canadian trade deficit hits record $4.1b in september
TRANSCRIPT
WHY IS TRADE IMPORTANT TO
CANADABY: PAUL YOUNG, CPA, CGA
NOVEMBER 5, 2016
AGENDA• What is trade
• Canada Economy
• Canada Exports by year
• Exports by major sector - 2016
• Key Countries/exports – 2016
• Canada Retail Sales / Merchandise Trade
• What are Trade Agreements
• What is FIPA
• What is FDI
• What are countries sued
• The role of government on Trade
WHAT IS TRADE• International trade is the exchange of goods and services between countries. This type of trade gives rise
to a world economy, in which prices, or supply and demand, affect and are affected by global events. Political change in Asia, for example, could result in an increase in the cost of labor, thereby increasing the manufacturing costs for an American sneaker company based in Malaysia, which would then result in an increase in the price that you have to pay to buy the tennis shoes at your local mall. A decrease in the cost of labor, on the other hand, would result in you having to pay less for your new shoes.
• Trading globally gives consumers and countries the opportunity to be exposed to goods and services not available in their own countries. Almost every kind of product can be found on the international market: food, clothes, spare parts, oil, jewelry, wine, stocks, currencies and water. Services are also traded: tourism, banking, consulting and transportation. A product that is sold to the global market is an export, and a product that is bought from the global market is an import. Imports and exports are accounted for in a country's current account in the balance of payments.
http://www.investopedia.com/articles/03/112503.asp
TOP 15 GDP/WORLD
http://statisticstimes.com/economy/projected-world-gdp-ranking.php
CANADA EXPORTS BY YEAR
EXPORTS BY MAJOR SECTOR
Source - http://www.statcan.gc.ca/daily-quotidien/161104/dq161104b-eng.htm
EXPORTS/TRADE BALANCE BY TOP 10 COUNTRIES
Source - http://www.statcan.gc.ca/daily-quotidien/161104/dq161104b-eng.htm and Scotiabank Economics
• Canada’s trade deficit with the world widened to
$4.1 billion in September from $2 billion the previous month, largely owing to a one-time large special import transaction. Nominal trade exports rose 0.1% despite a 0.8% decline in volume. Nominal imports rose 4.7%, with the 2.3% uptick in volumes explaining about half of the monthly growth.
• The one-off transaction that boosted Canada's imports to a record $47.6 billion in September was due to the importation of a large module destined for the Hebron offshore oil project in Newfoundland and Labrador from South Korea. Excluding this transaction, nominal exports would have declined by 1.6%, resulting in Canada's trade deficit with the world narrowing to $1.2 billion.
Source: TD Economics
EXPORTS ANALYSIS – SECTOR / PROVINCE/COUNTRY
http://www.edc.ca/EN/Knowledge-Centre/Economic-Analysis-and-Research/Documents/export-performance-monitor.pdf
CANADA RETAIL SALES
Source – Stats Canada Key Comments:• Approximately 40% of
retail sales are driven by imports
• People want cheap goods• Consumer goods Pricing
• Duties• Tariffs• Markup/Mark downs• Pricing difference
/country
HOW DO YOU EXPORT
• Trade Deals
• FIPA
WHAT ARE TRADE DEALS
Canada's Free Trade Agreements
• An FTA enables you to compete on a more even playing field with local firms in the FTA partner country. Under an FTA, a range of Canadian goods and services benefit from the reduction or elimination of tariff and non-tariff barriers to trade, such as quotas or technical barriers. It is important to note that each FTA covers different industry sectors and contains different provisions, depending on the FTA partner. For example, some of Canada’s more recent FTAs go beyond “traditional” trade barriers to cover business practices in labour mobility, intellectual property and investment.
