Order Code RL32426
CRS Report for Congress
Received through the CRS Web
U.S.-Canada Wheat and Corn Trade Disputes
Updated September 26, 2005
Randy Schnepf
Specialist in Agricultural Policy
Resources, Science, and Industry Division
Congressional Research Service ˜ The Library of Congress
U.S.-Canada Wheat and Corn Trade Disputes
Summary
U.S. trade officials and northern-tier wheat producers have long expressed
concerns that Canadian wheat trading practices — both import and export — are
inconsistent with Canada’s international trade obligations. First, they contend that
Canadian wheat trading practices, particularly the export practices of the Canadian
Wheat Board (CWB), are inconsistent with Canada’s WTO obligations and
disadvantage U.S. wheat exporters in Canadian and international markets. Second,
U.S. trade officials contend that certain Canadian rules and regulations discriminate
against imported grains at Canadian grain elevators and within Canada’s rail
transportation system. Third, U.S. northern-tier wheat producers have long argued
that Canadian wheat entering the U.S. market was being supported by various
subsidies and that these wheat imports have been harmful to U.S. producers.
Canadian officials claim that the CWB operates as a valid state trading
enterprise (STE) under WTO rules. Canada maintains that its import practices and
the CWB wheat export practices comply fully with international trade rules and its
WTO obligations, and that Canada does not subsidize its wheat exports. In addition,
U.S. wheat millers and pasta manufacturers have expressed a strong interest in
maintaining their access to Canadian grain and oppose trade restrictions that might
limit their access. Furthermore, Canada has recently claimed that it is the United
States that is subsidizing and dumping corn into the Canadian market.
The U.S. allegations against Canadian wheat trading practices have led to a
series of investigations by U.S. agriculture and trade authorities at various levels —
including both the U.S. International Trade Commission (ITC) and the World Trade
Organization (WTO) — against wheat imports, as well as the trading practices of the
CWB. Canada has appealed the ITC’s positive injury finding against Canadian HRS
within the NAFTA dispute settlement framework. In addition, Canada has recently
begun (September 16, 2005) its own internal investigations into the alleged
subsidization and dumping of U.S. corn in Canadian markets.
As a result of ITC investigatory findings (October 3, 2003) and subject to a
revision of U.S. countervailing duties under a NAFTA appeal (March 10, 2005),
Canadian HRS wheat presently faces an 11.4% punitive duty upon entry into the
United States. The antidumping portion (8.6%) of this duty is still under review by
the ITC upon recommendation by a NAFTA panel (June 7, 2005) and could
potentially be reduced.
A WTO Panel ruled (April 4, 2004) that the CWB’s trading practices do not
violate WTO rules for STEs; however, certain Canadian grain marketing practices
were found not to be in compliance. Canada recently (May 19, 2005) passed
legislation — to take effect on August 1, 2005 — that will rectify its grain import and
marketing system practices to bring them into compliance with WTO
recommendations. The United States continues to pursue greater regulation of the
CWB through the ongoing WTO trade negotiations that seek stronger disciplines on
state trading enterprises. This report will be updated as events warrant.
Contents
Issue Definition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Hard Wheats and Durum Introduced . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
HRS and Durum Wheat Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Marketing Methods Differ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
U.S. Allegations and Canadian Counter-Arguments . . . . . . . . . . . . . . . . . . . 7
First: CWB Trading Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Second: Treatment of Imported Grain . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Third: Subsidies Aid Canadian Wheat Exports to the United States . . . 9
Legal Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
U.S. International Trade Commission (ITC) Case . . . . . . . . . . . . . . . . . . . . 10
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
WTO Dispute Settlement Case (DS276) . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Canadian AD/CVD Investigation of U.S. Corn . . . . . . . . . . . . . . . . . . . . . . 17
Role of Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
List of Figures
Figure 1. Major Production Areas for Canadian Spring Wheat . . . . . . . . . . . . . . . 2
Figure 2. Major Production Areas for Canadian Durum Wheat . . . . . . . . . . . . . . 3
Figure 3. Major Production Areas for U.S. Hard Red Spring (HRS) Wheat . . . . 4
Figure 4. Major Production Areas for U.S. Durum Wheat . . . . . . . . . . . . . . . . . . 5
Figure 5. U.S. Wheat Supply by Source . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Figure 6. U.S. Wheat Imports Compared with the All-Wheat Season Average
Farm Price (SAFP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Figure 7. Canada’s Corn Supply and Demand . . . . . . . . . . . . . . . . . . . . . . . . . . 18
U.S.-Canada Wheat and Corn Trade
Disputes
Issue Definition
The United States and Canada are both important producers, traders, and
consumers of major grains, particularly wheat. The two countries are joined with
Mexico in the North American Free Trade Agreement (NAFTA), which calls for
essentially unrestricted, duty-free grain trade among the three nations.
Although U.S. wheat imports remain very small relative to domestic supplies,
relatively large U.S. imports of Canadian durum and spring wheat since the early
1990s have been a source of concern to U.S. northern-tier wheat producers, who
claim that imports from Canada are subsidized and have a large negative impact on
local grain prices. This situation is aggravated by the operations of the Canadian
Wheat Board (CWB), which has been granted certain special market powers and
financial guarantees by the Canadian government, according to U.S. grain producers
and U.S. trade officials, and by certain Canadian import practices that appear to
disfavor imported over domestic wheat. Canada maintains that Canadian grain
import practices and the CWB wheat export practices comply fully with international
trade rules and its WTO obligations.
Concern over alleged unfair trade practices has led to numerous investigations
and charges by U.S. trade officials of the wheat trading practices of Canada and the
CWB. The United States has pursued legal action on two fronts: countervailing duty
and anti-dumping investigations of hard red spring (HRS) and durum wheat imports
from Canada by the U.S. International Trade Commission (ITC) and a dispute
settlement case (DS276) at the World Trade Organization (WTO) to review the
trading practices of the CWB and the treatment of grain imports by Canada.
More recently, several Canadian corn producer groups have expressed concern
over growing imports of U.S. corn. Under pressure from these producer groups, the
Canadian government has instigated an investigation into allegations of dumping and
subsidizing U.S. corn.
This report provides background for understanding the U.S. and Canadian wheat
and corn trade disputes, as well as timelines, rulings, and other details for the ITC
and WTO cases brought by the United States against Canadian wheat trading
practices and the CWB, as well as developments in Canada’s investigations of
imports of U.S. corn.
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Background
Hard Wheats and Durum Introduced. HRS is one of three classes of hard
wheat, the other two classes being hard red winter (HRW) and hard white (HW).
Hard wheats are high in protein and gluten content, making them well suited for
milling into bread flour. HRS tends to have higher protein and gluten content than
either HRW or HW. As a result, HRS wheat is especially valued for blending with
lower-protein wheat to be milled into premium bread flour. Durum also qualifies as
a type of hard, high-protein wheat, but its end use separates it from other types of
hard wheats. Durum is highly valued because it is the sole wheat class that can be
milled into semolina, a coarse meal that can be processed into various pasta products
such as macaroni, spaghetti, and vermicelli. As a result, both HRS and durum tend
to have significant price premiums over other wheat classes in most markets.
Canadian production of HRS and durum wheat occurs primarily in the prairie
provinces of Manitoba, Saskatchewan, and Alberta (see Figures 1 and 2). Most U.S.
HRS and durum wheat production occurs in close proximity, just south of the
Canadian border in the north central states of Minnesota, Montana, and North and
South Dakota (see Figures 3 and 4).1
Figure 1. Major Production Areas for Canadian Spring Wheat
1 USDA, WAOB online maps for major U.S. and Canadian production regions for durum
and HRS are available at [http://www.usda.gov/oce/waob/jawf/profiles/mwcacp.htm].
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Figure 2. Major Production Areas for Canadian Durum Wheat
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Figure 3. Major Production Areas for U.S. Hard Red Spring (HRS) Wheat
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Figure 4. Major Production Areas for U.S. Durum Wheat
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HRS and Durum Wheat Trade. The United States is the world’s leading
exporter of wheat (totaled across the major wheat classes). Canada is the world’s
leading exporter of HRS and durum wheat. However, these two classes of wheat are
also important to the U.S. wheat sector. Since 1986, these two classes have
accounted for nearly 30% of U.S. commercial wheat export volume (25% share for
HRS and a 4% share for durum) and an even higher share of wheat producers’ market
returns (since they have significant price premiums over other wheat classes in most
years).2 U.S. and Canadian HRS exports are critically important to international
wheat markets since together they represent the world’s primary source of high-
protein wheat — a key ingredient in the production of leavened bread.
U.S. imports of wheat and wheat flour are historically small, averaging about
3% of total U.S. supplies each year, and are generally related to specific end-use
needs (see Figure 5). Most U.S. wheat imports are durum and HRS wheat from
Canada.
Figure 5. U.S. Wheat Supply by Source
4,0 00
Imports
3,5 00
3,0 00
Stocks
2,5 00
2,0 00
1,5 00
Production
1,0 00
500
0
199 0/91
199 5/96
200 0/01
200 5/06
Source: USDA, NASS.
Despite their small volume relative to total supply, unexpected growth in U.S.
wheat imports in the early 1990s — primarily of spring and durum wheat from
Canada — has been viewed as especially problematic by producers in U.S. border
states, especially when U.S. prices are low as during the 1998-2001 period (see
Figure 6). U.S. total wheat imports grew from about 611,000 metric tons in 1989
to over 2.96 million metric tons (mmt) in 1993/94, and have averaged over 2.2 mmt
since 1990/91 with Canadian wheat accounting for about 73% of all U.S. wheat
imports. Trade liberalization following the 1989 Free Trade Agreement between the
United States and Canada (subsequently incorporated into NAFTA) contributed to
the expanded agricultural trade. However, not all of the change in U.S.-Canadian
2 USDA, Economic Research Service, Wheat Situation and Outlook Yearbook, WHS-2003,
March 2003.
