Mr. A. B. Weselak (Springfield):
Mr. Speaker, I listened with considerable interest to the remarks of the speaker who preceded me, the hon. member for Calgary North (Mr. Harkness), and particularly when he pyramided figures of wheat board costs of operation per bushel. He stated he was not too sure of some of his figures; but if he had examined the wheat board report for the crop year 1953-54 he would have found that 50433-207J
The Budget-Mr. Weselak the receipts of the board were 398,031,819 bushels. He would have found that the cost of operation, including carrying charges, terminal storage, interest and bank charges, handling stop-off and diversion charges, drying charges and administrative and general expenses totalled $35,767,299.77. It would have been a simple matter of mathematical calculation to arrive at a figure of less than nine cents a bushel as the total cost chargeable to farmers in that pool.
In entering this debate I propose to restrict my remarks in the main to aspects of the budget which relate to our international position in the matter of trade. Before doing so I should like to comment generally upon the budget as a whole and to congratulate the Minister of Finance (Mr. Harris) upon the responsible approach he has taken in preparing his first budget and the capabilities he displayed in presenting it.
The past year has seen a drop in the gross national product of 2 per cent, which has reflected itself in loss of national revenues and a resulting deficit in the past year. This drop, as has been stated, was mainly due to a poor crop in western Canada which has resulted in a slowing down of economic activities by reason of the fact that farmers curtailed purchases last year when they saw their crop deteriorate owing to the weather. To help accelerate recovery from this situation, which in the past few months has shown signs of improvement, the tax reductions in the budget are welcomed; and while their effects may not immediately be obvious they will no doubt have the effect of encouraging economic expansion and stimulating business activity in this country.
I see nothing seriously wrong with limited deficit financing in times when a lift is needed to stimulate activity and relieve unemployment. Every prudent person believes in accumulating for the time when he may be short. From 1945 to 1954 substantial surpluses had accrued, when times were buoyant. Now it is only common sense if necessary within a limited degree to budget for deficits when economic conditions warrant such action. We have heard the criticism that we are borrowing on the future. It can be just as well said that we are cashing in on the past, when surpluses were budgeted for and did accrue to the treasury.
As to the relief given, income tax reductions will provide additional purchasing power. Added stimulus will be given to corporate investment by the slight reductions in corporation taxes. The reduction of the excise tax on automobiles will leave further purchasing power available and assist the automobile industry. Reductions in tariff items on agricultural items will also reduce
3263 HOUSE OF
The Budget-Mr. Weselak
the cost of farm operations. These concessions were well placed, and all will help the expansion of economic activity in the country and so promote employment.
In the amendment proposed by the official opposition we find the charge that the government has failed to recognize the serious position in which the Canadian farmer and other producers find themselves. I stated at the outset of my remarks that I intended to direct my remarks to our trade situation, which I presume is the item of government activity at which this charge is levelled.
In the course of this debate and others we have heard from opposition benches charges to the effect that Canada has lost her British market, and also to the effect that this government has callously ignored the difficulties of certain industries in which unemployment exists, and that it has failed to provide adequate work for these people and their employees.
The reduction of our sales to Great Britain has been the result of many factors. In the debate in reply to the speech from the throne I drew attention to the fact that the comparative prices of agricultural products laid down in England by other countries were substantially lower than prices existing in Canada for the same products. I expressed the opinion that this competition could only be met by export subsidies or substantial reduction in domestic prices.
There is however another reason for the drop in our exports to England, and this applies not only to England but to all countries with which we have trade relations. And that is the practical problem of balance of trade.
Our goods can only be paid for by buying the goods of others, in the field of international trade. The hard fact is that we either take goods in payment or cease to exist as a trading nation. We cannot eat 400 million bushels of wheat, consume $915 million worth of pulp and newsprint, or our mineral production. Unless we can dispose of this production we cannot pay the producers of these commodities and they in turn cannot pay those employed by them and those who service them and supply them with equipment and materials.
We have repeatedly heard the argument in this house "Let us bar foreign goods and make work for Canadians". This would be all very well if we were a self-sufficient nation and independent of world trade; but we are not and therefore must be realistic in our approach to the problem. And it is my observation that this government, in spite of most pressing demands from the opposition and many industries, has resisted,
in the interests of our Canadian economy, these demands for more protection which would have the effect of barring foreign imports and of increasing prices to con-sinners.
