TPP: Selected Commodity Impacts for U.S. Agriculture

November 19, 2015

TPP: Selected Commodity Impacts for U.S. Agriculture

In evaluating the potential implications of the proposed

Trans-Pacific Partnership (TPP) free-trade agreement for

U.S. food and agriculture, an important consideration is that

exports make a substantial contribution to the sector.

Exports absorb about 20% of total farm output, thereby

contributing materially to higher commodity prices and

farm income. The positive ripple effects from farm trade to

the sector extend beyond farmers and ranchers to rural

communities; farm input industries that provide seed,

fertilizer, and machinery; and commodity processors and

food manufacturers with a stake in foreign markets. Exports

may also contribute to higher input prices for food to the

extent that additional foreign demand is not met by an

increase in domestic supplies, although commodity costs

amount to a fraction of overall retail food prices. Rising

farm productivity, market-oriented U.S. farm policies, and

the prospect of competing for faster-growing food markets

in many developing countries contributed to broad support

in U.S. agriculture for pursuing a TPP agreement.

safeguard measures allow for additional tariffs to be

imposed if imports should exceed designated quantities.

On initial read, it appears the TPP agreement reached in

October 2015 would significantly improve market access

for many U.S. food and agricultural products, potentially

enhancing U.S. competitiveness in a number of markets. It

also would provide TPP partners with greater access to U.S.

product markets. TPP participants are Australia, Brunei,

Canada, Chile, Japan, Malaysia, Mexico, New Zealand,

Peru, Singapore, the United States and Vietnam. Congress

would need to pass implementing legislation for the

agreement to enter into force for the United States.

• Beef: Japan ranks as the largest U.S. export market for

beef and beef products, according to the U.S. Department of

Agriculture (USDA). Under the TPP agreement, Japan

would drop its current tariff on fresh, chilled, and frozen

beef from 38.5% to 27.5% in year one, with subsequent

annual reductions to 9% by year 16. Japan would lower

tariffs on other beef products as well, while Vietnam would

eliminate such tariffs over three to eight years. The United

States, for its part, would eliminate tariffs on beef and beef

products that range as high as 26.4% in no more than 15

years and in fewer than 10 years in most instances.

The text below identifies three considerations around the

TPP agreement that are particularly relevant for U.S. food

and agricultural interests. This is followed by a partial

snapshot of some of the higher-profile improvements in

market access for agricultural products in the agreement.

Key Considerations for Food, Agriculture

1. An overarching consideration is that among significant

TPP markets, the United States lacks free trade agreements

(FTAs) with Japan, Vietnam, and Malaysia. As such, these

countries likely offer the greatest potential for boosting U.S.

farm and food exports via lower tariff, or expanded tariff

rate quotas (TRQs). Under a TRQ, lower tariffs are applied

to in-quota imports with higher rates for over-quota

product. Japan is likely the leading market opportunity in

the TPP due to its highly protected farm and food markets,

large population, and high per capita gross domestic

product.

2. Also significant is that potential key export expansion

opportunities for U.S. food and agriculture interests, such as

beef and pork to Japan and dairy products to Japan, Canada,

and Vietnam, generally are to be phased in over a period of

years, if not decades. For certain products in certain

countries, such as Japan for beef, pork, and whey powder,

3. If the United States chooses not to implement the TPP

agreement, U.S. agricultural export competitors would have

an opportunity to gain a competitive edge over U.S. exports

of certain products to Japan and elsewhere. This could

occur as a result of existing preferential tariff

arrangements—such as Australia’s FTA with Japan—or by

ratifying an agreement similar to TPP without U.S.

participation. Also, while the European Union is not party

to the TPP, it is negotiating FTAs with Japan, Malaysia,

and Vietnam that could enhance its competitive position in

those markets.

Specific Market Access Commitments

The TPP agreement would affect market access for a broad

range of agricultural commodities and food products. The

list below is a selection of some of the notable changes

included in the agreement. It is in no way comprehensive.

• Pork: Japan, which also ranks as the leading market

for U.S. pork and pork product exports, would immediately

cut its tariff of 4.3% on fresh, chilled, and frozen pork cuts

to 2.2%, phasing out the residual over nine years. A

separate duty on pork cuts under Japan’s “gate price

system,” which acts as a minimum import price, would be

lowered immediately to 125 yen per kilogram, from 482

yen now. This duty would then be cut to 70 yen in year five

and subsequently lowered each year to reach 50 yen in year

10. A special U.S.-specific safeguard would allow Japan to

temporarily increase the duty during this transition period if

imports were to exceed a trigger level. Vietnam would

eliminate tariffs that are as high as 34% on pork and pork

products within 10 years, while the United States would

immediately eliminate most such tariffs.

• Poultry: Canada would allow incremental increases in

access to its highly protected poultry and egg markets over

five years via new duty-free TRQs amounting to 2.3% of

domestic production for eggs, 2.1% for chicken, 2% for

turkey, and 1.5% for broiler hatching eggs. Thereafter, the

quotas would be raised moderately each year, plateauing in

year 19. Vietnamese tariffs on poultry of up to 40% would

be eliminated within 13 years. U.S. tariffs of up to 18.6%

ad valorem equivalent would be eliminated within 10 years.

