THE MINISTER OF FINANCE
REQUESTS FOR TARIFF RELIEF BY
BECO INDUSTRIES LTD.
CERTAIN PRINTED WOVEN FABRICS OF COTTON OR BLENDS THEREOF WITH
JULY 4, 1996
TABLE OF CONTENTS
Request Nos.: TR-95-035, TR-95-043 and
Tribunal Members: Anthony T. Eyton, Presiding Member
Robert C. Coates, Q.C., Member
Lyle M. Russell, Member
Research Director: Réal Roy
Research Managers: Douglas Cuffley
Counsel for the Tribunal: Joël J. Robichaud
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 Minister.
Pursuant to the Minister’s reference, on July 14 and August 16,
1995, the Tribunal received three requests from Beco Industries
Ltd. (Beco) of Ville D’Anjou, Quebec, for the permanent removal of
the customs duty on importations of:
(1) woven fabric, containing at least 70 percent but less than
85 percent by weight of cotton, mixed with polyester fibres,
printed, measuring less than 250 decitex per single yarn, of widths
ranging from 170 to 240 cm, of weights ranging from 90 to 110
g/m2, for use in the manufacture of comforters, pillow
cases, pillow shams, dust ruffles, draperies, valances, table
rounds and duvet covers (the subject cotton/polyester fabric)
(Request No. TR-95-035); and
(2) woven fabric, solely of cotton, printed, measuring less than
300 decitex per single yarn, of widths ranging from 170 to 240 cm,
of weights ranging from 85 to 110 g/m2, for use in the
manufacture of comforters (the subject cotton fabric) (Request Nos.
TR-95-043 and TR-95-044).
In its requests, Beco alleges that the subject fabrics are not
available from domestic production. With respect to the subject
cotton/polyester fabric, Beco alleges that known Canadian producers
of cotton/polyester fabrics either cannot produce identical or
substitutable fabrics in the widths required or use the fabrics for
their own internal production of finished products and do not sell
them to other competing manufacturers, such as Beco. With regard to
the subject cotton fabric, Beco claims that it is so inexpensive
that Canadian producers do not attempt to produce identical or
substitutable fabrics, as they cannot be produced profitably.
On November 16, 1995, at the Tribunal’s request, Beco provided
additional information to clarify and complete its requests for
tariff relief. Following receipt of this information, the Tribunal
was satisfied that the requests were properly documented and
decided to join the three requests into one investigation. On
December 13, 1995, the Tribunal issued a notice of commencement of
investigation, which was distributed and published in the December
23, 1995, edition of the Canada Gazette, Part I. 
As part of the investigation, the Tribunal’s research staff sent
questionnaires to potential domestic producers of identical or
substitutable fabrics. Questionnaires were also sent to known
importers and users of fabrics identical to or substitutable for
the subject fabrics. Letters were sent to the Department of
National Revenue (Revenue Canada) requesting information on the
tariff classification of the subject fabrics. Samples were provided
for laboratory analysis. Letters were also sent to a number of
other government departments requesting information and advice.
On February 9, 1996, a staff investigation report, summarizing
the information received from these departments, Beco and other
firms that responded to the questionnaires, was provided to the
parties that had filed notices of appearance for this
investigation. These parties are: Beco, C.S. Brooks Canada Inc.
(C.S. Brooks), Wink Industries Ltd. (Wink), Simplex Textiles
(Canada) Inc. (Simplex), Doubletex Inc. (Doubletex) and the
Canadian Textiles Institute (CTI).
Following distribution of the staff investigation report, C.S.
Brooks, Wink and Doubletex filed submissions with the Tribunal. The
CTI also filed a submission; however, as it was received after the
receipt of Beco’s final response, the submission was not put on the
record of the investigation. Beco responded to the various
submissions. Due to the large volume of conflicting evidence
concerning the substitutability of domestic fabrics for the subject
fabrics and the competitiveness of the finished products made from
those fabrics, the Tribunal agreed to hold a public hearing at C.S.
Brooks’ request. The issues at the hearing were limited to:
• the substitutability of fabrics made by Canadian producers for
those imported by Beco and the substitutability between cotton
fabrics and blended cotton/polyester fabrics;
• the market competition between Beco’s finished products and
the finished products produced by other Canadian manufacturers;
• the effect of new rules of origin regulations on exports of
finished products made from the subject fabrics to the United
The sample of the subject cotton/polyester fabric analyzed by
Revenue Canada is woven from single yarns of cotton fibres in the
warp and from blended single yarns of cotton and polyester fibres
in the weft. The cotton fibres represent 82 percent of the sample
weight and the polyester fibres represent 18 percent of the sample
weight. The warp yarns measure 196 decitex per single yarn and the
weft yarns measure 191 decitex per single yarn. In the warp, there
are 330 yarns per 10 cm and, in the weft, there are 205 yarns per
10 cm. The fabric weighs 105 g/m2.
