Section 201 Import Relief for Lamb Meat

A dramatic surge in imported lamb meat combined with declining lamb meat production prompted the domestic industry to seek import relief using Section 201 of the Trade Act of 1974.

Overview

In 1942, the United States sheep and lamb inventory reached a record 56.2 million head and has since been in a steady state of decline. Over the last decade, the sheep and lamb inventory has dropped 40 percent from 12.1 million head in 1990 to 7.2 million head in 1999. The number of sheep and lamb operations has fallen 38 percent, from 112,000 operations in 1990 to 68,810 operations in 1998.

Many factors have contributed to the decline in inventory and the number of establishments, including the termination of wool incentive payments. The National Wool Act of 1954, as amended, provided for wool incentive payments to growers. Beginning in 1991, Congress began to place restrictions on Wool Act payments. Ultimately, the National Wool Act Amendments of 1993 mandated the phase-down of the Wool Act program over the 1994 and 1995 marketing years and repeal of the Wool Act as of December 31, 1995. Receipt of incentive payments effectively ceased in 1996.

The importance of this program was such that, between 1990 and 1993, total annual payments to wool producers averaged $122 million and were more than twice the value of wool produced in the United States. For many growers, mainly operations with 100-499 animals, continued production of lamb and wool was not possible in the absence of wool incentive payments, and they exited the industry.

Many of the remaining operations focused their attention on revenues generated from lamb meat. However, these efforts came at a time when imports from Australia and New Zealand were increasing. Between 1990 and 1994, growth in the frozen lamb meat category caused overall lamb meat imports to rise from 10,632 tons to 16,501 tons. During this period, the fresh/chilled category represented only 20 percent of all imported lamb meat. However, between 1995 and 1998, imports jumped from 18,284 tons to 31,851 tons, and the fresh/chilled category increased to 48 percent of all imported lamb meat. This trend has continued and as of August 1999, the fresh/chilled category totaled 50 percent of all imported lamb meat.

Lamb meat imports from Australia and New Zealand have surged mainly as a result of new preservation technologies adopted by these two countries. This innovation substantially increased the shelf-life of packaged lamb and virtually eliminated the locational advantage that U.S. lamb products enjoyed.

Section 201 Import Relief

On October 7, 1998, American Sheep Industry Association (ASI), Winters Ranch Partnership, Godby Sheep Company, Talbott Sheep Company, Iowa Lamb Corporation, Ranchers' Lamb of Texas, Inc., and Chicago Lamb & Veal Company filed a Section 201 petition with the United States International Trade Commission (USITC).

These petitioners alleged that lamb meat had been imported into the United States in such increased quantities as to be a substantial cause of serious injury or threat thereof to the domestic industry. Furthermore, the petitioners asserted that they were representative of each of the four major segments of the domestic lamb meat industry: growers and feeders of live lambs, and packers and processors of lamb meat.

On January 12, 1999, the USITC held a hearing in connection with the injury phase of the investigation. Representatives from Australia and New Zealand, two countries that account for more than 98 percent of imported lamb meat, responded to the petition.

The statutory framework of Section 201 provides three criteria that must be demonstrated. Firstly, imports must be in increased quantities, either actual or relative to domestic production. Secondly, the domestic industry must either be seriously injured or threatened with serious injury. Thirdly, it must be determined whether the subject article is being imported in such increased quantities as to be a substantial cause of serious injury or threat of serious injury. Thus, the increased imports must be both, an important cause of the threat of serious injury, and a cause that is equal to or greater than any other cause.

On February 9, 1999, the Commission made a 6-0 affirmative determination under section 202 of the Trade Act of 1974 that increased imports of lamb meat are a substantial cause of the threat of serious injury to the U.S. lamb meat industry.

Statutory Framework

In reference to the first criterion, the Commissioners determined that imports had increased both in actual terms and relative to domestic production. Commerce data converted to carcass weight equivalents (using a conversion factor of 1.52 for boneless cuts) showed that imports increased nearly 50 percent between 1993 and 1997. The ratio of imports to domestic production rose from 12 percent in 1993 to 30 percent in 1998.

