FINA Committee Meeting

37th PARLIAMENT, 3rd SESSION

Standing Committee on Finance

EVIDENCE

CONTENTS

Tuesday, March 9, 2004

¹

1535

The Chair (Mr. Roy Cullen (Etobicoke North, Lib.))

Mr. Elliot Lifson (President and Vice-Chair, Peerless Clothing, Canadian Apparel Federation)

¹

1540

¹

1545

Mr. Bob Silver (Director and President, Western Glove Works, Canadian Apparel Federation)

Mr. Elliot Lifson

¹

1550

The Chair

Mr. Randy Rotchin (President, A & R Dress Company Inc.)

¹

1555

The Chair

Mr. Paul Ostrov (President and CEO, COMO Diffusion Inc.)

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1600

º

1605

The Chair

Ms. Ann Weston (Vice-President and Research Coordinator, The North-South Institute)

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1610

The Chair

Mr. Rahim Jaffer (Edmonton—Strathcona, CPC)

Mr. Randy Rotchin

Mr. Rahim Jaffer

Mr. Randy Rotchin

Mr. Rahim Jaffer

Mr. Randy Rotchin

Mr. Rahim Jaffer

The Chair

Mr. Rahim Jaffer

Mr. Bob Silver

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1615

The Chair

Mr. Pierre Paquette (Joliette, BQ)

Mr. Elliot Lifson

Mr. Pierre Paquette

Mr. Elliot Lifson

Mr. Pierre Paquette

Mr. Elliot Lifson

Mr. Pierre Paquette

Mr. Elliot Lifson

Mr. Pierre Paquette

The Chair

Hon. Robert Thibault (West Nova, Lib.)

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1620

Mr. Bob Silver

The Chair

Mr. Paul Ostrov

The Chair

Mr. Paul Ostrov

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1625

The Chair

Mr. Alex Shepherd (Durham, Lib.)

Mr. Bob Silver

Mr. Alex Shepherd

Mr. Bob Silver

Mr. Alex Shepherd

Mr. Bob Silver

Mr. Alex Shepherd

Mr. Randy Rotchin

Mr. Alex Shepherd

Mr. Bob Silver

Mr. Alex Shepherd

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1630

Mr. Bob Silver

The Chair

Hon. Bill Blaikie (Winnipeg—Transcona, NDP)

Mr. Elliot Lifson

Hon. Bill Blaikie

Mr. Elliot Lifson

Hon. Bill Blaikie

Mr. Elliot Lifson

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1635

Hon. Bill Blaikie

Mr. Paul Ostrov

The Chair

Mr. Paul Ostrov

The Chair

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CANADA

Standing Committee on Finance

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NUMBER 007

l

3rd SESSION

l

37th PARLIAMENT

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EVIDENCE

Tuesday, March 9, 2004

[Recorded by Electronic Apparatus]

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[English]

    The Chair (Mr. Roy Cullen (Etobicoke North, Lib.)): We'll start the meeting, pursuant to the order of reference of Wednesday, February 25, in relation to Bill C-21, an act to amend the customs tariff.

    We have a number of witnesses. From the Canadian Apparel Federation, we have Mr. Elliot Lifson, president and vice-chair, Peerless Clothing; Mr. Bob Silver, director and president, Western Glove Works; and Mr. Richard Wagner, legal counsel, Ogilvy & Renault, barristers and solicitors. We have from A & R Dress Company Inc.., Randy Rotchin, president. From Como Diffusion Inc., we have Paul Ostrov, president and CEO. And finally, from the North/South Institute, we have Ann Weston, vice president and research coordinator.

    Welcome to all of you.

    For the Apparel Federation, will there be one person speaking or a group of people? Two presenters? We would ask you to limit your remarks to five minutes or thereabouts. If you have written briefs, we will have had the briefs. Then we can get into a question and answer period.

    Mr. Lifson, are you going to begin? Please go ahead.

    Mr. Elliot Lifson (President and Vice-Chair, Peerless Clothing, Canadian Apparel Federation): Thank you very much, Mr. Chairman, for this opportunity to present our views on Bill C-21 and related measures.

    The Canadian Apparel Federation represents over 600 Canadian companies involved in the manufacture of apparel in Canada. I am also vice-chairman of Peerless Clothing, which is the largest Canadian manufacturer of men's suits, and we employ 3,000 people in our Montreal manufacturing facility.

    With me is Mr. Robert Silver, who among other ventures is the president of Canada's largest jeans manufacturer, Western Glove Works of Winnipeg, which employs 587 people. He is also co-owner of the Winnipeg Free Press.

    I also have with me Mr. Richard Wagner, our trade counsel, of Ogilvy and Renault.

    Mr. Chairman, I will make an opening statement. Mr. Silver will make some remarks and he will make some closing remarks. We will then be pleased to answer any questions the committee may have.

[Translation]

    We thank you for giving us this opportunity to address the committee. We want to take this opportunity to remind you that the apparel industry represents an important part of our manufacturing sector, one which can remain viable and competitive.

    I will answer questions in English or in French.

[English]

    Mr. Chairman, the Canadian apparel industry and the over 94,000 Canadians employed in our industry have a very direct interest in the bill before you. We are here to highlight the very real and direct impact that tariff measures have on the Canadian apparel industry. It must be remembered that tariff measures are not a revenue matter but rather they are part of industrial policy and they have very real effects on the industries involved.

    We are here also to request that the renewal of the LDC and GPT tariff be considered, along with other measures the Government of Canada should take to ensure that there remains a viable and strong apparel industry in Canada. Some measures have already been promised by the Canadian government, but more are needed.

    I would note that what we want on the tariff front are not higher tariffs or increased protection from imports, nor do we oppose the extension of the GPT and LDC tariffs per se. What we want is quite the opposite. We want duty-free treatment for all inputs used to make apparel in Canada. Our main inputs are fabrics, and we want duty-free treatment in order to maintain and enhance our competitiveness.

