April/May, 1998

From the Editor

Agricultural Extortion

In every country, the government seems prepared to harm its own people whenever politicians can win the favor of an influence block. A recent example can be found in Mexico, which had imposed a “compensatory” tariff of 101 percent on imports of U.S. Red and Golden Delicious apples. This tariff was in response to alleged “dumping” of U.S. apples into Mexico.

The tariff almost certainly had no standing under NAFTA or GATT, and the U.S. apple growers could have chosen to fight. But the fight would have taken years, during which time the biggest single export market would have been closed to U.S. apple exporters. So the U.S. cut a deal with Mexico and agreed to not sell below a $13.72 F.O.B. price, and Mexico agreed to drop the tariff. Mexico is not a rich country, and the principle impact of the agreement will be on poor and middle class Mexicans who will no longer have the option of buying smaller size, lower grade apples from the U.S.

This is what happens everywhere. An international trade agreement that raises the price on food to poor people is applauded by the political elite in every country as it is a way to curry support among producing interests.

Indeed, the U.S. didn’t have much of a moral ground to stand on in opposing the tariff action by Mexico or the “voluntary” agreement on apples. In fact, a very similar agreement was forced on the Mexican tomato growers by the U.S. and for much the same reason: Though consumers benefit by the availability of a wide variety of less expensive product, consumers are a highly dispersed group unlikely to contribute time, money or votes to candidates simply because they kept the price of tomatoes or apples a few cents a pound cheaper. Industry members, however, are a concentrated force who surely will remember those politicians who deliver higher prices for their goods.

Sometimes the international trade industry can be a countervailing force. Usually, however, success in keeping tariffs and other barriers-to-entry low comes about only in the context of massive multiproduct agreements. These agreements often are supported because they create both winners and losers in each country, and the winners manage to out-lobby the losers. This is the story of GATT and NAFTA. What we learn, though, is that dispute resolution procedures, and indeed the very structure of what is a dispute, is inappropriate for a perishable commodity.

To start with, the very notion of dumping simply doesn’t make sense when one is speaking of a perishable commodity. Dumping has traditionally been defined in one of two ways: Dumping was deemed to occur if a product is sold either below the cost of production or sold for less in the export market than in the home country.

Neither of these definitions, though, can be applied to perishables. These products are sold everyday at market prices. The cost of production is irrelevant because, once planted, one cannot turn off the factory. As a result, the prices of most perishable commodities fluctuate wildly. Even without any imports or exports, it is the nature of perishable commodities to often be sold below the cost of production.

Comparing prices for export sales to the price in the home country is similarly unavailing. The U.S. is somewhat of an exception here as most U.S. perishable exports are sold at a firm price, but this is an anomaly caused by the very large U.S. domestic market. It is far more common in the international trade of perishables for these items to be sold on some kind of consignment basis.

The bottom line is this – the GATT and NAFTA dispute resolution processes are too slow for perishables. Before anything is resolved, a year’s worth of production is lost. As a result, the system will too often be short-circuited by special “voluntary” agreements – which, of course, are not voluntary at all. The only solution is to recognize that there is no such thing as dumping a perishable agricultural commodity. As such, no “compensatory” action is ever justified.

If some nation takes such an action, since it is prima facie illegitimate, the World Trade Organization and other multinational institutions should be able to give a quick response. We must find a way to liberate agriculture from the extortion of producers in each country. In doing so, we will not only further international trade and the prosperity that trade encourages, we will be taking the steps to help the poor of the world eat better and less expensively. Isn’t it a shame that governments won’t stand up for the interests of their own citizens?  EXP