Lambert, Charles D.

English

Research Papers in Economics

Discussion
NATIONAL CATTLEMEN'S  BEEF  ASSOCIATION
Chuck Lambert
The paper by Loyns, Young and Carter is generally factual in its documen-
tation of the United States versus Canada and Mexico, and Mexico versus United
States in the recent anti-dumping and countervailing duty cases.  The authors are to
be commended,  along with Brester, Marsh and others  for providing  factual infor-
mation to the policy process even in the face of political unpopularity and criticism
from their local constituents.
National Cattlemen's  Beef Association  (NCBA) recognizes  the deficien-
cies of the current dumping laws as pointed out by the authors. Following expendi-
ture of scarce industry resources to defend against dumping cases filed by Mexican
producers  against U.S.  cattle,  beef and  beef variety  meats,  NCBA  has  adopted
policy to  draft new  language  defining  "dumping"  that would  better protect  U.S.
producers in future cases. The objective is to make the definition of dumping more
consistent with the practical realities of producing a product in a cyclical commod-
ity marketplace.  NCBA is considering alternatives,  including adding evidence of
predatory pricing or intent to drive competitors out of business, to the definition of
dumping. This policy is consistent with a position developed during the  1999 five-
nation beef conference  in Banff, Alberta.  It is  also worth noting that the current
Administration  refused to  raise this  issue  during  the Seattle  Ministerial  Confer-
ence in the face of opposition from the U.S. steel industry and other industries that
rely on anti-dumping  cases for protection.
The  Loyns  et al.  paper,  however,  fails to  address  a perception,  and in
many ways the reality, that the original U.S./Canadian trade agreement was skewed.
In fact the United States gave more access than it received. This factor ultimately
resulted in the trade actions, accurately described by the authors, plus border block-
ades instituted by state officials during the winter of 1998.  Two cases in point are
restrictions  on U.S.  feeder cattle exports to Canada and utilization  of U.S. quality
grades on carcasses  and beef produced from cattle imported directly for slaughter
from Canada.Lambert  213
U.S.  FEEDER  CATTLE  EXPORTS  TO CANADA
The first case has been addressed in part by the Northwest Project, strongly
supported by the Canadian  feeding industry  and the Canadian  Cattlemen's Asso-
ciation.  USDA Secretary  Dan Glickman and the Canadian  government first an-
nounced on October 24,  1997 the implementation of the Northwest Project. It is  a
trade agreement that waives specific  animal-health testing requirements and facili-
tates cross-border  shipment of live cattle from U.S. cattle producers to Canadian
feedlots.  During  the period  October  1, 1999  through  March  31,  2000,  approxi-
mately  160,000 US feeder cattle will be exported to Canada under the Northwest
Project protocol.
Contrary to findings in the paper by Loyns et al. the flow of feeder cattle is
not  from Canada  to the United  States  in the absence  of artificial,  scientifically
undocumented  trade  barriers.  Transportation  costs  from Montana  ranches  and
feed  costs generally  favor shipment of calves  from Montana to Alberta feedlots
versus feedlots in the U.S. Corbelt or the High Plains. During the last marketing
year (October  1, 1998 through March 31, 1999), 51,009 U.S. feeder cattle entered
Canada under the revised Northwest protocol.  This total was more than 5 times
larger than during the previous year.  This successful project was initiated through
coordinated  efforts  of state  and national  industry representatives,  Montana  and
Washington state officials, U.S. government officials and Canadian officials.  Dur-
ing the past year Alaska, Hawaii, Idaho and North Dakota have been added to the
growing list of states eligible to ship cattle to Canada under these revised rules. The
project relies on science  to resolve animal-health related trade barriers, one of the
key initiatives of NCBA policy.
