PRB 98-5E
PARLIAMENTARY ACTION ON THE ISSUE OF
BUTTEROIL/SUGAR BLEND IMPORTS
Prepared by:
Jean-Denis Fréchette
Economics Division
October 1998
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
the officials at Revenue Canada might have had 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.
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 they're processed to get butter and butter oil. So it's
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 WCO’s 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 minister’s 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. |