NORTH
AMERICAN MILLERS ASSOCIATION
600 Maryland Avenue, S.W., Suite 305 West
Washington, D.C. 20024
www.namamillers.org
January 14,2002
Office
of the Unites States Trade Representative
RE: Federal Register, Volume 66, Number 246
Docket Number 301.120
Dear Madam/Sir:
These comments are in response to the request for public comment on the wheat trading practices of the Canadian Wheat Board. The North American Millers' Association (NAMA) has 44 member companies operating 166 wheat, corn, oat and rye mills in 38 states and 150 cities. The aggregate production capacity of NAMA's membership is more than 160 million pounds of product daily, which is about 90% of the total U.S. capacity.
This letter includes discussion of the 301 petition, the reasons Canadian wheat enters the U.S., the likely effect of the remedy proposed by the petition and NAMA’s recommendations for USTR actions.
301
Petition
The primary question before you is not the existence
or operations of the Canadian Wheat Board (CWB). It
is already the position of the United States
Government that the monopoly powers of State Trading
Enterprises (STE) should be eliminated and the STE
placed at risk of profit or loss in the marketplace.
NAMA strongly supports that position.
The
primary question is what remedy, if any, should the
U.S. seek as a result of the petition. The
petitioners have requested tariff rate quotas be
levied against wheat entering the U.S. from Canada.
Let us consider that proposed remedy in light of
USTR’s request for comments regarding
"appropriate action
under section 301 which could be taken in
response."
The
petitioners make two major claims about CWB sales:
1. The CWB engages in predatory pricing, and
2. The CWB delivers quality in excess of that
specified in the contract.
1.
Predatory pricing
A. Domestic sales
The report submitted to USTR by the International
Trade Commission (ITC) states that "Regarding
contracted prices in the U.S. market during 1996/97
to 2000/01, reported Canadian Durum prices were above
U.S. prices for all comparable months except one. For
#1 CWRS/HRS wheat, price relationships were mixed
with some Canadian prices equal to or above U.S.
prices, and others below. Prices for #2 CWRS wheat
were generally higher that those for #2 HRS
wheat."
If the price of Canadian wheat sold in the U.S. is nearly always higher than the price of comparable wheat from the U.S., that cannot be an example of predatory pricing. Therefore, granting the petitioners’ proposed remedy or any other which restricts sales likewise cannot be considered "appropriate action."
B.
Export sales
On the other hand, if the USTR believes the CWB has
engaged in predatory pricing in overseas markets, the
proposed remedy is even more inappropriate. It makes
no sense to damage U.S. millers and their employees
as a punishment for something in which they had no
role and from which they did not profit.
2.
Over-delivery of quality
The petitioners allege the CWB gives away protein for
free, inferring such practice puts U.S. sellers at a
disadvantage. In fact, according to the ITC report,
both countries give away protein in small amounts.
This is to be expected as buyers’ contracts
routinely specify financial penalties for
under-delivery. In other words, it should be expected
that over-delivery of quality occurs in nearly 100
percent of shipments. Further, the report states
(page xxi) 65 percent of U.S. shipments
over-delivered protein while only 54 percent of
Canadian shipments over-delivered protein. If
over-delivery of quality is expected, and the U.S.
engages in it as much or more, then trade
restrictions are not appropriate.
Reasons
Canadian wheat enters the U.S.
The most important reason U.S. millers occasionally
buy wheat from Canada is due to insufficient
production here in the U.S. That may seem
counterintuitive given the tremendous productivity of
U.S. producers. However, for the two classes of wheat
in question, it is undeniable. In 15 of the last 15
years, U.S. durum production was insufficient to meet
total usage.
