Selected Trade Agreements and Implications for U.S. Agriculture
by John Wainio, Mark Gehlhar, and
John DyckEconomic Research Report No. (ERR-115) 59 pp, April 2011
What Is the Issue?
Regional and bilateral free trade agreements (FTAs) have taken
on greater significance amidst an evolving international trading
environment. Member countries in FTAs agree to eliminate trade
barriers on all or most goods and services traded among them.
Uncertainties associated with global negotiations under the World
Trade Organization (WTO) Doha Development Agenda, along with other
factors, have contributed to an upsurge in bilateral and regional
trade agreements. In this context, major traders have been pursuing
FTAs; the United States has concluded negotiations with 16
countries since 2001, resulting in 8 trade agreements (TAs) with 13
countries. Three additional trade pacts with the Republic of Korea
(South Korea, henceforth Korea), Colombia, and Panama have been
signed but not yet ratified by the U.S. Congress as of March
2011.
Countries other than the United States are actively negotiating
their own trade pacts. Trade agreements between key U.S trading
partners and/or competitors may have raised concerns among U.S.
exporters, whose ability to maintain share in established markets
could be eroded by such agreements, particularly in countries where
U.S. competitors have gained preferential access for their
products. Korea, Colombia, and the 10 ASEAN (Association of
Southeast Asian Nations) countries have been particularly
aggressive in negotiating TAs.
In this study, we estimate the possible impacts on U.S.
agricultural trade of two recently implemented FTAs in which the
United States is not a partner: the FTAs between the ASEAN
countries and China and between the ASEAN countries and
Australia/New Zealand. We also examine the potential effects on
U.S. agricultural exporters of pending bilateral TAs between the
United States and Korea, Colombia, and Panama.
What Did the Study Find?
The effect on U.S. agricultural exports resulting from FTAs that
exclude the United States depends mainly on the current structure
of trade and tariffs in the FTA market and the extent to which
tariffs or other barriers are decreased as a result of the FTA. In
markets where tariffs levied on U.S. exports will be significantly
higher than those levied on FTA members, and where U.S. exporters
compete directly with FTA members, the FTA can result in declining
U.S. market share. In some cases, however, these losses can be made
up by increases in U.S. exports to other markets.
• Model results suggest that U.S. agricultural exports to the
ASEAN region would be moderately affected by tariff cuts negotiated
under the ASEAN FTAs with China and with Australia/New Zealand.
Demand for U.S. exports of bulk commodities, such as wheat,
oilseeds, and cotton, would be sustained because these commodities
already face low tariffs in the region.
• Although most-favored-nation applied tariffs for ASEAN
countries are low in general, pockets of high tariffs remain.
Eliminating these could divert ASEAN country trade with non-FTA
members toward the FTA partners.
• Overall, U.S. agricultural exports to the ASEAN region are
estimated to fall about $350 million per year as a result of the
FTAs, equal to about 6 percent of U.S. exports to this region. Much
of the decrease would be in processed products, reflecting
competition the United States faces from China, Australia, and New
Zealand in the ASEAN market. Some U.S. exports may be diverted to
other markets, offsetting some of the decrease in trade with ASEAN
countries. As a result, global U.S. agricultural exports are
estimated to decline by only 0.1 percent, or about $173 million per
year.
Pending bilateral TAs between the United States and Korea,
Colombia, and Panama have potential mutual benefits.
• U.S. agriculture will benefit from pending TAs between the
United States and Korea, Colombia, and Panama, largely because U.S.
exports to these markets currently face significantly higher
tariffs than exports from these countries face in the U.S.
market.
• Of the three pending U.S. TAs, the U.S.-Korea Trade Agreement
(KORUS) would offer the largest gains for U.S. agriculture. Total
U.S. agricultural export gains in the Korean market are estimated
at over $1.9 billion annually, an increase of about 40 percent. The
U.S.-Colombia Trade Promotion Agreement (CTPA) is estimated to
generate an increase of 44 percent in U.S. exports, or an
additional $370 million per year. Though Panama represents a
relatively
small market, the U.S.-Panama Trade Promotion Agreement (PTPA) is
expected to provide U.S. exporters with opportunities for an
additional $46 million in annual sales of rice, corn, meats, dairy,
and processed foods.
• Each pending U.S. TA partner would have additional access to
the U.S. market for those agricultural commodities that now face
U.S. tariff-rate quotas. The U.S. sugar sector would face
competition from increased imports of sugar from Colombia and
Panama. Ethnic foods, such as biscuits, savory snack foods, ramen
noodles, and seaweed products, would account for the bulk of the
small increase in additional imports from Korea as a result of
KORUS. Other imports from the three countries could be accommodated
by the large U.S. market with little effect on
domestic prices or production.
How Was the Study Conducted?
The analysis of FTAs in this report uses the most current and
comprehensive WTO tariff submissions. Applied tariffs were matched
to trade flow values from official country customs data to provide
a preliminary assessment of the extent to which the United States
would face greater competition from competing exporters in selected
markets. Measures of tariff protection estimated for both the
United States and its trading partners and for the ASEAN countries
and their new FTA partners were based on the actual negotiated
reductions in tariffs for each FTA and used to quantify the impacts
of each free trade agreement. The study employed a well-known
global modeling framework (Global Trade Analysis Project) to assess
the impacts on agricultural trade.