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Group Title: Policy Brief Series - International Agricultural Trade and Policy Center. University of Florida ; no. 03-15
Title: International agricultural trade disputes : case studies in North America
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Title: International agricultural trade disputes : case studies in North America
Series Title: Policy Brief Series - International Agricultural Trade and Policy Center. University of Florida ; no. 03-15
Physical Description: Book
Language: English
Creator: Schmitz, Andrew
Koo, Won
Moss, Charles
Publisher: International Agricultural Trade and Policy Center, Institute of Food and Agricultural Sciences, University of Florida
Institute of Food and Agricultural Sciences, University of Florida
Place of Publication: Gainesville, Fla.
Publication Date: 2003
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PBTC 03-15


i -ional Agricultural Trade and Policy Center



INTERNATIONAL AGRICULTURAL TRADE DISPUTES: CASE
STUDIES IN NORTH AMERICA
By

Andrew Schmitz, Won Koo, & Charles Moss
PBTC 03-15 November 2003


POLICY BRIEF SERIES


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UNIVERSITY OF
FLORIDA


Institute of Food and Agricultural Sciences


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INTERNATIONAL AGRICULTURAL TRADE AND POLICY CENTER


MISSION AND SCOPE: The International Agricultural Trade and Policy Center
(IATPC) was established in 1990 in the Food and Resource Economics Department
(FRED) of the Institute of Food and Agricultural Sciences (IFAS) at the University of
Florida. Its mission is to provide information, education, and research directed to
immediate and long-term enhancement and sustainability of international trade and
natural resource use. Its scope includes not only trade and related policy issues, but also
agricultural, rural, resource, environmental, food, state, national and international
policies, regulations, and issues that influence trade and development.

OBJECTIVES:

The Center's objectives are to:

Serve as a university-wide focal point and resource base for research on
international agricultural trade and trade policy issues
Facilitate dissemination of agricultural trade related research results and
publications
Encourage interaction between researchers, business and industry groups,
state and federal agencies, and policymakers in the examination and
discussion of agricultural trade policy questions
Provide support to initiatives that enable a better understanding of trade and
policy issues that impact the competitiveness of Florida and southeastern
agriculture specialty crops and livestock in the U.S. and international markets









International Agricultural Trade Disputes: Case Studies in North
America

Andrew Schmitz, Won Koo, and Charles Moss

Border disputes between the United States, Canada, and Mexico over agricultural
products as well as lumber are numerous and appear to be escalating. This was the
subject of a recent conference of economists, lawyers, and private industry
representatives that was held in Gainesville, Florida, March 20 and 21, 2003. The event
was sponsored by the Farm Foundation; Ben Hill Griffin, Jr. Chair, University of Florida;
Agriculture and Agri-Food Canada; American Farm Bureau Federation; Center for
Agricultural Business, Fresno State University, Center for Agricultural Policy and Trade
Studies, North Dakota State University; Center for North American Studies, Texas A&M
University; Centre for Studies in Agriculture Law and the Environment, University of
Saskatchewan; Florida Farm Bureau; International Agricultural Trade and Policy Center,
University of Florida; and the College of Law, University of Saskatchewan.

Research presented during this conference, which is summarized in this paper,
revealed that the number of trade disputes is likely to increase in the future-primarily
from less developed countries, arguing that U.S. farm policy is a vehicle by which the
United States is dumping export products abroad. There is also a wide discrepancy
between trade law and economics; however, this discrepancy is narrowing. Trade law, for
example, cannot deal adequately with perishable agricultural products where often U.S.
farmers, like foreign competitors, sell below the cost of production. Here a normal
business practice criterion should be used as a basis for determining whether dumping
has occurred. In addition, there is considerable controversy over the appropriateness of
the models used in assessing whether there is material injury in cases where dumping is
occurring. (A compilation of the abstracts for the papers presented can be accessed at:
http://www.fred.ifas.ufl.edu/conference/fre/agtradedispute).

