JONES APPAREL GROUP CANADA INC.

Investigations

REPORT TO
THE MINISTER OF FINANCE
REQUEST FOR TARIFF RELIEF BY
JONES APPAREL GROUP CANADA INC.
REGARDING
CERTAIN ACETATE OR TRIACETATE FABRICS
DECEMBER 19, 1997

TABLE OF CONTENTS

Request No.: TR-97-001

Tribunal Members: Arthur B. Trudeau, Presiding Member
Raynald Guay, Member
Charles A. Gracey, Member


Research Director: Réal E. Roy


Research Manager: Ken Campbell


Counsel for the Tribunal: Gerry Stobo


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 [1] from the Minister of Finance (the Minister) pursuant to section 19 of the Canadian International Trade Tribunal Act. [2] 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 May 1, 1997, the Tribunal received a request from Jones Apparel Group Canada Inc. (Jones Apparel) of Downsview, Ontario, for the removal, for an indeterminate period of time, of the customs duty on importations from all countries of certain acetate or triacetate fabrics for use in the manufacture of women’s jackets, blazers, dresses, skirts, trousers or waistcoats (the subject fabrics).

On August 22, 1997, the Tribunal, being satisfied that the request was properly documented, issued a notice of commencement of investigation, which was distributed and published in the August 30, 1997, edition of the Canada Gazette, Part I. [3]

As part of the investigation, the Tribunal’s research staff sent a questionnaire to potential producers of identical or substitutable fabrics. A questionnaire was also sent to firms identified as potential importers and users 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 for information and advice.

A staff investigation report, summarizing the information received from these government departments, Jones Apparel and Consoltex Inc. (Consoltex), was provided to interested parties that had filed notices of appearance for this investigation. These parties are Jones Apparel and the Canadian Textiles Institute (CTI).

Although the CTI did not file a preliminary or final submission with regard to the investigation, Consoltex, a member of the CTI, filed a preliminary submission. A public hearing was not held for this investigation.

PRODUCT INFORMATION

In the notice of commencement of investigation, the subject fabrics were described as woven fabrics, of subheading Nos. 5407.91, 5407.92, 5407.93, 5408.21, 5408.22, 5408.23, 5408.31, 5408.32 and 5408.33, containing 35 percent or more by weight of cellulose acetate or cellulose triacetate filaments mixed with polyester filaments or with viscose rayon filaments, containing not more than 5 percent by weight of any other fibre, with an average yarn twist of 500 turns per metre in the warp and/or the weft, of a weight of 100 g/m2 or more but not exceeding 310 g/m2, for use in the manufacture of women’s jackets, blazers, dresses, skirts, trousers or waistcoats.

Revenue Canada analyzed samples of the subject fabrics and determined that there was a discrepancy in a number of the tariff subheadings reported by Jones Apparel. Prior to the commencement of the investigation, Jones Apparel was advised of Revenue Canada’s analysis and concurred with the revised tariff classifications. Revenue Canada also determined that one of the samples had a yarn twist of less than 500 turns per metre and, therefore, proposed the above product description, which would cover all the subject fabrics. Jones Apparel agreed with this proposed description.

Revenue Canada advised the Tribunal that, in 1997, the subject fabrics are dutiable at 17.5 percent ad valorem under the MFN tariff; at 2.5 percent ad valorem under the US tariff; and at 15.0 percent ad valorem under the Mexico tariff. In addition, Revenue Canada advised that expanding Code 4218, as suggested by Jones Apparel, would complicate the current wording of that code. Therefore, Revenue Canada suggested that, should the Tribunal make a recommendation for tariff relief, a new code should be created for the subject fabrics.

The Tribunal’s research staff sent questionnaires to selected potential importers of the subject fabrics, as well as to potential domestic producers of identical or substitutable fabrics. Since no responses to these questionnaires were received, the Tribunal’s staff was unable to estimate the volume or value of imports or to estimate the size of the domestic market for the subject fabrics.

REPRESENTATIONS

Jones Apparel’s request is for the permanent removal of the customs duty on importations of the subject fabrics. In addition, it requested that the tariff relief be retroactive to May 1, 1997, the date on which the request was received by the Tribunal.

