WORLD TRADE
ORGANIZATIONG/TMB/N/410
8 August 2001
(01-3937)
Textiles Monitoring Body Original:  English
AGREEMENT ON TEXTILES AND CLOTHING
Communication from Canada
The Textiles Monitoring Body has received a communication from Canada in reply to its
request for additional information in the context of the preparation of the Body's Comprehensive
Report on the implementation of the ATC during its second stage, in accordance with Article 8.11.
The TMB is circulating this communication to WTO Members for their information.G/TMB/N/410
Page 2
Department of Foreign Affairs
and International Trade
Canada
12 June 2001
Mr. András Szepesi
Chairman
Textiles Monitoring Body
World Trade Organization
Centre William RappardRue de Lausanne 154
CH-1211 Genève 21
Dear Mr. Szepesi:
I am writing in response to your letters of 16 February, 11 May, and 31 May 2001, seeking
information for the comprehensive report of the Textiles Monitoring Body (TMB) on the
implementation of the Agreement on Textiles and Clothing (ATC).
You will find enclosed a "Communication" addressing the points raised in your letter of
16 February.
With respect to the ITCB’s comment cited in the third paragraph of your 11 May letter
concerning the impact of growth rates on quota levels, many of the growth rates under Canada's
bilateral arrangements under the MFA were 6 per cent in 1994.  As a result, taking into account boththe original growth provisions stipulated in Cana da’s bilateral restraint arrangements and the ATC
growth-related provisions, most restraint levels on these apparel restraints have increased by
70.9 per cent from 1995 to 2001 as compared to the 50.3 per cent increase that would have resulted
under the bilateral arrangements alone.  During the same period, the Canadian domestic market grew
by less than 10 per cent with imports from the developing countries alone increasing their marketshare from 31 per cent to 47 per cent from 1994 to 2000.  The ATC also requires the growth rates to
be increased again on 1 January 2002 by an additional 27 per cent, which further expands the market
opportunities provided under the ATC for products still remaining under restraint during the last three
years of the ATC.
As regards the TMB’s request for comments on the ITCB's statement on circumvention,
Canada's own experience suggests that circumvention remains an on-going problem that requires
constant monitoring and control.  While Canada has not, in recent years, encountered wide-spread
circumvention, it would be difficult to conclude whether this would remain the case in the absence of
effective monitoring and controls.
To address the last point of your 11 May letter, the only time Canada has adjusted downward
any restraint level when products have been removed from coverage under a restraint (i.e., partial
restraint liberalization) was in July 1997 when Canada removed the restraints on tailor-collared shirts.G/TMB/N/410
Page 3
This product fell under an aggregate restraint in the case of two Members, India and Macau, China,
and Canada reduced the aggregate level accordingly. The restraints against the other 21 WTO
Members affected were specific restraints on tailor-collared shirts and consequently the restraints
were removed entirely.  Canada did not adjust downward the restraint levels when it removed a
number of products, such as rainwear, babies' outwear, women's and girls' ensembles and variouswomen's, girls' and children’s blouses and shirts, from restraint on 1 January 1998, pursuant to ATC
Article 2.15.  Canada will also not be adjusting any of the levels of the restraints it is partially
integrating in the third phase.  This has resulted, and will result, in a  de facto  increase in the restraint
level for the remaining products under restraint.
Finally, you enquired in your 31 May letter about changes in the classification of
products/categories. Canada has not changed or altered its classification of products/categories for thepurposes of Canada's restraints since the start of the ATC.
Please accept, Mr. Chairman, the assurances of my highest consideration.
Sincerely,
(Signed)
Ian Burney
Director
Trade Controls Policy DivisionG/TMB/N/410
Page 4
Communication from Canada
in the context of the preparation by the TMB of the Report
on the Second Stage of Integration
Introduction
Canada is submitting this communication in order to help the TMB prepare its comprehensive report
on the implementation of the ATC, to be presented to  the Council for Trade in  Goods for its review of
the second stage of integration.
Autonomous Industrial Adjustment
The key elements of the Agreement on Textiles and Clothing (ATC) integration process are the
10 year transition period, the three phases of integration during this transition period, and the growth
provisions for restraint levels.  These negotiated provisions provide the framework within the ATC forautonomous industrial adjustment to further increased import competition in the Canadian market.
