WORLD TRADE
ORGANIZATIONG/RO/W/86
25 June 2002
(02-3526)
Committee on Rules of Origin Original:  English
CHAPTERS 1-24 (AGRICULTURAL PRODUCTS AND FISH)
Joint submission by Australia and New Zealand
The following submission, dated 20 June 2002, has been received from the Permanent
Mission of New Zealand.
_______________
"Sugar" product-specific issues
This paper contains our analysis of sugar product specific issues and comprises:
- a discussion paper on the origin sugar for the purposes of the sugar issues;
- a diagram of the sugar refining process and- comments on ‘sugar issues’ as contained in the integrated negotiating text.
1. Discussion paper:  Origin of refined sugar
New Zealand’s position is that the processes described under product-specific issues 51, 53,
55, 56 & 57 of the agricultural chapters of the integrated negotiating text (INT), result in a substantial
transformation and therefore are sufficient to confer  origin as provided for in Article 9(b) of the
Agreement on Rules of Origin.
In particular, New Zealand’s position is that sugar refining confers origin because refining
substantially transforms raw sugar into refined sugar. This discussion paper submits that sugar
refining satisfies all of the principal indicators mentioned in the INT. We draw and expand below onthe origin indicators referred to the INT and outline clear arguments in support of our position.
2. Change in use
A change in use is generally accepted as the most important indicator of substantial
transformation. Raw sugar is of very little use other than as a raw material for sugar refining.
Refining transforms raw sugar (while digestable cannot be sold as food) into a refined sugar, which
can be sold as food and used in food manufacturing.
These comments are applicable also to direct consumption raw sugar (DC raw sugar).
Commercial raw sugar (which cannot be sold as f ood) must be substantially transformed by various
purification processes, including specialised handling in food grade facilities, before it becomes DC
raw sugar (which can be sold as food and used in food manufacturing).G/RO/W/86
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3. Change in character
Refining substantially transforms raw sugar into refined sugar when it removes the impurities
in contained in raw sugar crystal or as a film on the exterior of the raw sugar crystal. Such a change in
character is widely acknowledged to be an important indicator of substantial transformation.
4. Change in tariff classification
As a result of refining sugar, a change in tariff classification takes place.
Before refining After refining
Raw cane sugar:          1701.11 Refined sugar with added colour/flavour:  1701.91
Raw beet sugar:          1701.12 Other refined sugar:                                   1701.99
5. Distinctive production process
Refining requires significantly different plants and machinery from raw sugar milling not
least because refining uses a different input material and involves carbonatatation/phosphatation,clarification and char/carbon decolourisation processes.
6. Enhancement of value
Refining substantially enhances the value of raw sugar and this value is reflected in the higher
prices available for refined sugar, compared with raw sugar, in internatio nal markets.  While the
refining margin has varied between 11% and 59%, the average refining margin is 31% over the lastten years.
7. Distinctive production process
Refining requires significantly different plant and machinery from raw sugar milling not least
because refining uses a different input material and involves carbonatatation/phosphatation,
clarification and char/carbon decolourisation processes.
8. Comments on "sugar" product-specific issues as contained in the Integrated Negotiating Text
ISSUE No. 51: EXTRACTION OF RAW SUGAR
OPTION A: Yes
211. The process of extracting sugar from sugar cane or sugar beet is a substantial transformation.
Quite apart from the complexity of this process, the characteristics, form and use of the product
obtained are different from those of the initial product.  The origin of the sugar is the country where
the sugar is extracted.
Comment on Paragraph 211: The characteristics, form and use of sugar extracted from sugar cane or
sugar beet are very different from the original cane or beet.  Neither cane nor beet can satisfy the
needs of users of the finished raw sugar.  While one  could argue that “the origin of the sugar is the
country where the sugar is extracted”, cross-border transfer of cane is extremely rare (if it happens at
all); and in the cases it does happen, it is not made into raw sugar.G/RO/W/86
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212 This reasoning applies, mutatis mutandis, to sugars extracted from molasses and sugars other
than cane or beet sugar.
