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Economy and Trade in Canada

The Canadian economy is among the world's soundest. Fully integrated into the global system, Canada is the eighth-largest trading nation among the industrialised market economies and an active partner in international investment.

The Canadian economy grew by 2.4 per cent in 1993 and it is expected by the Government to expand by 3.5 percent in 1994. Despite some increases early in 1994, interest rates are near historical lows. This reflects a stable economy which, supported by wage moderation and productivity gains, is capable of delivering sustained non- inflationary growth.

Canada is a trading nation. About 29.3 per cent of the country's total output of good and services (GDP) is exported -- mostly to the United States, which is by far the country's biggest market, taking 80.3 per cent of Canada's merchandise exports in 1993, and supplying 73 per cent of its merchandise imports. In 1993, exports to the United States increased by 20 per cent, while imports from the U.S. rose by 18 per cent. Canada and the United States are each other's most important trading partner.

Total merchandise exports to all countries reached $187.3 billion in 1993, growing by $24.7 billion or 15.2 per cent from their 1992 level. This represented the largest year- over-year increase since 1984. Total imports grew by $21.5 billion or 14.5 per cent in 1993, reaching $169.5 billion.

Evolution of the Canadian Economy

Although Canada is known world-wide as a rich source of raw materials and primary products such as wheat, oil, lumber and minerals, in recent years the structure of the Canadian economy has changed.

Over the past quarter of a century, resource exports have become a less important part of Canada's trade mix, representing about 20 per cent of Canadian exports now, compared with 40 per cent in 1963. Fewer than 5.6 per cent of Canadian workers are now employed in primary industries, compared with 13 per cent in 1963. A similar trend has been occurring in the manufacturing sector.

As in many other industrial countries, there has been a shift in employment toward services industries (including community, business and personal), which now employ about two-thirds of the Canadian work force. At the same time, the growing role of knowledge-based activity, either within existing industry or as self-sustaining business, has put pressure on industry and governments to strengthen job training and to promote the acquisition of skills adapted to technological requirements.

Investment

Canada is an attractive place to invest. It offers access to a stable business environment, a skilled workforce and superior technology. In a period of world wide deregulation when most domestic financial markets have become more open to foreign capital, large pools of international funds have been attracted by the conditions offered in the Canadian financial market.

Research and Development (R & D) tax credits are flexible and generous. On average, each dollar spent toward R & D in Canada costs only $0.44, substantially lower than in the United States.

Canada not only offers the best treatment of R & D, but also the lowest corporate tax rates of all G-7 countries (the Group of Seven (leading industrialised countries) is comprised of Canada, France, Italy, Germany, Japan, the United Kingdom and the United States).

Over the years 1970 to 1990, Canada has had the fastest rate of job creation in the G-7 economies, while its inflation is currently at less than two per cent annually, the lowest of the OECD (Organisation for Economic Co-operation and Development) countries.

Canadians are proud of the universal coverage provided by their health care system. It offers everyone, rich and poor, access to high-quality care. Health care is delivered at a substantially lower cost than in the United States where many citizens do not possess health insurance.

In 1991, the total cost of health care in Canada accounted for $40.5 billion or almost 10 per cent of the country's gross domestic product (GDP) (or US$2 140 per capita), with more than 70 per cent of this total being spent by Government. The United States spent 13.2 per cent of its GDP on health care, (US $2 867 per capita).

Major sources of foreign direct investment in Canada come from the United States, the United Kingdom, Japan, and Germany. Stock of foreign direct investment in Canada amounted to $145.9 billion in 1993, compared to $114.9 billion in 1988, the period preceding the Canada-United States Free Trade Agreement. Almost 64 per cent of the 1989-1992 flow of foreign direct investment into Canada originated in the United States.

Because of the NAFTA (North American Free Trade Agreement), investors in Canada have preferential and secure access to both the United States and Mexico. Besides providing an infusion of funds into the economy, investment in Canada is bringing with it new technology, new capacities in research, new kinds of jobs, and new technical and managerial abilities.

The Labour Force

Of the G-7 countries, Canada registered the second best economic performance in 1993. Similarly, on the labour market scene, only Canada and the United States registered some overall employment growth in 1993 (1.2 per cent and 1.5 per cent, respectively).

Employment in Canada is growing following job losses sustained in the 1990-92 period of recession and slow recovery. The unemployment rate is expected to decline in 1994.

As in other G-7 countries, the unemployment rate among young people in Canada is high, about 18 per cent in 1993. To help youth prepare for the challenges of the 1990s labour market and the new global economy, Canada has launched a Youth Employment and Learning Strategy that will help young people make the successful transition from school to the permanent workforce.

