|Free Trade Area of the Americas - FTAA|
COMMITTEE OF GOVERNMENT REPRESENTATIVES ON THE PARTICIPATION OF
CONTRIBUTION IN RESPONSE TO THE OPEN AND ONGOING INVITATION
NOTE: This Civil Society Contribution has been previously classified by error as FTAA.soc/civ/94 dated June 6, 2003. The correct classification is FTAA.soc/civ/95
STATEMENT ON BEHALF OF
NATIONAL JUICE PRODUCTS ASSOCIATION
The National Juice Products Association (“NJPA”) submits this statement to the Committee of Government Representatives on the Participation of Civil Society (“Civil Society Committee”) in response to the request for public comments regarding negotiation of a Free Trade Area of the Americas (“FTAA”). 67 Fed. Reg. 79,231 (2002). NJPA opposes any reduction in the duties on U.S. imports of orange, grapefruit, lemon and grape juice (collectively, “the subject juices”). NJPA is a trade association whose international membership consists of major packers and distributors of a wide variety of fruit and vegetable juices, juice beverages and drinks located throughout the United States and abroad. The Association represents a significant majority of the juice and juice beverage processors in the United States.
In opposing any reduction in the tariffs on the subject juice products, NJPA speaks as an association representing the largest wholesale and retail processors of citrus juice in the United States. Many of NJPA’s processor members, however, are also fruit growers (or maintain close relationships with growers) as well as importers of foreign-origin juice, given that much of the retail frozen concentrated juice and reconstituted juice packed in the United States is a blend of U.S. and imported juice. Accordingly, both foreign and domestic supplies of bulk frozen manufacturing concentrate are critical to the processing industry’s competitive health. The Association believes that the current competitive balance between imports and domestic-origin juice should be preserved by maintaining the present duty regime.
I. THE PRODUCT
Imports of the subject juices enter the United States under HTSUS heading 2009. More specifically, such imports are classified as follows: orange juice under HTSUS subheadings 2009.11.0020, 2009.11.0040, 2009.11.0060, 2009.12.2500, 2009.12.4500 and 2009.19.000; grapefruit juice under HTSUS subheadings 2009.21.2000, 2009.21.4020, 2009.21.4040, 2009.29.0020 and 2009.29.0040; lemon juice under HTSUS subheadings 2009.31.6020, 2009.31.6040, 2009.39.6020 and 2009.39.6040; and grape juice under HTSUS subheadings 2009.61.0020, 2009.61.0040, 2009.61.0060, 2009.69.0040 and 2009.69.0060.
Although NJPA opposes tariff reductions for any of the subject juices, this submission highlights the experience of the orange, lemon and grape juice sectors because they are in many ways characteristic of the other juice products.
Although orange juice has been consumed all over the world for centuries, the processing of orange juice in high volume and on a year-round basis was the creation of U.S. citrus growers, who developed the technique for processing frozen concentrated orange juice in the 1940s. This technological breakthrough put orange groves all over the state of Florida (and parts of Texas, Arizona, and California) and orange juice on virtually every American’s table.
Yet, despite this success, the U.S. orange juice industry remains a uniquely fragile segment of the U.S. agricultural sector. It is exceptionally limited geographically and extremely susceptible to the vagaries of the weather. When orange trees are exposed to frost, oranges still on the tree may be damaged or destroyed; blossoms may be damaged, thereby reducing next year’s crops; or the trees themselves may be killed. If the latter occurs, trees must be re-planted and will not bear fruit for four or five years and will only reach peak production seven years after that. Orange growers are regularly faced with the prospect of having to make such large investments after only a few days of frost.
With regard to foreign competition, Brazil is the world’s largest producer of oranges and the largest foreign supplier of frozen manufacturing concentrate to the U.S. market.
Lemon production in the United States is centered in California and Arizona. The U.S. lemon crop remained fairly constant during the five years between the 1992-93 and 1996-97 growing seasons, increasing by only eight percent from 855,000 tons of lemons picked to 921,000 tons. In sharp contrast, lemon growers in Argentina increased their production dramatically, with the volume of their picked lemons climbing by more than 25 percent from 590,000 tons to 750,000 tons during the same period. In fact, Argentina’s production is projected to increase to more than 1.25 million tons by 2003.
Argentina is currently the world’s largest producer of lemons. Because its lemon crop has recently been plagued by pests and disease, its export markets for fresh lemons have greatly diminished. To recoup their investment, Argentine lemon growers have successfully diverted their produce into processed juice products that are not subject to the restrictions on its fresh produce. As a result, exports of Argentine frozen lemon juice to the United States have soared in recent years. Although U.S. imports of frozen lemon juice from Argentina were approximately 33 million liters in both 1998 and 1999, such imports surged to 64 million liters in 2000. After dipping slightly in 2001, they climbed back to 59 million liters by 2002. Argentina has thereby become the dominant foreign supplier of frozen lemon juice to the United States, providing more than 65 percent of total imports for each of the past five years and attaining an 89 and 88 percent import share in 2001 and 2002. Argentina clearly needs no additional assistance from lower duty rates to compete in the U.S. market.
The United States is among the world’s top grape-producing countries. Although most of the grapes subject to processing are destined for wine consumption, grape juice and concentrate have become important markets for U.S. growers and processors. Grape juice is not only an end product in its own right, but grape concentrate is often used as a natural sweetener for various foods. Grape concentrate also fortifies wines and is added to the production of brandy and other alcoholic beverages.
In fact, this alternative outlet for the nation’s grape harvest has proven to be a substantial benefit to domestic growers. With lagging wine sales, growers have been able to make productive use of their excess grape crop by transforming it into juice and concentrate. These products, however, are even more price-sensitive than their wine “cousins” since quality is a less significant factor in this commodity-type market. With price the key determinant, any governmental action that encourages competition from low-priced sources poses a substantial threat, especially since grape juice and concentrate producers must also compete with other sweeteners, such as sugar and apple juice.
