Study: The textile and clothing industries

Canada's textile and clothing industries have been shrinking since the turn of the millennium, as imported products satisfy a growing majority of the Canadian market, according to a new study.

In 1992, imported textiles represented 43% of the Canadian market while imported clothing represented 35%. By 2004, imported goods supplied more than 60% of both markets.

In both textile and clothing industries, China has achieved the biggest gains in penetrating the Canadian import market. However, both India and Mexico have also made inroads.

Strong export demand from the United States in the 1990s delayed the impact of this increased import penetration. However, both production and employment in Canada's textile and clothing industries have been falling, and Canada's domestic industries are in fact shrinking.

Job losses in the domestic industries have mounted. Employment in the Canadian textile industry continued to grow until 2003 when it reached 54,800, up from 53,500 in 2002. However, the work force plunged to 50,400 in 2004, which was nearer 1999 levels.

The situation was worse in the clothing industry, where employment has declined progressively. From 94,000 in 2002, it fell to 84,000 in 2003 and to 71,000 in 2004.

Dismantling of trade barriers a major factor

A major factor contributing to this shift has been the dismantling of barriers to multilateral trade. From the 1970s up until the mid-1990s, trade in textiles and clothing was shaped by a system of import quotas, which had been negotiated between major importers and major exporters of textiles and clothing. Canada, as a major importer, negotiated numerous arrangements with countries such as China and India.

The system of quotas was called the Multi-Fibre Arrangement. One result of the Uruguay Round of negotiations was that World Trade Organization member countries agreed to remove all of these quotas in four stages between January 1, 1995 and January 1, 2005.

Another outcome of the Uruguay Round was a commitment to reduce tariffs on trade in textile and clothing products.

Faced with lower tariffs and an absence of quotas in the years following 1995, Canadian companies started to shop around for global suppliers.

Imports capture rising share of Canadian market

Prior to the introduction of the Canada-United States Free Trade Agreement in 1989, Canadian-made products satisfied about 70% of domestic demand for textiles and clothing.

Subsequently, between 1989 and 1992, imports from the United States soared and the share of Canadian market captured by imported products rose substantially. By 1998, imported textiles and clothing had taken over more than half of the Canadian market from Canadian-made products.

In 1992, imported products accounted for 43% of the Canadian textiles market. By 2004, this proportion had ballooned to 60%. Similarly, imported clothing accounted for 35% of the Canadian market in 1992. By 2004, this share had soared to 62%.

Trade in textiles and clothing between Canada and the United States flourished in the 1990s as a result of the Free Trade Agreement, which committed the two countries to a gradual elimination of tariffs on virtually all goods.

As barriers to trade in textiles and clothing faced by other countries have fallen, there has been a substantial shift away from the United States to other countries such as China and, to a lesser extent, India.

Between 1992 and 1999, the United States' share of total textile imports flowing into Canada rose from 53% to 62%. However, between 1999 and 2004, this proportion returned to 53%.

The situation with respect to clothing was a mirror image of textiles. From 1992 to 1998, the value of imported clothing products from the United States more than doubled from $343.9 million to $883.6 million.

However, in the six subsequent years, the value of American imports tumbled to $583.4 million. As a result, the United States' share of total clothing imports flowing into Canada plunged from 20% to only 9%.

China has made biggest gains

In terms of both textiles and clothing, China has achieved the biggest gains in the Canadian import market.

China's share of textile imports was relatively steady at 6% between 1992 and 1999. By 2002, imports from China had doubled and China's share of imports into Canada rose to 11%.

In 2004, China shipped textile products worth about $800 million into Canada, which accounted for 15% of all Canada's imported textile products and 9.2% of total Canadian demand for textile products. This was up from supplying 2.7% of total Canadian demand in 1992.

China's impact on the clothing market was even greater. In 1992, clothing imports from China stood at $571.3 million. By 2004, these imports had increased four-fold to $2.3 billion, resulting in a gain in import market share from 20% to 36% and a gain in total Canadian demand from 7% to 22%.

A combination of factors may explain China's expansion into foreign markets. These include its low cost labour force, the importance of its domestic textiles such as silk and its ability to draw upon Hong Kong's well established financial and marketing expertise.

India, Mexico also making inroads

Both India and Mexico have made inroads in the Canadian market. Between 1992 and 2004, imported textile products from India more than tripled from $52.8 million to $213.8 million. As a result, India accounted for 4% of Canada's total textile imports in 2004, double the proportion in 1992.

Clothing imports from India also more than tripled from $111.8 million in 1992 to over $400 million in 2004, securing 7% of Canadian clothing imports in 2004.

Textile imports from Mexico increased five-fold by 2004, allowing Mexico's share of Canada's textile imports to increase to 3%.

Canada's clothing imports from Mexico rose at an annual average rate of 40% between 1992 and 2001. As a result, Mexico's share of the Canadian import market in clothing jumped from only 1% to 5%. The growth of Canada's imports from Mexico has slowed in more recent years, but remains fairly strong.

On January 1, 2003, the Canadian government announced that textile and clothing products from the world's least developed countries would be extended quota-free, duty-free access to the Canadian market.

Canada's imports from Bangladesh, the only least developed country that currently engages in substantial textiles and clothing trade with Canada, stood at $34.7 million in 1992. By 2000, imports from Bangladesh had increased almost five-fold to $165.2 million.

In 2004, the value of textile and clothing imports combined from Bangladesh amounted to about $480 million, the vast majority of which was clothing. After the United States and China, Canada imported the most clothing from Bangladesh.

Definitions, data sources and methods: survey numbers, including related surveys, 2101, 2201 and 2612.

The analytical article Stretching or Shrinking? The Textile and Clothing Industries in Canada, no. 22 (11-621-MIE2005022, free) is now available online in the Analysis in Brief (11-621-MIE) series. From the Our products and services page, under Browse our Internet publications, choose Free, then Business enterprises.

For more information, or to enquire about the concepts, methods or data quality of this release, contact Diana Wyman (613-951-3116), International Trade Division.