CUSTAC Archive

Below you can find an archived list of working papers written by those associated with the Canada-US Trade Center (CUSTAC), with links to the scanned versions of the papers. This series of working papers starts in the late 1980s and continues through 2001. Please note that there are a few in the series we cannot find; we will add any we can dig up in the future.

Occasional Paper No. 3: Factors Associated with Export Success Among Small Manufacturers: Evidence from Metropolitan Toronto

Alan MacPherson

ABSTRACT. This paper examines the contribution of specialized technical services to the export and product development efforts of small Toronto manufacturers. Data from a survey of 109 Toronto industrial firms are presented which indicate a positive role for external consultants. Specifically, the results indicate a significant relationship between export success and willingness to invest in external technical knowledge. The results also suggest a close relationship between export success and frequency of new product development. The broader implications behind the survey results are sketched in terms of possible policy opportunities for Canadian government departments with an interest in export development. The paper also considers the main transactional obstacles to successful use of external information services.

Occasional Paper No. 4: Canadian-Owned Establishments in Western New York: Key Characteristics and Policy Implications for the Cross-Border Regional Economy

Alan D. MacPherson and James E. McConnell

ABSTRACT. This paper examines the scale, sectoral composition, and regional economic impact of Canadian direct investment in Western New York. Empirical perspectives on the role of the Canada-United States Free Trade Agreement (FTA) are presented, notably with regard to Western New York's growing absorption of Canadian industrial capital. Data from a postal survey of Canadian investors are used as the basis for the investigation. Several important findings emerge from the research. First, recent Canadian foreign direct investment in Western New York has not been driven by the trade and investment provisions of the Canada-U.S. FTA. Rather, Canadian companies have been attracted by a combination of competitive factor costs, locational advantage (proximity to U.S. regional markets), and accessibility to parent corporations in central Canada. In addition, Canadian direct investment has been accompanied by cross-border flows of technology, information, merchandise, and management expertise. These flows are distinctly two-way in focus, providing both southern Ontario and the study region with significant commercial benefits, and suggesting the existence of strong economic synergy within the cross-border region. Moreover, Canadian investment has brought an element of structural diversification to the Western New York economy, as well as new jobs, exports, tax dollars, and spending on research and development activities. At the same time, the investment thrust has created a heightened awareness of the continuing importance of manufacturing as a source of regional employment. Contrary to popular belief, scant evidence exists that manufacturing is in imminent danger of sectoral extinction--at least not in this region. The paper concludes with some suggestions for policymakers in the cross-border region.

Occasional Paper No. 5: North American Commercial Banking in a Time of Change

James W. Harrington, Jr.

ABSTRACT: Size of parent bank and desired market segment have been found to be the greatest determinants of foreign operations (number and type) of commercial banks. In the Canada-US context, this relationship is complicated by the two economies' proximity and intensive interaction, and by the regulatory changes included in the Canada-US Free Trade Agreement. This paper uses published statistics and interviews to note the influence that proximity, ultimate ownership, and market segmentation have on banks' decisions to engage in correspondent relationships versus agencies, branches, and subsidiaries across the border. The paper also explores relationships between existing bank strengths and ITA-related actions, and looks ahead to the implications of proposed changes in US bank regulation, trilateral free-trade talks among Canada, the US, and Mexico, and re-privatization of Mexican banks. The weakness of large US banks and the small scale of small US banks inhibit their ability to take advantage of current and proposed changes.

Occasional Paper No. 6: Agricultural Subsidies under the Canada-United States Free Trade Agreement

