PALLISER FURNITURE LTD.
Investigations
THE MINISTER OF FINANCE
REQUEST FOR TARIFF RELIEF BY
PALLISER FURNITURE LTD.
REGARDING
CERTAIN WOVEN RUBBER WEBBING
AUGUST 23, 1995
Request No. TR-94-010
Tribunal Members: Arthur B. Trudeau, Presiding Member
Desmond Hallissey, Member
Lyle M. Russell, Member
Research Director: Marcel J.W. Brazeau
Research Managers: John O’Neill
Douglas Cuffley
Counsel for the Tribunal: Heather A. Grant
Registration and
Distribution Officer: Claudette Friesen
Address all communications to:
The Secretary
Canadian International Trade Tribunal
Standard Life Centre
333 Laurier Avenue West
15th Floor
Ottawa, Ontario
K1A 0G7
INTRODUCTION
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. [1] 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 February 28, 1995, the Tribunal received a request from Palliser Furniture Ltd. (Palliser) of Winnipeg, Manitoba, for the permanent removal of the customs duty on importations of 2-in. wide woven webbing, consisting of 28 percent rubber and 72 percent polypropylene, with 100 percent elongation and a breaking strength of 330 kg, and 3-in. wide woven webbing, consisting of 35 percent rubber and 65 percent polypropylene, with 90 percent elongation and a breaking strength of 350 kg, for use in the manufacture of leather upholstered furniture (the subject fabrics).
On April 12, 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 Part I of the April 22, 1995, edition of the Canada Gazette.
Palliser alleges that identical or substitutable fabrics are not available from domestic production. The subject fabrics are used in place of springs in the manufacture of furniture. According to Palliser, they offer superior durability and more comfortable seating qualities. They will return to their original shape without sagging, while springs will sag after repeated uses.
As part of the investigation, the Tribunal’s research staff sent questionnaires to potential domestic producers of fabrics identical to or substitutable for the subject fabrics. Questionnaires were also sent to known and potential users of the subject fabrics for use in the manufacture of leather upholstered furniture and to known and potential importers of the subject fabrics. A letter was sent to the Department of National Revenue (Revenue Canada) requesting information on the tariff classification of the subject fabrics, and samples were 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, Palliser 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: (1) Palliser, the requester; (2) Fornirama Inc. (Fornirama) of Montréal, Quebec, also a producer of leather upholstered furniture; (3) Rondex Distributions Ltd. (Rondex) of Montréal, an importer and distributor of the subject fabrics; (4) the Canadian Textiles Institute (CTI), the industry association; and (5) three producers of textiles: Narroflex, division of Wentworth Textiles Inc. (Narroflex) of Stoney Creek, Ontario; Belding Corticelli of Montréal; and Trade Flex Inc. of Stoney Creek.
Following the issuance of the staff investigation report, Palliser was the only party that filed a submission with the Tribunal. Although the CTI filed a notice of appearance, it did not provide any preliminary or final submissions with regard to this investigation. A public hearing was not held for this investigation.
PRODUCT INFORMATION
The subject fabrics are manufactured in Italy and are, therefore, dutiable under the MFN tariff when imported into Canada. They are classified for customs purposes under tariff item No. 5806.20.00.29 of Schedule I to the Customs Tariff. [2] The subject fabrics are dutiable at 20.5 percent ad valorem under the MFN tariff.
The subject fabrics are used by Palliser to manufacture leather upholstered furniture. They are fastened to wooden furniture frames, leather is cut and sewn, and the unit of furniture is upholstered.
While this investigation is limited to tariff relief on the subject fabrics for use in the production of leather upholstered furniture, some furniture producers apparently also use the subject fabrics in the manufacture of fabric upholstered furniture, although none of these furniture producers chose to make representations to the Tribunal concerning the request for tariff relief.
The total estimated volume of Canadian imports of the subject fabrics for 1994 was between 10,000 and 20,000 kg, representing a total value for duty of approximately $80,000 to $160,000. The customs duty payable on those imports from Italy are estimated at between $16,000 and $32,000.
REPRESENTATIONS
The Tribunal sent questionnaires to seven potential users of the subject fabrics, other than Palliser, for use in the production of leather upholstered furniture. Four of the manufacturers either do not use the subject fabrics or are phasing out the use of the subject fabrics and are returning to springs for their production of leather upholstered furniture. One of the remaining users, Meubles RE-NO, uses the subject fabrics, but did not respond to the Tribunal’s questionnaire. Another company, Dutailier Inc., uses the subject fabrics and expressed verbal support of Palliser’s request for tariff relief, but did not respond to the Tribunal’s questionnaire. The seventh company, Fornirama, filed a questionnaire response with the Tribunal. Thus, the industry using the subject fabrics is represented by Palliser and Fornirama. Both these users claim that identical or substitutable fabrics are not produced in Canada and ask that the tariff be removed.
Palliser contends that the requested tariff relief will enable it to use the subject fabrics in more of its production and that the cost savings will make it more competitive and will increase its market share against imported furniture in both Canada and the United States.
Fornirama stated that the tariff relief would assist it to maintain its competitive position against imports of leather upholstered furniture, especially imports from the United States, which has a lower rate of duty on similar webbing fabrics and other input materials.
