Company faces bankruptcy over definition of shoe part

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.

Community set to block shoe imports

The European Community plans to block footwear imports from Canada and increase duties on imports of some industrial products in retaliation for Ottawa’s restrictions on footwear imports from the community, an EC spokesman says.

She said the commission has notified the General Agreement on Tariffs and Trade about the retaliation measures, which will take effect in 30 days unless the EC and Canada find a solution to the problem. Negotiations are continuing, the spokesman said.

The EC decided to take retaliatory measures because it cannot agree with Canada on the level of compensation it should receive as a result of Canada’s import curbs on footwear. A Canadian official in Brussels said the gap between what the EC wants as compensation and what Canada is prepared to give is still “quite wide.” Under the measures, EC duties will be increased for imports of the chemicals methanol, pentaerythritol, styrene and polyethylene; furskins; kraft paper; automobile radios; wire rod; vinyl acetate; sewing needles; crude granite; and some iron or steel coils and sheets.

The EC has also prepared retaliatory measures against Canada to compensate for the limits it imposed on EC beef and veal exports this year. GATT will be notified about the measures if talks on the issue do not lead to agreement, EC sources said.

Ottawa gave the EC an import quota for beef and veal of 2,700 tonnes in 1985, a steep drop from nearly 23,000 tonnes last year. The EC has said the import curbs are against GATT rules.

An External Affairs spokesman said a team of Canadian negotiators went to Brussels Tuesday to try to negotiate a settlement of the dispute over the import controls.

The spokesman said the Government is “hopeful” that the negotiators can reach an agreement with the community.

Mulroney sidesteps free-trade pitch, but Caribbean leaders praise his style

Prime Minister Brian Mulroney sidestepped a Caribbean pitch for free trade with Canada yesterday by reminding the various island nations of the preferred status they already enjoyed and promising to stick by previous aid commitments.

But even though Mr. Mulroney refused to commit himself to any new arrangements, his approach was applauded by several leaders present at the Caribbean Commonwealth conference.

Jamaican Prime Minister Edward Seaga, the host of the conference, delivered the appeal for free trade yesterday. Modelled on the U.S.

Caribbean Basin Initiative, Mr. Seaga had even given a name to the proposed arrangement – Caribcan.

He asked that Canada adopt a one-way free trade arrangement with Caribbean Commonwealth countries that would allow all products unlimited entry to Canada.

Mr. Mulroney responded that 93 per cent of Caribbean exports already enter Canada duty-free and most of the remaining exports enjoy favorable treatment. However, Mr. Seaga is seeking the removal of trade barriers on textiles, footwear and cigars. He also wants reductions on non-tariff restrictions on Caribbean rum.

Mr. Seaga said the Caribbean countries were not seeking an increase in official government-to- government aid from Canada. Rather, he wants changes that will allow the private sector to create jobs and produce exports.

The limited Caribbean capacity to produce textiles or footwear would only produce a small ripple in the Canadian market but would have a significant impact on jobs in the Caribbean.

Increasing incomes in the Caribbean woild in turn increase the Caribbean countries’ abilities to buyimports from Canada and the United States, Mr. Seaga concluded.

The Jamaican leader also spoke about special incentives to attract more Canadian investment to the Caribbean.

The official Canadian response is that Ottawa will consider the request but will have to consult the provinces as well, since areas of provincial jurisdiction would be involved in such an arrangment.

Mr. Mulroney’s statements yesterday represented one of his first foreign policy speeches since being elected last September. He shied away from new commitments, focusing instead on reassuring the other heads of governments that the Conservative Government will stick by accords reached its Liberal predecessors.

He also underlined his determination to ”efurbish” Canada’s relationship with the United States; leaving open the suggestion that he was prepared to carry the results of this week’s meeting to the discussions he will have next month in Quebec City with President Ronald Reagan.

The Mulroney approach impressed Bermuda Prime Minister John Swan who said he gained the impression the Canadian Prime Minister was prepared to advance Canada’s role as ”mbudsman” for the Third World.

He said Mr. Mulroney had ”ome here as a listener but had helped set the tone by developing a consensus.”

Caribbean states ask U.S. to lift duty on more goods

Jamaica Caribbean countries are calling for a fundamental change in the Caribbean Basin Initiative, a trade scheme implemented by the Reagan Administration 14 months ago.

Several countries have argued that garments and footwear should be placed on the list of regional exports that can take advantage of duty- free entry to the United States offered by the CBI for the next 11 years.

Fears of damage to U.S. industry by a flood of cheap Caribbean products have kept garments off the duty-free list, along with leather goods and canned tuna.

Jamaican Trade Minister Hugh Shearer has told U.S. Government officials that there is no basis for fears of low-priced Caribbean garments and shoes harming domestic production. “The additional volume of imports into the U.S. market would not damage the American economy in any way,” Mr. Shearer said.

Richard Cheltenham, the Agriculture Minister for Barbados, claimed the U.S. Administration was reneging on a promise to allow more generous entry for Caribbean garments. Mr. Cheltenham said it was now time for the United States to deliver on its commitment.

