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The politics of industrial adjustment in Canada : the case of the footwear industry Ramesh, M. 1988

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THE POLITICS OF INDUSTRIAL ADJUSTMENT IN CANADA THE CASE OF THE FOOTWEAR INDUSTRY By M. RAMESH B.A. (Hons.), Patna University, 1979 M.A., The University of Saskatchewan, 1983 A THESIS SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF DOCTOR OF PHILOSOPHY in THE FACULTY OF GRADUATE STUDIES (Department of P o l i t i c a l Science) We accept this thesis as conforming to the required standard THE UNIVERSITY OF BRITISH COLUMBIA March 1988 Q. M. Ramesh, 1988 In presenting this thesis in partial fulfilment of the requirements for an advanced degree at the University of British Columbia, I agree that the Library shall make it freely available for reference and study. I further agree that permission for extensive copying of this thesis for scholarly purposes may be granted by the head of my department or by his or her representatives. It is understood that copying or publication of this thesis for financial gain shall not be allowed without my written permission. Department of P o l i t i c a l Science The University of British Columbia Vancouver, Canada DE-6 (2/88) i i A B S T R A C T The purpose of t h i s s t u d y i s , f i r s t , to d e s c r i b e the Canadian government's p o l i c y f o r the domestic footwear i n d u s t r y d u r i n g the 1970-1985 p e r i o d , and second, t o account f o r the f o r c e s t h a t shaped i t . The a n a l y s i s i s conducted w i t h i n an " o r g a n i z a t i o n a l " framework, which i s based on the approach d e v e l o p e d by P e t e r H a l l . The framework p o s t u l a t e s t h a t the r e l a t i o n s h i p s w i t h i n and among s t a t e , s o c i e t a l , and i n t e r n a t i o n a l p o l i t i c a l - e c o n o m i c i n s t i t u t i o n s a r e the key d e t e r m i n a n t s of economic p o l i c y . The s t u d y argues t h a t i t i s the c o n f l i c t s w i t h i n and among t h e s t a t e , m a n u f a c t u r i n g i n t e r e s t s ( b u s i n e s s and l a b o u r i n the footwear i n d u s t r y , and those i n the s u p p l y i n g i n d u s t r i e s ) , and t r a d i n g i n t e r e s t s ( i m p o r t e r s and r e t a i l e r s d e a l i n g i n f o o t w e a r ) , c o n d i t i o n e d by i n t e r n a t i o n a l p o l i t i c a l economy, t h a t shaped the government's p o l i c y . I t i s c o n c l u d e d t h a t the s t a t e and m a n u f a c t u r i n g i n t e r e s t s formed i n t e r n a l l y u n i t e d o r g a n i z a t i o n s and pu r s u e d w e l l d e f i n e d o b j e c t i v e s . The s t a t e ' s o b j e c t i v e was t o a s s i s t the i n d u s t r y through h i g h t a r i f f s and f i n a n c i a l a i d f o r m o d e r n i z a t i o n . In c o n t r a s t , t h e m a n u f a c t u r i n g i n t e r e s t s ' o b j e c t i v e was t o secu r e quotas on i m p o r t s . W h i l e the two s i d e s were i n t e r n a l l y u n i t e d , n e i t h e r were s u f f i c i e n t l y s t r o n g t o impose t h e i r o b j e c t i v e s on the o t h e r . The i n t e r n a t i o n a l p o l i t i c a l economy f a v o u r e d the use of t a r i f f s a n d f i n a n c i a l a s s i s t a n c e . A t t h e same t i m e , c i r c u m s t a n c e s a r o s e - - r e s u l t i n g f r o m e c o n o m i c r e c e s s i o n , a p p r e c i a t i o n o f t h e C a n a d i a n d o l l a r , a n d t h e t h r e a t o f Q u e b e c s e p a r a t i s m - -t h a t made i t d i f f i c u l t f o r t h e s t a t e t o r e s i s t t h e m a n u f a c t u r i n g i n t e r e s t s ' d e m a n d s . I n s u c h c i r c u m s t a n c e s , t h e i n d u s t r y s u c c e e d e d , i f o n l y t e m p o r a r i l y , i n s e c u r i n g q u o t a s i n a d d i t i o n t o t a r i f f s a n d f i n a n c i a l a s s i s t a n c e . T h e t r a d i n g i n t e r e s t s w e r e somewha t d i v i d e d among t h e m s e l v e s , w h i c h r e s t r i c t e d t h e i r c a p a c i t y t o p a r t i c i p a t e e f f e c t i v e l y i n t h e p o l i c y p r o c e s s . T h e i r p o s i t i o n s w e r e r e l e v a n t o n l y t o t h e e x t e n t t h e y c o u l d be s e l e c t i v e l y u s e d by t h e s t a t e t o r e s i s t t h e m a n u f a c t u r i n g i n t e r e s t s ' d e m a n d s . A theme o f m a j o r t h e o r e t i c a l s i g n i f i c a n c e t h a t e m e r g e s f r o m t h i s s t u d y i s t h e i m p o r t a n c e o f i n t e r n a t i o n a l p o l i t i c a l economy i n t h e m a k i n g o f d o m e s t i c p o l i c i e s . The s e c o n d t h e o r e t i c a l i m p l i c a t i o n o f t h e s t u d y i s t h e n e e d t o v i e w t h e s t a t e a n d s o c i e t a l a c t o r s i n a p o l i c y p r o c e s s n o t j u s t a s p l a y e r s , b u t a l s o a s s t r u c t u r e s . T h e y f o r m a n o r g a n i z e d r e l a t i o n s h i p , b o t h w i t h i n a n d i n r e l a t i o n t o e a c h o t h e r , w h i c h f a c i l i t a t e s t h e p u r s u i t o f some o b j e c t i v e s a n d i m p e d e s t h e a c c o m p l i s h m e n t o f o t h e r s . i v TABLE OF CONTENTS Abstract II Table of Contents IV L i s t of Tables VII L i s t of Figures IX L i s t of Abbreviations X Acknowledgement XI I . INTRODUCTION 1 Framework For Analysis: An Organizational Approach 6 Literature Survey 15 Economic theories 15 Neo-Marxist Theories 20 Group Theories 27 State-Centric Theories 29 Application Of The Organizational Framework To The Study of The Canadian Footwear Industry 33 II. PROFILE OF THE CANADIAN FOOTWEAR INDUSTRY 39 Number Of Establishments 43 Employment 46 Production 51 Productivity 54 Investment 56 Wages 57 Costs 59 Related Industries 61 Apparent Canadian Market (ACM) 62 Domestic Shipments 68 Imports 73 Domestic Shipments' and Imports' Share of ACM 77 Sources of Imports 81 Exports 84 Finan c i a l Analysis of Firms 85 Conclusion 90 V III. ORGANIZATION OF THE DOMESTIC POLICY ARENA 93 State 94 Bureaucracy 95 Anti-Dumping Tribunal 116 P o l i t i c a l Arena 118 Pr o v i n c i a l Governments 124 Manufacturing Interests 129 Footwear Producers 129 Organized Labour 139 Supplying Industries 145 Trading Interests 147 Large Retailers 148 Small Retailers 153 Importers 159 Consumers' Interests 164 Co-operation Among Interests 167 Conclusion 174 IV. INTERNATIONAL POLITICAL ECONOMY 177 GATT 179 Canada's Trade Objectives 192 Footwear Imports From The EEC 197 Economic Conditions 201 Monetary Exchange Rates 206 International Climate for Protection 209 Conclusion 213 V. TARIFFS ON FOOTWEAR 216 Eff e c t i v e T a r i f f Protection 220 Actual E f f e c t i v e T a r i f f Protection 227 T a r i f f s And Labour Costs 241 Conclusion 244 v i V I . F I N A N C I A L A S S I S T A N C E PROGRAMMES 247 The G o v e r n m e n t ' s P e r s p e c t i v e 248 The I n d u s t r y ' s P e r s p e c t i v e 257 I n d u s t r i a l A d j u s t m e n t P r o g r a m m e s 260 G e n e r a l A d j u s t m e n t A s s i s t a n c e P r o g r a m m e 261 P r o d u c t i v i t y E n h a n c e m e n t P rog ramme 263 J o i n t F e d e r a l - P r o v i n c i a l D e v e l o p m e n t P r o g r a m m e 264 F o o t w e a r S e c t o r S t r a t e g y 267 C a n a d i a n I n d u s t r i a l R e n e w a l P r o g r a m m e 278 L a b o u r A d j u s t m e n t P r o g r a m m e s 287 A d j u s t m e n t A s s i s t a n c e B e n e f i t s P r o g r a m m e 287 L a b o u r A d j u s t m e n t B e n e f i t s P r o g r a m m e 290 L a b o u r A d j u s t m e n t P rogramme 293 C o n c l u s i o n 296 V I I . QUOTAS ON FOOTWEAR IMPORTS 300 P r e - Q u o t a P e r i o d : 1 9 7 0 - 1 9 7 7 305 P e r i o d Of E f f e c t i v e Q u o t a P r o t e c t i o n : 1 9 7 7 - 1 9 8 0 314 B e g i n n i n g O f The E n d Of Q u o t a s : 1 9 8 1 - 1 9 8 4 329 E n d o f Q u o t a s : 1985 344 C o n c l u s i o n 359 V I I I . C O N C L U S I O N 363 B I B L I O G R A P H Y 380 v i i L I S T OF T A B L E S ( 1 ) Number o f F o o t w e a r E s t a b l i s h m e n t s : 1 9 4 5 - 1 9 8 4 44 (2 ) F o o t w e a r E m p l o y m e n t , by R e g i o n : 1 9 4 5 - 1 9 8 4 47 ( 3 ) F o o t w e a r P r o d u c t i o n , i n P a i r s : 1 9 4 5 - 1 9 8 4 52 ( 4 ) P r o d u c t i v i t y , i n P a i r s a n d C o n s t a n t ( 1 9 7 1 ) D o l l a r : 1 9 7 0 - 1 9 8 3 55 (5 ) I n v e s t m e n t a n d C a p i t a l S t o c k , i n C o n s t a n t ( 1 9 7 1 ) D o l l a r : 1 9 7 0 - 1 9 8 3 56 ( 6 ) C o m p a r a t i v e Wage I n d e x : 1 9 7 2 - 1 9 7 6 58 ( 7 ) C o m p a r i s o n o f S e v e r a l I n t e r n a t i o n a l H o u r l y 59 Wage R a t e s : 1 9 8 2 - 1 9 8 3 ( 8 ) C o s t D i s t r i b u t i o n , M a n u f a c t u r i n g a n d F o o t w e a r : 1 9 7 2 - 1 9 8 2 60 ( 9 ) A p p a r e n t C a n a d i a n M a r k e t f o r F o o t w e a r , By S e c t o r : 1 9 7 1 - 1 9 8 4 63 ( 1 0 ) D o m e s t i c S h i p m e n t s , By S e c t o r : 1 9 7 1 - 1 9 8 4 69 ( 1 1 ) D o m e s t i c S h i p m e n t s a n d I m p o r t s A s P e r c e n t a g e o f T o t a l A C M , i n P a i r s : 1 9 7 1 - 1 9 8 4 71 ( 1 2 ) I m p o r t s , By S e c t o r : 1 9 7 1 - 1 9 8 4 74 ( 1 3 ) D o m e s t i c S h i p m e n t s a n d I m p o r t s A s P e r c e n t a g e o f A C M , E x c l u d i n g S p e c i a l P u r p o s e F o o t w e a r 77 ( 1 4 ) P e r c e n t a g e S h a r e o f t h e T o t a l I m p o r t s f o r P r i n c i p a l C o u n t r y o f E x p o r t s , i n P a i r s : 1 9 7 2 - 1 9 8 4 82 ( 1 5 ) The P r o f i t a b i l i t y o f ' A v e r a g e ' F o o t w e a r F i r m : 1 9 6 8 - 1 9 8 3 86 ( 1 6 ) I m p a c t o f E x c h a n g e R a t e F l u c t u a t i o n s on F o o t w e a r I m p o r t s : 1 9 7 8 - 1 9 8 2 208 ( 1 7 ) A v e r a g e N o m i n a l T a r i f f s a n d A v e r a g e E f f e c t i v e T a r i f f s : 1974 a n d 1987 226 ( 1 8 ) A c t u a l N o m i n a l T a r i f f s 234 ( 1 9 ) A c t u a l E f f e c t i v e T a r i f f s 235 v i i i (20) L e a t h e r and V i n y l Footwear, Advantage of Imports: (21) E x p e n d i t u r e s Under AAB/LAB, Workers: 1977-1987 T a r i f f s and Labour Cost 1976 and 1978 243 Footwear and Tanning 291 i x LIST OF FIGURES (1) Footwear E s t a b l i s h m e n t s , By P r o v i n c e 45 (2) Footwear Employment, By P r o v i n c e 48 (3) Footwear P r o d u c t i o n , i n P a i r s 53 (4) Apparent Canadian Market f o r Footwear, i n P a i r s 64 (5) D i s t r i b u t i o n of Domestic Shipments, i n P a i r s 70 (6) Share of Domestic Shipments and Imports 72 (7) D i s t r i b u t i o n of I m p o r t s , i n P a i r s 75 (8) Share of Domestic Shipments and I m p o r t s , E x c l u d i n g S p e c i a l Purpose Footwear 78 L I S T OF A B B R E V I A T I O N S x AAB A d j u s t m e n t A s s i s t a n c e B e n e f i t s P r o g r a m m e ACM A p p a r e n t C a n a d i a n M a r k e t CAC The C o n s u m e r s ' A s s o c i a t i o n o f C a n a d a CCAC The D e p a r t m e n t o f C o n s u m e r s a n d C o r p o r a t e A f f a i r s C E I C D e p a r t m e n t / C o m m i s s i o n o f E m p l o y m e n t a n d I m m i g r a t i o n C I R B The C a n a d i a n I n d u s t r i a l R e n e w a l B o a r d C I R P C a n a d i a n I n d u s t r i a l R e n e w a l B o a r d CSD C e n t r a l e S o c i e t i q u e s D e m o c r a t i q u e s CSRA The C a n a d i a n Shoe R e t a i l e r s ' A s s o c i a t i o n CTTC The C a n a d i a n T r a d e a n d T a r i f f s C o m m i t t e e DREE The D e p a r t m e n t o f R e g i o n a l E c o n o m i c E x p a n s i o n D R I E The D e p a r t m e n t o f R e g i o n a l I n d u s t r i a l E x p a n s i o n E E C The E u r o p e a n E c o n o m i c C o m m u n i t y F I C F o o t w e a r I m p o r t C o m m i t t e e F T I A P F o o t w e a r a n d T a n n i n g I n d u s t r i e s A d j u s t m e n t P r o g r a m G A A P G e n e r a l A d j u s t m e n t A s s i s t a n c e P r o g r a m m e GATT G e n e r a l A g r e e m e n t on T a r i f f s a n d T r a d e I L A P I n d u s t r y a n d L a b o u r A d j u s t m e n t P r o g r a m m e I T C The D e p a r t m e n t o f I n d u s t r y , T r a d e a n d Commerce L A B L a b o u r A d j u s t m e n t B e n e f i t s P r o g r a m m e L A P L a b o u r A d j u s t m e n t P rog ramme L C I C Low C o s t I m p o r t s C o m m i t t e e MFA M u l t i - F i b r e A g r e e m e n t NFCC The N a t i o n a l F o o t w e a r C o n f e r e n c e o f C a n a d a N I C N e w l y I n d u s t r i a l i z i n g C o u n t r y OGR O f f i c e o f G e n e r a l R e l a t i o n s ( I T C ) O I P O f f i c e o f I n d u s t r i a l P o l i c y ( I T C ) OMA O r d e r l y M a r k e t i n g A g r e e m e n t O S I P O f f i c e o f S p e c i a l I m p o r t P o l i c y ( I T C ) OSTR O f f i c e o f S p e c i a l T r a d e R e l a t i o n s ( f o r m e r l y O S I P ) P E P P r o d u c t i v i t y E n h a n c e m e n t P r o g r a m m e RCC R e t a i l C o u n c i l o f C a n a d a S F P S e c t o r F i r m s Programme S I S A C S h o e I n d u s t r y S u p p l i e r s ' A s s o c i a t i o n o f C a n a d a SMAC Shoe M a n u f a c t u r e r s A s s o c i a t i o n o f C a n a d a STRB S p e c i a l T r a d e R e l a t i o n s B u r e a u ( f o r m e r l y OSTR) TAC T a n n e r s ' A s s o c i a t i o n o f C a n a d a T C F T T e x t i l e s , C l o t h i n g , F o o t w e a r , a n d T a n n i n g UFCW The U n i t e d F o o d a n d C o m m e r c i a l W o r k e r s U n i o n U S I T C The U n i t e d S t a t e s I n t e r n a t i o n a l T r a d e C o m m i s s i o n V E R A V o l u n t a r y E x p o r t s R e s t r a i n t A g r e e m e n t x i A C K N O W L E D G E M E N T My g r e a t e s t debt i s to my t h e s i s s u p e r v i s o r , P r o f . Donald B l a k e , f o r h i s p a t i e n c e , t h o u g h t f u l n e s s , humour, and c r i t i c a l i n s i g h t . My o n l y c o m p l a i n t i s t h a t he d i d not a f f o r d me the o p p o r t u n i t y t o blame him f o r my f r u s t r a t i o n s w i t h w r i t i n g the t h e s i s . My study a l s o g a i n e d immensely from the c o n s t r u c t i v e c r i t i c i s m s I r e c e i v e d from P r o f e s s o r s M i c h a e l A t k i n s o n , J i m Brander, A l a n C a i r n s , George Hoberg, and P a u l Tennant, a l l of whom were on my examining committee. I am a l s o i n d e b t e d t o P r o f . K e i t h B a n t i n g f o r , f i r s t , i n t r o d u c i n g me t o the a r e a of p u b l i c p o l i c y and, l a t e r , h e l p i n g me r e f i n e the arguments p r e s e n t e d i n t h i s s t u d y . Mr. M i c h a e l H o w l e t t , a D o c t o r a l c a n d i d a t e a t the Queen's U n i v e r s i t y and one of my c l o s e s t f r i e n d s , was generous w i t h h i s time i n l i s t e n i n g t o my arguments and r e v i e w i n g my e a r l y w r i t t e n d r a f t s . The r e s e a r c h a l s o g a i n e d from i n t e r v i e w s w i t h government o f f i c i a l s i n Ottawa, and w i t h the s t a f f of the Shoe M a n u f a c t u r e r s A s s o c i a t i o n i n M o n t r e a l . T h e i r names appear i n the B i b l i o g r a p h y . I would l i k e t o take t h i s o p p o r t u n i t y t o e x p r e s s my g r a t i t u d e t o L a r s A p l a n d , John Fossum, John S h i e l d s , and J a s b i r S i n g h , f o r t h e i r f r i e n d s h i p over the l a s t s e v e r a l y e a r s . They have done more f o r me than they themselves r e a l i z e . I am a l s o t h a n k f u l t o E l s i e H o l i n s k y , Roger M a l e v e r t , L o u i s e T h e r r i a u l t , and A\Llison Webb f o r t h e i r company w h i l e I was d o i n g r e s e a r c h i n Ottawa. My p a r e n t s , b r o t h e r s , and s i s t e r , w h i l e thousands of m i l e s away, were always a so u r c e of i n s p i r a t i o n . I am t r u l y g r a t e f u l t o them. T h i s t h e s i s i s d e d i c a t e d t o my mother. She i s the one who wanted me t o be a d o c t o r ! 1 Chapter One  INTRODUCTION Change is the essence of economic development. The bi r t h and demise of industries i s a constant feature of the economy. The pace of such changes has been p a r t i c u l a r l y brisk in the post-War period. S h i f t s in demands and rapid advancement and di f f u s i o n of technology have no doubt played, as in the past, a c r i t i c a l role in the process. The l i b e r a l i z a t i o n of international trade after the Second World War only hastened the process and forced many domestic industries to adjust to new international competition. While changes in demand, technology, and l i b e r a l i z e d trade are important in determining the r i s e and decline of industries, one cannot underestimate the government's role in the process. At a time when the government i s deeply involved in the a f f a i r s of the society and economy, i t s p o l i c i e s often determine which industries w i l l be born, which w i l l decline, the pace at which they w i l l decline, and the form in which they w i l l survive. The government's p o l i c i e s , however, are not created in a vacuum and are themselves conditioned by p o l i t i c a l and economic factors, both domestic and internat i o n a l . The extent and form of government involvement in the adjustment process i s not, of course, the same for a l l domestic industries. Some industries, faced with pressures 2 for adjustment, are able to manage the process more on t h e i r own than are others. Insofar as an industry is able to manage adjustment independently , market forces determine the outcome and, as such, the government's role i s correspondingly low. Whether an industry manages adjustment on i t s own or requires government assistance w i l l depend on the options available to i t : for new or s p e c i a l i z e d products, for multinational investment, or for new technology with different production methods.1 In addition, i t w i l l depend on an industry's capacity to u t i l i z e existing options. For some industries, this capacity may be low: "the firms may be small and have limited f i n a n c i a l resources; the work-force may be concentrated in a high unemployment area and r e s i s t change; or management may be highly specialized and 2 conservative." In such cases, an industry w i l l undoubtedly seek government assistance, usually in the form of controls on imports. However, no generalization with regard to the actual form of adjustment across industries i s possible. As Cable has noted, "...a substantial part of the dynamics of adjustment or p r o t e c t i o n i s t behaviour is industry-specific and can be properly understood only through the detailed 3 study of individual industries and the firms within them." V i n c e n t Cable, Economics and the P o l i t i c s of  Protection: Some Case Studies of Industries, World Bank Staff Working Papers (Washington, D.C: World Bank, 1983), p. 1. 2 I b i d . 3 I b i d . 3 Faced with a s i t u a t i o n i n which a domestic i n d u s t r y i s unable to compete or a f f e c t adjustment that would make i t c o m p e t i t i v e , the government has three o p t i o n s . It may refuse to do anything, l e t t i n g the i n d u s t r y atrophy i f i t must aga i n s t c o m p e t i t i o n . T h i s i s the p r e f e r r e d s o l u t i o n f o r most economists who would see the outcome as merely a more e f f i c i e n t a l l o c a t i o n of r e s o u r c e s , whereby the c a p i t a l and labour employed in the uncompetitive i n d u s t r y i s f r e e d to be more g a i n f u l l y employed i n other more co m p e t i t i v e s e c t o r s . The second option f o r the government i s to s h i e l d the i n d u s t r y from imports. For the economists, t h i s i s the l e a s t p r e f e r r e d course because of the i n e f f i c i e n c i e s i t causes in the economy by e r e c t i n g b a r r i e r s to the o p e r a t i o n of market f o r c e s . In c o n t r a s t , most d e c l i n i n g i n d u s t r i e s p r e f e r the government to f o l l o w t h i s route, because i t r e q u i r e s the l e a s t amount of adjustment on t h e i r p a r t . The t h i r d o ption i s to use the f i r s t two i n some combination, while at the same time p r o v i d i n g f i n a n c i a l and/or t e c h n i c a l a s s i s t a n c e toward making the i n d u s t r y c o m p e t i t i v e . Most governments in i n d u s t r i a l i z e d c o u n t r i e s understandably p r o f e s s to be f o l l o w i n g the t h i r d o p t i o n , because i t p a r t l y meets the demands of both supporters and opponents of government i n t e r v e n t i o n i n i n d u s t r i a l adjustment. Since such adjustment p o l i c i e s c o n s i s t of three separate elements --market p r e s s u r e s , p r o t e c t i o n from imports, and f i n a n c i a l / t e c h n i c a l a s s i s t a n c e - - the p r e c i s e nature of the government policy is often unclear. Consequently, i t f a l l s upon the researcher to c l a r i f y the extent to which each of the three components are present in government's adjustment policy for a pa r t i c u l a r industry. The extent to which a government r e l i e s on any of the three instruments depends on numerous endogenous and exogenous factors. On the one hand, in the case of an industry lacking internal resources to adjust, i t depends on that industry's capacity to exert pressure on the government to provide f i n a n c i a l assistance or accord protection from imports. It also, on the other hand, depends on the state's capacity to r e s i s t the industry's demands and impose i t s own d e f i n i t i o n of what i t regards as being best for the industry Thus, the choice of instruments to a s s i s t an industry i s based as much on p o l i t i c a l as on economic-technical grounds. This d i s s e r t a t i o n i s a study of the Canadian government's adjustment policy for the domestic footwear industry during the 1970-1985 period. It examines the industry's adjustment experience and the demands i t placed upon the government, and the l a t t e r ' s policy response. The main task of the thesis, however, is to study the factors that shaped the government's po l i c y . But before proceeding with addressing these questions, t h i s chapter lays out the theoretical framework within which the analysis w i l l be conducted in the subsequent chapters. The footwear industry offers an excellent case 5 study for the understanding of i n d u s t r i a l adjustment p o l i c i e s in Canada. In many ways i t is a t y p i c a l 'declining* industry. Over the last few decades, i t has witnessed decline in terms of production, employment, and share of domestic market vis a vis imports. The trends have continued despite i t s protection by one of the highest barriers among 4 manufacturing industries. While the signs of decline have been pervasive, the existence of t h r i v i n g , export-oriented footwear industries in I t a l y , and to a lesser extent in West Germany, offered genuine hopes to other high wage countries that the industry could be saved from t o t a l disappearance through appropriate public assistance. Consequently, this was an industry which the Canadian government f e l t could benefit from public assistance and did not simply allow the market to take i t s course. The government's e f f o r t s were broad enough and car r i e d over a s u f f i c i e n t l y long time to lend themselves to a systematic analysis. Another reason that warrants i t s study i s simply the fact that i t has not 5 been undertaken before. 4 Andre Blais reports that in the OECD, footwear is protected by second highest levels of t a r i f f , next only to clothing. See h i s , A P o l i t i c a l Sociology of Public Aid to  Industry (Toronto: University of Toronto Press, 1986), pp. 19 and 154. 5 The only available study on the Canadian footwear industry in a Master's research essay by N e i l Buhne, The  P o l i t i c a l Economy of the New Protectionism: The Canadian  Footwear Industry, Unpublished Master's Essay (Carleton University, 1984). It examines the forces that led the Canadian government to re-impose quotas on leather footwear in July, 1982, nine months after they were removed. 6 The footwear industry in Canada was one of the e a r l i e s t manufacturing industries to develop and occupied a c r u c i a l position in the central Canadian economy u n t i l the F i r s t World War. Its decline to a position of one of the smaller industries over th i s century i t s e l f makes for an interesting case for the study of i n d u s t r i a l adjustment policy . The industry i s the only one in Canada (outside the a g r i c u l t u r a l and t e x t i l e s sectors, which enjoy special status under international trade laws) to have been protected by import quotas under the provisions of GATT. It has also received one of the highest, in relation to i t s size, levels of f i n a n c i a l assistance from the government. Indeed, only the pulp and paper, ship-building, defence and automobile industries have received higher levels of assistance; but a l l these are much larger than the footwear industry.^ FRAMEWORK FOR ANALYSIS: AN ORGANIZATIONAL APPROACH Economic policy-making i s about allo c a t i o n of scarce resources. This i s so because of the l i m i t s to the resources at the state's disposal to meet the demands of i t s ^See Department of Regional Industrial Expansion, "Canada's Industrial Adjustment: Federal Government P o l i c i e s and Programs" in John Whaley (ed.), Domestic P o l i c i e s and the  International Economic Environment (Toronto: University of Toronto Press, 1985), pp. 215-242. 7 socie t a l constituents. The p o l i t i c a l and economic constraints on the state's capacity to raise f i n a n c i a l resources make i t v i r t u a l l y impossible for i t to f u l f i l l a l l soc i e t a l demands. Consequently, the state must decide which demands w i l l be met and which w i l l be denied. In this sense, economic policy-making i s an e x p l i c i t l y p o l i t i c a l act. What is puzzling i s the neglect economic p o l i c i e s , e s p e c i a l l y those of micro-economic nature, have received in the hands of 7 p o l i t i c a l s c i e n t i s t s . To avoid the p i t f a l l of a study degenerating into a series of unrelated observations, an analysis of p o l i c y -making must be conducted within an a n a l y t i c a l framework. At the same time, i t i s almost impossible to develop precise hypotheses with respect to factors that shape p o l i c i e s across time, nations, and problems. A policy i s conditioned by the p e c u l i a r i t i e s of the time period in question, the cha r a c t e r i s t i c s of the nation's economy and p o l i t i c s , and the nature of the problems being confronted. It is also shaped by the unique c o n s t e l l a t i o n of interests involved in the making of each p o l i c y . Given the variations in the interests, processes, and circumstances surrounding d i f f e r e n t p o l i c i e s , i t i s v i r t u a l l y impossible to develop a common an a l y t i c a l framework for the study of a l l public p o l i c i e s . ^Indeed the only study of policy for a s p e c i f i c Canadian manufacturing industry by a p o l i t i c a l s c i e n t i s t s i s Rianne Mahon, The P o l i t i c s of Industrial Restructuring: Canadian  Textiles (Toronto: Toronto University Press, 1984). 8 What is instead required i s separate frameworks for the study of similar p o l i c i e s . Even then, the frameworks must be s u f f i c i e n t l y f l e x i b l e to take into account the subtle differences among clo s e l y - r e l a t e d p o l i c i e s . The making of adjustment policy for an import-competing industry lacking internal capacity to adjust to changed business conditions involves three separate actors: state, manufacturing interests, and trading interests. State in federal p o l i t i e s consists of two leve l s of government, both of which are governed by separate sets of bureaucrats and p o l i t i c i a n s . The concept refers not only to o f f i c i a l s who staff the positions but to the structural locations of the positions as well. The role of the state in i n d u s t r i a l adjustment policy, indeed any economic policy, arises from the imperatives of the workings of markets. The operations of the market i s predicated upon the existence of rules of conduct, and the authority to enforce them. It i s the state that formulates and enforces such rules, which makes i t an integral part of the market. The state i s not, however, to be understood as an actor l i k e others in the market. It alone in the society possesses legitimate right to use force, which gives i t a unique capacity to impose i t s w i l l on others. In fact, i t i s the state's formally expressed preferences that are known as public p o l i c i e s . Moreover, unlike those of other actors, the state's interests in policy-making are not related to gains 9 in terms of p r o f i t s or wages. Its interests rather arise from i t s general commitment to promoting economic prosperity of the nation through maintaining adequate p r o f i t a b i l i t y and an acceptable l e v e l of employment in the o v e r a l l economy. In this sense, i t s interests are larger than those of the c a p i t a l or labour in any particular sector of the economy. The manufacturing interests consist of workers and owners in the industry in question. Since i t i s their problems that a policy i s intended to address, t h e i r interests c r i t i c a l l y a f f e c t the outcomes of the process. Undoubtedly, c a p i t a l ' s interest in p r o f i t s and labour's interests in wages bring them into c o n f l i c t on numerous key issues a f f e c t i n g them. In the case of weak industries suffering from imports, however,, p r o f i t s and wages are closely t i e d to the health of the industry, which leads business and labour to forge a common position with regard to government assistance. The c a p i t a l in such industries is usually supported by labour in i t s demand for protection from imports, which are seen by both as impairing their interests. Neither i s favourable to f i n a n c i a l assistance for " r a t i o n a l i z a t i o n " , which causes redundancies in both invested c a p i t a l and employment. Considering the congruence in the interests of c a p i t a l and labour in declining industries suffering from imports, i t i s appropriate to group them together as constituting 'manufacturing i n t e r e s t s ' . Manufacturing i s , of course, only a part of the 10 market process. The manufactured product must be sold, and bought. This function generates another category of organized interests, traders. These include exporters, importers and r e t a i l e r s . They are the intermediaries l i n k i n g producers with consumers. Their interests are l i k e l y to be different from producers in a competitive economy because their relentless search for p r o f i t s creates imperatives to buy cheap and s e l l dear. This means i f they can buy more cheaply abroad, they would do so, thus damaging the interests of the domestic producers. Consequently, there is a considerable difference between the interests of producers and those of traders, which shapes the c o n f l i c t i n g objectives they pursue in the p o l i c y arena. It i s therefore useful to treat them separately as "trading interests". In addition to state, producers, and traders - - a l l of which exist within a nation-- adjustment policy-making i s also conditioned by the nation's position in the structure of g the international p o l i t i c a l economy. A l l modern nations trade with each other, and this a f f e c t s their domestic economies. While the levels and content of their trade are Q For arguments in favour of including international factors in the study of domestic p o l i c i e s , see Peter Gourevitch, "The Second Image Reversed: The International Sources of Domestic P o l i c i e s " , International Organization, XXXII(4), Autumn, 1978, pp. 881-912. For an example of a study that incorporates international factors in the study of domestic economic p o l i c i e s , see Ian Urquhart, Interdependence, State Competition, and National Policy:  Regulating the B r i t i s h Columbia and Washington P a c i f i c Salmon  Fisheries, 1957-1984, Unpublished Ph.D. thesis (The University of B r i t i s h Columbia, 1987). 11 in constant flux, the relationships they engender display a modicum of continuity and s t a b i l i t y . . There are international t r e a t i e s , such as GATT, which regulate the conduct of trade. Then there are h i s t o r i c a l patterns of trade which are not easy for nations to break. These establish a structure of relationships which impose constraints and provide opportunities to the domestic policy-makers on an enduring basis. Therefore, in order to understand policy-making in the domestic arena, one must also study the impact of the structure of the international p o l i t i c a l economy. The concept of international p o l i t i c a l economy i s , however, broader than those used for analyses of the domestic i n s t i t u t i o n s . State, manufacturing interests and trading interests are both structures and actors. As actors, they have interests which they constantly seek to accomplish. As structures, they form an organized relationship which conditions the pursuit of their interests. In contrast, while individual nations are actors to the extent they have interests they constantly pursue, the international p o l i t i c a l economy i t s e l f has no interest, and hence cannot be regarded as an actor. It i s a structure alone which conditions the r e a l i z a t i o n of the nations' interests and the interests within each of them. While state, manufacturing interests, trading interests, and international p o l i t i c a l economy are d i s t i n c t i v e structures, they are far from being monolithic. 1 2 The state consists of bureaucratic and p o l i t i c a l i n s t i t u t i o n s , which are themselves s p l i t along numerous cross-cutting d i v i s i o n s . The interests of the various components of the state may or may not converge on a p a r t i c u l a r issue. The configuration of c o n f l i c t or co-operation among them has a c r i t i c a l impact on the making of public p o l i c i e s . S i m i l a r l y , manufacturing and trading interests contain cleavages along regional, sectoral, organized-nonorganized, and national-international l i n e s . Usually, there i s no super-ordinating body to a u t h o r i t a t i v e l y aggregate the c o n f l i c t i n g objectives of the various fractions that exist within each. This i s in contrast to the state which at least has a p o l i t i c a l executive at the apex with the authority to control the various components. The structure of the international p o l i t i c a l economy i s even more loose than those in the domestic arena. It does not contain a body, such as state, with the authority to impose i t s decisions on c o n f l i c t i n g p a r t i e s . There i s also no basic law such as constitution which binds the behaviour of the international actors. International agreements are indeed weak substitutes for constitutions because of their voluntary nature. As argued by Peter H a l l , the aspect of the i n s t i t u t i o n s that i s p a r t i c u l a r l y c r i t i c a l in policy-making i s their organization. The term organization i s used here to 13 g describe a structured relationship. According to H a l l , the concept refers to the i n s t i t u t i o n a l relationships, both formal and conventional, that bind the components of the s t a t e n together and structure i t s relations with society. The structures of the relationships within and among the state, manufacturing interests, trading interests, and international p o l i t i c a l economy have a c r i t i c a l impact on policy-making for several reasons. A given organization f a c i l i t a t e s some interests and impedes others, which a f f e c t s the way actors define their objectives. Actors adjust their objectives to take advantage of the existing organizational structures and to avoid the constraints imposed by them. Moreover, the process of transforming individual members' preferences into the organization's position imbues the l a t t e r with the p e c u l i a r i t i e s of the organization in which i t takes place. F i n a l l y , by defining the power of each actor in re l a t i o n to others, organization determines the force with which an interest can press i t s objectives on others. What i s being argued here i s that the organization of the governmental, s o c i e t a l , and international i n s t i t u t i o n s do matter in policy-making. It a f f e c t s what demands w i l l be made, how they w i l l be made, which w i l l be listened to, and 9 Peter A. H a l l , Governing the Economy: The P o l i t i c s of State Intervention in B r i t a i n and France, (Cambridge: P o l i t y Press, 1986). 1°Ibid., p. 19. 1 4 the form in which they w i l l be met. Leon Lindberg has made this point rather well: [ i n s t i t u t i o n s ] are not merely aggregates of individual preferences or passive mechanisms for the transmission of economic [or p o l i t i c a l ] impulses, but constitute a h i s t o r i c a l l y s p e c i f i c constraint and opportunity structure that implies an enduring d i v i s i o n of labour and rules of play, that establishes d i s t i n c t i v e capacities and incapacities, and that the strategies any ind i v i d u a l , economic agent^or p o l i t i c a l authority can adopt to achieve i t s aims. In addition to organizational factors, the predominant ideas or ideology in state, business, labour, and international p o l i t i c a l economy must also be taken into account. Individual actors hold particular ideas which lead them to define their objectives in a p a r t i c u l a r way and r e s t r i c t their perception of alternatives. However, the role of ideas in policy-making must not be exaggerated, as some 1 2 analysts have done. While ideas do influence actors' choices, they are always mediated by the i n s t i t u t i o n a l structures in which they operate. More importantly, in order to be realized, ideas need an i n s t i t u t i o n a l structure for their dissemination. Consequently, research into i n d u s t r i a l adjustment p o l i c y , while not ignoring ideology, must always Leon Lindberg, "The Problem of Economic Theory in Explaining Economic Performance", The Annals of the American  Academy of P o l i t i c a l and Social Sciences, No. 459, January, 1982, p.24 12 . . . See, for example, Anthony King, "Ideas, Institutions and the P o l i c i e s of Governments" B r i t i s h Journal of P o l i t i c a l Science, III, July and October, 1973, pp. 291-313, 409-423, and A. Shonfield, Modern Capitalism (Oxford: Oxford University Press, 1969) . 15 view i t within the particular i n s t i t u t i o n a l structure in 1 3 which i t e x i s t s . The organizational framework for the study of adjustment policy developed here i s not, however, a novel invention. It rather reformulates and builds upon concepts and categories present in several existing a n a l y t i c a l approaches. The following review of the l i t e r a t u r e w i l l reveal that each approach contains some useful elements, yet f a i l s to provide a complete explanation of the p o l i c y . LITERATURE SURVEY ECONOMIC THEORIES Analysis of economic p o l i c i e s was once an almost exclusive preserve of economists, and even today continues to be dominated by them. The common thread that binds a l l economic analyses i s their overwhelming bel i e f in the e f f i c a c y of market forces in y i e l d i n g an optimal a l l o c a t i o n of resources. Welfare economists were the f i r s t in the profession to devote their attention to economic p o l i c i e s . 1 4 However, their emphasis on economic rationales of policy to 1 3 See H a l l , op. c i t . , pp. 276-280, and John Zysman, Governments, Markets, and Growth: Financial Systems and the  P o l i t i c s of Industrial Change (Ithaca: Cornell University Press, 1983), p. 288. 1 4 See Albert Breton, A Conceptual Basis for an  Industrial Strategy (Ottawa: Economic Council of Canada, 1974), William G. S. Watson, Primer on the Economics of  Industrial Policy (Toronto: Ontario Economic Council, 1983), 16 the exclusion o f . a l l others makes for an inadequate a n a l y t i c a l framework. P o l i t i c i a n s are more often than not guided by rationales other than optimal a l l o c a t i o n of 1 5 . resources. Unless one examines these non-economic rationales, i t cannot be known why the government did what i t d i d . In recent years, public choice economists claim to have bridged the shortcomings of welfare economists by including p o l i t i c a l factors in their models. They accomplish that by employing the tools of neo-classical economic analysis to the study of p o l i t i c s . Public Choice theories, in the words of one of i t s p r a c t i t i o n e r s , "...seek to analyze p o l i t i c a l processes and the interaction between the economy and the p o l i t y by using the tools of modern (neoclassical) [economic] a n a l y s i s . T h e i r unit of analysis i s the individual, who i s assumed to be r a t i o n a l , seeking to maximize his/her interests. In t h i s view, p o l i t i c s i s a competition among individuals whose goals are access to power or scarce resources.... p o l i c i e s are best explained as the outcome of a game-like contest in which power-seeking individuals, and i n s t i t u t i o n s acting l i k e individuals, compete for resources and the support of electors who are also seeking to maximize their and Peter Urban, "Theoretical J u s t i f i c a t i o n s for Industrial Policy", in Gerard F. Adams and Lawrence R. Klein (eds.), Industrial P o l i c i e s for Growth and Competitiveness: An  Economic Perspective (Lexington: Lexington Books, 1983). 15 . B l a i s , P o l i t i c a l Sociology, op. c i t . , p. 5. 1^Bruno S. Frey, "The Public Choice View of International P o l i t i c a l Economy", International Organization, XXXVIIIO), Winter, 1984, p. 201. 17 1 7 personal resources. According to the theory, individuals, t y p i c a l l y through groups, 'demand' transfers from the government, which i s w i l l i n g to 'supply' them at a 'price', in the form of money, votes, or other benefits. Since transfers to one group are made at the expense of other groups, the p o l i t i c i a n s ' and bureaucrats' a b i l i t y to execute the 'transaction' is limited by the force of the opposition (actual or potential) from those who are denied benefits. The resulting government decisions are what constitute p o l i c i e s . The public choice theorists have u n t i l now fpcussed their attention only upon certain areas. One such area for 1 8 study i s protection from imports. Most public choice analysts argue that there is a " p o l i t i c a l market" for protection in which certain business and labour groups demand, and the government supplies, protection. This occurs H a l l , op.cit, p. 10. 1 8 See, for example, Robert E. Baldwin, "The P o l i t i c a l Economy of Protectionism" in J. N. Bhagwati (ed.), Import  Competition and Response (Chicago: University of Chicago Press, 1982), pp. 263-292, and Kym Anderson and Robert E Baldwin, The P o l i t i c a l Market for Protection in Industrial  Countries: Empirical Evidences (Washington, D.C: World Bank, 1981). Moreover, there are studies by some scholars who would not describe themselves as public choice theorists, but their works can nevertheless be c l a s s i f i e d as being in this t r a d i t i o n . See J. J . Pincus, Pressure Groups and P o l i t i c s in  Antebellum T a r i f f s (New York: Columbia University Press, 1977), R.E.Caves, "Economic Models of P o l i t i c a l Choice: Canada's T a r i f f Structure", Canadian Journal of Economics, May, 1976, pp. 279-300, and G. K. Helliener, "The P o l i t i c a l Economy of Canada's T a r i f f Structure: An Alternative Model", Canadian Journal of Economics, 1977, pp. 318-329. 18 despite the opposition o f other producer and consumer groups who are disadvantaged by such measures. In the contest between pro- and a n t i - free trade groups, each assumes resources used by the other group to influence the [level of protection] w i l l be constant and then calculates i t s own optimal input of lobbying resources on this basis. Assuming that the process is stable, an equilibrium l e v e l and d i s t r i b u t i o n of lobbying expenditures i s reached. This equilibrium also determines the l e v e l of the t a r i f f [or other f o r m S j O f protection] re s u l t i n g from the p o l i t i c a l struggle. A basic assumption of a l l these studies is that i t i s easier for the groups demanding protection to organize to lobby than those (mainly domestic exporters, importers, and consumers) opposing i t , because of concentration of benefits among few in the case of the former and the dispersion of rewards among a large number of members in the case of the l a t t e r . Another area to have received much attention from public choice economists is bureaucracy. Like other actors, bureaucrats are viewed as constantly seeking to maximize "...prestige, power, and influence that they enjoy r e l a t i v e to the group of people they are o f f i c i a l l y designed to 20 'serve', their c l i e n t e l e . " They are seen as per s i s t e n t l y working towards the expansion of the programmes and budgets under their control because of the additional power and 1 9 Frey, op. c i t , p. 210 2 0 I b i d . , 212. 