Beco submitted that an acceptable substitutable fabric would
need to contain at least 70 percent, but less than 85 percent, by
weight of cotton mixed with polyester fibres, be printed, measure
less than 250 decitex per single yarn, be at least 170 cm wide but
not more than 240 cm wide and weigh at least 90 g/m2 but
not more than 110 g/m2.
The subject cotton/polyester fabric is classified for customs
purposes under classification No. 5210.51.00.00 of Schedule I to
the Customs Tariff. 
This classification covers a broad range of fabrics: plain
weave, printed fabrics of cotton, containing less than 85 percent
by weight of cotton, mixed mainly or solely with man-made fibres,
weighing not more than 200 g/m2. As of January 1, 1996,
the subject cotton/polyester fabric is dutiable at 19.0 percent
ad valorem under the MFN tariff and the GPT; at 20.2 percent
ad valorem under the BPT; at 14.2 percent ad valorem
under the Australia and New Zealand tariffs; at 5.0 percent ad
valorem under the U.S. tariff; and at 17.5 percent ad
valorem under the Mexico tariff.
The two samples of the subject cotton fabric are printed 100
percent cotton fabrics. Depending on their weight, they can be
classified under one of two classification numbers. They are woven
from yarns of cotton fibres in both the warp and the weft.
As for the lighter sample of the subject cotton fabric analyzed
by Revenue Canada, in one direction, the yarns measure 223 decitex
per single yarn and, in the other direction, the yarns measure 253
decitex per single yarn. In one direction, there are 209 yarns per
10 cm and, in the other direction, there are 179 yarns per 10 cm.
The fabric weighs 98 g/m2.
As for the heavier sample of the subject cotton fabric analyzed
by Revenue Canada, in one direction, the yarns measure 227 decitex
per single yarn and, in the other direction, the yarns measure 247
decitex per single yarn. In one direction, there are 209 yarns per
10 cm and, in the other direction, there are 199 yarns per 10 cm.
The fabric weighs 101 g/m2.
Beco submitted that an acceptable substitutable fabric would
need to contain 100 percent cotton fibres, measure less than 300
decitex per single yarn, be at least 170 cm wide but not more than
240 cm wide and weigh at least 85 g/m2 but not more than
The subject cotton fabric is classified under classification No.
5208.51.00.00 (100 g/m2 or less) or 522.214.171.124 (over
These two classifications cover a broad range of fabrics: plain
weave, printed fabrics of cotton, containing 85 percent or more by
weight of cotton, weighing not more than 200 g/m2. As of
January 1, 1996, the subject cotton fabric is dutiable at 16.0
percent ad valorem under the MFN tariff and the GPT; at 15.7
percent ad valorem under the BPT; at 3.4 percent ad
valorem under the U.S. tariff; and at 12.2 percent ad
valorem under the Mexico tariff.
Beco manufactures home furnishings in its plant. Its
principal products are adult bedding products and related products,
such as comforters, comforter sets, pillow shams, dust ruffles,
duvet covers, decorative pillows and complete bed ensembles. Beco
also produces a line of infant bedding products, draperies,
valances, table rounds, sleeping bags, lawn furniture, replacement
pads, umbrellas and ironing board covers.
Beco submitted that its request for tariff relief was intended
solely to return it to the position in which it was prior to the
restriction on duty drawbacks under the North American Free Tree
(NAFTA). It claimed that, in a number of instances, the federal
government had reduced or eliminated import tariffs for other
industries in the same situation, such as the auto parts
Beco argued that the production of adult bedding products using
the subject cotton/polyester fabric accounts for a large percentage
of its total plant output, that most of this production is exported
to the United States, that the majority of its employees are
devoted to this product line and that its ability to compete in the
U.S. market is, therefore, very important to its business. Beco
further argued that its exports will cease to be competitive in the
U.S. market as a result of the new duty drawback provisions
 of NAFTA that took
effect on January 1, 1996, and which severely curtailed its ability
to claim full duty drawbacks in respect of a number of its end
Beco claimed that Canadian producers of cotton-rich  cotton/polyester fabrics
manufacture them solely for their own use. C.S. Brooks and Wink,
which can produce these fabrics, are keen competitors of Beco in
the end-use market. Beco further claimed that Wink would have to
change its entire production to an 80/20 cotton/polyester blend in
order to supply Beco, which would not be practical, and that C.S.
