Global competition, much feared here when Canada and the United States first cinched their free-trade agreement 10 years ago, is starting to win converts from an unlikely quarter: the leaders of companies hardest hit by the lowering of tariffs.
"In 1989, I said publicly that free trade would really hurt our company -- and it did," said Orville Meade, president of Durham Furniture Inc. of Durham, Ontario. "I would have said privately that it was also necessary to get the industry on its feet -- and it was. It's a pretty good industry now. Without free trade, that wouldn't have happened."
Durham Furniture was bought out of bankruptcy by some of its managers and a local investment fund in 1992. Before free trade, Durham had 175 employees and $12 million in sales, with such a wide range of wood and upholstered furniture that it could not produce any of them efficiently enough to compete in export markets.
Today, however, after focusing the business on solid hardwood bedroom furniture, Durham has 440 employees and annual sales of more than $50 million, three-quarters of which goes to the United States.
Durham's view is all the more remarkable because the household furniture industry had enjoyed some of the highest tariff protection and fought bitterly against approval of the free-trade treaty. Just four years after tariffs were lowered, as American furniture began to flood into Canadian stores, the industry's shipments fell by 25 percent, forcing half of all furniture makers to close their doors. Industry employment fell by 10,000 -- one in every three jobs.
In fact, many in the furniture business -- and in the population at large -- are still unreconciled to the changes.
"Bottom line, free trade has been a disaster for the industry," declared George Sinclair, executive vice president of the Ontario Furniture Manufacturers Association, which lost a third of its member companies.
And a recent public opinion survey by Environics Research found that only 28 percent of Canadians regard the free-trade accord as a success, with 43 percent negatively disposed and the rest uncertain.
The numbers, however, tell a positive story.
Since the dark days of the early 1990s, furniture industry shipments have risen to a level above what they were before free trade, with the number of companies and employees beginning to rise again as well. Exports from Canadian furniture factories now top $1 billion, accounting for half of all shipments, up from 12 percent in 1988. And whereas there are now fewer employees in the industry, the average employee is responsible for adding $51,000 to the value of raw materials used in production, up from $42,000 in inflation-adjusted dollars a decade ago.
Meanwhile, wholesale prices of furniture have fallen from 10 percent to 15 percent, most of which has been passed on to consumers.
Even industries that have yet to join the export boom -- like the wine industry around Niagara Falls -- have benefited from the competition brought on by free trade.
A decade ago, government liquor stores in Ontario marked up imported wines by 66 percent above the wholesale cost while local wines were sold virtually at cost. Under the free-trade treaty, however, Ontario was obliged to move toward equal markups for all wines.
The result was a catastrophe for local vintners. Almost immediately it became apparent that consumers never really liked the jug wines made from the hardy LaBrusca grape that had been favored by Ontario growers. As prices declined, they flocked to imported merlots and chardonnays.
In the ensuing shakeout, more than a third of the vineyard acreage in Ontario was taken out of production as the price of LaBrusca grapes fell by half. The number of independent growers fell from 800 to 500, while of the dozen or so large winemakers, only two survived.
"It was all doom and gloom," recalled Elizabeth Andreen, manager of Ontario's Grape Growers Marketing Board. "The industry was on its knees."
A few growers, however, quickly devised techniques allowing other types of grapes to survive the Ontario winter. At the same time, a new generation of wine entrepreneurs appeared who were eager to produce the premium wines that consumers were asking for. Now Ontario wineries are selling 30 percent more wine by volume than at the peak period of the 1980s, almost all of it within Canada.
"The free-trade agreement gave the industry a whack to the head," said Donald Ziraldo, who pioneered Ontario's premium wine industry when he opened his Inniskillin winery in 1975. "Before that, there was a stubborn reluctance to accommodate what the consumer market wanted."
Daniel Trefler, an economist at the University of Toronto, argues that what happened in the furniture and wine industries was replicated in other sectors as they scrambled to adjust to the competitive realities of free trade. Between 1988 and 1995, according to a study by Trefler, tariff cuts alone had reduced manufacturing employment by 10 percent and reduced the number of manufacturing companies by 12 percent. At the same time, though, labor productivity in once highly protected industries advanced by 11 percent while in low-tariff industries it gained only 4 percent.
Surveying this and other evidence, economists and business leaders who gathered at a 10th-anniversary conference in Montreal this month concluded that the free-trade agreement with the United States has turned out, on balance, to be a good thing for Canada. Even union leaders and politicians who once opposed the treaty -- including Jean Chretien, then opposition leader and now prime minister -- have acknowledged that free trade with the United States has turned out better than they expected and that, in any case, there is no turning back.
The average Canadian, however, remains unconvinced. There are many factors that contribute to the ambivalence here toward free trade. The paycheck for the average Canadian hasn't grown much in the past decade, while the gap between rich and poor has widened. Some are still bitter about jobs or businesses or vibrant communities that they lost once barriers to American imports were removed.
There's also been the 25 percent fall in the Canadian dollar and the fact that Canadian stocks have done only about half as well as those on Wall Street.
The irony, of course, is that Canadians have attained one of the world's highest standards of living largely as a result of trading their abundant resources for imported technology, capital and finished goods, much of it from the United States. And since adoption of a free-trade treaty, the cross-border relationship has only deepened.
Canadian exports to the United States grew 169 percent over the past 10 years and now account for 28 percent of Canada's economic output, up from 15 percent in 1988. By one calculation, Canadian mills, mines and factories now produce more for U.S. consumers than they do for Canadians. Most provinces have more trade with the United States than they do with the rest of Canada.
Still, don't look for any serious moves forward on closer economic ties with the United States. Although Chretien and his cabinet are scheduled to take up the issue of U.S.-Canada relations at a much-publicized retreat this week, they have made it clear they will not be considering such ideas as a common currency with the United States or a European-like customs union, which have received lots of media attention here in recent weeks.
"We have enough integration with the United States," Chretien said.
This reluctance has less to do with economics than with politics. There remains in the Canadian psyche a deep-seated fear that closer economic ties with its bigger, more powerful neighbor will eventually rob Canada of its independence and identity. Even after a decade of relatively free trade, there are still many Canadians, including leading members of the cabinet, who fear closer economic ties with the United States will inevitably lead to the demise of the Canadian health system, the disappearance of Canadian culture and the draining of Canadian lakes to fill swimming pools in Arizona.
Derek Burney, the Canadian official who negotiated the final terms of the 1988 free-trade agreement, told the Montreal gathering that these concerns about national identity remain the central fact of Canadian political life -- and will make it difficult for any government in Ottawa to propose closer economic ties with the United States.
"Americans are proud of what they are -- which is Americans," Burney explained. "Canadians are proud of what they are not -- which is Americans."
CAPTION: Free Trade at Work (This chart was not available)