International Trade and the U.S. Cattle Industry Terence P. Stewart Law Offices of Stewart and Stewart R-CALF USA Sixth Annual Convention Denver, Colorado January 19 – 21, 2006

Overview I. Overall Trade Trends in Cattle and Beef II. Major Issues in 2006 BSE Issues World Trade Organization Free Trade Agreements

Overview Challenges facing the U.S. cattle industry International market distortions – the focus of this presentation Consumer demand and the sector’s vulnerability to health and safety concerns Structure of the domestic market and concentration In addition to trade policy, domestic policy solutions are needed 2007 Farm Bill will be important opportunity

Overview 2007 Farm Bill Groups pushing for one-year extension Current Farm Bill expires July 2007 Level and type of farm payments may depend on outcome of the Doha Round at the WTO Outcome of the Doha Round likely not known until end-2006 at the earliest Groups pushing for one-year extension American Farm Bureau Federation National Farmers’ Union R-CALF USA position December 2005 comments Market competition; health and safety; consumer information; trade impacts and support for the sector

I. Trade Trends: Overview U.S. Trade Deficit in Cattle & Beef Global Exporters and Importers Global Market Distortions Persist

I. Trade Trends: U.S. Deficit U.S Exports U.S. cattle and beef exports down sharply since discovery of animal with BSE in December 2003 U.S. Imports U.S. cattle imports still below 2002 level U.S. beef imports steady and rising slightly Net U.S. trade deficit in cattle and beef 2005 projected deficit slightly higher than 2004: $3.4 Billion

I. Trade Trends: U.S. Deficit Overall U.S. Agriculture Trade Source: Dept. of Commerce, Census Bureau, Foreign Trade Stats

I. Trade Trends: U. S. Deficit Overall U. S I. Trade Trends: U.S. Deficit Overall U.S. Agriculture Trade – Billion US$ 1990 1991 1992 1993 1994 1995 1996 1997 Exports 48 51 55 65 69 Imports 29 30 32 35 38 41 45 Balance 19 18 20 28 1998 1999 2000 2001 2002 2003 2004 2005* Exports 59 55 60 58 65 67 69 Imports 47 49 52 61 73 Balance 12 6 7 8 3 4 -7 Source: Dept. of Commerce, Census Bureau, Foreign Trade Stats * 2005 data annualized from Jan. – Oct. data Source: Dept. of Commerce, Census Bureau, Foreign Trade Stats

I. Trade Trends: U.S. Deficit U.S. Trade in Cattle and Beef – Value Source: Dept. of Commerce, Census Bureau, Foreign Trade Stats

I. Trade Trends: U. S. Deficit U. S I. Trade Trends: U.S. Deficit U.S. Trade in Cattle and Beef – Billion US$ 1990 1991 1992 1993 1994 1995 1996 1997 Exports 1.57 1.816 2.12 2.0654 2.4365 2.6782 2.4885 2.6101 Imports 2.643 2.906 3.0465 2.7171 2.6277 2.2493 2.5347 Balance -1.073 -0.828 -0.786 -0.9811 -0.2805 0.0506 0.2392 0.0754 1998 1999 2000 2001 2002 2003 2004 2005* Exports 2.4141 2.7707 3.3077 2.82 2.6188 3.1004 0.5124 0.8611 Imports 2.7555 2.9111 3.3629 3.9787 3.9617 3.2308 3.8514 4.3098 Balance -0.3413 -0.1404 -0.0552 -1.1587 -1.3428 -0.1305 -3.3391 -3.4487 Source: Dept. of Commerce, Census Bureau, Foreign Trade Stats * 2005 data annualized from Jan. – Oct. data Source: Dept. of Commerce, Census Bureau, Foreign Trade Stats

I. Trade Trends: U.S. Deficit U.S. Trade in Cattle – Value Source: Dept. of Commerce, Census Bureau, Foreign Trade Stats

I. Trade Trends: U.S. Deficit U.S. Trade in Cattle – Billion US$ 1990 1991 1992 1993 1994 1995 1996 1997 Exports 0.024 0.095 0.122 0.0751 0.1095 0.0555 0.0719 0.1396 Imports Canada 0.555 0.588 0.901 0.91 0.798 0.862 1.000 0.944 Imports Mexico 0.419 0.361 0.341 0.43 0.352 0.546 0.177 Balance -0.95 -0.854 -1.12 -1.264 -1.041 -1.357 -1.05 -0.986 1998 1999 2000 2001 2002 2003 2004 2005* Exports 0.1308 0.1558 0.2502 0.2455 0.1088 0.0348 0.0048 0.003 Imports Canada 0.938 0.708 0.746 1.047 1.14 0.392 0.001 0.52 Imports Mexico 0.206 0.293 0.405 0.408 0.301 0.47 0.543 0.507 Balance -1.014 -0.845 -0.901 -1.21 -1.332 -0.828 -0.539 -1.024 Source: Dept. of Commerce, Census Bureau, Foreign Trade Stats * 2005 data annualized from Jan. – Oct. data Source: Dept. of Commerce, Census Bureau, Foreign Trade Stats

I. Trade Trends: U.S. Deficit U.S. Trade in Cattle – Volume Source: Dept. of Commerce, Census Bureau, Foreign Trade Stats

I. Trade Trends: U.S. Deficit U.S. Trade in Cattle – Million Head 1990 1991 1992 1993 1994 1995 1996 1997 Exports 0.065 0.21 0.254 0.112 0.149 0.072 0.131 0.249 Imports Canada 0.871 0.903 1.271 1.201 1.009 1.132 1.509 1.378 Imports Mexico 1.261 1.034 0.982 1.297 1.072 1.652 0.456 0.669 Balance -2.066 -1.727 -1.998 -2.385 -1.933 -2.712 -1.834 -1.799 1998 1999 2000 2001 2002 2003 2004 2005* Exports 0.257 0.313 0.466 0.66 0.226 0.082 0.029 0.019 Imports Canada 1.313 0.984 0.963 1.3 1.682 0.508 0.003 0.559 Imports Mexico 0.72 0.96 1.222 1.13 0.816 1.239 1.37 1.236 Balance -1.776 -1.63 -1.719 -1.77 -2.272 -1.665 -1.344 Source: Dept. of Commerce, Census Bureau, Foreign Trade Stats * 2005 data annualized from Jan. – Oct. data

I. Trade Trends: U.S. Deficit U.S. Trade in Beef – Value Source: Dept. of Commerce, Census Bureau, Foreign Trade Stats

I. Trade Trends: U.S. Deficit U.S. Trade in Beef – Billion US$ 1990 1991 1992 1993 1994 1995 1996 1997 Exports 1.545 1.721 1.998 1.941 2.251 2.592 2.4473 2.5729 Imports 1.669 1.695 1.664 1.705 1.565 1.214 2.2481 2.5337 Balance -0.123 0.026 0.334 0.236 0.686 1.378 0.1992 0.0392 1998 1999 2000 2001 2002 2003 2004 2005* Exports 2.3821 2.7526 3.2866 2.7953 2.5972 3.0709 0.5114 0.8573 Imports 2.7523 2.9047 3.3567 3.9696 3.9539 3.2263 3.8513 4.3098 Balance -0.3702 -0.152 -0.0702 -1.1743 -1.3567 -0.1554 -3.3399 -3.4526 Source: Dept. of Commerce, Census Bureau, Foreign Trade Stats * 2005 data annualized from Jan. – Oct. data

I. Trade Trends: U.S. Deficit U.S. Trade in Beef – Volume Source: Dept. of Commerce, Census Bureau, Foreign Trade Stats

I. Trade Trends: U.S. Deficit U.S. Trade in Beef – Million MT 1990 1991 1992 1993 1994 1995 1996 1997 Exports 0.34 0.396 0.436 0.411 0.5175 0.5817 0.5969 0.6765 Imports 0.699 0.71 0.729 0.7201 0.7144 0.6419 0.6407 0.7329 Balance -0.359 -0.314 -0.292 -0.3091 -0.1969 -0.0602 -0.0438 -0.0564 1998 1999 2000 2001 2002 2003 2004 2005* Exports 0.6961 0.7581 0.8586 0.7565 0.8013 0.8222 0.1357 0.2039 Imports 0.8229 0.8806 0.9454 0.9875 0.987 0.8984 1.1056 1.1065 Balance -0.1267 -0.1225 -0.0868 -0.231 -0.1857 -0.0762 -0.9699 -0.9097 Source: Dept. of Commerce, Census Bureau, Foreign Trade Stats * 2005 data annualized from Jan. – Oct. data

I. Trade Trends: U.S. Deficit Major Exporters of Beef to U.S. 80% of U.S. beef imports from Canada, Australia and New Zealand Canada has unlimited access under NAFTA Australia meets or exceeds quota (and pays out of quota tariff on excess) nearly every year – Australia quota to expand over 18 years with new FTA New Zealand meets quota nearly every year Beef imports from Uruguay growing rapidly U.S. market re-opened to Uruguayan exports in June 2003 after FMD outbreak resolved Uruguay catching up to New Zealand in 2004 – 2005 Uruguay sent six times its quota allocation in 2004; nine times in 2005 Paying extra to ship large quantities out of quota

I. Trade Trends: U.S. Deficit Major Exporters of Beef to U.S. Source: Dept. of Commerce, Census Bureau, Foreign Trade Stats

I. Trade Trends: U. S. Deficit Major Exporters of Beef to U. S I. Trade Trends: U.S. Deficit Major Exporters of Beef to U.S. – Thousand MT 2000 2001 2002 2003 2004 2005 Canada 328 351 382 253 355 381 Australia 342 384 378 376 373 318 New Zealand 212 200 213 187 Uruguay 19 10 4 26 128 186 Total 946 988 991 899 1,106 1,107 Source: Dept. of Commerce, Census Bureau, Foreign Trade Stats * 2005 data annualized from Jan. – Oct. data

Source: Dept. of Commerce, Census Bureau, Foreign Trade Stats; FAOSTAT I. Trade Trends: U.S. Deficit Major Exporters of Beef to U.S. – Herd Sizes Source: Dept. of Commerce, Census Bureau, Foreign Trade Stats; FAOSTAT

