THE MINISTER OF FINANCE
REQUEST FOR TARIFF RELIEF BY
CHÂTEAU STORES OF CANADA LTD.
BOUCLÉ AND MOHAIR KNITTED FABRICS
FEBRUARY 13, 1996
TABLE OF CONTENTS
Request No.: TR-94-008
Tribunal Members: Raynald Guay, Presiding Member
Robert C. Coates, Q.C., Member
Desmond Hallissey, Member
Research Director: Marcel J.W. Brazeau
Research Manager: John Gibberd
Counsel for the Tribunal: David M. Attwater
Distribution Officer: Claudette 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
Pursuant to the Minister’s reference, on February 15, 1995, the
Tribunal received a request from Château Stores of Canada Ltd. (Le
Château) of Montréal, Quebec, for the removal of the customs duty
on importations, from all countries, of bouclé and mohair knitted
fabrics for use in the production of ladies’ tops, jackets, dresses
and skirts (the subject fabrics). Le Château requested that the
customs duty be removed for an indefinite period of time or until
domestic producers could supply the subject fabrics in a timely and
On April 7, 1995, the Tribunal, being satisfied that the request
was properly documented, issued a notice of commencement of
investigation, which was widely distributed and published in the
April 22, 1995, edition of the Canada Gazette, Part I.
As part of the investigation, the Tribunal’s research staff sent
questionnaires to 25 potential producers of the subject fabrics and
of identical or substitutable fabrics. Also, questionnaires were
sent to 6 potential users of the subject fabrics for use in the
manufacture of ladies’ tops, jackets, dresses and skirts and to a
number of potential importers of the subject fabrics. Two letters
were sent to the Department of National Revenue (Revenue Canada),
one requesting advice as to the tariff classification of the
subject fabrics and another asking for advice on the tariff
classification of fabrics produced by Cannon Knitting Mills Limited
(Cannon), a domestic producer. Samples of the subject fabrics and
domestically produced fabrics were provided to assist in the
laboratory analyses. Letters were also sent to a number of other
government departments requesting information and advice.
On June 5, 1995, the staff investigation report, summarizing the
information received from these departments, Le Château and other
firms that responded to requests for information, was provided to
the parties that had filed notices of appearance for this
investigation. The parties to the investigation are Le Château,
Paris Star Knitting Mills Inc. (Paris Star), Cannon and the
Canadian Textiles Institute (CTI). The CTI filed a submission with
the Tribunal, to which Le Château filed a response.
On June 23, 1995, the Tribunal received a request from the CTI
asking that the investigation be held in abeyance for 60 days in
order to allow the CTI the possibility of defining with the parties
one or two classes of goods that cover, at least, some portion of
the subject fabrics and that are acceptable to textile producers,
administrable by Revenue Canada and beneficial to users. The
Tribunal, after having received Le Château’s concurrence, wrote to
the CTI on July 13, 1995, to indicate that it had decided to hold
the investigation in abeyance for 60 days so that the CTI might
seek a resolution covering some portion of the request.
The CTI’s proposals for tariff relief were received by the
Tribunal on October 27, 1995. Comments on these proposals were
received from Le Château on November 8, 1995, and from Cannon on
November 9, 1995. Subsequently, Cannon, at the request of the
Tribunal, further clarified its position on November 15, 16 and 24,
1995. Paris Star did not provide comments on the proposals.
A public hearing was not held for this investigation.
Le Château’s request covered imports of all bouclé and mohair
fabrics classified under tariff item No. 6002.93.00 of Schedule I
to the Customs Tariff.  However, it only submitted four samples of the
subject fabrics that it intended to import. The following table
presents a summary of Revenue Canada’s analyses of the subject
fabrics. Three of the samples contain bouclé yarns, two of which
contain more than 50 percent by weight of bouclé yarns. Two of the
samples contain mohair, one of which contains more than 25 percent
by weight of mohair. The samples range in weight from 260 to 362
SUMMARY OF REVENUE CANADA’S ANALYSES
OF FOUR SAMPLES OF THE SUBJECT FABRICS
Percentage Composition by Weight
Source: Revenue Canada laboratory reports.
