Italian shoes pump up trade surplus

Canadian shoe quotas may have cost Italian manufacturers $70-million worth of business in the past few years, Italy’s ambassador to Canada says.

Francesco Fulci cited the quotas as one of the major sticking points in Italian-Canadian trade relations, along with provincial wine-pricing policies and defence-related trade.

Footwear is Italy’s main export item to Canada – with more than six million pairs worth $120- million shipped in 1984. Italy and other exporters of higher-quality shoes have long said they do not compete for the same market as Canadian manufacturers. The quotas do not apply to the highest- priced fashion boots and shoes, a market dominated by Italy.

But although the exempt items account for a major share of the dollar volume, they make up a relatively small part of Italian production, which has led to the friction over the quotas. “The measure was supposed to be temporary,” Mr. Fulci said in a recent interview. “When it is in force for so long, it is not a temporary measure any more.” The federal Government first imposed shoe quotas in 1977 and has extended them several times. Restrictions on leather footwear were lifted in late 1981 but reapplied in July, 1982. The quotas are scheduled to expire at the end of November. “I feel that to enhance our bilateral trade we should . . . render both our markets even more immune to the disease of protectionism,” Mr. Fulci said.

Canada had a deficit in its trade with Italy last year of $538-million, more than double the 1983 level, and a far cry from the record 1980 surplus of $378-million.

But Mr. Fulci played down the numbers. “What counts is not who is in the black or the red in a particular year, but to increase the volume of trade.” After falling to a low of $549-million in 1983 from $988-million in 1980, Canadian sales last year were $578-million, a 5 per cent increase from a year earlier. “We are climbing out of 1983’s trough, but it will be some time before we get back to how we were doing in 1980,” said John Pearce, commercial counsellor at the Canadian embassy in Rome.

Mr. Pearce cited the decline in pulp and lumber exports as major reasons for the drop, which saw Canada’s share of total Italian imports fall to 0.75 per cent in 1983 from 1.3 per cent in 1980. The value of pulp exports last year was $177-million, up from $116-million in 1983 but still down from $230-million in 1980. Lumber exports fell to $14-million from $15-million in 1983 and $59-million in 1980.

Two factors are at the root of this downturn – cost and the economic situation in Italy. Between 1980 and 1983, the dollar appreciated from an average exchange rate of 725 lire to 1,222 lire, while a 16 per cent devaluation of the Swedish krona made the products of Canada’s biggest European competitor more attractive. And the Scandinavians have duty-free access to European Community countries.

Italy’s economy was late in picking up, and its recovery is not expected to approach U.S. levels. “With only a weak recovery we cannot expect Canadian exports of raw and fabricated materials to jump back to former levels,” Mr. Pearce said.

Mr. Fulci said both sides should work to diversify trade in non- traditional areas such as high technology.

He said Italy is buying flight simulators, electronic equipment and engines from Canada, but Canada is not reciprocating.

Federal officials agreed that Italian defence contractors have not won significant Canadian business in competitive bidding. But they said the ambassador has no basis for his complaints. “They are welcome to bid. It’s a matter of being competitive,” one official said.

Meanwhile, Canadian officials expect the European Community to bring the wine-pricing issue to the General Agreement on Tariffs and Trade.

In August, 1983, Ontario adopted a floor price system that cut severely into sales of Italian wines that had been priced below the minimum level set by the province.

As a result, Italian producers lost about one- third of the volume of their Ontario market in one year, Mr. Fulci said.

Canadian consumers bought $24-million worth of Italian table wine in 1984, compared with $22- million in 1983 and $20-million in 1980. Italian cheese exports were $7-million in 1984, compared with $9-million in 1983 and $7-million in 1980. Still, Canada enjoys a surplus in its food trade despite declining cereal sales, which have been hit by European Community protectionism.

Durum wheat, used for spaghetti and vermicelli, is Canada’s second- largest lira earner. Sales in the 1983-84 crop year (which ended July 31) were worth about $100-million, up from $96- million a year earlier, but below the $134-million reached in 1980. Italy’s good harvest in 1984 could have an adverse effect on exports this year.

Canadian exports of fish products are worth about $15-million annually. The Mediterranean is overfished, prices tend to be high and the quality uneven, leading to significant reliance on imports.

Smoked salmon has found an Italian market; and prospects are bright for clams because of problems finding uncontaminated shellfish in local waters, which are high in bacteria.

Both sides are exploring industrial joint ventures as a means of increasing trade flows. Small and medium-sized Canadian companies could benefit, for example, from Italian expertise in such areas as machine tools and industrial design, officials said.

Joint ventures in third countries are another option. Mr. Fulci mentioned Italian participation in the Argentine and Romanian nuclear projects, and noted that similar opportunities exist in Egypt, Turkey and Indonesia.

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