PRB 98-5E
CLASSIFICATION OF
BUTTEROIL/SUGAR BLENDS
Prepared by:
Jean-Denis Fréchette
Economics Division
October 1998
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. If they imported dairy blends that
contained more sugar than milkfat, that is, 49% butteroil and 51% sugar, these would not
be subject to the same high tariffs as dairy products; such 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 Canada’s 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." |