October 26, 2005 – A massive coast-to-coast grassroots campaign has mobilized to fight against the Canadian Bicycle Manufacturers’ Association (“CBMA”) lobby campaign to impose a 30% Surtax on Canadian bicycles.

On September 1, 2005, the Canadian International Trade Tribunal (“CITT”) recommended that the Government of Canada impose another layer of protection to protect the two members of the CBMA – Groupe Procycle Inc. (“Procycle”) and Raleigh Canada Limited (“Raleigh”).

During the past two months, it has become clear that Procycle and Raleigh have failed to develop support for the 30% Surtax. In spite of this lack of public support, the Government of Canada has not formally rejected the CITT’s recommendation, and the CBMA has recently mounted an aggressive backroom lobbying campaign.

The purpose of this Update is to make sure you know why there is such strong opposition to this Surtax, and to alert you to the fact that the CBMA recently hired a high-priced backroom Liberal lobby firm to fight the rising tide of grassroots opposition.

I. The Rising Tide of Grassroots Opposition to the 30% Surtax
It is now clear that Canadians strongly oppose the CBMA Surtax, including the Canadian bicycle industry, bicycle stores, progressive cities, federal politicians, and Procycle/Raleigh customers.

“¦ The Bicycle Trade Association of Canada (BTAC)
The voice of the Canadian bicycling industry spoke out and opposed the 30% Surtax in a Press Release dated October 7, 2005, because it will have a negative impact on Independent Bicycle Dealers (“IBDs”).

To put the Procycle/Raleigh 600 jobs in proper context, BTAC noted that there are about 1,000 IBDs across Canada who employ more than 5,000 people. After extensive polling, BTAC reported that 75% of its members oppose the Surtax because it will have a negative impact.

BTAC opposes the CITT Report because it is “deeply flawed and has not recognized the distinct difference between the IBDs versus Mass Merchandisers (e.g. Wal-Mart and Canadian Tire).” One of BTAC’s members, Mr. Jim Harman, President of Norco Performance Bikes, refused to join Procycle and Raleigh and warned that:

Any tariff of this nature will do nothing but hurt the health and business of a strong, competitive Canadian cycling industry, as well as the IBDs.

“¦ The Independent Bicycle Retailers of Canada (“IBRC”)

On behalf of its IBD members, the IBRC summed up where bicycle stores stand:

Any measure (whether surtaxes or quotas) that has the effect of raising bicycle prices is bad public policy”.

“¦ Canadian Cities

Canadian cities are also registering their concerns. For example, on October 4, 2005, the Vancouver City Council voted to oppose the 30% Surtax for several reasons, including:

“¦ this surtax is on top of existing tariffs of 8.5% to 13% on all imported bicycle duties — as well as anti-dumping duties [which have been imposed since 1992];

“¦ this surtax is strongly opposed by all but two Canadian cycle manufacturers and by nearly 1,000 independent specialty retail bicycle stores across Canada;

“¦ these dealers estimate that this tax could add an estimated $50 to the price of the lowest-cost mass market bicycles, making a first bicycle purchase prohibitively expensive for many children and families;

“¦ cycling is – a transportation priority for the City of Vancouver, – a key factor in reducing youth obesity, – essential for Vancouver meeting its Kyoto Green House Gas targets and a vital element of a healthy city.

“¦ Federal Politicians

A CTV Report dated October 2, 2005 confirmed that:

Consumers, retailers, and now some Liberal MPs are expressing doubts about a federal trade watchdog’s recommendation last month – that Ottawa slap hefty taxes on foreign bicycles to protect Canadian manufacturers.

CTV also reported that senior Quebec Liberal Minister Jean Lapierre did not support the surtax because he is a free trader.

In a Press Release dated October 6, 2005, Conservative Trade Critic, Ted Menzies, called on the government to reject the CITT’s recommended 30% surtax.

As a result of their failure to get the support of mainstream federal parties, Procycle and Raleigh are now trying to use Bloc Quebecois politicians to make their case in Ottawa. In recent exchanges in the House of Commons, Bloc politicians have linked protectionism for bicycles to other industries, including textiles, clothing, and furniture. By doing so, they have highlighted the dangerous protectionist precedent the Government of Canada will establish if it imposes border barriers to protect Procycle and Raleigh. Recently, the CITT recommended that the Government of Canada impose a Surtax on Chinese barbecues. What’s next?

“¦ Procycle and Raleigh Customers

Mass Merchants (e.g., Wal-Mart, Zellers, Costco), the Retail Council of Canada, and Canadian Tire also oppose the 30% Surtax and have launched Judicial Review proceedings in the Federal Court of Appeal. In one of its grounds, Canadian Tire cites:

Å extensive evidence of poor strategic business decisions made by the domestic industry and in particular Groupe Procycle Inc., and the domestic industry’s inability or unwillingness to meet the sourcing and purchasing requirements of its customers, Canadian retailers and Canadian consumers.

