THE MINISTER OF FINANCE
REQUEST FOR TARIFF RELIEF BY
PERFECT DYEING CANADA INC.
RAW WHITE ACRYLIC YARN IN HANK FORM
FEBRUARY 26, 1996
TABLE OF CONTENTS
Request No.: TR-95-012
Tribunal Members: Anthony T. Eyton, Presiding Member
Lise Bergeron, Member
Lyle M. Russell, Member
Research Director: Marcel J.W. Brazeau
Research Manager: Richard Cossette
Counsel for the Tribunal: Hugh J. Cheetham
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 June 9, 1995, the
Tribunal received a request from Perfect Dyeing Canada Inc.
(Perfect Dyeing) of Montréal, Quebec, for the permanent removal of
the customs duty on importations of high-bulk, raw white (undyed)
yarn of 100 percent acrylic in hank form for use in the production
of high-bulk, dyed acrylic yarn (the subject yarn).
On September 29, 1995, the Tribunal, being satisfied that the
request was properly documented, issued a notice of commencement of
investigation into the appropriateness of reducing or removing the
tariff on the subject yarn. The notice was distributed and
published in the October 7, 1995, edition of the Canada
Gazette, Part I. 
As part of the investigation, the Tribunal’s research staff sent
questionnaires to potential producers of identical or substitutable
yarns. Questionnaires were also sent to known users of the subject
yarn for use in the production of high-bulk, dyed acrylic yarn. A
letter was sent to the Department of National Revenue (Revenue
Canada) requesting information on the tariff classification of the
subject yarn, and a sample was provided for laboratory analysis.
Letters were also sent to a number of other government departments
requesting information and advice.
A staff investigation report, summarizing the information
received from these departments, Perfect Dyeing and other
interested parties was provided to those that had filed notices of
appearance for this investigation. These parties included Perfect
Dyeing, Tex-Dye Industries (1980) Inc. (Tex-Dye), the Canadian
Textiles Institute (CTI) and Dawtex Industries, a Division of
Pickering Distributors Inc. (Dawtex).
A public hearing was not held for this investigation.
Perfect Dyeing described the subject yarn as high-bulk, raw
white (undyed) yarn of 100 percent acrylic in hank form for use in
the production of high-bulk, dyed acrylic yarn.
Perfect Dyeing indicated in its request that the subject yarn
was classified for customs purposes under tariff item No.
5509.32.00 of Schedule I of the Customs Tariff. 
Revenue Canada analyzed the sample submitted by Perfect Dyeing
and determined that it is an unbleached, multiple (2-ply) yarn, of
acrylic staple fibres, in hank form. Revenue Canada confirmed that,
for customs purposes, the subject yarn is classified under
classification No. 5509.32.00.00.
The Revenue Canada laboratory found that the subject yarn had
not yet been bulked. However, when it was submitted to wet
processing (e.g. boiling water), the subject yarn shrank by more
than 15 percent, thus increasing the bulkiness of the subject yarn.
The hank was found to weigh 448 g. The laboratory also found that
the subject yarn measured 577 decitex, or 288 decitex per single
yarn (per ply), that the metric count of the subject yarn was 17,
or 35 per single yarn, and that the subject yarn had approximately
240 turns per metre in the ply.
Revenue Canada added that, for classification purposes, it is
unable to distinguish whether or not a yarn is “high-bulk” versus
“bulk” or whether or not the yarn has the potential of being “high
bulked.” Revenue Canada further advised the Tribunal that, because
there is no clear definition of the term “high-bulk,” it would be
preferable to use the term “bulk,” rather than “high-bulk,” in any
proposed recommendation for tariff relief. Regarding end use,
Revenue Canada does not see merit in the wording “for use in the
production of high-bulk, dyed acrylic yarn,” as it is understood
that the subject yarn would require dyeing before its ultimate use.
Revenue Canada would have difficulty administering a tariff code
which referred to the manufacture of “low cost, mass market
 ” goods and
suggests the following terms, should an end-use condition be
required: “for use in Canadian manufactures.”
Revenue Canada advises that the subject yarn is dutiable at 10
percent ad valorem under the MFN tariff; at 3 percent ad
valorem and 3.3¢/kg under the U.S. tariff; and at 8 percent
ad valorem and 8.8¢/kg under the Mexico tariff.
Total imports of the subject yarn for use in the production of
high-bulk, dyed acrylic yarn for the 12-month period ending July
31, 1995, are estimated to have amounted to more than 1 million kg,
having a total value of roughly $5 million.  The imports originated in the Republic
of Korea, the People’s Republic of China, Indonesia and Malaysia.
The estimated market for the subject yarn consisted only of sales
from these imports in the referenced period. Imports by Perfect
Dyeing held an important share of the market during this
Perfect Dyeing notes that the key physical characteristics on
which the request is based are the fibre and form of the acrylic
yarn required, i.e. raw white and in hank form. “Raw white” refers
to the fibre in its natural, undyed state. In its raw white state,
the yarn cannot be used by a manufacturer of hats or accessories,
as it is not ready for knitting, and has not been “bulked” by the
process of dyeing. In the terminology of the industry, the yarn is
“not relaxed,” meaning that it will shrink to size when exposed to
relatively low water temperatures.
The subject yarn is dyed by Perfect Dyeing in hank form to allow
it to “bulk up” freely and “shrink” its full potential during the
dyeing process. The subject yarn will shrink anywhere from 22 to 28
percent during dyeing. Perfect Dyeing stresses that the subject
yarn can only be used in hank form, i.e. all its production
machinery is designed exclusively for dyeing yarns on hanks. The
subject yarn is used to produce high-bulk, dyed acrylic yarn, which
is sold to knitters that produce a broad variety of high-volume,
low-cost apparel and accessories, such as hats and sweaters.
Perfect Dyeing alleges that there is no current Canadian
production of the subject yarn. High-bulk, dyed acrylic yarn is
said to be a very price-sensitive commodity, whose end products
compete aggressively against imports on the exclusive basis of
The reason for the request is to enable the domestic industry,
i.e. dyers and knitters, to increase its competitiveness by the
value of the duty, thereby increasing volume. Perfect Dyeing
stressed that this increase in volume is targeted at the expense of
imports of finished products and not of other domestic yarns.
According to Perfect Dyeing, since there is no longer any domestic
supply of the subject yarn, the duty is hindering the larger
marketplace from being competitive.
In response to arguments raised that hank dyeing is antiquated
and not cost-efficient, Perfect Dyeing argues that hank dyeing is
widely acknowledged as the best process to produce the highest bulk
and the best loft and hand in a high-bulk acrylic yarn. There is an
abundant supply of high-bulk acrylic yarn on hanks available from
mills throughout the world, and not one of these mills produces
high-bulk, raw white acrylic yarn on cones. As well, it is only in
hank form that high-bulk acrylic yarn is able to bloom and bulk up
freely without any restrictions. In package dyeing, the yarn cannot
shrink because it is restricted by the dye spring. As regards cost
efficiency, in comparison with dyeing high-bulk yarn using the
package dyeing process, hank dyeing requires fewer operations. For
example, in hank dyeing, the yarn is bulked while it is being dyed,
whereas in package dyeing, the bulking of the yarn is a separate
On the point of substitutability, Perfect Dyeing argues that all
yarns differ in terms of performance, features, fibre, hand,
dyeability and price. In this regard, it is submitted that there
are two key reasons why it is impossible to use a non-bulk yarn in
a high-bulk application. First, if a knitter needs to produce a
bulky, wooly-looking sweater, then it must use a high-bulk yarn.
Second, if a knitter needs to have a product that competes in the
lowest end of the market, then it can only use a high-bulk
Perfect Dyeing further argues that fibre type is one of the most
important specifications for a product, and there is no compromise.
Fibres such as acrylic, cotton, polyester and wool are very
different from each other and cannot be substituted. As regards
price, Perfect Dyeing submitted comparative pricing charts in
support of the argument that the subject yarn is at the lowest end
of the market.
The offer received from Dawtex to commence producing the subject
yarn is argued to be a non-starter and financially unsound. As
well, the price at which Dawtex has offered to sell the subject
yarn to Perfect Dyeing is argued to be unacceptably high.
