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Are Competitors Free TradeAgreements Putting U.S. Agricultural

Exporters at a Disadvantage?

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John Wainio, jwainio@ers.usda.gov

John Dyck, jdyck@ers.usda.gov

Mark Gehlhar, mgehlhar@ers.usda.gov

Tom Vollrath, thomasv@ers.usda.gov

F E A T U R E

The growing number of free trade agreements among U.S. competitors

has prompted questions about whether U.S. agricultural exporters may

lose a share of the global market.

ERS research shows that the recently created ASEAN-China and ASEAN-

Australia/New Zealand free trade agreements are likely to have modest

adverse impacts on U.S. agricultural exports.

The Mercosur-Colombia free trade agreement has reduced U.S.

agricultural exports to Colombia; U.S. grain sellers face increasingly stiffcompetition due to preferential tariffs granted to Mercosur exporters.

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he prolieraion o bilaeral and

regional ree rade agreemens (FAs) overhe pas decade has become an imporan

policy eaure o he global rading sysem.

Tese agreemens creae addiional rade

beween members as heir consumers

respond o he availabiliy o lower priced

impors. A he same ime, FAs can diver

rade rom more eicien nonmember

suppliers o member exporers receivingpreerenial reamen.

When counries muually agree o

reduce rade barriers wihin an FA,

suppliers in oher counries coninue o

ace unchanged (higher) ari s when

exporing o he FA counries. Wheher

he dierenial ari markups adversely

aec he compeiiveness o nonmember

exporers depends upon he level o

discrimi naion and he marke shares o

he supplying counries.

A recen ERS sudy using bilaeral rade

ows rom 1975 o 2005 among 69 counries

provides empirical evidence ha FAs

increased rade among member counriesin he world agriculural markeplace. Te

sudy shows, however, ha rade expansion

ofen is accompanied by rade conracion

wih nonmember counries. Tis suggess

he large number o FAs ha do no

include he Unied Saes may be eroding

he U.S. presence in oreign markes.

Anoher ERS sudy ocused more

narrowly on speciic FAs and how hey

may change he patern o U.S. agriculural

expors. ERS researchers conrased he

eecs o wo recen FAs negoiaed by

he Associaion o Souheas Asian Naions

(ASEANBrunei, Indonesia, Malaysia, he

Philippines, Singapore, Tailand, Vienam,Laos, Burma (Myanmar), and Cambodia)

wih an agreemen recenly negoiaed

beween he Mercosur counries (Argenina,

Brazil, Paraguay, and Uruguay) and

Colombia. According o he sudy, he wo

ASEAN agreemens are projeced o have

only modes impacs on U.S. expors, while

he Mercosur agreemen has he poenial o

impose much larger coss on U.S. rade.

Growth in FTAs Has Been

Impressive and Steady

According o he World rade

Organizaion (WO), as o December

1, 2010, here were 290 FAs in orce (o

hese, 207 covered goods, and 83 coveredservices). More han wo-hirds were pu

in place wihin he pas decade. Tis rend

is likely o coninue based on he number o

Source: USDA, Economic Research Service using data in the World Trade Organization RegionalTrade Agreements database (http://rtais.wto.org/UI/PublicMaintainRTAHome.aspx).

Free trade agreements continue to proliferate and grow more importantPlaced in force Cumulative

1958 62 66 70 74 78 82 86 90 94 98 02 06 10

0

5

10

15

20

25

30

35

40

45

50

0

50

100

150

200

250

300

FTAs placed in force (left axis)and cumulative totals (right axis)as of December 31, 2010.

Placed in force

Cumulative

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(AANZFA) wih he ASEAN counries

in 2004. he agreemen was signed in2009 and became eecive in April 2010.

Ausralia and New Zealand will benei

rom he evenual eliminaion o aris on

99 percen o heir expors o he ASEAN

counries. A proporion o aris w ill be

elimi naed immediaely, and mos o he

remaining aris will reach zero a various

sages beween 2011 and 2020. A ew ar-is will no reach zero unil 2025. Abou

5 percen o he ASEA N counries aris

will no be cu o zero, including hose or

rice in Indonesia, Malaysia, he Philippines,

and Tailand, and alcoholic beverages in

Indonesia, Malaysia, and Vienam.