Questionnaires were sent to several potential domestic producers of narrow woven fabrics. LaGran Canada Inc. (LaGran) sent a letter stating that it could not commit to supply fabrics identical to the subject fabrics, even though, technically, it would be possible. According to LaGran, such fabrics require a special production run and a minimum order volume that the market could not support. Only Narroflex responded to the questionnaire. It manufactured a similar webbing in a 2-in. width, but has not produced this product since 1992, due to a lack of enquiries or orders for it. Even though Narroflex ceased production of this fabric, it is opposed to the request for tariff relief on the basis that it believes that the Canadian industry is able to produce identical or substitutable fabrics at a competitive price and able to supply the market. Narroflex stated that granting the request for tariff relief would set a dangerous precedent which could result in negative consequences with respect to the profitability of narrow fabric operations in Canada. Further, it submitted that, based on the limited information available to it, the cost of rubber webbing does not appear to be a large proportion of the cost of a piece of furniture. Consequently, the removal of the customs duty on the subject fabrics would not likely be sufficient, in itself, to improve Palliser’s competitiveness against imports of leather upholstered furniture.
In response to the written submissions of interested parties, Palliser commented on Narroflex’s above comments. Palliser challenged the opinion expressed by Narroflex that production of identical or substitutable fabrics can be supplied by the existing narrow fabric industry in Canada. It further submitted that there is no company on record that is presently manufacturing a similar product. With regard to the comment that the customs duty on the subject fabrics is not a large part of the cost of a piece of furniture, Palliser argues that some factors in becoming more competitive are design, product improvements, service and cost reduction. Cost reduction can rarely be achieved by making large, dramatic changes. If efficiencies can be introduced or savings realized in a number of smaller areas, the impact on its competitiveness becomes significant. Palliser also believes that the tariff relief will be a factor in driving even further expansion of its manufacturing facilities and in creating additional employment opportunities for Canadians.
The Department of Foreign Affairs and International Trade informed the Tribunal that Canada does not maintain quota restrictions on narrow woven webbing classified under tariff item No. 5806.20.00.29. However, fabrics of this tariff item are included on the Import Control List and, with the exception of goods originating in the United States or Mexico, importers wishing to import these fabrics must obtain an import permit pursuant to the Export and Import Permits Act. [3]
Revenue Canada 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.
ANALYSIS
The primary direct benefits of granting the tariff relief, based on the historical level of imports of the subject fabrics and the projections provided by the users of the subject fabrics, are estimated at between $20,000 and $30,000 per annum.
Possible secondary, or indirect, benefits to users of the subject fabrics could be an increase in the users’ share of the domestic furniture market. These users of the subject fabrics would benefit as increasing sales volumes lead to economies of scale, which would result in lower production costs and, potentially, increased profits to them or lower prices for their customers.
Given that identical or substitutable fabrics are no longer produced in Canada and that the potential domestic producers of such fabrics are not currently supplying either Palliser or Fornirama with rubber webbing, there are no commercial costs of removing the tariff on the subject fabrics. Also, there are no known ramifications for Canada in terms of any trade agreements that it has with other countries.
Although Narroflex states that the Canadian industry is able to produce identical or substitutable fabrics at a competitive price and able to supply the market, the Tribunal cannot give much weight to such a statement if it is not supported with evidence of prices, available production capacity and willingness to supply such fabrics from Canadian production.
The removal of the tariff should have a positive impact on Palliser’s competitiveness in the domestic market and on that of other leather upholstered furniture manufacturers against imports of furniture. This should enhance the job security of people already employed in this industry sector in Canada and might create more job opportunities for others in the future.
Given that removal of the tariff on the subject fabrics will provide a benefit to all users in terms of reducing their input costs and increasing their competitive position in the Canadian market vis-à-vis imports of furniture, and given that there will be no costs to any Canadian producer resulting from removal of the tariff, there would appear to be an unequivocally positive net commercial gain for Canada to remove the tariff on the subject fabrics. The only cost associated with removal of the tariff would be the loss of income from duties on imports of the subject fabrics.
Therefore, the Tribunal believes that permanent tariff relief is the appropriate recommendation under these circumstances. It also recognizes that a permanent relief of duties will contribute to a stable business environment which, in turn, will foster investment and growth.
Finally, the importer and distributor of the subject fabrics in Canada, Rondex, requested that, if tariff relief were granted, it should not be limited to the end use of producing leather upholstered furniture. Rather, it should apply to the production of all upholstered furniture. There were no objections made with regard to this request. Indeed, Palliser indicated its support of Rondex’s request in its response to other parties’ comments. As such, the Tribunal sees no objection to the granting of tariff relief on imports of the subject fabrics for use in the production of all upholstered furniture.
RECOMMENDATION
In view of the above information and evidence submitted to the Tribunal in this matter, the Tribunal hereby recommends to the Minister that all customs duties on imports of woven webbing containing rubber thread of tariff item No. 5806.20.00, for use in the manufacture of upholstered furniture, be permanently removed.
Arthur B. Trudeau
_________________________
Arthur B. Trudeau
Presiding Member
Desmond Hallissey
_________________________
Desmond Hallissey
Member
Lyle M. Russell
_________________________
Lyle M. Russell
Member
1. R.S.C. 1985, c. 47 (4th Supp.).
2. R.S.C. 1985, c. 41 (3rd Supp.).
3. R.S.C. 1985, c. E-19.
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Initial publication: August 28, 1996