REFERENCE FROM THE MINISTER OF FINANCE
PURSUANT TO SECTION 19 OF THE
CANADIAN INTERNATIONAL TRADE TRIBUNAL ACT
CERTAIN COMBED, RING-SPUN, POLYCOTTON, BLENDED YARNS
JANUARY 22, 1996
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Request No. TR-94-002A
On November 22, 1995, pursuant to section 19 of the Canadian
International Trade Tribunal Act,  the Minister of Finance (the Minister)
requested that the Canadian International Trade Tribunal (the
Tribunal) inquire into information submitted to him by Canadian
Yarns Ltd. (CYL), a producer of certain carded, open-end spun
yarns, taking into account information previously submitted to the
Tribunal in connection with the inquiry conducted in respect of a
request for tariff relief (Request No. TR-94-002),  together with any other
information that the Tribunal considers appropriate in the
circumstances. The reference also directed the Tribunal to report
within 60 days from the date of reference as to whether tariff
relief is warranted on the importations of combed, ring-spun,
polycotton, blended yarns.
On July 5, 1995, the Tribunal, following an investigation into a
request by Kute-Knit Mfg. Inc. (Kute-Knit), recommended to the
Minister that the customs duty on importations of combed,
ring-spun, polycotton, blended yarns be removed for a period of
three years, on the grounds that carded, polycotton yarns produced
in Canada were not substitutable for the imported combed,
ring-spun, polycotton yarns and that there would be net economic
benefits from granting tariff relief.
At the time of the original investigation in Request No.
TR-94-002, the Tribunal was unable to conclude that there was
domestic production of combed, ring-spun yarns. However, it was
satisfied, on the basis of information on file, that there were
significant quantifiable and qualitative differences between the
yarns produced in Canada and those imported by Kute-Knit, a knitter
and manufacturer of children’s wear, and other users of combed,
ring-spun yarns which led the Tribunal to conclude that carded
yarns were not substitutable for combed, ring-spun yarns and,
therefore, to recommend tariff relief.
As part of the present investigation, the Tribunal reviewed all
the information from the previous investigation, as well as more
up-to-date information obtained through questionnaires and
submissions from domestic producers, importers and users relating
to the production, importation, sales and prices of polycotton
blended yarns in Canada.
In its submissions to the Tribunal, CYL provided volumes and
values of the various carded, open-end, polycotton yarns that it
produces. In addition, a price list showed how the prices for these
yarns fluctuated between April and October 1995, with a general
decline over the period. CYL explained that yarn producers have
been required to reduce prices of open-end spun yarns because of
excess inventories due to slowness in the North American retail
market. It was submitted that, under normal economic conditions,
the price difference between open-end spun yarns and ring-spun
yarns would be less pronounced than under current prices.
CYL’s position is that the removal of the tariff on combed,
ring-spun yarns will be injurious to the production of carded,
open-end spun yarns in Canada. It was argued that combed, ring-spun
yarns are technically substitutable for open-end spun yarns and of
a higher quality. If the MFN duty on combed, ring-spun, polycotton
yarns were removed, a small price difference would exist, resulting
in a switch to ring-spun yarns. To protect their market, domestic
producers would be required to reduce the price of open-end spun
yarns by an amount equivalent to the tariff relief or risk the loss
of market share. Furthermore, tariff relief would create a tax
loophole for lower-priced carded, ring-spun yarns to which only a
small percentage of the cotton fibres were combed.
The Tribunal notes that CYL commenced production of a limited
range of blends and yarn sizes of carded, open-end spun yarns in
April 1995. This company is one of five domestic producers of
carded yarns. The others are Dominion Yarn Company (DYC) and
Dominion Specialty Yarns (DSY), both of which are divisions of
Dominion Textiles Inc., Glendale Yarns Inc. and Les Fils Select, a
new entrant in the industry. DYC is by far the largest Canadian
producer, with more than 70 percent of the total domestic
production of polycotton yarns, and it supplements this production
with significant volumes of imports.
The Tribunal also notes that DSY reported some production of
combed yarns and carded, ring-spun, polycotton yarns during 1995,
but that the combined production of those yarns accounted for less
than 3 percent of the total estimated domestic production of
polycotton yarns. Moreover, DSY’s production of combed, ring-spun
yarns was less than 1 percent of the total domestic production of
polycotton yarns. The preponderance of domestic production of
carded, open-end, polycotton yarns is concentrated in the lower
yarn sizes, such as 12/1, 18/1 and 24/1, while imports of the
combed, ring-spun, polycotton yarns are concentrated in the higher
The pricing data submitted to the Tribunal generally show that
combed, ring-spun yarns command markedly higher prices than carded,
open-end spun yarns. The significant gap in prices is attributable,
in part, to the superior quality of combed, ring-spun yarns which
results from additional processing. Another reason for the higher
prices is the higher cost of production, because the labour content
of combed, ring-spun yarns is significantly higher than that of
carded, open-end spun yarns.
It has been the position of the Canadian Textiles Institute
(CTI) in these proceedings, on behalf of its member companies, that
the MFN tariff, in this case 10 percent, act as a “breakwater,”
thereby sheltering domestic yarn producers against the full impact
of artificially underpriced imports. The CTI also contends that,
given a small enough price differential, knitters will undoubtedly
switch from carded, open-end spun yarns to combed, ring-spun yarns,
given their superior quality. The Tribunal does not take issue with
these arguments. However, it has found, based on information
submitted to it, that the price differential between the
domestically produced carded, open-end, polycotton yarns and
imported combed, ring-spun yarns is significantly greater than the
MFN tariff. Knitters now using domestic carded yarns in the
production of fabrics and garments are, therefore, not likely to
switch to imported, combed, ring-spun yarns in the absence of the
customs duty on such imports.
The Tribunal notes that, to the extent that the textile industry
can justify its allegations of subsidized fibres used in imported
yarns, the proper mechanism for seeking relief is the imposition of
countervailing duties under the Special Import Measures Act.
On the basis of its examination of all information and
submissions in Request No. TR-94-002A and re-examination of the
record in Request No. TR-94-002, the Tribunal finds no reason to
change the recommendation in Request No. TR-94-002. Accordingly,
the Tribunal hereby recommends that the customs duty on
importations of combed, ring-spun, polycotton, blended yarns be
removed for a three-year period.
Arthur B. Trudeau
Arthur B. Trudeau
Robert C. Coates, Q.C.
Robert C. Coates, Q.C.
1. R.S.C. 1985, c. 47
2. Report to the
Minister of Finance: Request for Tariff Relief by Kute-Knit Mfg.
Inc. Regarding Combed, Ring - Spun, Polycotton, Blended Yarns ,
July 5, 1995.
3. R.S.C. 1985, c.
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Initial publication: August 28, 1996