September 15, 2000 / Inside US Trade
The North Dakota Wheat Commission filed a Section 301 petition late last week in the hope that U.S. pressure over Canadian Wheat Board (CWB) pricing could lead to restraints on Canadian wheat exports into the U.S., which the petition claims have drastically increased as a result of alleged anti-competitive trade practices, such as unfair pricing.
The petition puts pressure on USTR on whether to move forward on an investigation during the politically charged election season. USTR has 45 days from the time the petition was filed to make a decision.
The farmers represented by the Commission hope that an investigation into the CWB will be a way to engage Canadians in a negotiation under the threat of U.S. action. "We needed to do something to create leverage," a congressional source said. The issues raised by the petition will "never go away until the U.S. and Canada negotiate," said an informed source.
But Canadian officials have made it clear they will not respond to the pressure and insisted they have no interest in restraining exports. Only if Canada is found to be in violation of international trade rules would Canada be willing to negotiate, one official said. If the United States Trade Representative chooses to move forward on the 301 petition, Canada will defend the CWB, he said.
Canadian officials dismissed the charges that the Wheat Board is violating international trade rules by having the CWB handle Canadian grain exports as a single desk seller. "Sentiments run from outrage to out-and-out disappointment that they decided to do this again," a Canadian government source said. "An action like this brings a lot of outrage."
The official emphasized that threatening Canada is not an effective way to approach the issue. "The hammer is never an effective tool in negotiation," the source said.
The petition by the NDWC claims that Canadian exports to the U.S. are driving down the price of durum and hard red spring wheat in the U.S and causing the loss of American market share in the world wheat market. The petition states that U.S. prices have dropped between 6.5 and 15.3 percent from 1993 to 1995 in the face of increased Canadian wheat exports to the U.S.
An opponent of the petition said that the filers have worked carefully to ensure that the charges do not fall under the WTO. "They are trying to avoid coverage by the WTO," the source said. The petition emphasizes that the Commission is not seeking a dispute settlement proceeding in the World Trade Organization, insisting that anticompetitive practices are not covered by international trade rules.
But the petition stops short of explicitly charging that the CWB violates domestic U.S. antitrust laws, such as the Sherman Act. "In this petition, issues regarding price discrimination and attempted monopolization of certain wheat markets by the CWB are based on the principles of competition law found in the provisions of the Sherman Act, the Federal Trade Commission Act and the Robinson-Patman Act."
The Commission chose to pursue the case under Section 301 instead of U.S. antitrust laws because it wanted to get at the "nature" of the Wheat Board instead of the specific activities it is engaged in, one private-sector source said.
The petitioners are not swayed by the stated Clinton Administration aim to tighten up the rules applying to state trading enterprises during the next round of negotiations in the WTO because it is unclear when such negotiations would actually happen. The petition does not stipulate which underlying trade law Canada is violating, but insists that USTR is under an obligation to act against the practices it identifies.
Under Section 301, USTR is obligated to act if a certain practice is found to violate a trade agreement, but under the Uruguay Round agreement, the Administration can only withdraw WTO trade benefits from another WTO member if it has multilateral authorization to do so.
In the short term, the NDWC is pushing for quotas, tariff rate quotas or a voluntary restraint on Canadian exports to the U.S., but a source close to the petitioners would not specify the duration of such an arrangement or the level of the import restraint the Commission is seeking.
The U.S. had in place a tariff rate quota for Canadian durum wheat for one year beginning in 1994. That TRQ was put in place under Section 22, which was the provision of U.S. law allowing trade restraints when imports undermine a U.S. farm program. But the U.S. negotiated away its authority to impose quotas or TRQs under Section 22 as part of the Uruguay Round agriculture agreement, which took effect on July 1, 1995. Therefore, the only authority the U.S. retains to impose quantitative trade restraints on a WTO member is as part of a section 201 safeguard.
In the long term, the NDWC wants to see a reform of the Canadian Wheat Board, which would address its supply and export monopoly, one informed source said. This would include competitive bidding for a share of Canadian wheat, which would tend to diminish the power of the Canadian Wheat Board.
Supporters of the petition said that NDWC likely did not opt for an antidumping case instead of a section 301 petition because it feared it could not prove injury by reason of imports. The world wheat market price is depressed because of a number of consecutive bumper crops in major producer countries, which would make it hard to pin the U.S. price decline on Canadian imports, these sources said. "We wanted to find a route where we had some hope," one source said.
A congressional source said that changes in production, currency fluctuation and weather all cause agriculture prices to shift dramatically so it is hard to prove that imports are the cause of injury, even though the North Dakota farmers believe they are a significant cause. Without proving injury or threat of injury by reason of imports, antidumping duties cannot be imposed.
"It is clear to us that Canadian farmers are contributing [to low wheat prices]," the source said, but added that proving it to the International Trade Commission would be difficult.
The petition charges that the Canadian Wheat Board acts as a monopoly seller on the world market. It is able to cross-subsidize sales in low price markets with those in high price markets, which allows it to undercut U.S. sellers in third countries. It attributes these practices to the decline in U.S. sales in countries such as Algeria, Brazil and Colombia.
For example, according to the petition, Moroccan imports of U.S. wheat have fallen from over 60 percent of total imports to under 20 percent from 1991 to 1996, while at the same time imports from Canada have increased from next to nothing to just under 20 percent. The petition cites a number of such examples but does not actually present price examples that would demonstrate what it terms unfair Canadian pricing.
The NDWC used a questionnaire that it sent to wheat buyers around the world to find out about Canadian Wheat Board practices. According to an informed source, the results gave them cause to file the petition, but they need a USTR investigation to obtain actual sales contracts to prove its case.
U.S. millers oppose the idea of curbing Canadian imports, and insist that they are needed in the U.S. market, which cannot be supplied by domestic production. One source with U.S. millers said that the Conservation Reserve Program has decreased the land used to grow durum in the U.S., which is one reason that American supply does not meet demand.
The 301 petition, however, contradicts the claim that U.S. farmers cannot supply the domestic market, saying that U.S production of durum has increased more than domestic use. However, the milling source said that since U.S. production is used for exports, seed and set aside, millers and pasta makers still need to import grain to meet their demand because not enough durum wheat is available to them.
But according to an NDWC source, many farmers are keeping their wheat in storage because the price is too low and that this wheat would be available if Canadian durum had not caused the price reductions.:
