While tariff reductions may pique exporter interest and raise already-slim margins on fruits and vegetables, just as important are TPP provisions that will improve the ease of exporting, says Richard Owen, vice president of global business development for the Produce Marketing Association. “Our members tell us that each (Pacific Rim) country has a different set of import regimes.”
The TPP not only brings uniformity to these import protocols, but makes long strides toward eliminating nontariff barriers such as permits, licenses, and tariff-rate quotas, as well as nonscientific restrictions in the areas of sanitary and phytosanitary measures and biotechnology.
ON THE TWO-YARD LINE Congressional approval for fast-track paved the way for the next round of TPP negotiations, when the United States hosted trade ministers in Maui, last August. The deal was almost ready for a handshake, and many anticipated a 2015 finish. “Basically after Maui, they were at the two-yard line, ready to punch it in,” says Schott. But talks among the trade ministers hit a snag soon after, over automotive trade provisions. A handshake deal finally came in November and was the basis for President Obama to notify Congress that he intended to sign the TPP in at least 90 days.
Under the new fast-track terms, the TPP has to be posted at least 60 days before President Obama can sign the agreement. It is then up to Congress to approve the implementation legislation that will bring the TPP into effect in the United States. “The view around town here in Washington is that the implementing legislation will probably happen after Super Tuesday primaries, then you have a window between March and June for TPP to be finalized,” says Schott.
TARIFF REDUCTIONS The tariff reductions under TPP have been long anticipated. Malaysia has a 5 percent tariff on fresh apples, cherries, and pears and Vietnam has a 10 percent tariff on those fruits, and even higher tariffs of 20 percent on U.S. oranges, lettuce, and potatoes. Reducing the tariffs, eventually to zero, will help exporters from the Americas gain valuable market share in Asia.
And then there’s Japan. Produce groups are closely watching possible reductions since Japan’s pre-TPP tariffs range from 12 to 24 percent on U.S.-supplied fruits. “If we could get that [tariff rate] down, it’s clearly of importance,” says Mark Powers, vice president at the Northwest Horticultural Council, which represents cherry, apple, and pear groups.
Discussion within the fresh produce industry has been positive. Peter De Young, president of Culinary Competitions International, which sends chefs to conventions and competitions worldwide to showcase fresh food and cuisine, says, “As a company that assists agricultural commodity boards and private brands in marketing their products, we understand how current trade barriers are preventing the consumption of our clients’ products. Eliminating tariffs will allow U.S. farmers the ability to do what they do best, for the greatest possible return.”
The Trans-Pacific Partnership is the largest trade deal ever negotiated, and it offers an ambitious framework for free trade. Michael Froman, U.S. trade representative, believes the pact “will set the rules of the road for trade and investment for nearly 40 percent of the global economy.”
North American farm and food exporters are poised to benefit from the agreement, which will streamline rules for trade and, eventually, eliminate tariff barriers for many products. The U.S. fruit and vegetable industry has been a longtime supporter of the deal. Here’s a recap of where the Trans-Pacific Partnership began, a possible timeline for the U.S. approval process, and its probable impact on the fresh produce industry in the Americas.
WHAT AND WHY The Trans-Pacific Partnership (TPP) is a trade agreement between 12 countries bordering the Pacific Ocean. They are the United States, Canada, and Mexico in North America; Chile and Peru in South America; and Australia, Brunei Darussalam, Japan, Malaysia, Singapore, and Vietnam in Asia and the Pacific Rim. These countries represent nearly 40 percent of the world’s gross domestic product. Large economies represented in the trade deal—the United States, Canada, and Japan—are joined by several fast-growing consumer markets like Vietnam and Malaysia.
For fruits and vegetables, TPP means a potential $2.4 billion increase in export values by 2024 according to U.S. Depart-ment of Agriculture (USDA) analysis—that’s a 16 percent increase in annual produce export value, the greatest increase of any agricultural value sector in the partnership. Only meat exporters, among U.S. farm and food groups, will realize higher returns as projected by the USDA’s Economic Research Service.
Most of the anticipated growth in fresh produce exports will come courtesy of tariff reductions in Asian countries. Some of the participating countries already have preferential trade agreements in place between themselves, for either very low or zero tariff rates on food and farm products, but other exporters may still face stiff tariffs.
