Free trade between Canada and the United States has hit another snag. This time it's not lumber or steel, it's wool. Or, to be more exact, men's woolen suits.
The Canadian share of all imported suits in the American market has risen from 5 percent in 1988 to almost 24 percent today, according to some estimates.
"Canada has taken over the suit business from Italy in the United States," says Stephen Beatty, director general of the Canadian Apparel Federation (CAF) in Ottawa. "Canadian companies have tapped into the market opened up by Armani and Boss, but with the ability to land product in the United States at a lower price."
Exactly the point the American side is making.
"It's a big problem," says Larry Martin, president of the American Apparel Manufacturers Association. The Washington-based lobbyist says the solution is to cut the number of Canadian men's suits allowed into the US. Right now there is a quota of 1.4 million suits under a tariff preference. Imports of Canadian suits above that level face a stiff tariff. If that seems to go against the spirit of the North American Free Trade Agreement (NAFTA), the lobby group for US men's suit manufacturers has a quick answer: The cloth used in the suits is imported, much of it from Italy.
"They [the Canadian manufacturers] have a decided advantage in the raw materials," Mr. Martin says.
The Canadian side admits it imports woolen cloth. But it says the success of suits made mostly in Montreal is also a question of style. American suit designs remain stodgy, they say, while the Canadians knock off snappy Italian designs.
"At the same time as free trade helped Canadian manufacturers, tastes began to change, with the shift to casual Fridays [when men wear jeans instead of suits to offices], and the move to less-structured suits," Mr. Beatty says.
A success story of suit manufacturing in North America is Peerless Clothing Inc., a Montreal maker of mid-priced men's suits. Company president Joel Segal modestly says he doesn't believe his family-owned firm has that big a share of the market. "There are 12 million wool suits sold in the US every year. At best we [all Canadian suitmakers] have 16 percent," says Mr. Segal from his office in Montreal. "I wish it were as big as 25 percent." Peerless Clothing sells 95 percent of its output to the US, about $100 million worth. That accounts for about half the exports of all Canadian woolen apparel to the US.
The company makes suits for Chaps by Ralph Lauren and for store labels. Peerless says it has tripled its business since the US-Canada Free Trade Agreement was signed in 1988.
"What makes Canadian suit manufacturers competitive is the wool tariff," says the CAF's Beatty. "It's simple. The Canadian tariff is low, 11.8 percent, and the American tariff is the highest in the world, at 36 percent."
Even the Washington lobbyist agrees the tariff on imported wool is a problem. "We tried to get the wool tariff changed three or four years ago, but we didn't succeed," Martin says. "The only other choice is to invoke an escape clause in NAFTA and put a quota on Canadian suits."
Segal of Peerless Clothing says the American industry is hurting itself with protectionism. "The US has the highest protection barriers in the world for wool textiles," he says. "The protection is so strong, they're going to put themselves out of business. If they lowered the tariff they would create a thriving industry. We might even open a plant down there."
The Canadian industry sees a double threat: from American manufacturers and the American union. Both argue they have lost jobs to free trade and Canadian suits. Beatty says, "We're facing the strong textile lobby in Congress."