MWG APPAREL CORP.

Investigations

REPORT TO
THE MINISTER OF FINANCE
REQUESTS FOR TARIFF RELIEF BY
MWG APPAREL CORP.
REGARDING
CERTAIN POLYCOTTON AND COTTON YARN DYED SHIRTING FABRICS
NOVEMBER 30, 1995

TABLE OF CONTENTS

Request Nos. : TR-94-013 and TR-94-016

Tribunal Members: Anthony T. Eyton, Presiding Member
Lyle M. Russell, Member
Lise Bergeron, Member


Research Director: Marcel J.W. Brazeau


Research Manager: Richard Cossette


Counsel for the Tribunal: Heather A. Grant
Shelley Rowe


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 March 6 and 9, 1995, the Tribunal received requests from MWG Apparel Corp. (MWG) of Winnipeg, Manitoba, for the temporary removal of the customs duty on importations of certain polycotton, yarn dyed shirting fabric (Request No. TR-94-013) and certain cotton, yarn dyed flannel shirting fabric (Request No. TR-94-016), for use in the production of tailored collar shirts (the subject fabrics).

On May 26, 1995, the Tribunal, being satisfied that the requests were properly documented, issued notices of commencement of investigation, which were distributed and published in Part I of the June 3, 1995, edition of the Canada Gazette. On August 4, 1995, the Tribunal issued and distributed to interested parties notices of amendment to the notices of commencement of investigation to reflect the fact that the investigations had been broadened to include, in the case of Request No. TR-94-013, not only tariff item No. 5513.31.00 of Schedule I to the Customs Tariff [2] but also tariff item Nos. 5513.32.00, 5513.33.00 and 5513.39.00 and, in the case of Request No. TR-94-016, not only tariff item No. 5208.42.90 but also tariff item Nos. 5208.43.00 and 5208.49.00.

As part of the investigations, the Tribunal’s research staff sent questionnaires to potential producers of identical or substitutable fabrics. Questionnaires were also sent to known users of the subject fabrics for use in the production of tailored collar shirts and to the one known importer 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.

Separate staff investigation reports, summarizing the information received from these departments and MWG, were provided to the parties that had filed notices of appearance for these investigations. These parties included MWG, the Canadian Textiles Institute (CTI) and Milgram & Co. Ltd. (Milgram).

Although the CTI and Milgram filed notices of appearance, they did not file any preliminary or final submissions with regard to these investigations. A public hearing was not held for these investigations.

PRODUCT INFORMATION

MWG described the subject fabric as polycotton, yarn dyed, perma press fabric, singed, mercerized, with a resin finish, 100 x 70, 45 x 45, containing 65 percent polyester and 35 percent cotton, of a width of 57/58 in., made on a shuttleless loom, for use in the production of tailored collar shirts.

MWG indicated, in its request, that the subject fabric was classified, for customs purposes, under classification No. 5513.31.00.00.

Revenue Canada analyzed the sample submitted by MWG and determined that it is a striped fabric, woven from single yarns of different colours of a blend of polyester staple fibres and mercerized cotton fibres. The polyester staple fibres and cotton fibres represent 58 and 42 percent, respectively, of the weight of the subject fabric, as opposed to 65 and 35 percent, as cited by MWG.

The construction of the subject fabric is mainly plain weave, with satin weave sections. Since the subject fabric is not entirely of plain weave, for purposes of the Customs Tariff, the weave of the subject fabric is other than plain or twill weave, and the subject fabric should be classified under classification No. 5513.33.00.00 rather than classification No. 5513.31.00.00, as submitted by MWG.

This discrepancy in tariff classification was reported to MWG on July 5, 1995. On July 17, 1995, MWG requested that the investigation be expanded to include, in addition to tariff item No. 5513.31.00, tariff item Nos. 5513.32.00, 5513.33.00 and 5513.39.00, as these tariff items cover the full range of actual or potential imports by MWG of yarn dyed shirting fabrics used in the production of men’s tailored collar shirts. On August 30, 1995, Revenue Canada noted that tariff item No. 5513.39.00 did not apply to the subject fabric, as it provides for other woven fabrics of yarns of different colours, the yarns of which are synthetic staple fibres other than polyester blended with cotton.

