Agricultural Trade: Impacts of the Andean Trade Preference Act on
Asparagus Producers and Consumers (15-MAR-01, GAO-01-315).	 
								 
U.S. asparagus imports increased in the 1990s and now comprise	 
nearly one-half of the asparagus consumed in the United States.  
Peru is the second largest source of imported asparagus and	 
benefits from duty-free treatment under the Andean Trade	 
Preference Act (ATPA). ATPA is estimated to have displaced	 
between 2 and 8 percent of the value of domestic production from 
what it would have been without the act. While the supply of	 
fresh asparagus from imports has increased since ATPA's 	 
enactment, consumer demand has been strong, and prices have	 
risen. In addition, an apparent increase in consumer preference  
for fresh asparagus has contributed to a downward shift in the	 
domestic demand for processed asparagus. Most of the decline in  
the domestic production of processed asparagus occurred in	 
Michigan and Washington, the two states that produce the majority
of canned and frozen asparagus. If ATPA is reauthorized, domestic
producers of asparagus and, in particular, asparagus for	 
processing, will likely face continued displacement, but	 
consumers can expect continued benefits from the year-round	 
availability of fresh asparagus.  However, some of this 	 
displacement will likely occur even if ATPA is not reauthorized  
and the normal tariff is imposed. If ATPA is not reauthorized,	 
consumers would likely have decreased availability and pay higher
prices to the extent that tariff increases reduce Peruvian	 
asparagus imports and hence total asparagus supplies. Domestic	 
industries can petition the U.S. International Trade Commission  
to investigate whether increased imports under the ATPA have	 
caused them serious injury or threat of serious injury. If the	 
Commission finds serious injury, it may recommend relief options 
to the President, including suspending duty-free treatment for	 
imports.							 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-01-315 					        
    ACCNO:   A00709						        
    TITLE:   Agricultural Trade: Impacts of the Andean Trade	      
             Preference Act on Asparagus Producers and Consumers              
     DATE:   03/15/2001 
  SUBJECT:   Agricultural industry				 
	     Economic analysis					 
	     Foreign trade agreements				 
	     Foreign trade policies				 
	     Importing						 
	     Tariffs						 
	     Vegetables 					 
	     Bolivia						 
	     Colombia						 
	     Ecuador						 
	     Mexico						 
	     North American Free Trade Agreement		 
	     Peru						 
	     Michigan						 
	     Washington 					 

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GAO-01-315

Report to Congressional Subcommittees

United States General Accounting Office

GAO

March 2001 AGRICULTURAL TRADE Impacts of the Andean Trade Preference Act on
Asparagus Producers and Consumers

Page i GAO- 01- 315 Agricultural Trade Letter 1

Appendix I Scope and Methodology 23

Appendix II Tariff Rates on Asparagus Imported from Mexico Under the North
American Free Trade Agreement, 1999- 2008 24

Appendix III Comments From the U. S. Department of Agriculture's Foreign
Agricultural Service 25

Figures

Figure 1: Quantity of Fresh and Processed Asparagus Production in the United
States, 1990- 2000 5 Figure 2: U. S. Imports of Fresh Asparagus by Country,
1990- 99 7 Figure 3: Shipments of Domestic Fresh Asparagus and Imports

From Mexico and Peru, 1999 10 Figure 4: Per Capita Consumption of Fresh and
Processed

Asparagus, 1980- 99 11 Figure 5: Season- Average Prices for Fresh and
Processed

Asparagus, 1990- 2000 13 Figure 6: U. S. Consumption of Fresh and Processed
Asparagus,

1990- 99 15 Contents

Page ii GAO- 01- 315 Agricultural Trade Abbreviations

ATPA Andean Trade Preference Act GAO General Accounting Office ITC U. S.
International Trade Commission NAFTA North American Free Trade Agreement
USDA U. S. Department of Agriculture USTR U. S. Trade Representative

Page 1 GAO- 01- 315 Agricultural Trade

March 15, 2001 Congressional Subcommittees U. S. asparagus imports increased
by over 215 percent in the 1990s and now comprise nearly one- half of the
asparagus consumed in the United States. Peru is the second largest source
of imported asparagus and benefits from duty- free treatment under the
Andean Trade Preference Act (ATPA) of 1991, as amended. 1 Asparagus imported
from Peru accounted for 34 percent of U. S. imports in 1999. ATPA was
designed to promote the production of non- drug- related crops and to
increase the economic development of four South American countries involved
in the drug trade, including Peru. 2 During the 1990s, Peru substantially
increased its production of asparagus and became a major exporter of frozen
asparagus, complementing its already strong position in the canned market.
Imports of Peruvian asparagus have made fresh asparagus available in the
United States from August through December- months that domestic fresh
asparagus had generally been unavailable.

ATPA expires in December 2001, and legislation to extend the act is likely
to be proposed in 2001. While imports of fresh and frozen asparagus and
domestic production of fresh asparagus have increased, the production of
domestic processed (canned and frozen) asparagus has declined. For example,
the value of U. S. fresh asparagus production increased from $117 million in
1990 to $172 million in 2000. However, the value of processed asparagus
declined from $60 million to $44 million during this period. Industry
representatives attribute this decline to increasing Peruvian imports.

