The Canada-U.S.A. Trade Agreement and the Yukon
Yukon's Competitive Trading Position
The Yukon and Canadian economies have some significant differences as trading regions. The Canadian economy has been growing and diversifying while the Yukon economy has been going through major booms and busts. Canada is a net exporter, exporting more goods than importing. The Yukon is a net importer; we import more than we export. The Yukon imports $200-300 million per year more in goods and services than we export.
When discussing the benefits of trade, what's good for a net exporter is not necessarily good for a net importer. The jobs, businesses and industries, and benefits gained in the exporting region may be at the expense of an importing region.
The Yukon needs to diversify its economy, and develop other industries which will provide jobs and export income for Yukoners. The Yukon's main industries, mining and tourism, have had very few trade restrictions. Historically, other regions have diversified into manufacturing and processing by supporting industries through trade initiatives. These industries would not have flourished if support programmes had not been available during their growth period. Where there is potential for manufacturing or processing it will need the same type of encouragement that industry has received elsewhere in Canada.
The Yukon was, until recently, one of the few regions without significant programmes to support local firms. Other Canadian jurisdictions have been stimulating local industry for years to help them get established and start exporting. Countries and regions have used various trade tactics to decrease the number of imports and increase exports. This helps the country diversify and develop its export markets.
A number of trade " tools" have traditionally been used in all regions to help develop an export industry. The new Trade Agreement will alter the tools that the Yukon has to develop a broader industrial base....
Fish and fish products have few tariffs which affect their trade. Little should change as a result of the Agreement.
· If there are increased imports by Yukon firms from Alaska it may aggravate the current tension of over-fishing in Alaska.
The Yukon currently produces limited quantities of vegetables, hay, grains, beef, poultry, and pork. Agriculture in the Yukon is still at a developmental stage:
A very limited amount of Yukon agriculture is currently exported to Alaska. Little gain for Yukon producers into Alaska is likely, since Alaska agriculture is subsidized.
Considering the state of regional development in the Yukon, the Trade Agreement is only one-half of a deal. While the Trade Agreement deals with issues of national concern, it does not address regional development interests. A number of regional development tools are being altered which will affect how the Yukon can have control over its own future:
· Local benefit programmes attached to large projects which have received government assistance will be in jeopardy. Currently, the government can stipulate that, as a condition of government assistance, the company would agree to certain local hire and purchase programmes. This way, a number of Yukon companies have benefited from large projects like Beaufort exploration and Curragh.
· Economic development incentive programmes, such as low interest start-up loans for business, may be attacked by the U.S. as unfair subsidies, and the Trade Agreement offers no clarification of what constitutes a subsidy.
· Government procurement (local purchase) is an effective way of supporting local business. However, the Trade Agreement will be limiting the extent of selective government purchasing. This is important to the Yukon because the federal government purchased approximately $4.77 million through goods and service contracts in the 198~87 year to supply their Yukon operations. The federal and Yukon governments recently signed an agreement to increase the amount of federal purchasing in the Yukon. This type of agreement may be jeopardized by the trade deal.
· Both countries have agreed to eliminate buy-national restrictions on federal procurement of goods over a threshold of U.S. $25 000 ($39 000 Cdn).
· While the deal does not bind the Yukon or provinces, there is a clause that commits both countries to further negotiations within one year, to improve and expand coverage. Yukon initiatives to buy locally, like the Business Incentives Policy, will be under increased pressure to be changed as part of those future negotiations.
· The Canadian procurement market open to U.S. companies by this agreement increases by 75 per cent, whereas the U.S. procurement market open to Canadian companies increases by only 19 per cent. Canada's access to U.S. procurement has only marginally increased to a market of $22.6 billion, up from $19 billion, out of a potential $570 billion market. There are many forms of procurement protection remaining in the United States, such as the Small Business Set-Asides Program.
· Local tendering also helps companies to bid and win government contracts. This practice may be considered discriminatory.
There will be minor benefits for the Yukon mining industry as a result of the Trade Agreement. Most of the Yukon mines have markets outside of the United States, and there are very few U.S. conditions on the import of minerals.
