REPORT TO THE MINISTER OF FINANCE
REQUEST FOR TARIFF RELIEF BY PEERLESS CLOTHING INC.
REGARDING CERTAIN WOVEN FABRICS OF VISCOSE RAYON/ACETATE
FEBRUARY 11, 2004
TABLE OF CONTENTS
Request no. TR-2002-007
Place of Hearing:
Date of Hearing:
November 5, 2003
Patricia M. Close, Presiding Member
Zdenek Kvarda, Member
Meriel V.M. Bradford, Member
Paul R. Berlinguette
Counsel for the Tribunal:
Gillian E. Burnett
Richard A. Wagner
Daphne V. Fedoruk
Peerless Clothing Inc.
Canadian Textiles Institute
Textiles Monterey (1996) Inc.
Alvin C. Segal
Chairman & CEO
Peerless Clothing Inc.
Peerless Clothing Inc.
Vice-President, Marketing and Sales
Textiles Monterey (1996) Inc.
Textiles Montery (1996) Inc.
Please address all communications to:
Canadian International Trade Tribunal
Standard Life Centre
333 Laurier Avenue West
Telephone: (613) 993-3595
Fax: (613) 990-2439
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 December 17, 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
certain woven fabrics of viscose rayon/acetate, for use as lining
in the manufacture of men's and boys' jackets (including suit
jackets), blazers and vests (waistcoats). Peerless also sought
immediate tariff relief.
On February 25, 2003, being satisfied that the request was
properly documented, the Tribunal issued a notice of commencement
which was distributed to known interested
parties. The fabrics under investigation were described in the
notice as "woven fabrics, dyed or of single yarns of different
colours, consisting solely of viscose rayon filaments
in the warp and cellulose acetate filaments in the weft, measuring
less than 200 decitex per single yarn, of a weight not exceeding
100 g/m2, of subheading Nos. 5408.22 and 5408.23, for
use as lining in the manufacture of men's and boys'
jackets (including suit jackets), blazers and vests
(waistcoats)" (the subject fabrics).
As part of the investigation, the Tribunal's research staff sent
questionnaires to potential producers of fabrics identical to or
substitutable for the subject fabrics. A request for information
was also sent to potential users and importers of the subject
fabrics. A letter was sent to the Canada Customs and Revenue Agency
(CCRA), now the Canada Border Services Agency, requesting a
complete description of the physical characteristics of the samples
submitted by Peerless, an opinion on whether the requested tariff
relief would be administrable and suggested wording to describe the
subject fabrics, should tariff relief be recommended. Letters were
also sent to the Department of Foreign Affairs and International
Trade (DFAIT) and the Department of Industry (Industry Canada)
requesting information that could assist the Tribunal in its
A staff investigation report summarizing the information
received from the CCRA, DFAIT, 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, Monterey Textiles (1996) Inc. (Monterey) and Peerless filed
submissions with the Tribunal.
The Tribunal held a public hearing for this investigation in
Ottawa, Ontario, on November 5, 2003, to obtain further evidence
and hear arguments in respect of the following issues:
· Monterey's ability to supply fabrics identical to or
substitutable for the subject fabrics (in terms of such factors as
technical characteristics, commercial availability and market
acceptance of fabrics)
· The manufacturing processes used by Peerless in the production
of men's and boys' fine apparel and its impact on Peerless's choice
· The net economic gains to Canada (i.e. the impact on Monterey
and on users and importers of the subject fabrics in terms of the
effect on prices, sales, profitability, employment) should the
tariff relief be granted on the subject fabrics
The record of this investigation consisted of all Tribunal
exhibits, including the public and protected replies to
questionnaires, witness statements and all exhibits filed by the
parties throughout the investigation, as well as the transcript of
the hearing. All public exhibits were made available to the
parties. Protected exhibits were made available only to counsel who
had filed a declaration and undertaking with the Tribunal in
respect of confidential information.
Peerless has imported only small amounts of the subject fabrics
from Germany to perform test production runs. Peerless submitted
three fabric samples with its request for tariff relief. Two of the
samples consisted of three-thread twill5
woven fabrics, of
single yarns of different colours, made of viscose rayon filaments
(45 percent) in the warp and cellulose acetate filaments (55
percent) in the weft. These samples weighed 73 g/m2 and
83 g/m2. The third sample also consisted of a
three-thread twill woven fabric, of single yarns of different
colours, made of viscose rayon filaments (56 percent) in the warp
and cellulose acetate filaments (44 percent) in the weft. The
sample weighed 91 g/m2. The fabrics have an
(i.e. two-tone) look that is the
result of using two different cellulose substrates, in this case,
viscose and acetate.
