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Comments by Canada for House Committee on Agriculture April 26, 2001 Hearings on U.S. Sugar Industry

This correspondence is to clarify and elaborate on comments made by witnesses before the Committee on April 26, 2001 with regard to the issue of imports of sugar syrups (stuffed molasses) from Canada.

Heartland By-Products Inc. has been in full operation since 1997, importing a legitimate sugar syrup product in full conformity with U.S. law. The U.S. Customs Modernization Act, which was enacted in 1993 as Title VI of the North American Free Trade Implementation Act, strongly encourages prospective importers to seek advance classification rulings. Before undertaking its business operations with respect to the sugar syrups, Heartland sought such an advance ruling from the U.S. Customs Service ("Customs") pursuant to the provisions of 19 C.F.R. 177.1 (1995). Heartland's submission to Customs clearly outlined the composition of the syrup and the process by which it proposed to produce it. On May 15, 1995, Customs issued a ruling which classified the sugar syrups under a tariff line that was not subject to the U.S. sugar tariff rate quotas (TRQs). Based on the above ruling, Heartland invested $7 million in plant equipment and entered into a contract with Canadian Blending and Processing to supply it with the sugar syrup. In August 1997, a U.S. Customs inspection of Heartland's Michigan facility confirmed that Heartland was in compliance with the advance ruling.

On September 8, 1999, Customs published a notice to reclassify the product which would have taken effect in November 1999. This reclassification would have had the effect of eliminating access for this product. Canada objected to the proposed reclassification on the grounds that a unilateral revision of tariff bindings in this manner would run contrary to U.S. international trade obligations. Canada held WTO consultations with the United States on October 20, 1999.

On October 19, 1999, the U.S. Court of International Trade reviewed the proposed Customs reclassification and overturned it on the grounds that Customs' actions in reclassifying the sugar syrups was "...arbitrary, capricious, an abuse of discretion, and otherwise not in accordance with law." The U.S. then filed a motion for reconsideration with the U.S. Court of International Trade which was rejected. Canada is of the opinion that the Court ruled correctly both in its decision and rejection of the motion for reconsideration.

Canada will be monitoring any actions that the U.S. may contemplate in regard to sugar syrups to ensure that they taken are in accordance with U.S. trade obligations.