In specific cases and on particular merit, adjustments may be necessary and. advisable; but any broad blanket advocation of higher protection is certainly not in the national interest.
Particular reference in this debate has been made to the textile woollen industry and to the unemployment resulting from British competition, and the inference has been left to the effect that the government has given no consideration to this problem.
In all fairness, I believe that the record of this government in this regard should be brought to the attention of the public and in the limited time available I propose to deal with this matter.
On May 12, 1954, as a result of numerous representations from the woollen industry and those dependent upon it, the former minister of finance directed the tariff board to make a study under the Tariff Board Act of item 554b of the customs tariff, which provides for a tariff on woven fabrics composed wholly or in part of yarns of wool or hair n.o.p. a British preferential tariff of 20 per cent, and 12 cents per pound but not to exceed 50 cents per pound.
As a result of this direction, hearings were held in Ottawa and a number of plants were visited by the board and their economists. Appearing before the board were representatives of the Canadian industry, of the British wool industry, boards of trade of communities affected, agricultural associations, manufacturers, consumers and others. In all, 58 associations, companies and organizations submitted evidence or made representations.
The evidence indicates that those appearing before the board realized the seriousness of the woollen textile situation, sympathized with the workers who had lost their jobs, with the communities affected and with those who had invested their savings in the plants which have been closed. Nevertheless, it was the belief of many that the practice of helping a languishing industry by increased tariff protection, when other causes were the main contributing factors, was not sound.
In the direction to the board, in addition to requesting all relevant information concerning the woollen industry, the minister also requested all relevant information concerning as well the implications for the Canadian economy of imports of wool fabrics from the United Kingdom.
In the evidence submitted it was shown that our imports from England in 1952 were
roughly $360 million; in 1953 $453 million, and the latest information indicates that in 1954 they had dropped to $392 million. Of these amounts, in 1952 woollen textiles accounted for $29 million; in 1953 for $38 million and in 1954 to a lesser amount averaging in recent years about $33 million a year, or about 12 per cent of the total earnings from sales of British goods in Canada. Our exports to the United Kingdom fell in 1954 to $652 million from $665 million in 1953.
The board therefore had two directives: first, to determine whether tariff item 554b was the cause of the difficulty in the wool cloth industry and, secondly, to inform the government regarding the implications a tariff increase might have on our trade relations with the United Kingdom.
In the hearings before the board, the industry and its supporters including suppliers of material, technicians, labour unions and some municipal authorities, argued that the real cause of the disaster that had overtaken the industry lay in the devastating effect upon prices in Canada of competition from British producers and the increased volume of their shipments to Canada. On the other hand, opposing parties, particularly the national council of clothing manufacturers of Canada, the United Kingdom wool textile delegation, the Canadian Federation of Agriculture and the interprovincial farm union council contended that although there were other causes, the major cause of the difficulty in the industry was the declining total demand in Canada for wool cloth, and that the import of British wool cloths, as such, was not the main cause of their difficulty.
The board report discloses that since 1948 there has been a drastic decline in the total consumption in Canada of wool fabrics, a drop from 47.5 million linear yards in 1948 to an estimated 31 million in 1954. In the war years and to 1948, demand was strong and the industry thrived, but by 1949 the demand began to decrease. The outbreak of the war in Korea, however, led to increased production and prices and by March, 1951, wool prices had risen three times higher than in June, 1950. This was followed by a drop in price by September of the same year of 64 per cent. Large inventory losses were sustained, weakening the financial position of the industry. In 1952 demand dropped still further, plants were forced to shorter time and employment declined considerably. In 1953, some improvement was noted which carried into 1954.
The report then proceeds to discuss the factors which contributed to the decline in
The Budget-Mr. Weselak demand, such as changes in type of demand, production of worsteds, cloths, woollens and blends.
In their reference to the 17 closed mills, the board expressed the opinion that their closing was probably due to a combination of factors, stating that there was no doubt that the management of some of the older mills, of which there were 11 closed, were not as alert and efficient as they should have been. Old machinery had not been replaced as it depreciated; often no salesmen were employed to meet competitive markets in recent years and, finally, they had failed to adapt production to changing demand.
