WASHINGTON, June 27, 2012 -Now that U.S. and European Union leaders have given a conditional nod to the pursuit of a free trade agreement between the two markets, U.S. agriculture interests are waiting to see if there is a serious effort to resolve a number of farm- and food-related issues that have stymied a transatlantic trade pact for two decades.
A joint statement issue last week by President Obama, European Commission President Jose Manuel Barroso and European Council President Herman Van Rompuy conditionally endorsed negotiations aimed at reaching consensus in several key areas, including the elimination of all tariffs, with provisions for treatment of the most sensitive products; regulatory issues and non-tariff barriers; services; investment; procurement; intellectual property rights (IPR); and rules for trade and investment that would not only be relevant for bilateral trade, but also for multilateral agreements and third-country trade agreements.
The conditions set before actual negotiations can begin were detailed by a bilateral working group of trade officials who issued an interim report that “identified mutually beneficial areas in which the United States and EU could likely agree,” but also “identified certain areas in which further substantive work is required before a more definitive recommendation can be made.”
The working group is expected to issue a final recommendation to U.S. and EU leaders by the end of this year. EU officials claim that if given the go-ahead, a free trade pact can be reached by mid-2014. However, U.S. Trade Representative Ron Kirk has declined to put a timeline on any negotiations.
Meanwhile, U.S. ag and food interests are demanding that any negotiations lead to a comprehensive agreement on trade issues between the two markets, expressing concern over earlier suggestions that agricultural issues be put on a side track for separate talks while an FTA covers remaining issues.
“The ‘single undertaking’ approach has demonstrated its value time and again in U.S. FTAs,” the ag and food groups said in an open letter published in March. “Had the U.S. embarked on any of its existing FTAs using the ‘do what we can, when we can’ approach proposed in these papers, it would not have in place the comprehensive agreements it has today.”
Sources in the U.S. agricultural trade sector say they are getting indications the Obama administration may be willing to pursue a strategy that delinks some issues as a way of getting some forward movement in the face of EU resistance, particularly when it comes to genetically modified foods, hormone treated meat and anti-microbial treatments, among other technical barriers to trade.
“It may be a good strategy, but at some point the EU needs to be made to realize that a comprehensive agreement is the most effective means of free trade,” said Bill Roenick, senior vice president and lead staffer on international trade at the National Chicken Council.
Bob McCan, National Cattlemen’s Beef Association vice president and a Texas cattleman, was just as blunt.
“The EU must show a willingness to engage in hard conversations about very important issues that have historically plagued our trade relationship,” McCan said. “We are concerned that negotiators may be tempted to skip around these tough issues and focus primarily on less contentious topics.” He said the NCBA will insist on addressing the EU's stance on animal health and well-being issues, including the judicious use of antibiotics. “Unless we can have these hard conversations, it will be hard for us to get too excited about a trade pact with the EU.”
“It is critical that such an undertaking fit the approach the U.S. has pursued in its other FTAs,” said Shawna Morris, vice president for trade policy with the U.S. Dairy Export Federation and the National Milk Producers Federation. “That precedent includes comprehensive market access as well as resolution of significant non-tariff barriers in order to ensure that the regulatory barriers, which often block products or impede trade much more effectively than tariffs, are also appropriately dealt with.”
She said one of the most significant challenges that exists in making sure a U.S.-EU FTA lives up to a high standard is the very different approach the EU takes on many sanitary and phytosanitary (SPS) matters compared with that used by the United States. The resulting EU standards often are viewed as non-tariff barriers by U.S. agricultural exporters, Morris said.
While the working group’s interim report does not directly address agriculture related issues, it offers some indication that SPS restrictions can be negotiated.
The chicken council’s Roenick said the EU has shut down all poultry imports from the United States since 1997, citing fears of bacterial resistance to anti-microbial treatments used by U.S. exporters. The NCC official, who says the EU’s stance is disputed even by its own scientific community, contended the ban is simply a barrier designed to protect the European poultry industry. A U.S.-EU FTA could result in a $250 million market annually for the U.S. industry.
Jim Herlihy, vice president for information services with the U.S. Meat Export Federation, says his group supports the efforts of the bilateral working group as “having the potential to make significant progress toward removing many of the obstacles that currently stand in the way of achieving meaningful increases in beef and pork trade between the United States and the EU.”
But, he said the EU continues to maintain a number of non-science-based standards that serve as significant barriers to beef and pork imports. “The EU’s hormone ban stands out among these, along with the EU’s ban on pathogen reduction treatments. Aligning U.S. and EU sanitary measures wherever possible and consistently recognizing equivalent measures would significantly increase bilateral trade and contribute to increased economic growth and job creation,” he said.
Herlihy also said U.S. beef and pork exports to the EU face prohibitively high tariffs, and the limited volumes of exports that do occur are confined to small tariff-rate quotas (TRQs) with relatively high in-quota tariffs.
“By comparison, the U.S. beef and pork markets are relatively open to imports from the EU and the rest of the world,” Herlihy said.
While noting that it’s difficult to estimate the economic impact of the EU eliminating its existing market access restrictions, he would expect U.S. pork exports to the EU to rise significantly. Herlihy said that if imports accounted for just 2% of EU pork consumption, the volume of U.S. exports would exceed 300,000 metric tons, nearly as large as U.S. pork muscle cut exports to Mexico, the number two market for U.S. exports in 2011.
Noting that EU beef consumption has declined in recent years, he said if EU lowered its import duties, the cost of beef would be reduced, driving an expected increase in beef consumption there. If EU beef consumption recovered to 2007 levels, it would mean an increase of about 585,000 metric tons, and U.S. exports would grow rapidly due to the greater affordability of U.S. beef, Herlihy said.
John Baize, a consultant who follows the global soy market, is among those who says that for an FTA with Europe to be meaningful, “it would need to address the EU’s plethora of non-tariff barriers such as its slow approval of biotech events, its growing use of sustainability requirements, and its use of restrictions on meat and poultry imports based on factors like hormones.”
Baize said the “EU historically has been protectionist on agriculture to protect its small farmers and livestock producers. Increasingly, it is using non-tariff barriers such as sustainability standards to limit imports. Traditionally an FTA does not address these type of issues.” As a result, “I see limited benefits from an FTA unless they are addressed.”
He said an FTA with EU would not provide the U.S, soybean industry with much direct benefits in respect to tariffs, because the EU already allows duty-free access for soybeans and soymeal. And while it does have a 6.4% tariff on soyoil, eliminating that would not likely make the EU a major soyoil importer because Europe already produces a large amount of rapeseed oil.
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