Wheat trade dispute

by Teresa Acklin
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As negotiations stall, U.S. acts to restrict imports of Canadian wheat.

   The United States in late April notified the General Agreement on Tariffs and Trade in Geneva that it planned to limit imports of Canadian wheat, wheat flour, durum and barley effective June 1, the start of the U.S. wheat marketing year. The unilateral action came after the latest round of negotiations between the two countries in Morocco proved unsuccessful.

   The United States plans to set a tariff-rate quota, under which a fixed amount of Canadian wheat, wheat flour and barley could be imported at current duty levels. Imports over the quota amount would be subject to a prohibitive tariff.

   Neither the quota amounts nor the size of the tariff were announced when the action was taken. But U.S. officials said the tariffs would be structured to ensure “an adequate supply” of durum for U.S. pasta production.

   The tariff-rate quota, which was announced by U.S. Secretary of Agriculture Mike Espy, must be approved by the U.S. Congress. The Clinton administration intends to include the quota in legislation to implement the GATT agreement, which would take effect Jan. 1, 1995; the legislation will include a provision that the tariff-rate quota is retroactive to June 1.

   The United States acted under Article 28 of the GATT, which permits one nation to file notice of its intent to change an existing tariff or impose a new tariff on a particular good or commodity. Notification triggers a 90-day period for consultations. If no agreement is reached, the filing party may proceed unilaterally, but the country whose exports may be injured is entitled to compensation.

   In this instance, Canada's compensation is likely to consist of retaliatory restrictions on imports from the United States. Possible targets for retaliation include pasta, baked goods, soybeans and soybean products, rice and tomato products.

   The Article 28 action was taken independently from an ongoing investigation by the U.S. International Trade Commission. President Clinton in November 1993 ordered the I.T.C. to determine whether the volume of wheat imported from Canada was adversely affecting U.S. government price support programs.

   The I.T.C., generally considered to be an objective body, is expected to issue its conclusions by mid-July. But U.S. administration officials have said an I.T.C. ruling in favor of Canada would not dissuade them from pursuing trade restrictions under Article 28.

      Rising U.S. imports of Canadian wheat

   The controversy has been simmering for several years as the level of U.S. wheat imports from Canada has grown. But the issue came to a boil in 1993-94, when the second straight year of bad weather cut into U.S. milling wheat and durum supplies and made Canadian wheat even more attractive to U.S. processors.

   In 1989-90, the U.S. imported a total of 356,523 tonnes of durum and milling wheat from Canada; in 1993-94, total durum, milling and feed wheat imports were expected to reach as much as 2.5 million tonnes. Even so, Canadian imports were expected to account for no more than 6.6% of 1993-94 U.S. wheat consumption.

   Before the Article 28 action, the U.S. and Canada had been negotiating for months, trying to reach agreement on voluntary limits for Canadian wheat exports to the U.S. Reports indicated Canada had offered to limit its annual exports to 2.5 million tonnes, but the U.S. insisted the limit should be 1.5 million. By mid-April, neither side would give further ground.

      Politics and other commodities

   As negotiations dragged on — and Canadian wheat moved visibly across the U.S. border — the dispute became highly emotional and politicized. U.S. wheat producers, particularly those in border states, complained loudly and bitterly about the imports. They accused Canada of unfair trade and depressing U.S. farm incomes, and some threatened to blockade highways to halt truck shipments.

   On the other hand, U.S. grain traders, flour millers and bakers have been vehemently opposed to any trade restrictions. Citing already tight supplies of milling quality wheat and durum, the groups have protested that import restrictions at best would drive consumer prices sharply higher; at worst, limits could force plant closings, they said.

   The U.S. action also violates the spirit of both GATT and the North American Free Trade Agreement, could lead to a broader trade war with Canada and could encourage other countries to initiate similar actions.

   Further, opponents have maintained the action is unnecessary, because a return to “normal” U.S. wheat harvests will reduce the need to import wheat from Canada.

   The prospects for a resolution before tariffs are implemented remain unclear. That's because the wheat dispute is complicated by trade problems in other commodities, including dairy products, poultry, sugar and peanut butter.

   For example, the United States might agree to a higher wheat import level if Canada would grant greater access to U.S. dairy and poultry products. But so far, Canada has declined because it wants to protect its dairy and poultry industries.