REPORT TO THE MINISTER OF FINANCE
REQUEST FOR TARIFF RELIEF BY PEERLESS CLOTHING INC. REGARDING
MAY 5, 2003
TABLE OF CONTENTS
Request No. TR-2002-002
Patricia M. Close, Presiding Member
Zdenek Kvarda, Member
Ellen Fry, Member
Paul R. Berlinguette
Counsel for the Tribunal:
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 reference1
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 September 10, 2002, 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 needleloom felt for use as chest pieces in the manufacture of
men's jackets (including suit jackets) and blazers. Peerless also
sought tariff relief retroactive to September 1, 2002.
On October 22, 2002, 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 "needleloom felt, not impregnated, coated, covered or laminated,
containing 10 percent or more of wool or fine animal hair, of
subheading No. 5602.10, for use as chest pieces between the lining
and outer fabric in the manufacture of men's jackets (including
suit jackets) and blazers" (the subject fabric).
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 users and 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
requested tariff relief would be administrable and suggested
wording to describe the fabric, should tariff relief be
recommended. Letters were also sent to the Department of Foreign
Affairs and International Trade (DFAIT) and the Department of
Industry requesting information that could assist the Tribunal in
A staff investigation report summarizing the information
received from these departments, Peerless, questionnaire
respondents and other interested parties was provided to those that
had become parties to the proceedings by filing notices of
appearance in the investigation. Following distribution of the
staff investigation report, Peerless filed a submission with the
Tribunal on January 24, 2003.
Given that there was sufficient information on the record, the
Tribunal decided that a public hearing was not required for this
On February 11, 2003, the Tribunal received a late submission
from Doubletex. The Tribunal accepted the document and allowed
Peerless to file a reply submission, which it did on March 7,
Although the request for tariff relief covers fabric imported
from all countries, Peerless currently imports only small amounts
of the subject fabric from Italy. The fabric sample submitted with
Peerless's request for tariff relief was a needleloom felt made
from a blend of 55 percent polyester staple fibres, 30 percent
rayon staple fibres and 15 percent wool or other fine animal hair.
The felt weighed 80 g/m2 and was not impregnated,
coated, covered or laminated.
The needleloom felt is used as a chest piece insert between the
lining and the outer fabric of men's jackets and blazers. The
purpose of the chest piece is to provide a crisp, smooth and
enduring silhouette between the shoulders and to allow the garment
to move with the wearer. During the production process, the subject
fabric is spread, cut and sewn in place as part of the finished
garment. No operations are subcontracted.
As of January 1, 2003, the subject fabric, classified for
customs purposes under classification No. 5602.10.90.90 of the
schedule to the Customs Tariff,4
is dutiable at 15 percent
ad valorem under the MFN Tariff, at 10 percent ad
valorem under the General Preferential Tariff, and at 12
percent ad valorem under the Costa Rica Tariff and is duty
free under the United States Tariff, the Least Developed Country
Tariff, the Mexico Tariff, the Canada-Israel Agreement Tariff and
the Chile Tariff. The MFN tariff will be reduced to 14 percent
ad valorem on January 1, 2004.
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 submitted that no
Canadian manufacturer produces needleloom felt made of a blend of
polyester, rayon and wool fibres for use as chest pieces and that
there are no identical or substitutable fabrics available from
Canadian textile producers. Peerless stated that it is not able to
purchase this fabric in Canada because of the wool content.
Peerless indicated that the wool contained in the subject fabric
gives a jacket a better fit, thereby improving the overall quality
of the garment. Peerless also indicated that the fabric that it
currently uses is made of a polyester blend and is not as good as
it could be, given the ever-improving Peerless quality
Peerless stated that competition in the men's apparel industry
is global in scale and fierce. Peerless indicated that the removal
of the customs duty on imports of the subject fabric would allow it
to stay competitive in the market and possibly increase its market
share in the domestic and foreign markets. Peerless also stated
that any cost savings would be passed on to the consumer.
Peerless indicated that, if the market demands garments that
have the features that are created by the subject fabric, it must
produce such garments or face a decline in sales. Peerless stated
that it has certain cost and markup parameters that must be
obtained in order for it to remain at its ultimate price point.
Peerless also indicated that, if it were unable to satisfy the
market demand for such apparel, this demand would be supplied by
foreign imports of finished goods.
Peerless indicated that, because of the North American Free
it no longer gets a drawback6
imported inputs that it uses for its apparel exported, under
Canadian TPLs, to the United States and that this situation damages
its export business. According to Peerless, tariff relief would
assist it in overcoming the elimination of duty drawback.
