Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue 3 - Evidence - April 21, 2004
OTTAWA, Wednesday, April 21, 2004
The Standing Senate Committee on Banking, Trade and Commerce, to which was referred Bill C-21, to amend the Customs Tariff, met this day at 4:05 p.m. to give consideration to the bill.
Senator David Tkachuk (Deputy Chairman) in the Chair.
[English]
The Deputy Chairman: I should like to welcome to the Standing Senate Committee on Banking, Trade and Commerce the Honourable Denis Paradis, Minister of State for Financial Institutions. Along with Mr. Paradis is Patrick Halley, Senior Economist, International Trade and Policy Division, Emmy Verdun, Director, International Trade Policy Division and Martin Rivard, Policy Adviser to Mr. Paradis.
Minister, I believe you have a briefing for us on the bill, and we will proceed from there.
[Translation]
Mr. Denis Paradis, P.C., M.P., Minister of State (Financial Institutions): Thank you, Mr. Chairman for giving me the opportunity to appear before your committee today to discuss Bill C-21, an Act to amend the Customs Tariff. I will keep my remarks brief in order to leave time for questions.
The purpose of this bill is to extend two long-standing tariff programs for an additional 10 years, through to June 30, 2014. The General Preferential Tariff and the Least Developed Country Tariff provide preferential tariff treatments to exports from beneficiary countries. These programs have been in place for decades as part of Canada's commitment to help stimulate growth and reduce poverty in the developing world. Both programs are set to expire on June 30, 2004. That is why we need to extend them for ten years.
In my remarks today I will first provide some background to these programs and then explain why they should be extended. Implemented through the Customs Tariff, the GPT and the LDCT are the main tariff programs through which Canada provides benefits to developing and least developed countries.
The origin of these programs dates back to a 1968 United Nations Conference on Trade and Development where it was agreed that a system of tariff preferences should be implemented by industrialized countries for goods from the developing world.
This was in response to a growing recognition among industrialized countries that preferential tariff treatment for developing countries was a means of fostering their economic growth and well-being. Most industrialized countries, Canada included, agreed with the decision reached at the United Nations conference and implemented unilateral, non- discriminatory tariff preferences for goods from developing countries to help them increase their export earnings and stimulate economic growth.
Canada introduced its version of this tariff preference on July 1, 1974, for a 10-year period. Since then, the GPT has been extended twice — in 1984 and 1994 for further 10-year periods. The GPT applies to over 180 developing countries and territories and covers most items in the Customs Tariff except for supply-managed agricultural products, refined sugar and most textiles, apparel and footwear. Three-quarters of these products enter Canada duty free; the remainder have tariff rates lower than the Most Favoured Nation rates.
Canada subsequently introduced the LDCT in 1983 in an international effort to provide more generous preferential tariff treatment to goods from 48 of the world's poorest countries as defined by the United Nations, and based on criteria such as national income, health and education.
Consistent with a commitment made by Canada at the 2002 G8 Summit in Kananaskis, since January 2003, Canada has provided duty-free access under the LDCT to all imports from least developed countries, except for supply- managed agricultural products.
[English]
Mr. Chairman, I should now like to review the main reasons the GPT and the LDCT should be extended for a further period of 10 years.
To begin, extending these tariff programs will reaffirm the government's commitment to help improve the export capability and economic growth of developing and less developed countries — the main reason the tariffs were established in the first place. It should be noted that various studies by international organizations such as the International Monetary Fund and the World Bank, as well as the example of certain countries in Asia, support the principle that export expansion contributes to economic growth. As well, extending these programs will continue a long-standing international practice of providing preferential tariff treatment to goods from the world's poorer nations.
It is worth noting that all developed countries provide preferential access for goods from the developing world, and that some of them, including the United States, the European Union and Japan, have recently expanded their own tariff preferences program. At the same time, continuing these programs will send a positive message to beneficiary countries that view these programs as an important factor in their exporters' access to the Canadian market. A 10-year extension of these programs will help provide a predictable business environment to traders who use them, both in the developing world and in Canada.
This brings me to the benefits Canadians derive from these two programs, and in particular our domestic importers and consumers who benefit through lower-price finished goods or input costs. As a result of lower tariffs on goods from the developing world, Canadian consumers enjoy access to imported goods at competitive prices, and will continue to do so if these programs are extended. In addition, Canadian producers benefit from the reduced tariffs on inputs they import from the developing world and use in the production of goods in Canada, which ultimately increases the competitiveness of Canadian industry.
To emphasize the contribution these programs make to the Canadian economy, I should like to provide some statistics. In 2003, Canadian imports under the GPT and LDCT were valued at $9.7 billion and accounted for close to 3 per cent of total Canadian imports. Using this figure, the increased duty costs that Canadian importers and consumers would have incurred had these programs not existed would have been almost $273 million in 2003.
[Translation]
Mr. Chairman, this shows that these tariff programs contribute to the economic development of the beneficiary countries while also allowing Canadians to benefit.
I would also add that the GPT and the LDCT are important programs through which Canada provides international development assistance, complementary to our traditional aid programs, to help poorer countries, a strong moral concern of Canadians.
As I mentioned earlier, the reasons that originally led to the establishment of preferential tariff programs — that they would encourage an increase in exports from developing and least developed countries and hence stimulate economic growth — remain today.
The economies of many developing countries have still to make great strides if their citizens are to attain acceptable income levels as evidenced by the fact that an estimated 1.2 billion people — one-fifth of the world's population — live on less than U.S. $1 a day.
Bill C-21 constitutes one substantive measure Canada can take to continue to assist the developing world in achieving the goal of poverty reduction.
In considering this bill, I encourage Honourable Senators to keep in mind that: Bill C-21 will continue a long- standing international practice where Canada stands with all other major industrialized nations — the United States, Japan and the European Union — in supporting the developing world through preferential tariff programs.
Second, a 10-year extension of these programs is consistent with past practice, provides a predictable business environment to traders and reaffirms the government's long-term commitment to international development. While these programs' main intention is to assist developing and least developed countries' economic growth, Canadians also benefit from them through lower-priced imports.
Mr. Chairman, I should also mention that at the same time we are introducing these tariff measures, my colleague, the Minister of Industry, has announced some measures to assist the textile and apparel industry. These measures total some $60 million over three years and are designed to ensure that our textile and apparel industry receives certain benefits.
We would be pleased to answer any questions you may have.
[English]
The Deputy Chairman: Thank you, minister. I just wanted to mention, we have a vote, senators, at 5:30 p.m., as you know. The bells will probably ring at 5:15 p.m. We do want to finish the witnesses today, as some are from out of town. Most people are probably busier than senators, so we will temporarily adjourn at 5:20 p.m., and then we will reconvene immediately after the vote and continue on.
We will do the clause-by-clause tomorrow. If we are finished early, that will be even better. We have the Canadian Apparel Federation, A & R Dress Company, and COMO Diffusion Inc. as well as the minister today.
Senator Angus: Minister, I note that you are quite in favour of these provisions. The 10-year extension is what it is about; there is no substantive change in the tariff, the rates or any aspect. It is just an extension, is that correct?
Mr. Paradis: Yes, it is just an extension. As you can see, the bill is a short bill. There are only two sections, and it basically renews it for 10 years.
Senator Angus: I am sure everything is okay, and I am always happy to see a happy minister.
Obviously, this is part of a foreign aid type of legislation, is it not? There are different ways to help developing countries and, as you say, to fight poverty in these areas. This is part of Canada's humane outreach to these countries. Is that correct?
Mr. Paradis: Yes. You will recall that we were at the Kananaskis Summit when we put Africa development on the list.
Senator Angus: Mr. Chrétien was very much in favour of this.
Mr. Paradis: We put Africa top of the list. It was announced in Kananaskis that for all those poor countries Canada would accept their goods and services free of tax, free of quotas — free of everything — to help build up an economy.
Senator Angus: I think that is very noble and honourable. It is difficult to argue. If I understood your comments correctly, this affects only 3 per cent of our total imports. Am I correct?
Mr. Paradis: Yes.
Senator Angus: In respect of our overall, although billions of dollars sounds like a big number, more than a billion dollars goes across our border with the United States every minute. Therefore, in the big picture, this is a small amount of goods or produce, is that right?
Mr. Paradis: Yes. It is 3 per cent of total Canadian imports, which is valued at $9.7 billion.
Senator Angus: That was in 2003. I take it that the projections are along the same lines for this year?
Mr. Paradis: As a comparison, the exchange that we have with the United States is $2 billion every day.
Senator Angus: I have read all the materials and it seems that everyone that is coming here is in favour. However, we are always interested to be sure you have not had any opposition to this tariff. Have you or your officials received any opposition that we should know about?