19 2 1 prestige such expansions provide to them. For these same reasons, bureaucrats supposedly support pro t e c t i o n i s t demands from their c l i e n t groups. The public choice framework suffers from serious lacunae. The appropriateness of rat i o n a l individuals maximizing their s e l f - i n t e r e s t as the basic unit of analysis 22 has been questioned by some c r i t i c s of the theory. More serious, however, i s the fact that the behaviour predicted by the theory does not always occur in practice. Application of the logic of t h i s theory to the Canadian footwear policy, for example, would lead to the conclusion that the producer and labour groups in the footwear industry were increasingly demanding higher levels of protection and larger amounts of f i n a n c i a l assistance. They were only nominally opposed by consumer groups, footwear importers, and the exporters in other sectors. Considering the weak opposition to the producers' demands, and their own p r o c l i v i t y towards expansion, both p o l i t i c i a n s and bureaucrats were by and large meeting the demands. While there are elements of truth in such a 21 See G. Tullock, The P o l i t i c s of Bureaucracy (Washington, D.C: Public A f f a i r s Press, 1965) , and W. A. Niskanen, Bureaucracy and Representative Government (Chicago: Aldene Atherton, 1971). For a c r i t i c a l appraisal of this view, see Michael M. Atkinson, "The Bureaucracy and Industrial Policy" in Andre Blais (ed.), Industrial Policy (Toronto: University of Toronto Press, 1986), pp. 263-271. 22 See B. Burkitt and M. Spiers, "The Economic Theory of P o l i t i c s : A Re-Appraisal", International Journal of Social  Economics, X(2), December, 1983, pp. 12-21. scenario, i t is far from being completely true. Subsequent chapters w i l l show that the Canadian government, despite opposition from the industry, made repeated attempts to reduce the level of quota protection afforded the industry. In 1985, even the f i n a n c i a l assistance programmes for the industry were terminated. The premise that p o l i t i c i a n s and bureaucrats always seek to maximize the budgets and programmes under their control, and that they are w i l l i n g to s a t i s f y their c l i e n t groups' demands, i s a false start for research because such behaviour on the part of the state o f f i c i a l s cannot be assumed a p r i o r i . Nevertheless, the theory i s useful insofar as i t emphasizes the c o n f l i c t s among so c i e t a l groups for government's largesse and their resolution on the basis of p o l i t i c a l considerations. It also c o r r e c t l y groups actors in the policy process as consisting of state, protectionist interests (producers and workers), and a n t i - p r o t e c t i o n i s t interests (exporters, importers, r e t a i l e r s , and consumers). NEC-MARXIST THEORIES The instrumentalist neo-marxists argue, echoing Karl Marx, that the state i s an instrument, a l b e i t an indir e c t one, in the hands of the ruling class for furthering 23 . i t s interests. In t h i s view, in the words of Bob Jessop, 23 Ralph Miliband i s generally regarded as the chief proponent of this l i n e of thought. See h i s , The State in  C a p i t a l i s t Society (New York: Basic Books, 1969), and Marxism 21 c a p i t a l rules to just that extent that individual c a p i t a l i s t s , p a r t i c u l a r firms, s p e c i f i c fractions or sectors of c a p i t a l , or the c a p i t a l i s t class as a whole can employ the state as an instrument to promote their interests at the expense of other classes and s o c i a l forces. While the state is allowed some autonomy, i t is argued that the s i m i l a r i t y in the class background of state o f f i c i a l s and c a p i t a l i s t s leads to p o l i c i e s favouring the l a t t e r . The c a p i t a l i s t s are not only related to state o f f i c i a l s in terms of career or personal t i e s , but also command enormous resources to exert pressure on the l a t t e r from outside the state arena. In Canada, Leo Panitch i s a proponent of t h i s point of view. 2^ The instrumentalist theory i s not very helpful in 2 6 understanding policy-making. The s o c i a l and class backgrounds of the state o f f i c i a l s and their position on economic issues are so varied i t is not apparent how they would be able to promote the c a p i t a l i s t s ' interests, and P o l i t i c s (Oxford: Oxford University Press, 1977). 24 Bob Jessop, "The C a p i t a l i s t State and the Rule of Cap i t a l : Problems in the Analyses of Business Associations", West European P o l i t i c s , VI (2), A p r i l , 1983, p. 140. 25 See his "The Role and Nature of the Canadian State" in Leo Panitch (ed.), The Canadian State: P o l i t i c a l Economy and  P o l i t i c a l Power (Toronto: University of Toronto Press, 1977), pp. 3-27. 2 6 For a general c r i t i q u e of the theory, see Theda Skocpol> " P o l i t i c a l Response to C a p i t a l i s t C r i s i s : Neo-Marxist Theories of the State and the Case of the New Deal", P o l i t i c s and Society, X(2), 1980, pp. 160-169, and Jessop, op. c i t . , p. 140. regardless of their personal and professional t i e s . Moreover, the c a p i t a l i s t s themselves are often divided on the basis of their immediate interests to an extent that makes i t improbable they would be able to apply concerted pressure on state o f f i c i a l s on s p e c i f i c issues. The approach also underestimates the capacity of the state to i n i t i a t e actions autonomous of the c a p i t a l i s t classes. It has been argued quite persuasively by some that states are capable of . . . 27 autonomous actions in s p e c i f i c circumstances. F i n a l l y , the theory ignores the importance of the organization of the state in shaping p o l i c i e s . As Jessop has noted: This approach ignores the e f f e c t s of state forms on the process of representation and the ways in which the interests of c a p i t a l can be affected and redefined through changes in the state system and/or the balance of p o l i t i c a l forces within which c a p i t a l i s t s must manoeuvre. The s t r u c t u r a l i s t theory, as o r i g i n a l l y formulated by Nicos Poulantzas, and later modified by others, represents 29 a s i g n i f i c a n t departure from e a r l i e r Marxist theories. The See discussion on state autonomy in the sections on s t r u c t u r a l i s t marxist and state-centric theories in this chapter. 2 8 Jessop, Op. c i t . , p. 140. 29 See Nicos Poulantzas, "The Problems of the C a p i t a l i s t State" in Robin Blackburn (ed.), Ideology in Social Sciences (New York: Vintage Books, Random House, 1973), and his P o l i t i c a l power and Social Classes, translated by Timothy 0'Hogen (London: New Left Books, 1973). Poulantzas formulation has been s i g n i f i c a n t l y modified, and improved, by Fred Block. See his "The Ruling Class Does not Rule: Notes on the Marxist Theory of the State", S o c i a l i s t Review, May-June, 1977, pp. 6-28, and "Beyond Relative Autonomy: State Managers as H i s t o r i c a l Subjects" in Ralph Miliband and John theory argues that c a p i t a l i s t s do not have to staff the state apparatus, or exert d i r e c t pressure on i t , to secure p o l i c i e s favourable to their i n t e r e s t s . Rather, such an outcome i s ensured through the functioning of the c a p i t a l i s t system i t s e l f . The theory emphasizes the constraints capitalism imposes on the state which prevent the l a t t e r from pursuing p o l i c i e s contrary to the interests of c a p i t a l . The state, for instance, w i l l not take an action that w i l l undermine the c a p i t a l i s t s ' interests because of the l a t t e r ' s control over the economy, the smooth functioning of which is essential for the survival of the state i t s e l f . Cognizant of the c o n f l i c t s among various fractions of c a p i t a l , the theory postulates that one of the c r i t i c a l functions of the state i s to "organize" these c o n f l i c t s . S t r u c t u r a l i s t marxists view the state as " r e l a t i v e l y autonomous" of the c a p i t a l i s t s class which makes i t "capable of transcending the parochial, individualized interests of s p e c i f i c c a p i t a l i s t s and 30 c a p i t a l i s t class f r a c t i o n s . " At the same time, i t "also enforces whatever concessions the current struggle makes 31 necessary i f the dominated classes are to be kept in l i n e . " Rianne Mahon's study of the Canadian policy for the t e x t i l e s industry follows t h i s approach with some S a v i l l e (eds.), S o c i a l i s t Register (London: Merlin Press, 1980) 30 Quoted in Skocpol, op. c i t . , p. 170. 3 1 Ibid., p. 171. m o d i f i c a t i o n s . She views Canada's economic p o l i c i e s as "...the r e s u l t of an unequal but l a r g e l y p o s i t i v e - s u m ( i e . , m u t u a l l y b e n e f i c i a l ) r e l a t i o n s h i p w i t h i n and between d o m i n a t i o n " of the " s t a p l e s c a p i t a l " (which c o n s i s t e d of m e r c h a n t - f i n a n c i e r s i n the n i n e t e e n t h c e n t u r y and monopoly c a p i t a l i n the r e s o u r c e s e c t o r i n t h i s c e n t u r y ) has ensured t h a t the s t a t e ' s p o l i c i e s would be d i r e c t e d a t promoting the s t a p l e s c a p i t a l ' s "core m a t e r i a l i n t e r e s t s " . A t - t h e same time , the s t a p l e c a p i t a l ' s : p o l i t i c a l pre-eminence r e s t s on i t s c a p a c i t y t o secure the consent of o t h e r f r a c t i o n s of the dominant c l a s s and of the s u b o r d i n a t e d c l a s s e s . . . . The r e l a t i v e autonomy of the p o l i t i c a l under c a p i t a l i s m means t h a t o t h e r f o r c e s can, and do, a s s e r t t h e i r p r e s e n c e by s t r u g g l i n g t o advance t h e i r i n t e r e s t s . A c c o r d i n g l y , i n o r d e r t o m a i n t a i n i t s hegemony, the l e a d i n g f r a c t i o n w i l l have t o make c e r t a i n s a c r i f i c e s , which a l l o w o t h e r f o r c e s t o r e a l i z e c e r t a i n of t h e i r i n t e r e s t s . The hegemonic f r a c t i o n , however, i s l a r g e l y i n c a p a b l e of f o r m u l a t i n g and implementing such a s t r a t e g y of compromises on i t s own. R a t h e r , i t i s through the s t a t e t h a t the s e r i e s of compromises^^n which hegemony i s founded i s n o r m a l l y o r g a n i z e d . both s o c i e t a l and s t a t i s t f a c t o r s . On t h e one hand, she emphasizes the c o n f l i c t s w i t h i n and between hegemonic and s u b o r d i n a t e c l a s s e s , which de t e r m i n e t h e i r r e s p e c t i v e c a p a c i t i e s t o p l a c e demands on the s t a t e . She a l s o , on the c l a s s e s . 33 She argues t h a t i n Canada the "hegemonic c l a s s Mahon's approach a l l o w s her t o take i n t o account 32 Mahon, op. c i t . 33 I b i d p. 9. 34. I b i d pp. 9-10. other hand, takes the factors related to state into account by underscoring the importance of decision-making structures. In her words: The state i s not a simple transmitter, whose policy outputs are a direct function of p o l i t i c a l inputs. Embedded in the apparatus of the state i s a structure that normally permits i t to translate p a r t i c u l a r demands with policy compromises compatible- with the maintenance of a pa r t i c u l a r pattern of hegemonic class domination. It i s able to do so to the extent that this structure of representation exhibits a pattern of inequality that corresponds to the broader r e l a t i o n of forces in the society. Mahon's approach c o r r e c t l y emphasizes the organization of the state and s o c i e t a l actors and the relationships among them as the key determinants of poli c y . Yet her analysis e n t i r e l y ignores the role of the international factors. An inquiry into these factors would have shown that the structure of the international p o l i t i c a l economy played a c r i t i c a l role in shaping the Canadian t e x t i l e s p o l i c y . Textiles is the only manufacturing industry which can be l e g a l l y protected from imports on a long-term basis under international trade laws. Moreover, a large percentage of clothing imports originate in developing countries which enables developed countries to r e s t r i c t them with impunity. The policy of "contingent protection" followed for the t e x t i l e s industry would be v i r t u a l l y impossible to maintain on any other product on a long-term basis, as Canada found out while dealing with quotas on Ibid., p. 38. footwear imports. Consequently, a study of i n d u s t r i a l p o l i c y must take the structure of international p o l i t i c a l economy into account. Mahon's study also does not escape the tautology in 3 6 which most s t r u c t u r a l i s t theories find themselves. The assumption that whatever the state does, i s in the interest of the "hegemonic c a p i t a l " makes the study of any policy somewhat uninteresting and even ir r e l e v a n t . It precludes the p o s s i b i l i t y of autonomous actions inimical to the core interests of the hegemon. It i s hard to see how, for example, Canada's National Energy Program favoured the staples c a p i t a l . The "dependency theorists", unlike other neo-marxists, do attribute central importance to international • . 37 p o l i t i c a l economy in their analyses. Despite the divergences among the scholars working in this t r a d i t i o n , they a l l to a greater or lesser extent explain domestic See Skocpol, op. c i t . , pp. 171-181. 37 . . For an excellent brief review of the l i t e r a t u r e , see Henry Veltmeyer, "A Central Issue in Dependency Theory", Canadian Review of Sociology and Anthropology, XVIII(3), August, 1980, pp. 198-213. For a s p i r i t e d defence of the theory, and examples of study on Canada adopting th i s approach, see the special issue on "Beyond Dependency", Canadian Journal of P o l i t i c a l and Social Theory, VII(3), F a l l , 1983. For a c r i t i c a l review of studies in Canada following this t r a d i t i o n , see Daniel Glenday, "The 'Dependencia' School in Canada: An Examination and Evaluation", Canadian Journal of Sociology and Anthropology, XX(3), August, 1983, pp. 346-358. For a marxist c r i t i q u e of the theories' relevance to Canada, see special issue on "Rethinking Canadian P o l i t i c a l Economy", Studies in P o l i t i c a l Economy, VI, Autumn, 1981. economic developments in terms of the imperatives of the unequal economic relationships between the "core" and the "peripheral" economies. However, while there may be some merits to viewing the Canadian economy as a " s a t e l l i t e " of the American "metropolis", the analogy would be misplaced in the case of the footwear industry. This industry i s for the most part Canadian-owned, and has been increasingly so since the 1960s. Indeed, the accelerated rate of the industry's Canadianization coincided with aggravation of i t s problems. It i s doubtful i f one w i l l learn much by viewing these developments as being geared towards serving the material interests of. the "metropolis", whose own footwear industries were suffering from problems similar to those being encountered by their counterparts in Canada. GROUP THEORIES In an o r i g i n a l formulation of group theory, Arthur Bentley remarked: "The great task in the study of any form of soci a l l i f e i s the analysis of ... groups. When the groups 3 8 are adequately stated, everything is stated." While few analysts in recent times would go as far as Bentley, echoes of his statement can be heard even today. These theories regard p o l i c i e s as an outcome of constant competition among various interest groups within the society. The state i s 38 Quoted in H a l l , op. c i t . , p. 14. viewed as a neutral body, merely responding to the p o l i t i c a l pressures exerted upon i t by groups, which are endowed with r e l a t i v e l y equal p o l i t i c a l resources. The great virtue of this position i s that i t draws attention to some of the sources of pressure on the state to take a pa r t i c u l a r decision and to the fact that state must have some support among the populace for i t s p o l i c i e s . Beyond that, the theory says l i t t l e . There are no automatic ways in which interest representations by groups are transformed into p o l i c i e s . Each society and p o l i t y i s structured in a pa r t i c u l a r form which affects what demands w i l l be made, how they w i l l be made, which w i l l be listened to, and the form in which they w i l l be met. It i s also possible that the state w i l l manipulate the interests of the groups, or w i l l even formulate p o l i c i e s autonomously of group pressures. The group theory simply leaves too many questions unanswered. Not surprisingly, empirical tests of the hypothesis that groups are the c r i t i c a l determinants of p o l i c i e s have yielded 39 negative or inconclusive findings. In any event, group theory has never been popular among Canadian p o l i t i c a l s c i e n t i s t s studying public p o l i c i e s . See B l a i s , P o l i t i c a l Sociology, op. c i t . , pp. 77-80. STATE-CENTRIC THEORIES Recently, there has developed a body of l i t e r a t u r e which views p o l i c i e s as a result of factors related to the state. One of the e a r l i e s t examples of emphasis on state for explaining p o l i c i e s can be found in the "bureaucratic p o l i t i c s " theory, o r i g i n a l l y formulated by Graham Allison, 4*^ 4 1 but subsequently adopted by others as well. Their main postulate is that each bureaucratic agency, and the o f f i c i a l s s t a f f i n g i t , has i t s own goals, and varying degrees of capacity to accomplish them, and that policy i s the outcome of c o n f l i c t and co-operation among them. This interpretation lacks a comprehensive conception of the p o l i t y . While i t i s undoubtedly true that bureaucracy has an impact on p o l i c i e s , i t would be s i m p l i s t i c to assume that other factors are 42 irrelevant. The theory sheds no l i g h t on how interests of the bureaus originate, why they define their interests the way they do, how they represent their interests, and, most 40 Graham A l l i s o n , The Essence of Decision (Boston: L i t t l e , Brown, 1974). 41 See, for example, Gerald Wright, "Bureaucratic P o l i t i c s and Canada's Foreign Economic Policy", in Denis Sta i r s and Gilb e r t Winham (eds.) Selected Problems in  Formulating Foreign Economic Policy (Toronto: University of Toronto Press, 1985), pp. 9-58, and M. Halperin, Bureaucratic  P o l i t i c s and Foreign Policy (Washington, D.C: Brookings I n s t i t u t i o n , 1974), and Richard Schultz, Federalism,  Bureaucracy and Public Policy: The P o l i t i c s of Highway  Transport Regulation (Montreal: McGill-Queen's University Press, 1980). 42 • . . . . For a c r i t i q u e of the bureaucratic p o l i t i c s model, see Atkinson, in B l a i s , op. c i t . , pp. 271-279. 30 importantly, how they implement their decisions on a populace which had no role in the formulation of the p o l i c y . The li n e of inquiry emphasizing the " s o c i a l learning" process among state o f f i c i a l s as the primary determinant of policy also contains some useful elements.^ Undoubtedly, new p o l i c i e s are "...influenced by the procedural legacy and p o l i t i c a l lessons of older p o l i c i e s in 44 related f i e l d s . " However, to claim t h i s to be a complete explanation is c l e a r l y an exaggeration. While these analyses regard the state as a c r u c i a l determinant of p o l i c y , the development of a conscious framework claiming to be ' s t a t i s t ' i s of much more recent 45 46 o r i g i n . Works, for example, by Katzenstein, Krasner, 47 48 49 Nordligner, Skocpol, and Zysman e x p l i c i t l y reject the 43 The only consistent application of this approach i s Hugh Heclo, Modern Social P o l i t i c s in B r i t a i n and Sweden (New Haven: Yale University Press, 1974). 44 H a l l , op. c i t . , p.16. 4 5 Peter Katzenstein(ed.), Between Power and Plenty:  Foreign Economic P o l i c i e s of Advanced Industrial States (Madison: University of Wisconsin Press, 1978). See Introduction and Conclusions. 46 Stephen Krasner, Defending the National Interest (Princeton: Princeton University Press, 1980). 47 Eric Nordlinger, On the Autonomy of the Democratic  State (Cambridge, Mas.: Harvard University Press, 1981). 48 Peter Evans, D i e t r i c h Rueschemeyer, Theda Skocpol (eds.), Bringing the State Back In (Cambridge: Cambridge University Press, 1985). 31 societal theories and instead underscore the importance of state as an actor. As Nordlinger puts i t , the democratic state i s frequently autonomous in translating i t s own preferences into authoritative actions, and markedly autonomous in doing so even when t h e y diverge from t h o s e held by t h e g D o l i t i c a l l y weightiest groups of c i v i l society. Similarly, according to Katzenstein, The locus of decision in a state-centered model of policy l i e s in the public realm; in many ways states organize the society they c o n t r o l . The ' s t a t i s t ' interpretation of foreign economic policy discounts mass preferences, p o l i t i c a l parties, and elections, which are viewed as the e f f e c t s rather than the causes of government po l i c y . Interest groups are not autonomous agents exerting the pressure which shapes policy but subsidiary agents of the state. The role of the state in independently formulating and implementing p o l i c i e s i s , as represented in these quotations, indeed complete. It does not take much to r e a l i z e that a t t r i b u t i n g so much importance to the role of the state i s an exaggeration. It i s improbable that any state could enjoy such a degree of freedom in policy-making. Fortunately, the s t a t i s t theorists themselves do not believe in the absolute autonomy of the state, as their statements quoted above suggest. In order to distinguish their approach from those emphasizing s o c i e t a l factors, they c l e a r l y overstated their 49 John Zysman, P o l i t i c a l Strategies for Industrial  Order; State, Market, and Industry in France (Berkeley: University of C a l i f o r n i a Press, 1977), and Governments, op. c i t 50 Nordlinger, op. c i t . , p. 203. Katzenstein, op. c i t . , p. 18. case. A closer reading of their works shows they were not, in fact, claiming the converse of s o c i e t a l theories. Unlike the l a t t e r , which assume the state to be dependent on society, the s t a t i s t theories do not claim i t is the society that is the subject of the state. They are merely proposing that state might act independently, depending on i t s relationship to the society. Thus, what they are e s s e n t i a l l y suggesting i s that while explaining p o l i c i e s the role of the 52 state must be examined as much as that of the society. Nevertheless, there i s an inherent tension in the state-centric l i t e r a t u r e . While i t seeks to emphasize the central role of state actors, i t finds i t impossible to ignore the s o c i e t a l actors. Katzenstein's concept of "ruling c o a l i t i o n " , consisting of dominant state and s o c i a l 53 actors, and Zysman's " i n s t i t u t i o n a l arrangements" of the 54 state and society do not overcome this lacuna. What they lack is a precise t h e o r e t i c a l framework which systematically takes state and s o c i e t a l actors into account and c l e a r l y delineates the aspects of both that are relevant to analyzing 52 Thus, Katzenstein at another place in the book asserts, "The actors in society and state influencing the d e f i n i t i o n of foreign economic policy objectives consist of the major interest groups and p o l i t i c a l action groups." Op.  c i t . , p. 19. S i m i l a r l y , according to Nordlinger, "...the preference of the state are at least as important as those of c i v i l society in accounting for what the democratic state does and does not do." Op. c i t . 53 Katzenstein, op. c i t . , p. 308 54 Zysman, Governments, op. c i t . , pp. 295-319 p o l i c i e s . They also need to include the role of international factors in their analyses of domestic economic p o l i c i e s . Peter Hall's organizational approach to a large extent overcomes these shortcomings. However, his insistence on the organization of the state, c a p i t a l , labour, international economy, and p o l i t i c a l system as the primary 55 . determinants of policy i s misleading. As was stated e a r l i e r , the footwear policy process did not involve v e r t i c a l l y - i n t e g r a t e d business or labour interests. Rather, the interests cut across the two, depending on whether they belonged to the manufacturing or the trading sectors. The actors or structures that play a c r i t i c a l role in the policy process cannot be assumed a p r i o r i . They instead vary by policy in question, and hence inferences can be drawn only through an inductive analysis. The modified organizational approach developed e a r l i e r in thi s chapter bridges the shortcomings in Hall's approach. APPLICATION OF THE ORGANIZATIONAL FRAMEWORK TO THE STUDY OF THE CANADIAN FOOTWEAR INDUSTRY The state in Canada consists of two levels of government: federal and p r o v i n c i a l . Both levels consist of two components: bureaucratic and p o l i t i c a l . The bureaucracy H a l l , op. c i t . , p. 232. consists of, as in other countries, myriad departments, agencies and the l i k e , each of which has i t s own objectives and varying degrees of capacity to accomplish them. While the bureaucracy technically operates under the dir e c t control of the p o l i t i c a l executive, in r e a l i t y , i t s expertise and the lack of time on the part of the l a t t e r -to supervise i t makes i t markedly autonomous. Depending on the issue, the members of parliament are somewhat divided on regional bases across party-lines. The p r o v i n c i a l governments, which largely replicate the formal organization of the federal government, enjoy enormous f i n a n c i a l and constitutional autonomy from Ottawa. This enables them to play a s i g n i f i c a n t role even in areas exclusively under Ottawa's j u r i s d i c t i o n . ^ The relationship among the provinces is often marked by c o n f l i c t s , based on their varying regional i n t e r e s t s . Since the main instruments of i n d u s t r i a l policy l i e in the hands of the federal government, the study w i l l concentrate mainly on Ottawa's role in the policy process. It enjoys exclusive control over two of the chief instruments of i n d u s t r i a l p o l i c y , t a r i f f s and quotas on imports. Similarly, more than two-thirds of the funds for f i n a n c i a l assistance to industries come d i r e c t l y from the federal See Alan Cairns, "The Governments and Societies of Canadian Federalism" Canadian Journal of P o l i t i c a l Science, X(4), December, 1977, pp. 695-725, and Garth Stevenson, U n f u l f i l l e d Union (Toronto: Macmillan, 1979). government. While studying the federal government's involvement in policy-making, the bureaucratic and p o l i t i c a l arenas w i l l be examined separately. The manufacturing interests involved in the making of the policy for the footwear industry consisted of the producers and labour in the industry, and those in the supplying industries. A l l of them had an interest in ensuring the continued manufacturing of the product in Canada and shared a common opposition to imports. The trading interests consisted of footwear importers and r e t a i l e r s in Canada. Similar to the manufacturing interests, they also included business and labour. In fact, the size of the labour force employed in footwear manufacturing and trade was about the same. The workers in the importing or the r e t a i l sectors, however, were almost e n t i r e l y non-unionized, which was reflected in their almost t o t a l lack of p a r t i c i p a t i o n in the policy process. Therefore, while studying the role of trading interests, one can safely concentrate on business interests involved in importing and r e t a i l i n g . In summary, the relevant categories for analyzing the domestic arena for making policy for the footwear industry are state (mainly the federal government), manufacturing interests (including business and labour), and trading interests (including importers and r e t a i l e r s ) . In l i n e with the framework developed in the preceding section, 57 B l a i s , " P o l i t i c a l Sociology", op. c i t . , p. 29. the organization of the three w i l l be examined separately. Each w i l l be studied with regard to i t s i n t e r e s t s , internal unity, ideological position, and the legal and circumstantial constraints on i t . These factors together w i l l explain each's objectives and i t s capacity to r e a l i z e them. In addition, one must examine the structure of the relationship among them because i t is possible an organization can overcome i t s lack of capacity to r e a l i z e i t s interests by co-operating with others. Hence, the l e v e l of c o n f l i c t and co-operation among state, business and trading interests w i l l also be studied. A study of Canada's position in the international p o l i t i c a l economy must include factors related to the nation's international legal commitments, i t s broad trade objectives, i t s international diplomatic and economic relations, and other international diplomatic and economic factors relevant to footwear trade. These factors, as stated e a r l i e r , f a c i l i t a t e the r e a l i z a t i o n of some domestic actors' objectives and work against those of others. Consequently, the study w i l l examine the d i f f e r e n t i a l impact the international p o l i t i c a l economy has had on the domestic actors, and the l a t t e r ' s response to i t . This introductory chapter, which forms Chapter One, reviewed various theories of policy-making and developed an a n a l y t i c a l framework for the study of adjustment policy-making for the footwear industry. It proposed that to ascertain a complete understanding of the making of policy for the domestic footwear industry in Canada, one must study the relationships within and among state, footwear manufacturing interests, footwear trading interests, and the international p o l i t i c a l economy as pertaining to footwear trade. Chapter Two w i l l draw a s t a t i s t i c a l p r o f i l e of the industry. This w i l l lead to the understanding of the nature of the problems that the policy-makers were trying to solve. Chapter Three w i l l analyze the domestic policy arena, with s p e c i f i c reference to the footwear industry. It w i l l separately analyze the organization of the state, manufacturing interests, and trading interests. The purpose of the analysis w i l l be to show the interests each was pursuing, and the opportunities and constraints the actors faced in their pursuits. Chapter Four w i l l deal with the international p o l i t i c a l economy with reference to Canada. The emphasis w i l l be on demonstrating that international factors favoured some domestic actors and worked against others. Chapters Five, Six and Seven w i l l provide a detailed study of the Canadian government's p o l i c i e s for the domestic footwear industry. Chapter Five w i l l examine t a r i f f p o l i c i e s . Chapter Six w i l l study f i n a n c i a l assistance programmes for the industry. S i m i l a r l y , Chapter Seven w i l l study the government's policy on quotas on footwear imports. The conclusions drawn in the e a r l i e r chapters w i l l be constantly related to s p e c i f i c p o l i c i e s . There are, of course, more instruments than t a r i f f , f i n a n c i a l assistance and quota that a government can employ as a part of i t s 58 in d u s t r i a l p o l i c y . However, these were the only three instruments through which the Canadian government assisted the domestic footwear industry. Others were not at a l l used or were directed at the manufacturing industry in general. Chapter Eight summarizes the arguments developed in this dissertation and presents them in the context of the existing l i t e r a t u r e on economic p o l i c y . Blais has developed the following taxonomy of instruments of i n d u s t r i a l p o l i c y : government enterprise, direct f i n a n c i a l or technical assistance, tax allowance, t a r i f f , regulation of competition and foreign investment, government procurement, and special protection against imports (quotas), B l a i s , "Industrial Policy in Advanced C a p i t a l i s t Democracies" in Blais (ed.), op. c i t . , pp. 1-54. A l l these instruments were examined by this researcher for their relevance to the footwear industry, but none except the three were found to have been used d i r e c t l y to a s s i s t this industry. Chapter Two PROFILE OF THE CANADIAN FOOTWEAR INDUSTRY The history of shoe-making in Canada goes as far back as early French settlement in Lower Canada. In 1653, the o f f i c i a l census showed three shoe makers in what is now known as Quebec. Their number had increased to twenty by 1667.1 However, i t was not u n t i l the late 1700s that a small-scale footwear industry in i t s truest sense was established in Quebec. In Ontario, or Upper Canada as i t was then c a l l e d , i t developed much l a t e r , after the War of 1812-2 14. The National Policy, which sought to develop indigenous manufacturing industries behind t a r i f f b a r riers, was p a r t i c u l a r l y b e n e f i c i a l to the growth of the industry. At the turn of the century, the footwear industry was one of the largest in Canada. In the 1870s, the leather industry (the largest component of which i s the footwear industry) ranked t h i r d in terms of employment and fourth in terms of value-added among manufacturing industries in 3 Canada. Since in the early years the industry for the most part was located in Quebec, es p e c i a l l y in and around Montreal and Quebec City, the economy of the province was c r i t i c a l l y 1Footwear Forum, August, 1984, p.7. 2 Footwear Forum, May, 1985, p. 11. 3 Anthony Blackburn and Robert Putnam, The Industrial  Geography of Canada (New York: St. Martins, 1984), pp.25-26. dependent on i t s well-being. In fact, as late as the early 4 1950s, footwear was the largest industry in Montreal. Despite i t s size and importance, the Canadian footwear industry was not known for innovation, and was largely content with supplying the home-market behind steep t a r i f f b a r r i e r s . It went through i t s greatest transformation in the late nineteenth century when sewing machines were f i r s t introduced. As a result of the introduction of this new technology, the more than 5000 shoe-making establishments that existed in the 1890s rapidly shrank to 179 by 1901.5 In contrast to other manufacturing industries which constantly experience new product and production process technology, the footwear industry did not experience any r a d i c a l change for most of t h i s century. This was largely because of the nature of the main input material, leather, which does not lend i t s e l f e a s i l y to mechanized patterning, grading, cutting, or l a s t i n g . The overa l l situation u n t i l the mid-1950s, however, was one of stable growth.^ The calm was broken with the 4 Footwear Forum, January, 1986, p. 18. Shoe Manufacturers Association of Canada (hereafter referred to as SMAC), "Submission to the Royal Commission on Canada's Economic Prospects", March 1, 1956. ^The industry, however, was marked by an unusually high degree of labour-unrest in the early decades of t h i s century. See Jacques Ferland, "Syndicalism «parcellaire>> et syndicalism «collectif>> une interpretation socio-technique des c o n f l i t s ouviers dans deux industries quebecoises", Labour/Le T r a v a i l l e u r , Spring, 1987, pp. 49-88. Also see Jacques R o u i l l a r d , H i s t o i r i de  la CSN: 1921-1981 (Montreal: Boreal Express/CSN, 1981), p. 103. emergence of the Far Eastern countries as aggressive exporters of rubber and canvas footwear. With modern plants and low wages, these countries could produce footwear, mainly non-leather footwear, at a price the domestic industry could not match. The condition of the domestic industry was deteriorating so rapidly the government hurriedly negotiated export restraint agreement with Japan in 1960, and subsequently with Taiwan and China. But the conditions continued to worsen, and so the agreements were allowed to lapse in the mid-1960s. However, the bulk of the industry, which was concentrated in the making of leather footwear, was s t i l l r e l a t i v e l y immune from import competition. The leather footwear industry's woes began around 1970 with the increase in imports from Europe, especially Italy, which was subsequently joined by other countries. The new wave of imports was more injurious than the previous ones because i t consisted mostly of fashionable leather footwear, precisely the sector in which Canadian production was concentrated. The women's footwear sector, which was mainly located in Quebec, was p a r t i c u l a r l y hard h i t . The e r r a t i c increases in world leather prices and the general s h i f t towards casual l i f e - s t y l e s increased the popularity of non-leather footwear, which was mostly supplied by the Far Eastern countries. Thus, by the mid-1970s, the Canadian producers began to suffer from imports from both Europe and the Far East. The emergence of B r a z i l as a major exporter of women's leather footwear further compounded the problem. To top i t a l l , the generally poor economic conditions through much of the 1970s and the early 1980s, and the tremendous fluctuations in exchange rates in the mid-1970s and early 1980s, caused havoc for the already suffering domestic producers. Canada, however, was not unique in this regard because leather footwear industries in other i n d u s t r i a l i z e d countries, except Italy, were experiencing similar problems. An OECD report published in 1976 noted: The i n t e n s i f i c a t i o n of international competition, changes in sources of supply, and trends in consumer fashion have a l l l e f t their mark on the i n d u s t r i a l sector of footwear. The structure of the 'industry, the main feature of which is the preponderance of small firms with t r a d i t i o n a l and family methods of management and production, makes i t p a r t i c u l a r l y vulnerable to any changes in ^ ts environment, whereas i t s a b i l i t y to adapt is limited. It was under conditions of pervasive decline and market i n s t a b i l i t y , compounded by the industry's low adaptive capacity, that the Canadian government became involved in as s i s t i n g the domestic footwear industry. The purpose of t h i s chapter i s to discuss the business conditions of the footwear industry during the 1970-1985 period. The economic indicators relevant to policy-making w i l l be especially highlighted. The discussion w i l l f a c i l i t a t e the understanding of the factors that precipitated 7 OECD, The Footwear Industry: Structure and Governmental  P o l i c i e s (Paris: OECD, 1976), p. 10. 43 the need for a policy, or changes to i t . However, i t must be mentioned at the outset that the indicators were highly contradictory, allowing for d i f f e r e n t interpretations of the same trend. The footwear industry, following S t a t i s t i c s Canada's 1970 Standard Industrial C l a s s i f i c a t i o n (SIC) No. 1740, includes "those establishments primarily engaged in manufacturing boots, shoes, sli p p e r s , moccasins and similar footwear." Although the 1980 SIC includes rubber footwear as well, the analysis to follow w i l l exclude them for a l l years in order to maintain conformity with the 1970-1982 data published by S t a t i s t i c s Canada and the 1970-1984 data compiled by the Anti Dumping Tribunal (since 1984 known as the Canadian Import Tribunal) in i t s four Reports on the industry.^ NUMBER OF ESTABLISHMENTS Table I shows that between 1950 and 1984 the number of establishments in the Canadian footwear industry declined from 292 to 174, a decline of almost 40 per cent. Dramatic as the decline in the number of footwear establishments may be, g Anti-Dumping Tribunal, Report Respecting the Effects of  Footwear Imports on Canadian Production of Like Goods (Ottawa: Information Canada, A p r i l , 1973), Report of the Anti-Dumping  Tribunal Respecting the Effects of Imports on the Canadian  Footwear Industry (Ottawa: Supply and Services, September, 1973), Report of the Anti-Dumping Tribunal Respecting the Canadian  Footwear Industry (Ottawa: Supply and Services, February , T981), and Canadian Import Tribunal, Report Respecting the Canadian  Footwear Industry (Ottawa: Supply and Services, June, 1985). i t does not accurately r e f l e c t the number of establishments which closed down each year. Because of the ease of entry into the industry, due to the small c a p i t a l requirements, the establishments that cease operation are rapidly replaced by new entrants. The high turnover rate i s not reflected in the aggregate figures in the table. Table I NUMBER OF FOOTWEAR ESTABLISHMENTS: 1945-1984 YEAR CANADA QUBEC (%) ONTARIO (%) OTHER (%) 1945 263 167 63 72 28 22 8 1 950 292 184 63 87 30 21 7 1955 257 151 59 87 34 19 7 1 960 249 146 59 87 35 16 6 1965 221 117 53 87 39 17 8 1970 189 100 53 79 42 10 5 1 971 183 95 52 77 42 1 1 6 1972 171 92 54 68 40 1 1 6 1973 164 84 51 69 42 1 1 7 1974 167 85 51 71 43 1 1 6 1975 1 58 83 53 65 41 10 6 1976 1 54 82 53 62 40 10 7 1977 1 56 79 50 65 42 12 8 1978 1 56 72 46 69 44 15 10 1979 171 81 47 73 43 17 10 1980 162 73 45 74 46 1 5 9 1981 158 69 44 74 47 15 9 1982 162 72 45 78 48 12 7 1 983 176 80 45 84 47 12 7 1 984 1 74 76 44 86 49 12 7 Source: S t a t i s t i c s Canada, Catalogue Nos. 33 -203 and 33-207. Between 1945 and 1965, about 60 per cent of the footwear establishments in Canada were located in Quebec. The province's share of the t o t a l number of establishments 300 Figure FOOTWEAR ESTAUSHM ENTS, BY PROVINCE A A i i A £ ir "A~ 1981 1 1 1 1 1 1 i | i | 1945 1955 1965 1971 1973 1975 YEAR 1977 1979 1983 declined constantly after the mid-1960s, and by 1977 i t had less than 47 per cent of the t o t a l establishments. On the other hand, since 1945, Ontario has been constantly increasing i t s percentage share of the t o t a l establishments. In fact, since 1980, there have been more footwear establishments in Ontario than in Quebec. EMPLOYMENT An examination of Table II reveals that employment in the footwear industry during the 1945-1984 period fluctuated on a regular basis with a general tendency toward decline. Employment decreased from 20,232 in 1960 ( i t had remained at about th i s l e v e l since 1945) to 16,494 in 1981, and to 14,355 in 1982 (the lowest in t h i s century), increasing to 17,399 in 1984. Thus, i t declined by almost 14 per cent between 1960 and 1984. However, t h i s drastic decline masks the great fluctuations in employment trends over the years. In many instances the annual decrease was less than 2 per cent, whereas in certain other years i t was as high as 13 per cent. Employment, of course, decreases both with decline in production and with increase in productivity. Indeed the l a t t e r scenario seems to have been the case with the footwear industry u n t i l 1970. Over the twenty-five year period after 1945, production increased by more than six m i l l i o n pairs but employment decreased by over 2,200 workers, a pattern which Table II FOOTWEAR EMPLOYMENT, BY REGION: 1945-1984 YEAR CANADA QUEBEC ( %) ONTARIO (%) 1945 20096 1 3401 67 5836 29 1950 20785 12917 62 7041 34 1955 1 9829 1 1896 60 6950 35 1960 20232 1 1668 58 7973 39 1965 20434 10895 53 8663 42 1970 17845 9391 53 7883 44 1 971 17605 8856 50 8192 46 1972 17045 8746 51 7740 45 1973 16829 8403 50 7842 47 1974 16421 8077 49 7781 47 1975 16860 8312 49 8054 48 1976 16486 7647 46 831 1 50 1977 14498 6576 45 7512 52 1978 15169 6518 43 8269 54 1979 16194 7035 43 8750 54 1 980 15496 6351 41 8686 56 1981 16494 6726 43 9217 56 1982 14355 6153 41 7744 54 1983 16833 6536 38 9803 58 1 984 17399 6555 38 12287 59 Source: Anti-Dumping Tribunal, Reports, 1973, 1977, 1981, 1985, op. c i t . can only be explained by increased productivity in the industry,that i s to say, the displacement of labour by more e f f i c i e n t machines, production processes, and management techniques. Since the early 1970s, however, i t seems that the decrease in employment has been occasioned more by the general decrease in the volume of production. At the same time, as w i l l be seen l a t e r , employment did not decline as much as overall production, indicating the trend towards Figure II Footwaar Employment, By Rag km 1945 1955 1965 1971 1973 1975 1977 1979 1981 1983 Yaor CO production of more labour-intensive, more value-added footwear in Canada. This s h i f t in production toward footwear with a higher labour content offset employment losses due to the decline in production. The annual increases/decreases depicted in Table II, also do not show the fluctuations in weekly hours for which production workers were employed. At times of low production, i t i s common among footwear plants to reduce the working hours of the employees, without laying them o f f . For instance, during the 1960s, production workers in the footwear industry on average worked 2000 hours per year, which was considerably lower than the average for a l l 9 manufacturing. With regard to regional d i s t r i b u t i o n , Quebec's share of t o t a l employment in the industry has been declining constantly in almost every year, decreasing from 67 per cent of the t o t a l in 1945 to 38 per cent in 1984. In contrast, Ontario's share has been increasing correspondingly, r i s i n g from 29 per cent of the t o t a l in 1945 to 59 per cent of the t o t a l in 1984. As a re s u l t , since 1976, more than half the t o t a l footwear workers have been located in Ontario. It i s also evident from Table II that the decline in employment was proportionately higher in Quebec, whereas in Ontario the overal l decrease was only marginal. Female employment in the Canadian footwear industry g Tribunal, Report, 1973, op. c i t . , p. 29 increased constantly during the period under consideration, r i s i n g from 50 per cent of the t o t a l in 1962 to 66 per cent of the t o t a l in 1976.1^ In Quebec, i t increased from 48 per cent to 60 per cent of the t o t a l between 1962 and 1976. The increase was even more evident in Ontario, where i t increased from 55 per cent to 72 per cent of the t o t a l during the same period. The higher male employment in Quebec r e f l e c t s the fact that proportionately larger number of footwear establishments in the province have been in smaller communities where alternate employment opportunities are few and male workers in the industry continue to be the primary income-earners in the family. Conversely, the location of larger number of footwear plants in the urban centres in Ontario has meant that men work in more l u c r a t i v e industries outside footwear, whereas women work in the footwear plants for supplementary income to the family. In terms of regional d i s t r i b u t i o n of employment in the industry by sector, approximately 63 per cent of those employed in the men's/boys' sector, and about 44 per cent of those employed in the women's/girls' sector, were located in O n t a r i o . 