In this context, the Subcommittee on Agriculture, Rural Development and
Related Agencies, Senate Committee on Appropriations, and the Subcommittee
on Agriculture, Rural Development, Food and Drug Administration, and Related
Agencies, House Committee on Appropriations, asked us to (1) review the
impact that asparagus imported from Peru under ATPA has had on domestic
asparagus producers and

1 Mexico is the leading source of imported asparagus and benefits from
reduced tariffs under the North American Free Trade Agreement. Tariffs under
the Agreement are shown in app. II.

2 ATPA covers Bolivia, Colombia, Ecuador, and Peru. These countries are the
source of coca plants from which most of the world's cocaine is produced or
are major transit areas for cocaine.

United States General Accounting Office Washington, DC 20548

Page 2 GAO- 01- 315 Agricultural Trade

consumers, (2) review ATPA's likely impact on domestic asparagus producers
and consumers if the act is reauthorized in December 2001, and (3) describe
the remedies available to domestic industries adversely affected by imports
under ATPA.

The Andean Trade Preference Act is estimated to have displaced between 2 to
8 percent of the total value of domestic fresh asparagus production from
what it would have been without the act, according to the U. S.
International Trade Commission's most recent study. 3 U. S. consumers,
however, benefited from the availability of fresh asparagus from Peru during
the months when fresh asparagus is not generally available from domestic
producers- August through December. While the supply of fresh asparagus from
imports has increased since the trade act became law, consumer demand has
been strong and prices have risen. In addition, an apparent increase in
consumer preference for fresh asparagus contributed to a downward shift in
the domestic demand for processed asparagus. For example, our analysis shows
that production for processing decreased from 42 percent of domestic
production in 1990 to 34 percent in 2000. Most of the decline in the
production of processed asparagus occurred in Washington, one of the two
states that produce the majority of canned and frozen asparagus.

If the Andean Trade Preference Act is reauthorized, domestic producers of
asparagus and, in particular, asparagus for processing, will likely face
continued displacement, but consumers can expect continued benefits from the
year- round availability of fresh asparagus. However, some of this
displacement will likely occur even if the trade act is not reauthorized and
the normal tariff is restored- 5 percent in 2 of the 5 months when the
majority of Peru's fresh asparagus is imported and 21.3 percent in the other
3 months. U. S. consumers prefer fresh asparagus and therefore will likely
continue to consume it instead of processed asparagus, and Peru has
advantages in climate and labor costs that should enable it to continue its
exports. In addition, if the trade act is not reauthorized, consumers would
likely have decreased availability of fresh asparagus from Peru and pay
higher prices to the extent that tariff increases reduce Peruvian asparagus
imports and, hence, total asparagus supplies. U. S. asparagus

3 The International Trade Commission is an independent, quasi- judicial
federal agency that, among other responsibilities, provides the President
and Congress with objective trade expertise and determines the impact of
imports on U. S. industries. The Commission's most recent study is Andean
Trade Preference Act: Impact on U. S. Industries and Consumers and on Drug
Crop Eradication and Crop Substitution (USITC Publication 3358, Sept. 2000).
Results in Brief

Page 3 GAO- 01- 315 Agricultural Trade

producers also face increasing competition from Mexican imports because of
declining tariffs under the North American Free Trade Agreement. In the
longer term, a new trade agreement called the Free Trade Area of the
Americas, currently being negotiated, could go beyond both the North
American Free Trade Agreement and the Andean Trade Preference Act by
creating a duty- free trade zone in the Western Hemisphere for many
products, including asparagus.

Relief measures are available under U. S. trade law to industries that are
harmed as a result of foreign imports. Domestic industries can petition the
U. S. International Trade Commission to investigate whether increased
imports have caused them serious injury or threat of serious injury. If the
Commission finds serious injury, it may recommend relief options to the
President, including increased tariffs or quotas on imports. If the petition
involves a perishable agricultural product, U. S. trade law and the Andean
Trade Preference Act allow the petitioning industry to request provisional
relief, pending completion of the Commission's investigation. According to
asparagus industry representatives, asparagus producers have not pursued
these remedies because they regard the filing of a petition and pursuit of
relief to be too costly for such a small industry. Instead, in its comments
to the Office of the U. S. Trade Representative on the operation of the
Andean Trade Preference Act, the industry is seeking to remove asparagus
from eligibility under the trade act. 4

In commenting on a draft of our report, the U. S. Department of
Agriculture's Economic Research Service, staff from the U. S. International
Trade Commission, and the U. S. Trade Representative generally agreed with
the substance of the report and provided technical and clarifying comments
that we have incorporated as appropriate. The Department of Agriculture's
Foreign Agricultural Service stated that (1) our draft did not adequately
address the rationale for including asparagus imports under the Andean Trade
Preference Act and (2) the data we used in the report were not current.
While the scope of our review did not specifically include an analysis of
the rationale for providing duty- free status for asparagus under the trade
act, we did address the use of asparagus to promote Peru's economic
development. Additionally, we updated the report to reflect recently
released production data for 2000.

