Inside US Trade Vol. 18, No. 33
The Canadian Customs and Revenue Agency late last week launched a dumping and subsidy investigation on U.S. grain corn exports that will focus on showing injury to Canadian producers in the regional market west of the Ontario-Manitoba border.
The case was opened as a result of a petition by the Manitoba Corn Growers Association producers who allege U.S. farm policies subsidize American corn growers, who are selling corn below the cost of production in Canada. The subsidies identified in the petition are non-recourse loans and tax credits for ethanol producers, according to the petition.
These low prices injure Manitoba producers who have to sell their grain at a loss and lead to a loss of market share, the petition charged. A U.S. agriculture industry source rebutted these charges and insisted that the case stems from low world prices of this commodity and not dumping or subsidization.
Grain corn is used mainly for animal feed, but it can also be used to make other products, including alcohol (ethanol and spirits), corn syrup and sweeteners.
To qualify as a regional market under Canada's Special Import Measures Act, producers in that market must sell almost all their product within that market and demand in the market is not met by producers from outside the market, but within the same territory (Canada). According to Manitoba growers' figures, no grain corn comes from eastern Canada into western Canada, so that all corn coming in to meet excess demand in the west has to be from the U.S.
To determine injury to a regional market, SIMA's two conditions are that concentration of dumped imports must be made to the region in question and dumped or subsidized product must cause injury to almost all the producers in the region. According to CCRA numbers, U.S. imports into western Canada have ranged between 53 to 59 percent of consumption since 1995. A Canadian government source said that the Manitoba growers' complaint fits the regional market conditions.
The Canadian International Trade Tribunal will make a preliminary determination in 60 days on whether the dumping and/or subsidy has caused or threatened injury to the regional industry. If the CITT finds no injury, the investigation will be stopped.
The CCRA is conducting its own 90-day investigation to see whether dumping and subsidization has taken place.
According to the Manitoba growers, U.S. grain corn is being sold in Canada and the United States below production costs. This is causing Manitoba growers to lose market share, income, and incentive to expand production in a growing market and face decreasing lines of credit, according to the petition. A Manitoba Corn Growers Association source cited as a measure of injury that some farmers in that province are selling their land, some have gone bankrupt and others have switched to alternative crops.
U.S. agriculture groups are starting to look at the Canadian complaint, sources said. One U.S. agriculture industry source said that around 130 exporters received letters from CCRA asking for information on their pricing policies. The source said that American farm policy is not contributing to the low prices for grain corn. "We don't believe our farm policy contributes to that," the source said. "It's not set by individual companies that are involved in exporting to Canada, but supply and demand conditions on the world market."
The source added that industry officials will press the U.S. Department of Agriculture and USTR to respond to the Canadian allegations. According to a Commerce Department source, USTR will keep an eye on the Canadian proceedings on behalf of the American government.
In the current case, the Manitoba Corn Growers Association used USDA Economic Research Service figures to determine that American grain corn is being sold at below the production cost. According to the submission, the average cost of producing American corn is $2.65 a bushel, while the market prices for U.S. grain corn has been below $2.00 a bushel. Since the U.S. market prices are used in Canada, the Manitoba growers are using this as evidence of dumping. As examples, they have estimated the dumping margin to be at 44 percent for December 1998 and 48 percent for April 2000.
On subsidies, the Manitoba growers are pointing to programs in the U.S. that give tax credits to ethanol producers and those that give farmers non-recourse marketing assistance loans and loan deficiency payments as providing incentives for growers to produce more grain corn. The Manitoba growers are claiming that the subsidies are creating uneconomic production, which is causing decreases in U.S. prices and because of the open nature of the Canadian market the same prices are moving into Canada.
The CCRA in its Statement of Reasons said that it is satisfied with the evidence that the marketing assistance loans and loan deficiency payments constitute a subsidy for American corn growers.
The complaint alleges these subsidies are "specific" to the corn industry, as required by Article 2 of the WTO Agreement on Subsidies and Countervailing Measures.
Canadian sources said that there is precedent for anti-dumping duties for products coming into regional markets in Canada. This includes cases where apples, potatoes, lettuce and onions entering British Columbia were subject to duties because of injury to a regional market, the Canadian government source said.
On American grain corn, an earlier duty was placed on this product coming into Canada, but there was no regional distinction. In 1986, the Canadian Import Tribunal found that there was injury to Canadian producers because of the low prices of U.S. corn due to American subsidies. An appeal to the Canadian Federal Court of Appeals in 1990 by the American Farm Bureau Federation was rejected. The court said that the Canadian Import Tribunal when implementing the duties had "acted within the scope of its mandate and made no error of law or of fact," so the court dismissed the appeal. These duties have since been removed because the petitioners did not seek a continuation, Canadian sources said.
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