Competitors FTA

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    F E A T U R E

    EC O N O M I C R ESEAR C H SER V I C E/ U SD A

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    F E A T U R E

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    Are Competitors Free TradeAgreements Putting U.S. Agricultural

    Exporters at a Disadvantage?

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    John Wainio, [email protected]

    John Dyck, [email protected]

    Mark Gehlhar, [email protected]

    Tom Vollrath, [email protected]

    F E A T U R E

    The growing number of free trade agreements among U.S. competitors

    has prompted questions about whether U.S. agricultural exporters may

    lose a share of the global market.

    ERS research shows that the recently created ASEAN-China and ASEAN-

    Australia/New Zealand free trade agreements are likely to have modest

    adverse impacts on U.S. agricultural exports.

    The Mercosur-Colombia free trade agreement has reduced U.S.

    agricultural exports to Colombia; U.S. grain sellers face increasingly stiffcompetition due to preferential tariffs granted to Mercosur exporters.

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    F E A T U R E

    EC O N O M I C R ESEAR C H SER V I C E/ U SD A

    he prolieraion o bilaeral and

    regional ree rade agreemens (FAs) overhe pas decade has become an imporan

    policy eaure o he global rading sysem.

    Tese agreemens creae addiional rade

    beween members as heir consumers

    respond o he availabiliy o lower priced

    impors. A he same ime, FAs can diver

    rade rom more eicien nonmember

    suppliers o member exporers receivingpreerenial reamen.

    When counries muually agree o

    reduce rade barriers wihin an FA,

    suppliers in oher counries coninue o

    ace unchanged (higher) ari s when

    exporing o he FA counries. Wheher

    he dierenial ari markups adversely

    aec he compeiiveness o nonmember

    exporers depends upon he level o

    discrimi naion and he marke shares o

    he supplying counries.

    A recen ERS sudy using bilaeral rade

    ows rom 1975 o 2005 among 69 counries

    provides empirical evidence ha FAs

    increased rade among member counriesin he world agriculural markeplace. Te

    sudy shows, however, ha rade expansion

    ofen is accompanied by rade conracion

    wih nonmember counries. Tis suggess

    he large number o FAs ha do no

    include he Unied Saes may be eroding

    he U.S. presence in oreign markes.

    Anoher ERS sudy ocused more

    narrowly on speciic FAs and how hey

    may change he patern o U.S. agriculural

    expors. ERS researchers conrased he

    eecs o wo recen FAs negoiaed by

    he Associaion o Souheas Asian Naions

    (ASEANBrunei, Indonesia, Malaysia, he

    Philippines, Singapore, Tailand, Vienam,Laos, Burma (Myanmar), and Cambodia)

    wih an agreemen recenly negoiaed

    beween he Mercosur counries (Argenina,

    Brazil, Paraguay, and Uruguay) and

    Colombia. According o he sudy, he wo

    ASEAN agreemens are projeced o have

    only modes impacs on U.S. expors, while

    he Mercosur agreemen has he poenial o

    impose much larger coss on U.S. rade.

    Growth in FTAs Has Been

    Impressive and Steady

    According o he World rade

    Organizaion (WO), as o December

    1, 2010, here were 290 FAs in orce (o

    hese, 207 covered goods, and 83 coveredservices). More han wo-hirds were pu

    in place wihin he pas decade. Tis rend

    is likely o coninue based on he number o

    Source: USDA, Economic Research Service using data in the World Trade Organization RegionalTrade Agreements database (http://rtais.wto.org/UI/PublicMaintainRTAHome.aspx).

    Free trade agreements continue to proliferate and grow more importantPlaced in force Cumulative

    1958 62 66 70 74 78 82 86 90 94 98 02 06 10

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    45

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    0

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    FTAs placed in force (left axis)and cumulative totals (right axis)as of December 31, 2010.

    Placed in force

    Cumulative

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    (AANZFA) wih he ASEAN counries

    in 2004. he agreemen was signed in2009 and became eecive in April 2010.

    Ausralia and New Zealand will benei

    rom he evenual eliminaion o aris on

    99 percen o heir expors o he ASEAN

    counries. A proporion o aris w ill be

    elimi naed immediaely, and mos o he

    remaining aris will reach zero a various

    sages beween 2011 and 2020. A ew ar-is will no reach zero unil 2025. Abou

    5 percen o he ASEA N counries aris

    will no be cu o zero, including hose or

    rice in Indonesia, Malaysia, he Philippines,

    and Tailand, and alcoholic beverages in

    Indonesia, Malaysia, and Vienam.

