There have been two outstanding developments in international trade policy during the past twenty years—the multilateral dismantling of trade barriers under the General Agreement on Tariffs and Trade, which has been the agency for several rounds of successful tariff negotiations since its inception in 1947, and the establishment of the European Economic Community and the European Free Trade Association in the late 1950s. In a period of reconstruction and then sustained growth, these policies have helped the participating nations of the Atlantic area to experience the benefits of international specialization and expanding trade. The wealth generated by trade and...

Furniture-making is Canada’s fifteenth-largest manufacturing industry. It employs more than thirty-three thousand people, with a payroll in excess of $121 million.

The furniture industry¹ is characterized by a high degree of dependence on domestic markets; less than 3 percent of total production is normally exported.² Despite the high existing tariff (25 percent), Canadian imports continue to rise in dollar volume and in percentage of total retail sales; the share of domestic market held by Canadian manufacturers is currently 94 percent, but it is declining by almost one percent per year. Both rising imports and limited exports suggest that with any...

Price comparisons are particularly difficult in furniture. Two articles may have the same outward appearance but be built of components of entirely different quality. For example, one may be solid wood, while the other may be a veneer. Two sofas may have the same shape, but the upholstering may be different in grade and composition.¹

In an effort to minimize this source of error, price comparisons were limited to products of two companies, manufacturing identical items on both sides of the border. Executives of these companies indicated that they used similar engineering specifications and wood finishes; to the best of...

If Canadian and U.S. tariffs on all manufactured goods were to be abolished, many of the higher costs of production in Canada would be eliminated. We now turn to the even more critical question: “Would the Canadian industry be eliminated?”

To answer this, it is necessary to consider explicitly whether free trade would allow Canadian cost reductions to competitive U.S. levels. Higher Canadian input costs due to protection (D_mand C_d) would automatically and immediately disappear. Nor could higher Canadian costs due to the restricted market (U) continue. It is evident from Figure 1 that a Canadian industry burdened by...

If North American free trade were extended to include Europe and Japan, case goods would be the only furniture items substantially affected. Even in such a broader free trade area, the survival of the Canadian industry would remain contingent on its ability to face competition with U.S. producers in North American markets. Therefore, Canada’s prospects under North Atlantic free trade must be projected from the best available estimate of the outcome of Canadian competition with the United States. Specifically, we must consider the two extreme limits (defined in chap. 3, section 3) within which North American adjustment is almost certain...

The major benefit of free trade would be that the Canadian consumer would pay less for all purchased furniture which is now domestically produced. (He would also pay less for imported furniture; but this would be offset by the equal burden he would bear as a taxpayer, since the import duty on furniture would no longer be collected by the Canadian government.¹) The factory price of domestic furniture production in 1962 in Canada was $363 million; deducting exports of $3 million leaves a balance of $360 million. This domestic product would have cost Canadians an estimated 15.3 percent less² under...

In the preceding sections, the effects on the furniture industry of across-the-board free trade have been examined. In this section, a number of alternative policy options are considered; each will be compared with free trade (i.e., unrestricted, across-the-board tariff elimination), on the one hand, and present protection, on the other.

With a one-quarter to one-third reduction in the present 25 percent Canadian tariff, the price of imports would fall by 6 to 8 percent. Substantial gains would go to the consumer because his present import purchases would cost less. However, this does not represent a “social gain,” since it would...

Timing and adjustment assistance would be important determinants of the final success of any trade-liberalization program. In this section these issues are considered, and a proposal is set out for staging tariff reductions to unrestricted free trade.¹

While the consumer wishes as rapid tariff reductions as possible, the issue is not as clear for the producer. Although some producers may favour rapid tariff reductions (e.g., to reduce input costs and open U.S. markets), some may not. Many may prefer delays to provide time for at least partial depreciation of any Canadian machinery and equipment that has been installed in the...