Role of empirical evidence in US/Canadian dispute on US imports of wheat, wheat flour, and semolina

Abstract

This article summarizes the 1994 US/Canadian wheat dispute, and critically compares the analyses of the USDA and Canadian Wheat Board (CWB), with the analysis done by the staff of the US International Trade Commission (USITC staff). The USDA and CWB studies are shown to have primarily relied on “expert opinion,” with the result that data and evidence were not given adequate analytical roles in the analyses. The USDA and CWB studies provided a range of estimates of US wheat program cost effects from Canadian imports that was excessively wide. The USITC staff's empirical model is shown to be a more balanced mix of theory and evidence than the other two analyses, and suggests that such program cost effect estimates fell well between the extreme USDA and CWB estimates. © 1996 John Wiley & Sons, Inc.

The Wheat War of 1994: Comment

“…As noted above, in the final report (USITC 1994, II.80-II.96), and in Babula, Jabara and Reeder (1996), CWB/SAG argued, pointedly and at great length, for the validity of the assumption that wheat demanding agents (particularly in the United States) treat U.S. and Canadian wheat consignments as origindifferentiated and imperfectly substitutable goods in each of their three use-based markets (durum, milling and feed) in order to justify their chosen Armington demand framework. As noted above, in the final report (USITC 1994, II.80-II.96), and in Babula, Jabara and Reeder (1996), CWB/SAG argued, pointedly and at great length, for the validity of the assumption that wheat demanding agents (particularly in the United States) treat U.S. and Canadian wheat consignments as origindifferentiated and imperfectly substitutable goods in each of their three use-based markets (durum, milling and feed) in order to justify their chosen Armington demand framework.…”

“…As noted above, in the final report (USITC 1994, II.80-II.96), and in Babula, Jabara and Reeder (1996), CWB/SAG argued, pointedly and at great length, for the validity of the assumption that wheat demanding agents (particularly in the United States) treat U.S. and Canadian wheat consignments as origindifferentiated and imperfectly substitutable goods in each of their three use-based markets (durum, milling and feed) in order to justify their chosen Armington demand framework. AGS inappropriately justified their SE assumptions of 10.0 and 100.0 with Ahmadi-Esfahani's research on the wheat markets of Japan, China and the now defunct Soviet Union, nations that are far too different from the U.S. market to be used as templates for assuming SE values for the U.S. market (see USITC 1994; Babula, Jabara and Reeder 1996). As Babula, Jabara and Reeder (1996) demonstrated, although AGS cited relevant and "high" literature-based substitution elasticity values of 6.0 by Alston et al (1990), some of whom participated in AGS's analysis, AGS then nearly doubled their SE assumptions to 10 for the milling and durum markets, and many times increased SE values to 100 for the feed wheat market.…”

“…AGS's defense of the SE values of 10 and 100 was inadequate, as noted by both Commission staff (USITC 1994, II.80-II.86) and Babula, Jabara and Reeder (1996). We rather criticize the arbitrary way that AGS chose excessive SE values not supported by the relevant literature or data evidence, such that their model generated small importinduced price and program cost effects.…”

“…As Babula, Jabara and Reeder (1996) demonstrated, although AGS cited relevant and "high" literature-based substitution elasticity values of 6.0 by Alston et al (1990), some of whom participated in AGS's analysis, AGS then nearly doubled their SE assumptions to 10 for the milling and durum markets, and many times increased SE values to 100 for the feed wheat market. USITC staff (1994, II.80-II.96) and Babula, Jabara and Reeder (1996) argued that SE values using Alston et al's (1990) values of 6.0 for AGS's durum and milling markets, and literature-implied (e.g. It seems irrational, perhaps even "circular," to choose an Armington model based on U.S.-Canadian wheat differentiation, only to then relegate U.S. and Canadian wheat consignments to highly substitutable products via excessively valued substitution elasticity assumptions.…”

“…USITC staff and Babula, Jabara and Reeder (1996) both demonstrated that exports, as reflected by the USDA's official quarterly data on U.S. wheat exports, were included as one of the empirical model's five endogenous quarterly variables (USITC 1994, II.87-II.88). The USITC…staff report acknowledges that leaving out exports, which constitutes more than half of the demand for U.S. wheat, means that the model is upward of the effect of supply changes on price."…”