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IN BUFFALO, NEW ECONOMIC DEPENDENCE ON ONTARIO

Free trade with Canada has become as much a part of Buffalo's national image during the last two years as blizzards, the Buffalo Bills and spicy chicken wings.

According to national press reports, Western New York, along with metropolitan Detroit, has become a mecca for Canadian shoppers and companies seeking bargains south of the border. Free trade has caused writers for national newspapers and magazines to rediscover the Queen City of the Great Lakes.

To many Buffalonians, it seems that the greatest accomplishment of the free-trade era, so far, is the transformation of city's persona from Rust Belt relic to boom town.

But something more important than publicity has been gained since the U.S.-Canada Free Trade Agreement went into effect on Jan. 1, 1989, says Judith A. Kossy, president of the Western New York Economic Development Corp.

The 24-month-old trade pact has made local business leaders appreciate the region's economic dependence on Ontario, she said.

"What we're experiencing here is not just free trade . . . we're seeing the emergence of a Toronto-Western New York economic corridor," she explained.

Buffalo is becoming an "industrial unit" or a suburb of Ontario's manufacturing heartland, which is centered in cities like Hamilton, Mississauga and Toronto. Western New York's economy is tied to the fortunes of Canada far more than it is to events occurring in New York City and Albany, Ms. Kossy said.

For example, both southern Ontario and Western New York continue to be dominated by manufacturing companies that may decide to shift some blue-collar jobs to Mexico, if the dream of a North-American trading bloc becomes a reality. So, communities on both sides of the Niagara River have a common interest in pressuring trade negotiators not to give away jobs, she said.

"The free-trade agreement enhances our geographic relationship . . . it accelerates the economic integration of the two areas," Ms. Kossy added.

Bruce Fountain of Ernst & Young Consulting in Toronto agreed, saying he believes the free-trade agreement eventually will lead to greater cooperation between the states and provinces that share the Great Lakes. In the last two years, important links have been formed between Ontario and Michigan, Wisconsin and New York.

These economic ties are crucial for the region's economic future because in the emerging global economy, Great Lakes-based businesses will have to discard their parochial interests and band together in order to compete against companies in the Deep South and Mexico, both of which have the competitive advantage of lower labor costs.

In fact, cheaper land and a plentiful supply of vacant buildings are two of the magnets drawing Canadian entrepreneurs to the Buffalo area, local economic developers say.

A recent survey of 58 Canadian companies with a physical presence in the Buffalo-Niagara Falls region found that basic economic and geographic factors, rather than the free-trade agreement, are fueling the drive southward. In interviews with Canadian business people, University at Buffalo researchers identified several factors that make Western New York an ideal site for a branch plant, office or distribution center. These include:

Proximity to Toronto.

A large, available labor supply.

Low-cost industrial land.

Ease of establishing a business in the area.

Existence of major transportation facilities and services.

Desire to have a physical presence in the United States.

The need to be centrally located with respect to its principal market area in Canada.

And the desire by the parent company to expand outside the Canadian marketplace.

"The fact that Canadian companies are moving to Buffalo has nothing to do with the free-trade agreement," said John L. Manzella, president of Williamsville-based Free Trade Consultants. "In fact, what has happened in Buffalo is completely opposite from what you would think would happen," he said.

The local author of a free-trade newsletter explained that normally foreign companies move to the United States to bypass tariffs placed on their imported goods. But since the free-trade agreement eliminates all protectionist rules governing U.S. and Canadian-made goods, it no longer makes sense for a Canadian business to move south of the border just to avoid customs duties.

"Canada's high interest rates, high dollar and unpredictable politics are driving Canadian executives to Buffalo," he said.

More than 475 Canadian companies have opened up shop in Western New York since 1970. An additional 40 enterprises have established plants or offices since the free-trade decade dawned on Jan. 1, 1989.

Most of these recent arrivals are small businesses that have seen their sales and profits decline as Canada's economy slides deeper into recession, said Dora T. Kukuliatas, manager of Canadian business development for the Greater Buffalo Chamber of Commerce.

Statistics from the Metro Buffalo Alliance show that in the last two years, these Canadian arrivals have occupied more than 400,000 square feet of factory and office space. They also have created 509 additional jobs, on top of the 10,000 positions that already stem from Canadian investment.

The vast majority of these new Canadian-owned, local businesses are manufacturers. And most have factories in Buffalo, making everything from plastic hangers and kitchen sinks to skateboards and suntan lotion.

"Over the last year, we've seen Canadian companies fine-tune their expansion plans," Ms. Kukuliatas said. "During the first year of free trade, we had a lot of tire kickers -- people who didn't really know what they wanted to do. They were just looking for information."

Both Ms. Kukuliatas and Hugh C. McLean of Marine Midland Bank said the number of inquiries they receive from Canadian companies dropped off this fall because of the recession north of border. But both trade experts said they expect more Canadian firms to locate in the Buffalo area beginning in the last quarter of 1991.

"They haven't stopped coming, but it certainly has slowed down," said McLean, a vice president in Marine's Canadian commercial banking department.

Some local politicians and economists have speculated that cross-border shopping by Canadians and the recent influx of Toronto-based firms has insulated Buffalo from the recession sweeping the Northeast.

While it is true that Western New York's economy is still growing while Long Island wallows, Canadian investment won't completely prevent a local economic downturn, said Bern Rotman, a spokesman for the state Department of Economic Development.

He concluded: "It's a sweeping statement to say Buffalo will be insulated entirely from a recession . . . but it (Canadian activity) certainly helps."

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