TPP: Selected Commodity Impacts for U.S. Agriculture

TPP: Selected Commodity Impacts for U.S. Agriculture

November 19, 2015
TPP: Selected Commodity Impacts for U.S. Agriculture
In evaluating the potential implications of the proposed
safeguard measures allow for additional tariffs to be
Trans-Pacific Partnership (TPP) free-trade agreement for
imposed if imports should exceed designated quantities.
U.S. food and agriculture, an important consideration is that
3. If the United States chooses not to implement the TPP
exports make a substantial contribution to the sector.
agreement, U.S. agricultural export competitors would have
Exports absorb about 20% of total farm output, thereby
an opportunity to gain a competitive edge over U.S. exports
contributing materially to higher commodity prices and
of certain products to Japan and elsewhere. This could
farm income. The positive ripple effects from farm trade to
occur as a result of existing preferential tariff
the sector extend beyond farmers and ranchers to rural
arrangements—such as Australia’s FTA with Japan—or by
communities; farm input industries that provide seed,
ratifying an agreement similar to TPP without U.S.
fertilizer, and machinery; and commodity processors and
participation. Also, while the European Union is not party
food manufacturers with a stake in foreign markets. Exports
to the TPP, it is negotiating FTAs with Japan, Malaysia,
may also contribute to higher input prices for food to the
and Vietnam that could enhance its competitive position in
extent that additional foreign demand is not met by an
those markets.
increase in domestic supplies, although commodity costs
amount to a fraction of overall retail food prices. Rising
Specific Market Access Commitments
farm productivity, market-oriented U.S. farm policies, and
The TPP agreement would affect market access for a broad
the prospect of competing for faster-growing food markets
range of agricultural commodities and food products. The
in many developing countries contributed to broad support
list below is a selection of some of the notable changes
in U.S. agriculture for pursuing a TPP agreement.
included in the agreement. It is in no way comprehensive.
On initial read, it appears the TPP agreement reached in
•
Beef: Japan ranks as the largest U.S. export market for
October 2015 would significantly improve market access
beef and beef products, according to the U.S. Department of
for many U.S. food and agricultural products, potentially
Agriculture (USDA). Under the TPP agreement, Japan
enhancing U.S. competitiveness in a number of markets. It
would drop its current tariff on fresh, chilled, and frozen
also would provide TPP partners with greater access to U.S.
beef from 38.5% to 27.5% in year one, with subsequent
product markets. TPP participants are Australia, Brunei,
annual reductions to 9% by year 16. Japan would lower
Canada, Chile, Japan, Malaysia, Mexico, New Zealand,
tariffs on other beef products as well, while Vietnam would
Peru, Singapore, the United States and Vietnam. Congress
eliminate such tariffs over three to eight years. The United
would need to pass implementing legislation for the
States, for its part, would eliminate tariffs on beef and beef
agreement to enter into force for the United States.
products that range as high as 26.4% in no more than 15
The text below identifies three considerations around the
years and in fewer than 10 years in most instances.
TPP agreement that are particularly relevant for U.S. food
•
Pork: Japan, which also ranks as the leading market
and agricultural interests. This is followed by a partial
for U.S. pork and pork product exports, would immediately
snapshot of some of the higher-profile improvements in
cut its tariff of 4.3% on fresh, chilled, and frozen pork cuts
market access for agricultural products in the agreement.
to 2.2%, phasing out the residual over nine years. A
Key Considerations for Food, Agriculture
separate duty on pork cuts under Japan’s “gate price
system,” which acts as a minimum import price, would be
1. An overarching consideration is that among significant
lowered immediately to 125 yen per kilogram, from 482
TPP markets, the United States lacks free trade agreements
yen now. This duty would then be cut to 70 yen in year five
(FTAs) with Japan, Vietnam, and Malaysia. As such, these
and subsequently lowered each year to reach 50 yen in year
countries likely offer the greatest potential for boosting U.S.
10. A special U.S.-specific safeguard would allow Japan to
farm and food exports via lower tariff, or expanded tariff
temporarily increase the duty during this transition period if
rate quotas (TRQs). Under a TRQ, lower tariffs are applied
imports were to exceed a trigger level. Vietnam would
to in-quota imports with higher rates for over-quota
eliminate tariffs that are as high as 34% on pork and pork
product. Japan is likely the leading market opportunity in
products within 10 years, while the United States would
the TPP due to its highly protected farm and food markets,
immediately eliminate most such tariffs.
large population, and high per capita gross domestic
product.
•
Poultry: Canada would allow incremental increases in
access to its highly protected poultry and egg markets over
2. Also significant is that potential key export expansion
five years via new duty-free TRQs amounting to 2.3% of
opportunities for U.S. food and agriculture interests, such as
domestic production for eggs, 2.1% for chicken, 2% for
beef and pork to Japan and dairy products to Japan, Canada,
turkey, and 1.5% for broiler hatching eggs. Thereafter, the
and Vietnam, generally are to be phased in over a period of
quotas would be raised moderately each year, plateauing in
years, if not decades. For certain products in certain
year 19. Vietnamese tariffs on poultry of up to 40% would
countries, such as Japan for beef, pork, and whey powder,
be eliminated within 13 years. U.S. tariffs of up to 18.6%
ad valorem equivalent would be eliminated within 10 years.
https://crsreports.congress.gov