Mr. Paradis: When we introduced it, we had been working closely with the apparel and textile industries to find ways to help. I mentioned it at the end of my presentation that Minister Robillard put up a $60-million package that would be divided equally between apparels and textiles to help our Canadian industry. It is good too help others while we help ourselves as well.
Senator Angus: This is what I was getting at. I am aware of that industry. It is quite large in that same province where you and Minister Robillard are from as well as the province I am from. These people do not give anything away for nothing, so I wondered what the counterpart for the industry in Canada had to have them cooperate. That is at $60 million.
Mr. Paradis: Yes, $60 million over three years. That package was announced when we introduced another 10 years of the two programs.
Senator Angus: In consideration of that kind of subvention, they are not opposing this tariff.
Mr. Paradis: I expect you will be hearing from people in the industry. I think that they can express themselves.
Ms. Emmy Verdun, Director, International Trade Policy Division, Department of Finance: I would like to clarify that the GPT does not give preferences for textile and apparel inputs. It is only the Least Developed Country Tariff, the LDCT, which includes the 48 countries, so the larger program does not give any preferences to textiles and apparel.
Senator Angus: My point is that normally when the minister comes forward as enthusiastically as you have, he asks his officials what the pros and cons are and whether there has been any negative feedback. I thought the easiest way for me to find out were to ask you. Was there any opposition to this and if so what is the downside, if any?
Ms. Verdun: We have not heard any opposition from related stakeholders or industries. As Mr. Paradis indicated, there have been concerns expressed about the Least Developed Country Tariff by the textile and apparel industry and you will be hearing from them later on. Mr. Paradis explained the assistance package that has been announced recently.
Additionally, there is a safeguard mechanism that the industry could use if it felt that imports from the least developed countries were threatening the Canadian industry and today that mechanism has not been used. It is available but it has not yet been used.
Senator Angus: Are there any other negatives? When we do something like this, which is a little bit counter to our general philosophy of free trade, what exactly —
Ms. Verdun: This is free trade.
Senator Angus: This is freer trade. You usually know what the negatives are. I understand there are some in the textile industries. Are there any other negatives?
Ms. Verdun: Those are the only industries that have raised concerns with this program.
Senator Angus: Is there a debate or is this a ``no-brainer''?
Mr. Paradis: I have not heard any kind of a debate there. The main concerns expressed were by the textile and apparel industry. There are many people working in those sectors in Canada, so that is why we have also put up separate programs from industry to help the industry there.
Senator Angus: Thank you very much.
[Translation]
Senator Massicotte: I would like to ask you two questions. This bill has been in place for 30 years, so why would we give preference to countries that are already very competitive compared to us, even if the amounts are not significant? What assurance can you offer that a full review of the entire customs and preferential tariff system will be carried out? And when will this happen?
Mr. Paradis: We are not the only country with this preferential tariff, there is also the United States, the European Union and many other countries. With respect to the first section on the GPT, the reason is that we want to help developing countries. Our objective at this point is to renew the tariffs under the two programs for ten years.
[English]
Do we have any kind of a revision that is scheduled about that?
Ms. Verdun: As Mr. Paradis said the plan is to renew the programs as they are now. The issue of looking at country coverage and product coverage is not been looked at now but it is something that could be done by the government at any time and that review would not require legislation.
The last time there was such a major review was after the conclusion of the Uruguay Round of WTO negotiations. It would certainly be a logical time to do such a review after the current round of WTO negotiations concludes. Initially, we thought that would happen in 2005, and that looks as if that may extend. The negotiations may be extended for some period, so if the government decides to review the country coverage and the product coverage, it can be done. We do not have anything scheduled now, but certainly the issue of some of the developing countries, that you have mentioned, has been raised as one of the things that would need to be looked at.
In respect of the programs as they now stand under the GPT, it is up to individual countries to decide which developing countries are eligible. There the WTO does not specify which must be eligible. Therefore, it would be up to the government to review that at some time to see if it is still satisfied with the list of countries that are covered.
Senator Massicotte: Therefore, while Europe and many developed parts of the world have adopted this program, I understand the inclusion of countries under the attached schedules is based on a country-by-country decision. Is that accurate?
Ms. Verdun: That is correct.
Senator Massicotte: Should Canada decide to remove a country from the list, there would be no international pressure to make the same list conform in all countries?
Ms. Verdun: It would not necessarily be the same list. However, you would to base a decision on some rational criteria. Otherwise, you could be challenged for having a discriminatory program. If, for example, you used criteria that looked at removing from the list some of the wealthier countries, based on some objective criteria, then that certainly is something that could be done. It could not be done on the basis of just the subjective decision; we do not like this country, we do like that country.
Senator Massicotte: When was last time we looked at the list and changed it?
Ms. Verdun: It was in the mid-1990s after the Uruguay round of WTO negotiations.
[Translation]
Mr. Paradis: Most of the poorest countries on the list are in Africa, but there are also some countries in other parts of the world, such as Bangladesh. This list is permanent, unless there are any changes.
Senator Massicotte: I have another question, which is not necessarily about the bill. Major Canadian cities, such as Montreal, have suffered job losses because of the significant changes to the customs subsidy program. What should we do to remain competitive? You mentioned a $60-million subsidy. Is that enough? Have we achieved a fair balance in the textile and garment industry?
Mr. Paradis: Industry representatives will certainly be making a presentation to your committee soon. There is no doubt that the higher the subsidies, the better it is for the industry. However, the government's role is to ensure the jobs are permanent, while enabling the textile and garment industry to continue to move forward in our country.
Simultaneously, it is important to help others. When I was responsible for the Africa portfolio, in a previous position, I visited several cotton-producing countries. During the Kananaskis meeting, the Government of Canada created a $500-million fund for Africa. The plan was made public. One hundred million dollars will be directed to these countries to create partnerships between Canada and African countries. We are able to help these countries. We must strike a balance by keeping Canadian jobs, by maintaining a working industry, and at the same time strive to help others escape misery and poverty. In Africa, poverty continues to increase, and life expectancy continues to decrease. On all other continents, the opposite is true. I think that Canadians' generosity will allow us to make progress on these fronts, all the while protecting our own industry in Canada.
Senator Massicotte: If that is the case, why are there so many newspaper articles which talk about the loss of thousands of jobs in this sector? Reference is made to the quota which is about to expire, particularly in the United States and in Europe. We have a program, a strategy and we accept the results?
Mr. Paradis: We have quite a vibrant and progressive industry in this field. Once again, it is a matter of striking a balance between the concern to help others, the concern to provide reasonably priced products to Canadian consumers, and a concern to keep jobs in Canada. With the plan that has been put forward by Ms. Robillard, we are trying to strike a balance between these different objectives.
[English]
Senator Fitzpatrick: Minister, you noted that all developed countries provide preferential access. Is that similar to what we provide? You also indicated that the European Union, Japan and the United States have extended theirs. Is that extension also for 10 years?
Ms. Verdun: All developed countries have programs of this kind although they are not identical. For example, we spoke earlier about the country coverage, which is not identical. As well, the product coverage and the amount of preference given may be somewhat different.
Canada's preferential tariff programs, when compared with the programs of the United States or of the European Union, are not identical, although they compare well.
Senator Fitzpatrick: ``They compare well'' means that they are better or worse?
Ms. Verdun: I was speaking in terms of the generosity of the tariff programs.
Senator Fitzpatrick: Do these recent extensions for a 10-year period run concurrent to our program or are they for shorter periods of time?
Ms. Verdun: The other industrialized countries have a similar approach to extensions in that they are for five or ten years. All of the industrialized countries have such programs in place.
Senator Fitzpatrick: How many industrialized countries would be in this category?
Ms. Verdun: All industrialized countries have extensions.
Senator Fitzpatrick: How many?
Ms. Verdun: The European Union, the United States, Japan, Australia, New Zealand.
Mr. Patrick Halley, Senior Economist, International Trade Policy Division, Department of Finance: I can finish the list: Norway and Switzerland are not members of the European Union, as well as some other countries, but they have similar programs.
Senator Fitzpatrick: Do you have any idea of the total value of this preference to these other developed countries? We indicate the 3 per cent figure for us but do we have any idea of the magnitude of what this assistance is?
Mr. Paradis: Do you mean for the other countries?
Senator Fitzpatrick: Yes, for countries to the undeveloped countries.
Ms. Verdun: We do not have the number but we could try to obtain that information for you.
Senator Fitzpatrick: It is an interesting point.
The Deputy Chairman: We are giving certain countries a competitive advantage over other countries by cutting or eliminating the tariff and giving certain countries preferential access to our market over other countries.
Mr. Paradis: Yes.