In its submission of January 24, 2003, Peerless submitted that
the evidence on the record shows that no Canadian textile
manufacturer makes identical fabrics. Peerless stated that some of
the samples provided by Texel Inc.7
contain wool, but are only prototypes and,
accordingly, are not evidence of actual production. Moreover, they
cannot be used to make chest pieces because excessive fibre
occurs and they are not uniform in
consistency because they have thick and thin spots, i.e. there are
more fibres in some areas than in others. Peerless also stated that
neither Texel nor Doubletex indicated that these felt fabrics could
be made in other colours, including black.
Peerless submitted that the fact that Doubletex is not an
existing supplier of identical or substitutable fabrics is
confirmed by Doubletex's evidence that it is only prepared to make
the investments to actually produce the felt if it obtains an order
from Peerless. Peerless stated that, although Texel and Doubletex
have provided some evidence of a capability to produce fabrics that
are similar to the subject fabric in fibre content, they have not
provided any evidence to establish that they can make an acceptable
product available in reasonable commercial quantities to supply the
market demand for the subject fabric in Canada. Peerless indicated
that, based on the evidence, Texel does not concentrate on the
apparel sector and that Doubletex focuses on sectors other than
With respect to substitutability, Peerless submitted that the
evidence shows that no Canadian textile manufacturer produces and
supplies needleloom felt that is substitutable for the subject
fabric. In this regard, Peerless stated that the two samples
submitted by Doubletex and Texel, that purport to be identical to
the subject fabric, because of their fibre content, are actually
not identical in all material respects and are not substitutable
for the subject fabric due to their defects in consistency and
excessive fibre migration. Peerless stated that two other
submitted by Texel, are not substitutable
because they do not contain wool, which is critical to achieve the
feel that is demanded by the men's fashion industry in high-quality
jackets. Peerless also stated that the fourth sample11
by Texel does not contain polyester and is very stiff.
Peerless submitted that, as set out in previous Tribunal
decisions, the fashion industry operates on a lower degree of
substitutability than other, non-fashion, textile-using industries.
In this respect, Peerless stated that the evidence of Texel and
Doubletex does not establish that their samples meet the
specifications of the subject fabric so as to render them identical
or substitutable in any manner. In addition, Peerless indicated
that Texel and Doubletex have not met the requirement set out in
Tribunal jurisprudence that they provide evidence of actual orders
and sales of fabrics identical to or substitutable for the subject
fabric. Peerless also submitted that Doubletex has never produced a
felt for this sector of the market and, therefore, would lose no
sales. Peerless submitted that Texel has only one customer for
chest piece fabric and that the sales of the now-outdated fabric
are miniscule when compared to Texel's total sales.
Finally, Peerless submitted that, in the apparel industry, a
purchaser of fabric does not normally approach existing or
potential suppliers, given that the business practice in the
industry is that fabric producers constantly approach manufacturers
to offer fabrics. Peerless stated that the Tribunal set out in a
previous decision that the onus resides principally on the supplier
to make its product line known in the marketplace. Peerless stated
that, even if it and other purchasers did not communicate with or
ask Texel and Doubletex if they could make identical or
substitutable fabrics (which, according to Peerless, did in fact
occur), this is not a matter that establishes that Canadian
producers make and supply fabrics that are identical to or
substitutable for the subject fabric.
In its reply submission, Peerless reiterated that fibre
migration is a very important issue in relation to needleloom felt.
It submitted that, if Doubletex was unaware of this specific and
important issue, this underlines the fact that Doubletex is not an
established or knowledgeable supplier of such fabrics for men's
wear. Peerless submitted that there is clear evidence that the
Doubletex sample has serious weight variations and lumpiness and
that there is no basis for Doubletex's assertion that the Peerless
sample of the subject fabric also has a weight variation. Peerless
submitted that there is no obligation on a purchaser to assume the
development costs and risks of a potential supplier; rather,
suppliers must bear their own product and development costs. In
addition, Peerless submitted that certain statements made by
Doubletex indicate that it has little or no experience in the field
of needleloom felt for use as chest pieces in men's wear.
Jack Victor Limited
Jack Victor, of Montréal, Quebec, a manufacturer of fine men's
clothing since 1913, employs over 600 people. Jack Victor supported
Peerless's request for tariff relief and stated that it has not
been able to source identical or substitutable fabrics in Canada.