Revenue Canada was unable to determine whether the sample was perma press, singed or woven on a shuttleless loom. It did not confirm the presence of a resin finish. The number of yarns per unit length and the yarn sizes corresponded, within experimental error, to the values specified in the request. The subject fabric was found to weigh 94 g/m2.

Revenue Canada advised the Tribunal that the subject fabric is dutiable at 20.5 percent ad valorem under the MFN tariff; at 20.2 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.

Revenue Canada provided the following comments in the event that tariff relief is granted:

(1) In order to comply with the terminology used in the Customs Tariff, it is preferable to use the term “polyester/cotton” rather than “polycotton” and the expression “yarns of different colours” rather than “yarn dyed.”

(2) Unless otherwise specified, the Customs Laboratory will use standard method AATCC [3] No. 124 to determine if a fabric is perma press.

(3) References to the terms “singed” and “made on a shuttleless loom” should not be used.

(4) The Customs Laboratory does not know if the detection and identification of certain resin finishes are possible.

(5) Since the Customs Tariff uses metric terminology, the imperial system of measurement should not be used in the wording of a recommendation for tariff relief. Width should be specified in centimetres, and decitex should be used rather than cotton count. Likewise, the number of yarns should be expressed per 10 cm rather than per inch.

Total imports of the subject fabric for use in the production of men’s shirts, [4] in 1994, are estimated to have amounted to 766,439 linear metres, having a total value of $1,362,500. The imports originated in the People’s Republic of China (PRC), the Republic of Korea, Taiwan and the United States. The estimated market for the subject fabric consisted only of sales from these imports in 1994. Imports by MWG held an estimated 20 percent of this market in 1994.

MWG described the subject fabric as 100 percent cotton, yarn dyed flannel, double pre-shrunk, 80 x 58, 21 x 21, of a width of 57/58 in., with both sides brushed, no bowing and a firm hand finish, for use in the production of tailored collar shirts.

MWG indicated, in its request, that the subject fabric was classified, for customs purposes, under classification No. 5208.42.90.90. This classification covers all woven fabrics of cotton, containing 85 percent or more by weight of cotton, weighing more than 100 g/m2, but not more than 200 g/m2, and consisting of yarns of different colours and of plain weave.

Revenue Canada determined that the sample submitted by MWG was a green, black and royal blue plaid, 2/2 cross-twill fabric, woven from single yarns of different colours. The yarns were made of cotton fibres. The subject fabric was brushed on both sides and weighed 175 g/m2.

Revenue Canada determined that, for purposes of the Customs Tariff, the weave is a crossed twill and that the subject fabric should be classified under classification No. 5208.43.00.00 rather than classification No. 5208.42.90.90, as submitted by MWG. Both classification numbers carry the same rates of duty.

This discrepancy in tariff classification was reported to MWG on July 5, 1995. On July 17, 1995, MWG requested that the investigation be expanded to include, in addition to tariff item No. 5208.42.90, tariff item Nos. 5208.43.00 and 5208.49.00, as these tariff items cover the full range of actual or potential imports by MWG of yarn dyed shirting fabrics used in the production of men’s tailored collar shirts.

Revenue Canada was unable to determine the shrinkage of the subject fabric. The bow of the subject fabric was determined; however, the results were not conclusive. It agreed that the subject fabric could be referred to as a flannel. The number of yarns per unit length and the yarn sizes corresponded, within experimental error, to the values specified in the request.

Revenue Canada advised the Tribunal that the subject fabric is dutiable at 16.0 percent ad valorem under the MFN tariff; at 15.7 percent ad valorem under the BPT; at 5.2 percent ad valorem under the U.S. tariff; and at 14.0 percent ad valorem under the Mexico tariff. Under Code 4215 of Schedule II to the Customs Tariff, MWG benefits from a reduction of customs duties and imports the subject fabric at an MFN tariff rate of 10 percent.

Revenue Canada provided the following comments in the event that tariff relief is granted:

(1) Rather than use the expression 3"double pre-shrunk,” it would be preferable to specify a maximum percentage of shrinkage allowed.

