Trade Remedy Actions in NAFTA for Agriculture & Agri-food Industries: Increasing? Alternatives?

Linda Young, John Wainio and Karl Meilke

Our objectives:

Examine the economic rationale for administered protection Does it hold in NAFTA?

Evaluate data on the use of AD/CVD Propose changes to current

procedures Broaden the options-new ideas

Economic Rationale: AD actions make little economic sense,

particularly within an FTA Protectionist actions rewarding rent-

seeking behavior Punish firms for behavior in foreign markets

that is considered normal for domestic firms Expensive to initiate and defend, but… CVD actions are different Economic efficiency losses associated

with both

AD/CVD Cases Initiated by NAFTA Countries 1/1/1984 - 6/30/2001

0

20

40

60

80

100

120

140

160

180

1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Avg

United States Canada Mexico

AD/CVD Case Outcomes 1/1/1984 - 6/30/2001

0%

10%

20%

30%

40%

50%

60%

70%

80%

United States Canada Mexico NAFTA Rest of World

AD CVD Total

Active AD/CVD Measures As of 6/30/2001

Antidumping Measures

21%

8%

6%

19%

11%

35%

United States Canada

Mexico European Communities

India ROW

Countervail Measures

51%

11%

1%

23%

7%

7%

United States Canada

Mexico European Communities

Australia ROW

.

As traditional trade barriers are lowered, the use of trade remedy law rises.

Trade Liberalization Has Not Resulted in More AD/CVD Investigations

0

5

10

15

20

25

30

1984-88 1989-93 1989-93 1994-98

US-CN CN-US US-MX MX-US

Pre-CUSFTA Post-CUSFTA Pre-NAFTA Post-NAFTA

NAFTA Partners Target Each Other’s Imports Less Than Those of Other Countries 1989 - 1999

8%

27%21%

69%

22%

75%

0%

25%

50%

75%

United States Canada Mexico

Percent of all cases against NAFTA partners Percent of imports from NAFTA partners

NAFTA Countries Are Far More Likely to be the Target in Cases Investigating Agricultural Trade 1989 - 1999

8%

21% 21%

53%

22%

57%

0%

20%

40%

60%

United States Canada Mexico

Percent of all cases against NAFTA partners Percent of ag cases against NAFTA partners

Is Agricultural Trade Overrepresented in AD/CVD Cases? (1989 - 1999)

5%4%

11%

5%

7%8%

0%

3%

6%

9%

12%

United States Canada Mexico

Agriculture's proportion of all cases Agriculture's proportion of all imports

Even in Agriculture, the Three Countries Target Partner’s Trade Less Than Others 1989 - 1999

21%

30%

53%

66%

57%

77%

0%

25%

50%

75%

United States Canada Mexico

Percent of ag cases against NAFTA partners Percent of ag imports from NAFTA partners

Active AD/CVD Measures Within NAFTA As of 6/30/2001

8 9

15

1

11

00

4

8

12

16

20

United States Canada Mexico

CanadaMexico

United States

Mexico

United States

Canada

Malt beverages (220300)Initiation - 1991 Duty - 1991 Revoked - 1994

10,000

20,000

30,000

40,000

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Value of US Exports to Canada ($1,000)

Tomato paste (200290)Initiation - 1992 No injury finding - 1993

0

10,000

20,000

30,000

40,000

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Value of US Exports to Canada ($1,000)

Cauliflower (070410)Initiation - 1992 No injury finding - 1993

15,000

20,000

25,000

30,000

35,000

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Value of US Exports to Canada ($1,000)

Lettuce (070511)Initiation - 1992 AD duty in effect

30,000

40,000

50,000

60,000

70,000

80,000

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Value of US Exports to Canada ($1,000)

Refined Sugar (1701 & 1702)Initiation - 1995 AD duty in effect

0

10000

20000

30000

40000

50000

60000

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

Value of US Exports to Canada ($1,000)

Apples (080810)Initiation - 1994 Duty - 1995 Revoked - 2000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Value of US Exports to Canada ($1,000)

What do we want to achieve?