The garment sector employs more than 20,000 people in the Commonwealth Caribbean, Mr. Cheltenham said.

The pleas are likely to be fruitless. Kent George, the U.S. Governent official in charge of implementing the CBI, indicated there would be continuing opposition to the requests for garments and shoes to be included. Caribbean governments apparently hope continuing pressure for changes will be as successful as earlier efforts. The U.S. State Department recently accepted Caribbean arguments that importers should not be required to prove the veracity of import declarations on CBI products.

Caribbean exporters argued that this would lead to divulging information that could harm their competitiveness.

Retail sales show pickup but profit margins shrink

Although department and “five and dime” variety stores continued to underachieve, Canadians spent reasonably well in 1984 – mostly for cars.

After discounting inflation, retail sales during the past two years have been the best in several years.

At 8.5 to 9 per cent estimated gains – in dollar terms to $116.5- billion – profit margins are skinnier than before the recession because of more competitive pricing.

But Toronto researcher Len Kubas estimated that real growth among retailers, including auto- related and grocery sales, is significant at 5.3 per cent, following a 4.6 per cent hop in 1983.

Not bad for a 1 per cent yearly population growth, said the president of Kubas Research Consultants, considering the stiffer competition from the financial services and travel industries for disposable dollars.

During 1982, there was a 5 per cent real drop in sales following a 0.5 per cent gain the year earlier. Before the recession, higher dollar gains were illusory because the retail price index was running at 9 to 10 per cent, compared with 4.1 per cent in 1984.

Department-store-type merchandise (DSTM) is expected to end the year 6.9 per cent higher, for a real rise of about 2.8 per cent. This $49- billion category accounts for 42 per cent of the total retail trade.

But department stores, which are expected to show a sales rise of 5.1 per cent to $11.5-billion, are expected to make a real gain of only 1 per cent. Worse off are the variety stores, such as Woolworth, Kresge and Stedman’s, which are expected to have a total rise of 1.3 per cent to $5.4-billion – losing in real terms.

Specialty retailers in the DSTM category, including pharmacies, are expected to have captured further market share from the department and variety stores. Canadians are estimated to have spent about 8 per cent more, $17.4-billion, in specialty shops that sell sporting goods, jewelry, flowers, records and tobacco.

They are estimated to have spent 7.3 per cent more ($30.4-billion) in stores that sell groceries, 15.5 per cent more ($37.1-million) in car dealerships and auto-related outlets, 3.8 per cent more ($16.9-billion) in general merchandise stores, 12 per cent more ($7.7-billion) in clothing and footwearshops, and 6.5 per cent more ($7-billion) in household furniture and appliance outlets.

Mr. Kubas predicted Canadians would spend 9 per cent more in 1985 for a total $127-billion, with new car sales rising 11.7 per cent.

Frugality, practicality and skepticism have become the watchwords among many consumers, say retailers and consultants. Confidence in the economy has yet to be restored. The recession, in real terms, is not over in the West and remains a bleak memory for other Canadians. “The Canadian consumer exercised thrift in spending” in the third quarter, said Toronto- based investment dealer Moss Lawson and Co. Ltd. in early December.

It expected the “fourth quarter in 1984 to record an annualized growth rate of about 3 per cent in real terms. For the entire year, 1984, Canada’s real growth rate will be 4.5 per cent over 1983.” A more aggressive financial services industry is capitalizing on the widespread insecurity and the growing inclination to save – particularly during retail’s vital fourth quarter.

The institutions are snagging much of the public’s disposable income into such tax savers as registered retirement savings plans and registered home ownership plans.

Winter trips south are considered an inalienable right by many middle- income Canadians and currency devaluations in several sunny countries add to their attractiveness.

Adding to the public’s inclination to save rather than spend may be the debate on the universality of social benefits in the House of Commons, tied in with Ottawa’s aim of raising more revenue through taxes. Middle- income earners, who have been saving for their retirement, still depend to some degree on the pensions that have been promised by past governments.

As well, the fact that 1.4 million remain unemployed undermines the confidence even of those with jobs. Insecure people do not spend freely. Hardly reassuring are economists saying that inflation is being tempered by an economy just stumbling ahead, and that if prosperity explodes on the scene, it could re-ignite double-digit inflation.

Also confusing to the layman is Ottawa’s contradictory message that it is cutting its own deficit while urging consumers to spend freely.

Although innovative marketing has brought more people into the shops, many retailers still fail to use their most important sales tool, surveys show. Most retailers do not have their sales staff question prospective customers who walk out of their stores empty-handed.

It is estimated that 68 per cent of potential sales dollars walk out simply because customers are not asked what they are looking for. More than 50 per cent of sales people do not ask any questions of customers, said Mandev Ltd., a Toronto-based retail consulting and training firm.

Commissioned sales people are viewed as knowledgeable, but often the consumer is put off by their hard sell.

In 1983, appliance maker Whirlpool Corp. of Benton Harbor, Mich., which controls Inglis Ltd. of Mississauga, Ont., found that 68 per cent of consumers consider sales people an important information source. However, when asked what source they trust the most, only 4 per cent said they believed they could rely on salespeople.