TRADE ISSUES OVERVIEW

NCBA Staff Contact: 

Gregg Doud, Chief Economist
202-347-0228

gdoud@beef.org

Summary

This summary of trade issues with the greatest potential to influence the cattle and beef industry includes updates on trade issues dealing with Japan, South Korea, the European Union, Russia, China and several other countries, as well as negotiations for World Trade Organization (WTO) accessions.

Background

Japan: While several Japanese businesses resumed selling U.S. beef, the stringent requirement that U.S. beef exports originate from cattle younger than 20 months of age is restricting sales from satisfying demand and reaching pre-BSE, 2003 levels. Both countries agreed that during the first six months that the market was open after July 2006, Japan would be allowed to institute a policy of 100-percent box inspection to look for specified risk materials (SRM) and any imports of prohibited beef cuts. This timeline came and went in late January.

Japanese audit teams completed a review of U.S. meat packing plant procedures in late May. As expected, Japan removed its 100-percent box inspection requirement in mid-June. Analysts suggest this development could at least double the volume of U.S. beef exports to Japan, and anecdotal information would suggest that this is not a bad projection. Unfortunately, that would put U.S. beef exports to Japan still at only about one-quarter of 2003 levels.

Another very significant development occurred on May 8 when a Japanese Health Ministry official announced that they could not confirm the 21- and 23-month-old calves processed in Japan in fall 2003 had BSE. A Japanese research group studying the suspect cases failed to infect laboratory mice with BSE using the brain matter from the cattle, even after extended periods of time. The test results support the conclusion that transmissible BSE does not exist in younger animals. This research could prompt Japan to consider expanding the trade of U.S. beef to include beef from animals older than 20 months of age.

We are still waiting to see how Japan’s elections in Summer 2007 will impact the process of fully normalizing U.S. beef exports to Japan.

South Korea: On April 27, 2007, U.S. beef returned to Korea. The current protocol allows for only boneless beef from animals under 30 months of age.  Unfortunately, South Korea suspended imports of U.S. beef on October 5, 2007, after inspectors found one box within an 18.5 ton shipment that contained vertebral column.  Korean officials then said l that a ban on ALL U.S. beef products will remain in effect until a new set of quarantine conditions are worked out.  Movement of U.S. beef into Korea continues to be a stand-still while officials negotiate a workable protocol.  NCBA is urging that this protocol be based on OIE guidelines and allow access for ALL U.S. boneless and bone-in beef products regardless of age.  Prior to December 2003, South Korea was our #3 export market.

China: Despite China’s high-level political commitment made over one year ago to reopen its borders to U.S. beef, this market remains closed. U.S. government officials have held technical discussions on several occasions with Chinese officials regarding market access for U.S. beef with little success. USTR and USDA officials have been meeting with Chinese officials in an attempt to convince China to accept and implement the Office of International Epizootics’s (OIE) “controlled risk” trading guidelines.

Russia: After a lengthy process of inspections and waiting for the final OIE designation, USDA has begun approving beef plants for export to Russia and the first U.S. beef shipments to Russia since December 2003 have cleared Russian customs and have entered the marketplace.

Although a new export protocol still must be finalized, industry sources indicate that additional sales have been made and the prospect for future sales looks promising. 

A bilateral trade agreement signed in November 2006 provides access for U.S. boneless and bone-in beef, and variety meats into Russia.  NCBA continues to monitor this situation carefully as Russia will likely remain the second largest beef importing nation in the world in 2008 at 1.1 million metric tons versus 725,000 mt for Japan, according to USDA's latest estimates.

South American beef continues to dominate this market, with Russia being the top customer for Brazil, Uruguay and Argentina. Australia also is doing quite well selling beef to Russia in the absence of U.S. beef.

EU Market Update:  On November 17, 2006, USDA’s Food Safety Inspection Service (FSIS) updated its requirements for U.S. exporters sending product to the European Union, removing several requirements and easing the plant-approval process. For beef producers, this is a significant first step in getting meaningful access to the EU market. Until now, only a few plants have been able to get approved to export beef to the EU, but the change in restrictions means as many as 35 plants could now be approved. For more information, see “Export Requirements for the European Union” in the FSIS Export Library (http://www.fsis.usda.gov/Regulations_&_Policies/European_Union_Requirements/index.asp).

A year ago, the EU brought a new WTO case against the United States alleging that it is now in compliance on the beef hormone issue and that the $116.4 million in U.S. retaliatory tariffs against EU products is no longer valid on procedural grounds. The WTO called for a panel of scientific experts to review the science behind this claim. This panel’s testimony was heard in fall 2006, and a conclusion to this case was expected in mid-June but has not yet been made public.

On January 1, 2006, the EU implemented a new meat “hygiene directive” that has implications for U.S. operational measures such as pathogen (E. coli O157:H7) reduction techniques. The U.S. beef industry continues to work aggressively to address a series of sanitary/phytosanitary (SPS) and technical issues that affect U.S. beef exports to the EU. Discussions to resolve this and other technical barriers to trade are ongoing, with delays largely attributable to the EU’s slow regulatory acceptance of pathogen reduction techniques for poultry.