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agricultural trade can be attributed to the FTA or to any other single factor. Weather,
policy changes, and world supply and demand conditions are some of the influential
factors. Exchange rates are also important. Prevailing exchange rates between the
Canadian and U.S. dollars for most of the past decade have made Canadian imports
cheaper for U.S. buyers and U.S. farm products more expensive for Canadian buyers.
Figure 6. U.S. Wheat Imports Compared with the All-
Wheat Season Average Farm Price (SAFP)
120
5
SAFP
100
4
80
3
60
2
40
Imports
1
20
0
0
1990 /91
1995 /96
2000/01
2005/06
Source: USDA, NASS, and USDA, FAS, FATUS.
Marketing Methods Differ. The main difference between the HRS and
durum industries in the United States and Canada is the manner in which grain is
marketed. In the United States, grain is marketed through a vast network of producer
cooperatives and small and large trading companies. In contrast, the role of grain
marketing in Canada is assumed entirely by the Canadian Wheat Board (CWB). In
accordance with Canadian law, the CWB has the exclusive right to purchase and sell
western Canadian wheat (durum and nondurum) and barley for domestic human
consumption and for export. While Canadian farmers are free to choose the crops
that they grow each year, all Canadian producer sales of wheat and barley for food
use or export must be to the CWB. However, the use or sale of wheat or barley as
livestock feed is permitted without restriction in Canadian markets.
U.S. Allegations and Canadian Counter-Arguments
Despite the general success of the U.S.-Canada agricultural trading relationship,
several points of friction exist. U.S. trade officials and wheat producer groups have
raised three general charges against the CWB and Canadian wheat trading practices.
First: CWB Trading Practices. They contend that Canadian wheat trading
practices, particularly the export practices of the CWB, are inconsistent with
Canada’s WTO obligations and disadvantage U.S. wheat exporters in Canadian and
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international markets. Canadian officials claim that the CWB operates as a valid
state trading enterprise (STE) under WTO rules. Article XVII of the General
Agreement on Tariffs and Trade (GATT) 1994 is the principal article dealing with
STEs and their operations.3 It sets out that such enterprises — in their purchase or
sales involving either imports or exports — are to act in accordance with the general
principles of nondiscrimination, and that commercial considerations only are to guide
their decisions on imports and exports.
The CWB claims that it is a marketing organization, not a government agency.
Under a 1998 amendment to the Canadian Wheat Board Act, the CWB ceased to be
a crown corporation and farmers became responsible for the election of members of
the board of directors with members from both government and the private sector.4
However, in 2001 an ITC investigation found that the CWB operates in all
significant respects as an arm of the Canadian government.5 The CWB retains its
monopsony (single buyer) and monopoly (single seller) power in the marketing of
western Canadian grains for food use or export. The CWB receives government
approval and backing of its borrowing and other financing, which reduces its costs
and insulates it from the commercial risks faced by U.S. grain traders. Further, the
CWB’s producer pool system (by which Canadian producers are remunerated) gives
the CWB special marketing flexibility. Producers receive a government-approved
and -guaranteed initial payment early in the crop year, with subsequent interim and
final payments as the crop is harvested and sold on world markets. Subsequent
payments are payable only to the extent that the CWB makes money on its sales. If
final market returns fail to cover the cost of the initial payments, any losses are
covered by the government, not the CWB. This occurred in the 2002/03 pool, when
losses of $65.8 million were covered by the Canadian government. U.S. producer
groups claim that this equaled a direct export subsidy of 20.4 cents per bushel on the
320 million bushels of Canadian HRS export sales that year.6 The CWB dismissed
this criticism, saying that this was the first deficit since the 1990/91 crop year and
falls far short of the average $740 million in annual subsidies provided to U.S. wheat
producers.7
Critics of the CWB also argue that its monopsony power in Canada gives the
CWB extraordinary market power, particularly in the North American markets for
durum and hard spring wheat. Representatives of the U.S. wheat industry, as well
as U.S. agriculture and trade officials, also complain that the CWB’s “monopoly”
3 WTO, “The Regulation of State Trading Under the WTO System,” visited Jan. 6, 2004,
at [http://www.wto.org/english/tratop_e/statra_e/statrad.htm].
4 Canadian Wheat Board, “CWB History,” visited Dec. 29, 2003, at [http://www.cwb.ca/en/
about/vision_mission/history.jsp].
5 ITC, Wheat Trading Practices: Competitive Conditions Between U.S. and Canadian
Wheat, Publication 3465, Dec. 2001, p. xv.
6 North Dakota Wheat Commission, News Release, “NDWC Denounces Canadian Wheat
Board’s Latest Export Subsidy,” Dec. 18, 2003, at [http://www.ndwheat.com/].
7 CWB, News Release, “NDWC charges completely hypocritical,” Dec. 19, 2003, at
[http://www.cwb.ca/en/news/releases/2003/121903.jsp].