I. Trade Trends: U. S. Deficit Major Exporters of Beef to U. S I. Trade Trends: U.S. Deficit Major Exporters of Beef to U.S. – Herd Size Australia Canada New Zealand Uruguay 2005* Exports of Beef to U.S. (thousand MT) 318 381 187 186 2004 Herd Size (million head) 26.42 14.66 9.54 11.7 Source: Dept. of Commerce, Census Bureau, Foreign Trade Stats; FAOSTAT * 2005 data annualized from Jan. – Oct. data

Source: Dept. of Commerce, Census Bureau, Foreign Trade Stats I. Trade Trends: U.S. Deficit Major Exporters of Beef to U.S. - Uruguay Source: Dept. of Commerce, Census Bureau, Foreign Trade Stats

I. Trade Trends: U. S. Deficit Major Exporters of Beef to U. S I. Trade Trends: U.S. Deficit Major Exporters of Beef to U.S. – Uruguay 2002 2003 2004 2005, Jan.– Oct. Uruguay’s Share of U.S. Beef Imports 0.00% 2.91% 11.59% 15.90% Difference between Uruguay AUV and World AUV without duties - 5.15% - 15.22% - 22.46% - 23.32% Uruguay AUV and World AUV with duties - 4.40% - 9.91% - 9.20% - 9.44% Source: Dept. of Commerce, Census Bureau, Foreign Trade Stats

I. Trade Trends: U.S. Deficit Major Importers of U.S. Beef Total U.S. beef exports down 75% from 2003 to 2005 Two major consumers of U.S. beef exports still fully or partially closed Together, Japan and Korea consumed 40% of U.S. beef exports in 2003 Japan Partial lifting of ban this year, effective late December 2005 U.S. beef from animals 20 months and under allowed Korea Discussions on lifting the ban undertaken in prelude to possible FTA talks Korea has agreed to open to boneless U.S. beef from animals 30 months and younger by late March 2006, after import procedures are complete Bone-in beef, variety meats and offal still banned – accounted for 50% of U.S. exports to Korea Other Key Markets Hong Kong: beef from animals 30 months and under allowed, December 2005 Taiwan: still closed

I. Trade Trends: U.S. Deficit Major Importers of U.S. Beef Source: Dept. of Commerce, Census Bureau, Foreign Trade Stats

I. Trade Trends: U. S. Deficit Major Importers of U. S I. Trade Trends: U.S. Deficit Major Importers of U.S. Beef – Thousand MT U.S. Exports Japan Korea Mexico Canada Taiwan Hong Kong Total 2003 296 207 192 63 16 15 822 2005* 145 29 7 204 Source: Dept. of Commerce, Census Bureau, Foreign Trade Stats * 2005 data annualized from Jan. – Oct. data

I. Trade Trends: U.S. Deficit Major Exporters of Cattle to U.S. More than 99.99% of U.S. cattle imports are from Canada and Mexico Canada Imports from Canada fall sharply after border closes in May 2003, stop in 2004, rise after border re-opens in July 2005 Monthly imports from Canada since July opening still below 2002 levels Mexico Made up somewhat for Canada’s decline Grew 68% from 2002 to 2004 Back down a bit in 2005 as Canada resumes exports to U.S.

I. Trade Trends: U.S. Deficit Major Exporters of Cattle to U.S. Source: Dept. of Commerce, Census Bureau, Foreign Trade Stats * 2005 data annualized from Jan. – Nov. data

I. Trade Trends: U. S. Deficit Major Exporters of Cattle to U. S I. Trade Trends: U.S. Deficit Major Exporters of Cattle to U.S. – Million Head 2000 2001 2002 2003 2004 2005* Canada 0.963 1.3003 1.6816 0.5081 0.003 0.559 Mexico 1.2222 1.1301 0.8165 1.2392 1.3703 1.236 Source: Dept. of Commerce, Census Bureau, Foreign Trade Stats * 2005 data annualized from Jan. – Oct. data

Source: Dept. of Commerce, Census Bureau, Foreign Trade Stats; FAOSTAT I. Trade Trends: U.S. Deficit Major Exporters of Cattle to U.S. – Herd Sizes Source: Dept. of Commerce, Census Bureau, Foreign Trade Stats; FAOSTAT

2002 Cattle Exports to U.S. (million head) I. Trade Trends: U.S. Deficit Major Exporters of Cattle to U.S. – Herd Sizes Canada Mexico 2002 Cattle Exports to U.S. (million head) 1.682 0.817 2004 Herd Size (million head) 14.66 31.477 Source: Dept. of Commerce, Census Bureau, Foreign Trade Stats; FAOSTAT

I. Trade Trends: U.S. Deficit Major Importers of U.S. Cattle Over 98% of U.S. cattle exports are to Canada and Mexico U.S. cattle exports have always been small in relation to cattle imports From 1993 to 2002, U.S. imported 13 animals for each one exported, on average Border closures due to BSE have eliminated U.S. cattle exports Even as U.S. continues to import cattle from Canada and Mexico, though at lower levels than before

I. Trade Trends: U.S. Deficit Major Importers of U.S. Cattle Source: Dept. of Commerce, Census Bureau, Foreign Trade Stats * 2005 data annualized from Jan. – Nov. data Source: Dept. of Commerce, Census Bureau, Foreign Trade Stats

