Amid a worldwide glut of U.S. used clothes, Toronto businessmen like Farokh Gahadali have carved out a profitable niche. He and dozens of other immigrant entrepreneurs buy tens...

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SCARBOROUGH, Ontario — Amid a worldwide glut of U.S. used clothes, Toronto businessmen like Farokh Gahadali have carved out a profitable niche.

He and dozens of other immigrant entrepreneurs buy tens of millions of pounds of used clothing from the United States for less than 20 cents a pound, sort the garments in industrial parks around Toronto, then ship the items for resale in Africa, Asia and Latin America.

The clothes are sorted into as many as 400 categories — by garment type, fiber and quality — to reap the most profit. Polyester dresses are shipped to Pakistan, baby clothes and cotton trousers to the Congo, winter coats to Albania and jeans to Japan.

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“You could write a book about the used-clothing industry” in Toronto, said Gahadali, an executive with H. Salb International. “There’s a whole infrastructure living off this business,” from sorters to truckers to accountants to used-clothing brokers.

In one of the widening ripples of the new global economy in clothing, Toronto has come to dominate the North American sorting industry.

At the same time, it has driven out of business up to 40 percent of the U.S. firms that once did the same thing. Thousands of American jobs have been lost.

The last major Philadelphia clothing sorter, Dumont Export, ceased its processing operations in 2000, eliminating about 120 jobs.

The business, said owner Jerry Usatch, “has shifted to where the companies have advantages in labor.”

Today that’s Canada; tomorrow it could be somewhere else.

JONATHAN WILSON / KNIGHT RIDDER NEWSPAPERS

Veteran Goodwill worker Melvin Brown moves containers of clothes to the feeder of a baling machine in Wilmington, Del., last month. The U.S. used clothes are sold for less than 20 cents a pound to Canadian entrepreneurs who resell them to developing countries.

How Toronto became the North American center of the used-clothing industry is partly a story of how this dynamic Canadian city has transformed itself in the past two decades.

Of the Toronto area’s 5 million people, about 45 percent are immigrants — one of the highest percentages of any major city in the world, according to Canadian officials.

Canadian authorities began to loosen immigration laws in the 1970s as birth rates among native Canadians declined and fears arose of an eventual labor shortage, said Larry Bourne, an immigration expert at the University of Toronto.

Laws changed

Millions from Asia, Africa and the Caribbean poured into Canada’s cities, providing the entrepreneurial energy, the abundant low-wage labor and, maybe most important, the contacts in the developing world to run clothing-sorting businesses, experts say.

“Toronto is now the multicultural center of North America,” said Bourne, calling the changes “one of the most dramatic social transformations anywhere.”

Parts of the city are filled with ethnic restaurants, movie theaters playing Indian “Bollywood” hits, foreign-language newspapers, Asian supermarkets and cultural centers.

Owners of the more than 15 sorting companies that have sprung up in the immigrant working-class suburb of Scarborough, east of Toronto, were reluctant to discuss details of their operations.

“Most of the graders here are of Indian origin and they are fond of making money and they don’t want to share information,” explained Asaf Nasser, owner of Ontex Clothing.

The companies, with names such as Global Textile Exporters, Fripes Export, Alysco International and Cantex, operate in old factories or warehouses. They are among 50 such businesses in the Toronto area with an estimated 5,000 to 10,000 workers, say U.S. and Canadian experts.

According to U.S. government trade figures, used-clothing exports to Canada soared more than 613 percent over the past decade to 190 million pounds in 2003 as Americans — enjoying plummeting prices on new imported clothes — bought ever more quantities.

That’s about 25 percent of the nation’s clothing exports — more than 4,000 tractor-trailer loads a year.

But growth of the clothes-sorting business also has brought concerns to the Toronto area. The industry is highly competitive and deals mostly in cash transactions.

A year ago, Canadian authorities at Toronto’s airport confiscated almost $200,000 in cash found in the carry-on bags of a Sri Lankan businessman traveling from London.

While law-enforcement officials suspected that the man was laundering the money, he said he operated a clothing-sorting company in Toronto. The money, exchanged in a London pub, was payment for a shipment of clothing to Kenya. After a trial, the Canadian government returned his money.

Then last spring, an immigrant workers-rights group staged a protest outside Northstar Trading, a used-clothing sorter in the Toronto suburb of Etobicoke for failing to pay about 20 immigrant laborers their wages.

Labor practices faulted

The episode brought the used-clothing industry to the attention of authorities. The Ontario Ministry of Labour has ordered Northstar, which has closed, to pay the back wages and the order has been appealed, said government spokeswoman Belinda Sutton.

U.S. clothing sorters have suffered from foreign competition.

“A lot of the business has shifted north of the border,” said Bernard Brill, executive vice president of the Secondary Materials and Recycled Textiles association in Bethesda, Md. He notes that an Environmental Protection Agency official told him a truckload of used clothing destined for a recycler ultimately supports 22 jobs.

In recent years Brill has seen his U.S. membership dwindle as Toronto companies took a larger share of the sorting business.

Where the annual convention once brought 50 to 60 clothing-processing companies, Brill said, only 10 to 12 companies showed up at this year’s convention.

The organization is pushing U.S. trade officials to negotiate with other countries that have erected trade barriers against the rising tide of used clothing from North America.

Countries such as Mexico, Venezuela and Nigeria say dirt-cheap used clothing wrecks their apparel-manufacturing industries, weakening domestic economies. But advocates of open trade say used garments benefit poor people who can’t afford new ones.

“At a time when the nation is negotiating all these new free-trade agreements, the status of used clothing is left off the table because officials say the matter is too sensitive to discuss,” Brill said.

“We’re opening our doors and we’re putting thousands of our people out of work in apparel plants in North Carolina and places like that, but other countries are not open to our products,” he said.

Ed Stubin, president of TransAmericas Trading in New York, one of the last big clothing graders in the Northeast, criticizes nonprofit organizations for selling excess used clothing directly to Canada or other countries for sorting instead of creating jobs here.

Goodwill and Salvation Army officials say they sell where they can get the best price.

Ironically, many Toronto sorters now think their days are numbered because of a weak U.S. dollar and a stronger Canadian one.

Because their global-clothing transactions are in U.S. dollars, their sales revenue translates into fewer and fewer Canadian dollars to pay their business expenses at home. Last March, the Toronto sorters got $1.40 Canadian for each U.S. dollar. By late November, they were getting only $1.17.

Toronto sorters have two choices: Increase the volume of sorted clothing to earn more revenue, or close down.

The 71-year-old owner of Cantex, a clothing sorter in Scarborough, said it’s likely his company will close for six months this year as he waits “to see what happens” to the U.S. dollar.

Others may do the same. “Right now people are barely hanging on,” Gahadali said. “This is not a good time for Canadian sorters.”

Meanwhile, sorters in the Houston area are expanding. They don’t have the currency problem — and they have access to cheaper Mexican labor.