Jones Apparel has been operating in Canada for the past 14 years and has been purchasing the subject fabrics primarily from Japanese suppliers. It cuts the subject fabrics in its Downsview facility and contracts the sewing to companies in Toronto, Ontario. It also supplements its domestic production with imports of women’s coordinates, blouses and sweaters. As well, Jones Apparel claims that it is the largest ladies’ wear customer of domestic fabric weavers in Canada.

Jones Apparel submitted that tariff relief should be granted on the grounds that there is no domestic production of identical or substitutable fabrics. Jones Apparel claims that, as a result of tariff relief which was provided for specific high-twist triacetate/polyester fabrics in a 70/30 blend in Code 4218, [4] Louben Sportswear Inc. and other manufacturers now have a competitive advantage. While triacetate/polyester fabrics in a 70/30 blend do not cover many of Jones Apparel’s requirements in the same fabric class, it nonetheless requires similar duty-free fabrics in order to compete with manufacturers that are able to source fabrics that precisely meet the requirements of Code 4218.

Jones Apparel submitted that the removal of the customs duty on the subject fabrics will result in cost savings and, thereby, ensure that Canadian production and employment are maintained and continue to grow. Such cost savings would allow Jones Apparel to reduce suggested retail selling prices on coordinates. Moreover, if the duty is removed, it submitted that there is a strong possibility that its parent company, Jones New York, will grant Jones Apparel a North American mandate to manufacture triacetate/polyester coordinates in Canada, which would result in a significant benefit to Canadian production and employment.

Jones Apparel rejects the proposal by Consoltex that Code 4218 be changed by adjusting the triacetate threshold percentage from 70 to 50 percent. Jones Apparel notes that, as one of Canada’s largest apparel manufacturers, it is a significant purchaser of domestic fabrics and will always attempt to source its unique fabrics from Canadian textile manufacturers. It states that identical or substitutable fabrics are not manufactured in Canada and, therefore, that it is in the interest of the industry as a whole that the subject fabrics enter duty-free. This would ensure that one apparel company does not achieve a competitive advantage over another by gaining duty-free access for a proprietary fabric blend or construction. Moreover, Jones Apparel claims that fashion requires that there be variety and difference supplied by the various high-twist triacetate and acetate blends under consideration. Granting tariff relief, it argues, will give the fashion industry the flexibility that it needs to remain competitive from season to season.

Consoltex submitted that it still does not produce the triacetate/polyester fabrics which were granted duty-free entry following the creation of Code 4218. However, although Consoltex would like to accommodate Jones Apparel’s request, it claims to be under significant pressure and has been harmed by the granting of tariff relief on other fabrics, including “fashion” fabrics and fabrics covered in Request No. TR-95-011.

Consoltex claims that any expansion of Code 4218 to accommodate Jones Apparel will inspire others to make similar claims of competitive disadvantage in the future. Accordingly, Consoltex requests that the scope of a code be minimized so that problems already created by earlier cases not be compounded. To accommodate Jones Apparel, Consoltex would not object to a change in the threshold percentage of triacetate in Code 4218, from 70 to 50 percent, until the tariff relief order expires. Consoltex, however, is opposed to any other change which would broaden the scope of Code 4218.

The Department of Foreign Affairs and International Trade (Foreign Affairs and International Trade) informed the Tribunal that Canada currently maintains quota restraints on polyester filament fabric, including any fabric mixed mainly or solely with polyester filaments (category 35.0), imported from Poland, the Republic of Korea and Taiwan. As such, this coverage includes the subject fabrics of subheading Nos. 5407.91, 5407.92, 5407.93, 5408.31, 5408.32 and 5408.33. Bilateral agreements, which provide for these restrictions, between the Government of Canada and the Government of the Republic of Korea and the Taiwan Textile Federation, have been in place since 1978. The bilateral agreement between the Government of Canada and the Government of the Republic of Poland has been in place since 1979.

Foreign Affairs and International Trade also informed the Tribunal that Canada does not maintain quota restraints on the subject fabrics classified in subheading Nos. 5408.21, 5408.22 and 5408.23. Therefore, these fabrics are not subject to any quantitative import restrictions.

Foreign Affairs and International Trade indicated that it will consider requests for ex-quota entry on textile inputs where recommendation has been made by the Tribunal to remove the customs duty on the basis of non-availability.