Peerless uses the European engineering production method that is
highly automated and allows for the large-scale manufacture of
men's and boys' fine clothing. Under this method of production, all
components of the outer part of the garment and all components of
the inner part of the garment are assembled separately (two-shell
method). During the production process, the subject fabrics are
spread, cut, sewn and pressed to result in their use as lining for
men's and boys' jackets (including suit jackets), blazers and vests
(waistcoats). The lining is subjected to various stresses,
including heat and steam, at several points during the
manufacturing process. No operations are subcontracted.
As of January 1, 2004, the subject fabrics, classified for
customs purposes under classification No. 5408.23.90.12 or
5408.23.90.81 of the schedule to the Customs
are dutiable at 14 percent
ad valorem under the Most-Favoured-Nation (MFN) Tariff
and the Costa Rica Tariff and are duty free under the United States
Tariff, the Least Developed Country Tariff, the Mexico Tariff, the
Canada-Israel Agreement Tariff and the Chile Tariff.
Positions of the
Peerless has been manufacturing men's apparel since 1919. The
company is privately owned and employs in excess of 2,000 persons.
Following the Canada-United States Free Trade Agreement,
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 manufacture and market well-known brand names, such as Chaps by
Ralph Lauren, Ralph by Ralph Lauren and DKNY (Donna Karan New
Peerless claimed that no Canadian textile manufacturer produces
and supplies fabrics that are identical to or substitutable for the
subject fabrics. Peerless alleged that no one in Canada makes
lining from viscose rayon in the warp and acetate in the weft
(viscose rayon warp fabrics).8
Peerless submitted that the
CCRA laboratory reports established that the samples provided by
Monterey are not identical to the subject fabrics. Peerless also
submitted that Monterey's lining, including fabrics made from 100
percent acetate in the warp and 100 percent viscose rayon in the
weft (acetate warp fabrics) are not substitutable. Peerless
submitted that the quantities and delivery times available from
foreign suppliers meet its needs and that, furthermore, the large
variety of colours and patterns available from foreign suppliers
far outmatches that which could be available from domestic
Peerless submitted that it is the warp that gives a fabric its
strength and that the yarns used in the warp of a fabric are
critical to the strength of the fabric. In this regard, Peerless
stated that viscose rayon warp fabrics are much stronger than
acetate warp fabrics. According to Peerless, this fact was also
confirmed by the CCRA. Peerless submitted that the greater strength
in the warp is needed in order to meet the requirements of its
European production method and to produce a quality jacket with a
quality lining that has good durability. Peerless also submitted
that tests of Monterey's acetate warp fabrics have established that
they do not meet the performance standards required by Peerless, in
that they are further weakened during the European production
process, given that acetate is prone to shrinkage, heat damage and
dryness; viscose is not.
Peerless submitted that, although there may be some shrinkage in
the weft of the subject fabrics, this is normally compensated by
the pleat in the lining in the centre back of the jacket.
Nevertheless, Peerless maintained that the shrinkage has a much
smaller effect on the manufacturing process than if the acetate
were in the warp. Furthermore, viscose rayon warp fabrics permit
faster cutting, sewing and pressing. Peerless submitted that these
advantages, in turn, result in efficiencies and cost savings to
Peerless, enhancing its competitiveness. Peerless submitted that,
in order to accommodate acetate warp fabrics, two additional
operations that are currently not part of its European production
method would have to be added to its production process, i.e.
fullness and trimming.9
According to Peerless, this addition
would result in added costs and losses in efficiency.
Peerless submitted that it would prefer to stay with the 100
percent viscose rayon lining that it has used for 20 years, but
that it has to switch to the subject fabrics for part of its
production because of market demands for iridescent lining.
Peerless submitted that it must meet the demands of the fashion
market and that the Tribunal, on numerous occasions, has
acknowledged that there is a much lower level of substitutability
in the fashion market and that, if there is a colour, a look or a
fabric that is needed, it has to be provided. Peerless submitted
that the men's fine-tailored clothing market is now using lining
for jackets as a fashion statement and is demanding iridescent
lining that must be strong to carry business paraphernalia, yet the
lining must be light because of the lighter outer shell fabric.
