BUSINESS

ON TO THE TOUGH SELL

PROMOTING A NEW FREE TRADE PACT IN THE MIDDLE OF HARD TIMES WILL BE A DIFFICULT CHALLENGE

DEIRDRE McMURDY August 24 1992
BUSINESS

ON TO THE TOUGH SELL

PROMOTING A NEW FREE TRADE PACT IN THE MIDDLE OF HARD TIMES WILL BE A DIFFICULT CHALLENGE

DEIRDRE McMURDY August 24 1992

ON TO THE TOUGH SELL

BUSINESS

PROMOTING A NEW FREE TRADE PACT IN THE MIDDLE OF HARD TIMES WILL BE A DIFFICULT CHALLENGE

If people like Gary Ullman did not exist, federal Trade Minister Michael Wilson would have to invent them. As the chief operating officer of Toronto-based CCL

Industries Ltd., Ullman is already looking beyond last week’s North American Free Trade Agreement (NAFTA) and sizing up new markets south of Mexico. A soap and cosmetics manufacturer, CCL now has three plants in Mexico and plans to expand production there in the near future. And while CCL has already positioned itself to take advantage of the new three-nation agreement and ship Mexican-produced goods to the United States, Ullman, 51, says that even greater potential growth lies to the south. That is precisely the type of aggressive and optimistic attitude that Wilson says that all Canadian companies must adopt if they want to survive and prosper in an era of increasingly intense international competition. “If we don’t take these steps now, others will,” said Ullman. “It’s really a question of survival.” Through 14 months of often testy NAFTA negotiations, the conviction that freer trade would inevitably benefit all three sides sustained the talks between Wilson, U.S. Trade Representative Carla Hills and Mexican Commerce Secretary Jaime Serra Puche. Certainly the leaders of their countries have consistently argued that eliminating trade barriers would lead to lower prices, faster economic growth and more efficient industries. But Prime Minister Brian Mulroney, President George Bush and Mexican President Carlos Salinas de Gortari also acknowledged that there would be painful tradeoffs. The task now is to convince their respective citizens that the short-term costs of adjustment, which will clearly hit some workers, industries and regions far harder than others, are a small price to pay for future prosperity.

Of the three leaders, Mulroney may face the toughest sales job. He won the 1988 federal election on the issue of free trade with the United States on the basis that it would create new jobs and help Canadian industry to become more competitive. But since then, Canada has suffered through the most severe economic downturn since the 1930s and many Canadians blame their problems on free trade. Last week, Mulroney acknowledged that the FTA has caused some problems, but he vowed not to flinch from the onerous task ahead. “Sure there is going to be some pain,” he said. He

added that those who doubt his ability to sell a second trade accord are in for a surprise. “Everyone said you cannot sell free trade to the Canadian people. No? You just watch and see,” he declared.

But even the Canadian proponents of freer global trade appear to be chastened by their experience with the FTA. After initially embracing the principles of free trade, many of them have been on the defensive ever since, insisting that Canada would have endured even more economic hardship—and trade disputes with the United States—without an agree-

ment in place. “Business is extremely disappointed in free trade. It’s a lot quieter now because it’s a lot less confident,” said Gillian Gilmour, an associate program director who conducts annual opinion surveys of senior Canadian executives and policymakers for Hay Management Consultants Ltd. of Toronto. “They all thought Canada was further ahead, was more competitive. No one expected to actually lose all these jobs.”

The reticence of the business community also reflects its heightened awareness of the profound and complex adjustments that are required for life under free trade (page 46). The 461,000 manufacturing jobs lost since

1989 and the steady southward gaze of such companies as CCL have made it increasingly clear that it will take more than government pep talks and short worker retraining programs to ease Canada into the age of global markets. As well, the national unemployment rate has soared to an eight-year high of 11.6 per cent and the economic burden on those still working has increased significantly. How much of the overall problem is a result of the FTA is still impossible to estimate, and it is an issue that proand anti-free-trade factions will continue to debate vigorously for some time.

In the first quarter of 1992, federal unemployment insurance payments reached a record $5.7 billion, up by 15 per cent from the same period a year earlier. Although the recession accounts for at least some of that increase, business leaders and workers alike have expressed concern that many of those jobs will not reappear when economic conditions finally improve. The despair about the dwindling number of core manufacturing jobs in Canada extends even to those unemployed people who have taken advantage of retraining initiatives by governments, industries and unions. Many of them complain that they are still unable to find work even after they have upgraded their skills.

In November, Inglis Ltd. shut down a refrigerator plant in Port Credit, Ont., just west of Toronto, and transferred production to a much larger factory in Indiana that was operating well below capacity. More than 300 assemblyline workers lost their jobs as a result of that closure. But all of the workers over the age of 45 qualified for the federally funded Transitions program, which pays up to $5,000 per employee for retraining and skills upgrading.

