PRB 98-5E
CLASSIFICATION
OF
BUTTEROIL/SUGAR BLENDS
Prepared by:
Jean-Denis Fréchette
Economics Division
October 1998
Revised 19 August 1999
In
the early 1990s, some quantities of butteroil/sugar blends with a 49%/51% composition were
imported under the ICL without any restriction. These imports did not really attract the
attention of the dairy industry, probably because of their marginal value, estimated at
$2 million a year. Further, because dairy blends consisting of milk solids had been
subject to import controls since 1988 and some blends with less than 50% dairy content had
earlier been denied entry, it was possible that a new butteroil/sugar blend could have
been imported under the same "umbrella."
Some
Canadian ice cream manufacturers who had attempted to import dairy blends under the ICL,
however, looked at the new list of Canadian TRQs and decided that they might be able to
use an escape route. Imported dairy blends that contained more sugar than
milkfat (that is, 49% butteroil and 51% sugar) would not be subject to the same high
tariffs as dairy products; blends containing proportionally more sugar than fat were
not specifically considered "butter substitutes," even though they contained
enough milkfat (by weight) to be used in making ice cream.
After
the TRQs came into force in 1995, one importer of butteroil/sugar blends asked Revenue
Canada to confirm that the blend was indeed classified under tariff item 2106.90.95.
Revenue Canada confirmed that the department had classified these blends under that tariff
item; thus, the product could be imported without an import licence and was not subject to
a tariff-rate quota.
The
tariff classification system is based on a complex hierarchy that comprises a four-digit
heading, a six-digit subheading and a tariff number with eight or more digits depending on
the country. This method, known as the "Harmonized Commodity Description and Coding
System" (HS), was developed by the World Customs Organization (WCO); it uses
explanatory notes and classification notices to describe and classify products.
Internationally, all signatory countries use the basic six-digit HS code, which provides a
common classification system. Domestically, to classify a product under an eight-digit
number, Revenue Canada has to describe the product according to specific criteria. Before
it can decide whether a butteroil/sugar blend can be considered a butter substitute,
Revenue Canada must first determine whether or not the butteroil/sugar blend can be
marketed as butter, which it cannot be. Further, to be considered a butter substitute, the
blend must be "spreadable," and capable of being used as cooking fat
and a cooking ingredient. When the classification system was being established for
the TRQs in 1995, Revenue Canada looked first at the six-digit classification, that
is, number 2106.90, used for "other food preparations not elsewhere specified or
included." For greater accuracy, it was suggested that the classification system move
to an eight-digit description; it was at that point that Revenue Canadas administrative
decision to classify butteroil/sugar blends under the eight-digit number 2106.90.95
rather than 2106.90.33/34 became a bone of contention between dairy farmers and
dairy product importers.
Before
proceeding to an analysis, Revenue Canada had come to the conclusion that such blends
cannot be spread, caramelize when used as cooking fat, and, although called for in some
recipes, are severely limited as cooking ingredients because of their high sugar content.
Revenue Canada therefore ruled that despite their name, such blends were not a butter
substitute and could therefore not be classified under item number 2106.90.33/34.
According to Revenue Canada, butteroil/sugar blends match tariff line 2106.90.95 and can
be imported under that line, which does not impose a specific tariff-rate quota.
The
problem posed by blends containing dairy products stems in large part from a problematic
interpretation at the national level: when they go through Customs, butteroil/sugar blends
are not considered "dairy enough" and are therefore not viewed as butter
substitutes; however, when they are mixed into ice cream, manufacturers have to describe
them as "milk components." It is as if, between the tariff description and being
processed into a food form, butteroil/sugar blends become "more dairy." |