Before BSE was discovered in the U.S., international trade was a $5.76 billion industry, and growing (see page 31). Establishing international trade relationships is important to increase the demand for high-quality beef abroad.
Free trade agreements (FTAs) have created freer access to international markets, done away with trade barriers, and reduced tariffs for U.S. exports.
The U.S. has negotiated several FTAs with countries in just the past couple of years. These include Chile, Morocco, Singapore, Australia and the Central American countries.
The following is an explanation of the latter two agreements — the Australian FTA and Central American FTA (CAFTA), and how they will affect the future of U.S. beef markets.
On Feb. 8, 2004, agreement was reached on an FTA with Australia, pending final approval from Congress.
Australia is the No.-1 exporter of beef. Currently, the tariff rate quota (TRQ) for Australian beef to the U.S. is 378,214 metric tons (mt), with a 4.4¢/kg in-quota tariff and an out-of-quota duty of 26.4%. The first and only time Australia filled their TRQ was in 2001.
“Due to what is being considered the worst drought in its history, Australia will not fill its TRQ in 2003,” says Gregg Doud, National Cattlemen's Beef Association (NCBA) chief economist.
The FTA will phase out the above-quota duties over 18 years. The initial increase will amount to 0.17% of U.S. beef production and 1.6% of U.S. beef imports, according to a fact sheet from the U.S. Trade Representative (USTR).
The agreement increases Australia's FTA access to the U.S. from 15,000 tons to 70,000 tons over that 18-year period.
After BSE was found in the U.S. the agreement was modified to make up for the loss of export markets.
“If U.S. exports do not exceed 2003 levels during the first two years of the agreement, the increase in market access for year 2 would not go into effect,” Doud says.
He adds that throughout FTA negotiations there was an assumption that a new World Trade Organization agreement would be developed within the next 10 years, increasing U.S. access to other international markets via multilateral reductions of tariffs on beef.
“The U.S. cattle industry's primary objective in these negotiations was to prevent any potential negative impact on the U.S. beef industry caused by this FTA before the U.S. beef industry would have an opportunity to increase its ability to export beef via the WTO trade liberalization process,” Doud says. “The expectation being that once this reduction in beef tariffs globally was in place, Australia would not have enough production to meet this global demand and still annually fill its U.S. quota.”
Meanwhile, the CAFTA agreement opens opportunities for U.S. high-quality beef to Central America. Six countries are included in CAFTA — El Salvador, Guatemala, Honduras, Nicaragua, Dominican Republic and Costa Rica. Hotels and restaurants that cater heavily to the tourism industry in these countries have driven up the demand for high-quality beef.
CAFTA's importance is explained on the USTR Web site www.ustr.gov: “The CAFTA countries and many other developing countries already enjoy duty-free access to the U.S. market for the majority of their exports… Yet these countries often have high tariff and non-tariff barriers for U.S. exports and impose restrictions on U.S. businesses.”
The CAFTA agreement secures market access immediately for high-quality beef cuts grading USDA Prime and Choice. It phases out tariffs and TRQs for other beef products over 15 years.