets worldwide. Canada has a tradition of government involvement in the economy that far surpasses that of the United States, and government-owned Crown Corporations play a significant part in the economies of Canada and its provinces. Provincial governments are far more powerful than U.S. states, and commerce between Canadian provinces is often more complicated and cumbersome than commerce between a province and the United States. There are far more Canadian businesses which deal exclusively with their own province or region, and far fewer national chains or distribution networks than in the United States. Canada began to slide into severe economic recession in 1989, which forced a re-examination and restructuring of Canadian business that had been long overdue, but whose impact had been masked by other factors. Many Canadian firms had become uncompetitive, with low productivity and high costs, and taxation policies that further increased costs of doing business here. The recession forced some companies out of business, and compelled others to reorganize in order to capitalize on respective strengths and minimize competitive disadvantages. As a result, Canadian firms are now far more productive and better able to compete both domestically and internationally, and government policies and attitudes now try to better support Canadian business. The Organization for Economic Cooperation and Development (OECD) continues to forecast that Canada's growth will lead the industrialized world in 1995, which should provide positive aspects for the country. C. Canadian Business Attitude Toward the United States No market in the world is as free and open to U.S. goods and services as that of Canada. As noted above, Canadian business people are familiar with and well disposed to U.S. products and services. Close to 97 percent of all U.S.-Canada trade passes freely and unhindered across our borders, without any obstruction or problem. Unfortunately, a small number of very well publicized trade disputes do affect some industry sectors, and market access and distribution potential in Canada has been hindered by government regulation or long-standing protectionist policies or traditions. Implementation of the U.S.-Canada Free Trade Agreement (CFTA) in 1989, and the North American Free Trade Agreement (NAFTA) in 1994, have helped remove some troublesome barriers. There are however certain areas in which market access has been and continues to be a powerful issue, and has disrupted trade in that sector. The sale of U.S. beer and wine in Canada, the sale of Canadian durum wheat in the United States, Pacific salmon, softwood lumber and other headline grabbing issues discussed in detail below often make it appear that U.S.-Canada trade is about to erupt into full scale war. Although these are thorny issues with great impact on the affected sectors, it is erroneous to view these as typical of U.S.-Canada trade relations. The Canadian attitude towards business with the United States is excellent, and Canadian business executives overall could not be more favorably disposed towards U.S. business practices, methods, companies, goods and services. D. Major Business Opportunities in Canada With total trade in excess of US$280 billion per year, and total U.S. direct investment of more than US$90 billion in 1993, there are enormous business opportunities in the full spectrum of industry sectors, and in virtually every business activity. The Best Prospects identified in Chapter III cover those sectors offering the best opportunities for U.S. business, and details on how these opportunities can be accessed. In general, a business which can succeed in the United States can usually succeed in Canada if it takes proper steps to ensure all significant differences in operational methods and environment are considered. Few U.S. firms cannot replicate successful operations in the domestic U.S. market in the Canadian market, if they structure their Canadian operation to be well suited to the market conditions demanded here. E. Major Roadblocks to Doing Business in Canada Several industry sectors, discussed in greater detail in Chapter III, offer significant barriers and roadblocks to the success of U.S. companies in Canada. We cannot understate the difficulties faced by U.S. brewers or wine companies, or the problems faced by some companies seeking to sell to the Canadian Government. We remain concerned if recent agreements in the telecommunications field will provide a full range of opportunities for U.S. companies in this market. Nonetheless, these important roadblocks represent only a very small portion of total U.S.-Canada trade, and while very important for U.S. firms in those sectors, they have very little impact on U.S. firms in general, or the sale of U.S. goods and services in most other sectors in Canada. F. Nature of Local and Third-Country Competition The United States is Canada's largest trading partner; in general U.S. goods hold an average of 65 to 75 percent market share in most industry sectors in Canada. Geographical proximity, cultural and historical ties, and strong awareness of business and other developments in the United States, are strong accelerators for the sale of U.S. goods and services here. Third-country competition is far less prevalent here than in most other markets. That competition is most often found on products where labor constitutes a significant part of the cost of the good, and where domestic U.S. industry is often not competitive. In other sectors however, U.S. dominance remains almost a fact of life, and third-country competition is most noticeable in specific cases rather than across the board. Canadians do have strong national pride, and will often favor Canadian products, especially if they offer similar features at a similar cost to those from the United States. This is especially true for any government procurement, local or federal, not covered under either General Agreement on Tariffs and Trade (GATT) or NAFTA rules. Moreover, many procurement tenders require that a regional benefit component be taken into account, which has adversely affected some U.S. companies and exports. Nevertheless, competition in Canada is generally fair, and as noted above, U.S. firms that can offer technical, cost or feature advantages over locally produced goods, can do as well in the Canadian market as they can in the domestic U.S. market.