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

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

2. 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

3. 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

4. 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

5. 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

6. Pesticide Treated Cropland and AverageApplication Rates, Selected Years

7. Differences In Pesticide Use, Selected Compounds, 1992 - 1997

8. 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

9. 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

10. 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

11. 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

12. 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.

13. 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.

14. 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

15. Treflan 95% Price Confidence Intervals

16. Roundup 95% Price Confidence Intervals

17. Malathion 95% Price Confidence Intervals

18. 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

19. 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

20. 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?

21. 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

22. 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.

24. 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.