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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 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 Canada: Mexico: C. America: European Union: 1996 (Associate member) 1997 1998 2001 2003 U.S.-Chile Merchandise Trade, 1990 - 2003 $6.0 Billion U.S. Dollars $4.2 $4.4 $3.6 $4.0 $2.5 $2.0 $1.7 $1.8 $0.4 $3.1 $2.8 $2.6 $1.1 $3.5 $3.1 $2.6 $1.7 $1.1 $4.0 $1.9 $2.7 $2.1 $1.5 $1.0 $0.5 $0.1 $0.2 $0.0 -$0.4 -$2.0 -$1.3 -$1.3 -$1.4 -$1.5 -$1.2 -$1.0 -$1.8 -$1.9 -$2.3 -$2.3 -$2.5 -$3.0 -$4.0 U.S. Exports U.S. Imports -$3.3 -$3.5 -$3.8 -$3.7 Balance -$6.0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Source: U.S. Census Bureau Chile: Import Growth by Country • Import growth by country 2002/2000 – From the US -26% – From Mercosur: +12% – From the EU: + 5% U.S.-Chile Agricultural Trade, 1990 - 2003 Million U.S. Dollars $169 $63 $72 $94 $109 $103 $126 $126 $135 $152 $116 $98 $111 $144 $0 -$500 -$374 -$401 -$348 -$378 -$418-$445 -$441 -$457 -$481 -$495 -$543 -$547 -$625 -$619 -$648 -$751 -$745 -$784 -$758 -$910 -$1,000 U.S. Exports U.S. Imports Balance -$910 -$924 -$1,027-$1,023 -$1,043 -$1,069 -$1,154 -$1,213 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Source: U.S. Census Bureau U.S.US Agricultural Trade 2003 Agricultural Tradewith withAustralia, Chile, 2003 Total Exports: $144 Million Total Imports: $1,213 Million Grapes 35.7% Wheat 25.0% Corn Gluten 18.6% $442 $36 $27 Grape Wines 11.2% $22 Hort 14.9% $138 $34 $16 $10 Other Grains Cotton 11.3% 6.8% $113 $95 Other 23.4% Seeds 9.2% Stone Fruit 7.7% Source: U.S. Trade Internet System, www.fas.usda.gov/ustrade $215 $90 $75 Other 17.4% $68 Fruit/Veg Juices 5.5% Avocados 7.3% Apples/Pears 6.1% US Corn, Wheat, and Soybeans Exports to Chile (1999 – 2003) 60,000 Value ($1,000US) 50,000 40,000 Corn 30,000 20,000 10,000 Wheat Soybeans 0 1999 2000 2001 Year 2002 2003 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 Chile's Access to U.S. Market Immediate 4 Years 10 Years Pork Some Fruits Some Vegetables Some Tree Nuts Wheat Corn Rice Other Grains Wheat Flour Soybeans/Products *Cotton Some Sugar/Products *Beef, with TRQ Some Fruits Some Vegetables Some Tree Nuts Poultry, with TRQ 8 Years 12 Years Some Fruits Some Vegetables Some Processed Foods Some Fresh Vegetables Dairy, with TRQ Tobacco, with TRQ Some Sugar/Products, with TRQ Some Processed Foods U.S. Access to Chile Immediate 4 Years 10 Years Pork Fresh Fruits Fresh Vegetables Tree Nuts Other Grains Soybeans/Products *Cotton Tobacco *Beef, with TRQ Chicken, Whole Some Dairy *Corn (2 Years) Chicken Parts, with TRQ 8 Years Some Dairy 12 Years Wheat Rice Wheat Flour Vegetable Oils Sugar/Products Processed Foods 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. 1000 800 600 400 Imports High Low Exports 0 High Low Other processed food 200 Petroleum, coal, chemicals, rubber, plastics and other minerals Electronic equipment Other machinery and equipment Motor vehicles, transportation equipment Dairy Products Other crops Fruits, vegetables, and nuts Textiles, wearing apparel, and leather products Other Processed Food Million Dollars Figure ES-1 Range of estimated impacts of tariff reductions on the United States from the U.S.-Chile FTA, selected sectors, 2016 1200 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 1030% – 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 150 Thousand Metric Tons U.S. Imp from Chile Imp from ROW 100 50 0 3 03 l0 Ju n Ja 2 02 l0 Ju n Ja 1 01 l0 Ju n Ja 0 00 l0 Ju n Ja 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) 300 239.39 250 194.02 200 163.16 150 107.62 100 % 50 20 40.92 37.11 5.42 4 0 -1.41 -50 TOTAL AG US to World TREE NUTS AND PREPARATIONS US to Chile CHEESE & CURD EGG & EGG PRODUCTS ICE CREAM 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.