SUMMARY: REGION/TITLE: INTERNATIONAL AGRICULTURE AND TRADE August 28, 1997 August 1997, WRS-97-4 Approved by the World Agricultural Outlook Board ----------------------------------------------------------------------------- This SUMMARY is published by the Economic Research Service, U.S. Department of Agriculture, Washington, DC 20005-4788. The complete text of APEC: INTERNATIONAL AGRICULTURE & TRADE will be available about 2 weeks following this summary release. ----------------------------------------------------------------------------- U.S. Agricultural Exports to APEC Forum Members Surge to Record High U.S. agricultural exports to the APEC region reached a record $36.7 billion in fiscal 1996, up 10 percent from the year before.1/ The region accounted for more than 60 percent of total U.S. agricultural exports, about the same as in recent years. Mexico, the Association of Southeast Asian Nations (ASEAN), and Japan showed the biggest gains, while exports to China dropped from $2.4 billion in fiscal 1995 to $1.8 billion. U.S. exports to Mexico were back on trend after a deep recession triggered a big drop in fiscal 1995. Drought-driven demand for bulk commodities and higher bulk prices explained the increase. Growth in exports to ASEAN was also impressive, with the Philippines and Indonesia nearing the $1 billion mark. In fiscal 1996, the ASEAN market for U.S. agricultural exports totaled $3.3 billion, almost the size of the Hong Kong and China markets combined. ----- 1/ APEC stands for Asia-Pacific Economic Cooperation forum, a vast region surrounding the Pacific Ocean. Member countries include Australia, Brunei, Canada, Chile, China, Hong Kong, Indonesia, Japan, Malaysia, Mexico, New Zealand, Papua New Guinea, Philippines, Singapore, South Korea, Taiwan, Thailand, and the United States. ----- Non-bulk commodities accounted for more than half of total U.S. agricultural trade in the APEC region in fiscal 1996. Trade with Japan, North American Free Trade Agreement partners (Canada and Mexico), and the other high-income East Asian markets (Hong Kong, South Korea, and Taiwan) is diversified across many products. Trade with China and Southeast Asia is more concentrated in a few bulk commodities. Agricultural trade in the APEC region is strongly influenced by economic growth, though government policies and other factors, such as exchange rates and commodity prices, are also important. In 1997 the region's economic growth is expected to remain steady at 3.5 percent, the same as in 1996, and significantly above the rest of the world. The robust growth in 1996 in the region's two leading economies, Japan and the United States, was offset by slower growth in the rest of East Asia and ASEAN. Japan has long been the world's largest net importer of agricultural products. But other Asian APEC members are now emerging as important markets because of rapid economic growth and large populations. There are two categories of these markets. The first includes South Korea and Taiwan, long-time importers of agricultural raw materials, who are diversifying their purchases to include more consumer-oriented products such as meats, horticultural products, and other processed products. The second includes some of the ASEAN markets (Thailand, Malaysia, Indonesia, the Philippines), which are more richly endowed with agricultural land resources than Taiwan or South Korea. In these countries, growth in demand for some commodities has outstripped domestic supply. Southeast Asia is emerging as a large market for raw agricultural materials and feedstuffs, as well as a few horticultural and processed products. The dynamics underlying the six emerging markets (South Korea, Taiwan, Thailand, Malaysia, Indonesia, and the Philippines) vary, but several important themes emerge. Income growth has spurred a process of westernization that has included increased consumption of meats. Livestock products are a special case because imported feedstuffs can sustain high-cost domestic producers who are shielded from competition with other countries' low-cost livestock products. Whether the United States exports feedstuffs or livestock products to these markets depends upon each market's trade policy and comparative advantage. In Taiwan and South Korea, high barriers to trade are being reduced, leading to increased meat imports. The substitution of imported meat for domestic production will slow import growth of feed grains. In the ASEAN countries, livestock industries are at a more incipient stage of development. Their international competitiveness is obscured by barriers to feedstuff imports that have raised costs of production, as well as by barriers to meat imports. Thailand, once a net exporter of corn, has become a small net importer, partly to support its expanding poultry and pork industries. Thailand's poultry exports are in doubt as domestic consumption is expanding more rapidly than its export markets. Rising wages caused by economic growth have changed the economic structure of these emerging markets, shifting comparative advantage away from labor-intensive to more capital- intensive and service-oriented production. The wealthier economies, like Japan, South Korea, and Taiwan, have moved away from the apparel and leather industries, which have shifted to lower-wage economies like Thailand, Indonesia, and South Asia. Declining U.S. exports of cotton and cattle hides to high-income East Asia have been partially offset by rising exports to ASEAN and China. Other factors affecting the APEC trade environment include the rising flow of foreign direct investment (FDI) into the APEC region's food processing sector. Sales of processed foods by U.S. foreign affiliates now exceed U.S. processed food exports to the region by about two to one, a trend observed globally. While there is some controversy over FDI displacing exports, both affiliate sales and exports are rising because of the region's strong demand for processed food. In 1996, U.S. foreign affiliate sales in APEC were greatest in Canada, Japan, Mexico, and Australia, while U.S. exports of processed products were greatest to Japan, Canada, Mexico, and South Korea. State trading in grains is widespread, with wheat ranking first in value of trade followed by rice, barley, and corn. In 1990-95, wheat exports by state trading enterprises (STEs) averaged 34 percent of the world market, while wheat imports by STEs averaged 21 percent. Rice trade under STEs in the APEC region is concentrated among major importing STEs, which accounted for 14 percent of the world rice market. Barley and corn ranked third and fourth in grain trade under STEs in the APEC region, with barley exports by STEs holding 36 percent of the world market during 1990-95. Importing countries for the four commodities show greater potential than exporters for trade distortion. While tariff protection for the region's agricultural and food markets is being reduced, tariffs agreed to in the Uruguay Round Agreement indicate still unfinished business in this area. Average tariff rate bindings for food and agricultural products range from 3.5 percent in Australia to 65 percent in Korea. Net exporting countries like the United States, Australia, New Zealand, and Canada have relatively low average rates, while levels are much higher in developing Asia. City states like Hong Kong and Singapore with no agricultural base have zero or very low tariffs. While the tariff bindings do not by themselves adequately reflect the full tariff protection story, they provide an indication of relative tariff levels. They do not reflect, for example, applied rates that may be well below bindings (e.g. Chile has 26 percent bound rates, but 11 percent rates apply in most cases). Technical barriers to trade are emerging at the center of agriculture trade policy discussions as resolutions and agreements are reached on more traditional trade barriers such as quotas and tariffs. The incidence of these barriers is high in the APEC region. Based on the estimated trade impact, APEC accounted for 63 percent of the technical barriers identified by a preliminary USDA assessment in 1996. Most of the technical barriers in APEC are justified by governments as necessary to protect human and plant health. They include Japanese restrictions on imports of certain apple varieties and South Korean inspection and testing requirements for chemical residues and pests. For more information, contact Sophia Huang (202) 219-0679. END_OF_FILE