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May
20, 2002 Marilyn R. Abbott Re:
Probable Economic Effect of the Reduction or Elimination of U.S.
Tariffs: Comments of the
Ranchers-Cattlemen Action Legal Fund – United Stockgrowers of America (R-CALF
USA) Dear Ms. Abbott:
The Ranchers-Cattlemen Action Legal
Fund – United Stockgrowers of America (R-CALF USA) is pleased to submit
comments to the U.S. International Trade Commission (ITC) regarding the possible
economic effects of the reduction or elimination of U.S. tariffs.[1]
R-CALF USA’s comments address both live cattle and beef.
Per the conversation of counsel of
R-CALF USA with you on May 3, 2002, R-CALF USA requests permission to submit its
comments past the original deadline.
In its Federal Register notice requesting comments, the ITC notes that it
will examine the probable effects on consumers and U.S. industries producing
like or directly competitive articles using the following three scenarios:
(1) the elimination of U.S. tariffs of 5 percent ad valorem or below on
dutiable imports from all U.S. trading partners and the reduction of all other
U.S. tariffs by 50 percent; (2) the elimination of U.S. tariffs on all dutiable
imports from all U.S. trading partners; and (3) the elimination of U.S. tariffs
on all dutiable imports from FTAA countries.
R-CALF USA’s comments do not address
each of these three scenarios separately. Rather,
R-CALF USA discusses issues that should be examined when evaluating each of
these scenarios. When appropriate,
R-CALF USA refers to individual countries or blocs of countries, e.g.,
FTAA countries. I.
Use
of ITC Models
A.
Current ITC Models for Evaluating the Cattle Sector Should Not Be Used
in Investigation R-CALF
USA contends that models currently employed by the ITC in conducting economic
studies on the effects of trade liberalization on the cattle industry are
flawed. Thus, these models should
not be used in this investigation. As
the ITC is aware, the U.S. General Accounting Office (GAO) released a report in
March 2002 titled Economic Models of
Cattle Prices: How USDA Can Act to
Improve Models to Explain Cattle Prices (GAO-02-246).[2]
The GAO’s report criticizes the ITC’s models used in studies of the
cattle industry. The GAO notes: ITC
has . . . used computable general equilibrium (CGE) models to assess the likely
effects on various sectors of the U.S. economy from major trade liberalization.
CGE models are generally not specific enough to predict cattle prices or
to address structural changes associated with market concentration, marketing
agreements, and forward contracts.[3]
The GAO further states that: ITC also maintains other models, including a multisector model to estimate the impact of broad trade initiatives such as the North American Free Trade Agreement (NAFTA). While this model is designed to estimate effects of these initiatives on all sectors, it is not detailed enough to estimate the effects of cattle imports on U.S. cattle prices. None of these models explicitly accounts for concentration, marketing agreements, and forward contracts.[4]
According to the GAO, the ITC generally agrees with the findings of the
GAO report.[5]
Thus, as both the GAO and the ITC acknowledge that the ITC’s current
economic models are flawed, these models should not be used in the current
investigation. Rather, the ITC
should develop new models regarding cattle imports that take into consideration,
at a minimum, the following market factors:
market concentration, marketing agreements, and forward contracts.
Further, the new economic models should factor in the perishable nature
of live cattle -- smaller percentages of imports can have a greater impact on
the prices of domestically produced perishable products than is the case with
products that can be stored as producers of perishable products have very
limited amounts of time in which to sell their products.
Use of the ITC’s current models would produce inaccurate results.
B.
New Economic Models Should Be Developed for Beef
Likewise, the ITC should not use
current models when evaluating the U.S. beef industry and tariff reductions.
As with cattle, the U.S. beef market is impacted by market concentration,
marketing agreements, and forward contracts, and by not examining these factors,
the current models for beef are flawed. Accordingly,
the ITC’s investigation should take into account market concentration,
marketing agreements, and forward contracts when looking at the impact of U.S.
tariff reductions on the U.S. beef sector.
As is the case with live cattle, the economic models should also factor
in the perishability of beef. II.
Investigation Should Examine Not Only Impact of Possible Tariff
Reductions on Beef, But Also Possible Changes to U.S. Tariff Rate Quotas on Beef
U.S. general tariffs on beef range
from 4 percent to 10 percent.[6]
In addition, the United States maintains tariff rate quotas (TRQ) on beef
with the following allotments: Canada
– No Limit; Mexico – No Limit; Australia 378,214 metric tons; New Zealand
– 213,402 metric tons; Japan – 200 metric tons; Argentina – 20,000 metric
tons; Uruguay – 20,000 metric tons; other countries or areas – 64,805 metric
tons.[7]
Some countries would like to see these quotas raised through the current
WTO agricultural negotiations. Any
expansion of these quotas would impact U.S. cattle producers as more beef would
enter the U.S. market. Therefore,
the investigation should examine the probable economic effects of lowered
tariffs in the context of the TRQs on beef. III.
