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A deeper look at U.S. beef imports and tariffs

Cattle and Beef Markets
Mar 17, 2017

—Trade, duties, and quota systems are not cut and dried

A cargo ship is prepped for loading.
USDA photo from the 6/03/16 issue of In Case You Missed It

A popular narrative on trade preached by president and coffee shop cowboy alike is that the U.S. comes out the loser at every turn. The story claims we charge nothing on incoming goods, yet are spurned by unfair tariffs everywhere we try to trade our wares.

As with most popular tales, there’s an element of truth to this one, but the bigger picture is more complex. When it comes to beef, the trade narrative runs into a produce problem; the beef products the U.S. exports versus imports are apples and oranges. They cannot be readily compared.

“U.S. producers specialize in raising high-value, grain-fed cattle, while the beef the United States imports from other countries is mainly lower-value, grass-fed, lean product that is processed into ground beef,” notes the USDA’s Foreign Agricultural Service (FAS) in its 2016 review of beef trade.

While the quality of the products differs wildly between domestic and foreign beef products, the production situations need to be as close as possible. To be able to ship beef to the U.S., countries “must first be approved by the USDA Animal and Plant Health Inspection Service (APHIS) based on animal disease status. APHIS assesses the risks of introducing animal diseases as a result of trade,” noted FAS.

“In addition, the USDA Food Safety and Inspection Service (FSIS) must certify that the importing country’s food regulatory system employs sanitary measures equivalent to U.S. standards.”

Those countries that can ship fresh or frozen beef to the U.S. are:

• Australia;

• Brazil;

• Canada;

• Chile;

• Costa Rica;

• Honduras;

• Ireland;

• Japan;

• Lithuania;

• Mexico;

• New Zealand;

• Nicaragua; and

• Uruguay.

Other countries shipping beef to the U.S. can only send cooked product.

Imports and the prices they pay

In 2016, the U.S. imported a total of 3.02 billion pounds of beef and veal from a total of 22 countries, according to the most recent complete USDA trade records. The overwhelming majority of this imported product—2.59 billion pounds or 85.8 percent of 2016’s total—came from Australia, Canada, New Zealand and Mexico.

Other sources of imported beef in 2016 by order of declining volume included:

• Brazil, 152.7 million pounds, 5 percent of total;

• Uruguay, 122.16 million pounds, 4 percent of total; and

• Nicaragua, 111.27 million pounds, 3.7 percent of total.

Fifteen other countries sent beef and veal imports. These included Costa Rica, Ireland, Japan, Chile, and several others in Asia, Europe and South America. All of these countries imported trace volumes individually. Collectively, these accounted for only 37.77 million pounds; 1.3 percent of total imports for 2016.

In 1995, the U.S. established a system of Tariff Rate Quotas (TRQs) for beef imports in the World Trade Agreement Uruguay Round Agreement. The system allows a specified volume of beef from certain countries at a lower rate of duty; then applies a higher tariff rate once imports exceed these volumes.

The U.S. has established two different types of TRQs; country specific, and other countries. There are only five country-specific TRQs:

• Australia, 833.82 million pounds;

• New Zealand, 470.47 million pounds;

• Argentina, 44.1 million pounds;

• Uruguay, 44.1 million pounds; and

• Japan, 440,924 pounds.

With the exception of Australia, all of these countries pay almost 10 cents per pound duty for in-quota beef imports and a 26.4 percent tariff rate for above-quota imports of beef. Australia has no in-quota rate of duty and has a 21.1 percent abovequota tariff. For the past several years, Argentina has not filled any of its quota, and last year was the first year Australia reached its quota.

All other countries that are eligible to ship beef to the U.S. must compete for the 142.87 million pounds of “other countries” TRQ. As with most of the countryspecific TRQs, the “other countries” TRQ involves an almost 10 cents per pound in-quota duty and a 26.4 percent tariff rate for abovequota beef imports.

The North American Free Trade Agreement (NAFTA) excludes Canada and Mexico from duties and tariffs when sending beef and veal to the U.S. They also have unlimited quotas in terms of volume they can ship to the U.S.