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control over Canada’s wheat trade permits it to practice discriminatory pricing in
international markets and thereby gain unfair competitive advantage over other wheat
exporters. Because the CWB does not publicly report the terms and conditions of
individual sales, these charges have been difficult to prove. The CWB responds to
this alleged lack of transparency by saying that U.S.-based private companies such
as Cargill or Archer Daniels Midland also do not report the contractual details of
their commercial transactions.8
The Canadian government has shown no interest in negotiating a mutually
acceptable resolution to the dispute. However, within Canada an important producer
group, the Western Canadian Wheat Growers Association (WCWGA), has argued
for ending the CWB’s special monopoly powers and other special privileges.9 The
WCWGA states that, “as long as the CWB continues to operate as a legislated
monopoly, with government supports for its borrowings and bad debts, it will
continue to be a subject of trade disputes.”
Second: Treatment of Imported Grain. According to U.S. trade officials,
the Canadian government has certain rules and regulations in place that discriminate
against imported grains at grain elevators and within Canada’s rail transportation
system.10 Under the Canadian Grains Act and other Canadian regulations, imported
wheat cannot be mixed with Canadian domestic grain being received into or
discharged out of grain elevators. Also, Canadian law caps the maximum revenues
that railroads may receive on the shipment of domestic grain but not revenue received
on the shipment of imported grains. As a result, imported grain can be charged
potentially higher shipping costs than domestic grain. Finally, Canada provides a
preference for domestic grain over imported grain when allocating government-
owned railcars.
Third: Subsidies Aid Canadian Wheat Exports to the United States.
In addition to charges against the CWB, U.S. northern-tier wheat producers have long
argued that Canadian wheat entering the U.S. market is being supported by various
subsidies and that these wheat imports have had a large negative impact on local
grain prices (see Figure 6). As a result of these trade violations, U.S. industry groups
have argued that some form of trade restriction such as a tariff-rate quota should be
placed on Canadian wheat entering the United States and that the CWB should lose
its monopsony and monopoly privileges over western Canadian grain.11
Canada maintains that Canadian import practices and the CWB wheat export
practices comply fully with international trade rules and its WTO obligations. In
8 Personal discussions with CWB personnel, Winnipeg, Canada, August 18, 2003.
9 Sparks Policy Reports, “Canadian Farmers Call for Changes in CWB Operations,” March
26, 2003, p. 2.
10 The CWB does not engage in wheat imports.
11 North Dakota Wheat Commission,”N.D. Wheat Commission Proposes Remedies to U.S.-
Canada Wheat Dispute,” news release, Dec. 22, 2000, at [http://www.ndwheat.com/].
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addition, the North American Millers’ Association (NAMA)12 has argued strongly
against the imposition of any form of trade restraint on Canadian grain exports to the
United States.13 They argue that continued open access to Canadian high-protein
wheat and durum is important to maintain adequate milling supplies, particularly
given the downward trend in U.S. wheat and durum acreage that has occurred since
the passage of the 1996 U.S. Farm Act (P.L. 107-77).
Legal Actions. These allegations against Canadian wheat trading practices
have led to two principal trade investigations:
! first, the charge that Canadian wheat exports to the U.S. are aided by
subsidies that disadvantage U.S. wheat producers has been
investigated under countervailing duty and anti-dumping
investigations by the U.S. International Trade Commission; and
! second, charges concerning the trading practices of the CWB and the
treatment of wheat imports by Canada were pursued under a WTO
Dispute Settlement Case.
The timeline of key activities under each of these two legal actions are detailed
below.
U.S. International Trade Commission (ITC) Case
September 2000. The North Dakota Wheat Commission (NDWC) filed a
petition with the U.S. Trade Representative (USTR) alleging that certain wheat
trading practices of the government of Canada and the CWB are unreasonable, and
that such practices burden or restrict U.S. commerce.
October 2000. In response to the NDWC petition, USTR initiated an
investigation under Section 301 of the Trade Act of 1974 concerning the acts,
policies, and practices of the CWB. Subsequently, USTR requested that ITC institute
an investigation into Canadian wheat trading practices.
December 2000. The NDWC claims that CWB wheat exports to the United
States are undercutting U.S. wheat prices by approximately 8% due to the Canadian
practice of over-delivering protein content as well as rail transportation benefits.
Higher protein content wheat generally sells at a premium to lower protein wheat.
As a result, when the CWB delivers wheat with a higher protein content than
specified in a sales contract while still accepting the original contract price, it is
equivalent to accepting a below-market price or price undercutting.
12 NAMA is the trade association representing most of the wheat, corn, oat, and rye milling
industry in North America. NAMA has 46 milling member companies that operate 169
mills in 38 U.S. states and Canada. Their aggregate production of more than 160 million
pounds per day is approximately 90% of the total industry capacity. For more information,
see NAMA’s website at [http://www.namamillers.org/].
13 NAMA testimony given at ITC hearings pursuant to the investigations on imports of HRS
and durum from Canada (Washington, D.C., Sept. 4, 2003).
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April 2, 2001. USTR formally requests that ITC conduct an investigation into
Canadian wheat pricing practices.
April 12, 2001. ITC instituted investigation No. 332-429, Wheat Trading
Practices: Competitive Conditions between U.S. and Canadian Wheat, conducted
under section 332(g) of the Tariff Act of 1930, in response to the USTR request.
