PEERLESS CLOTHING INC.
(WOVEN POLYESTER/ELASTOMERIC STRETCH LINING FABRICS)
Request No. TR-2006-001
Tuesday, October 17, 2006
TABLE OF CONTENTS
Elaine Feldman, Presiding Member
Ellen Fry, Member
Serge Fréchette, Member
Paul R. Berlinguette
Counsel for the Tribunal:
Registrar Support Officer:
Please address all communications to:
Canadian International Trade Tribunal
Standard Life Centre
333 Laurier Avenue West
THE MINISTER OF FINANCE
1. 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.2
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.
2. On June 5, 2006, 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 non-textured polyester fabrics for use as lining in
the manufacture of men’s and boys’ suits, vests (waistcoats),
jackets (sportcoats and blazers), and trousers. Peerless also
requested tariff relief retroactive to the date of filing of the
3. On July 19, 2006, 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, plain weave, consisting solely of
non-textured polyester filaments mixed with elastomeric filaments,
having the elastomeric yarn only in the weft, of a weight of less
than 90 g/m2, of tariff item No. 5407.61.99, for use as
lining in the manufacture of apparel” (the subject fabrics). The
end-use provision suggested by Peerless was modified to remove all
gender and product specificity. Peerless agreed to this change in
the product description.
4. As part of the investigation, the Tribunal’s research staff
sent questionnaires to potential domestic 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 Border
Services Agency (CBSA), requesting a complete description of the
physical characteristics of the fabric sample 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, requesting information that
could assist the Tribunal in its investigation.
5. A staff investigation report was not necessary for the
purposes of this investigation, since potential producers of
fabrics identical to or substitutable for the subject fabrics
indicated that they would not oppose the request, as long as it
incorporated the end uses originally requested by Peerless.
6. On September 11, 2006, the Tribunal indicated that it was its
intention to issue a report to the Minister concerning the request
based on the information on the record.
7. A public hearing was not held for this
8. Peerless imports the subject fabrics from Germany and the
Republic of Korea. It submitted one fabric sample with its request
for tariff relief. The sample was a plain woven fabric of
non-textured yarns of different colours, consisting of synthetic
(polyester) filaments and elastomeric yarns of polyurethane and of
a weight of approximately 66 g/m2.
9. Peerless’s production process entails the spreading, cutting,
sewing and pressing of different textile inputs for use in the
manufacture of men’s and boys’ suits, vests, jackets (sportcoats
and blazers) and trousers. No operations are subcontracted.
10. As of January 1, 2006, the subject fabrics, classified for
customs purposes under classification No. 5407.61.99.52 of the
schedule to the Customs Tariff,
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
11. Peerless has been manufacturing men’s apparel in Canada
since 1919. The company is privately owned and employs in excess of
2,000 people. Following the Canada-United States Free Trade
Agreement, it 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
12. Peerless claimed that no Canadian textile manufacturer
produces and supplies fabrics that are identical to or
substitutable for the subject fabrics.
13. Peerless indicated that, over the past years, the fashion
trend has constantly moved towards comfort in garments. In this
regard, it stated that, to make men’s fine-tailored clothing more
comfortable, designs and fashions that allow for stretch have been
introduced into the market. Peerless has had to meet this demand
for garments with greater stretch and use new fabrics in order to
remain in the forefront of the men’s fine-tailored clothing
14. The subject fabrics provide 4 percent or more stretch when
required. This allows the fabric to return to its original size.
For example, the stretch is in the horizontal across the back of a
jacket to increase comfort when stretch is required for movements,
such as crossing the arms. According to Peerless, mechanical
stretch, which can be achieved by means of crimped polyester
filament, is not substitutable for stretch provided by
polyester/elastomeric filaments. Mechanical stretch does not
provide as much stretch and wears out with usage, resulting in the
garment not returning to its original shape.
15. Peerless stated that the subject fabrics are needed, as they
perform well in its European engineering production method. In some
cases, pieces are glued together rather than sewn, and the garments
are exposed to high heat and humidity during certain stages of
production. The subject fabrics are able to withstand the rigours
of the production process without any degradation in their ability
to stretch and maintain stretch characteristics in the finished
16. Peerless stated that competition in the men’s apparel
industry is global in scale and is very fierce. It indicated that
the removal of the customs duty on imports of the subject fabrics
would allow it to stay competitive in the market and possibly
increase its market share in domestic and foreign markets. Peerless
also stated that tariff relief would help maintain current
employment levels. It indicated that any cost savings would be
passed on to the consumer.