Revenue Canada noted that the notice of commencement of
investigation indicated bouclé and mohair knitted fabrics and went
on to caution about the use of the terms “bouclé” and “mohair” in
the event that a tariff relief provision is created for each of the
subject fabrics. The term “bouclé” should not be used in the
wording of a tariff relief provision for the fabric that does not
contain bouclé yarns, and the term “mohair” should be omitted from
a tariff relief provision for the fabrics that do not contain
mohair. Also, the two fabrics that do contain mohair are more
appropriately referred to as “fabrics containing mohair” rather
than “mohair fabrics.” To be described as mohair fabrics, they
would have to contain predominately mohair. Revenue Canada also
indicated that there would be no additional costs, over and above
those already incurred by it, to administer the tariff relief
should it be granted.
Revenue Canada advised the Tribunal that the subject fabrics are
classified under tariff item No. 6002.93.00. They were dutiable, in
1995, at 20.5 percent ad valorem under the MFN tariff and
the GPT; at 18.0 percent ad valorem under the BPT; at 7.5
percent ad valorem under the U.S. tariff; and at 20.0
percent ad valorem under the Mexico tariff. Under the
recently concluded Multilateral Trade Negotiations, the MFN rate is
scheduled to be reduced to 14.0 percent on January 1, 2004.
Revenue Canada also performed analyses of three samples of
bouclé fabrics submitted by Cannon. The laboratory report indicated
that, while the samples were not identical to those of Le Château,
the fabrics, if imported into Canada, would also be classified
under tariff item No. 6002.93.00.
Le Château intends to use the subject fabrics to produce ladies’
tops, jackets, dresses and skirts. Le Château designs the garments,
makes the patterns, cuts the fabric according to the patterns,
purchases the required trimmings and supplies, and prepares labels
and size and price tags. Sewing contractors pick up the cut lots
and other materials from Le Château and return the finished
garments to Le Château’s warehouse. The garments are then inspected
and distributed to Le Château’s stores in Canada and the United
States. Le Château also sells garments in Sears Canada Inc. stores
in Canada and exports a small volume of garments to stores outside
the Le Château chain in the United States.
The apparent market for bouclé and mohair fabrics for use in the
production of ladies’ tops, jackets, dresses and skirts in 1995
consists of the 88,000 metres of imports by Le Château and Paris
Star, and the domestic production of Cannon, Knitronics
International Inc. (Knitronics) and Les Tissus A&G (1982) Inc.
(A&G). As well, Tiger Brand Knitting Company Limited (Tiger
Brand) produced an undisclosed amount of the subject fabrics for
its own consumption.
Three of the samples of the subject fabrics that Le Château
submitted have a 3 gauge construction, while one has a 7 gauge
construction. The bulk of Paris Star’s imports of bouclé and mohair
fabrics have a construction in the 3-to-5 gauge range. In the case
of domestic production, the three samples submitted by Cannon from
its family of bouclé fabrics were reported to have a finer gauge
construction than Le Château’s four samples of the subject fabrics.
Knitronics, a converter that contracts with others to produce its
fabrics, claimed that the bouclé-like fabric (a bouclé effect is
created mechanically rather than through the use of bouclé yarns),
which it recently produced, had a finer gauge construction than Le
Château’s samples of the subject fabrics, as did a bouclé fabric
made by Knitronics five years ago. The bouclé fabric produced by
A&G was reported to have an 18 gauge construction.
Le Château requested that the MFN tariff be removed for an
indefinite period of time or until domestic producers could supply
the subject fabrics in a timely and competitive fashion. Le Château
is supported in this request by Paris Star. The estimated duty
saving for these two companies, for 1995, is $138,000.
Le Château’s request applies to all bouclé and mohair fabrics;
however, its case in support of tariff relief is directed towards
the importation of the subject fabrics for which four samples were
provided. Le Château claims that the subject fabrics are not
readily available from the domestic pool of supply and that no
substitutable fabrics with the required characteristics and proven
quality standards are available domestically.
