Tribunal dashes Canadian dairy industry's efforts to eliminate tariff loophole

Tuesday, May 7, 2013

by SUSAN MANN

Dairy Farmers of Canada is reviewing a trade tribunal decision dismissing an industry appeal challenging a classification that allows American shredded mozzarella cheese in restaurant pizza kits to enter the country tariff-free.

Dairy farmer organizations say the cheese in the kits, which also contain sliced pepperoni, should be classified as dairy and be subject to the 245.5 per cent tariff on cheese imports. The kits – and the cheese they contain – are currently classified as food preparation.

Dairy Farmers spokesperson Therese Beaulieu says the federal government has a very clear policy of supporting supply management. “The government or the government agency should be respecting that policy when they’re making that kind of decision about which tariff line to import under.”

She says all domestic industries and not just dairy should be concerned by the ruling because the “CITT (Canadian International Trade Tribunal) is basically saying that if you’re not the one that is importing then you don’t have the right to ask the questions under what tariff line the product should be coming in.”

Al Mussell, senior research associate with the George Morris Centre, says the situation means “the restaurants are able to access product more inexpensively than they would have been able to otherwise.”

The importation of pizza kits is a loophole in the supply management system similar to butteroil/sugar blends, which some companies import to make ice cream and other products, “and it could persist,” he says. “There continue to be dairy blends for which there isn’t a particularly good tariff line.”

Import controls are one of the three pillars of the supply management system, along with matching production to demand and stable prices for farmers.

The dairy farmer corporation that launched the appeal, BalanceCo, is a non-profit corporation with Canada’s 10 provincial milk marketing boards as its members. It obtained a decision on July 19, 2012 from the Canada Border Services Agency that affirmed a previous ruling it made to classify the kits imported by J Cheese Inc. as a food preparation.

BalanceCo appealed the agency’s decision to the trade tribunal, which first looked in to whether it had the jurisdiction to hear the appeal. The hearing on jurisdiction was on April 9 in Ottawa. In its May 3 decision on jurisdiction, the trade tribunal ruled BalanceCo wasn’t an eligible applicant for a Canada Border Services Agency ruling issued under the Customs Act and therefore the agency’s ruling was invalid. “That being the case, the tribunal finds that it has no jurisdiction to hear the appeal,” the tribunal’s decision states.

(Although the trade tribunal decided the agency’s ruling on BalanceCo’s appeal was invalid, the agency’s original decision to classify the pizza kits as food preparation has not been affected and still stands.)

The tribunal decision says BalanceCo acknowledges it’s not an importer of goods into Canada. But BalanceCo argued there’s nothing in government regulations that says there needs to be proof of importation or the actual importation of goods to get a ruling on tariff classifications.

But in its conclusion, the tribunal states the “evidence clearly indicates that at the time of its application, BalanceCo had no interest in importing the goods that were the subject of its advance ruling request.” In addition, the dairy corporation sought the advance ruling on the kits to restrict their importation. “As such, BalanceCo could not be considered as having been an ‘importer’ in any reasonable sense of the term,” the decision says.

J Cheese Inc. raised the question of the tribunal’s jurisdiction. It was an intervener in the case. The tribunal’s decision says J Cheese Inc. is an importer and distributor of food, including dairy products. It created the pizza kits for its customer, Pizza Pizza, which is Canada’s largest pizzeria with an estimated 690 outlets across the country, “and entered into what is described as an arrangement with a U.S. firm for the production of the goods (pizza kits) exclusively for JCI (J Cheese Inc.),” the decision says.

Pizza Pizza representatives couldn’t be reached for comment.

Asked for his opinion on the tribunal’s ruling, federal Agriculture Minister Gerry Ritz says by email “decisions such as this are taken by an arm’s length tribunal.” BF