Comment on Paragraph 212: Since the extraction of sugar from molasses is technically demanding
and a grossly impure source material (molasses) is upgraded to a higher value final product (sugar),
the place at which the upgrading takes place should be considered the origin of the sugar.
OPTION B: No
213 The extraction of raw sugar does not constitute substantial transformation. Cane sugar is
sucrose which is formed in the sugar cane plant. Since cane deteriorates immediately after harvesting,
the juice extraction and raw sugar manufacture have to be concurrent to avoid the deterioration of the
sucrose in the cane juice. As such, cane harvesting, juice extraction and recovery of this sucrose in the
form of raw sugar are technically inseparable operations in the sugar process.
Comment on Paragraph 213: While cane harvesting, juice extraction or sucrose recovery are
necessarily inseparable (because harvested cane or cane juice would otherwise deteriorate), it does not
follow that a substantial transformation has not occurred.  Cane is a plant and its sugar content is
chemically identical to the sugars found in many other plants.  Raw sugar cannot be substituted by
cane.  A transformation has occurred.
214 All steps in the sugar process are aimed at th e recovery of sucrose. The steps in milling
include juice extraction, juice clarification, evaporation, crystallisation and centrifugation. These
operations, while giving cane juice the crystalline form of raw sugar, do not alter the basic sweetening
properties of the sucrose molecule that has been form ed in the cane plant. Afte r milling, the resulting
product referred to as raw sugar already contains sucrose of 97.5 %.
215 Raw cane sugar is an interim stage in the sucrose recovery process.  Whatever incidental uses
there may be for raw sugar, these are possible only because of its sucrose content. It is sucrose that
makes raw sugar usable for such purposes as animal feed, or alcohol manufacture.
216 As regards beet sugar, there does not exist a raw sugar stage. All sugars produced from beet
are white sugars with characteristics approximating that of refined sugar.
Comment on Paragraph 216: This is only a matter of commercial choice and because most sugar beet
is grown and processed near to final markets and it is convenient to produce white sugar direct.
Historically, beet raw sugar has been produced.
217 Whether the process of extraction of raw sugar is simple or complex is not a criterion for
substantial transformation. The origin of raw sugar is therefore the country where cane or beet aregrown.
Comment on Paragraph 217: Because cane and beet are harvested and processed locally, the origin of
the plant crop and of the raw sugar are, probably the same.
218 This reasoning applies, mutatis mutandis, to sugars other than cane or beet sugar.
Comment on Paragraph 218: Other than paragra ph 217, which has a practical logic, all other
paragraphs (213-217) are either statements of  the obvious or do not have relevance to the
determination of origin.  Their logic cannot exte nd to sugars “other than cane or beet sugar”.G/RO/W/86
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Relevant HS Codes: 1701.11, 1701.12, ex 17.02 (d) and ex 17.02 (e)
References: 41.745, 41.871 and 41.898
ISSUE No. 53: REFINING OF SUGAR
OPTION A: Yes
221 Refining sugar is a substantial transformation. During this process, the raw sugar crystals,
composed of sucrose and other materials, are completely broken down to a molecular level. The raw
sugar loses its physical aspect and chemical identity during this process and the refined sugar crystals
that emerge are a new and different product.
Comments on Paragraph 221: Raw sugar is mainly sourced from sugar cane and very little, if any,
beet raw sugar is produced as a commercial in termediate product intended for international trade.
Raw sugar is a fungible (standardised) commodity largely intended as an intermediate product to be
refined in the country in which the refined sugar is marketed.  A refiner may purchase raw sugar from
any one of a large number of origins/sources.  The raw sugars can be very variable in terms of quality
(for example colour and the type and quantity of minor components).  The job of sugar refining is to
accept raw sugar of any type or grade and convert these into a high purity, uniformly consistent
refined product.  In the process, the original raw sugar completely loses its identity.  Though
chemically unchanged, it is not possible to distinguish the original source of the plant sugar.
