Impacts of Australian and Central American FTAs For U'S' Agriculture The 2004 National Pubic Policy

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Impacts of Australian and Central American
FTAsFor U.S. AgricultureThe 2004National
Pubic PolicyEducation ConferenceSt. Louis,
Mo.September 22, 2004
Mechel S. Paggi Director Center for Agricultural
Business California State University, Fresno
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U.S.-Australia Agricultural Trade, 1990-2003
Million U.S. Dollars
800
612
409
353
339
338
332
329
322
319
317
400
283
290
273
226
0
-400
-511
-533
-578
-603
-800
-742
-808
-834
-850
-855
-898
-948
-956
-958
-987
-1,074
-1,200
-1,107
-1,137
-1,174
-1,180
-1,277
-1,276
-1,467
-1,600
-1,508
-1,556
-1,592
U.S. Exports
U.S. Imports
Balance
-1,757
-2,000
-1,894
-2,120
-2,400
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
Source U.S. Trade Internet System,
www.fas.usda.gov/ustrade
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U.S. Agricultural Trade with Australia, 2003
Total Imports 2,120 Million
Total Exports 612 Million
Animal Products
60.6
Animals
37.9
Oilseeds
21.2
1,174
232
130
627
111
95
44
Hort
Bev
Other
18.1
Sugar
29.5
15.5
Grains
Other
2.1
Hort
7.2
2.8
2.8
Grains
2.2
Source U.S. Trade Internet System,
www.fas.usda.gov/ustrade
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U.S. Australia FTA Expectations and Concerns
Direct Benefits Expected for a Few 60 of
projected US 1.2 Billion for Australia from
expanded Dairy and Sugar
exports 75 of projected US 1.8 billion to US
from expanded trade in motor
vehicles, TCF and other manufactured
goods Initial Opposition on both Sides U.S. -
National Cattlemans Beef Association -
CFBF List SPS measures
State-Trading
Import Sensitive
Commodities (peaches
pears, apricots, etc.)
Need for
Safeguards Australia negative impact on small
holders loss
of benefits of single desk sellers
CIE, Caberra, June 2001
Global Trade Watch
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What Happened

• Australia Will Eliminate All Tariffs Immediately
• Currently, Australia maintains tariffs as high as
  30 percent on certain dairy products and tariffs
  of 4 to 5 percent on fresh and processed fruits
  and vegetables, processed foods, some grains,
  oilseeds and other products.
• US Fruits/Vegetables Have Price Safeguards
• US Beef Has 18 Year TRQ
• Price Trigger Safeguard Indefinitely
• US Dairy Has 18 Year Tariff-Rate Quotas
• Affects Cheeses, Milk Powder Ice Cream
• US Cotton Peanuts Have 18 Year TRQ
• US Sugar Grants No Additional Access

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• Horticulture Products
• Currently just 2 of Australian products enter
  duty free
• After the Agreement 99 percent will
• Fresh mangoes (6.6 per kg)
• Mandarins (1.9 per kg)
• Fresh tomatoes (seasonal tariffs up to 3.9 per
  kg)
• Olives (8.8 per kg)
• Olive oil (3.4 per kg)
• Fresh Macadamia nuts (5 per kg)
• Cut flowers (up to 6.4 per kg)
• (Remainder over time see backgrounder)

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US Imports 1.4 mmt US Production 12.5
mmt Australia 2 behind Canada
Current quota 378,214 expands over 18 years,
unlimited duty free access thereafter. In quota
tariff of 4.4 cents per kg. eliminated
immediately and the over-quota tariff of 26.4
reduced over 18 years to zero. Price based
safeguards equal to 65 percent of the applied MFN
tariff rate (17.16) on over quota imports remain
in place if the first quarter price (U.S.
Wholesale Select Box Beef index price) falls
below the 24 month rolling average. (see details
in beef backgrounder)
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Cotton

• Australian Commitments
• The current situation . . . Under the World Trade
  Organization (WTO) agreements, Australias tariff
  on cotton is bound at zero. From 2001 through
  2003, U.S. suppliers exported an average of
  102,000 of cotton to Australia.
• With the agreement . . . Australia continues its
  duty-free tariff treatment for cotton to sustain
  the United States11 percent-import market share.
• United States Commitments
• The current situation . . . Cotton is subject to
  tariff rate quotas (TRQ) established as part of
  the U.S. commitments in the WTO with in-quota
  tariffs ranging between 0 and 4.4 cents per
  kilogram. U.S. cotton imports exceeding the TRQ
  face import tariffs of 31.4 cents per kilogram.
  The U.S. TRQ has never been fully utilized by
  Australia or other countries. Australian cotton
  exports to the United States have been minimal
  because of market conditions.
• With the agreement . . . The United States will
  establish a special FTA TRQ for Australian
  cotton. This FTA TRQ will allow duty-free access
  initially for 250 metric tons of cotton that will
  expand over 18 years at a rate of 3 percent
  annually. The over-quota tariff will be reduced
  to zero in equal annual steps over 18 years.

