BUSINESS/ECONOMY

Potential victims of a trade pact

MADELAINE DROHAN August 10 1987
BUSINESS/ECONOMY

Potential victims of a trade pact

MADELAINE DROHAN August 10 1987

Potential victims of a trade pact

BUSINESS/ECONOMY

For five generations members of the Nash family of Stoney Creek, Ont., have passed on their 140-acre vineyard from father to son. Two world wars, the Great Depression and vagaries of the market have not prevented that rite of passage. But the possibility of a free trade agreement with the United States may change the family tradition. Brian Nash, 49, who currently operates the vineyard, says he fears that free trade will permit a flood of American wine into Canada and destroy a crucial market for the $30million-a-year Ontario grape-growing industry. Nash says that he stands to lose his $1.5-million business. Nash’s 23-year-old son, John, may never take over the family farm. Declared the worried farmer: “What the hell are Niagara farmers going to do?”

Indeed, many Canadian businessmen fear that they will end up on the losing side of a free trade deal with the United States. While Prime Minister Brian Mulroney has repeatedly said that he will not sign a deal that is not good for Canada, government officials privately admit that there will be losers as well as winners. As a result, many Canadian industries, including the grape growers, wine producers and breweries, have identified themselves as potential losers and are furiously lobbying federal and provincial governments for protection.

It is still uncertain whether Canadian negotiator Simon Reisman and his U.S. counterpart, Peter Murphy, can reach an agreement by their Oct. 4 deadline. The untimely death of U.S. Commerce Secretary Malcolm Baldrige—whose department provides technical support to the American negotiating team—in a rodeo accident late last month has added to the confusion surrounding

the talks. Observers question whether any successor—by week’s end none had been named—will support free trade as strongly as Baldrige did.

Meanwhile, Canadians are divided about the effects of free trade. Trade Minister Pat Carney late last week released the edited results of a poll, conducted by Decima Research in late May and early June, which indicated that 50 per cent of Canadians support the concept of free trade with the United States, while 43 per cent believe such a deal would be bad for Canada. But a majority of Canadians—93 per cent—said that an important consideration in judging an eventual trade deal would be its impact on employment.

Many Canadian businessmen support the free trade initiative. David Culver, for one, chairman of Montrealbased Alcan Aluminium Ltd., told Maclean's that the business community “is virtually united in favor of free trade.” Culver said that the number of losers among Canadian industries would be “amazingly small.” Still, groups opposed to the deal say

that opposition is growing, as each industry assesses its competitive chances against the United States without the benefit of protective tariffs and regulations. Said Pierre Deniger, a spokesman for the Quebec Brewers Association: “There will be more and more vocal opposition.”

Indeed, one Ottawa trade consultant, Peter Burn, said that the potential losers have good reason to be concerned. Burn, who works for Grey, Clark, Shih & Associates, a company that advises governments on trade matters, said that Canada will have to make some concessions to the Americans to secure

a free trade deal. And the most likely candidates to be traded off are small industries that provide products and services that can easily be supplied by U.S. producers. Said Burn: “The best things to trade off are the marginal things.”

One prime example is Canada’s wine industry, which is small by international standards—but which has attracted the attention of expanding American wineries. Canadian wineries employ about

3,200 people, mainly in Ontario, British Columbia and Nova Scotia, and produced about $225 million worth of wine in 1986. Canadian wine makers say fear that the bigger California wineries, with better weather and frequently cheaper labor, could increase their share of the Canadian

market from 10 per cent to as much as 50 per cent. Said Jan Westcott, executive-director of the Canadian Wine Institute, which represents 45 wineries: “The wine

industry will be an early casualty.” For its part, Ottawa has given the Canadian wine industry reason for concern. A study prepared for the trade negotiators in February,

1986, bluntly noted that “the Canadian wine industry is currently neither price nor quality competitive with European and U.S. wines.”

At the same time, U.S. wine producers have said that they want wider access to the Canadian market and have been publicly supported by President Ronald Reagan. Late last month the Wine Institute, which represents a majority of California’s wineries, stepped up its campaign, calling for retaliation against Canadian beer and whisky exports to the United States unless Canadian trade negotiators agree to end federal import tariffs and the high provincial sales markups on wine.

But attempts by the wine producers to get assurances about their future from Reisman’s negotiating team have been fruitless. According to Donald Ziraldo, co-owner and president of Inniskillin Wines Inc. of

Niagara-On-The-Lake, Ont., negotiators have urged the wine producers to fall into line and support a free trade deal. But the wineries are resisting. Declared Ziraldo: “We will respond to free trade when we know what we are talking about.” Meanwhile, there are growing suspicions among brewers, who fear that their $2 billion-a-year industry will also be sacrificed by Ottawa to secure a

free trade deal. Government officials have promised businessmen that a free trade deal will include transition periods to allow for changes in regulations or tariffs. But brewers say they are concerned that Ottawa will not provide enough adjustment time for their industry to adapt to the new trade environment. Edward Stewart, executive vice-president of London,

Ont.-based Labatt Brewing Co. Ltd., pointed to provincial laws that stipulate that beer sold in a province must be brewed there. As a result, Canadian breweries must set up small plants across Canada. Meanwhile, the large-scale American breweries have enough surplus capacity to serve the Canadian market three times over, at costs that are significantly lower than those of the Canadian makers. And although Canadians show some brand loyalty, Stewart said that if they were offered lower-priced American beer, “a significant number would switch.”

Indeed, a study conducted for Canadian brewers by Woods Gordon in June indicated that such American brands as Coors, Budweiser and Miller could quickly increase their share of the Canadian market to 40 per cent from 15 per cent under a free trade deal. The study estimated that, as a result, about 8,000 of the Canadian industry’s 20,000 workers would lose their jobs. Said the president of the Brewers Association of Canada, Sandy Morrison: “We are being offered up on the altar of free trade.” But a federal finance department official close to the talks said that although business in general wants a free-trade deal, no one wants to make the sacrifices necessary to forge such a deal. Declared the official: “Everybody wants to get to heaven, but nobody wants to die.”

As well, provincial trade officials are also complaining of a lack of information from Reisman and the federal government. With just two months left before an initialled agreement is due to be presented to the U.S. Congress, Ottawa is only now making arrangements with the provinces to show them details of that deal. And observers close to the negotiations predict that a news blackout imposed by Reisman will not be lifted before the Oct. 4 congressional deadline.

Clearly, neither Reisman nor the federal government wants the veil of secrecy surrounding the trade talks lifted until an agreement is reached. Still, as the negotiators meet this week in Washington, major issues, such as establishing a mechanism to settle disputes and the Americans’ insistence on wider access to investment in Canada, remain unresolved. With such matters still on the negotiating table, the period of uncertainty for Brian Nash —and other potentially vulnerable Canadian businessmen—is far from over.

MADELAINE DROHAN

THERESA TEDESCO

IAN AUSTEN