TRADING REMEDIES TO REMEDY TRADE: THE NAFTA EXPERIENCE

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1 215 Discussion TRADING REMEDIES TO REMEDY TRADE: THE NAFTA EXPERIENCE Carol Goodloe 1 T h e L e y c e g u i a n d C o r n e j o p a p e r p r e s e n t s i n t e r e s t i n g i n f o r m a t i o n w h i c h m a y n o t b e g e n e r a l l y k n o w n i n t h e a g r i c u l t u r a l c o m m u n i t y. M y c o m m e n t s a i m t o s u m m a r i z e s o m e o f t h e f i n d i n g s a n d r a i s e s o m e q u e s - tions in light of my experience and biases. The paper covers all sectors in its analysis of trade remedy laws but my remarks are limited to the agricult u r a l s e c t o r. ANTI-DUMPING AND COUNTERVAILING DUTIES I n t h e i r d e s c r i p t i o n o f a n t i - d u m p i n g ( A D ), c o u n t e r v a i l i n g d u t i e s ( C V D ) a n d s a f e g u a r d p r o v i s i o n s, t h e a u t h o r s n o t e t h e o r i g i n a l intent o f e a c h. T h e intent o f A D a n d C V D l a w s w a s t o r e s p o n d t o t h e e c o n o m i c i m p a c t o f u n f a i r t r a d e p r a c t i c e s. I n t e r e s t i n g l y, a c c o r d i n g t o o n e o f o u r workshop participants, the first AD law was instituted in 1904 in Canada to o f f s e t u n d e r - i n v o i c i n g o f i m p o r t s a n d h a d n o t h i n g t o d o w i t h p r i c e d i s - c r i m i n a t i o n a n d o t h e r a l l e g e d u n f a i r p r i c i n g p r a c t i c e s ( K e r r, ). S i m i - larly, the intent of safeguards was to respond to the impact of trade concessions, that is, import surges following the reduction in import duties. With the possible exception of CVD laws, which intend to respond to the impact of government subsidies, the gap between original intent and c u r r e n t p r a c t i c e f o r t h e u s e o f AD and safeguards is now often large. For t h e m o s t p a r t, t h e i d e n t i f i c a t i o n o f s p e c i f i c u n f a i r t r a d e p r a c t i c e s i s r a r e l y associated with the use of AD laws. Recent uses of U.S. safeguards wheat g l u t e n, l a m b, s t e e l h a v e n o t b e e n a s s o c i a t e d w i t h s p e c i f i c t a r i f f c o n c e s - s i o n s. R a t h e r, t h e i n v e s t i g a t i o n s h a v e b e e n i n r e a c t i o n t o i m p o r t s u r g e s, regardless of the cause. I note that one of my favorite cases a U.S. safe- 1 Comments in this paper represent the personal views of the author and do not reflect official views of the U.S. Government.

2 216 Keeping the Borders Open g u a r d s i n v e s t i g a t i o n i n t o M e x i c a n b r o o m s m a d e f r o m b r o o m c o r n w a s filed in reaction to tariff concessions granted under NAFTA, but other rec e n t a g r i c u l t u r a l c a s e s w e r e n o t. I n t h e r e v i e w o f t h e u s e o f t r a d e r e m e d y l a w s i n N o r t h A m e r i c a, o n e i s s t r u c k w i t h t h e o v e r w h e l m i n g d o m i n a n c e o f A D o v e r C V D l a w s. Why? Are AD laws easier to use? Is the fact that a petitioner does not have to allege or to prove any unfair trade practice, unlike a CVD petition where actionable subsidies must be found, a factor in the higher rate of use? One also notes that the success rate for AD use in NAFTA countries is generally higher than for CVD (although slightly lower in the United States). T h e a u t h o r s n o t e t h a t t h e N A F TA success rate for all three count r i e s a g a i n s t t h e i r NAFTA partners is lower and in some instances, cons i d e r a b l y l o w e r t h a n t h e a v e r a g e s u c c e s s r a t e a g a i n s t a l l c o u n t r i e s. T h i s result raises interesting questions. Are industries or sectors bringing frivol o u s c a s e s a s a m e a n s t o f o s t e r p r o t e c t i o n w h e n t h e y f e e l t h e p i n c h o f c o m p e t i t i v e i m p o r t s? O r h a v e t h e a p p e a l p r o v i s i o n s i n N A F T A h a d a n e f f e c t o n n a t i o n a l a u t h o r i t i e s i n v e s t i g a t i o n s a n d f i n d i n g s, a s s u g g e s t e d i n the paper. If the latter is true, the appeal process may have been effective in reducing the use of trade remedy laws for protectionist purposes. One suspects the national officials involved in investigations would n o t a g r e e t h a t t h e y t r e a t a N A F T A i n v e s t i g a t i o n d i f f e r e n t l y f r o m a n o n - NAFT A i n v e s t i g a t i o n. I n a d d i t i o n, t h e y w o u l d g e t i n t r o u b l e i f t h e y d i d b e c a u s e t h e s t a t u t e s g o v e r n i n g t h e i nvestigation do not provide for differe n t p r o c e d u r e s f o r N A F TA countries. (Different AD p r o c e d u r e s a r e a v a i l - able in the United States for non-market economies, and perhaps in Mexico a n d C a n a d a a s w e l l. ) O n e c a n s u m u p f o r t h e t h r e e c o u n t r i e s a l l t h e i n v e s t i g a t i o n s t h a t involved food and agricultural products prepared foodstuffs, animal produ c t s, v e g e t a b l e s t o g e t a b r o a d a g r i c u l t u r a l s h a r e o f t o t a l c a s e s. F o r t h e U n i t e d S t a t e s, t h e s h a r e i s f i v e p e r c e n t, f o r M e x i c o s i x p e r c e n t a n d f o r C a n a d a n i n e p e r c e n t. I t w o u l d b e i n t e r e s t i n g t o e x p l o r e s o m e m e a s u r e s about whether this share represents a little or a lot of cases for agricul-