    The Canadian apparel industry produces a broad range of women's, men's, and children's apparel. It is the 10th largest manufacturing sector in Canada.

    In 2002 the Canadian apparel industry directly employed 94,850 people, with a payroll totalling $2.31 billion. The apparel industry draws on a large range of skills, including relatively low-skill and low-technology employment suitable for some new entrants to the Canadian labour force.

    In the urban areas, where the industry is concentrated, these entry-level jobs enable apparel companies to play an important role in socializing new entrants into the Canadian workforce. These entry-level workers develop their language and work skills, and they often move into more skilled jobs in the industry or in the broader economy.

    At our Peerless factory in Montreal, we employ immigrants from over 60 cultural communities who work together under one roof. Their employment gives them a sense of dignity and self-worth in their newly adopted country. We train them. We pay them when we train them. You can certainly imagine they are not productive for the first number of months of employment, and we pay them. And since they speak neither English nor French, we teach them French in Montreal.

    At the same time, and often in the same factories, apparel manufacturers apply the latest technologies and processes and employ highly trained personnel with graduate degrees in areas such as fashion design, engineering, management, and information technologies to develop new products, manufacturing processes, and software to meet the industry's needs.

    We have ERP, a fully integrated enterprise resource planning system. We have SAP software. We have a fully integrated EDI interchange, an electronic data interchange, to service our customers, mostly in the United States.

    Many Canadian firms have become market leaders and successful exporters. We currently export approximately $3.5 billion in apparel as an industry to the United States. We have been very successful and we can be proud of our achievements.

    The Canadian apparel industry, however, faces immense pressures and challenges. These challenges can be commercial concerns, but they are also concerns about government policy, including trade and tariff issues. That's what we are here about today.

    Bill C-21, as part of Canada's overall trade and tariff policy, cannot be considered in a vacuum. As you are aware, LDC and GP tariffs, which will be extended for another 10 years by Bill C-21, were put in place by WTO countries such as Canada to provide a benefit to imports from less developed countries in the form of reduced tariffs. The effect on apparel was that significant volumes of apparel have historically been imported into Canada from countries eligible for GPT and LDC treatment.

    Last year we received a new challenge. That was from the LDC initiatives on January 1, 2003, whereby we had complete duty and quota removal. Imports obviously grew rapidly in 2003, especially from Cambodia, which increased 328% and totalled $83 million, and from Bangladesh, which increased 115%, amounting to $303 million.

    If we assume an average duty rate of 18.5%, the Canadian government forgave duties of over $71 million in its effort to assist these two countries alone, and nearly $100 million if we take into consideration all least developed countries.

    Turning to next year, the new challenge, of course, is WTO in 2005. We can expect additional competition and pressure.

    Mr. Chairman, the existing and imminent tariff and quota challenges facing the apparel industry mean that the extension of the LDC and GPT tariffs, which is before you in Bill C-21, cannot be done without also implementing a measure that will enable the Canadian apparel industry to compete. That measure is the immediate elimination of all tariffs on inputs used by the Canadian apparel industry to manufacture apparel in Canada, as I mentioned earlier in the main input.

    Our main input is fabrics. The single most important determinant of a garment's fashionability and market acceptance is the fabric from which it is made. The cost of these fabrics represents 50% to 75% of total input costs. That is why they are so critical to us. Where duties have been eliminated and full advantage has been taken, we have had access to the marketplace, and certainly we can maintain and increase the apparel jobs that exist in this industry.

    In 1994 the government put in place a process at the Canadian International Trade Tribunal, the CITT, and we have been successful in some cases brought forward. But they are lengthy; they are costly; it takes a year to implement a decision by the time you get a judgment, and the judgment takes four to five months until it is signed.

    Last year, in addition, a working group was set up with the textile industry that resulted in some recommendations which we felt did not go far enough. Based on that working group, Minister Robillard recently announced a reduction of input tariffs of approximately $9 million per year, totalling $26.7 million over the coming three years. That announcement was made on February 27, 2004, two days before Bill C-21 was introduced into the House. While we appreciate the gesture and applaud the government for taking a step in the right direction, it is only a small step, and more is needed.

    To put the recent proposal in context, our industry pays over $110 million in duties on inputs each year. The measures announced by Minister Robillard will remove about $9 million of these duties, leaving $101 million for the industry. By contrast, the government's elimination of duties on least developed countries last year gave duty relief in about the same $100 million amount to imports of finished apparel from least developed countries.

    Surely if the government could give $100 million of annual tariff savings to imported apparel, it should and could give the same amount of relief to Canadian apparel manufacturers. You must understand that without tariff relief on fabrics and other inputs, we cannot eliminate the current tariff bias in favour of foreign apparel producers.

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    With the LDC concessions, manufacturers based in Bangladesh can purchase fabric in China, cut and sew the garment in Bangladesh, and ship the finished good to Canada duty and quota free. However, if the same Canadian manufacturer chooses to import that fabric directly to Canada and make that same garment in Canada using Canadian employees, that manufacturer pays between 12% and 16% duty on the fabric alone. Now, certainly that's not fair.

    Mr. Chairman, the current situation cannot be allowed to continue. We need the help of this committee; we must eliminate fabric and other inputs.

    I would like to turn this over to Mr. Bob Silver, who will relate his personal experiences.

    Bob.

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    Mr. Bob Silver (Director and President, Western Glove Works, Canadian Apparel Federation): I'd like to personalize this a little bit and give you an idea of what Western Glove is. We're a manufacturing distributor of blue jeans, so this is not my normal uniform.

    We distribute about 100,000 units per week. Since the free trade regime, we have increased sales—and 75% of those go to the United States. We've done everything the Canadian government would wish to be a progressive employer and to use the advantages created during the free trade regime to grow. Our revenues have grown from $25 million to over $100 million. We employ about 600 people today in a facility that's totally modern and air conditioned. We had the first on-site day care in the history of Manitoba. We're a model employer and we try to do everything right for our employees, for our associates, and for our customers.