Vietnam, for example, has a 30 percent tariff on melons from Mexico and a 20 percent tariff on U.S. lettuce, according to the USDA. Japan’s trade regime is also known for restrictive tariffs on farm and food products.
Japan’s stance was central to the negotiations. “Japan has made trade concessions on all commercially-sensitive ag products,” comments Jeffrey Schott at the Peterson Institute for International Economics, a pro-trade think tank. “The Japanese are going to commit to very substantial liberalization on their entire agricultural regime.”
While tariff reductions may pique exporter interest and raise already-slim margins on fruits and vegetables, just as important are TPP provisions that will improve the ease of exporting, says Richard Owen, vice president of global business development for the Produce Marketing Association. “Our members tell us that each (Pacific Rim) country has a different set of import regimes.”
The TPP not only brings uniformity to these import protocols, but makes long strides toward eliminating nontariff barriers such as permits, licenses, and tariff-rate quotas, as well as nonscientific restrictions in the areas of sanitary and phytosanitary measures and biotechnology.
ON THE TWO-YARD LINE Congressional approval for fast-track paved the way for the next round of TPP negotiations, when the United States hosted trade ministers in Maui, last August. The deal was almost ready for a handshake, and many anticipated a 2015 finish. “Basically after Maui, they were at the two-yard line, ready to punch it in,” says Schott. But talks among the trade ministers hit a snag soon after, over automotive trade provisions. A handshake deal finally came in November and was the basis for President Obama to notify Congress that he intended to sign the TPP in at least 90 days.
Under the new fast-track terms, the TPP has to be posted at least 60 days before President Obama can sign the agreement. It is then up to Congress to approve the implementation legislation that will bring the TPP into effect in the United States. “The view around town here in Washington is that the implementing legislation will probably happen after Super Tuesday primaries, then you have a window between March and June for TPP to be finalized,” says Schott.
TARIFF REDUCTIONS The tariff reductions under TPP have been long anticipated. Malaysia has a 5 percent tariff on fresh apples, cherries, and pears and Vietnam has a 10 percent tariff on those fruits, and even higher tariffs of 20 percent on U.S. oranges, lettuce, and potatoes. Reducing the tariffs, eventually to zero, will help exporters from the Americas gain valuable market share in Asia.
And then there’s Japan. Produce groups are closely watching possible reductions since Japan’s pre-TPP tariffs range from 12 to 24 percent on U.S.-supplied fruits. “If we could get that [tariff rate] down, it’s clearly of importance,” says Mark Powers, vice president at the Northwest Horticultural Council, which represents cherry, apple, and pear groups.
Discussion within the fresh produce industry has been positive. Peter De Young, president of Culinary Competitions International, which sends chefs to conventions and competitions worldwide to showcase fresh food and cuisine, says, “As a company that assists agricultural commodity boards and private brands in marketing their products, we understand how current trade barriers are preventing the consumption of our clients’ products. Eliminating tariffs will allow U.S. farmers the ability to do what they do best, for the greatest possible return.”
De Young believes the TPP’s reduction and elimination of tariffs will open the door for consumers in North America and Asia to see what they’ve been missing: a wide assortment of fruits, vegetables, and cuisines, and for growers to tell their stories. “Leveling the playing field allows us to communicate the many positive attributes of our clients’ products. Every region of the world utilizes fresh produce in different ways; we help to showcase unique, new methods of using U.S. agricultural products, often in ways people may never have thought of.”
VIETNAM – AND BEYOND Like other U.S. agriculture sectors (especially meat and dairy), the produce industry has its eye on Vietnam. “For us, the jewel is really Vietnam. They take high quality product and pay good money for it,” says Powers.
Vietnam’s consumer market is projected to keep growing, according to the USDA attaché in Hanoi. The U.S. share of Vietnam’s consumer-oriented agricultural imports increased astonishingly in the last decade through 2014, from $20 million to $879 million. This is still only a 3 percent market share of Vietnam’s agricultural, fish, and forestry imports—which are considered notoriously difficult to estimate due to “Vietnam’s porous borders and endemic under-invoicing,” as described by USDA’s Hanoi office.
Access to the Malaysian market, where produce tariffs are not as high, is also an upside. Malaysia’s tariff on most fruit crops is 5 percent; kiwifruit from Chile is 15 percent. Both Chile and Peru are expected to increase produce exports to Malaysia and Japan as the result of TPP, according to Produce Marketing Association analysis. This could take some export market share from China, the dominant player in fruit exports to many Pacific Rim countries.
