Export

US FTA provides priceless protection against quota trigger risk

Jon Condon, 08/07/2015

AS AUSTRALIA and the US celebrate the ten-year milestone since the activation of the US-Australia Free Trade Agreement this month, it’s worth reflecting for a moment on what impact the agreement has had on Australia’s booming beef export trade into the US this year.

Exports meat shipping tradeMarket watchers for some time have been monitoring the big jump in Australian beef exports to the US in 2015, which now runs the risk of filling the available quota volume of 418,214 tonnes.

Any shipments beyond that volume this year would incur full tariffs.

But the question remains: how much worse would the circumstances have been without the additional quota extensions provided under the FTA over the past ten years?

Beef Central has done some rough sums, and come up with a saving figure of $55 million, in avoiding tariff penalties.

Given the sort of trade flows in beef that have been seen in the past 12 months, Australia would have very quickly filled the pre-FTA quota of 378,000 tonnes, after which we would now be paying an out-of-quota tariff of 21pc on top of current shipments.

Since 2005 when the agreement was struck, Australia has gradually picked up an additional +40,000t of beef quota into the US, with more to come by the time the 18-year implementation cycle finishes in 2022.

At an average current manufacturing beef price landed US of $6.50/kg, that represents a theoretical saving to Australia this year of $55 million, based on the current full tariff level of 21pc, that would have been paid in tariff.

While the importers are responsible for any tariff costs, it can be argued that that figure, if it applies, tends to be simply deducted off the purchase price paid to Australian exporters.

While it could also be argued that those exports, if exposed to a 21pc tariff into the US, would possibly have been diverted into other markets, the situation nevertheless provides an excellent example of exactly what impact an FTA with a strong beef component can have.

A market access specialist told Beef Central yesterday that given that Australia’s trade this year to the US was running so hot, the additional in-quota volume provided under the FTA had been ‘priceless.’

“The extra quota has been most beneficial, not only for us, but also for US customers, in getting that additional product in at zero tariff,” he said.

“After year nine, the tariff level started to wind-back – it currently sits at 21pc (down from 26pc from years 1-8), but that’s still a lot, compared with zero,” he said.

The quota volume itself, at 418,000t this year, will continue to grow over the remaining eight years of the FTA execution. In year 18 (2022), Australia’s quota to the US will reach 448,214t – a rise of 70,000t in quota access, at zero duty, over where we sat prior to the agreement ten years ago.

“Up until this year, at least, that gradually increasing quota has effectively taken the uncertainty out of the market,” the analyst contact said.

“It’s provide a tremendous buffer, and will go a long way towards escaping the trigger again this year – despite the big volumes that have been shipped recently.”

The important point is that given shipping times, any beef trade to the US from about mid-October onwards this year will not be cleared through US Customs until the following quota year anyway. That could provide a positive advantage in escaping any trigger danger this year.

“The US FTA has been a very useful agreement, in that it provided that access certainty, in most years, into the US that we did not previously have,” our trade access contact said.

“In 2023 and beyond, it’s worth remembering we will have no quotas and no tariffs on Australian beef entering the US. That’s going to be fantastic for the industry.”

As at July 2, Australia had used 66pc of its 2015 US country-specific beef quota or 276,732 tonnes, leaving 141,482t in exporter accounts for the remainder of the 2015 quota year.

Beef shipments to the US remain at elevated levels again exceeding 40,000t for the month of June, 32pc higher than a year ago, but are expected to decline in coming months as rates of slaughter ease.

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