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CANADIANS CREDIT FREE TRADE FOR REBOUND OF FURNITURE, WINE INDUSTRIES

Changes to Canadian furniture design -- from clunky to sleek -- tell the story of how one Canadian industry went from devastation to the largest exporter of furniture to the United States in the years since North American free trade began.

When the Free Trade Agreement opened Canadian markets to duty-free U.S. furniture in 1989, the Canadian dollar was riding high, around 90 cents U.S., and the recession was about to begin. That triple whammy knocked the stuffings out of the sofa industry, said George Sinclair, executive director of the Toronto-based Ontario Furniture Manufacturers Association.

In 1988, the Canadian dollar was worth 68 cents (U.S.), he explained, and one year later, high interest rates pushed it to 89 cents.

"That meant a sofa, which retailed in the U.S. for $999, was now $1,299," he added, "and the retailers stopped buying."

In 1989, "We faced a crisis. Exports dried up and we were flooded with imports. One-third of the jobs in the Canadian industry died, half of those in Ontario. A lot of companies just couldn't make it, and about 90 companies went under. Employment fell from 60,000 jobs to 40,000 jobs within 18 months," he said.

Despite a still-sluggish Canadian retail market, the Canadian furniture manufacturers that survived, and those who came in after the storm, have turned the export side of their business into a major success.

Six years after the crisis, the Canadian industry fought its way back, and in 1995 knocked long-time champ Taiwan from its position as the No. 1 exporter of furniture to the United States. Canadians kept the title in 1996 and are expected to hold onto the crown in 1997, Sinclair said, when Canadian furniture sales to the U.S. are likely to pass the $1 billion mark.

"We don't want to gloat," he added, but if the industry tops the list for three years running, "we'll do better than the Blue Jays," who won the World Series only two years in a row.

Before free trade, Canadian furniture companies enjoyed an excellent reputation for quality workmanship. But as everyone in the Canadian industry admits, in the old days, Canadian design was an oxymoron.

Built for long winters and conservative buyers, Canada's traditional, box-shaped furniture couldn't compete with the sleek U.S. and European products.

Since then, Canadian companies like Palliser, C-Style and Durham, have all reaped dramatic export growth by combining an unbeatable trio of high quality, a 73-cent Canadian dollar and contemporary design.

"We now do 75 percent of our business in the U.S.," said Durham Furniture president Orville Mead, adding their export sales totaled $20 million, a 400 per cent increase over 1993.

When measuring sheer success power, Canada's largest furniture exporter, Winnipeg-based Palliser comes out the winner.

In 1988, Palliser's exports were worth about $12 million, said Roger Friesen, the company's vice president of sales and marketing. In 1997, he added, the company expects to rack up nearly $110 million in export sales, a 910 per cent increase since free trade began.

Free trade, he added, has produced export sales growth of 25 percent to 30 percent a year.

For all Canadian furniture and furnishings companies, the world-renowned trade show at High Point, N.C., is the place to see and be seen. Before free trade, only about 20 companies had displays at High Point, Sinclair said. That number has grown to more than 50, he added, making Canadians the largest national group at High Point, after Americans.

To put free trade into perspective, Canada-U.S. trade, the world's largest two-way market, totaled over $250 billion in 1996, while Canada-Mexico trade in 1996 amounted to just over $5 billion.

University of Toronto management professor Joseph D'Cruz, said the North American Free Trade Agreement has moved labor-intensive jobs to Mexico, while jobs requiring a competitively priced skilled labor force have moved in Canada -- and those that need to be close to the largest customer base remain in the United States.

As with the furniture manufacturers, in 1989 free trade hit Canada's embryonic wine industry like a plague of phyloxera.

While Canada may seem too cold for a wine industry, the Niagara region in southern Ontario is on the same latitude as northern California, a fact which prompted the early wine-makers into production.

However, most vineyards in operation before 1989 grew local grapes such as the Labrusca Concord and French hybrids, noted Bill Huisman, sales manager for Chateau des Charmes Wines.

After free trade, Canadian wineries replaced those grapes with internationally acceptable European varieties like the Chardonnay, Riesling and Cabernet Sauvignon, he said.

The result of the great grape pull, was that "the industry took off and we started winning gold medals at all the international wine festivals," he added.

Along with prizes for red and white wines, Ontario has become world famous for its dessert ice wines, made from grapes frozen in the province's world famous winters.

While Canadian wineries have been making some inroads into the U.S. market, most exported Canadian wine is bound for Europe or Japan, not the U.S., because free trade does not extend to wine, explained Donald Ziraldo, president and founder of Inniskillin Wines.

Although Canada's beer industry was exempted from free trade, the wine industry was forced to open to foreign competition, while American wines remained protected by non-tariff barriers such as state-by-state regulations on labeling and the need to have a local distributor, he said.

The federal Bureau of Alcohol, Tobacco and Firearms is the first hurdle, with its labeling requirements, and then each state follows with its own "mountain of rules and regulations," he said.

Trying to distribute wines state by state "is a nightmare for a small company like ours," he said.

Despite its sometimes rude and rowdy entry into the Canadian economy, free trade has proved more a boon than a bomb, with exports driving the Canadian economy all through the recent recession, D'Cruz said.