Another very important development occurred April 14, 2006, when USDA revised its requirement for the non-hormone treated cattle (NHTC) program for the EU. In place since 1989, the requirements for the program were prohibitive for nearly all producers. Revisions to the program are expected to provide the same level of assurance for the EU while allowing producers a more practical means of participating. Further discussions with EU officials on this subject occurred in late July, mid-September, October and December 2006 and again in early-March 2007, suggesting that the pace for resolving this long-standing issue may be improving parallel with a pending decision on the WTO case.

Trade Promotion Authority

Trade Promotion Authority (TPA) expired on June 30, 2007. This “fast-track” authority is important when final trade agreements are ready to be passed after years of negotiations. TPA assures that once trade agreements are finalized, Congress cannot make last-minute special interest concessions or amendments. Between 1994 and 2002, when the President did not have TPA, America’s foreign competitors took advantage of opportunities to expand their presence in the international marketplace, signing trade deals that excluded the United States.

Currently there is virtually no effort on Capitol Hill underway to renew this authority. This is frustrating and quite likely problematic as Australia continues its free trade agreement negotiations with Japan and the EU is entering its second set of negotiations with Brazil. In both instances, successful bilateral agreements would have serious negative consequences for U.S. beef exports.

In fact, it was less than a year ago that the table below included an extensive list of at least a dozen topics comprising the Bush Administration’s trade agenda. Now, not only is the list of topics on this trade agenda quite short, these items are all essentially completed with the exception of a congressional vote of ratification. We do not expect the U.S.-Korea FTA to come up for a vote of ratification until Korea’s market is fully open to U.S. beef based upon OIE guidelines. It is incomprehensible that Congress has yet to ratify the Peru, Panama and Colombian free trade agreements. These are good agreements for U.S. beef producers and the U.S. economy as a whole.

WTO accession agreements

Country	Issue	Status	Timeline
Russia	The United States and Russia signed a WTO accession deal November 19, 2006.	See Russia export market update above for information on BSE-related market access.   After 12 years of negotiating, the two countries came to an agreement on market access and non-tariff barriers. As well as reopening the market to all U.S. beef, this package includes 15 percent, tariff-only market access for prime and choice U.S. beef, and a set tariff rate quota through 2009 for other beef products.   Congress must also pass PNTR for Russia before the U.S. can receive the benefits of Russia’s accession to the WTO. This could become a very contentious issue in Congress.	No word has been given on when/if Russia PNTR will be put on the U.S. Congressional calendar.   Russia still has yet to complete its accession negotiations with Georgia. Russia is now struggling to implement key changes to laws and regulations necessary for accession. Although technically not affecting U.S. beef exports, this saga will likely continue throughout 2007.

Free trade agreements

Country	Issue	Status	Timeline
South Korea FTA	On February 2, 2006, the United States and South Korea announced their intent to launch FTA negotiations.	See South Korea update above for information on BSE-related export market access.   The U.S. and Korean governments concluded negotiations on a U.S.-South Korea Free Trade Agreement on April 1, 2007.  The beef access issue remains unresolved.  NCBA has said all along that cattlemen will not support the FTA until commercially viable beef trade between our two countries is resumed. USTR Schwab as well as several key members of Congress is supporting the same position.	In an unusual step, Korean government officials have publicly indicated that they intend to normalize imports of U.S. beef based upon OIE “controlled risk” guidelines by September.
Panama FTA	The United States and Panama entered into FTA negotiations on April 26, 2004. The two countries concluded FTA negotiations December 19, 2006.	Panama agreed to accept imports of all U.S. beef and beef products upon signing of the agreement. Also under this agreement, more than half of all current U.S. farm exports to Panama will become duty-free immediately, including high quality beef. Panama is also revising its sanitary and phytosanitary (SPS) regulations recognizing the equivalence of U.S. food safety inspection system for meat, poultry and processed food products.	The Panama FTA awaits Congressional ratification.
Andean FTA (Peru, Colombia, Ecuador)	The United States and these three countries launched FTA negotiations on May 18, 2004. The United States concluded negotiations with Peru on December 7, 2005, and with Colombia on February 27, 2006.	Immediate duty-free access was obtained for high quality beef, and large duty-free in-quota tariffs on key items are a part of both agreements. Tariffs on remaining beef tariff lines will be eliminated within 15 years for Peru and 12 years for Colombia.   U.S. Trade Representative Rob Portman and Peruvian Minister of Foreign Trade and Tourism Alfredo Ferrero Diez Canseco signed the U.S.-Peru Trade Promotion Agreement April 12, 2006. Peru finally opened to all U.S. beef and beef products on October 25, 2006.   Colombia too agreed to open to all U.S. beef and beef products on October 31, 2006.   Ecuador still has (BSE) trade restrictions on U.S. beef, and as of May 17, 2006, Ecuador’s government joined what is now an epidemic of nationalism in South America by ending an oil contract with U.S. company Occidental, the largest foreign investor in Ecuador. The government said it would not pay retribution. The U.S. government replied by announcing that U.S.-Ecuador FTA negotiations were dead.	USTR Susan Schwab and the Colombian trade minister signed the agreement on November 22, 2006.   The Colombian FTA is bogged down in serious labor issues. How these problems will be resolved is unknown.   Peru has been ratified in both Peru and the U.S.  President Bush signed it into law on Dec. 14, 2007.   An FTA with Ecuador is dead until both TPA is extended in the United States and Ecuador decides to resume negotiations.