4 The Office of the U. S. Trade Representative is a cabinet agency
responsible for developing and coordinating U. S. international trade
policy.

Page 4 GAO- 01- 315 Agricultural Trade

Asparagus is a perennial crop that has a relatively long life expectancy of
up to 20 years in commercial plantings. Since the crop is not usually
harvested for the first 3 years, asparagus production represents a
significant long- term investment for growers. In addition, since the time
from planting to the first harvest takes 3 years, producers cannot quickly
increase production in response to market demand. While asparagus is a
native of temperate regions, its cultivation is most successful in locations
where either extreme temperature or drought stops the growth of the plant,
providing it with a rest period. Asparagus is produced and sold either as
fresh, uncooked whole spears or processed (heat- treated canned or frozen)
whole spears or cut pieces.

Asparagus is a labor- intensive, high- value vegetable crop. For example,
according to the U. S. Department of Agriculture (USDA), in 2000, the
season- average shipping- point price for fresh asparagus was $1.14 per
pound. 5 In comparison, the price for the second and third highest value
vegetables- artichokes and fresh market snap beans- was $0.64 and $0.42 per
pound, respectively.

In 2000, the United States produced 227 million pounds of asparagus having a
value of about $217 million. 6 The majority of the asparagus produced was
green asparagus for the fresh market- 66 percent was fresh, while 34 percent
was processed (about 28 percent was for canning and 6 percent for freezing).
Figure 1 shows the annual quantity of domestic production from 1990 to 2000.

5 The season- average shipping- point price includes the amount received by
producers and some costs of packing and shipping. Therefore, actual prices
received by producers were less.

6 In comparison, the value of U. S. produced tomatoes and green peas is
about $1.8 billion and about $129 million, respectively. Background

Page 5 GAO- 01- 315 Agricultural Trade

Figure 1: Quantity of Fresh and Processed Asparagus Production in the United
States, 1990- 2000

Source: USDA.

As shown in figure 1, the production of fresh asparagus in the United States
trended downward until 1995, when it reached a low in part due to poor
weather in California. Since then, production has been increasing. In
contrast, the production of asparagus for processing has been steadily
declining.

The major commercial asparagus- producing states are California, Washington,
and Michigan. California, the most important state for fresh production, has
a harvest season from January through May. While Washington and Michigan
produce some asparagus for the fresh market, the majority of their
production is for the processed market. Production from Michigan occurs from
May through June and Washington from May through July. In recent years,
Washington has begun shifting some production from asparagus for processing
to fresh asparagus, although

In millions of pounds 60 70

80 90

100 110

120 130

140 150

160 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Year

Fresh Processed (fresh weight basis)

Page 6 GAO- 01- 315 Agricultural Trade

doing so is costly for producers. 7 Thus, when the three states are
considered, domestically produced fresh asparagus is available from January
through July. At other times of the year, only canned and frozen production
is available from domestic sources.

In recent years, imports have accounted for a growing proportion of the U.
S. fresh asparagus supply and, in 1999, represented 57 percent of fresh
asparagus consumption. In 1999, over 90 percent of total U. S. asparagus
imports were of fresh asparagus. The growth in imports has been made
possible, in part, by the Andean Trade Preference Act and the North American
Free Trade Agreement (NAFTA).

ATPA, which was signed into law in December 1991, eliminates or reduces U.
S. tariffs on eligible products from four Andean countries- Bolivia,
Colombia, Ecuador, and Peru. 8 ATPA's primary goal is to promote broadbased
economic development in these Andean countries and to develop viable
economic alternatives to coca cultivation and cocaine production by offering
Andean products broader access to the U. S. market. The President proclaimed
preferential duty treatment for Peru in 1993. These preferences are
scheduled to end effective December 4, 2001.

NAFTA, which was ratified by the Congress in 1993 and implemented in January
1994, created a free trade area between Canada, Mexico, and the United
States. NAFTA provides for the gradual elimination of tariffs- from as high
as 25 percent on fresh asparagus- and other trade barriers on most goods,
over a 10- to 15- year period.

As shown in figure 2, asparagus imports were increasing prior to ATPA's and
NAFTA's enactment and have continued to increase since that time. For
example, imports grew from 44 million pounds in 1990 to 142 million pounds
in 1999- an average annual rate of increase of 14 percent, whereby Mexico
and Peru provided most of the increase.

7 To sell fresh market asparagus, producers must use different harvesting
techniques; develop new markets; and have access to packing, chilling, and
shipping facilities not required for processed asparagus.

8 Peru accounted for over 90 percent of total U. S. imports of fresh
asparagus from ATPA countries in 1999.

Page 7 GAO- 01- 315 Agricultural Trade

Figure 2: U. S. Imports of Fresh Asparagus by Country, 1990- 99

Source: GAO's analysis of USDA's data.

According to information from the Peruvian Asparagus Institute, 9 increases
in asparagus production, assisted by the implementation of ATPA, have
resulted in making asparagus Peru's second largest export crop, after
coffee. Peru has also developed a modern frozen asparagus industry and has
rapidly increased exports of this product to the United States and U. S.
frozen export markets, such as Japan. Asparagus accounted for 14.1 percent
of Peru's agricultural exports and resulted in employment for over 20,000
Peruvians in 1999.

