State trading in wheat: Perceptions and reality in Canada-U.S. relations

There are few topics that incite more emotion in Canada-U.S. economic discussions than the issue of unfair trade. Trade between the two countries has always been important because of its size and, in the past, major trading agreements such as the Auto Pact resulted in the development of a large-scale integrated North American industry. Given this, the trade in agricultural products has been limited because of tariffs and because the two countries compete for many products. Recent agreements such as the CUFTA and NAFTA have lowered the tariff and nontariff barriers between the countries but trade irritants, especially in agriculture, remain. Looking broadly, in the United States the existence and operations of the Canadian Wheat Board (CWB) raise a number of questions as to the fairness of Canadian trade in wheat (durum and bread wheat) and barley. In Canada, the operations of the Commodity Credit Corporation (CCC) and the presence of the Export Enhancement Program (EEP) make Canadians question whether the U.S. is a fair trader in grains. The problem is accentuated by the proximity of the two countries and because the grain-growing regions of both countries are separated by a border that is easily crossed. If the surplus grain regions were farther apart, such as those of North America and Europe, the problems would likely be of a different nature. While the two countries started from a different trade orientation, today they compete in the export market. The institutions developed over time are different because of their historical roots, but today they clash. The important difference between the two countries lies not only in the institutions but also in the policies that the countries have adopted to deal with the grain trade. In view of this, the purpose of this paper is three-fold. First, we review some of the definitions of state trading and examine how state traders could affect trade between countries. Second, we review the recent history leading up to the U.S.-Canada wheat conflict and, finally, we discuss the perceptions of the key industry and government players about the wheat conflict and State Trading Enterprises (STEs).