As many IBDs can attest, during the past decade, Procycle has tried to introduce and then abandoned numerous bicycle brands, including Peugeot, Look, Velo Sport, Mikado, Oryx and Balfa. The only three brands that Procycle is currently selling are Rocky Mountain, Miele, and CCM. Recently Raleigh took the CCM business from a key Procycle mass merchant customer, Canadian Tire.

II. Procycle’s Backroom Lobbying – and what you can do to stop it

As shown above, Canadians oppose the 30% Surtax — including the Canadian bicycle industry, bicycle stores, our cities, federal politicians, and Procycle/Raleigh customers.

Given this lack of grassroots support, the CBMA has recently resorted to aggressive backroom lobbying. On September 26, 2005, a former Liberal Public Office Holder, Mr. Andre Albinati, advised the federal Lobbyist Registrar that he had been hired by Procycle’s Mr. Raymond Dutil to lobby and arrange meetings on behalf of the CBMA regarding the Surtax.

Mr. Dutil’s paid Liberal lobbyist used to work for former Minister of International Trade, Pierre Pettigrew. He now works for Earnscliffe Strategy Group, an Ottawa lobby firm with close connections to Paul Martin. One of Earnscliffe’s Principals advises potential clients that he has held “a number of senior volunteer positions within the Liberal Party, including serving in such varied capacities as Chief Financial Officer, Chair of a Federal Liberal leadership campaign and as head of transition planning for an incoming Prime Minister.” For more details, see:

http://strategis.ic.gc.ca/app/ec/lrrs/registrationSummary.do;jsessionid=0000mRVbctNkE1BdGEJDJbAJDt6:10hc5g1ed?browse=1&language=eng&regId=8160

http://www.earnscliffe.ca/index.php?page=team

In addition to hiring Liberal lobbyists, Mr. Dutil is giving aggressive interviews and distributing provocative literature. For example, when he was confronted with an IBRC Press Release that observed that Procycle and Raleigh should focus on making better bikes rather than continually coming back to the government for more trade protection, Mr. Dutil told Pedal Magazine that this was “bull****”.

A 10-page “package” issued by Procycle on October 17, 2005, contains several questionable claims. Procycle claims that the CBMA was not calling on the 30% Surtax to impose a price hike and that, somehow, this surtax should have no impact on consumers and retailers. In effect, Mr. Dutil would have us believe that taxes do not increase prices.

Second, the description of the protection the CBMA is seeking indicates there are only 2 layers of protection, whereas there are three – the 8.5%-13% customs tariffs imposed on all bicycle imports, significant antidumping duties imposed since 1992, and the 30% Surtax. Third, the Question & Answer section states that “From 2000 to 2004, bicycle imports from Asia literally exploded, rising from 538,000 to 1,064,000”. However, these figures include significant imports made by Canadian bicycle producers, including Raleigh and Procycle. In the Procycle Group corporate profile, Procycle admits that only 20% of CCM bikes are made in Canada and that it has a new plant in China. Procycle is only able to make old-fashioned steel frames in its Quebec plant, whereas the Canadian market requires aluminium frames.

Fourth, the Question & Answer section refers to a preliminary submission CASBI made to the CITT in which CASBI reserved its right to make further requests regarding exclusions. In its 10-page package, Procycle’s “excerpt” includes CASBI’s preliminary submission, but neglects to include the subsequent submissions which halved the protection threshold from $CDN 225 to $110.

These are just some examples of the tactics that Procycle is now using to try to overcome the strong grassroots rejection of the CBMA’s 30% Surtax. The CBMA lobby campaign is entering its critical phase. It is therefore important to make your views known now.

We do not believe that protected business interests should be able to buy political influence or issue “packages” to thwart grassroots opposition to misguided public policies. If you agree, please share your views with your elected representatives whose contact information may be found at www.casbi.ca.

A recent article in the Financial Post was entitled, Bike protectionism: The small concentrated interests of two Canadian bicycle manufacturers are winning out against those of consumers. We must therefore remain vigilant if we want to stop this outrageous and unjustified third layer of government protection. The beneficiaries will be two unsustainable low-quality mass market assemblers of steel bicycles which have dwindling Canadian content in their products. The losers will be the rest of us. CASBI urges everyone to continue to contact their Member of Parliament, MPP and local council to voice their opposition now. It is time to say that enough is enough!

CASBI consists of the following companies: ACS Distributing (KHS), Argon 18, Asama Cycles (Kuwahara), Banshee Bikes, Cove Bikes, Cybersport (Brodie), Louis Garneau Sports, Marin Bikes Canada, RB Inc. (Jamis), Revolution Sport Supply (Electra), Ten Pack Distribution (McNeil BMX), The Bicycle Group (Kona) and Vellendtech (Fuji).

For more information, contact your CASBI member supplier or visit www.casbi.ca.