The McCoys and Hatfields of International Trade--How Some Disputes Never Seem to End
Jun 13, 2017
According to data collected by the UN’s Food and Agricultural Organization (FAO), there were $1.4 trillion worth of agricultural products traded between countries in 2013, covering the spectrum from adzuki beans to zucchini and everything in between. That data also revealed that there were 119 countries that imported at least some agricultural commodities in that year, ranging from $115 billion for China down to $2.1 million to the South Pacific island nation of Niue. For the most part, that trade flow moves smoothly, although most major agricultural exporting countries place government officials in key foreign markets as agricultural attaches in part to deal with disruptions in that flow that arise from the imposition of unanticipated sanitary and phyto-sanitary (SPS) rules or other ad hoc actions at the border.
These measures can function as formidable barriers to trade. A 1996 survey of in-country staff for USDA’s Foreign Agricultural Service (FAS) identified more than 300 rules or restrictions in place seen as unjustified by science, which ‘threatened, constrained, or blocked’ U.S. agricultural exports valued at $5 billion, which at the time amounted to about 7 percent of the total value of U.S. agricultural exports.
These staffers in-country, as well as their trade policy colleagues at USDA and USTR headquartered in Washington DC, work hard to convince importing countries to relax or modify these rules to make it easier for U.S. food and agricultural products to enter. When informal discussions fail to yield a satisfactory outcome, the U.S. government often resorts to filing formal dispute settlement requests with relevant bodies, such as the World Trade Organization (WTO). Since the WTO was established in 1994, the United States has initiated 16 cases either under the SPS Agreement or the Technical Barriers to Trade (TBT) Agreement (or both) against what they deemed to be unscientific and/or unfair barriers to U.S. agricultural products. These cases have been filed against major agricultural importing countries such as South Korea, the EU, Japan, Mexico, and India. Such cases are typically adjudicated through the process, and if successful, the responding country eventually removes or modifies the challenged barriers to ease trade flows.
Occasionally, some trade disputes arise over agricultural products that are so sensitive politically that the formal dispute settlement process gets dragged out for many years while the countries in the dispute wrangle over what constitutes an acceptable resolution to the case. I worked on agricultural trade issues, first at USDA and then later for the Senate Agriculture Committee for more than 20 years, and some of these trade disputes have endured over longer periods than my tenure in this field. These long-running disputes tend to involve developed countries as one or more of the parties, as they have more legal and financial resources to keep pursuing their desired outcomes.
One of these disputes, regarding trade in sugar and sweeteners between the United States and Mexico, has had more twists and turns over the years than a year’s worth of House of Cards episodes, and has recently been in the news again. Unlike most trade disputes, it involves two way trade flows--exports of Mexican sugar to the United States, and exports of U.S. high-fructose corn syrup (HFCS) to Mexico. Starting in 1998, the government of Mexico imposed a variety of barriers to discourage imports, including anti-dumping tariffs and taxes on beverages containing HFCS, which the U.S. government was able to get favorable rulings on in dispute settlement cases through the WTO. This dispute lasted nearly ten years, to be succeeded within a few years by a series of disputes over the level of Mexican exports of sugar into the United States under NAFTA. A suspension agreement that established allowed levels of imports and a minimum price for Mexican sugar imports was recently renewed between the two countries, averting a potential trade war for now. No doubt these issues will be raised again once the three NAFTA member countries begin their renegotiation of the agreement later this year.
Another long-lasting trade dispute is between the United States and Canada versus the European Union on the issue of EU refusing to accept imports of beef produced with the use of artificial hormones from the two North American countries. This dispute actually pre-dates the WTO, starting when the EU announced in 1989 that it would impose a ban on imports of meat and meat products from animals treated with growth promotants. The governments of the United States and Canada filed a case against the ban under the rules of the General Agreement on Tariffs and Trade (GATT), but since that agreement lacked mechanisms to enforce its findings, the process went nowhere. The case was refiled under the new WTO rules in 1995, and the EU rules were found to be inconsistent with the SPS agreement in 1998, but rather than eliminate the rules, the EU purported to conduct a new risk assessment which left the rules largely intact. There have been many twists and turns since that first dispute settlement finding in 1998, and the whole matter seemed to be finally resolved in 2009 when the EU, U.S., and Canada agreed to new quotas of trade in hormone-free beef, leaving the ban on hormone-treated beef in place. However, this dispute recently made news again, as the Office of the U.S. Trade Representative announced in February 2017 that it was contemplating new retaliation against the EU, asserting that the 2009 agreement was not yielding the increases in U.S. beef exports that had been expected.
There are other such long-running disputes, such as over the EU banana regime, primarily waged with Latin American banana-producing countries which are not former EU colonies, and the intermittent dispute between the United States and Canada over trade in softwood lumber. While the WTO dispute settlement mechanism works for the vast majority of cases, there are a handful of cases which the parties are reluctant to resolve because of the high domestic political costs involved, so the disputes can linger for years, even decades.