Effects of Tariff Reductions Difficult to Assess Due to Possible
Varying Outcomes of Agricultural Trade Negotiations
R-CALF USA notes that the effects of
possible changes to U.S. tariffs are directly related to the ability of the
Administration to achieve access for U.S. beef and live cattle in the world’s
major producing and consuming countries. As
the United States is currently engaged in agricultural negotiations at the WTO
and with other potential FTAA members, the ability of R-CALF USA to address the
effects of reduced or eliminated U.S. tariffs is somewhat problematic.
After all, if foreign markets are opened or expanded for U.S. beef and
live cattle, and if artificial advantages provided to foreign producers are
eliminated, U.S. producers will benefit, and these benefits could offset
pressures in the U.S. market resulting from increased imports caused by changes
in U.S. tariffs. If the current
situation in other countries remains the same, but the U.S. reduces its tariffs,
the imbalance in the international market will become even greater. For
the information of the ITC, R-CALF USA supports expedited duty reductions to
zero for imports of live cattle by all WTO members contingent upon the addition
of live cattle to the list of products eligible for coverage under the special
safeguard of Article 5 of the Agreement on Agriculture.
Regarding beef, R-CALF USA believes that U.S. officials should negotiate
for tariff parity with our trading partners, and in particular, with the
European Union and Japan as these are major consuming markets. IV.
Investigation Should Examine Effects of Tariff Reductions or
Elimination in Light of Foreign Barriers to U.S. Products and Artificial
Advantages Provided to Foreign Producers
Any examination of the effects of
lowering or eliminating U.S. tariffs is not complete without looking at overall
factors affecting U.S. cattle and beef prices, and most significantly, barriers
to U.S. exports as well as government support that provides artificial
advantages to foreign producers. A.
U.S. Producers Face Various Barriers to Exports Which Directly Affect
Prices in the U.S. Market
U.S.
producers of cattle and beef face unreasonable export restraints, in the form of
both high tariffs and non-tariff barriers, in a number of countries.
For example, while Korea “liberalized” its beef trade regime in 2001,
a duty of 40.9 percent is levied on U.S. imports.[8]
Although consumption of beef in Turkey is growing,[9]
Turkey bans the importation of beef and permits the importation of only cattle
for breeding, and not cattle for feeding or slaughter.[10]
Even if the United States could ship beef and non-breeding cattle to
Turkey, these products would face tariffs of 232.5 percent and 139.5 percent
respectfully.[11]
Further, although the WTO has determined that the European Union’s ban
on the importation of hormone-treated beef is in contravention of the SPS
Agreement of the WTO, U.S. beef is still prohibited entry into the European
Union. If U.S. producers could ship
beef to the European Union, EU tariffs on beef reach as high as 12.8 percent
plus 304.1 euros/100 kg/net.[12]
Japan imposes a tariff of 50 percent on beef imports.[13] If
these and other barriers are reduced or removed, such as through current WTO
agriculture negotiations, new markets will open for U.S. cattle and beef
producers, which will cut excess supply in the U.S. market.
Further, exports of other major producing countries to third markets will
also relieve pressure in the U.S. market. Thus,
the ITC’s study should take into consideration barriers to U.S. exports as the
potential removal of these barriers would impact prices of cattle and beef in
the U.S. market if any of the three above scenarios are ever implemented. B.
Report Should Factor Government Support Provided to Foreign Producers
The ITC investigation should also take
into consideration government support to foreign producers that provides them
with artificial advantages in various markets of the world, including the U.S.
market. Governmental support in a
number of countries puts U.S. cattlemen and women at a disadvantage.
As just several examples of such support, Brazil provides below-market
loans to cattle producers, gives them subsidized credit, and provides special
financing assistance to meatpackers.[14]
Argentina gives special tax advantages to beef exporters.[15]
In 2002, the European Union provided a “slaughter premium” of 50 EUR
per calf and 80 EUR for adult cattle.[16]
Korea gives a maximum deficiency payment of $221 per calf under its Calf
Breeding Stabilization Scheme, and the Korean government has announced a new
$1.8 billion program that will extend over several years to support Korean
cattle producers.[17]
These programs ultimately impact prices received by U.S. producers in the
U.S. market, and the potential removal of some of these artificial barriers
through international negotiations would impact prices in the U.S. market in
conjunction with any reduced or eliminated tariffs. V.
