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NAFTA

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The following write up is a description of NAFTA’S role in curbing dumping through stringent policies on the member countries- Canada, US and Mexico.

List of Abbreviations

NAFTA -North America Free Trade Association

FTA- Free Trade Association

AD- Anti-Dumping

WTO- World Trade Organization

Introduction

Most of the developing countries have lodged complains concerning the effects of dumping caused by the system of export refunds or subsidies that are offered to producers by the European Union. Such subsidies have the effect of lowering the costs of suppliers and permit them to offload their surplus production into overseas markets. This can have a very damaging effect on prices, profits and demand for the domestic producers of the developing countries trying to compete in their home markets.

NAFTA is a trade treaty whose main aim is the abolition on transactions, of custom duties between Mexico, Canada and the US. With its parallel environmental agreements and labor issues, NAFTA came into force in 1994, 5 years after the US-Canada Free Trade Agreement (FTA). As a result of NAFTA, the largest free trade zone, has been created in the world with more than $US 11 billion worth of goods and services being produced by 406 million people. The agreement that established NAFTA states that Canada, the US and Mexico ought to pursue a certain number of common objectives. NAFTA has led to substantial liberalization of trade in services, opening the government procurement markets. The agreement illegalizes discrimination by the parties between foreign and national producers in the trading of services.

Dumping in Canada

Dumping is exporting of a product at an export price which is lower than the price normally charged on its home market (normal value). Our focus is on the types of products, their origin and the margin of dumping that was found by the CCRA on imports of agricultural products and processed foods. This information is summarized in Tables 1 and 2. The data used are case counts, products and margins, i.e. simple indicators. To measure the full economic impact of AD one would ideally weigh the value of affected imports relative to total imports or domestic consumption of that product. This approach is extremely involved as import volumes on affected products cannot easily be determined or matched to the HS product categories of the trade statistics.

 

Table 1. Target Countries of Canada’s AD Determination, 1990-2001

        Country

No. of cases

China

2

Denmark

1

Germany

1

Italy

1

Korea

1

Netherlands

1

UK

1

US

10

Vietnam

1

 

 

 

 

 

Given Canada’s substantial trade with the US, it is not surprising that more than 50% of the AD actions in agriculture and processed food products were against US - based suppliers. The products attracting AD determinations ranged from Chinese and Vietnamese garlic to US baby food. Their economic value can be gauged from a staff working paper of the CITT which finds that, for 1992-95, 5.2% of agricultural and 3.2% of food imports were affected by AD measures. The average margin of dumping found by the CCRA for the 18 cases in effect on June, 2002 was surprisingly high.

 

Table 2. Target Products of Canada’s AD Determinations, 1990-2001

Agricultural products

Processed food

Garlic

Refined sugar

Cauliflower

Dry pasta

Apples

Frozen potato pies

Onions

Baby food

Iceberg lettuce

 

 

 

 

 

Agriculture is one of the flash points between the developed and the developing countries with the beginning of the WTO negotiations of the Doha round, as existing subsidies and possible new health and safe measures present new thorny issues. Occasionally, all producers may be found selling at prices that are below cost, in cyclical markets such as agriculture, so that the Anti dumping provision of the WTO as applied presently will also need a fresh look. Yet, with the area of the NAFTA a free market in the agricultural products is not a reality. Canada, Europe, USA and Australia have been the most significant users of the Anti-Dumping provisions for the period 1990-2001.European variable levies make it unnecessary to institute Anti-Dumping proceedings against agricultural imports understating Europe’s true reliance on agricultural protection.

 Canada, as an exporter of processed agricultural and food products, faces not only AD charges but also applies AD provisions. A closer look at how NAFTA-countries have employed agricultural protection should prove instructive background for the future of trade in agriculture. This is the more important as agricultural products and processed foods often are inputs in domestically sold and internationally traded products, so that AD duties tend to have ripple effects in prices paid by consumers and charged by exporters. The size of AD margins and the pattern of targeted products as well as their source countries, especially among NAFTA partners, may also provide insights into whether and how the national trade remedy bodies differ in the severity with which they apply the AD provision of the GATT/WTO.

In addressing these issues this paper relies on the published findings, for 1991-2000, of the national trade remedy bodies for Canada, Mexico and the US and on data compiled by other researchers. After a brief description of the process of AD determinations the Canadian, Mexican and US AD decisions are presented as regards product and source country, as well as the AD margin applied. We conclude with observation on commonalities and differences on AD practices among NAFTA partners. The data used in this section has been compiled by the author from the Canadian International Trade Tribunal (CITT) and is publicly available as. While certainly the “NAFTA period” is still ongoing, the complete data is only collected through 2004.

