May 29, 2015
The Trans-Pacific Partnership (TPP) and U.S. Agriculture
The Trans-Pacific Partnership (TPP) is a potential free trade
agreement (FTA) being negotiated among 12 countries of
the Asia-Pacific region: the United States, Australia,
Brunei, Canada, Chile, Japan, Malaysia, Mexico, New
Zealand, Peru, Singapore, and Vietnam. The TPP
negotiations, which the United States joined in 2008, cover
a broad range of trade topics from government procurement
to foreign investment to trade in services, to cite just a few.
Negotiations over market access for agricultural products
have figured prominently in the discussions as one of a
number of agricultural topics under negotiation.
Exports a Critical Pillar for U.S. Agriculture
Trade is vital for U.S. agriculture, absorbing about 20% of
total agricultural production, with exports claiming a far
larger portion than that of the output of a number of
important commodity crops, including cotton, rice, wheat,
soybeans, almonds, and pecans, to cite a few. By adding to
the demand for U.S. farm products, exports support
commodity prices and contribute materially to higher farm
income. U.S. consumer demand for food is growing slowly,
while exports allow farm products to tap into higher growth
foreign markets. Given that some 95% of the world’s
population resides outside the United States, and that this
population controls 80% of the world’s consumer
purchasing power, the importance to U.S. agriculture and
food industries of capturing a share of the faster growth of
demand for food in developing countries is imperative.
Moreover the U.S. Department of Agriculture (USDA) has
pointed out that most of the expected increase in middleclass households—those with real purchasing power parity
incomes in excess of $20,000 a year—numbering some 300
million between 2013 and 2023 is expected to occur in
developing countries. Furthermore, the Organization for
Economic Cooperation and Development projects that by
2030, 66% of the world’s middle class will reside in Asia.
Tariff Reduction Could Favor U.S. Farm Exports
The extent to which a TPP agreement might boost U.S.
farm exports is difficult to quantify since the terms of an
agreement have not been finalized, nor have negotiating
details been made public. But, there appears to be the
potential for material gains for U.S. food and agricultural
interests. For one, the United States does not have an FTA
with Japan, the country with the second richest economy
and the second largest population in the TPP group, nor
with Vietnam, which has the fourth largest population in the
TPP and is projected to have the fastest economic growth.
Also, while TPP countries accounted for 42% of all U.S.
agricultural exports during the reference period of 20102012, applied tariff rates on imports of agricultural products
are higher in a number of key TPP countries than those
applied by the United States. This suggests there is potential
for U.S. farm exports to expand if tariffs and tariff-rate
quotas (TRQs) are substantially lowered. A TRQ is a quota
for a volume of imports at a lower tariff. When the quota is
reached, a higher tariff is applied on additional imports.
Existing tariff peaks within TPP countries exceed 20% in a
number of product categories, and can be much higher.
Examples include dairy and poultry imports into Canada;
bovine meat, rice, and dairy products into Japan; and
Vietnamese tariffs across a number of food categories.
Figure 1 compares average applied tariffs on agricultural
products in 2013 with TPP countries with which the United
States does not have an FTA and where higher average
tariffs on agricultural products prevail. An agreement that
results in lower tariffs and TRQs across the board should
tend to favor an increase in sales of U.S. farm products.
Figure 1. Applied MFN Tariffs, Agricultural Products
Source: World Trade Organization Tariff Profiles
Notes: Most Favored Nation (MFN) tariffs rates are normal nondiscriminatory tariffs
USDA Sees Potential Gains for U.S. Farm Exports
In a study from October 2014, USDA modeled the effects
on agricultural trade by the year 2025 of a TPP agreement
that eliminated all tariffs and TRQs on agricultural products
as compared with a baseline scenario without a TPP
agreement. Among its conclusions are the following:
1. In the baseline scenario of no-TPP agreement,
intraregional agricultural trade is projected to
expand by $12 billion, or 9%, in 2025 compared
with 2014. The U.S. share of this increase
amounts to $3.4 billion in 2025, a gain of 7%,
while U.S. imports from TPP countries also are
projected to rise by $3.4 billion, an increase of
2. In the TPP scenario, agricultural trade among
TPP countries expands by an additional $8.5
billion in 2025, or 6% above the no-TPP
3. About one-third of the expansion in agricultural
exports under the TPP scenario accrues to the
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The Trans-Pacific Partnership (TPP) and U.S. Agriculture
United States. U.S. exports increase $2.8 billion
more in 2025, or 5%, versus a no-TPP result.
