US-Chile Free Trade AgreementWhat is there for Agriculture?

Jaime MalagaTexas Tech University

Flynn AdcockTexas A&M University

Center for North American Studies

2004 AAEA Meetings, Denver, Colorado

Overview

• US-Chile Trade

• Main FTA Topics

• Agricultural Sector Impacts

• Implications

Chile• 5th Economy in Latin America• 15.5 million people• Fastest growing and strongest LA economy• 25 years of stable and market oriented policies• Small size: 1.5% of US GDP, 15% of Mexico’s

GDP, 10% of Brazil’s• Relatively high per capita income; ($10,000)• Overall small trade partner (37th US export market)• Large mining country and excellent agriculture

Chile: Free Trade Oriented

• Overall tariff level: 6%

• Chile’s Free Trade Agreements under implementation:

Mercosur 1996 (Associate member) Canada: 1997 Mexico: 1998 C. America: 2001 European Union: 2003

U.S.-Chile Merchandise Trade, 1990 - 2003

Source: U.S. Census Bureau

$1.7 $1.8

$2.5 $2.6 $2.8

$3.6$4.2 $4.4

$4.0

$3.1$3.5

$3.1$2.6 $2.7

-$1.3 -$1.3 -$1.4 -$1.5-$1.8 -$1.9

-$2.3 -$2.3 -$2.5-$3.0

-$3.3 -$3.5-$3.8 -$3.7

$0.4 $0.5$1.1 $1.1 $1.0

$1.7 $1.9 $2.1$1.5

$0.1 $0.2

-$0.4

-$1.2 -$1.0

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

$0.0

$2.0

$4.0

$6.0

-$2.0

-$4.0

-$6.0

Billion U.S. Dollars

U.S. Exports U.S. Imports Balance

Chile: Import Growth by Country

• Import growth by country 2002/2000

– From the US -26%

– From Mercosur: +12%

– From the EU: + 5%

Source: U.S. Census Bureau

$63 $72 $94 $109 $103$169

$126 $126 $135 $152$116 $98 $111 $144

-$481-$445

-$495-$457

-$543 -$547

-$751 -$745-$784

-$910

-$1,027 -$1,023

-$1,154-$1,213

-$418-$374 -$401

-$348

-$441-$378

-$625 -$619 -$648

-$758

-$910 -$924

-$1,043 -$1,069

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

$0

-$500

-$1,000

Million U.S. Dollars

U.S. Exports U.S. Imports Balance

U.S.-Chile Agricultural Trade, 1990 - 2003

U.S. Agricultural Trade with Australia, 2003

Wheat25.0%

Corn Gluten18.6%

Hort14.9%

Other Grains11.3%

Cotton6.8%

Other23.4%

$36$27

$22

$16 $10

$34

Grapes35.7%

Grape Wines11.2%

Seeds9.2%

Stone Fruit7.7%

Avocados7.3% Apples/Pears

6.1%

Fruit/Veg Juices5.5%

Other17.4%

$442

$138

$113

$95$90 $75

$68

$215

Total Imports: $1,213 MillionTotal Exports: $144 Million

Source: U.S. Trade Internet System, www.fas.usda.gov/ustrade

US Agricultural Trade with Chile, 2003

US Corn, Wheat, and Soybeans Exports to Chile (1999 – 2003)

0

10,000

20,000

30,000

40,000

50,000

60,000

1999 2000 2001 2002 2003

Year

Val

ue

($1,

000U

S)

Corn

Wheat

Soybeans

US-Chile FTA Background• US- Chile: 12 years talking, 2 years negotiation• 2003 Signature• January 2004 Implementation• Both economies quite open already so expected

impacts not large• Schedules:

– Immediate– 4 years– 8 years– 10 years– 12 years

Immediate 4 Years 10 YearsPork *Beef, with TRQ Poultry, with TRQ

Some Fruits Some FruitsSome Vegetables Some VegetablesSome Tree Nuts Some Tree Nuts

WheatCorn 8 Years 12 YearsRice Some Fruits Some Fresh Vegetables

Other Grains Some Vegetables Dairy, with TRQWheat Flour Some Processed Foods Tobacco, with TRQ