3 Goodloe 217 t u r e. S h o u l d o n e u s e a g r i c u l t u r e s s h a r e o f t h e G D P a s a b e n c h m a r k o r a g r i c u l t u r e s s h a r e o f t o t a l e x p o r t s o r i m p o r t s? O n e q u e s t i o n p e o p l e a s k, of course, is whether agricultural products are resorting to the use of trade remedy laws more often now than in the past. Given the recent history of s o m e p r o m i n e n t c a s e s M e x i c a n t o m a t o e s, U. S. a p p l e s, U. S. h i g h f r u c - t o s e c o r n s y r u p, C a n a d i a n l i v e c a t t l e, U. S. c o r n, C a n a d i a n g r e e n h o u s e t o - m a t o e s, U. S. t o m a t o e s t h e i n t u i t i v e r e s p o n s e i s y e s b u t o n e n e e d s a n a c c e p t a b l e m e a s u r e t o a n s w e r t h e q u e s t i o n. USE OF TRADE REMEDY LAWS The authors present a benchmark method to try to answer the quest i o n a b o u t t h e i n t e n s i t y w i t h w h i c h N A F T A c o u n t r i e s u s e t r a d e r e m e d y l a w s. H o w e v e r, I q u e s t i o n o n e a s p e c t o f t h e m e t h o d t h a t w e c a n e x p e c t that the [Mexico s] imports are relatively high for the size of the market. T h e s i z e o f m a r k e t i s n o t n e c e s s a r i l y r e l a t e d t o i m p o r t s. I t w o u l d a l s o b e i n t e r e s t i n g t o s e e a s e p a r a t e i n t e n s i t y o f u s e i n d e x o r m e a s u r e f o r a g r i - c u l t u r a l p r o d u c t s. The data presented in their Figure 1 show that initiations in NAFTA c o u n t r i e s f e l l i n t h e p e r i o d c o m p a r e d t o t h e p e r i o d. I f o n e b e l i e v e d i n a n e x c h a n g e r a t e t h e o r y o f A D / C V D l a w s t h a t i s, t h e n u m b e r o f i n i t i a t i o n s s h o u l d i n c r e a s e a s a c o u n t r y s c u r r e n c y s t r e n g t h e n s and imports are encouraged the United States should have initiated more cases after 1995 than before. That does not seem to be the case. The opposite would hold for Canada and Mexico, so an exchange rate theory works better for them, as the authors mention. Even though the number of initiations fell, what about the total value of the affected trade? Is it relevant to e x a m i n e t h e v a l u e o f t r a d e r e l a t i v e t o t h e n u m b e r o f i n i t i a t i o n s? A g o o d measure to assess the use of trade remedy laws, before and after the establishment of a free trade area, would help answer many questions. The discussion about eliminating AD laws in a free trade area and r e p l a c i n g t h e m w i t h c o m p e t i t i o n p o l i c y ( t h e h i g h g r o u n d p r o p o s a l ) h a s much merit, especially since the application of AD laws seems to have less and less to do with the idea of countering unfair trade practices (and cer-

