Australia - United States Free Trade

Australia-United States Free Trade Agreement - Guide to the Agreement

3. Agriculture

1.    Purpose and structure

Market access for agriculture is covered by the following Chapters, Schedules and Annexes of the Agreement:

The Agreement provides for increased market access for most Australian agricultural products and the elimination of tariffs over time on almost all United States agricultural tariff lines.   In addition, the Agreement provides for increased upfront duty free quotas on a range of products.   Some safeguards will apply to beef and some agricultural products, as detailed below.

2.    Tariff elimination

2.1   United States agricultural tariffs

Every United States agricultural tariff line at the 8-digit tariff code level is assigned a staging category.   This staging category establishes the rate at which the relevant tariffs will be eliminated under the Agreement.   The staging categories for each tariff line are identified in the Tariff Schedule of the United States.

Five main staging categories are established for the elimination of United States tariffs on Australian agricultural goods.   The staging categories - most of which are defined in Annex 2-B of the Agreement - are as follows:

Confirmation of pre-existing zero tarif E
Immediate tariff elimination A
Elimination of tariffs in equal annual instalments over 4 years B
Elimination of tariffs in equal annual instalments over 10 years D
Elimination of tariffs in equal annual instalments over 18 years F

In addition to these five main staging categories, there are a number of additional staging categories applying to a small range of goods.   These are identified in the General Notes section of the Tariff Schedule of the United States and apply to products such as beef and avocadoes.   The tariff elimination schedules for wine are identified in Paragraph 28 of Annex I to the Tariff Schedule of the United States.

The Agreement provides for the elimination over time of all United States agricultural tariffs, with two exceptions.   In relation to dairy products subject to tariff rate quota, the Agreement does not provide for any change to the over-quota tariffs for these goods.   The Agreement does, however, provide for a significant increase in the volumes of duty free quota access for these products and for the elimination of existing in-quota tariffs - see the dairy section below - as well as for the elimination over time of all tariffs on non-quota dairy products).   In addition to dairy products, the Agreement does not provide for any change to any tariffs on sugar or sugar-products.

2.2   Australian agricultural tariffs

All Australian agricultural tariffs will be eliminated immediately the Agreement enters into force.   Most of these tariffs are already zero.   The remainder are currently applied at four or five percent (except for a small number of dairy tariffs, which are $1.22/kg).   These tariffs are identified in the Tariff Schedule of Australia.

3.    Tariff rate quotas

In addition to the elimination of United States agricultural tariffs detailed above, the Agreement also provides for increased duty free access for certain Australian agricultural goods in the form of a tariff rate quota.   This allows Australian producers to export increasing amounts of these products free of duty to the United States during the tariff elimination period.   In the case of dairy products subject to tariff rate quotas, the new (and growing) quota volumes provide the only additional access for these products into the United States market, in the absence of tariff reductions for these products.

Tariff rate quotas apply to the following products:

The additional tariff rate quota access provided for each of these products is set out in Annex I to the Tariff Schedule of the United States.

The new duty free tariff rate quotas for beef and dairy established under the Agreement will be administered from Australia.   The Australian Government will issue export certificates to Australian producers for the total volume of the tariff rate quotas.   These export certificates will be recognised by the United States Customs Service and enable those products to enter the United States duty free.   The Australian Government will develop procedures for the allocation of export certificates in consultation with Australian industry.

3.1   Beef

Australia currently has access to a tariff rate quota under the WTO agreements for 378,214 tonnes of beef.   The tariff paid on that quantity of beef is US4.4c/kg, compared to a 26.4% tariff on beef exports to the United States in excess of 378,214 tonnes.   Paragraph 2 of Annex I to the Tariff Schedule of the United States provides that the US4.4c/kg in-quota beef tariff will be eliminated immediately once the Agreement enters into force.

