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Canadian Wheat Board

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CWB position on trade

Introduction

World trade is increasingly governed within the frameworks and rules established by multilateral and bilateral trade agreements. Established in 1995, the World Trade Organization (WTO) provides its member countries with a forum for trade negotiations and administers the rules governing trade between its members. For further information visit the WTO Web site.

The agenda for the current round of WTO negotiations came out of the 4th Ministerial Conference held in November 2001, in Doha, Qatar. The Doha Ministerial Declaration set the following long term objective for agricultural negotiations:

"to establish a fair and market-oriented trading system through a programme of fundamental reform encompassing strengthened rules and specific commitments on support and protection in order to correct and prevent restrictions and distortions in world agricultural markets"

Under the Doha Development Agenda, WTO member governments were to establish "modalities" or targets for the agricultural negotiations by March 31, 2003. Despite intensive discussions, no agreement was reached by the established deadline. The 5th Ministerial meeting in Cancun, Mexico, in September 2003, failed to reach agreement on a framework to guide the negotiations. Agricultural issues remain contentious.

Canada and the WTO

As an export-oriented country, the Canadian economy depends on access to world markets and mechanisms to settle trade disputes based on established rules rather than political or economic power. Smaller countries such as Canada benefit from having a rules-based system which limits the unilateral actions of larger, more powerful countries.

Agriculture is a major contributor to the Canadian economy and provides an engine for a variety of related industries, such as transportation and value-added processing industries. Trade in bulk grain and grain products from Western Canada generates substantial economic activity for all of Canada. The Canadian Wheat Board (CWB) markets wheat and barley to customers in Canada and more than 70 countries around the world on behalf of approximately 85,000 western Canadian farmers. On average, close to three-quarters of the wheat produced in Western Canada is exported. Sales of wheat and barley amount to about $4 billion a year.

CWB Position on the WTO

As one of the world’s largest exporters of wheat and barley, the CWB has a major stake in the current round of negotiations. Given the importance of international trade to Western Canadian farmers, the CWB has developed the following position on the WTO and agriculture issues relative to trade in wheat and barley in the Doha Round of negotiations.

Guiding Principles to Achieve Free and Fair Trade

The CWB advocates the following guiding principles in WTO negotiations:

CWB Position on Agricultural Issues Under Consideration in the Doha Round

The CWB has the following goals in the WTO agriculture negotiations:

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Export Subsidies:

Doha Goal: "reduction with a view to the elimination of all forms of export subsidies"

a.) Export subsidies.

The CWB endorses the complete elimination of export subsidies. The most direct distortions in world wheat and barley trade arise from the use of export subsidies. Reductions in export subsidies established under the Uruguay round did not go far enough as they were based on a period of high subsidy levels (1986-90). As a result, the EU has been able to stay within its WTO export subsidy reduction commitments while continuing to subsidize exports to dispose of surplus stocks as needed, although their use of wheat export subsidies has declined in recent years.

Although the U.S. has not used the Export Enhancement Program (EEP) in any significant way since 1995, the authority and thus the threat to do so still exists. Under the 2002 U.S. Farm Bill, maximum funding for EEP has been extended through 2007 at US$478 million per year. At the same time the U.S. expanded the scope of unfair trade practices which could trigger EEP retaliation to include trade barriers such as labeling, unjustified phytosanitary restrictions and "monopolistic state trading enterprises implementing non-commercial pricing practices."

b.) Export credit and food aid

The CWB advocates the introduction of effective disciplines on food aid and export credit to eliminate their misuse in commercial markets. Of particular concern are the significant levels of illegitimate food aid and export credit used to dispose of surplus inventory, or to develop commercial markets. These practices not only disrupt commercial markets but also have a negative impact on the economy of the country concerned by discouraging domestic production and harming the prospects of local farmers. The CWB prefers to sell grain for cash but sometimes provides small amounts of export credit to compete with other exporting countries providing such support.

Export credits with long repayment terms also need to be curtailed as they distort commercial trade and pose a serious threat to fair, market-oriented international grain trade. The CWB provides export credit on commercial terms as well as selling grain for use as legitimate food aid in a non-trade-distorting manner. An agreement should not institutionalize current disruptive practices (e.g. U.S. GSM-102 & 103 credit can have repayment terms of 3 to 10 years, far longer than commercial terms) but should ensure that there are effective disciplines on these practices.

c.) State Trading Enterprises (STEs)

The CWB is a farmer run organization that gives western Canadian farmers the ability to compete with large transnational companies. It is not an export subsidy nor is it trade-distorting. STEs are legitimate organizations explicitly permitted under Article XVII of the WTO (GATT 1994) which provides rules governing their operation. The CWB meets all requirements for transparency of operations under GATT rules and is already more transparent than its private competitors.

In the current negotiations, the U.S. and the EU are arguing that STEs are a form of export subsidy. The U.S. view is that current regulations do not impose adequate disciplines on STEs in general and the CWB in particular. The U.S. is seeking increased transparency, an end to exclusive selling rights, requirements for notifying acquisition costs, export pricing and other sales information, as well as the elimination of government guarantees that support the financial viability of STEs.

STEs should not be presumed to be trade-distorting by definition, nor should any particular STE be singled out and have restrictions not applied to other STEs or to private sector competitors. No disciplines, such as transaction level transparency, should be applied to STEs that would put them at a competitive disadvantage in the market. If any new disciplines are proposed to deal with the perceived market power of exporting STEs they should apply equally to all entities (public or private) with similar market power.