U.S. Exports Face Varying Degreesof Competition Within the Two

ASEAN-FTA Markets

One way o look a implicaions or

he Unied Saes is o consider how he

agreemens could aec curren U.S. ex-

pors o he counries signing he agree-

mens. Virually all U.S. expors o ASEAN

counries now ace some compeiionrom China, Ausralia, and New Zealand.

Similarly, mos U.S. expors o Ausralia and

New Zealand (Oceania) conron compei-

ion rom ASEAN. However, only a subse

o U.S. expors o China aces compeiion

rom ASEAN, miigaing he likely adverse

impac o he ASEAN-China FA on U.S.

agriculural expors.

he new FAs are projeced o have

only modes adverse impacs on U.S. ex-

pors because aris in his region are al-

ready low. Te Unied Saes has a bilaeral

rade agreemen wih Ausralia, or example,

which eliminaed aris on U.S. producs.

Wih he new ASEAN agreemen, however,U.S. exporers will lose heir special advan-

age, as Souheas Asian producs also gain

duy-ree access. However, Ausralias aris

EC O N O M I C R ESEAR C H SER V I C E/ U SD A

U.S. agriculural expors o he parners in he new ASEAN-relaed FAs were abou

$20 billion in 2009, abou 20 percen o oal U.S. agriculural expors. O his, almos

hal were soybeans, $9 billion worh o China alone. Coton and oilseed producs rep-

resened anoher 12 percen o he oal. Alogeher, oilseeds and oilseed producs and

coton consiued over 60 percen o oal U.S. agriculural expors o he hree regions.

ASEANisanetagriculturalexportingregion,butitsagriculturalimportsarelargeand growing. ASEAN is also a ne agriculural exporer o he Unied Saes, wih

U.S. impors rom ASEAN exceeding expors by over $1 billion per year in 2005-

08. ASEAN expors o he world (and o he Unied Saes) span a wide range o

producs, including rubber; palm and coconu oil; rice; cocoa; pineapple, banana,

and oher rui; coee; cashew and oher nus; and spices. In mos cases, hese

producs do no compee wih U.S. agriculural producs; rice and vegeable oils

are he chie excepions. ASEAN impors large amouns o whea, corn, soybeans,

soymeal, dairy producs, rui, and processed agriculural producs rom he UniedSaes.

Chinaisanetagriculturalimporter.Agriculturalimportstotaledabout$45billion

in 2009 and expors abou $25 billion. Processed vegeables and ruis and oher

processed ood producs dominae Chinas expors, which are ofen relaively

labor-inensive producs. Expors o he Unied Saes include processed veg-

eables (such as mushrooms, waer chesnus, garlic, and soy producs); processed

rui (led by angerines); apple juice; pe ood; and sausage casings. U.S. expors

o China considerably exceed impors rom China: $13 billion versus $3 billion in2009. A over $9 billion, U.S. soybean expors dominae his rade. Coton, chicken

pars, and disillers dried grains are among he oher large U.S. expors.

AustraliaandNewZealand(Oceania)arelargenetexporters,togetherexporting

$33 billion in agriculural producs in 2009, while imporing $9 billion. Ausra-

lia expors whea, barley, coton, and oher crops. Boh counries expor large

amouns o pasure-based animal producs: bee, lamb, and muton; dairy prod-

ucs; and wool. Wine expors are also imporan. U.S. impors rom Oceania (bee,

lamb, dairy producs, and wine), a $2.5 billion, are larger han U.S. expors ($1.1

billion in 2009), which are led by pork, pe ood, grapes, and cirus rui.

Colombiasnetagriculturalexportsexceeded$2billionineachofthelast5years.

I expored $5.7 billion and impored $3.3 billion o agriculural producs in 2009.

Leading expors were coee, cu owers, bananas, sugar, bee, and processed prod-

ucs. Leading impors were grains, soybeans and soy producs, processed oods,

rui, and beverages. Te Unied Saes was Colombias larges source o agriculur-

al impors (shipping $907 million in 2009) and larges desinaion or agriculuralexpors (receiving $1.058 billion in 2009). U.S. expors were dominaed by grains,

soybeans and soy meal, and coton. U.S. impors were led by coee and coee

producs, cu owers, bananas, and processed producs.

Structure of U.S. Agricultural Trade

With ASEA N FTA Partners and Colombia

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on agriculural producs are ypically low.

Indonesias aris on producs ha he U.S.

currenly expors are mosly zero, and ew

exceed 5 percen.