    While we're doing so, we're being disadvantaged by the government with its tariff regime. There has never been a weaver and a dyer of cotton since the closure of Dominion Textiles, and we won a protracted case at CITT because of that.

    But recently, the closure of the last facility in Canada that manufactures denim has been announced. It was originally a Dominion Textiles facility, now owned by Swift Textiles, and Galey and Lord in the United States. They announced the closure this spring. It means that the last and only denim supplier for me as a Canadian will be closed and will be gone. What Elliot says is very true.

    What will happen? If I bring in fabric from the United States, it is indeed duty free. But if I bring fabric into the country from anywhere else, my duty rate is 14.8%. I can bring that garment in from Bangladesh with no duty on the fabric or no duty on the garment. I can also send that fabric to Mexico and re-ship the finished garment from Mexico to Canada duty free, using Mexican labour in lieu of Canadian labour, under a TPL regime. This does not do much for the notion of value added in Canada.

    The true future problems in our economy are going to be the extent of our value added.

    One year ago today, my company employed 1,290 people. Today, I employ 587 people. That happened in one year. If duties on fabric are not relieved and it continues the way it's going, in 18 months I will employ 121 people. At the same time this is going on, my revenues will not have gone down.

    This isn't a tag day for Bob Silver; I don't need Canadian employment to be profitable. But there's a beauty and a wonderfulness about being able to manufacture and assemble a product in this country, and we're losing it rapidly.

    There's also a huge and wonderful feeling about the ancillary benefits of what our companies do. What we do is produce Canadians. In Winnipeg today there is a vibrant and wonderful community of 60-odd-thousand Filipinos contributing to our economy as doctors, lawyers, members of Parliament, ministers, and in every other walk of life. That community started by working in the apparel industry. It is not a sweatshop industry; it's not a sunset industry. It can be given further legs by doing the sensible thing and removing tariffs on the inputs we use in our manufacturing.

    Again, I'll continue to be successful based on my own efforts. Whether or not I employ 121 or 587 people, there is some control the Government of Canada can have over those numbers.

    I beseech you, as somebody who really enjoys producing Canadians and producing product while proudly stating it is made in Canada, to help us do so.

    Thank you.

    Mr. Elliot Lifson: Just to finish off, just as we summarized, we're not asking for a handout. We're not asking for a subsidy. We are simply asking that the Canadian government stop taxing us on our raw materials.

    Thank you.

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    The Chair: Thank you very much, Mr. Lifson and Mr. Silver.

    Mr. Rotchin, would you like to proceed?

    Mr. Randy Rotchin (President, A & R Dress Company Inc.): Thank you.

    I'd like to thank the chairman and members of the committee for inviting me to speak today.

    My name is Randy Rotchin, and I'm president of A & R Dress. A & R was established in 1947 and has grown over the past five decades into one of the leading suppliers of private-label women's clothing in Canada. I'm proud to say that A & R has won numerous awards for superior design and quality from most of Canada's major department and chain stores.

    As president of A & R, I serve on the board of directors of the Apparel Manufacturers Institute of Quebec, and I'm a member of the Canadian Apparel Federation's tariff preference level committee. I'm also part of an ad hoc group of approximately 140 apparel companies that are beneficiaries of the various remission orders, which are scheduled to be terminated approximately 10 months from now.

    I've come to the committee in support of Bill C-21, which proposes a 10-year extension of duty-free and quota-free access to the Canadian market for least developed countries. I'm also here to say that Canadian apparel manufacturers will suffer greatly as $32 million of existing tariff relief is taken from them at the end of this year.

    Historically, most remission orders were introduced during the first Canada-United States free trade agreement, largely as compensation for extremely stringent rules of origin that restricted effective market access into the U.S. by Canadian apparel manufacturers. At the 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 subsectors, such as in the case of pants, were unable to secure 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 and marketing control in Canada, with some domestic production, while complementing these activities and products with offshore production.

    Today, all apparel stakeholders, including the Department of Finance, Industry Canada, and the Department of Foreign Affairs and International Trade, agree that manufacturing importers represent one of the most important and vital subsectors in today's trading environment, and it is one of the subsectors that is most likely to maintain employment in Canada.

    The role and benefits of remission orders are well documented and 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, when incidentally the business environment was not so difficult as it is now. Currently, however, there's an unwillingness to extend the remission orders, which does not take into consideration materially altered conditions in the sector, such as the extremely permissive rules of origin under Canada's LDC program.

    Exports from Bangladesh, for example, have increased by 120% so far this year and are expected to increase by over 200% by year's end. From our preliminary calculations, it appears that Canada's LDC program will have eliminated approximately $100 million of duty on clothing exports to Canada from LDC countries alone this year.

    The effect of this situation on a company like A & R Dress is that we must pay 16% duty on raw material inputs, which will incidentally be transformed into finished garments by Canadian workers, while the same finished garments made from the very same raw materials enter Canada from LDC beneficiary countries duty free and quota free. With the elimination of the remission program, A & R's duty costs will rise by at least 25% overnight, and the disparity between the price that we're able to offer versus my LDC competitors will increase exponentially.

    From my perspective, 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. While several are under active consideration by all parties, the weak link in these proposed measures relates to trade and tariff remedies. The reasons for this are historical and structural differences between the textile sector and the apparel sector, as well as the difficulties associated in achieving consensus within the apparel sector itself for any particular trade tariff remedy.

    The consensus issue reflects the huge variety of interests within the apparel sector. It has been stated that there is in fact not one apparel sector but 15 or so specialized subsectors--outerwear manufacturers, suits, pants, shirts, dresses--and all of these subsectors are divided by men's, women's, and children's categories, as well as a variety of price points.