That would be true even if every bushel of durum were of milling quality (grades No. 1 or No. 2 Hard Amber Durum). However, recent data published by the Cereal Science Department of North Dakota State University for the North Dakota Wheat Commission, Montana Wheat and Barley Committee and U.S. Wheat Associates show that the portion of the 2001 crop that was of milling quality was 49 percent. While this was an improvement from the 2000 crop of which only 43 percent was milling quality, the total crop size was 25 percent smaller. These data are available at http://www.ndwheat.com/wi/durum/cropqual/quality_report.asp.
Effects
of restrictions on wheat trade
As a practical matter, restricting shipments of wheat
to the U.S. would be a counterproductive remedy. If
USTR implements the proposed remedy, the wheat it
prevents from entering the U.S. would simply be
diverted to overseas sales, displacing U.S. wheat
sales to markets about which the petitioners care so
much. That would also have a depressing effect on the
world wheat market to the detriment of growers.
Wheat milling in the U.S. is a very mature industry. Despite that maturity, market forces have resulted in the permanent closing of mills comprising more than 8.0 percent of the industry capacity in the last year. Restrictions would have the immediate effect of further damaging U.S. companies, not because of market forces but rather because of government intervention. It would also make the U.S. an even more attractive target for highly subsidized imported pasta to the detriment of growers.
The United States Government should not take actions which make mill employees collateral damage in a dispute in which their employer had no role.
Recommendations
First, USTR should press negotiations in the World
Trade Organization for the
elimination of the monopoly powers of STE.
Second, NAMA believes there has not been sufficient progress in opening the Canadian market to delivery by U.S. growers. Due to simple supply and demand considerations, Canada is not likely to ever be a major market for U.S. wheat. However, in those years when market conditions are more favorable to such shipments into Canada, that trade should occur freely without restriction.
To
that end, NAMA makes the following recommendations.
Note that each of these recommendations was made by
the 1995 Canada – United States Joint
Commission on Grains but to varying degrees have not
been fully implemented.
A.
Varietal control
Canada has a system of varietal control for wheat
classes. This restricts the ability of U.S. growers
to deliver non-approved varieties into the Canadian
marketing system. The Commission recommended
"Canada examine the issue of non-registered
varieties of grain with the intent that such
varieties when grown or received are priced to market
value, and that registered and non-registered
varieties from U.S. and Canadian producers can be
received, handled and transported in the Canadian
system in a manner that ensures varietal
integrity." NAMA supports this recommendation.
B.
Infrastructure
The Commission recommended "both countries
pursue the long-term goal of
providing reciprocal access to the other’s grain
transportation and handling systems." NAMA
supports this recommendation.
C.
Grading and regulatory regimes
The Commission recommended "the grain inspection
authorities in both countries standardize their
methods and develop a common basis for the science of
measurement." NAMA supports this recommendation.
D.
End-use certificates
Canada requires that U.S. wheat be accompanied by an
end-use certificate as a means of ensuring that
varietal controls are maintained. The U.S. also
requires end-use certificates for imported wheat from
Canada to prevent that grain from being re-exported
with the benefit of programs supported by the U.S.
government. As the commission reported, end-use
certificates have little functional usefulness, raise
costs and are a visible irritant to wheat trade.
Since the Commission reported that the U.S. will
continue its end-use certificate requirement so long
as Canada does, NAMA recommends the elimination of
end-use certificates by both the U.S. and Canada.
Summary
U.S. millers occasionally buy Canadian wheat for
specific milling or baking properties and to
supplement the insufficient U.S. crop. This is
consistent with NAFTA, the purpose of which was to
facilitate the flow of goods and services. To punish
participants in that commerce would not be
appropriate.
We encourage USTR to reject the petition and its proposed remedies, and look to NAMA’s recommendations as possible appropriate actions.
Thank you for your consideration of these views.
Sincerely,
Betsy Faga
President
North American Millers' Association
For
additional information contact:
Jim Bair
NAMA Vice President
202.484.2200 ext. 107
jbair@namamillers.org
or
Paul
Green
NAMA trade consultant
202.484.2200 ext. 106
pgreen@namamillers.org
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