American Trade Harassment Continues

On March 4, the U.S. Department of Commerce (DOC) imposed interim tariffs of 3.94 percent on all imports of Canadian spring wheat and durum. In dollar terms, this works out to around an additional $10 per tonne on all imports of Canadian wheat into the American market.

The tariff was imposed based on the DOC's preliminary determination on the issue of countervailing duties, part of a trade challenge launched by the North Dakota Wheat Commission (NDWC) and the U.S. Durum Growers in September, 2002. The two groups petitioned the U.S. government to initiate countervailing duty and anti-dumping suits against Canadian wheat, alleging the Canadian government unfairly subsidizes Canadian wheat farmers and that the Canadian Wheat Board (CWB) dumps wheat into the U.S. market at below market prices.

The March 4 decision was in response to the countervailing duty charge; the groups had originally requested a 14.4 percent tariff on durum and a 25.5 percent tariff on spring wheat. However, in its ruling, the DOC dismissed four of the seven subsidy allegations made by the groups. The DOC did rule that there was a "reasonable indication" of subsidy margins due to the free provision of government-owned hopper cars to the railways for wheat transportation and the perceived value of the federal government guarantee of CWB borrowings.

A preliminary ruling on the anti-dumping case is expected in May; they have asked for duties of nine percent on Canadian durum and 12 percent on spring wheat. Final determination in both cases is expected at the end of August 2003.

Any comparison of the subsidies paid to Canadian and American farmers reveals that the Americans receive three to four times as much direct government assistance. The most recent study by the Organization for Economic Cooperation and Development (OECD) found that American wheat producers receive an average of $108 in subsidies per tonne of production, compared to $31 for Canadian farmers.

However, by marketing their grain collectively through the CWB, western Canadian farmers have been able to charge higher prices than their American counterparts, whose grain is marketed by multinational grain companies like Cargill, ADM and ConAgra.

Western Canadian farmers have also been able to establish a quality control system that is the envy of the world, effectively segregating different classes of wheat and charging premium prices for the highest quality. Unable to compete, despite the much higher level of government subsidies, the Americans have been trying to dismantle the CWB through a variety of mechanisms, including trade challenges and interfering in CWB elections.

Given that the burden of proof in preliminary determination is extremely low, the outright rejection of four subsidy allegations shows how baseless they are. This represents the tenth challenge launched by the Americans in the last decade in an ongoing attempt to restrict access to the American market for Canadian wheat. Each previous challenge has been unsuccessful.

In fact, allegations of price undercutting by the CWB have been refuted by independent investigators. Two studies by the International Trade Commission (an American body) examined six years of sales of Canadian wheat into the U.S. market and found that Canadian wheat and durum prices exceeded U.S. prices in all months but two. Canadian prices were found to be higher by as much as 54 percent for durum and 43 percent for spring wheat. U.S. millers and pasta makers have publicly testified that there is no price undercutting by Canada, saying they are willing to pay more for Canadian wheat and durum because of its quality and consistency of supply.

Defending the current countervailing duty and anti-dumping trade challenge is expected to cost western Canadian farmers $10 million, with no possibility of cost recovery if the changes are found to be baseless.