                             Canada’s Use of Antidumping

Anti Dumping is a measure to rectify the situation arising out of the dumping of goods and its trade distortive effect. Thus, the purpose of anti dumping duty is to rectify the trade distortive effect of dumping and re-establish fair trade.WTO allows the use of Anti Dumping measure as an instrument of fair competition. In fact, anti dumping is an instrument for ensuring fair trade and is not a measure of protection for the domestic industry. It provides relief to the domestic industry against the injury caused by dumping.
Anti dumping measures do not provide protection per se to the domestic industry. It only serves the purpose of providing remedy to the domestic industry against the injury caused by the unfair trade practice of dumping.

Economists criticize antidumping as standard import protection that in practice has little to do with economically worrisome predatory behavior on the part of exporters. Nevertheless, its use has proliferated across the WTO membership to the developed and developing countries alike. While Canada’s use of antidumping is certainly not as well-studied as that of the United States or even the European Union, Canada ranks as one of the most active “historical users” of the policy instrument. It trailed only the Australia, United States and the EU in the number of antidumping investigations undertaken between 1981 and 2001, having contributed to over 10% of all investigations undertaken globally during the period. Even with the surge in antidumping use during the WTO period by developing countries such as Argentina, India and South Africa, data from the Global Antidumping Database indicates that Canada still ranked as the seventh most active user during the 1995-2004 periods, having implemented 5% of all antidumping measures imposed by WTO members.

When it comes to the question of any discrimination inherent in Canada’s trade policy, however, the composition of foreign countries affected by its use of antidumping is even more interesting than the total number of antidumping investigations or measures imposed.

The first item to note in the table is that while Canadian imports from all sources may have grown over this time period, U.S. exports to Canada as a share of Canada’s total imports have remained very stable across the three subsamples: 68.4% in 1987, 66.6% in 1992 and 68.2% in 1999. Since the use of antidumping against exporters from a particular country is contingent on Canadian firms being injured by imports from that country, a natural expectation is that countries that export more to Canada should be more frequent targets of Canadian antidumping activity, ceteris paribus.

Nevertheless, even before the CUSFTA, in comparison with the admittedly crude measure of import market shares, the United States does not appear to have faced its “fair share” of Canadian antidumping actions. For example, over the 1985-1988 period, while U.S. exports to Canada were roughly 68% of Canada’s total imports, U.S. firms were the subject of only 22.4% of Canadian antidumping investigations, and only 16.4% of the cases that resulted in the imposition of antidumping measures.8 Interestingly, in the period directly after the CUSFTA was implemented, while U.S. export share in the aggregate dipped slightly to 66.6% of Canadian imports by 1992, U.S. exporters still faced 23.1% of antidumping investigations, but now a slightly higher share of all antidumping measures imposed, at 21.9%.9 Nevertheless, one cannot reasonably attribute a particularly low rate of antidumping actions against the United States after the formation of CUSFTA/NAFTA as being caused by formation of the DTAs, as the U.S. rate was low before their formation as well.

A second example of a WTO-consistent trade remedy that can result not only in a discriminatory outcome, but also one that raises discriminatory barriers against non-DTA members is application of a country’s “safeguard” policy. In principle, when compared to action taken under the antidumping statute, safeguard import restrictions differ both in the evidence required for their use and the form of their application. First, use of a safeguard requires no evidence of any statutorily “unfair” (i.e., like “dumping”) activity being undertaken by foreign exporters, but it does require evidence of the domestic industry passing a higher “injury” threshold than is necessary for antidumping. On the other hand, a global safeguard trade policy is statutorily described as being applied on an MFN basis, i.e., through the non-discriminatory application of a trade restriction of an incoming product regardless of the source of the imports. Antidumping measures, in contrast, are country-specific (more precisely, exporting firm-specific) and inherently discriminatory. Nevertheless, I will show here that even the nondiscriminatory safeguard trade policy can have important discriminatory elements in effect, depending on how trade policymakers apply it in practice.

Like most WTO members, Canada has not been a frequent historical user of safeguard provisions, visions, instead implementing administered protection in the form of antidumping. As table 2 indicates, as of the end of 2006, Canada had only launched three distinct global safeguard investigations since the commencement of the WTO period in 1995.10 While two of the three inquiries found evidence of imports caused by injury and resulted in the CITT making an explicit recommendation in favor of implementing safeguard protection, the Canadian government decided against imposing definitive import-restricting measures in each of the three cases.

Nevertheless, given the transparency of the safeguard investigation process in Canada, it is still an instructive exercise to study how the safeguard protection would have been implemented in these cases if based on CITT’s recommendations. As a policy matter, such information is also useful given that any potential tightening of the rules of the antidumping provisions resulting from WTO negotiations could shift pressure for administered trade policy onto alternative and substitutable policy instruments, such as safeguards.11 Furthermore, while Canada may not have utilized its global safeguard provisions frequently thus far, two of the recent investigations and remedy recommendations illustrate precisely how this supposedly nondiscriminatory policy instrument can be structured to have quite a discriminatory impact in practice.

Conclusion

Through NAFTA, the member countries have to abide by the Anti-Dumping policies which purportedly lead to unfair competition and unbalanced trade between countries.

 

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