October 26, 2004

Pork and Protectionism

Wall Street Journal, Page A24

When people use Democratic Senator Robert Byrd and "pork" in the same sentence, they're usually referring to his legendary log-rolling for West Virginia. But now some legislation with his name on it is producing a pig-headed trade war with Canada and hurting American farmers.

The culprit is the Byrd Amendment, the nasty little rule, passed by Congress in 2000 and declared illegal by the World Trade Organization, that funnels the proceeds of anti-dumping suit duties into the pockets of the "injured" parties. You might call it pork barrel for protectionists.

The dumping suit, brought by eight state advocacy groups claiming to represent American pig farmers and 119 individual producers of live swine, alleges that Canada subsidizes its swine industry and then dumps piglets south of the border. The Commerce Department has already ruled against the subsidy charge. But last week it made a preliminary ruling that there is enough evidence of dumping to warrant duties averaging 14%.

The real crime here is competitiveness. Canadians are good at birthing piglets (a process known as "farrowing"); Americans are better at fattening them up before taking them to market. Two-thirds of Canadian swine exports to the U.S. are piglets weighing less than 80 pounds; by weight, imports from Canada represent only 3.3% of the total U.S. market.

American demand for Canadian piglets has gone up since the North American Free Trade Agreement went into effect in the mid-1990s. One reason is that farrowing in a cold climate produces a healthier stock. It's also because small American farmers who don't have the technology and capital to farrow pigs realized that they can be competitive by specializing in fattening. They import them from up north and "finish" them on U.S.-grown feed until they weigh 280 pounds. (U.S. feed to fatten Canadian pigs accounts for $210 million a year in sales.) Then they send them off to U.S. slaughterhouses to become ham and bacon.

The Pork Trade Action Coalition represents hundreds of these small American "finishers" who have adapted to open trade with Canada by concentrating on their comparative advantage and, in the process, have become more competitive. The Canadian piglets also fill a need further down the food chain: There is more capacity in U.S. slaughterhouses than domestic hog growers can supply. According to John Block, a former U.S. Secretary of Agriculture who now advises the Coalition, the Canadian pigs "allow U.S. packers and processors to meet the combined demand for pork in the U.S. and in export markets that the U.S. has been able to develop."

So how come the pork industry wants to harm its own? In part because a few large U.S. pork producers that farrow their own piglets want to raise the costs of their competition that buys from U.S. finishers. A 14% tax is a good way to do it. A second motivation is the Byrd Amendment. Lawyers for the petitioners sent letters to small farmers pointing out that their support would make them eligible "to receive a distribution of the actual antidumping and countervailing duties."

Washington often talks about getting U.S. agriculture off the dole. So how about allowing entrepreneurial farmers to exploit their strengths to create wealth, instead of having to subsidize their less-efficient competition.