Free Trade Pact Spawns Business

TWO years ago the Buffalo Chamber of Commerce had 262 inquiries from Canadian companies thinking of setting up an office, factory, warehouse, or distribution center in the United States. Last year the number nearly doubled, to 503, after the US and Canada reduced or ended most trade barriers. ``The US-Canada Free Trade Agreement [FTA] has had a psychological impact for Canadian investors,'' says Dora Kukuliatas, manager of Canadian business development at the Buffalo chamber.

Although analysts point out it is still too early to evaluate the effectiveness of the FTA, there are anecdotal signs that the pact is working the way US trade negotiators envisioned. ``It is the view of the administration that the FTA has significant opportunities and benefits for both sides,'' says Rick Ruzicka, director for Canadian Affairs at the Office of the United States Trade Representative (USTR).

On Jan. 1, 1989, tariffs were eliminated on $3 billion worth of goods, such as computers, leather, pork, fur, skis, and motorcycles. A second group of goods, including paper, furniture, and chemicals, had tariffs reduced 40 percent initially and will have all tariffs eliminated in five years. Finally, a third group, including plywood, steel, and textiles, had tariffs cut 20 percent. In 10 years all tariffs on this group will be ended.

All of this is creating some initial business. For example, Canadians considering doing business in the US are calling David Herer, executive vice president of the American Bureau of Collections, Inc. in Buffalo. ``We're getting calls from Canadians who want to understand US credit policy,'' says Mr. Herer. ``They want to avoid having debt collection problems.''

Canadians are also doing business with US law firms which have set up shop across the border. Typical is Kavinocky and Cook, which opened a Toronto office last year. ``We have clients come in to consult on how to apply the provisions of the FTA to their benefit,'' says Jonathan Rodwin, a lawyer for the Buffalo-based firm. Of particular interest is a provision which allows Canadians greater immigration access to the US to oversee their operations.

Some minor problems have cropped up in the past year. The province of Ontario recently decided to allow semi-trailers which are eight feet longer than those currently in use on the province's roadways. However, the trailers have to be newly made in Canada.

``It could be a violation of the FTA,'' says Mr. Ruzicka, who has only seen press accounts of the law. While the US is trying to figure out what to do, ``Would-be sellers in the US have already lost orders,'' complains Eric Hartman, an analyst with the Northeast-Midwest Institute in Washington.

There are similar concerns about discrimination against US wines sold in Quebec. ``The problem is how do you get the provinces to live up to commitments made by the Federal government?'' asks Mr. Hartman.

Ontario, for example, has made it clear it is unhappy with the FTA. In a health care bill which passed the provincial legislature, a clause disavowed the FTA. Although Ontario ultimately dropped a restriction that health care services could only be provided by Canadians, it retained a provision that independent health facilities must be operated as a non-profit institution.

In an unclassified cable to the State Department, the US Embassy in Ottawa said the Canadian Embassy in Washington said that the Ontario clause was ``inserted for political reasons during the FTA debate, but has no legal effect.''

There is an even larger issue bothering Americans. Some members of the automobile industry are unhappy over the ``rule of origin'' agreement. It allows Korean and Japanese cars into the US duty-free if 50 percent of the car is made in Canada. ``The concern is that 50 percent is not high enough, that it should be 60 percent to ensure that key components of the auto such as the engine and drive train are made in North America,'' says Jim Callow, a legislative analyst with the State of Michigan.

The issue was placed on the agenda of a binational panel co-chaired by Peter Peterson, Commerce Secretary under President Nixon. The panel agreed that a formal study should be made of the issue. However, the US government has not committed any money to do the study while Canada has funded it with $100,000. According to industry sources, there is now an effort to expedite study of the issue.

One reason why the issue may not get resolved is because the US auto industry is split. Ford and Chrysler are in favor of a 60 percent requirement while General Motors is opposed. GM is opposed because of a joint-venture, CAMI Automotive, Inc., with Suzuki in Ingersoll, Ontario. CAMI produces Geo Trackers and Metros. Many parts are imported, but GM says ``over 50 percent'' of the car is made in Canada.

During the negotiations over the FTA, the US and Canada could not reach agreement on the issue of subsidies. Instead, they agreed to form binational panels to be sure each country followed its own trade laws. Ruzicka says the two sides will continue to negotiate the issue over the next five to seven years.

US officials are generally pleased with the five-person binational panels established to settle disputes between the two countries. ``In general we believe the process has allowed for disputes to be brought before experts and resolved so both sides can implement the agreement faster and so disputes don't spill over to other areas,'' says Ruzicka.