Jack Victor indicated that, should tariff relief be granted,
Canadian manufacturers would become more competitive as a group
vis-à-vis imports of finished goods in the Canadian market and also
in export markets vis-à-vis other non-Canadian manufacturers. It
also stated that the loss of duty drawback has hurt the company
financially and competitively and that tariff relief would reverse
some of these effects.
Manufacturing Inc. (Weston)
Weston, of Toronto, Ontario, a manufacturer of men's suits,
jackets, blazers, trousers and vests, also supported Peerless's
request for tariff relief. Weston indicated that the chest piece is
crucial to the proper tailoring and appearance of a jacket and that
the subject fabric is ideally suited to meet current functional and
fashion needs. Weston claimed that identical or substitutable
fabrics are not available in Canada and that tariff relief on the
subject fabric would allow it to stay competitive in the market and
perhaps even increase its market share in the domestic and foreign
markets. Weston also indicated that tariff relief would reduce
costs and that any savings would be passed on to consumers.
Canada Pad Linings Inc.
Canada Pad, of Montréal, Quebec, is a manufacturer of chest
pieces and a distributor of a full range of interlinings. The
company purchases the subject fabric from Italy; it is then cut and
sewn at its facility according to the customer's specifications.
Canada Pad indicated that this fabric is not available in Canada
and, therefore, supports Peerless's request for tariff relief.
According to Canada Pad, tariff relief would give it a better
chance to compete against imports of chest pieces from Italy and
Spain, as well as increase its sales in Canada and abroad. Canada
Pad stated that this, in turn, would lead to an increase in
employment at its facility.
Doubletex, of Montréal, Quebec, is Canada's largest
fabric-converting mill and employs over 470 people. The
company imports greige fabrics, including nylon, polyester,
polyester/rayon, polyester/viscose, polyester/cotton and cotton,
from around the world for conversion at its three plants in
Montréal, Toronto, Ontario, and Winnipeg, Manitoba. It produces a
wide range of products, often customized to the specific needs of
apparel and home furnishings customers across Canada and the United
Doubletex opposed the request for tariff relief, stating that it
is capable of producing identical or substitutable fabrics.
Doubletex indicated that it was never asked to produce this product
by anyone at Peerless and that it first heard about any requirement
in this regard in early summer of 2002. Doubletex also stated that
it sent a letter to Peerless in June 2002 indicating that it would
be very interested in supplying Peerless with the needleloom felt.
According to Doubletex, this letter went unanswered. Doubletex
indicated that it has recently acquired some machinery and is
currently in the process of making some modifications to the
physical layout of its plant so as to enable it to produce such
fabrics. Doubletex indicated that, should it receive an order from
Peerless, it may need to make some additional investment and it
would take six weeks to produce more samples. Doubletex stated that
it is committed to having such fabrics in inventory in advance of
any order made by Peerless and at a price that is competitive with
any price of the Italian supplier. Doubletex also indicated that,
once Peerless's price and commercial quantities requirements are
known, its own prices for goods of equivalent quality would be
equal to or lower than the competition.
In its final submission, Doubletex stated that Peerless never
specified fibre migration as a parameter nor has it been measured
by Peerless. Doubletex submitted that there is no visible evidence
of fibres coming loose from its sample or the Peerless sample. In
this regard, Doubletex stated that a woven lining protects the
needlepunch interlining very well from fibre migration. Doubletex
stated that the Peerless sample also has a weight variation.
Doubletex indicated that it can provide the commercial quantities
required by Peerless and that it is also able to offer the felt in
black. Doubletex submitted that its focus is on all possible
apparel, home furnishings, industrial and medical products.
Texel, of Saint-Elzéar de Beauce, Quebec, was founded in 1967
and is one of Canada's largest manufacturers of needled nonwoven
fabrics destined for the apparel and footwear industries, as well
as other technical sectors. Texel indicated that, since the 1970s,
it has been manufacturing needled nonwoven fabrics made of
polyester fibres, viscose fibres, polyester and wool blends, and
viscose and polyester blends. Texel stated that, since 1996, it has
been supplying Peerless with felt that contains viscose and
polyester fibres and that the contract for supplying this fabric to
Peerless expired in December 2002. In this regard, Texel indicated
that it has not been approached by Peerless to supply needleloom
felt containing wool.