I. Trade Trends: U. S. Deficit Major Importers of U. S I. Trade Trends: U.S. Deficit Major Importers of U.S. Cattle – Thousand Head 2000 2001 2002 2003 2004 2005* Canada 348 295 132 66 28 19 Mexico 118 364 94 16 1 Source: Dept. of Commerce, Census Bureau, Foreign Trade Stats * 2005 data annualized from Jan. – Oct. data

I. Trade Trends: Global Exporters U.S. losing position as global exporter Exporters in Latin America & Asia are growing Export Position Country 2000 2003 2005 1 Australia Brazil 2 U.S. 3 E.U. Argentina 4 Canada New Zealand 5 India 6 7 Uruguay 8 9 10 Ukraine • Many lead exporters are highly export-dependent

I. Trade Trends: Global Exporters Source: USDA, World Markets and Trade, 2004

I. Trade Trends: Global Exporters Country Global Beef Exports, 1000 MT CWE 2000 2003 2005 Brazil 492 1,175 1,850 Australia 1,338 1,264 1,400 Argentina 357 386 700 Canada 523 384 625 India 349 439 New Zealand 485 558 565 Uruguay 236 320 440 E.U. 545 388 300 U.S. 1,120 1,143 290 Ukraine 157 168 90 Source: USDA, World Markets and Trade, 2004

Source: USDA, Production and Supply Database I. Trade Trends: Global Exporters Export-Orientation of Global Beef Exporters, 2005 Source: USDA, Production and Supply Database

Exports as Percent of Production Trade Trends: Global Exporters Export-Orientation of Global Beef Exporters, 2005 Country Exports as Percent of Production New Zealand 84% Argentina 23% Uruguay 77% Brazil 22% Australia 67% Ukraine 16% Canada 40% E.U. 3% India 28% U.S. Source: USDA Production and Supply Database

Source: USDA, Production and Supply Database; FAOSTAT I. Trade Trends: Global Exporters Herd Size and Exports of Global Beef Exporters, 2004/5 Source: USDA, Production and Supply Database; FAOSTAT

Source: USDA, Production and Supply Database; FAOSTAT I. Trade Trends: Global Exporters Herd Size and Exports of Global Beef Exporters, 2004/5 New Zealand Uruguay Australia Canada Argentina Brazil U.S. 2005 Global Beef Exports (million MT) 0.575 0.46 1.47 0.615 0.68 1.8 0.285 2004 Herd Size (million head) 9.54 11.7 26.42 14.66 50.768 192 94.882 Source: USDA, Production and Supply Database; FAOSTAT

I. Trade Trends: Global Importers U.S. is top importer, and the U.S. share of world imports is growing Country Share of World Beef Imports 2000 2003 2005 U.S. 28% 27% 34% Russia 8% 14% 15% EU 7% 9% 11% Japan 21% 16% 13% Korea 5% • Traditional importers such as Japan and Korea have reduced consumption

I. Trade Trends: Global Importers Source: USDA, World Markets and Trade, 2004

I. Trade Trends: Global Importers Country Global Beef Imports, 1000 MT CWE 2000 2003 2005 U.S. 1,375 1,363 1,696 Russia 415 720 750 Japan 1,067 810 625 E.U. 368 463 550 Mexico 420 370 320 Korea 324 444 230 Egypt 236 93 155 Philippines 118 120 130 Canada 263 274 100 Source: USDA, World Markets and Trade, 2004

Source: USDA, Production and Supply Database I. Trade Trends: Global Importers Import-Dependence of Global Beef Importers, 2005 Source: USDA, Production and Supply Database

Imports as Percent of Consumption I. Trade Trends: U.S. Deficit Import-Dependence of Global Beef Importers, 2005 Country Imports as Percent of Consumption Taiwan 95% Philippines 41% Hong Kong 85% Russia 31% Japan 59% Egypt 21% Korea 54% U.S. 13% Bulgaria 50% E.U. 8% Source: USDA Production and Supply Database

All Other Quotas Combined – I. Trade Trends: Global Distortions High Foreign Tariffs; Low U.S. Tariffs U.S. tariff rate quotas on beef are generally more generous than other major beef importers U.S. import quota is four times bigger than Europe’s and three times bigger than Korea’s Japan has no quota, but negotiated a special beef safeguard in return, and imposes high tariffs Country Quota Out of Quota Tariff U.S. Mexico – No Limit Canada – No Limit All Other Quotas Combined – 696,621 MT 26.4% E.U. 140,000 MT 20% Japan No quota. General tariff is 38.5%, but it can be raised to 50% with imposition of Japan’s beef safeguard Korea 225,000 MT 41.6% Source: U.S. HTS; WTO

I. Trade Trends: Global Distortions Large Foreign Subsidies U.S. provides no direct subsidies to cattle and beef aside from disaster relief and conservation incentives Other countries provide billions of dollars of subsidies to cattle and beef, undercutting U.S. producers Countries with subsidy programs: Australia, Brazil, Canada, China, the European Union, Japan, Korea, and more …

