A conflict with Revenue Canada over the definition of an imported shoe component may result in the closing of a Toronto shoe manufacturing company and leave 80 people without jobs.
Youngstar Manufacturing Ltd., which produces about 30 per cent of all athletic footwear manufactured in Canada, is facing bankruptcy because it must pay a 25 per cent tariff on a man-made nylon upper – a component for jogging shoes imported from Korea and Taiwan – company president Duck Choi says.
The tariff was increased from 10 per cent last October because the imported materials were not properly classified, Revenue Canada classification officer Osborne Todd said.
Mr. Choi said the jogging shoe uppers he imports were reclassified by Revenue Canada Customs and Excise as a textile and not a plastic, as they were before October, 1984.
Imported textiles are taxed up to 15 per cent more than plastics, which qualify for guaranteed preferential tariff status.
The uppers consist of a nylon material, laminated to a cloth backing with a plastic foam in the middle, and are added to the sole to complete the shoe.
A report from Revenue Canada investigators has recommended that the shoe component remain classified as a textile. But Mr. Choi said unless the status changes he will go bankrupt in three months. “It’s not just because of the money we’re losing. If this doesn’t change soon, we will not be able to manufacture anymore,” Mr. Choi said.
Mr. Choi said he has already laid off 35 of his 80 employees, and has lost $120,000 from the extra 49 cents he has paid on each upper since the reclassification.
Joanne James, director of industrial goods at Revenue Canada, said she has received a report from tariff and customs officials who analyzed one of Mr. Choi’s uppers and identified it as a textile.
Mrs. James said she is not sure if Mr. Choi’s financial situation can be taken into account, but she will submit a recommendation to the director-general, who will make the final decision some time in the next week.
Mr. Todd said that, after a laboratory analysis and inspection, it was decided the upper “had the appearance of a textile.” Mr. Choi said he is in a no-win situation because the single upper component is not produced in Canada, and he is forced to purchase imported materials.
Phillip Levine, secretary-treasurer of Capital Findings Ltd. which sells wholesale materials for uppers, said there are no companies in Canada that only produce completed uppers. Most shoe manufacturers produce their own components and have no need to import them or buy them from other companies, he said.
Youngstar produces 2,000 Sparx and Sonic running shoes a day for retailers such as K Mart, Sears and Bata.