TPP: Selected Commodity Impacts for U.S. Agriculture
•
Dairy: Opening dairy markets to greater import
Tariff Elimination Schedule for Selected Other Food
competition was among the most difficult agricultural
and Agricultural Products in Selected TPP Countries
issues to resolve. Under the agreement, Canada would
Product
Acting Country
Timetable
allow incremental additional access to its highly protected
dairy markets amounting to 3.25% of its current annual
Frozen French fries
Japan
Within 6 years
output under TRQs that would be phased in over five years,
Peanuts and peanut
United States
Within 10 years
with moderate annual increases thereafter. Canadian TPP-
products
wide TRQs for products, including fluid milk, butter,
cheese, and yogurt, would be increased for between 14 and
Grapes, avocados,
Japan
Immediate
19 years and then remain fixed. In-quota dairy products
strawberries
would enter Canada duty free. Canada also would eliminate
Fresh/chilled
Japan
Immediate
its over-quota tariff of 208% on whey powder over 10
broccoli, tomatoes,
years. Japan would eliminate many tariffs it imposes on
lettuce, and garlic
cheese imports within 16 years and on whey within 21
Tree nuts,
Japan
Mostly immediate,
years. The United States, in part, would gradually phase out
fresh/dried
but within 5 years
tariffs and establish TRQs for dairy products from Australia
and New Zealand that would be increased annually.
Tree nuts,
United States
Mostly immediate,
Existing preferential access for Australian dairy products
fresh/dried
but within 5 years
under the U.S.-Australia FTA would be transferred to
Wine
Japan
Within 11 years
perpetual TRQs. New U.S. TRQs for Canadian dairy
Source: TPP Agreement released November 2015
products would be raised gradually each year until year 19,
at which point the quantities would remain fixed.
USDA has compiled summaries with additional detail on
•
what the agreement contains in terms of market access for

Rice: Japan, the second-largest overseas market for
the foregoing farm commodities and for other commodity
U.S. rice, would establish a new duty-free quota for U.S.
groups at http://www.fas.usda.gov/data/tpp-benefits-
rice of 50,000 tons initially, rising to 70,000 tons in year 13.
specific-agricultural-commodities-and-products.
Japan also would allow a broader range of domestic entities
to participate in tenders on this additional quota, as well as
SPS Measures and Tobacco Exception
on 60,000 tons of rice under an existing quota. But Japanese
As tariff rates have been lowered for food and agricultural
officials indicate that the “minimum mark-up” Japan
products in recent decades, non-tariff barriers have gained
imposes on rice imports—equivalent to a 15-20% duty
greater visibility as obstacles to such trade. Among the non-
according to USA Rice—would continue to be applied to
tariff measures the TPP seeks to address are sanitary and
all imports. U.S. tariffs on rice products of up to 11.2%
phytosanitary measures (SPS), which consist of actions
would be eliminated within 15 years.
taken to protect human, animal, and plant health. The SPS
•
Cotton: U.S. tariffs on cotton that range up to $0.314
commitments provided for in the agreement include, in
per kg generally would be eliminated by 2022, and in some
part: the establishment of an SPS committee composed of
cases would be removed immediately.
TPP member representatives; an obligation to base SPS
measures either on international standards or objective
•
Sugar: Access to the U.S. sugar market would be
scientific evidence and to select risk management measures
expanded incrementally by establishing new TRQs for
that are no more trade-distorting than necessary; a
sugar and sugar-containing products totaling 86,300 tons
commitment to allow for public comment on the
annually, or 2.4% of U.S. sugar imports in 2014/2015.
development of SPS measures; and the obligation to
Australia and Canada would immediately receive new duty-
provide rapid notification of shipments held on importation.
free quotas of 65,000 tons and 19,200 tons per year,
SPS disputes are to be resolved through consultations
respectively. The residual would be split between Japan,
among the relevant governmental authorities and, if still
Malaysia, and Vietnam. The Australian and Canadian
unresolved, are to be addressed under dispute settlement
TRQs include the potential for expansion in years when
procedures provided in that chapter of the agreement.
additional U.S. sugar imports are required. Japan would
provide new TRQs that would expand access to its market
A potential controversy surrounds a provision in the
for sugar and sweetener-related processed products on a
Exceptions chapter of the agreement under which countries
duty-free or preferential-tariff-rate basis, including chewing
may deny recourse to protections under investor state
gum, chocolates and products containing chocolate,
dispute settlement (ISDS) to tobacco product manufacturers
confectionery goods and other such products, and would
for claims directed at tobacco control measures. This
eliminate tariffs on various sweetener products over time.
optional exclusion would not apply to leaf tobacco,
although to the extent that tobacco product sales could be
•
Tobacco: U.S. tariffs on tobacco of up to 350% would
blunted by this provision it would appear to have the
be eliminated within 10 years, while Japan would eliminate
potential to indirectly affect sales of leaf tobacco.
tariffs on smoking tobacco and cigars over 11 years, and
Malaysia would eliminate all tariffs on tobacco and tobacco
Mark A. McMinimy, Analyst in Agricultural Policy
products over 16 years. Vietnam would create a TRQ for
unmanufactured tobacco imports that increases gradually
IF10326
for 20 years, while eliminating in-quota tariffs over 11
years. Vietnamese tariffs on blended tobacco, cigars, and
other tobacco products would be eliminated over 16 years.
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TPP: Selected Commodity Impacts for U.S. Agriculture

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