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    The practical implication of the industry's diversity and automatic opposition from the textile sector is that the broadly applicable trade tariff adjustment mechanisms are going to take at least six to twelve months to design, develop, pursue, and implement. This means that even if consensus and a fervent desire were in place, a generic solution would come too late, as planning and investment for 2005 are already underway.

    Remission extension is also subject to a form of bias and discrimination by policymakers, who find remission to be inconsistent in that it helps some groups within the apparel sector but not 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 itself.

    This negative policy response also tends to treat the apparel sector as a unified entity and not as fifteen subsectors that manufacture apparel. In other words, any potential trade tariff remedies will be subsectoral in their impact. Current tariff policy in fact recognizes the subsectoral nature of the apparel industry. Certain imported fabrics, for example, enter Canada duty free if they're used in men's suits but are dutiable if they're used in women's suits.

    Finally, the policy community has failed to propose an alternative or generic tariff remedy that will impact on all parties equally or any solution that can be in place by 2004 to help manufacturers prepare for quota elimination. Most importantly, if and when such a generic solution is proposed, $32 million will have to be netted out of its benefits in light of the scheduled elimination of the remission orders.

    In conclusion, I'd like to say that the remission extension coalition is not opposed to any solution that may help anyone compete in today's environment. We cannot afford, however, to wait for such a solution to be designed and implemented; procurement and employment decisions for next year are being made today.

    We have a valid and reasonable solution already in place. It simply has to be extended. We cannot understand how the government can give duty- and in some cases quota-free entry of goods into Canada with one hand and then take away an existing form of adjustment that helps Canadian manufacturers with the other hand.

    We are therefore respectfully requesting your active intervention on this file to have remission orders extended.

    Thank you.

    The Chair: Good. Thank you very much, Mr. Rotchin.

    Mr. Paul Ostrov, from Como Diffusion, please proceed.

    Mr. Paul Ostrov (President and CEO, COMO Diffusion Inc.): Thank you, Mr. Chairman.

[Translation]

    I thank all of you for being here today to take part in these important discussions.

[English]

    I am the president and CEO of the Como Fred David group of companies. We are a distributor to major retailers of ladies' tops in both Canada and the United States and recently in Europe. We are an apparel manufacturer. We are also an importer.

    I'm quite honoured to stand before this group of esteemed Canadians who unselfishly give themselves for the benefit of all Canadians. Hopefully, after my few brief words today, you'll understand the importance of the continuation of this tariff relief in the form of duty remission.

    I feel it is important to give you a better understanding of what is involved in running a world class clothing company. We are a world class clothing company today. We are an $80 million company—arguably the second or third largest ladies' top company in North America.

    I know many people have a version and a belief that the industry is somewhat unsophisticated. You think of people over their sewing machines religiously getting out their product day after day. Our industry is no longer that kind of industry. In a day where computer reports and the implied product success those numbers reflect is what dictates the course of major retailers, the industry has had to elevate itself to survive.

    Electronic data interchange, as Mr. Lifson mentioned—EDI—is the buzzword. It drives operations and enables companies like ours to succeed and communicate with our customers instantaneously. We are now a paperless society, very sophisticated, from design to production to operations to distribution, and this reality has become an expensive but real process, enabling manufacturers like ourselves to operate and compete on a world stage.

    The true essence of running clothing companies like ours is that they require expertise, education, knowledge, and experience in a multitude of domains. We employ technicians in design. Their talent is no longer sufficient to drive product success; they need specialized computer knowledge to efficiently create patterns and perform the last steps of integrated format for computerized marking and grading, so that we can operate our product and get our product executed in a sophisticated way.

    Our staff in these disciplines come from places like Cégep Marie-Victorin, Ryerson University in Toronto, or LaSalle College in Montreal and Vancouver. These universities and colleges are producing wonderful Canadian prospects for the design and fashion industry. In our organization alone we have at least a dozen—I had “ten” in my notes—such candidates. Toronto has similar designs. We are at this point very proud of the young pool of talent we are creating from the design and fashion side of the business.

    Our operations management has become the most sophisticated part of our business. We have to adapt constantly to the changing environment that is imposed upon us by J.C. Penney, Wal-Mart, Coles, or Sears Canada. These retailers are the very essence of what is driving our sophistication in technology; it is no longer what product we're producing.

    I have here a Sears Canada catalogue. I can show you product we produced in the last three or four months: 75,000 pieces of one garment alone for J.C. Penney; 25,000 pieces of one for Mervyn's; for J.C. Penney, 97,000 units produced in our Victoriaville factory; 30,000 for Mervyn's in the last four months; and for Stein Mart in Jacksonville, Florida, 45,000 units.

    What you must understand is the reality that every single one of these garments could have been produced somewhere else in the world. My colleagues Mr. Silver and Mr. Lifson have alluded to the fact that there are other options for us, but we have developed in the last 10 to 15 years to become a world class, reputable organization that is highly regarded by major retailers across North America and in Europe.

    To achieve that required a major investment. To retain it, we have to continue to provide product that is well priced and that is economically viable for our customer base.

    There are alternatives. What is happening is through all the efforts through the LDC, options are being created. All we're saying to you is, give us the continuation of a proven remedy that has worked, with the duty remission program, and we will be able to continue to complement our importations with sufficient numbers of quality merchandise in Canadian facilities across Canada. That's all we're saying. We will never become in our organization a totally manufacturing operation. And that is not what I'm here to represent.

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    The units I've talked to you about I've put on the table here. We manufacture all the blouses for Continental Airlines. We do the same in Quebec for American Airlines and Air Canada. We cannot continue to do this kind of thing without protecting our employees. In the Como Fred David group of companieswe have 100 direct and 575 indirect employees. We can grow that figure, we can maintain that figure, or we can lose all of those jobs, depending on the course of action.

