June 19, 2008 / 12:20 AM / 9 years ago

Canadian manufacturers urged to look beyond NAFTA

OTTAWA (Reuters) - Most Canadian manufacturers believe NAFTA has helped their businesses grow, but a survey released on Wednesday also shows they now need to seek new markets outside the continent to stay competitive.

A Deloitte survey of executives in the manufacturing sector in Canada, the United States and Mexico showed that a majority of Canadian respondents credited the North American Free Trade Agreement with helping them access new markets and expand production.

Canada-U.S. trade has doubled in the past 15 years. Over half the goods produced in Canadian factories are sold to the United States or through it to other countries. Many manufacturers sell over 80 percent of their total production to the U.S. market, statistics show.

But that close relationship comes with problems too, especially now that U.S. demand is drying up, as the economy shows, and the Canadian dollar has risen against the U.S. dollar.

“Canadian companies are also being challenged by the downturn in very, very important markets for them in the United States,” Jayson Myers, president of Canadian Manufacturers and Exporters, said on Wednesday following the survey’s release.

Job layoffs and plant closures, especially in the automotive industry, contributed to an economic contraction in Canada in the first quarter and have put pressure on the federal government to come to the sector’s aid.

Paradoxically, the experience that Canadian companies had with NAFTA to expand their production, sales and distribution across the three member countries could also help them break free of the limitations of NAFTA, Myers said.

“We’re seeing today companies diversify markets around the world, again thanks to the platform that has been provided by NAFTA.”

Only 24 percent of the Canadian companies surveyed plan to expand production in their home country. “They are now seeing the industry evolve into a new model -- one which does not necessarily include actual production facilities located within our borders,” Deloitte said in a statement.

In addition to relocating plants abroad, Canadians need to put more resources into research and development, innovation and engineering to carve out a specialized niche within a global industry, argues Myers.

“What it has taken to compete in the North American market place is not sufficient to compete in a global market place,” he said.

“We have to look at how we can continue to maintain our competitiveness within North America, but the name of the game today is global competitiveness.”

Reporting by Louise Egan; editing by Rob Wilson

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