Our Views Columns

Our Views Columns

Date: 3/15/2017

Title: Want to Know If Free Trade Agreements Work? Look At Our Exports to Korea.

by Kent Bacus 

 

There’s been a great deal of discussion recently about whether free-trade agreements like the Trans-Pacific Partnership (TPP) or the North American Free Trade Agreement (NAFTA) are on balance positive or negative for American workers and businesses.

 

That debate will continue, but one thing is absolutely certain: opening foreign markets to American agricultural exports has been an enormous boon for America’s farm and ranch families, who provide the world with a safe and abundant food supply. American consumers are blessed with a safe, affordable, and abundant food source, but Americans alone cannot consume all of the agricultural goods that we produce. For many years we have seen global demand for American agricultural goods continue to grow, while producers and consumers have both benefitted from the removal of protectionist trade barriers. And a perfect illustration of that can be seen by looking back to something that happened exactly five years ago this week.

 

On March 15, 2012, the Korea-U.S. Free Trade Agreement (KORUS) was implemented—representing the end of a long and difficult negotiation process and the beginning of a new development in the trade relationship between allies. For U.S. beef, the KORUS Agreement represents the gold standard of trade agreements because it eliminates tariffs and sets in place some of the strongest science-based standards the world has seen. Prior to the implementation of KORUS, American beef imports in South Korea were slapped with a 40-percent tariff, which obviously raised our costs and put us at a competitive disadvantage against our cattle-producing competitors in countries like Australia.

 

However, our free-trade agreement with South Korea flipped that script. Those 40-percent tariffs are now being phased down to zero by 2027, and we currently have an 8-percent tariff advantage over the Australians for the next 10 years.

 

The results for American cattle producers over the past few years? An increase in annual sales to South Korea from $582 million in 2012 to $1.06 billion in 2016 – a whopping jump of 82 percent. Similarly, exports have spiked from 125,614 metric tons in 2012 to 179,280 metric tons last year – a 42-percent surge.

 

The Korean-U.S. Free Trade Agreement removed the government-imposed obstacles that prevented us from reaching our growing consumer base in Korea who want more U.S. beef. And by having the competitive advantage with lower tariff rates than Australia, last year the United States became the number one source of imported beef in South Korea – besting Australia for the first time in 13 years. Moreover, global retailing giant Costco recently announced that 100 percent of the imported chilled beef it sells at its 13 warehouses across South Korea will be American-produced – a potential boost of 15,000 metric tons just this year, according to the U.S. Meat Export Federation.

 

Of course, South Korea isn’t alone in its love of high-quality American beef. In fact, the world’s top importer of American beef in 2016 was Japan – to the tune of $1.5 billion – despite our product being slapped with 38.5-percent tariffs at the country’s ports. In contrast, Japan only charges Australian beef imports a 27.5-percent tariff. TPP would have eliminated this 11-percent Aussie advantage, but now this discrepancy will actually get worse, as Japanese tariffs on Australian beef will continue to drop in the coming years - while ours remain the same.

 

So what does all of this mean for a typical American cattle-producing family? Consider Craig Uden, a fourth-generation cattleman who runs a ranch and feeding business in tiny Cozad, Nebraska. He doesn’t sell his cattle directly to restaurants or supermarkets in Korea, Japan, or Mexico, but does sell them to meat packers who often do.

 

And the price that Craig gets for his cattle is based largely on demand – global demand. If global demand for American beef drops because high tariffs in Japan drive up the cost, or because a trade war prevents us from selling at all to 1.3 billion hungry consumers in China, that’s means less money for Craig and his family. And at a time when exports account for 13 percent of overall U.S. beef production – or approximately $300 per head of cattle – those losses can add up quickly for real American families.

 

So as the debate on trade continues and treaties old and new are (re)negotiated, let’s remember that the so-called faces of trade aren’t always as they’re depicted on the campaign trail. Because if you look at the faces of many American agricultural families, they’re probably smiling about being able to sell their products competitively to the 96 percent of the world’s consumers who don’t live in the United States.

 

Kent Bacus is Director of International Trade and Market Access for the National Cattlemen’s Beef Association, which has represented America’s cattle producers since 1898, preserving the heritage and strength of the industry through education and public policy.

 

 


 



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