The Deputy Chairman: I am interested in the numbers or the products that are excluded from this. For example, footwear, marketing board products, apparel and textiles and others are excluded. What was the reason for excluding these products over others such as beef, bread or wine, for example?
Mr. Paradis: We have to distinguish between the two programs. First, the GPT covers the General Preferential Tariffs for most products but, as I mentioned, excludes dairy, poultry, eggs and those kinds of products.
The Deputy Chairman: Does the GPT also exclude footwear and textiles?
Mr. Paradis: It excludes refined sugars and most textiles, apparels and footwear.
The Deputy Chairman: What does the other bill exclude?
Mr. Paradis: The other bill excludes milk, chicken and eggs.
The Deputy Chairman: Those are Marketing Board products?
Mr. Paradis: Yes.
The Deputy Chairman: It does not exclude textiles.
Mr. Paradis: That is correct.
The Deputy Chairman: This is the bill for the poor countries.
Mr. Paradis: It is for the 48 poorer countries.
The Deputy Chairman: Those countries may have trouble making shoes.
Mr. Paradis: I would say that most of them are in Africa.
The Deputy Chairman: Where are most of the excluded Canadian products located? What part of the country are they from? Are they mostly from Ontario or Quebec? We do not have too many marketing boards in Saskatchewan.
Mr. Paradis: Marketing boards for milk are biggest in Quebec and Ontario.
The Deputy Chairman: It is a matter of supply management. Where are most of the textiles located in Canada?
Mr. Paradis: Quebec is very important for textiles, as is Ontario.
The Deputy Chairman: Where would footwear be biggest?
Mr. Paradis: I do not know.
Ms. Verdun: There is not a great deal of footwear production in Canada but I believe most of it would be in Ontario and Quebec.
The Deputy Chairman: Why were these particular products protected as opposed to other products?
Ms. Verdun: The domestic tariff on those products is like the tariff that applies to imports from other countries, for example from Europe. The products mentioned are the ones for which the most favoured nation, MFN, tariff is also higher. That is because the domestic producers in this country have requested that they continue to receive tariff protection from imports, particularly from countries where the wage rates are a great deal lower than Canada's wage rates.
The Deputy Chairman: Would not everyone want that?
Ms. Verdun: No. Some sectors are quite willing and able to compete, partly because labour rates, for example, are not an important factor in their production. It may be because in negotiating either bilaterally or multilaterally, we have reduced Canadian tariffs in return for market access to those other markets.
In many sectors in Canada — auto manufacturing is a good example — most of our trade is with the United States. Most of the trade is under the NAFTA and most of it is at a zero rate of tariff. You have to look at the whole of the trade and production pictures.
The Deputy Chairman: I am not a trade expert like Senator Kelleher and others at this table. However, was there not a conference last year where the poorest nations — many of which would be on this list — expressed concern that they did not have access to our markets? In other words, we are trying to help them but we are not trying to help them, because we are excluding them from our market by the protection of products that are supply managed. Was not that a big issue at the last GATT rounds?
Ms. Verdun: You are talking about the current WTO.
The Deputy Chairman: Yes, on agriculture, which is very dear to my heart, as I come from Saskatchewan.
Ms. Verdun: Certainly agriculture is one of the key issues currently under negotiation in the WTO. The issues with respect to agriculture go much beyond simple tariff rates. One of the biggest stumbling blocks in the agriculture negotiations has been the issue of subsidies, both for domestic production and for exports. That is the big issue.
With the Least Developed Country Tariff, Canada has removed all tariffs except for those supply-managed goods that we have talked about. For developing countries in general, one of the big hurdles in trying to get access to a market like Canada's is not just the tariffs but in fact meeting the health and sanitary standards.
The Deputy Chairman: That would include footwear and textiles?
Ms. Verdun: We do import quite a bit of agricultural products from the developing countries, but they tend to be products such as coffee and cocoa, and tropical fruits, for example, which grow in those countries and for which they are able to meet the sanitary and health standards. For things such as milk and fresh meat, the standards are much higher, and that is more of a problem than the tariff.
The Deputy Chairman: That is why beef is not on this list?
Ms. Verdun: Yes. They have to meet the health and sanitary standards.
The Deputy Chairman: I did not mean to be argumentative. I just noticed it. It is so conveniently located geographically where preferential rates apply to products over the rest of the country. Perhaps that might be part of our review the next time we deal with this issue.
Senator Kelleher: I would like to make a few comments.
As a former trade minister, I am somewhat acquainted with tariffs and what this is attempting to achieve. I think this is good legislation. This is something we have been trying to do for a long time. For example, Canada and the United States entered into a special type of treaty known as the CARICOM Treaty with the Caribbean countries. We reduced tariffs on all goods imported from those countries. It affects over 90 per cent of the countries there. We were trying to encourage people to set up some form of a secondary industry.
There is another benefit to this. The biggest complaint we hear from these least developed countries is, ``You want us to buy goods from you, but we do not have any money because you put tariffs on all the goods we produce. We have nothing to sell, and therefore we have no money with which to buy anything from you.''
This is not exactly all wondrous and charitable on our side. We are looking to derive a benefit from this as well. From what I can see, the program has been well managed. It is something that Canada has been trying to do to help less developed countries.
This type of legislation cuts across all political lines. It is not a political thing; it is an economic thing. I am personally happy to support it. If I thought there had been a lot of skulduggery going on with this program, I would be the first to raise the alarm, but there has not. This is something that we must do. God knows we do not do very much in this area of the world.
We keep out milk, chicken and eggs mainly because those countries cannot meet our health and safety standards. Therefore, we are dealing primarily with textiles, which is a pretty simple thing to regulate.
This is good legislation and I recommend that we approve it.
Senator Harb: I have questions about the tariff rate on these programs under the WTO schedule. What would the rate be for January 1, 2005?
Ms. Verdun: Are you referring to the removal of the quotas as of January 1?
Senator Harb: Yes.
Ms. Verdun: The quotas currently in place on textiles and apparel will come off as of January 1, 2005. That applies to all WTO countries because it was negotiated as part of the last round of negotiations. That applies not only to Canada but to all the other countries as well, and that is completely apart from this program. It is something to which we agreed.
Senator Harb: If we were to compare the current rate, what we are offering to these developing countries versus others? What would the differential be in terms of rate?
Ms. Verdun: It varies to a certain extent by product. As I said, for the LDCT, apart from the supply-managed good, the rate is zero. For the GPT, which applies to the other developing countries, for three quarters it is zero and for the remaining the preference is roughly half. Therefore, the average rate for the remaining quarter for goods coming in on those imports would be 2.8 per cent. If the goods are not under that program, it is 1.3 per cent, so it is roughly a 50 per cent preference. However, that really depends on the good. If the trade pattern were to change, you might see a different pattern in the preference.
Senator Harb: In any event, we are not talking big numbers here. We are talking about less than 3 per cent of our trade. In terms of the actual figures, it will not shake the economy backward or forward.
Since we introduced the measures in January concerning the least developed countries, have we compiled any statistics to find out how much trade we received from those countries? Has that helped them to sell more goods in Canada? Do we have any figures on that?
Mr. Paradis: I do not know if we have. I would like to add that after we announced this we had meetings with leaders in various African countries. They were not aware of this so we had to publicize our decision so that the least developed countries would be aware that we are accepting their goods and services with no duties or taxes.
Ms. Verdun: In 2002, the imports under the LDCT program were $170 million, and in 2003 they went up to $408 million.
Senator Harb: What about in 2004?
Ms. Verdun: I do not think we have the first quarter data yet.
Senator Harb: That is where you really can measure. The previous year they would have set their quota with their suppliers and had the channel distribution and capacity issues, so we would not be able measure the impact, in a sense.
Ms. Verdun: We have been tracking what is happening in textiles and apparel. We have found that the rate of increase has been fairly high, but on a very small base.
Senator Harb: We will hear later on from the industry representatives telling us that some element of what we are doing is pretty good. However they may find difficulties with some other elements. Some of them will suggest that we apply the measures in a systematic way because they do not want to be put at a disadvantage. For example, a country who may buy materials from country A, bring them into Canada, put value-added on them and sell them to the Americans, must pay tax on the raw materials they bring in. If that very same raw material were to go to country B or C and one of those least developed countries, they do not pay tax on it. They have the value-added in the least developed countries and then they bring it to Canada or elsewhere for that matter, therefore putting our manufacturers at a disadvantage.
Is that why you have put the adjustment measures in place in regard to trying to help them out, to upset that type of thing?
Mr. Paradis: We have to work on what we call the rules of origin also. I will give you a few more figures about the least developed countries. In 2003, Bangladesh accounted for about 75 per cent off all the imports. Cambodia accounted for 18 per cent and Haiti for 2.1 per cent. What we did for the least developed countries in Kananaskis, for example, does not yet show in the figures. There is a lot of work to raise awareness that we are open to their products.