The findings of the board regarding wages and employment were to the effect that in the industry labour is a substantial item in the cost of production. They found that despite substantial increases since the end of the war, wages were comparatively lower than those paid in other manufacturing industries, the average wage being 111.7 cents per hour in the industry as compared with 141.7 cents per hour for manufacturing generally. To meet the problem of high labour costs, production must be efficient. Manufacturers must take advantage of latest improvement in equipment to make possible considerable reduction in labour costs. The report indicates that full advantage has not been taken by the industry of technological changes which would have a marked effect in making the industry competitive.
The brief of the Canadian Federation of Agriculture points out that productivity in Canada per man hour over the past 30 years has increased about 2 per cent per annum compound rate. On this basis, the production per man hour in the woollen industry should have reached an index of 132 in 1953 instead of 111. It is significant to note that while the productivity per man hour in the woollen industry stood at 111 in 1953, the real wage index for the industry stood at 155.
In examining the financial position of the industry, the board found that from 1939 to
1950 the industry had been profitable. In
1951 and 1952 severe losses were evident in the companies examined and it was evident that a substantial portion of the industry was in serious difficulty. The closing months of 1954, however, showed an upswing in activity and it appeared that this trend would continue.
The report discloses that approximately 1,450 workers had lost their jobs as a result of closed mills, and estimates that 2,800 had been laid off in the period 1949 to 1953, many of whom had found other employment.
After examining conditions in the industry, the board report proceeds to cite and examine
The Budget-Mr. Weselak the causes of its present difficulty and classifies them under the following headings:
1. Decline in the demand for cloth containing wool.
2. Competition from synthetic fabrics.
3. Expansion of production facilities in relation to markets.
4. Merchandising policy of the industry.
5. Competition from British wool-cloth exporters.
The board expressed the opinion that the decline in the demand for cloth containing wool had been the most important single factor contributing to the present state of the wool cloth industry, demand having dropped in 1952 by 42 per cent of the 1948 peak and risen in 1953 to a drop of 36 per cent. They attributed this drop mainly to competition from synthetic fabrics, which in many cases have replaced woollens, generally are less expensive and not subject to wide price fluctuations.
Regarding the third item, "expansion of production facilities in relation to markets", the board found that following the war, plants were in a run-down condition. Demand was still heavy, with the result that surpluses previously accumulated were used up to reequip and expand plant facilities in order to meet a market starved by war restrictions. When in 1948 demand decreased it was found that production facilities exceeded the market, competition for available markets increased, prices fell and only the most efficient producers could carry on, and some plants were compelled to close their doors, or operate on part time.
As to the styling and merchandising policy, the board report indicates that considerable criticism was levelled at the industry by manufacturers and consumers for their failure to change styles rapidly enough to meet changes in demand. Apparently, there has already been considerable improvement in the quality and style of many lines of Canadian production as a result of this experience, but markets were lost in the meantime.
Regarding merchandising, the criticism was -that the industry had failed in their promotional campaign of Canadian-produced woollen goods, particularly in making Canadian consumers aware of the quality and good -value of Canadian wool goods and in following up this campaign with a system of labelling to prevent misrepresentation. The report in all fairness indicates that until 1951 this was a minor problem, and that the Canadian manufacturer now realizes that he must ally quality production with an active sales policy if he is to hold his market.
The linal important cause of the industry's trouble, "competition from British wool fabrics", was the main reason for the inquiry since, in its final submission to the board, the wool cloth industry had maintained that, owing to price competition from the United Kingdom industry, its continued existence was in jeopardy.
Of the total decline in the market from 1948 to 1954, which is estimated to have been about 16 million yards, Canadian production was decreased by 11-5 million and British imports by 4-6 million. In all sections of the market British imports had gained ground, but not to the extent that had been generally the belief, namely, 7 per cent in blends, 10 per cent in woollens, and 23 per cent in wool worsteds. This bore out and confirmed the board's deduction that much of the present difficulty was not the result of British competition but rather owing to the general shrinkage in demands for woollen cloths.
In examining the effective rate of duty, the board found that in 1954 the percentage of value for duty was three-tenths of 1 per cent lower than 1948, despite reductions in price, which would indicate that the 50 cent maximum tariff had become the governing rate in most cases, resulting in effect in a specific duty on the commodity. In view of these and other considerations, the board arrived at the conclusion that the effective rate of duty, per se, could not be considered as a cause of the industry's present difficulty, but on the other hand they did not deny that the competitive position of the British and Canadian industry had not changed since 1948.