4 218 Keeping the Borders Open tainly nothing to do with under-invoicing). At least the current U.S. administration, as it has gone forward with a self-initiated safeguards investigation on steel, has linked the trade remedy action with an attempt to address u n d e r l y i n g e x c e s s c a p a c i t y p r o b l e m s a n d p o t e n t i a l u n f a i r p r a c t i c e s. O n e d o e s n o t e x p e c t t h e U n i t e d S t a t e s t o s u p p o r t s u c h a h i g h g r o u n d a p - proach any time soon. But agricultural interests in NAFTA countries need to take a hard look at the potential costs and benefits of such an approach if the intensity of use of AD cases is indeed increasing. As an aside, the United States would, of course, have to retain its right to use AD laws in at least one agricultural sector as long as the Canadian Wheat Board exists because of its alleged unfair trade practices. It is most curious that GATT Article XVII, Annex I, Paragraph 1 allows a state t r a d i n g e n t e r p r i s e t o p r i c e d i s c r i m i n a t e f o r c o m m e r c i a l r e a s o n s, but the dumping provisions subject a private, presumably fully commercial enterprise to a stricter test, that being no selling in third country market below the price in the home market. But we can discuss these issues in the session on the U.S. 301 case. I n t h e d i s c u s s i o n o n a p p e a l s, o n e n o t e s t h a t a g r i c u l t u r e a c c o u n t s for a disproportionate share of the appeals relative to the number of initiat i o n s, a n d t h a t t h e r e a r e m o r e r e v i e w s o f A D t h a n o f C V D c a s e s. O n e w o n d e r s h o w m a n y o f t h e r e v i e w s w e r e a g r i c u l t u r a l A D c a s e s. A s m a n y have argued, agriculture and dumping are an especially bad fit because of t h e n a t u r e o f a g r i c u l t u r a l p r o d u c t s a n d t r a d e. D o e s t h i s N A F TA review p r o c e s s o f f e r a n y e v i d e n c e i n t h a t r e g a r d? The discussion about the NAFTA negotiations on safeguards highlights one key difference between the WTO and NAFTA; NAFTA requires compensation and the WTO does not (for the first three years of use). The authors state the intent in NAFTA was to minimize the use of safeguards. T h e c o m p e n s a t i o n l a n g u a g e w a s i n d e e d a m a j o r U. S. o b j e c t i v e. T h e U. S. n e g o t i a t o r s a s s u m e d t h a t M e x i c o w a s m o r e l i k e l y t o r e s o r t t o s a f e g u a r d s b e c a u s e M e x i c o w a s f a c i n g g r e a t e r s t r u c t u r a l a d j u s t m e n t a s a r e s u l t o f h i g h e r a v e r a g e t a r i f f s, m o r e n o n - t a r i f f b a r r i e r s, a n d g e n e r a l l y l e s s c o m - p e t i t i v e i n d u s t r i e s r e l a t i v e t o t h e U n i t e d S t a t e s. H o w i r o n i c t h a t t h e f i r s t

5 Goodloe 219 country to bring a NAFTA safeguards case was the United States, and of c o u r s e i t w a s a g o o d o n e b r o o m c o r n b r o o m s. T h e c o m p e n s a t i o n p r o v i - s i o n s a l l o w e d M e x i c o t o r e t a l i a t e o n a p r o d u c t t h a t i s m o r e f a m i l i a r t o a g r i c u l t u r a l a u d i e n c e s t h a n b r o o m s U. S. h i g h f r u c t o s e c o r n s y r u p. B u t that is a subject for another conference. CONCLUSION M y e x p e r i e n c e a n d a n a l y s i s c o n f i r m t h a t n e i t h e r s a f e g u a r d s n o r A D a r e u s e f u l t o o l s f o r r e s t o r i n g c o m p e t i t i v e n e s s. N e i t h e r t o o l i s b e i n g u s e d i n a m a n n e r c o n s i s t e n t w i t h t h e o r i g i n a l i n t e n t. T h e e c o n o m i c l o g i c a n d a p p l i c a t i o n o f d a t a i n AD cases are flawed, as outlined by Dr. Loyns (2003). Certainly recent U.S. experience with our own safeguards is probl e m a t i c, h a v i n g l o s t o n e N A F TA case and two WTO cases, even after an a p p e a l. P e r h a p s a b e t t e r a r g u m e n t c a n b e m a d e f o r C V D l a w s, b u t t h e authors show that CVD law is used much less often than AD laws. The authors are to be commended for an informative paper that raises good issues and stimulates many questions, but definitive answers to questions about the use and effects of trade remedy laws require further exploration. REFERENCES Kerr, William A Dumping One of Those Economic Myths. The Estey Centre Journal of International Law and Trade Policy. Volume 2, Number 2. S a s k a t o o n. Leycegui, Beatriz and Mario Ruiz Cornejo Restoring Competition or Granting Protectionism?: Trade Remedy Laws in North America. In R.M.A. Loyns et al (editors). Keeping the Borders Open. Proceedings of the Eighth Policy Disputes Information Workshop. University of Guelph, Texas A&M University and El Colegio de México. Friesens Printers, Winnipeg. March. Loyns, R.M.A Manitoba Corn Growers Association Inc. versus U.S. Corn Exports: An Application of Regional Market Rules under Canadian Trade Remedy Law. In R.M.A. Loyns et al (editors). Keeping the Borders Open. Proceedings of the Eighth Policy Disputes Information Workshop. University of Guelph, Texas A&M University and El Colegio de México. Friesens Printers, Winnipeg. March.