Lamb Import Relief Proposal
Facing Free-Trade Pressures

By Jose G. Peña
Extension Economist

The U.S. International Trade Commission conducted hearings recently to address a petition filed by the U.S. sheep industry, under section 201 of the U.S. Trade Act of 1974.

The U.S. Sheep industry is asking for the imposition of a four-year tariff-rate quota program on imported lambs calculated at two levels — "below quota" and "above quota." The "below quota" calls for a 30 percent tariff on imported lamb up to and including 40 million pounds, while the "above quota" calls for a 50 percent tariff assessment on imports in excess of 40 million pounds.

For example, under the below-quota provision, if the value of imported lambs is 70 cents per pound at the time of importation, the lambs would be assessed a 21-cent per pound tariff, bringing their cost to 91 cents per pound (70 cents plus 30 percent of the value). Since their import value is derived from the market, the addition of the tariff would make U.S.-produced lambs substantially more economically attractive to U.S. consumers. The U.S. Trade Act of 1974 allows temporary action to be taken to protect American industry from harm due to imports.

Opponents of the petition, namely Australia and New Zealand meat industry representatives, asked the ITC to forgo tariffs and instead provide the U.S. sheep industry with "trade adjustment assistance" — a term that led to many unanswered questions when the ITC asked for specifics.

If approved, collected tariffs would go into the U.S. Treasury. Since this petition is not under the anti-dumping provision of the international trade code, the petition must eventually be authorized by the Executive branch of the U.S. government. The hearings were conducted to help the six-member U.S. International Trade Commission reach a decision as to what type of relief should be granted. The six-member commission will vote on the matter March 29th. Their recommendation must be forwarded to the White House before April 5. President Clinton then has 60 days to approve, deny or modify the ITC's recommendation.

Sheep Industry Recession

The U.S. sheep industry has been in a severe recession for the last few years. The termination of wool incentive payments in 1995 and a stale wool market as a result of world over-production form part of the problem. The sheep industry had hoped to partially recover from their financial crisis when prices for U.S. lambs were showing signs of recovery in 1997.

According to the American Sheep Industry Association, the petition was filed at the request of industry leaders and with the unanimous support of ASI's 11-member elected executive board. They contend that during the 1998 Easter/Passover season, U.S. slaughter lamb prices were at a four-year low, 60 cents per pound. Between 1993 and 1998, imports rocketed from 15 percent to 30 percent of all lamb consumption in the U.S.

American industry leaders believe even more lamb producers and packers will go out of business if something isn't done to stem the rising tide of imported lamb flooding the U.S. marketplace. Approval of the petition should buy the U.S. Lamb industry time to complete a number of national efforts to make it more competitive.

The U.S. sheep industry claims it needs the relief period to become more efficient and competitive. According to a recent sheep industry news release, several efforts to improve efficiency and competitiveness are underway. The National Sheep Industry Improvement Center, a $50 million revolving loan program authorized in the 1996 Farm Bill, is available to help strengthen the industry's infrastructure through capital improvements and new ventures. The Sheep Industry Transition Team continues to work to build a new, industry-wide organization and Business Development Council. The National Scrapie Control and Eradication Program, designed to maintain U.S. international competitiveness, is expected to be implemented in 1999.

It appears that more emphasis will be placed on lamb production, marketing and carcass standardization procedures in order to improve marketing and competitiveness of U.S. lamb meat.

Petition Approval

The petition will be carefully reviewed and possibly modified. Although the U.S. sheep industry recommended a "tariff-rate quota," the ITC commissioners asked both sides to do an analysis on what a straight tariff or straight quota would do, their impact at different levels, and the levels at which they should be set.

The U.S. does not currently ship significant amounts of agricultural products to Australia and New Zealand, but it does ship manufactured goods. Considerations will be given to trade retaliation by these countries if tariffs are imposed.

With the current spirit of free world trade and since the U.S. is so export-dependent, it appears that the petition has a 50-50 chance of approval. In late February 1999, for example, the cotton program allowed USDA to approve the first week's quota (one week's domestic use) to import close to 200,000 bales of cotton, starting this summer, without the imposition of the over-quota tariff-rate provision of a tariff-rate quota.

The action is being carried out even though a 3.4 million bale U.S. carryover stock level is projected by the end of the current, 1998/99 production year. The import quota is authorized as mandated by the Agriculture Improvement and Reform Act of 1996, which requires that a special import quota be determined and announced immediately if, for any consecutive 10-week period, the U.S. Northern Europe price, adjusted for the value of any cotton user marketing certificates issued, exceeds the Northern Europe price by more than three cents per pound. This condition was met during the consecutive 10-week period ending February 25. In other words, world cotton is much cheaper than U.S. cotton. The freedom to farm concept under Farm Bill '96 encourages free world trade.

The import tariff petition by the U.S. sheep industry will be reviewed under this new free world trade spirit, which may make it more difficult to get meaningful relief for the domestic lamb industry.