U.S. agricultural imports are projected to climb
by an additional $908 million, or 2%, with TPP.
The TPP scenario projects Japan will absorb the
lion’s share of the increase in agricultural trade,
boosting its imports by $5.8 billion, or 14%.
A central assumption of the study is that all tariffs and
TRQs will be eliminated. That outcome is far from certain,
and a less ambitious result could temper the gains that may
accrue to U.S. farm exports compared with the projections.
Any agreement to reduce or eliminate tariffs and TRQs may
well be implemented progressively over time. To view the
study, go to http://www.ers.usda.gov/publications/erreconomic-research-report/err176.aspx.
Meat, Grains, Dairy to Lead U.S. Farm Trade Gains
The USDA study projects changes in U.S. farm exports and
imports across broad commodity categories in 2025 under a
tariff and TRQ elimination scenario versus a no-TPP
agreement. The product categories that are projected to post
the largest export gains are meat products, cereals, dairy
products, and fruits and vegetables. Gains on the import
side of the trade ledger are led by meat and dairy products
and are more limited in scope (see Table 1).
Table 1. Projected Increases in U.S. Farm Trade with
TPP Countries in 2025 Versus No-TPP Baseline
Source: USDA Economic Research Service
Farm Groups Mostly Supportive, But with Caveats
Numerous U.S. farm organizations and major commodity
groups have expressed support for concluding a TPP
agreement that significantly expands market access for
agricultural products. Among these are the American Farm
Bureau Federation, North American Meat Institute, and
many others. In contrast, the National Farmers Union has
warned against vague promises of market access, asserting
that some past free trade agreements have resulted in U.S.
jobs being shipped abroad, thereby weakening the domestic
market that constitutes the largest outlet for U.S. farm
products. Major U.S. dairy groups have asserted that any
agreement must deliver net trade benefits by delivering
greater access to foreign dairy markets, particularly Canada
and Japan. Representatives of the American Sugar Alliance,
representing sugar production interests, have expressed
concern about opening the U.S. market to additional sugar
imports, whereas the Sweetener Users Association,
representing candy makers and other sugar-consuming
industries, has advocated for expanding access to all TPP
sugar markets, including the U.S. market.
Key Elements to Monitor in a TPP Agreement
Japanese imports are projected to account for 70% of the
agricultural trade gains in USDA’s TPP scenario. As such,
the extent to which potential export gains are translated into
actual opportunities to increase U.S. export sales may hinge
substantially on the degree to which Japan agrees to remove
tariffs and TRQs on its “sensitive” products: pork, beef,
rice, wheat, barley, dairy products, and sugar.
Also important in achieving the export gains projected for
meat and dairy products, according to USDA, is the extent
to which Canada agrees to reduce or eliminate its overquota tariffs on dairy and poultry products that protect
supply management regimes for these commodities, and the
degree to which Vietnam lowers its import tariffs on meats.
Beyond tariffs and TRQs, the removal of non-tariff
measures (NTMs) may facilitate additional growth in trade.
Sanitary and phytosanitary (SPS) measures are among the
most significant NTMs for agricultural trade and one that
has been a topic of the negotiations. SPS measures include
actions taken to protect human, animal, and plant health.
Such measures are consistent with countries’ obligations
under the World Trade Organization as long as they are
science-based, implemented with adequate risk assessment,
and do not discriminate against foreign producers. But SPS
measures can also be disproportionate to actual risk levels
and can be configured to shield domestic producers from
foreign competition, or both, thereby suppressing trade. The
United Fresh Produce Association has identified NTMs as a
growing problem for fresh fruit and vegetable exports and
has called for a timely dispute settlement process to resolve
such incidents. Others have called for rules that will
strengthen the role of science in resolving SPS disputes,
while still other voices have cautioned that new rules must
not trample on national regulatory sovereignty.
Another high-profile issue for TPP concerns geographical
indications (GIs). GIs protect the quality and reputation of
distinctive products from a particular region of a country.
U.S. dairy product manufacturers are keen to see that what
they view as the overly broad application of GIs by the
European Union to food names U.S. companies consider to
be generic or common—“feta” and “parmesan” are two
examples—will not impede U.S. exports in TPP markets.
Mark A. McMinimy, email@example.com, 7-2172
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