1 1 In contrast, 55 per cent of the t o t a l in the women's/girls' sector and 31 per cent of the t o t a l employed l 0See Tribunal, Report, 1977, op. c i t . , p. 2.8. 1 11982 i s the only year for which data i s available in this form. See Tribunal, 1985, op. c i t . , p. 106. 51 in the men'/boys' sector were located in Quebec. At the same time, 54 per cent of the t o t a l footwear employment in Quebec was in women's/girls' sector, whereas only 42 per cent of the footwear employment in Ontario i s in the men's/boys' sector. This break-down in sectoral employment c l e a r l y shows that the Quebec industry was far more dependent on the women's/girls' sector than the Ontario industry was on any par t i c u l a r sector. PRODUCTION Table III shows that t o t a l footwear production, in terms of pairs, after reaching i t s peak in 1968, declined u n t i l 1971, when i t began to r i s e again, reaching an all-time (except for 1968) high in 1974. Then began a period of three year decline which in 1977 ended up in the lowest volume of production since at least 1960. Production in 1977 was 23 per cent lower than the le v e l in 1974. This massive decline was occasioned by the general recessionary conditions of 1975, which reduced footwear consumption, and the influx of imports in 1976 and 1977. Following the introduction of quotas on imports in December 1977, production rose at a healthy rate in 1978 and 1979. It again began to decrease in the following years, steeply in 1980, moderately in 1981, and steeply again in 1982. The magnitude of this l a t e s t decline would be better appreciated i f i t i s realized that production in 1982 was at the lowest point since 1950. The 1982 dip in T a b l e I I I FOOTWEAR PRODUCTION, IN PAIRS: 1945-1984 YEAR PAIRS (Million) 1 945 38.95 1950 33.03 1955 38.78 1960 43.83 1965 47.47 1970 45. 18 1 971 45. 1 1 1 972 46.45 1973 46.23 1 974 50.07 1975 42.26 1976 40.84 1977 38.27 1978 43.59' 1979 44.91 1 980 37.66 1981 38.48 1 982 33.08 1983 35. 1 1 1 984 40.70 Note: Figures for 1945-1973 exclude canvas footwear. Source: Anti-Dumping Tribunal, Reports, 1973, 1977, 1981, and 1985, op. c i t . production was no doubt caused by the worst recession in Canadian post-war history. Production during 1983-1986 again began to increase at a healthy rate, r e f l e c t i n g the up-turn in the Canadian economy during t h i s period. However, the t o t a l volume of production only gives a p a r t i a l picture of the footwear production in Canada, for i t i s possible that Canadian production, despite decline in Figure III FOOTWEAR PRODUCTION, IN PAIRS • i i 1 1 i | i 1 1 1 1 1 1 1 , — 1945 1955 1965 1971 1973 1975 1977 1979 1981 1983 Yaar pairage, may have increased in terms of value. Indeed t h i s seems to have been the case since the early 1970s when footwear production i s examined in terms of constant d o l l a r , as shown in Table IV. It shows that the value of production increased by 9 per cent between 1974 and 1983, despite the 30 per cent decline in the volume of production during the same period depicted in Table I I I . This was the result of the fact that the average constant dollar value of a pair of footwear increased from $4.90 in 1974 to $7.60 in 1983, indicating a s h i f t towards production of higher quali t y , more labour-intensive, and higher priced leather footwear. PRODUCTIVITY Productivity i s a measure of the e f f i c i e n c y with which inputs are employed in the production of a unit of output. Although the calculation of productivity should id e a l l y take a l l inputs into account, i t i s usually measured against only one input, labour, because of the inherent d i f f i c u l t i e s in measuring the amount of c a p i t a l used in the production of a p a r t i c u l a r output. However, when one talks of labour productivity, i t does not mean that i t includes only labour's contribution to the output. Rather i t is a result of a l l inputs that go into production, but measured against per unit of labour. The f i r s t column in Table IV shows the number of pairs of footwear produced per person-hour generally declined Table IV PRODUCTIVITY, IN PAIRS AND CONSTANT DOLLAR: 1974-1983 YEAR OUTPUT PER PERSON HOUR (Pairs) RDP PER PERSON HOUR (1971 §) 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1 .67 1 .42 1 .40 1 .50 1 .62 1 .55 1 .39 1 .32 1 .30 1.31 3.39 3.38 3.71 3.85 4.09 4.08 4.04 4.01 3.99 4.09 Source: Anti-Dumping Tribunal, Report, 1985, op. c i t . between 1977 and 1981, and became stagnant in the following years. However, i t i s s t i l l not clear whether this decline was accompanied by an increase in the value per pair of footwear produced. If the l a t t e r was the case, then productivity indeed declined. If the former i s true, then i t would mean that productivity may not have declined after a l l because more labour-intensive, value-added footwear was being produced, even though in fewer numbers. To measure t h i s , the concept of Real Domestic Product (RDP) i s employed. RDP i s Gross Domestic Product expressed in constant d o l l a r s . The second column in Table IV, instead of showing decline, shows that the footwear industry's RDP per person-hour either increased or remained stagnant on an annual basis during 1974-1984. It increased from (1971 Dollar) $ 3.39 in 1974 to $ 4.09 in 1983, an increase of almost 20 per cent. The evidence i s clear that although the Canadian footwear industry was producing fewer shoes per worker, i t was producing shoes of higher value. INVESTMENT Formation and Net Stock in constant (1971) d o l l a r s are shown in Table V. It shows that the gross fixed c a p i t a l formation for a l l c a p i t a l after increasing u n t i l 1976, generally declined in the subsequent years. S i m i l a r l y , the industry's Table V INVESTMENT AND CAPITAL STOCK, IN CONSTANT (1971 ) DOLLAR The footwear industry's Gross Fixed Capital YEAR FIXED CAPITAL  FORMATION (Million) MID-YEAR  NET STOCK (Million) 1970 1 971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 3.8 2.7 3.6 5.0 6.4 5.7 3.6 4.0 3.5 5.0 4.9 2.8 2.0 4.4 48. 1 47.6 46.8 47.2 49.2 51 .7 52.7 52.7 52.4 52.5 53.4 52.9 50.9 50.0 Source: Anti-Dumping Tribunal, Report, 1981 and 1985, op. c i t . net stock of a l l c a p i t a l , a f t e r gradually increasing u n t i l 1976, became almost stagnant in the following years. These indicators show a decrease in real investments by the industry after 1976. The real net stock declined p a r t i c u l a r l y steeply after 1980. The recession and the high interest rates during this period played a major role in causing this reduction. WAGES Wages in the Canadian footwear industry are low, compared to the manufacturing sector as a whole. Although they more than t r i p l e d between 1974 and 1982, the average 1 2 wage for a l l manufacturing increased at even a higher rate. Wages in the footwear industry were the lowest among manufacturing industries, although this l e v e l has been recently exceeded marginally by those in the clothing 1 3 industry. U n t i l 1975, wage rates in Ontario were higher than 14 those in Quebec. Since then, however, the wage rates in Quebec have been consistently higher than in Ontario. This may be because of the larger proportion of female workers in Ontario who are usually paid lower wages than th e i r male 12 See Tribunal, Report, 1973, op. c i t . , p. 32, Tribunal, Report, 1977, op. c i t . , p. 2.9, Tribunal, Report, 1981, op. c i t p. 19, and Tribunal, Report, 1985, op. c i t . , p. 81. 1 3 Ibid., 1985, p.81. 1 4See i b i d . counterparts, who form a greater percentage of the footwear work-force in Quebec. Table VI COMPARATIVE WAGE INDEX: 1972-1976 COUNTRY 1 972 1973 1974 1975 1 976 CANADA 100 100 100 100 100 U.S.A. 1 07 105 100 97 91 FRANCE 32 39 43 44 48 ITALY 38 41 42 51 N/A U. K. 54 56 59 57 N/A SPAIN 23 28 32 35 36 BRAZIL 13 13 1 4 15 N/A TAIWAN 7 8 10 13 14 S. KOREA 9 9 9 12 13 Source: Anti -Dumping Tribunal, Report, 1977, op. c i t . Table VI sets out the comparative wage index of some of the major exporters of footwear to Canada for the 1972-1976 period. It i s evident that wages in Canada were about the highest; in fact in the early 1970s, they were S i g n i f i c a n t l y higher than in most major footwear exporting countries. Table VII shows wage rates in the footwear industry in some developed countries as compared to those in Canada in 1982-1983. Although not d i r e c t l y comparable to the preceding table, this table reasonably might be interpreted as showing that wage increases in the Canadian footwear industry were lower than in i t s American and West European counterparts during, the 1976-83 period. In fact, in 1983 wages in Canada were lower than those of every country in the table, some of which were major exporters of footwear to Canada. T a b l e V I I COMPARISON OF SEVERAL INTERNATIONAL HOURLY WAGE RATES COUNTRY 1982 1983 (Cdn. $) (Cdn. $) W. GERMANY 9.67 9.50 FRANCE 9.00 9.06 ITALY 6.91 8.41 NETHERLANDS 10.85 10.07 U. K. 6.80 5.80 IRELAND 5.76 6.17 U. S. A. 6.32 6.53 CANADA 6.12 6.36 Note: Figures include d i r e c t wages, indirect wages, and soc i a l charges. Source: Anti-Dumping Tribunal, Report, 1985, op. c i t . COSTS The cost components of the value of footwear shipments are shown in Table VIII. The increasing labour productivity in the Canadian footwear industry i s evident in the declining percentage of wage costs, having declined from 27 per cent of the t o t a l costs in 1972 to 23 per cent of the costs in 1982. The decline in wage costs as a percentage of the t o t a l costs in the footwear industry has in fact been s l i g h t l y higher than in a l l manufacturing because of the later introduction of the e f f i c i e n c y improving measures in Tab 1 e? V I I I COST DISTRIBUTION, MRNUFRCTURING RND FDQTUEflR c^ i o-F Total Val up o-F Shipment) YERR PRODUCTION URGES 1972 1973 197-4 1975 1976 1977 1978 1979 1980 1981 1982 Mfg . 14 . 14 1-4 1-4 13 , 13 lO 30 90 50 90 •40 13 . 20 12 . 80 12 . 90 Ftur . 26 . 70 25 . -40 26 . lO 26 . 70 26 . 70 25 . 90 25. T-O 22 . 60 33 . OO 23 . 80 23 . -40 MRTERIRL.S RND SUPPLIES OTHER COSTS & PROFITS M-F< 59 . 60 59 . 90 60 . «40 60 . 50 60. 60 61 . 90 62 . OO 63 . 80 62 . 80 Ftwr . SO . 60 50 . 70 50 . SO SO . OO 50 . 30 •49 . 30 51 . OO 51 . 90 SO . lO •49 . 90 •47 . 90 Source : fint i —Di_ir .ping Tribunal, Report, 1977 and 1985, Mfg . 26 . 30 25 . 80 2-4 . 80 25 . lO 25 . 40 24 . 70 2-4 . 80 2-4 . 40 2-4 . 30 Ftwr . 22 . 7»0 23 . 90 22 . 40 23 . 30 23 . OO 2-4 . 80 23 . 20 22 . 60 27 . OO 26 . 30 28 . 80 op c i t O 61 th i s industry. With regard to the material cost, i t s percentage share for footwear fluctuated constantly between 47 and 51 per cent of the t o t a l costs, mainly influenced by the tremendous swings in leather prices during the 1970s and early 1980s. The most notable change in the cost structure of the footwear industry has been with respect to 'other costs and p r o f i t s ' account. This includes s e l l i n g , administrative and various c a p i t a l costs and p r o f i t s . While the costs under th i s account have declined in a l l manufacturing, they have increased s i g n i f i c a n t l y in the footwear industry. This increase r e f l e c t s "both increases in management and engineering personnel and an upgrading of their s k i l l s , and the achievement of major s h i f t s towards computerized record-keeping, production controls and inventory controls, changes which the manufacturing sector as a whole has been 1 5 introducing over a much longer time-span." It i s perhaps the best indicator of the industry's e f f o r t s to improve i t s competitive a b i l i t y . RELATED INDUSTRIES There are several industries which are to some extent dependent on the footwear industry. These include the tanning, boot and shoe findings, chemical, p l a s t i c , t e x t i l e 1 5 I b i d . , p. 19. and paper products industries. But i t is the tanning, and boot and shoe findings industries that are the most dependent. Between 70 and 80 per cent of the tanning manufacturers' output i s purchased by the domestic footwear industry. As a result, a decline in domestic production of footwear has an adverse impact on the tanning industry as w e l l . 1 ^ The survival of the shoe findings industry i s also inextricably linked to that of the domestic footwear industry. There are a few other industries which depend on i t for an i n s i g n i f i c a n t proportion of their t o t a l sales. In a l l , less than five thousand workers in the related industries are in some way dependent on the footwear industry 1 7 for their l i v e l i h o o d . Their numbers have declined consistently over the years. APPARENT CANADIAN MARKET Table IX shows the Apparent Canadian Market (ACM) for footwear in terms of pai r s . ACM is derived by adding imports to domestic shipments, and subtracting exports. The peak year was 1972 when 87 m i l l i o n pairs formed the Canadian market. Between 1972 and 1980, the market generally declined. It rose in 1981, to be followed by a sharp decline in 1982. It grew in the following year, but in 1984 i t had s t i l l not reached the 1972 peak-level. 1 6 I b i d . , Table XXVII, p. 96. 1 7 I b i d . , p. 97. Tab la IX RPPflRENT CflNflDIfiN MARKET FOR FOOTUEflR BY SECTOR, 1971-1984 YERR MEN ' S UIOMEN • S 1971 1972 1973 1974 1975 197© 1977 1978 1979 1980 1981 1982 1983 1984 15. 21 15. 52 16. IS 19 . OO 18 . 14 20 . 09 18 . 35 17. 39 15. 82 14 . 28 15. 58 14 . OO 14.21 15. 77 32 . 37 30 . 85 27. 33 28 . 54 26 . 53 30. 45 28 . 85 30 . 62 30 . 88 29 . 99 33 . 30 31 . 45 33 . 27 35 . OO CHILDEREN•S C ml 1 1 1 on pa i i— a > 4 . 87 5 . 39 4 . 28 4 . 80 4 . 27 5 . 53 4 . 96 5 . 06 4 . 99 3. 79 4 . 06 3 . 94 3 . 40 3 . 99 Sl_ I PPERS 1 1 1 . 67 12 . 27 11.15 lO . 55 9 . 59 12 . 89 lO . SO 9 . 24 8 . 93 8 . 29 8 . 90 8 . lO 8 . 53 9.11 SPL. PURPOS 20 . 80 22 . 99 22 . 09 20 . 55 16 . 90 1 7 . 23 17 . OS 16 . 39 17 . 24 20 . 02 24 . 34 20 . 14 21 . 96 22 . 30 it-am : flnti-Dumplng Tribunal, 1977, 1985, op : 1 * . . CTl C o eo 80 -70 -80 -50 40 30 -20 -10 Figure IV A P P A R E N T CANADIAN MARKET FOR FOOTWEAR 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 Y E A R t5) M e n ' s E l w o H e n ' s EZJ c h i l d r e n R S s l i p p e r s £23 SP 1. Purpose (Ti >ose Changes i n the ACM by themselves do n o t , however, p r o v i d e a complete p i c t u r e of the footwear market, f o r i t sheds no l i g h t on p o s s i b l e s u b s t i t u t i o n towards l o w e r - or upper - p r i c e d f o o twear. Between 1979 and 1983, w h i l e ACM i n terms of p a i r s i n c r e a s e d by 4.5 per c e n t , t h e i r t o t a l v a l u e 1 8 i n c o n s t a n t d o l l a r s i n c r e a s e d by o n l y 2.7 per c e n t . T h i s i n d i c a t e s t h e r e was a s h i f t i n Canadian consumption toward l o w e r - p r i c e d f o o t w e a r . The s h i f t toward l o w e r - p r i c e d f o o t w e a r , i t must be remembered, took p l a c e i n the c o n t e x t of a g e n e r a l l y stagnant or d e c l i n i n g market f o r footwear i n terms of p a i r a g e . I t must a l s o be noted t h a t Canadian p r o d u c t i o n was m o s t l y c o n c e n t r a t e d i n medium- t o h i g h - p r i c e d f o o t w e a r . The market f o r the men's/boys' s e c t o r tends to be 1 9 the most v o l a t i l e among footwear s e c t o r s . The ACM f o r t h i s s e c t o r expanded i n every year between 1971 and 1976. Then i t d e c l i n e d c o n t i n u o u s l y u n t i l 1980, t o rebound i n 1981, w i t h the r e s u r g e n c e c o n t i n u i n g u n t i l 1984, except f o r 1982. T h i s s e c t o r ' s share of the t o t a l ACM has g e n e r a l l y f o l l o w e d the same t r e n d . The d e c l i n e i n the ACM f o r the men's/boys' s e c t o r and i t s p e r c e n t a g e share of the t o t a l ACM a f t e r 1977 may have been a f f e c t e d by the g r e a t e r i n c r e a s e i n the market share of men's and boys' j o g g e r s / r u n n e r s , which a r e i n c l u d e d i n the s p e c i a l purpose footwear s e c t o r . l 8 I b i d . , p. 185. l 9 I b i d . , p. 189. The women's/girls' sector i s the largest among footwear sectors. I t i s also d i f f e r e n t from the men's/boys' sector in that i t ... i s r e l a t i v e l y immune to c y c l i c a l fluctuations and tends to be more heavily influenced by fashion trends....[It] i s characterized by a much wider variety of styles, colours, textures and materials than men's f o o t w e a r , which i s ba s i c a l l y unchanged from year to year. During 1973-77, the trend in the ACM for women's/girls' footwear was similar to the overall industry trend. However, after 1977 i t grew at a rate faster than the t o t a l ACM and declined less than the t o t a l ACM in years of fewer footwear purchases. In terms of the share of the t o t a l ACM, this sector grew consistently after 1973. This growth in share, however, was not so much a r e f l e c t i o n of the ov e r a l l expansion of i t s market as i t was of the contraction of the other sectors. The popularity of the ' j e l l i e s ' (beach type p l a s t i c sandals) which sold in huge quantities in the 1980s because of their lower prices further expanded the sector's share of the t o t a l market. The ACM for children's/infants' sector shrank gradually after 1976. Its share of the t o t a l ACM also declined slowly but consistently between 1978 and 1984. These declines r e f l e c t e d the declining birth-rate in Canada in the 1970s. The tendency among parents to purchase 'ath-leisure' footwear for their children, which i s included in Ibid., p. 192 the special purpose footwear category, further reduced the 21 size of t h i s sector. The ACM for slippers/housewear sector also generally declined during 1972-1984. Its share of the t o t a l ACM declined continuously from 1972 to 1979, when i t became stagnant at around 11 per cent u n t i l 1984. The increased popularity of the special purpose footwear seems to have had 22 an adverse impact on this sector as well. The Special Purpose footwear sector i s the second largest after the women's/girls' sector. It includes a wide variety of footwear including p l a s t i c footwear, ski boots, a t h l e t i c footwear, u t i l i t y footwear with fabric tops, skates, and other footwear not included elsewhere. However runners/joggers and fabric top u t i l i t y footwear constitute 92 23 per cent of the t o t a l ACM for th i s sector. The large market for th i s type of footwear i s explained by the fact that since the mid-1970s i t has been the most popular form of casual footwear. According to the Tribunal, the growth of t h i s sector can be explained by "[t]he s h i f t in fashion towards more casual footwear, the increased interest of Canadians in physical f i t n e s s and [ i t s ] lower average 2 1 Ibid., p. 197. Ibid.  2 3 Ibid., p. 139. p r i c e . . The special purpose footwear sector af t e r declining in the mid-1970s took off again in 1979, capturing more than 26 per cent of the t o t a l ACM for footwear in the following years. The expansion of thi s sector was generally at the expense of the other sectors. The exemption of canvas footwear from import quotas between 1977 and 1981 also contributed to the growth of t h i s sector. DOMESTIC SHIPMENTS After declining continuously after 1972, as i s evident in Table X, domestic shipments picked up in 1978 (the f i r s t f u l l year of quotas on imports), and 1979, even though t o t a l shipments were s t i l l much lower than in any year during 1971 to 1976. They dropped again in 1980 and in 1982; then showed a r i s i n g trend u n t i l 1984. Table XI shows that the share of the t o t a l ACM held by domestic shipments as a whole stayed at between 50 and 51 per cent during the 1971-75 period. Its share dropped sharply between 1975 and 1977, when i t began to r i s e and reached i t s second peak in 1979; but even the 1979 level was s t i l l lower than in any year before 1975. A l l through the early 1980s, the share of domestic footwear showed a declining trend. Ibid., p. 199. Tab 1e X DOMESTIC SHIPMENTS, BY SECTOR: 1971-984 __IEIR!z__ __ME!^lf__ !^°ME^1?__ ^ 1 ^ ^ ^ 1 L _ S L I P P E R S 1 9 7 1 ^ 6 • MILLION OFPflIRS, " ~ 1972 43.2 Jo 6 ?2'1 =? - ? 5-1 S P L . . P U R P Q S 1 9 7 3 -jus i ? - f i f - 5 . ^:o i ; 6 3-3 1975 38.6 2 1 IZ'k I ' 6 4 - 8 1976 38 . 4 12 8 S.O 3 4 1977 3 3 . 2 i f ! ? J 3 / ! 2 . 5 5 . 2 | 8 1978 3 4 . O II 9 Is'f ? ' i 3 - ° 1-9 1979 3 6 . 4 1|-1 2 . 4 3 . 4 1 ~ 1980 3 3 . 6 0 1 ts's ? ' l 3 - 3 3 5 1981 3 4 . 1 9 9 ^f. 3 - 5 2-7 1 Q 8 2 29.1 8 S 1 7 3-9 2 5 1983 3 o . 5 | : 1 J2*2 ^ " n 3 - 7 2-0 1 9 8 4 3 3 . 2 1:1 i i : 5 £ • ? 3 - t 1 - 3 1.1 4.9 !.2 Sour-c: Rnti-Du mping Tr- i buna 1 . R„por~t . 1985. op. c i t . cn 0 a c 0 45 40 -35 -30 25 -20 -15 -10 -5 -Figure V DISTRIBUTION OF DOMESTIC SHIPMENTS 1971 1972 1973 1974 1975 1978 1977 1978 1979 1980 1981 1982 1983 1984 fLtl Hen 's CSluonen's VZX children r ^ j c t -flPen * 8 2 3 slippers EZJSpl. p u r F , o r . e o Table XI DOMESTIC SHPMENTS AND IMPORTS AS PERCENTAGE OF TOTAL ACM, IN PAIRS: 1971-1984 Year DOMESTIC IMPORTS 1971 51 49 1972 50 50 1973 51 49 1 974 50 50 1975 51 49 1976 45 55 1977 42 58 1978 43 57 1979 47 53 1980 44 56 1981 40 60 1982 38 62 1983 38 62 1984 39 61 Source: Anti-Dumping Tribunal, Report, 1985, op. c i t . In terms of the d i s t r i b u t i o n of domestic shipments by sector, as evident in Table X and Figure V, the Canadian manufacturers seem to have concentrated on the women's/girls' sector. During the 1971-1984 period, more than 40 per cent of the domestic shipments were in thi s sector. Although t h i s was indeed the largest sector in the ACM (See Table IX), the concentration of domestic shipments in t h i s sector was even higher. Men's/boys' footwear formed the second largest sector in domestic shipments, whereas in terms of share of the t o t a l ACM, thi s sector ranked t h i r d . Thus, during the 1971-1984 period, while the two sectors combined formed less than 60 per cent of the t o t a l ACM in terms of pairs; they Figure VI SHARE OF DOMESTIC SHIPMENTS AND IMPORTS / \ / \ / \ / \ ~ / \ / \ / \ / \ ~ / \ / \ / \ 2 /\ /\ /\ /\ /\ /\ /\ /\ k<Lk\ V~~\ / \ / \ / \ / \ / \ / \ / \ /\ /\ \ \ \ / \ / \ / \ / \ / \ / \ / \ / \ / \ / \ \ \ \ \ /\ / \ /\ /\ /\ K v HA / \ y \ / \ / \ / \ y \ / \ / \ / \ / \ / \ / \ / \ / \ / \ / \ / \ / \ \ \ / \ /\ /\ /\ K \ \ \ \ \ \ N \ \ \ \ \ / N / \ / \ / \ / \ / \ / \ / \ / \ / \ / \ / \ / \ / \ / \ / \ / \ / \ / \ V I / \ / \ / \ / \ / \ / \ / \ / \ / \ / \ / \ / \ /\ / \ / \ / \ / \ / \ 1971 1972 1973 1974 1975 1976 1977 1978 1979 19BO 1981 1982 1983 1984 IX/\ DOMESTIC YEAR \ \ l IMPORT formed more than 70 per cent of the domestic shipments. The Canadian manufacturers' shipments in the children's/infants' and slippers/housewear sectors were roughly in proportion to their share of the t o t a l ACM. The special purpose footwear sector, which at 20 per cent was the second largest sector in the ACM, accounted for less than 10 per cent of the domestic shipments during t h i s period. Obviously, the Canadian footwear manufacturers do not participate in t h i s sector to any large extent. IMPORTS The 1971-76 period, as evident in Table XI, witnessed great fluctuations in the volume of imports. In 1976, imports reached their highest l e v e l in the decade. The imposition of quotas in late 1977 led to a decrease in the le v e l of imports, which continued u n t i l 1979. After 1980, the volume of imports increased continuously, except for the sharp decline in 1982. Table XII shows that the imported footwear's share of the ACM was stagnant at around 50 per cent from 1971 to 1975. Then i t began to r i s e sharply u n t i l quotas were imposed in 1977, after which i t declined marginally. In 1980 i t s share began to increase again, r i s i n g to i t s highest le v e l ever in 1982 and 1983. In contrast to domestic shipments, imports are heavily concentrated in the special purpose footwear sector T a b l » XII YEAR 1971 1972 1973 197S 1976 1977 1978 1979 1980 1981 1982 1983 1984 TOTfiL 41 . 3 43. 8 39. 7 41.9 36 . 8 -47 . 8 46 . 2 44 . 7 41 . S -•3 . 2 52 . O 47 . 8 SO. 8 52. 9 IMPORTS. BY SECTOR: 1971-1981^ MEN • S 4 . 6 4 . 9 5 . O 6. 3 6 . O 7 . 3 6. 7 5. S 4 . 4 4 . 6 5 . 7 5. S 5. 9 6. 2 Sour-c: flnti-Dumping Tr- i bur - - - -^1L CHILDREN'S (MILLION P R I R s T 11.7 12. 3 lO. 6 11.5 1 1 . O IS. 4 14 . 4 15 . 5 15. O 14 . 4 17 . O 17. O 17. O 18 . 6 2 . O 2. 3 1 . 6 2. 2 1 . 8 3 . O 2 . 8 2. 7 2. 7 2. O 2. 4 2 . 7 2 . 4 2. 8 Sl_ I PPERS 6. 5 5 . 7 6. 2 6 . 1 4 . 5 7 . 7 7. 2 5 . 8 S . 6 4 . 8 5. O 4 . 4 4 . 9 4 . 2 SPL. . PURPOSE 16. 5 18.6 16. 3 15. 8 13. 5 14.4 15. 1 15. 2 13. 7 17. 3 21 . 9 18.1 20. 7 21.1 R»port, 1985, op. c i t {MILLION PAIRS) (See Table XII and Figure VII). This sector accounted for on average 40 per cent of the t o t a l imports during the 1971-1984 period. During the same period, t h i s sector never accounted for more than 27 per cent of the t o t a l ACM. About 30-32 per cent of the imports were in the women's/girls' sector, which was somewhat smaller than the size of the ACM for this sector (Table X). With respect to the men's/boys' sector, only between 11 and 15 per cent of the imports were in this sector, while the share of the ACM accounted for by this sector was s i g n i f i c a n t l y larger. In the children's/infants' and slippers/housewears sectors, the share of the imports accounted for by this sector was about the same as their share of the t o t a l ACM. Much of the growth in imports in the 1980s came from the expansion of the market for 'ath-leisure' footwear. Because th i s class of footwear, after the early 1970s, was captured by imports in excess of 75 per cent of the t o t a l market — i n fact, i t may be argued that the market for 'ath-le i s u r e ' footwear was created by imports — i t would be helpful i f the r e l a t i v e market share of the Canadian and imported footwear was calculated in relation to ACM which excluded t h i s class of footwear. This i s important because between 30 and 42 per cent of the t o t a l imports was in thi s sector, which gives an exaggerated picture of the share of the t o t a l ACM held by imports. When special purpose footwear is excluded, as shown in Table XII, the domestic footwear's share of the t o t a l market was more than 50 per cent, except after 1982, when imports captured s l i g h t l y more than half the market. Table XII DOMESTIC SHIPMENTS AND IMPORTS AS PERCENTAGE OF ACM,  EXCLUDING SPECIAL PURPOSE FOOTWEAR, IN PARIS: 1971-1984 YEAR DOMESTIC IMPORTS 1971 61 39 1972 61 39 1973 60 40 1974 59 41 1975 60 40 1976 52 48 1977 50 50 1978 53 47 1979 54 46 1980 54 46 1981 51 49 1982 48 52 1983 49 51 1984 50 50 Source: Anti-Dumping Tribunal, Report, 1985, op. c i t . DOMESTIC SHIPMENTS' AND IMPORTS' SHARE OF ACM In terms of the share of the ACM for the men's/boys' sector, domestic producers controlled between 64 and 70 per cent of the t o t a l market during the 1971-80 25 period. In the 1980s, domestic producers lost grounds to imports but s t i l l held over 60 per cent of the market. The fact that men's/boys' footwear i s mostly in the leather category, with minimal changes in fashion and s t y l e s - - in 2 5See i b i d . , pp.208-215. 8 2 Z o a UJ o g UJ o fi CL SH.PH.HXS Sy^JL,*. . . . . . . . FOQTMLnH 60 -50 40 -30 -/ / / / / \ / \ R / / / / / / / / /\ / \ / \ / \ / \ / \ / \ / \ / \ p—j / \ / \ • \ / ' / / / / s \ / \ y \ s \ / \ / \ / \ / \ y \ / \ / \ /\ /\ /\ / \ / \ /\ • \ /\ / \ • \ / \ • \ / \ / \ / \ / \ / \ / \ / \ / \ • \ / / /\ /\ /\ s \ s \ • \ / \ s \ / / • \ /\ • \ • \ / \ • \ • \ / \ • \ / \ • \ 1971 1972 1973 1974 1975 1976 1977 1978 1979 /\ /\ • \ / \ /\ /\ /\ / s / \ / \ / \ / \ / \ / \ / \ n / \ • \ / \ / \ / \ / \ / \ / \ / \ / \ / \ / \ / \ ^ \ / \ / \ / \ /\ / \ / \ / \ / \ / \ 1980 1981 1982 1983 1984 l ^ ^ l DOMESTIC YEAR IMPORT 0 0 other words the products in which the Canadian producers are the strongest --was the main reason why domestic producers were, and continue to be, so successful against import competition. The domestic manufacturers' share of the market for women's/girls' footwear declined dramatically a l l through the 1970s and the 1980s. U n t i l 1975, they held about 60% of the t o t a l market; after that year i t generally declined. The sharpest decline was in 1976, when i t declined by 10 per cent, to 49 per cent of the t o t a l market. It remained stable at that l e v e l in the following years. The share of the market for the women's sector held by imports increased in almost every year after .1971, except for 1979 and 1980. Thus, as the imports' share increased from 36% in 1971 to 41% in 1975, followed by a sharp increase to 51% in 1976, declining to around 49% in 1979 and 1980; i t increased and remained s l i g h t l y above 50% in the following 27 . . . years. Much of the increase in imports was in the lower-priced non-leather footwear category. Domestic shipments' share of the ACM for the children's/infants' sector, after fluctuating a great deal throughout the 1970s, declined d r a s t i c a l l y a f t e r 1980. This decline in the share occurred in a market that was i t s e l f shrinking. Much of the increase in the imports' share can be 2 6 I b i d .  2 7 I b i d . accounted for by the increasing consumption of non-leather 28 footwear, which is dominated by imports. The special purpose footwear sector is completely dominated by imports. Because of the low material costs that go into their manufacture, labour costs form a very high percentage of the t o t a l costs, which gives immense competitive advantage to the low-wage countries. This explains why most of the market i s captured by imports from South Korea and Taiwan, although the higher quality footwear in this sector is usually designed in West Germany or the United States. The largest share of the market for special purpose footwear that the Canadian producers ever held was in 1973, 29 when they supplied 26 per cent of the t o t a l market. After that, i t declined continuously, except for 1979, and as a result supplied only 5 per cent of the t o t a l market for t h i s sector in 1984. In conclusion, since the early 1970s, about 60% of the t o t a l Canadian market was formed by men's and women's footwear,.while about 70 per cent of the domestic shipments was concentrated in these two sectors. In contrast, less than 50 per cent of the imports were in these sectors. Imports dominate in special purpose footwear, and in synthetic children's and women's footwear, products 2 8 Ibid., p. 196. 29 Ibid., p. 208-215. 81 manufactured only in limited quantities in Canada. This indicates that domestic shipments and imports specialize in different segments of the Canadian market. That imports and domestic shipments are not d i r e c t l y competitive i s further evident in the fact that more than 75 per cent of the imports are in non-leather footwear, whereas only a small part of the domestic shipments i s in this category. SOURCES OF IMPORTS Although imports of footwear into Canada originate in over forty countries, they are highly concentrated in just three of them: Taiwan, South Korea, and I t a l y . The three have accounted for around half of the t o t a l imports in terms of both pairage and value. There are some countries which are not major suppliers of footwear to Canada in overall terms, but which are important suppliers in pa r t i c u l a r sectors. The vast majority of the exporting countries, however, i n d i v i d u a l l y supply only a small portion of the to t a l imports of footwear, or even the t o t a l imports in a particular sector. After 1972, between 40 and 48 per cent of the t o t a l footwear imports in terms of pairage came from Taiwan and South Korea (Table XIV). In 1984, the combined imports from the two countries for the f i r s t time formed more than half the tot a l imports in terms of pairage. In terms of d o l l a r value, however, imports from Taiwan and Korea formed Table XIV PERCENTAGE SHARE OF THE T O T A L IMPORTS, FOR PRINCIPAL COUNTRY OF E X P O R T S , IN P A I R S : 1972-1984 1972 1973 DEVELOPING T a i w a n 31 . 38 S. K o r e a 9 14 Hong Kong C) (*) B r a z i l 2 2 I n d i a (*) (*) C h i n a (*) (*) DEVELOPED I t a l y 11 12 USA (*) (*) S p a i n 5 3 U . K . 3 3 C z e c h o s l . (*) (*) OTHERS 36 28 1974 1975 1976 1977. 1978 28 15 (*) 1 (*) C ) 12 (*) 3 4 {*) 36 22 17 2 3 5 (*) 14 5 5 3 4 20 27 17 3 4 3 14 6 6 3 2 15 28 15 3 3 4 (*) 13 6 6 3 3 15 30 16 4 3 3 (*) 14 6 5 2 2 15 DEVELOPING 1979 1980 1981 1982 1983 1984 T a i w a n 33 31 26 28 32 33 S. K o r e a 15 17 21 19 21 21 Hong Kong 5 6 9 7 8 7 B r a z i l 3 4 5 7 5 6 I n d i a 2 4 2 2 1 1 C h i n a (*) 2 5 6 5 4 DEVELOPED I t a l y 16 13 11 13 10 11 USA 6 7 6 4 4 4 S p a i n 5 3 3 4 4 6 U . K . 1 1 0 0 1 1 C z e c h o s l . 2 3 3 3 2 2 OTHERS 12 11 8 8 7 6 (*) F i g u r e s i n c l u d e d i n O t h e r s c o l u m n . S o u r c e : A n t i - D u m p i n g T r i b u n a l , R e p o r t s , 1977, 1 8 8 1 , 1985 , and S t a t i s t i c s C a n a d a , C a t a l o g u e N o . 6 5 - 2 0 3 . less than 25 per cent of the t o t a l Canadian imports 30 throughout the 1970s. This changed in 1.980, after which the value of imports increased rapidly, forming 38 per cent of the t o t a l by 1984. Imports from these countries are heavily concentrated in the non-leather category. A very large proportion of the imports from South Korea are f a b r i c -top a t h l e t i c or u t i l i t y footwear. Similarly, a large proportion of the imports from Taiwan are in the cheaper canvas, p l a s t i c , and v i n y l footwear categories. During 1972-84, imports from Italy formed, on an average, about 13 per cent of the t o t a l imports in terms of pairage. In terms of dollar value, however, they formed about 25 per cent of the t o t a l imports during t h i s period. This is so because for the most part imports from Italy are in fashionable leather footwear, which are more expensive than imports from Taiwan arid Korea. In addition to I t a l y , there are numerous developed countries (including Rumania, Poland, Czechoslovakia, and the U.K.) which are s i g n i f i c a n t exporters of higher priced leather footwear to Canada. In contrast, imports from developing countries are heavily concentrated in the hands of Taiwan and South Korea, which are, as was noted e a r l i e r , mainly suppliers of non-leather footwear. B r a z i l , whose exports are mainly in women's footwear, is the only Figures provided to the author by Grant Vaudry (Officer, Footwear Division) at an interview, August 19, 1987. developing country which i s a major exporter of leather footwear to Canada. The imports from developed countries (including East European) generally compete d i r e c t l y with Canadian-made footwear. This is because these imports, l i k e Canadian footwear, are concentrated in the men's and women's leather footwear sectors. In contrast, imports from developing countries (except those from Br a z i l ) are usually in sectors that are either not produced in volume in Canada (such as joggers from South Korea and Taiwan) or are at the lower price-end of the market which has been largely vacated by Canadian producers (such as p l a s t i c and v i n y l footwear from Taiwan). B r a z i l i s the only developing country whose products compete head-on with Canadian footwear. In Table XIV, the shrinking volume of imports from "other" countries c l e a r l y shows that exports to Canada are becoming increasingly concentrated in the hands of fewer countries. A process of international s p e c i a l i z a t i o n in footwear trade may well be underway whereby an increasingly large number of footwear exporters are seeing their international market share decline while a few others continue to expand. EXPORTS A very small proportion of t o t a l Canadian footwear production is destined for the export market, forming between 4 and 8 per cent of the t o t a l domestic shipments 3 1 during the 1974-1984 period. The domestic industry's weaknesses in the home market are even more pronounced in the markets abroad. Most of the Canadian footwear exports are in products in which they are regarded as being competitive in the home market as well, for example, leather work boots and men's and women's winter boots. Between 75 and 92 per cent of the Canadian exports during the 1974-1984 period were destined for the American market. FINANCIAL ANALYSIS OF FIRMS  1968-1971 As shown in Table XV, the f i n a n c i a l situation of the footwear firms during these four years was more or less stable, except for 1970, when i t deteriorated considerably. In an overall sense, 1968 was the best year for p r o f i t a b i l i t y . But even in the worst year during this period, 1970, gross p r o f i t to sales was 17 per cent and the return on equity was 11.2 per cent. The r a t i o of assets to l i a b i l i t i e s was also healthy. In 1971, p r o f i t s on sales as well as return on equity were better than manufacturing as a whole. 3 2 Gross and net p r o f i t s to sales in the men's/boys' sector was lower than those of the women's/girls' sector in 31 See Tribunal, Report, 1985, op. c i t . , p. 73. 32 Tribunal, 1973, op. c i t . , p. 14. Table X V THE PROFITABILITY OF 'AVERAGE' FOOTUEAR FIRM: 1968-1963 1968 1969 1970 1971 : • • 1972 1973 1974 1975 1976 Gross P r o f i t to Sa les « > 18.4 18.5 1 7 1 8 . 2 1 20 20.5 21 .6 20 .5 18.8 Net P r o f i t to Sa les <Z> 5 .S 2 .7 3.5 : 2 .4 3 3 .4 2 .9 2.1 Net P r o f i t to Asse t s <Z> 9.2 6.7 4.2 S.2 : 4 5.S 6.4 5.4 3.8 N « t P r o f i t to E q u i t y <Z> 30.6 17.3 11.2 16.2 1 10.S 15.6 17.2 14 10.5 Current Assets to Current 83 .9 94 85 .2 8 6 . 3 74 l i a b i l i t i e s U> T o t a l Assets to T o t a l 198 192.3 183 166.4 161.S 155 158.6 162.8 1S6.1 l i a b i l i t i e s CZ> 1977 1978 1979 1980 1981 1982 1983 Dross P r o f i t to Sa les <Z> 23.8 23 24.7 S 23 24 24 24 Het P r o f i t to Sa les <Z> 4 3.8 4.4 : 4 4 4 4 Net P r o f i t to Assets (Z> 7.8 7.1 8.3 : 7 7 7 7 Net P r o f i t to E q u i t y « > 1 7 . 1 21.5 25.9 i 1 9 21 23 23 Current Asse t s to Current 9S 81.1 68.1 i 84 88 110 103 l i a b i l i t i e s <Z> T o t a l Assets to T o t a l 184.8 149.3 146.3 : 165 169 191 175 l i a b i l i t i e s CZ> Hote l The data f o r 1968-1971, 1972-1976, 1977-1979, and 1980-1983 are not d i r e c t l y conparable anon? thense lves because becuese they are based on d i f f e r e n t sanples of footwear f i r n s . Source: Anti-Dunpirtg T r i b u n a l , Report s , 1973, 1977, 1981, 1985, op . c i t . 1968-1969; the reverse was true during 1969-1971. 3 3 Moreover, while the p r o f i t a b i l i t y of the men's firms was improving, that of the women's firms was declining over the years. In terms of location, firms in Quebec f i n a n c i a l l y performed better against every measure as compared to the 34 firms in Ontario throughout the 1968-1971 period. 1972-1976 As evident in Table XV, p r o f i t s —measured in terms of sales, assets, or e q u i t y — of an average firm increased in 1973 and 1974, began to decline in 1975, and reached 35 "dangerous" level in 1976, the lowest in ten years. The equity position improved s l i g h t l y in terms of current d o l l a r s , but would show a decline in constant d o l l a r s because of high i n f l a t i o n during the period. The ov e r a l l l i q u i d i t y and working c a p i t a l positions were more or less stable between 1972 and 1975, but declined sharply in 1976. During 1973-1976, the net p r o f i t a b i l i t y in rel a t i o n to sales was the best in the men's/boys' sector, which increased from 1973 to 1975, but declined moderately in 3 6 1976. The p r o f i t a b i l i t y of firms in Quebec was higher 3 3 I b i d . , pp. 18-19. 3 4 I b i d . 3 5 T r i b u n a l , 1977, op. c i t . , p. 3.2. 3 6 I b i d . , p. 3.8 37 than those xn Ontario.during the 1972-76 period. This may have been because of the concentration of more p r o f i t a b l e medium-size firms in Quebec. 1977-1979 This was a tumultuous period in the history of the Canadian footwear industry. The year 1977 was one of the worst for Canadian footwear manufacturers in terms of market conditions. The month of December saw the imposition of quotas on imports which continued through 1979. P r o f i t a b i l i t y of footwear firms in terms of equity increased in a l l years from 1977 to 1979. In fact, return on equity in 1978 and 1979 was higher than in most other 38 manufacturing industries, and higher than i t s own performance during 1972-76. This may have been because of the large proportion of leased c a p i t a l stock employed in the 39 industry which on the books decreased i t s l i a b i l i t i e s . However, the overa l l l i q u i d i t y and working c a p i t a l position deteriorated in every year during t h i s period, reaching an eight-year low in 1979. At least part of the decline was caused by "[h]igh interest rates, s i g n i f i c a n t buildups in inventories starting in 1978, and some increased 40 spending on plant and equipment, in current d o l l a r s . . . . " 3 7 I b i d . , p. 3.9 - 3.11. 38 Tribunal, 1981, op. c i t . p. 27. 3 9 Ibid. 4 0 Ibid., p. 28. In terms of gender, firms producing mixed footwear (usually larger firms) exhibited the most p r o f i t a b i l i t y , 41 followed by men's/boys' and women's/girls' sectors. In contrast to the 1968-1976 period, during 1977-1979, firms in Ontario were more profitable than their 42 counterparts in Quebec. This was because of the preponderance of larger and men's/boys' firms in Ontario which had a better f i n a n c i a l performance during the period. 1980-1983 The footwear firms' p r o f i t a b i l i t y in relations to sales and assets during the period remained steady, despite the recession of 1982. The p r o f i t a b i l i t y during t h i s period, 43 however, was s l i g h t l y lower than in the 1977-1979 period. The Tribunal's study also showed that the footwear industry enjoyed a greater return on t o t a l assets and shareholders' equity than Canadian manufacturing as a whole in the years 1979 to 1982. The industry's practice of leasing, rather than owning, machinery was advantageous during t h i s period of h i s t o r i c a l l y high interest rates, and, was the main reason for the above-average return on invested c a p i t a l . In terms of gender, p r o f i t as a percentage of sales 4 1 See Table 2-15 in i b i d . , p. 30. 42 . . See Table 2-17 in i b i d . , p. 32. 43 The data for 1983 includes those of any firm whose fi n a n c i a l year-end f e l l between July 1, 1982 and June 30, 1983. Hence, the effects of the 1982 recession are s t i l l r e flected in the 1983 period in the Table. 90 and equity was much higher in the men's/boys' sector than in • . 