December 18, 2001. ITC released its report Wheat Trading Practices:
Competitive Conditions between U.S. and Canadian Wheat, Publication 3465. The
report identified several features of the CWB that, as a state monopoly, afford it
“unfair” market advantages over U.S. wheat exporters.14
January 11, 2002. Several Members of Congress followed up on the ITC
report with a letter to USTR highlighting the key findings of the ITC report and
recommending that the CWB be held accountable for its alleged unfair trade
practices.15
September 13, 2002. The ITC initiated a countervailing duty and anti-
dumping investigation on durum and HRS wheat imports from Canada. The ITC
investigations Nos. 701-TA-430A and 430B, and 731-TA-1019A and 1019B, Durum
and Hard Red Spring Wheat from Canada, were conducted under section 705(b) and
735(b) of the Tariff Act of 1930 (19 U.S.C. § 1671d(b) and 1673d(b)), in response
to petitions filed by the NDWC, the Durum Growers Trade Action Committee, and
the U.S. Durum Growers Association. (However, U.S. millers and pasta makers
dispute the allegations of price discounts on Canadian wheat and have expressed
concern over potential trade restrictions that might limit their access to high quality
grain supplies.)
Antidumping Duty (AD).16 — A duty or levy imposed under authority of Title
VII of the Tariff Act of 1930 (P.L. 71-361). Title VII states that if the U.S.
Department of Commerce (DOC) determines that an imported product is being sold
at less than its fair value, and if the ITC determines that a U.S. producer is thereby
being injured, the DOC shall apply ADs equivalent to the dumping margin. When
considering the imposition of an AD, the U.S. government examines the imported
price of a product compared to its domestic price. In addition, before duties are
imposed, injury or threat of injury to a U.S. industry must be determined.
Countervailing Duty (CVD).17 — A charge levied on an imported article to
offset the unfair price advantage it holds due to a subsidy paid to producers or
14 ITC report on investigation no. 332-429 (under Section 332(g) of the Tariff Act of 1930
as amended), Wheat Trading Practices: Competitive Conditions Between U.S. and
Canadian Wheat, Publication 3465, Dec. 2001, p. xiv. The report is available at
ftp://ftp.ITC.gov/pub/reports/studies/pub3465.pdf.
15 Letter from the offices of Representatives Bob Schaffer, Scott McInnis, and Mark Udall,
Jan. 11, 2002.
16 CRS on-line glossary: Agriculture: A Glossary of Terms, Programs, and Laws; available
at [http://www.congress.gov/erp/lists/agglossary.html].
17 Ibid.
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exporters by the government of the exporting country if such imports cause or
threaten injury to a domestic industry. The countervailing provisions of the Tariff Act
of 1930 (P.L. 71-361), as added by the Trade Agreements Act of 1979 (P.L. 96-39),
provide for an assessment equal to the amount of the subsidy, in addition to other
duties and fees normally paid on the imported article. CVDs are permitted under the
WTO’s Agreement on Subsidies and Countervailing Measures.
November 19, 2002. The ITC made an affirmative preliminary
countervailable injury determination on wheat imports from Canada, i.e., in the view
of the ITC, there are some indications that imports of Canadian wheat are causing or
threatening to cause material injury to U.S. domestic wheat producers. In other
words, the case has merit and should be pursued.
March 4, 2003. The DOC issued a preliminary finding that two Canadian
programs represented countervailable subsidies: the provision of government railcars
to Canadian producers and the guarantee of CWB borrowing. A provisional punitive
duty of 3.94% was imposed on both Canadian durum and HRS wheat imports.
May 2, 2003. The DOC issued a preliminary ruling against Canada in the AD
investigation that durum and HRS wheat from Canada were being sold in the United
States at prices lower than those prevailing in Canada or below full cost. The DOC
assigned provisional dumping margins of 6.12% on HRS and 8.15% on durum wheat
from Canada. These duties are in addition to the 3.94% preliminary CVD.
May 23, 2003. ITC published notice of the final phase of the Commission’s
investigations and of a public hearing to be held in connection therewith in the
Federal Register (68 FR 28253).
August 29, 2003. The DOC announced affirmative final determinations in
its CVD and AD investigations. The final outcome was as follows: CVD of 5.29%
for both durum and HRS; and final AD of 8.26% for durum and 8.87% for HRS.
These result in total punitive duties of 13.55% for durum and 14.16% for HRS.
October 3, 2003. ITC released its final ruling, full report, and materials in
support of its final ruling on the investigation: Durum and Hard Red Spring Wheat
From Canada, Publication 3639. ITC found that only the HRS wheat and not durum
imports were being subsidized by the government of Canada and sold in the United
States at less than fair value thereby injuring the U.S. wheat sector.18 As a result, the
punitive duties of 14.16% on Canadian HRS were left in place while the punitive
duties of 13.55% on Canadian durum were removed.
October 3, 2003. The government of Canada (jointly with the provincial
governments of Alberta and Saskatchewan) filed a formal request (case # USA-CDA-
2003-1904-05) for a NAFTA panel review of the ITC final determinations in the
18 ITC report on investigations nos. 701-TA-430A and 430B, and 731-TA-1019A and
1019B, Durum and Hard Red Spring Wheat From Canada, Pub. 3639, Oct. 2003, p.1.
