What we heard report: Government of Canada consultation on Canada’s Administration of the Tariff Rate Quota (TRQ) for Sugar-Containing Products for Export to the United States (WTO-SCP) and the Origin Quota (OQ) for High-Sugar Containing Products for Export to the European Union and its Members States (CETA-HSCP)
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Introduction
In 1995, in accordance with its commitments under the WTO, the United States established a global tariff rate quota (TRQ) for sugar-containing product (SCP) imports of 64,709,000 kg. In 1997, Canada and the United States signed a bilateral understanding on sugar under which Canada obtained a country specific reserve of 59,250,000 kg annually of the total global SCP TRQ. In order to ensure stable and predictable export marketing, these goods were added to Canada’s Export Control List (ECL). The allocation policy for SCP, current at the time of the consultation, was introduced in 2012.
With CETA’s coming into force in 2017, Canada has benefited from a 30,000,000 kg origin quota (OQ) for high sugar containing products (HSCP). The allocation policy for HSCP, current at the time of consultation, was introduced in that same year.
As part of its regular reviews of existing allocation policies to ensure that they remain fit for purpose the department held a public consultation from May 13 to June 10, 2022.
Who we heard from
GAC published background information on Canada’s administration of the WTO-SCP TRQ and CETA-HSCP OQ and issued an online questionnaire.
In all, 10 responses to the online survey were received and three one-on-one meetings were held. Some stakeholders also submitted written responses via email. The feedback came from Canadian companies and trade associations.
What we heard
Our questions were centered on different aspects of the allocation policies, such as allocation method, distribution of quota in different pools, return dates and penalties for both the WTO-SCP (11 questions) and the CETA-HSCP (12 questions). In some cases, respondents chose not to answer some of the proposed questions.
WTO-SCP:
In general, 60% of the respondents indicated the desire to abolish the distinction between bulk and retail allocation pools. Furthermore, 70% expressed the desire to create a permanent “new entrant’s” pool. Most indicated that a new entrant’s pool of 3% or 5% of the total quota would be preferred.
In terms of the return date, 70% of the respondents indicated May 1 as their preferred date. In case a second return date was set, 70% of the respondents indicated July 1 as the best option.
Regarding the eligibility criteria to use returned quota on a first-come, first-served basis, 30% of the respondents indicated that any company that made no returns should be eligible whereas another 30% indicated that any allocation holder who demonstrates an actual commercial opportunity should have access to this quota. Furthermore, 80% of the respondents agreed on the need to base this access on a demonstrated need for additional quota (i.e invoice or other documentation).
Under the existing chronic return policy, an allocation holder with an allocation of less than 500,000 kg (in the current allocation year) with an average rate of returns over 50% in the two previous consecutive quota years may have its allocation adjusted downward in the new quota year by a return penalty of 20% of its average returns during the two previous consecutive years. For an allocation holder with an allocation greater than or equal to 500,000 kg with an average rate of returns over 25% in the two previous consecutive quota years may have its allocation adjusted downward in the new quota year by a return penalty of 20% of its average returns during the two previous consecutive years. The option to maintain this policy got 30% of the votes.
Under the CUSMA-SCP chronic return penalty, if an allocation holder has an average rate of return over 25% over the two previous consecutive years, their allocation will normally be adjusted downward in the next quota year by 30% of their average returns during those two previous consecutive years. The option to adopt an identical chronic return also received 30% of the votes.
In terms of the underutilization penalty, 70% of the respondents indicated their preference to maintain the existing underutilization penalty, which applies to allocation holders that used less than 80% of their allocation and consists in adjusting their allocation downward in the new quota year to reflect their actual utilization in the previous year.
When asked what would make the respondents more likely to use this quota, responses were varied. A general concern was that the annual allocation is not based on the previous year’s quota. Consequently, quota holders may need to rely on returned quota to fulfill their contracts. According to these respondents, having the quantity of allocated quota based on the previous year’s utilization (including the utilization of first-come, first served quota) would help to eliminate some uncertainty.
Som respondents suggested establishing a mechanism to advance export permits to ensure that SCP allocation holders can initiate exports at the start of the quota year based on anticipated allocations, rather than waiting for the final calculation of allocations which may not be completed prior to October 1st.
CETA-HSCP
When asked how this quota should be administered, 80% of the respondents indicated a preference for keeping an allocation based on two pools, with one reserved for Canadian sugar refiners and one reserved for processors, and 66% of the respondents indicated that quantities should be allocated to individual applicants, either on a first-come, first-served basis, or by allocation application.
In terms of the allocation pool composition, 55% of the respondents indicated that the pool should be equally divided between Pool 1 (50% for sugar refiners) and pool 2 (50% for refiners and processors),
Regarding the criteria to be used for allocating pool 1, the two main positions were equally divided: “domestic market production share” and “keeping the policy as is”, both got 44% of the votes each.
As far as the criteria for allocating pool 2 is concerned, among the 4 voted options, “keeping the policy as is” got the most votes (50%).
In terms of the return deadline, most of the respondents (60%) voted for keeping the return date as is (July 1).
When asked who should be eligible to obtain returned quantities, the 2 most voted options were allocation holders who have a demonstrated need for additional quota (44%) and allocation holders that utilized at least 80% of their allocation at the time of their request (44%).
When asked if returned quantities should be considered utilised for underutilization calculation purposes, the answers were equally split (50%) between in favour and against.
On the same topic, all the respondents agreed that allocation holders that underutilized their quotas in the previous year should have their allocations adjusted downwards in the following year, in order to reflect their actual utilization. Among the three options given for minimum utilization thresholds, the most favourable option was 90% utilization before underutilization penalties would be levied.
All respondents agreed that there should also be a return penalty applicable to allocation holders that incurred an average return rate of over 25% in the two previous consecutive years. However, responses differed on the actual penalty: 33% indicated that it should be equal to 20% of the average return, whereas 55% indicated that the allocation should be reduced in the following year to reflect the actual utilization.
When asked what would make the respondent more likely to use this quota, the only answer received was that knowing that they could access the quota 12 months in advance would allow them to pursue new business more aggressively.
Next steps
In conclusion, all the respondents agreed that several elements of the existing allocation policies needed to be revised.
Changes to the policy were communicated in a new Notice to Exporters.
We thank everyone who participated in the consultations.
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