REPORT TO THE MINISTER OF FINANCE
REQUEST FOR TARIFF RELIEF BY PEERLESS CLOTHING INC. REGARDING DYED
WOVEN FABRIC OF RAYON
JANUARY 24, 2001
TABLE OF CONTENTS
Request No.: TR-2000-001
Patricia M. Close, Presiding Member
Peter F. Thalheimer, Member
Zdenek Kvarda, Member
Paul R. Berlinguette
Counsel for the Tribunal:
Claudette D. Friesen
Address all communications to:
Canadian International Trade Tribunal
Standard Life Centre
333 Laurier Avenue West
On July 14, 1994, the Canadian International Trade Tribunal (the
Tribunal) received terms of reference from the Minister of Finance
(the Minister) pursuant to section 19 of the Canadian
International Trade Tribunal Act.
The Minister directed the
Tribunal to investigate requests from domestic producers for tariff
relief on imported textile inputs for use in their manufacturing
operations and to make recommendations in respect of those requests
to the Minister.
On July 17, 2000, pursuant to the Minister's reference, the
Tribunal received a request from Peerless Clothing Inc. (Peerless),
of Montréal, Quebec, for the removal, for an indeterminate period
of time, of the customs duty on importations, from all countries,
of a dyed woven fabric of rayon, for use as lining in the
manufacture of men's suits, jackets, blazers or vests (waistcoats).
Peerless also sought tariff relief retroactive to February 15,
2000, the date on which the first shipments of the goods were
expected to arrive.
On September 1, 2000, being satisfied that the request was
properly documented, the Tribunal issued a notice of commencement
which was distributed to known interested
parties. The fabric under investigation was described in the notice
as "woven fabric, dyed, solely of textured cuprammonium rayon
filament yarns in one direction and textured viscose rayon filament
yarns in the other direction, weighing less than 100
g/m2, of tariff item No. 5408.22.29, for use as lining
in the manufacture of men's suits, jackets, blazers or vests
(waistcoats) (the subject fabric)". Peerless asked the Tribunal to
conduct its investigation expeditiously. The Tribunal, however, was
not persuaded that the circumstances constituted critical
circumstances, but indicated that, barring any opposition to the
request, it would conduct its investigation in the most expeditious
As part of the investigation, the Tribunal's research staff sent
questionnaires to potential producers of fabrics identical to or
substitutable for the subject fabric. A request for information was
also sent to potential importers of the subject fabric. A letter
was sent to the Canada Customs and Revenue Agency (CCRA) requesting
a complete description of the physical characteristics of the
sample submitted by Peerless, an opinion on whether the tariff
relief is administrable, as well as suggested wording should tariff
relief be recommended. Letters were also sent to a number of other
government departments requesting information and advice.
A staff investigation report summarizing the information
received from these departments, Peerless, questionnaire
respondents and other interested parties was provided to those who
had become parties to the proceedings by filing notices of
appearance in the investigation. Following distribution of the
staff investigation report, Peerless and the Canadian Textiles
Institute (CTI) filed submissions with the Tribunal.
The subject fabric, imported from Germany, is used as lining in
the manufacture of men's suits, jackets, blazers and vests.
Peerless performs all the cutting, sewing, finishing and quality
control of end products at its facility in Montréal.
As of January 1, 2000, the subject fabric, classified for
customs purposes under tariff item No. 5408.22.29 of the
schedule to the Customs Tariff,3
is dutiable at 16 percent
ad valorem under the MFN tariff and is duty free under the
U.S. tariff, the Mexico tariff, the Canada-Israel Agreement tariff
and the Chile tariff. The MFN tariff will remain at 16 percent
ad valorem until December 31, 2002, and then will be reduced
to 15 percent ad valorem and 14 percent ad valorem on
January 1, 2003, and January 1, 2004, respectively.
Peerless has been manufacturing men's apparel since 1919. The
company is privately owned and employs in excess of 2,000 people.
