May 19, 2020

Developing US and Canadian Trade Agreements

Canada
European Union
G20 Summit
Stephen Harper
Bizclik Editor
5 min
Developing US and Canadian Trade Agreements

Written by Anne Redding 

Europe’s financial crisis was the focal point of the 2012 G20 Summit, which was held in Cabo San Lucas last month. Following the Summit and the related news that Greece remained committed to upholding its third-party bail out conditions, Canada’s Prime Minister, Stephen Harper, issued the following statement:
 
"I am convinced that European leaders fully understand what needs to be done. The issue is now acting quickly and dramatically to actually take those steps."
 
This represented a cautionary, yet positive, response by the Canadian PM, who left the Summit against the backdrop of European trade negotiations and armed with an invitation to join Pacific Trade Talks. It was a response that was mirrored, to a large extent, by US Treasury Secretary Tim Geithner and UK Prime Minister David Cameron (the UK is one of the ten European countries to have remained out with the Eurozone).
 
Synopsis of Canada’s Trade Patterns
 
The Canadian economy is structured around its service industries. Canada’s levels of international trade in natural resources are, however, unusually high given its developed economy. In brief, Canada’s 2009 trading figures showed that energy, agricultural, mining and forestry exports accounted for approximately 58 percent of its total exports. Further; machinery, automotive products, equipment and other manufactures accounted for 38 percent. In 2009, Canada’s exports represented approximately 30 percent of its GDP.
 
Canada’s Trade Agreement with the US
 
Traditionally, Canadian governments have been keen to drive forward Canadian trade agreements. Most notably, since 1987, Canada has been party to a Canada-United States Free Trade Agreement. The economic impact of this well documented agreement, which was welcomed by free market economists, is hard to quantify. Success is determined, in part, by relative current values of each respective currency. Since the agreement, however, it is undisputed that Canada-US trade has increased. By the 1990s, Canada-US exports represented approximately 40 percent of GDP. This figure rose to closer to 50 percent in the 2000s.
 
Update on the Status of Current Trade Negotiations – Morocco and Costa Rica
 
Morocco
 
On June 22nd, the conclusion of the third round of talks surrounding a trade agreement between Canada and Morocco was announced. The importance of the Moroccan market to Canadian trade is significant because of its projected economic growth, estimated at 4.3 percent by 2013. In 2011, bilateral merchandise trade between the two countries constituted nearly $420 million, with Canadian exports valued at $300 million. Should an agreement be reached, it would constitute Canada’s first with an African Nation. As per the Honourable Ed Fast, it would "serve as a gateway to deeper Canadian commercial presence in North Africa and the Mediterranean region."
 
Costa Rica
 
On June 15th, Ed Fast announced the successful conclusion of the fourth round of talks between Canada and Costa Rica. Talks were aimed at modernizing the Canada-Costa Rica Free Trade Agreement. It is the aim of these talks to encompass, within the agreement, provisions relating to trade in services, government procurement, investments and financial services. 
 
"Deepening Canada’s trade and investment in the Americas is a priority for our government," said Fast. "We have concluded agreements with the United States, Mexico, Peru, Columbia and Panama, and most recently with Honduras. To help us create jobs, growth and prosperity for hard working Canadians, and our trading partners, we will continue to build on this success with Costa Rica and with high growth markets throughout the hemisphere."
 
Trading with the European Union
 
The EU is a key trading partner for Canada, second only to the US. Canadian trade with the EU accounts for 10.4 percent of total external trade. In 2011, the total value of bilateral trade in goods constituted 52.5 billion Euros. Trade in services, particularly transportation and travel, is key.
 
Canada and the EU have been party to the Framework Agreement for Commercial and Economic Co-operation since 1976. Subsequently, this agreement has been strengthened by further bilateral agreements such as the Veterinary Agreement (1999) and the Civil Aviation Safety Agreement (2009).
 
In 2007, Canada and Europe agreed to take steps to further strengthen their agreement. In light of European Economic difficulties, this agreement remains pending.
 
Euro Crisis: Caution over Further Trade Deals
 
Prior to G20, the Bank of Canada warned Canadians over the potential impact of the deepening European financial crisis upon the sustainability of the Canadian economy. The bank stated: 
 
"If sovereign debt in Europe continues to intensify, it would further weaken global economic growth and prompt a general retrenchment from risk. In turn, the weaker global outlook would fuel sovereign fiscal strains and impair the credit quality of loan portfolios. Together these factors would increase the probability of an adverse shock to the income of wealth of Canadian households."
 
Understanding the Risk to Canadians
 
Pivotal to the bank’s concerns are two key factors; inflated house prices and high levels household debt. These factors, they believe, could increase economic and trade vulnerability should there be a catastrophic financial shock in Europe.
 
The bank observed that, since 2008, Canada has continued to see artificial inflation in house prices, thus is vulnerable to high levels of price correction. This is particularly the case within certain urban areas and with certain types of housing stock (e.g. condominiums) due to oversupply. Where mortgage loans have been secured over property, the bank has noted that approximately 40 percent of Canadian household worth is currently directly linked to real estate values. Ten years ago this figure was only 34 percent.
 
Rising levels of household unsecured debts also stand to threaten Canadian banks. This is because, whilst banks insure against the majority of their mortgage products, this is not the case for unsecured loans. For each of the six largest Canadian banks, unsecured debt represents between 6 percent and 15 percent of total managed assets. When this figure is considered within the context of additional uninsured mortgages, total uninsured debt for these banks' managed assets constitutes between 14 percent and 24 percent.
 
