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New Latin American Trade Pact Announced: What are the Implications for U.S. Exports?

This week trade officials from Chile, Colombia, Mexico and Peru announced that the four countries have concluded negotiations on a trade agreement that will eliminate tariffs on most goods and services upon ratification, with other tariffs being phased out over several years. Further details on the agreement are to be revealed at a Sept. 25 investor forum in New York.

The agreement is expected to be officially signed later this year and will then be subject to each country’s ratification process. Costa Rica’s inclusion in the agreement is expected to be discussed in coming weeks, with Panama also targeted as a potential entrant.

While Mexico is obviously a huge market for U.S. beef and pork exports, the other three participants also rank fairly high among global destinations for U.S. red meat. Export volumes through June were as follows:
Latin American Exports U.S. exports to Mexico are duty-free under NAFTA.

The tariff schedules for the U.S.-Colombia Trade Agreement are available online.

Under the U.S.-Chile Free Trade Agreement, U.S. beef and pork enter at zero duty.

Under the U.S.-Peru Trade Promotion Act, Choice and Prime beef entering Peru is duty-free as well as other cuts within a 1,010 mt tariff rate quota (TRQ) and variety meats within a 12,625 mt TRQ. Duties on nearly all U.S. pork items have been eliminated.

Until specific details on the new trade agreement are released, it is difficult to say how much or how quickly red meat trade barriers between these four countries will be reduced. But in terms of current trade activity, Colombia is currently Chile’s fifth-largest pork market in both volume (through June, 6,098 mt) and value ($13.9 million). Mexico is Chile’s sixth-largest volume market (2,527 mt) and No. 11 in value ($2.6 million). Peru ranks No. 8 in volume (1,351 mt) and No. 10 in value ($3.5 million).

Chilean pork entering these markets is currently subject to relatively high duties, as follows:
  • Colombia: 20 to 30 percent
  • Mexico: 20 percent
  • Peru: 25 percent on most cuts

Chile’s beef exports are much smaller, but Colombia is Chile’s second-largest pork market in both volume (351 mt) and value ($2 million). Mexico is Chile’s ninth-largest volume market (61 mt) and No. 13 in value ($143,000). Peru ranks No. 17 in both volume (13 mt) and value ($72,000).

Chilean beef entering these markets is also subject to high duties:
  • Colombia: 80 percent on most cuts
  • Mexico: 20 percent for chilled and 25 percent for frozen beef
  • Peru: 25 percent for cuts and 12 percent for variety meats

Mexico does not currently export beef or pork to any of the other three participants in the free trade agreement. As for the prospective entrants, Mexico has exported a small volume of both beef (through May, 180 mt valued at $695,000) and pork (8 mt, $27,000) to Panama this year and 1 mt of pork to Costa Rica.

Colombia exports a small volume of beef to Peru, but its first-half exports worldwide were less than 15,000 mt valued at $100 million – and 95 percent of these exports were to Venezuela. Columbia posted no pork exports in the first half of this year and Peru did not export either product.

In trade implications for the United States, the primary trends to watch are Chile’s pork exports to Colombia and Mexico, where the elimination of duties would make Chilean exports more competitive with U.S. pork. Mexico’s beef and pork industries could also benefit from lower duties in these markets, but will likely continue to focus their promotional efforts toward Asia – especially Japan, where Mexico benefits from reduced-duty quotas under an economic partnership agreement. (Chile also has an EPA with Japan and faces very low duty rates in South Korea under an FTA.)

It is also important to note that Chile, Peru and Mexico are all participating in the Trans-Pacific Partnership (TPP) negotiations. In doing so, these three countries have committed to an aggressive trade policy that will integrate their economies more fully into the Latin American region as well as the Pacific Rim.

While USMEF does not expect a major shakeup in these countries’ beef and pork trade patterns, this pact underscores the importance of the trade agreements the United States has achieved in Latin America in recent years. Without the reductions in tariffs and other trade barriers resulting from those agreements, our concerns about increased competition would be far greater.