Trade without borders
Ted Hudson momentarily postponed a reporter’s questions so he could send off an important fax.
“That’s on its way to Canada,” he said, watching the paper feed into the machine.
As operations manager at Cyclops Industries in South Charleston, Hudson is very familiar with business north of the border.
“We’ve been exporting for quite a long time, but in the past five years, the Canada market has really pumped up for us,” said Hudson, who’s been with the company 31 years.
Cyclops, a five-employee shop near the Dow Chemical plant, produces custom-made safety sight glasses, multilayer circles of laminated glass built inside steel bindings. The glasses are used primarily in the chemical industry, allowing technicians to see chemical reactions going on inside pipelines or pressure vessels.
“Without Canada, we’d still be afloat, but it would not help matters at all,” Hudson said. “Because just like everybody else in this valley, our business has been slow.”
A few years after the North American Free Trade Agreement was passed, Cyclops contracted with a Canadian factory representative who shops its sight glasses to companies across the provinces.
NAFTA, which will reach its 10-year anniversary on Jan. 1, dropped or phased out tariffs on cross-border freight between the United States, Canada and Mexico.
For many years, Canada has imported more West Virginia commodities than any other nation. NAFTA (and its precursor, the 1989 Canada-U.S. Free Trade Agreement) solidified that status.
In 1993, the year before NAFTA took effect, West Virginia sent $258.2 million worth of commodities to Canada. Last year that number was $738.6 million, a 186 percent increase.
Coal, chemicals and chemical products are, by far, the Mountain State’s leading exports. But even though Canada is consuming more West Virginia goods than ever before, jobs in the coal and chemical industries have been slashed during the decade of NAFTA.
According to a report published in 2000 for the Canadian Centre for Policy Alternatives, trade and investment increased dramatically in Canada during the years since the first Canada-U.S. agreement was signed. But per capita income declined.
“Canada has become a noticeably more unequal society in the free trade era,” researcher Bruce Campbell wrote. “Real incomes declined for the large majority of Canadians in the 1990s; they increased only for the top fifth.”
In West Virginia, exports to Canada support about 3,700 jobs, according to The Trade Partnership, a Washington, D.C., consulting firm dedicated to free trade.
Canada has also taken jobs from West Virginia. While Mexico gets most of the blame for luring companies with the promise of low wages, workers from EIMCO, a Bluefield coal mining equipment company, filed for trade-related unemployment benefits last year after the company shifted production to Canada.
The United States had a trade deficit of $35.5 billion with Canada as of August, meaning the United States imported $35.5 billion more from Canada than it exported there.
Looking strictly at surface freight data (air and water shipment data is unavailable), West Virginia has a slightly positive trade balance with Canada and Mexico.
Other than coal and chemicals, the state, for instance, shipped $2.2 million worth of electrical machinery to Canada last year. The same goes for $2 million in the aircraft/spacecraft category, $2.3 million worth of live animals and $6.8 million in glass and glassware.
It is in these small- to medium-sized markets that Stephen Spence finds opportunity for West Virginia exports.
Spence, the director of the state Development Office’s international division, helps companies tap into the international market by organizing trade shows, or through the worldwide contacts kept by the U.S. Export Assistance Center on Capitol Street.
“Dow and the big coal companies don’t need our help,” Spence said. But, as far as smaller businesses go, “I think we’re just scratching the surface. Ninety-six percent of the world’s consumers live outside of the U.S.”
Spence acknowledges there is a downside to trade agreements such as NAFTA: Factories relocating to Mexico and American-made products being replaced with cheaper imports.
“But it also opens up their markets to us, and we have to try to take advantage of the benefits,” he said.
Few West Virginia business leaders know about the ups and downs of NAFTA better than Beri Fox, president of Marble King in Paden City.
“For us, NAFTA certainly opened up opportunities in the Canadian market,” Fox said. “We have seen a huge increase in our sales to Canada, and it’s certainly easier getting our products across the border. It reduced shipping time and the time they were held at the border considerably.”
In part because of the wide- open Canadian market, Marble King, a 54-year-old family-owned business, is working 365 days a year and producing 1 million marbles a day. It keeps 38 people employed at the Tyler County plant.
But there’s a down side to the Marble King story.
“NAFTA opened up the same opportunities for the factories in Mexico and allowed them to bring large volumes of glass marbles into the U.S.,” Fox said. “The Mexican marbles are much cheaper and have become much more readily available in this country.”
The huge gains Marble King made in the Canadian market have been erased, and then some, by Mexican competition.
“The hurt is more substantial; the losses more substantial than the benefits,” Fox said.
There is nothing to stop Mexican marble makers from entering the Canadian market and undercutting Marble King that way. That’s what NAFTA is all about — no trade restrictions among the three nations. Goods, made in the cheapest manner possible, flow freely, driving down prices for consumers.
Fox doesn’t think her Canadian customers will jump ship. A certain amount of loyalty has been built, she said, and the Mexican factories are doing their business by way of the chain stores, the big-volume buyers, “the Wal-Marts of the world.”
At Cyclops Industries, company President Kim Mack keeps a colorful world map on the wall. Canada is not its only export destination, but it is by far the best.
Mack’s grandfather founded the company 45 years ago after his job at Union Carbide allowed him to witness some dangerous blowouts among the glass portals inside the plant.
He patented the layered-and-laminated technique still used by Cyclops today and went into business on Charleston’s West Side. The company moved to South Charleston in the late 1960s.
In the old days, the domestic market was enough to support the business. But that won’t cut it in the 21st century.
When Mack’s father took over the business, he added a few Canadian provinces to Cyclops’ target sales area. When Mack took over in 1999, she followed his lead and added another few provinces.
“Between 1999 and 2000, our sales to Canada were up 45 percent, but our biggest increase came between 2001 and 2002, when we were up 69 percent,” Mack said.
Companies that build chemical tanks and other vessels in Canada, then export them to the United States, are still turning to Cyclops for the sight glasses, she said.
This year, however, Canadian sales are down 53 percent, a concern for Cyclops considering how important the Canadian market has become to the small business.
NAFTA ties national economies together — for better or worse, critics point out.
“[Canada and Mexico’s] economies have now become extremely dependent on the capacity of U.S. consumers to continue to spend in excess of their incomes,” according to the Economic Policy Institute, a nonprofit, nonpartisan think tank that has studied NAFTA extensively.
“[Canadian] trade has become more concentrated with the U.S. — from 74 to 85 percent of exports — and less concentrated with the rest of the world,” Campbell, the Canadian Centre for Policy Alternatives researcher, wrote in 2000.
International economist Robert Scott, who is preparing to release his study, “NAFTA at 10,” for the Economic Policy Institute, said he worries not only for the United States, but also for other nations entering into free-trade agreements with the United States.
The Bush administration wants to expand the North American free-trade zone, turning it into the Free Trade Area of the Americas, which would include the entire Western Hemisphere. But some nations, such as Brazil, are balking.
Trade leaders from the United States and the affected nations are meeting this week in Miami to try to hash out differences. Brazil wants more flexibility on agriculture subsidies and anti-dumping tariffs employed to protect U.S. farmers.
As a result, U.S. citrus, beef, soybean and sugar cane growers are watching the situation closely, hoping they won’t be overrun by cheaper imports from the south, much the way the U.S. garment industry has suffered under NAFTA.
“I think we’ve really taken the wrong path in globalization, and I’m really concerned these trade agreements will be bad for the countries we’re targeting,” Scott said. “It’s a race to the bottom for wages and incomes.”
To contact staff writer Robert J. Byers, use e-mail or call 348-1236.