Peerless indicated that, if the market demands iridescent lining,
Peerless 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
points. It submitted that the subject fabrics offer a European
cachet used by Peerless and that Monterey's lining is not suitable
in the market in which it operates. Peerless submitted that
Monterey's acetate warp fabrics may be acceptable in other market
segments or to other manufacturers of men's fine clothing, but not
in the market segment in which Peerless competes.
Peerless submitted that Monterey does not plan10
make fabrics identical to the subject fabrics for the most
important lining customer in North America and that, therefore,
Monterey does not have the ability to supply identical fabrics.
Peerless also submitted that Monterey's acetate warp fabrics are
not substitutable for the subject fabrics because Peerless cannot
use them in its manufacturing process.
Peerless submitted that the subject fabrics are substantially
more expensive than the lining produced by Monterey. Accordingly,
Monterey would not be affected if tariff relief were granted and
would be able to compete effectively against imports of the subject
fabrics if it chose to begin production of identical or
substitutable fabrics. Peerless also submitted that, if Monterey
could produce a fabric that is identical to or substitutable for
the subject fabrics, Peerless and other Canadian men's apparel
manufacturers would consider buying it, given Monterey's proximity
to their operations. In this regard, Peerless submitted that
pricing and profit margins supplied by Monterey indicate that it
could compete on price.
Peerless submitted that competition in the men's apparel
industry is global in scale and fierce, and that its export
potential is undermined by increases in the manufacture, in the
Caribbean and Andean countries, of apparel from U.S. fabric, which
is re-imported duty free in the form of apparel for consumption in
the U.S. market. Peerless indicated that the removal of the customs
duty on imports of the subject fabrics would allow it to stay
competitive in the market, especially the U.S. market. Peerless
submitted that, because of the North American Free Trade
it no longer gets a drawback12
the imported inputs that it uses for its apparel exported to the
United States under Canadian TPLs, and that, therefore, duties on
the subject fabrics would seriously affect its market position in
the United States. Therefore, tariff relief would assist it in
overcoming the elimination of duty drawback and help keep it
competitive with other offshore firms that sell into the U.S. boys'
and men's wear market.
Peerless submitted that, based on the evidence, tariff relief
would provide net economic gains for Canada. According to Peerless,
such relief would enable it to maintain or increase employment
levels, sales and profitability. Peerless submitted that, should
tariff relief not be granted, this would have an adverse effect on
it because it does not pay duties on lining that it currently uses,
i.e. 100 percent viscose rayon lining. Moreover, any cost
increases, if passed along, would result in price increases for the
consumer. Peerless submitted that, should tariff relief be granted,
Monterey would not be adversely affected because the alleged
substitutable fabrics represent a small percentage of Monterey's
business. In addition, Monterey would not lose sales in that
Peerless does not, at present, purchase any lining from Monterey.
Peerless also submitted that duties on acetate warp fabrics would
remain and that, therefore, Monterey would enjoy tariff protection
for its fabrics. Furthermore, Monterey's sales to the women's
apparel industry would not be affected because the end-use
provision is restricted to men's and boys' wear. Peerless indicated
that 100 percent acetate fabrics are a substantial part of
Monterey's business and are eligible for preferential treatment
under NAFTA, which provides an advantage over imported
fabrics. Finally, Peerless submitted that, in today's competitive
market, users of acetate warp lining and 100 percent acetate lining
are not going to switch to the subject fabrics, should tariff
relief be granted, because they want to keep their costs at a level
required by the market that they serve. Peerless did submit,
however, that all Canadian manufacturers of men's apparel would
switch to the subject fabrics, if tariff relief were
Later in the hearing, Peerless clarified
this statement to mean that it only applied to firms holding
Manufacturing Inc. (Weston)
Weston, of Toronto, Ontario, a manufacturer of men's suits,
jackets, blazers, trousers and vests, supported Peerless's request
for tariff relief. Weston did not appear at the hearing. In reply
to the Tribunal's questionnaire, it indicated that there are no
fabrics identical to or substitutable for the subject fabrics
available in Canada. Weston stated that the benefits anticipated
from such relief would allow it to stay competitive in the
Positions of the
Doubletex, of Montréal, Quebec, is Canada's largest
fabric-converting mill and employs over 470 persons. Doubletex
advised the Tribunal that it did not oppose Peerless's request for
Monterey, of Drummondville, Quebec, is a vertically integrated
operation, specializing in the supply of lining to the men's,
ladies' and specialty wear markets. Monterey took over the former
Canadian subsidiary of Celanese, a global leader in acetate
products. It serves these markets primarily with fabrics made of
100 percent acetate, various acetate/viscose rayon blends, various
cuprammonium rayon/viscose rayon blends and 100 percent
cuprammonium rayon. Monterey appeared at the hearing under
Monterey opposed Peerless's request for tariff relief and
submitted that it produces acetate warp fabrics that it considers
to be identical to or substitutable for the subject fabrics.
