CLOSING THE "STUFFED MOLASSES" LOOPHOLE

Stuffed molasses is a sugar syrup, concocted in Canada, by a British firm, using mostly Brazilian and Colombian sugar, for the sole purpose of circumventing the U.S. sugar import quota.

Approximately 125,000 tons of sugar has been leaking into the U.S. market annually in this fashion. The accumulation of these imports was a significant factor in the sugar loan forfeitures of fiscal 2000. This additional sugar diminishes the import share of legitimate U.S. import quota-holding countries in years when the overall import quota is above the WTO minimum, oversupplies the U.S. market and depresses our prices in years such as this one and the past two, when imports are at the WTO minimum. The amount of sugar unfairly entering the U.S. market as stuffed molasses (or mimic products) is certain to grow if this loophole is not permanently closed.

The stuffed molasses loophole has a direct and immediate impact on the Administration's ability to administer sugar policy and maintain a viable domestic industry.

Budget Effect -- Closing the stuffed molasses loophole will save the government money. The USDA, in its February baseline, conservatively projected sugar imports from stuffed molasses at 125,000 tons per year over the next 10 years. This surplus sugar would effectively be absorbed by the CCC, at a cost of more than $1 billion for acquisition and indefinite storage. Because of injury to U.S. sugar policy, American taxpayers and sugar farmers will continue to be harmed until this problem is completely resolved.

History -- In 1999, the Customs Service determined that a mixture of sugar, molasses, and water called "stuffed molasses" imported from Canada by a subsidiary of the international trading company ED & F Mann of the United Kingdom, is really just sugar, and therefore subject to the quota on sugar imported into the United States. Customs found that mixing molasses with refined sugar was merely an artifice to evade the sugar quota. The Court of International Trade overturned the Customs Service ruling and the U.S. Government and the United States Sugar Beet Association appealed that decision to the Court of Appeals. 

Good News - On August 30, 2001, the Court of Appeals for the Federal Circuit in Washington D.C. upheld a U.S. Customs Service ruling that blends of sugar and molasses imported through Canada are subject to the quota limitations on sugar imported into the United States. The Court of Appeals reversal holds that the Customs Service's classification is the law. 

This cuts off one avenue for circumventing the sugar import rules established by the United States under WTO.

Next Step -- The U.S. sugar industry heartily endorses legislation pending in the Senate (S.753), co-sponsored by 19 Senators and introduced by Senators Breaux of Louisiana and Craig of Idaho, which would address this import quota loophole and restore some degree of certainty to the U.S market. This legislation would reinforce the Customs Service classifications and provide a more immediate remedy to the problem.