Aussie FTAs Raise Export Challenges

The recent signing of a regional free trade agreement (FTA) between Australia/New Zealand and countries in the ASEAN region could have significant implications for the U.S. beef industry and, to a lesser extent, U.S. pork.

Not content to rest on its laurels, Australia is also actively pursuing negotiations on an FTA with South Korea that would match the terms of the as-yet-unimplemented U.S./Korea FTA.

The new regional FTA is targeted for implementation by July 1, but that is pending approval by the governments of Australia, New Zealand and the individual ASEAN member states.

Australia and New Zealand already enjoy a transportation cost advantage to ASEAN nations based on proximity, but the eventual elimination of beef duties to nations including the key markets of the Philippines and Vietnam likely will further tip the scales to the benefit of Australia/New Zealand.  In 2008, Australia’s beef exports to the ASEAN region totaled 70,146 metric tons (154.6 million pounds) while New Zealand exported 41,134 metric tons (90.7 million pounds).  The U.S. exported 45,041 metric tons (99.3 million pounds) to the ASEAN last year.

Implications should be much smaller for pork exports since the United States, Canada, the European Union and Brazil are the major suppliers to the region.   Australia does export pork to Singapore, but the base rate was already zero, and the U.S. already has an FTA with Singapore.   Australia currently exports pork to New Zealand, but those exports already benefit from the Australia-New Zealand FTA, although New Zealand’s 5 percent duty on chilled/frozen pork will fall to zero immediately under the new regional FTA.  

Although some of the duties, such as the 5 percent tariff on beef exports to Indonesia, are not appreciable, the FTA is significant because it locks those duties down and prevents them from being raised.

Australia currently realizes about $722 million in revenue from red meat and live animal exports to ASEAN nations.  Among the primary benefits to Australia from the new FTA are the following:

Philippines

• Beef – duties on beef are reduced from 10 percent to 7 percent in 2009.  They will drop annually, reaching zero by 2012

Beef offals – for all chilled as well as frozen tongues, duties will drop from 7 percent to 5 percent in 2009, reaching zero in 2011. Duties on beef livers remain at 5 percent in 2009, then fall to zero. Items under “other 0206.29” face a 7 percent duty through 2011 then fall to 5 percent through 2018 and to zero in 2019.

• Pork – there is a quota for pork, with duties varying by cut. For chilled bone-in hams and shoulders, in-quota duties will be set at 30 percent through 2011, falling to 20 percent in 2012 and zero by 2020. The over-quota rate starts at 40 percent during 2009, but then it appears over-quota rates are the same as in-quota.    The in-quota rate on most other chilled cuts and all frozen cuts is 30 percent through 2019, falling to 24 percent in 2020 and beyond. The over-quota rate remains at 40 percent until 2020, when it falls to 32 percent.

Pork offals – duties on chilled product are reduced from 7 percent to 5 percent in 2009, 3 percent in 2010 and zero in 2011.   Frozen pork liver duties remain at 5 percent through 2014 before falling to 4 percent through 2020.   Duties on other offals are reduced from 10 percent to 7 percent in 2009, declining steadily until reaching zero in 2012.

Vietnam

• Beef – the duties on chilled and frozen beef are reduced from 20 percent to 15 percent in 2010, falling to 10 percent in 2012, 7 percent in 2014, 5 percent in 2016 and zero in 2018.

Beef offals – duties are reduced from 15 percent to 10 percent in 2011, 7 percent in 2014, 5 percent in 2015 and zero in 2019.

• Pork – duties on chilled and frozen pork are reduced from 30 percent to 25 percent in 2010, 20 percent in 2012, 15 percent in 2014, 10 percent in 2015, 7 percent in 2016, 5 percent in 2017, 3 percent in 2019 and zero in 2020.

Pork offals – duties are reduced from 15 percent to 10 percent in 2011, 7 percent in 2013, 5 percent in 2015 and zero in 2016

Indonesia

• Beef – the duties on chilled and frozen beef are reduced from 5 percent to zero after the first year.

Beef offals – duties are reduced from 5 percent to zero after the first year except duties on frozen livers and frozen “other 0206.29” remain at 5 percent through 2019 and fall to zero in 2020.

• Pork – the duties on chilled and frozen pork are reduced from 5 percent to zero after the first year.

Pork offals – duties are reduced from 5 percent to zero after the first year

While the ASEAN FTA is important for Australia (and New Zealand), South Korea represents a much more significant opportunity.  Negotiations between South Korean President Lee Myung-bak and Australian Prime Minister Kevin Rudd and scheduled to begin in May, and the Aussies are determined to match the U.S./Korea agreement that would reduce tariffs on beef from 40 percent to zero over 15 years.

U.S. beef exports to South Korea jumped 128 percent in volume (to 126.3 million pounds) and 148 percent in value (to $294.4 million) in 2008, compared to a 15 percent decline in Australian beef exports to South Korea, totaling 345.8 million pounds valued at $646 million. New Zealand’s exports to South Korea fell 2 percent to 99 million pounds valued at $149.6 million.

# # #

The U.S. Meat Export Federation (www.USMEF.org) is the trade association responsible for developing international markets for the U.S. red meat industry and is funded by USDA, exporting companies, and the beef, pork, corn and soybean checkoff programs.

