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NEWS RELEASES

February 15, 2002

MINISTERS VOW TO CONTINUE DEFENCE OF CANADIAN WHEAT BOARD IN WAKE OF U.S. DECISION

The Government of Canada expressed its disappointment today with U.S. Trade Representative (USTR) Robert Zoellick's response to the just-concluded Section 301 investigation of Canadian wheat trade policies and the practices of the Canadian Wheat Board (CWB).

The USTR indicated that the U.S. government would explore a variety of actions to challenge Canada's policies and the CWB's practices. In addition to examining the possibility of pursuing the CWB through a World Trade Organization (WTO) challenge, the USTR announced that the U.S. government would work with the North Dakota Wheat Commission to examine the possibility of pursuing countervailing and anti-dumping investigations.

While noting that the USTR response is non-specific and includes no immediate restrictions, Minister responsible for the Canadian Wheat Board Ralph Goodale, Agriculture and Agri-Food Minister Lyle Vanclief and International Trade Minister Pierre Pettigrew agreed to fight any ensuing charges levelled against the Canadian government and the CWB.

"The report released by the U.S. International Trade Commission (ITC) in December shows clearly that the continuing allegations against the Canadian Wheat Board really are without basis," said Mr. Goodale. "The ITC, after an extensive fact-finding investigation, found that the CWB is neither undercutting prices, nor over-delivering value in the U.S. Since 1990, the CWB has been subjected to eight other investigations, and its trading practices have always been cleared."

"The Canadian government's policies and the Canadian Wheat Board's practices are fully consistent with Canada's international trade obligations," said Mr. Pettigrew. "We see no reason to believe that simply shifting the allegations into a different forum, the WTO, would lead to a different result."

"The bottom line is that the practices of the CWB have been examined and re-examined for more than a decade by a variety of U.S. government bodies, independent auditors and a panel, none of which has documented inconsistencies with international trade rules," said Mr. Vanclief. "If the U.S. government wants to try to make the CWB into a bad guy, they should know that we will continue to fight such unfounded allegations: all they will find is a better way of doing business."

The USTR announcement is the end result of an investigation prompted by a complaint filed in October 2000 by the North Dakota Wheat Commission. In its petition, the commission had asked the USTR to investigate Canadian policies and the CWB under Section 301 of the U.S. Trade Act with a view to imposing tariff-rate quotas on U.S. wheat imports from Canada.

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For a chronological history of past U.S. investigations of the CWB, please see attached backgrounder.

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Backgrounder

PREVIOUS U.S. INVESTIGATIONS INTO THE CANADIAN WHEAT BOARD

There have been eight investigations by several U.S. bodies going back to1990 and none concluded or alleged that there had been any wrongdoing by the CWB in terms of unfair subsidies or violation of international trade agreements:

In October 1999, the U.S. Department of Commerce concluded that CWB pricing policies for feed barley to Canadian cattle for export did not constitute a subsidy. The petition was filed by a U.S. lobby group, R-CALF in December 1998.

In October 1998, a General Accounting Office (GAO) report, U.S. Agricultural Trade, Canadian Wheat Issues, found no evidence that Canada or the CWB violated any international agreement. It noted the CWB operated like other private sector grain companies that also did not reveal their sales prices and that by revealing contractual data, the CWB would violate its confidentiality agreement with customers. The report was requested by Senator Dorgan of North Dakota.

In June 1996, a GAO Report, The Potential Ability of Agricultural State Trading Enterprises to Distort Trade, reviewed the Canadian Wheat Board, the Australian Wheat Board and the New Zealand Dairy Board and did not allege that CWB or Canada violated international trade rules. The GAO also recognized that the CWB was unlikely to cross-subsidize wheat export sales from domestic sales due to the relatively small domestic market. The report was requested by 18 congressmen.

In July 1994, an International Trade Commission Section 22 investigation found that some harm to U.S. programs was attributed to imports of Canadian wheat and the U.S. decided to initiate action under the General Agreement on Tariffs and Trade (GATT) Article XXVIII. This GATT action, after a 90-day consultation period, would have allowed the U.S. to impose a tariff rate quota for wheat and barley imports, however bi-national discussions lead to the Memorandum of Understanding on Wheat, which limited Canadian exports of wheat to 1.5 million tonnes in 1994/95.

In January 1994, an independent audit by Arthur Andersen found that the CWB complied with U.S. regulations on durum wheat sales on 102 of 105 contracts in the 43-month period between January 1, 1989 and July 31, 1992. The three violations occurred during the six-month period after January 1, 1989 when the Free Trade Agreement (FTA) was being implemented.

In February 1993 a bi-national dispute settlement panel agreed with Canada's interpretation of the FTA Article 701.3 regarding the definition of "acquisition price" for durum wheat and the costs to be included in determining this price. The panel concluded that the acquisition price includes only the initial payment; or, in the event of an upward adjustment, the acquisition price for goods sold after the adjustment is the initial payment plus such adjustment.

In June 1992, a GAO report on marketing boards, Canada and Australia Rely Heavily on Wheat Boards to Market Grain, failed to find evidence of unfair trade practices as alleged by some U.S. trade officials. The report was requested by Senator Boren of Oklahoma.

In June 1990, a U.S. Section 332 ITC investigation, Durum Wheat: Conditions of Competition Between the U.S. and Canadian Industries, found that the prices paid for Canadian durum were not significantly different than those paid for U.S. durum. The ITC also found that the subsidized portion of Canadian freight rates, while reflecting a decreased cost to the producer shipping the grain, did not appear to have a significant effect on the delivered price of Canadian durum in the United States. Subsidized freight rates were subsequently eliminated in 1995.