Apparel was the main import under the LDCT with 91 per cent; textiles had 6.1 per cent, and some other products had smaller amounts. We still have work to do if we want to help those countries, especially in Africa, as I mentioned.
Senator Harb: The chair raised the question about cultural products. In fact, with the process of cultural product there is no problem; they can bring them in. I do not think there is any impediment on least developed countries bringing in that type of product. I think we are only dealing with eggs, chicken and dairy products, correct?
Mr. Paradis: Yes.
[Translation]
Senator Chaput: My question is a follow-up to the question asked by my colleague Senator Harb. The fact is that Canada has a duty to help developing countries. However, here in Canada, some people, children and single-parent families, live in poverty. Often, these families and these people run small businesses, sometimes right out of their own homes.
Is there some method that would allow us to analyze the effects of assistance given to developing countries on less- privileged Canadians?
While encouraging development in these countries, we must also continue to support our own country's economy. Otherwise, the day will come when we can no longer provide such generous assistance to these poor countries.
Do you have some sort of monitoring system in place to reconcile these two priorities?
Mr. Paradis: What is important is to ensure a balance between consumer prices, Canadian jobs and assistance given to less-developed countries. We must balance these three factors.
With this in mind, I had the opportunity to visit some clothing manufacturers and I noticed that workers, who come from different communities, were unionized. This observation was comforting, as there is a common impression that factory workers in large corporations are often not well treated.
We must find a way to ensure that Canadian consumers get the best prices possible and, at the same time, help developing countries. This gave rise to the two tariff programs as well as a program unveiled by Industry Canada to provide relief to the textile and clothing sector.
However, I do not think we have specific data on the level of poverty and its correlation to the level of imports.
Senator Chaput: So there are not any statistics on the loss of jobs for subcontractors in Canada, for small businesses, since the implementation of this assistance program?
Mr. Paradis: When we opened our doors to less-developed countries — let us take the example of imports from Bangladesh — Canadian industry voiced some concerns with respect to the fact that the more inexpensive products we import, the more difficult it is to sustain employment, sales, and production in Canada. This is another reason why we have to get involved.
When we introduce tariffs on the one hand, we must, on the other hand, create assistance programs. One wonders, are these programs generous enough? Nonetheless, alongside this tariff policy, the $16-million assistance program for the clothing and textile industry, which is to be implemented over a period of three years, is certainly a step in the right direction to help these two sectors of our industry.
[English]
The Deputy Chairman: This assistance is the $60-million program you talked about?
Mr. Paradis: Yes.
The Deputy Chairman: Is this directly related to these two programs or is it related to other programs?
Mr. Paradis: It is about half and half. It is related to our Canadian industry. It will be about 50-50 for the apparel and textile industries, respectively.
For the apparel industry, this money should be used to reduce some tariffs when they import textiles from other countries. It is a continuation of a previous program for the textile industry, which had a certain amount previously. I do not remember the exact amount.
This includes $26.7 million for a textile production efficiency initiative, $6.5 million under the existing Canadian apparel and textile industry programs, and a tariff reduction with an approximate value of $26.7 million to the apparel industry over the next three years. It is about half and half between the two industries.
The Deputy Chairman: Do they get money for importing raw products? If they are importing linens and paying a tariff on it, do they get a subsidy to decrease the amount? How does that work? How do they get the cash?
Mr. Paradis: The money on the apparel side should be used to reduce some tariffs that are applicable currently, for example, on textiles that they import from elsewhere if those textiles are not available in Canada.
The other program for textiles is a continuation of an existing program for efficiency initiative production, a program that we had with Industry Canada in the past.
The Deputy Chairman: What is that?
Mr. Paradis: My understanding is that the goal of the program is to modernize the industry to make it more competitive.
The Deputy Chairman: Is it money for plants, for buying new equipment or tax breaks? Do you just write them a cheque?
Ms. Verdun: No, we do not just write cheques. Let me start with the tariff reduction part of the program, which was announced at the end of February, We are in the process of looking at how best to implement it. The details on how that will be implemented have not yet been announced, but we are working on it. Our expectation is that that will be implemented in the fall of this year.
In respect of the industry assistance part, as Minister Paradis indicated, the Canadian Apparel and Textiles Industry Program, CATIP, was put in place to help the apparel and textile industries. That had originally $33 million. Another $6.5 million has been added to that program to extend it. In addition, there is the textile efficiency program, which is aimed at helping textile firms become more efficient. It will not be going to capital expenditures, but it will help them become more efficient and will support other kinds of activities of those firms.
The Deputy Chairman: Such as what? You say there is a program. How do they access them? You mentioned efficiencies, and I want to know what they are. How does a company get a cheque in the mail?
Ms. Verdun: Industry Canada is responsible for administering that program. They have put on their Web site all the information about what things are eligible and what is not eligible.
The Deputy Chairman: Yet it has to do with efficiencies?
Ms. Verdun: Yes.
Senator Moore: Thank you, chairman, and thank you, guests, for being here. I have just one question. To what extent does the federal government monitor the conditions under which imports from developing and least developed countries are produced? For example, how do we monitor child labour, and what do we do about it?
Mr. Paradis: How do we monitor?
Senator Moore: How do we monitor the conditions under which some of these imports are produced in developing and least developed countries?
Ms. Verdun: The Canadian program does not impose conditions on the recipient countries. The LDCT is based on the United Nations list of the poorest countries. The one country that is not on that list is Myanmar, and that is because of human rights violations. In respect of the GPT, the countries are the 180 countries and customs territories that Canada has put on its list, and there are no conditions attached to that.
In terms of the conditions, the United Nations Committee on Trade and Development's original call for such programs in the mid-1970s was that such programs should be generalized, non-reciprocal and non-discriminatory. We have followed those principles. Some countries — such as the United States and the EU — do have conditions related to IP protection and protection of investors.
Senator Moore: Do we have any of those conditions?
Ms. Verdun: No, we do not. We use the normal WTO rules in terms of trade rules.
Senator Moore: When you say IP, do you mean intellectual property?
Ms. Verdun: Yes, intellectual property.
Senator Moore: That is a huge issue, and becoming larger as we go forward. Should we not be trying to do something to try to prevent pirating or unauthorized reproductions of intellectual materials?
Ms. Verdun: We do not attach additional conditions to this program, but we have the rules under the WTO — the Trade and Intellectual Property Agreement governs that. We do not impose additional conditions to these countries eligible for the trade preferences under the two programs.
Senator Moore: As a result of those agreements that you mentioned, we do not monitor those sorts of activities in these preferred countries?
Ms. Verdun: No, not through these programs. In respect of labour standards and so on, Canada works through other multilateral organizations, such as the International Labour Organization, ILO, and the United Nations and so on.
The Deputy Chairman: Thank you, minister and witnesses.
We have before us now our next panel of witnesses. Welcome, and please proceed.
Mr. Elliot Lifson, President, and Vice-Chair of Peerless Clothing Inc., Canadian Apparel Federation: Thank you for the opportunity to appear before your committee to outline the views of the Canadian Apparel Federation in regard to Bill C-21. We have distributed a written brief that contains several articles to which I will make reference.
I am president of the Canadian Apparel Federation. I have been in the apparel industry for over 30 years. I am also vice-chairman of Peerless Clothing Inc., the largest Canadian apparel manufacturer and the largest single facility in the world for the manufacturing of men's suits. We employ more than 3,000 people in our Montreal facility.
We will be followed by other members of the industry who will address the issue of remission orders that benefit certain segments of the apparel industry. I am joined by joined by Bob Kirke, executive director of the Canadian Apparel Federation.
As of 2002, more than 94,000 Canadians were employed in the apparel industry, which is the tenth largest manufacturing sector in Canada and the second largest in the province of Quebec. Tariff measures, such as those contained in Bill C-21, have a real and direct effect on the apparel industry. Consequently, the renewal of the LDCT and GPT tariff must be accompanied by other measures to ensure that there remains a strong and viable apparel industry in Canada. Our industry needs duty-free access to inputs, particularly fabrics used to make apparel in Canada. In my recommendations, I will outline simple, straightforward mechanisms to accomplish this goal.
I would like to take a moment to provide some background on our industry. Our industry serves two purposes. The first is economic, providing jobs for both entry level and highly skilled technical and management personnel. The second is social. We provide entry-level positions for new entrants to the Canadian labour force, and we play an important role in socializing new immigrants.
These contributions to the economy were underlined in an opinion piece I wrote in the March 24, 2000 edition of the National Post, a copy of which is attached as Schedule I to our brief.