Erna van Duren

ABSTRACT. This paper examines agricultural subsidies under the Canada-U .S. Trade Agreement (CUSTA) by discussing the extent and nature of subsidization, the provisions in the agreement, and how the multilateral negotiations may affect the provisions relevant to agriculture for both countries. First, an examination of the agricultural chapter of the CUSTA and the other provisions that apply to agriculture, reveals that these provisions reflect Canadian and U.S. negotiating strategies, the GATT, and existing policy instruments. These, in turn, reflect differences in the two sizes of the countries; the U.S. accounts for a much larger proportion of world production and consumption than Canada for most agricultural products. Second, CUSTA's provisions also reflect differences in existing GATT rights and obligations. In agriculture there are some important differences. Third, to a certain extent, the provisions reflect differences in philosophy and public opinion regarding the role of government in the economy. For example, there are still a number of people in both Canada and the U.S. who believe that the U.S. is a country of "free traders", and that business decisions occur in the U.S. because they are good business decisions, whereas many people on both sides of the border think that not much happens in Canada without the benefit of a subsidy. However, examining the data reveals that is not the case at all. If government spending on defense is included, U.S. subsidies account for 2% of the revenue earned by U.S. industries, versus 1 % in Canada. If defense is removed, the U.S. subsidy proportion declines to 0.5%. In any case, one can conclude that both countries subsidize their economies.

Occasional Paper No. 7: Natural Resource Subsidies and the Free Trade Agreement: Economic Justice and the Need for Subsidy Discipline

John A. Ragosta

ABSTRACT. Many have freely criticized U.S. and Canadian countervailing duty (CVD) laws. Criticism against the U.S. law in the field of natural resource subsidies has been particularly harsh. Yet, the countervailing duty law is necessary. Free trade will not simply happen. It is necessary to take countervailing action if subsidies are to be effectively disciplined. Taking a U.S. perspective, this paper concludes that the countervailing duty law and any agreement developed by the FTA's Subsidies Working Group must address natural resource pricing. It is worth noting that my experience with natural resource subsidies grows primarily from successful efforts on behalf of the U.S. Coalition for Fair Lumber Imports in the 1986 CVD case against subsidized Canadian lumber (Lumber II), one of the most acrimonious CVD cases in history. That is not entirely inappropriate. Not only has that case been a central focus of Canadian efforts to have the U.S. countervailing duty law modified, but in many respects it is a paradigm for resource subsidy cases.

Occasional Paper No. 8: Papers on Subsidies in Manufacturing and Regional Development Subsidies

DESCRIPTION. This Occasional Paper includes presentations by five individuals original given at a symposium on ‘Subsidies Under the Free Trade Agreement,’ sponsored by the Canada-U.S. Legal Studies Centre of UB’s Law School (1991). The authors and titles include:

  • An introduction by J.W. Harrington
  • Bruce Fountain “Subsidies in Manufacturing: The Myths and Realities”
  • Richard Diamond “A Search for Economic and Financial Principles in the Administration of US Countervailing Duty Law (Abstract only)”
  • Jean Anderson “Manufacturing Subsidies and the FTA: The Negotiations”
  • Leslie Delgram “Regional Development Subsidies in Canada-US Trade Negotiations”
  • Anthony Marconi “Regional Development Subsidies: The Case of Western New York”

Occasional Paper No. 9: A North American Free Trade Area: An Overview of Issues and Opinions

James E. McConnell and Albert Michaels

ABSTRACT. The purpose of this paper is to provide an overview of the issues and concerns that are likely to be crucial in determining the outcome of negotiations among officials from Canada, Mexico, and the United States to create a North American free trade area. At the outset, the authors outline some of the key conditions and events that led to the development of closer relationships among the three countries during the middle and latter parts of the decade of the 1980s. The next two sections of the paper contrast on a country-by-country basis the factors that are working for and against the creation of a free trade area. In the final section of the paper the authors present six interrelated factors that are likely to influence the probability that a trilateral trade agreement will be reached by the three North American countries. Three of the factors are "internal" to the region, and include: the perceived outcome of President Salinas' efforts to transform Mexican economic policy; economic conditions and political considerations in Canada and the U.S. over the next few months; and the specific issues that are actually negotiated in the free trade talks. In addition, three factors "external" to the trilateral region may also influence the outcome of the negotiations, and these are: what happens to the ongoing discussions of the Uruguay Round of the GATT; the rising tide of sentiment in Europe and East Asia of relying upon regional solutions to resolve global trade issues; and mounting pressure elsewhere within the Western Hemisphere to pursue formal trade agreements with the U.S.