Therefore, it has no action plan to produce viscose rayon warp
fabrics. Moreover, Monterey submitted that it has been producing
iridescent lining since 1996. Monterey provided 10 fabric
that it considered as appealing,
brilliant, soft and silk-like as the samples provided by Peerless.
With respect to 2 of the 3 samples submitted by Peerless, Monterey
stated that they are acetate rich, not viscose rayon rich;
therefore, according to Monterey, Peerless's statement that acetate
is an inferior fibre raises the question of why Peerless is
requesting the duty-free entry of acetate-rich fabrics that are
currently available in Canada.
Monterey submitted that it is not only the warp that makes a
fabric but also the overall construction (i.e. warp and weft),
weight, appearance (two-tone effect), dyeing and finishing of the
fabric. Monterey submitted that its fabrics meet and surpass
industry standards and that it regularly uses lightweight yarns in
the warp of its lining in order to achieve the weight and
performance requirements for men's wear. Monterey submitted that
well-constructed fabrics perform well at all stress points.
Monterey submitted that, since its start-up, Peerless has
appeared determined not to buy from Monterey, no matter what fabric
or fabric blends it makes. In response to certain issues raised by
Peerless concerning the subject fabrics, Monterey made the
· With respect to Peerless's assertion that German fabrics are
more moisture-absorbent, Monterey stated that it uses perspiration
and gas fast dyes16
on all the acetate/viscose rayon fabrics
that it produces. In addition, all its fabrics are constructed to
meet all strength tests and are, therefore, viewed as equal to or
better than the fabric samples submitted by Peerless. Monterey
stated that it has not received any complaints from its clientele
regarding the quality of its products.
· With respect to the European method of production, Monterey
indicated that its fabrics are used in state-of-the-art cutting and
sewing facilities worldwide with no problems.
· With respect to the shrinkage factor, Monterey stated that it
is a non-issue and that, according to in-house testing, all its
fabrics meet or surpass standards for men's wear lining.
· With respect to the faster cutting and sewing factor, Monterey
stated that Peerless has not used enough fabric from Monterey to
make this claim. This has never been an issue with Monterey's
· With respect to the large variety of colours and patterns from
foreign suppliers, Monterey stated that it has the capability to
dye lining fabric any colour and that it can offer any pattern
according to the client's needs, if the client is serious about
ordering a particular pattern in a reasonable quantity.
· With respect to delivery times, Monterey stated that its
delivery times are competitive and that it has not received any
complaints from its clientele worldwide.
Monterey submitted that Peerless would likely achieve the same
goal in terms of competitiveness in the market, should it decide to
purchase fabrics from Monterey. Monterey submitted that tariff
relief would adversely affect its ability to sell acetate warp
fabrics to current and potential customers. Furthermore, Monterey
submitted that its other lining business would be affected, as
customers would switch to low-priced imports.
DFAIT informed the Tribunal that Canada does not maintain quota
restraints on the subject fabrics. 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
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.
With respect to the issue of substitutability, the Tribunal is
of the view that there is no onus to be met by either the domestic
industry or the opposing party and that the Tribunal must make its
factual determination based on the evidence before it. It is the
Tribunal's view that, in the marketplace generally, Monterey's
iridescent linings are substitutable for the subject fabrics.
