Over the next 15 years livestock and grain producers can expect to see all tariffs on agricultural products phased out to zero for those headed to El Salvador, Guatemala, Honduras and Nicaragua. All thanks to an agreement in a final round of trade negotiations of the Central America Free Trade Agreement (CAFTA).
Representatives from the agriculture sector remained optimistic about the agreement, but some opposition exists. There is some concern about CAFTA among U.S. sugarbeet and sugarcane producers. The four countries in the current agreement will be allowed to nearly double their duty-free shipments of sugar to the U.S. in the first year. The American Sugar Alliance comments that the impact on the U.S. sugar industry would set a bad precedent for all other trade negotiations.
The CAFTA was scheduled to conclude this week after the final round of negotiations. Although Costa Rica announced it needs additional time to work out politically sensitive issues before signing the agreement, the plan offers a wealth of opportunity for U.S. entities.
Immediate duty free access
Terry Wolf, U.S. Grains Council chairman says, "The agreement will offer immediate duty free access for more than 1 million metric tons of U.S. corn, with tariffs dropping to zero in all four countries with 15 years. The market potential for U.S. feed grains is extremely high and demand will grow due to this historic agreement," he adds.
National Corn Growers Association (NCGA) President Dee Vaughan reminds that the industry should be pleased with the agreement because Central Americans consider corn a sensitive commodity. "Tariff elimination for feed grains and products like beef and pork result in U.S. free trade agreements that benefit U.S. farmers."
Capitalize on growing tourist and travel industry
Michelle Reinke, National Cattleman's Beef Association manager of trade policy, says the agreement allows U.S. cattle producers an opportunity to expand high quality U.S. beef exports to the region immediately, on a duty-free basis. "It also provides for a phase out of duties applied to other U.S. beef products over the course of the transition period," she says.
"The tourist and travel industry is thriving in Central America, and these hotels and restaurants are key to growing this market for U.S. beef," Reinke says. The U.S. Meat and Export Federation reports that U.S. Prime and Choice beef cuts will immediately be exempt from both tariffs and quotas. Exports of all other beef products to Nicaragua, Honduras and El Salvador will see tariffs reduced to zero over the next 15 years, while Guatemalan tariffs will be phased out over the next 10 years. U.S. beef exports to all four countries will not be bound to quotas.
Reinke explains that although the countries ship more beef to the U.S. than they import, the agreement gives them more access for imports but "is dependent on them filling their current access quotas." Central America has never filled the tariff rate quota (TRQ) created with the Uraguay Round Agreements and CAFTA makes sure they utilize the access they're given, she says.
Trade representatives kept pork on the table
Originally foreign negotiators wanted to exclude pork from the Central America Free Trade Agreement (CAFTA). But U.S. trade ambassadors held their ground in finalizing an agreement with the nations of El Salvador, Guatemala, Honduras and Nicaragua that will eliminate all tariffs on pork and open new markets for U.S. pork producers.
The deal provides both immediate and phased-in concessions on pork and pork products. A significant TRQ will be established by which the U.S. can immediately ship pork tariff free within the quota. The size of the quota will increase each year and the out-of-quota will decrease over time. The quota and the tariffs will be eliminated after the 15 year phase-in period.
The U.S. Meat Export Federation reports that each country will have a separate quota for pork imports. They are as follows:
- Guatemala 3,950 metric tons (mt), increasing 5% per year
- Honduras 2,000 mt, increasing 7.5% per year
- El Salvador 1,500 mt, increasing 10% per year
- Nicaragua 1,000 mt, increasing 10% per year
Timeframe for wrapping up negotiations
Because next year is an election year, Congress will have to have text prepared probably by early next summers, possibly June or July says Michelle Reinke, National Cattlemen's Beef Association manager for trade policiy. "Timing is sensitive as you get into an election year."
The U.S. Trade Representative (USTR) is talking about final rounds with the Dominican Republic in January, February and March. As it currently stands, Costa Rica is not included in CAFTA. USMEF reports that the U.S. government hopes that continuing negotiations will succeed in overcoming outstanding differences. National Pork Producers Council (NPPC) President Jon Caspers says NPPC "applauds our trade negotiators and the Administration for their unwillingness to permit Costa Rica to get a free ride on pork and other products and issues of importance to the United States."
Senator Chuck Grassley, R-Iowa, pledged CAFTA will benefit Midwest producers. "I'll work to ensure that any unjustified non-tariff barriers to U.S. agricultural products are eliminated before the agreement is considered by the Congress. I look forward to working with my colleagues to move the CAFTA through the U.S. Senate," he says.