Commodity Fact Sheet
What’s the Outcome for Beef?
On February 8, 2004, the United States and Australia concluded negotiations on a Free Trade Agreement (FTA), and on February 13, 2004, President Bush notified Congress of the intent of the United States to enter into an FTA with Australia. The FTA contains commitments on most agricultural products, and addresses other trade measures between the two countries as well.
The current situation. . . Australia currently applies zero tariffs on fresh, chilled and frozen beef (HTSUS Chapter 2) and 5 percent tariffs on certain processed beef products (HTSUS Chapter 16).
With the agreement . . . All Australian tariffs on agricultural products will be set at zero immediately under the FTA.
United States Commitments
The current situation. . . As part of the World Trade Organization (WTO) Uruguay Round Agreement, the United States established tariff-rate quotas (TRQs) on imports of selected beef products. Australia has a country-specific TRQ for beef of 378,214 tons. The within-quota duty is 4.4 cents per kilogram. The over-quota duty is 26.4 percent. In 2003, the United States imported 375,481 tons of Australian beef under the WTO TRQ valued at $896 million. The United States’ beef imports from Australia are virtually all grass-fed manufactured-type beef, which is blended with higher-fat content beef trimmings.
With the agreement: Under the FTA agreement, the United States will eliminate the in-quota duty on WTO TRQ imports from Australia. In addition, the United States will create a preferential FTA TRQ. Australia will not get the additional FTA TRQ until U.S. beef exports meet 2003 export levels or no later than year three of the agreement, whichever comes first. Australia’s FTA access to the United States under the preferential TRQ will be for manufactured-type beef, with initial amounts at 15,000 tons increasing to 70,000 tons over an 18-year period. Beef imported within the TRQ will enter the United States duty-free. A volume-based safeguard will be applied during the transition and convert to a price-based safeguard after transition.
TRQ application during transition: The preferential TRQ will increase by 5,000 tons every two years until years 15,16 and 17, when it will increase 5,000 tons per year. In year 18, the TRQ will increase by 10,000 tons to reach 70,000 tons. In addition to the expansion of the TRQ quantity, there will be a reduction of the over-quota duty of approximately 1.76 percent per year from year nine to year thirteen, then a further decline of 3.52 percent per year beginning in year fourteen until reaching zero at the beginning of year 18.
Volume-based safeguard: Beginning in year nine of the agreement through year 18, if U.S. beef imports from Australia reach 110 percent of the agreement TRQ quantity for that year, a safeguard duty will be triggered. If the safeguard is triggered, an additional duty will be imposed that is equal to 75 percent of the difference between the Most Favored Nation (MFN) rate and the applied over-quota rate for that year. The safeguard duty will remain in effect for the rest of the calendar year in which the safeguard was triggered.
Price- based safeguard: At the end of the transition period, a price-based safeguard will be implemented, which will apply to all imports of Australian beef if triggered. The safeguard trigger will be based on a 24-month rolling average of the U.S. Wholesale Select Box Beef index price. The price-based safeguard trigger is based on U.S. market prices, which may or may not be affected by significant increases or decreases in imported beef, depending on overall domestic beef supplies.
The duty under the safeguard is 65 percent of the applied MFN tariff rate. At the present time the MFN duty is 26.4 percent, which means the safeguard duty would be set at 17.16 percent. The United States has the option to waive the application of the safeguard.
Imposing the price-based safeguard: Two conditions will need to be met to impose the price-based safeguard. First, for the first three quarters of the calendar year (January-March, April-June, and July-September), if the monthly price falls below 6.5 percent of the rolling 24-month average price in two of the three months of a given quarter, then the safeguard duty could be imposed in the following quarter and stay in effect for that quarter. For example, if the safeguard is triggered in April and May of a given year, then the safeguard duty could be applied on all beef imports during the third quarter, July-September. However, if the safeguard were triggered in March and April, the safeguard duty would not be imposed because the months fall within two different quarters.
The safeguard can also be triggered if the beef price falls below 6.5 percent of the 24-month rolling average in the month of September, October or November. If the safeguard is triggered in September, October or November, the safeguard duty could be imposed in the fourth quarter, and stay in effect for the rest of the year. The months in which the price falls need not be consecutive.
Second, the price-based safeguard can only be imposed on amounts of Australian beef that exceed the FTA TRQ amount (70,420 tons in the 19th year, an amount which grows annually at 0.6 percent) plus Australia’s WTO country-specific TRQ currently at 378,214 metric tons.
Definition of manufacturing type beef: Beef that is allowed entry under the agreement, referred to as "manufacturing-type beef," is beef other than carcasses and half carcasses and beef other than processed, as defined in Additional U.S. note 1(a) of Chapter 2 of the HTSUS.
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