Geographic Indications and International Trade (GIANT)

I.Identification

1. Abstract

The wheat trade industry in North America has been an important industry ever since Europeans came across the vast prairies of the west and northwest. Red wheat in particular was transplanted to North America by Russian Mennonites between 1874 and 1884. The Russian Mennonites were a religious nationality who emigrated to the United States and Canada because of increasing controls levied by tsarist Russia. This people sustained themselves on agriculture and the fertile lands of the Crimea peninsula. The Mennonites were not native to Russia either, emigrating there from northern Germany and the Netherlands, after the start of the Protestant Reformation in pursuit of a secluded farming community. The USDA followed this introduction of a new crop by also introducing types of red wheat from Eastern Europe in 1900. The industry itself hit a major boom after the Industrial Revolution when new machines provided much needed efficiency in harvesting and processing the wheat. Both Canada and the United States now comprise the greatest bloc of wheat trade in the world, and from this competition between the two countries has emerged. The latest in a long list of arguments between the two over fair trade is now being decided upon. The question now raised is whether or not the United States unfairly placed tariffs on Canadian Red Spring and Durum wheat, and has the Canadian Wheat Board, the primary face of Canadian wheat, undersold the value of these kinds of wheat, and received unfair government support? Another factor playing into this case is an environmental issue involving a push to grow what is called Roundup Wheat, which is able to sustain the popular herbicide. This type of wheat would cause harm to Canadian farmers because consumers are not willing to buy this kind of wheat. Canadian Red Wheat and Durum is sought out for its premium pigment and quality, and the use of Roundup Wheat would readily cut into that supply. This case study will attempt to provide some of the relevant background into this trade conflict and its environmental dimension.

2. Description

The question of whether the Canadian Wheat Board is dumping and unfairly subsidizing wheat into the United States has been questioned since 1989. Dumping is the importing of goods at below market level prices thus injuring the receiving country’s own farmers. In 1974 the United States Congress passed legislation in the Trade Act that was an effort to prevent dumping.The products in question are Red Wheat and Durum. American farmers, more specifically organizations like the NDWC, are out to see the dissolution of the CWB. Out of the twelve challenges only two have ever gotten to this point. In this latest round of challenges, the United States Department of Commerce implemented a raise in tariff prices to 14.16 percent on Canadian red sring wheat and 13.55 per cent on durum for every bushel. Some of the American farmers that have voiced their opinion saying as Mr. Hank Zal stated in his interview with Minnesota Public Radio that "it's [CWB] unfair competition that they do it that way. It's not fair to me as a farmer down here." This is just one complaint about the CWB that is based on misinformaton that will be explained below.

The Canadian Wheat Board is an organization made up of farmers based in Winnipeg, Manitoba formed in 1935 to help fight bankruptcy and now represents 85,000 farmers. The CWB is the largest single seller in the world consisting of an astounding twenty percent control of the international market. Canada, however, is not the leading exporter of wheat. That distinction belongs to the United States. All revenues from this robust trade is returned to the farmers less the overhead expenses, and the board is comprised of ten elected and five appointed by the Canadian government. The NDWC claims that the wheat exported is done so by government subsidizing it through help with exportation and federal guarantees of CWB borrowings. These are the only two allegations of countervailing that have any merit to them. Allegations of an imposition of revenue caps on major railways' western grain traffic, and support for short line and branch line railways was thrown out by the Department of Commerce.

The North Dakota Wheat Commission’s case is weak. In fact, Canada garners support from prominent milling operations inside the United States. Some of these organizations include the American Italian Pasta Company, the largest pasta producer in the U.S. and many millers who are part of the North American Millers Association. Many of these organizations have come out and stated quite the opposite to what the NDWC. In fact, Alan Koenig, director of grain for Milner Milling and Pendleton Flour Mill stated that “in all my years in the grain industry, I have never seen Canadian wheat priced cheaper than U.S. wheat. This flies in the face of the NWDC’s claim of dumping. Perhaps the most ringing endorsement was made by executives from NAMA, an American pasta company, in which an executive said “from my nine years of direct dealings with the Canadian Wheat Board I can testify to the fact that they have not and have never been underselling the U.S. durum prices.” He also added that “we are willing to pay the premiums for Canadian durum because we offset the cost with better mill yields and improved product quality…” Canada has routinely sold their wheat above the United State's price.