Soybeans/Products Some Sugar/Products, with TRQ*Cotton Some Processed Foods

Some Sugar/Products

Immediate 4 Years 10 YearsPork *Beef, with TRQ Chicken Parts,

Fresh Fruits Chicken, Whole with TRQFresh Vegetables Some Dairy

Tree Nuts *Corn (2 Years) 12 YearsOther Grains Wheat

Soybeans/Products Rice*Cotton 8 Years Wheat FlourTobacco Some Dairy Vegetable Oils

Sugar/ProductsProcessed Foods

U.S. Access to Chile

Chile's Access to U.S. Market

NTB Eliminated

• Recognition of US food standards

• Recognition of US meat inspection system

• Elimination of “price bands” for wheat and other US ag. imports

Impacts ?

Overall Impact(USITC Year 2016)

• US Exports to Chile: 18% to 52% higher

• US Imports from Chile: 6% to 14% higher

• Effect on US total Exports and Imports Very small (0.09% and 0.03%)

• Effect on Ag Imports relatively higher.

Figure ES-1Range of estimated impacts of tariff reductions on the United States from the U.S.-Chile FTA, selected sectors, 2016

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200

400

600

800

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Milli

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HighLow

Imports

HighLow

Exports

Wheat and Flour

• US important supplier until 1997• Market share lost: Canada 70%, and

Argentina (no tariff)• FTA: negotiated elimination of “price band”

and replacement with 31% initial tariff to be eliminated in 12 years

• The US may recover market share form Argentina and Canada up to $ 75 million by year 12th

• Difficult to recover flour market.

Soybeans• US exported soybeans, soy oil and soy meal until

early 90’s to Chile• Markets lost to Argentina, Brazil, Paraguay, and

Bolivia. (Mercosur partners, no tariff)• FTA with US eliminates immediately 6% tariff.

So competitiveness improved• No impact on oil and meal expected• US Soybeans may recover some share but not

more than $ 10 million/year

Beef• Beef consumption in Chile growing fast. World 9th

Largest Beef importer • Main problem: standards and inspections not

recognized by Chile• Argentina and Brazil major providers • FTA eliminates tariff in 4 years on US beef and allows

recognition for US inspection/standards• US exports will depend on acceptation of grain-fed vs

grass-fed beef quality.

Ag. Imports Impact

• Fresh Fruits/Vegetables – Most tariffs immediately eliminated – Import expansion up to $ 200 million additional

• Processed Food (fruit)– Protected by the US: 12 year schedule. US tariffs 10-

30%– Impacts can be important by year 12th, Chile has low

costs for canned/preserved fruit production.– Up to $ 200 million possible.

Monthly U.S. Grape Shipments and Imports

Jan 00

Jul 00

Jan 01

Jul 01

Jan 02

Jul 02

Jan 03

Jul 03

0

50

100

150Thousand Metric Tons

U.S. Imp from Chile Imp from ROW

Source: Agricultural Marketing Service, USDA and Foreign Agricultural Service, USDA

Ag. Imports Impact -2

• Avocados– Growing consumption in the US– Some overlapping with US production – US Tariff: +- 11% ad-valorem – US protection: 12 year schedule with TRQ and

Safeguard (trigger prices)

US Ag.Exports Growth to the World and to Chile (% change, Jan-May `03/`04)

5.42

40.92

-1.41

107.62

239.39

163.16

2037.11

194.02

4

-50

0

50

100

150

200

250

300

TOTAL AG TREE NUTS ANDPREPARATIONS

CHEESE & CURD EGG & EGGPRODUCTS

ICE CREAM

%

US to World US to Chile

US-Chile FTA: Model for other US-LA FTA?

Conclusion Implications

• Small overall impact expected• Major impact in US Exports: Non-agricultural• Major impact in US Imports: Agriculture, but not dramatic• FTA will level playground with other Chilean suppliers• Ag import impacts avocados, processed fruits• Ag export impacts: wheat, soybeans, beef, high value foods • Model for other FTA with LA.