Commodity Fact Sheet
What’s at Stake for Grains?
On Dec. 11, 2002, the United States concluded negotiations on a free trade agreement (FTA) with Chile, the first such arrangement with a South American country. The U.S. – Chile Free Trade Agreement entered into force on January 1, 2004. This agreement provides America’s farmers, ranchers, food processors, and the businesses they support with improved, and in many cases, new access to Chile’s market of 15 million consumers. This comprehensive agreement calls for duty-free access on all products and addresses other trade measures for both countries.
U.S. Grains Gain Improved Access to Chile’s Market
Before the agreement… U.S. grains faced 6-percent tariffs and a price band on non-durum wheat. Without preferential access, U.S. grains were at a disadvantage to those from Canada, the EU, and MERCOSUR countries. The U.S. share of Chile’s corn import market, valued at $114 million annually, ranged from 14 to 62-percent between 1998 and 2002. For Chile’s non-durum wheat import market, valued at $36 million annually, the U.S. share ranged from 2 to 41-percent
With the agreement… U.S. grains gained preferential access as tariffs on durum wheat, barley, barley malt, and sorghum were immediately eliminated. The tariff on corn remained unchanged at 6 percent for the first 2 years, and then fell to zero. The tariff on rice falls to zero in equal increments over 12 years. Rice will be subject to price-based safeguards until tariffs are eliminated.
Chile has committed to eliminate its price band mechanism on non-durum wheat and wheat flour as it relates to the United States over a 12-year transition period. Elimination of price bands was not part of the EU or Canadian FTA’s with Chile. The FTA sets out a non-linear tariff reduction schedule for wheat and wheat flour based on the 31.5-percent duty that is Chile’s WTO bound rate on these products. The 31.5-percent tariff remained unchanged for the first 4 years and then will then be phased out, falling by 8.3-percent annually from the 5th through the 8th year, and 16.7 percent annually from the 9th through the 12th year. Chile guaranteed to treat the United States no less favorably than any other trading partner. This agreement places U.S. grains on a more competitive footing with Canada and Argentina, and thus provides an opportunity for increased U.S. grain exports.
Chilean Grains Secure Improved Access to U.S. Buyers
Before the agreement… Chilean grains faced U.S. tariffs ranging from zero to 5 percent. The exception was parboiled rice, which faced an 11.2-percent tariff. Within the grains complex, Chile is a significant exporter only of corn seed. The United States imported 65 percent of its corn seed from Chile, which entered duty free.
With the agreement… Chilean grains gained preferential access when
all tariffs were immediately eliminated. Chile is not a major exporter of any
grains except corn seed.
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