Canada, U.S. reach wheat trade agreement
October 01, 1994
by Teresa Acklin
Last-minute pact meets mixed views on both sides of argument
After weeks of intense debate and threats of unilateral action, U.S. and Canadian ministers of agriculture and trade finally reached an agreement that limits imports of Canadian wheat into the United States.
In 1989-90, U.S. imports from Canada totaled 356,523 tonnes of durum and milling wheat. But due to severe flooding in the Midwest and a drought in the South, the United States had a disastrous maize crop in 1993. Likewise, the U.S. durum crop was relatively small and of poor quality, making it necessary for pasta manufacturers to import more durum from Canada. The shortage was also enhanced by continued U.S. exports of wheat under the Export Enhancement Program. As a result, U.S. imports of Canadian durum, milling and feed wheat in 1993-94 were expected to exceed 2.5 million tonnes.
Under the agreement, specific restrictions only apply to wheat from the Canadian Wheat Board. The first 300,000 tonnes of Canadian durum imported in 1994-95 can enter the United States under a $3-per-tonne tariff, as stated under the North American Free Trade Agreement. For durum imports of more than that amount and up to 450,000 tonnes, the tariff will rise to $23 per tonne. Any amount imported above 450,000 tonnes will carry a $50-per-tonne tariff.
The agreement also states that the first 1,050,000 tonnes of wheat other that durum can be exported under the $3-per-tonne NAFTA requirement. Amounts above that will be subject to $50 per tonne. There will be no additional tariffs on barley, flour or semolina imports, or on Canadian wheat from sources other than the Canadian Wheat Board.
The agreement also contains a one-year “peace clause” preventing further restrictions on wheat trade. It also called for the establishment of a binational private sector commission on grain to advise the U.S. and Canadian governments of ways to avoid similar conflicts in the future. The one-year time period assures both sides that no countermeasures will be imposed nor will either country take action inconsistent with NAFTA or the General Agreement on Tariffs and Trade.
The Aug. 1 accord came the day the Clinton administration had cited for taking unilateral action to limit Canadian imports under Article 28 of the GATT. The United States earlier had filed notice of its intent to change existing tariffs on wheat and wheat flour, triggering a 90-day period for consultations.
Mixed positions from Canadian officials and farmers during the dispute held fast even after the agreement had been reached. The Canadian government still emphasizes that access to the U.S. market is higher than ever before. Estimates predict 1994-95 exports to the United States to now be 450,000 tonnes of durum, which includes 150,000 tonnes subject to the $23-per-tonne tariff. The government also projects an increase in wheat from non-Canadian Wheat Board supplies to 400,000 tonnes from 253,000 tonnes in 1993-94. The Canadian Wheat Board markets wheat from Western Canada, including durum and spring wheat. White wheat from Eastern Canada and Ontario is not restricted at all by the agreement.
“We regret the U.S. intended to take unilateral action against Canada's wheat exports, but this short-term accommodation protects Canada's export interests,” said Roy MacLaren, minister for international trade. “This is an interim arrangement only, which assures the minimum disruption to our trading relationship in wheat.”
Canadian farmers, however, have voiced that the arrangement has only hurt progress. The agreement, according to Alanna Koch of the Western Canadian Wheat Growers Association, will have a devastating effect on grain farmers who had been filling U.S. market demand for durum.
This demand for durum, largely due in part from the U.S. pasta industry, is estimated by some to only increase with the new agreement. Roy M. Henwood, president of U.S. Miller's National Federation, said the agreement will limit durum imports to 300,000 tonnes. This estimate, coupled with the U.S. Department of Agriculture's projection of a 2.7-million tonnes durum crop, will still result in a strong need to import quality durum if the pasta industry's requirement of 2.3 million tonnes of No. 1 or No. 2 hard amber durum is to be met. This will be even more difficult if the export of durum is still encouraged under EEP.
U.S. imports of Canadian wheat in 1993-94 were expected to exceed 2.5 million tonnes, yet this amount only accounted for no more than 6.6% of U.S. wheat consumption. Under the new arrangement Canadian wheat exports in 1994-95 are projected to be limited to approximately 1.8 million tonnes.
This difference in supply and demand may lead to an even stronger appeal in some markets for what pasta manufacturers allege to be foreign “subsidized” pasta. Jula J. Kinnaird, president, U.S. National Pasta Association, said that U.S. pasta manufacturers already faced increasingly stiff competition in the domestic market from pasta from abroad.
In contrast, Mickey Kantor, U.S. trade representative, stated that the higher tariffs would have little effect on the pasta industry, remarking that $23 per tonne on durum would result in a meager U.S. 0.45-cent-per-kg increase in retail prices of pasta. Ms. Kinnaird rebutted that this assessment was “unrealistic,” noting that it was impossible to predict what pasta prices would do, especially with the uncertainty of the size and quality of the U.S. durum crop.
Ms. Kinnaird added that the U.S. pasta industry will aggressively stress to the U.S.D.A. that no exports of milling quality durum should be allowed under EEP while imports on durum are still limited. “We will need every kernel of milling quality durum to stay home for domestic durum millers to source,” she said.
The joint private-sector commission on grains will examine the two countries' respective marketing and support systems. A report is to be submitted to both governments by May 1, 1995.