Recently a trade representative from Communist China toured Canada, soliciting orders for textile products of Mainland Chinese origin. The prices offered were very attractive, and it is understood that buyers in this country were quite interested. The Canadian industry is alarmed.

A test importation of cotton print cloth in the greige has been made by a Canadian importing agent, and a shipment of one million yards of the same material has been entered by one of our Canadian mills. It is understood that a further shipment of one million yards is on the way to the same manufacturer. The firm making the test importation has requested a ruling regarding the value for duty.

In view of the manner in which production and sale of goods in state-trading countries are controlled, it is impossible to establish a value for duty under section 36 or 37 of the Customs Act. Therefore, it is necessary that the value for duty be established on a basis prescribed by you under section 38(a) of the Customs Act, which reads as follows:

"38. Where in any case or class of cases

(a) the value for duty cannot be determined under section 36 or 37 for the reason that like or similar goods are not sold in the country of export or are not sold in such country in the circumstances described in those sections, the value for duty shall be determined in such manner as the Minister prescribes."

In the past where goods have been imported from state-trading countries, their values have been compared with the fair market values of comparable goods in countries which have free economies. For example, the prices of goods from Czechoslovakia have been compared with the fair market values of similar goods in Western Germany, Italy and France. When it became necessary to prescribe a basis of valuation for paint brushes from Mainland China, the United Kingdom was the only area where it was feasible to determine a fair market value for comparable goods. Therefore, you decreed that paint brushes of Mainland Chinese origin should be valued on the basis of prices obtaining for similar brushes in the United Kingdom.

Some cotton fabrics are imported from the United Kingdom, but they are high quality mate-rials, which command premium prices. They cannot be considered comparable.

It is my understanding that United Kingdom exporters of comparable cotton fabrics cannot meet the prices at which United States producers can sell their products to Canada. Therefore, it is logical to assume that the fair market value in the United Kingdom of comparable products of British origin is higher than current prices in the United States.

It could be suggested that the fabrics of Mainland Chinese origin should be valued on the basis of the fair market values of similar goods in Hong Kong, India or Japan. Unfortunately, either we do not have adequate facilities or have not been successful in securing the necessary information to implement such a course of action.

There is no doubt but that a highly competitive market for comparable goods exists in the United States. We are also in possession of considerable information relating to current values in that market. The two constructions of cloth which have been imported were priced at 47 1/2¢ and 50¢ per pound. Comparable fabrics are currently being sold in the United States market at 70¢ and 72¢ per pound, respectively.

The attached statement? shows reported offerings of Mainland Chinese fabrics and current United States values of comparable goods.

In view of the foregoing, I would recommend that you exercise the authority vested in you under section 38(a) of the Customs Act, and order that the value of cotton fabrics of Mainland Chinese origin be determined on the basis of the values of similar fabrics of United States origin.

In view of the importance of this issue, I would further suggest that you discuss it with your Cabinet colleagues. If, following such discussion, you concur in the proposed action, the attached instruction, duly signed by you, will serve as my authority to proceed.⁶¹⁹

DAVID SIM

⁶¹⁹Approuvé par le Cabinet le 29 janvier./Approved by Cabinet on January 29.