Whether or not Monterey's acetate warp fabrics are directly
substitutable with regard to Peerless's requirements is not clear
to the Tribunal. In coming to the conclusion that Monterey's
fabrics are substitutable in the marketplace generally, the
Tribunal examined Monterey's fabric samples, examined the written
evidence and listened to testimony at the hearing. The Tribunal was
guided in its assessment of substitutability by four key factors
relating to the fabrics: (1) technical issues such as strength,
shrinkage and lightness; (2) market acceptance; (3) price; and (4)
According to the tests conducted by the CCRA, in six of the
seven acetate warp fabrics that Monterey submitted, the acetate
yarns in the warp were stronger than the viscose yarns in the warp
of Peerless's fabrics.17
Only two of Monterey's acetate warp
however, recorded higher breaking
strength results than the weakest of Peerless's viscose rayon warp
Notwithstanding, it must be recognized
that a number of variables (e.g. number of filaments that compose a
yarn, conditions under which the tests were carried out, the
chemicals used on the product) may have affected the test
Although Peerless stated that its tests of Monterey's acetate
warp fabrics revealed that they were prone to shrinkage, it did not
present any hard evidence (e.g. number of tests conducted and under
what conditions) to the Tribunal to support these results.
Monterey, on the other hand, presented in-house test
on shrinkage, which showed that, after 12
pressings, the acetate in the warp of one of its most popular
linings shrank less than the viscose rayon in the warp for two of
Peerless's fabric samples.21
For Peerless's third
sample, the shrinkage was the same in the warp.
Based on the analysis carried out by the CCRA, the Tribunal
notes that Monterey produces acetate warp linings that weigh
virtually the same as the subject fabrics.22
Tribunal also believes that, from the consumer's perspective, the
fact that the viscose rayon is in the warp or the weft is not a
factor when dealing with issues such as comfort, feel, look and
quality. In light of the above, it is evident to the Tribunal that
Monterey's acetate warp fabrics may well be an acceptable
substitute on technical grounds for the subject fabrics in the
market as a whole. It remains unclear to the Tribunal whether
Monterey's acetate warp fabrics are substitutable in Peerless's
case because of its production process. In the Tribunal's view,
Peerless has not rigorously tested these fabrics and, therefore,
the Tribunal cannot conclude that Monterey's acetate warp fabrics
are not substitutable with regard to Peerless's needs. It would
appear, however, that they are substitutable from the standpoint of
their technical characteristics for other manufacturers of men's
and boys' fine clothing.
The Tribunal's terms of reference provide that market acceptance
of the domestic fabrics for a specific end use, in this case,
iridescent lining for men's and boys' fine clothing, is also a
relevant factor in determining substitutability. Because of fashion
trends, the market is looking for lining that is iridescent.
Iridescence may be achieved through the use of both acetate and
viscose rayon in approximately equal amounts. Monterey provided
evidence that it has been producing iridescent linings since
The Tribunal notes that these linings
have been sold to companies that are major competitors of
Retailers, it would appear, are not
necessarily looking for an iridescent lining with viscose rayon in
the warp. The Tribunal, therefore, concludes that there is a market
acceptance of Monterey's iridescent linings.
The Tribunal views price as an essential factor when assessing
substitutability and one that is closely related to market
acceptance. Although Peerless argued that Monterey's acetate warp
fabrics are not commercially substitutable because they are
significantly less expensive than the subject fabrics, the Tribunal
is of the view that the average landed price of the subject
fabrics, even with the addition of the current 14 percent ad
valorem duty, is not high enough to differentiate them from the
acetate warp fabrics produced by Monterey and sold by
Monterey stated categorically that it does not have plans to
produce viscose rayon warp fabrics. However, it is clear to the
Tribunal from the above analysis that Monterey's acetate warp
fabrics are substitutable for the subject fabrics for the market as
a whole and that they are certainly commercially available,
although the extent to which they are available in all the colours
and designs that Peerless may require is not clear from the
evidence on the record.26
Net Economic Gains
The Tribunal's decision to recommend the reduction or removal of
a tariff must be based on the extent to which it considers that
such relief would provide net economic gains for Canada. It is
clear from the evidence that Peerless has made significant capital
investments in order to "deskill" its operations and gain
production efficiencies. Peerless currently employs over 2,000
persons in the Montréal area. Since 1996, Monterey has
established itself as a reliable source of supply for a wide range
of acetate linings, primarily 100 percent acetate. The production
of linings for the apparel industry is a highly technical industry
and currently employs fewer than 100 persons.
