THE settlement in Canada's favor of a two-year-old pork dispute with the United States removes a threat to the Free Trade Agreement between the two nations. The settlement is also good news for Canadian hog farmers, whose exports to the US will no longer face import duties.
A special committee on June 14 upheld a ruling by a binational trade-dispute panel that earlier this year struck down a US countervail duty on Canadian pork. The panel said the exports do not pose a threat to American hog farmers.
This is the first time either side has challenged such a ruling since the trade pact between the two countries came into effect Jan. 1, 1989. A special committee of three former judges - two Canadians and one American - dismissed the US case as groundless.
Canadian hog producers immediately hailed the decision as a major victory vindicating the trade deal.
"It's certainly a positive note to free trade," says Tom Smith, president of the Canadian Pork Council, which represents Canada's 30,000 hog farmers.
The duty could be lifted as early as this month. The US must refund some $21 million collected from Canadian exporters since the US Department of Commerce imposed the duty of 3.5 cents a pound on fresh, chilled, and frozen pork in May 1989.
More important, the decision will help restore pork trade with the US and strengthen domestic prices, says Mr. Smith, a hog farmer from Utopia, Ontario. He estimates the US duty has cost the Canadian industry more than $200 million in lost sales and depressed prices.
Canada sold $423 million worth of pork to the US last year.
Canadian officials accused the US of violating the spirit of the Free Trade Agreement by launching the appeal in March. The pact contains a mechanism to settle trade disputes between the two countries through a system of binational panels whose rulings are supposed to be binding.
The "extraordinary challenge" procedure used by the US is intended as a safeguard if a panel is negligent, incompetent, or dishonest. To hear the appeal, each side appoints one judge, and these two select a third judge from either nation.
Last January, the dispute panel unanimously ordered the US International Trade Commission (ITC) to reverse its position that subsidies to Canadian hog producers give their pork an unfair price advantage in the US market.
Canada had argued that, subsidies or not, its exports couldn't possibly hurt US producers, because Canadian pork makes up only 3 percent of the US market.
Although the ITC obeyed the order, two of its three commissioners said the panel decision violated fundamental principles of the Free Trade Agreement and contained "egregious errors under US law."
The US National Pork Producers Council (NPPC), which pushed hard for the duty in the first place, seized on the statement and mounted an intensive effort in Washington to have the decision overturned. The NPPC called on US Trade Representative Carla Hills to appeal the panel ruling through the "extraordinary challenge."
Ms. Hills hesitated at first, then relented on March 29 after being prodded by members of Congress who had been lobbied by the NPPC. Canadian trade officials speculate Hills did so as a trade-off to win congressional support for free-trade negotiations with Mexico.
The issue became politically charged in April when Canadian Prime Minister Brian Mulroney telephoned President Bush to protest the US action.
Canadian politicians and farmers, many of whom supported the free-trade deal when it was signed, warned that the integrity of the dispute-settling mechanism would be threatened if the US action succeeded. Some suggested a US victory could also hurt trade negotiations under way between Canada, the US, and Mexico.
Canadian officials pointed out that the appeal procedure had never been used, even though previous panels settled disputes over lobsters (the US won) and raspberries (Canada won).
By dismissing the challenge, the three judges showed that the procedure is intended only for the most exceptional cases, says Daryl Kraft, a University of Manitoba agricultural economist.
Both Hills and American hog producers say they accept the ruling. But the NPPC, which represents 100,000 producers in 45 states, says it will not rule out other trade action in the future.
"If subsidized Canadian imports increase dramatically, the US pork industry will consider initiating further trade actions," says John Hardin, NPPC president.