As a matter of fact, the report points out that Canadian labour costs are 50 per cent higher than those in the United Kingdom, putting the Canadian manufacturer at a disadvantage whioh requires him to reduce labour costs by increased use of laboursaving machines, higher work loads and more efficient planning and operations. The industry is to be commended on recent reports to the effect that cognizance has been taken of this aspect of the problem and that it has been met in many ways.
The report concludes with the observation that rising wage rates and shrinking production have combined to increase the unit costs of Canadian cloth in recent years, with the result that in spite of a corresponding rise in British costs our competitive position has deteriorated.
In summarizing their report, the board had this to say on page 47, which I think is worthy of record, and I quote:
From the board's inquiry into the state of the wool-cloth industry, the following salient facts have emerged:
1. The total demand in Canada for cloth containing wool has fallen drastically since 1948. The effects of this decline in demand, per se, appear to have been more severe on the woollen than on the worsted section of the industry.
Among the factors contributing to this shrinkage of the market have been:
(a) the rise in wool prices, 1950-51, causing later inventory losses to the industry and, by the same token, initiating consumer resistance to increasing prices of wool clothing;
(b) the growing competition of the domestic synthetic industry, which competition seems to be impinging more on woollens than on worsteds;
(c) the competition of consumer durable goods for consumers' dollars, resulting in consumers spending a decreasing proportion of their income on clothes and personal furnishings.
2. As a result of the fall in demand, the Canadian market for cloth containing wool has become increasingly competitive; moreover, in recent years British competition has been exerting a strong influence on the level of prices for wool cloths. This influence appears to be stronger in the worsted section of the market.
3. Rising wage costs and shrinking production have combined to increase the unit cost of Canadian cloth in recent years. In spite of rising British costs this is still considerably higher than that of British exporters.
4. The effective rate of duty on wool cloth has shown little variation since 1948 and, per se, cannot be considered a cause of the wool cloth industry's present malaise.
Three of the four facts above stated-the shrinkage in total demand, the downward trend of prices, and the rising costs of Canadian producers -when taken together constitute the background to the picture that presented itself as the board's inquiry progressed. They help to explain two further and resultant facts; that employment has fallen, and that some sections of the industry have been and still are in financial distress. Equally, however, they suggest at least that some mills which are responding to the challenging situation will continue to hold their own; and that among those which appear unable to do so further mortalities would seem inevitable.
Hon. members will recall that in December of 1953 Bill No. 29 passed through this house to prevent end of line dumping in Canada, particularly of textile goods. It passed against the vocal protest of some members and with considerable concern on the part of others. Many thought that this was a retrograde step in our efforts to increase our international trade upon which we are so dependent. Recognizing the fact, however, that this type of competition was almost impossible to meet and that the industry was in difficulty the bill went through and became law. The industry, however, felt this was not enough and the result was the reference I have referred to and the board's subsequent report which attributed the difficulty to internal competition in the main rather than to imports.
The Budget-Mr. Weselak
We have heard complaints in this house and in the country of United States nonadherence to the principles of GATT in its establishment of quotas and import restrictions. Usually the United States has good reason for these actions, and a great deal of consideration by their tariff authorities is given to each problem as it arises. The practice in Canada of referring these matters to the tariff board is to be commended and should be continued. Tariffs should not be imposed merely as a result of political pressures to the detriment of the country as a whole and this report is a classic example of the inadvisability of accepting the principle or theory that tariff protection is the only solution to a problem of this nature. This item is also bound by GATT and only the most serious considerations should result in its disturbance.
Hon. members may often wonder why western representatives, be they farmers, business or professional men, are and always have been advocates of low tariffs. The answer lies in the fact that we recognize our dependence on exports. We recognize the fact that this is not only a prairie problem but a national problem. We know that, if we are not able to find remunerative markets for our surplus production, the farmers' and primary producers' purchasing power is cut down. The effect in the cities, towns and villages in these communities is immediately apparent but it does not stop there; it moves to eastern Canada where much of the industry of the country is concentrated, and they too feel the pinch.