Reduce incidence, retaliation, costs

Maintain transparency Maintain ability to protect

producers Cognizant of the goals of FTA; And…

One more criterion

The extent to which changes assist producers in considering their domestic market to be tri-national

Why? Rules have changed quickly Paradigms and institutions have

not kept pace

Trinational Market (almost) However, producers still largely

identify with the national market Slow to develop bi or tri-national

commodity groups Such institutions may increase gains to

producers through cooperation in market development, research, joint work on SPS, lowering costs of crossing the border, other joint efforts

Options for Change: Tweaks

Increase the difficulty of requirements to impose duties or change criteria for the level of the duty Increase the de minimis level Increase the level of negligible imports Restrict the duty to address injury only Change the calculation of duties to

account for practices in the domestic industry.

Options for Change: Tweaks (con’t)

Provision requiring evaluation of the impact of duties on the general interest of the FTA

Consultations

Not required for AD/CVD Important component of dispute

resolution systems of NAFTA and WTO

Involve: Clarification of legal basis of dispute Discussion on why policy undertaken Options for resolution explored

How Successful are Consultations?

WTO considered 51 cases (July 2001) with completed panel reports

37 cases resolved in consultations, 7 more before completed panel reports

Thought required to adopt within NAFTA AD/CVD Scope of parties included

Eliminate AD Suits Entirely

Australia and New Zealand have Canada and Chile have

Also working on eliminating CVD Why? Trans-Tasman market:

Hamper efficient allocation of resources Rationale no longer exists Detrimental to commercial relationships

Introduce Alternative Dispute Resolution ADR: processes usually involve a

third party neutral Why change a system? Does the

current system produce: Acceptable and durable outcomes? Are the costs acceptable? Impact on relationships-does it

matter? Disputant involved in the resolution?

Factors Leading to AD/CVD Suits-More than rents

•Import surge•Change in industry

structure•Low prices•Misinformation•Different policies and

marketing institutions•Leadership bid

AD/CVD process Duty or not

Tensions underlying are not alleviated!

Causes of dispute

Treat one symptom, low prices (maybe)

Reoccurrence!Reoccurrence!

Causes of dispute largely

unalleviated

Characteristics of Dispute Resolution Systems

Assessment of resolution options Identification of issues and

development of agenda of issues Fact finding Collaborative problem solving Settlement

AD and CVD processes:Are not dispute resolution systems!

‘Administrative review’ No choice of resolution options to

participants Does not considered broad interests

Access to other NAFTA markets Avoidance of a counter-suit General de-escalation of use of trade-

remedies

AD/CVD are not dispute resolution systems (con’t)

Regulatory and policy harmonization Trade liberalization generally Unified domestic industry

Fact finding rigid, not participatory No problem solving – duties or not Settlement- trade tension still

exists

Good Offices

When a third party works to correct misunderstandings and fear, and increase communication

Used by the WTO and the UN Good Offices might be useful

within NAFTA

Mandatory Facilitated Dialogue

Proposal: complainants engage in a dialogue, facilitated by a neutral, before the suit can be investigated by national protection agencies

Purpose: In general a type of mediation to

explore interests, issues and options, less geared toward settlement

Mandatory Facilitated Dialogue

Specifically, to engage the complainant in a wide-ranging discussion on the consequences, costs and benefits widely defined, of pursuing the suit

Costs and Benefits Will the defending industry retaliate?

Is the domestic industry unified? Costs of proceeding?

Gains from cooperation – how affected?

Correct misinformation through joint

data collection

It could happen…

If one NAFTA industry is selling below the costs of production then likely all are

… might be discussed during the facilitated dialogue

Need to think further a field

Tensions from economic integration inappropriately channeled into AD/CDV

NAFTA needs processes for industry groups for managing those tensions

An array could include good offices, faciliated dialogue, mediation offered by the NAFTA secretariate

What is Possible

Economists have long been disenchanted with AD/CVD processes-

Political opposition to eliminating them is fierce

Leaving them in place may make it possible to put more effective measures of dispute resolution up front