Trade remedy laws are intended to offset “unfair” trade that injures domestic producers as a result of either foreign sales that are “dumped” into the U.S. at less than fair value or influenced by foreign government subsidies. The regular use of trade remedy laws within NAFTA illustrates the fact that any transition to freer trade in agriculture, even between countries at relatively similar stages of development, may be politically difficult. An example of the agricultural trade tensions between Canada and the U.S. is the recent “tomato wars,” in which U.S. producers accused the Canadians of “dumping” tomatoes in the U.S. market. In October 2001, the United States government made a preliminary ruling that Canadian growers were dumping greenhouse tomatoes into the United States at prices below the Canadian cost of production. As a result of this finding, Canadian sales into the United States were assessed an average tariff of 32 percent. Several weeks later, the legal tables were turned as the Canadian government initiated an anti-dumping investigation against the U.S. fresh tomato industry . The Canadian counterclaim may not have been a coincidence. Rather, it may have been a tit-for-tat reaction to the steep U.S. duties imposed on Canadian greenhouse tomato sales to the United States. By July 2002, both cases were resolved with identical rulings of no material injury. While U.S. exports of fresh tomatoes to Canada declined 10 percent over the previous year during the period of investigation,planter pots drainage Canadian imports of greenhouse tomatoes to the United States actually increased 17 percent over that year .Despite the fact that Japanese agriculture receives high levels of government support and has limited market orientation , it is also the world’s largest net importer of agricultural products. The United States supplies roughly one-third of Japan’s agricultural imports, and in 2002, Japan’s agricultural imports from the U.S. were valued at $8.3 billion .
About 20 percent of these U.S. exports to Japan originated in California. Japan is California’s third largest export market for agricultural products, with rice, cotton, almonds, beef, and oranges ranking as the top commodities . Japan’s weak economy has dampened its total agricultural imports in recent years . In the 1990s, the most significant import growth in Japan was in the area of fruits and vegetables, wine, and beef . More recently, grains and oil seeds have done better . Japan continues to restrict imports of horticultural products, livestock products, and processed foods, all of which are important exports for California. Recently, beef exports to Japan were halted in response to the BSE scare in Europe; and Japan continues to consider implementing a “beef import safeguard,” which could further lower imports even further. At the time of this writing, Japan had halted all imports of U.S. beef, due to the discovery of BSE in the U.S. . Citing phytosanitary concerns, Japan blocks imports of U.S. fresh fruit, vegetables, and other horticultural crops, keeping Japanese domestic prices of horticultural products artificially high. Government subsidies are also provided to farmers to encourage them to divert land out of rice production and into vegetables . Japan also has country-of-origin labeling requirements for agricultural products that principally affect fruits, vegetables and animal products . This acts as a non-tariff barrier to trade. Japan maintains high tariffs on beef, citrus, and processed foods. In addition, imported high quality California rice is strictly controlled and rarely reaches the consumer food table in Japan. The over quota rice tariff in Japan exceeds 400 percent. Until recently, Japan’s system of food imports used mainly non-tariff barriers such as quotas and licenses, instead of tariffs. Sazanami et al. found that Japan’s tariffs on food imports averaged only 8 percent, but the quantitative import barriers averaged 272 percent, with the rice tariff equivalent barrier at 737 percent. Despite the tariffication required by the Uruguay round of trade liberalization, of Japan’s agricultural imports remain highly protected . In addition, Japan continues to use health and safety regulations to serve as barriers to trade.In the case of fresh oranges and lemons, the U.S. is the largest supplier to Japan, accounting for over 80 percent of Japan’s imports.
Other exporters of oranges and lemons of lesser importance in Japan are Australia, Chile, and South Africa.The tariff rate is 32 percent for imports during the December-May period, and 16 percent during June-November. California’s second most important market, the EU, provides export subsidies for beef, cheese, other dairy products, and processed fruit, in competition with California. It also provides generous production subsidies on horticultural products such as tomatoes, grapes, peaches and lemons. The EU’s subsidized production of these products affects California’s competitiveness in third markets. More generally, the EU’s Common Agricultural Policy significantly isolates European farmers from international competition. The CAP is a system of subsidies and market barriers that include mandatory land set-asides, commodity specific direct payments, and export subsidies . Support to agricultural producers as a share of total agriculture receipts is 40 percent higher in the EU than in the U.S. . Much of this support comes in the form of higher prices paid by domestic consumers. Recently, there has been increasing pressure to significantly reform the CAP; the program has been called by the popular press an “extravagant folly” and “demented” . These publications and others have argued that reform of the CAP will be a critical element of the next round of trade negotiations, if these talks are to be successful. Enlargement of the EU to include ten Central and Eastern European countries will also create pressure for further reform. Structural reforms of European agricultural policy will have important implications for California, both because the region competes in third markets with California, and because the region is an important customer, as discussed earlier. If the existing EU agricultural policy is applied to the 10 new member countries, the incentive will be to increase production and agricultural exports. Several of the new member countries have a comparative advantage in agriculture, especially in the area of wheat, coarse grains, and livestock. California agriculture will benefit if this expanded production results in budgetary pressure to reform the CAP. In addition, California agriculture may well benefit from projected income growth in Central and Eastern Europe that results from EU membership. Higher incomes in this region will lead to increased demand there for high-valued food,draining pot for plants of the type exported from California. An ongoing trade dispute between the US and the EU concerns the use of geographical indicators . The EU wants to prohibit foreign producers of food and beverage products from labeling products with European regional names .