Brooks had not, in the past, been a supplier to manufacturers.
According to Beco, Consoltex Inc. (Consoltex) produces a
cotton/polyester fabric, but only in a 60-in. width, while for
Beco’s production of comforters, the width, which is related to the
size of beds, must be at least 90 in. but not more than 94 in. For
other products, Beco requires widths of at least 66 in. Finally,
Beco claimed that Doubletex does not produce fabrics and does not
have the capability to produce a printed fabric, which means that,
in order to use Doubletex’s products, Beco would have to change its
Beco submitted that, while consumers in Canada may not consider
a particular blend of cotton/polyester to be an important
consideration in their purchase decisions, it has identified and
fulfilled a market niche in the United States for cotton-rich
cotton/polyester comforters. Consequently, Beco alleges that its
sales depend upon having access to affordable cotton-rich fabrics.
As these fabrics are not used to manufacture products for the
Canadian market, Beco further alleges that its end products will
not compete with products made by C.S. Brooks and Wink. Beco also
pointed out that cotton-rich comforters enter the United States at
a significantly reduced tariff rate.
To ensure that the subject fabrics are not used to produce goods
for sale in the Canadian market, Beco suggested that tariff relief
be limited exclusively to its imports of the subject fabrics.
Finally, Beco submitted that the tariff need not be completely
removed. Instead, it requested that the tariff be reduced to a
level that would put it in the same cost position in which it was
prior to the elimination of the Duty Drawback Program.
Beco argued that it uses the subject cotton fabric to
manufacture its promotional line of comforters, which accounts for
a large proportion of its plant output. Beco further argued that,
in the last three years, it had invested a significant amount of
money in specialized equipment to automate this production line,
enabling it to become Canada’s largest manufacturer of
Beco claimed that there are no domestic producers of identical
or substitutable fabrics. Because the subject cotton fabric is so
inexpensive, Canadian producers do not attempt to make identical or
substitutable fabrics, as they cannot produce them profitably at
these low price levels. Beco noted that the fabrics claimed by
domestic producers to be substitutable were all cotton/polyester
Beco submitted that the promotional or budget comforters are
opening price point products which are not manufactured by any
other Canadian producer and which do not compete with comforters in
other market segments. Further, Beco argued that it would be
inappropriate to use the subject cotton fabric to produce
comforters in the other market segments.
Finally, Beco submitted that tariff relief could be limited to
the subject cotton fabric used in the production of budget
comforters (or opening price point budget comforters), thus
ensuring that tariff relief would not cause increased competitive
pressures on the comforter lines produced by other Canadian
manufacturers that use domestically produced or converted
GIII Ltd., located in Winnipeg, Manitoba, is a
manufacturer of comforters and other home furnishings. It purchases
the subject fabrics from importers. GIII Ltd. claimed that the
subject fabrics were not available from Canadian production and
that tariff relief would allow it to be more competitive in the
Lenrod Industries Ltd. (Lenrod), located in Ville
Saint-Laurent, Quebec, is a converter and distributor of synthetic
woven and non-woven fabrics serving the furniture, bedding and
apparel industries. It imports the subject cotton/polyester fabric
and is currently supplying Beco and others in the home furnishing
Besides supporting Beco’s requests for tariff relief, Lenrod
believes that tariff relief should be granted on cotton/polyester
fabrics under 170 g/m2, currently classified under
classification Nos. 5513.21.00.20-Dyed, 5513.41.00.20-Printed and
5513.11.00.22-Bleached. It submitted that granting tariff relief
would allow Canadian manufacturers within the home furnishing
industry to compete more favourably with lower-cost imports.
Lubertex Inc. (Lubertex), located in Montréal, Quebec, is
an importer of printed, dyed and bleached woven cotton/polyester
fabrics for resale to domestic manufacturers of home furnishings,
apparel and institutional and industrial products.
Lubertex supported the requests for tariff relief and submitted
that it should be granted on all cotton/polyester fabrics for the
same end uses (i.e. comforters, pillow cases, etc.), whether the
composition is 50/50 cotton/polyester or 65/35 cotton/polyester, as
long as the fabrics are within the weight category (low end use)
which, it claims, are not woven in Canada.
