A Bittersweet Deja Vu for Canada

ORVILLE MEAD never set out to save this one-stoplight town and become a hero.

But that's what he is to many of the 2,500 residents of Durham, Ontario. Mr. Mead is credited with saving hundreds of Canadian furniture-manufacturing jobs threatened by a tidal wave of imported furniture made with cheap labor south of the border - in the United States.

In the years following the 1989 Canada-US Free Trade Agreement (FTA), one-quarter of Canada's furniture industry was wiped out by a brutal combination of free trade, recession, and an unfavorable exchange rate. The 25 percent tariffs on American-made furniture fell, opening Canadian floodgates to a torrent of high-quality, inexpensive US products. More than 18,000 jobs were lost as 500 Canadian companies went under, including the company that Mead worked for.

``I used to have a new company car every year,'' recalls Mead, now president of Durham Furniture Inc., the biggest employer in this southwest Ontario town located 30 miles from Lake Huron. ``Now I have a five-year-old Volvo with 240,000 kilometers [150,000 miles] on it.''

For Mead and thousands of Canadian businesspeople and workers, free trade with the US has been both a boon and a grueling adjustment.

Some economists think Canada's experience may be a scaled-down version of what awaits the US as free trade increases with Mexico, thanks to the 1994 North American Free Trade Agreement (NAFTA).

Mead smiles, remembering his pre-FTA salad days with a national furniture company. ``I used to have two homes that were paid for. Now I have one house with a big mortgage.'' Reviving a factory

Refusing to admit defeat, Mead in 1992 led a small group of investors intent on reviving Durham's main employer - a three-story, brick furniture factory that survived the Great Depression but went bankrupt three years after FTA took effect.

``We bought the factory out of the ashes,'' Mead says. His hands are folded on a gleaming, cherry-veneer desk, the only luxury appointment in a windowless office not much bigger than the photocopy room down the hall.

Mead's first move was to hire the original 100 workers back - at the same $12 (Canadian: US$8.53) per-hour wage - to work for the new Durham Furniture Inc.

After losing money for two years, the company crawled into the black in 1994 by selling furniture in the US for the first time. This meant redesigning its products and hiring a US marketing manager. Exports to the US of Durham's line of solid cherry, maple, and ash bedroom suites make up 50 percent of sales. Durham has since added another 120 employees and is looking to hire more.

``This factory wouldn't be here without Orville,'' admits Floyd Lawrence, who grew up working in the factory and served as Durham's mayor during its 1992 bankruptcy.

Ironically, the success of Mead and others have free-trade boosters crowing as Canadian exports continue to play a crucial role in buoying the otherwise lackluster economy. Between 1988 and '93, Canadian imports from the US increased by 26 percent, while exports to the US grew by 39 percent, according to a study by the Toronto-based Royal Bank of Canada.

Canadian exports to Mexico comprise just 2 percent of all exports. But NAFTA is now raising Mexico higher on Canadian exporters' market lists. (See related story.)

Reveling in the more open markets, Canadian high-tech companies of all stripes - involving computer software, telecommunication, etc. - have done very well in North America. So have wheat and timber exporters. Canada's fledgling entrepreneurial exporters have been rocket-propelled since free trade with the US began.

``We're signing contracts everywhere, but the US is our bread and butter,'' says Daniel Taveres, marketing director for Canada Pure Spring Water, a three-year-old bottled-water exporter based in Toronto.

``They [non-Canadians] think of a big, large country with not a lot of population and lots of clean water,'' Mr. Taveres says. ``That's the image we're selling. We have the Canadian flag on every bottle.''

But many low-tech Canadian manufacturers are flailing against the in-rushing tide of US imports. The clothing, textile, and food-processing industries have been hit hard.

Canada's economy is about one-tenth the size of the US. Could Canada's rugged experience with free-trade job shifts and job losses be repeated on a larger scale in the US?

``The US is more vulnerable to Mexico than Canada is to the US,'' says Joseph D'Cruz, a trade expert at the University of Toronto.

``Canada [years ago] lost most of its labor-intensive industries. Parts of the southern US are still quite heavily dependent on textiles, footwear, small electrical manufacturing. These will be at risk,'' Mr. D'Cruz adds. Another pact takes blame

Canadian labor groups blame FTA for the loss of hundreds of thousands of manufacturing jobs as American multinational corporations shut Canadian ``branch plants.''

When tariffs on American goods fell, it sometimes became cheaper to increase production in US factories and ship products north rather than keep the Canadian plants in operation.

Despite an economy chugging forward at a 4 percent growth rate, economists call it a ``jobless recovery,'' and the national mood is subdued.

Unemployment has eased from 11 percent a year ago to 9.6 percent today.

For Mead and other Canadian manufacturers, the central lessons of both NAFTA and FTA aren't complex, but they are imperative:

* Find a niche. Rather than making a raft of products for Canadians, Canadian manufacturers have retooled to specialize in one or two products for export worldwide.

If a business has a wage disadvantage, it shouldn't make a commodity product in which price takes precedence over quality.

* Be honest. Don't downplay potential job losses because then companies won't be prepared to deal with them, D'Cruz says. ``Here in Canada we simply underestimated the short-term impact on jobs - job losses.''

* Export, export, export. If satisfied with current market share, a company will lose it. Expand to foreign markets for self-preservation.

* Do more with less and cut the perks. ``My advice to [US companies] is to make sure your financial house is in order,'' Mead says.

``Make sure you are running lean and mean. There's no room for frills. Offer value that a Mexican producer cannot,'' he adds. Mead has no plans to set up shop in Mexico.

But for American manufacturers, ``I suppose, the next thing is to look at production facilities down there - go and buy a factory in Mexico,'' Mead says.

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