    That does not mean that the Como Fred David group of companies will go from $80 million to $20 million of sales. As Mr. Silver very eloquently mentioned, there are many options available to us, and we as entrepreneurs are going to find ways to survive our business. The idea is that we're Canadian. We're proud to be Canadian. We're proud to employ Canadians. It has taken me 20 years to build the complement of my workforce. Today we are facing a number of very difficult situations: the LDC, on the one hand, and on January 1, 2005, we have the reality of quotas coming off, of product going into the United States from China, principally.

    Can you imagine the thousands of similar garments like this that are going to go from all over the world into the United States, without quota, that are suddenly going to be a dollar and two dollars U.S. FOB less than they are today? And all of that product will be funnelling its way back into Canada. There will be no way to stop it. The only thing we're asking you for is to give us the ability to compete fairly. That's all we want. We're very capable. We have wonderful, talented people. We are reputable, meaning the retailers across North America and Europe consider us highly and they want to do business with us.

    Please give us the tools to keep Canadians employed. That's all we're asking you to do. Give us the tools to keep Canadians employed in organizations such as ours.

    Thank you very much for hearing me.

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    The Chair: Thank you very much, Mr. Ostrov.

    Before I turn it over to Ms. Weston, I want to make this comment. When Canada signed the free trade agreement, many had written your industry off, but I want to congratulate you for taking advantage of the markets in the United States.

    I know Peerless has been notorious in a lot of the publicity and the press you've received, and quite rightly, and many other companies. Like all of you here, and many others, you have taken advantage of that huge market and become highly successful. Thank you for your presentations today.

    I'll turn it over to Ms. Weston.

    Ms. Ann Weston (Vice-President and Research Coordinator, The North-South Institute): Thank you very much, Mr. Chairman.

    When I was preparing my remarks to come to this committee today, I was perhaps misinformed about the state of the Canadian garment industry today.

    Listening to the previous speakers, I realize I need to qualify my comments. When I came here, I thought they might be suggesting that the least developed country tariff program, which was only introduced just over a year ago, and the general preferential tariff scheme, which you were talking about extending, were programs the Canadian government should end. But I think what's been very informative about their presentation today is really how much the Canadian clothing industry has changed. Now Canadian clothing manufacturers have very strong interests in continuing to be able to trade and to produce overseas in developing countries in an effort to take advantage of those programs, at the same time thinking about how to promote and protect Canadian employment through lowered tariffs on their textiles.

    I find that very interesting, and of course in many developing countries today they're facing the same sorts of problems. Garment manufacturers are going to their governments and saying, we don't want to have to continue to buy our textiles from our own domestic producers; we need to be able to access textiles, fabrics, on the world market at low if not zero tariffs. It is very rewarding, I think, to understand now that there's much more shared interest in supporting developing country trade with Canada, so I need to somewhat modify the comments I had prepared for you, which were really to underline the importance of this particular policy.

    Earlier one of the speakers said, this isn't just a tariff policy issue; it's a Canadian industrial policy issue. As a Canadian I would agree. On the other hand, as somebody who's working in the area of international development, I would also argue that this is not just a tariff policy; it's a Canadian development policy. Therefore, my comments are really just to confirm support for the extension of both of these programs on the grounds that these are very important, particularly the least developed country program, which was introduced barely a year ago. It's very important to help least developed countries, to whom we are committed through our international development policy. Bangladesh is one of our key aid recipient countries.

    We're also committed to helping developing countries through our declarations in the UN on the millennium development goals. We're committed to helping to reduce global poverty and to create employment, and part of that effort requires us to take measures such as the GPT and the LDC tariffs and continue them so that we're able to support efforts by those countries themselves to expand their trade.

    My basic point is that this is a necessary but not necessarily a sufficient condition in terms of international development, and certainly in other presentations we've made to other committees we've argued that it's very important for Canada, when it's talking about trade policy in the context of the WTO, to make sure there are other positions that are taken that really understand the nature of the problems in developing countries themselves.

    Basically, the point I want to underline here is the importance of extending the GPT and the LDC tariffs in recognition of the fact that Canada is in a sense a leader in this area. The rules of origin we introduced in the LDC tariff initiative just over a year ago are amongst the most generous.

    On the other hand, we are behind in that the other countries that have introduced special measures for LDCs and for other developing countries have actually already committed to extending their programs well beyond where we are today. If we were not to extend it, we would definitely be falling behind in many respects, whether it was in terms of our international commitments through the millennium development goals, in terms of our commitment through the WTO to making this present round of trade talks a development round, or finally just in terms of being where the rest of the quad are. The EU, the U.S., and Japan all have policies in place that are already extended. In the case of the U.S. it's to 2008, but for Japan and the EU it's beyond 2010.

    So just to support what the garment manufacturers have said, I'm pleased we're in a more common position today than we might have been ten or fifteen years ago.

    Thank you.

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    The Chair: Thank you, Ms. Weston. I'm glad to hear we're all being collegial today.

    We'll start with a five-minute round, starting with Mr. Jaffer, please.

    Mr. Rahim Jaffer (Edmonton—Strathcona, CPC): Thank you, Mr. Chair, and thank you to everyone making their submissions today.

    If I understand almost everyone correctly, you're not opposed to the idea of extending these two categories, obviously, for reducing the tariffs, but where you'd like to see...and I guess where I've learned a little bit today is on the issue of the remission extension. It's almost so it's reciprocal, so we're not putting our own companies and job opportunities at risk in light of these promotional development strategies in different areas.

    Mr. Rotchin, I looked in your presentation, and where I was hoping to get a little bit more clarification is where you've said that currently, however, there is an unwillingness to extend the remission orders. I'm wondering if you can expand on that. Where is the resistance? Is it from the Department of Finance, or what exactly is the obstacle there to dealing with that particular problem?

    Mr. Randy Rotchin: Well, the remission orders have been extended once already and they're scheduled to end. It is the Department of Finance, principally, that has made the decision to not extend them further.

    Mr. Rahim Jaffer: Have they given you any reason? Obviously, this is a clear case of where you will be put at a disadvantage. If there was this allocation made before to deal with it, have you had any reason why they want to end that?