(1) It would be preferable not to refer to the term “bowing” in the wording for recommending tariff relief, as this term is not normally used in the trade, other than for the purpose of quality control.

(2) It is recommended that references not be made to the term “firm hand finish.”

Similar comments to those concerning the subject polycotton fabric were made regarding the use of the imperial system and the term “yarn dyed.”

Total imports of the subject fabric for use in the production of men’s shirts, [5] in 1994, are estimated to have amounted to some 333,000 linear metres, having a total value of $2.1 million. The imports originated in the PRC, the United States and India. The estimated market for the subject fabric consisted only of sales from these imports in 1994. Imports by MWG held an estimated 15 percent of this market in 1994.

MWG uses the subject fabrics to produce men’s tailored collar, western-style shirts. The production process for the shirts, which consists principally of designing, spreading, cutting, sewing, pressing and inspecting, is performed at MWG’s plant in Winnipeg. No part of the production process is subcontracted. The finished garments are shipped to independent outlets in Canada and the United States.

REPRESENTATIONS

MWG states that, because a large proportion of the duties imposed on the subject fabrics are remitted under the Shirting Fabrics Remission Order, 1988, [6] the eventual purpose of the request is to obtain quota exemption, because quota is currently not available to its suppliers. MWG argues that there are no producers of yarn dyed shirting fabrics in Canada and that there are no acceptable substitutes for yarn dyed shirting fabrics in Canada. In both requests, tariff relief is being sought on imports from the PRC for the next two years.

MWG claims that, because an allocation of the import quota on the subject fabrics is not available in Canada, it has been forced to import finished shirts from overseas. Should tariff relief and, subsequently, ex-quota treatment be granted on the subject fabrics, MWG intends to enhance its domestic production of finished shirts, which would require additional capital investment and increase employment, and to cease importing finished goods.

Letters in support of MWG’s requests for tariff relief were received from other Canadian manufacturers of shirts, namely, William Cline Co. Limited, i. Miller Shirts Inc. and Cluett, Peabody Canada Inc. These companies argue that tariff relief should be granted on the basis of a lack of domestic supply of identical or substitutable fabrics.

With regard to the investigation concerning polycotton shirting fabric, the Department of Foreign Affairs and International Trade (Foreign Affairs and International Trade) informed the Tribunal that Canada currently maintains quota restraints on polyester staple/cotton woven fabric (category 36.0) imported from the PRC, Hong Kong, the Republic of Korea and Taiwan. As such, this coverage includes polycotton fabric classified under classification Nos. 5513.31.00.00, 5513.32.00.00 and 5513.33.00.00. Bilateral agreements, which provide for these restrictions, between the Government of Canada and the governments of the People’s Republic of China and Hong Kong have been in place since 1987. The bilateral agreements between the Government of Canada and the Government of the Republic of Korea and the Taiwan Textile Federation have been in place since 1978 and 1979, respectively.

According to Foreign Affairs and International Trade, woven fabric of polyester staple fibre, mixed mainly or solely with cotton and of a weight not exceeding 170 g/m2, is not classifiable under tariff item No. 5513.39.00, and the request made by MWG for tariff relief on the subject fabric imported under this tariff item is inappropriate and should not be considered as part of the Tribunal’s investigation.

With regard to the investigation concerning cotton flannel shirting fabric, Foreign Affairs and International Trade informed the Tribunal that Canada currently maintains quota restraints on woven cotton fabric, finished, imported from the PRC and cotton fabric imported from Hong Kong and Taiwan (subcategories 32.1-greige and 32.2-finished). Accordingly, this coverage includes cotton fabric classified under tariff item Nos. 5208.42.90, 5208.43.00 and 5208.49.00.

The bilateral agreement, which provides for this restriction, between the Government of Canada and the Government of the People’s Republic of China has been in place since 1987. The bilateral agreements between the Government of Canada and the Government of Hong Kong and the Taiwan Textile Federation have been in place since 1979.

Foreign Affairs and International Trade has indicated that it will consider requests for 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.

ANALYSIS

In these investigations, the Tribunal is concerned with the issues of, first, whether an identical or substitutable fabric is produced in Canada and, second, the impact of granting tariff relief on any potential domestic producers.