44 the women's/girls' sector in 1980 and 1981. However, p r o f i t s declined in a l l sectors in 1982 and 1983, because of the recessionary economic conditions. L i a b i l i t i e s in rela t i o n to assets and the working c a p i t a l position were in excellent shape for the men's sector throughout 1980-1983, whereas r a t i o was considerably poor in the women's sector. In terms of location, the firms in Ontario enjoyed a considerably higher p r o f i t s than those in Quebec throughout 45 the period, except in 1982. The generally lower p r o f i t s in Quebec were due to the larger number of women's footwear plants located in the province which, as seen above, were in f i n a n c i a l l y worse position than men's footwear plants, located mainly in Ontario. CONCLUSION It i s apparent from the discussion in t h i s chapter that there were no clear, i r r e f u t a b l e indicators as to the health of the Canadian footwear industry over the l a s t decade and h a l f . Thus, while the number of establishments declined during t h i s period, i t could be argued that t h i s was a healthy sign of * r a t i o n a l i z a t i o n ' , necessary for the industry to become internationally competitive. S i m i l a r l y , the figures regarding decline in employment lose some of their 44 See Table A-12 in Tribunal, Report, 1985, op. c i t . , p.115. 4 5 See Tables A-13 and A-14 in i b i d . , pp. 116-117. appeal when i t i s pointed out that employment did not decline in proportion to production, indicating a trend toward manufacturing of more expensive labour-intensive footwear. More evidence of thi s trend can be discerned from the fact that declines in production in terms of volume were not matched by declines in terms of constant d o l l a r value; in fact the l a t t e r increased during the period under consideration. The generally declining market share of the Canadian manufacturers in terms of pairs i s perhaps one of the better indicators of the weakening position of the Canadian footwear producers. But even t h i s could be refuted by other evidence which shows a much smaller decline in market share in terms of value. However, i t i s undoubtedly true that the industry was faced with grave problems during the period under consideration. The size of the t o t a l Canadian footwear market showed almost no growth throughout the 1970s and early 1980s. The only market sectors to expand were women's and special purpose footwear, that i s sectors in which domestic producers were weak vis a v i s imports. Canadian producers were strong in the men's sector, but t h i s was not a growing area, and moreover, was susceptible to wide fluctuations in demand. The gradual s h i f t in consumption towards lower priced footwear, which was uneconomical to produce in Canada, also favoured imports. The industry's precarious l i q u i d i t y and working c a p i t a l position further aggravated i t s problems. Moreover, at times (such as in 1970, 1977, and 1982) unusual economic circumstances arose that dealt a severe blow to the industry. The segment of the industry located in Quebec was faced with especially severe problems. The concentration of smaller firms and those producing women's footwear, that i s the firms facing the greatest d i f f i c u l t i e s , in the province led to their greater decline in terms of production and employment than those in Ontario. Given the threat of Quebec separatism, the plight of the industry in the province could not be taken l i g h t l y by the government. The industry displayed, i t must be admitted, a remarkable r e s i l i e n c e against the hardships i t was experiencing. It generally held on to i t s market share in terms of value. Moreover, i t s p r o f i t a b i l i t y compared favourably with other manufacturing industries. In 1985, the Anti-Dumping Tribunal found that over the years the industry had become modern and had vastly improved i t s competitiveness 46 against imports in sectors in which i t concentrated. These somewhat contradictory s t a t i s t i c s provided powerful ammunition to those involved in shaping government policy towards the industry. There was no incontrovertible truth and the choice of data u t i l i z e d by each actor in the policy process was largely determined by the interest they sought to serve. 46 See Tribunal, Report, 1985, op. c i t . , pp. 26-27. 93 Chapter Three  ORGANIZATION OF THE DOMESTIC POLICY ARENA Footwear policy during the 1970-1985 period was, of course, made in the context of the needs, ambitions, and predilections of the actors with interests in the Canadian footwear industry. Each had i t s goals, the r e a l i z a t i o n of which were constrained by those of the other actors. The complex interplay between their goals and the constraints they imposed on each other l e f t an i n d e l i b l e mark on the resulting p o l i c i e s . In order to understand Canadian footwear policy, one must examine the objectives each actor sought to r e a l i z e , the resources they possessed to accomplish them, and how their e f f o r t s were hampered by those of others. Such an examination can best be accomplished by studying the internal organization of each actor in the policy process, and the organization of the relationships among them. The main argument of th i s chapter is that insofar as footwear policy-making was concerned, the interests comprising the state, manufacturers, or traders were in t e r n a l l y united. This accorded a great deal of strength to them, but never enough to enable any single one of them to impose i t s objectives on others. The lack of capacity to dominate others could, of course, be overcome by any one actor aligning i t s e l f with one or both of the others. But 94 the deep differences among them made such a degree of co-operation impossible to accomplish. The resulting impasse meant no clear policy d i r e c t i o n acceptable to a l l three groups could emerge and each actor was forced to react to changing circumstances, for the most part stemming from changes in international p o l i t i c a l economy, which i s the subject of the next chapter. In the meanwhile, the organization of the three must be examined clos e l y , because the external factors, no matter how powerful, merely constrained or f a c i l i t a t e d the r e a l i z a t i o n of domestic actors' interests, and did not create them. This chapter w i l l separately discuss the organization and predilections of the actors comprising the state, manufacturing interests, and trading i n t e r e s t s . Each w i l l be studied with regard to i t s internal organization, l e v e l of internal fragmentation, goals, capacity to accomplish goals, and i t s imperative to co-operate with other interests. The chapter w i l l close with a discussion of ef f o r t s towards co-operation among the three and the reasons for their f a i l u r e . STATE The state, for the purpose of policy-making, consists of two components: bureaucratic actors and p o l i t i c a l actors. This i s , of course, a broad c l a s s i f i c a t i o n because neither set of factors are monolithic. The 95 bureaucracy consists of myriad departments, agencies, and the l i k e , each of which have their own objectives, and varying degrees of capacity to accomplish them. S i m i l a r l y , the p o l i t i c i a n s are marked by d i v i s i o n between cabinet and parliament, government M.P.s and opposition M.P.s, and M.P.s from d i f f e r e n t regions. In Canada both sets of actors exist in the provinces, which play a continuing role in the policy process, even in areas exclusively under federal j u r i s d i c t i o n . Among the provinces too there are differences, based on their varying regional i n t e r e s t s . BUREAUCRACY The policy process for the footwear industry, l i k e that for any industry, involved a plethora of bureaucratic actors. These included several branches, bureaus, and divi s i o n s within a host of federal departments. While studying the bureaucratic actors' involvement in the policy process, however, i t must be c l e a r l y understood that footwear i s a r e l a t i v e l y small industry, and hence ranked low on the p r i o r i t i e s of most bureaus. Often they were unwillingly dragged into the debate and frequently maintained minimal p a r t i c i p a t i o n in the policy process concerning the industry. ITC/DRIE Throughout the 1970s, The Department of Industry, Trade and Commerce (ITC) was the most important actor in the 96 footwear policy process. However, with i t s break-up in 1982, and the subsequent creation of the Department of Regional Industrial Expansion (DRIE), i t has had to share i t s leadership position with External A f f a i r s . ITC was founded in 1969 as a result of amalgamation between the Department of Trade and Commerce and the Department of Industry. 1 The former was established at the turn of the century for the 2 purpose of promoting Canada's exports. The Department of Industry was established in 1963 to foster i n d u s t r i a l 3 development in Canada. In 1982, ITC again went through a 4 major re-organization. Its industry functions were transferred to a newly-created DRIE, to which was also transferred the regional development functions of the Department of Regional Economic Expansion (DREE), which was abolished. The trade and commerce functions of ITC were transferred to External A f f a i r s . The amalgamation of the departments of Industry and Trade and Commerce in 1969 had stemmed from the desire to align closely the objectives of developing Canadian 1Canada, "Department of Industry, Trade and Commerce Act', Revised Statutes of Canada, 1970, Chapter 1-11. 2 Canada "Department of Trade and Commerce Act', Revised  Statutes of Canada, 1952, Chapter 78. 3 Canada, "Department of Industry Act', Statutes of  Canada, 1963, Chapter 3. Canada, Prime Minister's O f f i c e , "Reorganization for Economic Development', press release, Ottawa, January 12, 1982. 97 industries and exports promotion. Unfortunately, the two sides never r e a l l y gelled, and for a l l p r a c t i c a l purposes continued to operate separately. The industry side, in i t s e f f o r t s to foster i n d u s t r i a l development, had to respond to the demands of the domestic import substituting industries which often included demands for additional protection. Its sympathies for protectionist measures led i t into c o n f l i c t s with the trade side, which for the most part had the export-oriented industries as i t s c l i e n t s , and therefore was opposed to import control measures, which adversely affected i t s 5 a b i l i t y to promote Canada's exports. Nevertheless, regardless of the c o n f l i c t s between the two in other policy areas, their differences with regard to footwear were surpri s i n g l y few. On the industry side of ITC, there were two bodies which were relevant to the footwear industry, the Footwear Division of the T e x t i l e Branch (the names of both the Division and Branch were changed several times over the years, without any change in their functions or o f f i c i a l status) and the O f f i c e of Industrial Policy (OIP), which was disbanded in 1977. S i m i l a r l y , there were two bodies on the trade side: Office of Spacial Import Policy (OSIP, which was subsequently changed to Office of Special Trade Relations, or 5 See W. R. Hines, Trade Policy-Making In Canada: Are We  Doing i t Right?, (Montreal: Ins t i t u t e for Research on Public Policy, 1985), and David Prothroe, Imports and P o l i t i c s :  Trade Decision-Making In Canada, 1968-1979, (Montreal: Institute for Research on Public Policy, 1980), pp. 69-73. 98 OSTR, and again to Special Trade Relations Bureau, or STRB) and the Office of General Relations (OGR). In 1982-83, the Footwear Division was transferred to DRIE, and the OSIP and the OGR to External A f f a i r s , with no change in their funct ions. The Footwear Division was intended to be the government's expert agency on the industry, responsible for p o l i c y developments, and was also to serve as a focal point of the l a t t e r ' s contact with the federal government. It maintained everyday dealings with the industry and possessed an extensive knowledge of the problems i t faced. In the bureaucracy, the Division was the one that was most sympathetic to the problems of the industry as a high-cost producer. At the same time, i t was convinced that higher wages in Canada were not the industry's only problems; equally important were the industry's own d e f i c i e n c i e s . The D i v i s i o n f e l t the industry could become competitive against imports from Europe by improving i t s productivity and marketing practices. Its assessment of the industry's problems in 1973 included the following: fragmentation, obsolescence, unprofessional management, inadequate marketing, and inadequate training f a c i l i t i e s . ^ It believed the industry could become competitive though persistent ^Public Archives of Canada (hereafter PAC), Records of The Department of Industry, Trade and Commerce (hereafter ITC), RG 20, Accession 83-84/290, Box 89, F i l e 23/500-2-2-2 part 1, "Shoe Technology and E f f i c i e n c y Program", discussion paper prepared by the Footwear D i v i s i o n , undated, 1973. 99 e f f o r t s , with the government's role r e s t r i c t e d mainly to maintaining high t a r i f f s and providing f i n a n c i a l assistance to the needy firms. It was also w i l l i n g to support short-term quota protection, but by the mid-1970s, i t was convinced the industry had made tremendous strides without quotas, and hence the process ought to continue with further f i n a n c i a l 7 assistance from the government. As such, i t viewed quotas as being unnecessary, and therefore could not support the demands for them. Since the footwear industry was the Division's c l i e n t , i t was in i t s best interests to c u l t i v a t e close relationship with the former. In the late 1960s and early 1970s, extensive e f f o r t s were made towards th i s end. In 1967, the Division proposed the establishment of a advisory committee consisting of footwear manufacturers, since i t was "...most anxious to develop some constructive and p r a c t i c a l programs t a i l o r e d s p e c i f i c a l l y to f i t the needs of the P Canadian shoe manufacturing industry." Such a committee was indeed established and the two worked j o i n t l y on several important projects in the subsequent years. The height of their co-operation was the formulation of the Sector Strategy 7 Maurice Chapleau (Chief, Footwear D i v i s i o n , ITC/DRIE), interview, June 24, 1987. 8PAC, Records of ITC, RG 20, Volume 2066, F i l e G(L)8001-240/S6 part 3, G. A. Tardif (Chief, Footwear Division) to J. G. Maheu (Vice President, SMAC), A p r i l 4, 1967. 100 9 in 1973-1974, when the industry was extensively consulted. In fact, in 1974, the government gave, at the recommendation of the Division, $30,000 to SMAC to "...partly defray costs associated with increased manpower resources by them to implement the strategy." 1^ The relationship between the two, however, began to deteriorate rapidly in subsequent years (for reasons to be discussed l a t e r ) , and shortly reached the l e v e l whereby there was no consultation between them on any major issue after 1975. While the Division's non-committal attitude towards quotas weakened i t s relationship with the industry, i t found favour with other bureaucratic actors, who were generally suspicious of industry sector branches because of the readiness with which they proposed protectionist measures. It also led them to support i t s recommendations for f i n a n c i a l assistance package for the industry. The Office of Industrial Policy (OIP) was a staff body in charge of developing p o l i c i e s in consultation with the industry sector branches of the department. In the early 1970s, i t was the centre of a c t i v i t y related to e f f o r t s to g See, for example, PAC, Records of ITC, RG 20, Accession 83-84/221, F i l e 43/530 part 2, SMAC, "Statement for Submission to the Minister of Industry, Trade and Commerce, the Hon. A. W. G i l l e s p i e by Emile Gagnon, President, SMAC", October 11, 1973. 1°Ibid., F i l e 43/530 part 1, A. M. Guerin (General Director, Textile and Consumer Products Branch) to R. G. Head (ADM, Industry Development), September 24, 1973. 101 develop an overal l i n d u s t r i a l policy for Canada. 1 1 This l e f t l i t t l e time to get intimately involved in minor industries such as footwear, and hence the OIP generally went along with the Footwear Division's i n i t i a t i v e s . On the trade side of ITC, the Office of General Relations (OGR) was responsible for looking after Canada's commitments under GATT. Because of the nature of i t s r e s p o n s i b i l i t y , i t was an avowed believer in l i b e r a l i z e d trade. In the case of footwear, however, there was l i t t l e opportunity for c o n f l i c t because the industry side did not propose additional protection. OGR maintained no dir e c t contacts with the manufacturing or trading interests. The Office of Special Import Policy (OSIP) was founded within the trade side of ITC in 1970 to administer the Export Import Permits Act. In essence, i t administered controls on products subject to import or export r e s t r i c t i o n s . As such, i t did not play a role in decisions regarding f i n a n c i a l assistance or t a r i f f s ; i t s concerns were r e s t r i c t e d to quotas. Throughout the 1970s i t played a somewhat restrained role in policy-making, even with regard to quotas. As i t s former Director General once noted, OSIP's role [was] more d i r e c t l y related to the administration of the r e s t r i c t i o n s or surveillance required rather than to the development of the p o l i c y . In t h i s regard one of my p r i n c i p a l objectives as the See Richard French, How Ottawa Decides; Planning and  Industrial Policy-Makinq, 1968-1980 (Toronto; James Lorimer, 1980). 102 Director General of OSIP [was] to ensure that the administration [was] equitable and that the rules or guidelines used to administer the r e s t r i c t i o n s [were] as clear as possible and known to a l l . He was, however, being more modest about i t s role than was true. It chaired the Low Cost Imports Committee (LCIC), which was an interdepartmental committee for advising the cabinet on import controls on t e x t i l e s , clothing, and footwear, and on Canada's commitments under GATT. OSIP was also in charge of negotiating export restraint agreements and the compensation to be paid in return for global quotas. Despite the c r i t i c a l nature of i t s functions, i t i s true that in the 1970s i t played a rather low-key role, and for the most part merely implemented decisions made elsewhere in the government. Towards the end of the 1970s, OSIP (now OSTR) began to play a more prominent role in the policy process. This transformation was made possible by the increase in the number of t e x t i l e , clothing, and footwear products that were brought under import controls a f t e r 1976, and the concomitant growth in staff required to administer these controls. Its transfer to External A f f a i r s in 1982 further reinforced i t s position in the policy process. The milieu in the new department emphasized export promotion, and the task of enforcing controls on imports was only perfunctorily 12 ITC, "The Role of the O f f i c e of Special Import Policy", Notes on Speech by C. D. Arthur, Director General, OSIP, to the Canadian Importers' Association, October 25, 1979. 1 03 undertaken. The year 1982 also witnessed the quiet b u r i a l of LCIC and i t s replacement with an informal committee consisting of STRB, DRIE, Finance, and Consumer and Corporate A f f a i r s . The informal manner in which the new group operated, and the unchallenged position that STRB enjoyed in setting agenda by virtue of i t s chairmanship, gave i t enormous powers with regard to decisions on footwear quotas. With regard to i t s predilections towards quotas, OSIP maintained a f a i r l y neutral position u n t i l about 1979, after which i t became increasingly unfavourable to quotas. Its experience with negotiating b i l a t e r a l quotas or compensation packages in return for global quotas made i t unenthusiastic about such measures. Moreover, i t increasingly came to view the administration of import controls as a thankless task, whereby i t was impossible to s a t i s f y the various divergent interests. Its chairmanship of the interdepartmental committee and the private sector Advisory Committee on Footwear Quotas provided i t with the opportunities to chip away at the controls on footwear imports. Thus, after 1982, STRB played a lead role in relaxing the controls on footwear imports. This was accomplished by increasing exemptions from controls, relaxing the conditions allowing for switching among classes of 1 3 footwear, and r a i s i n g the quota l e v e l s . 13 . Interviews, Chapleau, loc. c i t . , and Craig Campbell (Officer, The Department of Consumer and Corporate A f f a i r s ) , June 9, 1987. 104 Finance The Department of Finance by any measure has t r a d i t i o n a l l y been the most powerful department in the government, es p e c i a l l y in matters related to economic policy. Its role in formulating macro-economic policy for the nation (as embodied in the annual budget), and co-ordinating the various departments' programmes into a coherent economic policy gives Finance an enormous capacity to shape 14 p o l i c i e s . Its authority to participate in the footwear policy process lay in the fact i t administered a l l international trade-related statutes, except for the Export Import Permits Act. While considering i t s role in the policy process, i t must be remembered that the department is almost exclusively staffed by economists, who generally tend to be skeptical of micro-level intervention in the economy. Finance has generally been supportive of maintaining high t a r i f f protection to soft industries such as footwear, t e x t i l e s and clothing. In any case, there was no domestic or international pressures to lower t a r i f f s on footwear. It also followed a pragmatic approach towards 1 5 f i n a n c i a l assistance to the footwear industry. Such assistance was viewed as a means of weakening protectionist demands by the industry. It was, at the same time, one of the strongest opponents of quotas on imports. It regarded 14 Prothroe, op. c i t . , p. 73. 1 5 Chapleau, l o c . c i t . 1 05 them as i n e f f i c i e n t instruments of a s s i s t i n g an industry. 1^ External A f f a i r s External A f f a i r s , along with Finance and ITC, formed the triumvirate responsible for the conduct of trade policy. While the involvement of the l a t t e r two arose from s p e c i f i c statutory authority, External's involvement, u n t i l 1982, had i t s basis in the department's o v e r a l l mandate to conduct and manage Canada's international negotiations and relations with other countries. Its primary r e s p o n s i b i l i t y for maintaining diplomatic relations shaped i t s position on trade p o l i c y . It "shared Finance's commitment to the m u l t i l a t e r a l trade framework and skepticism about more 1 7 quantitative r e s t r i c t i o n s . " Its opposition to r e s t r i c t i o n s on imports had i t s basis in concerns for "...the e f f e c t s such a quota could have on Canadian economic r e l a t i o n s , the precedent i t might have for other countries wishing to l i m i t Canadian exports, and the inconsistency of such measures with Canada's general commitment to freer trade and lower trade 1 8 barriers for exports from the ^South'." In other words, i t viewed import controls as harmful for Canada's broad trade objectives and general diplomatic r e l a t i o n s . 1^G. Leblanc (Chief, International Economic Relations Division, Finance), interview, June 10, 1987. 17 Buhne, op. c i t . , p. 91. l 8 I b i d . 106 The departmental re-organization of 1982 brought most trade-related subjects, except t a r i f f s , under the umbrella of External A f f a i r s . As a result of the re-organization, i t became the undisputed leader in matters related to quotas. The transfer of OSIP to External added to i t s expertise in th i s area. It now began to oppose quotas not only because i t adversely affected Canada's diplomatic interests, but trade interests as well. Consumer and Corporate A f f a i r s The Department of Consumer and Corporate A f f a i r s (CCAC) was established in 1967 to promote the interests of consumers and to ensure optimal competition in the market place. Since imported products form a s i g n i f i c a n t part of the Canadian market, and insofar as consumers are affected by government p o l i c i e s that a f f e c t their prices, i t has construed i t s mandate as giving i t a v i t a l role in import polic y . However, there was, and s t i l l i s , a considerable opposition to i t s role in the area from other departments which did not believe i t had the authority or the expertise to participate in trade policy matters. Had i t not been for i t s unrelenting persistence, i t probably would have been completely shut out of the p o l i c y process. CCAC's basic position was that quotas hurt consumers by increasing prices and l i m i t i n g choices. Towards the end of the 1970s, i t developed an additional argument 1 07 that quotas cause i n e f f i c i e n c i e s in the domestic economy by favouring existing importers and r e s t r i c t i n g new entries (because of the practice of a l l o c a t i n g quotas on the basis of h i s t o r i c a l performance). In the 1970s, the chief forum used by CCAC to express th i s view was LCIC. It used the Committee's meetings to give "lectures" on the i n e f f i c i e n c i e s of quotas, behaviour other departments found extremely 1 9 disagreeable. They found i t s positions especially i r r i t a t i n g because they generally agreed with the thrust of i t s argument, but were in the situation of having to go along with pro t e c t i o n i s t measures because of p o l i t i c a l pressures. CCAC's predictable position on imports, moreover, led to i t s exclusion from the informal interdepartmental consultations that are endemic to policy-making, thus denying i t many pot e n t i a l l y valuable opportunities to influence p o l i c y . By the end of the 1970s, however, CCAC began to follow a more sophisticated approach and became more 20 i n f l u e n t i a l . Instead of presenting abstract, and often banal, t h e o r e t i c a l arguments, i t now provided empirical evidence to support i t s case. During 1979-1981, i t produced a series of papers covering d i f f e r e n t aspects of the footwear (and t e x t i l e s and clothing) industry, a l l of which in some way argued against r e s t r i c t i o n s on imports. In the face of 1 9 C D . Arthur (Director General, OSIP), interview, June 25, 1987. 20 Campbell, interview, l o c . c i t . 108 such empirical evidence, the other departments were forced to j u s t i f y why i t s arguments should be disregarded. Its membership on the interdepartmental committee consisting of three other senior departments, two of which were vehemently opposed to quotas, also gave i t a larger role in the policy c i r c l e s . CCAC played only a negligible role in t a r i f f p o l i c i e s . It recognized the near-consensus that prevailed in favour of maintaining high t a r i f f s on footwear, and the f u t i l i t y of the e f f o r t s to reduce them. P o l i c i e s regarding assistance to the footwear industry would have been c l e a r l y outside i t s mandate, and i t stayed out of the area. National Revenues-Customs and Excise Revenue Canada's involvement was r e s t r i c t e d to c o l l e c t i n g duties on imported products, ensuring appropriate rates of duties were being levied, and applying anti-dumping and countervailing laws and rulings. It also applied other laws and regulations that need to be enforced on imported products at the point of entry into the country. Revenue Canada has t r a d i t i o n a l l y avoided p a r t i c i p a t i n g in discussions regarding t a r i f f s or quotas. However, i t was intimately involved in determining value for duty advances, which, as w i l l be seen in Chapter Five, provided enormous t a r i f f protection from imports to domestic manufacturers. Unfortunately, the Department maintains, as i s required by 109 law, impenetrable secrecy around how i t arrived at i t s decisions. Employment and Immigration The Department of Manpower and Immigration was established in 1966 and re-organized as the Department of Employment and Immigration (CEIC) in 1976. Its establishment underscored the importance the government attributed to labour market p o l i c i e s in the 1960s. Its chief purpose has been to maintain optimal labour market conditions in Canada. The Labour Market Planning and Adjustment Branch was responsible for, in addition to planning for. meeting the demands of growing occupational sectors, developing p o l i c i e s , programmes and strategies for c r i t i c a l adjustment that cause employers, workers, industry sectors and communities to more quickly undertake and manage the labour market disruption20f plant closures, l a y o f f s , technological change, etc. As such, the r e s p o n s i b i l i t y for labour adjustment f e l l d i r e c t l y under i t s purview. However, even in the heady days of the 1960 and early 1970s, when i t was an enthusiastic . . . . 22 prac t i t i o n e r of active labour market p o l i c i e s , i t did not 21 CEIC, "Labour Market Planning and Adjustment Branch: Role, A c t i v i t i e s , Programs, Organization and Responsibility Assignments", January, 1982, p. 3. 22 . See Leon Muzynski, "The P o l i t i c s of Labour Market P o l i c i e s " , in G. Bruce Doern (ed.), The P o l i t i c s of Economic Policy (Toronto: University of Toronto Press, 1985), pp. 260-270. 110 propose a single labour adjustment programme for industries facing massive l a y - o f f s , such as t e x t i l e s , clothing and footwear. It was generally wary of industry-specific interventions, and instead r e l i e d on broad adjustment measures such as t r a i n i n g or mobility allowances available to a l l workers. Its basic philosophy was that the forces of demand and supply, with some broad assistance from the government, were s u f f i c i e n t to effect necessary adjustments in the labour market. It was only in the early 1980s that the Department even began to recognize that workers in some industries might require special assistance. Thus, in 1982, one of i t s studies c u r s o r i l y noted, ...while the market forces, combined with assistance from regular government measures, are s u f f i c i e n t to maintain an orderly and e f f e c t i v e i n d u s t r i a l adjustment process, there i s a certain limited number of cases where special assistance is required. Its reasoning was that without such special assistance measures, the a c c e p t a b i l i t y of the i n d u s t r i a l adjustment process in the economy would be replaced by pressures for strong pro t e c t i o n i s t measures to shore up uncompetitive industries. This [was] both costly to the economy and [inhibited] further economic growth and development. Despite the recognition of the need for special assistance to workers in industries such as footwear, i t made l i t t l e CEIC, Programme Evaluation Branch, "Pre-Evaluation Assessment, The Industry Labour Adjustment Programme: CEIC Programme Measures", December, 1982, p. 3. 2 4 I b i d . 111 e f f o r t s to develop appropriate programmes. In fact, the only special adjustment programme avail a b l e to footwear workers (apart from the pre-retirement benefits available to those over 55 years of age) was not introduced u n t i l 1982, and then 25 too only at the insistence of the cabinet. The special measures available to the footwear workers from 1982 to 1985 were e n t i r e l y unsuited to them, as was evident in their n e g l i g i b l e rate of u t i l i z a t i o n . It may well have been that by the time the CEIC was coming to recognize the unique problems in declining industries, the government had begun to withdraw from active 2 6 labour market p o l i c i e s . It may also have had i t s roots in i t s b e l i e f that lay o f f s and plant closures ...[were] important mechanisms in the process of economic adjustment and the achievement of economic e f f i c i e n c y . E f f o r t s to impede the process [were] considered_to have a negative impact upon growth and productivity. As a department's discussion paper noted, " . . . i t i s anticipated that in the long run the labour market w i l l adjust e f f i c i e n t l y and equitably to a l t e r i n g trade 2 8 adjustments." 25 For a discussion of labour adjustment programmes, see the chapter on f i n a n c i a l assistance. 26 See Muzynski, op. c i t . , p. 253. 2 7 I b i d . , p. 291 28 CEIC, "An Overview of International Trade and Domestic Labour Market Adjustment in Canada", unpublished discussion paper, Ottawa, November 7, 1985. 1 1 2 The Department maintained l i t t l e contact with other government agencies dealing with the footwear industry. However, i t did have a senior representative seconded to the Canadian Industrial Renewal Board. It also prepared a study, at the request of the Anti-Dumping Tribunal, on the impact of 29 removal of quotas on footwear workers. The Department maintained no contacts with the organized labour in the industry. Department of Labour Established in at the turn of the century, Labour is one of the oldest departments in the federal government. Its primary role has been to maintain a "proper" i n d u s t r i a l relations climate, and to represent the views of the organized labour in governmental decision-making. The founding of the Department of Employment and Immigration c l e a r l y demarcated Labour's functions as excluding labour adjustment p o l i c i e s . However, in recognition of i t s need to maintain the support of organized labour, i t was sympathetic to the plight of workers affected by large scale lay-offs in highly unionized industries such as t e x t i l e s , and to some extent, footwear. As a re s u l t , i t played the lead role, 29 Canada Employment and Immigration Commission, "Costs of Dislocation: An Investigation into the Nature and Magnitude of Labour Adjustment Problems in the Canadian Footwear Industry", unpublished study prepared by Jehangir Alam, Labour Market Outlook and Structural Analysis Branch, February, 1985. 1 13 despite the fact i t had no statutory authority in the area, in designing and gaining approval for pre-retirement benefits 30 programmes for t e x t i l e s , clothing, and footwear workers. Apart from the years 1971 to 1973 when i t sought to extend the pre-retirement programme to footwear workers, Labour played a negligible role in the footwear policy process. Department of Regional Economic Expansion DREE was involved in marginal ways in the footwear policy process during i t s existence u n t i l 1982, when i t was merged with DRIE. Since a large number of footwear plants were located in slow growth regions, mainly in Quebec, i t was drawn into providing them with f i n a n c i a l assistance. Between 1970 and 1980, i t provided about $3 m i l l i o n to 42 footwear firms in Quebec, and about $4 m i l l i o n to 51 footwear firms in 31 a l l of Canada. A general problem for DREE at the time was the dismal performance of firms i t had assisted. The increasing imports only worsened the s i t u a t i o n . As a result, DREE espoused one of the most prote c t i o n i s t positions in the bureaucracy, and l e t i t be known that i t was in favour of 32 quotas on imports. However, i t was not generally consulted 30 . . For d e t a i l s , see chapter on f i n a n c i a l assistance programmes. 31 DREE, Timothy E. Reid (ADM, Planning and Co-ordination) to A.B.Trudeau (Secretary, Anti-Dumping Tribunal), September 26, 1980, Table I of Annex 2. 3 2 I b i d . 1 1 4 by other departments in matters r e l a t i n g to the footwear industry. In fact, there was some resistance to i t s programmes on grounds i t s assistance was actually retarding 33 i n d u s t r i a l adjustment. * * * * * The Footwear Divi s i o n of ITC/DRIE was c l e a r l y the lead bureaucratic actor in the footwear policy process u n t i l 1982, when External A f f a i r s became the lead actor, because of the emergence of quotas as the most contentious issue. The Division was also the most sympathetic to the problems of the industry, even though i t disagreed with the l a t t e r ' s emphasis on the indispensability of quotas for the industry's s u r v i v a l . It sought to a s s i s t the industry primarily through f i n a n c i a l assistance. It also supported the maintenance of high t a r i f f s on imported footwear. The other main departments active in the process went along with the Division's proposals because the l a t t e r did not propose what they feared the most: quotas on imports. They recognized the government was under pressure to do something for the industry, and hence found f i n a n c i a l assistance and continuation of high t a r i f f s as the preferred solutions. Thus, there was a consensus among bureaucratic actors with respect to policy 33 . CCAC, "The Impact of Department of Regional Economic Expansion's Regional Development Incentives on Canadian T e x t i l e , Knitting, Clothing, and Footwear Industries", unpublished study prepared by Craig Campbell, 1980. 115 for the footwear industry. The only two departments concerned with labour never re a l l y addressed themselves to the question of labour adjustment in the industry. The bureaucracy's opposition to quotas may well have arisen from i t s intimate involvement in the formulation and implementation of p o l i c i e s for the whole economy, and the concomitant recognition of Canada's dependence on international trade for i t s economic prosperity. It may also have had i t s roots in the fact that a large number of o f f i c i a l s in a l l key departments, except the Footwear Div i s i o n , had their educational backgrounds in economics or commerce. These d i s c i p l i n e s largely believe in the superiority of b a r r i e r - l e s s trade in optimising the economic well-being of a nation. The Footwear Divi s i o n was not dominated by economists, nor was i t opposed to quotas in p r i n c i p l e . But from i t s extensive dealings with the industry, i t had concluded that import controls were not a solution to the industry's malaise. F i n a l l y , as Hines has noted, a large number of bureaucrats in the three key departments —ITC/DRIE, Finance, and E x t e r n a l — had "...a very strong contingent of o f f i c i a l s who were, f i r s t and foremost, trade policy o f f i c e r s schooled in the virtues of freer t r a d e . . . " 3 4 Hines, op. c i t . , p. 29. 116 Anti-Dumping Tribunal The Anti-Dumping Tribunal, known as the Canadian Import Tribunal since 1985, is not s t r i c t l y a bureaucratic actor; nor does i t have organizational interests i t s seeks to advance in the policy process. It i s rather an investigative and an adjudicative body which plays a c r i t i c a l role in decisions regarding controls on imports. Its primary function is to inquire whether dumped or subsidized imports are causing, or threatening to cause, injury to a domestic industry. However, i t was another, and infrequently used, provision of i t s enabling Act that got the Tribunal involved in the footwear policy process. According to Section 5(2) of the Export Import Permits Act, there must be a finding of injury to the domestic industry from imports by the Tribunal under the Anti-Dumping Act before the government can impose controls on imports of a product (except for t e x t i l e s and clothing, where injury i s determined by the T e x t i l e and Clothing Board). Section 16(1) of the Anti-Dumping Act authorizes the government to request the Tribunal to conduct an inquiry into an industry and report i f there i s a case for injury. After 1985, the government has derived t h i s authority from Section 48 of the Special Import Measures Act. Over the years, the government has ordered four inquiries into the footwear industry, the only industry which has ever undergone such an inquiry. The Tribunal i s a semi-autonomous body consisting 1 17 of a chairperson and normally three other members (to the maximum of f i v e ) . During the inquiries i t makes extensive e f f o r t s to encourage part i c i p a t i o n by interested parties at the various stages of the inquiry. Its findings are based on information provided by the contending parties, various government departments, and i t s own research s t a f f . While i t would be patently untrue to say the Tribunal i s a mouth-piece of the government or private interests, i t would also be inaccurate to describe i t as a body t o t a l l y immune to government influence. The timing of the ordering of an inquiry and the terms of reference, both of which are determined at the upper echelons of the government, have a c r i t i c a l impact on i t s findings. The personal convictions and background of Tribunal members have a similar impact. After a l l , the Act does not define the test of injury, leaving i t to the Tribunal to adopt c r i t e r i a at the time of inquiry. Moreover, the information on which i t bases i t s findings i s often contradictory and sketchy, allowing Tribunal members the scope to use the i r d i s c r e t i o n . F i n a l l y , the p o l i t i c a l climate surrounding the inquiry also influences i t s decisions. The chapter on quotas w i l l demonstrate how the terms of reference, the timing of inquires, and the p o l i t i c a l climate had a bearing on the Tribunal's reports, and the government's subsequent decisions. The Tribunal's reports do not, however, recommend 118 d i r e c t l y whether special measures of protection are needed by an industry. They merely provide analyses and interpretation of recent data. While the government i s not bound to accept i t s findings, in practice i t is nearly impossible to ignore them. If the Tribunal found no injury, the government i s forbidden by the Export Import Permits Act from providing additional protection. I f , on the other hand, i t found injury, the government s t i l l had to decide on the form of protection. In the l a t t e r case, the decision-making became a p o l i t i c a l process, subject to a l l the normal pressures of intra-governmental bargaining and interest group a c t i v i t y . In this sense, the Tribunal's i n q u i r i e s were only one, al b e i t a c r i t i c a l one, of the many stages in the process leading to the decision to provide or deny quota protection to the footwear industry. As Hines comments, The requirement [of an inquiry] provides a buffer between ministers and their p o l i t i c a l constituencies and an opportunity for interested parties to have their case heard p u b l i c l y based on the facts. On the other hand, i t involves two separate decisions: whether to refer the issue to the independent body for study; and what action to take based on the report of that body. The paper work, interdepartmental discussion, and in f i g h t i n g , to say nothing of the lobbying by private sector interests during the inquiries i s monumental. THE POLITICAL ARENA  Cabinet The cabinet is the supreme executive body in Canada and therefore, ultimately, commands the greatest resources to Hines, op. c i t . , p. 53. 119 shape public p o l i c i e s . The p r i n c i p l e s of cabinet s o l i d a r i t y and c o n f i d e n t i a l i t y , however, make i t d i f f i c u l t to assess i t s functioning. It i s known, in keeping with the regionalized character of Canadian p o l i t i c s , that ministers from central Canada are generally, but not always, more sympathetic to demands for protection from domestic manufacturing industries, whereas those from Eastern and Western Canada oppose such demands. In the post-War period, cabinets have generally been favourable towards l i b e r a l i z e d trade, although not quite as consistently, or to the same degree, as the bureaucracy. Ministers, as chief governing o f f i c i a l s , are undoubtedly aware of Canada's dependence on exports, which correspondingly implies allowing freer access to imports. As Ed Lumley, the then Minister for International Trade, noted, "... any pr o t e c t i o n i s t action we take could have adverse 3 6 effects on our future trade and job creation." The bri e f i n g papers on dif f e r e n t issues prepared by bureaucrats, who generally leaned towards l i b e r a l i z e d trade, for their ministers further reinforced the l a t t e r ' s support for freer trade. At the same time there has been a recognition that there are ce r t a i n large i n d u s t r i a l sectors that have developed behind barriers to imports, and would therefore require special assistance during the time they adjusted to 3 6 Buhne, op. c i t . , p.27. 120 l i b e r a l i z e d trade. In the years following the Kennedy Round, the government's intention was to reduce protection progressively for such industries, allowing the weaker sectors to gradually die. At the same time, the sectors that were expected to remain viable in the long-run were to be provided f i n a n c i a l assistance to become stronger and, ultimately, internationally competitive. The clearest evidence of this was the Textiles Policy, announced in 37 1970. ' While successive governments were committed to reducing protection progressively for the soft industries, they were also mindful of the policy's consequences, especially in terms of permanent loss of jobs in the slow-growth regions, notably Quebec. After a l l , cabinet ministers are e s s e n t i a l l y p o l i t i c a l creatures who constantly have their eyes on winning the next e l e c t i o n . They cannot follow a policy which would increase unemployment and correspondingly diminish their e l e c t o r a l prospects. The threat of Quebec separatism that haunted federal p o l i t i c i a n s through most of the 1970s created further imperatives for taking measures to protect industries that were s i g n i f i c a n t employers in the province. Therefore, successive federal cabinets, despite their general support for l i b e r a l i z e d trade, have been susceptible to demands for protection by labour-intensive industries in Quebec. 