The Tribunal accepts Peerless's position that tariff relief
would allow it to contain costs and, therefore, continue to compete
with finished products from low-wage countries, both at home and in
the highly competitive U.S. market. In the United States, buyers
for higher-end mass marketers can source apparel with viscose rayon
warp fabrics from countries that have certain competitive
advantages such as low labour costs and duty-free access to the
U.S. market for finished products. Peerless is up against this
competition and cannot afford to pass on the cost of the duties on
the linings to retailers. Monterey submitted that tariff relief
would adversely affect its ability to sell acetate warp fabrics to
current and potential customers in the men's and boys' apparel
business. Monterey also stated that its other lining business would
be affected, as customers would switch to lower-priced imports.
Based on information provided by Peerless and Weston, the Tribunal
estimated that tariff relief would represent direct benefits of
over $200,000. Potential benefits were based on the rate of duty
for 2004, i.e. 14 percent ad valorem. The Tribunal also took
into account the estimated percentage of Peerless's production of
jackets and blazers that would require the viscose warp
and Peerless's domestic sales and export
sales to the Unites States under TPLs.28
The Tribunal also
took into account the fact that, at Peerless, a much higher level
of employment is vulnerable to market pressures than at
On the basis of the pricing information provided by Monterey and
its distributors, the Tribunal is of the view that, faced with
duty-free imports of the subject fabrics, Monterey would be under
some price pressure and, therefore, would likely choose to lower
its prices rather than lose sales from existing customers that may
be tempted to switch to the subject fabrics. Although, as noted
above, the price difference between the subject fabrics and the
lining produced by Monterey is not enough to differentiate the
products, it may be enough, given the competitiveness in the
industry, for Monterey's clients to switch from acetate warp
fabrics to viscose rayon warp fabrics if Monterey does not lower
its prices to meet those of the subject fabrics. On the basis of
the information on file, the Tribunal estimated the amount of any
potential price erosion on Monterey's acetate warp fabrics to be
significantly lower than the benefits to be gained by Peerless and
Weston, should tariff relief be granted.
The Tribunal also notes that the production and sales of acetate
warp fabrics to existing customers in Canada for use in men's and
boys' jackets represent a small percentage of Monterey's total
and that at least 75 percent of its men's
and boys' wear lining business are export sales.30
result, any impact of tariff relief on Monterey's existing sales
would be minimized. Furthermore, Monterey would continue to enjoy
tariff protection for its acetate warp fabrics, and its sales of
lining for other end uses would not be affected.
During the course of the hearing, Peerless indicated that it was
seriously considering the purchase of a cuprammonium/viscose rayon
lining from Monterey for 2004.31
The Tribunal notes that
Order in Council P.C. 2001-579 dated April 5, 2001, amended
the schedule to the Customs Tariff by removing the customs
duty on the importation of such linings. This leads the Tribunal to
conclude that it is not necessarily the retention of the duty that
will be a factor in deciding whether Peerless will buy lining from
Monterey, but rather the proper testing by Peerless of Monterey's
fabrics and their compatibility with the manufacturing processes
used by Peerless.
In sum, the Tribunal concludes that Monterey's acetate warp
fabrics are, in general, substitutable for the subject fabrics.
However, because of the manufacturing processes used by Peerless,
it remains unclear to the Tribunal whether Monterey's acetate warp
linings are, in Peerless's case, substitutable for the subject
fabrics. On the basis of the evidence, it is clear that the
potential benefits to Peerless and Weston outweigh the potential
costs to Monterey. In today's global trading environment, the men's
apparel industry is highly competitive. Any increase in costs due
to tariffs on fabrics required for a fashion season has an effect
on the competitiveness of the Canadian suit manufacturing industry
at home and in the United States. Therefore, the Tribunal finds
that the tariff relief requested by Peerless would provide net
economic gains to Canada.
With respect to Peerless's request that tariff relief be
effective "immediately", the Tribunal interprets this request to
mean that Peerless would like tariff relief to be effective as of
the date of the request. The evidence presented by Peerless
suggests that such a request is linked to the timeliness of the
upcoming fall fashion season.32
The Tribunal is of the
view that relief should be granted in time for the upcoming fall
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 fabrics, dyed
or of single yarns of different colours, consisting solely of
viscose rayon filaments in the warp and cellulose acetate filaments
in the weft, measuring less than 200 decitex per single yarn, of a
weight not exceeding 100 g/m2, of subheading Nos.