To put beef imports into a larger context, the total volume of beef imported to the U.S. in 2016 represented 11.3 percent of our total beef use for the year. Total beef use (from the World Agricultural Supply and Demand Estimates report) is domestic production plus imports, minus exports. From a total supply—domestic production plus imports—perspective, imports were 10.4 percent of total.

Exports and the prices we pay

Compared to beef imports into the country, the U.S. exported 2.55 billion pounds of beef and veal to 123 different countries around the world in 2016. The majority (87.84 percent) of the exported beef and veal went to Japan, South Korea, Mexico, Canada, Hong Kong and Taiwan. These countries have their own duties, tariffs, and TRQ systems when it comes to the U.S. sending beef to them.

Under NAFTA, the U.S. has unlimited duty-free access to Canada and Mexico. Hong Kong additionally has no duties on any products coming in, according to information from the U.S. Meat Export Federation (USMEF). The other top destinations come with duties, however.

Currently, the U.S. pays a 38.5 percent duty on beef sent to Japan. Beef offal cuts come with variable duty rates ranging from 12.8-50 percent.

Japan’s beef tariff rates played a big part in the recently-ended Trans-Pacific Partnership (TPP) talks. Under ideal conditions, Japan’s tariff on U.S. beef would have dropped to nothing under the TPP.

While TPP talks were underway, Australia—one of the U.S.’ biggest competitors in beef trade to Asian markets—and Japan negotiated a bilateral trade agreement that dropped tariff rates on Australian beef.

President Donald Trump and Japanese Prime Minister Shinzo Abe made oblique references to the TPP and the potential of future bilateral trade talks during Abe’s visit in February. This came shortly after Trump had pulled the U.S. out of the TPP. There has not yet been any public statements regarding work on a bilateral trade agreement with Japan to replace the TPP.

South Korea has a variety of declining duties on beef coming from the U.S. under its current TRQ system and the free trade agreement (FTA) that was struck in 2012. According to USMEF data, South Korea currently has a 29.3 percent duty on beef within the 634.93 million pounds of the TRQ and 40 percent for above-quota trade. Both duties are declining to zero by 2026 (in-quota) and 2027 (above quota) under the agreements of the FTA.

U.S. beef offal and different types of prepared items exported to South Korea similarly are under declining duties set to become duty-free by 2026 under the FTA. Offal items are currently estimated as having a 13.2 percent duty, while prepared items currently range from 19.8-52.8 percent rate of duty.

Taiwan has a variety of duties on beef items. Muscle cuts are described as averaging about a 4 percent rate of duty, but different offal cuts can range from 15-35 percent rate of duty.

Free trade agreements

According to the FAS, TRQs are the result of FTAs and are a transitionary step towards duty-free access between countries. As mentioned above, NAFTA and the South Korea FTA have and are reducing duties on beef trade to zero. FAS reports that the U.S. has a number of other, lesser-known FTAs on beef trade.

In 2004, the Dominican Republic-Central American FTA agreement established preferential quotas for six different countries; Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras and Nicaragua. These preferential quotas only come into play if the “other countries” TQR is filled. Duty-free beef trade will be achieved by 2020.

The U.S. has a number of other bilateral FTAs with countries that involve beef. The FTAs with Chile, Singapore and Bahrain were fully implemented in 2007, 2013 and 2015 respectively. In the import side, these three countries have unlimited quota, duty-free access to the U.S. market. Despite this, only Chile is currently eligible to ship beef to the U.S. In 2016, it sent only 1.78 million pounds of beef to the U.S. compared to the 26.48 million pounds the U.S. exported to Chile.

The U.S. has an additional few FTAs involving beef which have not been fully implemented yet. These countries with their full implementation years and quota levels include:

• Oman, 2018, 64.44 million pounds;

• Morocco, 2020, 48.95 million pounds;

• Colombia, 2021, 14.07 million pounds; and

• Panama, 2026, 1.06 million pounds. — Kerry Halladay, WLJ Editor

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