October 09, 2015

Key Gains for U.S. Agriculture in Trans-Pacific Trade Agreement

The United States and 11 other Pacific Rim nations – Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam – have reached agreement on the landmark Trans-Pacific Partnership (TPP) trade agreement. The agreement will eliminate or reduce tariffs and other barriers to trade for food and agricultural products, but just how much, and how quickly, is of particular interest to U.S. agribusinesses.

Negotiations have been ongoing in earnest since 2008.The final agreement came after a long week of negotiations in Atlanta, Georgia, where a press conference for a final announcement was repeatedly pushed back to allow for a resolution to the negotiations.

TPP is the largest regional trade agreement ever, comprising nearly 40 percent of the world's economy. It is expected to increase world incomes, which in turn, will increase the demand for U.S. agricultural products across the board. According to the U.S. Department of Agriculture (USDA), TPP countries accounted for 42 percent of U.S. agricultural exports in 2014, contributing $63 billion to the U.S. economy. Economists suggest that the TPP agreement could expand U.S. agricultural exports by billions of dollars. Key sectors of U.S. agriculture – primarily beef, pork, dairy and rice – urged the U.S. Trade Representative (USTR) to secure increased market access to the TPP countries for exports of their products. This is particularly true for Japan, currently the third-largest export market for U.S. agricultural products, who entered the TPP negotiations in May 2013.

Key Trade Barriers Lifted

Japan has agreed to lower or phase out tariffs on U.S. products. For beef products, most tariffs will be phased out in 16 years – tariffs for fresh, chilled or frozen beef will be phased down from 38.5 percent to 9 percent. For pork, most tariffs will be phased out over 11 to 16 years, in addition to a reduction in the mandatory gate price specific duty from 482 yen/kg to 50 yen/ kg over 11 years. For dairy, cheese tariffs will be eliminated in 16 years and whey tariffs in 21 years, and Japan will create quotas for several dairy products. Japan will establish a new duty-free quota of 50,000 tons for U.S. rice, which will grow to 70,000 tons in 13 years.

Trade barriers on dairy products were among the final challenges to overcome in negotiations. Canada, whose supply management program for domestic dairy production creates barriers to imports, will eliminate tariffs for U.S. whey and will expand access through duty-free tariff-rate quotas (TRQs) for cheese, fluid milk, butter and milk powder, among others. The U.S. will phase out tariffs for Australia and major world dairy exporter New Zealand for milk powder and non-fat dry milk over 20-30 years. The U.S. will also grant TRQ access at various levels for other dairy products from Australia and New Zealand.

Some U.S. agricultural exports are already duty-free with TPP countries under existing free trade agreements. However, the agreement will lift a number of trade barriers in these other TPP countries. Though final details on the agreement are yet to be released, the following are some USDA figures for key sectors of U.S. agriculture in the other TPP countries.

  • Beef: Tariffs in Brunei and New Zealand will be eliminated immediately; in Peru by 2020; and in Vietnam within three to eight years.
  • Pork: Tariffs in Brunei will be eliminated immediately; in three years in New Zealand; in five to 10 years in Vietnam; and in 15 years in Malaysia.
  • Dairy: Brunei and New Zealand's tariffs on U.S. dairy products will be eliminated immediately; Vietnam's within five years; and Peru's by 2025. Malaysia will immediately eliminate its tariffs on nearly all dairy products and on fluid milk in 15 years, when it switches to a quota.
  • Rice: Tariffs will be eliminated in Vietnam and Malaysia within eight and 10 years, respectively, and eliminated immediately in Brunei.
  • Sugar: New Zealand, Malaysia and Brunei will eliminate their tariffs on sugar and sugar-containing products immediately. Vietnam will eliminate tariffs on raw and refined sugar, and sugar-containing products within 11 years. The U.S. will grant greater sugar access to several of the TPP countries, including Australia and Canada, through increased TRQs.

Congressional Outlook

The approval and implementation process for the TPP agreement is set out in the Trade Promotion Authority (TPA) legislation that Congress passed earlier this year. TPA is a grant of authority to the President to negotiate trade agreements according to congressional directives, and allows for the trade agreements to be passed by simple majorities in Congress, without the possibility of amendment. President Obama must notify the Congress of his intention to sign the TPP agreement at least 90 days before doing so, and no later than 30 days after notifying Congress (at least 60 days prior to signing the agreement) he must publish the text of the agreement for Congress and the public to review. It is expected that President Obama will quickly notify Congress of his intent to sign, and release the text shortly thereafter.

Once he signs the trade agreement, the President must submit to Congress the final text which he and the other TPP countries signed. This must be done 30 days before the President submits to Congress a bill that would implement the agreement. The timing for the introduction of the implementing legislation is at the complete discretion of the President. Once it is introduced, Congress has a maximum of 90 legislative days to consider the legislation. Legislative days are days in which Congress is in session, not in recess. If and when the legislation is approved by Congress, the President then takes the final step of implementing the agreement by issuing a presidential proclamation.

Only 28 House Democrats voted for TPA this past summer, and perhaps even less will be inclined to vote for TPP during election season, particularly if the candidates battling for the top of their ticket opposed it. Congressional approval of TPP will require disproportionate numbers of Republicans, and though a large majority of Republicans are likely inclined to vote for the agreement, a growing number may opt not to vote for an agreement negotiated by the Obama administration.

Moving Forward

Clearly, there is much to be gained for U.S. agriculture from the implementation of this trade agreement. The final details will continue to emerge, shedding additional light on just what the USTR was able to secure in market access to other countries and what trade barriers, in return, the U.S. agreed to lift. Beyond satisfaction and dissatisfaction with the agreement itself, there are a number of challenges that are strictly political in nature.

Nonetheless, President Obama will continue to make this a priority in his final year in office, and will likely work to secure support from those who helped pass TPA. Furthermore, trade groups representing U.S. agriculture and key sectors will evaluate the merits of the agreement and likely push for its passage. The path forward is murky, to be sure, but not impossible, and U.S. agriculture has a role to play, and much to be gained.

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