Lubertex submitted that the benefits of tariff relief would
allow importers like itself and Beco to compete with U.S. and other
offshore finished goods. It further submitted that the new giant
retailers in Canada are demanding lower and lower prices from
manufacturers every year and that these price pressures, coupled
with increasing costs, create a very difficult competitive
situation for manufacturers, where their survival is at stake.
Therefore, any tariff relief is seen as a positive step by
Richmond Quilting Ltd. (Richmond Quilting), located in
Richmond, British Columbia, is a manufacturer of home furnishings.
It purchases the subject fabrics which are imported from India and
Pakistan. Richmond Quilting supported the requests for tariff
relief and requested that tariff relief be granted on the imports
that it uses. It claimed that the recent world shortage of cotton
and rising prices would render its products non-competitive with
imports of finished products. Richmond Quilting submitted that, if
tariff relief is granted, it will be able to compete with imports
and maintain its production level or possibly increase it.
Simplex, located in Montréal, is an importer of fabrics.
It supplies the manufacturing segment of the home furnishing
industry that produces bedding products.
Simplex submitted that, given the current economic situation,
Beco’s requests for tariff relief were more than justified,
especially in the case of the subject cotton fabric, and that such
tariff relief would not cause injury to any domestic producer.
C.S. Brooks, located in Magog, Quebec, an integrated
producer, manufactures both fabrics and bedding products. For the
most part, its production of fabrics is for its own manufacture of
bedding, which is sold through Springs Canada, Inc. (Springs
Canada) which acts as a sales agent. Springs Canada is a subsidiary
of Springs U.S., the largest bedding manufacturer in the United
C.S. Brooks claimed that it produces fabrics identical to or
substitutable for the subject fabrics. It produces 100 percent
cotton fabrics and 50/50 cotton/polyester blends, in widths ranging
from 116 to 307 cm and measuring less than 300 decitex per single
yarn. The weights of these fabrics vary from 90 to 200
With regard to cotton/polyester fabrics, C.S. Brooks submitted
that the technical characteristics or distinguishing features of
the subject cotton/polyester fabric are no different from those of
the fabrics that it produces. C.S. Brooks claimed that the subject
cotton/polyester fabric is lower-priced, but, in the absence of
other differences, that is not sufficient to conclude an absence of
substitutability. C.S. Brooks argued that the circumstances in this
case are different from those in other cases where the Tribunal has
recommended that tariff relief be granted using price as a
determining factor, mainly in that the subject cotton/polyester
fabric already is lower-priced than domestically produced fabrics.
In this type of situation, it was argued, the potential for harm to
the domestic producers is much greater.
In response to Beco’s assertion that the only domestic suppliers
of identical or substitutable fabrics were its competitors in the
end-use market, C.S. Brooks argued that substitutability cannot be
determined on a firm’s unwillingness to do business with a
particular supplier, even if the supplier is also a competitor.
Finally, it stated that there is no way to be certain that, if
tariff relief is granted, the subject cotton/polyester fabric will
only be used to produce comforters for the U.S. market and that
there is a real threat of diversion of the subject cotton/polyester
fabric to the production of comforters for sale in the Canadian
market in direct competition with C.S. Brooks’ lines of
Concerning the subject cotton fabric and Beco’s claim that it
needed tariff relief to counter the effects of higher cotton
prices, C.S. Brooks noted that increases in cotton prices affected
C.S. Brooks argued that, depending on the availability of
fabrics and prices, buyers of fabrics will switch from 100 percent
cotton to 70/30 cotton/polyester or 50/50 cotton/polyester. C.S.