· There will be little savings on mining equipment. Tariffs have been against the import of equipment which competes with equipment produced in Canada. Since little mining equipment is produced in Canada, very little effect is anticipated.
· Chemicals and grinding steel used in processing have a tariff which will be removed, lessening the processing cost of minerals.
· The viability of mining properties will continue to be determined by the competitive position of northern vs. southern Canadian properties.
While the Agreement changes the tariffs on some lumber products, it does not change the 1986 Softwood Memorandum of Understanding (MOU). This MOU is responsible for a U.S. import tax against softwood lumber from some regions of Canada.
· The Agreement could, however, threaten other export sales (e.g., Asia and Europe) if the deal is not to be consistent with GA11 (General Agreement on Tariffs and Trade) which is the trade agreement between 95 countries including Canada and the United States.
The Trade Agreement creates a single North American energy market which guarantees access to the supply and development of energy resources to and from both countries.
While Canada gives the United States open market access to energy reserves, the United States limits Canada's supply of Alaskan oil (the biggest supplier of U.S. oil). Canadian Beaufort oil has no restrictions while Alaskan oil does.
· The Agreement also gives the United States access to Canada's vast hydroelectric resources. In the future it could be contemplated that Yukon's hydroelectric resources could be tapped. However, the Yukon will not bc able to export energy at a higher price to the Americans than to Yukoners. In the past, Quebec, Ontario, Manitoba, and British Columbia have exported energy at a higher cost than that which was sold to local industry. This was a way or tool for development of their economies. Today, these provinces with huge U.S. markets are looking for secure access to that market, so they have agreed to a single pricing scheme. The Yukon's circumstances are very different.
· The Agreement precludes the use of benefit programmes with energy projects. Local purchasing requirements specific to U.S. oil developments in Canada would not be put in place.
An elimination of tariffs will have little effect on the fur industry.
· Yukon Native Products has limited production of related fur products which will benefit from the tariff reductions on exports. The Agreement may provide some incentive to produce more fur products for export to Alaska.
Estimating consumer gains from the Trade Agreement is difficult. There are some studies that have shown annual gains of $20 or $800 per person, depending on whose study method one chooses to accept. However, government may also see these gains as a potential source of tax revenue to make up for lost tariff revenue. A true test will also be the extent of consumer savings, if any, that businesses are prepared to pass on to the consumer.
Source: Yukon Territorial Government, Department of Economic Development: Mines and Small Business, The Canada3/4 USA Trade Agreement and the Yukon, 1 March 1988, pp. 2-21.
Conclusions
The Trade Agreement may retard Yukon efforts to achieve a key Yukon goal: to have greater control over our own future. In the short term, Canada has gained improved access to the U.S. market. In the long term, we may give up many important options.
A number of provisions within the Agreement will alter the way the Government of Yukon can promote development. We will have no ability to review investment decisions; the use of energy as an industrial incentive tool will be more limited; we will be restricted against some local purchasing, tendering, and procurement practices; and we have no guarantees that our development programmes will not be disputed by the United States.
Given the reality of the federal government commitment to push on with the trade initiative, we must look forward to see how we can adjust and adapt to the changes likely to come. All Yukoners must now look for ways to ensure that the Yukon can capitalize on the opportunities presented in the Agreement and minimize the dangers.
Editor's Note: This issue of Northern Perspectives was to have included an article presenting the federal government's views on free trade and the North. Officials were first contacted in November 1987, and we were assured several times by the Free Trade Office and the office of International Trade Minister John Crosbie that an article, prepared for Indian and Northern Affairs Minister Bill McKnight, would be forthcoming; six months and many phone calls later, the draft article has apparently failed to reach Mr McKnight's office, let alone CARC.
Given Ottawa's penchant for bureaucratic bump and grind, it is perhaps
not surprising that the minister's words lie moldering beneath a paperweight
in the bowels of some mandarinate; the fact that it is sometimes easier
to obtain information from Moscow than from the bustling corridors of power
in our own capital is nothing new. But what is disturbing in this instance
is the implication that, once again, the North is simply along for the
ride when it comes to an important "national" issue. From a government
anxious to put across its side of the free trade story, and equipped with
a multi-million-dollar budget intended to do just that, one can only conclude
that the North doesn't figure in the telling.