9 The Peruvian Asparagus Institute is a nonprofit trade association
representing the Peruvian asparagus industry.

In millions of pounds 0 20

40 60

80 100

120 140

160 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 Years

Other Chile Peru Mexico Preferential duty for Peru under ATPA NAFTA's
enactment

Page 8 GAO- 01- 315 Agricultural Trade

According to the U. S. International Trade Commission's (ITC) 1999 study,
ATPA has displaced an estimated 2 to 8 percent of the total value of
domestic fresh asparagus production from what it would have been without the
act. U. S. consumers, however, benefited from the availability of fresh
asparagus from Peru during the months when fresh asparagus is not generally
available from domestic producers- August through December. In addition,
changes in consumer preference contributed to a downward shift in the
domestic demand for processed asparagus.

Using 1999 data, ITC estimated that the total impact of ATPA's tariff
reductions has been a 2- to 8- percent displacement of the total value of U.
S. fresh asparagus production by Peruvian imports as consumers substituted
asparagus imported from Peru for domestically produced product. According to
ITC, asparagus and cut flowers are the two industries experiencing
potentially significant displacement under ATPA. 10

ITC measured the impact of tariff reductions under ATPA by comparing
estimated market conditions under full tariff treatment versus actual market
conditions under duty- free entry. 11 A decrease in the price of imported
asparagus caused by tariff reductions results in the substitution of
imported asparagus for domestically produced asparagus, but the displacement
is not one for one because of various reasons, such as a retailer's
preference for marketing domestically produced product. 12

10 Each year since 1994, ITC has issued a report assessing the impact of
ATPA. In each report, ITC estimated the total impact of the trade act using
data for that year. The range reported by ITC is determined by the degree to
which imported production is substituted for domestic. ITC considers
displacement of 5 percent or more to be potentially significant. To the
extent that ITC estimates a range of displacement that spans above and below
the 5percent threshold, estimated displacement may or may not be significant
each year.

11 ITC conducted a comparative static analysis in which the Commission
measured the welfare effects of the ATPA tariff reductions. 12 The amount of
the decrease depends on the elasticity of substitution between the domestic
and imported product. Asparagus Imports

Under ATPA Have Displaced Some Domestic Production, but Consumers Have
Benefited From Increased Availability

Imports Under ATPA Have Displaced Some Domestic Asparagus Production

Page 9 GAO- 01- 315 Agricultural Trade

Consumers have benefited from ATPA because fresh asparagus is now available
during the months when it is generally unavailable from domestic producers.
This increased availability, combined with consumers' preference for fresh
asparagus, has contributed to a downward shift in the consumption of
processed asparagus.

Figure 3 shows that the U. S. primarily produces and ships fresh asparagus
during January through July. In contrast, imports from Peru occur nearly
year- round, including months when U. S. fresh production is unavailable. As
the figure shows, the majority of imports from Peru occur from August
through December, when there is virtually no U. S. fresh production. Only
canned or frozen asparagus is available from domestic sources during this
time. U. S. Consumers Benefited

From Imports Under ATPA as Consumption Shifted to Fresh Asparagus

Page 10 GAO- 01- 315 Agricultural Trade

Figure 3: Shipments of Domestic Fresh Asparagus and Imports From Mexico and
Peru, 1999

Source: GAO's analysis of USDA's data.

Fresh asparagus from Peru is available, in part, because the elimination of
tariffs reduced the price of Peruvian asparagus in the United States. While
imports from Peru have increased the supply of fresh asparagus in the United
States, demand has been strong, as demonstrated by the increased per capita
consumption of fresh asparagus.

Peru Mexico U. S.

In hundred thousands of pounds 0 100

200 300

400 500

600 Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. Months

Page 11 GAO- 01- 315 Agricultural Trade

Figure 4: Per Capita Consumption of Fresh and Processed Asparagus, 1980- 99

Source: USDA.

As figure 4 shows, in the mid- 1980s, the per capita consumption of
asparagus shifted from processed to fresh asparagus, demonstrating
consumers' preference for the latter. This shift in consumer preference

In pounds 0

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
1995 1996 1997 1998 1999 Years

Fresh Processed (fresh weight basis)

0.1 0.2

0.3 0.4

0.5 0.6

0.7 0.8

0.9 1.0

Page 12 GAO- 01- 315 Agricultural Trade

accelerated in the mid- 1990s, as fresh asparagus became available on a
year- round basis.

The shift in the per capita consumption of asparagus is part of the general
trend toward increased consumer preference for fresh vegetables. In
addition, the consumption of asparagus, which is a high- value product, is
particularly responsive to increases in personal income, according to
econometric studies. In the latter half of the 1990s, real disposable
personal income increased by an average annual rate of about 3 percent.

The increase in fresh asparagus consumption has helped keep prices trending
upward despite the increase in supply from imports. In contrast, shifts in
preference and the declining consumption of processed asparagus have kept
prices for processed asparagus relatively flat, as shown in figure 5.

