USMEF ANALYSIS: Colombia/U.S. Trade Promotion Agreement
TO: USMEF Members
FROM: Phil Seng
SUBJECT: U.S./Colombia Trade Promotion Agreement
Below you will find USMEF’s analysis of the pending U.S./Colombia Trade Promotion Agreement (CPTA) -- a Free Trade Agreement. While action on the agreement has been delayed by today’s vote in the U.S. House of Representatives, the benefits to U.S. agriculture – and specifically U.S. beef and pork exports – are clearly apparent.
USMEF ANALYSIS: Colombia/U.S. Trade Promotion Agreement
Overview
The United States is in the final steps of approving a Trade Promotion Agreement with Colombia, the third-most populous country in Latin America with more than 44 million people. Colombia currently is the largest market in South America for U.S. agricultural exports. In 2007, the United States exported a record $1.2 billion of agricultural products to Colombia. The U.S. Department of Agriculture estimates that the United States receives about 40 percent of Colombia’s exports and provides 26.6 percent of its imports – making the United States its largest trading partner.
The U.S.-Colombia Trade Promotion Agreement
In November 2006, negotiators from the United States and Colombia signed the CTPA, which is designed to reduce barriers to trade and provide increased sales opportunities for both countries. Earlier this week, President George Bush signed a letter urging Congress to move forward with approval of the agreement.
Beef
The total Colombian beef market is approximately 1.6 billion pounds, but imports equal only a small percentage of that: approximately 13 million pounds. The United States accounts for nearly 1 million pounds of that total – mainly hearts and livers. In the years prior to the CTPA negotiations, Colombia established tariff rate quotas (TRQs) of 8.8 million pounds for offals and 7.7 million pounds for chilled beef cuts, with nearly 70 percent of the quotas given to Brazil, Paraguay, Argentina and Uruguay. In-quota duties were set at 20 percent, while out-of-quota duties were set at 80 percent.
The CTPA allows fresh, chilled and frozen “high quality beef” (bone-in and boneless) to have unlimited duty-free access, while “standard quality beef” is assigned a duty-free TRQ of 4.4 million pounds with a 5 percent annual compound growth. Under the proposed CTPA, out-of-quota duties for standard quality beef would start at 59 percent, but would be phased out over 10 years.
Beef variety meats would be assigned a duty-free TRQ of 9.2 million pounds and a 6 percent annual compound growth rate. The out-of-quota duty is set at 44 percent with the same 10-year phase-out period.
At the time the CTPA was negotiated with Colombia in 2006, the most significant limitation for U.S. beef exports to Colombia – beyond the TRQ – was relatively high prices compared to domestic beef and Mercosur competitors Argentina and Paraguay. The declining value of the U.S. dollar has helped to offset the price disparity. Colombia has struggled to develop its domestic beef industry and, as a result, Colombian beef is among the most expensive of Central and South American countries.
Pork
The Colombian pork market is approximately 270 million pounds, with imports equaling approximately 25 million pounds during 2007. Imported fresh, chilled and frozen pork products and trimmings are subject to a price band of 4 percent to 83 percent, which presents a major logistical barrier for companies exporting to Colombia. Since duties within the price band change every 15 days, importers have only a two-week window to get the product into the country. Bacon, skins and feet have been exempted from the price band and face a flat 20 percent duty.
Under the CTPA, no TRQs are set for fresh, chilled or frozen pork. Duties on these products, as well as on processed products such as bacon and sausage, start at 24 percent and would be eliminated within five years. All price bands would be eliminated and high-fat trimmings, hams, shoulders, belly fat and bacon fat would have immediate duty-free access.
Chile and Canada have been the primary competitors for the United States in the pork export market to Colombia. However, Colombia imported 50 percent more pork from the United States comparing 2007 volumes to 2006 for a total of approximately 8 million pounds. The United States was the second largest supplier, behind Chile’s 10 million pounds, although Chile posted a relatively slower growth of 27 percent.