Many Canadian firms have become market leaders and successful exporters over the past decade, making major inroads into the U.S. market in particular. The industry currently exports approximately $3 billion in apparel per year to the United States alone. Despite our success, the Canadian apparel industry faces immense pressures and challenges. Some of those are described in an April 10 article in La Presse and an April 15 article in Les Affaires, copies of which are attached as Schedules II and III of our brief.
Some of the pressures and challenges faced by the industry are driven by competition in the market place while others are matters of government policy, including the issues before the committee in the form of Bill C-21.
Last year, the Government of Canada amended LDCT reducing duties on apparel imported from LDCTs from approximately 18.5 per cent to zero. Canada also removed quota restrictions on garments made in these countries. The effect of the complete duty and quota removal was immediate and significant. Apparel imports from major LDCTs grew rapidly in 2003. Imports from Cambodia increased 328 per cent and imports from Bangladesh 115 per cent and, as you heard before, it only affected apparel. Ninety-one per cent affected the apparel industry. The textile industry is not present here today; we are all apparel industry.
The effect on the Canadian apparel manufacturers was clear and was underlined in an article in the April 16 edition of The Globe and Mail report, a copy of which is attached as Schedule IV. As was stated in the articles, companies closed or moved some or all of their production offshore in a dramatic fashion during 2003. This resulted in a loss of 10,000 jobs in the apparel industry.
The reasons for these adverse effects are simple, and I will explain them. Under the provisions of the LDCT, manufacturers based in Bangladesh or another LDC can purchase fabric in China, cut and sew the garment in Bangladesh and ship it as a finished product to Canada duty- and quota-free, as indicated by Senator Harb. However, if a Canadian manufacturer wants to import fabric into this country to have that same garment sewn by Canadian employees, we have to pay between 12 and 16 per cent duty on the fabric alone.
There are many businessmen around this table. That does not make sense. On an annual basis, our industry pays over $110 million in duties on raw materials. Peerless Clothing is beginning to import programs we would never have considered two years ago. The government has sent us a message: Let us import the finished garment from Bangladesh instead of importing the fabric tariff free and making it here with Canadian employees, which is what we would like.
In addition, on January 1, 2005, all remaining quotas on imported apparel will be removed in accordance with Canada's WTO commitments. The result is that countries such as the People's Republic of China will no longer face limits on the volume of garments they can export to Canada. We expect a sharp and significant increase in imports of apparel from the PRC and many other countries that are restrained by quotas at the moment.
Extension of the LDCT and GPT tariffs cannot be done without making significant changes to other policies. I will focus on one simple and straightforward measure that the federation urges the committee to recommend to the government for immediate implementation: the immediate elimination of duties on fabric inputs used by the Canadian apparel industry to manufacture apparel in Canada with Canadian employees.
The reason we stress the issue of tariffs on raw materials is very simple. The single most important determinant of a garment's fashionability and market acceptance is the fabric from which it is made. The cost of the fabric can represent 50 per cent to 75 per cent of total input costs of an apparel manufacturer. The elimination of duties on imported fabrics allows Canadian apparel producers to be competitive domestically and in export markets.
Finally, the benefits of lower import duties are clear. Where duties have been eliminated, Canadian companies have taken full advantage of these opportunities and expanded production, employment and exports.
Wearing my other hat, I can give you the best example of that. There are 3,000 employees on Boulevard Pie IX in Montreal. Ninety per cent of our production goes to the United States, capturing a large share of the men's tailored clothing market, the toughest market in the world.
Tariff relief is also easy to implement. No legislation or regulatory amendment is needed to implement reductions in duties. At any time, the Minister of Finance can amend customs tariffs as appropriate. Just as the government took decisive action to reduce duties on LDCT imports in 2003, it can do the same for this industry now.
The tariff relief given to apparel imports from least developed countries amounted to approximately $100 million in 2003. That amount is roughly equal to that which we pay every year as an industry — $110 million on raw materials.
Domestic production of textiles used by the apparel industry is rapidly diminishing or non-existent in many cases. Many Canadian apparel manufacturers cannot source their fabric and other raw materials domestically. The high level of imported raw materials used by our industry demonstrates this. We are not asking for a handout; we are not asking for a subsidy. The Canadian apparel industry is simply asking the Canadian government to stop taxing the industry on the raw materials it needs.
We do note that the Canadian government has taken some action over the years in relation to tariffs on inputs. There is a process before the Canadian International Trade Tribunal whereby an apparel manufacturer can apply for duty relief on individual fabrics, one at a time. As you can imagine, the process is slow, cumbersome and costly, and we are in the fashion business.
To give you an example, we made an application in November of 2002. We had a hearing in November 2003 and received a judgment on February 11, 2004. Four ministers have to sign off on it and that has not been done as of today. If it was done today, I am not yet aware of it. You cannot conduct business this way, as the businessmen around this table understand.
Minister Robillard has announced that there will be a duty relief program of $9 million a year. That represents less than 10 per cent of our total tariffs of $110 million. We cannot live that way domestically. We are not for asking tariff barriers, only for tariff relief on our inputs so that we can survive.
In summary, the committee should urge the government to make the necessary industrial policy adjustments needed to allow the apparel industry to prosper in conjunction with the renewal of the GPT and LDCT tariffs. At the crux of the issue, the committee should recommend, as did the House of Commons Finance Committee, that import duties be eliminated on inputs used by Canadian apparel manufacturers to manufacture apparel in Canada. In the event that the committee believes that across-the-board relief raises questions, the committee should still recommend across-the- board tariff relief on inputs as the long-term objective and that immediate interim relief should be given in the amount of $27 million per year — not multiplied over three years. Even at this level, it would represent only one-quarter of what we pay. It is plain and simple and this is what we require.
In conclusion, in my Financial Post opinion piece, I said, and Mr. Bob Silver, of Western Glove Works in Winnipeg, also said, that the Canadian apparel industry produces more than just garments; it produces people. The industry's ability to do so into the future will depend on the actions of the government and on the positive advice and recommendations of everyone around this table. Thank you.
The Deputy Chairman: Thank you for that powerful presentation.
Mr. Rotchin, please proceed.
[Translation]
Mr. Randy Rotchin, President, A & R Dress Company Inc.: I would like to thank members of the committee for having invited me to speak today.
[English]
I am president of A & R Dress Company Inc. Founded in 1947 and based in Montreal, A&R has grown into one of the leading suppliers of private-label women's clothing in Canada. I am proud to say that we have won numerous awards for superior design and quality by most of Canada's major department and chain stores. I serve on the Board of Directors of the Apparel Manufacturers Institute of Quebec. I am also a member of the Canadian Apparel Federation's Tariff Preference Level Committee. I am part of an ad hoc group of about 140 apparel companies where beneficiaries of certain remission orders are scheduled to be terminated nine months from now. If it pleases the committee, I should indicate that I am joined by two distinguished men from John Forsyth Shirt Company in Toronto, Mr. Wendell Wilkinson, Vice-president of Operations, and Mr. Oliver Morante, Executive Vice-president, and Mr. Jack Lenet, Consultant, Milgram & Company Ltd., which is one of the oldest and largest customs brokerage houses in Canada and which represents about 30 remission holders.
On March 9 of this year, I had the honour to speak to the House of Commons Finance Committee on the subject of Bill C-21. During my testimony, I expressed support for the bill that proposes a ten-year extension of duty-free and quota-free access to the Canadian market for least developed countries. I also expressed concern that as tariff relief is extended to our competitors abroad, the situation for companies that choose to produce apparel domestically will become dire when $32 million of existing tariff relief in the form of duty remission is taken from us at the end of this year. Following my testimony and that of my colleagues who join me here today, the Commons Finance Committee submitted a unanimous, bipartisan report recommending the immediate extension of the current remission programs beyond December 31, 2004. It is my hope that this body will support the domestic apparel industry by endorsing the Commons committee recommendation.
Historically, most remission orders were introduced during the first Canada-U.S. free trade agreement, largely as compensation for extremely stringent rules of origin, which restricted effective market access into the US by Canadian apparel manufacturers. At that time, apparel manufacturers were instructed by the Department of Finance to seek solutions on a subsector-by-subsector basis and, whenever possible, to also seek the support of Canadian textile mills. Some manufacturing subsectors such as the domestic producers of pants were unable to achieve such support and were, therefore, excluded from securing remission by the Department of Finance.
Remission specifically targets the manufacturing-importer, an entity that retains design, marketing and some domestic production control in Canada while complementing these activities and products with off-shore production. All apparel stakeholders, including the Department of Finance, Industry Canada and the Department of Foreign Affairs and International Trade, currently agree that manufacturing-importers represent one of the most important and vital subsectors in today's trading environment.
The Deputy Chairman: I am sorry to interrupt, but we must return to the Chamber for a vote. We will continue when we return.
The committee suspended.