This is particularly important because a sugar refiner could at any given time have raw sugars from
many origins awaiting processing.  More than one of these origins could be processed at any given
time; in addition there is considerable recirculation of sugar streams within a sugar refinery.  There is
no way a particular refined sugar crystal could be ascribed to a particular raw sugar origin.  Hence the
only logical ‘origin’ that could be ascribed to the refined sugar is the country in which the refining
takes place.  Otherwise the refined sugar would have to have as many ‘origins’ as there were different
raw sugars being processed.
As a matter of practicality, individual country labelling laws would generally require that ‘origin’ of
refined sugar be stated as to be that in which the refining took place.  This is to assure consumers
about the quality and food safety standards applying during the refining process.  It would be
meaningless and confusing for consumers to see refi ned sugar described as having an origin known
only (if at all) as the raw sugar country source when the local major refinery is just down the road and
when it may be processing a range of raw sugars.
In the case of refining raw sugar from many origins, the refined sugar, as a matter of practicality, is
best to take the origin of the country where the refining takes place because there is no physical or
practical way to say which of the many original sources of raw sugar end up in the finished refined
sugar product.
Since the whole purpose of sugar refining is to eliminate all the differences that are found in raw
sugars of various origins, it is logical to take the line that the origin of refined sugars should be the
country in which refining takes place.
Change in use
222 Raw sugar is more than an intermediate product used to manufacture refined sugar.  It is used
for many other commercial purposes, including cement manufacturing, animal feed and ethanolG/RO/W/86
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production. Refined sugar is used almost exclusively as a food product. Thus, refined sugar has uses
that are completely different from those of raw sugar.
Comment on Paragraph 222: Agree that raw sugar has other uses but in practice these are very few.
Agree that refined sugar has uses that are completely different from those of raw sugar.  Raw sugar is
produced, stored and handled as a commercial intermediate commodity, not intended as a high-grade
foodstuff ready for direct consumption or for incorporation into foods.
Change in character
223 The refining process effects a fundamental change in the structure and chemical makeup of
raw sugar. Raw sugar is composed of crystals that contain sucrose with other materials occluded
within the crystal and incorporated  in the crystal lattice structure. The mixture surrounding the crystal
is composed of various organic and inorganic subs tances. During the refining process the crystal
structures in the raw sugar are completely broken do wn to molecular constituents so as to completely
lose their physical identity. The refined sugar that emerges is composed of new sucrose crystals thatno longer contain non-sucrose materials occluded within the crystals. In addition, non-sucrose
materials mixed with and coating the raw sugar crystals are removed in refining through extensive
processing operations involving both chemical and physical reactions and changes. As a result, raw
and refined sugars are fundamentally different products with significant differences in crystal
structure and size, colour, odour, texture, bacterial level, chemical makeup, taste and shelf-life.
Comment on Paragraph 223: Agree with argument.  The refinery process is specifically designed to
substantially change the character of raw sugar.
224 It should be noted that this operation is also considered substantial for the other sugars
classified in the different split headings of heading 17.02.
OPTION B: No
225 Refining raw sugar does not constitute substantial transformation. Raw sugar already has a
sucrose content of 97.5 %.  Much of the impurities in the cane juice would have been removed in the
crystallisation process at the raw sugar stage. The refining process, which employs such steps as
affination, melting, filtration, colour absorption and recrystallisation, while further removing
impurities raises sucrose content only marginally from 96 %- 99 % in raw sugar to 99.5 % or higherin refined sugar. In this connection, the Explanatory Notes state that «_raw sugar may, however, be of
such a high degree of purity that is suitable for human consumption without refining_».G/RO/W/86
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Comment on Paragraph 225: The reverse is the case.  It is not the raw sugar’s 97.5% sucrose content
that is relevant.  It is the 2.5% of non-sucrose that makes raw sugar unsuitable for most food
processing uses.  The 2.5% comprises non-sucrose sugars (eg. glucose, fructose), inorganic salts (eg.