In reference to the second criterion, the Commissioners determined that there was a substantial decline in U.S. lamb meat production. Between 1993 and 1998, production declined 26 percent, from 148,189 tons to 109,769 tons.

In terms of value, shipments declined from $441.0 million in 1993 to $417.4 million in 1997, a decrease of approximately 5 percent. Between January-September 1997 and January-September 1998, shipments dropped from $297.2 million to $256.6 million, a decrease of more than 13 percent. The Commission determined that this sharp decrease reflected falling lamb meat prices, which resulted mainly from increased imports.

In reference to the third criterion, the Commissioners determined that increased imports were an important cause, and a cause no less important than any other cause, of the threat of serious injury to the domestic lamb meat industry. This finding was based on increased imports which showed every sign of growing, depressed domestic lamb meat prices caused by increased imports, and the high degree of likelihood that increased imports would have a substantial negative effect on the volume and/or price of domestic lamb meat sales.

Remedy Recommendations

On February 25, 1999, a second hearing was held and the question of remedy was debated. On April 5, the Commissioners forwarded their remedy recommendations to President Clinton. Unlike the unanimous vote in the injury phase, the six Commissioners of the USITC made three separate remedy determinations. The common link between the three recommendations was that each favored some form of import relief over a four year period.

Three Commissioners, including the Chairman, recommended that the President impose a tariff-rate quota (TRQ) on imports of lamb meat. The recommended TRQ would begin at 20 percent ad valorem on imports of lamb meat above 78 million pounds, carcass weight equivalent (cwe), in the first year. In the second, third and fourth year, the TRQ would drop to 17.5 percent, 15 percent and 10 percent ad valorem, respectively and the quota would increase to 81.5 million pounds. Pursuant to the Tariff Act of 1930, this remedy finding was treated as the remedy finding of the Commission by the President.

Two Commissioners recommended that the President impose an increase in the tariff rate applied to imported lamb meat, so that imports would be subject to a dutiable rate of 22 percent ad valorem in the first year of relief, 20 percent ad valorem in the second year, 15 percent ad valorem in the third year, and 10 percent ad valorem in the fourth year. It should be noted that in 1998, the import tariff on lamb meat was 0.8 cents per kilogram, which amounted to about 0.2 percent ad valorem.

One Commissioner recommended that the President impose a quantitative restriction set at 52 million pounds of lamb meat in the first year, 56 million pounds in the second year, 61 million pounds in the third year, and 70 million pounds in the fourth year.

In each of the three reports, the Commission recommended that the President implement various adjustment assistance measures. Authorized programs at the United States Department of Agriculture (USDA) were highlighted as having the mechanism to provide relief to the industry.

The Commission recommended that the USDA increase funding to the Agricultural Research Service and the Animal Plant Health Inspection Service in order to eliminate scrapie in sheep and goats. The Commission recommended that the Cooperative State Research and Education Extension Service be given more funds to research sheep genetics in order to increase the lambing ratio and to produce a leaner lamb more consistently. Also, the Commissioners expressed their hope that the industry ask the USDA to facilitate a referendum for a check-off program in order to generate a pool of funds to promote lamb consumption.

The Commission recommended that the USDA use Section 32 of P.L. 320 in order to provide relief to the domestic industry. This law permits the Secretary of Agriculture to purchase commodities and disperse them to persons in low income groups and to provide funds for productivity improvements to an industry.

The Commission also recommended that industry and the Administration endeavor to make the National Sheep Industry Improvement Center (NSIIC) fully operational. Section 759 of the 1996 Farm Bill authorized the Department of Treasury to appropriate $20 million of mandatory funds to establish NSIIC. After dispersing these funds, NSIIC would then be appropriated an additional $30 million.