Occasional Paper No. 10: Canadian Direct Investment in Western New York: An Empirical Analysis of the Strategic Characteristics of Canadian Parent Corporations and Their U.S. Subsidiaries

Alan D. MacPherson and James E. McConnell

ABSTRACT. This paper examines the organizational and strategic characteristics of Canadian Corporations that control subsidiary establishments in the Western New York region of the United States. Survey data from two interlinked inquiries are presented. The first survey describes the nature, scale, and bilateral economic impact of recent Canadian direct investment in Western New York. The second survey describes the investment motivations, expectations, and strategic intentions of Canadian parent corporations that have recently established business operations in the study region. A major finding is that Canadian direct investment has generated reciprocal benefit streams between Canadian parent corporations and their subsidiaries in Western New York. A further finding is that the close geographical proximity of the study area to central Canada is a major factor in the decision-making priorities of Canadian investors. The paper concludes with a brief research agenda for future work on the academic and policy implications behind Canada-United States direct investment in the post free-trade era.

Occasional Paper No. 11: Competitiveness: Information and Intermediate Services

James W. Harrington Jr.

PURPOSE AND SUMMARY. One of the pathbreaking elements of the Canada-United States Free Trade Agreement (FTA) was its inclusion of trade and investment in services. Because of its non-tangible nature, service trade is less affected by traditional forms of trade liberalization, such as lowering of tariffs or removal of restrictive product standards. The chief barriers to service trade include restrictions on foreign ownership of service establishments, restrictions on cross-border movement of personnel, and prohibitions on international flows of data. The FTA established the principle of national treatment (companies abide by the rules of their country of operation, regardless of their parent country), liberalized temporary crossing of employed personnel, and maintained the two countries' liberal policy on data flow.

            Intermediate services, whose clients are governments or other businesses, play a double role in international trade. Their output can be traded directly, or their output can add to the international competitiveness of their clients' products. This double role is also present in the interregional trade of goods and services. Indeed, Harrington [1989] has argued that, in some regions, the largest service-sector impact of the FTA will be the increased local demand for intermediate services to support international competitiveness and adaptation to change.

            In addition to relative intangibility, many of these intermediate services are characterized by a dependence on information as a major input. The economic implications of information intensity (high costs of original production and low marginal costs of dissemination) and the geographic barriers to competition influence the distribution and nature of these services across local regions. Inter-regional variation in information services, in turn, influences the international competitiveness of regional products. The theoretical circumstances under which these influences work form the major topic of this paper. A brief theoretical exposition is followed by a discussion of the methodological problems faced in measuring the quality and availability of services within a region or a country. A set of conclusions concerning the economic and geographic concentration of intermediate services is also presented.


Occasional Paper No. 12: International Outshopping Along the Canada-United States Border: The Case of Western New York

Theresa Ford

ABSTRACT. Amid recession-related retail slumps in both Canada and the United States, there was rapid growth in cross-border shopping. This adversely affected the Canadian retail sector, but benefitted US retailers in the border regions, sparing many of them from the full effects of the recession. This paper provides an overview of cross-border shopping by discussing the factors contributing to its increase, by describing the geographic scope of the phenomenon, and by examining regional economic effects of the outshopping trend. The paper, then, focuses upon outshopping from the Golden Horseshoe area of Ontario to Western New York. The results of a survey conducted in the Golden Horseshoe are presented. The paper concludes with a discussion of some of the Canadian proposals to curb cross-border shopping.


Occasional Paper No. 13: Innovation and Export Performance of High-Technology Manufacturing Establishments in Western New York

Bidhan Chandra

ABSTRACT. This paper describes the recent corporate performance of high-technology manufacturing companies in the Western New York region of the United States. Survey data from a sample of manufacturers across a wide range of industry-groups are presented. Particular attention is focused upon the impact of technological innovation upon the recent performance of local manufacturing companies, particularly in the areas of new product development, local linkages, and export behavior. Attention is also given to the role of external technical services in the internal innovation processes of the surveyed firms. The survey provides evidence that the Western New York region possesses a significant population of high-technology manufacturing firms in many industrial sectors. A substantial segment of the region's manufacturing base is rooted in several technology intensive sub-sectors that are quite distinct from the traditional notion of manufacturing activities in primary sectors. The high-technology establishments in the region demonstrate superior innovative behavior. A major finding is that innovation-intensity of the manufacturing firms is a good predictor of their export behavior. The high-technology establishments place greater emphasis on the export function and exhibit a much broader range of export destinations. A further finding is that the manufacturing establishments create inter-firm linkages with local as well as distant organizations for sourcing a wide range of technical inputs. These external organizations play an important role in the commercial and/or technical efforts of the region's high-technology companies. The paper concludes by discussing some of the main corporate and public policy issues that flow from the empirical results.