The sitting was resumed.
Senator Wilfred P. Moore (Acting Chairman) in the Chair.
The Acting Chairman: Please continue, Mr. Rotchin.
Mr. Rotchin: Thank you, Mr. Chairman.
Moreover, all apparel stakeholders also agree that the manufacturing-importer is one of the subsectors most likely to maintain employment in Canada. The role and benefits of remission orders are well documented and well understood.
As I mentioned earlier, remission orders provide approximately $32 million of tariff relief to the Canadian apparel sector annually. More importantly, remission orders provide an incentive to continue investing in Canadian talent and experience.
Requests to have remission orders extended have been granted in the past, along with a promise to recommend more substantial adjustment measures by January 1, 2000. This deadline came and went without any such recommendations or action.
There is currently an unwillingness to extend the remission orders that does not take into account the materially altered conditions in the sector, such as the extremely permissive rules of origin under Canada's LDCT program. Exports from Bangladesh have increased by 120 per cent so far this year and are expected to increase by over 200 per cent by year's end. According to the Minister of State for Finance, Canada's LDCT program has given approximately $273 million worth of duty relief to our competitors in least developed countries.
The effect of this situation on a company such as A & R Dress is that while we pay 16 per cent duties on raw material inputs, which will be transformed into finished garments by Canadian workers, the same finished garments made from the same raw materials enter Canada from LDCT-beneficiary countries duty-free and quota-free. The elimination of the remission program will cause A&R's duty costs to rise by 25 per cent overnight. This will result in an exponential increase in the disparity between our prices and those of our LDC competitors. In short, my company is about to experience the perfect storm — the elimination of a vital tariff relief program for A & R and the extension of quota-free and, in many cases, duty-free market access for our competitors.
There is wide agreement among stakeholders that the apparel sector as a whole requires a range of adjustment mechanisms immediately. This is due to the huge variety of needs and interests within the apparel sector. It has been stated that there is not one apparel sector but 15 or so specialized subsectors. The apparel industry produces many diverse commodities such as outerwear, suits, blouses, socks and dresses. It is further subdivided by men's, women's and children's categories, designer brands versus private labels, and is separated by a dizzying range of price points.
The extremely practical and immediately applicable solution of remission extension is also subject to a form of bias and discrimination by policy-makers who find remission to be inconsistent in that it helps some groups within the apparel sector but does not help others. This attitude tends to forget the origins of the subsectoral nature of the remission program as it was introduced by the Department of Finance. This negative policy response also tends to treat the apparel sector as a unified entity and not the 15 subsectors that manufacture apparel, just as outlined and explained. In other words, any potential trade tariff remedies will be subsectoral in their effect.
Current tariff policy recognizes the subsectoral nature of the apparel industry. Certain imported fabrics, for example, enter Canada duty-free if they are used in men's suits but are dutiable if they are used in women's suits. Should not common sense dictate that if a domestic source of fabric is not available for the production of men's suits, then it is also not available for the production of women's suits?
Finally, the policy community has failed to propose an alternative, or generic tariff remedy, that will impact on all parties equally. They have not proposed any comprehensive solutions that could be in place by the end of 2004 to help manufacturers prepare for quota elimination. Most importantly, if and when such a solution is proposed, $32 million of existing benefits will have to be ``netted out'' in light of the scheduled elimination of remission orders. This means that Minister Robillard's recently announced three-year $27-million program for the apparel industry will result in a net loss of nearly $300 million in existing tariff relief benefits over the course of the 10-year LDCT program.
The Remission Extension Coalition is not opposed to any solutions that may help anyone compete in today's environment. I would like to emphasize that we have a valid and reasonable solution in place; it simply has to be extended immediately. We cannot afford to wait. Time is of the essence. Procurement and employment decisions for next year are being made today.
We cannot understand how the government can give duty- and, in some cases, quota-free entry of goods into Canada from one hand and then take away an existing form of adjustment that helps Canadian manufacturers with the other hand. Therefore, we respectfully request your endorsement of the Commons Finance Committee's recommendation to have remission orders extended.
[Translation]
Mr. Paul Ostrov, Chief Executive Officer, COMO Diffusion Inc.: It is an honour for me to appear before you this afternoon.
[English]
I am honoured to have this opportunity to stand before this esteemed group of Canadians who unselfishly give of themselves for the benefit of Canadians. I am here to represent our industry and to explain the unique way in which companies such as ours have found magical ways to combine domestic manufacturing and Canadian talent with imports to compete on the world stage of apparel manufacturing.
Specifically, I am here to explain the need for the continuation of the duty remission program, which has been in place since the late 1980s and works. It works in various formats of our industry to offset many uncontrollable factors. Factors such as the oncoming elimination of quota at the end of this year and tariff leave to LDCT countries, will affect our ability to succeed. We support that relief. We simply want to ensure that while this relief is being provided, that that which was available to us over the past 15 years is not taken away. My message to senators, who are an important part of our government leadership, is to do the right thing and recommend the continuation of the indirect support to our industry through a remission format.
It is important to give you a better understanding of the running of a world-class apparel company, which survives by combining Canadian manufacturing and talent with importation to successfully penetrate the world stage. The antiquated image of women working on sewing machines row-upon-row is etched in the minds of many. Our industry has become much more than this ancient graphic image. Product is still critical, however, it is clearly insufficient as a means to grow and prosper to achieve global distribution.
I am proud to tell you we have achieved global distribution. I can show you a variety of products that we have produced in Victoriaville and Montreal regions over the past four or five months for JC Penney, Coles and Mervyn's. These shirts are for Continental Airlines and American Airlines. Everything is produced in Canada. I assure you that we could have produced each and every garment in Bangladesh.
We understand that the establishment of a world-class reputation based upon integrity and professionalism is the principal ingredient to gain the credibility needed to develop strategic partnerships with major retailers. When I talk about major retailers, I am speaking very proudly about JC Penney with sales of almost $20 billion a year, Coles, approximately half that size, and the Target Corporation. We have now penetrated Europe with CNA garments.
In a day when computer reports are the only barometer to measure success, our viability is dictated by the major retailers' interpretation of these results, which are black and white. How do we deliver? How do our products sell? How many quality problems exist? Each critical measurement is quantified constantly, and the report cards are constantly on the table.
It becomes a reflection of who are the people. In my case it is at the Como Fred David Group of Companies. We have other distinguished members of our industry, proudly representing their companies as well.
Electronic data interchange, EDI, is the buzzword that drives our operations. It enables companies like ours more than just communicate with major retailers. It is the cornerstone of being a strategic supplier. The sophistication of communication between our customers and us has reached new levels on an ongoing basis. It is expensive and more importantly, it requires many types of talented people to drive and propel the environment. The process requires expertise, education in specific domains, technical knowledge and experience. As a result, companies like ours employ people from every walk of life.
We have specialized computer MIS people. We have trained, educated, and specialized graphic designers to complement our design and pattern-making group. We have trained graduates from trade schools such as Marie Victorin and Lasalle colleges, and from Ryerson University. All of these institutions have bred excellent, talented Canadians to perform all of these specialized tasks. I have compiled for you brochures from all of these educational institutions. These brochures show specialized courses that are breeding wonderful Canadians that companies like ours are employing.
We are compelled to adapt continuously to changes that have initiated by companies such as JC Penny, Sears and Target. We have a group of college graduates directing the flow of information and our product to destinations with rapidity.
The new trend today is traffic management systems, TMS. These systems are another method retailers have used to transfer more costs to the manufacturer. This has placed more financial strain on companies like ours to develop more and more efficiencies. We have accomplished this with people — Canadians. Some are professionally educated and some are not. People are from every walk of life, but the bottom line is that we employ many, many people to do these tasks and to operate these systems, which are constantly changing.
We are proud of our success. Canadians are in fact competing solidly on the world stage now. We, the Como Fred Davis Group of Companies, are highly regarded as a competent maker and professional business operator as are our competitors in other parts of the industry in Canada. The duty remission program has enabled companies like ours to survive, build, prosper, and cope with an ever-changing environment which world-class retailers present to us every day.
We need every ounce of financial strength possible to be able to compete in this global economy. With quotas coming off at the end of this year, December 31, 2004, the challenges to companies like ours, which combine manufacture manufacturing with importing, will be even greater. There will be a flood of garments coming into the U.S. marketplace like never before.
It is important to understand that companies like ours, which sell in Canada, import goods into Canada and manufacture goods in Canada destined for the United States and Europe, must deal with all of the effects of this. The remedies and effect of providing assistance in the form of the LDCT is admirable. I as a Canadian support it. However, you must understand that we will be compelled to deal with a variety of factors at the end of this year such as that which the industry has never faced before. Many Third World countries will have their products flooding USA at lower cost than prevalent today.
