PRB 98-5E
PARLIAMENTARY
ACTION ON THE ISSUE OF
BUTTEROIL/SUGAR BLEND IMPORTS
Prepared by:
Jean-Denis Fréchette
Economics Division
October 1998
Revised 19 August 1999
In
early 1996, the Dairy Farmers of Canada realized that butteroil/sugar blends were being
imported into the country. Preliminary data from Revenue Canada at the time showed that
such imports stood at approximately 600 tonnes a year and were worth the equivalent of
$1.6 million in milkfat.
In October 1996,
Revenue Canada reported that imports for the current year had already reached 3,148
tonnes, compared with 1,349 tonnes for the whole of 1995. Imports from the United States,
Mexico, New Zealand and, to a lesser degree, Europe came to far more than the estimate of
about 600 tonnes a year.(1) It should
be noted that before the introduction of tariff-rate quotas, most dairy blends were
imported from the United States; according to Revenue Canada, no blends came in from New
Zealand when the ICL was in force.
In
early 1997, the DFC was still lobbying Revenue Canada, the Department of Finance, the
Department of International Trade and Agriculture and Agri-Food Canada to have blends
imported under tariff item 2109.90.95 reclassified under item 2106.90.33/34. The
dangers that staff in the various departments found in such reclassification of
butteroil/sugar blends ranged from a challenge before the WTO to a direct challenge from
the United States. Blend importers said that a new classification would immediately result
in a challenge before the Canadian International Trade Tribunal (CITT).
Later
in 1997, the DFC, with advice from their legal counsel, refined their demands and came to
the conclusion that, even if a review of the classification under tariff item
2106.90.33/34 (butter substitute) were still an option, the best approach would be to
classify butteroil/sugar blends under item 0404.90, the classification initially created
to limit imports of dairy blends sometimes developed to circumvent the rules. This
approach is consistent with the arguments made by the Government of Canada made before the
special NAFTA group in 1996.
In
April 1997, pressured by arguments from producers and importers, Revenue Canada undertook
a comprehensive analysis of the classification of butteroil/sugar blends as established by
the department for the 1995 tariff-rate quotas.
Their
new descriptive analysis of the product eliminated any doubts on the part of officials
at Revenue Canada about whether butteroil/sugar blends should indeed be classified under
tariff item 2106.90.95. In July 1997, the department submitted its review to the DFC and
importers for comment. According to Revenue Canada, the importers supported the new
classification analysis, while the DFC made no comment. However, the DFC continued to
apply pressure through political channels, a move that on 20 November 1997 led to a special
meeting of the House of Commons Standing Committee on Agriculture and Agri-Food (http://parl.gc.ca/).
During that
meeting, the Revenue Canada representatives specifically said that the World Customs
Organization (WCO), which oversees the Harmonized Commodity Description and Coding
System that countries use as a base in developing their own systems, had already explored
the possibility of classifying butteroil/sugar blends under item 0404 as requested by the
DFC. According to Revenue Canada, in a decision released on 7 November 1997, the WCO
had decided that butteroil/sugar blends "[were] not natural milk constituents because
theyre processed to get butter and butter oil. So its not a basic constituent
if you separate it in the normal fashion."(2)
The
Dairy Farmers of Canada made no attempt to disguise their surprise and disappointment at
learning of the WCOs decision, mainly because they had not been made aware of the
review or the role played by Canadian bureaucrats in the WCO examination.
The
Customs Act contains a number of dispute resolution mechanisms. Section 59 allows
importers to appeal the classification of a product they import by contacting a designated
officer. Sections 63 and 64 allow any person to contact the Deputy Minister of Revenue
Canada direct to request a review of a re-determination.
If,
following the deputy ministers review, a requesting party that still believes the
classification to be inappropriate can appeal to the Canadian International Trade
Tribunal (CITT), the Federal Court, and ultimately the Supreme Court (section 67).
Section
70 of the Customs Act allows the deputy minister to ask the CITT for an opinion on
any question relating to the tariff classification.
On 17 December
1997, faced with the continuing impasse, Paul Martin, Minister of Finance, Lyle Vanclief,
Minister of Agriculture and Agri-Food Canada, and Sergio Marchi, Minister of International
Trade, announced that the Governor in Council would ask the Canadian International Trade
Tribunal to review the issue of imports of product blends containing dairy ingredients.(3)
In
its request to the CITT, the government revealed, in the fact sheet accompanying its
release, the primary characteristic of dairy blends:
Dairy blends
are mixtures of dairy products and other food substances for use in the preparation of
products such as ice cream, confectionery and bakery goods. In the context of imports into
Canada, dairy blends are often created in a manner intended to avoid entering under
tariff-rate quota descriptions covering the importation of most dairy products.
In view of this
statement, it was hardly surprising that the CITT devoted several pages of its report
(p. 5 to 8) to defining and deciding on the blends relevant to its inquiry.
(1) The figures vary depending on the source; please
see the section giving statistical data.
(2) House of Commons, Standing Committee on Agriculture
and Agri-Food, Evidence, 20 November 1997, Ottawa, p. 19-20.
(3) Government of Canada, "CITT Review of Imports
of Dairy Blends," Press Release, 17 December 1997. |