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/ /30/2001

AD/CVD Case Outcomes 1/1/ /30/2001

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

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

Trade Liberalization Has Not Resulted in More AD/CVD Investigations Pre-CUSFTAPost-CUSFTAPre-NAFTAPost-NAFTA

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

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

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

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

Active AD/CVD Measures Within NAFTA As of 6/30/2001 Canada Mexico United States Mexico United States Canada

Malt beverages (220300) Initiation Duty Revoked

Tomato paste (200290) Initiation No injury finding

Cauliflower (070410) Initiation No injury finding

Lettuce (070511) Initiation AD duty in effect

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

Apples (080810) Initiation Duty Revoked

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! 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