Page 13 GAO- 01- 315 Agricultural Trade

Figure 5: Season- Average Prices for Fresh and Processed Asparagus, 1990-
2000

Note: These prices represent season- average shipping- point prices that
include some packing and processing costs. Actual prices received by
producers are unavailable. Prices have been inflation adjusted to 1999
purchasing power.

Source: GAO's analysis of USDA's data.

The decline in the consumption of processed asparagus particularly affects
producers in Michigan and Washington, the two states that produce the
majority of frozen and canned asparagus. For example, processed asparagus
accounted for approximately 86 percent and 68 percent of the production of
that crop in Michigan and Washington, respectively, in 2000. Our analysis
shows that processed asparagus decreased from 42 percent of domestic
production in 1990 to 34 percent in 2000. Most of the decline occurred in
Washington.

In 1999 dollars per pound 0.40 0.50

0.60 0.70

0.80 0.90

1.00 1.10

1.20 1.30

1.40 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Year

Fresh Processed Fresh Trend Processed Trend

Page 14 GAO- 01- 315 Agricultural Trade

If ATPA is reauthorized, the producers of asparagus and, in particular,
asparagus for processing will likely face some continued displacement from
imports, but consumers can expect continued benefits from the yearround
availability of fresh asparagus. However, some of this displacement will
likely occur even if ATPA is not reauthorized and the normal tariff is
imposed: 5 percent in 2 of the 5 months when the majority of Peru's
asparagus is imported, and 21.3 percent in the other 3 months. This is
because U. S. consumers prefer fresh asparagus, which domestic producers
cannot supply in some months, and because of Peru's advantages in climate
and labor costs. In addition, consumers would likely face decreased
availability and pay higher prices than they would otherwise to the extent
that the increase in tariff creates a reduction in imports from Peru and
hence an overall reduction in asparagus supply. U. S. asparagus producers
will also face increasing competition from Mexican imports under the North
American Free Trade Agreement. In the longer term, the Free Trade Area of
the Americas, currently being negotiated, could go beyond both NAFTA and
ATPA by creating a dutyfree trade zone in the Western Hemisphere for many
products, including asparagus.

If ATPA is reauthorized, U. S. asparagus producers, particularly of
processed asparagus, will likely face some continued displacement from
imports because the removal of tariffs on imports under ATPA allows fresh
asparagus to be imported year- round. Since consumers tend to prefer fresh
rather than processed asparagus when it is available, this displacement will
likely continue.

Consumers can expect continued benefits from this year- round availability
of fresh asparagus. Peruvian asparagus enters the United States when
domestic production is low, resulting in an increased supply of fresh
asparagus in the marketplace. This extended product availability is believed
to be partly responsible for increases in the consumption of fresh asparagus
and declines in the consumption of processed asparagus. As shown in figure
6, the consumption of fresh asparagus reached 250 million pounds in 1999-
representing a 103- million- pound, or 70- percent, increase since 1990. In
contrast, the consumption of processed asparagus declined by 39 million
pounds, or 37 percent, since 1990. Impacts on Producers

and Consumers Likely to Continue With or Without ATPA

Producers Face Continued Displacement, and Consumers Benefit From the
Increased Availability of Fresh Asparagus if ATPA Is Reauthorized

Page 15 GAO- 01- 315 Agricultural Trade

Figure 6: U. S. Consumption of Fresh and Processed Asparagus, 1990- 99

Source: USDA.

Peruvian asparagus will likely remain a strong competitor for domestic
producers even if ATPA is not reauthorized and the normal tariff is
restored- 5 percent in 2 of the 5 months when the majority of Peru's fresh
asparagus is imported and 21.3 percent in the other 3 months. 13 This is
because U. S. consumers have expressed a preference for fresh rather than
processed asparagus when it is available in the marketplace. In addition,
Peru's climate allows for the year- round production and export of fresh
asparagus. Peru also enjoys relatively lower labor costs for this
laborintensive crop.

13 The Normal Trade Relations (formerly known as Most Favored Nation) tariff
rate is 21. 3 and 14. 9 percent for fresh and processed asparagus,
respectively. A 5- percent tariff is applied to fresh asparagus, not reduced
in size, that is shipped by air from September 15 through November 15- 2 of
the 5 months when Peru has substantial exports to the United States.
Peruvian asparagus is not eligible for reduced tariffs under the Generalized
System of Preferences because the U. S. Trade Representative considers this
product to be competitive in our market. Producers Face Continued

Displacement, and Consumers Will Have Decreased Availability and Higher
Prices if ATPA Is Not Reauthorized

In millions of pounds 50 100

150 200

250 300

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 Years

Fresh Processed (fresh weight basis)

Page 16 GAO- 01- 315 Agricultural Trade

These advantages have allowed Peru to become the world's second largest
producer of asparagus over the past decade and have given Peru the potential
for increasing exports in the future. 14 In addition, Peruvian growers began
a marketing promotion program in 2000 to stimulate U. S. consumers'
purchases of fresh asparagus.

Without ATPA, consumers would likely have decreased year- round availability
of fresh asparagus and pay higher prices to the extent that the increase in
tariff creates a reduction in imports from Peru. Since fresh asparagus would
not be readily available from other foreign producers, supplies would
decrease, and consumer prices would likely rise.