Under Paragraph 3 of Annex I, Australia will receive additional duty free access for an increasing volume of beef in subsequent years of the Agreement.   The additional quota volumes will grow from 20,000 tonnes in year 3 of the Agreement (at the latest) to 70,000 tonnes in year 18 of the Agreement.   Meanwhile, from years 9-18 the 26.4% tariff on over-quota exports will be reduced to zero.   Beginning in year 18, Australia will be free to export an unlimited amount of beef to the United States, subject to a beef safeguard (see below).

Table: Beef access arrangements under the United States FTA

Year

Additional duty free FTA quota volumes (tonnes)

Total duty free quota volumes WTO + FTA (tonnes)

In-quota tariff

Over-quota tariff

1

Zero

378,214

Zero

26.40%

2

15,000*

393,214

Zero

26.40%

3

20,000

398,214

Zero

26.40%

4

20,000

398,214

Zero

26.40%

5

25,000

403,214

Zero

26.40%

6

25,000

403,214

Zero

26.40%

7

30,000

408,214

Zero

26.40%

8

30,000

408,214

Zero

26.40%

9

35,000

413,214

Zero

24.64%

10

35,000

413,214

Zero

22.88%

11

40,000

418,214

Zero

21.12%

12

40,000

418,214

Zero

19.36%

13

45,000

423,214

Zero

17.60%

14

45,000

423,214

Zero

14.08%

15

50,000

428,214

Zero

10.56%

16

55,000

433,214

Zero

7.04%

17

60,000

438,214

Zero

3.52%

18

70,000

448,214

Zero

Zero

19 and beyond

Unlimited

Unlimited

Zero

Zero

*the 15,000 tonnes in year 2 will only be granted if United States beef exports return to their pre-BSE (2003) levels.   Additional quota volumes in years 3 and beyond are guaranteed, regardless of United States exports.

The current 378,214 tonne WTO tariff rate quota for beef may be used for all types of beef, including high quality beef and manufacturing beef.   The additional quota volumes obtained under the FTA apply to a more limited range of beef (see Tariff Schedule of the United States, Annex I, sub-paragraph 3(c)).   The additional 20,000 tonnes in year 3, for example, may be used to ship all types of Australian beef with two exceptions - carcasses and half-carcasses of beef, and processed beef made ready for particular uses by the retail consumer (eg fancy cuts).

The tariff reductions on the 26.4% tariff apply to all types of beef.

Beef safeguards

Two types of beef safeguard will apply at different times under the Agreement.

First, during the 18-year tariff elimination period, a safeguard applies to exports of beef which exceed 110% of the total preferential quota volume in that year.   The details of this safeguard are set out in Section B of Annex 3-A.  

For example, in year 15 the preferential quota amount is 50,000 tonnes - so the safeguard would only apply to over-quota exports in excess of 5,000 tonnes.   In other words, in year 15 the safeguard would only apply to exports exceeding the total of the 378,214 tonne WTO quota, plus the 50,000 tonne FTA quota for that year, plus an additional 5,000 tonnes (that is, a total of 433,214 tonnes).

If the 10% trigger is exceeded, any additional over-quota exports would have to pay a tariff equal to the FTA preferential tariff (10.56% in year 15) plus 75% of the difference between the original tariff and the FTA preferential tariff (i.e. 75% of 26.4%-10.56% = 11.88%).   The tariff applied to those exports in excess of 433,214 tonnes in year 15 would therefore be 22.44% (still lower than the current 26.4% tariff).

Second, a price-based beef safeguard applies to beef exports starting in year 19 of the Agreement (that is, once the quotas and tariffs on beef have been eliminated).   This safeguard is set out in Section C of Annex 3-A.  

The price-based safeguard only applies to beef exports in excess of 448,634 tonnes in year 19 (the existing 378,214 tonne quota plus the additional 70,000 tonne quota in year 18 plus 420 tonnes).   That amount will grow by an additional 420 tonnes in year 20 and every year thereafter.   In other words, this amount of beef will always receive duty free access into the United States and cannot be subject to the price-based beef safeguard.

