From iatp@igc.apc.org Fri Jan 3 00:56:54 1997 Date: Fri, 19 Apr 1996 09:43:56 -0700 (PDT) From: IATP To: Recipients of conference Subject: NAFTA & Inter-Am Trade Monitor 4-19- NAFTA & Inter-American Trade Monitor Produced by the Institute for Agriculture and Trade Policy April 19, 1996 Volume 3, Number 8 _________________________________________ - NAFTA PARTNERS AGREE TO EXEMPT SUB-FEDERAL RULES - FOCUS OF U.S.-CANADA DISPUTE: DAIRY, POULTRY, EGGS - HUNGER AND THIRST - IPR: SEEDS, TEQUILA, BABY FOOD - COFFEE PRICES, PRODUCTION UNCERTAIN NAFTA PARTNERS EXEMPT SUB-FEDERAL RULES State and provincial laws and regulations that discriminate against foreign countries in the areas of non-financial services and investment will be protected from NAFTA challenge, so long as they were in place on January 1, 1994, according to letters of agreement exchanged by the United States, Canada, and Mexico on April 1. The decision came partly as a response to Canadian concerns about losing the ability to protect its social safety net through restrictions on foreign competition in provision of health care and other social services, including day care and education. [See "Canadian Health Industry Nervous Over NAFTA," NAFTA & INTER- AMERICAN TRADE MONITOR, January 12, 1996.] Despite assurances by the Canadian federal government, the Canadian health care community feared NAFTA challenges by for- profit U.S. health care providers. In a letter to Canadian Prime Minister Jean Chretien urging him to obtain full exemption from NAFTA for the Canadian health care industry, British Columbia Premier Glen Clark argued: "There is a fundamental difference in the way health care is delivered in Canada from the way it is delivered in the United States. Here health care is a public service. In the U.S., it is a for-profit industry. American companies that treat health care as a business instead of a public service cannot be allowed to slip through loopholes in NAFTA and gain a foothold in Canadian medicare." The three countries faced a March 31 deadline for the exchange of lists of state and provincial laws that might contravene NAFTA chapters 11 and 12, which call for national treatment or most-favored nation treatment of other NAFTA nations. The NAFTA disciplines also prohibit requirements of local presence and national and residency requirements on composition of senior management and board of directors. The governments agreed to furnish the lists of existing laws, called Annex I, for purposes of transparency, though all three have had difficulty in identifying the non-conforming measures and compiling accurate lists. While states and provinces welcomed the agreement to cover all existing measures under Annex I, U.S. officials agreed only reluctantly. The general reservation will limit the tools available to promote liberalization at a state and provincial level. In addition to Annex I, which lists existing sub-federal laws and regulations, Annex II reserves the right to future non- conforming measures. New or amended sub-federal rules that would increase discrimination against investors or non- financial services providers from other NAFTA countries could still be challenged as in violation of NAFTA, unless reserved in Annex II. The United States wants these reservations to be narrowly and specifically defined. Canada wants a general reservation of services performed for a "public purpose," which would encompass all health care and other social services. This dispute remains unresolved. "NAFTA Partners to Protect Sub-Federal Measures From NAFTA Challenges," INSIDE U.S. TRADE, April 5, 1996; Doug Ward, "Exemptions for Medicare Urged Under NAFTA Deal," VANCOUVER SUN, March 23, 1996; Rosemary Speirs, "Ottawa Wins Deal to Shield Medicare," TORONTO STAR, March 29, 1996; Barrie McKenna, "Provinces Take Steps to Shield Health Care," GLOBE & MAIL, March 26, 1996; Trish Webb, "Clark Tells Ottawa: Close NAFTA Loopholes That Threaten Medicare," NEWS RELEASE - PROVINCE OF BRITISH COLUMBIA, March 14, 1996. U.S.