This being said, the major retailers still want to deal with people like us. They want to deal with people with whom they can build a reliable relationship. This is not an overnight process. This is something that our organization has proudly built over a 10- or 15-year period. It is a series of well-planned, well-calculated steps of building the right team of professionals with the right team of soldiers. In Canada we have people at every level, and we need them all to perform all the tasks.
We need the support of the remission program to continue to employ Canadians in all walks of life. If you look at the pictures of our operation, which were distributed to all of you, you will see people in various jobs. You will see shippers, packers and computer technicians. You will see sophisticated college graduates troubling their minds hour a after hour trying to figure out how to get hundreds of thousands of units to the most sophisticated retailer the world has to offer. We have found ways to do this.
While you are providing this support to the least developed countries, do not forget about us Canadians, please. We need this duty remission program. We are making our planning right now for next December, January, and February. Frankly, we do not know what to do. We do not know what the rules of the game will be. We do not know what our financial environment will look like. That is no way to run a business. You esteemed businessmen and businesswomen who are sitting around this table understand full well that we have the right to know where we are going to stand.
This duty remission program can be extended by just changing one little number — the 2004 December 31 has to be changed to 2011. Give us the next seven years, while quotas are coming off, to be able to withstand the impact so that we can continue companies like ours as a major factor in distribution of apparel products to major retailers all over the world. Thank you very much.
Senator Angus: Gentlemen, I commend you for very lively, comprehensive and interesting presentations. It is nice that the staid old Banking Committee occasionally has a little life and action.
However, I think that you are mistaking us, with all due respect, for a committee of cabinet. I am very confused. Perhaps you can elucidate. I understand on the one hand that you support the bill. We are only here to consider Bill C- 21, either to agree on this extension for 10 or not.
I am getting the drift, and I am very edified. You heard my questioning of the minister. I asked him if the stakeholders had been consulted and if anyone had expressed opposition to the bill. The minister said that they had had meetings and discussions with people in the textile industry.
I am from Montreal. I understand your industry and how important it is to the economy — not only of Quebec but also to Canada.
It sounds as though you are saying that you are prepared to support this extension on the one hand, but as a quid pro quo, you want these remission orders addressed and dealt with as described by you people. Do I have it right?
Mr. Ostrov: You are 100 per cent right.
Senator Angus: You make the case well. If I were one of these ministers, I would be absolutely rushing to my pen to sign the remission papers.
Mr. Ostrov: There are the remission orders and there is tariff relief. There are two issues on the table.
Senator Angus: I want to get to it. As we discussed with Minister Paradis, who spoke partly on behalf of Minister Robillard, he alluded to a figure of $60 million. I think you mentioned $27 million, Mr. Ostrov.
Mr. Ostrov: Half textile, half apparel.
Senator Angus: Does that address your question?
Mr. Rotchin: No. We do not know what that is yet. It is just a vague promise.
Mr. Ostrov: Nobody knows.
Senator Angus: Mr. Chairman, as interesting as this is, I do not find this to have anything to do with the bill. The bill is either supported or it is not. If the government, in its wisdom, brought this bill before Parliament because it intends to do other things, that is great. I would love to discuss your industry all night but I do not think this has anything to do with the bill. Am I dreaming?
The Acting Chairman: Technically, you are probably correct but it is a wonderful opportunity to hear from these people. We have done so and they have made their points. I do not think it would have been proper for us to shut that down.
Mr. Lifson: We are asking for exactly what the house Finance Committee did. We are asking for the approval of the bill. In fact, at the first meeting, there was a shock that we were not there to raise up a stink. In reality, it is a global world.
We are asking for a level playing field for our industry. I am sure it is in your power to do exactly what the House Finance Committee did when they approved that input relief on product, textile inputs not made in this country, be given to domestic manufacturers. Then there was the issue on this side of the table about remission orders. The House Finance Committee approved both of these. We are just asking this body to do the same and to push the government.
Senator Angus: Mr. Lifson, I think I got it right.
We have to be a bit logical. Just so we understand it, I am not even in the governing party. I am one of these outcasts. Is it fair for me to conclude that if there were no valid or reasonable hope that you were going to get these two things, that you would be against the bill? I need to know that. I think you are against the bill.
Mr. Lifson: No, let us be fair. We are realistic. We would certainly not stand up and say that we do not want to help the African countries. However, in the last LDCT list, they included countries with infrastructure such as Bangladesh.
We are only asking this body — as we are all Canadians around this table — what do we do? By the way, I do have a hobby that I did not relate; I teach strategy at the McGill MBA program. Tomorrow night is my last class. I told them I would appear here. What would be our strategy? What do I tell the class? Close down my shop and put our 3,000 employees on the street and do everything offshore? No, we want to take our strategic competitive advantage.
Our competitive advantage is, first, innovation and design. Second, we can service the heck out of the customer with the technology, as Mr. Ostrov mentioned before, and we have certain price-value relationships that have to exist. Most important is our proximity to the U.S. market; China will never beat us on that. Geographically, we will be closer to the United States so transportation expenses are lower.
If you are going to take advantage of it, level the playing field. Do not tell us to bring in your product duty-free from Bangladesh, but if you want to make it — and we are doing it right here, right now in our company — the same fabric that we shipped from China to Bangladesh can come in as a finished trouser, duty-free and if we make that same trouser on Pie IX, we pay duty on the fabric. That is illogical. We are asking this esteemed body of businessmen to go along with the LCDT and the CPT because they are realistic, but level the playing field at the same time.
Senator Angus: Why would you support the preferential tariff? Would it be better to have no tariff on these goods from these countries?
Mr. Rotchin: In terms of the LDCT program, there are no tariffs on goods and there is no particular preference.
Senator Angus: Then it is zero already, if we extend that?
Mr. Rotchin: The minister talked about balance. We are saying that there must be balance between domestic policy and external policy, international trade policy. That is why we are here.
Senator Massicotte: We are both asking how we should deal with this issue. I would like to take this opportunity to educate myself a bit more about your concerns and interests. If nothing else we will be more educated to influence policy at later times.
I think I read in the Montreal newspapers — and please correct me if I am wrong — that your company, in particular, Mr. Lifson, is thinking of moving jobs outside the country because you could not compete relative to the situation. Does that deal specifically with the tariff situation to which you referred?
Mr. Lifson: We are saying that we will not move anything out because we do not want to lose the ability to domestically produce because there is an advantage. We are saying that, we will produce the lower price points — trousers et cetera — offshore so that we do not have to compete with the U.S. This means that we would not replace some of the workers that we lose by attrition.
Senator Massicotte: How many jobs would be that be?
Mr. Lifson: If it continues that way, we are predicting 10 per cent to 20 per cent of our work force, which would be between 300 and 600 within the next year or two.
Senator Massicotte: Should we remove the tariffs?
Mr. Lifson: Then we would maintain the jobs that we have in this country and probably increase them, because the proximity is a distinct advantage.
Senator Massicotte: If we removed tariffs on imported textiles?
Mr. Lifson: That would level the playing field.
Senator Massicotte: We would not lose those jobs?
Mr. Lifson: Correct. I can give you an example. When we went before the Canadian International Trade Tribunal, CITT, we were able, on soft-wool fabrics, to increase production in that entity itself by more than 50 per cent —that was last year, on soft-wool fabrics. These are products not made in this country. We would rather produce it here. We have the design staff, the innovation, and the technology. It is not easy to produce offshore, but we have to level the playing field. That is what we are asking.
If the playing field is not levelled, we have to protect the back end of our business. If tariffs are removed on inputs, certainly we will maintain the jobs in this country.
Senator Massicotte: Would you still out-source to cheaper countries?
Mr. Lifson: If we have to maintain the price value, we would increase business in the lower price points. We are competing against the rest of the world — not just Canadians — in the United States. We compete in the United States against world markets.
Senator Massicotte: You said that one of your products is business suits that you export to the United States. What percentage of revenues is business suits?
Mr. Lifson: Ninety per cent of production goes to the United States.
Senator Massicotte: What production in business suits?
Mr. Lifson: Business suits represent 60 per cent of business.
Senator Massicotte: Mr. Rotchin said that business suits have an exclusion for tariffs on textiles. If that is the case, you do not suffer.
Mr. Lifson: It is not just business suits. We are very focused. We make one product. We make a business suit and we market it three different ways: as a suit, as a sport coat by itself, or as a single pair of trousers. It is the same product.
Senator Massicotte: There are tariffs on that textile import?
Mr. Lifson: Yes, because they are not made here.
Mr. Rotchin: Mr. Lifson just referred to the CITT decision that gave him extended tariff relief for a particular woollen fabric.
Mr. Lifson: That was for superfine wools.