Brooks maintained that, in general, potential consumers of
promotional items do not discriminate between products made from
cotton/polyester or 100 percent cotton. C.S. Brooks also submitted
that the testimony during the hearing supported this contention,
that price and visual appearance are the two key factors in the
promotional or low end of the market and that, furthermore, these
lower-priced fabrics can be used to manufacture products to be sold
at higher price points, which compete directly with C.S. Brooks’
product lines. C.S. Brooks also contended that the price of Beco’s
budget comforters had an impact on the price that it was able to
obtain for its comforters in higher price point market
Wink, located in Saint-Léonard, Quebec, also an
integrated producer, manufactures both fabrics and bedding
products. It also sells some of its fabrics to other bedding
Wink opposed the requests for tariff relief. It claimed that its
finished products, composed of 50/50 cotton/polyester blends, offer
the same choice to the consumer as Beco’s products made from the
subject cotton/polyester fabric. According to Wink, all of these
commodities are perceived by the consumer to be the same and are
substitutable. Wink also claimed that, in the Canadian market,
purchasers of comforters do not distinguish between
cotton/polyester fabrics and 100 percent cotton fabrics and that
Wink’s products made from cotton/polyester fabrics are
price-competitive to Beco’s products made from the subject cotton
fabric. Wink submitted that it had lost at least one major account
for one line of comforters to Beco’s products. To further support
its contention of competitiveness between the products, Wink
pointed out that the evidence indicated that Beco’s queen-size
budget comforter had the same dimensions as Wink’s double-size
comforter and was priced the same as or slightly lower than Wink’s
Wink argued that 100 percent cotton and cotton/polyester fabrics
were all competitive in the Canadian market and that only in the
U.S. market was there any differentiation between 100 percent
cotton and cotton/polyester blends. Further, since Wink’s exports
to the U.S. market are not insignificant, it is alleged that any
tariff relief on the subject fabrics will directly affect Wink’s
competitive position with Beco in that market. Wink also stated
that, although Beco claimed that it would export all finished
products manufactured from the subject cotton/polyester fabric to
the United States, the proposed tariff relief would also apply to
other Canadian manufacturers which import the subject fabrics and
sell their finished products in the Canadian market.
Wink argued that it was able and willing to supply domestically
produced fabrics to Beco and that the two companies had had
discussions about fabric supply in the past. These discussions,
according to Wink, broke down strictly on the matter of price, not
on the fibre mix, the cotton-rich factor or any other factor.
Finally, Wink argued that Beco’s contention that it does not want
to purchase its fabrics from a competitor is proof that the
products of the two firms do indeed compete with one another in
Consoltex, located in Ville Saint-Laurent, is the major
Canadian manufacturer of man-made fabrics. Its Home Furnishings
division supplies manufacturers of curtains, drapes and
tablecloths. A major customer of Consoltex is one of its own
divisions, Maison Condelle, a manufacturer of curtains, drapes and
Consoltex submitted that Beco’s requests for tariff relief
threaten the interests of two of its divisions, Home Furnishings
and Maison Condelle. It opposed the requests for tariff relief for
the following reasons:
(1) the subject fabrics are available from North American
(2) in the particular case of curtains and drapes, duty-free
access to the subject fabrics is likely to damage two of
• Home Furnishings, as a fabric supplier of identical or
substitutable fabrics to manufacturers of curtains and drapes;
• Maison Condelle, as a manufacturer of finished curtains and
Among the curtain fabrics offered by the Home Furnishings
division, there are two fabrics, Basic Trevira F.R. and Sedura,
made from 100 percent polyester, which are used to make printed
draperies. These fabrics, according to Consoltex, compete directly
with the subject fabrics.
Consoltex also submitted that the substantial tariff reductions
already provided through Multilateral Trade Negotiations (MTN), the
Canada-United States Free Trade Agreement  and NAFTA pose a major challenge
for Canadian textile manufacturers which are in the process of
adjusting to these changes. It claimed that a complete and
unilateral removal of the tariff on the subject fabrics would
undermine Consoltex’s ability to meet the challenges and take
advantage of the opportunities created by NAFTA.
Rayonese Textile Inc. (Rayonese), located in
Saint-Jérôme, Quebec, produces a range of fabrics used in the
manufacture of home furnishings. It also dyes and prints imported
greige fabrics on a commission basis. It manufactures four
different qualities of cotton/polyester fabrics and one
polyester/viscose fabric that it considers substitutable for the
subject fabrics for the home furnishing industry.
Rayonese opposed the requests for tariff relief for the
(1) its fabrics are substitutable for the subject fabrics;
(2) it suffered a substantial decline in the production of its
fabrics in 1995 due to lower demand in the retail sector and an
increase in the market share held by imported fabrics; and
(3) a continued advantage given to imports from low wage
producing countries will continue to erode sales of its fabrics and
run contrary to the spirit and understanding of NAFTA.
Doubletex submitted that its fabrics for home furnishings
are substitutable for the subject fabrics. Further, it claimed that
substitutable fabrics were available from either domestic
producers, fabric converters or fabric producers in one of the
NAFTA countries and argued that, in the home furnishing industry,
price tends to be the main determinant of sourcing patterns, as
commodity fabrics are used in this industry. According to
Doubletex, the home furnishing industry tends to be much less
sensitive than the apparel industry to distinct fabric
requirements. It also argued that fabric and fabric composition are
not important factors in consumers’ purchase decisions, but that
colour, packaging and marketing are more important.
