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Winkler, Manitoba Canada | Canada-U.S. wheat relations backgrounder
It has cost western Canadian farmers about $17 million to stave off repeated wheat trade attacks from the U.S. since 1990. This harassment began shortly after the Canada-U.S. free trade agreement was signed.
The American market is valuable to western Canadian wheat farmers. In 2003, a tariff was imposed that halted Canadian hard red spring wheat exports to the United States. If this situation had continued, it would have cost Canadian Prairie producers tens of millions of dollars a year. The CWB appealed this unjustified tariff to NAFTA. As a result, it has now been removed, effective Feb. 24, 2006.
This fight has so far encompassed 14 separate trade challenges or investigations intended to impede the flow of western Canadian wheat and durum into the U.S.
Canadian farmers are fair traders who deserve unfettered access to the U.S. market, as envisioned by free trade. The success of Canadian wheat in the U.S. and third-party markets is clearly a concern to certain American groups, especially since our wheat is marketed by a wholly Canadian-owned organization controlled by western Canadian farmers themselves.
The "four-pronged attack"
At the end of the previous round of trade challenges in 2002, the U.S. government found itself without grounds to take specific trade action against Canadian wheat imports. Instead of using this opportunity to end the unjustified harassment, the U.S. Trade Representative bowed to political pressure from powerful senators in northern-tier states like North Dakota. He announced a four-pronged action plan against the CWB:
1.To pursue a WTO dispute settlement case against the CWB. This case concluded in 2004, when the WTO unequivocally dismissed the U.S. allegations against the CWB as groundless.
2.To pursue countervailing duty and anti-dumping cases against Canadian wheat and durum. This occurred, resulting in the imposition of the prohibitive tariff on Canadian spring wheat. The durum tariff was revoked after a ruling that imports did not injure U.S. producers. The wheat tariff was lifted in February 2006 after the CWB won its appeal to a NAFTA panel.
3.To identify specific impediments to U.S. wheat entering Canada. This was addressed in the WTO dispute settlement case, which resulted in changes to Canadian government rules related to grain segregation and the rail revenue cap.
4.To "vigorously" pursue reform of monopoly State Trading Enterprises in the WTO agriculture negotiations. This is occurring at present.
This trade harassment is rooted in protectionism and motivated by political agendas in the United States. Put simply, American producers do not want Canadian wheat competing in "their" market. Their politicians support them.
The countervailing duty case
This case was launched in September 2002 with a petition from the North Dakota Wheat Commission and U.S. Durum Growers, arguing that wheat and durum imports from Canada were unfairly subsidized.
The U.S. Department of Commerce (DOC) conducted an investigation and decided that Ottawa's provision of hopper cars to the railways was a subsidy of .35 per cent. It also decided that the three government guarantees to the CWB constituted a subsidy of 4.9 per cent.
The CWB and the governments of Canada, Saskatchewan and Alberta appealed this ruling to NAFTA, which agreed that the subsidy alleged from the CWB guarantees had been improperly calculated. As a result, the duties were reduced to 2.54 per cent.
The anti-dumping cases
The 2002 petition from the North Dakota Wheat Commission and U.S. Durum Growers also alleged that Canadian hard red spring (HRS) wheat and durum was being "dumped" into the U.S. market at prices below market value.
The U.S. Department of Commerce (DOC) conducted an investigation. In both cases, it decided dumping had occurred. With durum, the U.S. International Trade Commission (ITC) later ruled 4-0 that Canadian durum imports were not injuring U.S. producers and a 8.3-per-cent tariff (as well as the 5.3-per-cent countervailing duty, or CVD) was revoked.
With spring wheat, the DOC examined the costs of 25 Prairie wheat farmers and used their average costs to represent all 55,000 farmers who were growing HRS at the time. The DOC decided dumping had occurred and applied an 8.9-per cent tariff, added to the 5.3-per cent CVD to total 14.2 per cent (now 11.4 per cent). The ITC ruled 2-2 that these imports were injuring U.S. producers. The CWB appealled this decision to NAFTA, which agreed that it was not based on substantial evidence. The NAFTA panel ordered the ITC to come up with a new ruling by early October 2005.
The ITC responded on Oct. 5 by reversing its 2003 decision it has now ruled that imports of Canadian wheat do not injure U.S. producers. The wheat tariff was lifted effective Feb. 24, 2006.
Anti-dumping rules inappropriate for agriculture
The CWB does not dump wheat; its sole purpose is to maximize farmer returns. Using cost of production as a basis for calculating dumping is completely inappropriate for agriculture. This is an issue that is currently under discussion at the World Trade Organization.
Anti-dumping rules were designed to prevent predatory pricing in international trade, where an exporter might deliberately undercut sales prices, well below market value, in order to put a competitor out of business.
With an agricultural commodity like wheat, sales may end up being made below cost of production. That does not, however, equate to "dumping" as it is normally understood. Prices in the grain trade are set by global market forces, not by individual farmers. These prices can fluctuate widely over time and between markets. Costs of producing the grain are normally sunk long before prices can be known with any certainty. In some years, not all costs will be recovered, while other years yield significant profits - despite the fact that sellers are always trying to maximize returns.