It is further argued that the pricing structure in the market
for yarns is so wide and that the market is comprised of such a
broad mixture of qualities and types of yarns that tariff relief on
one textile input, i.e. the subject yarn, has no bearing on the
pricing structure in the market as a whole. Further, this pricing
structure will not change should tariff relief be granted.
High-bulk yarn is a commodity yarn which does not compete with the
yarns produced by Spinrite Inc. (Spinrite) which “feature certain
performance and/or physical characteristics.” Dominion Specialty
Yarns (Dominion) does not produce high-bulk yarns and, therefore,
does not compete with Perfect Dyeing’s end product.
Should the tariff on the subject yarn be removed, Perfect Dyeing
intends to reduce its prices to its customers by the full amount of
the duty, such that its customers can be more competitive against
imported finished goods and be better positioned to expand export
sales. Because high-bulk, dyed acrylic yarn is highly
price-sensitive, Perfect Dyeing expects that lower prices will
stimulate demand. The anticipated increase in volume is expected to
increase employment and further reduce unit costs, thereby
Tex-Dye , another producer of high-bulk, dyed acrylic yarn that
uses the hank dyeing process, fully supports Perfect Dyeing’s
request for tariff relief, on the basis that there is no Canadian
supplier of the subject yarn.
Tex-Dye argues that any duty savings will be passed on to its
customers, that will be in a better position to compete against
imported end-use articles. According to Tex-Dye, the dyeing
industry is facing severe competition from the importation of
high-bulk acrylic yarns already dyed abroad in countries where
wages are extremely low and at levels with which the Canadian
labour force cannot compete. If tariff relief is granted, Tex-Dye
expects that sales will increase, which would enhance employment
and capital investment in production equipment.
Letters in support of Perfect Dyeing’s request for tariff relief
were received from a number of knitters, namely, Futurama Knitting
Mills (1971) Limited, Calko (Canada) Inc., Dales Canada Inc. and
Reine Knitting Mills Ltd.
Dawtex produces dyed and undyed yarns comprised of acrylic,
polyester, nylon and wool blends produced from imported raw fibres.
Dawtex’s basic position is that the Government of Canada should not
look at individual requests for tariff relief, but rather at what
best serves the entire textile yarn industry in Canada. Dawtex
opposes the request for tariff relief made by Perfect Dyeing and
states that it can produce an identical yarn at its Mississauga,
Ontario, location and that it presently produces a yarn which
closely resembles the subject yarn.
Dawtex notes that it has the capability to produce 1.2 million
more pounds per year and would be pleased to produce the required
1.0 million pounds of the subject yarn for Perfect Dyeing. It
further submits that, if such an order were received, it would
bring Dawtex’s production to almost full capacity, lower its unit
fixed costs, thereby lowering its unit selling price, and increase
employment by at least 30 employees.
Dawtex further argues that granting the tariff relief will
enable Perfect Dyeing to import a cheaper spun product and
negatively affect employment in the Canadian spinning industry.
Dawtex also argues that the impact on the company can be severe,
given that the hank-dyed yarns produced by Perfect Dyeing compete
directly with the dyed yarns manufactured by Dawtex from pre-dyed
fibres. The fragile recovery that has taken place over the last two
years at Dawtex would not continue, and the very existence of the
company would be at risk.
Dawtex argues that, because labour costs greatly exceed other
costs throughout Europe and North America, the labour-intensive
hank dyeing method is no longer economically feasible. In its view,
the acquisition by Perfect Dyeing of package dyeing equipment in
1978 is an indication that hank dyeing is not a cost-efficient
method in Canada.
Dawtex notes from Perfect Dyeing’s submission that the duty on a
hat is 3¢ and on a sweater is 15¢. In contrast to job losses and
other negative economic consequences which could result from
acceding to Perfect Dyeing’s request, the duty savings for hats and
sweaters are argued to be meaningless.
Dawtex argues that no guarantees were offered by Perfect Dyeing
or Tex-Dye that any duty savings resulting from the granting of
tariff relief would be passed on to end users. Likewise, there are
no guarantees that Perfect Dyeing, Tex-Dye and the knitters will
hire additional staff should tariff relief be granted.