It can be said without hesitation that most of the economic difficulties experienced in this country today can be attributed to the decline last year of grain exports to England of almost $300 million and to a loss of crop value this year as a result of weather of a sum similar in amount. Our economy depends upon export of primary products and to a limited extent of raw materials and toward this end this government has done a tremendous job of saving GATT, which has served us so well in restraining other countries from indiscriminately imposing import quotas and prohibitive tariffs against entry of our products. The attitude of the United Kingdom may be gathered from a report in the Winnipeg Tribune of April 13 of this year, which states:
British Labour party leader Clement Attlee said today his party would favour Britain's re-entry into the international wheat agreement but only under certain conditions.
Mr. Attlee hinted that one of the conditions would be for the countries that sell Britain wheat to buy more goods from Britain.
The Budget-Mr. Weselak
And he is directly quoted as saying:
But we also want to sell goods. It depends on whether the people who want to sell us wheat are prepared to buy our goods.
Here we have one of the answers by a responsible statesman from the United Kingdom giving an indication of what an increase in tariff may do to our British market.
The woollen textile industry has asked the government of Canada to abandon its liberal international trade policy which it has been attempting to establish before and since the inception of GATT in 1948. They have asked that protection against British woollen cloth be increased so that British imports will be reduced, hoping that more Canadian wool cloth would be sold in Canada and less British and that more employment would be created in Canada for workers in woollen goods factories. They have asked for what appears to be a simple solution to a difficult problem.
The problem, however, is not that simple. The granting of protection, while it may have temporarily eased the difficulty, would not have provided the solution, and the report so indicates. The real problem to be faced by the industry is the decreasing demand for the product, resulting mainly from competition with synthetics and the need for increased efficiency to levels higher than those achieved in recent years.
Supposing this government had acceded to the request of the industry for a prohibitive tariff, what would have been the results? In the first place the price to the consumer would have increased with the result that there would have been a further swing to synthetics, a swing which was experienced when woollen fabrics reached their high early in 1951. Any decline in the consumption of woollen goods would affect the Canadian industry to a greater extent than it would affect imports. Earlier in my remarks I pointed out that from 1948 to 1954 the market declined by 16 million yards; of this decline the Canadian industry lost 11-5 million yards and importers 4-6 million yards. It is therefore doubtful whether an increase in tariff would help the industry. On the other hand, it might well have the effect of further reducing consumption to the extent that the industry would be in far more serious trouble.
Secondly, granting higher protection to the woollen industry would lead other industries to consider such action as a strong precedent and pressures would be exerted by many industries experiencing difficulty for further tariff protection. Canada has been a leader
in more liberal international trade policies, and any change in our position would strengthen the force in countries which seek to reverse the trend toward greater freedom of international trade.
And, finally, the problem of shortage of dollars which at present limits British purchases in this country is not an academic one, as is well illustrated by the British Labour party leader's remarks which I have just quoted. It is a cold hard fact and something which is well known by the farmers of Canada and other producers who look to the British market to sell their surplus products. A reduction in British exports to Canada as a result of higher tariffs would put into reverse a policy which aims at bringing the day nearer when the pound sterling would be freely convertible and British import restrictions removed. It might be of interest to members to know that the textile industry in England is also in difficulty. I have here a Reuters dispatch which appeared in the Winnipeg Tribune on April 22, which is headlined:
Lancashire Mills Fight to Survive.
Fewer wheels are spinning in the mill towns of Lancashire, where Britain's industrial revolution was born a century ago.
Unemployment is mounting.
Cause of the trouble is increasingly stiff competition from India and Japan, who learned many of the techniques of mechanized textile production from Lancashire.
Their goods, produced with a lower labour cost, are underselling Lancashire textiles overseas and even on the British home market.
Extended stoppages which began before Easter affected nearly 40,000 textile workers and there are widespread fears the unemployment will increase.
Many workers are leaving the industry fearful that unemployment will be chronic. The cotton board disclosed recently that in two months this year 4,000 textile workers left to find more secure jobs.
Indications are that many more plan a switch, even if it means taking lower wages.
The industry as a whole is critical of the Conservative government for not taking action on proposals by employers and trade unions to counter the effect of foreign competition.
But some relief was afforded this week in the budget which cut purchase tax on household textiles.
