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The National Export Initiative and the U.S. rice industry

By Beth A. Park
Manager, International Policy
USA Rice Federation
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In March, President Barack Obama unveiled his National Export Initiative (NEI), detailing the administration’s plan to double exports in the next five years. This initiative is meant to fine-tune the message on trade the president laid out during his State of the Union address in January.

The NEI aims to support two million new jobs through these five steps: creating a new Cabinet-level focus on U.S. exports; expanding export financing; prioritizing government advocacy on behalf of U.S. exporters; providing new resources to U.S. businesses seeking to export; and ensuring a level playing field for U.S. exporters in global markets.

Doubling exports by 2015 may prove challenging, as the rest of the world’s countries also will be looking to bring their economies out of the recession. Most of the administration’s steps for the NEI will take considerable time to implement. However, there are several areas where immediate attention and action could lead to job creation and maintenance, while increasing U.S. exports.

Market access barriers
As a historic net ex-porter, agriculture is one industry that can take the lead. But U.S. agriculture is being held back on several fronts and many market access barriers face U.S.-grown rice, in particular. First and foremost, Congress and the administration need to resolve the U.S. ban on Mexican long-haul trucks entering the United States. Thirteen months ago, Mexico subjected 90 agricultural and manufactured goods to increased import tariffs for violating terms of the North American Free Trade Agreement. So far, this has cost the United States $2.6 billion in lost exports and more than 25,000 lost jobs.

Many of the market access barriers facing U.S. agriculture can only be addressed by negotiating a fair multilateral trade agreement within the World Trade Organization (WTO). Concluding the Doha Round will be paramount to the success of the NEI. Furthermore, three pending free trade agreements (FTAs) are waiting for action by Congress. Two of those FTAs, with Colombia and Panama, offer immediate benefits to the U.S. rice industry. The United States is lagging behind the rest of the world and losing its competitive edge by being a party to only 17 out of 400 existing FTAs.

What does the NEI mean for the U.S. rice industry?
U.S. rice farmers produce less than two percent of the world’s annual rice supply, but the United States is the world’s fourth largest rice exporter. The U.S. rice industry exports close to half of its crop annually. In 2009, the United States exported an estimated 93.6 million hundredweight (2.99 million metric tons) of rice to foreign markets, contributing more than $2 billion to the U.S. economy and providing thousands of American jobs.

The NEI goals are possible to achieve if progress is made in markets where specific constraints prevent a level playing field for U.S. rice. These include historically large markets for U.S. rice, current markets and new markets with great potential.

Normalizing commercial trade with Cuba, for example, would recapture that market for U.S. rice. Prior to the current embargo, Cuba was a 400,000 to 600,000 metric ton (MT) market for long-grain rice producers. Trade resumed in 2002, after Congress passed the Trade Sanctions Reform and Export En-hancement Act of 2000 (TSREEA). But, in 2005, the U.S. Treasury Depart-ment’s reinterpretation of payment provisions of the TSREEA required payment through third-party banks in advance of shipment. This change, plus liquidity constraints in Cuba, led to a decline in U.S. rice exports to Cuba from 177,000 MT in 2004 to less than 13,000 MT in 2008. There was no trade in 2009 and none so far in 2010.

Iraq is a consistently large net importer of rice, with imports accounting for at least 69 percent, on average, of consumption. Import dependency for rice is at its highest level because of reduced domestic production and increased consumption. U.S. political support for expanding exports to Iraq is key to regaining this important market for U.S. rice. When U.S. sanctions were imposed on Iraq in 1990, U.S. sales, which averaged nearly 450,000 MT in the late 1980s, dropped to zero. With minor exceptions, U.S. sales did not resume until 2005 at a reduced level.

Taiwan and the European Union (EU) are current markets for U.S. rice that pose several constraints where enforcement of trade rights has lagged.

Political opposition thwarts EU trade
Trade has not yet returned to normal levels between the EU and the United States since the unapproved genetically engineered (GE) Liberty Link 601 trait was found in the U.S. long-grain supply in 2006. The EU has a zero tolerance for unapproved GE traits. In 2005, the EU imported 306,000 MT of U.S. rice. Imports by 2009 had fallen to 27 percent of that amount.

True market recovery will be nearly impossible to achieve, absent establishment of a low-level presence policy for GE traits that are approved in other countries, but not in the EU. Additionally, the EU’s tariff regime for brown rice, the major type of U.S. rice exported to the EU, is complex and needs to be replaced. Both the EU and the U.S. governments recognize this, but negotiations have not begun, because of political opposition in the EU.

A potential new market for U.S. rice is China. The U.S. Department of Agriculture (USDA) estimates that China imported roughly 330,000 MT from Thailand and Vietnam in 2008-09. A lack of a phytosanitary protocol with China prohibits U.S. rice from entering the country. Once this protocol is negotiated and implemented, U.S. rice exporters can begin market development in this important market.

Status of Free Trade Agreements
Regarding the pending FTAs, the implications for rice are specific to each agreement. Approval of the U.S.-Colombia FTA would set a tariff rate quota (TRQ) of 79,000 MT of U.S. rice in the first year; the quota would grow 4.5 percent annually until free trade is achieved in year 2019.

Similarly, the U.S.-Panama FTA would phase out Panama’s duties on U.S. rice over a 20-year period. Two separate TRQs would be established for rough rice and milled rice. The amount for each TRQ would increase six percent each year.

Access for U.S. rice in the Korean market was excluded in the final moments of negotiations, at the insistence of South Korea. FTAs entered into by the United States should be comprehensive and include all products, including those that are politically sensitive.

Also, continued funding by Congress for USDA’s Market Access Program and the Foreign Market Development Cooperator Program are critical to achieving the president’s export objectives.

The USA Rice Federation uses these cost-share programs to promote U.S. rice in more than 40 countries. Funding for these programs is appropriated annually, and USA Rice supports continued full funding by Congress for these programs.

USA Rice applauds the president’s focus on promoting trade and increasing exports. The United States is a major supplier of the world’s food, meaning the U.S. ag industry will play an important role in creating jobs by doubling exports.

For more about USA rice programs, visit www.usarice.com.

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