In he Ausralia and Indonesia markes,

he new ASEAN FAs will have small e-

ecs on aris. Mos o he oher counries

also impose low ariszero or under 5percenon mos producs raded wih he

U.S. Only Tailand imposes duies over 5

percen on a signican porion o he prod-

ucs where U.S. expors are compeiive.

U.S. agriculural expors o seven o

hese counries (our major ASEAN coun-

ries, China, Ausralia, and New Zealand)

averaged $15 billion during 2005-09. O

ha, $7 billion did no compee wih he

new FA parners and anoher $2.6 bill ion

enered duy ree, leaving jus over $5 billion

o duiable expors. U.S. expors in his $5

billion group are poenially a risk rom he

ASEAN FAs.

U.S. Exports of Fruit and

Processed Products Most

Affected by ASEAN FTAs

ERS researchers ound ha he new

ASEA N FAs are mos likely o aec U.S.

expors o processed agriculural producs,

especially in he subcaegory labeled in he

rade daa as ood preparaions: composiemixuresa diverse caegory o producs

such as beverage bases, some snack oods,

some rui juice preparaions, coee whi-

eners, herbal ea mixes, and some gelain

preparaions.

U.S. processed ood expors o he

ASEAN naions are projeced o decline

by $123 million per year aer FA ari

reducions. Te U.S. aces srong compei-

ion or expors o processed producs o

ASEAN counries rom ood indusries inChina and Oceania. aris also end o be

higher because many counries ry o pro-

ec heir ood manuacuring indusries.

U.S. processed ood expors o China and

Oceania will all by smaller amouns, in par

because U.S.-ASEAN compeiion in hose

expor markes is no inense.

U.S. expors o rui and vegeables o

ASEAN members and o China are pro-

jeced o all by over $50 million per year

and by abou $30 mill ion per year, respec-

ively. U.S. resh and processed rui expors,

in paricular, ace considerable compei-

ion in he region. U.S expors o dairy and

poulry producs o ASEAN, especially ohe Philippines, are projeced o decline

Note: ASEAN data include only Indonesia, Philippines, Thailand, and Malaysia.

Sources: USDA, Economic Research Service using trade data in the Global Trade Atlas and tariffdata in ERS databases.

Most U.S. expor ts to ASEAN coun tries entered duty free or were assessedduties of less than 5 percent during 2005-09

Total U.S. exports

Duty free

Duty 5%

0 1 2 3 4

{

Million U.S.$

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an esimaed $43 million per year, while

whea expors o ASEAN could drop by

abou 6 percen, or $40 mil lion annually.

oal U.S. agriculural expors o

ASEA N members are projeced o all

by almos $350 mill ion, or 5 o 6 percen

o acual 2009 expors o he region.

However, despie some los rade o China,

paricularly in processed producs, oal

U.S. agriculural expors o China are ex-

peced o rise by over $16 mil lion per year

afer ull implemenaion o he ASEAN

FA, and U.S. agriculural expors o

Oceania will be vir ually unchanged.Declining expors in some commodiy/

produc markes in China and Oceania

are balanced by gains in oher markes.

As China, Ausralia, and New Zealand

increase expors o ASEAN counries,

hey impor more commodiy inpus rom

he Unied Saes. For example, China

is projeced o increase impors o U.S.soybeans and coton o mee new demands

in ASEAN or is livesock producs and

exiles.

U.S. agriculural expors o he res o

he world are projeced o rise in he afer-

mah o he ASEAN FAs. U.S. producs

shi rom he new FA zones o oher

pars o he world, and some producs ha

he ASEAN FA rade parners ormerly

shipped o hird-counry desinaions are

expored o ASEAN insead, leaving a gap

or U.S. rade o ll.

Globally, U.S. agriculural expors are

projeced o decline by $170 mil lion afer

implemenaion o he ASEAN FAs.

Since he counries involved accoun or

one-fh o U.S. agriculural expors ($20billion), he impac is small relaive o he

size o hese FA markessmaller sill in

relaion o oal U.S. expors. Te srong

compeiive posiion o he Unied Saes

and relaively low aris acing U.S. ex-

pors in he wo ASEA N FAs reduce

he adverse impac o hese agreemens

on U.S. agriculural sales in he worldmarkeplace.

Colombias FTAs With

Competitors Put Pressure on U.S.