-CANADA DISPUTE: DAIRY, POULTRY, EGGS A NAFTA dispute settlement panel, convened in January after nearly a year of unsuccessful discussions between the United States and Canada, is expected to make a decision this summer on the U.S. challenge to Canadian tariffs on dairy, poultry, egg, malted barley, and margarine products. Canada defends its tariffs as part of the tariffication process required by the World Trade Organization (WTO)/GATT agreements. The United States maintains that the increased tariffs violate NAFTA, which generally forbids increased tariffs among its member countries. [See "Elections, Avocados, Tomatoes and Wine," NAFTA & INTER-AMERICAN TRADE MONITOR, January 26, 1996.] U.S. dairy, egg and poultry industries seek access to the Canadian market. Their Canadian counterparts, operating under a supply-managed farm commodities system, fear that U.S. competition would destroy Canadian agriculture. According to a study conducted by Informetrica for the Dairy Farmers of Canada and the Canadian Chicken, Egg, Broiler Hatching Egg and Turkey Marketing Agencies, Canada would lose 27,000 agricultural and food processing jobs and $3 billion in agricultural production during the first year of market opening to U.S. products. By the year 2000, the losses would increase to 28,000 jobs and $16 billion in agricultural output. The U.S. argument against Canadian tariffs is based on Article 302 of NAFTA, which requires elimination of customs duties and prohibits increasing duties, except where specifically allowed. According to the U.S. submission to the panel, "Although Canada committed not to increase the rates of duties on goods at issue above the rates in effect on Dec. 31, 1993, and progressively to eliminate the duties on these goods, Canada has in fact done the opposite and has significantly increased the duties on these goods for imports above certain quantities." Canada says the exception applies, for several reasons: no parties to NAFTA contemplated increased market access on the commodities in question; these commodities have been protected throughout the Canada-U.S. Free Trade Agreement (CUFTA) and NAFTA; both the U.S. and Canada continued its pre-existing quotas and fees after NAFTA agreement was reached; and the U.S. argument is "inconsistent with the U.S.' own application of the WTO tariffication regime." Canada also argues that if the tariffication is not allowed, it will have to revert to the old quota system, which would still not allow any greater market access to U.S. producers, and compliance with the tariffication requirements of WTO/GATT will become impossible among the United States, Mexico and Canada. According to the Canadian government, "The fundamental question to be decided in this case is whether the U.S. can secure through NAFTA dispute settlement something for which it and Canada did not bargain through eight years of bilateral, trilateral and multilateral trade negotiations, and three trade agreements." John Core, head of Ontario dairy farmers, said that U.S. dairy subsidies cheap water, export enhancement programs, land set-asides, and food stamps will be challenged in the next round of WTO agricultural talks, scheduled to start in three years. Core maintains that Canadian farmers can compete with U.S. farmers if these subsidies are eliminated. Ian Elliott, "U.S., Canada Trade Dispute Centers on Tariffication," FEEDSTUFFS, April 1, 1996; Bill Dimmick and Karen Mantel, "Canada Counters U.S. Claims," ONTARIO MILK PRODUCER, March, 1996; Bill Dimmick, "NAFTA Panel Win Predicted," ONTARIO MILK PRODUCER, March, 1996; Randall Palmer, "Canada Expects August Dairy, Poultry Panel Verdict," REUTERS, March 26, 1996; Ian Elliott, "U.S. Dairy Subsidies a Target in Next Round of WTO Talks," FEEDSTUFFS, April 15, 1995. HUNGER AND THIRST "You can't live like this. First they stop us eating meat and now it's only the rich who can drink milk," said a Mexican hotel bellboy on April 1, as his minimum daily wage increased by 12 percent to 22.60 pesos -- $2.99. An estimated 12.5 percent of the population works for the minimum wage. On the same day, subsidized milk prices increased by 50 percent and tortilla prices by 27 percent in Mexico City. With more than a million workers losing their jobs during 1995, the minimum wage buying less than 40 percent of what it did in 1982, and inflation running at 30 percent this year, the Mexican Labor Congress banned union members from taking part in the traditional May Day march in Mexico City. To the north, in the state of Chihuahua, rancher Rodolfo Torres pointed to scavengers perched on a telegraph pole: "The vultures are fattening up like Christmas turkeys," he