Northward, Ho!

The new trade agreement between the United States and Canada could touch off a small-business export boom

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Good news seldom makes splashy headlines, so it's not surprising that one of the most hopeful business developments in years is unfolding quietly. The U.S.-Canada Free Trade Agreement has been almost ignored amid the political firestorm over the trade bill. Yet the trade agreement with Canada would create a $5-trillion North American free-trade zone, which would benefit small companies in a very big way.

That's certainly how it looks to Bill Stuht, vice-president of international sales and marketing at Stimson Lane Wine & Spirits Ltd., a $34-million owner of vineyards in Washington State and California. The company owns 3,000 acres of vineyards in Washington's Columbia Valley and is the state's largest producer of premium table wines. Chateau Ste. Michelle, one of the company's labels, ships 500,000 cases of wine each year, some of which goes to Europe and the Far East. But it has precious little trade with Canada, although it's right next door. The reason: stiff Canadian protection of its own wine industry.

With markups as high as 66% in Ontario, to take just one province, a bottle of blush wine from Columbia Crest -- another of Stimson Lane's labels -- that retails for $6.49 in the United States can cost more than $12 in Canada. "You really have to be a wine lover to pay those premiums," says Stuht, an enthusiastic backer of the free-trade agreement. "If these high tariffs are eliminated, it will give all good American wines a great opportunity in Canada."

Across the country, other companies like Stimson Lane are already counting the profits as they gaze at our affluent northern neighbor, which offers a market the size of California. No doubt we'll all be hearing more about this historic pact as Congress and the Canadian Parliament take it up this summer. Ratification would dramatically increase the U.S.-Canada trading relationship, already the largest in the world.

Last year, transactions in goods and services were an estimated $156 billion -- with Canada piling up a $12-billion surplus in goods. U.S. trade with the Great Lakes province of Ontario alone is more than our trade with Japan, our second largest trading partner. Put another way, every year Canadians buy more U.S. goods than the entire European Community. All told, two-way traffic across our shared border provides employment for 2 million Americans and one-fifth of the Canadian work force.

Signed last January by President Reagan and Prime Minister Brian Mulroney, the agreement would phase in the North American trade area over 10 years, beginning January 1. As this relationship evolves, economists predict, it could increase the U.S. gross national product by as much as 1% -- or $45 billion -- and create as many as 750,000 jobs. It could drive up Canada's GNP by 5%. Choices would expand and prices would fall for consumers in both countries as Canada became the commercial equivalent of a 51st state. Proponents regard the agreement as a capstone in trade relations between the two countries, which date back to a reciprocity treaty in 1854 and include a landmark auto pact in 1965 that began duty-free trade in automotive products.

For starters, the pact would eliminate all tariffs -- some immediately, others in stages. Canadian tariffs average about 10%, twice as high as U.S. tariffs and among the highest in the industrialized world. On many categories of products, they run far more: 25% on clothing, 20% on certain carpets, and up to 22% on plastics. Ice cream faces a 15% tariff.

It would also, for the first time in an international agreement, guarantee unimpeded service transactions in some 150 categories. In industries ranging from tourism and telecommunications to insurance and management consulting, Americans and Canadians working in one another's countries would receive "national treatment." That means Canada, for instance, would apply the same rules to a U.S. engineering and architecture firm operating there as it would to its own companies. Further, each country would pledge to refrain from erecting nontariff barriers in the future.

Moreover, the agreement might provide the kind of leverage required to open markets in other countries. "It's just another way of accomplishing what we are trying to do in exhorting the Japanese to lower their trade barriers," explains Gail Harrison, executive director of the American Coalition for Trade Expansion with Canada (ACTE/CAN). "It says, 'Look, if you don't want free trade, fine. We'll have free trade with Canada, and its products instead of yours can come in here duty-free."

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