Impacts of Australian and Central American FTA’s
For U.S. Agriculture
The 2004
National Pubic Policy
Education Conference
St. Louis, Mo.
September 22, 2004
Mechel S. Paggi
Director
Center for Agricultural Business
California State University, Fresno
U.S.-Australia Agricultural Trade, 1990-2003
C
Million U.S. Dollars
NAS
$800
$612
$400 $226
$283
$273
$332
$409
$339
$322
$353
$329
$319
$317
$290
$338
$0
-$400
-$578
-$800
-$603
-$742
-$808
-$850 -$855
-$898
-$948
-$956
-$958
-$987
-$1,107 -$1,074
-$1,137
-$1,174 -$1,180
-$1,277 -$1,276
-$834
-$1,200
-$511 -$533
-$1,467
-$1,600
-$1,592
U.S. Exports
U.S. Imports
Balance
-$1,556 -$1,508
-$1,757
-$2,000
-$1,894
-$2,120
-$2,400
1990 1991 1992 1993 1994 1995 1996 1997
July 1,U.S.
2016
Source:
Trade Internet System, www.fas.usda.gov/ustrade
1998
1999
2000
2001
2002
2003
U.S. Agricultural Trade with Australia, 2003
Total Exports: $612 Million
Total Imports: $2,120 Million
Animal Products
60.6%
Animals
37.9%
Oilseeds
21.2%
$1,174
$232
$130
$111
$44
Hort
18.1%
Grains
7.2%
$627
$95
Other
15.5%
Bev
29.5%
Sugar
Other
Hort 2.1%
2.8%
2.8%
Grains
2.2%
C
NAS
Source: U.S. Trade Internet System, www.fas.usda.gov/ustrade
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 Cattleman’s 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
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
C
NAS
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)
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)
Cotton
• Australian Commitments
• The current situation . . . Under the World Trade Organization (WTO)
agreements, Australia’s 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 States’11 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.
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 $152
million.
Dairy
Australia Dairy Product
Imports
Value, 2002
Australia
Butter of Cow Milk
Imports - Val
1000$
10502
Australia
Skim Milk of Cows
Imports - Val
1000$
46
Australia
Whole Milk,Condensed
Imports - Val
1000$
3489
Australia
Yogurt Concentr.Or Not
Imports - Val
1000$
2426
Australia
Butterm,Curdl,Acid.Milk
Imports - Val
1000$
1138
Australia
Whole Milk, Evaporated
Imports - Val
1000$
653
Australia
Dry Whole Cow Milk
Imports - Val
1000$
4452
Australia
Dry Skim Cow Milk
Imports - Val
1000$
2370
Australia
Dry Whey
Imports - Val
1000$
5684
Australia
Cheese (Whole Cow Milk)
Imports - Val
1000$
118918
Australia
Whey, Fresh
Imports - Val
1000$
0
Australia
Whey Cheese
Imports - Val
1000$
0
Australia
Prod.Of Nat.Milk Constit
Imports - Val
1000$
2870
Total Dairy Product Imports
Source: FAOSTAT
152548
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
C
NAS
U.S.-DR/Central America Free Trade Agreement
NICARAGUA
HONDURAS
EL SALVADOR
UNITED STATES
COSTA RICA
GUATEMALA
DOMINICAN REPUBLIC
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
U.S. Ag Trade with DR-CAFTA, 2003
Million Dollars
$865
$1000
Exports
$763
Imports
Balance
$800
$442
$600
$400
$349
$242
$238
$105$133
$200 $221
$200
$0
-$21
-$200
-$400
-$600
-$414
-$623
-$800
July 1, 2016
Source: Foreign Trade Statistics, U.S. Census Bureau
$95 $114
-$19
$280
$162
U.S. Agricultural Imports from Central American
Total, 1990: $1,566 million
Fruit/Veg.
$133
Bananas
$453
Total, 2003: $2,654 million
Fruit/Veg
$527
Fish
$211
Bananas
$674
Other Fish
$264 $478
Coffee
$372
Sugar
$133
Source: U.S. Trade Internet System, www.fas.usda.gov/ustrade
Other
$328
Coffee
$459
Sugar
$188
U.S. Agricultural Exports to Central America
Total, 1990: $483 million
Total, 2003: $1,339 million
Grains & Feeds
$218
Grains & Feeds
$582
Other
$47
Oilseeds
$260
Other
$129
Beverages
$37
Oilseeds
$90
Animals
$47
Veg/Fruit
$44
Source: U.S. Trade Internet System, www.fas.usda.gov/ustrade
Animals
$204
Cotton
$47
Veg/Fruit
$117
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
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
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
U.S. Exports of Yellow Corn
Costa Rica and the DR have no restrictions on the imports of yellow corn, except for Costa Rica’s 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 TRQ’s:
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:
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
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
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 Agreement’s 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 dutyfree apparel, which also favors U.S. cotton content.
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.
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
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
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.
Horticultural Products
Central American Commitment:
• Immediate duty-free access for many U.S. priorities
Apples
Peaches
Nuts
Pears
Canned fruits
Sweet corn
Grapes
Selected juices
Mushrooms
• 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
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
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
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
Effective Preferential Access: Improvement
Relative to Your Competitors
Ranking of preference in CAFTA markets
Before CAFTA/DR
Central America
CAFTA countries
Duty Free
Chile
Mexico
DR
Preferential Access
MFN Access
DR
Duty Free
Preferential Access
MFN Access
Source: Table 6
Venezuela
Colombia
Canada
Caribbean
Brazil
EU
US
After CAFTA/DR
CAFTA countries
Chile
Mexico
DR
US
Venezuela
Colombia
Canada
Caribbean
Brazil
EU
CAFTA countries
Caribbean
CAFTA countries
Caribbean
US
Andean Group
Canada
Chile
Mexico
Venezuela
Colombia
Brazil
EU
US
Andean Group
Canada
Chile
Mexico
Venezuela
Colombia
Brazil
EU
Example of Impacts of Effective Preferential Access
DR-CAFTA Demographics
Pop.
(mil)
GDP/
Person
Poverty
%
Lit.
%
Ag. Pop.
%
Costa Rica
3.9
$8,300
20.6
96
20
El Salvador
6.5
$4,600
48
80.2
30
Guatemala
13.9
$3,900
75
70.6
50
Honduras
6.7
$2,500
53
76.1
34
Nicaragua
5.1
$2,200
50
67.5
42
Dom. Rep.
8.7
$6,300
25
84.7
17
45.3
79.2
32.2
Country
Total/Avg. 44.8 $4,633
July 1, 2016
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
C
NAS
July 1, 2016
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