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TPP: Selected Commodity Impacts for U.S. Agriculture

• Dairy: Opening dairy markets to greater import

competition was among the most difficult agricultural

issues to resolve. Under the agreement, Canada would

allow incremental additional access to its highly protected

dairy markets amounting to 3.25% of its current annual

output under TRQs that would be phased in over five years,

with moderate annual increases thereafter. Canadian TPPwide TRQs for products, including fluid milk, butter,

cheese, and yogurt, would be increased for between 14 and

19 years and then remain fixed. In-quota dairy products

would enter Canada duty free. Canada also would eliminate

its over-quota tariff of 208% on whey powder over 10

years. Japan would eliminate many tariffs it imposes on

cheese imports within 16 years and on whey within 21

years. The United States, in part, would gradually phase out

tariffs and establish TRQs for dairy products from Australia

and New Zealand that would be increased annually.

Existing preferential access for Australian dairy products

under the U.S.-Australia FTA would be transferred to

perpetual TRQs. New U.S. TRQs for Canadian dairy

products would be raised gradually each year until year 19,

at which point the quantities would remain fixed.

• Rice: Japan, the second-largest overseas market for

U.S. rice, would establish a new duty-free quota for U.S.

rice of 50,000 tons initially, rising to 70,000 tons in year 13.

Japan also would allow a broader range of domestic entities

to participate in tenders on this additional quota, as well as

on 60,000 tons of rice under an existing quota. But Japanese

officials indicate that the “minimum mark-up” Japan

imposes on rice imports—equivalent to a 15-20% duty

according to USA Rice—would continue to be applied to

all imports. U.S. tariffs on rice products of up to 11.2%

would be eliminated within 15 years.

• Cotton: U.S. tariffs on cotton that range up to $0.314

per kg generally would be eliminated by 2022, and in some

cases would be removed immediately.

• Sugar: Access to the U.S. sugar market would be

expanded incrementally by establishing new TRQs for

sugar and sugar-containing products totaling 86,300 tons

annually, or 2.4% of U.S. sugar imports in 2014/2015.

Australia and Canada would immediately receive new dutyfree quotas of 65,000 tons and 19,200 tons per year,

respectively. The residual would be split between Japan,

Malaysia, and Vietnam. The Australian and Canadian

TRQs include the potential for expansion in years when

additional U.S. sugar imports are required. Japan would

provide new TRQs that would expand access to its market

for sugar and sweetener-related processed products on a

duty-free or preferential-tariff-rate basis, including chewing

gum, chocolates and products containing chocolate,

confectionery goods and other such products, and would

eliminate tariffs on various sweetener products over time.

• Tobacco: U.S. tariffs on tobacco of up to 350% would

be eliminated within 10 years, while Japan would eliminate

tariffs on smoking tobacco and cigars over 11 years, and

Malaysia would eliminate all tariffs on tobacco and tobacco

products over 16 years. Vietnam would create a TRQ for

unmanufactured tobacco imports that increases gradually

for 20 years, while eliminating in-quota tariffs over 11

years. Vietnamese tariffs on blended tobacco, cigars, and

other tobacco products would be eliminated over 16 years.

Tariff Elimination Schedule for Selected Other Food

and Agricultural Products in Selected TPP Countries

Product

Acting Country

Timetable

Frozen French fries

Japan

Within 6 years

Peanuts and peanut

products

United States

Within 10 years

Grapes, avocados,

strawberries

Japan

Immediate

Fresh/chilled

broccoli, tomatoes,

lettuce, and garlic

Japan

Immediate

Tree nuts,

fresh/dried

Japan

Mostly immediate,

but within 5 years

Tree nuts,

fresh/dried

United States

Mostly immediate,

but within 5 years

Japan

Within 11 years

Wine

Source: TPP Agreement released November 2015

USDA has compiled summaries with additional detail on

what the agreement contains in terms of market access for

the foregoing farm commodities and for other commodity

groups at http://www.fas.usda.gov/data/tpp-benefitsspecific-agricultural-commodities-and-products.

SPS Measures and Tobacco Exception

As tariff rates have been lowered for food and agricultural

products in recent decades, non-tariff barriers have gained

greater visibility as obstacles to such trade. Among the nontariff measures the TPP seeks to address are sanitary and

phytosanitary measures (SPS), which consist of actions

taken to protect human, animal, and plant health. The SPS

commitments provided for in the agreement include, in

part: the establishment of an SPS committee composed of

TPP member representatives; an obligation to base SPS

measures either on international standards or objective

scientific evidence and to select risk management measures

that are no more trade-distorting than necessary; a

commitment to allow for public comment on the

development of SPS measures; and the obligation to

provide rapid notification of shipments held on importation.

SPS disputes are to be resolved through consultations

among the relevant governmental authorities and, if still

unresolved, are to be addressed under dispute settlement

procedures provided in that chapter of the agreement.

A potential controversy surrounds a provision in the

Exceptions chapter of the agreement under which countries

may deny recourse to protections under investor state

dispute settlement (ISDS) to tobacco product manufacturers

for claims directed at tobacco control measures. This

optional exclusion would not apply to leaf tobacco,

although to the extent that tobacco product sales could be

blunted by this provision it would appear to have the

potential to indirectly affect sales of leaf tobacco.

Mark A. McMinimy, Analyst in Agricultural Policy

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IF10326

TPP: Selected Commodity Impacts for U.S. Agriculture

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