    Mr. Randy Rotchin: I'm personally part of an ad hoc coalition and I haven't been making those arguments, but many of the arguments, I believe, have fallen on deaf ears.

    There's a single-mindedness to look at remission as an isolated program, when in fact remission is related to trade in general and to employment in general. I think there seems to be a distaste for the fact that remission really addresses a certain number of qualified companies and not all companies.

    We're in favour of essentially creating, for lack of a better word, a kind of equanimity. If you're going to extend a preferential tariff treatment to our competitors, at least give us those same tools. That's essentially the bottom line.

    Mr. Rahim Jaffer: I'm glad to hear, obviously, all of these submissions. I would be surprised if you found any opposition here to that as well. We'll have to see as we continue to discuss this.

    I guess the challenge we're faced with and what we'll have to discuss at committee is that clearly if we are going to extend those two programs, which I think generally we're all in agreement with, from what I understood yesterday from the finance officials who were here, any change that needs to be made in particular industries or particular areas is generally done through order in council, not through this particular legislation. That's the challenge we're faced with, and we may have to try to address that somehow, obviously in addition to trying to get this legislation passed, as most people do support it.

    The question is how to address this problem of where the faults or problems may be created, because obviously it affects a different form of legislation or it's done through a separate process.

    I guess that's all I had. I appreciate the clarification.

    Mr. Randy Rotchin: I appreciate your comments. Many people from stakeholder agencies have been briefed and contacted on this.

    Really, for the sake of the committee, this is an awareness exercise. We were not sure the committee was really aware that there's an existing program. We believe that overall tariff relief is a good thing for all parties and that there's an existing mechanism that's about to disappear. We know this is a good forum in which to speak to that and to let you know.

    Mr. Rahim Jaffer: Bob, if you have a comment....

    It would take, unfortunately, a little bit of time, but maybe we could put this provision in or figure out a way to do it. If we pursued active free trade agreements with the particular countries you're dealing with, if we could address it through those means, then you wouldn't have this problem.

    The Chair: Thank you, Mr. Jaffer.

    Monsieur Paquette, s'il vous plaît.

    Mr. Rahim Jaffer: Mr. Chair, I think Mr. Silver has a comment.

    Mr. Bob Silver: If I may, I hope we have an understanding here that there is a difference between the removal of duties on tariffs and the remission programs. I'm not commenting on the validity of the remission programs, but I will tell you that the extension of the remission program will do absolutely nothing for the jeans makers of Canada, absolutely nothing. They weren't included in the first go-round of remission negotiation, and for your information, I sat at the table and negotiated those right after the free trade agreement.

    When you do remove tariffs on our inputs, it cuts across all sectors of this industry to a different degree than remission does.

º  (1615)  

    The Chair: Thank you, Mr. Silver.

    Monsieur Paquette.

[Translation]

    Mr. Pierre Paquette (Joliette, BQ): Thank you, Mr. Chairman.

    If I understood correctly, what you are asking for, basically, is the elimination of tariffs on imported inputs, particularly fabric.

    I would like to know what percentage of the fabrics you use come from outside the country and what part comes from the Canadian market.

    Mr. Elliot Lifson: For my part I can say that almost 90% comes from outside Canada. The reason for that is very simple: they are not made here.

    Mr. Pierre Paquette: I expect that if tariffs on fabrics are maintained, it is because the textile industry is bringing pressure to bear.

    Mr. Elliot Lifson: I am talking only about tariffs on fabrics that are not made here and that are used to manufacture clothing here. It is easy to understand how this differs from clothing made entirely in Bangladesh which comes into our territory without tariffs or quotas being applied. For a similar piece of clothing made here, we have to pay tariffs on fabric. That really is not fair.

    Mr. Pierre Paquette: I think everyone agrees with that.

    Unfortunately, I did not take part in the committee's meeting with the officials yesterday, but in reading the documents I saw that the Canada Customs and Revenue Agency was asking for about $5 million to ensure compliance with the rules of origin having to do with opening markets for fabrics to the poorest countries.

    Do you think that the Canada Customs and Revenue Agency has sufficient resources to do this?

    Mr. Elliot Lifson: There are not enough people in all the city of Ottawa to manage that. It is impossible. You know, it is very easy to change a label and indicate “Made in Bangladesh” or in another country. We tried; it is really impossible to manage that.

    Mr. Pierre Paquette: Would it help you if we put forward a motion to eliminate tariffs on fabrics that are not produced here?

    Mr. Elliot Lifson: Certainly, and it would be particularly helpful for the 3,000 employees on Boulevard Pie IX in Montreal.

    Mr. Pierre Paquette: Thank you.

    The Chair: Thank you, Mr. Paquette.

    Mr. Thibault, it is your turn.

    Hon. Robert Thibault (West Nova, Lib.): I am particularly interested in the employees of Britex in Nova Scotia. The plant that employed them is now closed. I am also interested in the employees at Stanfield's, Windsor Wear and Dominion Textile, which had a plant in Yarmouth up to ten years ago, or perhaps less, which was moved to Magog and is now closed.

º  (1620)  

[English]

    You raised a few very interesting points that to me were very informative. Like Monsieur Paquette, I wasn't able to be here yesterday to hear the bureaucrats speak on the subject.

    There are two elements you bring forward.

    First, to Mr. Lifson and Mr. Silver, you pointed out that you support the trade remedies, or the remedies, for those countries, which I was very pleased to hear, but you see some elements that should be done within Canada to favour the development and maintenance of your industry. I'd be interested to hear more about that, although I don't know if today would be the right context for this.

    As well, you brought up the elimination of all duties on imported textile, and Mr. Rotchin and Mr. Ostrov raised the question of the remissions, which I'm not too familiar with. I understand that's not part of our bill, but it's ancillary to it. Now, I wonder if we should discuss that in the study of other parts of this bill or if we should be talking to the people on the industry committee to see where it should be dealt with properly, because I think these are very interesting points.