The Canadian textile and apparel sectors have been undergoing continuous industrial adjustment to
increased import competition, including in restrained products, since the mid-1970s.  At that time, the
Canadian textile and apparel market was essentially supplied by domestic producers, who employedover 350,000 workers. Today, the Canadian textile and apparel sectors employ 148,000 workers
(down from 179,000 workers in the late 1980s), main tains less than 50 per cent of the domestic
market and, in the case of primary textiles and apparel, has shifted its focus increasingly to export
markets.
The total Canadian market for apparel has grown by an annual rate of 1.5 per cent since 1995 and now
stands at an estimated $10.3 billion.  Canadian pr oducers, however, have continued to lose market
share to imports since the start of the ATC, with im ports increasing their market share by an estimated
18 percentage points to 59 per cent from 1994 to 2000.
Total apparel imports have increased by 71 per cent from 1994 to 2000, from $2.8 billion to
$4.8 billion, with imports from developing countries rising by 79 per cent from $2.1 billion to$3.8 billion, despite the fact that the domestic market increased by less than 10 per cent during the
same period.  Apparel imports from developed countries grew by 30 per cent during the same period.
In 1994, imports from developing countries held an estimated 31 per cent of the Canadian market as
compared to 10 per cent by imports from developed country imports. In 2000, an estimated
47 per cent of the Canadian market was captured by imports from developing countries, while importsfrom developed countries held a 12 per cent market share.
The market access opportunities for developing countries exporting to the Canadian market has been
enhanced during the ATC transition period in a number of ways.  First, opportunities were enhanced
by the removal of restraints, such as the elimination on 1 July 1997 of the restraints on tailor-collaredshirts and, under ATC Article 2.15, the removal from restraint on 1 January 1998 of a number of
apparel items, such as various women's, girl's and children's blouses and shirts, women's and girls'
ensembles, rainwear and baby outwear, without ad justing the restraint levels on the remaining
products.  Second, as a result of the ATC provisions  relating to growth rates and growth-on-growth,
the level of many of Canada's restraints have increased faster than they would have otherwise underthe MFA arrangements (e.g., many of Canada's MFA growth rates were 6 per cent and as a result of
the ATC, increased by 57 per cent from 1995 to 2000 (70.9 per cent by 2001) as opposed to
42 per cent without the ATC during the 1995-2000 period). Third, on 1 January 1998, CanadaG/TMB/N/410
Page 5
increased unilaterally the restraint level for winter outerwear (i.e., category 2) by 10 per cent, over and
above the increases specified in the ATC.
The Canadian apparel industry, on the other hand, has continued to lose market share since 1994. The
industry has experienced plant closures as producers consolidated their operations and increasinglyspecialized their production. Employment has shrunk to 93,152 workers, down by 15.46 per cent
since 1990.
While the Canadian apparel industry has traditionally not been export oriented, the Canadian industry
has also adjusted by shifting its production to export markets, particularly to the USA but also to other
markets such as Japan and the EU in areas such as men's and boy's apparel. Canadian apparel exports
have doubled since 1994, albeit  from a low base of $879 million. At present, exports account for
nearly 40 per cent of domestic production.
The total Canadian textiles market (yarns, fabrics and made-ups) reached over $10 billion in 2000.
As in the case of apparel, Canadian textile producers have had to adjust to increased import
competition. There have been relatively few restraints in the Canadian textile sector, with the vastmajority of yarns, fabrics and made-ups entering Canada unrestrained (based on 1990 import data).
Still, the textile industry has seen its share of the domestic market fall from 59 per cent in 1994 to
around 35 per cent in 2000, with imports doubling over a period of time when the domestic market
grew by less than 30 per cent.  The Canadian textiles industry has responded by reducing costs,
increasing investment in capital-intensive production methods and shifting to export markets inspecialized product areas such as industrial and home furnishing textiles.
The decline in the number of primary textiles establishments that started in the early 1980s continued,
with a fall by 20 per cent since 1990. The remainin g primary textiles firms have been relatively
successful in increasing their competitiveness, in part through exporting to the USA and other foreign
markets, in such capital intensive sectors as man-made yarns.  As a result, employment, after falling
by one-third during the 1980s from around 30,000 to 20,000, grew by 13.02 per cent since 1994 to
reach 21,284 in 2000.
The domestic textile products industry has seen approximately one in four establishments disappear
since 1990, a much higher rate than in the case of the primary textiles sector. Its largest sub-group, the
carpet, mat and rug industry, has faced the disappearance of approximately half of its establishmentsin the last decade. Still, the textile products sector has practically doubled its exports since 1994, with
the result that employment went from 28,147 in 1994 to 33,383 in 2000.