For most of the year, the price-based beef safeguard will be triggered if the price of beef in the United States falls 6.5% below the average of the past two years in two months of a quarter.   A one month trigger applies to the final quarter of the year.   If the safeguard is triggered, beef exports to the United States in excess of the minimum quota amount (448,214 tonnes) will be subject to a tariff equal to 65% of the prevailing tariff on beef (based on the current tariff, the safeguard tariff would be 17.2% - still lower than the current 26.4% tariff).   Once the safeguard is triggered, it will remain in place for three months or until the end of the calendar year, whichever period is shortest.

3.2   Dairy

The Agreement provides for a significant increase in duty free access into the United States market for Australian dairy products imported with tariff rate quotas.   In addition, the in-quota tariffs in existing dairy quotas will be reduced to zero immediately once the Agreement enters into force.   However, over quota tariffs on dairy products subject to quota will not change under the Agreement (except for goya cheese).

The dairy products subject to tariff rate quotas are divided into a number of product categories.   The exact products contained in each category are set out in Annex I to the Tariff Schedule of the United States.   For each product category, an initial quota amount is allocated for year 1 of the Agreement.   In subsequent years, that amount grows by an additional percentage every year.   The access arrangements for dairy are set out in the table below.

Table: Dairy access arrangements under the United States FTA

Product

Existing WTO quota

(tonnes)

Additional FTA quota (year 1) (tonnes)

Growth of additional FTA quota (after year 1)

In-quota tariff

Over-quota tariff

Milk/cream/ice cream (litres)

0

7.5 million

6%

Zero

No change

Condensed milk

92

3,000

6%

Zero

No change

Butter/butterfat

0

1,500

3%

Zero

No change

Skim milk powder

600

100

3%

Zero

No change

Other milk powder (including whole milk powder)

57

4,000

4%

Zero

No change

Other dairy

3,016

1,500

6%

Zero

No change

Cheddar cheese

2,450

750

3%

Zero

No change

American-type cheese

1,000

500

3%

Zero

No change

Swiss cheese

500

500

5%

Zero

No change

European-type cheese

0

2,000

5%

Zero

No change

NSPF (other) cheese

3,050

3,500

5%

Zero

No change

Goya

0

2,500

5%

Zero

Eliminated after 18 years

The increased trade in dairy products covered by tariff rate quotas is in addition to the trade Australia already has with the United States in non-quota dairy products.   As noted earlier, the tariffs on all non-quota dairy products will be eliminated over time under the Agreement, most in equal annual instalments over 18 years.

In addition, under Article 3.6 of the Agreement, after year 20 of the Agreement either Party may request consultations with the other party to review the market access arrangements for dairy.   This will give Australia the opportunity to seek a reduction in over-quota tariffs for dairy products subject to tariff rate quota (as noted earlier, these tariffs are not being reduced as part of the current Agreement).

3.3   Tobacco, cotton and peanuts

New duty free tariff rate quotas will be established for tobacco and cotton, beginning at 250 tonnes in year 1 and growing by an additional three percent in subsequent years (see Paragraphs 23 and 24 of Annex I to the Tariff Schedule of the United States).   At the same time, the over-quota tariffs on these products will be eliminated over a period of 18 years.

A new duty free tariff rate quota for peanuts and peanut products will be established in a similar manner, the only difference being that the quota volume in year 1 is 500 tonnes (rather than 250 tonnes for tobacco and cotton).

3.4   Avocadoes

Two new seasonal duty free tariff rate quotas will be established for Australian avocadoes into the United States.   Beginning in year 2 of the Agreement, from February 1 to September 15 an amount of 1,500 tonnes of Australian avocadoes may enter the United States market duty free.   Between September 16 and January 31 an amount of 2,500 tonnes of Australian avocadoes may enter the United States market duty free.   Together, this means Australia has new access for 4,000 tonnes of avocadoes per year.   Both amounts will grow by an additional ten percent every year until year 18 of the Agreement.   At the same time, the over-quota tariff on avocadoes will be eliminated over a period of 18 years.

