THE EUROPEAN UNION-UNITED STATES WHEAT GLUTEN POLICY DISPUTE

On June 1, 1998, President Clinton approved a three-year quota on wheat gluten imports from Australia, the European Union, and all other nonexcluded countries. The quota-remedy will be reviewed for possible extension for up to five additional years. The potential for extensions is an important reason to develop a better economic understanding of this industry and the effectiveness of the implemented quotas. The purpose of this paper is to provide background on the gluten trade dispute, to decipher the qualitative impacts of EU policies on world gluten markets, and to evaluate the potential effectiveness of the U.S. quota remedy. The U.S. industry has operated at a low level of capacity utilization, implying high elasticity of supply; demand is inelastic; and Canada, a major producer and exporter of gluten, was excluded from the quota. These factors are likely to significantly limit the quota's effectiveness but may give the industry time to develop value-added products that use their primary outputs.