Regardless of what happens with the reauthorization of ATPA, U. S. asparagus
producers will face increasing competition from other current and future
trade agreements. In the near term, Mexico continues to be the most
important source of imported fresh asparagus. Mexico's advantage of lower
transportation costs to U. S. markets is believed to offset any production
advantages in ATPA countries. In addition, Mexico's sizable shipments to the
United States have occurred despite relatively high tariffs. As tariff rates
under NAFTA are phased out through 2008, asparagus imports from Mexico will
become even more competitive.

Over the longer term, negotiations are under way to create a free trade zone
among the 34 democracies of the Western Hemisphere. The Free Trade Area of
the Americas could create a duty- free trade zone more extensive than both
ATPA and NAFTA, which would result in the elimination of tariffs on many
products, including asparagus, according to the U. S. Trade Representative.

China, the world's largest producer of asparagus, has been granted normal
trade relations trading status by the United States, resulting in lower
tariffs. As a result, China has begun increasing its exports of processed
asparagus to the United States.

14 China, Peru, and the United States are the world's top three producers of
asparagus, respectively. Producers Face Increasing

Competition From Other Trade Agreements

Page 17 GAO- 01- 315 Agricultural Trade

U. S. trade law contains several provisions under which domestic industries
may seek relief from injury caused by foreign imports. 15 According to
asparagus industry representatives, asparagus producers have not pursued
relief under any of these provisions because the cost of bringing a case to
ITC is considered too burdensome for such a small industry. Alternatively,
industry representatives have proposed that the Andean Trade Preference Act
be amended to remove duty- free treatment for asparagus when an ATPA country
is deemed to be economically competitive with U. S. producers.

Under section 201 of the Trade Act of 1974, domestic industries can petition
ITC to investigate whether increased imports have caused them serious injury
or threat of serious injury. Upon receiving a petition, ITC conducts an
investigation to substantiate the allegation. 16 ITC's investigation is
designed to determine whether a product is being imported into the United
States in such increased quantities as to be a substantial cause of serious
injury or threat of serious injury to the domestic industry. In making its
determination, the Commission must consider all relevant economic factors,
including whether (1) productive facilities in the industry have been
significantly idled, (2) a significant number of firms have been unable to
operate at a reasonable level of profit, and (3) significant unemployment or
underemployment has occurred within the industry. ITC also considers, among
other things, whether there is a decline in sales or market share; a higher
and growing inventory of the product; and a downward trend in production,
profits, wages, productivity, or employment in the industry. In addition,
the Commission must consider imports from all sources. There is no
requirement that the increases in imports or serious injury to a domestic
industry be attributable to an unfair trade practice.

If ITC makes an affirmative injury determination, it is required to
recommend to the President an action that would be most effective in
addressing the injury. Recommended actions may include increased tariffs,
quotas, trade adjustment assistance to workers (such as job

15 Sections 201 to 204 of the Trade Act of 1974 (19 U. S. C. 2251- 2254) and
section 204 of the Andean Trade Preference Act of 1991 (19 U. S. C. 3203(
e)). 16 ITC conducts investigations upon receipt of a petition from an
entity- including a trade association, firm, certified or recognized union,
or group of workers- that is representative of an industry, upon the request
from the President or the U. S. Trade Representative, upon resolution of the
U. S. House Committee on Ways and Means or the U. S. Senate Committee on
Finance, or upon its own motion. Remedies Available to

Domestic Industries Under U. S. Trade Law Have Not Been Pursued by Domestic
Asparagus Producers

Page 18 GAO- 01- 315 Agricultural Trade

training), or a combination of these measures. 17 As part of its
recommendation, ITC must also state whether and to what extent its findings
and recommendations apply to imports from ATPA countries. Following the
receipt of ITC's recommendations, the President may take one of several
actions. These include taking (1) the action recommended by ITC, (2) other
action deemed appropriate, or (3) no action. However, the President cannot
take action that is solely in the form of suspension of duty- free treatment
for ATPA imports unless the Commission's investigation has found that the
serious injury or threat of serious injury to the domestic industry resulted
from the duty- free treatment. In any event, the President is required to
report to the Congress what action, if any, he intends to make. If the
President takes action that differs from ITC's recommendation or takes no
action, the Congress may enact a joint resolution, which directs that he
proclaim the action recommended by ITC.

The trade act also authorizes ITC to make preliminary determinations and
recommendations to the President for provisional relief in two situations.
Under the first situation, an industry producing a perishable agricultural
commodity that has already petitioned ITC and is undergoing a section 201
investigation, may file a request with the U. S. Trade Representative for
the monitoring of imports. The U. S. Trade Representative may then request
that ITC monitor imports. If an ITC monitoring investigation has been under
way for at least 90 days, then the industry producing the domestic product
may request, in a section 201 petition with respect to imports of the
monitored product, that a remedy be applied on a provisional basis, pending
completion of a full section 201 investigation and presidential review. ITC
would have 21 days to make a recommendation concerning provisional relief,
and the President would have 7 days to make a decision. Any provisional
relief granted by the President upon ITC's recommendation would generally be
in the form of increased tariffs.

