Hold the cheese: Ottawa closes import loophole

The federal government has quietly closed a loophole that had allowed... restaurant chains to import growing quantities of low-cost U.S. mozzarella, skirting the high tariff wall that shields Canada's dairy industry.

Eager to avoid Canada's 245.5-per-cent tariff on imported cheese, restaurants had been legally buying specially prepared cheese-and-pepperoni topping kits south of the border.

The import surge started after the Canada Border Services Agency ruled last year that the topping kits are "food preparations" and therefore eligible for duty-free entry, enraging the lobby group for Canada's 12,500 dairy farmers.

The ruling was upheld this year by the quasi-judicial Canadian International Trade Tribunal.

But in late November, the government amended the Customs Tariff via a ways-and-means motion to change the definition of "food preparations." As a result, any packages containing fresh cheese are now "classified separately ... regardless of their packaging."

The move, which took effect Nov. 29, abruptly cut off imports that dairy farmers had estimated were grabbing as much as 12 per cent of the market for fresh pizza cheese.

Restaurants have long chafed at special Canadian rules that allow McCain Foods Ltd. and other frozen pizza makers to buy mozzarella at the much lower world price.

Strict price and production controls in Canada mean that wholesale cheese prices are 30-per-cent higher in Canada than in the United States...

Mr. Whyte [president of the Canadian Restaurant and Foodservices Association] said the decision appears to be a way to appease the powerful dairy lobby, which has complained loudly about the recently negotiated free-trade deal with Europe. The deal would give European cheese greater access to the Canadian market.

The issue of cheese imports has become a lightning rod in Quebec, which has the largest share of the Canadian dairy industry. On a trip to Brussels this week, Quebec Premier Pauline Marois threatened to withdraw the province's support for the European free-trade deal until it reaches a deal with Ottawa to compensate dairy farmers for any lost sales...

The industry has estimated those losses at $450-million a year.

Dairy farmers are worried that imports are gradually eroding the integrity of the supply management system, which tightly controls production and prices of dairy products in Canada.

In a filing with the Canadian International Trade Tribunal, dairy farmers had warned that cheap mozzarella imports would have a ripple effect through the industry, resulting in significant lost output, sales and market share...

Marie Prentice, Finance Minister Jim Flaherty's press secretary, called the move a "technical clarification" that "addresses a gap where certain imported goods could be packaged in a specific, deliberate manner solely to circumvent Canada's tariff system."

This has been excerpted from 18 December 2013 article by the Globe and Mail, and is available in its entirety at https://secure.globeadvisor.com/servlet/ArticleNews/story/gam/20131218/RBCHEESETRADEMCKENNAATL