sodium, calcium, potassium, phosphate, sulphates, carbonates) derived from the soil in which the cane
was grown and fertilised; other organic components (starches, dextrins, colouring matter, plant fibre,
polysaccharides) and water.  In addition, raw sugar is not biologically pure and may contain yeasts
and moulds.  The sweetening power of raw sugar (at 97.5% sucrose) is much the same as refined
sugar though the flavour profile is different.  The whole purpose of refining is not so much to take the
97.5% to 99.95%, but to reduce the 2.5% to 0.05%.  This is the ‘substantial transformation’ which
happens at the refining stage.
Raw sugar can be produced ‘suitable for human consumption’ but this only requires suitable food-safe
handling procedures at raw sugar production and subsequently.  It is not a factor of the purity because
even low purity raw sugars, if produced and handled carefully, can be made suitable for direct human
consumption.  However they are rarely suitable for most modern food manufacturing processes
because of their variability and because many processed foodstuffs depend on high purity, uniform,
biologically stable refined sugars.
226 The sugar refining process does not alter the original sucrose formed in the cane plant which
gives sugar its essential character as a sweetener. The chemical reactions which occur in refining
affect only the non-sucrose components but pr eserve the original sucrose molecule.
227 The simplicity or complexity of a process, including sugar refining, is not a criterion to
determine substantial transformation.
228 Also, as in the case of beet sugar, it is now possible to produce directly from cane juice white
cane sugar with characteristics that are very close to refined sugar without passing the raw stage.
These developments have made the boundary between cane, raw sugar and refined sugar obscure.
Comment on Paragraph 228: This is incorrect.  Cane is a plant; raw sugar is a commercial
intermediate commodity of variable quality, with limited application other than refining; refined sugar
is a uniform high purity product with a wide rang e of food processing and consumption applications.
Whilst it is possible to produce cane white sugar direct at the sugar cane processing factory, the
internal processes are much like having a crushing mill and a refinery under the one roof.  There is
even typically an internal raw sugar stage.  Re fined sugar produced by such means would obviously
take on the origin of the factory was located.
229 Therefore, the origin of refined sugar should be the country where the cane or beet grew.
Comment on Paragraph 229: Because the previous arguments are incorrect or erroneous, this
assertion does not follow.
Relevant HS Codes: 1701.91, 1701.99, ex17.02(a), ex17.02(b), ex17.02(d)
References: 41.004, 41.505, 41.724, 41.745, 41.871, 41.898 and 41.899G/RO/W/86
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ISSUE No. 54: OBTAINING CHEMICALLY PURE SUGAR
General comment: Chemically pure sugar (analytical reagent grade) can be produced in a regular
sugar refinery by the selection of particular pure streams of sugar liquids and by ‘washing’ the sugar
at the final centrifugation stage to a greater extent, and with wash water of higher purity than normal.
Otherwise, all the regular refining processes are unchanged.  Thus the arguments made about refining
under Issue 53 apply also to Issue 54.
OPTION A: Yes
230 Obtaining chemically pure fructose, lactose, maltose or glucose from raw or refined sugar is a
last substantial transformation.  The origin of chemically pure sugar is the country where the
purification process took place.
OPTION B: No
231 Obtaining chemically pure fructose, lactose, maltose or glucose from raw or refined sugar is
not a last substantial transformation.   Alternatives for the origin of chemically pure sugar are:
- the country where the raw material (from which the fructose, lactose, maltose or glucose were
extracted) was obtained;- The country in which the fructose, lactose, maltose or glucose wasextracted.
Relevant HS Code: ex 17.02 (a)
Reference: Doc 41.745
ISSUE No. 55: MANUFACTURING OF INVERT SUGAR
General comment: Paragraph 232 says it all.  Since we have previously argued that refining confers
origin, it is consistent that the manufacture of invert sugar also confers origin.