Following the Canada-United States Free Trade Agreement
(FTA), Peerless established itself as an international
manufacturing and marketing company, with a significant presence in
the U.S. market. In this respect, Peerless has signed exclusive
licence agreements to market well-known brand names, such as Chaps
by Ralph Lauren, Ralph by Ralph Lauren and DKNY (Donna Karan New
In its request for tariff relief, Peerless claimed that there
are no identical or substitutable fabrics available from Canadian
textile producers. Peerless alleged that no one in Canada makes a
blended woven fabric of cuprammonium rayon filament yarns in one
direction and viscose rayon filament yarn in the other direction
and indicated that, as established in Request No.
no one in Canada makes fabrics of either 100
percent cuprammonium rayon or 100 percent viscose rayon. Peerless
stated that some Canadian manufacturers make lower-quality linings,
i.e. acetate or acetate-cuprammonium fabrics, but that these
fabrics cannot be substituted for the subject fabric because they
shrink, expand or lose structural integrity during Peerless's
various manufacturing processes. According to Peerless, the subject
fabric provides a better quality lining.
Peerless stated that this request was triggered by a recent U.S.
action to deny preferential tariff treatment to men's apparel
containing linings made with imported 100 percent viscose rayon.
Previously, men's apparel manufactured in Canada with such fabrics
qualified as NAFTA origin goods. Peerless is contesting this U.S.
action, but, in the meantime, has had to switch to the subject
fabric in order to maintain NAFTA origin status for its apparel
exported to the United States. Peerless indicated that exports to
the United States represent about 95 percent of its sales and, as
the price competition is fierce, the ability to maintain NAFTA
status is critical to its continued success.
Peerless submitted that the removal of the customs duty on
imports of the subject fabric would reduce its costs, allow it to
compete more effectively and enable it to maintain or increase
sales. As a result, Peerless indicated that it would be able to
maintain or increase employment and production. In addition,
Peerless argued that tariff relief would offset some of the
potential problems associated with the modifications to the duty
In this connection, Peerless indicated that
it no longer gets a drawback for the imported fabric that it uses
for its apparel exported, under tariff preference levels
to the United States and that, as such,
these provisions are seriously damaging to this export
In its response submission of November 23, 2000, Peerless
reiterated that, based on the evidence, fabrics identical to or
substitutable for the subject fabric are not produced in Canada. In
this regard, Peerless indicated that the CTI, Consoltex Inc.
(Consoltex) or Monterey Textiles 1996 Inc. (Monterey) did not
present any evidence in the form of samples and statistics to
substantiate its claim that lining fabrics available in Canada can
be used by Peerless.
With respect to the CTI's reference that the Balson-Hercules
division of Consoltex, located in the United States, produces
fabrics substitutable for the subject fabric, Peerless stated that
there is no evidence to support this claim. Moreover, Peerless
pointed out that Balson-Hercules is not a Canadian textile
producer; in this connection, Peerless indicated that, in Request
No. TR-95-009, the Tribunal held that the potential availability of
fabrics produced outside Canada is not relevant and does not fall
within the Textile Reference Guidelines. In a letter dated
October 18, 2000, Peerless advised the Tribunal that discussions
were held with representatives of the lining division of Consoltex.
Peerless stated that nothing came of those discussions because the
cuprammonium rayon-viscose rayon blend is not available.
Peerless emphasized that its manufacturing process does not
allow it to use linings made of acetate or acetate blends,
including blends of acetate and cuprammonium rayon and that the
cuprammonium rayon-viscose rayon lining is of a better quality than
acetate or acetate blend linings. Peerless indicated that it
purchases the subject fabric because it is simply not available in
Canada. Moreover, Peerless pointed out that, in Request No.
TR-95-009, the Tribunal established that acetate lining fabrics, as
well as lining fabrics made of blends of acetate and cuprammonium
rayon or viscose rayon, are not substitutable for fabrics made of
100 percent cuprammonium rayon or 100 percent viscose rayon.
Peerless submitted that the evidence establishes that tariff
relief would have no adverse effects on the Canadian textile
industry. In this regard, it stated that the evidence of Weston
Apparel Manufacturing Inc. (Weston) is that it will continue to
purchase acetate linings from Monterey.