Decreased or Eliminated Tariffs Would Lead to Increased Imports of
Beef and Live Cattle
Given the large cattle inventories of some U.S. trading partners, imports
of beef and live cattle could potentially saturate the U.S. market and drive
down prices received by U.S. producers. The
total cattle herd of the United States as of January 1, 2002, was comprised of
97 million head.[18]
While beef from Brazil, Argentina, and Uruguay is currently not being
imported into the United States due to the presence of foot and mouth disease (FMD)
in those countries, ongoing efforts to eradicate FMD could result in imports of
fresh, frozen, and chilled beef from these three large beef producing countries
within the next several years.[19]
Brazil’s cattle supply is projected at 201 million head for 2002.[20]
Argentina’s herd is estimated to consist of 65 million head for 2002,
and Uruguay has a projected 13 million head for the same year.[21]
Australia has a large cattle
population – a projected 38 million head for 2002 – and it is currently
exporting large volumes of beef to the U.S. market.[22]
In fact Australian exports to the United States, as demonstrated by the
following chart, have grown markedly over the past five years. Beef (for Processing into Ground Beef) Imports From Australia (kilograms)
Source:
ITC DataWeb. Australian producers are
lobbying their government to petition the United States for a higher quota under
the beef TRQ, and if higher access is indeed agreed upon, imports could be
expected to grow to an even higher level.[23]
R-CALF USA notes that Australian and Mexican government officials in 2000
signed a protocol that might result in up to 100,000 live cattle being shipped
annually from Australia to Mexico, so Australian producers apparently have the
logistical ability to export large amounts of live cattle, as well as beef, to
the United States.[24] VI.
Increased Imports Brought About By Lower Tariffs Will Depress Prices
Received by U.S. Cattle Producers, But Will Not Benefit U.S. Consumers
Increased imports of live cattle and
beef can be expected to lead to further saturation of the U.S. market, and thus
lower prices received by producers. At
the same time, however, consumers purchasing beef will be unlikely to benefit
from lower cattle prices. Little
connection exists between dollar returns to producers and prices paid by
consumers for beef. For example, in
November 2001, average retail beef prices were 9 percent above those of the
previous year. In December 2001,
however, fed cattle prices were $14.00 lower per hundredweight than the previous
year. R-CALF USA contends that this
discrepancy is due to market concentration, marketing agreements, and forward
contracts -- factors not taken into account in current ITC economic models.
Major U.S. packers can, and do, use imports to suppress prices received
by domestic producers of live cattle and beef.
Thus, increased imports will harm U.S. cattle producers and not benefit
U.S. consumers. Instead, only the
heavily concentrated U.S. beefpacking industry, which consists principally of
four firms, will profit from increased imports brought about by lower tariffs.
These four firms constituted 80.4 percent of the U.S. steer and heifer
slaughter in 1998, and 85 percent of boxed beef production in that same year.[25] VII.
Conclusion R-CALF USA appreciates
the opportunity to make this submission. If
the ITC has any questions regarding these comments, please do not hesitate to
contact me.
Sincerely,
Leo R. McDonnell, Jr. [1] See 67 Fed. Reg. 10756 (March 8, 2002). [2] U.S. General Accounting Office, Economic Models of Cattle Prices: How USDA Can Act to Improve Models to Explain Cattle Prices, GAO-02-246, March 2002. [3] Id. at 49. [4] Id. at 8. [5] Id. at 12. [6] U.S. Harmonized Tariff Code at 0201 (2000). [7] Id. at Chapter 2, Additional U.S. Note 3. [8] Grant Pettrie, Republic of Korea Livestock and Products Semi-Annual 2002, Foreign Agricultural Service, U.S. Department of Agriculture, GAIN Report # KS2005, February 1, 2002, at 13. [9] Susan Schayes, Turkey Livestock Products Annual 2001, Foreign Agricultural Service, U.S. Department of Agriculture, GAIN Report # TU1034, August 21, 2001, at 5. [10] Id at 1 and 7. [11] Id at 1. [12] European Union Tariff Schedule at 0201, 0202 (2000). [13] Japan Tariff Schedule at 0201, 0202. [14] U.S. Department of Commerce, Subsidies Enforcement Annual Report to the Congress, February 2002, at 27. [15] Id at 26. [16] Id at 28. [17] Id at 29. [18] Jose G. Pena, Ag-Eco News, Cattle Market Remains Bright as the U.S. Industry Continues to Decline, Vol. 18, Issue 4, February 7, 2002. [19] See, e.g., David Mergen, Argentina: Livestock and Products Annual 2001, U.S. Department of Agriculture, GAIN Report No. AR1049, August 3, 2001, at 1. [20] See Kimberley Svec, Brazil: Livestock and Products Annual 2001, U.S. Department of Agriculture, GAIN Report No. BR1617, August 16, 2001, at 9. [21] See David Mergen, Argentina: Livestock and Products Annual 2001, U.S. Department of Agriculture, GAIN Report No. AR1049, August 3, 2001, at 1; David Mergen, Uruguay: Livestock and Products Annual 2001, U.S. Department of Agriculture, GAIN Report No. UY1003, August 2, 2001, at 5. [22] Randolph H. Zeitner, Australia: Livestock and Products Annual 2001, U.S. Department of Agriculture, GAIN Report No. AS1020, August 2, 2001, at 3. [23] Victoria Farmers Federation, Increased Access Needed for Australian Beef into US (press release), December 7, 2001. [24] Australian Broadcasting Corporation, Mexico Cattle, 3 August 2000, available at <http://www.abc.net.au/rural/nt/stories/s158905.htm>, obtained from internet on May 24, 2001. [25] Clement E. Ward, Oklahoma State University, Packer Concentration and Captive Supplies, WF-554, December 2001. |
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