GATT: Agreement on the Uruguay Round

On April 15, 1994, Canada signed the Final Act of GATT (the General Agreement on Tariffs and Trade) embodying the results of the Uruguay Round of multilateral trade negotiations. Subject to approval by Parliament, the signature indicates that Canada fully accepts the results of the largest and most complex international trade negotiations ever undertaken. About 120 countries have made commitments to lower or eliminate tariffs and other barriers to trade.

The Round established the World Trade Organisation (WTO), giving Canada and the world community a powerful new vehicle to combat protectionism and promote liberalised trade. Canada played a critical role in proposing and developing the concept for the WTO which may enter into force as early as January 1, 1995.

The results of the Uruguay Round will greatly increase Canadian access to the European market and to the fast-growing markets of Asia-Pacific and Latin America.

The North American Free Trade Agreement

Trade with other countries is crucial to Canada's prosperity. One quarter of our output depends on international trade.

The North American Free Trade Agreement (NAFTA) with the United States and Mexico came into force on January 1, 1994. The NAFTA improves access to these countries for Canadian goods and services and guarantees our position as a prime location for investors seeking to serve all of the North American continent.

Tariffs between Canada and the United States will be phased out by 1998. The 10- year reduction of most tariffs with Mexico is now under way. The NAFTA also provides greater market access for service industries and permits more mobility for professional and business travellers among NAFTA countries.

The European Union

The European Union (EU) countries taken together constitute Canada's second- largest trading and investment partner. After the United States and Japan, seven of Canada's top 10 export destinations in 1993 were in Europe.

The EU is the world's largest importer, with imports from outside the EU of $726 billion in 1992. Canada's merchandise trade with Europe in 1993 was over $32 billion, accounting for almost 10 per cent of our exports and 12 per cent of our imports.

Raw materials accounted for only 17 per cent of Canadian exports to the EU in 1993. Ottawa, Ontario More than 75 per cent of our exports to the EU are in the form of end products or manufactured goods.

Next to the United States and Japan, our biggest bilateral trading partners are the United Kingdom and Germany. In 1993, Canadian exports to the United Kingdom totalled $2.8 billion, while Canadian imports from the United Kingdom were $4.4 billion. During the period 1989-1993, Canadian exports to Germany increased by 23 per cent, whereas imports decreased by 6.4 per cent.

Some 23 per cent of direct foreign investment in Canada came from Europe in 1993, while Canadians invested almost $23 billion in Europe.

Asia-Pacific

Canada's economic ties with the countries of the Asia-Pacific region are becoming stronger and more diverse. This region contains many of the fastest-growing economies in the world.

The Asia-Pacific region was the market for over $16.6 billion of Canadian exports in 1993. Imports from the region were about $25.1 billion. Long-term commercial involvement will be important for Canadian firms to maintain and expand markets.

To manage these important relationships, the Government of Canada has been active in regional organisations. Canada is a member of the Asia-Pacific Economic Co- operation (APEC) forum, which consults on economic and trade issues in the region.

The Association of Southeast Asian Nations (ASEAN) comprises Thailand, Malaysia, Singapore, Indonesia, Brunei and the Philippines. As a group, these countries rank among Canada's top 10 export markets. With a population of 337 million people, the ASEAN maintains a GDP half that of China.

Canada is undertaking important initiatives to expand its trade with specific markets. In May 1993, the Minister for International Trade launched the Action Plan for Japan, a joint undertaking with the private sector, to alert industry to the changing conditions, encourage product adaptation, and assist with product promotion. In 1993, Japan purchased $8.5 billion worth of Canadian exports, an increase of 13 per cent over the previous year.

China was Canada's sixth-largest trading partner during 1993. Canadian exports are expected to continue to increase. Opportunities exist for developing infrastructure and telecommunications, encouraging industrial joint ventures, and expanding markets.

The Future

World markets are in transformation and offer varied trade, technology and investment opportunities for Canadian business. International economic development and investment flows will increasingly affect Canadian lives and set the pace for global economic change.

The export sector has been the most dynamic element recently in stimulating economic growth in Canada. The fastest-growing new sectors for Canadian export include chemicals, communications equipment, computer software and specialised services.

Trade will continue to figure significantly in the creation of new jobs. Each $1 billion in new exports translates into an estimated 9 000 jobs. At the same time, sound monetary and fiscal management, including an effective and balanced approach to controlling Government spending, will continue to ensure that Canada remains an attractive place for investment and trade.

With its great natural resources, skilled labour force, and modern capital plant, Canada, as an affluent, high-tech industrial society, has excellent economic prospects.

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