Le Château states that domestic knitters that claim that they
are able to produce identical or substitutable fabrics are not able
to deliver the fabrics within the required delivery times, as the
specialty yarns used in the manufacture of the fabrics are not
available in Canada. Le Château claims that the quantity of each
design of fabric is not large enough for domestic producers to knit
the fabrics at a viable cost and states that the prices quoted for
domestically produced acceptable and substitutable fabrics are much
higher than the landed cost of imports.
Le Château claims that tariff relief will lower the cost of
Canadian-made garments and, as a consequence, it expects to export
more to the United States. In turn, increased exports will bring
about a higher volume of Canadian production. Le Château claims
that importing the subject fabrics and producing garments in Canada
gives it a competitive edge by being able to react quickly to
changing market conditions.
Le Château claims that tariff relief on the subject fabrics for
which four samples were provided will lower retail prices on
garments and result in benefits of close to $280,000 for consumers
of the end products. Le Château states that imports of the subject
fabrics will create almost 30,000 equivalent person-hours of work.
It contends that tariff relief will facilitate and favourably
influence future decisions to import fabrics rather than import
Paris Star, which supports the request and imports the subject
fabrics for use in the manufacture of ladies’ apparel, claims that
bouclé and mohair fabrics are not a viable proposition for domestic
knitters. Paris Star, which is also a knitter, states that it could
never compete economically with the fashion-oriented producers of
bouclé fabrics in Europe and the Orient.
Le Château submitted the names of five domestic knitters that
had been approached to quote on the subject fabrics and that had
declined to do so. A sixth company, Knitrama Fabrics Inc.
(Knitrama), supplied quotations on the subject fabrics. The
quotations for the four samples were higher than Le Château’s
landed cost of the subject fabrics, and only one of the quoted
prices was close to the landed cost of one of the subject fabrics.
Knitrama did not participate in the Tribunal’s investigation.
One of the companies that declined Le Château’s request for
quotations was Silver Knitting Mills Ltd. (Silver Knitting). In a
letter submitted to the Tribunal, Silver Knitting stated that it
did not produce bouclé and mohair fabrics. It stated that, if Le
Château sources the subject fabrics elsewhere, it had no objection
and that it was of the opinion that tariffs on unusual items do not
affect the demand for, or supply of, those items.
Le Château claims that Knitronics also declined its request for
quotations. Knitronics opposes Le Château’s request for tariff
relief because tariff relief would allow the duty-free entry of
finer gauge bouclé and bouclé-like fabrics. Knitronics also stated
that the possibility of misclassification of fabrics as bouclé and
mohair fabrics is a big problem.
Cannon states that it produces the subject fabrics and opposes
Le Château’s request for tariff relief. Cannon points out that the
textile industry is very competitive and that purchasers can be
influenced by a very small price differential. Tariff relief could
significantly diminish Cannon’s sales volume depending on the
importance of the subject fabrics in the market for any particular
season. This, in turn, would result in a significant layoff of
staff, with a consequential loss of wages.
A&G does not oppose the request for tariff relief on imports
of the four samples of the subject fabrics, but does oppose the
blanket application of tariff relief on bouclé fabrics. However,
A&G said that the sales of its bouclé acrylic and cotton
fabrics have not been substantial enough to justify opposition on
the basis of lost sales or profits.
In its submission of June 26, 1995, the CTI opposed the request
on the grounds that the scope of the request had not been defined
in terms which textile producers could meaningfully address and
which Revenue Canada could reliably administer. Because the request
is so vaguely defined, the Tribunal has not elicited the
information required to assess the damage that would be caused to
producers as a result of granting tariff relief. In examining the
scope of the request, the CTI questions whether the terms “bouclé”
and “mohair” are conjunctive or disjunctive, pointing out that one
of the samples of the subject fabrics contains no bouclé yarns and
that two contain no mohair. The CTI assumes that the request covers
two classes of fabrics: bouclé knitted fabrics and mohair knitted
fabrics. The CTI also points to the need to define terms such as
“mohair,” “mohair knitted fabric,” bouclé yarn” and “bouclé knitted
fabric” and to specify the mohair content required for a fabric to
qualify as a mohair fabric and the bouclé yarn content necessary
for a fabric to qualify as a bouclé fabric.
