How The World’s Largest Trade Agreement Could Impact U.S. Dairy
November 23, 2020
The recent signing of the largest free trade agreement was notable for the fact that it excludes the United States and the European Union. Fifteen Asia-Pacific nations have signed the Regional Comprehensive Economic Partnership (RCEP), which extends bilateral and multi-country agreements already in place. “That leaves the United States and Europe to negotiate their own agreements with these countries,” says Betty Berning, analyst with the Daily Dairy Report.
Signatories to the agreement are both dairy exporters, such as New Zealand and Australia, as well as key import markets, such as China, Japan, South Korea, Malaysia, Singapore, the Philippines, Vietnam, Cambodia, Thailand, Indonesia, Brunei, Myanmar, and Laos. The 15 countries in the RCEP are home to 30% of the world’s population and have an estimated combined gross domestic product (GDP) of $26 trillion.
The economies in the RCEP region are expected to grow rapidly. “As income levels increase in this part of the world, opportunities exist for the world’s major agricultural exporters to serve these countries,” Berning says. “But without favorable trade terms, the U.S. dairy industry could miss out on these markets.”
The newly signed agreement simplifies supply chains and customs processes, according to Berning. “It also creates a common rule-of-origin certificate that will make it easier for member countries to trade with one another,” she notes. “However, while RCEP will eliminate an estimated 92% of tariffs in the region, it is important to note that before RCEP, many of the member countries already had agreements with one another, and these agreements were thus already factored into tariff rates on a number of dairy items.”
While the European Union has agreements with some RCEP countries, the United States has been falling behind in terms of trade negotiations, Berning notes. For example, in 2017, the United States pulled out of the Trans-Pacific Partnership, a proposed agreement that also included several RCEP countries. After the United States pulled out of that agreement, the remaining countries negotiated a new trade agreement, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.
“For U.S. dairy, the effects of the RCEP agreement are still being determined. While the United States has a fair-trade agreement with South Korea, it does not have one with other countries in Southeast Asia, and the implementation of RCEP could cause U.S. exports to the region to falter, as New Zealand and Australia fill demand in these markets,” Berning says. “On the other hand, Japan, a key market for the United States, already has a free trade agreement with Australia and New Zealand that contains tariffs on certain ag commodities, including dairy.” Because Japan’s dairy tariffs will be maintained under RCEP, Berning notes that not much will change. “U.S. exports to Japan are likely to be just as competitive as they were before RCEP,” she adds.
Last year, the U.S. dairy industry exported 15% of its dairy production. “If the U.S. dairy industry wants to expand milk production significantly beyond that, it will have to grow exports,” Berning says. “By moving more slowly than its competitors on trade negotiations, the United States is eroding its advantage in the global marketplace.”