Occasional Paper No. 16: The Role of Environmental Regulatory Issues in the International Sourcing Policies of European and North American Multinational Firms: An Exploratory Analysis

Geoffrey Dobilas

ABSTRACT. This paper explores the role of environmental factors in the contract-allocation decisions of European and North American multinational corporations (MNCs). Particular attention is given to the motivations and experiences of selected MNCs that have recently adopted environmental policies to guide specific aspects of their international purchasing procedures. The results of a pilot survey of 12 MNCs suggest that environmental issues are beginning to enter into the strategic decision-making fields of corporate planners, notably with regard to supplier selection and evaluation. Specifically, the results suggest that compliance with environmentally-informed production and international sourcing practices may pay dividends.

Occasional Paper No. 17: An Alliance of Universities as an Agent of Knowledge Transfer to Small Firms

James E. McConnell

This paper describes and assesses a regionally focused strategy of industry modernization that is being launched by a consortium of research universities located in the western region of New York State, USA. This nationally funded demonstration program is designed to upgrade the competitive advantages of small manufacturing firms that are presently financially stable, but are experiencing increasing competition from foreign manufacturers because of inferior products and/or process technologies. The analysis identifies both the advantages and difficulties that arise when four schools of engineering attempt to work together to deliver new technologies and engineering knowhow to small firms. When compared to state-level programs that have been designated as "best" and "most promising" in providing assistance to small firms, the design of this demonstration program is rated quite effective as an initiative that can be employed by universities to upgrade the knowledge infrastructure and competitive posture of their local region and industries.

Occasional Paper No. 18: The Evolution of Service Multinationals: An Analysis of Accounting and Advertising Firms

Sharmistha Bagchi-Sen and Jayanti Sen

INTRODUCTION AND PURPOSE. During the past two decades, theoretical and empirical research concerning multinational enterprises have greatly contributed to the understanding of the dynamics and complexity of international business in manufacturing. However, research in the services sector has not paralleled its manufacturing counterpart despite the extraordinary growth in service multinationals and FDI in service industries between 1980 and 1990 (Dicken, 1992). Such expansion occurred despite existing barriers to trade and investment, for example, regulations regarding reciprocity in professional services, from governments and professional associations (Noyelle, 1990). The impediments to globalization of services arise from the heterogeneity of the service rendered, the international diversity in the rules for granting licenses to practice, the unlimited liability of the partners/owners of certain professional business services such as law and auditing firms, government or professional association induced restrictions on the use of a firm's name, restrictions on transborder data flow, government regulations limiting the tradability or access to markets in certain professional services sectors, differences in professional standards in various countries, and numerous other barriers. So the critical issues to be examined are: what are the conditioning, motivating, and controlling factors influencing service firms to overcome these impediments in the international market? This paper reviews recent research which explores the current state of knowledge regarding the characteristics and operations of service multinationals such as the determinants of internationalization, entry modes, and strategies of product and market diversification. It should be noted that most examples are taken from producer service firms with specific emphasis upon accounting and advertising services. This paper is organized into five sections: the definition of services and the determinants of growth in producer services in the industrially advanced nations; theoretical explanations of international investments in services; empirical research on the determinants of internationalization, entry mode, and business strategies of service firms; industry-specific examples of competitiveness such as in accounting and advertising; and implications for future research.

Occasional Paper No. 19: Strategic, Functional, and International Orientation of Small and Medium-Sized Firms in Professional Services in an Industrially Declining Region: An Analysis of Public Accountancy

Linda Kuechler and Sharmistha Bagchi-Sen

INTRODUCTION AND PURPOSE. This paper analyzes the strategic, functional, and international orientation of small- and medium-sized firms (SMFs) in public accountancy. Specific objectives include examining the sources of competitive advantage, methods of service promotion and delivery, the patterns of collaboration utilized by these SMFs, and the impact of locational characteristics on their business performance. The Buffalo-Niagara Falls metropolitan region, a metropolitan area known to be struggling to adjust to the shifts in manufacturing activities, is the sampling location.