    U.S. Exports Face Varying Degreesof Competition Within the Two

    ASEAN-FTA Markets

    One way o look a implicaions or

    he Unied Saes is o consider how he

    agreemens could aec curren U.S. ex-

    pors o he counries signing he agree-

    mens. Virually all U.S. expors o ASEAN

    counries now ace some compeiionrom China, Ausralia, and New Zealand.

    Similarly, mos U.S. expors o Ausralia and

    New Zealand (Oceania) conron compei-

    ion rom ASEAN. However, only a subse

    o U.S. expors o China aces compeiion

    rom ASEAN, miigaing he likely adverse

    impac o he ASEAN-China FA on U.S.

    agriculural expors.

    he new FAs are projeced o have

    only modes adverse impacs on U.S. ex-

    pors because aris in his region are al-

    ready low. Te Unied Saes has a bilaeral

    rade agreemen wih Ausralia, or example,

    which eliminaed aris on U.S. producs.

    Wih he new ASEAN agreemen, however,U.S. exporers will lose heir special advan-

    age, as Souheas Asian producs also gain

    duy-ree access. However, Ausralias aris

    EC O N O M I C R ESEAR C H SER V I C E/ U SD A

    U.S. agriculural expors o he parners in he new ASEAN-relaed FAs were abou

    $20 billion in 2009, abou 20 percen o oal U.S. agriculural expors. O his, almos

    hal were soybeans, $9 billion worh o China alone. Coton and oilseed producs rep-

    resened anoher 12 percen o he oal. Alogeher, oilseeds and oilseed producs and

    coton consiued over 60 percen o oal U.S. agriculural expors o he hree regions.

    ASEANisanetagriculturalexportingregion,butitsagriculturalimportsarelargeand growing. ASEAN is also a ne agriculural exporer o he Unied Saes, wih

    U.S. impors rom ASEAN exceeding expors by over $1 billion per year in 2005-

    08. ASEAN expors o he world (and o he Unied Saes) span a wide range o

    producs, including rubber; palm and coconu oil; rice; cocoa; pineapple, banana,

    and oher rui; coee; cashew and oher nus; and spices. In mos cases, hese

    producs do no compee wih U.S. agriculural producs; rice and vegeable oils

    are he chie excepions. ASEAN impors large amouns o whea, corn, soybeans,

    soymeal, dairy producs, rui, and processed agriculural producs rom he UniedSaes.

    Chinaisanetagriculturalimporter.Agriculturalimportstotaledabout$45billion

    in 2009 and expors abou $25 billion. Processed vegeables and ruis and oher

    processed ood producs dominae Chinas expors, which are ofen relaively

    labor-inensive producs. Expors o he Unied Saes include processed veg-

    eables (such as mushrooms, waer chesnus, garlic, and soy producs); processed

    rui (led by angerines); apple juice; pe ood; and sausage casings. U.S. expors

    o China considerably exceed impors rom China: $13 billion versus $3 billion in2009. A over $9 billion, U.S. soybean expors dominae his rade. Coton, chicken

    pars, and disillers dried grains are among he oher large U.S. expors.

    AustraliaandNewZealand(Oceania)arelargenetexporters,togetherexporting

    $33 billion in agriculural producs in 2009, while imporing $9 billion. Ausra-

    lia expors whea, barley, coton, and oher crops. Boh counries expor large

    amouns o pasure-based animal producs: bee, lamb, and muton; dairy prod-

    ucs; and wool. Wine expors are also imporan. U.S. impors rom Oceania (bee,

    lamb, dairy producs, and wine), a $2.5 billion, are larger han U.S. expors ($1.1

    billion in 2009), which are led by pork, pe ood, grapes, and cirus rui.

    Colombiasnetagriculturalexportsexceeded$2billionineachofthelast5years.

    I expored $5.7 billion and impored $3.3 billion o agriculural producs in 2009.

    Leading expors were coee, cu owers, bananas, sugar, bee, and processed prod-

    ucs. Leading impors were grains, soybeans and soy producs, processed oods,

    rui, and beverages. Te Unied Saes was Colombias larges source o agriculur-

    al impors (shipping $907 million in 2009) and larges desinaion or agriculuralexpors (receiving $1.058 billion in 2009). U.S. expors were dominaed by grains,

    soybeans and soy meal, and coton. U.S. impors were led by coee and coee

    producs, cu owers, bananas, and processed producs.

    Structure of U.S. Agricultural Trade

    With ASEA N FTA Partners and Colombia

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    on agriculural producs are ypically low.

    Indonesias aris on producs ha he U.S.

    currenly expors are mosly zero, and ew

    exceed 5 percen.