explained, describing the effects of a four-year drought in northern Mexico that killed 300,000 cattle last year as ranchers rushed to export another 1.6 million head to the United States. The Mexican cattle herd decreased from 6.3 million head in 1994 to 3.2 million in 1995. Water scarcity has also limited irrigation, killing apple trees and decreasing vegetable and fruit production. Water shortages for 12 million human inhabitants of the five northern states are expected this year, if the drought continues. While 43 percent of the population in Latin America and the Caribbean have problems feeding themselves, they do not go hungry primarily because of drought or even shortage of food, but because they lack money to buy it. According to the Inter-American Institute of Cooperation for Agriculture, falling wages and rising unemployment and underemployment lead to higher profits for businesses but decreased access to food for workers. Globalization of trade relies on a model in which each nation produces primarily what it can produce efficiently for an export market. Latin America and the Caribbean actually show a surplus of food production in the 1980s and 1990s. Export production has increased while production of basic foods for domestic markets has decreased. In Central America, there is a shortage of corn. At the same time, international corn prices hit a record high of more than four dollars a bushel. The U.N. Food and Agriculture Organization (FAO) predicts continuing price increases for agricultural produce, especially for produce from temperate regions, and increasing Latin American expenditures on food imports until the end of the century. Latin American and Caribbean agricultural ministers will meet in Asuncisn, Paraguay on July 2-6 to prepare for November's World Food Summit in Rome. Henry Tricks, "Mexico Raises Minimum Wage, But Workers Unhappy," REUTERS, April 1, 1996; Chris Aspin, "Mexican Drought Hits Northern Cattle Farms," REUTERS, March 22, 1996; Gustavo Gonzalez, "Food: The Distribution Quandary," INTERPRESS SERVICE, March 15, 1996; Maricel Sequeira, "Food Plentiful But Shortage of Cash," INTERPRESS SERVICE, April 10, 1996; "Corn Prices Hit All-Time High," REUTERS, March 14, 1996. INTELLECTUAL PROPERTY RIGHTS: SEEDS, TEQUILA, BABY FOOD Intellectual property rights (IPR) have become a leading North-South battleground, key to disputes over products ranging from genetic materials to videos and pharmaceuticals. Copyrights protect products such as computer software, music, movies and books. Trademarks enhance the value of brand-name products, such as Levi's jeans. Patents restrict competing manufacture of products including pharmaceuticals and seeds. U.S. business interests estimate that intellectual piracy and counterfeit products in Latin America cost U.S. companies more than $2.2 billion in 1994. GATT includes extensive IPR protections, but does not protect "pipeline" products under development. GATT also allows developing countries at least a 10-year transition period to gradually strengthen existing laws until they reach the required protection levels. The United States considers the GATT protections weak, and is pressing for adoption of more stringent laws with earlier effective dates. Latin American IPR concerns focus on the skewed exchange of resources that sees U.S. companies patenting seeds and plants that originated in Latin American countries. For example, colored cotton from Peru is being produced, and is about to be patented, in the United States, with no payment to Peruvian farmers who maintained the plant species for generations. According to Pilar Valencia of the Semillas ("Seeds") non-governmental organization in Colombia, developed countries "seek to achieve improved yields, while ignoring the contribution of indigenous and peasant communities" in developing and preserving plant varieties. Latin America is home to 60 percent of the world's plant species, and has pushed for adoption of treaties recognizing national sovereignty over biological resources. U.S. companies have also used trademark laws to circumvent health regulations in other countries. Gerber Products used the threat of GATT sanctions against Guatemala to circumvent its application of the International Code of Marketing of Breast Milk Substitutes. Guatemalan law forbids the use of pictures