The case could easily be made that if this issue had been resolved during
the  1989 U.S./Canadian  agreement and U.S. feeder cattle had been  able to enter
Canadian  feedlots under current protocol, that the recent dumping case and coun-
try-of-origin  policy adopted by NCBA would  never have been implemented.  If
half of the slaughter cattle entering the United States from Canada had originated
in Montana or other northern tier  states, pressure to restrict entry or differentiate
the product would have been significantly reduced.  The fact that Canadian cattle
were able to come south while U.S. feeder cattle  were denied access to Canadian
feedlots was  a significant contributing  factor to producer frustration and unrest.
213 LambertNAFTA  -Report Card  on Agriculture
NCBA  and the Canadian Cattlemen's  Association are currently  working
to allow year-round  access to Canadian  feedlots for U.S.  feeder cattle from a few
select states.  The long-term objective is for Canada to recognize the health status
of each state (zone).  Ultimately, the border must be as transparent for U.S. feeder
cattle  moving to Canada  as it is  for U.S.  feeder cattle  to move from one  state to
another, or for Canadian slaughter cattle to move to U.S.  packing plants.
USDA  QUALITY GRADES
NCBA  supports  the  concept  of grade  equivalency.  That means  that  if
Canada,  Mexico or other trading  partners wish to adopt grading standards that are
equivalent to USDA quality grades, then market andpromote  them as such, NCBA
will not object.  The U. S. beef industry  does, however, understand  the economic
"free  rider" principle  and strongly  objects to beef from other countries receiving
USDA quality grades without country of origin differentiation.  USDA grades are
recognized  as  the standard of excellence  in the international market and the U.S.
beef industry has invested substantial resources in developing brand equity associ-
ated with USDA grades.  NCBA opposes reciprocity -- ie.,  USDA graders in non-
U.S. plants and grading of imported carcasses  and beef produced from cattle im-
ported directly for slaughter.
Historically,  U.S. packers had an economic  incentive to present imported
carcasses for USDA quality grades.  The Canadian grading system did not recog-
nize marbling  as a quality factor for nearly 20 years. During this period there was
virtually no price differential  between Canadian  carcasses  that were  more highly
marbled  (equivalent to USDA Choice or Prime, for example) and carcasses that were
less  marbled  (equivalent  to USDA Select or Standard).  Consequently,  U.S.  packers
could purchase carcasses (or cattle) in Canada with potential to grade USDA Choice
or Prime,  export them  to the United States to  be graded,  and receive the quality
differential (in effect the U.S. spread between USDA Choice and Select carcasses).
During 1999 NCBA petitioned the U.S. Department of Agriculture to end
the practice  of putting grades such as "USDA Choice"  or "USDA Prime"  on im-
ported beef. This practice misleads consumers  because it allows imported beef to
receive the same grade as U.S. beef, leaving the false consumer perception that the
imported beef with an USDA grade is produced in the United  States. NCBA be-
214Lambert  215
lieves this violates the Code of Federal Regulations that governs meat processing.
On February 3, 2000, USDA published an advanced notice of public rule making
proposing that imported carcasses  no longer be graded,  or that if they are graded
that the country-of-origin identification currently applied to imported carcasses be
retained if the quality grade is retained to the ultimate consumer.  A third alterna-
tive proposed by USDA and strongly opposed by NCBA is that imported carcasses
receive the USDA quality grade without country-of-origin  identification.
Country-of-origin labeling will become increasingly important to the U.S.
cattle industry  as international beef trade  continues to expand.  Country-of-origin
labeling allows consumers to make informed decisions when purchasing meat and
meat products,  and competitive  market forces will determine  the relative value of
meat from different countries.
This issue is not about food safety.  USDA inspects imported beef, which
must meet the  same safety  and wholesomeness  requirements  as  U.S. beef.  It is
important to note that imported beef has  country-of-origin  labels - - either on the
product  or on shipping  containers  - - when it enters the  United States;  however,
these labels are lost during further processing.  The benefits of this system accrue
more to importers, packers and processors, and less  to beef producers in exporting
countries.  Country-of-origin labeling will ultimately provide a "brand-like" mecha-
nism for the beef industry.
