U.S. exports of processed foods and beverages have become an increasingly important component of U.S. agricultural exports, but tariffs and a number of non-tariff measures represent significant trade barriers for these products, reports the U.S. International Trade Commission in its publication Processed Foods and Beverages: A Description of Tariff and Non-tariff Barriers for Major Products and Their Impact on Trade.

The ITC, an independent, nonpartisan, factfinding federal agency, recently completed the report for the U.S. House of Representatives' Committee on Ways and Means. The report describes the tariff and non-tariff barriers affecting trade in processed foods and beverages in major and potential markets, including complex tariffs, tariff-rate quotas, regional trade agreements, licensing arrangements, certification and registration requirements, and variable levies; evaluates the prevalence of tariff escalation for processed food and beverage products; and analyzes the impact of tariff and non-tariff barriers on trade and investment in the processed food and beverage sectors.

The report analyzes the trade barriers in the following twelve sectors: dairy products; sugars and sugar-containing products; vegetable oils; meats; eggs and egg products; flours and other intermediate goods; grain-based foods; fruits and vegetables; edible nuts and nut products; alcoholic beverages; pet food; and other miscellaneous food and beverage products. Report highlights follow.

• U.S. exports of processed foods and beverages have become an increasingly important component of U.S. agricultural exports. The proportion of U.S. exports of processed foods and beverages defined in this study to total U.S. agricultural exports has risen from 31 percent in 1996 to 38 percent in 2000. U.S. exports of the processed food and beverage products defined in the study were valued at $21.5 billion in 2000, an increase of 6 percent since 1996. However, since 1997, the value of these U.S. exports has been relatively stagnant. The United States accounted for 16 percent of global exports of processed foods and beverages in 1999, second behind the 26 percent share of the EU.

• Tariffs are a significant trade barrier for processed food and beverage products. The effect of tariffs varies by sector and the type of product exported, but can reduce the price competitiveness of U.S. exports in foreign markets or keep products out of a foreign market altogether. Variable tariffs, stemming, for instance, from price bands, complicate the orderly planning of U.S. exports to foreign markets. Small quotas, prohibitive over- quota rates, and administrative barriers associated with tariff-rate quotas are also major impediments to U.S. exports of dairy products, meat, sugars and sugar-containing products, fruits and vegetables, and certain grain-based products.

• High tariffs are often maintained on processed foods and beverages to keep value-added production and employment in a market, while low tariffs are kept on raw agricultural products ("tariff escalation"). No clear patterns could be drawn on the prevalence of tariff escalation, although it does exist on certain products in some markets. The presence of tariff de-escalation (i.e., when tariffs on inputs are higher than tariffs on finished products) can also negatively affect processed foods and beverages by increasing the cost of raw inputs, sometimes resulting in the offshore production of processed foods and beverages.

• Regional and preferential trade agreements potentially disadvantage U.S. exports of processed foods and beverages to third markets. There have been reported instances of U.S. exports diverted away from third-country markets as a result of these agreements.

• In many cases, non-tariff measures and concerns are more important than tariffs. Major issues cited by the industry that are common to most processed food and beverage products include export certification and registration, labeling, food standards, intellectual property rights, and Customs procedures. Other non-tariff issues, such as sanitary and phytosanitary (SPS) restrictions, export subsidies, domestic assistance, and state trading enterprises, are generally sector-specific.

• The impact of trade barriers on foreign investment decisions is mixed. In general, decisions to invest in a foreign market are related to conditions in the foreign market and a desire to reduce costs by producing locally. However, trade barriers can expedite such business decisions.

Processed Foods and Beverages: A Description of Tariff and Non-tariff Barriers for Major Products and Their Impact on Trade (Inv. No. 332-421, USITC Publication 3455, October 2001) will be available on the ITC's Internet server at www.usitc.gov. A printed copy may be requested by calling 202-205-1809, or by writing the Office of the Secretary, U.S. International Trade Commission, 500 E Street SW, Washington, DC 20436. Requests may be faxed to 202-205-2104.

ITC general factfinding investigations, such as this one, cover matters related to tariffs or trade and are generally conducted at the request of the U.S. Trade Representative, the Senate Committee on Finance, or the House Committee on Ways and Means. The resulting reports convey the Commission's objective findings and independent analyses on the subjects investigated. The Commission makes no recommendations on policy or other matters in its general factfinding reports. Upon completion of each investigation, the ITC submits its findings and analyses to the requester. General factfinding investigation reports are subsequently released to the public unless they are classified by the requester for national security reasons.