The company, with the help of the federal and provincial governments, also extended that option to its workers under 45. But so far, only 59 of the displaced Inglis workers have found new jobs despite the joint effort of the company and the plant’s union. Said Diane Rupert, 53, who worked as an assembly worker at the Port Credit operation for 38 years: “We attempted to call manufacturing companies and all kinds of businesses to place workers. There’s just no jobs.”

Inglis is just one of dozens of manufacturers where managements have reviewed the efficiency of their Canadian branch plants and decided that they do not make economic sense under freer trade. In many cases, the plants were only established to serve protected Canadian markets rather than to compete internationally. Even plants that are large by Canadian standards have ultimately proved to be vulnerable. In Ontario’s largest factory shutdown last year, German-owned General Tire Canada Inc. closed its plant in Barrie, eliminated 872 jobs and relocated production at existing facilities in the United States. Said John Rainey, who worked at General Tire for 19 years: “We were the only General Tire plant in Canada and we felt that we were protected because they needed a foothold in this market. Free trade changed that—there was just no need for us anymore.”

Proponents of NAFTA concede that the agree-

ment will likely cause more plant closures, but they argue that protectionism is no longer an option for Canada. Michael Walker, executive director of the Vancouver-based Fraser Institute, a free-market economic think-tank, said that the costs of keeping inefficient branch plants operating are greater, but less visible, than the dislocation caused by shutting them down. “The losers are consumers, who pay five cents more for a tube of toothpaste or $1 more for a shovel at the hardware store,” said Walker.

He added that tolerating industrial inefficiency is destructive in the long run because it shuts Canada out of export markets. “It is insidious,” said Walker. “What were five uncompetitive industries quickly become 100 uncompetitive industries.”

Many economists say that through much of its history, Canada has escaped the pressures of international competition because of its entrenched protectionist policies and its reliance on the export of natural resources. Said Gilmour: “Canada has had the luxury of rich resources and easy export trade. We’ve never

really had to hustle internationally before.” But if Canada is to hold its own in a North American trade bloc and flourish in the global arena, those experts say that an agonizing process of national self-examination will have to take place. Individuals and even entire Canadian regions have traditionally relied heavily

upon government to provide financial assistance and social safety nets. And despite the pro-free-market rhetoric from business leaders, most economists maintain that Canadian companies are also overly dependent upon government handouts. “We can’t have it all,” said Paul Beamish, a professor of international trade at the University of Western Ontario in London. “Canada just cannot have more jobs, lower taxes and wider social programs. We must collectively make some tough decisions about what we want to pay for and how to go about it.” Advocates of free trade concede, however, that the benefits may not be evenly distributed. Indeed, they acknowledge that there is a risk that the gulf between upperincome professionals and

blue-collar workers will widen, at least in the short term. According to Gilmour, the gap between “haves” and “have-nots” widened during the 1980s and the free trade debate is now one of the political flashpoints between the two groups as well as other groups. So far, the Mulroney government has re-

sisted the mounting pressure to create specific adjustment programs for those who lose their jobs because of free trade. In 1988, Mulroney created an Advisory Council on Adjustment, chaired by then BCE Inc. chairman Jean de Grandpré, to make recommendations about labor problems arising from the FTA. The following year, the council rejected the idea of introducing specific programs to help workers displaced by free-trade-related plant closures. The council noted that in most cases, it was impossible to distinguish between jobs lost because of free trade and those lost as a result of greater foreign competition, poor management or the declining appeal of the company’s products in the marketplace. Arguing against special programs, de Grandpré said: “If we follow that route, we’re going to have two classes of unemployed citizens in this country.”

Last week, a grey-faced Wilson, clearly exhausted from the 10-day marathon of trade talks in Washington, held fast to the party line. Kicking off a cross-country tour to promote NAFTA, he told a news conference in Toronto that Canada already “has three times the programs on a per-capita basis than the United States.” He also repeated the claims that he and Mulroney used to promote the 1988 Canada-U.S. free trade pact: that increased international trade will inevitably create more jobs. He added that even now, “increased trade exports are leading us out of the recession.”

But although the claims and the participants

in the tumultuous free trade debate that continued last week are largely the same as those in 1988, the backdrop is dramatically different. The most vivid and haunting image for both sides is that of abandoned and derelict factories and workers whose prospects of finding new jobs appear to be slight. To Wilson and CCL’s Gary Ullman, the plant closings and the southward migration and the loss of some jobs are an

unavoidable cost of preparing the Canadian economy to compete in a larger and richer continental market. Their task now is to convince thousands of already displaced workers, and a growing number of insecure ones, that pain can lead to prosperity.

DEIRDRE McMURDY

JOHN DALY

NANCY WOOD