Texel opposed Peerless's request for tariff relief on the
grounds that it can produce felt that meets Peerless's requirements
in terms of composition, performance and quality. In this
connection, Texel provided four samples of nonwoven fabrics,
including the felt that is currently sold to Peerless and
two prototype samples that Texel alleged are substitutable for
the subject fabric. Texel indicated that, should tariff relief be
granted, manufacturers of nonwoven fabrics will be adversely
affected. This, according to Texel, could result in an immediate
loss of market for its company, in the order of $150,000 in sales
to Peerless. Consequently, jobs would be lost.
DFAIT informed the Tribunal that Canada does not maintain quota
restraints on the subject fabric. No information was received from
the Department of Industry.
The CCRA indicated that there would be no additional costs, over
and above those normally 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.
In essence, Peerless, Jack Victor and Weston claimed that there
are no identical or substitutable fabrics available from Canadian
textile producers. Canada Pad, a manufacturer of chest pieces, also
indicated that needleloom felt made from a blend of polyester,
rayon and wool fibres is not available in Canada. On the other
hand, Doubletex submitted that it is capable of producing identical
or substitutable fabrics, and Texel indicated that it could produce
felt that meets the requirements of users in terms of composition,
performance and quality.
In the course of the investigation, Doubletex provided a
prototype sample made of polyester, rayon and wool fibres. Texel
provided two samples of needleloom felt that is currently in
production, including one felt made of viscose and polyester
fibres that it has sold to Peerless. Texel also provided two
prototype samples (one made of polyester, rayon and wool and the
other made of polyester and rayon) that it alleged are
substitutable for the subject fabric. The Tribunal asked the CCRA
to carry out an analysis of the three prototype samples
submitted by Doubletex and Texel. In determining whether these
companies produce identical or substitutable fabrics, the Tribunal
focussed its attention on the two prototype samples containing
polyester, rayon and wool fibres, as they were composed of the same
fibres as the subject fabric. The Tribunal was guided by factors
such as technical description, quality, availability and price.
On the basis of the CCRA's analysis, the Tribunal accepts that
two of the prototype samples submitted by Doubletex and Texel have
a similar technical composition to that of the subject fabric, i.e.
they contain similar or identical amounts of polyester, rayon and
wool fibres. The Tribunal notes, however, that the CCRA indicated
in laboratory reports regarding these two samples that "[t]he
weight of this felt is not uniform and varies considerably
depending on what part of the felt is weighed".12
respect to the Doubletex sample, the CCRA found that the weight
varied between 77 g/m2 and 102 g/m2. With
respect to the Texel sample, the CCRA determined that the weight
varied between 63 g/m2 and 74 g/m2, well
below the weight of 85 g/m2 indicated by Texel. Peerless
submitted two affidavits signed by witnesses testifying that these
samples were not acceptable because they are of inferior quality,
have serious inconsistencies, in that they have thick and thin
spots, and have varying degrees of fibre migration.13
Tribunal's own examination of these two samples and the subject
fabric also supports the conclusion that they are not identical or
Peerless also submitted that Doubletex and Texel had not
provided any evidence to establish that they can make an acceptable
product available in reasonable commercial quantities to supply the
market demand for the subject fabric. On this point, the Tribunal
notes that Canada Pad indicated that it began to purchase the
subject fabric five years ago from Italy because of the superior
qualities demanded by high-end men's apparel manufacturers. Canada
Pad stated that, during the last three years,14
Canadian textile producers had not approached it with product
offerings similar or identical to the goods that it imports from
Italy. The Tribunal believes that, if Doubletex or Texel were
making concrete plans to enter the market for this type of fabric,
they would have taken a more aggressive approach in promoting and
demonstrating their capability to produce identical or
substitutable fabrics. According to Canada Pad, it would appear
that the men's fashion business is moving from heavier and stiffer
chest pieces to lighter and softer chest pieces.15
with respect to needleloom felt, it seems that Texel's business
strategy has been to focus on mainstream products. Although
Doubletex has provided some evidence of a capability to produce
needleloom felt, it appears to the Tribunal that its main focus has
also been on the production of felt used in sectors other than
men's jackets and blazers.
