Trade Remedy Actions in NAFTA for Agriculture

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Trade Remedy Actions in NAFTA for Agriculture
Agri-food Industries Increasing?
Alternatives?Linda Young, John Wainio and Karl
Meilke
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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

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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

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AD/CVD Cases Initiated by NAFTA Countries
1/1/1984 - 6/30/2001
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AD/CVD Case Outcomes 1/1/1984 - 6/30/2001
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Active AD/CVD Measures As of 6/30/2001
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.

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

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Trade Liberalization Has Not Resulted in More
AD/CVD Investigations
Pre-CUSFTA
Post-CUSFTA
Pre-NAFTA
Post-NAFTA
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NAFTA Partners Target Each Others Imports Less
Than Those of Other Countries 1989 - 1999
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NAFTA Countries Are Far More Likely to be the
Target in Cases Investigating Agricultural Trade
1989 - 1999
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Is Agricultural Trade Overrepresented in AD/CVD
Cases? (1989 - 1999)
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Even in Agriculture, the Three Countries Target
Partners Trade Less Than Others 1989 - 1999
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Active AD/CVD Measures Within NAFTA As of
6/30/2001
United States
United States
Mexico
Canada
Mexico
Canada
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Malt beverages (220300)Initiation - 1991 Duty -
1991 Revoked - 1994
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Tomato paste (200290)Initiation - 1992 No
injury finding - 1993
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Cauliflower (070410)Initiation - 1992 No
injury finding - 1993
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Lettuce (070511)Initiation - 1992 AD duty in
effect
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Refined Sugar (1701 1702)Initiation - 1995
AD duty in effect
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Apples (080810)Initiation - 1994 Duty - 1995
Revoked - 2000
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What do we want to achieve?

• Reduce incidence, retaliation, costs
• Maintain transparency
• Maintain ability to protect producers
• Cognizant of the goals of FTA
• And

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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

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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

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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.

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Options for Change Tweaks (cont)

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

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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

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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

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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

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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?

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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
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Tensions underlying are not alleviated!
Treat one symptom, low prices (maybe)
Causes of dispute largely unalleviated
Causes of dispute
Reoccurrence!
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Characteristics of Dispute Resolution Systems

• Assessment of resolution options
• Identification of issues and development of
  agenda of issues
• Fact finding
• Collaborative problem solving
• Settlement

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AD and CVD processesAre 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

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AD/CVD are not dispute resolution systems (cont)

• 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

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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

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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

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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

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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

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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

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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

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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