Economic Considerations

Dr. Cathy Jabara, with the International Trade Commission (ITC); John Skorburg,
with the American Farm Bureau; and Professors Andrew Schmitz and James Seale, of the
University of Florida, discussed trade remedy measures used by the United States,
Canada, and Mexico in international trade. These measures provide a means for
governments to protect domestic industries from competition due to allegedly unfair
import surges.

Dr. Jabara pointed out that these trade remedies are World Trade Organization
(WTO)-legal mechanisms, and are contentious due to concerns that they can be used to
unfairly block trade. In the United States, trade remedies can be applied based on findings
of relevant government agencies that a domestic industry is injured, or is facing threat of
injury, due to imports and their effects on prices and production. Use of trade remedy
actions affects a very small part of U.S. agricultural trade with North American partners.









Mr. Skorburg emphasized that trade dispute resolution policies have been around
as long as trade disputes. The ongoing rise in U.S. agricultural imports, coupled with the
slowing of U.S. agricultural exports, has led to increased interest in dispute resolution
policies. Currently, many resolution options are available, but for every option, more
questions have risen as well. Both positive and normative economics are used to explain
how our current system has evolved-hopefully pointing towards potential new solutions
to resolve more quickly the numerous trade disputes in agriculture.

There are winners and losers in trade lawsuits. Those who initiate a trade dispute
action hope to gain, and, on the surface, producers from countries who are being sued are
expected to lose. However, as Professor Schmitz pointed out, there are instances where
this has not been the case. For example, in the Canada-U.S. potash dispute, the
imposition of countervailing duties in the long term benefited Canadian potash producers
at a huge cost to U.S. corn producers.

In the context of international trade disputes, contentious issues arise. For
example, in the case of fresh produce, often the standard criteria for dumping are
questionable since it is a normal business practice for producers of perishables to sell
below their cost of production. Frequently, border disputes are resolved with the end
result that producers in both countries are made better off. This can often occur through
formal or informal price agreements. State trading enterprises are common and continue
to be the basis for several ongoing lawsuits. The impact of state trading enterprises on
trade is not well understood, and certainly the law is not clear on how to deal with trade
undertaken by state trading enterprises.

Professor Seale pointed out that the Continued Dumping and Subsidy Offset Act
of 2000 allows manufacturers, which successfully petition the United States to impose
anti-dumping tariffs on imports, to keep the proceeds of those tariffs. He analyzed the
welfare implications of the so-called "Byrd" Amendment by deriving an optimal anti-
dumping tariff for U.S. producers that receive the anti-dumping tariffs and comparing it
to the optimal revenue and optimal welfare tariffs.

Legal Viewpoints

Well known trade lawyers examined trade agreements and dispute settlements.
Kevin Brosch, of the law firm of DTB Associates in Washington D.C., examined the
discontinuity between U.S. trade policy as reflected by the positions taken in international
trade negotiations and the agreements entered into by the United States and U.S. trade
policy as exhibited in its domestic laws. Mr. Brosch argued that U.S. agricultural trade
policy results in reduced subsidies and increased market access while U.S. law continues
to subsidize agriculture at significant levels and often operates to limit market access for
imports. He pointed out that a major cause of this diversity could be attributed to various
aspects of the U.S. Constitution. The first point he covered was the basic constitutional
division of powers between the Executive and Legislative branches, with Congress
granting the President power to negotiate treaties while giving Congress sole power to lay
duties and to regulate commerce with foreign nations. In addition, the Constitution









created a bicameral legislative scheme under which rural and agricultural states are
represented to a degree disproportionate to their populations. Finally, he pointed out that
a U.S. trade policy favoring liberalization is largely a post-World War II phenomenon. A
large and complex body of import relief laws-countervailing duty law, anti-dumping
law, section 201 safeguard actions-were developed before the existence of the WTO or
the North American Free Trade Agreement (NAFTA), along with a significant import
relief industry.

