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For Canadian workers, free trade is a double-edged sword Pact with U.S. spurred job loss, but high-skill industries gained

TORONTO — Toronto -- What's it like to lose your job to a lower-wage economy south of the border? Ask Clifford Runyon. He hasn't been employed since 1989, when his job of 26 years went south.

To Mexico? No -- to the United States.

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Mr. Runyon, 62, is among an estimated 100,000 Canadian workers whose jobs have been exported since U.S.-Canada free trade was introduced almost five years ago. For many companies, the United States is a more efficient, lower-cost production base than Canada, which has a strongly organized labor force and universal benefits.

As Congress considers the North American Free Trade Agreement with Mexico, Canada's experience provides a cautionary tale about the pact's potential impact on low-skill U.S. manufacturing jobs. But it also lends support to NAFTA advocates who argue that the pact will boost employment in higher-paying industries and make some U.S. goods more competitive.

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Still, the fear of what Ross Perot calls "the giant sucking sound" of American jobs rushing south to a low-wage economy has become harsh reality for thousands of Canadian workers such as Mr. Runyon.

"You have cut our throats; now the people in Mexico are going to cut yours," says Mr. Runyon, who worked for PPG Inc., maker of Pittsburgh Paints, until it closed its plant near Toronto and moved production to the United States in 1989.

The differences between the United States and Canada, of course, pale against the economic, social and political contrasts between the United States and Mexico.

For example, textile workers, who are among the most vulnerable to free-trade dislocations, earned an average $370 weekly in the United States, compared to $382 in Canada. But in some low-skill jobs, an American can take home more in an hour than a Mexican makes in a day.

"We had a major change in response to a relatively small [wage] difference," said Andrew Jackson, a trade specialist with the Canadian Labor Congress, which opposed the 1989 U.S.-Canadian free-trade agreement. "If the disparity is greater, the dislocation will be greater."

But the free-trade agreement, which eliminated tariffs as high as percent, has made Canada more competitive in industries vital to its long-term future, says Daniel Schwanen of the business-backed C.D. Howe Institute, one of Canada's premier public policy think tanks. Some examples: computers, chemicals, precision instruments, fine paper. And those are the sort of high-tech, high-wage industries that are expected to prosper in the United States from NAFTA.

At Ottawa-based Mitel Corp., a telecommunications equipment manufacturer, free trade has helped turn a marginal company into a profitable and highly competitive one -- while preserving jobs for Canadians.

High tariffs were sapping the life from Mitel's export business in the days before free trade. In the 1989 fiscal year, for example, the company made just $750,000 after paying $3.75 million in tariffs to export about half of its production to the United States. Last year, although exports to the United States held steady, the company made $2 million; profits are growing even more rapidly this year.

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"What we have been able to do through free trade is become much more profitable on a consistent level of sales," said Robert Dietrich, vice president for corporate affairs.

That has saved jobs at Mitel's Canadian operations. After free trade was introduced, Mitel closed a Boca Raton, Fla., manufacturing plant that it had operated to beat the U.S. tariffs and consolidated production in Canada. It also withdrew from a manufacturing contract with a Japanese company to escape the U.S. tariffs imposed on Asian products.

Free trade also exposed Mitel to new competition, but company officials weren't worried, partly because Canada's market is relatively small. "Relatively, we had much more to gain by having a low-cost base going into the U.S. than we had to fear from AT&T; coming into Canada," Mr. Dietrich said.

But in Canada, the "winners" haven't hired enough workers to offset layoffs within low-skill industries. Mr. Schwanen estimates that 100,000 jobs were lost and 50,000 gained here because of U.S.-Canadian free trade; Canada's finance ministry had forecast gain of 175,000 jobs from the agreement.

Which Canadian industries have suffered most? Those involved in traditional manufacturing -- textiles, furniture, glass, food processing, household appliances -- the jobs most at risk of being exported south again, this time from the United States to Mexico.

In low-skill industries, the wide U.S.-Mexican wage disparity should be offset partially by Mexico's low productivity, its poor infrastructure and its appreciating peso, which boosts the cost of Mexican-made goods, economists say.

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And there are important differences between the U.S.-Canada agreement and NAFTA.

When the U.S.-Canada agreement went into effect in January 1989, an overvalued Canadian dollar made goods expensive, high interest rates dried up investment funds, and the government failed to provide special retraining programs for dislocated workers.

None of these factors applies to the United States today. The dollar is at a realistic and stable level in currency markets, interest rates are low, and President Clinton promises a major retraining program for workers who lose their jobs to Mexico.

The Clinton administration, acknowledging that some low-skill jobs could be lost under NAFTA, forecasts a net gain of 200,000 jobs after two years.

But most U.S. economic studies suggest job losses of up to 200,000 over the next decade, and NAFTA's harshest critics say millions of jobs could be moved to Mexico.

Assessing the impact

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Assessing the impact of free trade will always be a messy affair. A worldwide recession has damaged the Canadian economy, forcing many companies to consolidate operations and lay off workers. Many U.S. companies faced the same pressures, which could explain why they closed Canadian operations in the years following the U.S.-Canada pact.

PPG spokesman John Ruch says the decision to close the Etobicoke plant outside Toronto was made before the free-trade pact was signed. That plant, he says, was old and small, and it made sense to shift production to Wisconsin and Ohio. The company has invested "significantly" in another Canadian plant since the pact, he adds, asserting that U.S. and Canadian wage rates are comparable.

But many out-of-work Canadians don't appreciate such subtleties. And their anger over free trade, which is shaping the nation's Oct. 25 general election, could speed the demise of Prime Minister Kim Campbell.

"If it wasn't free trade, tell me what it was," said Mr. Runyon, now living on early retirement of $665 monthly instead of his former wage of $1,680. "Before free trade, they didn't ship paint across the border because it was too expensive [because of the tariff]. . . . All of a sudden, they close the plant, and massive shipments of paint start coming across the border."

The list of plant transfers to the United States includes the elite of corporate America: Caterpillar Inc., from Brampton, Ontario, to Raleigh, N.C., and Peoria, Ill.; Gillette Co., from Montreal to Boston; General Motors Corp., from Scarborough, Ontario, to Flint, Mich.

Most of the companies -- like PPG -- attribute the relocations to long-planned corporate restructuring rather than free trade.

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"That would be easy to say, except certain companies disappeared the day after free trade was implemented. They announced they were moving to the States," said Pat Van Horne of the United Steelworkers of America in Toronto.

TRW closing

Some of the latest jobs to go south were with TRW Canada Ltd., a subsidiary of the the U.S. auto parts manufacturer TRW. It shut its Stoney Creek plant outside Hamilton, Ontario, Friday, with the loss of 150 jobs; most of the work will go to plants in Union Springs, N.Y., and Reynosa, Mexico.

In its letter informing workers of the closure, TRW said it would "minimize inventory and transportation costs and significantly reduce our overhead." Garry Gallant, TRW's human resource manager in Canada, said "free trade had absolutely nothing to do with this decision."

But, aware of the rash of plant closures, TRW's unionized workers had negotiated a severance package in their latest contract. "We thought it was a good idea to get a severance package in there, and obviously we were right," said shop steward Pam McInnes "I don't think there's a family I know that has not been through a plant closing."

Steve Jefferies, 43, who is losing his $9.80-an-hour job as a set-up technician after 21 years with the company, is convinced free trade is responsible.

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"Ever since [free trade] came in, it has always been a factor in our view of the plant closing," he said. "All the new tech stuff . . . that's all gone back to the States or to Mexico."



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