Agriculture Industry Incentives for U.S. Approval of the CTPA
While the United States exported $1.2 billion in agricultural products to Colombia in 2007, agricultural tariffs between the two countries currently are one-sided. Virtually all Colombian food and agricultural exports enter the United States duty-free, while no U.S. agricultural exports to Colombia receive duty-free treatment.
USMEF believes that the CTPA will enable an expansion of U.S. beef variety meat sales in the short term. Between 2001 and 2003, the export of beef products, primarily hearts, averaged about 2.7 million pounds per year. However, it is expected that the actual demand for U.S. beef was much higher, with high import duties being the main factor hindering trade. Therefore, the 9.2 million pound TRQ for beef offals would likely have an immediate positive effect.
While it will continue to be difficult to compete with Mercosur products on a price basis, the reduction and eventual elimination of import duties, combined with the continued weakness of the U.S. dollar, will help narrow the price gap. And the continued struggles that Colombia has in developing its domestic beef industry may create a niche opportunity for U.S. beef at the high end of the HRI sector.
On the pork side, the price band system has prevented U.S. exports from reaching their true potential. As a main competitor to the United States, Chile has benefited from a trade agreement with Colombia that set a 20 percent import duty for all pork products, but the U.S./Colombia TPA would eliminate that advantage.
The domestic pork industry in Colombia is dominated by thousands of small family-owned operations spread throughout the country. That pork is almost entirely consumed as fresh product distributed through wet markets and butcher shops that target low- and middle-income families. The balance primarily comes from large domestic processors that market fresh pork through retail chains targeting middle- and upper-class customers. Approximately 80 percent of U.S. exports are currently destined for the processing industry.
The majority of the branded pork market in Colombia is controlled by domestic processors that have developed exclusive contracts with retail chains that have blocked distribution channels for competitors. This will continue to present a barrier to U.S. branded pork products.
(Data provided by USDA/FAS and the Global Trade Atlas)
TO: USMEF Members
FROM: Phil Seng
SUBJECT: U.S./Colombia Trade Promotion Agreement
Below you will find USMEF’s analysis of the pending U.S./Colombia Trade Promotion Agreement (CPTA) -- a Free Trade Agreement. While action on the agreement has been delayed by today’s vote in the U.S. House of Representatives, the benefits to U.S. agriculture – and specifically U.S. beef and pork exports – are clearly apparent.
USMEF ANALYSIS: Colombia/U.S. Trade Promotion Agreement
Overview
The United States is in the final steps of approving a Trade Promotion Agreement with Colombia, the third-most populous country in Latin America with more than 44 million people. Colombia currently is the largest market in South America for U.S. agricultural exports. In 2007, the United States exported a record $1.2 billion of agricultural products to Colombia. The U.S. Department of Agriculture estimates that the United States receives about 40 percent of Colombia’s exports and provides 26.6 percent of its imports – making the United States its largest trading partner.
The U.S.-Colombia Trade Promotion Agreement
In November 2006, negotiators from the United States and Colombia signed the CTPA, which is designed to reduce barriers to trade and provide increased sales opportunities for both countries. Earlier this week, President George Bush signed a letter urging Congress to move forward with approval of the agreement.
Beef
The total Colombian beef market is approximately 1.6 billion pounds, but imports equal only a small percentage of that: approximately 13 million pounds. The United States accounts for nearly 1 million pounds of that total – mainly hearts and livers. In the years prior to the CTPA negotiations, Colombia established tariff rate quotas (TRQs) of 8.8 million pounds for offals and 7.7 million pounds for chilled beef cuts, with nearly 70 percent of the quotas given to Brazil, Paraguay, Argentina and Uruguay. In-quota duties were set at 20 percent, while out-of-quota duties were set at 80 percent.
