It should come as no surprise that U.S. trade officials want a Central America Free Trade Agreement (CAFTA) by Dec. 31. Last January, when negotiations kicked off in San Jose, Costa Rica, U.S. Trade Representative Robert Zoellick told participants he wanted a deal by year's end and has since stuck with the timetable. Since that first meeting, there have been six others, the last in Houston in October. A final round of talks will be held the week of Dec. 8.
It also isn't a surprise that a deal hasn't been easy to come by — trade agreements are notoriously difficult to shape so that all participants are pleased with the outcome. And any agreement with so much on the table — the elimination of tariffs and other barriers to trade in goods, agriculture, services, and investment — is bound to mean some push-and-pull between the United States and ministers from Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua.
What is a bit surprising is that when the CAFTA negotiating process began, few realized the level of intractability the Central Americans would bring to several agriculture commodities, among them U.S. rice.
Watching the talks unfold have been representatives of the USA Rice Federation. At this late hour, the federation still has high hopes their goals will be realized.
“Really, for rice, our position is fairly straightforward,” says Bob Cummings, the federation's vice president of international policy. “We want equal access for all types and forms of U.S. rice exported to the CAFTA partners. We'd like for that access to be available as soon as possible, although — if you look at free trade agreements like NAFTA or the one with Chile — there's generally a phase-out period before tariffs go to zero. For NAFTA, rice had a 10-year phase-out. In the Chilean agreement, it's a 12-year phase-out.”
Reports Cummings and his colleagues have gotten indicate that the Central American governments have identified rice as a “sensitive” commodity. As a result, the Central Americans have shown no flexibility in increasing access beyond that currently enjoyed by U.S. rough rice. That market, about 500,000 tons of rough rice annually, is now the second-largest (behind Mexico) for the United States.
How does that compare with milled rice exports to Central America?
“We're talking about a fraction of (the rough rice figures),” says Cummings. “According to data from January through August of this year, the U.S. exported just under 392,000 tons of rough rice. Our brown and milled rice during that same period was just under 47,000 tons.”
The term “sensitive commodity” is not a legal one. In trade jargon, it indicates a commodity that “in this case, countries would like to exclude from negotiation,” says Cummings. “The U.S. government has made it very clear that all commodities must be on the table for negotiations in an FTA (free trade agreement).
“The Central Americans have identified several ag commodities — one of them rice — where they say, ‘Whoops, sorry. Too sensitive — we can't give you more liberalization. We don't want to talk about it. We have domestic and political concerns that prevent us from moving forward.’”
One reason for the disparity between exports of U.S. rough and milled rice is that every country in Central America has “very significant” trade barriers to milled rice, says Cummings. “Either they have an extremely high tariff on milled or they make use of import licensing as a condition of entry. And it just happens that it's very difficult to get a milled rice license as opposed to one for rough rice. We believe that's clearly an effort to protect the millers in Central America.”
The federation's argument is that if this is a free trade agreement, then U.S. millers need to see a substantial increase in access to the Central American market.
To be a bit more specific, “we're calling for the ability to have milled and rough rice traded on equal terms in this agreement. What happens after that is up to the market. The market will demand rough rice or milled rice. We just want to make sure that those who demand milled rice are given equal treatment to those who want rough rice.”
If proposed changes are implemented what will it mean to the rough rice market? “That's a very good, legitimate question,” says Cummings. “The market will decide.”
Cummings points to Mexico. In January 2003, under NAFTA, duties finally went to zero on all forms of rice. On paper, he says, U.S. rice — both rough and milled — is trading freely into Mexico.
There is, of course, an anti-dumping order on U.S. milled rice going into Mexico. But Cummings believes even before the anti-dumping duty was placed, “that market was overwhelmingly a rough rice market. To date, there hasn't been a fundamental shift in that market from rough to milled. It still remains a U.S. market and within that a rough market. Now, you can't just take the Mexico model and copy it onto Central America. But at least in the other close region that we have experience with, we haven't seen a shift in the market.
“I think what's more to the point is I would find it very hard to envision a scenario where the U.S. would lose out as pre-eminent rice supplier to Central America. We simply have the logistics and proximity in our favor.”
If the changes are made, some argue the Central Americans will be more open to Asian rice at the expense of U.S. rough rice. Cummings says the logic of that argument is difficult to understand.
“I find it hard to make that connection. People are making that argument, but I just don't see where the economics tie in… CAFTA is an agreement between the U.S. and Central American countries. Any changes in tariff treatment will affect only those in the grouping. This isn't a WTO agreement where everyone's duties change.”
Cummings also rejects any implication that there is a farmer/miller conflict in the federation's position in this instance.
“We're looking at a free trade agreement. Our primary goal is to expand access for U.S. rice,” he says. “I don't think this is a producer or a miller argument. The producers who are members of the federation (who produce 80 percent of the rough rice in the United States) and the member millers have a joint position. We want duty free access for rice in all its forms.”
This isn't a zero sum game for the United States, says Cummings, who insists, “We will remain competitive in the Central American market for rice. Whether the rice leaves the United States as rough rice or as milled rice — with the value added in here instead of Central America — it will still be a positive for U.S. rice. However it goes down, it's still U.S. product. I don't see the wholesale disruption of the Central American rice market because there is a more level playing field for milled rice.”
Whenever discussing free trade agreements, “it always comes down to a group of issues that are sensitive to one side or the other,” says Cummings. “This CAFTA agreement is a priority of the (Bush) administration and I don't know where it's going to go. We're simply out there pushing for the best interests of the rice industry… It's a fluid situation right now. The one message we want to leave with folks is that this is a free trade agreement. It's important that there are no exclusions in this agreement and that all types of rice be on the table for negotiations.”