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countervail case against Canadian HRS wheat exports.19 Chapter 19 of NAFTA
provides for a binding, bi-national panel review of final determinations in trade
remedy cases. Panels consisting of five persons are established to review the
determinations. These panels are required to ascertain whether or not the
determinations are consistent with the trade laws of the country conducting the
investigation (Canada in this case).
November 19, 2003. The NDWC filed notice of intent to challenge the ITC’s
negative injury determination with respect to Canadian durum before the U.S. Court
of International Trade (CIT) under NAFTA provisions. However, the CIT ruled that
the NDWC’s filing was not made in accordance with certain NAFTA guidelines and
no case was initiated.20 The NDWC has not presently refiled.
November 24, 2003. The CWB filed a formal appeal (case # USA-CSDA-
2003-1904-06) under NAFTA of the U.S. ITC’s October 3, 2003 injury ruling against
Canadian HRS wheat exports, thereby joining the appeal filed earlier by the Canadian
national and provincial governments.
May 6, 2004. Consultations between Canada and the United States were held
to resolve Canada’s disagreement with the ITC injury ruling on Canadian HRS. The
consultations failed to settle the dispute.
June 22, 2004. Canada requested the establishment of a WTO dispute
settlement panel to adjudicate over the ITC final injury determination related to
imports of HRS from Canada (WT/DS310/2).21 However, in accordance with WTO
rules, the United States rejected Canada’s initial request for the establishment of a
panel to review the case.
July 9, 2004. A NAFTA panel was selected to review the ITC countervail
injury decision.
July 20, 2004. Canada withdrew its request for the establishment of a WTO
dispute settlement panel to adjudicate over the ITC final injury determination related
to imports of HRS from Canada (WT/DS310/2).
August 3, 2004. A NAFTA panel was selected to review the ITC dumping
injury decision.
March 10, 2005. The NAFTA dispute panel reviewing the ITC subsidy
finding on HRS (case # USA-CDA-2003-1904-05) found that a portion — 4.94% out
of 5.20% — of the CVD determination involving financial guarantees was
19 NAFTA status reports are available online at the NAFTA Secretariat at [http://www.
nafta-sec-alena.org/ DefaultSite/index_e.aspx].
20 Telephone conversation with NDWC legal counsel, Charlie Honeycutts.
21 WTO Dispute Settlement Case (DS310), “United States-Determination of the
International Trade Commission in Hard Red Spring Wheat from Canada.” For more
information see [http://www.wto.org/english/tratop_e/dispu_e/dispu_e.htm].
CRS-14
inconsistent with U.S. law and should be removed from the countervailing duty
calculations. The panel found that ITC erred in evaluating three components of
Canada’s Comprehensive Risk Coverage Program (a borrowing guarantee; a lending
guarantee; and an initial payment guarantee) as a single financial contribution.
However, the NAFTA panel concurred with the ITC finding regarding the provision
of government-owned and leased railcars. The duty associated with railcars is
0.35%. This ruling does not affect the 8.8% dumping duty. The ITC had 90 days to
review the Canadian government’s financing of CWB operations and issue a new
determination.22
June 7, 2005. The NAFTA panel reviewing the ITC dumping injury
determination against imports of HRS from Canada (case # USA-CSDA-2003-1904-
06) ordered the ITC to revisit its material injury findings. The panel concluded that
“the ITC’s finding that increased volumes of subject imports depressed prices is not
supported by the evidence.”23 The ITC had 90 days to review the matter.
August 8, 2005. Following a review of its CVD determination made in
response to a March 10, 2005, NAFTA panel ruling, the ITC revised downward its
CVD on Canadian HRS imports to 2.54% from 5.29%.24 The CVD is on top of an
AD of 8.86% which is also under review by the ITC.
Summary. Presently, imports into the United States of Canadian HRS are
subject to punitive duties of 11.4% (a 2.54% CVD and an 8.86% AD), while imports
of Canadian durum are not subject to punitive duties. The ITC’s positive
antidumping injury ruling on Canadian HRS is under review by the ITC. In addition,
the Canadian government initially requested, then withdrew its request for, the
formation of a WTO dispute settlement panel to review the ITC injury ruling. In
response to the revision, the NDWC administrator stated that, despite the reduction,
the 11.4% duty rate will still be high enough to “keep undervalued imports out and
allow U.S. growers to fairly compete in their own domestic market.”25
WTO Dispute Settlement Case (DS276)26
December 17, 2002. U.S. trade officials submitted a request for
consultations with Canada via the Dispute Settlement Body of the WTO as regards
matters concerning the export of wheat by the CWB and the treatment accorded by
Canada to U.S. grain imported into Canada. U.S. trade officials argue that the
CWB’s export practices are inconsistent with WTO trade provisions governing the
trade behavior of STEs which require them to undertake trade in a manner consistent
22 U.S. Wheat Associates, Wheat Letter, March 17, 2005; at [http://www.uswheat.org].
23 International Trade Reporter, “NAFTA Panel Sends Injury Finding in Canadian Wheat
Case Back to ITC,” ISSN 1523-2816, Vol. 22, No. 23, June 9, 2005.