4.    Agricultural safeguard measures

(Article 3.4 and Annex 3-A)

Three types of agricultural safeguard measures may apply to Australian exports to the United States - a horticulture price-based safeguard (Section A, Annex 3-A), a quantity-based beef safeguard (Section B, Annex 3-A) and a price-based beef safeguard (Section C, Annex 3-A).   The beef safeguards are described above under the section on tariff rate quotas.

4.1   Horticulture price-based safeguard

The horticulture price-based safeguard applies to a limited range of horticultural products.   The list of those products is contained in Section A of Annex 3-A.   The list of safeguard products also sets out a trigger price for the safeguard.   That trigger price has been calculated by taking the average of the lowest two years from the previous five years.   The trigger price is based on the Customs Import Value of the good (defined in the World Trade Atlas from where the figures were taken), which is similar to a $US Free On Board (FOB) price.

The horticulture price-based safeguard will apply if the FOB import price of the Australian good is lower than the trigger price.   If the safeguard triggers, an additional duty will apply to those goods, depending on the amount by which the FOB import price of the horticultural good falls below the trigger price (this is set out in detail in Section A of Annex 3-A.

The horticulture price-based safeguard applies on a shipment-by-shipment basis.   If goods in one shipment trigger the safeguard, the additional safeguard duty will apply.   If a second shipment arrives the following day with an import price which does not trigger the safeguard, no additional duty will apply.

The horticulture price-based safeguard only applies during the 18-year tariff elimination period.   After that time, the relevant horticultural products will be duty free and safeguard free.

5.    Other provisions of the agriculture Chapter

5.1   Multilateral cooperation (Article 3.1)

Australia and the United States have committed to working together in the World Trade Organisation (WTO) agriculture negotiations on the full range of issues regarding the reform of member country policies and programs that negatively impact on market access and distort international markets for agricultural products.   This will include cooperating with the United States on proposals to phase out all forms of agricultural export subsidies, substantially reduce distorting domestic support and increase market access for agricultural exporters.   The two parties will also consult in other multilateral fora (for example, OECD, FAO, IPPC, OIE, Codex etc) on issues relevant to agriculture.

Under Article 3.1, Australia and the US have also agreed to work together in the WTO to develop disciplines that eliminate restrictions on any individual's or corporation's right to export.   The effect of the provision is that Australia has indicated it would be willing to consider additional disciplines on Australia's state trading enterprises in the context of an outcome in the Doha round that included substantial reductions in export and domestic subsidies and substantial increases in market access.   This is consistent with Australia's overall position in the WTO negotiations.

5.2   Committee on Agriculture (Article 3.2)

A Committee on Agriculture will be established under the Agreement.   This Committee will meet annually and provide a formal opportunity for Australia and the United States to discuss a wide range of agricultural issues relevant to the Agreement, including trade promotion activities; barriers to trade; and consultation on the range of export competition issues (including export credits, domestic support, inappropriate surplus food disposal and all export subsidies).   The Committee on Agriculture will report to the Joint Committee that has oversight of the whole Agreement.

5.3   Export subsidies (Article 3.3)

The United States and Australia have agreed not to use export subsidies on agricultural goods traded into each other's market.   Australia does not use export subsidies, while the United States is only permitted under the WTO to employ export subsidies on a limited range of agricultural goods.   The United States currently uses export subsidies on a small range of dairy products into markets other than Australia.  

Should either the United States or Australia consider that another country is exporting an agricultural good that benefits from export subsidies into either country's market, the two countries will consult on measures to remedy the effect of such subsidised exports.   In the event that the agreed measures are not implemented, the agreement to not use export subsidies into each other's market for that particular good would no longer apply.  

5.4   Side-letter on BSE (Bovine Spongiform Encephalopathy - mad cow disease)

In a side-letter on BSE, the United States and Australia agree to cooperate in international standard setting bodies. This is intended to cover any international standards or guidelines that might be developed by OIE (the World Animal Health Organisation) and Codex Alimentarius (a joint body of the WHO/FAO, which develops international standards in food). Both of these organisations are recognised by the WTO as international standard setting bodies. Australia and the United States already cooperate in these forums on BSE matters.

March 6, 2004

Australia - US Free Trade Agreement home page