Stephen Powell, of the Levin College of Law at the University of Florida, spoke
about the differences between the WTO and NAFTA Dispute Settlement systems. For
illustrative purposes, Mr. Powell used the imposition of anti-dumping duties by Mexico
on U.S. imports of High Fructose Corn Syrup (HFCS), clearly illustrating the important
differences between the two dispute settlement systems that a litigant might consider.
Some of the differences examined were how the process is invoked, how a panel is
formed, the panel's jurisdiction, what standard of review is used, how the panel will treat
precedents, what role private counsel will play in the process, the nature of an appeal of a
panel's decision, and how the decision will be implemented.

Anti-dumping was further examined by Mel Annand of the University of
Saskatchewan and the Annand Law Firm. Mr. Annand examined Canadian anti-dumping
law as it applies to agricultural products. The Canadian anti-dumping case against U.S.
corn exported to Canada in 2000 was examined in detail to show how the sale of U.S.
corn below the cost of production could result in anti-dumping duties in Canada. Mr.
Annand also discussed how anti-dumping duties in agriculture are a good method of
dealing with structural domestic subsidies that result in trade distortion. Anti-dumping
duties may result in a net benefit to the domestic economy as a whole, concluding that
anti-dumping law is good for agriculture when it is used to prevent the long-term
dumping of agricultural products at prices below the cost of production.

Professor Colin Carter, of the University of California-Davis, demonstrated that
trade remedy laws on agricultural imports generally do not bring about the desired results
because of trade diversions where countries search for alternative sources of imports.
Trade remedy law is viewed as a major vehicle for protection in U.S. agriculture.
Professor Carter summarized the use of trade remedy law by U.S. agriculture and
highlighted examples of where the use of these laws conflicts with free trade agreements
such as NAFTA. Empirical evidence was presented of the effects of U.S. trade remedy
laws on agricultural imports-evidence was found consistent with trade diversion on
positive rulings and an investigation effect on negative ruling.

Country-of-Origin Labeling (COOL)

Professors Par Rosson, III and Flynn Adcock, of Texas A&M University, spoke
to the recently enacted country-of-origin labeling (COOL) provisions found in the Farm
Security and Rural Investment Act (FSRI) of 2002, highlighting perceived
inconsistencies and misconceptions and the potential for trade retaliation. Issues related
to beef, pork, fruits, vegetables, and peanuts were discussed, and the potential impacts on









selected regions, consumers, and the food supply chain were examined, including explicit
costs associated with labeling. One example that was highlighted cited the United States
Department of Agriculture's (USDA) cost estimates of compliance to be two billion
dollars during the first year of mandatory labeling, beginning October 1, 2004. Further
discussion was given to the fact that the Food Marketing Institute believes that suppliers
should bear the brunt of these types of costs, while many suppliers think the costs should
be shifted to the retailers. There are obviously mixed impacts and unintended
consequences of the COOL provisions.

Brian Paddock, of Agriculture and Agri-Food Canada, discussed the Canadian
point of view on COOL. The Canadian COOL program under the FSRI Act of 2002 has
little if anything to do with meeting consumer demands. Rather it is a response to
demands from producers for new forms of protection from imports. The legislation is
misguided because it is unlikely to significantly benefit the producers or consumers of
included products and will negatively impact small producers/processors for whom the
record keeping will be particularly burdensome. In addition, Mr. Paddock pointed out
that it will re-direct value added activities from the United States and encourage other
countries to use similar types of programs to restrict market access, concluding that
COOL diverts attention away from food chain issues of more valid concerns.

Contested Trade in Logs and Lumber

The United States and Canada have been at loggerheads over the softwood lumber
and log trade for over two decades. According to Professor Peter Berck, of the University
of California-Berkeley, the low stumpage paid for logging on Crown Lands in Canada
and the ban on log exports are the principal targets of U.S. countervailing duties. Both
countries have long banned the export of raw logs to reap the benefits of local milling.
While the tariff aspects of the lumber dispute have received considerable attention, the
basic issues surrounding the log export ban are less well-investigated. In order to analyze
the ban, two interrelated markets were studied: the market for logs and the market for
finished lumber. A formal model was developed that illuminates cases where these
markets are unaffected by the export ban. Also examined was the market responsiveness
of both Canadian and U.S. administered forests. The study concluded that the Canadian
method better approximates a competitive market outcome than the Pacific Northwestern
(PNW) method.