Trade Trends: Global Distortions Foreign Subsidies – Country Examples Cattle and Beef Subsidies Argentina - Veal slaughter ban increases beef production and slaughter weight Australia Australian Wheat Board controls most wheat exports and thus domestic feed prices Brazil $3.6 billion for beef sector in 2004/2005, up 86% from 2003 Subsidized loans and tax credits for improvements and modernization Export credit and promotion programs Amazonian Development Fund includes incentives for meat production

Cattle and Beef Subsidies I. Trade Trends: Global Distortions Foreign Subsidies – Country Examples, cont. Country Cattle and Beef Subsidies Canada Compensation programs during BSE: Packer incentives to increase capacity Financial assistance to producers as prices decline Provincial as well as federal programs Canadian Wheat Board controls most wheat exports and thus domestic feed prices Colombia FINAGRO program provides financial support to re-stock cattle herds Entire program gave $346 million in animal purchase credits in Jan. – Aug., 2005

Cattle and Beef Subsidies I. Trade Trends: Global Distortions Foreign Subsidies – Country Examples, cont. Country Cattle and Beef Subsidies E.U. Subsidized stores and traders intervene to buy and store beef if prices fall or there is oversupply Beef subsidies still tied to production after 2003 reforms Hasn’t reported subsidies to WTO for years after 2002 Japan Beef buy-back program during BSE outbreak Deficiency payments, subsidized financing, marketing program Korea Government cash premiums for high-quality animals – costing $8 million in 2005 Subsidized loans to upgrade packing facilities New Zealand Research and development grants to Meat New Zealand Export credit agency support for exports of breeding cattle

I. Trade Trends: Global Distortions Mismatched Health and Safety Standards Forty markets remain partially or fully closed to U.S. cattle and beef due to BSE Some foreign standards lack sound science or fail to comply with international standards Countries cited by USTR in the annual report on foreign trade barriers include Argentina, Brazil, Chile, China, and Taiwan U.S. imposes lower standards on imports than some trading partners impose

I. Trade Trends: Global Distortions Rules of Origin, Marking & Labeling Many other countries require meat labeling based on animal tracking information for health purposes U.S. consumers cannot make informed decisions Meat of foreign animals is deemed U.S.-origin product Foreign meat is sold unlabeled once it is inspected, processed USDA Grade stamp creates further confusion Requiring marking of animals not likely to solve current consumer information needs Rules of origin can also be relevant to concerns about possible transshipment

I. Trade Trends: Global Distortions Special Rules for Perishable Products Regular trade remedies insufficient for producers of perishable and cyclical products Speed of relief Burden on producers Lasting market damage of import surges, price declines U.S. Congress directed USTR to negotiate special rules for these products in new agreements

I. Trade Trends: Global Distortions Special Rules for Perishable Products, cont. Special safeguard for cattle and beef Triggered automatically Triggered by volume surge or price decline Triggers based on historical volumes, prices Ideally would treat cattle and beef as one product Version of beef safeguard in U.S. – Australia FTA R-CALF USA proposed safeguard WTO special agriculture safeguard is similar Applies to U.S. beef imports On the table in Doha Round (more on this later)

I. Trade Trends: Global Distortions Currency Manipulation Concerns that foreign countries may undervalue their currency Makes their exports to U.S. cheaper Makes imports from U.S. more expensive Contributes to U.S. trade deficit Examples China Studies suggest the Yuan is undervalued by as much as 40% Goldman Sachs: 10 – 15% Institute for International Economics: > 25% Manufacturers Alliance/MAPI: 40% There has been some very small upward movement recently Argentina According to USDA, Argentina’s Peso peg deflates export prices by 14%

I. Trade Trends: Global Distortions R-CALF USA Agenda Tariffs: reduce world tariffs to U.S. level Subsidies: eliminate trade distorting subsidies, including STEs Health and Safety: upward harmonization of standards

I. Trade Trends: Global Distortions R-CALF USA Agenda, cont. Rules of Origin, Marking & Labeling: born, raised, and slaughtered rule and informed consumers Special Rules: ensure producers have effective access to effective relief Currency: redress currency manipulation

II. 2006 Trade Issues: Overview Health and Safety: BSE World Trade Organization: The Doha Round Free Trade Agreements

II. 2006 Trade Issues: BSE Bans on U. S II. 2006 Trade Issues: BSE Bans on U.S. Exports: Markets Lost Due to BSE 40 Countries remain closed to U.S. beef exports due to BSE █ Countries with import bans █ Countries with partial or conditional re-opening

Decline in U.S. Beef Exports Since 2003 II. 2006 Trade Issues: BSE Bans on U.S. Exports: Markets Lost Due to BSE Decline in U.S. Beef Exports Since 2003 Markets with major losses – Japan and Korea – partially open and set to re-open this year Japan Korea Other Total 2004 - $1.15 B - $741 m - $633 m - $2.5 B 2005 - $742 m - $285 m - $2.2 B - $2.3 B - $1.5 B - $918 m - $4.7 B

II. 2006 Trade Issues: BSE Mismatched Standards Major R-CALF Focus in 2004 and 2005 U.S. has adopted a standard for imports that allows for more product to enter than other countries’ standards U.S. pursuing opening of other countries’ markets bilaterally U.S. has accepted trading partners’ opening their markets under more stringent standards than our own Result: U.S. import standards different from what U.S. exports face in other countries

II. 2006 Trade Issues: BSE Mismatched Standards: Japan BSE Problems in Sending Country Import Standards U.S. imports from Japan 21 reported cases in Japan. U.S. allows all imports of boneless cuts from Japan regardless of animal age, though Canada still subject to 30 month rule. Japanese imports from U.S. 2 reported cases in U.S. Japan allows imports of boneless cuts from the U.S. only from animals 20 months and younger, consistent with standard applied to domestic producers.

