April 24, 2008 08:00 ET

MGPS: Canadian Oil vs. NAFTA

TORONTO, ONTARIO--(Marketwire - April 24, 2008) - On April 22, Canadian Prime Minister Stephen Harper, warned the U.S. that re-opening the North American Free Trade Agreement (NAFTA) could threaten U.S. access to Canadian oil. During a summit meeting with U.S. President George Bush and Mexican President Felipe Calderon, Harper indicated that Canada is the United States' largest oil supplier and is in a stronger negotiating position now than 20 years ago. Should any future leader of the United States attempt to renegotiate NAFTA, as current Democratic presidential candidates Hilary Clinton and Barack Obama have suggested, U.S. access to Canadian oil could be jeopardized.

All three leaders re-affirmed their support for NAFTA and Bush noted that both Canada and Mexico are major suppliers of oil to the U.S. Under the current agreement, Canada is not allowed to restrict American access to oil unless similar restrictions are placed upon Canadian consumers. Oil is currently at record highs, closing at almost $120 a barrel on April 22.

The troubled manufacturing sector is facing significant problems including: foreign competition from China and India, both of which are not included in NAFTA; a recession which is reducing consumer spending; a debt crisis which is further restricting buying power and the high price of raw materials, including oil. Canada, which is not expected to have a recession, is nevertheless experiencing an economic slowdown, while the manufacturing sector in Ontario is experiencing a recession.

Re-negotiating NAFTA will not solve the U.S. manufacturing problems and, should Canada restrict access to their oil, will only serve to exacerbate problems. In fact, Mexico, also a major oil supplier, would almost certainly respond in kind, which would further aggravate the problems facing this sector.

With consumer spending declining and debt defaults rising, demands for various products, including automobiles are falling. Meanwhile, production costs are rising which means margins are being squeezed, often out of existence. Some manufacturers are cutting back on production and laying off significant numbers of employees while others are facing bankruptcy.

While a turnaround in the economy is predicted by 2009, not all companies will be able to successfully ride out the current crisis. At this stage, intelligent, prudent decision-making will make the difference. Waiting for the crisis to pass, or hoping for protection is not much of a strategy. While laying off employees is one way to avert disaster, it nevertheless will have long-term repercussions.

One of the solutions is looking for creative and effective methods to reduce costs, ranging from looking for cheaper alternatives in raw materials to reducing indirect expenses that have little to no impact on production and revenue. While Strategic cost-reduction is always good at any time, considering the current economic situation it is now imperative.

About MGPS

MGPS specializes in reducing non-core expenses. These expenses tend to be indirect, hidden and scattered throughout the organization. MGPS identifies hidden costs and develops and implement efficient processes to drive out unnecessary expenses. The result is increased cash flow and greater profitability.

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