Book Excerpt: Alvin Cramer Segal

Winning Canadian Apparel in the FTA

In this excerpt from his new memoir, My Peerless Story, Alvin Cramer Segal tells the inside story of how the Canadian apparel industry, and particularly Peerless, became big winners under the Canada-U.S. FTA and later, the NAFTA.

After a lot of rumours, in mid-1985, negotiations finally started for what would become the Canada-U.S. Free Trade Agreement (FTA). Many Canadian industries were worried that big American companies would put small Canadian ones out of business. The Canadian government wanted advice and input from all those industries in Canada that would be impacted by the FTA and formed Sectoral Advisory Groups on International Trade (SAGITs) for each industry. Because of the textile-apparel war—which I had been deliberately fuelling at every opportunity– the government had the wisdom to finally separate textiles from apparel. On our own SAGIT, we could talk to government about the flawed system of duties on textiles, which had to be changed once and for all.
On the apparel SAGIT, I represented men’s fine clothing. Joe Schaffer and Elliot Lifson represented ladies’ dresses, Peter Nygard represented ladies’ sportswear, Oscar Rajsky represented the shirt industry, Jack Kivenko represented the cotton jeans industry, and Claude Lapierre represented the lingerie industry. There were others on the SAGIT representing additional sectors of the apparel industry as well.
Regular SAGIT meetings were held for three years, and I gathered a tremendous amount of knowledge throughout the proceedings. At the very outset, I was introduced to the words “imports” and “quotas” and began to gain a full understanding of their meaning and importance to our industry. Fabric availability was in the interest of every sector represented on our SAGIT. We could finally get down to ensuring access to fabric and raw materials without contending with the textile industry’s agenda.
During the SAGIT negotiations, it became very clear that the apparel industry needed access to raw materials not made in North America to compete under free trade. U.S. retailers didn’t need more of what they already had; they needed something new. All sectors of apparel manufacture—from ladies’ lingerie to dresses and ladies’ outerwear to men’s clothing and outerwear—had the same problem: access to sufficient varieties of fabric to meet the demands of North American fashion retailers. Because our company had transitioned into producing wool suits, my issue with tariffs was all about wool. Wool was the fabric of choice in the men’s fine-tailored clothing sector, and the biggest input cost in a men’s suit.
As the sole representative of the men’s suit industry on the apparel SAGIT, I made duty-free access to wool-worsted fabric a key demand. I made it clear to our federal negotiators that we wanted duty-free access to the hundreds of mills in Italy and the rest of the world. This would enable us to compete in the U.S. The textile and wool lobbies in the U.S. had tremendous influence over the U.S. free trade negotiators. In one meeting, one of the U.S. negotiators stood up and, gesturing with his hands, said, “Canada is going to become a funnel for wool suits coming into the U.S. market.” Wool textiles was their major focus, and it became a potential deal-breaker for the U.S. negotiators, who insisted on imposing a quota on all types of garments coming into the U.S. from Canada, even though their main concern was men’s wool suits.
My battle cry, dating back to the Lumley Task Force almost 10 years earlier, was “Duty-free access to raw materials not made in Canada,” and it brought negotiators to an impasse. I became the key spokesman for the apparel industry on fabric availability, an issue particularly crucial to the men’s suit business. U.S. negotiators really only cared about protecting the American textile industry, primarily the wool textile sector. Their team didn’t seem to care about apparel makers in the U.S. that weren’t using wool. At the eleventh hour, U.S. negotiators imposed a quota on garments coming into the U.S. that used imported textiles not made in North America. Wool was such a sensitive issue that the Americans ended up with two separate quota categories: one for wool and one for every other fabric used in the other sectors of apparel.