II. 2006 Trade Issues: BSE Harmonized Standards Solution to BSE concerns must be upward harmonization of import standards Use OIE to reach agreement on science, update standards as needed – problem is OIE is voluntary Establish multilateral agreement – not country by country

II. 2006 Trade Issues: BSE Harmonized Standards: The U.S. Role R-CALF position on U.S. role: Allow voluntary BSE testing by U.S. packers. Close loopholes in the U.S. feed ban identified by an international scientific panel convened by the USDA over 18 months ago. Adopt the most stringent BSE risk mitigation measures recommended by the OIE for both imports and exports pending an international agreement on BSE standards. Bring countries together to harmonize BSE standards to prevent any further global spread of the disease and allow the resumption of trade in safe beef products.

II. 2006 Trade Issues: WTO Background on the Doha Round Launched in Late 2001 in Doha, Qatar Covers 149 Countries Major Topics: agriculture, services, non-agricultural market access, rules, development

II. 2006 Trade Issues: WTO Background on the Doha Round, cont. Impacts of Uruguay Round on Cattle and Beef Required tariff commitments for 1st time for many countries Locked in tariffs and quotas Capped and reduced export subsidies and certain distortive domestic subsidies Created agreement to address trade barriers enacted in name of health and safety Established special agriculture safeguard for products deemed import sensitive by members Governs use of trade remedies Enforceable dispute settlement Doha Round Seeks to Expand on these Rules

II. 2006 Trade Issues: WTO Status of the Doha Round Timeline for the Doha Round November 2001: Launched September 2003: Failed Cancun Ministerial August 2004: Framework Agreement December 2005: Hong Kong Ministerial By April 30, 2006: Next Ministerial End of 2006: Target Completion Early 2007: Target Vote in U.S. Congress July 1, 2007: TPA Expires

II. 2006 Trade Issues: WTO Status of the Doha Round, cont. Agriculture is Big Stumbling Block Key Players in Agriculture Negotiations U.S. Europe G20: Developing countries including Argentina, China, and Brazil G10: Net food importers including Japan, Korea, and Switzerland Developing country net food importers Key Disagreements in Agriculture Market Access Export Subsidies Domestic Support Special Treatment for Developing Countries

II. 2006 Trade Issues: WTO Cattle and Beef in the Doha Round 1. Market Access 2. Subsidies 3. Special Rules for Perishable and Cyclical Agriculture 4. Rules Negotiations

II. 2006 Trade Issues: WTO Cattle and Beef in the Doha Round, cont. 1. Market Access Formula Approach to Cut Tariffs U.S.: most ambitious – top tariffs cut by 90% E.U.: more conservative – top tariffs cut by 60% Sensitive Products Excluded U.S.: 1 percent E.U.: 8 percent Developing Countries Get Special Treatment

II. 2006 Trade Issues: WTO Cattle and Beef in the Doha Round, cont. 2. Subsidies Export Subsidies Eliminate by 2013 With Conditions: Food Aid Treatment of STEs

II. 2006 Trade Issues: WTO Cattle and Beef in the Doha Round, cont. 2. Subsidies, cont. Domestic Support Cattle and Beef Subsidies Feed Stuff Subsidies and STEs Other sectors of U.S. agriculture

II. 2006 Trade Issues: WTO Cattle and Beef in the Doha Round, cont. 3. Special Rules Congressional Negotiating Objectives Eliminate practices that adversely affect trade in perishable and cyclical products Improve import relief mechanisms to recognize unique characteristics of P & C agriculture Ensure import relief mechanisms for P & C are accessible and timely Develop a position on the treatment of P & C products before the negotiations Develop international consensus on treatment of P & C products in dumping and safeguard investigations

II. 2006 Trade Issues: WTO Cattle and Beef in the Doha Round, cont. 3. Special Rules, cont. Special Agriculture Safeguard Developed Countries: Eliminated Developing Countries: Maintained but modified Special Rules for perishable and cyclical products need to be created elsewhere No U.S. proposal on special rules tabled yet

II. 2006 Trade Issues: WTO Cattle and Beef in the Doha Round, cont. 4. Rules Negotiations Phase-Out Periods in Free Trade Agreements Australia FTA: 18 year phase-out for beef imports New WTO rules may limit phase-outs to 10 years, even for sensitive products U.S. needs to make a proposal

II. 2006 Trade Issues: WTO Cattle and Beef in the Doha Round, cont. 4. Rules Negotiations, cont. Trade Remedy Laws Congressional Negotiating Objective “Preserve the ability of the U.S. to enforce rigorously its trade laws” More than 200 proposals, many that would weaken effectiveness of U.S. laws U.S. needs aggressive strategy