Dawtex also argues that granting tariff relief will cause the
government to abandon a lucrative source of income and expose
itself to greater expense in enforcement and monitoring. It submits
that tariff relief, if granted, can ultimately result in the
complete loss of the Canadian textile yarn industry.
Dominion produces a variety of cotton system spun yarns
(including non-bulk acrylic yarns) used in the manufacture of knit
goods of the type described by Perfect Dyeing in its submission.
Dominion opposes the request for tariff relief.
Dominion argues that the removal of the tariff on the subject
yarn will have the effect of reducing selling prices of other yarns
(including its own) competing in the same end-use markets. Indeed,
high-bulk acrylic yarns are said to compete with other yarns
produced using different spinning technologies, dyeing methods and
fibres. According to Dominion, a price reduction of 20¢ on
high-bulk, dyed acrylic yarn resulting from removal of the tariff
will affect Dominion’s selling prices for competing yarns in the
same magnitude and will result in an annual loss in margin,
 putting its
production of sweater yarns at risk.
Dominion submits that a 15¢ reduction per sweater and a 3¢
reduction per hat due to the removal of the customs duty represents
only 1 percent or less of the respective wholesale selling prices
of these items. Therefore, it doubts that a reduction of this
magnitude in the wholesale price of such items can increase demand
for end-use items produced from high-bulk, dyed acrylic yarn by 15
to 20 percent, as is stated by Perfect Dyeing.
Spinrite, a worsted and woolen system spinner, does not
presently produce the particular type of yarn required by Perfect
Dyeing, but argues that it has the ability to produce high-bulk
acrylic yarns for the knitwear trade. Spinrite currently produces a
low-pill, high-bulk acrylic yarn and high-bulk blended yarns of
acrylic and wool for the knitwear trade. Spinrite expects to be
negatively affected by the duty-free entry of the subject yarn and,
thus, opposes the request for tariff relief made by Perfect
Spinrite notes that Canadian knitwear manufacturers purchase a
wide variety of yarns from domestic and imported sources to produce
goods for the Canadian and export markets. Such goods include
knitted apparel made from the subject yarn and goods made by
Perfect Dyeing’s customers from acrylic and acrylic blended yarns
produced domestically. With the current tariff in place, the
subject yarn is sold at low prices relative to the yarns that
Spinrite produces. Perfect Dyeing’s imports are “commodity” yarns,
while the yarns produced by Spinrite feature performance and/or
physical characteristics that allow Spinrite to obtain a better
Spinrite further argues that there is an existing pricing
structure in the marketplace and that yarn buyers expect certain
price differentials between competing yarns. It argues that the
removal of the tariff on the subject yarn will distort this pricing
structure and will impose a downward pressure on other yarns
produced in Canada for the knitwear trade.
Coats Canada Inc. is a manufacturer of acrylic hand knitting
yarns. The company submits that acrylic hand knitting yarns
imported in an unbleached state, on hanks, are classifiable in the
same heading as the subject yarn and can be adversely affected if
tariff relief is granted on the current product description. It,
therefore, asks that the product description be amended to
specifically exclude hand knitting yarns. The company suggests that
this can be done by inserting a yarn count parameter that will
serve to confine the coverage to machine knitting yarns only. In
discussions with Perfect Dyeing, it was mutually agreed that the
following wording could be used by the Tribunal to limit the scope
of any recommendation for tariff relief to machine knitting yarns
only: “Raw White High Bulk Acrylic in Hank Form where the single
yarn is finer than 1/20 Worsted Count before dyeing.”
The CTI, which represents Canadian manufacturers of textiles,
was an interested party in this investigation, but did not file a
preliminary submission on Perfect Dyeing’s request for tariff
The Department of Foreign Affairs and International Trade
informed the Tribunal that Canada currently maintains quota
restraints on yarn of acrylic staple fibre (their category 25.0),
imported from Malaysia, Singapore, the Republic of Korea and
Taiwan. Accordingly, this coverage includes the subject yarn
classified under tariff item No. 5509.32.00.
