Towards a Level Playing Field for Canadian Corn Producers --
Canada Launches WTO Challenge of U.S. Farm Subsidies

On January 8, 2007, Trade Minister David Emerson and Agriculture Minister Chuck Strahl announced that Canada had “requested consultations with the United States at the World Trade Organization on subsidies provided to U.S. corn growers, as well as on the total level of U.S. trade-distorting agricultural support”. Minister Strahl explained that Canada was taking this important action because it is concerned that, “these U.S. subsidies
continue to cause economic harm to our corn farmers”.

The Canadian government’s press release and backgrounder provide some of the facts Canada is using to support its case. In 2005/2006, the U.S. accounted for 41 percent of global corn production and 68 percent of all corn exports. The last two years have pegged U.S. corn subsidies at almost US$9 billion on average. While world corn prices have been suppressed for years and have declined significantly from 2003 to 2006, U.S. corn production has increased.

Canada’s WTO request makes three main claims:

1. existing U.S. corn subsidy programs cause serious prejudice to Canadian corn farmers through suppression of Canadian prices;
2. the U.S. maintains export credit guarantees that serve to subsidize the exportation of certain U.S. agricultural products; and
3. the total U.S. trade-distorting domestic support exceeds the U.S. Total Aggregate Measurement of Support (AMS) for certain years.

While consultations can take over a year to unfold, the WTO’s dispute settlement provisions allow for Canada to request a panel if consultations do not settle the dispute within 60 days. As the U.S. Farm Bill is up for renewal this year, Canada could fast track the consultation process and request a dispute resolution panel after only 60 days to help underscore for U.S. lawmakers the urgency and importance of the U.S. passing a new Farm Bill that lives up to its WTO obligations.

Before considering the implications of Canada’s decision, it is important to remember that the OCPA as part of the Canadian Corn Producers (CCP), the national producer coalition representing over 26,000 corn farmers in Ontario, Quebec and Manitoba, has been pursuing the following multi-pronged strategy to combat unfairly traded U.S. grain corn:

1. asking Canada to commence WTO consultations with the U.S. over the trade-distorting impacts of a suite of U.S. farm subsidies – namely, the direct payments program, counter-cyclical payments program, marketing loan program and crop insurance indemnities in excess of farmer-paid premiums;

2. seeking a made-in-Canada, WTO-compliant (that is, within Canada’s Total AMS), fully-funded (both federally and provincially), effective income support program (to offset the injury caused by U.S. farm subsidies);

3. continuing to pursue a domestic trade remedy case under Canada’s Special Import Measures Act (“SIMA”) to re-impose high antidumping (“AD”) and countervail (“CV”) duties to offset the injurious impact of significantly dumped and subsidized US corn imports; and

4. asking Canada to use U.S. grain corn as part of Canada’s WTO-authorized retaliation against the U.S. for its refusal to repeal (retroactively at least) the WTO-illegal trade law known as the Byrd Amendment.

This multi-pronged strategy is designed to provide Canadian corn producers with a solution to the farm income crisis that is viable, immediate and durable. Short-term and medium-term relief will be provided through income support and the potential application of AD/CV duties. Long-term relief will only come about through WTO action that encourages the U.S. to eliminate WTO-illegal U.S. farm subsidies, thus leveling the playing field for both corn producers and corn users in Canada as well as the in the U.S. While the “self help” AD/CV duties case remedy has received the most media attention to date, CCP has also deployed substantial resources lobbying the Canadian government to exercise the international trade rights at its disposal and commence WTO consultations.

CCP started lobbying the former Liberal federal government about Byrd Amendment retaliation and commencing a WTO case in the winter of 2005. A WTO complaint is a viable option in light of the expiry of the so-called “peace clause” in the WTO Agreement on Agriculture and Brazil’s victory in Upland Cotton which successfully challenged the same subsidies programs that support U.S. corn farmers. CCP submitted two briefs to the Liberal government to help it appreciate the opportunity that a WTO case presented. The Liberal government was reluctant, however, to pursue WTO litigation at that time because it believed that meaningful reductions in U.S. subsidies could be best achieved solely through Doha round WTO negotiations.

CCP continued to lobby the Canadian government about the viability of a WTO case after the Conservatives came to power, and intensified its efforts after the collapse of the Doha round and the loss of any meaningful ongoing process to negotiate a solution to the problem. In the fall of 2006, CCP provided the Conservative government with a further brief outlining how Canada could challenge U.S. corn subsidies. Also in October 2006, the Congressional Research Service of The Library of Congress published a Report for Congress entitled “Potential Challenges to U.S. Farm Subsidies in the WTO” which presumably crossed the desk of Canada’s key trade policy makers.

Why did the Conservative government decide to take this important step at this time? Some in the media have speculated that the Conservatives are merely trying to shore up their rural vote in the short term implying that the Conservatives will not pursue the WTO complaint with any vigour if re-elected. While it is true that commencing WTO consultations does not oblige Canada to move forward with full-blown WTO litigation anytime soon, Prime Minister Harper has shown (settling the Softwood Lumber dispute being a case in point) that he does not lightly commit his government to priorities in the trade area (especially when it involves our largest trading partner) and certainly does not start something without intending to finishing it. Prime Minister Harper has also made the distinction between disagreeing with the Americans without being disagreeable. A WTO consultation clearly falls in that category…and with ethanol expansion en route along with other bio-fuels, it is unlikely the Conservatives want Canadian farmers hurt by subsidized American corn.

It is more likely that Canada requested consultations to impact the political debate in the U.S. over the new Farm Bill up for renewal this year. There are some within the U.S. government (including U.S. Agriculture Secretary Mike Johanns and Chief U.S. Agriculture Negotiator Richard Crowder) who are on record that there should be cuts to U.S. farm subsidies and who might quietly appreciate a complaint being registered at the WTO level, particularly by a good neighbour and perceived “ally” such as Canada. However, U.S. House Agriculture Committee Chairman Collin Peterson provided a contrasting viewpoint when he suggested that the current U.S. Farm Bill was a good model and that the WTO complaint should have little impact on the next Farm Bill.

Peterson stated that he would have a new Farm Bill ready for the President before the current farm bill expires in September 2007. This short timeframe may mean that the WTO consultations will not have an impact on the 2007 Farm Bill. However, even if the WTO consultation process does not lead to the passing of a WTO-compliant new U.S. Farm Bill this year, sending the complaint to a dispute resolution panel in combination with other countries filing similar complaints, as Brazil recently indicated it might do, could still discipline U.S. trade-distorting farm subsidy programs in the long run. This is what happened when various countries successfully challenged European Union sugar subsidies.

Regardless of whether the WTO complaint immediately effects the 2007 Farm Bill or takes three to four years to work its way through the dispute resolution process, the bottom line for Canadian corn farmers is that the Conservative government is listening and acknowledges that reform of U.S. farm subsidies will likely not take place through negotiations alone. CCP is encouraged by this request and optimistic that the long-term result of the Conservative government’s decision will be a more robust agricultural sector for everyone.