The CTI does not accept the methodology used in the staff
investigation report to calculate benefits and costs, noting that
the methodology will turn out a net benefit in every case except
where the domestic producers hold 100 percent of the market. It
goes on to state that a tariff reduction will have a proportionally
greater negative impact on the margins of the domestic producer
than a positive effect on the gross margins of a user. The removal
of the tariff drives import volumes in the same way as promotion
pricing in retail drives sales. The difference between the two,
however, is that the market distortion caused by tariff relief can
continue indefinitely with the government paying the bill, where
retail promotions are constrained by the need for retailers to be
profitable. Therefore, the CTI argues that the benefit/cost
analysis should take into account the artificially induced import
volume or, alternatively, the tariff relief measure should be in
the form of a tariff rate quota.
The CTI observes that two domestic producers, Cannon and
Knitronics, oppose the request for tariff relief. As well, A&G
and Tiger Brand produce fabrics that fall within the scope of the
request. The CTI also notes that Borg Textiles Inc. produces bouclé
sliver knit fabrics.
On October 27, 1995, the Tribunal received the following tariff
relief proposals from the CTI:
1. Knitted fabrics, containing 50% or more by weight of
bouclé yarn*, valued at not less than $15.00/kg, of tariff item No.
6002.93.00, for use in the manufacture of women’s jackets, dresses,
skirts, pullovers and similar articles.
* Definition: bouclé yarn, a novelty yarn of very uneven
appearance characterized by loops or curls, is made of three or
more elements including two relatively fine foundation yarns and
one relatively thick yarn which has been delivered at a faster rate
than the foundation yarns.
2. Knitted fabrics, containing 25% or more by weight of
mohair, valued at not less than $17.50/kg, of tariff item No.
6002.93.00, for use in the manufacture of women’s jackets, dresses,
skirts, pullovers and similar articles.
The CTI contends that these proposals will provide tariff relief
on three of the four samples of the subject fabrics. The CTI is
concerned that the minimum values used in the product definitions
may lead to an unexpected volume of duty-free imports that compete
at price levels served by domestic producers. To forestall this
from happening, the CTI suggests the use of a tariff rate quota and
states that the Tribunal should include the use of a tariff rate
quota in its recommendation to the Minister.
On November 8, 1995, the Tribunal received a letter from Le
Château indicating that it was pleased with the CTI’s proposals. Le
Château stated that, although the CTI’s proposals only covered
three of the four samples of the subject fabrics, it was more than
willing to accept this limitation.
Paris Star did not respond to the CTI’s proposals.
On November 9, 1995, Cannon submitted its response to the CTI’s
proposals to the Tribunal and, subsequently, provided further
details of its position on three occasions. Cannon opposes the
CTI’s proposals because they would remove the tariff on imported
fabrics that are identical to or substitutable for fabrics produced
by Cannon. Cannon has the capability to produce bouclé fabrics that
contain 50 percent or more by weight of bouclé yarns and whose
average delivered wholesale price would be greater than $15/kg. It
also has the capability to knit mohair fabrics that contain 25
percent or more by weight of mohair and that would most likely have
a delivered wholesale price of between $15 and $18/kg. Cannon has
produced knitted fabrics containing mohair in the past. Moreover,
Cannon produced a bouclé fabric in 1994 and 1995 that has a bouclé
yarn content of greater than 50 percent and an average delivered
wholesale price of greater than $15/kg.
Cannon also states that a value per kilogram may be difficult to
police, as the stated value does not always reflect the actual
value. It is also of the opinion that granting the requested tariff
relief is contrary to the principle that, if something is
manufactured in Canada, it should be sourced in Canada. Finally,
Cannon believes that it is at a competitive disadvantage in
producing the subject fabrics, since the yarns are subject to a
duty when imported from a non-NAFTA country.