Based on the evidence, the Tribunal concludes that there is
presently no domestic production of high-quality needleloom felt
containing wool fibres for use as chest pieces. Given the demands
of the fashion market, the Tribunal is persuaded that, even in the
absence of tariff relief, Peerless would likely shift its purchases
from the lower-quality domestic needleloom felt to the
higher-priced offshore goods. Hence, Texel is likely to lose sales
regardless of whether tariff relief is granted. With respect to
Doubletex, given that it does not currently produce fabrics
identical to or substitutable for the subject fabric, the Tribunal
does not consider that it would lose any sales if tariff relief
The Tribunal also notes that the landed cost of the subject
fabric is significantly higher than the proposed average selling
price of the allegedly identical or substitutable fabrics, i.e. the
samples containing wool fibres submitted by Doubletex and
Doubletex and Texel would, therefore,
retain a significant price advantage even if the tariff on the
imported fabrics were removed. Consequently, the Tribunal is of the
view that, should domestic textile producers become able to offer
products that are directly substitutable for the subject fabric, in
commercially available quantities, they will be in a good
competitive position to seek a share of the market.
On the basis of the information provided to the Tribunal, tariff
relief would provide yearly benefits in excess of $50,000 to
Peerless and other users of the subject fabric. This tariff relief
would provide benefits to users of the subject fabric in the form
of reduced costs, which could translate into benefits to the
consumer in terms of lower prices. As for the costs to the
producers, given that they do not produce identical or
substitutable fabrics in commercially available quantities, the
Tribunal sees little cost if tariff relief is granted. Given that
the domestic industry says that it can provide identical or
substitutable fabrics to users at prices lower than the landed cost
of the subject fabric, tariff relief should not reduce the
incentive for the domestic industry to undertake the necessary
investment to be capable of supplying identical or substitutable
fabrics to domestic clothing manufacturers.
With respect to Peerless's request for retroactive tariff
relief, the Tribunal has stated in previous cases that it will not
consider recommending such relief other than in exceptional
Peerless has provided no evidence to
warrant such a recommendation.
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 needleloom felt, not
impregnated, coated, covered or laminated, containing 10 percent or
more of wool or fine animal hair, of subheading No. 5602.10, for
use as chest pieces between the lining and outer fabric in the
manufacture of men's jackets (including suit jackets) and
Patricia M. Close
Patricia M. Close
1 . The terms
of reference were last modified in 2002.
2 . R.S.C.
1985 (4th Supp.), c. 47.
3 . C.
4 . S.C.
1997, c. 36.
5 . 32
I.L.M. 289 (entered into force 1 January 1994) [NAFTA].
NAFTA provides preferential NAFTA tariff treatment
for certain quantities of apparel despite their incorporation of
non-North American (i.e. non-originating) fabric. This preferential
tariff treatment takes the form of Canadian tariff preference
levels (TPLs), formerly known as tariff rate quotas under the
FTA. TPLs permit the import of a fixed quantity of certain
goods into Canada, the United States and Mexico at the NAFTA
rate of duty. Goods entering a NAFTA country in quantities
above the TPLs are subject to the higher MFN rate of duty. A new
method of determining duty drawback, called "the lesser-of
concept", was introduced in NAFTA. Under this new scheme,
the duty drawback, or 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
Physical Exhibit TR-2002-002-10.5A.
Physical Exhibit TR-2002-002-10.7.
According to Canada Pad Linings Inc., fibre migration occurs when
the staple fibres (short fibres) used to make needleloom felt are
shed (become detached) from the felt and migrate through the wool
fabric of the jacket and, thereby, appear on the chest of the
jacket, which ruins the look of the garment.
Physical Exhibits TR-2002-002-10.5B and TR-2002-002-10.5C.
Physical Exhibit TR-2002-002-10.5D.
Tribunal Exhibit TR-2002-002-15A, Administrative Record, Vol. 1 at
69.5; Tribunal Exhibit TR-2002-002-16A, Administrative Record, Vol.
1 at 71.6.
Tribunal Exhibit TR-2002-002-19, Administrative Record, Vol. 5 at
para. 9; Tribunal Exhibit TR-2002-002-19, Administrative Record,
Vol. 5 at paras. 16, 17, 18.
Tribunal Exhibit TR-2002-002-19, Administrative Record, Vol. 5 at
paras. 8, 12, 13.
Ibid. at para. 4.
Tribunal Exhibit TR-2002-002-18 (protected), Administrative Record,
Vol. 2 at 24.
See, for example, Re Request for Tariff Relief by
Doubletex (3 July 2002), TR-2000-006 at 8 (CITT); Re
Request for Tariff Relief by Ballin (9 March 2001),
TR-2000-004 at 6 (CITT); Re Request for Tariff Relief by
Tantalum Mining (21 March 2001), TR-2000-003 at 4 (CITT);
Re Request for Tariff Relief by Majestic Industries
(12 January 2001), TR-2000-002 at 4 (CITT).