As of March 5 the U.S. Department of Agriculture adopted a new definition. The USDA, in coordination with the U.S. Census Bureau, adopted the World Trade Organization’s internationally recognized definition of “agricultural products” as its standard definition for the purposes of reporting U.S. agricultural trade data.
A definition can be linked to many things – the length of the king’s arm, the weight of an average corgi dog or the time it takes a woman to circle a block. Those are all definitions, but they aren’t very useful or transferrable – unless one is with the king, holding the dog or walking next to the woman. Differences can obviously result from each individual’s interpretation of “common” measurements, which has led to the adoption of widely agreed-upon standards.
One of the basic goals when the WTO was created was to establish standard definitions for trade so countries could more easily discuss issues. One of the more-than-60 agreements that came out of the 1986–1994 Uruguay Round negotiations, signed at the Marrakesh ministerial meeting in April 1994, was the Agreement on Agriculture. An important part of the Agreement on Agriculture is the list of products, by HS code, that fall into the agricultural category. Generally speaking agriculture is defined as HS Chapters 1 to 24 – less fish and fish products – and parts of HS Chapters 29, 33, 35, 38, 41, 43 and 50-53. Visit www.wto.org/english/docs_e/legal_e/14-ag_02_e.htm#annI for an exact list. Fish and fish products are defined as HS Chapter 3, HS 0509, HS 0511.91, HS 1504.10, HS 1504.20, HS 1603-1605 and HS 2301.20.
Until the recent change, the USDA was utilizing a definition of agriculture similar to the WTO definition, but not quite the same. According to the USDA’s Foreign Agricultural Service, agricultural products are currently defined as “All of the products found in Chapters 1-24 of the U.S. Harmonized Tariff Schedule (except for fishery products in Chapters 3 and 16, manufactured tobacco products like cigarettes and cigars in Chapter 24, and spirits in Chapter 22) are considered agricultural products. Certain other products outside of Chapters 1-24 are also considered agricultural products. The most significant are essential oils (Chapter 33), raw rubber (Chapter 40), raw animal hides and skins (Chapter 41), and wool and cotton (Chapters 51-52).”
The differences between the U.S. definition and the WTO definition can cause confusion. They make talking about trade unnecessarily more difficult. The USDA and the U.S. Census Bureau have decided to eliminate the differences between the two entities’ definitions, which should make conversing about trade easier – both inside the United States and out.
Consider tariff-line differences
More than 90 percent of the tariff lines that define agriculture will be the same, but in order to utilize the WTO definition a few tariff lines are subtracted from the previous U.S. definition and a few others are added. Based on an extensive comparison of each definition at the HS10-digit level, we address the differences.
The USDA’s current definition of “agricultural products” includes a limited number of tariffs lines across several HS chapters that are not in the WTO definition of agriculture. Those tariff lines come from the following chapters.
- 16 – preparations of fish
- 29 – some organic acids)
- 33 – an essential oil mixture
- 35 – rennet and Penicillin G Amidase
- 38 – stearic and oleic acid
- 40 – natural rubber
- 53 – jute
- 98 – comingled donated food
During the past 10 years, total U.S. exports of those tariff lines averaged $2.2 billion. Total U.S. imports of those tariff lines averaged $5.9 billion.
The WTO definition of agriculture includes many more tariffs lines that are not in the USDA’s current definition of “agricultural products.”
- 1 – live animals, predominantly exotics
- 5 – products of animal origin
- 12 – seaweed
- 13 – gum Arabic
- 14 – bamboo
- 15 – glycerol and degras
- 21 – certain soup and alcohol preparations
- 22 – mineral water, denatured and undenatured ethyl alcohol, spirits
- 24 – manufactured tobacco products
- 29 – mannitol and D-glucitol
- 35 – protein substance
- 38 – finishing agent and dye
- 50 – silk waste
- 51 – wool waste
- 52 – cotton waste and carded cotton
The bulk of the added lines are in chapters 22 and 24. During the past 10 years, total U.S. exports of those tariff lines averaged $5.1 billion. Total imports of those tariff lines averaged $11.1 billion.
Import, export balances affected
The change from the USDA’s previous definition of “agricultural products” to the WTO’s definition will impact both import and export trade figures. When the past 10 years are averaged using the WTO definition, ag exports would have been $2.8 billion more. On the other hand, during the same time period, the WTO definition would have resulted in ag imports that were $5.2 billion more. That means the U.S. ag-trade balance would have averaged $2.3 billion less if the WTO definition had been utilized.
The largest driver of that trade balance change is the inclusion of distilled spirits in the definition of agriculture. That’s particularly true on the import side of the ledger. In Figure 4 we can observe the significant trade imbalance that the United States has in liquors and distilled spirits. Overall the change to the WTO definition of agriculture doesn’t produce trade statistics that are all that much different from the statistics that came out of the USDA’s previous definition. But the concordance of the definition will make talking about and negotiating trade significantly easier, and that is a very good thing.
Veronica Nigh is an economist with the American Farm Bureau Federation’s Market Intel. Visit fb.org for more information.