FINA Committee Report

Introduction

On October 20, 2004, the Standing Committee on Finance tabled its First Report entitled Duty Remission and the Zero-rating of Tariffs on Textile Inputs: the Canadian Apparel Industry. In the Report, the Committee made three recommendations to the Government concerning the implementation of policy measures to help improve the competitiveness and productivity of the apparel industry in Canada.

The Government appreciates the Committee’s work in this area and its support in identifying ways in which the Government can continue to assist the apparel industry in its effort to adjust to increasingly competitive global marketplace.

The Government’s December, 2004 Announcement

In December 2004, the Government announced a package of initiatives designed to increase the competitiveness of Canada’s textile and apparel industries. The announced initiatives also address the recommendations made in the Finance Committee’s Report. These initiatives are:

1. apparel manufacturers for five years, with a gradual phasing out of the benefits over the final three years;
   
   
2. the elimination of the tariffs on fibre and yarn imports (worth up to $15 million per year) and on imports of textiles inputs used by the apparel industry (worth up to $75 million per year), effective January 1, 2005. Tariffs will be retained on products where Canadian production can be substantiated; and
   
   
3. the provision of an additional $50 million in funding to the Textile Production Efficiency component (CANtex) over the next five years to encourage Canadian textile companies to shift to higher value-added products, focus on niche markets and improve productivity.

Responses to Committee Recommendations

RECOMMENDATION 1

The Committee recommends that the federal government immediately extend, for a further seven years, the duty-remission Orders covering the apparel sector that are set to expire on 31 December 2004.

RESPONSE

The Government agrees that the duty remission Orders benefiting certain companies in the textile and apparel sectors should be extended. It recognizes the difficulties that abrupt elimination of the Orders could cause the beneficiary companies and sees merit in extending the Orders for a period of time as the effects of the various measures introduced by the Government in recent years are more fully realized in the industry.

Accordingly, on December 29, 2004, the Orders in question were extended for five years, with a phase out of the benefits during the final three years. During the first two years, the beneficiary companies will be eligible to receive the same level of benefits as they did under the original Orders. In the third year (2007), the level of benefits will be reduced to 75% of the original level. In the fourth year (2008), the level of benefits will be reduced to 50% and, in the fifth and final year (2009), the level of benefits will be 25% of the original level. The extension and phased elimination of the benefits will ensure that the remission beneficiaries do not experience a sudden financial impact. The current administration of the remission Orders will also be reviewed by the Canadian Border Services Agency to ensure that companies benefiting are still manufacturing textiles and apparel.

RECOMMENDATION 2

The Finance Committee recommends that the federal government immediately end tariffs on inputs that are not produced domestically. Textile producers seeking continued tariff protection should be required to establish that they sell their products to Canadian apparel manufacturers.

RESPONSE

The Government agrees that it is important to eliminate tariffs on inputs used by the textile and apparel industries as a means to help lower their costs and improve their competitiveness. To this end, the initiatives announced in December include the elimination of the tariffs on imports of fibres and yarns (worth up to $15 million per year) and on imports of textiles inputs used by the apparel industry (worth up to $75 million per year), effective January 1, 2005.

To ensure that this tariff relief does not adversely affect current domestic production, tariffs will be retained on imports of fibres, yarns and textiles that are produced in Canada. To that end, in January 2005, the Minister of Finance directed the Canadian International Trade Tribunal (CITT) to examine the availability of the goods in question from Canadian production. It is anticipated that this inquiry will be completed and the resulting tariff changes implemented by September of 2005. At that time, importers will be able to request a refund of the duties paid since January 1, 2005, on imports of those fibres, yarns and fabrics that are found to be unavailable from domestic production.

RECOMMENDATION 3

The Finance Committee recommends that the federal government immediately undertake a study of temporary adaptation measures to enhance competitiveness, as well as the benefits and costs of eliminating tariffs on imports of fabric for use in the Canadian apparel sector, the types and quantities of products produced by the Canadian textile industry, and the practice of tariff differentiation on fabrics based on their end-use. The results of this study should be tabled in Parliament no later than 31 January 2005.

RESPONSE

In regards to the first part of this recommendation, the issue was before the Joint Government-Industry Working Group on Textiles and Apparel (Working Group) that was established in January 2003 to examine issues related to the long-term competitiveness of these industries and the changing trade environment. The findings and recommendations of this Working Group culminated in the following assistance and tariff relief measures announced by the Government in February 2004: $26.75 million for a new three-year Textiles Production Efficiency Initiative designed to help improve the competitiveness of Canadian textile firms; and ii) tariff reductions on textile inputs not produced in Canada with an approximate value of $26.75 million over three years to lower production costs for the apparel industry. The December 2004 package of initiatives – which could be worth about $600 million over the next five years – builds on these earlier adaptation measures and more than triples the annual level of federal assistance to these two sectors.

The recently launched CITT inquiry will provide detailed information on the “types and quantities of products” produced by Canadian textile producers. As well, it is anticipated that the CITT inquiry will result in a significant rewording and restructuring of the textile chapters in the Customs Tariff in order to implement the new tariff relief provisions. One of the anticipated outcomes is a simplification of the wording of the end-use provisions for apparel production, including the deletion of gender-specific restrictions. Should this not be the case, the Department of Finance will undertake a review of the end-use issue once the announced tariff relief has been implemented.