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DAIRY

• Australian Exports to the U.S, 5 of US Total
• 3 of Cheese total and 7 of Other Dairy
  Product
• total.
• U.S. Exports to Australia, our 13th largest
  market
• Accounting for around 1 of our total exports
• About 12 million our of Australian total of 152
  million.

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Dairy
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Remaining Concerns Issues

• Australian Wheat Board Not Disciplined
• Concerns About Impacts of Manufacturing Beef
  Imports from Australia on U.S. Cull Cow Prices
• SPS Not Satisfactorily Addressed in Australia
  Agreement
• See Australian Govt. Fact Sheet
• Section on Protecting Their Ag Interests

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U.S.-DR/Central America Free Trade Agreement

NICARAGUA
HONDURAS
EL SALVADOR
UNITED STATES
COSTA RICA
GUATEMALA
DOMINICAN REPUBLIC
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Central American Market Summary

• Significance of the Central American Market
• Total U.S. exports valued at 15 billion in 2003
• Equal to combined exports to Russia, India, and
  Indonesia
• Agricultural exports over 1.3 billion
• U.S. holds the largest import market share
• Barriers to U.S. Trade
• Average WTO bound rate 45
• Key U.S. exports face WTO bound rates as high as
  250
• Many non-tariff barriers to trade
• Price Bands, Discretionary Import Licensing, and
  Absorption Agreements

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U.S. Ag Trade with DR-CAFTA, 2003
Million Dollars
865
1000
Exports
Imports
Balance
763
800
442
600
349
280
242
238
221
400
200
162
133
114
105
95
200
0
-19
-21
-200
-400
-414
-600
-623
-800
Honduras
Nicaragua
Costa Rica
Guatemala
El Salvador
Dominican Rep.
Source Foreign Trade Statistics, U.S. Census
Bureau
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U.S. Agricultural Imports from Central American
Total, 1990 1,566 million
Total, 2003 2,654 million
Bananas
Fruit/Veg
453
527
Fruit/Veg.
Bananas
133
674
Fish
211
Fish
Other
478
264
Other
328
Sugar
Sugar
Coffee
Coffee
133
188
372
459
Source U.S. Trade Internet System,
www.fas.usda.gov/ustrade
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U.S. Agricultural Exports to Central America
Total, 1990 483 million
Total, 2003 1,339 million
Grains Feeds
Grains Feeds
218
582
Other
47
Oilseeds
Other
260
129
Beverages
Oilseeds
Cotton
37
90
47
Animals
Animals
Veg/Fruit
204
Veg/Fruit
47
44
117
Source U.S. Trade Internet System,
www.fas.usda.gov/ustrade
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Key Elements of the Agreements

• Tariff Elimination
• General Approach
• All products go to zero
• Linear cuts from applied rates
• Staging Immediate, 5, 10, and 12/15 years
• Backloaded cuts for some sensitive products

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Key Elements of the Agreements

• Tariff-Rate Quotas
• Limited to sensitive products
• Zero in-quota duty
• In addition to existing WTO quota commitments
• Country-specific TRQs
• Safeguards
• Applies to limited number of products
• Volume-based
• Expire once duties are eliminated

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Corn

• Central America Commitment
• Yellow corn
• duty phase-out over 15 years
• Initial TRQ of approximately 1 million MT
• Costa Rica immediate duty-free
• White corn
• Initial TRQ of 83,000 MT, growing 2 annually
• No out-of-quota duty phase-out
• Costa Rica no TRQ, linear 15 year phase-out
• U.S. Commitment
• Current zero duty locked-in immediately

