BUSINESS/ECONOMY

Storm clouds over free trade

WILLIAM LOWTHER April 4 1988
BUSINESS/ECONOMY

Storm clouds over free trade

WILLIAM LOWTHER April 4 1988

New relief for the rag trade

BUSINESS/ECONOMY

There were no easy choices. Ever since Canada and the United States reached a free trade agreement last October, Canadian clothing manufac-turers have argued that they would need lower tariffs on imported fabrics in or der to compete against a flood of cheap er U.S. products. But the Canadian tex tile industry, concerned about an influx of foreign fabrics, opposed any conces sions for the clothing makers. Last week Finance Minister Michael Wilson finally announced a three-part tariff-relief package-composed of reduced levies and tariff rebates worth an estimated $63 million annually to apparel manu facturers. The measures amounted to about $140 million less than the man ufacturers had originally discussed with Ottawa, and textile producers de nounced the program. But the clothing makers said that they are satisfied with Ottawa's new policy. Said Peter Nygard, chairman of Toronto-based Nygard In ternational Inc., one of Canada's largest clothing manufacturers: "This is a

whole new lease on life.”

Before Wilson’s announcement, the clothing manufacturers had insisted that they had been essentially left out of the free trade agreement because they would be subject to U.S. quotas on garments produced from non-North American fabric. According to Nygard, 40 per cent of the fabric that Canadian manufacturers use is imported from outside North America and therefore would not qualify for duty-free entry to the United States under free trade. In response, Ottawa proposed a duty-remission program that would have refunded tariffs paid by Canadian clothing makers on imported fabrics. But opposition from the textile industry, which anticipated increased competition from foreign fabric manufacturers, forced Ottawa to drop that plan. Last week’s announcement did little to appease the textile industry. Eric Barry, president of the Ottawa-based Canadian Textiles Institute, representing companies that produce cloth and fibres, noted that the domestic apparel industry is highly profitable

and benefits from both tariffs and quotas on imported clothing. But he added, “Here, they are trying to take away our protection.”

The new measures to reduce or eliminate tariffs on imported specialty textiles represent a fundamental shift away from the historically high Canadian tariffs, which have protected domestic fabric producers from foreign competition. The Canadian textile industry consists of about 1,070 firms, most of them located in Ontario and Quebec. They employ almost 64,000 people and annual sales exceed $5 billion. Tariffs on imported textiles currently average 18.2 per cent, according to the finance department, compared with average duties of 10.4 per cent in the United States. For Canadian clothing manufacturers, who employ 113,000 people in about 2,500 plants, primarily in Quebec, Ontario and Manitoba, the textile tariffs cost about $200 million annually.

The federal government now plans to reduce or eliminate tariffs on 13 different kinds of fabrics and yarns that it says are not manufactured in Canada. Wilson estimated that the savings to clothing manufacturers will be about $14 million annually. But some textile industry representatives say

that many of the products the government wants to allow into Canada dutyfree are in fact either manufactured domestically or closely resemble fabrics produced here. Said John Trickett, president of Montreal-based Consoltex Canada Inc.: “The list as it stands is flawed and unfair, to say the least.”

The second part of Wilson’s package is a new duty-remission program for such products as denim and undyed woven fabrics. The federal finance department estimates that clothing manufacturers will be eligible for tariff refunds of up to $33 million annually under the new program. Existing programs, which are being extended, will yield additional savings of about $16 million annually. From the point of view of the clothing manufacturers, the most important part of the package is Wilson’s promise to reduce Canadian textile tariffs to levels comparable to those of other industrialized

countries within a 10-year period beginning in 1990.

Reducing the tariffs will give Canadian clothing manufacturers raw material at competitive prices, according to Nygard and other industry leaders. Over the past 10 years domestic garment makers have concentrated on buying their fabrics internationally, and they now import 60 per cent of all the cloth they use. By comparison, American manufacturers import only

20 per cent of their fabric. Nygard insists that foreign fabrics add variety and distinctiveness to Canadian-made clothing. But during the free trade talks, the American textile industry lobbied for a rule prohibiting dutyfree entry of Canadian clothing manufactured from third-country fabrics. Instead, the negotiators agreed to impose a quota on such garments equivalent to six times the current level of Canadian exports. The negotiated compromise appears to give Canadian clothing manufacturers the ability to increase dramatically their exports to the United States. But according to Nygard, that concession is meaningless because the Canadian industry currently exports less than three per cent of its production to the United States, while the balance is sold domestically. 1~ U1U UU111e~LJUdi1y. On the other hand, said Nygard, under the free trade agreement now before the U.S. Congress for approval, American manufactur ers will be able to flood the Cana dian market with their garments duty-free because the majority of their products are made from do mestic fabrics. Nygard conceded that an influx of American cloth ing would offer Canadian consum ers broader selection and would

likely lower prices. The federal govern ment's decision to reduce tariffs on im ported fabrics should ensure that Cana dian garment makers can at least compete domestically. But they will not have unlimited access to the U.S. mar ket because of the quotas on clothing made from third-country fabrics. Said Gary Steiman, president of Winnipeg based Gemini Fashions of Canada Ltd.: "The whole tariff-reduction program is about reducing our costs to our Canadi an customers. We are fighting for sur vival in Canada."

Indeed, survival is a priority matter for both the textile and the apparel industries. For Canadian textile manufacturers, the free trade agreement means more intense competition from cheaper American products because Canada-U.S. duties will eventually be phased out, while Wilson’s tariff-reduction program announced last week will mean more foreign competition. The garment manufacturers also face an uphill battle. Nygard predicts that Canadian retailers may cut their purchases of domestic clothing by 25 per cent once duty-free American garments become available under free trade. For both the textile and apparel industries in Canada, the battle for survival is just beginning.

—D’ARCY JENISH