The recent signing of a regional free trade agreement (FTA) between Australia/New Zealand and countries in the ASEAN region could have significant implications for the U.S. beef industry and, to a lesser extent, U.S. pork.

Not content to rest on its laurels, Australia is also actively pursuing negotiations on an FTA with South Korea that would match the terms of the as-yet-unimplemented U.S./Korea FTA.

The new regional FTA is targeted for implementation by July 1, but that is pending approval by the governments of Australia, New Zealand and the individual ASEAN member states.

Australia and New Zealand already enjoy a transportation cost advantage to ASEAN nations based on proximity, but the eventual elimination of beef duties to nations including the key markets of the Philippines and Vietnam likely will further tip the scales to the benefit of Australia/New Zealand.  In 2008, Australia’s beef exports to the ASEAN region totaled 70,146 metric tons (154.6 million pounds) while New Zealand exported 41,134 metric tons (90.7 million pounds).  The U.S. exported 45,041 metric tons (99.3 million pounds) to the ASEAN last year.

Implications should be much smaller for pork exports since the United States, Canada, the European Union and Brazil are the major suppliers to the region.   Australia does export pork to Singapore, but the base rate was already zero, and the U.S. already has an FTA with Singapore.   Australia currently exports pork to New Zealand, but those exports already benefit from the Australia-New Zealand FTA, although New Zealand’s 5 percent duty on chilled/frozen pork will fall to zero immediately under the new regional FTA.  

Although some of the duties, such as the 5 percent tariff on beef exports to Indonesia, are not appreciable, the FTA is significant because it locks those duties down and prevents them from being raised.

Australia currently realizes about $722 million in revenue from red meat and live animal exports to ASEAN nations.  Among the primary benefits to Australia from the new FTA are the following:

Philippines

• Beef – duties on beef are reduced from 10 percent to 7 percent in 2009.  They will drop annually, reaching zero by 2012

Beef offals – for all chilled as well as frozen tongues, duties will drop from 7 percent to 5 percent in 2009, reaching zero in 2011. Duties on beef livers remain at 5 percent in 2009, then fall to zero. Items under “other 0206.29” face a 7 percent duty through 2011 then fall to 5 percent through 2018 and to zero in 2019.

• Pork – there is a quota for pork, with duties varying by cut. For chilled bone-in hams and shoulders, in-quota duties will be set at 30 percent through 2011, falling to 20 percent in 2012 and zero by 2020. The over-quota rate starts at 40 percent during 2009, but then it appears over-quota rates are the same as in-quota.    The in-quota rate on most other chilled cuts and all frozen cuts is 30 percent through 2019, falling to 24 percent in 2020 and beyond. The over-quota rate remains at 40 percent until 2020, when it falls to 32 percent.

Pork offals – duties on chilled product are reduced from 7 percent to 5 percent in 2009, 3 percent in 2010 and zero in 2011.   Frozen pork liver duties remain at 5 percent through 2014 before falling to 4 percent through 2020.   Duties on other offals are reduced from 10 percent to 7 percent in 2009, declining steadily until reaching zero in 2012.

Vietnam

• Beef – the duties on chilled and frozen beef are reduced from 20 percent to 15 percent in 2010, falling to 10 percent in 2012, 7 percent in 2014, 5 percent in 2016 and zero in 2018.

Beef offals – duties are reduced from 15 percent to 10 percent in 2011, 7 percent in 2014, 5 percent in 2015 and zero in 2019.

• Pork – duties on chilled and frozen pork are reduced from 30 percent to 25 percent in 2010, 20 percent in 2012, 15 percent in 2014, 10 percent in 2015, 7 percent in 2016, 5 percent in 2017, 3 percent in 2019 and zero in 2020.

Pork offals – duties are reduced from 15 percent to 10 percent in 2011, 7 percent in 2013, 5 percent in 2015 and zero in 2016

Indonesia

• Beef – the duties on chilled and frozen beef are reduced from 5 percent to zero after the first year.

Beef offals – duties are reduced from 5 percent to zero after the first year except duties on frozen livers and frozen “other 0206.29” remain at 5 percent through 2019 and fall to zero in 2020.

• Pork – the duties on chilled and frozen pork are reduced from 5 percent to zero after the first year.

Pork offals – duties are reduced from 5 percent to zero after the first year

While the ASEAN FTA is important for Australia (and New Zealand), South Korea represents a much more significant opportunity.  Negotiations between South Korean President Lee Myung-bak and Australian Prime Minister Kevin Rudd and scheduled to begin in May, and the Aussies are determined to match the U.S./Korea agreement that would reduce tariffs on beef from 40 percent to zero over 15 years.

U.S. beef exports to South Korea jumped 128 percent in volume (to 126.3 million pounds) and 148 percent in value (to $294.4 million) in 2008, compared to a 15 percent decline in Australian beef exports to South Korea, totaling 345.8 million pounds valued at $646 million. New Zealand’s exports to South Korea fell 2 percent to 99 million pounds valued at $149.6 million.

# # #

The U.S. Meat Export Federation (www.USMEF.org) is the trade association responsible for developing international markets for the U.S. red meat industry and is funded by USDA, exporting companies, and the beef, pork, corn and soybean checkoff programs.