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US-Chile Free Trade Agreement What is there for Agriculture?. Jaime Malaga Texas Tech University Flynn Adcock Texas A&M University Center for North American Studies 2004 AAEA Meetings, Denver, Colorado. Overview. US-Chile Trade Main FTA Topics Agricultural Sector Impacts Implications.
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US-Chile Free Trade AgreementWhat is there for Agriculture? Jaime Malaga Texas Tech University Flynn Adcock Texas 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
Chile: Import Growth by Country • Import growth by country 2002/2000 • From the US -26% • From Mercosur: +12% • From the EU: + 5%
US Corn, Wheat, and Soybeans Exports to Chile (1999 – 2003) 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
NTB Eliminated • Recognition of US food standards • Recognition of US meat inspection system • Elimination of “price bands” for wheat and other US ag. imports
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.
High High Exports Imports Low Low Figure ES-1Range of estimated impacts of tariff reductions on the United States from the U.S.-Chile FTA, selected sectors, 2016
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.
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)
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.