Free Trade Agreement Update: Colombia and South Korea – Panama on Hold
Published: Aug 31, 2012
Free trade agreements have been headline news in 2012, with accords implemented with Colombia and South Korea, and another (Panama) in the final stages before implementation. While total American agricultural exports to the trio of nations are down in 2012, there are reasons for optimism from the red meat industry’s perspective as benefits of the FTAs continue to accrue.
Total U.S. agricultural product exports to the three countries exceeded $8.5 billion in 2011: $6.97 billion to Korea, $1.12 billion to Colombia and $494.5 million to Panama. In the first half of 2012, exports were lower to all three countries, mainly due to lower grain, cotton and soybean exports: Korea down 11 percent, Colombia down 46 percent and Panama down 2 percent.
Following is an overview of the three FTAs with a focus on their status and implications for the U.S. beef and pork industries:
South Korea The largest of the three free trade agreements in terms of potential impact, the FTA with South Korea took effect March 15. On the beef side, duties on muscle cuts are being reduced 2.7 percent annually, meaning that the 40 percent duty will reach zero after 15 years. Duties on variety meat are shrinking from 18 percent to zero over the same 15-year period.
Duties on U.S. pork exports to Korea are slated to drop to zero from 22.5 percent on chilled pork and 25 percent on frozen pork over the next few years:
Duties on other items also will be eliminated:
This year’s exports to South Korea have been below 2011 volumes due largely to the rapid recovery of Korea’s domestic pork industry after the recent foot-and-mouth disease (FMD) outbreak caused the destruction of an estimated 3.3 million hogs – about one-third of the herd. An oversupply of affordable meat protein has caused U.S. exports this year to drop 30 percent in volume and 18 percent in value. Korea’s total pork imports from all suppliers were down 24 percent through July, with the U.S. remaining the largest single-country supplier with 34 percent market share. Chile and the EU also benefit from FTAs with Korea.
American beef exports to Korea also have been affected by an oversupply of domestic Hanwoo cattle, an extensive domestic beef promotion campaign, sluggish Korean consumer demand on a slowing economy, negative impacts of the fourth U.S. BSE case, and competition from affordable and abundant meat products, including pork and poultry. Korea’s total beef imports from all suppliers were down 13 percent through July. The U.S. continues to regain pre-BSE beef market share, accounting for 37 percent of Korea’s imports through July. As duties on U.S. beef are reduced, it will create a value advantage versus Australia, currently Korea’s leading beef supplier.
In 2011, Korea was the No. 5 export market for U.S. pork, purchasing 188,307 metric tons (415.1 million pounds) valued at $497.1 million, and it remains the fifth-largest market in 2012. It was the No. 4 market for American beef, purchasing 154,019 metric tons (339.6 million pounds) valued at $686 million in 2011 and also holds that rank in 2012.
Colombia The FTA with Colombia was implemented May 15. The agreement provides for duty-free access for unlimited volumes of high-quality beef (Choice and Prime), duty-free tariff rate quotas (TRQs) for beef other than Choice and Prime and (separately) for beef offal. The beef TRQ started at 2,100 metric tons this year and expands 5 percent per year, reaching 3,103 metric tons in 2020 before reaching unlimited volumes at zero duty on Jan. 1, 2021. The variety meat TRQ, which includes all beef variety meat plus HS 0504 pork offals (hog guts, bladder, stomachs, intestines, etc.) is for 4,642 metric tons this year and expands 5 percent per year to 7,124 metric tons in 2020 until reaching unlimited volumes at zero duty on Jan. 1, 2021. Duties on out-of-quota product fell immediately from 80 percent to 50 percent and will decline to zero over the 10-year period with access for unlimited volumes of beef and variety meat at zero duty by 2021.
The FTA reduces duties on most pork exports from 20 or 30 percent to zero by 2016. Frozen pork skins are benefitting from immediate duty-free access and other offals under HS 0504 (guts, bladders, stomachs, intestines, etc.) are included in the duty-free TRQ described above. The FTA also calls for the elimination of Colombia’s “price band system” except in cases where the applied duty is less than the rate specified in the FTA. The price band system is used to set import duties based on fluctuating reference prices. Note that in 2011, the applied duty for HS 0203 pork was zero for much of the year, due partially to high U.S. pork prices. Currently the applied duty is 17 percent, thus higher than last year but lower than the 24 percent included in the U.S.–Colombia tariff schedule.