24 International Trade Reporter, “Commerce Redetermination Cuts CVD Rate on Canadian
Hard Red Spring Wheat,” ISSN 1523-2816, Vol. 22, No. 32, August 11, 2005.
25 Ibid.
26 WTO Dispute Settlement Case (DS276), “Canada-Measures Relating to Exports of Wheat
and Treatment of Imported Grain.”
CRS-15
with the general principles of nondiscriminatory treatment as prescribed in the GATT
1994 (Article XVII). Concerning the treatment of imported grains, U.S. trade
officials argue that Canadian import practices are inconsistent with Canada’s
obligations under Article III of GATT 1994 and violate the WTO’s national treatment
requirements (Article 2 of the Agreement on Trade-Related Investment Measures).
More specifically, U.S. trade officials contested four distinct measures of Canadian
import practices:
! first, the conditions surrounding the receipt of foreign grain into
Canadian grain elevators under Section 57(c) of the Canada Grain
Act;
! second, rules governing the mixing of certain grain in Canadian
transfer elevators (rules which were used to exclude certain classes
and grades of U.S. wheat from importation) under Section 56(1) of
Canada Grain Regulations;
! third, the imposition of a revenue cap on certain railways for the
transportation of Western Canadian grain but not for foreign
imported grains under Sections 150(1) and 150(2) of the Canada
Transportation Act; and
! fourth, Section 87 of the Canada Grain Act which, the United
States charges, allows for domestic producers of grain to apply for
a railway car to receive and carry the grain to a grain elevator for a
consignee while precluding the same degree of access to producers
of foreign grain.
January 31, 2003. Consultations on DS276 were held between the United
States and Canada. During the consultations, Canada expressed no willingness to
make any modifications to its wheat trading practices arguing that they were already
in full compliance.
March 6, 2003. USTR requested the establishment of a WTO dispute
settlement panel to hear DS276.
July 21, 2003. The WTO dispute settlement panel issued its preliminary
ruling in DS276 case, released privately to contestants.
April 4, 2004. The dispute settlement panel issued its final ruling publicly.27
The verdict was mixed. In Canada’s favor, the panel concluded that, although the
CWB acted as a “noncommercial” arbiter in setting sales of Western Canadian grain
in the global market, this practice is not inconsistent with WTO provisions. In other
words, the panel found that the CWB’s trading practices do not violate WTO rules
for state trading enterprises (STEs). A Canadian government spokesman claimed
that the ruling upheld their position that the CWB operates as a valid STE under
WTO rules. A U.S. trade official disagreed, saying that, although the panel did not
find that the CWB is “in and of itself” illegal, it did rule that certain CWB practices
27 WTO, Canada — Measures Relating to Exports of Wheat and Treatment of Imported
Grain, “Reports of the Panel,” WT/DS276/R, 6 April 2004.
CRS-16
are not consistent with international trade rules.28 Further, the U.S. official says the
panel found that the CWB should pay fair market value for transporting Canadian
wheat and that Canada must stop discrimination against U.S. wheat.
Concerning the treatment of imported U.S. grains by Canada, the panel agreed
with the first three U.S. allegations but found that the United States failed to establish
the charges made under the fourth import treatment measure concerning access to
railway cars.
June 1, 2004. USTR notified its decision to appeal to the WTO’s Appellate
Body (pursuant to Article 11 of the Dispute Settlement Understanding) the panel’s
DS276 final ruling. In particular, USTR is seeking review of the panel’s ruling that
the CWB export regime is consistent with Canada’s obligations under Article XVII
of GATT 1994.
August 30, 2004. The Appellate Body issued its final report upholding all
aspects of the panel’s final ruling of April 4, 2004, i.e., that the CWB’s trading
practices do not violate WTO rules for STEs.
September 30, 2004. The Dispute Settlement Body adopted the Appellate
Body report as well as the panel report (as modified by the Appellate Body report).
November 17, 2004. In a notification circulated to WTO members, the
United States and Canada said that they have agreed on a deadline of August 1, 2005,
for Canada to comply with the WTO Dispute Settlement ruling against certain
Canadian practices (the first through third points listed above) regarding the
treatment of imported wheat.
March 11, 2004. The Canadian federal government introduced proposed
legislation (Bill-C40) to bring Canada into compliance with the WTO finding
regarding certain grain handling and transportation policies.29 Bill-C40 would amend
the Canada Grain Act to remove the current requirement that importers seek
authorization from the Canadian Grain Commission before foreign grain is permitted
to enter licensed Canadian grain elevators. A further amendment to that act and the
Canada Grain Regulations would eliminate the requirement for operators of licensed
terminal or transfer elevators to seek permission from the Canadian Grain
Commission to mix grain. Finally, an amendment to the Canada Transportation Act
would extend the application of the existing cap on railway revenues to cover
imported grain products.
28 International Trade Reporter, “Canada Hints Interim WTO Ruling Upholds Wheat
Board’s Validity; U.S. Also Sees Win,” ISSN 1523-2816, Vol. 21, No. 1, January 1, 2004.
