A Closer Look at the New Zealand-Taiwan Trade Pact

On July 10, trade officials from New Zealand and Taiwan announced an economic cooperation agreement. Officially known as The Agreement between New Zealand and the Separate Customs territory of Taiwan, Penghu, Kinmen and Matsu on Economic Cooperation (ANZTEC), the pact is viewed as especially significant because it is Taiwan’s first trade agreement with a developed nation with which it does not have formal diplomatic relations. The agreement is expected to enter into force Jan. 1, 2014, but this timeline is subject to each side’s ratification processes.
Chilled and total beef imports into Taiwan
Does this agreement give New Zealand beef a price advantage?
The tariff reduction schedule for Taiwan’s beef imports from New Zealand is very aggressive, with duties being cut in half in the first year of the agreement, and reduced to zero in the second year. Fortunately, Taiwan’s current duty rate for most beef products is already relatively low – 10 Taiwan dollars per kilogram, which equates to about 15 cents per pound, or an equivalent of about 4 percent ad valorem for U.S. beef.

“The price advantage New Zealand will gain from elimination of these duties will materialize quickly, but it will also be fairly modest,” explained USMEF Economist Erin Borror. “It is also important to note that a significant portion of the U.S. beef exported to Taiwan is in the higher-end category, including relatively large volumes of chilled beef. We don’t really compete directly with New Zealand in that segment of the market, as they primarily export frozen, grass-fed beef to Taiwan.”

After slumping in 2012 due to an impasse over beta agonist residue policies, U.S. beef exports to Taiwan have soared this year, moving the U.S. back into the No. 1 supplier position. This is especially true for chilled beef, as the U.S. share of Taiwan’s chilled beef market is currently 63 percent. Through June, Taiwan’s imports of U.S. chilled beef reached 5,052 metric tons (mt) valued at $50 million – up 172 percent in volume and 195 percent in value from the first half of 2012. Australia was the next-largest supplier of chilled beef at 2,158 mt (-23 percent from last year), with New Zealand in third place at 795 mt (+9 percent).

“Fifteen cents per pound isn’t an insignificant duty rate,” Borror said. “But it would have more of an impact on our exports if Taiwan was a destination for lower-value beef for further processing. Fortunately, the U.S. industry targets the high end of the Taiwanese market and promotes the attributes of corn-fed beef. I expect any gains New Zealand achieves from the elimination of these duties to come mostly from Australia’s market share.”

No impact on pork market
Most pork cuts from New Zealand are currently subject to a 12.5 percent tariff in Taiwan. While these duties will be eliminated immediately upon implementation of ANZTEC, New Zealand is not currently a supplier of either frozen or chilled pork to Taiwan, so this change is expected to have minimal impact. Over the past five years, New Zealand’s annual pork exports to all markets have averaged only 163 mt – so there is very little chance that New Zealand pork will become a factor in this market, even with this price advantage.

While U.S. pork exports to Taiwan still face a zero-tolerance policy for ractopamine residues (Taiwan adopted a maximum residue level for beef, but not for pork), the market has shown improvement in recent months. Exports in May were robust, increasing 142 percent in volume (2,688 mt) from a year ago and 102 percent in value ($5.4 million). This pushed exports for the first five months of the year 21 percent higher in volume (9,824 mt) and 18 percent higher in value ($21.5 million) compared to last year’s low levels.

New Zealand’s position as top lamb provider solidified
Taiwan’s imports of sheep and lamb meat are currently subject to tariffs of 15 percent or about 17 cents per pound (whichever is higher). Over a three-year period, the duties on imports from New Zealand will be reduced to 3.8 percent or about 4.3 cents per pound (whichever is higher). New Zealand currently holds about two-thirds of the imported lamb and sheep meat market in Taiwan, with the remainder provided by Australia. U.S. lamb does not currently have access to Taiwan, though USMEF is working with U.S. trade officials to gain market access. These efforts were discussed in more detail in the June 21 Export Newsline.

Could the U.S. meat industry seek similar relief from Taiwan’s duties?
As noted above, New Zealand is the first trading partner to reach a trade agreement with Taiwan in the absence of formal diplomatic relations. This represents an important precedent, but it also is worth noting that New Zealand already has a FTA with China, a fact which could have played a role in the delicate diplomacy that no doubt was involved in the negotiations that led to the signing of the ANZTEC.

“The main reason for this is fairly obvious – because any country seeking good relations with China sees risks in any diplomatic initiatives it takes with Taiwan,” said Thad Lively, USMEF senior vice president for trade access. “That is certainly true for the United States, given its complex relationship with China.”

Lively added that while the United States is unlikely to enter bilateral trade negotiations with Taiwan in the foreseeable future, the possibility exists that Taiwan could eventually become a participant in a multi-lateral agreement such as the Trans-Pacific Partnership (TPP). In the meantime, ANZTEC is not expected to have a significant impact on our competitive position in the Taiwanese market.