However, the language of the legislation directed Treasury to establish a revolving fund for NSIIC even though the Credit Reform Act of 1993 permit the creation of revolving funds. Other issues, such as privatization of NSIIC, have also slowed the process of fund dispersal. When the Commission made its recommendations to the President, no funds had been dispersed to the industry by NSIIC.

Presidential Proclamation

On July 7, 1999, the President proclaimed a TRQ, effective July 22, 1999, for lamb meat in an amount equal to 31,851 tons in the first year, an amount that was equal to imports of lamb meat during 1998. The TRQ amount will increase by 857 tons annually in the second and third years of relief. Individual allocations for Australia and New Zealand along with an "other country" category were established based on 1998 U.S. import data.

Increased rates of duty for imports within the TRQ amount will be set as follows: 9 percent ad valorem for imports in the first year of relief; 6 percent ad valorem for imports in the second year; and 3 percent ad valorem for imports in the third year. Rates of duty for imports above the TRQ levels will be set at 40 percent ad valorem in the first year of relief, 32 percent ad valorem in the second year, and 24 percent ad valorem in the third year.

The President concurred with the USITC that imports of lamb meat produced in Canada and Mexico do not account for a substantial share of total U.S. imports of lamb meat and are not contributing importantly to the threat of serious injury. As required by statute in such situations, the President excluded lamb meat from Canada and Mexico from the import restrictions. Similarly, the safeguard measure will not apply to imports of lamb meat from Israel, beneficiary countries under the Caribbean Basin Economic Recovery Act and the Andean Trade Preference Act, and from other developing countries that account for a minor share of lamb meat imports.

The President's action also provides for adjustment assistance of up to $100 million over three years, with up to $50 million available in the first year.

On July 30, 1999, the President modified his original proclamation to exempt goods that were exported prior to July 22, 1999. This change allowed approximately 500 to 750 tons of New Zealand lamb meat and 720 tons of Australian lamb meat that were en route to the United States to be assessed 0.8 cents per kilogram rather than 9 percent ad valorem.

Domestic Industry Benchmarks

The President instructed the United States Department of Agriculture, United States Trade Representatives, Office of Management and Budget, and the National Economic Council, in consultation with the U.S. sheep and lamb industry, to provide a set of substantial domestic measures that will improve the competitiveness of the U.S. industry and facilitate efforts by the industry to adjust to import competition.

After receiving input from interested parties, the USITC established benchmarks for the domestic lamb industry. The USITC will use these benchmarks to monitor and evaluate the industry's adjustment to import competition. The USITC will provide to the President and to the Congress a mid-term report with results of its monitoring by no later than December 31, 2000.

The following benchmarks will be used to supplement the factors normally examined by the USITC pursuant to its monitoring activity under section 204 of the Trade Act:

Evaluate the effort and success of the industry to put forth a coordinated and comprehensive strategy for market development. Evaluate the industry's utilization of any future checkoff program or other program using industry funds for generic lamb promotion.

Assess the domestic industry's progress in facilitating implementation of the programs of the National Sheep Industry Improvement Center (NSIIC), including the disbursement of funds made available to NSIIC. The USITC should look to NSIIC's strategic plan as a basis for assessing the industry's progress.

Evaluate the petitioners' effort and success in establishing a membership base for the National Sheep Industry Association, or for some other association or coalition representative of the entire U.S. industry.

Evaluate the domestic industry's progress in improving production efficiency, industry alliances, sheep ecology, and reducing sheep diseases. When evaluating progress in reducing sheep diseases, the Commission's analysis should reflect any sheep disease eradication programs of the USDA.

Provide information on price trends (retail and wholesale) for domestic and imported lamb meat and identify and assess the variables (including the safeguard measure) which may have influenced these trends.

Evaluate the domestic industry's progress in making available lamb products with characteristics and price attractive to consumers. The Commission should also evaluate the industry's effort to increase the supply of lamb meat within the constraints imposed by the lamb production cycle.

For further information, contact Tony Halstead, (202) 720-4185.

Last modified: Thursday, April 06, 2000