For sectors that rely on exports, such as the U.S. pork industry, it was welcome news when President Obama announced in this year’s State of the Union address that he wants to double U.S. exports over the next five years as a way to create jobs and stimulate U.S. economic growth.
Although the president’s statement is on the right track, there has been little effort to reach that goal in the months since that January speech. As a matter of fact, as the United States stands pat on free-trade agreements, other countries are moving forward — at America’s expense.
For example, while the U.S. Congress continues to debate the approval of a trade agreement with South Korea, that country has concluded, is negotiating or is planning to establish FTAs with the 10-country Association of Southeast Asian Nations bloc; the 27-member European Union; the four-country South American Mercosur; and India, Japan, Mexico, Peru, Pakistan and Russia.
The World Trade Organization reported that as of February 2010, it had been notified about 462 bilateral and regional trade agreements, and 271 were in force. Of those, the United States was a party to just 17 agreements. It also reported that about 400 new agreements are either pending notification to the WTO, are being negotiated or are in the proposal stage. The United States is a party only to pending agreements with Colombia, Panama and South Korea, and to trade talks on the Trans-Pacific Strategic Economic Partnership, a regional free-trade pact that includes Brunei, Chile, New Zealand and Singapore.
The Obama administration did take action to get U.S. pork back into the Chinese and Russian markets after those countries banned it following last April’s outbreak of Novel H1N1 2009 influenza virus in humans, but forward progress on U.S. exports will only come through new and expanded market access negotiated in free-trade agreements.
Export opportunities and trade agreements are hugely important to the U.S. pork industry. Since implementing the North American Free-Trade Agreement in 1994 and the 1995 Uruguay Round Agreement (what was then known as the General Agreement on Tariffs and Trade), U.S. pork and pork product exports have increased by more than 688 percent in volume and 657 percent in value. What’s more, both measurements jumped up after each of several subsequent agreements was completed.
Because of those trade agreements, the U.S. pork industry now exports about 20 percent of its annual production. Last year, that brought in more than $4.3 billion and added $38 to the price U.S. producers received for each hog marketed. That’s significant given that the average farrow-to-finish operation lost about $24 on each pig in 2009.
As exports grow, so do hog prices. For each additional 1 percent of U.S. pork production that is exported, live-hog prices increase by approximately $3 per hog.
The pending FTAs with Colombia, Panama and South Korea, which would reduce and eventually eliminate tariffs on U.S. pork and other products, combined would add more than $11 to the price producers receive for each hog marketed. Of course, the FTAs also would generate thousands of jobs. The deal with Panama would increase U.S. live-hog prices by 20 cents per animal and create approximately 600 full-time positions in pork production and among its input suppliers. The Colombia FTA would push prices about $1.15 per animal higher and would add 3,500 full-time positions. A trade agreement with South Korea would increase live-hog prices by nearly $10 per pig and create 3,628 pork production jobs and 18,000 total U.S. jobs.
So, the most effective way to reach President Obama’s five-year objective for exports is for Congress to promptly pass the pending free-trade agreements with Colombia, Panama and South Korea.
But what would happen if those agreements are not approved?
Dermott Hayes, Iowa State University economist, analyzed the effects on the pork industry if the United States failed to approve the FTAs, taking into account the trade agreements that the three countries are already implementing with other nations.
Colombia and Panama each recently completed FTAs with Canada, whose parliament now is considering the deals and, by all signs, will approve them. The pacts would phase out the import tariffs on Canadian pork over a series of years. Hayes determined that, if the United States does not implement its own trade agreements with Colombia and Panama, U.S. pork will virtually be out of those markets by 2020 at a cost to the industry of $115 million.
Likewise, South Korea has finalized, but not yet implemented, a trade deal with the European Union that would phase out import duties over 10 years. The U.S. pork industry, which now holds a 30 percent share of all pork imports going into South Korea, would almost completely be eliminated from that Asian market within 10 years without a U.S./South Korea FTA, according to Hayes’ analysis. That would mean a loss of hundreds of millions of dollars in potential sales.
Indeed, U.S. pork producers already are losing market share in South Korea to Chile, which completed a trade agreement with South Korea in 2004. Even if there were no trade deal between the European Union and South Korea, Hayes notes, the U.S. pork industry would be pushed out of the South Korean market in 20 years because of the current Chile/South Korea FTA.
As the global economy rebounds from its recent downturn, consumers worldwide will renew a trend toward more meat consumption. Given that it is far more efficient for countries to import finished meat products versus importing grain to produce meat domestically, and given that the United States is the lowest-cost producer of pork in the world, the U.S. pork industry is well-positioned to fill the global pork demand.
But without new trade agreements, the United States will not just be standing still, it will be going backward. It’s worth contacting your federal representatives and let them know how important FTAs are to your future.