What does free trade mean to CFOs?

• Author: Beaudan, Eric Yann

What does free trade mean to CFOs?

Free trade between the United States and Canada harbors a bright future for Arnold Miller, chief financial officer of the Illinois-based Quill Corporation. The mail-order company, which distributes office supplies from stationery to word processors across the U.S., will expand its list of potential customers by 10 percent with the opening of the Canadian market.

With paper mills in the U.S. running at 90 percent of their capacity, Miller cheered on January 1 of this year, when shopping at Canada's bountiful paper factories became as permissible as visiting Toronto or Montreal. Miller, who also imports a small amount of manufactured goods from Mexico, Asia, and Europe, believes the Free Trade Agreement (FTA) will benefit both Canadian and U.S. companies. "Our real costs used to be inflated by the intervention of tariffs," the CFO explained. "With the eradication of trade barriers, we are able to buy and sell in Canada just as if we were operating in the United States."

Miller hired an accounting firm, Laventhol & Horwath, to better his understanding of Canadian accounting methods. "We have to figure out how to manage the profits generated in Canada," he explained.

Equally enthusiastic is Gordon Cummings, CEO of National Sea Products Ltd., the largest fish processor in North America, headquartered in Halifax, Nova Scotia. National Sea Products, along with the rest of the Atlantic Canadian industry, spent $1.5 million (in Canadian dollars) in one year alone battling countervailing action suits launched by U.S. competitors. Newly appointed binational panels will now review each trade dispute--removing the biases that existed when either a U.S. or Canadian court passed unilatheral judgments over trade issues.

Cummings' financial strategy is clearly influenced by trade considerations. The company's first takeover of a retail outlet in the U.S. occurred in 1986, when Cummings acquired the Booth brand. With assets worth C$400 million, National Sea Products also acquired in November of 1988 the second largest shrimp processor in the U.S., Florida-based Treasure Isle. National Sea Products will be hiring 400 new employees to seize opportunities under free trade and will lower its production costs by processing more of its fish in Canada, close to the raw material. Before free trade, the company shipped raw fish to the U.S. for processing, which Cummings says was an expensive undertaking.

CEOs and CFOs on both sides of the border are quick to extol the virtues of free trade, even though a number of companies presently not involved in bilateral trade are adopting a "wait-and-see" attitude. Because firms in Canada feel they have much more to gain than their U.S. competitors, they have been quicker to prepare for free trade. Sixty-one percent of the large companies in the U.S. studied by the accounting firm Thorne Ernst & Whinney admitted to having no opinion on free trade, compared with only 37 percent in Canada.

The United States and Canada are the world's largest trading partners. Bilateral trade in goods alone amounted to $130 billion in 1987, and the "single market" established under free trade will create a $5 trillion North American economy.

About three-quarters of Canadian exports are shipped to the United States. Canada's trade surplus...