Colombia is the fastest-growing South American market for U.S. pork: up 64 percent in volume and 104 percent in value for the first half of 2012 versus last year. In all of 2011, the U.S. exported 11,409 metric tons (25.2 million pounds) of pork valued at $28.9 million to Colombia. The U.S. is the largest supplier of pork to Colombia with a 39.5 percent import market share in the first half of 2012, followed by Chile and Canada, and both of those countries implemented FTAs with Colombia ahead of the U.S.
The U.S. is No. 4 among beef suppliers to Colombia this year, according to the Global Trade Atlas, holding a 7 percent import market share behind Chile, Argentina and Canada, although exports so far this year are up 18 percent over 2011, reaching a value of more than $347,000 through June on 15 percent less volume (101 metric tons). Besides Canada has an FTA with Colombia, and Argentina and Chile also enjoy preferential access to Colombia as Mercosur and associate Mercosur members.
Panama The FTA with Panama has been approved by the U.S. and was expected to be implemented this fall, but recent reports suggest that the approval process in Panama may take it into the latter part of 2012.
The terms of the FTA would provide duty-free access for high-quality (Choice and Prime) beef while duties on all other muscle cuts would be reduced from 30 percent to zero over 15 years. Beef variety meat duties of 15 percent would immediately fall to zero for certain items and would be phased to zero over 5 years for other items.
For pork, the FTA would eliminate duties of 60 to 70 percent on most cuts through a duty-free TRQ that starts at 1,600 metric tons in year one. Separate duty-free TRQs starting at 636 metric tons would eliminate 15 percent duties on bacon, cured hams, other cured items and pig fat, and duties of 30 percent or 15 percent on prepared/preserved items with an opening TRQ of 318 metric tons. The TRQ volumes would increase annually until reaching unlimited duty-free status by year 15 of the FTA.
The U.S. is the No. 1 exporter of both beef and pork to Panama, holding a 36.5 percent share of the import market in beef – having just passed Costa Rica for the No. 1 spot last year – and a 36 percent import market share in pork, just ahead of Denmark, according to the Global Trade Atlas. Export totals through May stand at about $5 million for beef (up 61 percent over last year) and $3.9 million in pork (up 2.6 percent).
Here is a link to details on all three free trade agreements on USMEF’s Web page.
Total U.S. agricultural product exports to the three countries exceeded $8.5 billion in 2011: $6.97 billion to Korea, $1.12 billion to Colombia and $494.5 million to Panama. In the first half of 2012, exports were lower to all three countries, mainly due to lower grain, cotton and soybean exports: Korea down 11 percent, Colombia down 46 percent and Panama down 2 percent.
Following is an overview of the three FTAs with a focus on their status and implications for the U.S. beef and pork industries:
South Korea The largest of the three free trade agreements in terms of potential impact, the FTA with South Korea took effect March 15. On the beef side, duties on muscle cuts are being reduced 2.7 percent annually, meaning that the 40 percent duty will reach zero after 15 years. Duties on variety meat are shrinking from 18 percent to zero over the same 15-year period.
Duties on U.S. pork exports to Korea are slated to drop to zero from 22.5 percent on chilled pork and 25 percent on frozen pork over the next few years:
- By Jan. 1, 2014, for frozen bellies and other bone-in frozen cuts, most offal and most processed products
- By Jan. 1, 2016, for “frozen other” – a category which accounts for the largest share of U.S. exports, including picnics and butts
- By 2022 for chilled cuts
Duties on other items also will be eliminated:
- By Jan. 1, 2017, for most sausages from the base rate of 18 percent
- By Jan. 1, 2014, for pork offals from the base rate of 18 percent
- By Jan. 1, 2014, for cured/salted/dried pork products, including bacon, from the base rate of 25 percent or 30 percent depending on the item
This year’s exports to South Korea have been below 2011 volumes due largely to the rapid recovery of Korea’s domestic pork industry after the recent foot-and-mouth disease (FMD) outbreak caused the destruction of an estimated 3.3 million hogs – about one-third of the herd. An oversupply of affordable meat protein has caused U.S. exports this year to drop 30 percent in volume and 18 percent in value. Korea’s total pork imports from all suppliers were down 24 percent through July, with the U.S. remaining the largest single-country supplier with 34 percent market share. Chile and the EU also benefit from FTAs with Korea.
