| When is sugar really sugar? This is the question. Whether it
is sweet syrup or granulated, the issue means these are anxious days for
Greg Kozak, head of Heartland By-Products sugar refinery in Taylor,
Michigan, owned by Britain's ED&F Man.
Every week tanker-trucks carrying sugar syrup, from which his plant
extracts a liquid sugar product for sale to US ice-cream and confectionery
companies, rumble across the Ambassador Bridge linking Detroit with
Windsor, Ontario. But in Washington DC legislation is threatening, which
could jeopardise this traffic - and, says Mr Kozak, push his refinery out
of business.
This is because the "syrup" comes in without paying the high
duties applicable under the US Tariff Rate Quota (TRQ) for imported sugar.
Now Senator John Breaux, a Louisiana Democrat, hopes to close this
"loophole" by proposing legislation that would raise the tariff
on Mr Kozak's sugar syrup to that levied on other sugar imports.
A compressed end to the current congressional session may make this
difficult. But even if legislation fails this year, it seems certain to
resurface in 2001.
"There has to be a solution found," says James Johnson,
president of the US Beet Sugar Association. "The integrity of the US
tariff system is in question".
Mr Kozak says the practice of importing the product in syrup form -
"stuffed molasses" the US sugar industry calls it - is
well-established. At the very least, he says, it was known industry
practice when the current tariff classification for sugar syrup was
established in 1995. That, in turn, was the ruling which ED&F Man
relied on when it invested about Dollars 10m (Pounds 6.8m) in building the
Michigan refinery and refitted an existing plant in Windsor to produce the
syrup.
US sugar producers, who enjoy generous protection under the TRQ, say
there is no evidence the tariff classification was drawn up with products
like Mr Kozak's in mind. Already the two sides have waged this battle
through several US courts: the US Customs Services raided the Heartland
refinery in 1997, and eventually contested the legality of the imports.
Heartland took its case to the US Court of International Trade and won.
But the real fear seems to be that Mr Kozak's operation is the tip of
an iceberg. The precise level of imports by Heartland is a matter of some
dispute, but it is certainly less than 1 per cent of the total US sugar
market.
US sugar growers say if they give up the struggle other entities could
mimic the ED&F Man model. That could make a nonsense of the TRQ rules.
"It (the import practice) will explode - it's the uncertainty which
has stalled this circumvention," says Mr Johnson.
All this has other countries looking on nervously. On the one hand Mr
Kozak and his lawyers claim that, if legislation was enacted, Canada would
have grounds for taking the issue to the World Trade Organisation, and
that potential retaliation could open up a "Pandora's box". The
Canadian government has made it clear that it supports Mr Kozak's case.
Surprisingly the US sugar industry claims to have found some support in
sugar exporting countries such as Australia or the Dominican Republican,
which would like more access to the US market. This claim seems to have
some substance.
"If stuffed molasses is permitted, it hits at the ability of
third-party countries to get an increase in the quota," says one
lawyer advising a prominent overseas export organisation. |