    In he Ausralia and Indonesia markes,

    he new ASEAN FAs will have small e-

    ecs on aris. Mos o he oher counries

    also impose low ariszero or under 5percenon mos producs raded wih he

    U.S. Only Tailand imposes duies over 5

    percen on a signican porion o he prod-

    ucs where U.S. expors are compeiive.

    U.S. agriculural expors o seven o

    hese counries (our major ASEAN coun-

    ries, China, Ausralia, and New Zealand)

    averaged $15 billion during 2005-09. O

    ha, $7 billion did no compee wih he

    new FA parners and anoher $2.6 bill ion

    enered duy ree, leaving jus over $5 billion

    o duiable expors. U.S. expors in his $5

    billion group are poenially a risk rom he

    ASEAN FAs.

    U.S. Exports of Fruit and

    Processed Products Most

    Affected by ASEAN FTAs

    ERS researchers ound ha he new

    ASEA N FAs are mos likely o aec U.S.

    expors o processed agriculural producs,

    especially in he subcaegory labeled in he

    rade daa as ood preparaions: composiemixuresa diverse caegory o producs

    such as beverage bases, some snack oods,

    some rui juice preparaions, coee whi-

    eners, herbal ea mixes, and some gelain

    preparaions.

    U.S. processed ood expors o he

    ASEAN naions are projeced o decline

    by $123 million per year aer FA ari

    reducions. Te U.S. aces srong compei-

    ion or expors o processed producs o

    ASEAN counries rom ood indusries inChina and Oceania. aris also end o be

    higher because many counries ry o pro-

    ec heir ood manuacuring indusries.

    U.S. processed ood expors o China and

    Oceania will all by smaller amouns, in par

    because U.S.-ASEAN compeiion in hose

    expor markes is no inense.

    U.S. expors o rui and vegeables o

    ASEAN members and o China are pro-

    jeced o all by over $50 million per year

    and by abou $30 mill ion per year, respec-

    ively. U.S. resh and processed rui expors,

    in paricular, ace considerable compei-

    ion in he region. U.S expors o dairy and

    poulry producs o ASEAN, especially ohe Philippines, are projeced o decline

    Note: ASEAN data include only Indonesia, Philippines, Thailand, and Malaysia.

    Sources: USDA, Economic Research Service using trade data in the Global Trade Atlas and tariffdata in ERS databases.

    Most U.S. expor ts to ASEAN coun tries entered duty free or were assessedduties of less than 5 percent during 2005-09

    Total U.S. exports

    Duty free

    Duty 5%

    0 1 2 3 4

    {

    Million U.S.$

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    an esimaed $43 million per year, while

    whea expors o ASEAN could drop by

    abou 6 percen, or $40 mil lion annually.

    oal U.S. agriculural expors o

    ASEA N members are projeced o all

    by almos $350 mill ion, or 5 o 6 percen

    o acual 2009 expors o he region.

    However, despie some los rade o China,

    paricularly in processed producs, oal

    U.S. agriculural expors o China are ex-

    peced o rise by over $16 mil lion per year

    afer ull implemenaion o he ASEAN

    FA, and U.S. agriculural expors o

    Oceania will be vir ually unchanged.Declining expors in some commodiy/

    produc markes in China and Oceania

    are balanced by gains in oher markes.

    As China, Ausralia, and New Zealand

    increase expors o ASEAN counries,

    hey impor more commodiy inpus rom

    he Unied Saes. For example, China

    is projeced o increase impors o U.S.soybeans and coton o mee new demands

    in ASEAN or is livesock producs and

    exiles.

    U.S. agriculural expors o he res o

    he world are projeced o rise in he afer-

    mah o he ASEAN FAs. U.S. producs

    shi rom he new FA zones o oher

    pars o he world, and some producs ha

    he ASEAN FA rade parners ormerly

    shipped o hird-counry desinaions are

    expored o ASEAN insead, leaving a gap

    or U.S. rade o ll.

    Globally, U.S. agriculural expors are

    projeced o decline by $170 mil lion afer

    implemenaion o he ASEAN FAs.

    Since he counries involved accoun or

    one-fh o U.S. agriculural expors ($20billion), he impac is small relaive o he

    size o hese FA markessmaller sill in

    relaion o oal U.S. expors. Te srong

    compeiive posiion o he Unied Saes

    and relaively low aris acing U.S. ex-

    pors in he wo ASEA N FAs reduce

    he adverse impac o hese agreemens

    on U.S. agriculural sales in he worldmarkeplace.

    Colombias FTAs With

    Competitors Put Pressure on U.S.