The CTPA allows fresh, chilled and frozen “high quality beef” (bone-in and boneless) to have unlimited duty-free access, while “standard quality beef” is assigned a duty-free TRQ of 4.4 million pounds with a 5 percent annual compound growth. Under the proposed CTPA, out-of-quota duties for standard quality beef would start at 59 percent, but would be phased out over 10 years.
Beef variety meats would be assigned a duty-free TRQ of 9.2 million pounds and a 6 percent annual compound growth rate. The out-of-quota duty is set at 44 percent with the same 10-year phase-out period.
At the time the CTPA was negotiated with Colombia in 2006, the most significant limitation for U.S. beef exports to Colombia – beyond the TRQ – was relatively high prices compared to domestic beef and Mercosur competitors Argentina and Paraguay. The declining value of the U.S. dollar has helped to offset the price disparity. Colombia has struggled to develop its domestic beef industry and, as a result, Colombian beef is among the most expensive of Central and South American countries.
Pork
The Colombian pork market is approximately 270 million pounds, with imports equaling approximately 25 million pounds during 2007. Imported fresh, chilled and frozen pork products and trimmings are subject to a price band of 4 percent to 83 percent, which presents a major logistical barrier for companies exporting to Colombia. Since duties within the price band change every 15 days, importers have only a two-week window to get the product into the country. Bacon, skins and feet have been exempted from the price band and face a flat 20 percent duty.
Under the CTPA, no TRQs are set for fresh, chilled or frozen pork. Duties on these products, as well as on processed products such as bacon and sausage, start at 24 percent and would be eliminated within five years. All price bands would be eliminated and high-fat trimmings, hams, shoulders, belly fat and bacon fat would have immediate duty-free access.
Chile and Canada have been the primary competitors for the United States in the pork export market to Colombia. However, Colombia imported 50 percent more pork from the United States comparing 2007 volumes to 2006 for a total of approximately 8 million pounds. The United States was the second largest supplier, behind Chile’s 10 million pounds, although Chile posted a relatively slower growth of 27 percent.
Agriculture Industry Incentives for U.S. Approval of the CTPA
While the United States exported $1.2 billion in agricultural products to Colombia in 2007, agricultural tariffs between the two countries currently are one-sided. Virtually all Colombian food and agricultural exports enter the United States duty-free, while no U.S. agricultural exports to Colombia receive duty-free treatment.
USMEF believes that the CTPA will enable an expansion of U.S. beef variety meat sales in the short term. Between 2001 and 2003, the export of beef products, primarily hearts, averaged about 2.7 million pounds per year. However, it is expected that the actual demand for U.S. beef was much higher, with high import duties being the main factor hindering trade. Therefore, the 9.2 million pound TRQ for beef offals would likely have an immediate positive effect.
While it will continue to be difficult to compete with Mercosur products on a price basis, the reduction and eventual elimination of import duties, combined with the continued weakness of the U.S. dollar, will help narrow the price gap. And the continued struggles that Colombia has in developing its domestic beef industry may create a niche opportunity for U.S. beef at the high end of the HRI sector.
On the pork side, the price band system has prevented U.S. exports from reaching their true potential. As a main competitor to the United States, Chile has benefited from a trade agreement with Colombia that set a 20 percent import duty for all pork products, but the U.S./Colombia TPA would eliminate that advantage.
The domestic pork industry in Colombia is dominated by thousands of small family-owned operations spread throughout the country. That pork is almost entirely consumed as fresh product distributed through wet markets and butcher shops that target low- and middle-income families. The balance primarily comes from large domestic processors that market fresh pork through retail chains targeting middle- and upper-class customers. Approximately 80 percent of U.S. exports are currently destined for the processing industry.
The majority of the branded pork market in Colombia is controlled by domestic processors that have developed exclusive contracts with retail chains that have blocked distribution channels for competitors. This will continue to present a barrier to U.S. branded pork products.
(Data provided by USDA/FAS and the Global Trade Atlas)