Doubletex opposed the requests for tariff relief because, if
tariff relief is granted on the subject fabrics, which are
substitutable for a broad range of dyed and printed fabrics, there
will be a significant shift from fabrics produced by Doubletex to
the low-cost subject fabrics. Allegedly, other bedding
manufacturers will also follow Beco’s lead because of the price
advantages that tariff relief will provide. Doubletex pointed out
that the Customs Tariff does not differentiate between
fabrics for use in products to be sold in the Canadian market and
those for use in products to be sold in export markets and,
therefore, tariff relief, if granted, could lead to duty-free
imports replacing domestically produced or domestically converted
fabrics in products sold in the Canadian market. Furthermore,
Doubletex stated that the subject fabrics were already less
expensive than the domestically produced fabrics and that tariff
relief had never before been granted in that situation.
Doubletex also submitted that it would be anomalous and
contradictory to sound public policy to remove the tariff on the
subject fabrics while leaving the tariff on the greige (unbleached
or bleached) fabrics, as this would discourage any value added in
Canada and would serve to give the impression to industry that the
federal government was promoting imports over domestic production.
Therefore, Doubletex requested that, if the Tribunal recommends
that tariff relief be granted on the subject fabrics, it should
also recommend that tariff relief be granted on the greige fabrics
of the same description.
The CTI, representing Canadian textile manufacturers,
opposed the requests for tariff relief. The CTI supported the
submissions of the textile manufacturers that made representations
to the Tribunal on this matter. It argued that it would not be
proper to recommend tariff relief on the subject cotton fabric,
which is already less expensive than similar, substitutable
domestic fabrics. The CTI submitted that the reason that no
Canadian or even North American textile mills produced an identical
100 percent cotton fabric is the plain fact that it is available at
such a low price from offshore sources.
The CTI also submitted that polyester fibres were designed to
imitate cotton fibres and be substitutable for cotton in many
applications and that, by their very design, cotton/polyester
blends are substitutable for 100 percent cotton. Further, according
to the CTI, the testimony of retailers confirmed that
cotton/polyester fabrics are substitutable for 100 percent cotton
fabrics, especially in the applications relevant to the requests
for tariff relief.
In closing, the CTI argued that there is no reasonable basis
upon which the requested tariff relief is justified and that such
tariff relief would exacerbate the concerns of investors in textile
The Department of Industry informed the Tribunal that
both the Canadian and the U.S. textile industries produce 100
percent cotton and cotton/polyester broadwoven fabrics to
manufacture the range of home furnishings identified in the
requests for tariff relief. It recommended that the Tribunal
consider, in making its recommendation, the various NAFTA rules
relative to the origin of goods, the tariff preference levels, the
duty refund system, the way in which these NAFTA elements impact on
a firm’s success in the United States and Mexico and the merits of
influencing the firm to look increasingly to North American
sourcing of similar home furnishing fabrics.
In this investigation, the Tribunal is concerned with the issues
of, first, the availability of identical or substitutable fabrics
produced in Canada, second, the impact of granting tariff relief on
domestic producers and, finally, the net economic implications of
granting tariff relief.
With respect to the subject cotton/polyester fabric, Beco
submitted that it could not purchase substitutable fabrics from
Canadian producers, as the only two potential sources were also
competitors in the end-product market. Beco further submitted that,
as its imports of the subject cotton/polyester fabric were only
used in the manufacture of bedding products that are exported to
the United States, there would be no cost to Canadian producers if
tariff relief were granted.
The evidence is clear and uncontested that cotton/polyester
fabrics are produced in Canada by C.S. Brooks and Wink, albeit not
in the 80/20 cotton/polyester blend desired by Beco, and are used
to manufacture bedding products that compete directly in the
domestic marketplace with the products of Beco and other producers
that use the subject cotton/polyester fabric. Several witnesses at
the hearing confirmed that purchasers of comforters do not
differentiate between 80/20 and 50/50 blends of cotton/polyester,
or any other blends,  and that no specific blend confers an advantage
over another one.
The reality of the U.S. market is somewhat different. In the
United States, Beco has identified and filled a market niche for
cotton-rich comforters and, as such, will not use anything but
fabric that contains more than 51 percent cotton. The Tribunal
accepts the contention of the domestic textile producers that they
can produce and sell cotton-rich fabrics to Beco and that the
substitutability of a fabric cannot be determined by a firm’s
alleged unwillingness to do business with a supplier, even if that
supplier is a competitor in the end-use market. To do so would
effectively punish vertically integrated producers for the
efficiencies that they have gained through vertical integration.
