Free Trade Agreements
Free trade agreements play a major role in international red meat exports. See tabs below for USMEF summaries and analysis on the impact of U.S. trade agreements for U.S. red meat exports.
On Jan. 15, 2020, President Trump and Chinese Vice Premier Liu He signed the U.S.-China “Phase One” trade agreement. The agreement enters into force 30 days from signature (Feb. 14, 2020).
USMEF President and CEO Dan Halstrom issued this statement:
For the U.S. pork and beef industries to expand their business in China, the world’s largest and fastest-growing destination for imported red meat, it is critically important that China follows international standards for pork and beef trade. The Phase One trade agreement lays important groundwork toward this goal, and USMEF thanks the Trump administration for addressing the barriers that have hampered U.S. pork and beef exports to China for many years.
Last year China’s red meat imports exceeded $14 billion, a 65% increase from 2018. The U.S. industry looks forward to capturing a greater share of this rapidly growing market.
The text of the agreement and industry-specific fact sheets are available from the USTR website. Highlights include:
China recognizes the U.S. traceability system and will no longer require the third-party verified traceability program that was agreed to in 2017.
Within one month of entry into force, China will expand access to include beef from cattle of all ages and broader scope of cuts (with the exception of those below).
Within one month of entry into force, China will recognize Codex maximum residue levels (MRLs) for synthetic hormones (zeranol, trenbolone acetate and melengestrol acetate).
Within 10 days of entry into force, China will permit all pork and pork products inspected by FSIS.
China will allow the importation of all red meat and poultry processed meat products upon entry into force.
China will recognize all FSIS inspected establishments as eligible to export red meat and poultry products to China.
However, China will still maintain a list of plants for China Inspection and Quarantine (CIQ). FSIS will notify China of plants eligible to export and China must update their list of plants within 20 days of receipt.
China will conduct a risk assessment for ractopamine in cattle and swine in coordination with U.S. experts to be conducted as soon as possible.
Beef and pork products not eligible for importation into China include: thyroid glands, adrenal glands, uropygial glands, tonsils, major lymph nodes exposed during slaughter and cutting, laryngeal muscle tissue, lungs, pancreas, spleen, gallbladder, uterus, hair, hoofs, and lactating mammary glands, horns from cattle, mechanically separated beef and distal ileum from cattle of any age, brain, skull, eyes, trigeminal ganglia, spinal cord, dorsal root ganglia, and vertebral column from cattle 30 months of age and older (excluding the vertebrae of the tail, the transverse processes of the thoracic and lumbar vertebrae, and the wings of the sacrum). These items are also ineligible when incorporated into further-processed products.
For the time being, China’s retaliatory duties on U.S. beef and pork remain in place. However, separate from the Phase One agreement, importers may apply for tariff exclusions. When duties related to Section 301 tariffs are removed for approved applicants, the duty rate for U.S. beef and beef variety meats drops from 42% to the most-favored-nation (MFN) rate of 12%. Exclusions from retaliatory duties related to Section 301 tariffs are also available for U.S. pork, but there is no exclusion available for duties related to Section 232 tariffs. So when duties related to Section 301 tariffs are removed for approved applicants, the duty rate for U.S. pork drops from 63% to 33% (MFN rate of 8% + 25% Section 232 duty). For most pork offals, the rate drops from 67% to 37% (MFN rate of 12% + 25% Section 232 duty).
The agreement includes commitments for China to make additional agricultural purchases: $12.5 billion above the 2017 base in Year 1 and $19.5 billion above the 2017 base in Year 2. The agricultural purchases list includes broad categories such as oilseeds, meat, cereals, cotton and seafood, as well as an “other ag commodities” category that includes products such as distiller’s dried grains with solubles (DDGS), ethanol, fruit, vegetables and nuts.
Feb. 14, 2020 was the effective date of the U.S.-China Phase One trade agreement that was signed last month. This means the clock has started on a number of the agreement’s deadlines, including the following highlights for U.S. red meat:
Upon implementation of the agreement:
China recognizes the U.S. beef traceability system (although the FSIS Export Library is not yet updated)
China recognizes FSIS oversight over U.S. meat and processed meat facilities and within 20 working days of receiving updated lists of FSIS approved establishments, is to publish the list on the General Administration of Customs website and allow importation
Within 10 working days:
Accept all U.S. pork products, including processed products produced in an FSIS approved facility
Within 30 days:
Expand access for U.S. beef to cattle of all ages
Adopt maximum residue levels (MRLs) for growth promoting hormones
USMEF will report on implementation of these changes as more information becomes available.
Although tariffs were not address in the Phase One agreement, on Feb. 18, 2020, China’s Customs Tariff Commission has announced that effective March 2, importers may apply for exclusions from duties imposed on certain U.S. products in response to Section 301 tariffs. Eligible tariff lines, listed here, include the most commonly traded U.S. beef, pork and variety meat items.
Key points from the China Ministry of Finance announcement include:
Importers must fill out the exemption paperwork on the exclusion declaration system (website of the Ministry of Finance’s Tariff Policy Research Center). The application process will open on March 2.
Importers must provide the specific tariff lines and purchase plan for future import volumes.
Applications will be approved in a “timely manner.”
Previous duties paid will not be refunded.
If duties related to Section 301 tariffs are removed for approved applicants, the duty rate for U.S. beef drops back to 12%, from the current 42%.
If duties related to Section 301 tariffs are removed for approved applicants, the duty rate for U.S. pork drops to 33%, from the current 63%. For most pork offals, the rate will drop to 37% from the current 67%. (Note that China recently lowered its most-favored-nation tariff rate for frozen pork muscle cuts from 12 to 8%, but the rate remains 12% for most pork offals.)
On March 20, 2020, the USDA Food Safety and Inspection Service (FSIS) updated its Export Library for China to reflect expanded access for U.S. beef and pork as negotiated in the U.S.-China Phase One trade agreement.
U.S. Meat Export Federation (USMEF) President and CEO Dan Halstrom issued the following statement:
This is an exciting day for the U.S. beef and pork industries, which have waited a long time to have more meaningful and reliable access to China, and USMEF thanks USTR and USDA for their tireless efforts to negotiate and implement the Phase One trade agreement.
With much broader access for U.S. beef, the U.S. industry is well-positioned to expand its presence in the largest and fastest growing beef market in the world. And while unprecedented volumes of U.S. pork have been shipped to China in recent months, the U.S. pork industry has also faced significant barriers that have kept exports below their full potential. The changes announced in the Export Library will benefit pork exporters looking to expand their business in China, as well as producers and everyone in the U.S. supply chain.
U.S. pork and beef still face retaliatory duties in China, but a tariff exclusion process implemented by the Chinese government earlier this month is providing some level of relief. While elimination of all retaliatory duties is still the best way for China to level the playing field for U.S. red meat, the exclusion process is expanding opportunities for importers and for the U.S. industry.
For a detailed summary of the market access changes included in the March 20, 2020 Export Library update, please see this USMEF Exporter Alert. Additional information is also available in this member news article.
When U.S.-China trade tensions heighten over various issues, USMEF often receives media calls questioning the future of the Phase One trade agreement. If you receive such an inquiry, please contact Joe Schuele or call 303-547-0030. It is important that we not add to any unfounded negative speculation about whether this agreement will remain in force. USMEF has also prepared information for the Biden administration reiterating the importance of the Phase One agreement to red meat export growth. Contact Joe Schuele for more details.