U.S. poultry companies will be looking beyond their largest export market for growth opportunities after breaking off talks with Mexico in what might be called an elaborate game of chicken.
The behind-the-scenes talks, designed to settle an eight-month dispute over alleged below-market pricing of U.S. chicken leg quarters in Mexico, ended in mid-April. Mexico now appears poised to impose import quotas on the U.S. goods ranging from 64 to 129.5 percent.
The dispute started last year when Mexico’s largest poultry producers, including industry giant Bochoco, filed an anti-dumping complaint against U.S. poultry exporters, alleging they were selling chicken leg quarters in Mexico at prices lower than they were sold in the U.S.
A Mexican government agency agreed in a preliminary ruling last August, but held off on imposing the tariffs immediately, noting the industry wanted to pursue settlement talks.
Representatives of the U.S. poultry industry spent months trying to negotiate an import quota level with its biggest customer.
For the U.S. industry, the talks served two purposes: They would allow poultry producers to avoid the expense of trade litigation — a defense could cost more than $1 million — while retaining access to much of the market.
Because the U.S. government doesn’t get involved in anti-dumping disputes until all preliminary steps run their course, U.S. producers couldn’t turn there for immediate help. And, once the U.S. does get involved, a case could take years to resolve, and there’s no guarantee of victory, so high duties — and lost market share that could take years to regain — are all too possible.
So executives, concerned the voluntary action might spur similar moves in other countries, pulled out of the negotiations. Setting a ceiling with Mexico would set a bad precedent, one industry representative said.
In the final analysis, it was worth the trouble and expense to fight the trade complaint with Mexico in order to protect other markets, a poultry company executive said.
The largest U.S. poultry companies are now part of corporations that include beef and pork divisions as well. Sales of all three have been growing by double-digit rates to several countries — growth that could be disrupted by import quotas.
But the decision to pull out of the talks is risky. After Russia and China limited U.S. imports in other disputes, those former top U.S. poultry customers became minor players in the market.
That made Mexico a more important customer. U.S. chicken meat exports soared 73 percent to $845.8 million between 2007 and 2011. In the first two months of 2012, those exports to Mexico jumped 36 percent year-over-year, to $166.5 million.
The U.S. industry might not have to wait long to see if ending the talks will have repercussions: Economia, a journal from the Latin American and Caribbean Economic Association, this month announced a May 15 hearing on the anti-dumping complaint in Mexico City. The proposed tariffs could be imposed at that time.
After the talks broke off, a bipartisan group of 16 senators wrote to U.S. Trade Representative Ron Kirk, urging the U.S. government to intercede and protect the U.S. poultry industry.
The anti-dumping charge is unwarranted, the senators wrote, because the Mexican government is treating all cuts of chicken the same, in essence saying boneless, skinless breasts should be priced the same as chicken feet.
The senators also pointed to a carrot Kirk can dangle. Mexican officials have been vocal in their desire to join the proposed 12-nation Trans-Pacific Partnership trading bloc. The senators said they would oppose the addition of Mexico to the TPP as long as the anti-dumping complaint is active.
Jim Sumner, executive director of the U.S. Poultry & Egg Export Council, declined to discuss any aspect of the negotiations, but said the U.S. industry would continue to push its case.
“We were hopeful that the Mexican government would drop the case based on the fact that Mexico is using the same methodology that China used to impose anti-dumping duties on U.S. chicken,” Sumner said. “China and Mexico are both using the theory of equal valuation of all parts. And since our government was willing to challenge China’s action at the WTO on this same principal, we thought it would send a strong signal to Mexico that our government would not allow it to go unopposed. Up until now, that appears not to have resonated.”
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