37 See Mahon, op. c i t . 121 The cabinets' broad trade objectives, and the constraints on them, were c l e a r l y reflected in their attitude towards the footwear industry. They were w i l l i n g to approve the bureaucracy's recommendations for f i n a n c i a l assistance to footwear firms in order to make them competitive. They were also supportive of the industry's demands, and the bureaucracy's favourable recommendations, for maintaining high t a r i f f s on footwear imports. With respect to quotas, the cabinet would have preferred not to impose them, but could not r e s i s t the demand for such protection in times of exceptionally adverse circumstances. The decision to impose quotas in 1977 must be seen in the context of the appreciation of the Canadian d o l l a r , which caused massive dislocations in the industry, and the election of the Parti Quebecois government in Quebec in the preceding year. Si m i l a r l y , quotas on leather imports were re-imposed in 1982, after nine months of absence, to arrest the increase in unemployment in the year of worst depression in the post-War history. Parliament Parliament i s generally regarded as playing an O Q inconsequential role in economic policy-making. Be that as See, for example, Robert Presthus, Pressure Group  Behaviour in Canadian P o l i t i c s , (Toronto: McGraw-Hill Ryerson, 1975). 122 i t may for the overall Canadian s i t u a t i o n , the M.P.s played a si g n i f i c a n t role in the footwear policy process. The manufacturing interests, as w i l l be seen in the subsequent section, did not trust the bureaucracy, and hence devoted their entire attention to the ministers and M.P.s. In SMAC's estimate, most of the M.P.s with footwear plants in their ridings were to varying degrees sympathetic towards the industry's demands. In the mid-1970s, there were 46 federal ridings in Quebec, and 60 in Ontario, which 39 contained at least one footwear plant. A l l Quebec ridings, except five (1 Tory, and 4 Social Credit) were held by Liberals; in Ontario, i t was almost evenly s p l i t between the Liberals and Tories, with one in the hands of N.D.P. After the 1984 elections, the number of federal ridings with footwear plants had declined to 37 in Quebec and 44 in Ontario. Of these, in Quebec, 24 were held by Tories and 13 by Liberals; in Ontario, 30 were Tory, 7 L i b e r a l and 4 N.D.P. ridings. It was a part of the manufacturing interests' strategy to c u l t i v a t e close t i e s with their l o c a l M.P.s, especially those in the ruling party, to apply pressure on the government. In a l e t t e r , for example, encouraging manufacturers and workers to contact their l o c a l M.P.s, SMAC said, "You need the support of M.P.s. They were responsible Figures compiled by SMAC. 123 for the la s t extension of quotas [in 1982]. The back-bench M.P.s, unlike the cabinet ministers or bureaucrats, were quite vulnerable to l o c a l interests. They had to depend on their constituents for election campaign funds and volunteers. Those from the ruling party were not unconcerned about their election prospects in case of plant closures that could be attributed to the government's f a i l u r e to control imports. The question of quotas, on the face of i t , was simple: imports were increasing at a time when production and employment were dec l i n i n g . The manufacturers' proposed solution, to impose quotas on imports, had an instant appeal to many M.P.s. Lacking their own independent source of information, and denied access to the bureaucracy's expertise, they were dependent on the information provided to them by the manufacturers and workers in their ridings. Moreover, since they were not d i r e c t l y involved with the complexities of administering the economy, they were less l i k e l y to appreciate the problems that erecting barriers to imports caused for Canada's export e f f o r t s . The M.P.s had almost no involvement in the areas of fi n a n c i a l assistance or t a r i f f s . These areas were too technical for those outside the administration or the industry to comprehend. In any event, the manufacturing 40SMAC, J. G. Maheu (President, SMAC) to members of SMAC, TAC, SISAC, and Unions with contract in the industry, November 25, 1983. 124 interests were not, as w i l l be seen in the subsequent section, overly concerned about these areas, and hence there was no pressure on the M.P.s to get involved in them. Their a c t i v i t i e s were r e s t r i c t e d to the high p r o f i l e , and apparently simple, issue of quotas. Several M.P.s, regardless of party a f f i l i a t i o n s , from ridings with footwear plants would speak in the House on behalf of the industry. Some also marched on the'Parliament H i l l along with manufacturers and workers in support of the industry's demand for quotas. They often wrote to the ministers in support of the industry. However, there is l i t t l e evidence that these a c t i v i t i e s had an decisive impact on government decisions. What did have an impact was the pressure ruling party M.P.s would exert on the cabinet at caucus meetings. Normally these pressures could be ignored, but i f the demand for quotas could be linked to some greater p o l i t i c a l concern such as Quebec separatism or growing unemployment, the pressures from M.P.s could not be entirely ignored by the executive. PROVINCIAL GOVERNMENTS In a sense, the provinces are states in themselves, with their own bureaucracies and p o l i t i c i a n s , not unlike the Canadian state. However, with regard to footwear policy, two of the three main policy instruments, t a r i f f s and quotas, f a l l exclusively under the federal j u r i s d i c t i o n . The 125 provincial governments are confined to options regarding f i n a n c i a l assistance only. Even in t h i s area, i t is the federal government that has played the lead role. In fact, provinces other than Quebec and Ontario, and to some extent B r i t i s h Columbia, have had no s i g n i f i c a n t involvement in any aspect of footwear policy. The areas in which Central Canadian provinces were interested ( t a r i f f s and quotas on imports) were outside their j u r i s d i c t i o n under the Constitution, and hence they could play only an indirect role. The fact the footwear industry was a prominent employer in Quebec and Ontario was the main imperative leading them to participate in federal policy-making for the industry. Their objective was to maintain the highest possible l e v e l of t a r i f f protection for the industry, something about which Ottawa i t s e l f was keen. They also wanted the l a t t e r to assist the industry's modernization, which again was Ottawa's objective as well. In fact, throughout the 1970-1985 period, there was a great deal of co-operation between federal o f f i c i a l s and those from Quebec and Ontario regarding the delivery of Ottawa's f i n a n c i a l assistance programmes to the industry. Quotas, as usual, were another story. The two provinces regarded quotas as v i t a l for the survival of the industry, a perspective that was not shared by the federal government. The divergence in opinion at times led to b i t t e r exchanges between them. 126 The governments of Quebec and Ontario, especially the former, maintained extensive links with l o c a l manufacturing interests. The l a t t e r , for their part, regularly met and wrote l e t t e r s to p r o v i n c i a l p o l i t i c i a n s to pressure the federal government on their behalf. In 1981, the Quebec government in fact wanted to forge a formal a l l i a n c e among the government, manufacturers, and labour in order to fight Ottawa's decision to remove quotas from imports on leather footwear. The proposal was turned down by the manufacturing interests on the grounds i t might actually weaken their cause. Both provinces e n t i r e l y ignored the trading interests in the industry, partly because they were not seen as economically suffering, and also because these interests did not exert pressure on the p r o v i n c i a l governments. In 1977, after the publication of the Tribunal's interim report finding injury from imports, the government of Ontario wrote to the federal government demanding quotas on 4 1 imports. The newly-elected Parti-Quebecois government made no such demand; i t knew i f Ottawa did not act to halt the rapidly declining conditions of the industry, i t would only constitute an additional proof that federalism did not work for Quebec. When the federal government imposed quotas on 4 1See SMAC, Claude Bennett (Minister for Industry and Tourism, Ontario) to J. G. Maheu (President, SMAC), August 12, 1977. Also see William Davis (Premier, Ontario) to Don McLeod (Chairman, SMAC), August 26, 1977. 1 27 imports later that year, i t was responding more to .the needs of strengthening the f e d e r a l i s t cause in Quebec, than to the demands of the government of Ontario. In 1980, with the referendum l o s t , the Quebec government realized i t had less leverage with Ottawa, and hence openly exerted d i r e c t pressure on the l a t t e r to protect the footwear industry in the province. Ontario too did the same, as i t had done in 1977. Regardless of their demands, however, the federal government removed quotas from imports of leather footwear in 1981. Quebec's trade minister, Rodrique Biron, charged, "You can bet that i f the policy was going to hurt Ontario, Mr. Gray [the Minister of ITC] would 42 have consulted the Ontario government before going ahead." Simil a r l y , Premier Rene Leveque in his opening address to the Parti Quebecois convention said, "It isn't by accident that the federal government has removed the protection for the shoe industry, when 50 per cent of the employees are in 4 3 Quebec." I r o n i c a l l y , by 1980 a larger proportion of the industry was located in Ontario, and the government of that province was equally incensed with Ottawa's decisions. In mid-1982, when the government reversed i t s decision and re-imposed quotas on leather footwear, i t was responding more to the recession of that year than to the pressures from the two 42 Quoted in Canadian Footwear Journal, January, 1982, p. 49. 43 Quoted in "Removal of Import Quotas J o l t s Footwear Industry", Montreal Gazette, December 15, 1981, p. 13. 1 28 provincial governments. In 1985, after the publication of the Tribunal's report recommending the removal of quotas from 44 most classes of footwear, the governments of Quebec and Ontario again exerted pressure on the federal government on the manufacturing interests' behalf. They asked Ottawa to disregard the Tribunal's report in view of the increased unemployment i t s implementation would cause, and to renew quotas. Ottawa disregarded their pleas, and implemented the report's recommendations almost in i t s entirety. The reasons why the federal government did not cave in to pressures from Central Canadian provinces was that federal-provincial c o n f l i c t s are endemic to policy-making in Canada, and the footwear policy was a r e l a t i v e l y minor point of contention between the two levels of government. Ottawa could afford to risk p r o v i n c i a l opposition on such minor issues. Moreover, the federal government was aware i t could count on other provinces, which were either unconcerned or opposed to quotas, for support of i t s position. Indeed, in 1980, the government of B r i t i s h Columbia submitted a formal brief to the Tribunal claiming quotas were yet another instance of the subsidization of Central Canadian industries by Western consumers, and asked for their immediate termination. * * * * * Quebec, Rodrique Biron (Minister, Industry, Commerce and Tourism, Quebec) to S i n c l a i r Stevens (Minister for DRIE), September 16, 1985. 1 29 The Canadian state's basic goal was to r a t i o n a l i z e and modernize the industry so that i t could become competitive with only the protection of high t a r i f f s . Towards this end, i t was w i l l i n g to offer a t t r a c t i v e f i n a n c i a l assistance to the industry. While not e n t i r e l y opposed to the use of quotas for short-term protection, the government was most reluctant to use t h i s instrument. The government had the organizational capacity to determine i t s objectives. It also had the capacity to r e a l i z e i t s objectives with regard to f i n a n c i a l assistance and t a r i f f s . It had the f i n a n c i a l resources to fund assistance programmes, which, in any event, involved small expenditures, because of the small size of the industry. It also had the diplomatic resources to continue to maintain high t a r i f f s on footwear. What i t did not possess was the capacity to p e r s i s t e n t l y withstand demands for quotas. The single-minded pursuit of quotas by the manufacturing interests, when reinforced by other broader p o l i t i c a l and economic concerns fundamental to the state, at times caused the government to depart from i t s objective. MANUFACTURING INTERESTS FOOTWEAR PRODUCERS The footwear manufacturers have been c o l l e c t i v e l y represented by the Manufacturers' Association of Canada 130 (SMAC). Established in 1918, and incorporated in 1945, i t i s one of the oldest one-industry business associations in Canada. Throughout the post-War period, i t has represented manufacturers who together accounted for over 80 per cent of the t o t a l footwear production in Canada. The non-members have generally been the small producers from the Toronto area. Its comprehensive membership has enabled i t to speak authori t a t i v e l y on behalf of i t s members. Although i t s members do not form the wealthiest section of the business community, the Association i t s e l f has not lacked funds to pursue i t s objective. In addition to i t s r e l a t i v e l y high membership fees, which are based on the firm's t o t a l sales, i t has been able to levy special dues at times of extraordinary expenditures. It has had a prominent trade consultant and lobbyist in Ottawa on retainer since the early 1970s, and in times of intense lobbying a c t i v i t i e s , such as 1981-82 and 1985, i t hired public relations consultants as well. It has also sometimes published advertisements in newspapers and trade journals to take i t s case d i r e c t l y to the public. In 1984, the year in which i t geared up for major e f f o r t s to secure the extension of quotas in the following year, i t spent $46,318 on "survival a c t i v i t i e s " , of which $22,391 were derived from " s p e c i a l " 45 membership fees. SMAC, Audited statement of revenue and expenditures, 1983-1984. 131 The industry had been doing r e l a t i v e l y well u n t i l the late 1960s, and hence there were few reasons for the members to get involved in public policy-making through their association. After imports from Europe began to increase their share of the Canadian market in the late 1960s, resulting in plant closures and l a y - o f f s , the industry sprang into action. Adversity led members to pa r t i c i p a t e more actively in the a f f a i r s of the association in order to apply pressure on the government to control imports. The almost even s p l i t in the industry's location between Quebec and Ontario did not mar the internal unity of the organization. The Association rotated i t s chair between the two provinces. It also never d i r e c t l y used, in consideration of the s e n s i t i v i t y of i t s members in Ontario, the threat of Quebec separatism to advance i t s cause. The r e l a t i v e l y greater hardships faced by the industry in Quebec also did not cause f r i c t i o n in the organization. The industry in Ontario was under similar pressures, a l b e i t to a lesser extent, and therefore supported the cause of i t s counterparts in Quebec. While considering SMAC's ideology, i t must be remembered that footwear firms have t r a d i t i o n a l l y been owned and operated by small businesses; Bata, the largest footwear producing firm in the world, being an exception. Like other small businesses, footwear manufacturers detested government intervention in their business a f f a i r s . This explained, in 132 part, their reluctance to u t i l i z e government's f i n a n c i a l assistance programmes, because they often came with stringent conditions ITC imposed on recipient firms. Those going through hard times, as many usually were, however, had few qualms about applying for assistance. Opposition to government intervention, yet dependence upon i t , was c l e a r l y evident, for example, in the statements of Anthony Carrier, who was one of the leading businesspersons in the industry. In 1977, he ran a series of advertisements c r i t i c i z i n g the Canadian government's p o l i c i e s . One of them, for example, read: Our system...is based on the simple and functional premise of 'an honest days work for an honest days pay'. No handouts, no giveaways.... In Canada, during the past few years, the Federal Government has l e g i s l a t e d the country not only a welfare state but also welfare mentality. What we find objectionable i s a system that actually encourages laziness by excessive handouts^ - handouts that come from your pocketbook and mine. At about the same time his advertisements were appearing, he had this to say at an interview with a j o u r n a l i s t : Canadians w i l l have to decide what exactly they want; either cheaper products with high unemployment or more expensive products with low unemployment. I am a f r a i d we can't have i t both ways. Personally, I would rather see footwear p r i c e s ^ i s e by $1.00 per pair and have lower unemployment. Since he did not believe in hand-outs to the unemployed, his Shoe and Leather Journal, September, 1977, p. 3. 47 Quoted in Shoe and Leather Journal, February, 1977, p. 21 . 1 33 generosity towards them must surely have arisen from the need to protect his own business, which was in deep f i n a n c i a l trouble at the time. His company received the largest assistance package among footwear firms; i t went bankrupt soon thereafter. T a r i f f s and quotas, of course, were another question. The Association never even saw them as interventionist measures. The industry had been demanding increased t a r i f f s since long before the establishment of SMAC. In 1901, the industry complained about footwear imports from the U.S. and demanded that t a r i f f s be increased from 25 to 35 per cent, so as to provide "...a modest protection for a very large number of men, women, and 48 children." SMAC in a press release dated December, 1918, the year i t was founded, noted that after i t s establishment 49 " . . . i t l o s t no time in tackling the t a r i f f question." Its argument was that protection from imports was essential to foster the development of manufacturing industry in Canada. Its brief to the Gordon Commission noted: While the pr i n c i p l e s of free trade may be a t t r a c t i v e , i t is an impractical policy for one nation to follow....It i s not sound policy to s a c r i f i c e the development and maintenance of domestic manufacturing industries for the purpose of encouraging the export of primary products as an end i t s e l f . Such a policy w i l l produce eventually an economy based upon a few primary industries with 48 PAC, Wilfred Laurier papers, Quebec Boot and Shoe Manufacturers to William Patterson (Minister of Customs, Canada), undated, 1901, p. 62210. 49 Quoted in Footwear Forum, January 10, 1979, p. 12. 134 r e l a t i v e l y small and weak secondary industries, which w i l l be dependent upon the economic and f i s c a l p o l i c i e s of other countries over which we have no control. Thus, SMAC wanted t a r i f f protection as a matter of broad strategy, not just as a special measure. The industry's half century of emphasis on t a r i f f s began to change, however, in the beginning of the 1960s because of increasing imports of cheap synthetic leather footwear from Japan. It now began to ask for controls on imports, although this demand was not f u l l y developed u n t i l 1970. In a l e t t e r to Prime Minister Diefenbaker in 1960, i t 51 asked for quotas on footwear imports from Japan. Si m i l a r l y , in i t s b r i e f s to the Canadian Trade and T a r i f f Committee in the mid-1960s, i t suggested the need for 52 controls on imports. It was in 1970 that i t made i t s f i r s t serious demand for quotas on import, which has since been i t s sole objective. Indeed i t has equated quotas with i t s very s u r v i v a l . ^ 3 With regard to i t s r e l a t i o n s h i p with other actors in the policy process, SMAC took a very h o s t i l e stand against 50 SMAC, "Submission to the Royal Commission on Canada's Economic Prospects", March 1, 1956. 5 1 . SMAC, "Memoire presente...au Premier Ministere Monsieur John Diefenbaker au seyet de l a necessite d'une re-e'valuation de l a politique economique canadienne et d'une demande de contingentments des importations de chassures du Japon", undated, 1960. 52 SMAC, Submissions to the Canadian Trade and T a r i f f Committee, 1965-1967, Various. 53 For d e t a i l s , see chapter on quotas. 135 t h o s e t h a t d i d n o t s u p p o r t i t s demand f o r q u o t a s . I n t h e l a t e 1 9 6 0 s , i t made some e f f o r t s t o b u i l d r e g u l a r c o n t a c t s w i t h t h e g o v e r n m e n t t h r o u g h t h e F o o t w e a r D i v i s i o n . The l a t t e r , a s d i s c u s s e d e a r l i e r , was i t s e l f k e e n t o g a i n t h e A s s o c i a t i o n ' s c o n f i d e n c e a n d went t o g r e a t l e n g t h s t o a c c o m m o d a t e i t s n e e d s . A s a r e s u l t , SMAC p a r t i c i p a t e d i n t h e a d v i s o r y c o m m i t t e e a t t a c h e d t o t h e D i v i s i o n , a n d was c o n s u l t e d e x t e n s i v e l y r e g a r d i n g t h e p r o g r a m m e i n i t i a t i v e s o f t h e e a r l y 1 9 7 0 s . The r e l a t i o n s h i p b e t w e e n SMAC a n d t h e F o o t w e a r D i v i s i o n b e g a n t o d e t e r i o r a t e , h o w e v e r , d u r i n g t h e i m p l e m e n t a t i o n o f t h e F o o t w e a r S e c t o r S t r a t e g y . S u s p i c i o u s o f g o v e r n m e n t i n t e r f e r e n c e , t h e f o r m e r w a n t e d g r e a t e r c o n t r o l o v e r t h e d e l i v e r y o f t h e p r o g r a m m e s . The F o o t w e a r D i v i s i o n , f o r i t s p a r t , f o u n d S M A C ' s b e h a v i o u r d i s t a s t e f u l a n d 54 c o n c l u d e d i t was n o t p o s s i b l e t o c o - o p e r a t e w i t h i t . B u t w h a t i r k e d t h e i n d u s t r y mos t was t h e D i v i s i o n ' s r e f u s a l t o s u p p o r t i t s demand f o r q u o t a s . I t was c o n v i n c e d t h e b u r e a u c r a c y was f u l l o f f r e e t r a d e r s who h a d no i n t e r e s t i n m a i n t a i n i n g a m a n u f a c t u r i n g b a s e i n C a n a d a . R e s p o n d i n g t o t h e g o v e r n m e n t ' s d e c i s i o n t o l i f t q u o t a s f r o m l e a t h e r f o o t w e a r , S M A C ' s P r e s i d e n t c o m m e n t e d : S o , t h e v e r y p e r s u a s i v e b u r e a u c r a t s i n O t t a w a who a r e a v o w e d f r e e t r a d e r t h e o r i s t s w i t h a s e c u r e i n c o m e h a v e c o n c e i v e d t h e i l l - a d v i s e d f o o t w e a r p o l i c y b e c a u s e i t i s n o t t h e f u n c t i o n o f t h e o r i s t s t o w o r r y a b o u t i n e f f e c t i v e a n d i n e f f i c i e n t p o l i c i e s t h a t f a v o u r m a i n l y b i g U . S . 54 C h a p l e a u , i n t e r v i e w , l o c . c i t . 136 retail-import business over small, e f f i c i e n t and productive Canadian manufacturers... or about unemployment. At another instance, the same President b i t t e r l y complained Some of the senior bureaucrats dealing with trade policy in Ottawa do not understand the private sector, and have low appreciation of the importance of the manufacturing sector as the prime provider of jobs in Canada. Convinced the industry would not get a f a i r hearing from the bureaucracy, SMAC appealed i t s case d i r e c t l y to the minister and M.P.s after the mid-1970s. 5 7 In addition to i t s contacts with ministers and M.P.s, and with the Footwear Division u n t i l the mid-1970s, the Association communicated i t s views to the government through other channels as well. In 1976, the government established a task force on the footwear industry consisting of footwear producers; i t s report r e f l e c t e d the industry's 58 demands in entirety. The consultative Task Force on the Footwear Industry, established in 1978, s i m i l a r l y consisted of footwear manufacturers, with a minority representation from labour. Its recommendation too b a s i c a l l y reiterated 55 SMAC, "Canadian Footwear Industry:Up-date Review of Facts", prepared by J. G. Maheu, March 17, 1982. 56SMAC, J. G. Maheu to Shelley Gilmour (researcher), July 13, 1983. 5 7See i b i d . C Q ITC, "Report of the Joint Industry-Government Task Force on the Footwear and Leather I n s t i t u t e of Canada", 1977. 137 59 SMAC's demands. Moreover, the terms of reference of the f i r s t three footwear inq u i r i e s by the Anti-Dumping Tribunal were addressed exclusively to the needs of the manufacturers, giving them opportunities to convey the industry's position to the government, while shutting out other contending interests. In the mid-1970s, when SMAC increasingly t i l t e d towards applying direct pressure on the government to impose quotas on imports, i t needed a l l the support i t could get from i t s potential a l l i e s . The most powerful candidate in this regard, of course, was organized labour in the industry. The success with which the Canadian T e x t i l e Institute had used labour in the t e x t i l e industry to secure protection from imports was not lost on SMAC. The co-operation between the footwear producers and organized labour in the industry began around the mid-1970s and lasted well over a decade. It strived for, and received, similar support from the supplying industries as well, thus forming a s o l i d block of pro-quota forces. SMAC never sought to maintain contacts with the importers, r e t a i l e r s , or consumer associations. There was obviously no purpose in trying to co-operate with the importers who were i t s main adversaries. Co-operation with r e t a i l e r s was possible, but SMAC's unwillingness to work with ITC, "Report by the Sector Task Force on the Canadian Footwear Industry", 1978. 138 those that did not support i t s demand for quotas made the task v i r t u a l l y impossible. In a l e t t e r to the Retail Council, the President of SMAC angrily noted: The Council professes support for Canadian manufacturers....In r e a l i t y , your members scour the world for sweat-shop footwear, dumped footwear and subsidized footwear to maintain their,prof i t s in the face of their declining productivity. Such words could hardly have been intended to gain a l l i e s . SMAC's internal unity, i t s comprehensive membership, adequate f i n a n c i a l resources, and c l e a r l y defined goals, made for a strong organization. The workers' and the supplying industries' backing for i t s position further reinforced i t s strength. The support of several ruling party M.P.s from ridings with footwear plants provided i t with vocal representation at caucus meetings. The support for i t s cause from the governments of Quebec and Ontario added to the strength of i t s demands. A l l these made SMAC a strong organization v i s a v i s the other actors in the policy arena. SMAC's internal unity began to crumble, however, towards the end of the 1970s, when producers increasingly turned to importing d i r e c t l y . This was the result of the fact that importing was viewed by them to be more profitable than manufacturing. In 1983 (the only year for which data i s avail a b l e ) , domestic producers and their related companies held 20 per cent of the quotas for leather footwear and 26 SMAC, J. G. Maheu to Mel Fruitman (Research Director, Reta i l Council of Canada), July 16, 1982. 139 per cent for non-leather footwear.^ 1 Insofar as the major manufacturers themselves increasingly became importers, or were planning to become one after quotas were removed, they no longer had the same imperatives as before to fight for 62 control on imports. This introduced a c r i t i c a l cleavage in the organization and severely constrained the Association's a b i l i t y to apply concerted pressure on the government. ORGANIZED LABOUR The organized labour in the footwear industry has had a unique relationship with the producers. On the one hand, they had, at least u n t i l the 1950s, b i t t e r labour relations with their employers regarding wages, technological 63 changes, and poor working conditions. Yet, on the other hand, they usually worked together when i t came to exerting pressure on the government for additional protection from imports. Labour unrest began to subside remarkably, at least on the surface, with the wide-spread decline in the industry after the mid-1960s. Large scale plant closures and l a y - o f f s in the late 1960s, continuing through the 1970s, dealt a severe blow to organized labour's strength to demand concessions from the employers. The adversity of the 6 1 T r i b u n a l , Report, 1985, op. c i t . , p. 123. 62 Frances Kelley (Communications Director, SMAC), interview, May 25, 1987. 63 See Ferland, op. c i t . and Rouillard, op. c i t . 1 40 circumstances also brought the two sides together and they began, more than ever before, to j o i n t l y pressure the government to protect the industry. The l e v e l of unionization in the footwear industry stood at around 60 per cent in the 1950s and 1960s. The closure of many large unionized plants, especially in Quebec, greatly reduced union membership in the industry. These new plants were replaced, often immediately, by new entrants, which tended to be small and located in smaller towns. These new plants were d i f f i c u l t to unionize because of the spread of a pattern of small number of workers employed in a large number of plants. The increase' in the number of recent immigrants and married women (who tend to be secondary wage earners in smaller towns) further weakened the unions because of the d i f f i c u l t i e s in organizing these s o c i a l segments. Labour's weaknesses were aggravated by the long spells of unemployment that were endemic to the industry. An Employment and Immigration study on the footwear workers found that during 1974-1983, ...the norm appears to have been for workers to experience intermittent s p e l l s of employment and unemployment. An analysis of the duration of unemployment data shows that the average duration lasted between 26 and 28 weeks per s p e l l . About 35 per cent of the unemployment s p e l l s lasted more than 20 weeks. Such long periods of absence from the work-place could hardly be expected to aid unionization drives. The labour turnover CEIC, Costs of Dislocation, op. c i t . 141 in the industry was also unusually high. As a result of these factors, the l e v e l of unionization in the Canadian footwear industry was around 40 per cent in the 1970s and around 33 per cent in the 1980S.^5 The l e v e l of unionization in Quebec has been s l i g h t l y lower because of the preponderance of smaller plants in the province, as compared to Ontario. There were other constraints on the unions as well. Footwear workers have over the years received the lowest wages among manufacturing workers, with the recent exception of clothing workers. In addition, their wages are based on piece-work, which has an immense adverse impact on their morale and job s a t i s f a c t i o n . The unions, of course, could do l i t t l e about the wages because of the often precarious f i n a n c i a l condition of the firms. The fact that the unions in the footwear industry had most of their membership in other industries made them esp e c i a l l y aware of the disadvantaged l o t of the footwear workers. At the same time, these workers wanted to keep their jobs, because more often than not they had no a l t e r n a t i v e employment. Thus, while the leadership fought for protecting jobs, i t could not do so In 1984, there were 5,670 union members in the footwear industry. Data provided by Isabelle Balon, (Labour Union Section (CALURA), S t a t i s t i c s Canada), interview, telephone, July 18, 1987. The estimate of the unionization l e v e l in the 1970-1984 period provided by Jean Paul Hetu, President, Centrale Des Syndicats Democratiques, at an interview, September 25, 1987. 142 6 6 w i t h a g r e a t d e a l of enthusiasm. Most of the u n i o n i z e d workers i n the i n d u s t r y a r e a f f i l i a t e d t o the U n i t e d Food and Commercial Workers' I n t e r n a t i o n a l Union (UFCW) i n O n t a r i o and C e n t r a l e Des S y n d i c a t s Democratiques (CSD) i n Quebec. A l t h o u g h t h e r e a r e s e v e r a l o t h e r u n i o n s w i t h a s m a l l number of members i n the i n d u s t r y , i t i s these two uni o n s t h a t have been the p r i n c i p a l v o i c e of the workers i n the footwear i n d u s t r y s i n c e the e a r l y 1970s. While the two f o r most p a r t have oper a t e d s e p a r a t e l y and made s e p a r a t e r e p r e s e n t a t i o n t o the government, t h e r e have been no r e a l d i f f e r e n c e s between the two, e s p e c i a l l y r e g a r d i n g t h e i r p o s i t i o n s on footwear p o l i c y . The UFCW l o c a l s i n the footwear i n d u s t r y have t h e i r a n t e c e d e n t s i n t h e Boots and Shoe Workers Union , which was an i n t e r n a t i o n a l u n i o n e s t a b l i s h e d b e f o r e the t u r n of the c e n t u r y . I t was a f f i l i a t e d t o the American F e d e r a t i o n of Labor, and i n a sense was a t y p i c a l b u s i n e s s u n i o n ; t r a c e s of t h i s i d e o l o g i c a l t r a d i t i o n c o n t i n u e s i n UFCW t o t h i s day. The CSD was e s t a b l i s h e d a f t e r the s p l i t i n the C o n f e d e r a t i o n des S y n d i c a t s N a t i o n a u x (CSN) i n 1972. The CSD took w i t h i t almost a l l the workers i n the footwear i n d u s t r y . The CSD, which was c o n s e r v a t i v e by the s t a n d a r d s p r e v a i l i n g i n Quebec i n the 1970s, viewed the CSN as dominated by p u b l i c - s e c t o r 66 L o m e Kenney ( D i r e c t o r , Labour Canada; f o r m e r l y , Canadian R e p r e s e n t a t i v e , Region 19, U n i t e d Food and Commercial Workers I n t e r n a t i o n a l U n i o n ) , i n t e r v i e w , September 17, 1987. 143 6 7 unions and as being too r a d i c a l . Since the early 1970s, organized labour in the footwear industry has had, as one former union o f f i c i a l put 68 i t , only one objective: quotas on imports. Lay-offs, temporary and permanent, were so common in the industry that protecting existing jobs was organized labour's most important concern. The best way to accomplish t h i s end was, of course, to halt increases in imports, which s t a b i l i z e d domestic production, and consequently, employment. In pursuit of quotas, labour supported the manufacturers, who too were single-minded in their pursuit of quotas. However, t h i s was not a recent development; as early as 1901, labour supported the manufacturers' demand for protection from imports. In that year, footwear workers sent, at the encouragement of their employers, i n d i v i d u a l l y signed petitions to the minister for Customs, stating: We, the undersigned operators...having read the p e t i t i o n of the Quebec Boot and Shoe Manufacturers in reference to the importation of American Manufacturers' Boots and Shoes into Canadian markets, and having taken cognizance of the same do hereby f u l l y agree with and endorse the same. The, st e a d i l y increasing importation... i s being seriously f e l t by those employed in the Canadian factories, and i s having a very detrimental effect on our m e a n S g O f earning a l i v i n g for ourselves and families. The producers were, obviously, f i g h t i n g for protection of 67 See Joseph Smucker, I n d u s t r i a l i z a t i o n in Canada (Scarborough: Prentice-Hall~ 1980), p. 234. ^^Kenney, l o c . c i t . 6 9PAC, Wilfred Laurier's papers, 1901, pp. 62157-62246. 144 their investments, but there was l i t t l e unions could do about i t , so long as quotas saved jobs. The irony of the situation was that quotas on footwear imports were often offered in addition to modernization assistance, which also caused job displacement. Unlike the manufacturers, however, labour sought to present i t s case for protecting jobs in terms of so c i a l policy. As i t pointed out in i t s brief submitted to the Tribunal in 1980, The protective measures that are in place now are there to preserve our jobs as a matter of s o c i a l p o l i c y . . . . When they were introduced in 1977, the quotas were intended s p e c i f i c a l l y to save our jobs. What labour seemed to be forgetting was that state has no iron-clad commitment to protecting jobs "as a matter of soc i a l p o l i c y " . It was seen as just another pressure group whose interests had to be weighed against those of others. Labour also appeared to be ignoring that quotas were really a part of trade policy, and not s o c i a l policy, subject to broader pressures emanating from the international environment. Consequently, when the government did not provide quotas because of opposition from national and international forces, labour had nothing to f a l l back upon -unlike the producers who were usually compensated in the form of addi t i o n a l f i n a n c i a l assistance. The l a t t e r also had the option, in the absence of quotas on imports, to become 70 . . Tribunal, Joint Brief Submitted by A l l Unions in the Footwear and Tanning Industries, 1980. 145 importers, as many did when quotas were l i f t e d in 1985. Organized labour's emphasis on quotas, instead of proposing measures addressed d i r e c t l y to the needs of workers facing d i f f i c u l t i e s , had i t s roots in the s t r u c t u r a l features of the unions in the industry. The fact that they were multi-industry unions, with only a small percentage of their membership in the footwear industry, impeded the i r capacity to represent the interests of the footwear workers, who were facing unique hardships. The business unionism of UFCW, and to some extent that of CSD, also inhibited them from developing broader programmes addressing the needs of the footwear workers. SUPPLYING INDUSTRIES The Tanners' Association of Canada (TAC) and the Shoe Industry Suppliers' Association of Canada (SISAC) were also a part of SMAC's comprehensive strategy to include a l l interests affected adversely by footwear imports. The members of TAC and SISAC were heavily dependent on the fortunes of the domestic footwear industry, because the l a t t e r was the customer for most of their production. Because of their reliance on the footwear industry for their own s u r v i v a l , the supplying industries were themselves keen to support the footwear producers' demand for quotas on imports. 1 46 The examination of the groups forming manufacturing interests c l e a r l y shows the group was united with a c l e a r l y -defined objective. The manufacturers, and for the most part labour, did not display internal fragmentation and had developed a strong working relationship between themselves with regard to government assistance to the industry. Despite the strength a r i s i n g from their unity, they lacked the capacity to impose their objectives on the state which was opposed to their demand for quotas. The Canadian state's reluctance to impose quotas was a major constraint on the pursuit of their objective. The footwear industry, even after including the supplying industries, formed such a small percentage of the t o t a l manufacturing GNP that i t could not command special treatment on economic grounds. The dependence of only a handful of communities on the footwear industry for their l i v e l i h o o d , compared to the t e x t i l e industry for example, also deprived the industry of the a b i l i t y to apply concentrated regional 71 pressures on the government. Moreover, the fact i t employed less than 20,000 workers, including those in the supplying industries, made i t incapable of a l t e r i n g the el e c t o r a l fortunes of any p o l i t i c a l party. F i n a l l y , the manufacturers', and the labour', f a i l u r e to c u l t i v a t e close CCAC, "Location of the Canadian TKCF Industries", unpublished paper prepared by Craig Campbell, 1980. 147 relationships with at least a section of the bureaucracy severely constrained their a b i l i t y to pursue their objectives. What r e a l l y weakened their cause, however, was the entry of the footwear manufacturers into the import business in the 1980s. With th i s development, the common purpose of fightin g imports, which u n t i l then had been c r i t i c a l in promoting group cohesion, was l o s t . The f a i l u r e of the manufacturing interests to mount a strong opposition to the government's decision to l i f t quotas in November,1985, must be seen in the l i g h t of the fragmentation resulting from this development. TRADING INTERESTS The business formations constituting the trading interests represent two different streams in the footwear trade: r e t a i l e r s and importers. The r e t a i l e r s e l l s d i r e c t l y to the consumers, whereas the importer, l i k e the manufacturer, s e l l s to the r e t a i l e r . However, while the importers include only those in the business of importing, the category of r e t a i l e r s include those who, in addition to r e t a i l i n g , in part or whole do their own importing. Most r e t a i l e r s , in addition to s e l l i n g imported footwear, deal in domestic footwear as well. Retailers, therefore, have contacts with both Canadian manufacturers and importers. The 148 importers, on the other hand, are direct competitors to the domestic manufacturers because their business i s usually at the expense of the l a t t e r . Consequently, r e t a i l e r s could pot e n t i a l l y co-operate with both manufacturers and importers, but i t was not in the interest of the importers to co-operate with the manufacturers, or vice versa. For the purpose of analysis, however, r e t a i l e r s and importers have been grouped together for three reasons. F i r s t , both shared a common interest in footwear trade, in the sense of buying and s e l l i n g as opposed to manufacturing. Second, they needed an environment whereby they could deal in imported footwear, unrestrained by quotas. This pitted them against the domestic producers, who would rather not have imported footwear enter the Canadian market. Third, many of the large r e t a i l e r s , who were also direct importers, held membership in both r e t a i l e r s ' and importers' associations. Despite the common position the r e t a i l e r s and importers presented in the footwear policy process, however, the former were not e n t i r e l y opposed to the domestic manufacturers because they needed domestic sources of supply as well. LARGE RETAILERS The large r e t a i l e r s in the footwear trade have been represented by the R e t a i l Council of Canada (RCC). It was established in 1962, after the abandonment of the Retail Federation, which had been founded in 1945. It i s not, 149 however, an association exclusively of footwear r e t a i l e r s . Its members account for over 65 per cent of a l l r e t a i l sales in Canada; footwear accounts for only a small part of i t s business. In the area of footwear trade, i t s members include 72 mostly the department stores and r e t a i l chains. Although the Council would not disclose the size of i t s membership, i t claims i t s members have t r a d i t i o n a l l y accounted for 60 per 73 cent of the t o t a l footwear sales in Canada. The inclusion of the largest r e t a i l e r s among i t s members made for a sound p o l i t i c a l and f i n a n c i a l base. RCC was not involved, l i k e other trading interests, in the policy process regarding f i n a n c i a l assistance or t a r i f f s . It accepted high t a r i f f s on footwear as a f a i t a c c o m p l i . With respect to f i n a n c i a l assistance, i t constantly encouraged the government to provide additional funds. This was not surprising because i t gave the appearance of supporting the domestic industry, while the costs of the support were borne by the government. Its approach towards quotas was somewhat ambivalent. On the one hand, i t declared i t s deep opposition to import controls, yet, on the other hand, i t did l i t t l e to fight for their removal. There were several reasons for the Council's 7 2 Mel Fruitman (Research Director, R e t a i l Council of Canada) interview, July 29, 1987 73 . . . Tribunal, Submission of the Retail Council of Canada, 1984. 