Mexico levies anti-dumping tariffs on U.S. chicken

News
Aug 10, 2012

The U.S. and Mexico have long been engaged in a game of chess. The board: trade. The key pieces: chicken, import duties, alleged violations to international trade agreements, and trade economies. And Mexico just called ‘check.’ Early this month, the Mexican Foreign Trade Commission published a resolution announcing it will be imposing anti-dumping tariffs on imports of U.S. chicken legs, thighs and leg quarters. When precisely these tariffs will be put in place, however, is not as clear.

The final resolution imposes a two-tiered tariff on imports of leg quarters and leg/thigh meat. Imports from some U.S. companies—Simmons, Tyson, Sanderson and Pilgrim’s Pride—will be assessed an anti-dumping duty of 25.7 percent while imports from all other U.S. companies will be assessed a duty of 127.5 percent.

The difference in the tariffs stems from Mexican interpretation of the World Trade Organization’s (WTO) rules. The 25.7 percent tariff would cover the difference between domestic Mexican chicken prices and the prices of imported U.S. chicken and would thereby “be sufficient to remove injury to the domestic [Mexican] industry” according to CME.

The Mexican Ministry of Economy (MME) excused the vastly higher tariff of 127.5 percent by citing WTO rules allowing countries to levy less favorable rulings against companies who did not cooperate during antidumping investigations.

Though final, the tariffs have yet to be applied due to Mexico’s recent issues with avian flu which have decimated its domestic flock and resulted in several economic problems. It is unclear when the tariffs will be levied against U.S. chicken but MME and the Mexican Foreign Trade Commission have said they will issue a statement soon.

The uncertain and delayed nature of the tariffs led some groups to erroneously interpret the announcement as saying antidumping tariffs were not going to happen.

Impact on U.S. ag

Mexico is the number one export destination of U.S. chicken, importing over twice what second-place export destination Russia takes in. According to USDA estimates, Mexico will import 630,000 metric tons of U.S. chicken in 2012, of which 250,000 metric tons (almost 40 percent) could be affected by the tariffs. Despite this, the two-tiered system of the Mexican tariffs coupled with the as yet unknown start date makes knowing the full economic impact difficult.

“The real long term impact is from the flawed logic of imposing anti-dumping duties using the ‘constructed value’ method,” said CME, referencing MME’s means of determining the value of the impact of imports. “It opens the door for such tariffs in other markets where US exporters compete.”

In addition to this concern of precedence-setting bad definitions and methods, the tariffs, once in place, could have a chilling effect on exports of chicken to Mexico.

Such a situation could result in unusually large amounts of chicken in domestic markets and put pressure on the prices of other proteins such as beef.

The U.S. Poultry and Egg Export Council has maintained through the entire process that the U.S. is not dumping chicken on the Mexican market. The U.S. can appeal the move to WTO, but the process is long and a favorable outcome is uncertain.

History of the case

The issue of chicken dumping between the U.S. and Mexico has long been contested. The issue began in early 2011 when three Mexican-based poultry-processing companies petitioned the Mexican government. They claimed U.S. poultry producers were flooding the Mexican market with chicken leg quarters at below-market prices.

MME began investigating the situation for injury to its domestic producers.

In January 2012, MME determined that dumping conditions did exist and began preparations to enact anti-dumping duties against imports of American chicken. Duties on U.S. poultry would range from 64 to 129 percent in the original proposal. In keeping with Mexican law, MME came to a decision by August and went with the aforementioned two-tiered tariff which covers both the low and high end of the tariff spectrum.

In April 2012, 16 senators sent a letter to Ron Kirk, U.S. trade representative, asking him to urge Mexican officials to drop their antidumping case. The authors of the letter claimed the basis of MME’s determination was flawed.

“This action is based on the ‘average cost of production’ and assumes that every part of the chicken should be priced the same, e.g., that the chicken feet have the same value as the chicken breast,” read the opening paragraph of the letter.

 

This is the constructed value concern voiced by CME. WTO provides for constructed value as a means of determining dumping situations. However, constructed values are only to be used as a dumping determination when no normal values exist. U.S. opponents to the move claim that this is not the case in the issue of U.S. chicken leg quarters in Mexico. — Kerry Halladay, WLJ Editor

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