    Exports

    he impac on U.S. agriculural

    expors rom Colombias FA wih he

    Mercosur counries (Argenina, Brazil,

    Paraguay, and Uruguay) has been

    dieren rom he oucomes expeced

    rom he ASEAN FAs. Colombia is he

    larges Souh American marke or U.S.agriculural expors; in 2009, expors were

    $907 million, consising largely o whea,

    corn, soybeans, and soybean producs.

    he Mercosur counries produce

    grain and soybeans. As par o he

    Mercosur-Colombia FA, Colombias

    aris on whea impors rom Mercosur

    ended in 2009, and corn aris are being

    phased ou. However, aris remain on im-

    pors rom he Unied Saes. Te margin

    o preerence is measured as he dierence

    beween he ari ha U.S. expors ace

    and he ari he FA parners expors

    ace. hese preerences appear o have

    appreciably reduced U.S. shares in hesecommodiy markes in 2009 and 2010,

    when Mercosur whea had a 15-percen

    margin o preerence over U.S. expors and

    corn had a margin o preerence beween

    8.1 and 6.9 percen.

    Alhough Colombian whea and corn

    impors rom he world marke were lower

    in 2009 han in 2008, impors rom heU.S. ell even more disproporionaely. U.S.

    expors o whea o Columbia dropped by

    $225 million over he period, while U.S.

    corn expors dropped by almos $500

    million. he Unied Saes los marke

    share o Mercosur counries in corn

    and o Argenina and Canada in whea.Argenina, Brazil, and Paraguay increased

    heir expors o corn o Colombia by $203

    million, while A rgenina and Canada

    F E A T U R E

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    15increased heir expors o whea by $36

    million. U.S. losses in jus hese wo

    commodies in he Colombian marke

    due o he Mercosur-Colombia FA

    exceed he oal projeced decline o U.S.

    agriculural expors ($347 million) o he

    much larger ASEAN marke as a resul o

    he wo recenly implemened ASEAN

    FAs.

    More U.S. expors may be in jeopardy

    i an FA beween Canada and Colombia

    is implemened. Canada, a major whea

    supplier o Colombia, negoiaed a ree

    rade agreemen wih Colombia in 2008and raied i in 2010. I Colombia also

    raies he agreemen, he impor duies

    on Canadian whea will be immediaely

    reduced o zero.

    Third-Party FTAs Hit Hardest

    When U.S. Exports Face High

    Tariffs and Strong Competition

    Colombias FA wih Mercosur

    appears o be an example o appreciable

    damage o U.S. bilaeral expors rom an

    FA beween counries oher han he

    U.S. Te $305 mil lion loss o U.S. expors

    o corn and whea alone is equivalen o

    abou a ourh o U.S. agriculural expors

    o Colombiaa ar deeper cu han

    he 6-percen loss projeced ollowing

    implemenaion o he wo ASEAN FAs.

    Te dierence beween he wo cases

    is ha Colombia has imposed higher ar-

    is on he principal U.S. expors han is

    he case or mos U.S. expors o ASEA N

    counries. U.S. commodiy exporers ace

    compeiion rom Mercosur exporers

    who are exemp rom hese aris becauseo he Mercosur-Colombia FA.

    Te eec on U.S. agriculural expors

    o FAs in which he Unied Saes is

    no a parner will var y depending on

    he horoughness o he cus in aris in

    he FAs, how high he Mos Favored

    Naion aris were o begin wih, and he

    degree o which parners in hose FAscan supply producs ha he Unied

    Saes expors. he U.S. advanages as

    a large, low-cos, and reliable exporer

    are no auomaically canceled by hird-

    pary FAs. However, hird-pary FAs

    always give heir members a margin o

    ari preerence over he Unied Saes,

    which in some cases can lead o serious

    declines in U.S. agriculural expors.

    Selected Trade Agreements and

    Implications for U.S. Agriculture,by John Wainio, Mark Gehlhar,and John Dyck, ERR-115, USDA,

    Economic Research Service, April2011, available a: www.ers.usda.gov/publicaions/err115/

    Reciprocal Trade Agreements: Impacts

    on Bilateral Trade Expansion and

    Contraction in the World Agricultural

    Marketplace, by Tomas L. Vollrahand Charles B. Hal lahan, ER R-113,USDA, Economic Research Service,

    April 2011, available a: ww w.ers.usda.gov/publicaions/err113/

    This article is drawn from . . .

    1The Mercosur countries are Argentina, Brazil, Paraguay, and Uruguay.

    Sources: USDA, Economic Research Service using trade data in the Global Trade Atlas.

    Market shares of U.S. and Mercosu r1 countries in Colombia changed dramatically between 2008 and 2009

    Corn Soybean oil Soybean meal Soybeans Wheat

    -50

    -40

    -30

    -20

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    Mercosur

    United States

    Percent