of babies on baby food labels for children under two years of age, in order to minimize marketing that induces mothers to substitute other foods for breast milk. Gerber's "baby face" is a trademark, and the courts ruled that Gerber need not comply with Guatemalan laws requiring deletion of the picture, addition of the words "breast milk is the best for baby," and indicating the age for introduction of solid food into the baby's diet. Mexican tequila makers and importers were less successful in their attempt to force two U.S. corporations Joseph E. Seagram & Sons and E & J Gallo Winery to stop describing non-tequila wine coolers as margaritas. The Mexican producers maintain that confusion could hurt the $750 million a year U.S. tequila market. Tequila is produced only in Mexico, and the producers claimed intellectual property right protection for margaritas, saying that tequila is an essential ingredient for the drinks. Gallo and Seagram settled the case with an agreement to more prominently state on bottle labels that the products are made with wine or malt rather than tequila. Joachim Bamrud, "Fighting the Pirates," U.S./LATIN TRADE, May, 1995; "Gerber Uses Threat of GATT Sanctions to Gain Exemption from Guatemalan Infant Health Law," CORPORATE CRIME REPORTER, April 8, 1996; "The Gerber Baby Trademark or Con Artist?" INFACT Newsletter, Winter, 1996; Peter M. Tirschwell, "US, Mexico Reach Truce in the 'Margarita Wars,'" JOURNAL OF COMMERCE, April 10, 1996; Humberto Marquez, "No More Free Seeds for the North," INTERPRESS SERVICE, March 14, 1996; Yadira Ferrer, "Colombia: North-South Dispute in Microcosm," INTERPRESS SERVICE, March 18, 1996. COFFEE PRICES, PRODUCTION UNCERTAIN After rising to a high of $2.76 per pound last year and then falling to 98 cents, coffee prices rebounded to $1.19 in early March, as Association of Coffee Producing Countries (ACPC) began reviewing the market situation to decide on the group's strategies for the year beginning in June. The ACPC, which includes most major coffee-producing countries and represents 80 percent of the world's coffee production, is committed to continuing supply management in order to support prices. Brazilian output is expected to rise from 13-16 million 60- kilogram bags in 1995-96 to 23-25 million bags in 1996-97, as the country recovers from 1993's frost and drought. Last year, ACPC members held approximately 20 percent of their crops off the market to bolster prices. Coffee retention places a large financial burden on coffee exporters and governments. The ACPC council will meet in May to decide policy for1996-97. Brazil and Colombia, the world's two largest producers, may push for export quotas instead of continuing coffee retention after June. Mexico, which has not joined the ACPC, captured a larger share of the United States market last season, due to decreased Brazilian production, to the advantages Mexico enjoys under NAFTA, and to the peso devaluation. The Mexican government claims that its multi-million dollar coffee support program, instituted last year for farmers cultivating five hectares or less, has increased 1995-96 coffee production by 14 percent. The government relies on a Mexican Coffee Council forecast of 4.77 million bags, made in November at the beginning of the harvest and not revised since that time. Coffee growers say that production actually fell last year. In Chiapas, which accounts for about 45 percent of national coffee output, production is down by nearly one-third from the state's two million bag output in 1994-95. Howard Simon, "Less Product Means More Profit," JOURNAL OF COMMERCE, March 4, 1996; Deborah Hargreaves, "Coffee Prices Set for Sharp Rise as Production Deficit Cuts Stocks," FINANCIAL TIMES, March 5, 1996; Chris Aspin, "Mexico Output Stats Brew Political Battle," REUTERS, March 12, 1996; Julia Meehan, "Coffee Producers to Debate Further Supply Curbs," INTERPRESS SERVICE, March 22, 1996; Charles W. Thurston, "Latin Producers Miss Price Peak," JOURNAL OF COMMERCE, March 4, 1996. ____________________________________________ NAFTA & Inter-American Trade Monitor is produced by the Institute for Agriculture and Trade Policy, Mark Ritchie, President. Edited by Mary C. Turck. Electronic mail versions are available free of charge for subscribers. 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