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Free Trade and the Coffee Exporters


April 30, 2008
By Brian Martell

Topics

In 1989, Canada and the USA entered into a free trade pact. This
landmark agreement was to herald in a new era of open trade allowing
for greater access to markets on both sides of the border. Five years
later, the agreement was extended to include Mexico into the fold, thus
enhancing the scope of trade to practically the entire continent and
approximately 430 million people. 

In 1989, Canada and the USA entered into a free trade pact. This landmark agreement was to herald in a new era of open trade allowing for greater access to markets on both sides of the border. Five years later, the agreement was extended to include Mexico into the fold, thus enhancing the scope of trade to practically the entire continent and approximately 430 million people.  

When the agreement was signed, much was expounded on the virtue of having unfettered borders, which would increase the wealth of all participants. In some cases the elimination of tariffs and duties would be immediate, while other products would have a gradual phasing out of the applicable tariffs. 

For the most part, the promises of NAFTA were realized with some exceptions. And while the agreement was a success empirically, it did not silence completely the detractors from their philosophical stance that a free market was a bad thing as they exposed less efficient companies or industries to greater competition.
 
Slowly, the benefits accrued to exporters who sell across the continent have been eroded by subtle barriers to trade that have taken the guise of security. What is interesting is that countervailing barriers do not always go up in the case of unilateral policy decisions. 

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As part of the Homeland Security initiatives implemented in the last couple of years by the American government, all imports into the U.S. that involve food products must go through a protracted acid test before products can be accepted into American territory. The rationale has been to reduce the risk of foodstuffs entering the country that could be part of a bio-terrorism plot.

In essence, the American government is saying that the Canadian government cannot assure the security of food production as well as they can, and therefore this added level of bureaucracy must be added to all imports of food coming from Canada (and all other nations for that matter). 

The added burdens to Canadian exporters are:
•    Registration with a certified American customs broker that has 24/7 contact with American officials on all
incoming shipments to the U.S. (this service, of course carries a significant cost and was not necessary prior to the anti bio-terrorism legislation).

•    FDA – EDI fee for all foodstuffs entering the country.

•    Cargo security fee.

•    Prior Notification transmitter fee (under the new law, the American officials need to be advised at least two hours before the shipment arrives at the border and the notification requires the transmission of all
documents pertinent to the shipment. If the shipper fails to provide the required documentation within the specified time, the shipment will be held and a fine in the thousands of dollars will be levied upon the shipper/exporter.

By the time all these fees are added up, it only makes sense to ship into the U.S. if you are moving significant volumes to one location. As such, many small Canadian exporters who have dealt directly with American consumers (primarily within the gourmet trade) have had to close their doors to their American clientele.

Interesting enough, American exporters into Canada are not faced with the same barrier to trade. Apparently, the Canadian government does not share the same misgivings our American counterparts do about our ability to guard against accidental or pre-meditated attacks on our citizens. What this has done, in effect, has created two classes of businesses: one that can ship virtually anywhere in North America, and another who can ship anywhere in North America at a considerably higher cost.

If the NAFTA agreement was meant to harmonize the movement of trade across North America, then it was done so with the understanding that regulations in the three countries pertaining to security and food security in specific were synchronistic. It would not be the first time a nation used security as a means of thwarting imports, but to do so under a framework that has benefited all three participants to the NAFTA is retrograde. While this may seem as a victory for free trade detractors, it also presents a serious possibility of using this back door tactic to revert back to economic isolationism.

American concerns about a threat to their way of life by terrorist factions are not served by restricting trade with economic allies. To the contrary, this may be one of the desired effects America’s opponents are trying to create.o

Questions or comments?  Reach Brian at Brian@heritage-coffee.com