Walter Lee, secretary of the Oldham operative spinners' association trade union, said: "Confidence in the trade is lacking. Buyers are holding off placing orders except on a hand-to-mouth basis".
Here we have the type of criticism levelled at a Conservative government which a Conservative opposition in Canada sees fit to level at the Liberal administration.
In concluding, Mr. Speaker, I would draw the attention of the house to the closing remarks of the Canadian Federation of Agriculture contained in their brief to the tariff board, which I believe touches the root of
the problem and suggests a possible remedy. I quote now from pages 27 and 28 of the brief:
As we said in our opening remarks, we fully realize the seriousness of the present woollen textile situation. We sympathize with the distress of workers who have lost their jobs, of small towns which have felt the loss of business from unemployment and of businessmen who have invested their savings in these plants which have been closed. In spite of this we do not believe it is sound to attempt, by increased tariff protection, to restore the industry to its post-war high volume of activity.
Up to this time the usual way to help a languishing industry has been to increase its tariff protection. However, we believe that it is time a completely new approach is made to problems of this nature. We believe that where it can be shown that due to fundamental and rather rapid changes in economic conditions an important industry is in serious distress, then the government should accept some responsibility to aid the industry, and especially the employees and communities adversely affected, to reorganize on a sound basis to meet the problems of the changed situation.
There' are probably a number of ways in which this responsibility can be discharged. We will suggest one possible line of approach here.
It may well be that careful examination will show that some of the plants now closed would be able to re-establish themselves in the same towns by producing products in which they have a greater comparative advantage than in woollen cloth production.
We would point out that there are precedents for government assistance in the reorganization of industries which face fundamental and permanent changes in economic conditions. An example of one is the re-organization of the apple industry of the Annapolis valley of Nova Scotia, which we have cited.
Higher tariffs are a burden on consumers every year. Government financial assistance for reorganization on a sound economic basis need only be provided once. Such a policy we believe would be in the national interest and very directly in the interests of the employees, the employers and the towns which are presently in distress.
We put this suggestion forward for consideration believing it to be a more reasonable and sounder solution to the problem than either the proposal of higher protective tariffs or a policy of allowing the economic law of international comparative advantage to take its full toll of an ailing industry.
A lesson might possibly be taken by industry from a Chicago industrialist who appeared before the ways and means committee of the United States congress, which comment appeared in the Winnipeg Tribune on April 8, 1954, as taken from the Globe and Mail. The comment reads:
A Chicago industrialist who has found a stable market for his products against Japanese competitors who pay only one-eighth of his labour costs, Charles H. Percy, laid bare for the ways and means committee of the congress at Washington the story of his company's progress in cost-cutting, product improvement and maintenance of profits, in the face of severe competition from Germany, Japan, England, Switzerland, Austria and Belgium. In one instance his company's competitive bid on tenders open to the world for camera lenses still would have been lowest-and profitable-without the allowance made for tariff protection.
The Budget-Mr. Regier
As a manufacturer of photographic equipment, Mr. Percy's firm has had to meet all the post-war hazards to international trade in their most severe form. It has not been content with revolutionary reforms in production techniques at home. It also has engaged in a form of capital export which shares with foreign collaborators the advantages of those reforms. Annual sales of the company are in excess of $40 million-and he still wants congress to go all the way in the Eisenhower freer trade program.
The climax of Mr. Percy's statement was that these results arose directly from the influence of severe competition, and that it is doubtful whether the new techniques of his firm ever would have been developed without that spur. He now frankly welcomes the opening of the United States market to all comers in his field. If he cannot compete in a certain line, he will abandon its production and let the foreign producer have the market. He did just that in one instance, after taking a loss of a million and a quarter dollars. He holds that this course is good for his industry, for the national economy, and for the promotion of profitable foreign trade in general.
Mr. Percy's all-out advocacy of President Eisenhower's program for freer world trade is thus the result of practical experience as a successful world trader in one of the most competitive of all international industries. His story is one of the most impressive documents in the contemporary economic record. It is recommended without reservation to academic and practical economists, government planners of trade and fiscal policies and to industrialists generally. It is a complete answer to the problem of successful competition.
Topic: THE BUDGET
Subtopic: ANNUAL FINANCIAL STATEMENT OF THE MINISTER OF FINANCE