SPECIAL REPORT

THE WINNERS AND THE LOSERS

SOME ARE THRIVING, OTHERS CLOSING

PATRICIA CHISHOLM December 18 1989
SPECIAL REPORT

THE WINNERS AND THE LOSERS

SOME ARE THRIVING, OTHERS CLOSING

PATRICIA CHISHOLM December 18 1989

THE WINNERS AND THE LOSERS

SOME ARE THRIVING, OTHERS CLOSING

The ink was barely dry on the Free Trade Agreement when its detractors and champions began exchanging heated criticism. By October, the Canadian Labour Congress’s running total of jobs lost to free trade had reached 57,000, a figure dismissed by the federal government, which countered with its own job-creation numbers—189,000 for the same nine-month period. Following another round of layoffs and plant closings late last month, the rhetoric on both sides again became inflamed.

Passion: Newly chosen NDP Leader Audrey McLaughlin said that, if her party were elected to power, she would cancel the accord, and in an impassioned speech last week in the Commons, Liberal Leader John Turner said that the federal government lacked “the guts to stand up to the United States in trade matters.” Meanwhile, as the government firmly defends the FTA, most analysts say that it is too early to make a realistic assessment. Added Kenneth Fisher, senior manager of the U.S. section at the Ontario ministry of industry, trade and technology, which is monitoring the effects of the agreement in Canada’s industrial heartland: “At this point, assessing the impact of free trade really is a mug’s game.”

An uncertain economic climate has also confused the debate. Canada’s sky-high dollar is pushing up costs for manufacturers, and high interest rates are inhibiting expansion. At the same time, some Canadian companies have expressed greater interest in moving their operations to the United States, where many costs, including wages, are lower. Other firms, threatened by the loss of protective Canadian tariffs, are shutting down some production lines and focusing on fewer, but more profitable, products. In Canada, many senior executives say that they will have to choose their sales targets with

greater precision under the FTA. Sanford Archibald, chairman of Bridgetown, N.S.-based textile manufacturer Britex Ltd., said that his company is already planning for an anticipated 60to 70-per-cent decline in sales, virtually all of it in its currently profitable, lower-priced fabrics. “It's almost like guerrilla warfare,” Archibald said, referring to Britex’s plans to concentrate on its higher-priced products.

“We’re dealing with an enemy who’s got a lot more firepower. But if we pick our targets carefully, I think we can do quite well.” Gains: Other companies with highly specialized products are already reporting strong gains from free trade. The Stratas Corp. Ltd. of Halifax, for one, a manufacturer of specialty steel and alloy products, expects its sales to climb to between $5 million and $6 million by 1990-1991 from $1.2 million, with 80 per cent of the increase coming from exports to the United States. Said chief operating officer Edmund Dunn: “Without free trade, it is doubtful that these sales would have been possible.” Even some businesses in highly competitive industries such as clothing say that free trade

will dramatically increase their U.S. sales. Ski and mountaineering sportswear manufacturer Sun Ice Ltd. of Calgary already earns about $8 million in the United States, out of total sales of $25 million. In anticipation of gradually abolishing tariffs—now ranging from eight to 28 per cent—on the clothing it exports to the United States, Sun Ice last April opened a marketing and warehousing centre in Seattle. According to company executive vice-president Victor Rempel, U.S. sales should boom within the next few years. He added: “It’s a global marketplace out there. Staying protected forever is no damn good.” Walls: But the outlook is grim in some other industries. Burlington Canada Inc. closed its Bramalea, Ont., carpet factory on Dec. 1, partly because of disappearing protective tariff walls. Canadian production will now move to facilities owned by the company’s parent, Burlington Industries Inc., in Rabun Gap, Ga., putting 450 Canadians out of work. Said Burlington Canada president Jack Moon: “The future effects of free trade are definitely part of the decision. In nine years, our tariff protection

will be gone, and we just don’t have the funds needed to invest in the new equipment that would keep us competitive.” Some executives maintained that the FTA played no part in their closure decisions. After U.S.-owned Inglis Ltd. closed its washing-machine factory in Toronto on Nov. 30, executive vice-president Charles Jespersen said that the plant’s aging machinery was simply too expensive to retool. He said that Inglis still plans to invest $60 million in three other plants in Ontario and Quebec, adding: “It’s because the [Toronto] plant is 108 years old. It has nothing to do with free trade.” Other businessmen pointed directly to the free trade accord. Members of Ontario’s $15billion food-processing industry last week listed the hurdles facing their industry as tariff protection is removed. Among them: higher labor, packaging and raw-food costs and outdated plants. They also cited high interest rates and a stronger Canadian dollar, and noted that three major food-processing-plant closures have been announced since September.

Other mostly Canadian-owned firms are hoping to avoid closures by adopting aggressive new marketing and production strategies. Ganong Bros. Ltd. of St. Stephen, N.B., has been making elegant hand-dipped chocolates and hard candies for 117 years, but it now faces new competition from American firms that soon will not have to face protective tariffs.

Profitable: In response, Ganong has pushed into new international markets, including several Asian countries. At the end of October, it moved part of its production to Thailand and it now sells more of its New Brunswick-made boxed chocolates in Japan than it does in the United States. The company, which employs about 250 people, will move next February to a new, $ 12-million plant in St. Stephen, where it will concentrate on its most profitable product lines—boxed chocolates and bagged candies.

Canadian wineries were one of the industries that even the government expected to be hurt by liberalized trade. The concerns were well founded. The wineries are suffering from the lowering of trade barriers under both the FTA and the multilateral General Agreement on

Tariffs and Trade (GATT), resulting in a 150per-cent increase in Canadian sales of American wines this year.

Marketing: But some have countered slumping profits with aggressive marketing, including new specialty wines and extensive repackaging. David Diston, a vice-president of Canada’s largest vintner, Niagara Falls, Ont.based Brights Wines Ltd., said that Brights has already introduced seven new wines and relabelled all of its premier wines made with Ontario grapes. Added Diston: “The

agreement stuck a big pin in a lot of behinds—not just us as a company, but the industry and government as well.”

Still, there is continuing evidence that Canadian companies are simply moving to the United States, attracted by the larger market and lower costs. The flow did not begin with the FTA—Canadian investment in the United States has been growing by about 18 per cent a year for the past 14 years, according to University of Toronto economist Alan Rugman, who expects similar growth for this year.

Costs: Firms such as furniture manufacturer Sklar-Peppler Inc. of Whitby, Ont., are going even farther afield. ROSENBURG In anticipation of free trade, Sklar last year purchased a furniture factory in Ecru, Miss., where all Sklar goods sold in the United States are now made— about $15 million worth. A 15,000square-foot addition to the Ecru building cost about $15 a square foot, compared with the about $30 that it

would have cost in Canada. Said chairman Louis Sklar: “Free trade is forcing us to bring costs down and avail ourselves of new technology.” For some firms, at least, it seems that the debate over the success or failure of free trade has become academic. In the immediate future, their attention will likely be focused on the all-consuming task of keeping their bottom lines black.

PATRICIA CHISHOLM

DAVID TODD

Toronto