Note, these comments were made after the interim ruling which was upheld in the final
ruling.
29 International Trade Reporter, “Canada Introduces Bill to Implement WTO Findings
Against Handling of Grains,” ISSN 1523-2816, Vol. 22, No. 11, March 17, 2005.
CRS-17
May 19, 2005. Canada’s proposed legislation, Bill-C40, was approved and
was set to enter into force on August 1, 2005.
Summary. Once effected, a fairer Canadian grain marketing system could
result in increased marketing opportunities for U.S. wheat into niche markets in
Canada. USTR and the NDWC are closely monitoring developments. The
administrator of the NDWC also says that the ruling will be helpful to American
farmers and elevators that may at times want to ship wheat west on the Canadian rail
system since now Canadian railways will have to haul U.S. wheat for the same price
as Canadian wheat.30 However, because the panel recognized Canada’s right to
maintain its grain quality assurance system, some market analysts suggest that
subsequent revisions to Canada’s grain marketing system may ultimately have little
significant impact on the volume of Canada’s imported grain.31
U.S. wheat producer groups and the USTR remain very disappointed in the
WTO panel’s ruling with respect to the CWB and are likely to aggressively pursue
the elaboration of greater disciplines on state trading enterprises like the CWB in
ongoing and future WTO trade negotiations.32
Canadian AD/CVD Investigation of U.S. Corn
On September 16, 2005, the Canadian Border Services Agency (CBSA)
announced that, in response to a complaint filed by the Ontario Corn Producer’s
Association, the Fédération des producteurs de cultures commerciales du Québec,
and the Manitoba Corn Growers Association, it was beginning an investigation into
the alleged dumping and subsidizing of grain corn from the United States. The
CBSA is expected to reach a preliminary conclusion by December 15, 2005.
Canada’s International Trade Tribunal (ITT) will also begin a parallel investigation
to be completed by November 15, 2005. As a result of the investigation, duties could
be applied to U.S. corn at any time between September 16, 2005, and the date of the
preliminary report (November 15, 2005).
U.S. Secretary of Agriculture, Mike Johanns, and U.S. Trade Representative,
Rob Portman, issued a joint statement saying that the United States believes that
Canada’s petition calling for the investigation lacked “sufficient evidence of injury”
to justify initiating such an investigation. In addition, they pointed out that U.S. corn
exports to Canada have actually declined during the past two years, while Canadian
corn production has increased.33
Canada’s northerly latitudes limit the extent of domestic corn planting to the
more southerly regions of Ontario and Quebec. As a result, growth in Canada’s corn
30 NDWC news release, “U.S. Trade Rep Should Appeal Ruling in WTO Wheat Dispute,”
April 7, 2004.
31 World Perspectives, Inc., “WTO Canada Grain Decision Dissected,” April 7, 2004.
32 NDWC news release, “Appellate Body Fails to See How Canada’s Government Monopoly
Operates Outside of Commercial Considerations,” August 30, 2004.
33 USDA, News Release No. 0382.05, Sept. 16, 2005.
CRS-18
production has been limited almost entirely to yield growth. In contrast, strong
steady domestic demand for corn — driven by the livestock and ethanol sectors —
have outpaced domestic production and made Canada a net importer of corn,
primarily from the United States, since the early 1990s. The elimination of tariffs on
corn trade between the United States and Canada, first under the U.S.-Canada FTA
and later under NAFTA, have facilitated corn imports into Canada from the United
States and strengthened the integration of the North American livestock feeding
industry.
The increases in corn imports have met some resistance from Canada’s corn
producing sector. However, Canada’s inability to meet domestic corn demand
coupled with a steadily strengthening Canadian dollar suggest that economic forces
other than U.S. dumping or subsidies have accounted for increased Canadian imports
of U.S. corn. A slow-down in Canadian imports of U.S. corn the past two years
(2003/04-2004/05), further weakens Canada’s case (Figure 7). In addition, market
analysts have suggested that Canada’s major corn users — livestock and ethanol —
outweigh corn producers and are likely to side with the U.S. corn industry and USDA
in this case.34 After the findings of the ITT and CBSA, the case could last six months
or more.
Figure 7. Canada’s Corn Supply and Demand
14
12
Total Use
10
8
Production
6
4
Imports
2
Exports
0
1990/91
199 5/96
200 0/01
200 5/06
Source: USDA, NASS, and USDA, FAS, FATUS.
Role of Congress
Given the importance of wheat in the U.S. agricultural economy, Congress may
be closely monitoring the legal followup and implementation of the WTO U.S.-
Canada wheat dispute settlement ruling against features of Canada’s grain marketing
34 World Perspectives, Inc., “Canada Moves to Investigate U.S. Corn,” by Dave Juday, Sept.
19, 2005.
CRS-19
system, as well as the pending ITC review of its antidumping decision made on
Canadian HRS wheat imports into the United States. In addition, Congress will
undoubtedly closely monitor the ongoing round of trade negotiations at the WTO,
where further reforms for regulating the activities of state trading enterprises — in
particular, the Canadian Wheat Board — are being pursued in a multilateral
framework