150 ambivalence towards quotas. The largest r e t a i l e r s forming the RCC were opposed to quotas because they imposed an unnecessary constraint on their expansion. But at a time of stagnant footwear sales in the 1970s and early 1980s, this was hardly a problem. S i m i l a r l y , quotas involved unnecessary paper-work and i r r i t a t i n g regulations, but they never r e a l l y harmed the large r e t a i l e r s ' business. As the Tribunal's 1985 report noted: Most department and chain stores [which form RCC] appear to have had l i t t l e d i f f i c u l t y in obtaining a s u f f i c i e n t volume of footwear. Because their h i s t o r i c practice was to import d i r e c t l y they were allocated quotas in 1977. If they exhausted their entitlement, the department and chain stores had s u f f i c i e n t resources to purchase additional import requirements from importers. The costs involved in such transactions have been borne by consumers through increased prices. The large buyers could also obtain a l l the domestic product they wished without delay. That RCC members were not adversely affected by quotas was reflected in the increase in share of the t o t a l r e t a i l sales held by department and chain stores during the quota period, which increased from 57 per cent in 1977 to 63 per cent in 75 1984. The increase in their share could not, however, be f u l l y attributed to their quota holdings, because they could have — c o n s i d e r i n g their immense purchasing power and market dominance— performed just as well or better without quotas. As such, their opposition to quotas was primarily a matter of p r i n c i p l e . At the same time, the Council was not w i l l i n g to 74 Tribunal, 1985, op. c i t p. 204. 75 Ibid p.213. 151 commit large resources to fighting quotas. Unlike many other main actors in the process, RCC never, despite i t s financial strength, retained lawyers, public relations consultants, or trade consultants, or published advertisements in newspapers to express i t s opposition to quotas. The RCC members, l i k e other r e t a i l e r s , were es s e n t i a l l y believers in a free market economy. Catering to f i c k l e consumer tastes and dealing in fashion goods, they bore the f u l l brunt of market forces, and preferred to have the freedom to purchase from sources of their choice. Insofar as quotas came in the way of their freedom to import, they detested the controls. Imported products also afforded higher mark-up, which led them to import to the extent viable. Moreover, the fact the r e t a i l sector in Canada was not generally assisted by the government, unlike the manufacturing or a g r i c u l t u r a l sectors, aggravated their opposition to government controls on their business. However, they preferred s t a b i l i t y , as behooved large businesses, and refrained from taking extreme positions. They were therefore also w i l l i n g to compromise and co-operate with the manufacturers. At any event, the r e t a i l e r s could not e n t i r e l y ignore the domestic manufacturers because in certain sectors they were simply more competitive than foreign suppliers. As a part of i t s e f f o r t s to appear c o n c i l i a t o r y , RCC made numerous overtures to SMAC. In 1977, i t proposed 1 52 that since the Canadian manufacturers' greatest weaknesses was in marketing, an area in which the r e t a i l e r s had the greatest expertise, i t s members would support the establishment of a committee consisting of manufacturers and r e t a i l e r s to help the former overcome their shortcoming. Its members, i t proposed, . . . w i l l undertake a commitment to deliver marketing advice to domestic manufacturers, w i l l i n d i v i d u a l l y establish targets for the u t i l i z a t i o n of domestic sources, w i l l co-operate in developing s p e c i a l i z a t i o n for new products and, to the extent possible, w i l l give Canadian manufacturers f i r s t option on orders. As a part of i t s proposal, i t promised i t s members would commit to guarantee the purchase of at least 90 per cent of the purchases from domestic manufacturers in the previous year, on the condition SMAC gave up i t s demand for quotas on imports. The l a t t e r , of course, would have none of that and rejected the proposal outright. RCC had no formal li n k s with the CSRA or FIC. But many of i t s larger members held membership in these associations as well. The location of the o f f i c e s of a l l three in Toronto also made consultation among them easier. Apart from infrequent contacts with OSIP, the Council had few regular contacts with the government. Retail Council of Canada, "Proposal for Support of Domestic Footwear Manufacturing Industry", February 11, 1980. 153 SMALL RETAILERS The small footwear r e t a i l e r s have been represented by the Shoe Retailers Association (CSRA), which was established in 1960. It is a successor to the National Shoe Retailers' Association, which had been founded in 1946. The l a t t e r ' s establishment was a response to the problems footwear r e t a i l e r s were facing at the time. According to one source, During World War II, when a severe quota system was applied to footwear marketers, the small r e t a i l e r s sat by disgruntled with the nagging notion that their bigger brothers, the chains^ were getting more than a f a i r share of the quota. Its basic orientation, r e f l e c t i n g the needs of small r e t a i l e r s , has remained constant over the years, even though many of i t s presidents were drawn from the larger stores. 7P> In 1960, CSRA had a membership of 650, which declined consistently over the years. In the early 1970s, i t had a membership of about 500, which decreased to about 400 in the early 1980s. While i t s membership declined, the number of stores owned by i t s members increased from 1800 in 1960 to 2000 in 1984. 7 9 The decline in i t s membership, coupled with increase in the number of stores owned by them, reflected the secular trend towards displacement of 77 Footwear Forum, January 10, 1979, pp. 12-13. 7 8 I b i d . 79 Canadian Footwear Journal, February/March, 1984, p. 23. 1 54 individual stores by chains and department stores in the r e t a i l sector. While more than 90 per cent of i t s members have t r a d i t i o n a l l y consisted of family-owned independent businesses, operating less than 3 stores, the CSRA after the late 1970s increasingly included chain stores. The l a t t e r were taking up membership in the Association in addition to their existing membership in the RCC. While they did not add s i g n i f i c a n t l y to the number of members, they contributed enormously to the membership's t o t a l sales and the workers employed by them. In 1977, i t s members together accounted for one-third of the t o t a l footwear sales in Canada, and 8 0 employed 8000 f u l l - and part-time workers. In 1984, i t s 8 1 members operated half the footwear r e t a i l stores in Canada 8 2 and accounted for 60 per cent of the t o t a l footwear sales. It i s clear that the growth of CSRA after the mid-1970s was phenomenal, a r i s i n g mainly from the joining of the larger chain stores. Before the joining of the chain stores, CSRA had been a weak organization. In 1977, i t s President candidly admitted, 8 0 Tribunal, Inquiry into the Footwear Industry, Transcripts of the Hearings in Toronto, 1977. 8 1 Canadian Footwear Journal, February/March, 1984, p. 23. 8 2 Tribunal, Submission by the Canadian Shoe Retailers' Association, 1984. 155 We are dealing with thousands of individual businesses spread a l l over the country and the physical job of getting to them and of constantly campaigning to get them to see the value of co-operation makes i t X^ry d i f f i c u l t for us to be much bigger than we are. Its membership consisted of i n d i v i d u a l i s t small businesses which saw l i t t l e immediate benefits in joining the association. It was only after the larger r e t a i l e r s began to join that i t s fortunes began to improve. The large footwear r e t a i l e r s , as seen in the previous section, were not overly concerned about quotas, but they realized that their smaller counterparts were being injured, and joined the CSRA to preclude i t from taking extreme positions which would have only worsened the s i t u a t i o n . Their membership, apart from enhancing i t s legitimacy as a body representative of r e t a i l e r s , made enormous differences to the CSRA's f i n a n c i a l position. Its membership fees were based on t o t a l sales, as a result of which the revenues increased disproportionately after the joining of the larger stores. After a l l , the footwear r e t a i l sector i s highly concentrated, with the top 10 r e t a i l e r s (including their a f f i l i a t e s ) account for 40 per 84 cent of the t o t a l sales. The increased revenues came in handy, because the fight against quotas was becoming expensive. As i t s news-letter noted, "In the past few years, over $100,000 has been spent to lobby, advertise, and l i a i s e t ranscripts, l o c . c i t . 1985, op. c i t . , p. 204 3 T r i b u n a l , 84 Tribunal, 1 56 with M.P.s, the media and others." Quotas on imports imposed in 1977 had had their severest impact on smaller r e t a i l e r s . As the Tribunal's 1985 report explained, ...since many of the independent stores t r a d i t i o n a l l y r e l i e d on importers for the i r supplies of imported product, they were not e n t i t l e d to quotas of their own. Thus, they have had to compete with the large organizations for the supply of both imported footwear and domestic products. In these circumstances, the small size of the independents put them at a disadvantage. Consequently, independent stores have not always been able to purchase the variety of footwear they require to compete e f f e c t i v e l y in the marketplace. The method of a l l o c a t i n g quotas also appears to have favoured larger r e t a i l e r s over the smaller independent stores. The benefits of the quota to the larger r e t a i l e r s are p a r t i c u l a r l y evident when the scarcity premium is taken into account. To the extent that the scarcity created by the quota regime resulted in higher r e t a i l prices for footwear, quota gholders benefitted from this r e s t r i c t i o n of supply. Their disadvantaged lot was r e f l e c t e d in the decline in their market share from 23 per cent in 1977 to 17 per cent of the 8 7 t o t a l footwear sales in 1984. The Tribunal concluded that quotas had increased concentration in the -retail sector, and benefitted large r e t a i l e r s at the expense of the smaller 88 ones. Unlike the importers or the RCC members who benefitted or remained unaffected by quotas, most CSRA Q C Canadian Shoe Retailers' Association, Omnibus, December, 1985. 8 6 Tribunal, Report, 1985, op. c i t . , p. 204. 8 7 I b i d . , p. 216. 8 8 I b i d . , p. 52. 157 members' businesses were increasingly losing grounds. The l a t t e r realized that in order to compete, they had to start importing on their own, something not possible under the existing quota regime. A l l these factors spurred them to actions opposing quotas. In fact, this was the only one among the trading interests that became increasingly active after quotas were f i r s t imposed in 1977. The CSRA was aided in i t s fight against quotas by other factors as well. The CCAC was gradually becoming more vocal against the increasing concentration in the r e t a i l sector. Moreover, the fact smaller r e t a i l e r s were spread a l l across the country meant they could i n d i v i d u a l l y convey their concerns to their l o c a l M.P.s, many of whom would a i r them in the House of Commons. One of the best measures of i t s increased strength was the inclusion of consideration of the r e t a i l e r s ' interests in the terms of reference of the 1984 inquiry by the Anti-Dumping Tribunal —something for which i t had been fighti n g for years. In fact, CSRA had boycotted the 1980 inquiry on the grounds that i t s terms of reference did not allow for " r e t a i l statement". S i m i l a r l y , in 1984 i t had demanded, "The needs of r e t a i l e r s and the thousands of employees they support must be given f u l l consideration in 8 9 the government's decision-making process." This demand was f i n a l l y met in 1984. Canadian Shoe Retailers' Association, "The Need for Equality: Submission to the Federal Government", 1984. 1 58 Although the CSRA was one of the most vocal groups opposing quotas in the lat e r years, this had not t r a d i t i o n a l l y been the case. The smaller r e t a i l e r s realized they needed domestic manufacturers, and would have rather co-operated with them than f i g h t . As the Association's President once said, The r e t a i l e r , p a r t i c u l a r l y the independent who does from a quarter to a ha l f - a - m i l l i o n d o l l a r s in sales, s t i l l wants the domestic manufacturer. He knows that success is not the i n i t i a l buy, i t ' s the repeat. You have gto have the a b i l i t y to f i l l in as quickly as you can. The domestic producers provided f l e x i b i l i t y with regard to the size of orders, delivery schedules, and li n e s of cred i t , a l l of which are c r i t i c a l to the survival of small business. Importation, on the other hand, involved several problems for small businesses: placement of orders usually a year in advance, increased c a p i t a l cost because of the requirement to pay through l e t t e r s of c r e d i t , high minimum order requirement, absence of the opportunity to place repeat order, et cetera. Consequently, small r e t a i l e r s preferred domestic producers for supplies, and sought imports only to provide product e x c l u s i v i t y or supplement their l i n e s . In the early 1970s, CSRA made several attempts to build closer 91 relationship with SMAC, but to no a v a i l . The l a t t e r was so determined to achieve quotas that i t regarded anyone not 90 Quoted in Canadian Footwear Journal, January, 1982, p. 47. 91 See Shoe and Leather Journal, January, 1973, p. 21. f u l l y supporting i t s position as an opponent. 159 IMPORTERS Footwear importers, that i s those exclusively in the business of importing (as opposed to manufacturers and r e t a i l e r s for whom imports were an additional business) have been represented by the Footwear Import Committee (FIC). The Committee was established as a trade association within the Canadian Importers' Association (CIA) in 1971. Its membership has varied between 40 and 45 importing firms, which together accounted for about 60 per cent of the t o t a l 92 footwear imports into Canada. Some of the major r e t a i l e r s who did their own importing were members of FIC as well. Its small but comprehensive membership and common purpose made for a united organization and enabled i t to speak authoritatively on behalf of footwear importers. The importers, however, operate under a handicap unique to them. Because they import products which are made, or which could p o t e n t i a l l y be made, in Canada (thus displacing Canadian production and jobs) they were only grudgingly accepted as a group with legitimate interests in the policy process. In fact, SMAC in many of i t s o f f i c i a l pronouncements d e r i s i v e l y described importers as "job exporters". As a resu l t , the FIC had to go to great lengths Footwear Import Committee, "Footwear Import Quotas: 1977-84", discussion paper, 1984. 1 60 to dispel the popular public perception of i t s role, and emphasize the benefits accruing to the Canadian economy in the form of customs duties, business taxes, and employment. Nevertheless, they could count on l i t t l e support from within or without the government. Although many government agencies, r e t a i l e r s , and private interests took positions similar to the i r s , no one would openly align i t s e l f with FIC. FIC's ideology must be understood in the context of that of the CIA, of which i t is a subordinate part. The Importers' Association was formed in 1932 for the express purpose of fighting against barriers to imports. To this day, opposing t a r i f f and non-tariff barriers continues to be i t s main function, indeed i t s r a i s o n d'etre. As such, opposing quotas, so fervently demanded by the manufacturing interests, has been an essential thrust in FIC's thinking as well. During the 1971-73 and 1977 footwear inquiries by the Anti-Dumping Tribunal, the FIC played a leadership role among those opposing quotas on imports. However, after quotas were f i r s t imposed in 1977, i t s opposition began to gradually wane because of the benefits from controls that started to flow to i t s members. Quotas on footwear imports were unique. Unlike those on t e x t i l e s , clothing, or automobile imports, quotas for footwear were allocated to importers. Since quotas were scarce, their holder could c o l l e c t premiums. The practice of a l l o c a t i n g quotas on the basis of h i s t o r i c a l performance also 161 favoured the exi s t i n g importers and shut out new entrants. It is for t h i s reason that the FIC opposed b i l a t e r a l quotas --allocated to foreign e xporters— which the government was contemplating. The quotas on footwear imports made FIC members, even more than the domestic producers, the largest beneficiary of controls. During 1977-1984, importers held 49 per cent of the t o t a l quotas for leather footwear and 64 per cent of the t o t a l for non-leather footwear; the remaining portion f a l l i n g into the hands of manufacturers and 93 r e t a i l e r s . Commensurate with t h i s position, the Tribunal estimated importers derived about 40 per cent of the t o t a l benefits of quotas during the 1977-1983 period. In terms of 94 value, t h i s translated into $156 m i l l i o n . The importers, therefore, had a vested interest in maintaining quotas on imports. In 1984, the FIC o f f i c i a l l y changed i t s position from t o t a l opposition to asking for a gradual phase-out of 95 quotas. It could not, of course, as a constituent of CIA, e x p l i c i t l y ask for continuation of the controls. Even though the benefits of quotas to i t s members had been apparent since they were f i r s t imposed in 1977, the FIC u n t i l the early 1980s professed i t s opposition to them because i t believed 93 Tribunal, 1985, op. c i t . , p. 123. 9 4 I b i d . , p. 36-37. 95 See Tribunal, Submission by the Footwear Import Committee, 1984. 162 i t s members could increase their business in an import regime free of controls. The optimism began to fade, however, with the growing concentration in the r e t a i l sector. As the r e t a i l e r s were becoming larger and more sophisticated, i t was inevitable they would expand their import a c t i v i t i e s to retain for themselves the commission that otherwise accrued to the importers. The FIC was apprehensive the removal of quotas would open the flood-gates for imports by r e t a i l e r s , whose entry into the business had so far been restrained by quotas. The demand for a gradual phase-out arose from the need to ease the resulting dislocations among importers. In 1981, when the government l i f t e d quotas from imports of leather footwear, many importers were displeased. Said one importer, The government should not have done i t . It should have raised quota levels t>YqJ!-5 to 20 per cent and everyone would have benefitted. By asking for an increase in quota l e v e l s , instead of an end to them, the importers sought opportunities to increase their business while precluding competition from new entrants. S i m i l a r l y , the FIC expressed i t s displeasure with the Tribunal's 1985 report, and the government's subsequent 97 decision, which recommended an immediate end to quotas. The FIC, regardless of i t s v a c i l l a t i n g position on 96 Quoted in Canadian Footwear Journal, January, 1982, p. 49. 97 See Footwear Forum, August, 1985, p. 68. 163 quotas, however, did not possess the capacity to play a major role in the footwear policy process. Its limited membership did not give the Committee the numbers or the f i n a n c i a l clout required to exert pressure on the government. It was also constrained by the general attitude towards the role of importers in the society, the lack of a representative agency within the bureaucracy, and the lack of d i r e c t support for i t s position from the r e t a i l e r s ' or consumers' groups. It made the most s i g n i f i c a n t contribution in 1971-1973 and 1977 when i t cogently refuted SMAC's arguments before the Tribunal. Its half-hearted opposition to quotas after 1980 rendered i t s position i n s i g n i f i c a n t to the decision-making process. * * * * * The RCC, CSRA, and FIC were i n t e r n a l l y united and had a clear goal. However, as a c o l l e c t i v i t y — t r a d i n g i n t e r e s t s — they were somewhat divided among themselves. The only thing the three association had in common was their varying degrees of opposition to import controls, depending on whether or not they possessed s u f f i c i e n t quotas. The small r e t a i l e r s , represented by CSRA, by and large were not allocated quotas, and hence, were most vociferous in their opposition to the existing import control regime. However, the trading interests were neither i n d i v i d u a l l y nor c o l l e c t i v e l y strong enough to impose their objectives on the 164 state or the manufacturing interests. But to the extent their position supported those of others, they did have an impact on the government's policy. CONSUMERS' INTERESTS The interests of Canadian consumers has been organizationally represented by the Consumers' Association of Canada (CAC) since 1947. Its main concerns are "the economy, including the federal budgets and free trade; health and safety, including c h i l d safety; energy; competition; and 98 housing." This is a vast mandate, especially for a small, voluntary organization. Its t o t a l membership across Canada has varied between 125,000 and 150,000 in the 1980s. It has an annual budget of $4 m i l l i o n , about 85 per cent of which comes from i t s membership, and the balance from government grants. The Association's p a r t i c i p a t i o n in the footwear policy process i s co-ordinated through i t s Regulated Industries Program. The Program i s financed almost en t i r e l y by the Department of Consumer and Corporate A f f a i r s , which in 1986-87, for example, provided i t with grants t o t a l l i n g 99 $325,000. The programme i s administered by four permanent sta f f members. It i s only since 1980 that the Association has been 98 Consumers' Association of Canada, "Annual Review and P r o f i l e : 1985-86", p. 2. 99 • Consumers Association of Canada, Regulated Industries Programm, "Annual Report: 1986-87". 165 involved in the footwear policy process. U n t i l then, i t did not have the resources necessary to address the issue. Even in the subsequent years, i t s p a r t i c i p a t i o n has been r e s t r i c t e d to submitting br i e f s at the inquiries by the Tribunal and c r i t i c i z i n g r e s t r i c t i o n s on imports in general terms. Its position on quotas is rooted in c l a s s i c a l economic theories, which emphasize free operation of the forces of demand and supply as the most e f f e c t i v e means of advancing consumers' interests. The Association argued that quotas increased prices, reduced choices, and imposed a heavy burden on low-income consumers because of 'trading up' by importer under a regime based on quantitative r e s t r i c t i o n s . While the CAC's c r i t i q u e made sound economic sense, there were few consumers who were w i l l i n g to spend time or money to oppose the government decisions. A second associational weakness has been the sharp d i v i s i o n between the national organization and i t s Quebec chapter on the question of quotas on footwear, t e x t i l e and clothing. The Quebec chapter was vocal in i t s support for quotas, which were so vehemently opposed by the national organization. In 1977, the former appeared before the Anti-Dumping Tribunal and argued that quotas were a pre-requisite for maintaining a domestic footwear industry, which, in turn, was essential to check arbitrary price increases by foreign e x p o r t e r s . 1 ^ Pat MacLean, "Crying Wolf?", Shoe and Leather  Journal, November, 1977, p. 13. T66 S i m i l a r l y , in 1984 i t argued for a gradual phase-out of quotas, as opposed to the immediate elimination demanded by the national body. 1^ 1 In addition to the Quebec chapter, there were individual members in the organization who supported quotas as a measure to a s s i s t Canadian industry and workers. For CAC, i t was easier to forge unity on issues such as product safety and package l a b e l l i n g than on d i v i s i v e issues such as quotas. In the 1980s, CAC's influence increased along with the strengthening of broader forces opposed to quotas. The opponents of quotas would often use the need to defend consumers' interests to advance their own cause. As Prothroe has noted, "One of the most important roles of consumers' organizations is the simple fact that their interests can be invoked by policy-makers wishing to r e s i s t p r o t e c t i o n i s t 102 demands." The need to serve consumers' interests was one of the government's declared reasons for removing quotas on footwear in 1985. The CAC, however, maintained no contact with the other actors, not even the Department of Consumers' and Corporate A f f a i r s . 1 <^ 1Tribunal, Brief Submitted by Association des Consommateurs du Quebec Inc., November 30, 1984. 102 Prothroe, op, c i t . , p.41. CO-OPERATION AMONG INTERESTS 167 There was a broad unity, as was seen in the previous sections, within the state, manufacturing interests and trading interests. The same cannot be said about the relationship among them. Since each interest was strong, yet not strong enough to impose i t s views on others, co-operation between any two of them would have t i l t e d the balance in their favour. But such a co-operation required a modicum of congruence in interests, and a willingness to compromise, something that was absent in the footwear policy arena. The nature of their interests, and the prevailing circumstances, made the l i k e l i h o o d of compromise among divergent interest improbable. Nevertheless, there were some attempts at co-operation made by producers and r e t a i l e r s . U n t i l the late 1960s there was l i t t l e basis for c o n f l i c t between the manufacturers and r e t a i l e r s ; the importers were an inconsequential force at the time. The manufacturers were c l e a r l y the stronger group, who the r e t a i l e r s could not antagonize because of their dependence for supplies. Reflecting the homogeneity of interests that existed u n t i l the late 1960s, the Shoe and Leather Council was established in 1952. The Council consisted of footwear manufacturers(SMAC), tanners (TAC), components' suppliers (SISAC), and the r e t a i l e r s (CSRA). Its main purpose was to organize the Canadian Shoe and Leather F a i r , which was 168 b a s i c a l l y an event for buyers and s e l l e r s to meet. Commenting on the Council, an e d i t o r i a l in a trade journal noted: We have often mentioned in these column how well various segments of the industry get along together. This i s most evident in the monthly meetings of the Shoe and Leather Council of Canada where manufacturer, r e t a i l e r , tanner and supplier can get together and discuss in a friendly and even amicable manner various problems of mutual interest or even examine prob^^ms facing only particular segment of the industry. The problems between them almost exclusively related to order or delivery, and had l i t t l e bearing on public po l i c y . Towards the end of the 1960s, the situation began to change rapidly. The sharp r i s e in imports at the time led to stress in the Council. The importance of importers in the footwear trade was increasing, leading ultimately to the formation of the FIC. The r e t a i l e r s were increasingly dealing in imported footwear, which reduced their dependence on domestic producers. The l a t t e r , for their part, blamed the importers and r e t a i l e r s for the industry's woes. Although the Council was never o f f i c i a l l y disbanded, for a l l 1 04 p r a c t i c a l purposes i t died in 1971. This was the result of the anti-dumping case against imports of women's footwear from I t a l y and Spain, when the domestic manufacturers were for the f i r s t time p i t t e d d i r e c t l y against the r e t a i l e r s and importers. 1 r n Leather World, May, 1960, p.5. 104 Kelley, interview, loc. c i t . 169 But in the early 1970s, i t was s t i l l believed that the c o n f l i c t between the manufacturers and r e t a i l e r s was based on the lack of mutual communication between the two. The former were suspicious the r e t a i l e r s preferred to s e l l imported shoes, whereas the l a t t e r alleged the manufacturers did not produce footwear in style or in demand. It was believed mutual co-operation between the two could solve the problem. Thus, an e d i t o r i a l wondered: ...whether the basic problem l i e s in the lack of communication between the two groups? I re a l i z e manufacturers and r e t a i l e r s get together in two's and three's and discuss health, wealth and the weather, with may be the odd problem thrown i n . But when was the last time a serious meeting was held between the two groups at which major beefs were aired and answers given? It was s t i l l too early to re a l i z e that over the years, the fundamental interests of the two sides had become increasingly divergent. The second attempt at industry-wide co-operation was undertaken in 1977, which manifested in the founding of the National Footwear Conference of Canada (NFCC). It included not only a l l the constituents of the e a r l i e r Council --SMAC, TAC, SISAC, and CSRA, -- but also the RCC, FIC and the unions in the industry. The establishment of NFCC was precipitated by the publication of the Tribunal's interim report on women's footwear in July of that year. The report's finding of injury, and the unusually harsh language of i t s conclusions, caused a panic among those opposed to 1 05 Shoe and Leather Journal, August, 1971, p. 92. 170 quotas. They apprehended a r e s t r i c t i v e quota regime which would cause severe disruptions in the footwear trade. It was further feared that the f i n a l report due in September would find similar i n j u r i e s in other sectors, leading to a comprehensive control on imports. To preclude the imposition of an overly r e s t r i c t i v e quota regime, the RCC took the i n i t i a t i v e to develop an industry-wide consensus which could then be presented to the government. The CSRA and FIC shared RCC's apprehensions, and hence readily agreed to work towards such a consensus. They believed they could persuade manufacturers to agree on a more f l e x i b l e quota regime than what the government was l i k e l y to impose in the absence of consensus among themselves. SMAC joined because i t was s t i l l not sure about the government's intentions. In fact, the government had expressed i t s preference for b i l a t e r a l quotas with a limited number of countries, to which SMAC was opposed, as were the r e t a i l e r s and importers. To increase the number of manufacturing interests represented on the proposed body, SMAC brought in TAC, SISAC and the unions. In a l l , NFCC had twelve voting members, two each for RCC, CSRA, FIC, SMAC, labour, and one each for TAC and SISAC. Thus, the NFCC was evenly divided between the manufacturing and trading interests, with six votes on each side. The basic objective of NFCC was "to work for a healthy, p r o f i t a b l e , competitive 171 footwear industry in Canada. Immediately after i t s establishment, the NFCC j o i n t l y recommended that global quotas be imposed on imports of women's footwear; the quota l e v e l being set at 75 per cent of the t o t a l imports in 1975-76. The government did not act on the recommendations, awaiting results from the b i l a t e r a l negotiations with the main exporting nations that were underway and the publication of the Tribunal's f i n a l report. Soon after the publication of the f i n a l report in September in which the Tribunal found injury in a l l classes of footwear, the NFCC (with CSRA abstaining) again recommended global quotas, set at 75 per cent of the imports in 1975-76. The CSRA. abstained from supporting the proposal because i t s members, who had for the most part not been importers, would not have been allocated quotas under a global quota regime based on h i s t o r i c a l performance. FIC's accedence to the proposal was surprising, given i t s vehement opposition to quotas during the inquiry. It changed i t s position because i t recognized quotas were inevitable, considering the prev a i l i n g p o l i t i c a l climate. Second, by joining other industry groups in support of global quotas, i t sought to dissuade the government from imposing b i l a t e r a l quotas. F i n a l l y , global quotas based on h i s t o r i c a l 1^ 6Quoted in Mark C. Baetz, "National Footwear Conference of Canada", in Mark C. Baetz and Donald H Thain (eds.), Canadian Cases in Business-Government Relations (Toronto: Methuen, 1 985), p. 166. : 172 performance would have provided i t s members with a stable share of imports and reduced competition by r e s t r i c t i n g new entrants to the business. The RCC's support was also not surprising, since i t s members would have remained largely unaffected by quotas, given their position as the largest r e t a i l e r s as well as importers. In November, 1977, the government f i n a l l y imposed quotas along the lines proposed by NFCC. However, the government's decision was as much a response to c o l l e c t i v e pressures of NFCC as to i t s f a i l u r e to secure export restraint agreements with the major supplying nations. The mood at NFCC, however, was s t i l l up-beat. Don Mcleod, the chairman of SMAC o p t i m i s t i c a l l y mused, It i s my feeling that the National Footwear Conference represents a very real opportunity for a l l segments of the industry to increase their co-operation and communication, and...can have a very b e n e f i c i a l effect on bringing buyers, and s e l l e r s together in a mutually productive way. The RCC's moderate leadership role was especially admired. At the 15 meetings held between 1977 and 1980, NFCC took several key decisions, usually by consensus, regarding approaching the governments of Ontario and Quebec for elimination of the pr o v i n c i a l sales tax on footwear; 107 Quoted in Canadian Footwear Journal, January/February, 1978, p. 32. 108 SMAC, TAC, SISAC, and labour unions' joint l e t t e r to M.P.s, December 4, 1978. 173 launching consumer campaigns for increasing consumption of footwear; and resolving delivery problems between producers accord government recognition to the Conference. An examination of the NFCC's decisions, however, indicates that they a l l entailed the lowest common denominator among the members' int e r e s t s . The real test for NFCC was i t s stand regarding the future of quotas after they expired in December, 1980. Towards the end of 1979, the indicators augured well, for the NFCC was on the verge of recommending to the government that quotas, set at 100 per cent (instead of the existing 80 per cent) of the import leve l s in the base year, be extended for another five y e a r s . 1 1 ^ The consensus, however, was short-l i v e d . In early 1980, the RCC changed i t s mind, and proposed a complete end to quotas. The FIC followed s u i t , and was joined shortly by CSRA. 1 1 1 In place of quotas, RCC proposed that i t s members would commit to purchase a minimum of 90 per cent of their purchases from the domestic manufacturers in the preceding year. In response, the manufacturers retracted their e a r l i e r proposal to allow for growth in quota levels and to make quotas available to new stores. It was in t h i s context of mutual recrimination and r e t a i l e r s . 109 The minister of ITC was also approached to 109 Baetz, op. c i t p. 167. 110 Canadian Footwear Journal, December, 1979, p. 7. 11 1 Baetz, op. c i t . , pp. 168-170. 174 that NFCC met on May 6, 1980. The RCC's proposal, after considerable debate, was voted down, as was SMAC's motion asking for extension of quotas. The manufacturing interests' opposition to the RCC's proposal was based on their suspicion that the r e t a i l e r s would not keep their commitment, because of i t s voluntary character, and instead would buy from the cheapest sources abroad. SMAC claimed a similar scheme in U.K. had f a i l e d in 1979 because of the r e t a i l e r s ' f a i l u r e 112 to meet their commitment. This was the last time NFCC ever met. It i s evident that the co-operation between the manufacturing and trading interests was successful only on issues from which both sides benefitted, or at least neither were adversely affected. Since there were few areas where thi s was possible, because of the basic differences in their objectives, the basis for NFCC was too f r a g i l e to forge unity on fundamental issues. However, at times when they succeeded in co-operating, as in 1977 on the question of quotas, their common position did have some impact on government p o l i c y . CONCLUSION The internal organization of the Canadian state displayed remarkable unity with regard to policy for the 112 SMAC, "Retail Commitment (so called) of the Retail Council of Canada", discussion paper, A p r i l 30, 1980. 175 domestic footwear industry. A l l key bureaus involved in the making of the policy were opposed, a l b e i t for somewhat different reasons, to quotas on imports and instead favoured assistance through f i n a n c i a l aid and continuation of high t a r i f f s . The p o l i t i c a l executive broadly favoured the same course. However, i t was less resolute in i t s stand because of the p o l i t i c a l constraints under which p o l i t i c i a n s operated. This made them vulnerable to those outside the state demanding quotas. Their v u l n e r a b i l i t y also affected the bureaucracy's position, because of the l a t t e r ' s subordinate position v i s a v i s the executive. The manufacturing interests' e f f o r t s to pressure the federal government to control imports through quotas exhibited immense unity of purpose and action. Their unity broke down only in the 1980s when increasingly large numbers of manufacturers themselves turned towards becoming importers. However, even prior to t h i s development, they did not possess the strength or leverage necessary to force the government to meet their demands. The manufacturing interests succeeded in achieving their objectives only when exogenous circumstances, such as economic recession or the threat of Quebec separatism, favoured the achievement of their objectives. The trading interests played a minor role in the formulation and implementation of the footwear p o l i c y . Despite the unity within the individual groups — l a r g e 1 7 6 r e t a i l e r s , small r e t a i l e r s , and importers— comprising this c o a l i t i o n , the three held somewhat d i f f e r e n t positions which weakened their capacity to bring e f f e c t i v e pressure to bear on the government. They were s i g n i f i c a n t only insofar as their positions could be used by the government to r e s i s t the demands of the manufacturing i n t e r e s t s . In contrast to the unity that characterized the internal organization of the state, manufacturing interests, and trading interests, the relationships among them was marked by a high degree of c o n f l i c t . Beginning in the late 1960s, the increasing levels of imports made co-operation among them progressively d i f f i c u l t to achieve. The f a i l u r e of the domestic actors, i n d i v i d u a l l y or c o l l e c t i v e l y , to impose their goals on the others allowed exogenous factors to shape the p o l i c y towards the industry. The following chapter w i l l examine these factors and evaluate the role they played in the footwear policy process. Chapter Four INTERNATIONAL POLITICAL ECONOMY Policy for the footwear industry was shaped by, as was stated in the introductory chapter, domestic as well as international factors. The preceding chapter discussed the domestic policy arena. It was concluded that while the state, manufacturing interests, and trading interests had c l e a r l y defined objectives, they i n d i v i d u a l l y lacked the capacity to r e a l i z e them. S i m i l a r l y , the lack of co-operation among them rendered i t d i f f i c u l t for them to develop a common objective which they could accomplish c o l l e c t i v e l y . This chapter w i l l demonstrate that international p o l i t i c a l and economic factors played a decisive role in determining, given the domestic actors' i n a b i l i t y to achieve their goals on their own, whose objectives were met and whose remained u n f u l f i l l e d . The factors emanating from the international p o l i t i c a l economy were general and applied equally to a l l actors with interests in the footwear p o l i c y . However, they did not benefit a l l actors equally, favouring some more than others. While those disadvantaged sought to undermine the significance of these factors, none of them were s u f f i c i e n t l y powerful to overcome their impact. The resulting p o l i c i e s , therefore, bore i n d e l i b l e marks of the international p o l i t i c a l economy. The international political-economic factors that played the most c r i t i c a l role in the footwear policy-making process can be broadly c l a s s i f i e d into two categories. On the one hand, there were factors related to the provisions of GATT, Canada's o v e r a l l trade objectives, and the diplomatic resources of the EEC. These were constant over the 1970— 1985 period and overwhelmingly favoured l i b e r a l i z e d trade. On the other hand, there were factors related to the state of the Canadian economy, the monetary exchange rates, and the international climate for protection, which, while more variable over time, also had a pervasive impact on the footwear p o l i c y . They at times favoured increased protection for the industry, whereas at others they worked in the opposite d i r e c t i o n . The impact of the international p o l i t i c a l economy on the Canadian government's a b i l i t y to a s s i s t the domestic footwear industry through quotas was considerably more r e s t r i c t i v e than i t was with regard to assistance through t a r i f f s or f i n a n c i a l a i d . There were few international pressures on Canada to reduce i t s .steep t a r i f f b arriers to footwear imports, because other countries maintained s i m i l a r l y high t a r i f f s on t h i s product, and made only token e f f o r t s to reduce them. Consequently, the government could continue to maintain high t a r i f f s on footwear without opposition from abroad. The f i n a n c i a l assistance programmes for the industry were s i m i l a r l y unaffected by international pressures. Since only a small percentage of the industry's t o t a l production was exported, subsidies to i t did not provoke r e t a l i a t i o n from the importing countries. Had i t s exports been s i g n i f i c a n t , however, subsidies would have made i t the potential target for countervailing duties, thus n u l l i f y i n g the benefits. It was only with regard to quotas on imports, which adversely affected the interests of the exporting nations, that the international p o l i t i c a l economy played a c r i t i c a l , and contentious, role in shaping the government's policy for the industry. The main argument of this chapter w i l l be that Canada's obligations under GATT, i t s overall trade objective, and pressures from the EEC, overwhelmingly worked against quotas on imports. At the same time, changes in domestic economic conditions, the rates of exchange against the currencies of the major footwear exporting countries, and the international climate for protection prevailing in footwear trade, sporadically created conditions favouring increased protection. GENERAL AGREEMENT ON TARIFFS AND TRADE The purpose of GATT, signed by founding members in 1947, was to foster a neo-liberal international economic order. It created reciprocal rights and obligations among contracting parties to reduce barriers to international trade. It now includes nearly hundred states as signatories and almost 80 per cent of world trade is conducted under i t s aegis. 1 Canada i s not only one of the o r i g i n a l signatories to i t , but has been one of i t s most ardent supporters as well. Its provisions, however, r e s t r i c t e d the Canadian policy-makers' a b i l i t y to control footwear imports. The GATT's chief goal is to reduce protectionism in international trade, in the forms of both t a r i f f s (Art. II) 2 and quantitative r e s t r i c t i o n s (Art. XI). Quantitative r e s t r i c t i o n s are generally prohibited, except for a g r i c u l t u r a l and f i s h e r i e s products (Art. XI), controls designed to offset balance-of payment problems (Art. XII), and those barriers to trade imposed by developing countries (Art. VIII). Moreover, there i s an over-riding clause in A r t i c l e XIX which allows a nation to raise t a r i f f s or impose quotas on imports in order to protect a domestic industry. It is meant to be an emergency clause to which a signatory may resort in order to mitigate unforseen hardships caused by imports. A r t i c l e XIX i s the only provision in GATT which Canada can normally use to provide quota protection to the domestic footwear industry. The conditions under which t h i s provision can be used, however, are highly r e s t r i c t i v e , as 1Guy de Laccharrie, "The Legal Framework for International Trade", GATT Working Paper, (Geneva: General Agreements on T a r i f f s and Trade, 1984?). 