    From that I'd like to know, are those on duties for input materials for export only, or are they on duties for import materials generally, including the domestic market? The only reason I see that we would have duties on these products, on these import materials, would be for the protection of domestic industries. It wouldn't be as a revenue source, because if we look at the total revenue of $100 million compared with the cost of putting all of these jobs at risk, it's minimal. If we start losing 65,000 jobs in the textile industry across Canada, it would cost us a lot more than the $100 million we would have in revenue.

    That said, what would you see as the reason they're there when we still have those costs? Were they at one time to protect our industry? Then there's the question on the remissions.

    Finally, are any of you interested in taking over the Britex plant in my riding? It would produce a very good product, and sell international--

    Voices: Oh, oh!

    Hon. Robert Thibault: The other thing I was thinking as you were making your presentation was that it doesn't appear to me to be very much of a domestic industry any more. We are an export industry that manufactures in Canada using materials that come from imports.

    So having heard what you said, and having heard the answer to Mr. Paquette's question on the least developed countries proposal with regard to monitoring that... I mean, putting in another $5 million will have very little effect on the monitoring. It's so easy to get away from it. To me, it might make more sense to eliminate completely the duties on input materials.

    What are you hearing about the reasons why we only went down $9 million rather than completely eliminate these?

    Mr. Bob Silver: To me, you have to look at this from an historical perspective. The duties on imported products, whether they be garments or apparel, were put in place many years ago to protect the Canadian industry from the influx of imports. Even with those duties, a change in the sector has occurred. What used to be 70% domestically supplied is now 35% domestically supplied.

    The problem is that the people who are supposed to be protected by those specific duties no longer exist. I call it “phantom pain”, where the leg is gone but we still have the little twitch. There's nothing left. There's no denim made in Canada. The Britex facility does not make product that is suitable for a jean manufacturer. If indeed you can find a sector that is going to flourish with this production, go ahead and do so--contrary to the north-south issues--but these in fact are phantom protections.

    So what we're protecting is the history of textile production, and while we're protecting that, we're changing the balance of domestic production even quicker than the natural flow of globalization would take it. We're speeding it up quicker than we have to, we're making adjustments more difficult, and we're making the way to deal with the new globalization more difficult. The best way to deal with globalization is to have a percentage of your product made here and a percentage made elsewhere, to blend. If we don't reduce the tariffs on input, that blend is going to be different.

    So that's why I say we should do it; the reason for it is long gone.

    The Chair: Thank you very much, Mr. Thibault.

    Just to comment on your question, we're planning to go into clause-by-clause on this particular bill afterwards. The representations here today are basically in favour of the bill, but there would be nothing to preclude the committee from doing a report on some of these other aspects, including the remission orders, at any time, perhaps on the heels of our report about the bill, which would be passed, either with or without amendment, or defeated. There's nothing to preclude the committee from writing a report at any time on any other aspect, but this wouldn't be relevant to this particular bill in terms of reporting it.

    Mr. Ostrov.

    Mr. Paul Ostrov: Thank you very much, sir.

    I just want to mention that I should have concluded my summation by indicating to you that time is of the essence. The critical thing is that this duty remission program is due to expire at the end of this year.

    The Chair: At the end of this fiscal year?

    Mr. Paul Ostrov: At the end of this calendar year. On December 31 we're facing the double calamity of the remission order falling off and quotas coming off product going into the United States. We're pretty good operators on the world stage, sir, but these are two pretty big issues to have to deal with. Our decisions for next January are being formulated literally in April, May, and June, over the next three or four months, so time is really, really not on our side.

º  (1625)  

    The Chair: Thank you very much. As I said, there's nothing to preclude this committee from writing a report on any related subject at any time.

    Now I'll go to Mr. Shepherd.

    Mr. Alex Shepherd (Durham, Lib.): Just to come back to you, Mr. Silver, I'm interested in the track your raw materials take. Where are they coming from?

    Mr. Bob Silver: Some of my raw materials come from the United States, but they do come from all over the world. My percentage of domestic use is zero. There is no domestic fabric for me to use.

    Mr. Alex Shepherd: But would you also be importing them from some of the scheduled countries that are already on here, that are receiving exemptions on tariffs themselves?

    Mr. Bob Silver: There are no exemptions on denim.

    Mr. Alex Shepherd: So even though it was manufactured in China, you would have to....

    Mr. Bob Silver: That's right. I pay 14.8% on denim for any country in the world besides the United States or a Commonwealth country, where it's 13.8%.

    Mr. Alex Shepherd: Now, some people have suggested that we should be taking...

    I mean, the remission order is a stop-gap measure, as far as I understand, and...[Technical difficulty--Editor]... really don't like the import tariff in the first place, but a remission order is simply a way to kind of deal with it rather than eliminate it, right?

    So I guess the real question gets back to the domestic industry. I don't know to what extent you could actually segment the domestic industry if Mr. Silver is saying that in his products he doesn't use domestic materials and he clearly shouldn't be paying import duties because it doesn't make sense. It must be difficult, though...

    I'm sure that someone in finance is going to tell me it's impossible for us to “sectoral-ize” an exemption--one for Mr. Silver and one for everybody else. Or is the way to go here the remission order? Maybe Mr. Silver should be arguing for a remission order on denim.

    Mr. Randy Rotchin: We should not be viewed as opposed to each other in any specific way. We're, generally speaking, in favour of tariff relief--that's 100% down-the-line tariff relief. If a beautiful, perfect solution could arrive, that's what we're in favour of.

    What we're here to speak to is that there is a remission program, scheduled to expire, that actually presents $32 million worth of tariff relief to roughly 140 or so companies. It is tragic that it's going to disappear without anything to replace it.

    Mr. Alex Shepherd: To play devil's advocate, what would the total elimination of import duties on raw materials in your industry do to the domestic manufacturing industry? You think it's so small.