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U.S. Exports of Yellow Corn Costa Rica and the DR
have no restrictions on the imports of yellow
corn, except for Costa Ricas 1 duty that is to
be eliminated immediately under FTA. Therefore,
there would Likely be no expected change in U.S.
Yellow Corn exports to these countries as a
result of The FTA. For the remaining countries,
the FTA will provide the following access under
TRQs
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U.S. Exports of White Corn The DR has no
restrictions on imports of white corn and there
fore there would likely be no change in U.S.
white corn exports to this Country as a result of
the FTA. For four of the CA countries, the FTA
will provide the following TRQ access for U.S.
white corn exports
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Rice

• Central America Commitment
• Tariffs eliminated over 18 years (Costa Rica 20
  years)
• Tariff cuts back-loaded
• Safeguard
• Initial rough rice TRQ 343,000 MT, growing 2-5
  annually
• Initial milled rice TRQ 39,750 MT, growing 5
  annually
• U.S. Commitment
• Current zero duty locked-in immediately

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Beef

• Central American Commitment
• Immediate duty-free access for prime and
  choice cuts
• Other cuts phased-out over 15 years
• Duties on other products, including offals,
  phased-out over 5-10 years
• U.S. Commitment
• Total initial TRQ of 20,940 MT, growing 5
  annually
• In addition to existing U.S. WTO quota
• Country-specific TRQ
• CAFTA TRQs open only after WTO quota fills

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Cotton CA/DR Commitment

• Before DR-CAFTA. . . U.S. cotton face an applied
  import tariff of 1 percent zero on product
  shipped to Costa Rica, while product shipped to
  the other six countries enters duty-free. WTO
  Bound import duties range from 35 to 60 percent,
  depending on the country. While all six countries
  import raw cotton from the United States,
  Guatemala and El Salvador are the largest
  importers. From 2000 through 2003, U.S. suppliers
  annually shipped on average 47,000 metric tons
  valued at 55.4 million to all six countries
  combined.
• After DR-CAFTA. . . The DR-CAFTA will ensure
  continued access to Central American markets for
  U.S. cotton producers by immediately eliminating
  all bound import duties. Over the longer term,
  with the Caribbean Basin Initiative due to expire
  in 2008, the Agreements rules of origin will
  continue to favor increased access to the U.S.
  market for Central American and Dominican apparel
  and textiles made from U.S. cotton. The Agreement
  also includes a considerable allowance for using
  NAFTA fabric for duty-free apparel, which also
  favors U.S. cotton content.

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Cotton US Commitment

• Central American and Dominican Exporters Secure
  Improved Access to U.S. Buyers
• Before DR-CAFTA. . . The DR-CAFTA countries
  produce a very small amount of cotton and it is
  used internally. Although they do not export raw
  cotton to the United States, they are significant
  suppliers of apparel to the United States,
  particularly under the Caribbean Basin
  Initiative.
• After DR-CAFTA. . . The U.S. import duty on raw
  cotton from all six countries is phased out over
  15 years. More importantly, these countries will
  gain increased access to the U.S. market for
  their textiles and apparel. There is also a
  special arrangement allowing limited amounts of
  apparel and textiles, which are in short supply
  in the U.S. market, to contain third-country
  fabrics, whether they are made from cotton,
  synthetic, or natural fibers. The degree to which
  this special arrangement is used for apparel made
  from synthetics will determine the impact on
  their demand for U.S. cotton.
• Nicaragua
• In addition, Nicaragua will have a Trade
  Preference Level of 100 million square meter
  equivalents. This means third-country yarn and
  fabrics can be used in Nicaragua for an
  equivalent amount of duty-free apparel exported
  to the United States.

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Pork

• Central American Commitment
• Tariff phase-out over 15 years
• Total initial TRQ of 9,450 MT, growing 5-15
  annually
• Immediate duty-free access for bacon and some
  offal products
• U.S. Commitment
• Current zero duty is locked-in immediately

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Poultry

• Central American Commitment
• CA-4
• TRQ (leg quarters) established at greater of
  21,810 MT or 5 of regional production
• Tariff phase-out 18 years
• Costa Rica
• 300 MT TRQ (leg quarters), growing at 10
  annually
• Tariff phase-out 17-years
• Other products phased-out more quickly, many
  within 10 years
• U.S. Commitment
• Current zero duty is locked-in immediately

