REPORT TO THE MINISTER OF FINANCE
REQUEST FOR TARIFF RELIEF BY BALLIN INC. REGARDING CERTAIN
MARCH 9, 2001
TABLE OF CONTENTS
Request No.: TR-2000-004
Zdenek Kvarda, Presiding Member
Peter F. Thalheimer, Member
Richard Lafontaine, 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 December 21, 2000, pursuant to the Minister's reference, the
Tribunal received a revised request2
from Ballin Inc. (Ballin), of
Ville Saint-Laurent, Quebec, for the removal, for an indeterminate
period of time, of the customs duty on importations from all
countries of certain rayon-polyester fabrics for use in the
manufacture of shorts and trousers. Ballin also sought immediate
On January 3, 2001, 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 fabrics of rayon staple fibres other than viscose rayon
staple fibres, containing less than 85 percent by weight of rayon
staple fibres other than viscose rayon staple fibres, mixed mainly
or solely with man-made polyester filaments, of yarns of different
colours, measuring 125 decitex or more but not exceeding 280
decitex per single yarn, the staple fibres measuring not more than
3.0 decitex per single staple fibre, weighing 185 g/m² or more but
not exceeding 230 g/m², of tariff item No. 5516.23.90; and woven
fabrics of rayon staple fibres other than viscose rayon staple
fibres, mixed mainly with polyester, of yarns of different colours,
measuring 105 decitex or more but not exceeding 210 decitex per
single yarn, the staple fibres measuring not more than 2.0 decitex
per single staple fibre, weighing 190 g/m² or more but not
exceeding 230 g/m², of tariff item No. 5516.93.90, for use in the
manufacture of shorts and trousers (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 importers of the subject fabrics. A
letter was sent to the Canada Customs and Revenue Agency (CCRA)
requesting a complete description of the physical characteristics
of the samples submitted by Ballin, an opinion on whether the
tariff relief would be administrable and 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 was not necessary for the purposes
of this investigation, since potential producers of fabrics
identical to or substitutable for the subject fabrics did not
oppose the request.
A public hearing was not held for this investigation.
Ballin intends to import the subject fabrics for use in the
production of shorts and trousers. Ballin performs all its sewing
operations at its facility in Saint-Césaire, Quebec, and its
cutting, pressing, warehousing and distribution operations in Ville
Saint-Laurent. For its U.S. customers, Ballin has a warehousing and
distribution centre located in Fairfax, Vermont.
According to Ballin, the high-density weave of the subject
fabrics gives them the appearance and feel of fabrics made from
natural fibres. Ballin indicated that, when blended with synthetic
fibres, such as polyester, the subject fabrics possess superior
dimensional stability. Ballin stated that the subject fabrics
retain their shape, are easy to care for, and are very durable in
terms of both wash and care. Ballin stated that the subject fabrics
provide for optimal wearability and comfort, in that they are light
and breathable, and allow for high moisture absorption, unlike
synthetic fabrics, such as polyester, which do not breathe well and
which retain moisture.
As of January 1, 2001, the subject fabrics, classified for
customs purposes under tariff item Nos. 5516.23.90 and
5516.93.90 of the schedule to the Customs
are dutiable at 16 percent ad valorem
under the MFN tariff and are 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 on January 1, 2003, and 14 percent ad
valorem on January 1, 2004.
Founded in 1946, Ballin manufactures men's trousers and shorts,
as well as women's sportswear (jackets, pants, shorts and skirts).
The company is privately owned and employs in excess of 700 people.
Since the early 1990s, Ballin has established itself as a producer
of high-end trousers and shorts with a significant presence in the
U.S. market, and it has signed licence agreements to market
well-known brands, such as Pierre Cardin, Como (Saks), Van Heusen
and Bill Blass.