17. Peerless indicated that the market drives its business
decisions. It stated that, if the market demands garments with
features created by the subject fabrics, it must produce such
garments or face a decline in sales. Peerless must attain certain
cost and mark-up parameters in order to remain at a price point
where it is competitive with the offerings of other suppliers. It
also indicated that, if it were unable to satisfy the market demand
in North America for such apparel, this demand would be supplied by
foreign imports of finished goods.
18. Peerless indicated that, because of the North American
Free Trade Agreement,6
it can no longer benefit from a duty
for the imported inputs that it uses for its
apparel exported under Canadian TPLs to the United States and that
this situation seriously damages its export business. According to
Peerless, tariff relief would assist the company in overcoming the
elimination of duty drawback.
Riviera Inc. and Weston Apparel Manufacturing Inc.
19. Although these companies reported that they have not
imported the subject fabrics, both supported Peerless’s
Consoltex Inc. (Consoltex)
20. Consoltex, of Ville Saint-Laurent, Quebec, a major producer
of fabrics of man-made fibres, informed the Tribunal that it did
not oppose the request for tariff relief on the subject fabrics for
end uses specified in Peerless’s request, but objected to the
Tribunal’s expansion of the end use to include all apparel. It
stated that it produces and sells identical or substitutable
fabrics for outerwear apparel (e.g. ski wear and active wear), as
well as for uniforms and workwear apparel.
21. Doubletex informed the Tribunal that it did not oppose the
request for tariff relief on the subject fabrics.
Canadian Textiles Institute (CTI)
22. The CTI submitted that the Tribunal appeared to have gone
beyond its mandate and expanded the end-use provision to all
apparel. According to the CTI, such an approach to describing the
subject fabrics for this and future textile investigations could
jeopardize the interests of the Canadian textile industry.
23. DFAIT informed the Tribunal that, under the World Trade
Organization Agreement on Textiles and Clothing, Canada’s
quantitative restraints on imports of textiles and apparel were
eliminated on January 1, 2005. Therefore, Canada does not maintain
any quantitative restrictions on the subject fabrics.
24. The CBSA indicated that there would be no additional costs,
over and above those it normally incurs, to administer the tariff
relief should it be granted.
25. 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
26. Peerless claimed that there is no domestic production of
fabrics identical to or substitutable for the subject fabrics.
Domestic fabric producers did not contest this claim with respect
to the end uses specified in Peerless’s original description, i.e.
suits, vests (waistcoats), jackets (sportcoats and blazers) and
trousers. In light of the concerns expressed by Consoltex regarding
the broader end-use provision contained in the notice of
commencement of investigation, the Tribunal is of the view that
Consoltex could suffer some harm as a result of tariff relief on
the basis of a generic end-use provision. In this regard, Consoltex
stated that it produces identical or substitutable fabrics for
outerwear apparel (e.g. ski wear and active wear), as well as for
uniforms and workwear apparel. However, other than the
corresponding duty revenues forgone by the Government, the Tribunal
does not have evidence of any direct commercial costs associated
with the removal of the customs duty on the importation of the
subject fabrics for the end uses originally requested by Peerless.
On the basis of the information contained in Peerless’s request,
tariff relief would result in yearly benefits to users of the
subject fabrics in excess of $350,000. In addition, tariff relief
would provide benefits to users in the form of potentially
increased sales and stable employment, as well as reduced costs,
which could translate into benefits to the consumer in terms of
lower prices. In summary, the Tribunal finds that the tariff relief
requested by Peerless would provide net economic gains for
27. As for 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 circumstances.
Peerless has provided no evidence to warrant such a recommendation.
However, it is the Tribunal’s view that the commencement of tariff
relief is warranted as soon as possible.
28. 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, plain weave, consisting solely of non-textured polyester
filaments mixed with elastomeric filaments, having the elastomeric
yarn only in the weft, of a weight of less than 90 g/m2,
of tariff item No. 5407.61.99, for use as lining in the manufacture
of suits, vests (waistcoats), jackets (sportcoats and blazers) and
trousers. The tariff relief should be granted as soon as
. The terms of reference were last modified on October 27,
. R.S.C. 1985 (4th Supp.), c. 47.
. C. Gaz. 2006.I.2264.
. Pursuant to rule 25 of the Canadian
International Trade Tribunal Rules, S.O.R./91-499, the Tribunal
has the authority to proceed by way of written submissions.
. S.C. 1997, c. 36.
. North American Free Trade Agreement
Between the Government of Canada, the Government of the United
Mexican States and the Government of the United States of
America, 17 December 1992, 1994 Can. T.S. No. 2 (entered into
force 1 January 1994) [NAFTA].
. 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