The U.S. grape industry is also facing extraordinary competitive pressure from foreign producers. Argentina, for example, has successfully encouraged its grape industry to focus on concentrate. For the 1995 harvest, two provincial Argentine governments required their growers to devote 30 percent of their crop to concentrate production.1 Although the percentage of the harvest set aside for these purposes decreased to 10 percent by 1997, such commitments proved unnecessary as grape growers voluntarily devoted substantial portions of their harvest to this alternative use. Thus, in 1997, almost 30 percent of the country’s grape production was processed into concentrate.
As a result, Argentina has become the dominant foreign supplier of grape juice and concentrate to the United States. In terms of quantity, Argentina provided 70 percent or more of total imports for four out of the past five years and attained a 76 percent total import share during 2002. Although its exports to the U.S. market declined between 1997 and 1998, Argentina is clearly intent on re-capturing its prior sales volume. Imports from this South American country almost doubled between 1998 and 1999, surging from 65 million to 127 million liters. After dipping slightly in 2000 and holding steady in 2001, imports of Argentine grape juice and concentrate rose sharply to 163 million liters in 2002 - well above its imports for each of the past four years.
Significantly, the other major foreign suppliers of grape juice and concentrate to the United States - namely, Chile and Brazil - also stand to benefit from reduced duties. Indeed, Chile’s track record has demonstrated its interest in increasing its U.S. sales. In the past five years, Chile’s exports to the United States have surged from a low of 7 million liters in 1998 to a high of 28 million liters in 2002.
III. FURTHER TARIFF CUTS WOULD DEVASTATE THE VULNERABLE FRUIT JUICE INDUSTRY.
Because the U.S. juice industry is different in kind from other U.S. agricultural industries and faces strong foreign competitors, it requires significant tariff protection if it is to survive. As noted above, most U.S. juice processors either own groves themselves or maintain close and longstanding relationships with domestic growers; yet virtually all U.S. processors have been forced to import some juice because of supply constraints resulting from periodic freezes. Under the current duty regime, domestic and import supply are in rough equilibrium. The current specific duties have their greatest impact when market prices are lowest (i.e., when U.S. production is at a peak), thereby giving U.S. growers the return necessary for future investment during “off” years. During those times of low U.S. production - most importantly, during times of severe freezes - the duties have less of an impact, as prevailing market and f.o.b. import prices will ordinarily be relatively high. This ensures that there will be an adequate supply of foreign-origin product to supplement reduced supplies of domestic product. The tariff structure thereby ensures that U.S. juice processors have access to an adequate supply of their basic raw material and that consumers are provided with retail juice products at reasonable cost.
Any reduction in the tariffs on these products would destroy that equilibrium, harming U.S. juice processors, first, by lowering U.S. wholesale prices for bulk manufacturing concentrate, and second, by hurting American growers and thereby reducing processors’ domestic source of supply.
If the tariffs on imported juice products were lowered, U.S. juice processors would be harmed by the adverse effects of such duty reductions on U.S. extractors producing bulk frozen manufacturing concentrate. Juice extractors, who serve as the critical link between growers and processors, would be forced to reduce their prices to compete with low-priced imports. Sustained wholesale price reductions - especially against a backdrop of already depressed prices because of world over-capacity - might well compel these companies to desert the extraction business altogether. As a result, U.S. processors of retail juice products, many of whom do not own their own groves, would be totally dependent upon foreign sources of supply, to their economic detriment.
Foreign juice industries already enjoy considerable cost advantages because they have substantially lower labor rates and non-wage benefits (such as workmen’s compensation, social security and unemployment) and considerably less stringent health and safety programs than those in the United States. Ever restrictive land use and other environmental regulations further disadvantage U.S. growers vis-a-vis their foreign counterparts. As a result of such factors, the combined cost of grove care and harvesting in the United States is much greater than the cost incurred by growers in other juice-producing countries, such as Brazil and Argentina.
A reduction in tariffs will compound the competitive difficulties of American growers by encouraging increased imports of low-priced juice products and thereby shrinking grower revenues. These reduced grower revenues will gradually lead to decreased U.S. production because growers experiencing intense competition from low-priced imports will be less willing to make substantial investments in re-planting after bouts with frost and disease. Indeed, without the current level of tariffs, it would make little sense to grow fruit in the United States. The result of lower duties will therefore be less domestically-grown fruit.
Although the reduction in the quantity of U.S. fruit is of great concern to American processors, the industry is equally, if not more, concerned about a decline in its quality. Even if American growers maintain their acreage levels despite falling on-tree prices, decreased revenues will inevitably force them to reduce ongoing operating expenses, including fertilization, disease control and irrigation. As a result, the fruit on those trees kept in production will be of reduced quality. Domestic juice processors will lose their traditional source for premium fruit - Florida and other U.S. growing areas. U.S. juice processors therefore oppose any reduction in the tariffs on imported juice because they need a dependable domestic source of supply to maintain adequate price competition and preserve existing quality levels.
The National Juice Products Association strongly opposes reductions in the duties on imported orange, grapefruit, lemon and grape juice products. The present tariffs have permitted U.S. processors to supply this price-sensitive market with high-quality, reasonably-priced retail juice products, while making use of imported frozen manufacturing concentrate when U.S. fruit production has been inadequate to service demand. They have also allowed U.S. growers to realize reasonable rates of return during peak production years. A decrease in these tariffs would dismantle a very delicate market balance upon which domestic growers and processors depend for their survival. NJPA therefore seeks to maintain the present U.S. tariffs on imports of the subject juice products.
May 1, 2003
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