Mr. Rotchin: That is fine for the end user, being men. However, for women, I do not enjoy that tariff relief.
Senator Massicotte: Your brief says that for business suits, there is no tariff on textile imports. That is not accurate, then.
Mr. Rotchin: That is for women's business suits.
Senator Massicotte: For men's, there are no tariffs.
Mr. Rotchin: It is a particular fabric case. In the case of wool, for example, and that is the way the CITT works. That is the current tariff relief mechanism. You apply on an ad hoc basis. I happen to be in the fashion industry where, every 10 weeks, approximately there is a new season with new items. I do not want to speak for Mr. Lifson, but presumably his goods have some shelf life.
Senator Massicotte: Obviously we are hearing from the apparel industry, and that is who is here. We understand the argument, and it is very strong. I am against tariff in the generic sense.
The textile industry is not here. How many jobs would we be talking about if we removed tariffs on textile imports, and how many jobs would we lose in the textile industry according to their records or studies if we did remove those?
Mr. Bob Kirke, Executive Director, Canadian Apparel Federation: I cannot answer that entirely. The important point is that there are two different industries: the textile industry and the apparel industry. If you look at the total textile industry, a very small portion sells to the apparel industry. I have seen numbers as low as 6,000 jobs in total in terms of the textile industry as relates to apparel. They do not sell to us.
Companies like Peerless have gone before the Canadian International Trade Tribunal, and, as Mr. Lifson mentioned, it is an extremely long process of 15 to 18 months. He asked for fabrics for men's suits only because if he had to defend women's as well, it would have taken two years. You have to ask for a very specific fabric, but almost every application in front of the trade tribunal has succeeded. Those duties have been removed because the fabrics are not made here. That is the reality. We have a vastly consolidated textile industry, and we have an apparel industry that requires diversity in its fabrics, so they are running at cross-purposes.
The real problem is that we continue every year to pay $110 million in duties on our inputs that are imported. If we could buy it locally, we probably would.
The customs tariff has an historical legacy. We used to produce those fabrics, so there were those tariffs on imports, but we do not produce those fabrics any more in the way that meets the needs of the industry. That is the crux of the issue.
Mr. Lifson: I have a simple recommendation. We have a CITT tribunal where we have to go fabric by fabric. Eliminate all tariffs of all inputs. Put the burden of proof on the reverse. Let textile come back and say, ``Do not take it off this because we make it in this country.'' There is a limit to what they do. A lot of what textile produces is for industrial use. They do not provide a lot for our industry. Why kill what is left of this industry?
Senator Massicotte: How many jobs are in the textile industry?
Mr. Kirke: I think there are about 40 to 45 total, but as I said before, about 6,000 in the companies that supply the apparel industry
Senator Harb: I am interested in the business case. We all know that in 2005 something is going to happen to the quota. As representatives of the industry, or as members of the industry, have you done an impact study to find out what the financial impact will be on your industry in terms of costs or the human element in the form of jobs?
As a policy-maker, I think that would put the fact before us. What you have said is interesting, and you make a very good point. Perhaps we have to apply the rules across the board in a fair and equitable manner. You gave the example of the CITT deciding one way on one item in terms of import duties and differently on another item. Perhaps that is not fair and there should be more consistency. Have you done a business case?
Mr. Lifson: We have done cases with Industry Canada. I am going back to Montreal tonight for a press conference tomorrow morning. Tomorrow we will release the results of a study we recently completed. This study, which was sponsored by AHRC, the Apparel Human Resource Council of Canada, addresses issues in the industry and what is required to train the new leaders in the industry. The future of the industry is training the leaders of tomorrow. We have looked at where we can compete in the value chain and this study will be released at 10:45 tomorrow morning.
Mr. Rotchin: As part of our submission, you also have a copy of a Business Week article that predicts 35 million jobs lost worldwide come the quota elimination.
Senator Harb: This is a relative term. They are lost in one area and gained in another. That is not a fair statement.
Mr. Lifson: We can supply to this body, Senator Harb, the studies that have been done.
Senator Harb: That would be useful. It would be effective if we could see the study before we render a decision as to whether we want to endorse the recommendations of the finance committee.
The Chairman: We are getting away from the bill.
Senator Harb: Mr. Chair, it is relevant because they are asking an important thing of us. We are extending the term on tariffs on products from developing countries, and they are saying, ``If you want to extend it, here is what we want to you do.'' It is exceptionally important and timely for us to consider this. It is a lot more serious than we think it is. It is imperative for us to take action on this.
I want to ask a final question on the remission issue in terms of the other countries, the European Union or the United States or others. How do we compare? What do they do that we do not do? What should we do so we will be in line with those countries?
Mr. Rotchin: As I understand it, the United States, the EU, and Australia are looking at this matter carefully right now and are coming up with comprehensive adjustment measures. I think we all agree that there must be equitable treatment domestically. Domestic policy has to match external policy.
We have a remission program that provides $32 million worth of existing benefits annually that is about to disappear, with nothing to replace it. That is the issue.
Mr. Ostrov: Senator Harb, you asked about the United States. The United States has had a strategic issue with regard to what they call ``807 operations,'' where they have been able to move goods that have been cut in the United States into Mexico and into Central America, have them sewn, and bring them back into the United States and use preferential labour. We have not been on a playing field with the Americans since the NAFTA agreement was signed. That is my first point.
My second point is that while we are one voice here, and while we all in one form or another have support for Bill C- 21, please understand that the issue with regard to tariff relief on textile imports is completely different issue from the existing duty remission program. The existing duty remission program is just under $40 million a year. For the next 10 years, that would be $400 million for our industry. The minister said that the savings on the inputs from Bangladesh and the other lesser developed countries in 2003 alone were $273 million alone. You have to understand that we are employing Canadians to do all the jobs — distribution, manufacturing on the sewing machines and the cutting tables and marketing. We hire graduates from the universities, the brochures of which you see here. We are a vibrant industry that is trying to survive in a very difficult global situation.
The House of Commons Finance Committee made two recommendations. They said that there is a crisis in the industry and that the duty remission program has to be extended immediately. We need you to make the same recommendation.
Their second recommendation was to have study on the tariffs on inputs for the apparel manufacturing sector and report the results of that in September. Maybe you could push the report of that study up to June or July.
Please understand that while I empathize with Mr. Lifson and the other members of the apparel manufacturing industry who have their axe to grind, it is important that you understand the urgency of this issue. We need you to recommend a simple Order in Council for an extension from December 31, 2004 to December 31, 2010 or 2011 in order to keep thousands of people at work.
We have to get that message across. We got it across to the House of Commons Finance Committee. You must understand that we cannot wait, that we need a decision today — literally today. There is a lot of work to be done. Please, help Mr. Lifson's group by getting rid of the tariffs on inputs, but you must get this duty remission in place now.
Senator Fitzpatrick: Mr. Ostrov, I am sorry that I missed your presentations, but I did get the flavour as I listened to the questions.
I am a bit confused. Are you saying that when this bill went before the House of Commons Finance Committee they made the recommendation you are requesting now with respect to tariff relief?
Mr. Rotchin: That is correct.
The Acting Chair: I do not believe it was part of the report on the bill. It was a separate report made later.
Mr. Rotchin: I think it is part of our submission. You may have a copy of it. Essentially, they made three recommendations. One was to immediately extend the duty remission programs for another seven years. The second was to look at comprehensive tariff relief measures — which is what everyone is after — to balance the two sides. The third recommendation was a subset of the second, which was to look immediately at these gender equity issues whereby Mr. Lifson gets tariff relief because the fabric for his men's suits is not made in Canada and Mr. Rotchin does not because we make women's apparel.
Senator Fitzpatrick: Did they recommend that at the time they reported bill?
The Acting Chair: It was in a consequent report.
Gentlemen, thank you for being here and for your presentation. It was very informative.
Senator David Tkachuk (Deputy Chairman) in the Chair.
The Deputy Chairman: Is it agreed, honourable senators, to move to clause-by-clause consideration of Bill C-21, an act to amend the Customs Tariff Act?
Hon. Senators: Agreed.
The Deputy Chairman: Is it agreed that the title stand postponed?
Hon. Senators: Agreed.
The Deputy Chairman: Is it agreed that clause 1 carry?
Hon. Senators: Agreed.
The Deputy Chairman: Is it agreed that clause 2 carry?
Hon. Senators: Agreed.
The Deputy Chairman: Is it agreed that the title carry?
Hon. Senators: Agreed.
The Deputy Chairman: Is it agreed that the bill carry?
Hon. Senators: Agreed.
The Deputy Chairman: Is it agreed that the bill be reported to the Senate without amendment?
Hon. Senators: Agreed.
The Deputy Chairman: Carried.
The committee adjourned.