Moreover, it is apparent that Beco could use domestic
cotton/polyester fabrics for its bedding product lines, if they
were available at a competitive price.
Even if C.S. Brooks, Wink or other Canadian textile producers
could not provide Beco with the required fabrics, reduced tariffs
on the subject cotton/polyester fabric would enhance the
competitiveness of the subject cotton/polyester fabric in the
Canadian market at the expense of domestically produced or finished
fabrics sold to bedding manufacturers. Moreover, the lower-cost
subject cotton/polyester fabric would further enhance the
competitiveness of bedding manufacturers that use the subject
cotton/polyester fabric, thus adversely affecting the Canadian
bedding manufacturers that use domestically produced fabrics for
their production. Thus, integrated producers such as C.S. Brooks
and Wink would be adversely affected at both the textile production
level and the bedding manufacturing level.
Beco has suggested that tariff relief could be limited to the
subject cotton/polyester fabric used in export sales to ensure that
the domestic textile industry is not hurt by the measure. However,
as a result of NAFTA rules, Canada cannot provide tariff relief
that is restricted to fabrics for use in manufacturing goods
destined for NAFTA markets. The Tribunal notes that, even if the
subject cotton/polyester fabric were used for export production,
granting tariff relief on an export-only basis would have a
negative impact on Wink’s activities in the U.S. market, where it
operates in direct competition with Beco, selling comforters
produced with Canadian fabrics.  Furthermore, while it is clear that Beco uses at
least the majority of its imports of the subject cotton/polyester
fabric to produce comforters for the U.S. market, the evidence
presented during the Tribunal’s investigation indicates that some
of its imports were used in the manufacture of comforters sold in
the Canadian market, admittedly in error.  In addition, other importers could
use the subject cotton/polyester fabric to produce comforters for
the Canadian market, in direct competition with comforters made
from domestically produced fabrics.
The Tribunal believes that granting tariff relief would have
serious implications for the domestic textile industry. Home
furnishings, such as bedding products, represent the vast majority
of C.S. Brooks’ and Wink’s annual production volume. Both C.S.
Brooks and Wink stated that they would supply fabrics to Beco for
the manufacture of its bedding products.  Indeed, representatives of Wink
testified that they had had discussions with Beco about supplying a
cotton/polyester fabric for Beco’s production of comforters and
that those discussions fell apart on the question of price, and
only price. 
While the elimination of the duty drawback provisions will
undoubtedly cause cost increases for Beco, it should be noted that
the elimination of duty drawbacks and the consequent cost increases
are being, and will continue to be, offset to some degree by the
ongoing reductions in MFN tariff rates.
Therefore, the Tribunal concludes that the subject
cotton/polyester fabric competes with fabrics made in Canada, that
the end products made from the subject cotton/polyester fabric
compete with end products manufactured by C.S. Brooks and Wink from
domestically produced fabrics and that the costs ensuing from
tariff relief will greatly outweigh any benefits that will result
if tariff relief is granted.
The Tribunal notes that 100 percent cotton fabrics similar to
the subject cotton fabric for use in the production of comforters
are not available from domestic producers. However, the evidence
indicates that consumers do not differentiate between 100 percent
cotton fabrics and fabrics made from cotton/polyester blends.
 Moreover, the
uncontroverted testimony of several witnesses clearly indicates
that the most important factors in the purchase of a budget
comforter are price and visual appearance, not the fibre content of
the fabric. 
Furthermore, the packaging for Beco’s budget comforter does not
mention the fibre content of the fabric,  only the type of filling material
is listed, leading to the conclusion that the fact that the fabric
is 100 percent cotton is not important to the consumer. Thus, the
Tribunal concludes that the domestically produced cotton/polyester
fabrics, while sold at higher prices than the subject cotton
fabric, are nonetheless physically substitutable for the subject
Indeed, domestically produced cotton/polyester fabrics are being
used to produce comforters by various Canadian bedding
manufacturers. Beco submitted that its budget comforters do not
compete directly with other comforters due to the smaller
dimensions of the budget comforters and the low price point at
which they are offered. However, it is interesting to note that
Beco’s queen-size budget comforter has the same dimensions as
Wink’s double-size comforter and that, when the Wink comforter is
“featured” at retail (i.e. is offered at a sale price), it is very
close in price to Beco’s queen-size comforter. 
