Necktie Factory Tying Mexican Trade Knots

OUT of a small Toronto factory, stuffed with towering piles of fabric from around the world, Mexican expatriate Eduardo Lulka and his brother, Oscar, are using free trade to develop new Canadian ties with Mexico.

Literally.

Neckties carrying the ``Made in Canada'' label are selling in Mexico like hot tortillas, according to Eduardo, the co-owner of Oscardo Inc. His company began shipping a few thousand ties to Mexico in March 1990. Since the North American Free Trade Agreement (NAFTA) went into effect, however, his tie business has taken off.

It is a feat some might equate to shipping oil to Saudi Arabia.

In a Mexican tie factory, workers make about $1.25 an hour. Eduardo pays his employees an average of $6 to $7 an hour.

Yet this wage disadvantage hasn't stopped the brothers from manufacturing and selling to Mexico about 40,000 silk and polyester ``microfibre'' neckties. Of the company's total sales last year, about 10 percent went to Mexico.

``NAFTA is a good opportunity for Canadian companies like ours because the Mexican market has been closed for decades,'' Eduardo explains. ``Our company and other Canadian companies that want to grow are catching that wave.''

Although Canadian exports to Mexico comprise only a sliver of overall Canadian exports - about 2 percent - Mexico is a new growth market for Canada, thanks to NAFTA.

Prime Minister Jean Chretien led a trade mission there last year. And with Mexican tariff barriers falling on Canadian-made products from cereals to plastics, paper, pearls, aluminum, and furniture, trade between the two countries is soaring. The Royal Bank of Canada reports bilateral trade up 21 percent in the first nine months of 1994 over the year before.

The Oscardo factory has about 25 workers, which he expects to increase if demand in Canada and Mexico warrant.

Eduardo points out that the company's competitive disadvantage is not as big as it appears, since wages comprise only about 20 percent of the cost of apparel. The company makes up for this by positioning their ties as a premium product, charging top prices in the best stores.

Sales to Mexico were expected to double this year. But the peso's recent slide has cut into Eduardo's profit margin.

``We really don't know how much we'll be able to increase our prices in pesos to cover the devaluation,'' he says.

Beyond this uncertainty, however, he is still optimistic that Mexico will be a big market for his ties. ``This is only a pothole on a long road,'' he says.