    In other words, we're saying eliminate these tariffs on imports of raw materials for your industry. What is the estimated impact on the textile industry in Canada if you did that?

    Mr. Bob Silver: The textile industry would have one figure, but you have to look at the changing structure of the textile industry. Twenty years ago, they were suppliers to Western Glove Works, to Elliot, and the other players at this table. But if you look at where their outputs are going now, they're going into different avenues of our economy; it is not for apparel.

    In the textile industry in Canada, with the exception of knit and woven goods, which are different, most of the goods are going into upholstery, automobile manufacturing, geotextiles, and other ends. They've determined that their future isn't supplying me.

    I didn't tell Dominion Textile to close; they closed. I didn't tell Swift to close their denim facility; they closed.

    The ones that will remain will be the ones that find a niche in an industrial marketplace and will continue to grow. If you look at the remnants of Dominion Textile, it's now a company called DIFCO. They're doing quite well, but they're not selling apparel fabrics. There are other uses for the fabrics they sell.

    Mr. Alex Shepherd: That said, the raw material they produce, presumably without the tariffs, would be subjected to imports coming into Canada that would possibly eliminate their business. Is that a fair assessment?

º  (1630)  

    Mr. Bob Silver: It wouldn't eliminate their business if they're doing it in a niche manner. If you want to eliminate it for apparel and not upholstery or furniture, that's a different issue. I can't speak for that.

    I can tell you that it isn't going to do harm to anybody who hasn't sold to me in 20 years and hasn't even come out to see me. I can't tell you; I can't remember the last time a Canadian textile manufacturer came to Winnipeg to sell me fabric, because it hasn't happened.

    The Chair: Thank you very much.

    Mr. Blaikie.

    Hon. Bill Blaikie (Winnipeg—Transcona, NDP): I have just a quick question or comment, Mr. Chairman, because I have to leave. I have to go and speak to a group of young Canadians, called the Forum for Young Canadians, across the street. So I'm going to have to run.

    You said everything has to be taken in context. We can't just look at this particular legislation in an isolated way--and I agree. But it seems to me that part of the larger context that needs to be looked at when we're talking about being competitive, or about a level playing field, or all the language that is used to describe the globalization--and I'm going to be a faithful New Democrat here and say this. One of the things we haven't talked about today is labour standards and the fact that you're not just competing with price bases but that costs are related to labour costs. One of the concerns we have, and I raised it when this bill was briefly debated in the House of Commons, is that more and more of your industry and others are competing with industries or competitors around the world that are located in countries that don't even recognize or enforce core labour standards.

    So it would seem to me that it would be in your interest to be encouraging the Canadian government--unless, of course, you're investing in those companies that don't have core labour standards--to be more active on the global stage, at the WTO and everywhere else to....

    We're just talking about core labour standards. We're not talking about imposing the Canada Labour Code on Cambodia or something. We're talking about the right to organize, not to have slave labour, not to have child labour, and so on. It would seem to me that would be a more complete message, because that is certainly a factor you're dealing with when you're competing, isn't it? I invite your comment.

    Mr. Elliot Lifson: I would like to comment. I'm going to put on my soft hat. I have a little hobby. I teach at McGill University in the MBA program strategy. My class last week was on ethics in leadership.

    Certainly ethics in leadership and governance are not exclusive to our side of the world. We haven't done so great around here. I think ethics in leadership and governance starts right with us. You have to source properly if you source offshore. You have to manufacture in your own backyard, and you have to do it the right way. I don't think it's exclusive to one country. I think it's exclusive to, and is the responsibility of, the people who are in leadership positions to be able to do it.

    Hon. Bill Blaikie: I didn't mention any particular country. I was just asking whether you were advocating inclusion of, let's say, core labour standards at the WTO, or something, and its enforcement.

    I would agree with you that this is not a good time for Canadians to be lecturing people about governance, at least not self-righteously anyway. I'm just talking about labour standards here, not the whole package, so to speak.

    Mr. Elliot Lifson: I also sit on the committee of the Retail Council of Canada on responsible trade. In fact, we're having a meeting this week on Thursday.

    Hon. Bill Blaikie: My concern, Mr. Chairman, is what happens with the acceptance of China into the WTO and that huge labour market there, if ultimately everything can be made in China, in a country that really has the worst of both worlds? It now has capitalism with a socialist dictatorship.

    Mr. Elliot Lifson: You are asking the question, what is the competitive advantage to the industry that remains in this country?

º  (1635)  

    Hon. Bill Blaikie: No, I'm asking, do you not see the absence of the enforcement of core labour standards around the world as one of the factors that contributes to your lack of competitiveness? If you do, then you should be advocating that core labour standards be recognized and enforced.

    Mr. Paul Ostrov: Can I say something?

    The Chair: Mr. Ostrov.

    Mr. Paul Ostrov: Our distribution channel is major retailers in North America for the most part. The standards that are imposed upon us by Target Corporation, by Wal-Mart, by J.C. Penney, by Coles, by Sears U.S.A., by Sears Canada--and I can go all the way down the list--are very stringent. We have to provide information on all the factories that are being used all over the world. We have to have their people go in. They hire independent quality control and compliance auditors to go in and verify time records, child labour records, all of the things you're concerned with.

    I can only speak for our corporation. We became a world player at the highest level of distribution in North America by having the highest level of compliance with all of the things you're concerned about.

    At the same time we're doing that we have been able to maintain a sufficient and significant amount of domestic production in the province of Quebec and in Ontario, producing garments such as these in quantities of tens of thousands at a time by making sure we can compete. The way that has happened has been because of the tariff relief that has been given to us by the remission order that is due to fall in December of this year.

    The Chair: Thank you very much. Thank you, Mr. Ostrov. Thank you, Mr. Blaikie. Thank you very much to all the witnesses for your presentations.

    We're now going to adjourn for a couple of minutes and go into clause-by-clause.

    The meeting is adjourned.