The Tribunal is directed to conduct investigations into requests
for tariff relief and to make recommendations that maximize net
economic gains for Canada. The Tribunal is to assess the economic
impact of tariff relief on domestic textile and downstream
producers, taking into account all relevant economic factors,
including the substitutability of domestically produced
In determining that Le Château’s request for tariff relief was
for two separate classes of fabrics, one for bouclé knitted fabrics
and the other for knitted fabrics containing mohair, the Tribunal
was guided by Revenue Canada’s analyses of the four samples
submitted and Le Château’s acceptance of the CTI’s proposals. These
proposals were made on the basis that Le Château had made a request
for two classes of fabrics. The Tribunal will deal with each class
Le Château’s request for tariff relief with regard to bouclé
knitted fabrics is quite broad and is not accompanied by technical
characteristics, such as yarn count, fabric weight or the
percentage of bouclé yarns contained in the fabric, that would
constrain the request. Given the broad scope of the request, the
Tribunal considers that the bouclé fabrics produced domestically by
A&G and Cannon are identical to the imported bouclé knitted
fabrics on which Le Château is requesting tariff relief. The
Tribunal believes that granting the tariff relief on bouclé knitted
fabrics will impact adversely on these domestic producers.
Therefore, in light of the information available, the Tribunal is
of the view that it is not appropriate to recommend tariff relief
on bouclé knitted fabrics.
The Tribunal also has before it the proposal made by the CTI for
granting tariff relief on fabrics containing 50 percent or more by
weight of bouclé yarns and having a value of not less than $15/kg.
Along with this proposal, the CTI submitted a definition for
“bouclé yarn.” The proposal and definition have been accepted by
CTI members. Le Château is also satisfied with both the proposal
and the definition. Le Château accepts the proposal, even though
one of the samples of the subject fabrics would not be eligible for
tariff relief, if the proposal were implemented, because it only
contains 28 percent by weight of bouclé yarns and 8 percent by
weight of mohair. Cannon does not accept the proposal. It produced
bouclé knitted fabrics in 1994 and 1995 that contained more than 50
percent by weight of bouclé yarns and had a delivered wholesale
price of greater than $15/kg and, in the future, it will also
produce, on demand, fabrics with these characteristics. The bouclé
yarn content of these fabrics falls into the same range as that of
the bouclé knitted fabrics that would be allowed duty-free entry
under the CTI’s proposal. Also, the price per kilogram of Cannon’s
fabrics would fall into the same range as that of the imported
fabrics on which tariff relief was granted. The Tribunal is,
therefore, of the view that these duty-free imports will have an
adverse economic impact on Cannon and that this impact will
outweigh any potential benefits to be derived from granting tariff
relief on the basis of the CTI’s proposal.
Cannon also opposes the request with regard to knitted fabrics
containing mohair and does not accept the CTI’s proposal for
granting tariff relief on knitted fabrics containing mohair. Cannon
has produced knitted fabrics containing mohair in the past and
states that it will knit fabrics containing mohair in the future
when required by the market. These fabrics could have a mohair
content and a price per kilogram that fall into the same ranges as
those of the imported fabrics containing mohair that would be
allowed duty-free entry under the CTI’s proposal. The Tribunal
concludes, on the basis of available information, that imports of
the knitted fabrics containing mohair will have a negative economic
effect on Cannon that will be greater than any benefits to be
generated by granting tariff relief based on the request or the
The Tribunal considers that granting tariff relief based on Le
Château’s request or the proposals made by the CTI will not
maximize net economic gains for Canada. The Tribunal is aware that
knitted fabrics containing bouclé yarns or mohair come in and go
out of fashion in the marketplace rather quickly. The Tribunal
notes that, if at some time in the future Le Château has a
requirement for particular knitted fabrics containing bouclé yarns
or mohair for use in its apparel manufacturing operations that are
not available from Canadian sources, it can make a request for
tariff relief on imports of such fabrics.
In light of the foregoing, the Tribunal recommends to the
Minister that tariff relief not be granted on imports of bouclé
knitted fabrics, classified under tariff item No. 6002.93.00, for
use in the manufacture of ladies’ tops, jackets, dresses and
skirts. The Tribunal also recommends that tariff relief not be
granted on imports of knitted fabrics containing mohair, classified
under tariff item No. 6002.93.00, for use in the manufacture of
ladies’ tops, jackets, dresses and skirts.
Robert C. Coates, Q.C.
Robert C. Coates, Q.C.
1. R.S.C. 1985, c. 47
2. Vol. 129, No. 16 at
3. R.S.C. 1985, c. 41
[Table of Contents
Initial publication: August 28, 1996