Canada / United States / Mexico Trade Disputes Workshop Puerto Vallerta, Mexico March 2002

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Canada / United States / MexicoTrade Disputes
Workshop Puerto Vallerta, Mexico March 2002
Access To Pesticides as a Source of Trade Dispute
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OBJECTIVES AND SCOPE

• Pesticides as a Potentially Significant Trade
  Issue within NAFTA
• Price differentials seen as creating a
  competitive disadvantage for farmers growing the
  same crop for the international market
• A second dispute area involves the availability
  of specific products
• A Case Study of Regulation and Harmonization in
  the Context of Free-Trade
• Effects of regulation with strong product
  differentiation
• Cooperation among the regulatory agencies with
  explicit objectives for harmonization

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OUTLINE

• The Context for Disputes
• The role of pesticides
• Stakeholder interests
• The Regulatory Process
• Process for resolving trade irritants
• Current harmonization efforts
• Sources of Conflict
• Evidence of price differences
• Possible causes of price divergences
• Availability issues
• Conclusion

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THE ROLE OF PESTICIDES

• Pesticides Are Necessary
• 86 of the US major crops acreage planted is
  treated at least once with a herbicide
• Fruits and vegetables have higher per acre use
  rates and employ a broader spectrum of pesticides
• Application of pest control products can mean the
  difference between no production and a normal
  crop
• Costs Inherent in Their Use
• Possible harm to non-target species, including
  applicators, bystanders and wildlife
• Possible harmful effects for consumers
• Evolution in the target pests so that they become
  resistant

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PESTICIDE IMPACT ON PRODUCTION, WORLDWIDE

• Alternative?
• Significant expansion of cultivated land, lost
  species habitat
• More intensive use of plows, discs and harrows
• Increased levels of erosion

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Pesticide Treated Cropland and AverageApplication
Rates, Selected Years
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Differences In Pesticide Use, Selected Compounds,
1992 - 1997
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STAKEHOLDER INTERESTS

• Government Itself
• Chemical Companies Who Produce and Sell
  Pesticides
• General Public Who Consume Food Treated with
  Pesticides
• Citizens with Special Concerns about the
  Environment and Food Safety
• Farmers Who Buy the Pesticides
• Bureaucrats Who Regulate Their Use

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THE REGULATORY PROCESS

• Recent Major Legislative Changes In Pesticide
  Regulation
• The Pest Control Products Act of 1995 transferred
  responsibility to the Pest Management Regulatory
  Agency (PMRA) within Health Canada
• The United States the Food Quality Protection Act
  (FQPA) of 1996 significantly changed the way
  pesticides were regulated
• Increased EPA PMRA cooperation to resolve trade
  irritants and explicit goals for harmonization

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RESOLVING TRADE IRRITANTS

• An MRL/tolerance exists in the exporting country
  but it is lower in the importing country so the
  product is out of compliance
• An MRL/tolerance exists in the exporting country
  but one does not exist in the importing country
• A pesticide-commodity combination is registered
  in one country but not in another and growers in
  the country where the use is not registered wish
  to have that option
• A discrepancy is detected resulting from a
  non-registered use in the exporting country
• The exporting country has a time-limited
  tolerance but full registration does not exist in
  the importing country

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CURRENT HARMONIZATION EFFORTS

• Vision / Objectives of the NAFTA Technical
  Working Group on Pesticides
• Growers in all three countries can access the
  same pest control tools
• Develop a North American market for pesticides,
  while maintaining current high levels of
  protection of public health and the
  environment...
• Work sharing, the creation of a joint application
  process and begun work on a NAFTA label that
  would be used in all three countries

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Pesticide Price Differentials Between Canada and
the United StatesCarlson, Deal, McEwan and Deen,
1999

• For Corn and Soybean Herbicides in Ontario and
  the Midwest States
• 6/18 the price difference was less than 5
• 11/18 were more than 5 cheaper in Ontario
• 1/18 was more than 5 cheaper in the U.S.
• For Herbicides on Major Crops in Manitoba and
  North Dakota
• 7/29 the price difference was less than 5
• 18/29 were more than 5 cheaper in Manitoba
• 4/29 were more than 5 cheaper in North Dakota.

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Pesticide Price Differentials Between Canada and
the United StatesCarlson, Deal, McEwan and Deen,
1999

• It Is Not Surprising That
• Manitoba farmers tend to spend more per acre and
  North Dakota farmers tend to use cheaper bundles
  of herbicides
• Additionally when all pesticides, not just
  herbicides are examined, prices in Canada tend to
  be higher than in the U.S.

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Causes of Price Divergences

• Market Power / Pricing Policy

• Differences in price reflect differences
  differences in registration costs or marketing
  and distribution costs
• Both the previous models can apply

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Treflan 95 Price Confidence Intervals
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Roundup 95 Price Confidence Intervals
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Malathion 95 Price Confidence Intervals
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CAUSES OF PRICE DIVERGENCES

• Market Power / Pricing Policy
• Differences in price reflect differences
  differences in registration costs or marketing
  and distribution costs
• Both the previous models can apply

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AVAILABILITY ISSUES

• Significant Numbers of Pesticides Have to Be
  Re-registered
• Some will be considered too toxic
• Others will not have a large enough projected
  sales volume to warrant the cost of
  re-registration
• Shift to a risk cup may make it less desirable
  to apply for minor use registrations

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AVAILABILITY ISSUES

• Existing Value-added strategies typically
  encourage expansion of low-volume crops
• Loss of access to existing pesticides may be
  crucial for current minor use crops
• Without chemical pest control some types of
  production will face lower yields, lower quality
  and higher production costs
• It is unlikely that new compounds will be
  developed if old ones are not profitable
• But without access to chemicals these strategies
  will be problematic
• How much will harmonization allow demand
  aggregation?

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CONCLUSIONS

• Pesticides are an increasingly important part of
  agricultural production technology, but...
• Their inherent toxicity means they will continue
  to face stringent regulation.
• Differences in access to pesticides, or in their
  cost, will affect production opportunities.
• Farmers appear to be successful in adapting their
  pest management strategies to differences in
  prices in the cases where a number of substitutes
  exist

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CONCLUSIONS

• While significant cross border price differences
  can be found, they are neither uni-directional
  nor do they exist for all compounds.
• Efforts to harmonize pesticide access face major
  challenges in terms of differences in attitude to
  risk, differences in environmental fate, and
  differences in actual costs.
• While harmonization is in the interest of most
  participants it may not be in the interest of
  all. However current efforts to harmonize the
  scientific base for making decisions are
  certainly desirable.

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CONCLUSIONS
Pesticides are an increasingly important part of
agricultural production technology, but because
of their inherent toxicity they will continue to
face stringent regulation. Differences in
access to pesticides, or in their cost, will
affect production opportunities. But while
significant cross border price differences can be
found, they are neither uni-directional nor do
they exist for all compounds. Efforts to
harmonize pesticide access face major challenges
in terms of differences in attitude to risk,
differences in environmental fate, and
differences in actual costs. While harmonization
is in the interest of most participants it may
not be in the interest of all. However current
efforts to harmonize the scientific base for
making decisions are certainly desirable.