Exports

he impac on U.S. agriculural

expors rom Colombias FA wih he

Mercosur counries (Argenina, Brazil,

Paraguay, and Uruguay) has been

dieren rom he oucomes expeced

rom he ASEAN FAs. Colombia is he

larges Souh American marke or U.S.agriculural expors; in 2009, expors were

$907 million, consising largely o whea,

corn, soybeans, and soybean producs.

he Mercosur counries produce

grain and soybeans. As par o he

Mercosur-Colombia FA, Colombias

aris on whea impors rom Mercosur

ended in 2009, and corn aris are being

phased ou. However, aris remain on im-

pors rom he Unied Saes. Te margin

o preerence is measured as he dierence

beween he ari ha U.S. expors ace

and he ari he FA parners expors

ace. hese preerences appear o have

appreciably reduced U.S. shares in hesecommodiy markes in 2009 and 2010,

when Mercosur whea had a 15-percen

margin o preerence over U.S. expors and

corn had a margin o preerence beween

8.1 and 6.9 percen.

Alhough Colombian whea and corn

impors rom he world marke were lower

in 2009 han in 2008, impors rom heU.S. ell even more disproporionaely. U.S.

expors o whea o Columbia dropped by

$225 million over he period, while U.S.

corn expors dropped by almos $500

million. he Unied Saes los marke

share o Mercosur counries in corn

and o Argenina and Canada in whea.Argenina, Brazil, and Paraguay increased

heir expors o corn o Colombia by $203

million, while A rgenina and Canada

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15increased heir expors o whea by $36

million. U.S. losses in jus hese wo

commodies in he Colombian marke

due o he Mercosur-Colombia FA

exceed he oal projeced decline o U.S.

agriculural expors ($347 million) o he

much larger ASEAN marke as a resul o

he wo recenly implemened ASEAN

FAs.

More U.S. expors may be in jeopardy

i an FA beween Canada and Colombia

is implemened. Canada, a major whea

supplier o Colombia, negoiaed a ree

rade agreemen wih Colombia in 2008and raied i in 2010. I Colombia also

raies he agreemen, he impor duies

on Canadian whea will be immediaely

reduced o zero.

Third-Party FTAs Hit Hardest

When U.S. Exports Face High

Tariffs and Strong Competition

Colombias FA wih Mercosur

appears o be an example o appreciable

damage o U.S. bilaeral expors rom an

FA beween counries oher han he

U.S. Te $305 mil lion loss o U.S. expors

o corn and whea alone is equivalen o

abou a ourh o U.S. agriculural expors

o Colombiaa ar deeper cu han

he 6-percen loss projeced ollowing

implemenaion o he wo ASEAN FAs.

Te dierence beween he wo cases

is ha Colombia has imposed higher ar-

is on he principal U.S. expors han is

he case or mos U.S. expors o ASEA N

counries. U.S. commodiy exporers ace

compeiion rom Mercosur exporers

who are exemp rom hese aris becauseo he Mercosur-Colombia FA.

Te eec on U.S. agriculural expors

o FAs in which he Unied Saes is

no a parner will var y depending on

he horoughness o he cus in aris in

he FAs, how high he Mos Favored

Naion aris were o begin wih, and he

degree o which parners in hose FAscan supply producs ha he Unied

Saes expors. he U.S. advanages as

a large, low-cos, and reliable exporer

are no auomaically canceled by hird-

pary FAs. However, hird-pary FAs

always give heir members a margin o

ari preerence over he Unied Saes,

which in some cases can lead o serious

declines in U.S. agriculural expors.

Selected Trade Agreements and

Implications for U.S. Agriculture,by John Wainio, Mark Gehlhar,and John Dyck, ERR-115, USDA,

Economic Research Service, April2011, available a: www.ers.usda.gov/publicaions/err115/

Reciprocal Trade Agreements: Impacts

on Bilateral Trade Expansion and

Contraction in the World Agricultural

Marketplace, by Tomas L. Vollrahand Charles B. Hal lahan, ER R-113,USDA, Economic Research Service,

April 2011, available a: ww w.ers.usda.gov/publicaions/err113/

This article is drawn from . . .

1The Mercosur countries are Argentina, Brazil, Paraguay, and Uruguay.

Sources: USDA, Economic Research Service using trade data in the Global Trade Atlas.

Market shares of U.S. and Mercosu r1 countries in Colombia changed dramatically between 2008 and 2009

Corn Soybean oil Soybean meal Soybeans Wheat

-50

-40

-30

-20

-10

0

10

20

30

40

50

Mercosur

United States

Percent