According to MWG and other users of the subject fabric, there is no domestic production of a fabric identical to or substitutable for the subject polycotton, yarn dyed shirting fabric. These arguments were not contradicted by any domestic producer of fabrics. Therefore, other than the corresponding duty revenues foregone by the government, the Tribunal does not believe that there will be any direct commercial costs associated with the removal of the customs duty on importations of the subject fabric.

It is estimated that the net economic benefits of granting the tariff relief for all users would have been approximately $65,500 [7] in 1994 and, based on the projected level of imports, would total approximately $130,000 [8] over the next 12-month period. In addition, should full tariff relief and ex-quota treatment be granted, MWG plans to inject more capital into its production facilities and increase employment by some 50 people. In summary, the Tribunal finds that the net economic benefits of granting the tariff relief, in the short term, will be positive.

As in the investigation concerning polycotton, yarn dyed shirting fabric, arguments were advanced by MWG and other users that there is no domestic production of a fabric identical to or substitutable for the subject cotton, yarn dyed flannel shirting fabric. These arguments were not contradicted by any domestic producer of fabrics. Therefore, other than the corresponding duty revenues foregone by the government, the Tribunal does not believe that there will be any direct commercial costs associated with the removal of the customs duty on importations of the subject fabric.

It is estimated that the net economic benefits of granting the tariff relief for all users would have been over $157,000 [9] in 1994 and, based on the projected level of imports, would total approximately $184,000 [10] over the next 12-month period. In addition, should full tariff relief and ex-quota treatment be granted, MWG plans to cease importing finished shirts and to manufacture the end product entirely at its facility in Winnipeg and expects to increase employment by 37 people.

Although MWG has requested tariff relief on the subject fabrics for a period of two years, the Tribunal believes that permanent tariff relief is the most appropriate recommendation. Should there be any commencement of production of a fabric identical to or substitutable for the subject fabrics, 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 relief.

RECOMMENDATION

In light of the foregoing, the Tribunal hereby recommends to the Minister that the customs duty on importations of:

(1) polyester/cotton, perma press fabric, made of yarns of different colours, mercerized, with approximately 394 yarns/10 cm (100 yarns/in.) in the warp and 272 yarns/10 cm (69 yarns/in.) in the weft, ranging from 127 to 131 decitex in the warp (cotton count of 46.4 to 45.1) and 137 decitex in the weft (cotton count of 43.2), containing 65 percent polyester and 35 percent cotton, and of a width of 144.8 to 147.8 cm (57/58 in.), for use in the production of tailored collar shirts; and

(2) 100 percent cotton flannel fabric, made of yarns of different colours, double pre-shrunk, with approximately 325 yarns/10 cm (83 yarns/in.) in the warp and 238 yarns/10 cm (60 yarns/in.) in the weft, ranging from 279 to 283 decitex in the warp (cotton count of 21.4 to 20.9) and ranging from 268 to 285 decitex in the weft (cotton count of 21.9 to 20.7), and of a width of 144.8 to 147.3 cm (57/58 in.), with both sides brushed, for use in the production of tailored collar shirts,

be permanently removed.

Anthony T. Eyton
_________________________
Anthony T. Eyton
Presiding Member


Lyle M. Russell
_________________________
Lyle M. Russell
Member


Lise Bergeron
_________________________
Lise Bergeron
Member

1. R.S.C. 1985, c. 47 (4th Supp.).

2. R.S.C. 1985, c. 41 (3rd Supp.).

3. American Association of Textile Chemists and Colorists.

4. A small proportion of these imports may have been used in the production of boys’ shirts.

5. A small proportion of these imports may have been used in the production of boys' shirts.

6. SOR/88-331, June 23, 1988, Canada Gazette Part II, Vol. 122, No. 14 at 2850.

7. Based on the actual amount of duties paid in 1994, after duty remission.

8. Assuming the same rate of duty remission as obtained in 1994.

9. Based on the actual amount of duties paid in 1994, after duty remission.

10. Assuming the same rate of duty remission as obtained in 1994.

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Initial publication: August 28, 1996