The market growth may not stop there, for other Asian countries are likely to sign onto TPP after approval from the initial members. Indonesia and Thailand are both promising produce markets for Western exporters, and often mentioned as future TPP members.
A LEVEL PLAYING FIELD The TPP has broad implications beyond tariff reductions. “TPP will provide a sense of transparency in how you do business in a region,” says the Produce Marketing Association’s Owen. Customs, trade regulations, and rules of origin will be streamlined between member countries. Partnership members will also be required to report illegal trade goods—even if these shipments originate in, or are headed for, a non-TPP destination. This in turn will discourage trade in cheaper goods, including illegally-harvested fruits and vegetables.
Also of interest to produce suppliers, TPP members will be committed to fundamental labor rights and environmental protection. These conditions could help the United States, Canada, and Japan build trade advantages with TPP partners over other partners (like China) that are not yet committed to maintaining the same level of workforce or eco-friendly protections as TPP members.
An improved trade dispute process will also benefit produce exporters. “There will be a clear dispute resolution process, and we think this will extend to sanitary and phytosanitary disputes,” Owen explains.
SANITARY AND PHYTOSANITARY PROTOCOLS The dispute process for sanitary and phytosanitary protocols will be improved under TPP, as member countries have committed to a framework outside the World Trade Organization (WTO) governing body for these issues.
Vietnam, for instance, issued import restrictions last June tied to many processed fruit and vegetable products. And although the TPP is not yet in force, the United States did not file a complaint with the WTO, but entered into discussions with Vietnam, stressing that these restrictions had little scientific basis for processed crops.
Most of the more contentious food safety issues involve beef, pork, or poultry and don’t concern the produce industry. But even with a more science-based dispute resolution process, which should make disputes easier to resolve, it does not mean TPP barriers disappear. “Any country has the legal right to protect itself against invasive pests and diseases,” explains the Northwest Horticultural Council’s Powers, and every country has its own presumptions when it comes to sanitary and phytosanitary measures and food safety.
It does mean most future safety-related disputes should be easier to resolve, but a number of barriers will still be in play because the TPP does not address specific sanitary or phytosanitary barriers, and the resolution process may be lengthy. “For the fresh potato industry, addressing sanitary and phytosanitary issues will remain very, very difficult in spite of TPP,” says John Keeling, chief executive officer of the National Potato Council.
Still, the potato industry, like other ag interests, welcomed new sanitary guidelines as a movement toward solutions. “The TPP agreement takes an important step in addressing the very difficult issue of resolving plant health disputes by focusing on scientific analysis and creating a more certain dispute resolution process,” comments Cully Easterday, the National Potato Council’s vice president for trade, after the TPP text was released.
THE PATH FORWARD There may be other possible pitfalls, according to De Young. “As with any such agreement, there are pros and cons. Not all will find the TPP a benefit to their economic interests.”
China would fall into this category. “While China is not currently a part of the partnership, it has the ability to join in the future,” he notes.
“China is a hungry nation and the United States and other countries are critically important trade partners,” De Young stresses. “Consumers in China have a great desire for new and healthy foods, and see the United States as a leader in providing them. It’s my belief that China will eventually join the TPP to maintain its position as a world trade leader.”
Another concern is related to payments and currency. “The obvious downside to the TPP is the possible manipulation of currency,” suggests De Young. “I believe before this trade partnership is ratified, safeguards will be put in place to prevent such actions.”
Since the TPP and its accompanying documentation were released and posted by President Obama in early November, the 90-day review period will conclude in February.
The agreement must be approved by the appropriate legislative bodies in each partner country, and in the United States, this means drafting Congressional legislation for implementation with produce groups and trade associations lending a hand. “We’ll work very hard on this to ensure we get a good hearing in Congress,” confirms Keeling of the National Potato Council.
At press time, the industry continued to parse the language of the agreement. There will still be procedural steps needed to enact TPP, even if Congress would approve it before Super Tuesday; for one, the U.S. will have to review the 11 other country approvals to verify they meet the standards for the agreement stipulated by Congress.
If these standards are met, it puts U.S. exporters on the way to a significant surge in fruit and vegetable shipments to Asia-Pacific importers. With this kind of growth potential, Powers likely speaks for most produce interests: “There are really no downsides to this agreement from our perspective; maybe a few disappointments, but no downsides,” he concludes.