In its request for tariff relief, Ballin alleged that identical
or substitutable fabrics are not available in Canada. Ballin
indicated that the composition of the subject fabrics, as well as
the finishing process to which they are subjected, distinguishes
them from fabrics available domestically. In this regard, Ballin
stated that the supplier (Puig Codina of Spain) of sample 5242
markets this fabric as being unique because it is constructed of
rayon fibres manufactured by Säteri in
Finland. Ballin pointed out that Säteri markets the fibres as being
unique due to improvements in the preparation of the cellulose
pulp, increased drawing during the spinning process and the use of
specific additives, all of which enhance tenacity. Ballin also
stated that this fabric can be subjected to a special fibrillation
process involving the application of a severe enzyme treatment,
dyeing and tumbling. According to Ballin, the enzyme treatment
literally eats away at the fibres and causes them to burst into
many smaller fibres. The fabric is then dyed and tumbled in an
"AIRO" machine in order to open its fibres further. Ballin
indicated that this process gives the fabric its "peach skin" hand.
Ballin stated that regular rayon-polyester blends have a limiting
factor of not being resistant to demanding enzyme, dyeing and
tumbling processes. Ballin alleged that no domestic fabrics are
manufactured using this unique production process.
With respect to samples 5193 and 5196 provided with the request
for tariff relief, Ballin indicated that these fabrics are
subjected to a unique scouring, dyeing, enzyme and mechanical
finishing process that few finishers throughout the world can
perform. According to Ballin's supplier, this contributes to the
very soft hand of the fabrics. As for sample 5193, a 61 percent
and 39 percent polyester blend, Ballin
stated that it has a unique "mini-honeycomb" design, which makes it
an excellent fabric for the high-end men's trousers and shorts that
it manufactures. Ballin indicated that the Tencel/polyester blend
produced by Doubletex, a domestic manufacturer, is not
substitutable for this sample. According to Ballin, the Doubletex
fabric is lightweight and more suitable for lower-end ladies' wear.
Ballin stated that it currently purchases some of Doubletex's
cotton/Tencel "Dakota" fabric for some of its men's trousers, but
that this fabric is not substitutable for the subject fabrics.
Ballin submitted that the subject fabrics enjoy a certain
exclusivity and allure which appeal to retailers of high-quality
garments. Ballin indicated that apparel made from the subject
fabrics therefore command a higher price in the marketplace. Ballin
stated that it intends to sell garments made with the subject
fabrics to high-end retailers, such as Saks Fifth Avenue,
Nordstroms, Henry Vezina, Holt Renfrew and Neiman Marcus. Ballin
also stated that, because of the unique characteristics of the
subject fabrics, it intends to use them in the manufacture of
high-end golf apparel.
Ballin stated that the fabrics available from domestic
producers, such as Consoltex Inc. (Consoltex), do not have the
allure or physical characteristics of the subject fabrics and,
therefore, are not substitutable for the subject fabrics nor
suitable for Ballin's sales to high-end retailers. Ballin stated
that domestically produced fabrics may be suitable for pants
offered for sale by a low-end retailer, such as Wal-Mart, but that
Ballin's clientele demands far more in terms of quality, hand,
exclusivity and allure. Ballin indicated that it currently uses 8
to 10 different viscose rayon-polyester fabrics purchased from
Consoltex in the manufacture of lower-end ladies' apparel.
As regards price, Ballin stated that the fabrics available from
domestic production are less expensive than the subject fabrics. On
this issue, Ballin pointed out that the cost to Ballin of the
subject fabrics, after duty removal, would still be higher than the
cost of fabrics sold by domestic producers. Ballin also pointed out
that the ladies' pants that it manufactures with Consoltex's
fabrics retail for approximately $60 to $70, whereas the trousers
made from the subject fabrics will retail for $165.