II. 2006 Trade Issues: WTO Cattle and Beef in the Doha Round, cont. Key Issues for Cattle and Beef not Being Addressed in the Doha Round Health and Safety Standards Rules of Origin, Marking and Labeling Currency Manipulation … Special Rules remains to be seen

II. 2006 Trade Issues: WTO Cattle and Beef in the Doha Round, cont. Cattle and Beef in the Doha Round – Next Steps for R-CALF USA 1. Improve Market Access 2. Eliminate Harmful Subsidies 3. Establish Special Rules for Perishable and Cyclical Agriculture 4. Preserve Effective Trade Remedy Laws and Flexibility of FTA Phase-Outs

II. 2006 Trade Issues: FTAs Free Trade Agreement Strategy U.S. Strategy “Competitive Liberalization” Political Considerations: Build alliances, Build pressure for Doha Round and FTAA Develop model for future WTO rules, future FTAs R-CALF USA Strategy Prioritize strategic markets Maximize benefits for U.S. producers and eliminate worst global distortions

II. 2006 Trade Issues: FTAs Status of FTAs Implemented NAFTA, Jordan, Chile, Singapore, Australia, Morocco Passed Congress, Not Implemented Bahrain, CAFTA Negotiated, Await Congress Oman (signed this month) Peru (to be signed in April) Negotiations On-going Colombia, Ecuador, Panama, UAE Negotiations Stalled Free Trade Area of the Americas, Southern Africa Customs Union, Thailand Contemplated Egypt, Korea, Malaysia, Switzerland

II. 2006 Trade Issues: FTAs Status of FTAs █ Countries with U.S. FTAs █ Countries negotiating or implementing U.S. FTAs █ Countries discussing possible U.S. FTAs █ Countries with which FTA negotiations are stalled

II. 2006 Trade Issues: FTAs Trade Impacts of FTAs Source: Dept. of Commerce, Census Bureau, Foreign Trade Stats *2005 figures annualized from Jan. – Oct. data

II. 2006 Trade Issues: FTAs Trade Impacts of FTAs – Chile FTA Thousand U.S.$ 2003 2004 (implementation date) 2005* U.S. exports to Chile 298 69 106 U.S. imports from Chile Trade Balance Source: Dept. of Commerce, Census Bureau, Foreign Trade Stats *2005 figures annualized from Jan. – Oct. data

II. 2006 Trade Issues: FTAs Trade Impacts of FTAs Source: Dept. of Commerce, Census Bureau, Foreign Trade Stats *2005 figures annualized from Jan. – Oct. data

II. 2006 Trade Issues: FTAs Trade Impacts of FTAs – Singapore FTA Million U.S.$ 2003 2004 (implementation date) 2005* U.S. exports to Singapore 6 0.1 U.S. imports from Singapore Trade Balance Source: Dept. of Commerce, Census Bureau, Foreign Trade Stats *2005 figures annualized from Jan. – Oct. data

II. 2006 Trade Issues: FTAs Trade Impacts of FTAs Source: Dept. of Commerce, Census Bureau, Foreign Trade Stats *2005 figures annualized from Jan. – Oct. data

II. 2006 Trade Issues: FTAs Trade Impacts of FTAs – Jordan FTA Thousand U.S.$ 2001 2002 (implementation date) 2003 2004 2005* U.S. exports to Jordan 177 128 1,207 39 U.S. imports from Jordan Trade Balance Source: Dept. of Commerce, Census Bureau, Foreign Trade Stats *2005 figures annualized from Jan. – Oct. data

II. 2006 Trade Issues: FTAs Trade Impacts of FTAs Source: Dept. of Commerce, Census Bureau, Foreign Trade Stats *2005 figures annualized from Jan. – Oct. data

II. 2006 Trade Issues: FTAs Trade Impacts of FTAs – Australia FTA Million U.S.$ 2004 2005* (implementation date) U.S. exports to Australia U.S. imports from Australia 1,110 975 Trade Balance -1,110 -975 Source: Dept. of Commerce, Census Bureau, Foreign Trade Stats *2005 figures annualized from Jan. – Oct. data

II. 2006 Trade Issues: FTAs Trade Impacts of NAFTA Source: Dept. of Commerce, Census Bureau, Foreign Trade Stats *2005 figures annualized from Jan. – Oct. data

II. Trade Issues: FTAs NAFTA Cattle and Beef Trade Balance – Billion US$ 1989 1990 1991 1992 1993 1994 1995 1996 1997 Exports 0.231 0.389 0.643 0.658 0.507 0.673 0.478 0.528 0.712 Imports 0.843 1.164 1.137 1.530 1.699 1.521 1.766 1.585 1.731 Balance -0.612 -0.775 -0.495 -0.872 -1.192 -0.848 -1.288 -1.057 -1.019 1998 1999 2000 2001 2002 2003 2004 2005* Exports 0.768 0.832 1.020 1.004 0.919 0.883 0.431 0.681 Imports 1.874 1.929 2.126 2.554 2.553 1.731 1.761 2.194 Balance -1.106 -1.097 -1.550 -1.634 -0.848 -1.331 -1.513 Source: Dept. of Commerce, Census Bureau, Foreign Trade Stats * 2005 data annualized from Jan. – Oct. data Source: Dept. of Commerce, Census Bureau, Foreign Trade Stats

