Free Trade Brings Business Boom to Buffalo

SOUTHERN Ontario and western New York used to be the kind of neighbors who exchanged hellos but moved in different social circles. ``It was almost as if there was this large brick wall in the middle of the Niagara River, and nobody wanted to cross it,'' recalls Buffalo attorney Pamela Heilman.

That's changing.

Stand on the International Peace Bridge on any weekend and watch the flow of Buffalo-bound shoppers from Ontario.

Sit in the office of Buffalo banker Ian Gent and watch him trace out on a map a C-shaped economic corridor from western New York to Toronto.

Talk to the store clerk in Niagara Falls, Ontario, who complains that a US office-supply store is stealing away business. ``People say: `We can get it cheaper at Paper Cutter,''' she says. Then she adds, as if the idea is new to her: ``They're our competition, I guess.''

When the Canada-United States Free Trade Agreement took effect Jan. 1, 1989, it did more than begin bringing down import barriers between the world's two largest trading partners. It began to change people's attitudes on both sides of the border.

``We really see the two regions as one,'' says Ms. Heilman, a partner with Hodgson Russ Andrews Woods and Goodyear, a New York law firm advising US and Canadian concerns on trade law.

The shift is taking place throughout the Great Lakes region. But it is especially noticeable here, along the land bridge 25 miles wide that keeps Lake Erie from Lake Ontario and connects Canada's most vibrant province with the backwaters of New York State.

It is a mismatch, at least for the moment.

The flow of new business so far has been almost uniquely north to south. Wealthy Ontarians have sparked a boom in Buffalo and some soul-searching for themselves. Freer trade will mean change - greater opportunities for Canadian industry but also greater risk as they compete head on with US firms.

After a year and a half of planning, Canadian firms have begun to move into the US. In the last six months 10 to 15 Canadian companies have set up shop in the Buffalo metropolitan region, says James McConnell, director of the Canada-United States Trade Center at the University of Buffalo.

No one knows exactly how many Canadian firms now operate in western New York because neither Canada nor the US keeps track very well, he adds. Estimates range from 150 to 500.

In a recent survey of 58 such firms, Professor McConnell and coauthor Alan MacPherson found that the moves were not prompted by specific clauses of the Free Trade Agreement. Instead, Canadian firms are setting up shop in western New York for a combination of geographical and cost factors. According to the survey, Canadian corporations are keenly interested in expanding their operations to the US. They are coming to the Buffalo region because it is close to home (a two-hour drive from Toronto) and cheap.

The cost differentials between the two cities are staggering.

Industrial land in metropolitan Toronto costs anywhere from $200,000 to $400,000 an acre - or about 10 times the price on the US side of the border, according to McConnell's study. It's the same story with central area office space. In Toronto, prices start at around $25 a square foot; in Buffalo, $9. (Prices are US dollars).

The Canadian activity has created a welcome boost for Buffalo, a former steel and manufacturing center that lost many of its companies during the recession of the early 1980s. Local economic development officials are brimming with enthusiasm.

``For western New York, it's like a market the size of California opening up to us,'' says Mr. Gent, director of the Canadian commerce group of Norstar Bank. The Buffalo-based bank got interested early on in the business opportunities of the Free Trade Agreement. Its clients and prospects for US-Canadian business have doubled each year since 1988. Sixty percent of them are US companies.

Some Canadian companies long ago discovered they could improve their US sales by setting up small offices in Buffalo. What's changed is the nature of their operations, says Randall Brown, vice president of the Greater Buffalo Chamber of Commerce. Three years ago, less than 10 percent of the Canadian firms the chamber attracted were setting up manufacturing operations in the US. Today, the ratio is up to 30 percent.

These changes worry Canadians. Politicians such as Bob Rae, the newly elected Ontario premier, have vowed to ignore the free-trade agreement. Toronto radio talk shows discuss whether it's patriotic for Canadians to do their shopping in the US.

The story is repeated so often it has become part of Buffalo lore. Canadian shoppers drive to the US in the morning wearing tattered clothes and recross the border at night wearing brand-new US outfits - thus avoiding Canadian import duties and destroying the evidence by dumping their old clothes in the US.

``It's all true,'' says a Canadian customs officer at the International Peace Bridge when asked about the story. ``People will shop where it's cheaper.''

Canadian retailers have begun to catch on. At the upscale Walden Galleria mall in the Buffalo suburb of Cheektowaga, several Canadian stores have opened their doors. On average, 20 to 30 percent of the mall's customers are Canadians, says Harry Stecher, general manager of the mall.

``They do a lot of comparison of prices,'' says Joseph Dismond, local store manager of Harry Rosen Inc., a large Toronto-based clothing chain. He pulls out a light gray Giorgio Armani suit. US price: $799. In Canada, more than $1,000. Rosen's is now looking to expand to other US cities, Mr. Dismond says.

Not all Canadian prices are higher. Except for clothes imported from Europe, which face stiff Canadian duties, Dismond's merchandise is priced the same as in Canada. A check of a Woolworth's store on each side of the border shows prices that are not very different. A 350 milliliter bottle of Head & Shoulders shampoo in Niagara Falls, Ont., was actually 12 cents cheaper than the equivalent 11 oz. bottle in the US.

If the reaction to the Free Trade Agreement seems rosy on the US side, it is mixed on the Canadian side. Some shopkeepers in Niagara Falls complain about competition from the US. Others, like furniture-store owner Dick Rogers, support it.

``See that sofa there?'' he says, pointing to a light blue sofa imported from Tennessee. ``Prior to free trade, that same sofa would have been $1,995.'' Today, it retails for $1,649. (or $1,420 in US dollars).

Three sizable manufacturing plants in the area have closed their doors or cut their work force since the Free Trade Agreement took effect. Nevertheless, Glenn Gandy, executive director of the Niagara Falls Chamber of Commerce, backs the agreement as the way to bolster Canadian industry. ``We are going to have to compete with the European market - that's our real competition. And what better way to do that than Canadians and Americans together?''