Input costs of wheat production do not vary much according to grade, yet the market can put much higher values on certain grades and classes of grain. For the most part, it is weather that determines crop quality and, by extension, the price. In addition, low global grain prices may mean that sales are unavoidably made at below the farmer's cost of producing the wheat. This does not mean farmers are "dumping" their grain. This is not the scenario envisioned when anti-dumping rules were created, yet these rules are now penalizing western Canadian wheat farmers by hindering their sales into the U.S. market.
Using the same flawed measuring stick used to assess dumping of Canadian wheat, the U.S. itself would be considered one of the world's worst agricultural dumping offenders. In 2003, the Institute for Agriculture and Trade Policy in Minneapolis reported levels of U.S. international wheat dumping of 44 per cent.
Canadian wheat properly priced
Canadian wheat and durum are sold to American buyers at prices that are equal to or higher than what is paid for the equivalent U.S. grain. Two studies conducted by the U.S. International Trade Commission (ITC), which examined 96 months of sales data, confirmed this fact. The ITC found in 2001 that the price of Canadian durum sold in the U.S. was higher than the price of American durum in all but one of 60 months examined. In 2002, the ITC found that Canadian prices exceeded U.S. prices in all but one of the 36 months examined - sometimes by as much as 40 and 50 per cent.
American millers have publicly testified that there is no price undercutting by the CWB, stating that they buy Canadian wheat and durum for its quality and consistency of supply.
Avoiding future trade disputes
Fundamentally, U.S. protectionism is aimed at the commodity - whether it's wheat, cattle, hogs, softwood lumber or steel. American producers want to keep Canadian commodities out of their markets. Regardless of the Canadian marketing system that is used, American groups will always look for ways to challenge these imports.
North Dakota Wheat Commission lawyer Charles Hunnicutt was quoted in 2002 saying his group would still have issues, even if the CWB was abolished. "We use the wheat board to represent the entire Canadian wheat system," he told The Farmers Independent Weekly.
In June 2005, Leland "Judge" Barth of the NDWC also told Canadian reporters (quoted in the Manitoba Co-operator) that changing the CWB probably wouldn't end grain trade disputes between Canada and the United States.
When American protectionist groups have strong political allies, they are a powerful force. But western Canadian wheat farmers are powerful too. By combining their resources to fight these trade challenges, Canadian farmers have chalked up significant victories:
The October 2008 U.S. Court of International Trade decision, which ruled that the U.S. Department of Commerce must return any duties from tariffs that were unfairly applied to imports of Canadian spring wheat between August 2003 and February 2006
The December 2005 NAFTA panel decision affirming the NAFTA panel decision of June 2005.
The June 2005 NAFTA panel decision on a CWB appeal, which ruled there was no substantive evidence for the tariff on U.S. imports of Canadian hard red spring wheat. The ITC was ordered to reconsider its decision. In October 2005, the ITC changed its 2003 ruling, now stating that imports of Canadian wheat do not injure U.S. producers. The tariff has been lifted, effective Feb. 24, 2006.
The March 2005 NAFTA panel decision (PDF format 550 KB) on a CWB appeal, which ruled the U.S. Department of Commerce had improperly calculated countervailing duties against Canadian spring wheat imports and ordered them to reconsider. This could result in reduction or removal of those duties.
The April 2004 WTO dispute settlement panel decision, (PDF format 1.1 MB) which dismissed U.S. allegations that the CWB operates in a non-commercial manner.
The August 2004 WTO Appellate Body decision, (PDF format 430 KB) which dismissed the U.S. appeal of the decision above.
The July 2004 U.S. Court of International Trade decision, (PDF format 138 KB) which dismissed a North Dakota appeal of the ITC injury ruling that revoked the tariff on Canadian durum.
The October 2003 U.S. International Trade Commission decision, which ruled 4-0 that imports of Canadian durum do not injure U.S. producers.
Continuing to defend against American trade attacks is worth the battle for western Canadian farmers. The legal costs of these challenges are significant, but far less than the costs of being permanently shut out of the U.S. marketplace. Unfortunately, there are no legal avenues to recover costs from the Americans. The CWB requested the Canadian government to assist farmers with these legal costs, similar to the support provided in mid-2005 to the Canadian softwood lumber industry, which is also engaged in a drawn-out trade battle with the United States. That request was declined.
The CWB and its farmer directors have launched an advocacy program to build relations with American farm groups, in hopes that this might lead to a better understanding of our mutual issues.
North Dakota farmers have also paid dearly. Their wheat commission's mandatory check-off was increased in 2005 to cover at least $6.5 million U.S. in legal costs amassed for the trade challenge against the CWB. Yet their farm-income problems remain.
American and Canadian farmers have much in common: high input costs, low commodity prices and challenges from a new global wheat trading environment that features new players and new dynamics. On both sides of the border, there are serious threats to the family-farm lifestyle.
Building stronger relationships, built on mutual issues, holds the most promise for reducing the trade pressure that has cost farmers so dearly on both sides of the border.
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Stealing farmers' money
