NEWS for North Dakotans
Agriculture Communication, North Dakota State University
7 Morrill Hall, Fargo, ND 58105-5665
April 20, 2000
The director of the Northern Plains Trade Research Center at North Dakota State University and a senior economist with the Canadian International Trade Tribunal in Ottawa, Ontario, are recommending that a joint Canada-U.S. research team be formed to deal objectively with the trade disputes that have developed as a result of the Canada-U.S. Free Trade Agreement (CUSTA) and later, the North American Free Trade Agreement (NAFTA).
"Mainly, the U.S. International Trade Commission deals with these issues, so it should form this research team to improve the understanding of trade issues between the two countries related to agricultural goods," says Won Koo, a professor of agricultural economics at NDSU.
Koo and Canadian economist Ihn H. Uhm make this proposal in a recently released economic report titled "U.S.-Canada Border Disputes in Grains: Dynamic Interface Between the Free Trade Agreement and Trade Remedy Laws."
The Canada-U.S. Joint Commission on Grain was formed to deal with trade disputes, but Koo says the commission is unlikely to find impartial solutions to the trade disagreements that are currently embroiling U.S. and Canadian producers--wheat and barley farmers in particular.
Koo says, "We are proposing the establishment of a team, or a committee, which will do some objective research. There are complaints from the Canadian side and complaints from the U.S. side, so this committee would need to investigate to see whether the complaints are valid."
When it became effective in 1989, CUSTA created one of the largest single markets in the world, and the overall effects of the agreement have generally benefitted both the United States and Canada. Koo says the level of trade between the two countries is now nearly 2.5 times greater than before implementation of CUSTA.
But CUSTA has also resulted in significant increases of wheat and barley imports from Canada. U.S. imports of Canadian western red spring wheat increased from 8 million bushels in 1990 to 65.7 million bushels in 1993 and then decreased to 56.7 million bushels in 1997. Meanwhile, trade in durum wheat followed a similar pattern. During the same period, U.S. barley imports from Canada grew from 9.9 million bushels in 1990 to about 829.2 million bushels in 1994 and then decreased to 45.4 million bushels in 1997. NDSU agricultural economists estimate that for the 1994-1996 period, the average farm income loss for U.S. producers may have ranged from $31 million to $64 million for durum wheat and $73 million to $128 million for barley.
That situation has caused commodity groups and producers from the Dakotas, Montana and western Minnesota, in particular, to claim that the Canadian Wheat Board (CWB), the sole international marketer of Canadian barley and wheat, engages in practices that distort trade. For example, U.S. producers contend that the CWB practices price discrimination--meaning it prices barley and wheat differently depending on the customer--and that this pricing practice gives the CWB an unfair advantage over private U.S. grain-trading firms, Koo says. However, the World Trade Organization (WTO) allows a state trading agency such as the CWB to charge different prices between markets as long as it is done for commercial reasons related to market conditions in export markets.
"Another complaint U.S. farmers have is that the CWB does not provide sufficient information regarding its general operation," Koo says. "This is especially true regarding price information for agricultural commodities. I have argued that these practices give the CWB an unfair advantage over its U.S. competitors."
During the mid-1990s and beyond, the U.S. Trade Representative, acting on behalf of the Clinton Administration, and Canadian negotiators reached a number of settlements regarding grain trade between the two countries. One came to be known as the Wheat Peace Agreement, negotiated during the 1994-95 crop year. Another was the Record of Understanding, reached in late-1998.
"The primary purpose of the Record of Understanding was to ease the tension between the United States and Canada resulting from the trade in grain and livestock," Koo says. "But the root of the problem remains unaddressed as far as grain producers in the United States are concerned."
Koo and Uhm identify three factors that continue to influence the bilateral trade between the United States and Canada: one, the persistent differences in grain marketing and delivery systems; two, the presence of exportable commodities in Canada, given its grain-production capability and its inability to utilize all it produces; and three, the relative value of the Canadian dollar.
Some economists argue that gradual harmonization of trade policies, farm subsidy programs and marketing institutions may reduce U.S.-Canada trade disputes involving cereal grains. However, others remain skeptical, Koo says, and they base their view on the fact that the elimination of Canada's Western Grain Transportation Act (WGTA) did help to harmonize the countries' grain freight-rate structures to some extent, but this action did not lead to a significant reduction in Canadian exports of wheat and barley to the United States.
"On the contrary, the elimination of the century-long freight-rate subsidy in Canada only encouraged Canadian grain producers to divert grain shipments from the world market to the United States," Koo concludes. "However, harmonization of trade policies, farm subsidies and marketing practices could reduce trade disputes between the two countries.
"The research team we are proposing should investigate what is causing the volume of cross-border trade in the context of world market perspectives, and do so in an impartial manner. Finding workable, realistic and long-term solutions to this problem is mutually beneficial."
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Source: Won Koo (701) 231-7448
Editor: Dean Hulse (701) 231-6136