Small Suppliers, New Entrants and Least-Developed Country Members
In compliance with the requirement to advance the growth rate for small suppliers as stipulated by
ATC Article 2.14, Canada increased the growth rate for these exporters by 25 per cent on
1 January 1995 and again by 27 per cent on 1 January 1998. As a result, the annual growth rates on
restraints remaining for most small suppliers and least developed countries now exceed 9.0  per cent
and will increase to over 12.0 per cent on 1 January 2002 as a result of the 27 per cent increase ingrowth rates at the start of the third stage required by the ATC.
At the same time, at the onset of the ATC, Canada decided to expand the small suppliers provision to
cover more exporters by applying Article 2.18 to the exporters who qualified in either 1991 or 1994,
thereby taking into account exporters who entered the Canadian market after 1991 and before 1995.This allowed six more suppliers to benefit from the advancement of the growth rate provision. In
addition, Canada applied the small growth provision to the restraints on Bulgaria when it joined the
WTO as it also met the Article 2.18 criteria.G/TMB/N/410
Page 6
In addition, 17 small suppliers and least developed countries benefited directly when Canada
increased unilaterally its restraint level on winter outerwear by 10 per cent on 1 January 1998.
Small suppliers and least developed countries have also benefited from the removal of quantitative
restraints into the Canadian market.  Ten small suppliers and least developed countries benefited inthe case of the elimination of restraints on tailor collared shirts on 1 July 1997 (Bangladesh, Bulgaria,
Cuba (its only restraint), Macau, Mauritius, Myanmar, Poland, South Africa, Sri Lanka and
Swaziland), while 9 of these Members benefited from the removal of various apparel items from
restraints on 1 January 1998 under ATC Article 2.15  (Bangladesh, Bulgaria, Hungary, Macau,
Myanmar, Poland, South Africa, Sri Lanka and Swaziland).  In the latter case, Canada provided
further market opportunities for these Members by not reducing the restraint levels on the products
remaining under restraint in the affected categories.
Thirteen small suppliers and least developed countries will also benefit directly as a result of the
elimination of restraints and the removal of products from restraint on 1 January 2002 as a result of
the third stage of integration.  As in the earlier case, Canada will not be adjusting the restraint levels
where restraints are partially liberalized, further expanding market opportunities for the affectedMembers.
Cotton Producing Exporting Members
As Canada indicated in its letter of 20 June 1997, Canada held consultations with exporting countries,
including cotton-producing exporting countries, during the period immediately preceding the start of
the ATC and, as result of these consultations, made a number of improvements to Canada’s restraints
to accommodate the cotton-producing exporting Members’ requests.  Since these consultations, no
cotton-producing exporting Member has approached Canada with specific concerns of access for
cotton products.
As a general comment, the structure of Canada’s apparel categories does not differentiate between
products according to fibre type.  Cotton-producing exporting Members have benefited directly from
the removal of restraints on apparel products with high cotton-content, including tailor-collared shirts
in 1997 and various women’s, girls’ and children’s clothing items (e.g., blouses and shirts) in 1998.
These exporters will further benefit from the elimination of restraints on cotton products under
Canada's third stage of integration.
Transitional Safeguard Mechanism
Canada has not made use of the transitional safeguard mechanism of Article 6.
Article 7.1
Pursuant to the commitments made by Canada during the Uruguay Round, MFN tariffs on textile and
apparel products, for those items that are not already duty-free, continue to decline.  Textile tariffs,
which were bound in the range of 16 per cent-22 per cent prior to 1995, are now in the range of14 per cent-16 per cent and will decrease to 12 per cent-14 per cent upon full implementation of
Uruguay Round tariff obligations.  Similarly, the MFN bound tariff on most apparel has decreased to
20 per cent from 25 per cent prior to 1995 and will decrease to 18 per cent by 1 January 2004.  At the
same time, 29 per cent of Canada's applied textile and apparel tariff items (8 digits) are currently duty
free.
Further, Canada has a policy of unilaterally removing tariffs on manufacturing inputs to enhance the
competitiveness of Canadian downstream producers, where such action would not have an adverseG/TMB/N/410
Page 7
impact on other Canadian manufacturers. This policy has resulted in more than $25 million in duty
reductions on imported textile products since 1994.
Canadian authorities would note that Canada's tariffs on textiles and apparel, while high relative to
other Canadian tariffs, remain significantly lower than in a number of exporting countries.
__________