NCBA  will continue  to work  for approval  of legislation to implement
mandatory country-of -origin  labeling.  Concurrently,  efforts will be  intensified
with the Food Marketing Institute (FMI), other organizations and packer represen-
tatives to develop a voluntary  system for identifying and promoting U.S. beef con-
sistent with instructions  from Senate and the House  committee leadership.  And
NCBA will continue to work for eliminating provisions for grading imported car-
casses, or at a minimum insist that country-of-origin  identification applied to these
carcasses be retained to the end consumer if the USDA quality grade is retained.
IMPACT  OF ANTIDUMPING  DUTIES
Preliminary  dumping  duties were imposed on Canadian cattle  imported
into the United States on June 30,  1999.  (See Figure  1.)  A case can be made that
Lambert 215NAFTA  - Report Card  on Agriculture
Figure  1:  Canadian  Cattle as a Percentage  of U.S.  Slaughter,
January  10, 1999 - February  6-  2000.
3
2.5
°  2
a)
0-
1.5
1
0.5
0.5  0)|  A  AP  0 ^AA^\  ^~~~
^'~~~~  ~~~~~~~~~~~~~  F
N  0
o  000  tO  o  to  N  e  - t
T-  M  (N  )  6N  X  -
*  N  ,  2  o  , N
Source:  Calculated by the author.
forward shipping took place for 2-3 weeks prior to June 30 in anticipation that the
duties would be imposed.  Imports of Canadian cattle as a percent of U.S. slaughter
declined for two weeks as U.S. packers,  other importers and Canadian sellers de-
termined how the new system would operate. By the end of five weeks, imports of
Canadian cattle had returned to pre-duty levels  as participants  adapted to the new
system and Canadian  cattle prices adjusted to account  for duty levels.
A case could be made that this is a classic example of a shock to a func-
tioning market that subsequently adjusts  and returns to equilibrium.  Duties were
eliminated on November  19, 1999 when the ITC released its final determination of
no injury. Imports of Canadian cattle declined after the preliminary duty was lifted
- probably a year-end  seasonal marketing  factor.
IMPORTS  FROM  MEXICO
U.S. imports of feeder cattle from Mexico spiked to 1.378 million in 1995
in response to peso devaluation (flight to the dollar) and drought in northern Mexico.
(Table  1 and  Figure  2)  U.S.  imports  of feeder  cattle from Mexico  declined  to
approximately  424,000 during  1995.  During  1999, U.S.  imports of feeder cattle
216
J-.Lambert  217
Table 1.  Imports of Mexican  Feeder  Cattle,  1993-1999.
New
Arizona  California  Mexico  Texas  Total
1993  314,790  1,634  43,015  837,131  1,196,570
1994  232,338  0  15,532  685,813  933,683
1995  340,901  0  30,540  1,006,954  1,378,395
1996  190,377  0  276  233,229  423,873
1997  191,788  0  23,620  446,206  661,614
1998  180,937  0  37,865  491,327  710,129
1999  257,242  0  49,929  648,483  955,654
99%98  142.2%  N/A  131.9%  132.0%  134.6%
Source:
Service.
U.S.  Department  of Agriculture/Animal  and  Plant Health  Inspection
Calendar year-to-date  comparison  through  December 31.
Figure 2:  Imports of Mexican  Feeder Cattle,  1993-1999.
1,500
'  1,000
3
0
- 500
0
Arizona  California  New  Mexico Texas Total
*  1993  *  1996  *  1998
!  1994  1997  1999
1995
Source:  U.S.  Department of Agriculture/Animal and Plant Health  Inspection Service.
reached nearly  1 million - approximately  the number imported during  the late
1980s and early 1990s.
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DISCUSSION: NATIONAL CATTLEMEN'S BEEF ASSOCIATION

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