American beef exports to Korea also have been affected by an oversupply of domestic Hanwoo cattle, an extensive domestic beef promotion campaign, sluggish Korean consumer demand on a slowing economy, negative impacts of the fourth U.S. BSE case, and competition from affordable and abundant meat products, including pork and poultry. Korea’s total beef imports from all suppliers were down 13 percent through July. The U.S. continues to regain pre-BSE beef market share, accounting for 37 percent of Korea’s imports through July. As duties on U.S. beef are reduced, it will create a value advantage versus Australia, currently Korea’s leading beef supplier.
In 2011, Korea was the No. 5 export market for U.S. pork, purchasing 188,307 metric tons (415.1 million pounds) valued at $497.1 million, and it remains the fifth-largest market in 2012. It was the No. 4 market for American beef, purchasing 154,019 metric tons (339.6 million pounds) valued at $686 million in 2011 and also holds that rank in 2012.
Colombia The FTA with Colombia was implemented May 15. The agreement provides for duty-free access for unlimited volumes of high-quality beef (Choice and Prime), duty-free tariff rate quotas (TRQs) for beef other than Choice and Prime and (separately) for beef offal. The beef TRQ started at 2,100 metric tons this year and expands 5 percent per year, reaching 3,103 metric tons in 2020 before reaching unlimited volumes at zero duty on Jan. 1, 2021. The variety meat TRQ, which includes all beef variety meat plus HS 0504 pork offals (hog guts, bladder, stomachs, intestines, etc.) is for 4,642 metric tons this year and expands 5 percent per year to 7,124 metric tons in 2020 until reaching unlimited volumes at zero duty on Jan. 1, 2021. Duties on out-of-quota product fell immediately from 80 percent to 50 percent and will decline to zero over the 10-year period with access for unlimited volumes of beef and variety meat at zero duty by 2021.
The FTA reduces duties on most pork exports from 20 or 30 percent to zero by 2016. Frozen pork skins are benefitting from immediate duty-free access and other offals under HS 0504 (guts, bladders, stomachs, intestines, etc.) are included in the duty-free TRQ described above. The FTA also calls for the elimination of Colombia’s “price band system” except in cases where the applied duty is less than the rate specified in the FTA. The price band system is used to set import duties based on fluctuating reference prices. Note that in 2011, the applied duty for HS 0203 pork was zero for much of the year, due partially to high U.S. pork prices. Currently the applied duty is 17 percent, thus higher than last year but lower than the 24 percent included in the U.S.–Colombia tariff schedule.
Colombia is the fastest-growing South American market for U.S. pork: up 64 percent in volume and 104 percent in value for the first half of 2012 versus last year. In all of 2011, the U.S. exported 11,409 metric tons (25.2 million pounds) of pork valued at $28.9 million to Colombia. The U.S. is the largest supplier of pork to Colombia with a 39.5 percent import market share in the first half of 2012, followed by Chile and Canada, and both of those countries implemented FTAs with Colombia ahead of the U.S.
The U.S. is No. 4 among beef suppliers to Colombia this year, according to the Global Trade Atlas, holding a 7 percent import market share behind Chile, Argentina and Canada, although exports so far this year are up 18 percent over 2011, reaching a value of more than $347,000 through June on 15 percent less volume (101 metric tons). Besides Canada has an FTA with Colombia, and Argentina and Chile also enjoy preferential access to Colombia as Mercosur and associate Mercosur members.
Panama The FTA with Panama has been approved by the U.S. and was expected to be implemented this fall, but recent reports suggest that the approval process in Panama may take it into the latter part of 2012.
The terms of the FTA would provide duty-free access for high-quality (Choice and Prime) beef while duties on all other muscle cuts would be reduced from 30 percent to zero over 15 years. Beef variety meat duties of 15 percent would immediately fall to zero for certain items and would be phased to zero over 5 years for other items.
For pork, the FTA would eliminate duties of 60 to 70 percent on most cuts through a duty-free TRQ that starts at 1,600 metric tons in year one. Separate duty-free TRQs starting at 636 metric tons would eliminate 15 percent duties on bacon, cured hams, other cured items and pig fat, and duties of 30 percent or 15 percent on prepared/preserved items with an opening TRQ of 318 metric tons. The TRQ volumes would increase annually until reaching unlimited duty-free status by year 15 of the FTA.
The U.S. is the No. 1 exporter of both beef and pork to Panama, holding a 36.5 percent share of the import market in beef – having just passed Costa Rica for the No. 1 spot last year – and a 36 percent import market share in pork, just ahead of Denmark, according to the Global Trade Atlas. Export totals through May stand at about $5 million for beef (up 61 percent over last year) and $3.9 million in pork (up 2.6 percent).
Here is a link to details on all three free trade agreements on USMEF’s Web page.