Under a second situation, an industry filing a section 201 petition may
request provisional relief if it believes critical circumstances exist. Such
circumstances exist when clear evidence shows that increased imports are a
substantial cause of serious injury or threat of serious injury to the
domestic industry and delay in taking action would cause damage that would
be difficult to repair. ITC would have 60 days to make a critical

17 ITC may also recommend that the President initiate international
negotiations to address the underlying cause of the increase in imports or
otherwise to alleviate the injury or threat or implement any other action
authorized under law that is likely to facilitate a positive adjustment to
import competition.

Page 19 GAO- 01- 315 Agricultural Trade

circumstances determination and make a recommendation, and the President
would have 30 days to decide what, if any, action to take. Such an action
would generally be in the form of a tariff increase.

In addition, ATPA specifically provides that an industry filing a section
201 petition with ITC can then also petition the Secretary of Agriculture
for provisional relief. Under the ATPA special emergency relief provision,
the Secretary of Agriculture and the President are authorized to make
speedier determinations when an investigation of a perishable agricultural
product under the trade act is ongoing. If the Secretary of Agriculture's
determination is affirmative, the President may temporarily withdraw the
product's duty- free treatment or take no action. No preexisting monitoring
investigation by ITC is required. The Secretary and President have a total
of 21 days to make their final determination. The emergency action would be
rescinded upon a negative determination of ITC's investigation, a
presidential determination of changed circumstances, or the decision to take
another relief action.

To date, asparagus producers have not petitioned ITC for an investigation
based on allegations of serious injury from imports under ATPA. According to
industry representatives, the cost associated with preparing a case is
burdensome, especially for such a small industry. Alternatively, industry
representatives, in comments submitted to the U. S. Trade Representative on
the operation of ATPA in 1997, have requested that the law be amended to
remove duty- free treatment for asparagus when an ATPA country is deemed to
be economically competitive with U. S. producers. 18 Without a petition from
the industry, the ITC has not initiated an investigation.

We provided USDA's Economic Research Service and Foreign Agricultural
Service, staff from the U. S. International Trade Commission, and the U. S.
Trade Representative with a draft copy of this report for their review and
comment. We met with Economic Research Service agricultural economists,
including the Team Leader for Fruit and Vegetable Analysis; ITC's staff
representing the Offices of External Relations, Economics, Industries, and
General Counsel; and U. S. Trade Representative officials, including the
Deputy Assistant U. S. Trade Representative for Latin

18 ATPA requires the President to submit a report to the Congress on the
operation of the program every 3 years. The U. S. Trade Representative
drafts the report with input from relevant agencies and offices, such as the
Department of State, USDA, and ITC, and solicits public comment. Agency
Comments

Page 20 GAO- 01- 315 Agricultural Trade

America. They generally agreed with the substance of the report and provided
technical and clarifying comments, which we incorporated as appropriate.

In a letter commenting on the report, USDA's Foreign Agricultural Service
stated that the report does not adequately address the congressional
rationale for providing duty- free access for asparagus imports under ATPA.
The Foreign Agricultural Service stated that it does not believe that
Peruvian asparagus production provides an alternative economic opportunity
for coca producers and workers- the stated purpose for the trade act.

Determining whether ATPA is meeting its intended purpose of providing
alternative economic opportunities for coca producers and workers in the
four Andean countries was beyond the scope of our review. However, our
report does describe how asparagus production has contributed to economic
development in Peru.

The Foreign Agricultural Service also commented that the data we used in our
draft report did not adequately reflect the current impact of Peruvian
asparagus imports on the U. S. market. The 1999 quantity and value of
domestic asparagus production data that we used to prepare our draft report
were the most current available at the time of our review. Subsequently, in
January 2001, USDA's National Agricultural Statistics Service released its
Vegetables 2000 Summary report. We updated our draft with the production
information from that report. The updated information did not alter the
results of our analyses.

Appendix III presents the Foreign Agricultural Service's comments on the
report and our detailed response.

We conducted our review from September 2000 through February 2001 in
accordance with generally accepted government auditing standards. Appendix I
discusses our scope and methodology.

Copies of this report are being sent to interested congressional committees;
the Honorable Steve Koplan, U. S. International Trade Commission; Ambassador
Robert B. Zoellick, U. S. Trade Representative; the Honorable Ann Veneman,
Secretary of Agriculture; and other interested parties. We will make copies
available to others upon request.

Page 21 GAO- 01- 315 Agricultural Trade

If you or your staff have any questions about this report, please contact me
at (202) 512- 3841. Key contributors to this report were Robert C. Summers,
Carol E. Bray, and John C. Smith.