Occasional Paper No. 21: The Competitive Characteristics of Small and Medium-Sized Manufacturing Firms in the US and Canada: Empirical Evidence from a Crossborder Region

Sharmistha Bagchi-Sen and Alan D. MacPherson

This paper examines the competitive characteristics of small and medium-sized manufacturing firms (SMFs) in a Canada-US crossborder region (the Niagara Frontier). Particular attention is given to the innovation and business performance of comparably-sized firms on both sides of the border. The results of two firm-level surveys are presented. A comparative analysis of the two groups suggests that Canadian SMFs exhibit significantly stronger export and innovation performance than their US counterparts. The results also suggest that US firms face tougher competitive difficulties arising from specific national and regional circumstances, including shortages of skilled labor, higher corporate tax rates, rising import competition, and a more complex regulatory environment. The implications of the empirical results are discussed in the context of policy options for regional economic development in crossborder zones such as the Niagara Frontier.

Occasional Paper No. 22: Innovation and Collaboration in the Geographic Information Systems (GIS) Industry: Evidence from Canada and the United States

Valerie Hartung

ABSTRACT. This paper examines the role of collaborative technical activity in the innovation performance of Canadian and US companies in the geographic information systems (GIS) industry. This young but rapidly growing sector produces specialized hardware and software for cartographic applications (computer mapping). Evidence from a sample of 384 companies suggests that innovation is strongly dependent upon in-house R&D. The results also suggest that a firm's propensity to operate within a collaborative network varies directly with its R&D-intensity. A description of the main benefits and costs of collaboration is presented. Although there is no statistical association between innovation and the incidence of external collaboration, the evidence suggests that R&D partnerships contribute to the innovation process in a number of important ways. The key contribution lies in the speed of product commercialization. A related finding is that collaborators tend to generate radical innovations more frequently than less successful and/or non-collaborators.

Occasional Paper No. 23: Sanctions and Their Impact at the Local, State, and Federal Level

Angela V. Griffis

ABSTRACT. Sanctions have been used by governments as one method of forcing compliance on issues related to another country or region. Various aspects of sanctions, mostly federal, and their effects have been studied, but rarely have sub-federal sanctions and their impact on the economy been a major topic. The reason for this investigation is because sub-federal sanctions are rarely discussed, and the impact that they cause not only affects the local economy, but also the entire nation. This paper attempts to gather the constitutional and economic issues surrounding sanctions in a single, comprehensive study. Hopefully people in government, particularly those in local government, will be better informed of the consequences and lack of effectiveness of sanctions. This may, in turn, lead them to be less likely to implement this type of foreign policy. This paper describes the different types of sanctions, particularly those of a sub-federal nature. It also examines the numerous problems that arise when sanctions are used. The findings of the study suggest that federal, state, and local sanctions, especially when unilaterally imposed, are harmful to the economy, and sub-federal sanctions are constitutionally invalid. When sanctions are used, whether they are imposed sub-federally or by the federal government, the final result most often causes economic damage to the economy of the sponsoring government.

Occasional Paper No. 24: The Impact of the North American Free Trade Agreement on the Economy of Western New York

Renee M. Will

ABSTRACT. This paper examines the economic impact of the North American Free Trade Agreement (NAFTA) upon the Western New York region of the United States. A variety of theoretical perspectives are reviewed, notably with regard to impact assessment. Evidence from a survey of local business establishments suggests that NAFT A has not played an especially important role in the various upswings and downswings that have affected the Western New York area over the last few years. In contrast to a number of inquiries that have appeared in the recent literature, there is little evidence to support the view that Western New York has been negatively impacted by NAFTA. Instead, the evidence suggests that NAFTA has had a positive impact in terms of new export development, job creation, input sourcing, and sales growth. At the same time, however, the evidence suggests that national and/or regional economic conditions have played a stronger role in company performance than international agreements on trade. The paper concludes with a brief discussion of the empirical and theoretical difficulties that confront researchers who wish to explore the effects of trade agreements upon regional economies.