As the asset mix of each bank is distinct, so too is the potential impact of such high levels of uninsured debt. At 24 percent, the Bank of Canada has the highest level of unsecured debt compared with assets, with non-mortgage consumer debt making up 11 percent of that figure. 
 
About the Author: Anne Redding is a freelance finance writer from London, England who specializes in international trade and stock market writing for a number of business journals. One of her favorite memories from traveling in her early 20s was the train through the Rockies in Canada.

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Jun 8, 2021

Six issues at the top of tax and finance leaders’ agenda

Tax
Compliance
financeleaders
Deloitte
Kate Birch
4 min
As businesses accelerate their transformation journeys, tax leaders are under increasing pressure to add strategic value. Deloitte reveals six tax trends

New Deloitte research reveals that tax leaders are under increasing pressure to add strategic value as companies accelerate business model transformation, from undergoing digital transformations to rethinking their supply chains or investing in green initiatives.

According to Phil Mills, Deloitte Global Tax & Legal Leader, to “truly deliver value to the business, the tax function needs to rethink its resourcing model and transform its technology infrastructure to create capacity and control costs”.

And the good news, according to Mills, is that tax and business leaders have more options at their disposal to achieve this.

Reflecting the insights of global tax and finance executives at global companies, Deloitte’s Tax Operations in Focus study reveals the six issues at the top of tax and finance leaders’ agenda.

Trend 1: Businesses seek more strategic counsel from tax

Companies are being pushed to develop new digital products and distribution channels and accelerate sustainable transformation and this is taking them into uncharted tax territory. Tax leaders say their teams must have the resources and skills to give deeper advisory support on digital business models (65%), supply chain restructuring (49%) and sustainability (48%) over the next two years. This means redrawing the boundaries of what tax professionals focus on, and accelerating adoption of advanced technologies and lower-cost resourcing models to meet compliance requirements and free up time.

According to Joanne Walker, Group Tax Director, BT Group PLC, "There’s still a heavy compliance load today, but the vision for the future would be that much of that falls away, and tax people become subject matter experts who help program the machine, ensure quality control, and redirect their time to advisory activity.”

Trend 2: Tipping point for resourcing models

Business partnering demands in the tax department are on the rise, but 93% of tax leaders say their department’s budget is remaining flat or falling. To ensure that the tax function can redefine itself as a strategic function at the pace that is required, leaders are choosing to move increasing amounts of compliance and reporting to a combination of shared service centers, finance departments, and outsourcing providers that have invested in best-in-class technology.

Trend 3: Digital tax administration is moving faster than expected

in addition to the rising focus of the corporate tax department partnering with their business counterparts, transformative changes to the way companies share tax information with revenue authorities is also creating an imperative to modernize operations at a faster pace. Nine in 10 (92%) respondents say that shifting revenue authority demands on digital tax administration will have a moderate or high impact on tax operations and resources over the next five years—and several heads of tax said the trend is moving faster than expected.

"It’s really stepped up in the last couple of years," says Anna Elphick, VP Tax, Unilever. "Tax authorities don't just want a faster turnaround for compliance but access into a company’s systems. It's not unreasonable to think that in a much shorter time than we expect, compliance will be about companies reviewing a return that's been drafted by the tax authorities."

Trend 4: Data simplification and lower-cost resourcing are top priorities

Tax leaders said that simplifying data management (53%) and moving to lower-cost resourcing models (51%) must be prioritized if tax is to become more proactive at delivering strategic insights to the business. Many tax teams are ensuring that they have a seat at the table as ERP systems are overhauled, which is paying dividends: 56% of those that have introduced NextGen ERP systems are now highly effective at supporting the business with scenario-modeling insights. Only 35% of those with moderate to low use of NextGen ERP systems said the same.

At Stryker, “we automated the source P&L process for transfer pricing which took a huge burden off of the divisions," says David Furgason, Vice President Tax. "Then we created a transfer price database to deposit and retrieve data so we have limited impact on the divisions. We are moving to a single ERP platform which will help us make take the next step with robotics.”

Trend 5: Skillsets are shifting

Embedding a new data infrastructure and redesigning processes are critical for the future tax vision. Tax leaders are aligned — data skills (45%) and technology process experience (43%) are ‘must have’ skills in a tax department of the future, but more traditional tax specialist knowledge also remains key (40%). The trick to success will be in tax leaders facilitating the way these professionals, with their different backgrounds, can work together collectively to unlock lasting value.

Take Infineon Technologies, which formed a VAT technology and governance group "that has the right knowledge about how to change the system to ensure it generates the right reports", according to Matthias Schubert, Global Head of Tax. "Involving them early was key as we took a greenfield approach, so we could think about what the optimal processes would look like and how more intelligent systems could make an impact 

Trend 6: 2020 brought productivity improvements

Improved productivity (50%) and accelerating shifts to remote working (48%) were cited as the biggest operational benefits to emerge from COVID-19-driven disruption. But, as 78% of leaders now plan to embed either hybrid or fully remote models in the tax function long term, 34% say maintaining productivity benefits is a top concern. And, as leaders think about building their talent pipeline and strengthening advisory skill sets, 47% say they must prioritize new approaches to talent recognition and career development over the next two years, while 36% say new processes for involving tax in business strategy decisions must be established.

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