Finally, Peerless submitted that retroactive tariff relief ought
to be granted to February 15, 2000, because it has been thwarted by
the CTI in its attempts to obtain speedy relief through the
Department of Finance. Peerless indicated that, subsequently, no
member of the CTI responded to the Tribunal's questionnaire
concerning Peerless's request and that the CTI presented no
evidence of any Canadian production or potential production of the
In response to the Tribunal's questionnaire, Weston, of Toronto,
Ontario, a manufacturer of men's suits, jackets and trousers,
supported Peerless's request for tariff relief. Weston stated that
identical or substitutable fabrics are not available from domestic
textile manufacturers. Weston indicated that it currently purchases
linings made of 100 percent acetate from Monterey. It stated that
the subject fabric is of superior quality and that tariff relief,
should it be granted, would not affect Weston's purchases of
linings from Monterey.
Consoltex, of Ville Saint-Laurent, Quebec, indicated that
Balson-Hercules, its men's lining division located in the United
States, had some discussions with Peerless regarding the
possibility of supplying Peerless with the subject fabric. No
further information was provided by Consoltex concerning Peerless's
request for tariff relief.
Monterey, of Drummondville, Quebec, opposed the request for
tariff relief claiming that it produces fabrics for use as linings
in the manufacture of men's apparel. However, Monterey decided not
to file a response to the Tribunal's questionnaire. Monterey stated
that, although it is an established firm and a reliable supplier of
quality linings, Peerless has consistently refused to do business
In its submission of November 15, 2000, the CTI indicated that
Consoltex and Monterey opposed Peerless's request. The CTI
indicated that Consoltex's Balson-Hercules division produces
cuprammonium and acetate-cuprammonium linings and that Monterey
also produces acetate linings, which are substitutable for the
subject fabric. According to the CTI, the linings produced by
Consoltex and Monterey are used in men's wear that competes
directly with men's apparel produced by Peerless.
The CTI pointed out that the NAFTA rules of origin do not
disallow (and never have disallowed) preferential treatment for
men's apparel using 100 percent cuprammonium rayon filament
linings. The CTI stated that these linings are specifically
excluded from note 1 of the chapter 62 NAFTA rules of origin, which
requires that "visible lining fabrics" be woven in a NAFTA country.
Moreover, the CTI indicated that suits made with imported 100
percent viscose rayon linings are not (and never have been)
eligible for preferential treatment under NAFTA. The CTI stated
that such linings have to be woven in a NAFTA country in order to
fulfil NAFTA's "visible lining fabrics" rule spelled out in note 1
of the chapter 62 NAFTA rules of origin.
The CTI submitted that Peerless's request for tariff relief is
not based on a demand by U.S. consumers for particular
physical or performance characteristics featured in cuprammonium
rayon-viscose rayon blend linings. Rather, according to the CTI,
Peerless's request is based on the fact that it had to switch to
the subject fabric in order to maintain NAFTA origin status for its
apparel exported to the United States. The CTI stated that the use
of cuprammonium rayon-viscose rayon blend linings would eliminate
the need for Peerless to use scarce NAFTA TPLs for suits exported
to the United States. In this regard, the CTI indicated that the
use of a 55 percent cuprammonium rayon-45 percent viscose rayon
blend would allow Peerless to take advantage of the NAFTA exception
for cuprammonium rayon filament fabrics. The CTI pointed out that,
because cuprammonium rayon predominates by weight, the fabric is
classified under the tariff items specifically exempted from the
visible lining requirements.
The CTI stated that Peerless has consistently refused to buy
linings from Canadian weavers. In this connection, the CTI
indicated that recent attempts by Consoltex's Balson-Hercules
division to supply Peerless were fruitless, even though
Balson-Hercules is a reputable and highly regarded supplier of
linings to the men's wear trade in the United States. Moreover, the
CTI indicated that Peerless continually refuses to consider
Monterey's acetate linings, even though Monterey supplies these
linings to other equivalent quality men's apparel producers. The
CTI submitted that, as a result, it is impossible for Canadian
fabric producers to provide evidence of sales of identical linings
to men's wear customers.
The CTI stated that, while Peerless chooses not to purchase
linings from Consoltex or Monterey, other men's apparel
manufacturers do. The CTI indicated that these apparel
manufacturers compete in the same marketplace as Peerless and,
therefore, should not be penalized with respect to their
competitive position vis-à-vis imported linings.
The Department of Foreign Affairs and International Trade
(DFAIT) informed the Tribunal that Canada does not maintain quota
restraints on the subject fabric.