II. 2006 Trade Issues: FTAs FTA Provisions Achievements in FTAs Opening to U.S. cattle and beef BSE bans lifted (all or part): Bahrain, Chile, CAFTA, Oman Increased market access for U.S. beef Extended phase-outs on U.S. tariffs and quotas Australia: 18 Years CAFTA: 15 Years Special Safeguard in Australia FTA Growth of U.S. import quota in Australia FTA conditioned on resumption of U.S. exports

II. 2006 Trade Issues: FTAs FTA Provisions R-CALF USA Goals in Future FTAs Ensure beef excluded or subject to extended phase-outs in deals with large cattle and beef producers and exporters Address distortions Upward harmonization on health and safety Elimination of harmful subsidies and STEs Address currency manipulation, other distortions Special safeguard for cattle and beef U.S. quota expansion conditioned on resumption of U.S. exports Treat cattle and beef as one product Born, raised and slaughtered rule of origin

II. 2006 Trade Issues: FTAs Status of Upcoming FTAs Andean Peru: complete, sign in April Colombia & Ecuador: negotiations on-going Large domestic production, transshipment, subsidies Panama Negotiations on-going Not a major export market, BSE ban Middle East Oman: complete, sign in January UAE: negotiations on-going Egypt: negotiations possible Not large export markets, but little competing domestic production Thailand Negotiations being re-evaluated Target completion in Spring 2006 in doubt U.S. had large share of market before BSE Korea Negotiations possible 2nd largest U.S. market before BSE Malaysia Switzerland Decent market, SPS issues

II. 2006 Trade Issues: FTAs Upcoming FTAs Andean FTA Timeline Peru complete, likely to come before Congress after April signing Colombia and Ecuador still negotiating R-CALF comments to USTR in October 2005 Problem FTA Provisions Needed Combined herd size: 35 million head Exclude beef or ensure extended phase outs and special safeguard Transshipment: 250 million head in MERCOSUR region Born, raised and slaughtered rule of origin with import certification BSE bans on U.S. exports FMD and other health problems in region Upward harmonization of health and safety standards

II. 2006 Trade Issues: FTAs Upcoming FTAs, cont. Middle Eastern FTAs R-CALF supported Bahrain FTA Oman complete and likely sent to Congress this year UAE negotiating, Egypt negotiations possible Small domestic production and imports make up high portion of consumption, but barriers to U.S. access

II. Trade Issues: FTAs Upcoming FTAs – Middle East Middle East Beef Imports Thousand MT 2003 2004 All Imports 165 176 Imports from U.S. 35 5 Middle East Total Beef Imports – 2004 Bahrain Egypt Oman UAE Thousand MT 7 134 15 21 % 4 76 8 12 Source: Dept. of Commerce, Census Bureau, Foreign Trade Stats; FAOSTAT * Note: Includes variety meats

II. 2006 Trade Issues: FTAs Upcoming FTAs, cont. Thailand FTA Was targeted for completion in Spring 2006, negotiations being re-evaluated by USTR Not a major market, but growing U.S. had a large share of Thai beef imports before BSE

II. 2006 Trade Issues: FTAs Upcoming FTAs – Thailand 2000 2001 2002 2003 2004 All Imports (MT) 343 369 511 580 712 Imports from U.S. (MT) 149 249 328 316 U.S. as % 43 67 64 54 Source: Dept. of Commerce, Census Bureau, Foreign Trade Stats; FAOSTAT

II. 2006 Trade Issues: FTAs Upcoming FTAs, cont. Korea FTA In preliminary stages, formal negotiations have not begun Expected to lift ban on U.S. imports by end of March Second largest consumer of U.S. beef before BSE Subsidizes domestic cattle production

II. 2006 Trade Issues: FTAs Upcoming FTAs – Korea 2000 2001 2002 2003 2004 All Imports (Thousand MT) 277 210 372 384 201 Imports from U.S. (Thousand MT) 229 168 279 258 20 U.S. as % 83 80 75 67 10 Source: Dept. of Commerce, Census Bureau, Foreign Trade Stats; FAOSTAT * Note: Includes variety meats

II. 2006 Trade Issues: FTAs Possible New FTAs as Portion of U. S II. 2006 Trade Issues: FTAs Possible New FTAs as Portion of U.S. Beef Exports

Source: Dept. of Commerce, Census Bureau, Foreign Trade Stats; FAOSTAT II. Trade Issues: FTAs Possible New FTAs as Portion of U.S. Beef Exports Beef Imports from U.S. in 2003 Middle East* Andean Switzer-land Panama Thailand Malaysia Korea* World MT 3,236 498 946 174 316 241 206,825 822,217 % of World 0.39 0.06 0.12 0.02 0.04 0.03 25 100 Source: Dept. of Commerce, Census Bureau, Foreign Trade Stats; FAOSTAT * Note: 2003 U.S. imports less than reported in earlier tables for the Middle East and Korea because variety meats excluded for comparison purposes