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 terms of reference direct the Tribunal to evaluate the economic impact that reducing or removing a tariff would have on domestic textile producers and downstream producers and, in so doing, to consider all relevant factors, such as the substitutability of the subject fabrics with domestic fabrics, the ability of domestic fabric producers to serve the Canadian downstream industries and the competitiveness of those industries at home and abroad. Consequently, the Tribunal’s decision to recommend tariff relief is based on the extent to which it considers that such tariff relief would provide net economic gains for Canada.

The Tribunal notes that tariff relief has been granted for fabrics similar to the subject fabrics. However, the tariff relief granted following the Tribunal’s recommendation in Request No. TR-95-011, provides for the duty-free entry of woven fabrics containing 70 percent or more by weight of cellulose triacetate filaments. Code 4218, although used by Jones Apparel to import 20 percent of its triacetate fabric requirements, clearly limits its competitive position vis-à-vis other apparel manufacturers that are able to import a much larger percentage of their fabric requirements duty-free under this code.

The Tribunal also notes that, as was the case in Request No. TR-95-011, there does not appear to be any domestic production of fabrics identical to or substitutable for the subject fabrics. Although Consoltex objects to the expansion of Code 4218 to an extent which would completely accommodate Jones Apparel’s request, Consoltex readily admits that it does not produce identical fabrics and provided no evidence that it produces substitutable fabrics. Moreover, although Consoltex did provide value data with respect to domestic and export sales of various “fashion group” fabrics, it did not quantify any costs, should tariff relief be granted. 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 fabrics.

It is estimated that the net economic benefits of granting the tariff relief to Jones Apparel would have been somewhat less than $200,000 in 1996, based on the actual amount of duties paid in that year. On the basis of projected imports in 1997, it is estimated that the benefits of tariff relief in the current year would be around $200,000. In addition, should tariff relief be granted, cost reductions accruing from duty removal would ensure that Canadian production and employment are maintained. Moreover, removal of the duties could result in a North American mandate for manufacturing triacetate/polyester coordinates which could result in a significant benefit to Canadian production and employment. In summary, the Tribunal finds that the net economic benefits of granting the tariff relief would be positive.

With respect to the request for retroactive tariff relief to May 1, 1997, the Tribunal does not believe that there are extraordinary competitive circumstances in the domestic market that warrant such a recommendation.

RECOMMENDATION

In light of the foregoing, the Tribunal hereby recommends to the Minister that tariff relief be granted, for an indeterminate period of time, on importations from all countries of woven fabrics, of subheading Nos. 5407.91, 5407.92, 5407.93, 5408.21, 5408.22, 5408.23, 5408.31, 5408.32 and 5408.33, containing 35 percent or more by weight of cellulose acetate or cellulose triacetate filaments mixed with polyester filaments or with viscose rayon filaments, containing not more than 5 percent by weight of any other fibre, with an average yarn twist of 500 turns per metre in the warp and/or the weft, of a weight of 100 g/m2 or more but not exceeding 310 g/m2, for use in the manufacture of women’s jackets, blazers, dresses, skirts, trousers or waistcoats.

Arthur B. Trudeau
_________________________
Arthur B. Trudeau
Presiding Member


Raynald Guay
_________________________
Raynald Guay
Member


Charles A. Gracey
_________________________
Charles A. Gracey
Member

1. On March 20 and July 24, 1996, and on November 26, 1997, the Minister of Finance revised the terms of reference.

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

3. Vol. 131, No. 35 at 2592.

4. Code 4218, which was created following the Tribunal’s recommendation in Report to the Minister of Finance: Request for Tariff Relief by Louben Sportswear Inc. Regarding Dyed Woven Fabrics, Request No. TR-95-011, March 21, 1996, provides duty-free entry under the MFN tariff for woven fabrics, of cellulose triacetate filaments mixed solely with polyester filaments, containing 70 percent or more by weight of cellulose triacetate filaments, with a yarn twist of 900 or more turns per metre, of a weight of 165 g/m2 or more but not exceeding 310 g/m2, of subheading No. 5408.31 or 5408.32, for use in the manufacture of women’s jackets, blazers, dresses, skirts, trousers or waistcoats (vests).

[ Table of Contents]

Initial publication: December 18, 1997