Bilateral agreements, which provide for these restrictions,
between the governments of Canada and the Republic of Korea and the
Taiwan Textile Federation have been in place since 1978. The
bilateral agreement between the governments of Canada and Singapore
has been in place since 1979, and the bilateral agreement between
the governments of Canada and Malaysia has been in place since
1980. Quota limits on acrylic staple fibre yarn were implemented to
protect Canadian manufacturers from large volumes and low prices of
exports from these countries.
The Department of Foreign Affairs and International Trade has
indicated that it will consider ex-quota entry on textile inputs
where recommendation has been made by the Tribunal to remove
customs duties on the basis of non-availability.
Revenue Canada has 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.
In this investigation, the Tribunal is concerned with the issues
of, first, whether an identical or substitutable yarn is produced
in Canada, second, the impact of granting tariff relief on any
potential domestic producers and, finally, the net economic benefit
to Canada of reducing or removing the tariff on the subject
According to Perfect Dyeing and Tex-Dye, there is no domestic
production of a yarn identical to or substitutable for the subject
yarn. This position was contested by Dawtex, that argued that it
currently produces a yarn which closely resembles the subject yarn,
albeit in cone form. The Tribunal is convinced that, in this
instance, the form in which the subject yarn exists is crucial. It
notes that Perfect Dyeing’s production equipment can only dye yarn
in hank form and that it is only when this method is used that the
yarn blooms and bulks up freely without any restrictions. In
addition, the samples provided by Perfect Dyeing clearly show that
high-bulk yarn cannot be dyed using the package dyeing method, as
this resulted in a yarn which did not bulk as much, becoming
crushed against the dye spring and unevenly dyed.
The Tribunal does not accept the argument that hank dyeing is
antiquated and not cost-efficient. It found persuasive the fact
that there is an abundant supply of high-bulk acrylic yarn on hanks
available from mills throughout the world and that not one of these
mills produces high-bulk, raw white acrylic yarn on cones. In
comparison with the package dyeing process that Dawtex proposes,
hank dyeing requires fewer operations. For example, in hank dyeing,
the yarn is bulked while it is being dyed, whereas in package
dyeing, the bulking of the yarn is a separate operation.
Having regard to the above, the Tribunal concludes that hank
dyeing and package dyeing are two distinct processes that are
appropriate and cost-efficient to the type of goods being dyed and
that these processes are not interchangeable.
Dawtex argued that it presently produces a yarn which closely
resembles the subject yarn in cone form and would be pleased to
produce the required 1.2 million pounds of the subject yarn for
Perfect Dyeing. However, the Tribunal notes that Dawtex’s projected
price offering is some 38 percent higher than Perfect Dyeing’s
average purchase cost over the last three years. Given the
price-sensitive nature of high-bulk, dyed acrylic yarn, the
Tribunal is persuaded that Dawtex’s offer to supply Perfect Dyeing
is not financially viable.
The Tribunal found compelling the arguments raised by Perfect
Dyeing that yarns differ in terms of performance, features, fibre,
hand, dyeability and price. It was submitted that there are two key
reasons why it is impossible to use a non-bulk yarn in a high-bulk
application. First, if a knitter needs to produce a bulky,
wooly-looking sweater, then it must use a high-bulk yarn. Second,
if a knitter needs to have a product that competes in the lowest
end of the market, then it can only use a high-bulk yarn.
Perfect Dyeing also argued that acrylic is a low-end,
mass-produced, man-made fibre that is easy to care for and that
other fibres, such as polyester and wool, are also very different
from each other and are not substitutable. The Tribunal accepts
Perfect Dyeing’s view that fibre type is one of the most important
specifications for a product.