2 General Agreement on T a r i f f s and Trade, Basic  Instruments and Selected Documents, Volume IV, Text of the General Agreement (Geneva, March, 1969). was intended by i t s authors. To q u a l i f y for emergency action, the product must be imported in such quantities and under such conditions as to cause, or threaten to cause, serious injury to the domestic producers of l i k e or competitive products. If the conditions are met, to be determined solely by the importing country, a contracting party i s e n t i t l e d to raise t a r i f f s or impose quantitative r e s t r i c t i o n s to the extent and for such time as may be necessary to prevent or remedy the injury. The use of A r t i c l e XIX i s governed by other r e s t r i c t i o n s as well. In return for l i m i t i n g imports, the country i s expected to offer compensation to countries with "substantial interest" in the product as exporters. The concept of compensation, however, i s not e x p l i c i t l y mentioned in the agreement. A r t i c l e XIX:3(a) only authorizes exporting countries to r e t a l i a t e , normally in the form of r a i s i n g t a r i f f s , against the exports of the country imposing r e s t r i c t i o n s on imports. In practice, the country resorting to the emergency provision negotiates to compensate the affected countries in the form of t a r i f f reductions in other products in order to preclude r e t a l i a t i o n . Another r e s t r i c t i o n the use of A r t i c l e XIX involves i s that the measure be temporary. While th i s i s , again, not e x p l i c i t l y stated, i t s t i t l e , "Emergency Action on Imports of Pa r t i c u l a r Products" c l e a r l y implies that the measure taken be temporary. There i s an international understanding that normally three to five years i s the maximum period for which 3 a nation can use r e s t r i c t i v e measures under the A r t i c l e . Thus, after a few years of maintaining quotas on imports, a country comes under pressure from the exporting countries to remove the controls. The use of t h i s A r t i c l e i s also r e s t r i c t e d by the fundamental tenet of GATT that a l l measures must be applied on a non-discriminatory basis. A r t i c l e I guarantees the pr i n c i p l e of non-discrimination as "immediate and unconditional" in the conduct of international trade by contracting parties. S i m i l a r l y , A r t i c l e XIII c l e a r l y stipulates that the administration of quantitative r e s t r i c t i o n s must be non-discriminatory. The effect of t h i s p r i n c i p l e is that a country applying controls on imports cannot target them against s p e c i f i c countries, while excluding others from them. It also means that a l l s i g n i f i c a n t exporters of the product subject to controls can claim compensation or else resort to r e t a l i a t i o n . By not being able to exempt the p o l i t i c a l l y and economically stronger nations from controls, the country employing A r t i c l e XIX becomes the target of their pressures to l i f t the controls. A large number of quantitative r e s t r i c t i o n s on imports are, however, applied outside the provisions of GATT. 3 Mark S i l l s (GATT Divis i o n , General Trade Policy Branch, Department of External A f f a i r s ) , interview, June 8, 1987. The l a t t e r is completely s i l e n t on arrangements whereby an importing country enters into an agreement with the exporting country or countries to li m i t i t s / t h e i r exports of specified products to a certai n l e v e l . Such arrangements are euphemistically c a l l e d Voluntary Export Restraint Agreement (VERA) or Orderly Marketing Arrangement (OMA). Since they are entered into e n t i r e l y outside the provisions of GATT, they are not bound by conditions that are entailed in the use of A r t i c l e XIX. Textiles and clothing products are the only goods that have the legal sanction under GATT for being dealt 4 with in thi s way. VERA does not technically contravene the provisions of GATT, because the l a t t e r does not e x p l i c i t l y prohibit them. However, they do v i o l a t e i t s s p i r i t to the extent that they are applied on a discriminatory basis, do not involve payment of compensation, and are not required to be temporary. In recent decades, countries seeking to impose quotas on imports have resorted to VERA/OMA more often than 5 to A r t i c l e XIX. The former have p r o l i f e r a t e d because they 4 Trade in t e x t i l e and clothing is governed by international agreement among major exporting and importing countries, which was f i r s t arrived at in 1961 under the t i t l e of 'Short-Term Arrangement Regarding International Trade in Texti l e s ' , replaced by 'Long-Term Arrangement Regarding International Trade in Textiles' in 1962. It was, in turn, replaced by 'Arrangement Regarding International Trade in Texti l e s ' , popularly known as 'Multi-Fibre Agreement' (MFA), in 1974, which a f t e r several renewals continues to this day. 5 GATT Secretariat, "Drafting History of A r t i c l e XIX and i t s Place in GATT", Restricted Document No. MTN.GNG/NG9/W/7, September 16,^1987. do not e n t a i l the need to establish injury to the domestic industry, or the need to pay compensation, as i s required for A r t i c l e XIX actions. They also do not have to be temporary, so long as the exporting countries are w i l l i n g to restraint their exports. The fact they can be applied selectively on certain supplying countries also makes them more convenient for nations seeking to control imports. The reason why countries agree to restrain their exports are, despite their rights under GATT to reject such requests, p o l i t i c a l and economic. F i r s t of a l l , they fear that in case of thei r refusal the importing country would impose global quotas under A r t i c l e XIX which might be more detrimental to their i n t e r e s t s . Moreover, VERA/OMAs are administered by the exporting countries which enables exporters to c o l l e c t premiums on their quota holdings, as opposed to quotas under A r t i c l e XIX which are administered by the importing countries. Export restraint agreements also provide market s t a b i l i t y to exporters by guaranteeing a certain l e v e l of imports which i s not possible under A r t i c l e XIX quotas because of their global nature. F i n a l l y , the negotiations preceding the agreement enable exporting countries to bargain for trade concessions in other areas in return for restraining their exports to a specified l e v e l . ^ ^For an excellent discussion on VERAs/OMAs see GATT Secretariat, "Grey-Area Measures: Background Note by the Secretariat", Restricted Document No. MTN.GNG/NG9/W/6, September 16, 1987. Nevertheless, unlike actions under A r t i c l e XIX which can be taken u n i l a t e r a l l y , VERA/OMA requires the consent of the exporting countries. Since the l a t t e r can refuse to enter into such an agreement, as often happens, the a b i l i t y of an importing country to use this mechanism depends largely on i t s bargaining resources. Canada has resorted to A r t i c l e XIX 22 times since the inception of GATT. Of the t o t a l , 18 have been on ag r i c u l t u r a l and t e x t i l e s and clothing products, 3 on footwear, and 1 on motor gasoline ( i t was not intended to 7 l i m i t the ove r a l l l e v e l of imports into Canada). Thus, apart from a g r i c u l t u r a l , t e x t i l e s and clothing products, a l l of which receive special treatment under GATT, footwear is the only product whose imports have been r e s t r i c t e d by A r t i c l e XIX quotas. In fact, apart from Australia and South A f r i c a , Canada i s the only signatory to GATT which has ever resorted to thi s A r t i c l e for r e s t r i c t i n g imports of g footwear. Other countries seeking to r e s t r i c t footwear imports did so through VERA/OMA. Canada too would have preferred the l a t t e r , but resorted to A r t i c l e XIX only after i t f a i l e d to persuade the major footwear exporting countries to l i m i t their exports. In order to e f f e c t i v e l y control imports through VERA/OMA, the importing country must have the capacity to 7See GATT, Drafting History, op. c i t .  8 I b i d . persuade the major exporting nations to restrain their exports. At the same time, the l a t t e r must see some benefits in doing so, otherwise they would refuse to enter into such an agreement. The largest exporter in terms of volume, Taiwan, i s not a party to GATT and hence could be subjected to u n i l a t e r a l r e s t r i c t i o n s on i t s exports. Canada's a b i l i t y to protect the domestic footwear industry would have been remarkably easy i f i t was the only source of problematic imports. Taiwan, however, was p r i n c i p a l l y a supplier of low-cost non-leather footwear, much of which was not produced in Canada. Controlling i t s exports alone, therefore, would have provided negligible r e l i e f to the domestic industry. Canada has not had the same resources v i s a vis the other major footwear exporting states. In the 1970s, the greatest threat to the domestic industry came from Italy. Its exports were mainly in medium to high price leather footwear, areas in which Canadian production was concentrated. Any increase in I t a l i a n exports were usually at the expense of domestic production. Consequently, import r e s t r a i n t measures that did not include Italy would not have provided e f f e c t i v e protection. However, i t s membership in EEC, and the fact i t i s one of the largest i n d u s t r i a l i z e d nations, meant Canada was not in a position to pressure i t into accepting an export-restraint programme. Italy also had nothing to gain from such an agreement. In 1977, when i t was approached to restrain i t s exports, i t f l a t l y rejected the proposal. At the time i t was under similar pressure from the United States, and by agreeing to Canada's proposal i t would have set a precedent for the former to follow. It was never again approached on this subject, Canadian o f f i c i a l s knowing well that i t would not agree to such a request. B r a z i l was mainly an exporter of women's leather footwear, the sector in which the Canadian industry was suffering the most. The concentration of women's footwear production in Quebec made i t even more v i t a l that B r a z i l i a n imports be controll e d . Canada approached B r a z i l in 1977 and in 1981 to res t r a i n i t s exports to Canada. It refused to negotiate such an agreement both times. 1^ Canada had been seeking to export i t s power generation and communication equipments to B r a z i l at the time, and the l a t t e r made i t known that Canada's chances of getting the order would be jeopardized i f i t was pressured to restrain i t s footwear exports. It was not in Br a z i l ' s interest to accept l i m i t s on i t s exports when i t s share of the t o t a l imports into Canada was increasing. The threat that Canada would otherwise resort to global quotas did not affe c t B r a z i l because under a system of global controls i t could expect to increase i t s exports at the expense of other suppliers. In any case, Canada was a r e l a t i v e l y small market, and i t would not have been in B r a z i l ' s interest to set a precedent for the 9 Arthur, interview, loc. c i t .  1°Ibid. United States to follow. Canada was in a r e l a t i v e l y strong bargaining position v i s a v i s South Korea. In 1977, the United States had negotiated a four-year OMA with i t , and i t would have been r e l a t i v e l y easy for Canada to demand similar treatment. But an agreement with Korea alone would have been en t i r e l y i n e f f e c t i v e because i t was primarily a supplier of 'ath-l e i s u r e ' footwear, something that was not produced in volume in Canada. In 1981, i t was widely believed that the increasing sales of joggers, much of which came from Korea, were displacing footwear in other sectors, and hence their imports must be controlled. However, the objective was not pursued seriously, Canadian o f f i c i a l s fearing that the ongoing e f f o r t s to s e l l CANDU reactors to Korea would be seriously jeopardized i f i t s footwear exports were r e s t r i c t e d . Canada's capacity to negotiate voluntary export agreements i s , generally speaking, low. It i s not a large enough to provide exporting countries with the incentive to restrain their exports in return for assured access to i t s market. They are also apprehensive that agreeing to such arrangements with Canada would i n v i t e pressures from other countries to enter into similar arrangements. Australia finds i t s e l f in a similar position which i s reflected in the fact that i t has had to resort to A r t i c l e XIX the largest number of times. The U.S. or the EEC, with their tremendous 189 diplomatic and economic resources, are in a much stronger position in thi s regard. The only product (excluding a g r i c u l t u r a l , t e x t i l e s and clothing products because of thei r special status) the imports of which Canada controls through VERA/OMA is automobiles. 1 1 In this case, Japan was the only country whose exports were perceived to be causing injury to the domestic industry and, moreover, i t already had such agreements with the U.S. and EEC, which made i t easier for Canada to demand similar treatment. The absence of such favourable conditions with regard to footwear made i t s restraint through VERA nearly impossible. Its f a i l u r e to conclude VERA with the major footwear exporting countries led Canada to resort to A r t i c l e XIX for restraining imports of footwear. However, the conditions requiring quotas to be temporary, non-discriminatory, and e n t i t l e d to compensation were problematic for policy-makers. The extension of quotas beyond three years generated opposition from the trading partners. Si m i l a r l y , the non-discriminatory application of restraint on imports from the U.S. and the EEC soured trade relations with them. In 1977, when Canada imposed quotas for the f i r s t time, conditions were such that establishing a case of injury to the domestic footwear industry was not d i f f i c u l t . But in 1981, when quotas were renewed for another three years, i t 1 1See GATT Secretariat, "Inventory of A r t i c l e XIX Actions and Other Measures Which Appear to Serve the Same Purpose", Restricted Document No. MTN.GNG/NG9/W/2, May 12, 1987. was severely opposed by the footwear exporting countries as exceeding what could be considered temporary. By 1985, i t was clear that renewing existing quota regime would be a flagrant v i o l a t i o n of the s p i r i t of A r t i c l e XIX and would provoke severe r e t a l i a t i o n by the trading partners. Moreover, after 1980 the EEC demanded compensation in return for r e s t r i c t i o n on i t s exports. The negotiations on compensation stretched over a long period, straining relations between the two. The task of c o n t r o l l i n g footwear imports through b i l a t e r a l agreements would have been considerably easier i f there was an international agreement on footwear similar to the M u l t i f i b r e Agreement (MFA). The l a t t e r provides for developed countries to negotiate b i l a t e r a l l y the l e v e l of t e x t i l e s and clothing imports from individual countries. In the late 1970s there were some attempts to develop an agreement on footwear modelled after MFA. In 1978 and 1979, footwear producers' associations from developed countries met 1 2 and resolved to work towards the objective. The Sector Task Force on the Footwear Industry also made recommendations along similar l i n e s . However, these e f f o r t s yielded no 12 At a meeting in Brussels on September 21, 1978, the representatives of national associations of footwear manufacturers of eighteen developed countries, including Canada's, adopted a resolution c a l l i n g for pressuring their respective governments to i n i t i a t e negotiations on an international agreement which would enable importing countries to r e s t r i c t imports on a selective basis. The resolution was re-confirmed at the meeting of December 3, 1979, held in Geneva. results because i t was not pursued seriously by any government. It was realized that reaching such an agreement would be a time-consuming task and, more importantly, would constitute a serious derogation from the pr i n c i p l e s of GATT. The arrangement regarding t e x t i l e s and clothing had come about because of the industry's enormous importance in terms of employment and production in most developed countries, and the leadership role played by the United States in 1 3 negotiating the arrangement. Instead of developing a new international regime for footwear, there have been attempts by the developed countries to amend A r t i c l e XIX to allow for i t s 1 4 discriminatory application. At the Tokyo Round of negotiations, the EEC was adamant on a revision that would allow importing countries to u n i l a t e r a l l y impose quotas on a selective basis. The proposal was t a c i t l y supported by the United States and Canada. The developing countries opposed the amendment on the grounds that i t would lead to p r o l i f e r a t i o n of controls on their exports. F i n a l l y , no agreement was reached and the A r t i c l e remained unchanged. Had the EEC's e f f o r t s been successful, i t would have been much 1 3 See Vmod K Aggarwal, L i b e r a l Protectionism: The  International P o l i t i c s of Organized Textiles Trade (Berkeley: University of C a l i f o r n i a Press, 1985). 14 . . > For a discussion on attempts to amend A r t i c l e XIX to allow for i t s discriminatory application, see GATT Secretariat, "Work Already Undertaken in the GATT on Safeguards", Restricted Document No. MTN.GNG/NG(/W/1, A p r i l 7, 1987. 192 easier to control the imports of footwear. As matters stood, i t was extremely d i f f i c u l t for Canada to impose quotas or extend them beyond three years. Consequently, those domestic interests that sought quotas on imports were seriously handicapped by Canada's obligations under GATT. CANADA'S TRADE OBJECTIVES The Canadian policy towards footwear imports has been inadvertently conditioned by the nation's o v e r a l l trade objectives. The footwear industry in the post-War period has been a minor industry in Canada, which has denied i t the economic clout to effect changes in the nation's broader trade objectives. At the most, i t could only expect to modify them to accommodate i t s interests. The interests of the footwear industry, however, were at such fundamental odds with Canada's trade objectives that i t was extremely d i f f i c u l t for the industry to r e a l i z e them. The fundamental tenet of Canadian economic policy through much of i t s history has been export-led growth. In order to promote i t s exports, Canada established the Trade Commissioner Service as far back as in 1892, long before the 1 5 establishment of i t s own diplomatic service. While i t has made extensive e f f o r t s to foster the growth of import-substituting manufacturing industries, they were c l e a r l y 1 5 External A f f a i r s , A Review of Canadian Trade Policy: A  Background Document to Canadian Trade Policy for the 1980s (Ottawa: Supply and Services, 1983), p. 4. subordinate to the goal of promoting exports. Endowed with huge resources of a g r i c u l t u r a l , forestry, mineral, and energy resources, their exports have been seen as c r i t i c a l to Canada's economic prosperity. It was widely believed that the country's comparative advantage lay in these products and hence must have p r i o r i t y over other economic policy goals. As Rowell-Sirois Commission noted in 1937: Because Canada is one of the least s e l f - s u f f i c i e n t countries in the world her prosperity and her very existence depend on making the most of her own specialized resources, and on trading them as advantageously as possible for her other requirements. Her success w i l l depend...on the continuation of interdependent and integrated international system of trade and finance. Everything which tends to r e s t r i c t the operation of that system...reduced the scope for an advantageous international d i v i s i o n of labour-- the p r i n c i p l e on which the existing,Canadian economy and standards of l i v i n g are b u i l t . In a similar vein, D.C. Abbot, the Minister of Finance, in 1950 noted: Given the basic feature of our economic structure and the heavy dependence on trade, I believe that the only appropriate policy for Canada with respect to t a r i f f s and other trade barriers i s to get them down to reasonable levels and keep them down, both here and abroad. Partly as a result of the innate structure of the economy, and partly as a result of the government policy, Canada's exports have played an increasingly v i t a l role in 1 6Quoted in i b i d . , p. 1 1 7 Department of External A f f a i r s , "Trends in Canada's Trade and T a r i f f s Policy", An Address by Mr. D.C.Abbot, Minister of Finance delivered to the Annual Meeting of the Canadian Section of the International Chamber of Commerce in Montreal, on February 9, 1950, Reference 50/4. the economy. Exports as a percentage of the t o t a l GNP increased from 20 per cent in 1963 to 25 per cent in 1973 to 1 8 29 per cent in 1983. In 1983, more than three m i l l i o n jobs, of which almost half were in manufacturing, were dependent on exports. Among the seven largest i n d u s t r i a l i z e d nations, only in West Germany do exports account for a larger percentage of the GNP. While Canada has t r a d i t i o n a l l y been mainly an exporter of natural resource and a g r i c u l t u r a l products, exports of finished manufactured products doubled 1 9 between 1971 and 1981. This led to increased confidence among policy-makers that Canada could be competitive in certain specialized manufacturing sectors. This was reflected in i t s general support for lowering trade barriers at GATT negotiations. While Canada was working towards lowering b a r r i e r s , including i t s own, to trade, i t was not keen to do so with regard to certain products because of p o l i t i c a l and h i s t o r i c a l reasons. As the background document to trade policy stated, "An important exception to the general trend in the post-war era of gradually moving towards freer trade occurred in a range of standard technology, r e l a t i v e l y labour intensive industries, including t e x t i l e s , c lothing, and 18 Department of External A f f a i r s , How to Secure Enhanced  Canadian Access to Export Markets, (1983). 19 . . External A f f a i r s , Review, op. c i t . , p. 21. footwear." It was p o l i t i c a l l y d i f f i c u l t to expose these industries to the level of international competition under which other industries operated because the former had developed and survived under protection and were not in a position to compete without barriers to imports. The problem was further compounded because they were large employers of workers, often in slow-growth regions. While the government was not favourable to reducing the l e v e l s of protection for these industries, i t was also unwilling to increase them, as was being demanded by the industry. The government's goal with regard to footwear, and t e x t i l e s and clothing, industries was to make them more competitive through " r a t i o n a l i z a t i o n ' . As i t admitted, "A fundamental dimension of the government's economic development p r i o r i t i e s for the 1980s i s i n d u s t r i a l renewal through modernization, r a t i o n a l i z a t i o n and the creation of 21 alternate employment opportunities." It wanted to "...reduce the pressure for costly support to less competitive industries and at the same time provide alternate employment opportunities in higher productivity and higher 22 wage sectors." These broad objectives were sought to be achieved through gradual reduction in the l e v e l s of protection afforded these industries, including the footwear 20,.., Ibid., P. 6. 21 TV," J Ibid., P- 47. 22,,.-, Ibid., P. 49. industry. It was c l e a r l y understood by the policy-makers that in order to reduce foreign barriers to i t s exports, Canada must lower i t s own barriers to imports. As J . H. Warren, the Co-ordinator for Canadian negotiations at the Tokyo Round noted, "...trade i s a two-way street; while there i s no automatic balancing and other payment flows must be taken into account, i t remains true that in real world one must be 23 prepared to buy i f one wishes to s e l l . " David Prothroe in his study of Canada's trade p o l i c y in the 1970s arrived at a similar conclusion: Canada's dependence on external markets makes i t more vulnerable than most countries to foreign trade obstacles. This has accounted for generally strong Canadian support for m u l t i l a t e r a l trade l i b e r a l i z a t i o n in the post-war period. The threat of r e t a l i a t i o n against Canadian import b a r r i e r s is probably the single most important constraint upon Canadian protectionism... Considering the importance of exports to the Canadian economy, the government was constrained in a s s i s t i n g the domestic footwear industry with quotas on imports. It was awkward for Canadian o f f i c i a l s to defend quotas on footwear while promoting Canadian exports or while negotiating the lowering of foreign trade b a r r i e r s . Trade barriers on a g r i c u l t u r a l , defence, and t e x t i l e s and clothing 23 Office of Co-ordinator, M u l t i l a t e r a l Trade Negotiations, "Notes for Address by Ambassador J.H.Warren to the Canadian Importers' Association" Toronto, December 5, 1977. 24 Prothroe, op. c i t . , p. 19. products are maintained by most nations and hence Canada can do the same without jeopardizing i t s export interests. With regard to footwear, however, Au s t r a l i a was the only other country that maintained global quotas, and i t was therefore d i f f i c u l t for Canada to defend i t s quota regime. In short, Canada's overall trade objectives worked against the footwear manufacturing interests' demand for quotas on imports. FOOTWEAR IMPORTS FROM THE EEC The vast quantities of footwear imported from the European Community formed an enduring s t r u c t u r a l constraint on the actors in the domestic policy arena. From 1981 to 1985, footwear imports from the EEC farmed between 28 and 41 25 per cent of the t o t a l imports in terms of value. Its share was even higher in the 1970s. Its exports are backed by i t s tremendous diplomatic resources a r i s i n g from i t s position as the world's largest trading bloc. A medium-size economic entity such as Canada has l i t t l e leverage against i t in trade negotiations. The EEC is also the second largest destination for Canada's exports, with scope for further expansion. Consequently, the Canadian government cannot afford to ignore the l i k e l y reaction of the EEC while formulating policy for the footwear industry. Imports of footwear into Canada pr i o r to the 1960s Department of Regional Industrial Expansion, "Imports  of Non-Rubber Footwear, 1981-1986" (DRIE, 1987). came almost exclusively from Western European countries which now form the EEC. Beginning in the late 1960s, their exports to Canada increased further, though not at the same rate as those from the Newly I n d u s t r i a l i z i n g Countries. The EEC's exports, however, were mostly in medium- to high-price leather footwear, the market segment in which the Canadian producers also specialized. Consequently, they were more damaging to the domestic industry than those from the developing countries. For a quota regime to be ef f e c t i v e , imports from the EEC had to be included, an action Canadian policy-makers did not find easy to take. In 1977 when Canada imposed quotas on footwear imports for the f i r s t time, the EEC's reaction was rather subdued. It made routine threats of r e t a l i a t i o n without carrying them out. But in 1980 when the quotas were extended for another year to enable the Anti-Dumping Tribunal to complete i t s inquiry, the EEC made i t known that i t was going to exercise i t s rights to r e t a l i a t e against Canada's exports under A r t i c l e XIX. After prolonged negotiations, a compensation package in the form of t a r i f f concessions valued 2 6 at $28 m i l l i o n was worked out between the two. It was a stark reminder to Canadian policy-makers of the compensation they would have to pay i f quotas were extended beyond 1981. In 1981, following the publication of the Tribunal's report, the government decided to extend quotas on 26 Buhne, op. c i t . , p. 108. non-leather footwear and remove them from leather footwear, despite the fact that i t was the l a t t e r in which the Canadian production was mostly concentrated. The decision was undoubtedly taken to exempt the EEC from quotas because i t s exports were almost exclusively concentrated in leather footwear. As a newspaper column pointed out, "The evidence is that Ottawa l i f t e d the quotas on leather footwear... simply because i t could no longer get away with keeping i t in force without risking serious r e t a l i a t i o n from Canada's trading 27 partners." Since the EEC was the only one in a position to r e t a l i a t e , the Canadian decision must have been in response to EEC's opposition to quotas. In 1982, the combined forces of increasing imports of leather footwear, severe economic recession, and extensive lobbying by the domestic industry led Canada to revoke i t s decision and re-impose quotas in July, 1982. The EEC demanded compensation, f a i l i n g which i t threatened to increase t a r i f f s on imports of nine products (including 28 whiskey and kraft paper) from Canada. A compensation package was f i n a l l y negotiated, which obviated r e t a l i a t i o n . In order to minimize the compensation, Canada exempted many classes of footwear from quotas. The increase in the number of exempted classes of footwear increased from 9 in 1981 to 27 Montreal Gazette, 1981, op. c i t . 28 GATT, "Notice of Suspension of Concessions by the European Communities", Restricted Document No. L/5351/Add.3, November 10, 1982. 36 in 1983. Most of the exempted footwear came from the 29 EEC. In 1984, when Canada extended quotas for a year, the events of 1982 were replayed, and compensation of $7.7 30 m i l l i o n in t a r i f f concessions was f i n a l l y paid. Again in 1985, when the government extended quotas on women's leather footwear for three years, the EEC demanded and received compensation. In order to reduce the size of the compensation, the new quota regime was even more l i b e r a l and allowed increasingly freer access to European exporters. It must be remembered that even though a l l footwear exporters to Canada were adversely affected by quotas, the EEC was the only trading bloc or country that was compensated. This was so because of the p e c u l i a r i t i e s of GATT and the r e a l i t i e s of trade r e l a t i o n s . A r t i c l e XIX, as discussed e a r l i e r , makes no mention of compensation; i t merely permits r e t a l i a t i o n by the affected countries in the form of suspension of concessions on the exports of the country imposing controls. While the right to r e t a l i a t e i s available to a l l , the developing countries could not do so because they were already f a i r l y closed economies, buying only what they needed from Canada. By r e t a l i a t i n g against imports from Canada, they would have only harmed 29 E. W. Weybrecht (Director, Import Controls Division, Special Trade Relations Bureau), interview, June 25, 1987. 30 "Footwear Deal Set by Canada and EC", Montreal  Gazette, May 4, 1985. themselves. The EEC, on the other hand, i s a r e l a t i v e l y open economy, and the raising of barriers to imports from Canada would have injured Canadian exporters. As a r e s u l t , the Canadian government would rather pay compensation to the EEC than risk r e t a l i a t i o n against i t s exports. The United States, which too was in a position to exact compensation, never pressed the issue because of the r e l a t i v e l y small size of i t s footwear exports to Canada. ECONOMIC CONDITIONS The immediate factors determining the Canadian policy for the. footwear industry were clos e l y related to the overall state of the prevailing economic conditions in the country. In times of a high rate of economic growth, the disposable income of consumers increases, leading to higher spending on footwear among other things, which in turn leads to increased shipments by the industry. The reverse is true in times of economic slow-down or recession. It i s especially true for Canadian-made shoes because they are usually in the medium-price range, the demand for which i s high in times of high economic growth and decreases more than that for cheaper imported shoes in times of economic 32 hardship. The higher l e v e l of unemployment that 3 1 Tom Macdonald (Director, GATT A f f a i r s ) , interview, October 28, 1987. 32 Chapleau, interview, loc. c i t . accompanies adverse economic conditions also enhances protectionist pressures on the policy-makers. As William Cline has noted, Unemployment has been a major cause of protectionist pressures. When unemployment i s high, adjustment to increased imports i s more d i f f i c u l t ; the demand for protection from labour, and the degree of government sympathy for supplying protection, both increase. footwear industry were taken in years of unusual economic growth or decline. In 1969, the economic growth rate 34 declined and unemployment increased, malaise reflected in the footwear industry in the following year because of the time lag in response. The industry's production declined 35 from 49 m i l l i o n pairs in 1969 to 45 m i l l i o n pairs in 1970. The t o t a l Canadian market for footwear s i m i l a r l y declined from 57 m i l l i o n pairs to 55 m i l l i o n pairs during the same 3 6 period. That was the year in which the industry made i t s f i r s t demand for comprehensive quotas on imports. The extension of the General Adjustment Assistance Programme to the footwear industry was also p a r t i a l l y a response to the 33 . William R. Cline, "Introduction and Summary", in William R. Cline (ed.), Trade Policy in the 1980s (Washington D.C.:Institute for International Economics, 1983), p.9. Also see B l a i s , Industrial Sociology, op. c i t . , pp. 98-99. 34 See Bank of Canada, Annual Report of the Governor to  the Minister of Finance and Statement of Accounts, 1969. A l l major policy-decisions with regard to the 35 Tribunal, 1973 Report, op. c i t . , p. 23. 36 Ibid p. 38. l a t t e r ' s a i l i n g conditions that year. In 1971, the economy was growing at a healthy rate, but t h i s was yet to be reflected in the industry's fortunes. The industry repeated i t s demand for quotas, which led the government to order the Tribunal to conduct an inquiry into the industry in 1971. Most of the inquiry was conducted in 1972, when the economy, 37 and the footwear industry, were doing well. Consequently, when the Tribunal submitted i t s Report in 1973, i t could not but find that there was no injury to the industry. The government accepted the conclusions and rejected the industry's demand for quotas. The economy was s i m i l a r l y performing poorly in 3 8 1974. The impact was reflected in a 10 per cent decline in the market for footwear and a 16 per cent decrease in production in 1975 compared to 1974. The rate of GNP growth had started to improve in 1976, but the level of unemployment did not. In 1975, the industry renewed i t s demand for quotas, to be repeated in 1976 and 1977. In response, the government ordered another inquiry into the industry. The quotas on imports that followed the release of the report in 1977 cannot, however, be attributed to general economic conditions because the economy was growing at a healthy rate, See Bank of Canada, Annual Report, 1971 and 1972. ° "The Outlook for l978:Some Strengths Ahead", Canadian  Business Review, Summer, 1977, pp. 1-4. 39 despite the persistence of high unemployment. They were, instead, imposed because of factors related to the appreciation of Canadian dollar and the election of Parti Quebecois. In 1981, the economy was performing at a reasonably healthy rate and the economists were predicting that economic growth in the following year might r i s e to as high as 3 per 40 cent. In November, 1981, the government removed the quotas from leather footwear under pressure from the various domestic and international factors. It was expecting the continuing growth in the economy to absorb the dislocations resulting from i t s decisions. As i t turned out, the GNP declined by 7 per cent from the peak in mid-1981, while unemployment increased from 7 per cent to 12 per cent in 4 1 1982. As Marc Lalonde, the Minister of Finance, admitted in Parliament, The world-wide recession has cut our economy to the bone. We have lost half a m i l l i o n jobs during the past year. Almost a m i l l i o n and half among us are looking for work. This was the worst recession in the post-war period. The a i l i n g general economic conditions were ref l e c t e d in the 39 Bank of Canada, Annual Report, 1976 and 1977. 40 . "Modest Growth Ahead", Canadian Business Review, Summer, 1981, pp. 2-6. 4 1 Bank of Canada, Annual Report, 1982, pp. 14-15. 42 House of Commons, The Hon. Marc Lalonde, "Statement on Economic OUtlook and Financial Position of the Government of Canada", presented to the House of Commons, October 27, 1982. state of the footwear industry as well. In 1982, compared to the preceding year, the t o t a l market for footwear declined by 10 per cent, production by 14 per cent, and employment by 13 per cent. Considering the industry's woeful conditions, the government re-imposed quotas on leather footwear in July, 1982. That year the government announced several other major reversals in p o l i c i e s , including the announcement of a mini-budget in June, 1982. It i s l i k e l y i f the economy had continued to grow as forecast, the government would have stood by i t s decision on quotas. The booming Canadian economy (especially in the central provinces) during the 1983-1985 period s i m i l a r l y precipitated major changes in the policy for the footwear industry. In 1984, the government ordered the Tribunal to conduct another inquiry into the footwear industry. When the inquiry was being conducted that year, the economy was performing at an exceptional l e v e l , as was the footwear industry. By 1985, consumer spending and economic growth had 43 increased at near-record lev e l s in every year since 1982. Unemployment too was declining rapidly in the central provinces, where the footwear industry was for the most part located. Despite massive increases in the l e v e l of footwear imports, domestic production increased by 6 and 16 per cent in 1983 and 1984 respectively; the to t a l Canadian market for footwear s i m i l a r l y increased by 5 and 6 per cent 43 Canadian Business Review, Summer, 1985, pp. 2-6. respectively. The Tribunal, therefore, concluded that the industry, except for the women's sector, was not being injured by imports and that quotas on imports should be l i f t e d . The government accepted the recommendations and removed quotas on a l l classes of footwear, except women's, in 1985. MONETARY EXCHANGE RATES After the collapse of the Breton Woods Agreement in 1972, and the adoption of flo a t i n g rates of exchange, the rates at which most currencies traded on the world market tended to fluctuate, often by wide margins. In the past few decades, according to one estimate, exchange rates have had even more impact on prices than t a r i f f cuts, s i g n i f i c a n t as 44 they were. Appreciation in the rates of exchange of the currencies of the exporting countries increase the price of imports, and, as a result, strengthen the competitiveness of the Canadian industry in the domestic market. A depreciation in the currencies of the exporting nations has the opposite impact on the domestic industry. Such fluctuations have a disproportionately large impact on consumer goods, which tend to be more sensitive to price changes. When the exchange rate of the Canadian dollar rose against the currencies of the major exporters of footwear, C. Fred Bergsten and John Williamson, "Exchange Rates and Trade Policy" in Cline, op. c i t . , p. 109. the l e v e l of imports increased correspondingly. In times of a low d o l l a r , imports became unattractive to consumers in terms of price and, hence, less was imported. The Anti-Dumping Tribunal in i t s 1981 and 1985 reports concluded that exchange rate was "the most important factor" in determining 45 the l e v e l of imports into Canada. At times when the d o l l a r , and the l e v e l of imports, was high, the fortunes of the Canadian footwear industry was correspondingly low, leading to c a l l s for quotas. The government, for i t s part, had to take these demands seriously because of the p r e v a i l i n g malaise in the industry. A study on footwear import quotas commissioned by the Tribunal found that exchange rate movements during the 1978-1982 period had, as shown in Table XVI, a signficant impact on the price and levels of footwear imports. 4** Between 1978 and 1981 the Canadian d o l l a r generally depreciated, compared to the 1977 l e v e l , against the currencies of the major footwear exporting countries, leading to increase in price of imports, and a growth in the quantity of domestic production. In 1982, when the Canadian d o l l a r was higher than the 1977 l e v e l , a l l impacts were in the opposite d i r e c t i o n . 45 Tribunal, Report, 1981, op. c i t . , p. 51 and 1985 Report, op. c i t . , p. 33. 46 A. R. Moroz and G. E. Salembier, "A Quantitative Assessment of the Costs and Benefits of the Footwear Import Quotas", (Institute for Research on Public Policy, 1985), Unpublished study prepared for the Anti-Dumping Tribunal. Table XVI IMPACT OF EXCHANGE RATE FLUCTUATIONS ON FOOTWEAR IMPORTS: 1978-1982 YEAR RETAIL PRICE QUANTITY OF QUANTITY OF DOMESTIC OF IMPORTS IMPORTS FOOTWEAR PRODUCTION (%) (%) (%) 1978 9.25 -11.52 2.97 1979 13.06 -15.21 3.35 1980 6.73 -8.85 2.13 1981 0.9 -1 .67 0.32 1982 -3.0 4.37 -1 .44 In 1970, the Canadian dollar was trading at a high 4 7 l e v e l , which was reflected in increase in imports by 3 mi l l i o n pairs compared to the preceding year, or an increase 48 from 24 to 31 per cent share of the t o t a l market. The resulting decline in the health of the domestic industry was followed by demand for quotas in that year. The f a l l of the Canadian dollar in 1971, however, largely restored the . . . 4 9 competitiveness of the domestic industry. In 1971 and 1972, when the Tribunal was conducting i t s inquiry, a part of the reason why i t did not find injury from imports was the subsiding of imports because of the depreciation in the 47 Bank of Canada, Annual Report, 1970, p. 71. 48 Tribunal, Report, 1973, op. c i t . , p. 44. 49 Shoe and Leather Journal, June, 1977, p. 12. Canadian currency. The generally high d o l l a r in the mid-1970s corresponded to increased imports and reduced domestic production in those years. Between 1977 and 1980, not only were imports disadvantaged because of quotas, but by the depreciation of the dollar as well. The appreciation of the Canadian dollar against the currencies of the major footwear exporting countries in the 1980s, however, led to increased imports, except for 1982. Yet the industry's conditions did not worsen because of the improvement in general economic conditions discussed e a r l i e r in the chapter. In 1985, the d o l l a r was high, so were imports, but the government s t i l l removed quotas because of the pressures from the exporting countries and the fact that the economy was generally performing well. INTERNATIONAL CLIMATE FOR PROTECTION The overall international climate for protection has also influenced Canadian footwear p o l i c y . When a major country adopts protectionist measure, domestic producers in other countries demand similar treatment from th e i r government. Their demand acquires additional legitimacy because of increased imports re s u l t i n g from trade diversion from countries r e s t r i c t i n g imports. This i s known as the "'ricochet' dynamics of protection whereby when one group of countries raises barriers, a second group fears that i t s markets w i l l be inundated by diverted supply and implements 50 protection of i t s own." Some of the major events in Canadian policy-making for the footwear industry were d i r e c t l y or i n d i r e c t l y affected by measures taken by other countries. The U.S. government's policy towards i t s domestic footwear industry had a p a r t i c u l a r l y s i g n i f i c a n t Impact. The United States receives 40 per cent of the world 51 exports of footwear. Access to the U.S. market is so c r i t i c a l to most exporters that any r e s t r i c t i o n imposed by i t inadvertently has a tremendous impact on international trade in footwear. The impact is p a r t i c u l a r l y pronounced in the case of Canada because of i t s geographic, economic and p o l i t i c a l proximity to that country. In January, 1971, the United States International Trade Commission (USITC) arrived, after an inquiry into footwear imports, at a t i e d decision on 52 the question of injury to the domestic industry. President Nixon was under pressure from the industry and Congress to break the t i e in favour of injury and take r e s t r i c t i v e action against imports. It was not e n t i r e l y co-incidental that the Canadian footwear industry increased i t s lobbying e f f o r t s to impose similar r e s t r i c t i o n s . After a l l , the Shoe Manufacturers Association of Canada maintains close t i e s with 50 Cline, in Cline, op. c i t . , p. 7. 