International Egg and Poultry Review - By the USDA's Agricultural Marketing Service - This is a weekly report looking at international developments concerning the poultry industry, this week looking at the Central America Free Trade Agreement.

CAFTA-DR

In January of 2002, the Bush Administration announced plans to form a free trade agreement (FTA) with Central American countries and plans for a future trade agreement amongst all the countries in the Americas (FTAA.) The agreement would economically unify the continent making it a powerful trade force in the international market. Negotiations took place between the U.S., Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua in 2003. Agreements were reached in January of 2004 with signing of the Central America Free Trade Agreement (CAFTA) taking place in May 2004.

During 2004, the Dominican Republic (DR) expressed interest in joining and negotiations between the U.S. and Central American countries began once again with an agreement being reached and signed on August 5, 2004. Since then, the CAFTA-DR agreement was ratified in El Salvador in December 2004 and in Honduras in March of 2005; the balance of CAFTA-DR countries are still pending legislative approval.

On April 21, 2005 U.S. Trade Representative (USTR) Peter F. Allgeier outlined CAFTA-DR's potential benefits and encouraged Congress to approve the agreement. In his testimony to the House Committee on Ways and Means, Allgeier mentioned strengthening economic ties between the countries, "leveling the playing field" through reduced tariffs and the creation of tariff-rate quotas (TRQ,) developing product safeguards and sanitary and phytosanitary measures, making export subsidy arrangements, eliminating the unilateral trade preference, increasing market access to 44 million consumers, developing labor laws and standards, introducing some ground-breaking environmental laws, encouraging democracy, as well as many other opportunities.

Collectively, the CAFTA-DR countries would make up the second largest U.S. export market in Latin America. The export market would be larger than Brazil or Australia and larger than the combined countries of Russia, India, and Indonesia. According to estimates provided by the American Farm Bureau Federation, CAFTA-DR would expand U.S. farm exports by $1.5 billion a year, doubling our current agricultural exports to the region. U.S. commodities standing to gain and in some cases regain from lost market shares due to preferences are as follows: poultry, pork, beef, dairy products, and various others.

On April 20, 2005 Brazilian President Luiz Inacio Lula da Silva announced Brazil would be supporting Mercosur, a trade agreement between Argentina, Uruguay, and Paraguay, instead of supporting the FTAA. This broader rejection than those made in the past could make passage of CAFTA-DR less likely. CAFTA-DR was seen as the second step to a hemisphere-wide trade agreement minus Cuba and FTAA as the third step.

BEFORE CAFTA-DR

Tariffs will be phased out according to specific schedules on a product and country specific basis. Phase-outs will be immediate (more than 80 percent of goods,) 5 years, 10 years, 12 years, or 15 years (17-20 years for chicken leg quarters, rice, and certain dairy products.) U.S. poultry currently faces tariffs as high as 164 percent on both fresh and frozen products, and the WTO permits between 35 to 250 percent.

From 2002 to 2004, U.S. poultry meat suppliers annually shipped on average 73,195 metric tons (MT) valued at $51.4 million to all six countries combined. During this period, chicken leg quarters accounted for approximately 55 percent (in value terms) of total U.S. poultry exports to the Dominican Republic and Central America. Also, non-science based sanitary-phytosanitary (SPS) restrictions coupled with stringent import requirements further restrict U.S. poultry meat exports to the CAFTA-DR region.

AFTER CAFTA-DR

Under the agreement, each country will provide immediate duty-free access on chicken leg quarters through country-specific TRQs that expand annually as duties are eliminated in 17 to 20 years. Some tariffs on poultry products such as wings, breast meat, and mechanically de-boned meat will be reduced more quickly with many being eliminated within 10 years.

Costa Rica will establish a 330 MT TRQ for chicken leg quarters in year 1, growing by 10 percent annually. The other CAFTA-DR countries will establish a total initial regional TRQ of 21,810 MT (with individual country minimum quota levels.) After year 12, the TRQ quantity will be no less than 5 percent of regional chicken production. Tariffs on chicken leg quarters will be eliminated in 17 years in Costa Rica and 18 years in the other four Central American countries.

The Dominican Republic will establish an initial TRQ for chicken leg quarters of 550 MT, growing by 10 percent annually. It will also establish a 440 MT TRQ for mechanically de-boned chicken, growing by 10 percent a year, and eventually be phased out over 10 years; a 3,850 MT TRQ for turkey products will be established, which will be phased out over 15 years.

In addition to providing market access through TRQs and tariff reductions, each CAFTA-DR country is working to recognize the U.S. meat inspection and certification systems in order to facilitate U.S. exports. U.S. tariffs on imported poultry meat from CAFTA-DR countries are currently zero due to preferences granted under the Caribbean Basin Initiative. Under the agreement, the tariff will be set at zero immediately on poultry and poultry products for all CAFTA-DR countries. In recent years, the U.S. has not imported any poultry meat from these countries.
Source: USDA FAS/USDA/USTR/USINFO/Congressional Research Service/El Salvador Trade/Various News Wires

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Source: USDA's Agricultural Marketing Service - 3rd May 2005