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Apparel manufacturers in Canada are facing big changes in their international trade road map and many are counting on free trade with the U.S. and Mexico to help maintain their competitive edge.
Like in the U.S. and Europe, one of the biggest events facing Canadian apparel makers will arrive Jan. 1, 2005. That’s when the World Trade Organization’s 144 members drop their apparel and textile quotas, which, for more than three decades, have limited the number of low-priced garments poor countries can ship to developed countries.
But Canadian apparel makers, who still domestically produce 40 percent of the garments sold in their country, face a more imminent change: Jan. 1, 2003. That’s when the Canadian government is scheduled to drop all quotas, as well as duties, on garment imports from 48 of the poorest nations, known as lesser developed countries or LDCs.
“We are already watching a steady decline in the prices Canadian retailers will pay [for garments],” said David Howell, vice president of NPD Apparel Tracking, based in Toronto.
As the domestic Canadian market shrinks in the face of increased low-cost import competition, domestic manufacturers — there are 2,000 employing 100,000 workers — are expected to join in and increase their imports to maintain business with profit-hungry retailers, Howell said.
“We’re also seeing an increase in interest among Canadian manufacturers to sell in the U.S., particularly with the lack of strength with our [Canadian] dollar,” he said.
The U.S. is already Canada’s largest apparel export market, established since the inception eight years ago of NAFTA. Almost half of Canadian-made apparel is exported to the U.S., the country’s principal export market.
“NAFTA was hugely important for the Canadian apparel industry,” said Bob Kirke, executive director of the Canadian Apparel Federation. “As we’ve lost domestic share, we’ve picked it up in the States. Truly, our industry is a North American industry. Some of our members sell 90 percent in the States. Some don’t do anything.”
U.S. retailers and specialty stores comprise 70 percent of business for jeans and cotton-trouser producer Western Glove Works Ltd., one of Canada’s leading apparel makers, according to Bob Silver, president. Canada’s share of Silver’s business is about 25 percent. About 5 percent is shared between Europe and Japan, with much of the rest attributed to Internet sales.
“We could certainly grow in the United States and we do see growth in other parts of the world,” said Silver, whose Silver label jeans and private label jeans can be found in U.S. specialty stores and department stores like Nordstrom and Macy’s.
Without NAFTA-generated sales — there are no duties charged on garments when North American textiles are used — Western Glove would likely be much smaller or out of business, Silver said.
“NAFTA opened our eyes to the world and we can’t close them again,” said Silver, whose firm imports 40 percent of its fabric from the U.S., the largest foreign supplier of textiles to Canada.
Silver’s company also has planted roots in the U.S., as owner of Los Angeles swimsuit-maker Beach Patrol.
About 50 percent of Western Glove’s jean and trouser production still occurs in its Winnipeg headquarters, employing 1,000. The balance is produced by contractors in Mexico, China, Guatemala and Macau. Under the evolving trade landscape giving third-world countries more access to Canada’s market, foreign contractors will get more of Silver’s business, but how much remains to be seen.
“We try and maximize the use of our domestic facilities by producing quickly with incredible quality,” said Silver, noting that his company’s strength is its specialty products like its Silver brand jeans. “We are not in the long run going to be a supplier of commodity-type products.”
At Nygård, also based in Winnipeg, NAFTA has been key to increasing sales of its own lines, along with private label business. Canada, followed by the U.S., are Nygård’s main markets, with a smattering of sales in Europe. The company is targeting the U.S. to increase sales.
“Canadian sales have been good, but we can’t expect the kind of growth we’ve seen in the U.S.,” said Pat Chapdelaine, the firm’s vice president of operations and technical design.
The company began selling to the U.S. in earnest four years ago as part of its push to cultivate new generations of consumers as its Canadian customer base grows older, Chapdelaine said.
Nygård has over 500 design and production workers in Canada. About 30 percent of its apparel is produced in Canada or Mexico, using fabric from either country or the U.S., she said.
Textiles from the Far East are also used in Canadian- or Mexican-made Nygård apparel when they’re given duty and quota-free treatment as part of special NAFTA exceptions or Tariff Preference Levels.
Nygård hopes to boost production in Mexico, using Mexican fabric, and is working with factories to be so-called “full-package” suppliers of garments. Chapdelaine said she’s also studying the Canadian government’s LDC apparel and textile duty-dropping plan to see where other sourcing operations may loom. As for Nygård’s domestic production, Chapdelaine said maintaining its small Canadian manufacturing presence will remain key.
“It’s for replenishment, fast turnaround, test orders, a new product,” she said.
Not all Canadian apparel companies are pursuing global strategies to maintain a competitive edge with an increase of imports considered a certainty.
“I did buy from other countries and I was never satisfied with the quality and service and reliability of the relationship,” said Jack Kivenko, owner of Jack Spratt Manufacturing Co., makers of jeans and cotton trousers produced only in its Quebec factory and just for the Canadian market.
However, Kivenko’s private company relies on benefits of NAFTA to buy a “significant” amount of textiles from the U.S.
“Our commitment is to make garments in Canada of primarily Canadian and American textiles,” said Kivenko.
Kivenko said the company is investing substantially in new information technology.
“I think we offer a wonderful package,” said Kivenko, ticking off various pluses, like offering retailers one-week order replenishment and direct deliveries.
Kivenko said he has a negative outlook for Canadian producers manufacturing only for the domestic market.
“We still do our fair share with a number of good customers,” Kivenko said. “If one day we have to fold our tent, then I will learn how to fold a tent.”