The CCRA indicated that there would be no additional costs over
and above those incurred by it to administer the tariff relief,
should it be granted.
The Minister's terms of reference direct the Tribunal to assess
the economic impact on domestic textile and downstream producers of
reducing or removing a tariff and, in so doing, to take into
account all relevant factors, including the substitutability of an
imported fabric for a domestic fabric and the ability of domestic
producers to serve the Canadian downstream industries.
Consequently, the Tribunal's decision on whether to recommend
tariff relief is based on the extent to which it considers that
such tariff relief would provide net economic gains for Canada.
Peerless's request covers a blended cuprammonium rayon-viscose
rayon fabric for use as lining in the manufacture of certain men's
apparel. Peerless claimed that there is no domestic production of
fabrics identical to or substitutable for the subject fabric. This
request is somewhat similar to Request No. TR-95-009 filed by
Peerless in May 1995. That case covered importations of fabrics
made of either 100 percent cuprammonium rayon or 100 percent
viscose rayon for use as lining in the manufacture of selected
men's apparel. On April 12, 1996, the Tribunal, being satisfied
that there was no Canadian production of identical or substitutable
fabrics, recommended to the Minister that tariff relief be granted
on importations of these fabrics. The Tribunal notes that Order in
Council P.C. 1996-13527
dated August 28, 1996, amended
the schedule to the Customs Tariff, inter alia, by
removing the customs duty on the importation of: (1) woven fabrics,
solely of cuprammonium rayon filament yarns; and (2) woven fabrics,
solely of viscose rayon filament yarns, both measuring less than
200 decitex, of a weight not exceeding 100 g/m2, of
subheading No. 5408.21 or 5408.22, for use in the manufacture
of men's suits, jackets, blazers and vests (waistcoats).
The present request for tariff relief is for a fabric made of
the constituent components covered by Order in Council P.C.
1996-1352. In its submission, the CTI indicated that Consoltex's
Balson-Hercules division produces cuprammonium and
acetate-cuprammonium linings and that Monterey also produces
acetate linings, which are substitutable for cuprammonium
rayon-viscose rayon linings. However, the Tribunal notes that
Balson-Hercules is not a Canadian textile producer, given that it
is located in the United States. The Tribunal is clearly directed
by its terms of reference to make recommendations that "maximize
net economic gains to Canada". Accordingly, the Tribunal takes the
view that the potential availability of fabrics produced in the
United States is not relevant. This viewpoint is consistent with
its decision on Request No. TR-95-009.
With respect to acetate linings produced by Monterey, the
Tribunal notes that the weight of the evidence in Request No.
TR-95-009 indicated that such linings are not substitutable for
fabrics of 100 percent cuprammonium rayon or 100 percent
viscose rayon. In the present case, the parties opposing the
request for tariff relief did not provide the Tribunal with any
solid evidence to indicate that the situation is any different with
respect to the blended cuprammonium rayon-viscose rayon fabric. The
Tribunal has stated on a number of occasions in the
that it is the responsibility of the
domestic producers to provide evidence, not just assertions or
allegations, of their ability to produce identical or substitutable
fabrics. On this point, the Tribunal notes that domestic producers
decided not to file a response to the Tribunal's questionnaire
concerning this request for tariff relief. Accordingly, the
Tribunal concludes that the lining fabrics produced in Canada are
not substitutable for the subject fabric.
The CTI stated that Peerless has consistently refused to buy
linings from Canadian producers, while other men's apparel
manufacturers do. The Tribunal notes that Peerless clearly
explained in its request that domestic linings made of acetate or
acetate blends, including blends of acetate and cuprammonium rayon,
are not compatible with the manufacturing processes used by
Peerless. The Tribunal also notes that Weston, a Canadian
manufacturer of men's suits, jackets and trousers, stated that
identical or substitutable fabrics are not available from domestic
textile manufacturers. Weston indicated that it currently purchases
linings made of 100 percent acetate from Monterey, but that the
subject fabric is of superior quality. The Tribunal takes note of
the fact that, should tariff relief be granted, Weston would
continue to purchase linings from Monterey.
One of the arguments advanced by Peerless in its request for
tariff relief pertained to a recent U.S. action to deny
preferential tariff treatment to men's apparel containing linings
made with imported 100 percent viscose rayon; in other words,
these goods no longer qualify as NAFTA origin and, upon exportation
to the United States, would attract significant duties.