The witnesses for the retail trade stated that there is not a
direct relationship between the prices for the budget comforters
and the prices for comforters at higher price points. However, the
witnesses for Springs Canada and for Wink stated that retailers
would often pressure them on price based on price levels at other
price points 
and that the price gap between price points must remain within a
certain range. The Tribunal agrees with the argument put forward by
C.S. Brooks and Wink that, if Beco is able to offer its opening
price point budget comforters at lower prices as a result of lower
costs gained through tariff relief, then these lower prices will
have an impact on the price that can be obtained by C.S. Brooks,
Wink and other producers of comforters in the higher price point
sectors that use domestically produced fabrics in their products.
That is, the Tribunal believes that there is an implicit
relationship between the prices for products offered at different
price points and that, while there may be no set price relationship
between the price points, the price gap between the price points
must remain within a certain range. In addition, the subject cotton
fabric can be used by Beco or other manufacturers to produce
full-size comforters that would compete directly with the
comforters made from domestically produced fabrics.
Beco submitted that it needs tariff relief to counter the
effects of increasing cotton prices, while other parties pointed
out that all producers, foreign and domestic, are affected by
higher raw material costs, including cotton costs. In any case, the
evidence indicates that cotton prices have flattened out and are
expected to decrease in the near future.
The Tribunal, therefore, concludes that domestically produced
cotton/polyester fabrics are substitutable for the subject cotton
fabric used in the manufacture of budget comforters. In addition,
the price at which the budget comforters are available on the
market has an influence on the price obtainable by other
manufacturers of comforters. Consequently, granting tariff relief
on the subject cotton fabric will have serious adverse effects on
both the domestic textile producers and the manufacturers of
comforters that use domestically produced fabrics. The potential
financial cost to these two levels of production far exceed the
benefits that would accrue to Beco and other importers of the
subject cotton fabric if tariff relief were granted.
In view of the above information and evidence before the
Tribunal in this matter, the Tribunal hereby recommends to the
Minister that tariff relief on importations of the subject
cotton/polyester fabric covered by Request No. TR-95-035 and on
importations of the subject cotton fabric covered by Request Nos.
TR-95-043 and TR-95-044 not be granted.
Anthony T. Eyton
Anthony T. Eyton
Robert C. Coates, Q.C.
Robert C. Coates, Q.C.
Lyle M. Russell
Lyle M. Russell
1. On March 20, 1996,
the Minister of Finance revised the terms of reference.
2. R.S.C. 1985, c. 47
3. Vol. 129, No. 51 at
4. R.S.C. 1985, c. 41
5. Done at Ottawa,
Ontario, December 11 and 17, 1992, at Mexico, D.F., on December 14
and 17, 1992, and at Washington, D.C., on December 8 and 17, 1992
(in force for Canada on January 1, 1994).
6. For Canada-U.S.
trade, a “duty refund system” replaced the Duty Drawback Program on
January 1, 1996. The refund is equivalent to the lesser of: (a) the
duty paid on the non-NAFTA textile input imported to make the
fabric; or (b) the duty paid on the fabric when exported to the
United States. The duty refund system will be phased out at the
same pace as the NAFTA tariff-free access is phased in. When the
tariff is completely removed, the duty refund system will no longer
exist. For apparel exports to non-NAFTA countries, duty drawbacks
will continue to apply indefinitely.
7. Means a product
containing at least 51 percent cotton by weight.
8. Canada Treaty
Series , 1989 (C.T.S.), signed on January 2, 1988.
9. Transcript of
Public Hearing , May 8, 1996, at 21-22, 27, 33-34 and 73.
10. Ibid . at
224-25 and 234.
11. Supra note 9 at
178-84; and Producer's Exhibit B-10, Administrative Record, Vol.
Exhibit TR-95-035-41 at 10, Administrative Record, Vol. 5; and
supra note 9 at 221-23.
13. Supra note 9 at
14. Supra note
15. Ibid. at 27-29,
33-34, 82 and 92-93.
Exhibit B-10, Administrative Record, Vol. 9.
17. Public Staff
Investigation Report , February 5, 1996, Tribunal Exhibit
TR-95-035-28, Table 5, Administrative Record, Vol. 1; and supra
note 9 at 133.
18. Supra note 9 at
199-202, 212 and 219; and Transcript of In Camera Hearing , May 8,
1996, at 9.
[Table of Contents
Initial publication: October 15, 1996