Lawrence J. Dyckman Director, Natural Resources

and Environment

Page 22 GAO- 01- 315 Agricultural Trade

List of Congressional Subcommittees The Honorable Thad Cochran Chairman The
Honorable Herb Kohl Ranking Member Subcommittee on Agriculture, Rural
Development

and Related Agencies Committee on Appropriations United States Senate

The Honorable Henry Bonilla Chairman The Honorable Marcy Kaptur Ranking
Minority Member Subcommittee on Agriculture, Rural Development,

Food and Drug Administration, and Related Agencies Committee on
Appropriations House of Representatives

Page 23 GAO- 01- 315 Agricultural Trade

To determine the impact that the Andean Trade Preference Act (ATPA) has had
on domestic asparagus producers and consumers and the likely impact of its
reauthorization, we interviewed and obtained information from
representatives from the federal government, asparagus producers'
associations, and research institutions. Specifically, we obtained and
reviewed the annual reports prepared by the U. S. International Trade
Commission (ITC) on ATPA's impact on U. S. industries and consumers and
interviewed ITC staff about the basis for their conclusions. We also
obtained and reviewed the model used by ITC to analyze ATPA's effect on the
U. S. economy. We obtained and reviewed reports from the Office of the U. S.
Trade Representative (USTR) on ATPA's operation and interviewed officials
concerning its impacts. We analyzed domestic and international asparagus
production and marketing data provided by the U. S. Department of
Agriculture's Economic Research Service and Foreign Agricultural Service. In
addition, we obtained production and marketing information from
representatives of the California Asparagus Commission, Michigan Asparagus
Advisory Board, Washington Asparagus Commission, and Peruvian Asparagus
Institute. We reviewed studies on trade impacts from the University of
California- Davis and obtained and reviewed two econometric models from
Washington State University that investigated prices, production, and income
in the U. S. asparagus industry. We adjusted prices in this report to 1999
dollars using the Gross Domestic Product implicit price deflator to more
accurately compare prices and costs over time. Data on U. S. asparagus
production and values are as of December 2000. All other data used in the
report are as of December 1999, the most current available at the time of
our review.

To describe the trade remedies available to domestic industries adversely
affected by imports under ATPA, we reviewed the applicable provisions of
ATPA and other U. S. trade legislation, and interviewed officials from ITC
and USTR. We also interviewed representatives of asparagus trade
associations in California, Michigan, and Washington to determine their use
of these remedies. We conducted our review from September 2000 through
February 2001 in accordance with generally accepted government auditing
standards. Appendix I: Scope and Methodology

Appendix II: Tariff Rates on Asparagus Imported from Mexico Under the North
American Free Trade Agreement, 1999- 2008

Page 24 GAO- 01- 315 Agricultural Trade

Year Asparagus type and entry time 1999 2000 2001 2002 2003 2004 2005 2006
2007 2008

Fresh, January 10.5 9. 3 8.1 7. 0 5.8 4. 6 3.5 2. 3 1.1 0 Fresh, February 1
to June 30 15.0 13.3 11.6 10.0 8. 3 6.6 5. 0 3.3 1. 6 0 Fresh, July 1 to
December 31 0 0 0 0 0 0 0 0 0 0 Frozen, all year 6.0 4. 5 3.0 1. 5 0 0 0 0 0
0 Canned, all year 7.0 5. 2 3.5 1. 7 0 0 0 0 0 0 Fresh white, all year 0 0 0
0 0 0 0 0 0 0

Source: ITC.

Appendix II: Tariff Rates on Asparagus Imported from Mexico Under the North
American Free Trade Agreement, 1999- 2008

Appendix III: Comments From the U. S. Department of Agriculture's Foreign
Agricultural Service

Page 25 GAO- 01- 315 Agricultural Trade

Appendix III: Comments From the U. S. Department of Agriculture's Foreign
Agricultural Service

See comment 4. See comment 3.

See comment 2. See comment 1.

Appendix III: Comments From the U. S. Department of Agriculture's Foreign
Agricultural Service

Page 26 GAO- 01- 315 Agricultural Trade

See comment 7. See comment 6.

See comment 5.

Appendix III: Comments From the U. S. Department of Agriculture's Foreign
Agricultural Service

Page 27 GAO- 01- 315 Agricultural Trade

The following are GAO's comments on the letter from the U. S. Department of
Agriculture's Foreign Agricultural Service dated March 2, 2001.

1. We do not agree. Determining whether ATPA is meeting its intended purpose
of providing alternative economic opportunities for coca producers and
workers in the four Andean countries was beyond the scope of our review.
However, our report does describe how asparagus production has contributed
to economic development in Peru.

2. We disagree. The report provides information on both the fresh and
processed sectors of the U. S. asparagus industry from 1990 to 2000. For
example, figures 1, 4, 5, and 6 contain information on fresh and processed
asparagus.

3. We disagree. As we reported in figure 5, the inflation- adjusted prices
for fresh asparagus have trended upward from 1990 through 2000 while prices
for processed asparagus remained relatively flat during this same period.

4. See comment 1. 5. ITC's most recent study estimates that ATPA displaced
an estimated 2

to 8 percent of the total value of domestic fresh asparagus production from
what it would have been without the act. The 1999 data used for their study
were the most current information available at the time of their analysis.

6. We agree. The scope of our work did not include evaluating the economic
impact on domestic growing regions.

7. We disagree. The quantity and value of domestic asparagus production data
for 1999 that we used to prepare our draft report were the most current
available at the time of our review. Subsequently, in January 2001, the
Department of Agricultures's National Agricultural Statistics Service
released its Vegetables 2000 Summary report. We updated our draft with the
production information from that report. The updated information did not
alter the results of our analyses. GAO's Comments

(150294)

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