Dominion argued that high-bulk acrylic yarns compete with other
yarns produced using different spinning technologies, dyeing
methods and fibres and that the removal of the tariff on the
subject yarn would have the effect of reducing selling prices of
other yarns (including its own) competing in the same end-use
markets. For its part, Spinrite argued that there is an existing
pricing structure in the marketplace and that the removal of the
tariff on the subject yarn would distort this pricing structure and
would impose a downward pressure on other yarns produced in Canada
for the knitwear trade. However, these allegations were supported
by somewhat limited information. No actual selling prices to the
knitwear trade were provided. Dominion provided samples of retail
selling prices of sweaters made from various fibres, noting that
some of these items were sold at the same price points. One such
comparison was between a women’s acrylic sweater and a lambswool
sweater, with both sweaters sold at the same retail price at the
same retail outlet. However, such evidence does not enable the
Tribunal to assess how representative these samples are of relative
market prices, nor whether the acrylic sweater submitted was made
of high-bulk acrylic yarn. Spinrite did not provide specific
pricing data. However, it did state that Perfect Dyeing’s imports
are “commodity” yarns, while its yarns feature performance and/or
physical characteristics that allow it to obtain a better selling
In contrast to the domestic producers, Perfect Dyeing provided
detailed price comparison tables for all known high-bulk and
non-bulk yarns, which showed that the selling price of the
high-bulk, hank-dyed acrylic yarn produced by Perfect Dyeing to the
knitwear trade is much lower than that of any other type of yarn
produced by the domestic producers. This evidence offers a strong
confirmation that the subject yarn is indeed at the low end of the
market. The price data submitted by Perfect Dyeing also show that
the pricing structure in the market is wide and that the market is
comprised of a broad mixture of qualities and types of yarns. On
balance, the Tribunal finds it difficult to conclude that tariff
relief on one textile input, i.e. the subject yarn, will have a
significant bearing on the pricing structure in the market as a
Given the large price differentials between the subject yarn
imported by Perfect Dyeing and all other yarns produced by the
domestic producers for the knitwear trade, and given the apparent
differences in terms of fibre type and performance characteristics,
the Tribunal is of the view that there exists very limited
substitutability between the subject yarn and other yarns produced
The Tribunal also notes that many knitters support the request
for tariff relief and that Perfect Dyeing and the knitters are
targeting imported finished products and not other domestic yarns
as their source of growth. Tariff relief would thus allow knitters
to enhance their competitiveness against imports of finished goods
in the marketplace.
Therefore, other than the corresponding duty revenues foregone
by the government, the Tribunal does not believe that there will be
any commercial costs associated with the removal of the customs
duty on importations of the subject yarn.
It is estimated that the net commercial benefits of granting the
tariff relief would have been significant in the 12-month period
examined by the Tribunal.  Should the government remove the tariff on the
subject yarn, both Perfect Dyeing and Tex-Dye intend to reduce
their prices to their customers by the full amount of the duty,
such that their customers can be more competitive against imported
finished goods and be better positioned to expand export sales.
This intent has clearly been conveyed to many of their customers
that have supported the request for tariff relief. Because
high-bulk, dyed acrylic yarn is highly price-sensitive, Perfect
Dyeing expects that lower prices will stimulate demand. The
anticipated increases in volume are expected to increase employment
and reduce unit costs, thereby enhancing profitability
The Tribunal believes that the removal of the tariff on the
subject yarn for an indeterminate period of time is the most
appropriate recommendation. Should there be any commencement of
production of a yarn identical to or substitutable for the subject
yarn, it is open to any party to request the commencement of an
investigation under subsection 18(1) of the Tribunal’s Textile
Reference Guidelines for the purpose of recommending an amendment
of the order of the Governor in Council which provides tariff
In light of the foregoing, the Tribunal hereby recommends to the
Minister that the customs duty on importations of bulk, raw white
(undyed) yarn of 100 percent acrylic in hank form, where the single
yarn is finer than 1/20 worsted count before dyeing, for use in
Canadian manufactures, be removed for an indeterminate period of
Anthony T. Eyton
Anthony T. Eyton
Lyle M. Russell
Lyle M. Russell
1. R.S.C. 1985, c. 47
2. Vol. 129, No. 40 at
3. R.S.C. 1985, c. 41
4. A term used in the
Tribunal’s letter to Revenue Canada asking for advice, dated
September 22, 1995.
5. The exact volume
and value are considered to be protected information.
6. An annual estimated
dollar loss was supplied, but it is protected information.
7. The estimated
amount for the 12-month period ending July 31, 1995, is protected
[Table of Contents
Initial publication: August 28, 1996