Organizations such as the European Commission should be included under the definition of STE’s. It is important to recognize that the U.S. notifies the Commodity Credit Corporation as an STE, but the EU has never notified the European Commission or member state intervention agencies as STE’s. Yet these agencies have great powers provided by government to affect the prices of various commodities, and are the primary vehicle for EU export subsidies.

Domestic Support

Doha Goal: "substantial reductions in trade-distorting domestic support"

The CWB supports reductions in and eventual elimination of trade-distorting domestic support. This issue was not adequately addressed by the Uruguay Round box system as the current definitions leave room for abuse or avoidance of subsidy reduction commitments.

Under the Uruguay Round Agreement subsidies considered to be trade-distorting were to be reduced. Domestic policies were put into different categories or "boxes" based on a traffic light analogy reflecting the degree of market distortion they were believed to cause.

Amber box policies are those measures considered to be production- or trade-distorting because they are typically linked to production or prices of products. Amber box policies are subject to reductions relative to their level during the established base period (1986-88) and based on the calculation of an aggregate measure of support (AMS).

Green box policies are those deemed non- or at most minimally trade-distorting. These policies are not linked to current or future production or price levels and are therefore considered "decoupled". Green box policies are exempt from reductions.

An additional category, the blue box, creates an exception to the general rule that subsidies linked to production and/or prices must be reduced. These policies are linked to production but supposedly also limit production. Support provided through Blue box programs does not currently have to be reduced.

The U.S. Loan Deficiency Program (LDP) and the EU Intervention program are examples of production-distorting amber box policies. Essentially, these programs provide farmers with price support which could potentially be higher than the world market price and thus sustain production above what the world market would otherwise dictate.

In response to limitations under amber box policies, the 2002 U.S. Farm Bill has allocated more money to green box support, such as direct payments to farmers and conservation programs which are not subject to reduction commitments, while the EU has increased blue box area payments (these payments do not qualify as green box since they require planting of a crop). Although decoupled green box programs do not directly distort production, significantly large payments tend to encourage further investment in agriculture, resulting in sustained over-production.

High levels of farm support provide incentive for uneconomic investment, leading to overproduction and depressed world prices. This can lead to food aid and export credit programs being used as surplus disposal mechanisms and for market development, in a trade-distorting way. The results are most damaging to those farmers who must compete without such subsidies, such as western Canadian grain producers and farmers in developing countries.

In view of the limitations of the current box system, the CWB advocates:

Special and Differential Treatment for Developing Countries

Doha Goal: "provisions for special and differential treatment"

Under WTO agreements there are provisions which entitle developing countries to have special rights. "Special and differential treatment" (S&D) provisions are intended to provide greater flexibility for developing countries so they can support and protect their agricultural and rural development. This gives developing countries privileges such as longer time periods to implement WTO agreements and measures to increase their trading opportunities.

Special and differential treatment for developing countries is not acceptable in the grain sector, as many developing countries have mature grain sectors that should not be exempt from WTO commitments. There should be no distinction made between STEs in developed and developing countries. Developing country exporters of wheat and barley should not be allowed to avoid disciplines on the use of export subsidies. There is already considerable use of export subsidies by exporters like Turkey, India and Pakistan.

Market Access

Doha Goal: "substantial improvements in market access"

a.) Tariffs

The CWB fully supports greater market access for wheat and barley products worldwide. Ultimately this should work toward the greatest possible improvements in access, through reductions in tariffs and increases in quotas.

In working towards this goal, it is important to preserve Canada’s domestic grain industry structure, including its system of varietal registration and phytosanitary rules, which help maintain the reputation of Canadian wheat in world markets. The CWB does not function as a means to circumvent market access commitments. Canadian borders are already open to the import of grain, including wheat and barley. As an example, imports of U.S corn into Western Canada are growing and are expected to be well over two million tonnes in 2002-03.

b.) Non-Tariff Barriers

Non-tariff barriers may be created through policy instruments such as sanitary and phytosanitary (SPS) rules, technical barriers to trade, and food traceability and labeling. These policies should be designed to be minimally disruptive of trade and voluntary, rather than mandatory, where possible. EU traceability and labeling requirements, which cannot be met by current industry procedures, pose a threat to market access for Canadian wheat and barley and should be changed to make them feasible for the global grain trade to achieve at a reasonable cost. The CWB views certification at port as a sufficient safeguard.

CWB Position on the WTO Antidumping Agreement (ADA)

The WTO has various agreements or rules that regulate trade between countries. Agreements such as the Antidumping Agreement (ADA) are designed to protect the domestic industry in one country from being injured by the unfair trading practices of another country. Dumping is said to occur if a company or organization charges a lower price when it exports a product than it normally charges in its own home market or when it exports the product below an estimated cost of production.

However, anti-dumping rules were not designed for agricultural commodities such as wheat. They are premised on the industrial manufacturing environment, where a relatively small number of producers can control their costs and production and may have the incentive to engage in predatory pricing.

The nature of the industry in question must be a factor when comparing prices between countries to determine whether dumping has occurred. There should not simply be a mechanical application of unsuitable anti-dumping rules. Anti-dumping rules are inappropriate for the grain trade because:

Conclusion

The CWB supports an ambitious conclusion to the Doha Round of WTO negotiations that will lead to freer and fairer trade with visible benefits to western Canadian grain farmers.

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