Another flaw in the NDWC’s argument is that of government unfairly subsidizing grain transport and the CWB. The OECD released data which state that the United States government subsidizes wheat at ninety-three dollars per ton while Canada subsidizes about forty-eight dollars per ton.

Recently, the International Trade Commission ruled that the exporting of red wheat did cause injury to American farmers and sustained the tariffs, while they rejected the tariffs on durum. The four member panel voted two-two on the issue, but in the bylaws of the International Trade Commission a tie goes to the plaintiff or the United States. The CWB, however, has now submitted an appeal under chapter nineteen of NAFTA for a board of five customs administrators to decide if their practices are injuring American farmers. The CWB in an effort to bolster its position has employed the services of the federal government along with Saskatchewan and Alberta. If this appeal does not go the way the CWB would like, it is fair to expect that the CWB will take their case to the World Trade Organization.

3. Related Cases

1. NAFTA = Study on the Free Trade Agreement between the U.S., Canada, and Mexico
2. CIGAR = Import ban on Cigars in Thailand
3. VEAL= Animal rights and veal in the U.K.
4. ONTARIO = Canadian-United States trade dispute over beer tax.
5. WHEAT = Wheat Trade between the United States and China
6. MAIZE = Case on hybrid maize and the impact it has on trade relations between U.S. and European Union
7. SALMON = Dispute over export of salmon between the U.S. and Canada
8. USCANADA= Dispute between United States and America and the Canadian subsidizing of softwood lumber industry
9. LOBSTER= NAFTA case involving possible extinction of lobster

4. Author and Date:

Joel Zimmerman 11/12/03

II. Legal Clusters

2000-2001= Canadian West Wheat Exports to the U.S.= 1.6 million metric tons

Government Subsidies	Canadian dollars per metric ton
1. U.S. Wheat	$130 C pmt
2. EU	$108 C pmt
3. Canadian	$31 C pmt

 

Leading Exporters of Wheat	Value 2001 US$ '000
1. United States	3,337,884
2. Canada	2,549,895
3. Australia	2,237,731
4. France	1,791,255
5. Argentina	1,301,503
6. Germany	863,880
7. Kazakhstan	N/A
8. U.K.	193,497
9. Hungary	150,655
10. Spain	145,074

The data shows that the United States claim of unfair subsidizing of wheat trade is hypocritical because no other country in the world has the level of subsidizing that the United States does. Legislative officials are put into action representing boards like the NDWC because of parochial interests and the desire to perform their duties as Congressmen for their constituents.

17. Impact of Trade Restriction: High, this tariff closes the border for Canadian wheat farmers and the Canadian Wheat Board.

18. Industry Sector: Agriculture

19. Exporters and Importers: Canada and the United States

VI. Other Factors

25. Culture: No

26. Trans-Boundary Issues: No

27. Rights: No

28. Relevant Literature: No

Bibliography

Planet Wheat-Provides a history of wheat.

Canadian Wheat Board, November 4, 2003 Press Release, August 29, 2003 Press Release

North Dakota Wheat Commission, October 3, 2003 Press Release, August 29, 2003 Press Release

Office of Nafta and Intra-American Affairs, North American Free Trade Agreement, Chapter 19.

Adrian Measner, "Challenges to the Canadian Grain Industry," Speech give to National Trade Grain Council. 9/18/2003.

United State Department of Agriculture

World Trade Organization= Trade Data

"American farmers want retaliation against Canadian wheat farmers" Minnesota Public Radio. Reporter Amy Jo Iman.