OPTION A: Yes
232 Manufacturing of invert sugar by hydrolysis of refined sugar solutions (sucrose) is a last
substantial transformation.  Invert sugar consists of equal parts of glucose and fructose.  Themanufacturing process consists of acidic or enzymatic hydrolysis.  This is a complex process and
results in a product that has new characteristics and specific uses.
Comment on Paragraph 232: Agree, as invert sugar has very different functional characteristics than
its raw material (refined sugar).
233 Consequently, invert sugar originates in the c ountry where it was obtained from sugars of the
same tariff heading.
Comment on Paragraph 233: Agree.
OPTION B: Yes, provided:
234 Alternative conditions are proposed:
- Invert sugar is obtained from raw sugar of heading 17.01 or from other sugars of heading 17.02.G/RO/W/86
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- Invert sugar is in solid state or it is obtained from sugars of other headings.
- Invert sugar is obtained from sugars of other headings.
Comment on Paragraph 234: It is not necessary to impose these conditions.
OPTION C: No
235 Production of invert sugar is not a substantial transformation.  Alternate origin criteria are
proposed:
- the country of extraction of sugars that served as a material to produce invert sugar;
- the country of origin of materials from which those sugars were extracted.
Comment on Paragraph 235: See previous arguments on origin of refined sugar.  Arguments apply
(even more so) to determination of origin of invert.
Relevant HS Codes: ex 17.02 (b) and ex 17.02 (c)
Reference: 41.745
ISSUE NO. 56:OBTAINING SUGAR SYRUPS, SUGAR JUICES, SUGARS AND
CARAMELISED MOLASSES OF SPLIT HEADING ex 17.02(e)
Support Option A ‘yes’ case on basis of previous arguments for Issue 53 and 54:  Sugar syrups
produced in a sugar refinery have relatively uniform analysis and colour and taste profiles, whatever
the quality and origin of the raw sugar being processed.
OPTION A: Yes, provided:
236 The goods are produced from cane or beet sugar of heading 17.01 or molasses of 17.03.
Otherwise there is no substantial transformation.
OPTION B: No
237 Obtaining of the goods cannot reflect the last substantial transformation.  The country of
origin of the sugar syrups and juices remains the country where  -
Alternatives:
-  the sugar was extracted;- the cane or beet were grown.
Relevant HS Code: ex 17.02 (e)
Reference: 41.745
ISSUE No. 57: OBTAINING MOLASSES BY EXTRACTION OR REFINING OF SUGARS
Support Option A ‘yes’ because molasses produced as a by-product of cane or beet processing into
raw cane sugar (‘mill molasses’) or refined beet sugar obviously takes the origin of the raw sugar or
beet sugar, as conceded in Issue 51.
Sugar refineries also produce molasses as a by-product of the refining process.  It has different
characteristics (typically a higher purity) than mill molasses.  Since the refining process confers origin
to refined sugar, it must also confer origin to refinery molasses.G/RO/W/86
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The fact that it takes on this origin is not because it is technically possible to carry out the operations
directly (rather than remotely at a sugar refinery) but because it physically happened at that particular
location.
OPTION A: Yes
238 Obtaining molasses from the processes of extracting or refining of sugars of heading 17.01 is
a last substantial transformation.
239 Consequently, molasses should be considered as originating in the country where the sugar
extraction or refining processes took place, i.e. from the sugars of heading 17.01.
OPTION B: Yes, provided
240 Molasses are produced from plants.  Obtaining molasses by refining of sugars is not
substantial transformation.
241 Consequently, molasses should be considered as originating in the country where it was
obtained from plants.
OPTION C: No
242 Obtaining molasses from the processes of extracting or refining sugars is not a last substantial
transformation.
243 Consequently, molasses should be considered as originating in the country where the plant
grew.
Relevant HS Code: 17.03
Reference: 41. 745