Inside US Trade / Vol. 19, No. 9
A U.S. World Trade Organization challenge against Belgium's rice importing regime has upset some in the U.S. rice industry, who argue that the challenge would only benefit one U.S. company and has the potential to hurt the interests of other U.S. companies exporting to that market, according to informed sources. U.S. and EU millers could be hurt by the case because it might prompt the EU to change its rice regime and lead to higher duties on U.S. rice, according to sources.
In the case the U.S. is raising in the WTO, a U.S. company, Uncle Ben's, is arguing that a related company that imported its rice to the EU should receive refunds for duties it paid. Under the EU's cumulative recovery system that was in place from July 1997 to December 1998, importers were supposed to receive refunds for duties that pushed the price of imported long grain rice above a ceiling price that the EU committed to under the Uruguay Round.
The U.S. is expected to make its second panel request at the March 12 Dispute Settlement Body. The U.S. made a first request for a panel at the Feb. 1 DSB.
Objecting to how USTR moved forward to pursue a panel, some in the U.S. rice industry are pushing for the U.S.A. Rice Federation to send a letter to USTR saying that it expected the government to conduct full consultations with industry before deciding to request a panel. "If you are going to refer to us, you have to talk to us," a source said, describing the tenor of the letter they want to send.
This comment refers to language in an Oct. 12 letter from Deputy U.S. Trade Representative Rita Hayes to Jean-Marie Noirfalisse, Belgium's ambassador to the WTO, stating that Belgium refused "to recognize certain widely accepted industry standards associated with grading of rice."
According to the industry source, this statement implies that USTR consulted with industry on its standards, something that did not happen. "We don't appreciate their writing a letter like this when there haven't been consultations [with industry]," the source said. A source said the letter could come out as soon as today (March 2).
However, another source said that USTR did not need to consult with industry over the rice grading standards because those standards come from published U.S. Department of Agriculture data. This source said Uncle Ben's believes that in pursuing the panel, USTR has used readily available rice grading and price numbers, such as those offered by the USDA; therefore, the consultations that some in industry have said they were seeking were not necessary.
The source added that objections coming from the U.S. industry are a case of other companies trying to hurt Uncle Ben's. However, a source from the U.S.A. Rice Federation said the group does not have an official policy on the issue. "This issue is between one company and Belgium," the source said.
The U.S. is challenging the EU through Belgium because this is where the long grain rice arrives to be milled. Each EU country uses its own customs procedures to process imports. Under the CRS system that expired at the end of 1998, the EU set a reference price for rice and would tack on a duty that brought the landed price to the ceiling price negotiated in the WTO. This ceiling is 180 percent of the EU intervention price.
The system was also designed to refund duties when it could be substantiated that the rice was worth more than the reference price. In these instances, EU importers would be owed a refund, since a lesser duty should have been imposed to reach the ceiling price.
Uncle Ben's stated that its affiliate should have received a refund because the rice it imported was of a higher quality and met other factors to justify a higher price than the reference price. The company claiming that about $13 million in duties, of which around $3 million has been rebated, should be returned to the importer.
Uncle Ben's, which is owned by the Mars Group, sold rice to a European affiliate, Master Foods. According to an informed source, the company felt the EU believed that Uncle Ben's was not being straightforward in how it conducted a transaction with a related party. The source said that even after the company showed how it determined its prices, the company was told that the EU did not believe the price that Uncle Ben's sold its rice to a related party was justified under objective terms.
An EU source said that the EU contended that Uncle Ben's was not entitled to a refund because their prices were not an accurate reflection of the market prices.
Sources have said that it is unusual for a WTO member to be challenged for a practice that is no longer in place. But a source said that even though the system is no longer being used the fact that the duties have not been refunded nor a final accounting completed means the regime has not been fully closed down. Uncle Ben's is also challenging the case in Belgian courts.
Some U.S. industry and EU milling sources fear that WTO challenge will prompt the EU to change its current rice regime in a way that would make U.S. rice more expensive in the EU market. Under the current regime, the EU calculates the duty on imported rice by subtracting a reference price increased by 8 percent from 180 percent of the EU intervention price, which triggers Commission purchases for storage. The duty is the resulting difference.
If the EU eliminated this system, it would likely put in place a system that simply places a tariff on imported rice, and drops the concept of an intervention price. Part of this decision will likely include an EU effort to renegotiate its rice regime with its trading partners. The U.S. industry, for the most part, has been cool to this, sources said.
The Commission made a proposal last June that changed the current system to one based on duties alone. The EU wants to change its rice regime because of the large amounts of rice stockpiles that have been purchased in order for the EU to maintain its intervention program. The EU industry source said that the U.S. case gives the Commission an opening to press for the renegotiation of its tariff schedule with its trading partners, which it would have to do to change its GATT obligations.
According to the EU proposal, the intervention system will become unsustainable from a budgetary and economical point of view because intervention stocks are growing at 150,000 to 210,000 tonnes of milled rice per year. This rice cannot be exported because of GATT limits on subsidized exports and limits to food aid programs. Rice in storage deteriorates and loses its value after two to three years.
The Commission proposal is opposed by Greece, Italy, Spain, Portugal and France, an EU industry source said. France sees the proposal as setting a precedent for abandoning the intervention system. France as a large wheat producer uses the intervention system for that commodity. The other countries also do not like the proposed system because they would receive lower payments than under the intervention system.
Northern millers also oppose the proposed regime because the increase in duties of imported rice would raise their costs.
c Inside Washington Publishers:
