5. Implications of Harmonization and Conlcusion
A casual interpretation of the findings reported in table 3 suggests that
harmonization may not yield large gains for U.S. farmers. While eight chemicals are
more expensive in the U.S., four are more expensive in Canada. Thus harmonization
may increase prices for some U.S. chemicals and reduce them for others. If the U.S. has
a relatively large share of the aggregate Canadian-U.S. market then the resulting price
reductions for the chemicals for which the U.S. is initially the high price market may be
relatively small, while price increases for the chemicals in which the U.S. is initially the
low price market may also be small. However, casual appearances can be deceptive.
Suppose, for any given chemical that is priced low in the Canadian market, the
absolute value of the own price elasticity of demand is large or almost infinite. This
would be the case where there are several close or reasonable substitutes available in that
market, but, either because of differences in regulatory decisions or because of
differences in patent rights, not in the U.S. market. In that case, harmonization would
essentially provide a back door for indirect competition from the substitute chemicals
available in Canada but not the U.S. In such a case, as long as the chemical of interest
remained available the Canadian market (and therefore importable to the United States
under the harmonization initiative), the U.S. price would fall to the Canadian price and
the gains to U.S. farmers would be substantial.
Data on demand elasticities in the two markets are not currently available. Thus it
is not feasible to obtain quantitative estimates of the welfare effects of harmonization.
However, it does seem clear that agricultural chemical companies do exploit the market
segmentation created by differences in the Canadian and U.S. regulatory processes for
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