The list of products that will receive this protection is an on-going subject of negotiation at the WTO. For California there is a trade-off associated with GI protection. On the one hand, California would have to stop using certain names if the EU is successful . On the other hand, California agriculture could use GI protection to develop niche markets for its food and beverage products, potentially capturing a price premium.Mexican agricultural trade is highly dependent on its two partners in NAFTA. Agricultural provisions were an important component of the NAFTA agreement , with agricultural tariff and non-tariff barriers being phased out over varying time periods up to 15 years. Within U.S. and Mexican agriculture, some groups supported the agreement while others opposed it. In response to these concerns, NAFTA gives special consideration to the centrality of corn in Mexican agriculture, so the country maintains significant tariffs on corn imports even as other trade barriers have been removed more quickly. In 2003, the tenth year of the NAFTA agreement, a new round of tariff reductions within the free trade area came into affect. These tariff reductions are expected to significantly affect Mexican farmers, who will face new competition from American and Canadian producers in such products as potatoes, barley and wheat, and, importantly for California, cotton, fresh apples, frozen strawberries and certain milk products . According to reports in the popular press, the competitive pressures generated by NAFTA have been economically painful for Mexican producers. This is at least partly due to the fact that structural inefficiencies in the Mexican economy increase costs of production and marketing . Some Mexican policymakers suggest that it is also a result of the subsidies received by U.S. farmers that the Mexican government cannot hope to match . At the outset of NAFTA, there was significant opposition to the agreement from U.S. agriculture. Opposition came from producers of wheat, sugar, peanuts, citrus, and winter fruits and vegetables . Some agricultural interests in California opposed NAFTA because of fear of competition from low-wage Mexican agriculture in the production of labor-intensive crops. Proponents argued that NAFTA would drive down agricultural wage rates in California and thus restore the competitiveness of California’s agriculture. Factor price equalization lies at the root of the debate over the effects of liberalized trade on the competitiveness of California agriculture precisely because a large percentage of California’s agricultural production is labor intensive, using a relatively high proportion of labor relative to other inputs such as land and capital. This includes the production of fruits and vegetables, nuts, and various horticultural crops, where labor costs range from 20 to 50 percent of total production costs .
Prior to NAFTA these crops were protected by import tariffs ranging from 5 to 30 percent, and other non-tariff barriers such as marketing orders. Much of this labor is unskilled and most of the workers are immigrants from Mexico. This labor-intensive production means that California and Mexican agriculture differ less than might be predicted by comparing incomes per capita; thus the two regions are likely to compete against each other in third markets. Despite protectionism on both sides of the border, there has been progress towards freer trade and cross-border investment between the U.S. and Mexico since NAFTA. For instance, in 1996 the U.S. opened its market to Mexican avocados for the first time in 82 years. Prior to this ruling, phytosanitary rules banned unprocessed Mexican avocado imports and provided considerable protection to California growers.The U.S. decision to import avocados will extend beyond that single market and probably help in alleviating trade barriers to Mexican peaches, nectarines and cherries. Accumulated U.S. investment in Mexican agricultural production equaled $45 million from 1994 to 1997, with even greater investment in the food processing industry in Mexico of about $5 billion in 1999 .California agriculture receives relatively few subsidies from the federal government compared to other states. However, California does benefit from several programs designed to either explicitly subsidize exports or promote demand for California products in foreign markets. Funding for these programs continues in spite of the public commitment by the U.S. government to phase out export subsidies, and the cap placed on this form of support by WTO commitments. The programs that explicitly subsidize exports are the Export Enhancement Program and the Dairy Export Incentive Program . The Market Access Program and the Foreign Market Development Program subsidize the cost of market development activities overseas. A new program called Technical Assistance for Specialty Crops Program is intended to fund projects that address technical barriers to the export of specialty crops. Among these programs, the most important to California producers is the MAP, which received increased funding in the 2002 Farm Bill. In this subsection, we describe each of these programs, and their importance to California agriculture.The 2002 Farm Bill, as with previous Farm Bills, authorized Export Enhancement Program export subsidies for such commodities as wheat, rice, barley, eggs, and frozen poultry. FAS authorizes export subsides for these products either when prices are low or as “self-defense” when other countries engage in what FAS defines “unfair” trading practices . The 2002 Farm Bill allocated $478 million annually to EEP , but the share of this subsidy that will flow to California will probably be small. In recent years only frozen poultry has qualified for EEP subsidies , because world market prices have been sufficiently high for other eligible commodities, though the potential scope of the EEP was expanded in the 2002 Farm Bill. This may increase the size of the EEP subsidy captured by California producers.