51 Tribunal, Report, 1981, op. c i t . , p. 7. 52 USITC, Nonrubber Footwear: Report to the President on  Investigation No. 332-62 (Washington, D.C: USITC Publication 359, 1971). 21 1 i t s American counterpart, the American Footwear Federation. Nixon's refusal to meet the industry's demand subsequently dampened the Canadian industry's e f f o r t s to secure quotas. In 1976, the USITC conducted another inquiry and unanimously concluded that the American footwear industry was 53 being injured by imports. That year the Canadian industry revived i t s e f f o r t s to secure quotas on imports. While President Ford rejected the recommendations, the industry succeeded in i n s t i t u t i n g another inquiry. The Commission again unanimously found injury from imports and recommended 54 quotas. President Carter responded to the report by concluding OMAs with Taiwan and South Korea in June, 1977. The American government's action gave a fresh boost to the Canadian industry's e f f o r t s to i n s t i t u t e quotas. It also created apprehension among Canadian importers that their government might follow s u i t , which led them to increase their imports so as to esta b l i s h larger entitlement to quotas in the event they were imposed. Moreover, since the exporters in Taiwan and Korea now had surplus capacity, because of reduced exports to the U.S., they began to flood the Canadian market in order to clear inventories. A l l these factors only strengthened the Canadian industry's claim of 53 USITC, Footwear: Report to the President on  Investigation No. TA-201-7 (Washington, D.C: USITC Publication 758, February, 1976). 54 . USITC, Footwear: Report to the President on Investigation No. TA-201-18 (USITC Publication 799, February, 1977). 212 injury from imports. In 1977, footwear imports into Canada had reached record levels, which led the Tribunal to conclude that the domestic industry was being injured. The mid-1970s was a period marked by enhanced protection at the international l e v e l , after having been at post-war low for several years. As Cline has noted, "By 1977, ...the tides of protection began to ri s e again, partly in a delayed response to a world recession of 1974-1975 and 55 partly due to renewed exchange rate misalignments." In that year, the EEC tightened i t s r e s t r i c t i o n s on t e x t i l e s and clothing imports, the United States negotiated OMAs on footwear with Taiwan and South Korea, and on colour televisions with Japan. In December, 1976, Canada i t s e l f had taken an unprecedented step of imposing global quotas on clothing imports. It was in the background of these events that the Canadian government imposed quotas on footwear imports in November, 1977. In 1981, the USITC recommended, after an inquiry, the continuation of OMAs with Taiwan and South Korea.^ The Reagan Administration disregarded the recommendation and l e t the agreements expire in June, 1981. Only five months l a t e r , the Canadian government decided to l i f t quotas from imports of leather footwear. Similarly, in 1985, the Commission's 55 Cline, "Introduction", op. c i t . , p. 7. ^USITC, Nonrubber Footwear: Report to the President on Investigation No.TA-203-7 (USITC Publication 1139, 1981). 213 57 unanimous finding.of no injury, despite record l e v e l of imports, must c e r t a i n l y have influenced the Canadian government's decision to terminate quotas on most classes of footwear. CONCLUSION The preceding chapter argued that the manufacturing interests lacked the organizational capacity to impose their demands on the government. S i m i l a r l y , the government was incapable of carrying out i t s objectives in the face of opposition from the manufacturing in t e r e s t s . This chapter showed that the structure of the international p o l i t i c a l economy, and Canada's position in i t , generally worked against the domestic producers' demands and favoured the state and trading interests opposed to quotas. At the same time, changes in international p o l i t i c a l and economic conditions some times favoured the producers' cause and enabled them to accomplish, at least temporarily, their objectives. Canada's obligations under GATT to avoid quantitative r e s t r i c t i o n s on imports, and, when imposed under exceptional circumstances, to pay compensation to the exporting nations, and to apply the r e s t r i c t i o n s on a temporary and non-discriminatory basis, made i t d i f f i c u l t to 57 USITC, Footwear: Report to the President on  Investigation No. TA-201-50 (Washington, D.C: USITC Publication No. 1545, July, 1984). impose quotas or continue them past a few years. The handicaps imposed by GATT could have been, of course, overcome through the use of VERA. But Canada lacked the diplomatic resources to conclude such agreements with nations that were the sources of footwear imports most injurious to the domestic industry. The export-orientation of the Canadian economy further r e s t r i c t e d the manufacturing interests' a b i l i t y to accomplish their objectives. The imperatives of export promotion entailed allowing freer access to imports. Moreover, the predominant position of the export sectors in the domestic economy ensured that government measures which might injure their interests would be reluctantly undertaken. These created problems for import-competing industries, such as footwear, seeking controls on imports. Canada's economic relations with the EEC and, to a lesser extent, the United States s i m i l a r l y hindered attempts to erect barriers to footwear imports. Imports from Italy, which were most injurious to the domestic industry, were d i f f i c u l t to control because of the economic and p o l i t i c a l clout i t derived from i t s membership in the EEC. The position of the European Community as the largest trading bloc in the world and i t s importance as a major destination for Canadian exports made i t d i f f i c u l t for Canada to control imports from the i t s member countries. While these factors hampered e f f o r t s to control footwear imports through quotas, the appreciation of the Canadian dollar and the down-turn in the domestic economy— both of which caused redundancies in the industry --strengthened the manufacturing interests' demands. This is not surprising considering that increased unemployment adversely a f f e c t s the e l e c t o r a l fortunes of the elected state o f f i c i a l s which move them to take p a l l i a t i v e actions. In the case of footwear, quotas on imports was the most v i s i b l e short-term measure the government could take. Similarly, when the economic circumstances improved, there were pressures on the government to remove the controls. The American government's policy towards i t s domestic industry also, to an extent, affected the force with which the Canadian producers could exert pressure on their government. Chapter F i v e  TARIFFS ON FOOTWEAR T a r i f f protection i s one of the oldest and most widely used instrument by which nations a s s i s t domestic industries against imports. "A t a r i f f i s , in effect, a sales tax imposed exclusively on imported goods." 1 It causes the price of an imported product to r i s e , which reduces the product's competitiveness in the importing country's market. As a re s u l t , consumers purchase domestic products which they would not have otherwise done. The higher prices caused by t a r i f f s , of course, reduce consumer demand to the extent of price e l a s t i c i t i e s . But in the short-run, domestic producers are favoured to an extent equal to the t a r i f f , the cost for the support being borne by consumers. Customs duties l i s t e d in t a r i f f schedules are known as 'nominal t a r i f f s * . On i t s own, however, a nominal t a r i f f gives l i t t l e indication of the re a l l e v e l of protection afforded the domestic industry. To overcome th i s shortcoming one must calculate the 'ef f e c t i v e t a r i f f , which, in the words of the Economic Council of Canada " . . . i s measured as the change in industry value-added that results from elimination of the t a r i f f on both inputs and outputs, divided 1G. E. Salembier et a l . , The Canadian Import F i l e ; Trade  Protection and Adjustment (Montreal: Institute for Research on Public Policy, 1987), p. 18. 217 2 by value-added with protection." It indicates the proportionate increase in value-added permitted to the domestic industry by t a r i f f s on i t s inputs as well as outputs. The calc u l a t i o n of an e f f e c t i v e t a r i f f enables one to, among other things, find out how high domestic input costs can be in order to remain competitive with imported products under t a r i f f protection. This chapter w i l l discuss the t a r i f f protection afforded the Canadian footwear industry in recent decades. The main argument w i l l be that the industry demanded, and the government provided, the maximum t a r i f f protection possible under the existing domestic and international circumstances. The. Canadian government not only never seriously contemplated reducing t a r i f f s on footwear imports, i t , on the contrary, did i t s utmost to fi n d innovative ways to accord additional t a r i f f protection to the industry. It received strong support for i t s actions from the manufacturing interests, and faced negligible opposition from the trading interests or the international p o l i t i c a l economy. In recognition of i t s position as a small economy with one of the highest dependence on exports as a percentage 3 of the GNP, Canada has been a keen supporter of e f f o r t s to 2 Economic Council of Canada, The Bottom Line (Ottawa: Supply and Services, 1983), p. 113. 3 In 1983, exports accounted for 29 per cent of the t o t a l GNP in Canada. Among the seven i n d u s t r i a l i z e d nations, only in West Germany do exports account for a larger percentage of the GNP. See External A f f a i r s , How to Secure, op. c i t . 218 reduce international barriers to trade. At the same time, i t has been reluctant to reduce i t s own hurdles to imports which threatened domestic production of goods in industries employing substantial number of workers. This somewhat contradictory position was rooted in the c o n f l i c t i n g nature of Canada's economic interests. While i t recognized that the country's international competitiveness lay in natural resource-based industries, and that growth in their exports was c r i t i c a l to the nation's economic prosperity, i t was also determined to establish an indigenous manufacturing base in the country. The l a t t e r goal was c l e a r l y r e f l e c t e d in the National Policy of 1879 which sought to develop manufacturing industries behind steep t a r i f f barriers against imports. And many industries, including footwear, did grow as a r e s u l t . The only problem was that they continued to remain weak in subsequent decades, and i t was believed by the Canadian policy-makers that they would not be able to survive reduced protection contemplated by GATT. Thus, Canada in the post-war period pursued two somewhat c o n f l i c t i n g goals: reduction in foreign t a r i f f s on i t s exports while r e s i s t i n g pressures to decrease i t s own t a r i f f s , especially on goods produced by weaker industries employing a large number of workers which had grown behind high t a r i f f b a r r i e r s . As discussed in Chapter Three, the domestic manufacturers, and the workers employed by them, had been demanding increased t a r i f f s since before the turn of the 219 century. The government, by and large, met their demands and afforded the industry one of the highest t a r i f f protection among domestic industries. The situation remained unchanged u n t i l the GATT negotiations began after the Second World War. However, even at the several rounds of these negotiations, the footwear industry (along with t e x t i l e s and clothing) was spared, r e l a t i v e l y speaking, from the deep t a r i f f cuts affected on other products. The reason for t h i s special treatment was not solely the industry's pressures for the continuation of high t a r i f f s , but also the lack of international pressures for t h e i r reduction. Most other countries maintained s i m i l a r l y high t a r i f f s , and none were keen to reduce them. This confirms findings of several studies that t a r i f f s are reduced less in industries that are 4 already more protected than others. It was stated previously that the Canadian government o f f i c i a l s broadly favoured the objective of l i b e r a l i z e d trade. However, t h i s arose not out of ideological convictions, but rather from the p r a c t i c a l consideration that international trade barriers must be lowered in order to expand Canada's exports. Canada had nothing to gain from lowering t a r i f f s on footwear because, considering that other nations were themselves keen to maintain high t a r i f f s on the product, the concession would not have secured reciprocal concessions on i t s exports. The See B l a i s , P o l i t i c a l Sociology, op. c i t . , p. 21. 220 near-consensus t h a t p r e v a i l e d on the need t o m a i n t a i n h i g h t a r i f f s on footwear p r e c l u d e d the t r a d i n g i n t e r e s t s from s e r i o u s l y working f o r t h e i r r e d u c t i o n , something t h a t would have been c l e a r l y i n t h e i r i n t e r e s t . EFFECTIVE TARIFF PROTECTION One of the c h i e f purposes of GATT, t o which Canada i s an o r i g i n a l s i g n a t o r y , i s t o p r o g r e s s i v e l y reduce or e l i m i n a t e t a r i f f s . Towards t h i s g o a l , A r t i c l e I I " b i n d s " t a r i f f s t o reduced l e v e l s , a r r i v e d a t t h r o u g h i n t e r n a t i o n a l n e g o t i a t i o n s . They can o n l y be i n c r e a s e d t h r o u g h a d i f f i c u l t p r o c e s s of n e g o t i a t i o n s w i t h the e x p o r t i n g c o u n t r i e s governed by A r t i c l e X X V I I I . There i s thus an enormous p r e s s u r e on governments t o c o n s i d e r c a r e f u l l y b e f o r e t h e y accept c u t s i n t a r i f f r a t e s , because once reduced, they a r e p r a c t i c a l l y i r r e v e r s i b l e . As a r e s u l t , the Canadian government has been r e l u c t a n t t o reduce t a r i f f s on p r o d u c t s produced by weak domestic i n d u s t r i e s . Moreover, the " b i n d i n g " of r a t e s s t i f l e d demands f o r i n c r e a s e i n t a r i f f r a t e s and, i n s t e a d , encouraged the d o m e s t i c a c t o r s t o secure a d d i t i o n a l p r o t e c t i o n through o t h e r means. The Kennedy Round of GATT n e g o t i a t i o n s d u r i n g 1963-1967 were p r i m a r i l y d i r e c t e d a t r e d u c t i o n i n the t a r i f f l e v e l s of the s i g n a t o r y c o u n t r i e s . The f e d e r a l government e s t a b l i s h e d the Canadian Trade and T a r i f f s Committee (CTTC) t o , among o t h e r t h i n g s , seek i n f o r m a t i o n from i n d u s t r i e s t h a t 221 might be affected by changes in t a r i f f rates. Most of the import-substituting manufacturing industries, including footwear, which catered primarily to the domestic market made submissions before the CTTC c i t i n g p a r t i c u l a r problems which they argued j u s t i f i e d exemption from the general t a r i f f reduction. During the 1960s, high t a r i f f s on imports were the only form of government assistance available to the domestic footwear industry. Imported footwear at the time came primarily from Europe where high wages, coupled with high Canadian t a r i f f s , were s u f f i c i e n t to protect the Canadian industry. The p o s s i b i l i t y that t a r i f f s might be cut galvanized the industry into action. It c l e a r l y recognized the changes would have a long l a s t i n g impact on the industry. The Shoe Manufacturers Association presented i t s f i r s t brief on the subject to the CTTC in May, 1964. To maintain intermittent pressures on the government, i t submitted four supplementary b r i e f s over the following two years. These sophisticatedly produced b r i e f s covered a wide range of related topics, but a l l boiled down to the plea that Canada exclude footwear from t a r i f f negotiations. The SMAC argument ran as follows: "In order to protect the footwear industry and i t s 24,000 employees from further disruption... we recommend that footwear be placed on the reserve l i s t so 222 5 that no t a r i f f concession be offered...." The other submissions were written in a similar vein r e i t e r a t i n g the same point. The industry's e f f o r t s bore f r u i t . Despite larger cuts accepted by Canada on other products, the reduction in nominal t a r i f f rates on footwear accepted by Canada was minimal. It was reduced from 27.5 per cent ad valorem, a rate that had existed since 1947, to 25 per cent ad valorem. The l a t t e r translated into an e f f e c t i v e t a r i f f rate of 36.4 per cent.^ The new rate came into effect in 1969. Even with the reduction, the Canadian t a r i f f on footwear remained among the highest in the OECD. The industry was pleased that storm clouds had passed without causing much damage. In 1973, another round, known as the Tokyo Round, of GATT negotiations began. From the outset i t was clear that the latest round would lead to even more drastic cuts in t a r i f f s than had the Kennedy Round. The footwear industry started making preparations for putting pressure on the government to not accept the envisioned reductions. As early as i t s meeting of June 5, 1973, SMAC's Board of Directors decided to exert pressure on the government to maintain the existing l e v e l of t a r i f f s on footwear. When in 1977 the CTTC 5 SMAC, "Fourth Supplementary Submission to CTTC", December, 1966. ^CCAC, "The Impact of Barriers to Footwear Imports on Canadian Consumers and the Canadian Economy", working paper prepared by Craig Campbell, Consumer Research and Evaluation Branch, May, 1981, p. 53. 223 sought the industry's opinion on t a r i f f s for developing the government's position at the negotiations, the l a t t e r was well prepared to present i t s case. In i t s A p r i l , 1975 brief to the CTTC, SMAC argued along the same l i n e s as i t had done during the previous Round. But th i s time i t had an additional argument to augment i t s case. It argued that continuation of existing t a r i f f s was essential i f the objectives of the Sector 7 Strategy, announced a year e a r l i e r , were to be met. The brief stated, ...our industry should be treated as a 'Reserved Area' in the forthcoming Tokyo Round negotiations, to provide the time necessary to achieve the objectives of the Sector Strategy. Removal of our present t a r i f f protection, and those non-tariff measures that have been introduced, would severely undermine the government programme looking toward increasing the v i a b i l i t y of our industry, providing more stable employment opportunities, encouraging new investments and enabling our industry to increase i t s contribution to the Canadian economy. This was indeed a powerful argument, because the government held high hopes in i t s Strategy's a b i l i t y to make the industry internationally competitive, and would not have li k e d to be blamed i f the objectives were not met. But during the Tokyo Round, unlike the previous one, there were other s o c i a l groups that had become active in the CTTC's consultative process and which argued against the For a discussion on Sector Strategy, see Chapter VI of this thesis. 8SMAC, "Submission to CTTC", A p r i l , 1975. 224 domestic industry's p o s i t i o n . GATT-Fly/Oxfam submitted a brief which b a s i c a l l y argued for allowing freer access to goods from developing countries by reducing t a r i f f and non-t a r i f f barriers on imports of goods in which these countries had a comparative advantage. This was not the kind of argument that found favour in the government. The Footwear Division in i t s comments on the brief said, "GATT-Fly's/Oxfam*s propositions are predicated on laudable human concerns for developing countries, but their adoption would 9 risk the emasculation of the domestic industry." The health of the Canadian industry, understandably, was more important to the government than concern for international development. No other brief demanding a reduction in t a r i f f s on footwear was submitted. The Footwear Division offered i t s f u l l support to the submission made by SMAC. Reiterating the stand taken by the l a t t e r , i t stated that the "objectives of t h i s Strategy have not yet been attained and consequently, t a r i f f s should not be abolished." 1^ It further asserted that ... a substantial reduction in footwear t a r i f f s in the near future would increase inordinately the competitive pressures on the Canadian industry from foreign competition and destroy any chance of success for the restructuring needed. Therefore, our recommendation is for modest t a r i f f reduction in the order of 20%, given PAC, Records of ITC, RG 20, Accession 85-86/663, Volume 154, F i l e 43/610-6-24 part 1, Textiles Branch, "Comments on the GATT-Fly/Oxfam Brief Submitted to CTTC", July 21, 1975. 1°Ibid. 225 reciprocal arrangement by other c o u n t r i e s . 1 1 When the Tokyo Round negotiations were concluded, the industry got a l l i t had asked for, and more than what the Footwear Division had recommended. Canada agreed to reduce i t s t a r i f f s from 25 per cent to 22.5 per cent ad valorem, or a reduction of 10 per cent, in a phased manner over the 1980-1987 period. The 10 per cent reduction in the t a r i f f s on footwear was small compared to the average cut of 38 per cent on a l l i n d u s t r i a l products accepted by Canada at the Tokyo 1 2 Round. As a result, the average Canadian t a r i f f s on i n d u s t r i a l products came down to 8.3 per cent, with a large proportion entering the country free of duty. Although the Canadian reduction in t a r i f f s on i n d u s t r i a l products was generally small compared to other developed countries, i t was p a r t i c u l a r l y small with regard to footwear, t e x t i l e s and clothing. In fact, t a r i f f s on footwear remained among the highest in Canada, with only three other products enjoying a 1 3 higher t a r i f f rate. The General Pr e f e r e n t i a l T a r i f f (GPT) rates which were accepted by Canada in 1973 as a way of a s s i s t i n g the developing countries by allowing their exports to enter Canada under reduced rates have not been generally available on footwear. The T a r i f f Item No. 61105-1 under 1 1 1 b i d . , Annex I. 1 2 Salembier, op. c i t . , p. 86. l 3 I b i d . , pp. 108-109. which most footwear enter Canada has no provision for GPT. The preferential rate has been available only on Item No. 61110-1 (canvas footwear) which was 16 per cent before the Tokyo Round cuts, and 14 per cent in 1984. Table XVII AVERAGE NOMINAL TARIFF Footwear* Shoe finding Leather tanneries I nput ~rtr 14.6 16.7 2.0 1974 Output 0 25.0 17.3 11.6 Input nr%T" 10.9 12.3 1 .5 1987 Output 22.5 12.3 6.8 AVERAGE EFFECTIVE TARIFF 1974 Footwear* Shoe finding Leather tanneries (%T~ 36.4 18.0 29.9 1987 ~T%T 36.5 12.2 16.8 •includes a l l footwear, except those made of rubber Source: CCAC, 1981, op. c i t , p. 57 The reduction of 2.5 percentage points in nominal t a r i f f s on footwear when f u l l y implemented in 1987 did not, in CCAC's estimate, translate into any reduction in the rate of e f f e c t i v e t a r i f f 1 4 This i s so because the reduction in 1 4 CCAC,1981, op. c i t . , pp. 54-59. 227 t a r i f f s on footwear was accomplished by cuts in t a r i f f s on imported inputs used by the industry as well. This is evident in Table XVII. It is clear from the tables that effective t a r i f f on footwear remained approximately the same, even though the nominal t a r i f f was reduced. Undoubtedly, "... the strategy of the Canadian and other negotiators [was] to reduce t a r i f f s on the output of the l a s t stage of processing but to provide compensating reduction on input t a r i f f in order that 1 5 e f f e c t i v e protection [remained] unchanged." Thus, the industry's demand for no reduction in t a r i f f rates was met in entirety. ACTUAL EFFECTIVE TARIFF PROTECTION While the Canadian government was doing i t s best to retain the existing l e v e l of t a r i f f s on footwear imports, more ingenious ways were being devised to increase t a r i f f protection for the industry. By the late 1960s, t a r i f f s , high as they were, on their own were proving to be increasingly i n e f f e c t i v e in halting the growing levels of imports. Increasing the t a r i f f rate i t s e l f was almost an impossible task under the provisions of GATT. Therefore, a clever method was devised which e f f e c t i v e l y raised t a r i f f protection within the ex i s t i n g framework of Canadian statutes, without v i o l a t i n g Canada's international 15 Ibid., p. 55. 228 commitments. This was known as "value for duty advances". The government and the industry recognized i t s powers against imports and used i t to the h i l t u n t i l i t became impossible to do so under international pressures. Pointing out the significance of value for duty advances, the T a r i f f Board has noted, When there is an ad valorem factor in the rate of duty, then the method of establishing the value for duty may be as s i g n i f i c a n t for protection or customs revenues as the rate of duty i t s e l f . Any advance in value i s accompanied by a commensurate increase^in both duties collected and in l e v e l of protection. It was accomplished through increasing, for customs valuation purposes, the value of the product being imported by certain percentage points, and then applying the nominal t a r i f f rate against the increased value. Technically, this was not an increase in the t a r i f f rate because i t was the value of the product that was being a r t i f i c i a l l y advanced, and not the t a r i f f , although the net result was the same. To understand the concept of value for duty advance one must understand the concept of " f a i r market value' on which the Canadian customs valuation system was based. According to the T a r i f f Board's Report c i t e d above, "the f a i r market value i s the price at which l i k e goods are f r e e l y traded under comparable conditions and circumstances (l e v e l of trade, time, place, etc.) on the domestic market of the l 6 T a r i f f Board, The GATT Agreement on Customs Valuation:  T a r i f f Adjustment, Report, Reference 159, Part II (Ottawa: Supply and Services, 1983), p. 5. 229 1 7 country of export." In other words, i t required that the export price of a product must not be lower than the price at which i t was sold in the market of the country of o r i g i n . If the export price was lower, Revenue Canada was required to appropriately advance the value. The value for duty advances on footwear were based on Section 39 or 40 of the Customs Act and were effected through " m i n i s t e r i a l prescription". Under these provisions, i f adequate information was not available on the price of the product in the home market, or i f i t was otherwise determined that circumstances were "unusual", f a i r market value was constructed through prescription. It included situations whereby the product in question was not sold in the home market under circumstances that would allow appropriate comparison with the exported products, or where "... the large number of producers in each of the exporting countries made individual investigation of a l l the exporters, and hence the issuance of individual rulings, administratively 1 8 complicated and d i f f i c u l t . " It also included exports from many s o c i a l i s t countries where ascertaining, because of the state-controlled nature of their economies, market price was impossible. In a l l these situations, values for duty for the designated goods were prescribed as the s e l l i n g price advanced by fixed percentage points. The prescriptions were 1 7 Ibid., p.6. l 8 I b i d , p. 65. 230 country-specific and continued u n t i l revised or revoked. There was no appeal from these prescriptions. Nor did the government provide information on the basis of which the prescribed advances were calculated. It was these prescriptions that were most useful to the industry. The concept of f a i r market value for customs 1 9 valuation predates Confederation. However, widespread use of m i n i s t e r i a l prescriptions with regard to footwear began only in the late 1960s. Regardless of i t s usage, i t s l e g a l i t y under GATT was always dubious. A r t i c l e VII, in fact, c l e a r l y states that the "value for customs purposes... should not be based on the value of merchandise of national . . . . . . 20 o r i g i n or on a r b i t r a r y or f i c t i t i o u s values." To an extent, m i n i s t e r i a l prescriptions were discriminatory on the grounds of national o r i g i n because they applied to s p e c i f i c countries, without demonstrating the product from that country was indeed being undervalued. They were arbit r a r y in 21 the sense that they did not allow appeal from the decision. They could also be argued to be " f i c t i t i o u s " because no reason was ever disclosed on why the advances were set at the sp e c i f i e d l e v e l . The use-of t a r i f f s based on advanced value for duty l 9 I b i d . , p. 6. 20 GATT, Basic Instruments, op. c i t . 21 T a r i f f Board, The GATT Agreement on Customs Valuation;  Proposed Amendments to the Customs Act, Part I, Reference 159 (Ottawa: Supply and Services, 1981), p. 4. 231 was dear to the footwear industry because i t was one of the few exclusive b e n e f i c i a r i e s of the system. In the words of T a r i f f Board: A review of the l i s t of goods encompassed by M i n i s t e r i a l Prescriptions suggests that some i n d u s t r i a l sectors, p a r t i c u l a r l y wearing apparel and footwear, have become heavily dependent upon the use of t h i s device to l i m i t the adverse^ impact °f foreign competition from low-cost suppliers. The demand for value for duty advances by the footwear industry dates back to the mid-1960s. In i t s Fourth Supplementary Brief to the CTTC in December, 1966, SMAC made i t s f i r s t demand for "constructed t h i r d country values" for imports from state-trading and 23 developing countries. The demand was reiterated in i t s brief submitted to the government in A p r i l , 1970. Third country valuation entailed calculation of what the product would cost in another country, always the U.S. or U.K. Needless to say, the effect was to negate the cost advantages that the affected countries might have had, because both the U.S. and U.K. were high-cost producers. Third country valuations were mostly applied to imports from state-trading countries. Just after SMAC made i t s demand for t h i r d country valuation in 1967, Revenue Canada ruled that a l l leather footwear from Czechoslovakia would be valued on the basis of 22 Board, Part II, op. c i t . , p.7. 23 SMAC, Submissions to the CTTC, op. c i t . 232 comparable footwear from U.K. .The same was ruled for Poland and Rumania in 1969. In 1976, Hungary and, in 1983, Bulgaria were covered by similar prescriptions. A l l the prescriptions continued u n t i l December, 1984. Thus, a l l major East European exporters of footwear were covered by t h i r d country valuation throughout the 1967-1984 period. This afforded enhanced protection to the domestic industry, especially the men's leather footwear sector in which East European exports were concentrated. The real threat to the domestic industry, however, came from Western Europe and Far East, and not from Eastern Europe. In 1975, the value of a l l footwear (except those made of rubber or canvas) from Taiwan was advanced by 50 per cent of the s e l l i n g p r i c e . This was progressively reduced to 20 per cent in 1977 and 13 per cent in 1979. In 1975, the value of the women's footwear from Italy was advanced by 6 per cent. Men's footwear from I t a l y were covered by a 15 per cent advance in 1977. In 1979, the previous prescriptions were replaced by a f l a t advance of 8.5 per cent on a l l footwear from I t a l y . Imports from Spain were also dealt with in a similar way. In 1976, the value of women's footwear from Spain were advanced by 11 per cent, and in 1977, that of men's footwear by 25 per cent. In 1978, the advances on Spanish footwear were reduced to a uniform rate of 5 per cent. In 1977, the value for duty of a l l footwear from South Korea were advanced by 10 per cent. In 1978, a l l footwear 233 from B r a z i l were subjected to value for duty advance by a whopping 50 per cent. Thus, between 1978 and 1985, a l l major sources of footwear imports, without exception, were under various degrees of value for duty advances. By SMAC's own admission, more than 75 per cent of the footwear imported into Canada in 24 1981 were covered by advances. This was in contrast to a l l imports into Canada, only 10 per cent of which were subject to duty advances. A large proportion of t h i s 10 per cent 25 consisted of clothing and footwear products. To the extent t h i r d country valuation and fixed percentage advances were country-specific, the nominal t a r i f f rates of 25 or 22.5 per cent were misleading. Imports from di f f e r e n t countries entered Canada under what amounted to dif f e r e n t t a r i f f rates, depending on the applicable l e v e l of advance. The table on the following page gives a better understanding of the concept of d i f f e r e n t i a l t a r i f f rates. The table shows that in 1978, when the t a r i f f rate was 25 per cent, an advance of 50 per cent on imports from B r a z i l translated into a nominal t a r i f f rate of 37.5 per cent. S i m i l a r l y , a 20 per cent advance on Taiwanese footwear translated into 30 per cent t a r i f f in 1977. The impact of the t h i r d country valuations on t a r i f f s i s almost impossible to calculate because the value of each pair of footwear was 24 Cited in Board, Part II, op. c i t . , p. 36. 2 5 I b i d , p. 10. 234 valued on the basis of what the customs o f f i c i a l s determined was the price of comparable footwear from the U.S. or U.K. One can only assume that the increase in t a r i f f as a result of t h i r d country valuation was substantial. Table XVIII ACTUAL NOMINAL TARIFFS H i (2) (3) ADVANCES OF VALUE TARIFF EQUIVALENT ACTUAL NOMINAL FOR DUTY(%) OF THE ADVANCE (%) TARIFF (%) 0 0 25 5 1 .2 26.2 8.5 2.1 27. 1 10 2.5 27.5 1 3 3.2 28.2 15 3.7 28.7 20 5.0 30.0 25 6.2 31 .2 50 12.5 37.5 It was stated in the e a r l i e r section that the nominal t a r i f f of 25 per cent af t e r the Kennedy Round entailed an e f f e c t i v e t a r i f f of 36.4 per cent. The fact that 75 per cent of the footwear imports entered Canada under a nominal t a r i f f rate of over 25 per cent (because of the advances) altered the e f f e c t i v e rate of t a r i f f as well. The following table demonstrates the actual e f f e c t i v e t a r i f f protection available to the domestic industry at the various levels of advances. 235 Table XIX ACTUAL EFFECTIVE TARIFF 2 6 ACTUAL NOMINAL TARIFF (%) 25 26.2 27.5 28.2 28.7 30.0 31.2 37.5 ACTUAL EFFECTIVE TARIFF (%) 36.4 39.2 41 .9 43.6 44.7 47.4 50.2 64.0 Thus the actual e f f e c t i v e rate of protection afforded the domestic footwear industry ranged from 36.4 per cent in cases where no advance was applicable (as in the case of the U.S.) to 64 per cent in the case of B r a z i l (which was subject to 50 per cent advance). Beyond doubt, the protection afforded the domestic footwear industry by value for duty advances was tremendous. Securing the highest possible value for duty advance was, as one SMAC o f f i c i a l put i t , a top p r i o r i t y for 27 the industry. Even the government c l e a r l y preferred t h i s form of protection for several reasons. It did not involve negotiations with other countries, as did increases in t a r i f f 2 6 Source: CCAC, "Anti-Dumping Tribunal Inquiry in Respect of the Importation of Non-Rubber Footwear", unpublished paper, October, 1980, Appendix I I . 27 Kelley, interview, loc. c i t . rates. Nor did i t provoke demands for compensation by the exporting nations, or threats of r e t a l i a t i o n by them, as was the case with quotas on imports. It also did not cost anything to the public treasury; i f anything, i t brought increased revenues to the government. Moreover, there was minimal opposition from the footwear exporting countries because many of these themselves had similar a r b i t r a r y 28 systems of customs valuation. The conclusion that values for duty advances were instruments of protection par excellence i s , of course, strongly opposed by the government o f f i c i a l s who administered Canada's customs valuations laws. They aver the duty advances were made solely for the purpose of ensuring, as provided for in the Customs Act, that revenues payable to the Crown were d i l i g e n t l y c o l l e c t e d . The fact that the industry received additional protection, they maintain, was purely 29 coincidental. These o f f i c i a l s described the decision to advance value for duty as an administrative procedure whereby upon receipt of an informal complaint from the industry regarding imports from a p a r t i c u l a r source, Revenue Canada would conduct an investigation before making a r u l i n g . The investigations would consist of a v i s i t by a customs o f f i c e r to the exporting country and the determination of the f a i r 28 Board, Part I, op. c i t . , p. 6-7. 29 Interviews, with Maurice Chapleau (Chief, Footwear D i v i s i o n ) , June 17, 1987, and Ms. Karen Humphrey (Officer, Revenue Canada—Customs and Excise), June 4, 1987. 237 market value of the product. Since footwear exporters were too numerous to be thoroughly investigated, information would be ascertained from only a small number of them. The information thus collected would form the basis for ca l c u l a t i n g the f a i r market value and the l e v e l of advance. The minister was then accordingly advised, and the advance was effected though p r e s c r i p t i o n . The government, as stated e a r l i e r , would not disclose the bases for i t s c a l c u l a t i o n s . Although the description of value for duty advance as a purely administrative procedure may be true for other products on which they were applied, i t i s too s i m p l i s t i c to be plausible with regard to footwear or clothing. There are several reasons which lead one to t h i s conclusion. In the f i r s t place, the two main b e n e f i c i a r i e s of the advances —footwear and c l o t h i n g — were also the most heavily protected industries in Canada. So i t i s not surprising that the government would have s u r r e p t i t i o u s l y provided them additional protection through duty advances, given that increasing t a r i f f s was p r a c t i c a l l y impossible. Second, the industry c l e a r l y saw the decision to prescribe advances as one that was discretionary, and would put constant pressure on the government to subject certain countries' exports to advances. Third, the advance would remain in effect for several years. It i s implausible that undervaluation would continue for such a long time, especially since by ceasing to undervalue the exporters could 238 pocket the margin of advance as p r o f i t . F i n a l l y , and most importantly, i f the affected exports were indeed undervalued, then they should have been dealt with under Anti-Dumping or Countervailing laws, unless the government and the industry believed they could not establish their case at an inquiry required by these laws. Be that as i t may, the Canadian government was concerned about the p o s s i b i l i t y of the loss of i t s a b i l i t y to subject imported goods to valuation, as was being contemplated during the Tokyo Round negotiations. It was well understood that e f f o r t s were underway to make customs valuations decisions transparent and int e r n a t i o n a l l y uniform. This was not a p o s s i b i l i t y that the domestic footwear industry, given the high stakes i t had in the existing system, could take l i g h t l y . In i t s A p r i l , 1975, submission to CTTC, SMAC opposed the adoption of any system of customs valuation which would not allow Canada to make value for duty advances. The Footwear Division of ITC, in i t s appraisal of SMAC's br i e f , concurred with the l a t t e r ' s position. But the pressure from other trading partners was simply too great, as a result of which Canada agreed to sign the "Customs Valuation Code". The Code b a s i c a l l y rendered value for duty advances i l l e g a l , and instead provided for a uniform "transaction value system". The transaction value i s the same as the price stated on sales invoice. It was understood by the 239 signatories to the Code that cases of undervaluation on invoices would be dealt with under domestic anti-dumping and countervailing laws. A l l other signatories implemented the Code by July, 1980, except Canada, where i t came into effect 30 on January 1, 1985. In the words of one observer, "Agreeing to revise the Canadian customs evaluation system was perhaps the single most important commitment to freer 31 trade made by Canada in the l a s t f i f t y years." After Canada had signed the GATT Code on Customs Valuation, the government ordered the T a r i f f Board to prepare a report on i t s implementation, and especially to recommend a scheme to compensate for the loss of the f a i r market value system. During i t s inquiry the Board found that under the transaction value system i t was impossible to devise a scheme that would protect p a r t i c u l a r domestic industries as before, 32 without contravening some other provisions of GATT. As far as SMAC was concerned, the transaction value system was unacceptable and did i t s best to prevent i t from being implemented. In i t s brief to the Board, i t recommended that "Canada should not accede to the Agreement on Implementation of A r t i c l e VII for purposes of valuing 30 Board, Part I, op. c i t . , p. 7. 3 1 K e i t h A.J. Hay, Canadian Trade Policy in the 1980s", International Perspective, July/August, 1982, p. 16. 32 . See Board, Part II, op. c i t . , p. 8 and 13. 240 33 footwear imports." Furthermore, i f Canada did accede to the Code, i t should retain i t s right to "address customs 34 valuation problems by means of m i n i s t e r i a l prescription." In one of i t s testimonies before the Board, a SMAC witness t e s t i f i e d that value for duty advances were "more ef f e c t i v e 3 5 than global quotas [on footwear imports]". The Canadian Textiles Institute and the Canadian Manufacturers Association 3 6 took positions similar to that of SMAC. Regardless of their opposition, the transaction value system of customs valuation came into e f f e c t , as scheduled, on January 1, 1985. When a l l was said and done, Canada was not prepared to s a c r i f i c e the interests of other large domestic exporters, who supported the new system, for protecting smaller industries such as footwear. The export-orientation of the Canadian economy ensured that the goal of ass i s t i n g import-substituting industries would be pursued only insofar as i t did not adversely affect the interests of the exporting sectors. Thus, the domestic footwear industry received additional t a r i f f protection through duty advances 33 Quoted in Board, Part I, op. c i t . , p. 23. 3 4 I b i d . 3 5 I b i d . 3 6 See Board, Part II, op. c i t . , pp. 23-26. Surprisingly, the clothing industry, which was the largest beneficiary of the duty advances, did not share the opposition to the new system. It argued that i t would be hyp o c r i t i c a l to oppose duty advances on t e x t i l e s (which adversely affected the down-stream clothing industry), and at the same time support their application on clothing. 241 from the late 1960s to the end of 1984. TARIFFS AND LABOUR COST A common understanding of the woes of the footwear industry in Canada, indeed in a l l developed countries, i s that high labour costs, compounded by high labour content in footwear, make domestic production uncompetitive against imports from low-wage countries. This i s the view that the Shoe Manufacturers Association perpetuated in a l l i t s submission to the government and in i t s public pronouncements. Even the Canadian government j u s t i f i e d i t s assistance measures for the industry on the same grounds. It is therefore pertinent