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Dairy

• Before DR-CAFTA. . . Depending on the country and
  product, U.S. dairy product exports faced a range
  of different tariff rate quotas (TRQs) and import
  tariffs as high as 65 percent, while World Trade
  Organization (WTO) bound tariff rates run as high
  as 100 percent. For example, Costa Rica applied a
  65-percent tariff on dairy product imports, while
  Guatemala imposed a TRQ with high protective
  tariffs on over-quota quantities. Without
  preferential access, U.S. dairy products face
  stiffer competition from the EU, New Zealand, and
  Canada. From 2001 through 2003, U.S. suppliers
  annually shipped on average 17,880 metric tons of
  dairy products valued at 44.1 million to all six
  countries combined, and the U.S. share of their
  import market was 10-15 percent. During this
  period, the Dominican Republic was the largest
  market accounting for an annual average of 4,757
  metric tons valued at 12.4 million.
• After DR-CAFTA. . . . In broad terms, the
  agreement on dairy products establishes a
  two-track approach with the objective of
  achieving free trade within 20 years. The first
  step is the establishment of reciprocal duty-free
  TRQs. The 5 Central American countries and the
  Dominican Republic combined permit immediate
  access to over 10,000 tons of U.S. dairy
  products. In the Central American countries these
  duty-free TRQs then expand at an annual compound
  rate of 5 percent. In the Dominican Republic the
  TRQs grow at a simple rate of 10 annually.
  Individual country dairy product TRQs are divided
  into product categories with their respective
  quantitative limits.
• The second and concurrent step involves the
  immediate elimination of in-quota tariffs on
  dairy products. The over-quota dairy import
  tariffs and safeguard duties are phased out over
  a 20-year transition period (for some products
  the time period is 10-15 years). Over-quota
  tariffs on dairy TRQs, remain at base rates for
  years 1 through 10. Beginning the 11th year,
  over-quota tariffs are reduced in 10 equal stages
  until all tariffs are eliminated in the 20th
  year. The provisions for the activation of
  safeguard duties are identical for all DR-CAFTA
  members. When imports surpass the quota by 30
  percent a safeguard measure may be used, which
  raises the tariff up to the base tariff rate in
  years 11 through 14. In years 15 through 17 a
  safeguard duty of 75 percent of the difference
  between the current applied tariff and the base
  tariff may be imposed. During years 18 and 19 the
  safeguard duty falls to 50 of the difference
  between the current applied tariff and the base
  tariff. Safeguards are eliminated in year 20.

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Horticultural Products

• Central American Commitment
• Immediate duty-free access for many U.S.
  priorities
• Duties on most other products phased-out over
  5-10 years
• French fries
• CA-4 Immediate duty-free access for frozen
  french fries
• Costa Rica Canada Parity
• Costa Rica
• TRQ for fresh onions and potatoes
• No out-of-quota duty phase-out
• U.S. Commitment
• Current zero duty is locked-in immediately

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Sugar

• Central America Commitment
• Duty phased-out over 15 years
• U.S. Commitment
• Additional initial TRQ of 97,000 MT
• TRQ grows by 2 in perpetuity
• No out-of-quota duty reduction

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CAFTA Before and After
CAFTA Effect on Central American Tariffs

• Before
• Average Applied Tariff
• Simple 11.2
• Trade weighted 10.4

• CAFTA Day 1
• Average Applied Tariff
• Simple 6.7
• Trade weighted 3.2

Based on current trade and including TRQ
in-quota access
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CAFTA Before and After
U.S. Agricultural Exports to Central America
Pre-CAFTA
CAFTA Year 1
Duty Free 382 million Dutiable 672 million
Duty Free 833 million Dutiable 221 million
Duty Free Dutiable
Includes both immediate tariff elimination and
duty-free in-quota access
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Effective Preferential Access ImprovementRelativ
e to Your Competitors
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Example of Impacts of Effective Preferential
Access
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DR-CAFTA Demographics
Total/Avg.
44.8
4,633
45.3
79.2
32.2
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Strategic Considerations

• Support Democracy in Latin America?
• Reduce Illegal Immigration?
• Secure Strategic Materials?
• Oil/Natural Gas
• Fertilizer
• Create Buffer Against Terrorism?
• Seam State Argument, Tom Barnett, U.S. Naval
  War College

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Summary

• Benefits of DR/CAFTA Likely Slow in Coming
• And More Linked to Economic Development and
• Stability
• Cost of DR/CAFTA Likely Small, some selected
• Commodities like melons
• Benefits of Australia FTA Likely Not Much for
• Agriculture
• Cost of Australia FTA Likely Not Much Overall
• Some Concerns for Dairy But Analysis Suggest
• -3 range for Price Effects on Protein
  Concentrate
• And Processed meats and other beef markets
• Real Benefits in Maintaining Competitive
  Preference
• With other Countries into Selected Markets