Ballin stated that, given the dynamic nature of the textile and
apparel industries, it is important for Ballin to acquire specific
fabrics that it knows will be marketable in a targeted market niche
within a short time frame. Ballin pointed out that its market share
in the U.S. market has grown consistently over the past nine years
because of the strong demand for high-quality trousers and shorts
manufactured from fabrics such as the subject fabrics. In addition,
Ballin stated that high-quality trousers and shorts command a
higher price in the U.S. market. In this regard, Ballin indicated
that a pant manufactured with the subject fabrics that wholesales
for approximately $65 in Canada would sell for approximately
in the United States.
Ballin submitted that tariff relief will enable it to sell
trousers and shorts manufactured from the subject fabrics at
competitive prices in Canada and the United States in order to
maintain or increase its market share. Ballin projects that tariff
relief will enable it to increase sales of trousers in the 12-month
period ending December 31, 2001, by approximately 80,000 units,
which represents $4.5 million in additional revenues.
Ballin submitted that tariff relief is necessary to overcome the
negative effects of the modifications to the duty drawback program
that have increased the cost of Ballin's end products and have
decreased its competitive edge relative to U.S. manufacturers. It
also stated that tariff relief would be of significant benefit to
the company when, due to the exhaustion of the Canadian tariff
preference levels (TPLs)8
for cotton and man-made fibre apparel at
the end of each year, it must resort to purchasing extra
from another TPL holder. However, Ballin
cannot be assured that it will have the option to purchase extra
TPLs in the future and, in this regard, it submitted that tariff
relief could offset these costs.
Ballin submitted that tariff relief will not result in any
"cost" to the domestic textile industry because the fabrics offered
for sale by domestic producers meet the needs of a different,
lower-end market niche and are therefore not suitable for Ballin's
needs. Ballin submitted that, should tariff relief be granted, it
will not be conferred any competitive advantage in the lower-end
market niche at the expense of the domestic industry because the
subject fabrics will not compete at this level. Finally, Ballin
asked for immediate tariff relief.
No other domestic clothing producers filed any submissions.
Domestic fabric producers did not participate in the
The Department of Foreign Affairs and International Trade
(DFAIT) informed the Tribunal that Canada maintains quota
restraints on polyester filament fabric, including any fabric mixed
mainly or solely with polyester filaments (category 35.0), imported
from the Republic of Poland, the Republic of Korea and Taiwan.
Accordingly, this coverage includes the subject fabrics of tariff
item No. 5516.23.90. Bilateral agreements, which provide for these
restrictions, between the Government of Canada and the Government
of the Republic of Korea and with the Taiwan Textile Federation
have been in place since 1978. The bilateral agreement between the
Government of Canada and the Government of the Republic of Poland
has been in place since 1979.
DFAIT stated that Canada does not maintain quota restraints on
the subject fabrics classified under tariff item No.
DFAIT also indicated that it will consider requests for ex-quota
entry on textile inputs where a recommendation has been made by the
Tribunal to remove customs duties on the basis of non-availability.
Ex-quota treatment will only be granted in cases where it can be
demonstrated that there is an extra charge for using products under
quota or where goods are not otherwise available in Canada.
The CCRA stated that the samples of the subject fabrics
contained either polynosic or Lyocell rayon staple fibres. The CCRA
also 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.
Ballin's request covers certain rayon-polyester fabrics for use
in the manufacture of shorts and trousers. The Tribunal notes that
this request is somewhat similar to Request No. TR-97-012 filed by
Ballin in December 1997 and further amended on February 26 and
March 12, 1999. That case covered importations of fabrics made of
polyester and polynosic rayon staple fibres, for use in the
manufacture of men's shorts and trousers. On October 27, 1999, 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. 1999-219910
December 16, 1999, amended the schedule to the Customs
Tariff, inter alia, by removing the customs duty on the
importation of: (1) woven fabrics, of yarns of different colours,
of polyester filaments, mixed solely with polynosic rayon staple
fibres, the 2-ply warp yarns and the single weft yarns measuring
190 decitex or more but not exceeding 250 decitex per yarn, the
staple fibres measuring not more than 2.4 decitex per single staple
fibre, of a weight exceeding 170 g/m2, of tariff item
No. 5407.93.30; and (2) woven fabrics, of yarns of different
colours, of polynosic rayon staple fibres, mixed mainly with
polyester filaments or polyester staple fibres, measuring 85
decitex or more but not exceeding 250 decitex per yarn, the staple
fibres measuring not more than 3.4 decitex per single staple fibre,
weighing 120 g/m2 or more but not exceeding 210
g/m2, of tariff item No. 5516.23.20, both for use in the
manufacture of men's shorts and trousers.