5408.22 and 5408.23, for use as lining in the manufacture of men's
and boys' jackets (including suit jackets), blazers and vests
(waistcoats). The relief should be granted in time for the upcoming
Patricia M. Close
Patricia M. Close
Meriel V.M. Bradford
Meriel V.M. Bradford
1 . The
terms of reference were last modified on January 13, 2004.
R.S.C. 1985 (4th Supp.), c. 47.
3 . C.
Rayon is a generic fibre category defined by the U.S. Federal Trade
Commission as a "manufactured fiber composed of regenerated
cellulose, as well as manufactured fibers composed of regenerated
cellulose in which substituents have replaced not more than 15
percent of the hydrogens of the hydroxyl groups." Viscose is the
cellulose xanthate solution used in making viscose rayon, one type
of rayon that is produced in far greater quantity than cuprammonium
rayon (filaments produced by precipitating cellulose dissolved in a
solution of copper oxide in ammonia), the other commercial
"Twill" is defined as a weave that repeats on three or more ends
and picks and produces diagonal lines on the face of the
6 . An
iridescent fabric is a fabric with changeable colour or shot
effects that may be the result of dye, finish or weave.
S.C. 1997, c. 36.
"Warp" is the set of yarn in all woven fabrics that runs lengthwise
and parallel to the selvage and is interwoven with the filling in
the fabric. "Weft" or filling is the yarn running from selvage to
selvage at right angles to the warp.
"Fullness" requires that the machine operator feed a bit more
lining every few inches when the lining is sewn to the outer fabric
on the chest and back portions of the jacket. "Trimming" means
cutting the lining to fit the final jacket form.
During the hearing, Monterey acknowledged that, at this time, it
does not have an action plan to produce linings with viscose rayon
in the warp and acetate in the weft. Transcript of Public
Hearing, 5 November 2003 at 116, 133.
32 I.L.M. 289 (entered into force 1 January 1994)
NAFTA provides preferential 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). 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
Transcript of Public Hearing, 5 November 2003 at 54.
Ibid. at 80.
On March 27, 2003, the Tribunal sent these samples to the CCRA for
laboratory analysis. On July 3, 2003, the Tribunal requested
additional analysis concerning the strength of these fabric
"Fast dyes" are dyes that are stable to colour-destroying agents,
such as sunlight, perspiration, washing, abrasion, and wet and dry
Tribunal Exhibit TR-2002-007-30A, Administrative Record, Vol. 1 at
Physical Exhibits TR-2002-007-011.1H and TR-2002-007-011.1I.
Physical Exhibit TR-2002-007-4B.
Tribunal Exhibit TR-2002-007-35 (protected), Administrative Record,
Vol. 2 at 51-52.
Physical Exhibits TR-2002-007-4B and TR-2002-007-4C.
Tribunal Exhibit TR-2002-007-4A, Administrative Record, Vol. 1 at
31, 33, 35; Tribunal Exhibit TR-2002-007-19A, Administrative
Record, Vol. 1 at 96.7.
Transcript of Public Hearing, 5 November 2003 at 152.
Tribunal Exhibit TR-2002-007-18.1 (protected), Administrative
Record, Vol. 4 at 42-43; Tribunal Exhibit TR-2002-007-18.2
(protected), Administrative Record, Vol. 4 at 49.
Tribunal Exhibit TR-2002-007-21 (protected), Administrative Record,
Vol. 2 at 22.
At the hearing, Peerless tried to submit additional samples of
imported fabrics to illustrate the broad variety of the subject
fabrics available from foreign suppliers. Given the Tribunal's
policy that all evidence must be filed prior to the hearing unless
there are exceptional circumstances, and in light of the fact that
Peerless had ample opportunity to file these samples prior to the
hearing, the Tribunal decided not to accept the supplementary
Tribunal Exhibit TR-2002-007-02 (protected), Administrative Record,
Vol. 2 at 5-6.
Transcript of In Camera Hearing, 5 November 2003 at 2-3.
Tribunal Exhibit TR-2002-007-12.1 A (protected), Administrative
Record, Vol. 4 at 20.
Transcript of Public Hearing, 5 November 2003 at 144.
Ibid. at 83, 112-13.
Ibid. at 75.