Professor Janaki Alavalapati, of the University of Florida, discussed softwood
lumber trade patterns to highlight the importance of the U.S. market to Canadian
producers and Canadian lumber imports to U.S. consumers. The economics and politics
behind recent bilateral actions relating to the softwood lumber trade dispute were
discussed. It was noted that unusual alliances are developed among stakeholders,
reflecting the rent-seeking behavior in both countries. Drawing on recent studies, the
welfare impacts of alleged subsidies and counter tariffs on producers and consumers in
the United States and Canada were discussed, concluding that the trade dispute saga will
remain so long as the U.S. market is critical for Canadian exporters.









Sweetener Disputes


Professor Thomas Spreen, of the University of Florida, and Luis Chavez, of the
Universidad Autonoma Chapingo, Mexico, examined the U.S. sweetener market disputes.
They discussed the implementation of NAFTA, which resulted in a gradual opening of
the U.S. sugar market to Mexican imports, as well as a phasing out of Mexican tariffs on
imports of high fructose corn syrup (HFCS) from the United States. Given the political
sensitivity of the sweetener market in both countries, market liberalization in the United
States and Mexico has resulted in controversy, including a dumping suit filed by the
Mexican government against HFCS producers.

Professors Charles Moss and Andrew Schmitz, of the University of Florida, and
Professor David Orden, of the Virginia Polytechnical Institute and State University,
looked at the imposition of duties on U.S. HFCS imported into Mexico. In January 1998,
Mexico made a final determination of dumping against HFCS entering Mexico from the
United States. The United States appealed the imposition of these duties using the dispute
resolution mechanisms of both the WTO and NAFTA. The legal bases for both appeals
were numerous; however, two issues were of particular note from an economics
perspective, namely the definition of like products and the boundaries of the market
affected by dumping. First, Mexico defines like products to include both HFCS and sugar
while the United States does not. Second, in the computation of damages from dumping,
Mexico only considered the industrial sweetener market (i.e., the manufacturers of soft
drinks).

Canadian Dairy Disputes

Hartley Furtan, of the University of Saskatchewan, reviewed a WTO case against
the Canadian dairy industry that was initiated in 1999. Both the United States and New
Zealand made the claim to the WTO that exports of dairy products from Canada
benefited from the high domestic price of raw milk. According to this claim, the
protected domestic dairy market enables Canadian exports of dairy products because the
farmers use income earned in the domestic market to subsidize processors who export
their milk. They argued that enabling is a cross-subsidization between the domestic
market and the export market, so therefore Canadian dairy exports are benefiting from an
export subsidy. The WTO agreed with the appellants.

Further insights into the Canadian dairy industry were presented by Carol
Goodloe, Senior Economist, Office of Chief Economist, United States Department of
Agriculture. Canada's two-tiered pricing scheme for dairy is characterized by a high
domestic price that covers average total costs and a lower export price that covers
marginal costs such that total milk output is enhanced. The WTO Appellate Body ruling
that a benchmark of average total cost of production is the appropriate standard by which
to measure whether an export subsidy existed unnecessarily further reflects a lack of
understanding about the relationship between border protection, domestic support, and
export subsidies. This ruling mimics the same logic that permeates anti-dumping laws,









which are especially problematic when applied to agricultural products. This ruling also
has implications for the use of subsidized inputs used in processed agricultural exports.

Shrimp Import Controversy

Professor Charles Adams, of the University of Florida, and Sal Versaggi, of the
Versaggi Shrimp Company, addressed the growing import controversies within the U.S.
shrimping industry and the need for possible trade barriers such as import quotas and
tariffs. The consumption of shrimp products by U.S. consumers has risen steadily over
the last decade. To meet this growing demand, imports of shrimp products have become
the dominant source of products for the domestic market. Of the total domestic supply of
shrimp during 2001, imported products represented 85 percent, with the remainder being
provided by domestic harvesters. Shrimp imports (of which a growing share is cultured)
have increased steadily from 694,000 pounds in 1992 to 1.2 million pounds in 2001. The
increase in supply has placed downward pressure on the price received by the domestic
harvesters, with average real dockside prices falling from $3.52 per pound in 1997 to a
historic low of $2.47 per pound in 2001. This decline in price has created a financial
crisis among U.S. vessel owners and fleet operators. Faced with falling prices for shrimp
and increasing costs of production (the latter being linked to environmental concerns and
rising fuel prices), an unprecedented number of vessel owners in the Gulf of Mexico and
South Atlantic region are currently facing bankruptcy. Representatives of the shrimp
harvesting sector have initiated efforts to identify ways to reduce the downward pressure
on dockside prices that is being attributed to increasing amounts of imported shrimp
products.

Fresh Garlic

Professor Mechel Paggi, of the California State University-Fresno, discussed the
November 16, 1994, U.S. anti-dumping order covering fresh garlic imports from China.
The investigation and subsequent anti-dumping duty were in response to a petition filed
on behalf of the Fresh Garlic Producers Association (FGPA) following a 636 percent
increase in fresh garlic imports from China between 1992 and 1993. The anti-dumping
duty on most fresh garlic imports from China remains in place today. This case provides
an excellent example of the process and procedures of U.S. trade remedy law as applied
to protect the interests of domestic specialty crop producers. Professor Paggi called into
question many of the operational details in the application of trade remedy law and
contrasted U.S. anti-dumping investigation procedures with those of other countries, with
a view toward developing an alternative to existing practices.

U.S.-Canada Trade Disputes in Grains

Agricultural trade between the United States and Canada and has been
contentious since the inception of the Canada-U.S. Free Trade Agreement (CUSTA) in
1989, mainly because of significant increases in Canadian exports of wheat and barley to
the United States while U.S. exports remain unchanged. The asymmetric trade flows of
wheat and barley between the two countries, caused by differences in trade policies, farm









subsidies, and marketing institutions, have resulted in several trade disputes between the
two countries under U.S. trade remedy laws. Professor Won Koo, of North Dakota State
University, maintains that the gradual harmonization of trade policies, farm subsidies,
and marketing institutions may reduce trade disputes between the two countries in the
future. However, disputes seem likely to continue as long as the surge of Canadian
exports remains unabated. Professor Koo maintains that in order to diffuse the threat of
future trade disputes, a Canada-U.S. joint research team should be formed to deal with
the matter through better understanding for bilateral trade of agricultural
commodities/products, especially wheat and barley, between the two countries.

R-CALF Cattle Case Against Canada

In its final determination in 1999, the U.S. ITC said that live cattle from Canada
are not causing, or threatening to cause, material injury to the U.S. cattle industry.
Professor Michael Wohlgenant, of the North Carolina State University, and Professor
Andrew Schmitz, of the University of Florida, reviewed the basis for the ITC's decision
and discussed the economic rationale for the decision. Particular attention was given to
evaluating the quantitative impact of imports on domestic cattle prices. They concluded
that the ITC seemed to give considerable weight to conventional economic analysis, and
that conventional price analysis, modified to allow for less than perfect substitution
between imports and domestic production, is a powerful tool for quantifying the effect of
imports on the domestic cattle industry. The United States also ruled in favor of the
Ranchers-Cattlemen Action Legal Fund's (R-CALF) countervailing duty charges against
the Canadian cattle industry. They presented arguments as to why duties should not have
been imposed.

Tomatoes and Anti-Dumping Reform

During 2001, both Canada and the United States filed anti-dumping suits against
each other's tomato industry (first by the United States and later by Canada). In both
cases, dumping was determined to have occurred. However, in the U.S. case, injury due
to Canadian hothouse tomatoes was found not to have occurred. The Canadian case was
subsequently withdrawn, suggesting it was brought largely as a tit-for-tat response. In
neither case did the claim of dumping make any economic sense. Rick Barichello, of the
University of British Columbia, maintains that these cases prove the need for reforming
the Anti-Dumping Agreement to prevent its abuse as a protectionist response to normal
competitive pressures, particularly for cases arising in the agricultural sector.

Anti-dumping cases involving fresh tomatoes are not unique to the Canadian-U.S.
relationship. Professor John VanSickle, of the University of Florida, examined the long
contentious relationship between the United States and Mexico. Florida producers filed
their first anti-dumping petition against Mexico in 1978. During the 1980s and early
1990s, Mexico imposed minimum quality standards that had the effect of controlling the
volume of produce they shipped to U.S. and Canadian markets. With the implication of
NAFTA, a new era was created, which brought with it more trade disputes that were
taken to the U.S. ITC and U.S. Department of Commerce (USDC). When fresh tomato









imports increased in the 1995-96 season, prices were again depressed. The USDC's
investigation of the anti-dumping case resulted in a preliminary determination in October
1996 that fresh tomatoes from Mexico were being, or were likely to be, sold in the United
States at less than fair value. An agreement establishing a floor price for imported
Mexican fresh tomatoes was negotiated, which put the anti-dumping case on hold.


Sources

Economic Considerations

Economic Considerations Speakers: Cathy Jabara, U.S. International Trade Commission,
Washington, DC; John Skorburg, American Farm Bureau Federation, Chicago, IL; and
Andrew Schmitz, University of Florida, Gainesville, FL

Legal Considerations

Legal Considerations Speakers: Stephen Powell, University of Florida, Gainesville, FL;
Kevin Brosch, DTB Associates, Washington, DC; and Mel Annand, CSALE, University
of Saskatchewan; Estey Centre, and Annand Law Firm, Saskatoon, Canada

Trade Disputes: Case Studies

Trade Disputes: Case Studies Speakers:

Dairy Disputes: Hartley Furtan, University of Saskatchewan, Saskatoon,
Saskatchewan, Canada, and Carol Goodloe, Office of Chief Economist, United
States Department of Agriculture, Washington, DC

Sugar Disputes: Charles Moss, University of Florida, Gainesville, FL; Andrew
Schmitz, University of Florida, Gainesville, FL; and David Orden, Virginia
Polytechnic Institute and State University, Blacksburg, VA

Rent Dissipation and International Trade Disputes: James Seale, Jr.,
University of Florida, Gainesville, FL

Trade Remedy Laws and NAFTA: Colin Carter, University of Califomia-
Davis, Davis, CA, and Caroline Gunning-Trant, University of California-Davis,
Davis, CA

Resolving Mexico-US Trade Disputes: Thomas Spreen, University of Florida,
Gainesville, FL; Luis Chavez, Universidad Autonoma, Chapingo, Mexico; and
Darren Hudson, Mississippi State University, Mississippi State, MS









* US-Canada Lumber Disputes: Peter Berck, University of California-Berkeley,
Berkeley, CA; Janaki Alavalpati, University of Florida, Gainesville, FL; and Jeff
Doran, Florida Forestry Association, Tallahassee, FL

* US Shrimp Import Controversy: Charles Adams, University of Florida,
Gainesville, FL, and Sal Versaggi, Versaggi Shrimp Company, Tampa, FL

* Canada-US Tomato Disputes: Richard Barichello, University of British
Columbia, Vancouver, British Columbia, Canada

* US-Mexico Tomato Disputes: John VanSickle, University of Florida,
Gainesville, FL

* US-Canada Grain Disputes: Won Koo, North Dakota State University, Fargo,
ND

* Fresh Garlic from China: US Trade Remedy-Promises and Problems: Mechel
Paggi, Fresno State University, Fresno, CA, and Meko Paggi, Fresno State
University, Fresno, CA

* Country of Origin Labeling: Parr Rosson, III, Texas A&M University,
College Station, TX; Flynn Adcock, Texas A&M University, College Station,
TX; and Brian Paddock, Agriculture and Agri-Food Canada, Ottawa, Ontario,
Canada

* Canada-US Beef Dumping and Countervailing Disputes: Michael
Wohlgenant, North Carolina State University, Raleigh, NC, and Tom Wahl,
Washington State University, Pullman, WA




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