Ballin claimed that there is no domestic production of fabrics
identical to or substitutable for the subject fabrics. This claim
was not contested by any domestic fabric producers. Therefore,
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 fabrics. On the basis of the
information available to the Tribunal, tariff relief would result
in yearly benefits to Ballin 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 Ballin would provide net
economic gains to Canada.
With respect to Ballin's request that tariff relief be effective
"immediately", the Tribunal interprets this request to mean that
Ballin would like tariff relief to be effective as of the date of
the request. The Tribunal has stated, in previous cases, that it
will not consider recommending such relief other than in
exceptional circumstances. Ballin has provided no evidence to
justify such a request. Therefore, the Tribunal is not persuaded
that the current circumstances are so exceptional as to warrant a
recommendation for retroactive tariff relief.
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 of
rayon staple fibres other than viscose rayon staple fibres,
containing less than 85 percent by weight of rayon staple fibres
other than viscose rayon staple fibres, mixed mainly or solely with
man-made polyester filaments, of yarns of different colours,
measuring 125 decitex or more but not exceeding 280 decitex per
single yarn, the staple fibres measuring not more than 3.0 decitex
per single staple fibre, weighing 185 g/m² or more but not
exceeding 230 g/m², of subheading No. 5516.23; and woven fabrics of
rayon staple fibres other than viscose rayon staple fibres, mixed
mainly with polyester, of yarns of different colours, measuring 105
decitex or more but not exceeding 210 decitex per single yarn, the
staple fibres measuring not more than 2.0 decitex per single staple
fibre, weighing 190 g/m² or more but not exceeding 230 g/m², of
subheading No. 5516.93, for use in the manufacture of shorts and
Peter F. Thalheimer
Peter F. Thalheimer
1 . R.S.C.
1985 (4th Supp.), c. 47.
original request for tariff relief was received on October 17,
3 . C.
4 . R.S.C.
1985 (3d Supp.), c. 41.
Tenacity is defined as the breaking strength of a yarn or fabric
stated in force per unit of cross-sectional area or per unit of
6 . Tencel
is a trade name for Lyocell, a solvent-spun cellulosic fibre which
was developed by Courtaulds, a company based in Axis, Alabama. In
April 1996, the U.S. Federal Trade Commission recognized Lyocell as
a subclass of rayon (FTC News Release, 12 April 1996).
8 . The
North American Free Trade Agreement-32 I.L.M. 289 (entered
into force 1 January 1994) [hereinafter NAFTA]-provides
preferential quotas for apparel and textiles that do not meet the
rules of origin. These take the form of TPLs, formerly known as
tariff rate quotas under the Canada-United States Free Trade
Agreement. TPLs permit the importation of a fixed quantity of
certain "non-originating" goods into Canada, the United States and
Mexico at the NAFTA rate of duty. To qualify for this,
manufacturers must have cut (or knitted or shaped) and sewn or
otherwise assembled the apparel in Canada. Goods entering a NAFTA
country in quantities above the TPLs are subject to the higher MFN
rate of duty usually applied to non-NAFTA trading partners. Under
NAFTA, however, full duty drawback applies only to Canadian apparel
exports to the United States that are traded at full MFN rates of
duty (after the TPLs have been fully utilized).
Estimated at $1.41 per TPL in 1999.
Order Amending the Schedule to the Customs Tariff, 1999-5,
C. Gaz. 2000.II.29.
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Initial publication: March 12, 2001