Asimilar quota was imposed on apparel coming into Canada from the U.S. The Americans had the same opportunity with their quotas, although it was never utilized. Under the quota system, every garment made of fabric foreign to North America was measured in square metre equivalents (SMEs) per garment, not by quantity of garments. Quota depended on how much fabric was used. A suit had five SMEs, a jacket had three, and a pair of pants had two SMEs, and so on. The entire wool quota in the FTA represented less than two per cent of the U.S. retail suit market. Peerless’s production at that time could have used the entire Canadian wool quota. I tried to demand more quota, but the U.S. negotiators wouldn’t agree. To me this meant that the FTA wasn’t free trade at all, but a protectionist trade agreement favouring the textile industry.
The apparel SAGIT committee also decided how the export quota would be divided among Canadian manufacturers. The only experience we had was with the apparel quota system used in Southeast Asia, so we copied it: if a company exported a certain amount of SMEs in one year, the government gave them the same SME quota for the following year.
We had another major advantage under the free trade talks. Since many other industries in Canada were against the FTA, the Canadian government needed the support of the apparel industry, which was a major employer. By this time, I was a leading voice on the apparel SAGIT, and I saw this as an opportunity to have some long-hoped-for changes made. I was able to convince my colleagues to support the government passage of the FTA on condition that the Canadian International Trade Tribunal’s unfair system of rules and regulations was clarified and simplified in order to remove the duties on fabrics not made in Canada.
To secure our support for the passage of the FTA, the Canadian government offered apparel manufacturers the extraordinary provision of duty-free access to fabrics for five years, as a period to adjust to free trade. However, the government had one important condition: manufacturers would receive duty-free access only on raw materials scheduled for export to the U.S. Offering U.S. retailers fabrics they didn’t already have was crucial for the success of Canadian apparel manufacturers in the new market. To this day, I am very proud of my part in making this happen; it changed the way apparel manufacturers operate in North America.
As talks continued, the FTA was scheduled to come into force on January 1, 1989. No one in the industry knew which companies would win or lose when it came into effect, but I was intent on being one of the winners. Looking back, it would be easy to attribute Peerless’s success to simple good fortune. Yes, a lot had to do with timing. However, making the right choices during the late 1970s and early to mid-eighties placed us in a position to take advantage of the dramatic changes that came with the FTA. I wasn’t just flying on hunches; a lot of strategic planning had gone into the choices I made.
One important factor was that we didn’t have to negotiate with an international union to make changes to our factory. Since we had our own legally approved union, the Fraternité des Travailleurs de Vêtements pour Hommes or the “Fraternité,” we had been able to produce the engineered suit much sooner and more easily than our competitors. The Fraternité was certified by the Quebec Department of Labour but still unrecognized by the Amalgamated International Union (then called UNITE), which was desperate to take over the Fraternité.
As well, I had learned a lot about import and export tariffs, duties, and quotas from my colleagues on the SAGIT. The slow transition we made over the years from man-made fabrics to wool, in order to improve the quality of our suits and get them into a better segment of the market, turned out to be one of the smartest business decisions I ever made. Historically, because wool worsted fabric was sourced from the British Empire, Canada had a favourable duty rate on any wool products coming from the UK (under the British Preferential Tariff, BPT). Canadian manufacturers paid eight-per-cent duty on British wool while Americans paid 40 per cent duty on the same fabric. This meant that Peerless had a distinct advantage even before the Free Trade Agreement. Under the FTA, so long as there was available quota, we would pay no duty at all on our suits entering the U.S. That gave us an incredible advantage over U.S. suit manufacturers.
Additionally, our labour costs were down because the Canadian dollar had weakened against the U.S. dollar, and, as a result our product was even more competitive. We had a fabric advantage, the right product, and no international union stopping us from making changes. It was the perfect combination of ideal conditions and unique opportunities. I went away for my year-end holiday knowing that January 1, 1989 would be the start of a new era for Peerless. But in my wildest dreams, I never imagined how high we would fly.
Excerpted from My Peerless Story by Alvin Cramer Segal. By permission of McGill-Queen’s University Press, Montreal and Kingston, 2017.