Consequently, in order to regain its preferential tariff treatment,
Peerless switched to the subject fabric. However, the CTI indicated
that suits made with imported 100 percent viscose rayon lining have
never been eligible for preferential treatment under NAFTA. The
Tribunal is of the view that whether or not finished apparel
containing 100 percent viscose rayon lining can qualify for tariff
preferential treatment in the United States is irrelevant to the
analysis. The essential fact of this case still remains that
fabrics identical to or substitutable for the subject fabric are
not produced in Canada.
Other than the corresponding duty revenues forgone by the
government, the Tribunal does not believe that there will be any
direct commercial costs associated with the removal of the customs
duty on the importation of the subject fabric. On the basis of the
information available to the Tribunal, tariff relief would result
in yearly benefits to Peerless in excess of $100,000. In addition,
tariff relief would provide benefits to users in the form of cost
reductions, which could translate into the hiring of new employees,
the purchase of new equipment and the provision of further spin-off
benefits for local support industries. In summary, the Tribunal
finds that the tariff relief requested by Peerless would provide
net economic gains to Canada.
As noted earlier, Peerless submitted that retroactive tariff
relief ought to be granted to February 15, 2000, the date on which
the first shipments of the goods were expected to arrive, because
it has been thwarted by the CTI in its attempts to obtain speedy
relief through the Department of Finance. While the terms of
reference governing the textile tariff relief program are silent on
the issue of the retroactive application of duties, the Tribunal
clearly stated in the Textile Reference Guide that it will
not consider any request for retroactive tariff relief other than
in the most exceptional circumstances.9
While the Tribunal is
of the opinion that a producer or an association of producers
should exert its right to oppose a request for tariff relief with
circumspection and not without well-founded reasons or chances of
being successful, the Tribunal considers that this ground, in
itself, does not constitute exceptional circumstances, as envisaged
by the guidelines.
In light of the foregoing, the Tribunal hereby recommends to the
Minister that tariff relief be granted, for an indeterminate period
of time, on importations from all countries, of woven fabric, dyed,
solely of textured cuprammonium rayon filament yarns in one
direction and textured viscose rayon filament yarns in the other
direction, weighing less than 100 g/m2, of subheading
No. 5408.22, for use as lining in the manufacture of men's suits,
jackets, blazers or vests (waistcoats).
Patricia M. Close
Patricia M. Close
Peter F. Thalheimer
Peter F. Thalheimer
1 . R.S.C.
1985 (4th Supp.), c. 47.
2 . C.
3 . R.S.C.
1985 (3d Supp.), c. 41.
Peerless Clothing (12 April 1996) (CITT).
5 . Under
the North American Free Trade Agreement, a duty refund
system called "the lesser-of concept", effective January 1, 1996,
replaced the drawback regulations for Canada-United States trade.
Under this concept, the refund is equal to one of the following
amounts, whichever is less:
(a) the duties paid on the goods imported into Canada; or
(b) the duties paid on the finished goods when exported to the
However, under Canadian TPLs, formerly known as tariff rate quotas
under the FTA, items receive preferential NAFTA tariff treatment
despite their incorporation of non-North-American (i.e.
6 . The
subject fabric is used in apparel exported as goods of NAFTA
origin, as well as apparel exported under TPLs (i.e. non-NAFTA
Customs Duties Reduction or Removal Order, 1988, amendment,
C. Gaz. 1996.II.2810.
See, for example, Camp Mate (10 June 1996), TR-95-051
(CITT); Lady Americana Sleep Products (12 February
1997), TR-95-064 and TR-95-065 (CITT); Cambridge Industries
(12 February 1999), TR-98-001 (CITT); Helly Hansen Canada
(19 March 1999), TR-97-015, TR-97-016 and TR-97-020 (CITT);
Jones Apparel Group Canada (8 July 1999), TR-98-017 (CITT);
Tribal Sportswear (24 August 1999), TR-98-019 (CITT); and
JMJ Fashions (27 October 2000), TR-99-008 (CITT).
Textile Reference Guide (October 1996) at 9.
[Table of Contents
Initial publication: January 23, 2001