Source - http://www.international.gc.ca/trade-agreements-accords-commerciaux/agr-acc/fta-ale.aspx?lang=eng
WHAT IS FIPA• International investment is an essential corporate strategy for many Canadian companies competing in today’s global economy. By
investing abroad, companies can gain access to overseas markets, reduce input costs, secure access to key resources, acquire new technologies and provide better support to foreign customers. Canadian consumers and businesses can also benefit from inbound foreign direct investment (FDI), through access to a wider variety of international products and services, improved job opportunities and added sources of tax revenue, which can go on to fund valuable domestic public services and infrastructure projects.
• Still, each country operates with its own unique political, legal and regulatory environments. Many of these can be unfamiliar for Canadian investors looking to expand globally. Similarly, Canada places special importance on the autonomy of our indigenous communities, the protection of our natural environment and our commitments to international cooperation, highlighting the need to preserve policy flexibility in certain areas.
• For this reason, the Canadian government pursues a policy of negotiating Foreign Investment Promotion and Protection Agreements (FIPAs) that set out reciprocal binding obligations for signatory states in order to provide a more transparent and predictable climate for investors.
• Source - http://www.international.gc.ca/trade-agreements-accords-commerciaux/agr-acc/fipa-apie/fipa-purpose.aspx?lang=en
WHAT IS FDI• Foreign direct investment (FDI) is an investment made by a company or individual in one country in business interests in another country, in the
form of either establishing business operations or acquiring business assets in the other country, such as ownership or controlling interest in a foreign company. Foreign direct investments are distinguished from portfolio investments in which an investor merely purchases equities of foreign-based companies. The key feature of foreign direct investment is that it is an investment made that establishes either effective control of, or at least substantial influence over, the decision making of a foreign business.
• BREAKING DOWN 'Foreign Direct Investment - FDI'
• Foreign direct investments are commonly made in open economies, as opposed to tightly regulated economies, that offer a skilled workforce and above average growth prospects for the investor. Foreign direct investment frequently involves more than just a capital investment. It may include provision of management or technology as well.
Methods of Foreign Direct Investment
• Foreign direct investments can be made in a variety of ways, including the opening of a subsidiary or associate company in a foreign country, acquiring a controlling interest in an existing foreign company, or by means of a merger or joint venture with a foreign company.
• The threshold for a foreign direct investment that establishes a controlling interest, per guidelines established by the Organization of Economic Cooperation and Development (OECD), is a minimum 10% ownership stake in a foreign-based company, typically represented for the investor acquiring 10% or more of the ordinary shares or voting shares of a foreign company. However, that definition is flexible, as there are instances where effective controlling interest in a firm can be established with less than 10% of the company's voting shares.
• Source: http://www.investopedia.com/terms/f/fdi.asp
LAWSUITS AND COUNTRIES
• Companies make investment/commitment. The investment is part of the return on investment. If a project is delayed then it could impact a companies’ business position, i.e. revenue/profitability.
• Companies have to proved themselves they been hurt by delays in approving projects and/or cancellation of contracts with a government
• Many countries sent up tribunal to review trade disputes to ensure there is unbiased decisions
• World court can be involved as part of the arbitration process to settle trade disputes
WHAT CAN COUNTRIES DO TO SUPPORT MERCHANDISE TRADE• Reduce red tape
• Time it takes to get project off the ground
• Work with all stakeholders to ensure project move forward in sustainable way
• Reforming Taxation system
• Modernization areas of the tax act for business, i.e. corporate taxation
• Hold the line to new taxation, i.e. carbon taxation
• Hold the line to hiking taxation, i.e. payroll, consumption taxes, permits, etc.
• Eliminate unfair trade practices
• Subsidies
• Duties/tariffs
OTHER SOURCE
• TPP - http://www.slideshare.net/paulyoungcga/trans-pacific-partnership-tpp-and-canada
• NAFTA - http://www.slideshare.net/paulyoungcga/nafta-north-american-free-trade-agreement
• FIPA - http://www.slideshare.net/paulyoungcga/what-is-fipa-foreign-investmnet-proection-act-canada-review
