What we heard report: Government of Canada consultation on Canada’s administration of the tariff rate quota for peanut butter exports to the United States under the World Trade Organization

On this page:

• Introduction
• Who we heard from
• What we heard
• Theme 1: Allocation methodology
• Theme 2: Issuing permits under the TRQ
• Other considerations
• Next steps

Introduction

In accordance with its commitments under the World Trade Organization (WTO), the United States established a tariff rate quota (TRQ) for imports of peanut butter in 1995. Canada is allocated a country-specific share of 14,500,000 kilograms of this TRQ. This TRQ is open to Canadian peanut butter manufactured from peanuts sourced from any country.

As part of the Canada-United States-Mexico Agreement (CUSMA), the U.S. over-access tariff rate for peanut butter produced from originating peanuts, that is peanuts wholly obtained or produced in the free trade area, which means the United States, Mexico or Canada, is being phased out, with the over-access rate reaching 0% effective January 1, 2025. As a result, Canadian peanut butter manufactured with peanuts from the U.S., Mexico or Canada will be granted duty-free, quota-free access as of January 1, 2025. 

The WTO TRQ will remain available. However, products not meeting the CUSMA rule of origin and exported in volumes in excess of the 14,500,000 kilograms allocated under the WTO TRQ will continue to be subject to the U.S. over-quota Most Favoured Nation tariff rate of 131.8%.

Global Affairs Canada (GAC) launched public consultations on June 4, 2024. The consultations ran from June 4, 2024, to July 5, 2024. The purpose of these consultations was to seek industry stakeholder interests regarding the existing policy administration, and possible changes that Global Affairs Canada is considering as a result of the U.S. tariff elimination for peanut butter made from originating peanuts under the Canada-United States-Mexico Agreement, which will come into effect January 1, 2025 as well as to seek clarity from stakeholders regarding the types of products that should be eligible for an export permit under the WTO TRQ.

This report is intended to summarize the feedback and information received during the public consultations. Therefore, it reflects the views expressed by participants and not those of the Government of Canada.

Who we heard from

GAC published background information on Canada’s administration of the TRQ for peanut butter exports to the United States and issued an online questionnaire that contained 12 questions. The department sought feedback from various stakeholders and received eight submissions. Responses received were from the following groups:

• Individuals
• Consumers
• Small, medium, and large enterprises

What we heard

Our questions were centered on two main themes. The first was to hear views on the existing policy administration, and possible changes that GAC is considering as a result of the U.S. tariff elimination for peanut butter made from originating peanuts under CUSMA, which will come into effect January 1, 2025. Other elements of the policy administration such as eligibility for an allocation, return policy, reallocation policy and transfer policy were also part of the consultations. The second theme focused on the types of products that should be eligible for an export permit under the WTO TRQ, specifically the origin of the peanuts (CUSMA or non-CUSMA) used to manufacture peanut butter.

Theme 1: Allocation methodology

The current allocation methodology for peanut butter exported to the United States is outlined in Notice to Exporters Serial No. 1063 dated November 1, 2021. With the U.S. tariff elimination for peanut butter made from originating peanuts under CUSMA, which will come into effect January 1, 2025, GAC sought views on the TRQ allocation methodology.

The quota is currently open to manufacturers of peanut butter who have a head office in Canada or who operate a branch office in Canada. The current allocation policy is to allocate a TRQ quantity based on a company’s utilization from the previous year. Participants in the consultation expressed various views including opening the allocation to exporters or wholesalers, keeping the current allocation policy, changing to an equal share allocation or adopting a hybrid method.

Some responses indicated that the new entrants pool reduces the available quota for current allocation holders to use but others believed this policy allows for competition and that the amount available in the current new entrants pool is too low to allow for the growth of new processors.

When asked whether quota holders returning +5% of their quota should have their allocation adjusted downward in the following quota year by 50%, respondents expressed mixed views. Some indicated that returns allow companies to balance fluctuations in demand and that they should not be penalized for returning quota, while some said that they should only be penalized if they return quota for two consecutive years. Other respondents indicated that the policy should encourage full utilization of the quota and that a chronic return penalty enforces this, while others felt that quota holders who use their full allocation should see an increase in quota each year.

Currently the deadline for returning quota is August 31^st. Most respondents favoured moving this date to October 31^st while some preferred to keep the current date or did not express any preference. There were diverse answers on how this returned quota should be made available to other quota holders. Some felt that it should be made available equally to other quota holders, while others thought it should be available to quota holders on a first-come, first-served basis, either to those who have used the entirety of their allocation or at least 80%.

Most respondents felt that allocation holders should not be able to transfer quota between themselves, citing a lack of transparency, while others indicated that the current system should be maintained, meaning that it is the department who manages the transfer of quota.

Finally, when asked about any negative business impacts to amending the allocation policy, some respondents indicated that using previous year’s utilization as a base to determine future quota allocations benefits some companies and harms others, while other respondents felt that it is premature to adjust the current allocation methodology given the recent changes to the US CUSMA tariff and that any amendments should be avoided for now. There were respondents who answered that they were unsure how a change to the allocation methodology would affect their business, either negatively or positively.

Theme 2:  Issuing permits under the TRQ

Currently, the TRQ is open to peanut butter made from both originating and non-originating peanuts. However, with the elimination of the CUSMA tariff on January 1, 2025, manufacturers can export peanut butter made from originating peanuts duty free. The department is considering whether the TRQ should continue to apply to both originating and non-originating peanut butter, or if after January 1, 2025, when the CUSMA tariff will be reduced to 0%, the TRQ should only be available to peanut butter produced from non-originating peanuts.  Some respondents expressed uncertainty on whether the TRQ should apply to peanut butter made with originating peanuts, but the majority felt that the TRQ should be available to peanut butter produced from both originating and non-originating peanuts. Regarding general thoughts on the direction of the TRQ, some participants felt that it makes more sense to now export under CUSMA, as only a certificate of origin would be needed and not a specific allocation.

Other considerations

Out-of-scope issues

This consultation process was concerned with the exports of peanut butter, with originating or non-originating peanuts, to the United States.  While out of scope, some respondents expressed concern regarding the price and availability of peanut butter products sold in Canada. Some felt that peanut butter products made with originating peanuts should be prioritized for sale in Canada.

Next steps

In conclusion, respondents seem to agree that the TRQ should allow for the export of peanut butter made from both originating and non-originating peanuts. Most respondents agreed on a few minor changes to the allocation policy, specifically moving the return deadline from August 31 to a later date, and the importance of transparency.  Some respondents also advocated for maintaining the current framework.

Any changes to the policy will be communicated in a new Notice to Exporters page in the coming months.

We thank everyone who participated in the consultations.