WASHINGTON, D.C., U.S. — The U.S. recently concluded negotiations on the Trans-Pacific Partnership (TPP) with Japan and 10 other nations. Tom Vilsack, U.S. secretary of agriculture, arrived in Japan on Nov. 19 to meet with agricultural counterparts. Countries in the TPP currently account for up to 42% of all U.S. agricultural exports, totaling $63 billion. Due to this agreement and its removal of trade barriers, American agricultural exports to the region are poised to expand even further, according to the U.S. Department of Agriculture’s (USDA) Office of Communications.
Japan is already an important market for U.S. agricultural products. In 2014, Japan ranked as the U.S. fifth largest market (behind China, Canada, Mexico and the E.U.), accounting for over $13 billion in U.S. agricultural exports. With a population of 127 million, high per capita income, an affinity for U.S. products, and a well-developed marketing infrastructure, Japan is an attractive market for U.S. exporters. The total food and drink market in Japan is valued at over $650 billion.
Reducing tariffs in Japan has been a long-held U.S. trade policy objective, and progress has not been made toward this objective since the World Trade Organization (WTO) agreement in 1995, the USDA said. Japan's average tariff on agricultural products is 14%. For comparison, the average U.S. agriculture tariff is 5%. Japan's average hides significant tariff peaks: for many products Japanese tariffs exceed 100% and significantly restrict trade.
Japan has concluded free trade agreements (FTAs) with a number of other countries, including key U.S. competitors such as Chile, India, Indonesia, Mexico, Thailand, Vietnam, and Australia. In addition to the TPP, Japan is in the process of negotiating agreements with the E.U., Canada, and China. In these negotiations, Japan has agreed to tariff reductions on many agricultural products, putting U.S. exporters at a disadvantage. Japan has largely (but not completely) excluded from market opening its most import sensitive products, such as rice, pork, dairy, beef, wheat, and sugar.
Under the TPP agreement, most agricultural tariffs in Japan will be eliminated. Tariff phase-outs vary by product: some tariffs will be eliminated immediately when the agreement comes into force, others will be phased out over a period of years. Tariff elimination will put U.S. exports on a level playing field in Japan with respect to Japanese and third-country products and well ahead of non-TPP competitors. The TPP will also significantly improve access opportunities for the most sensitive products in Japan through a mixture of tariff cuts and expansion of access under tariff-rate quotas. U.S. President Barrack Obama has notified the U.S. Congress of his intention to sign the TPP agreement after the legal text has been thoroughly reviewed and approved by each TPP country. The agreement will be eligible for a Congressional vote, under provisions of Trade Promotion Authority, in 2016.
Japan is the largest export market for U.S. wheat, valued at $915 million in 2014. Japan currently imports wheat via a state-administered, 5.7 million-tonnne WTO tariff rate quota (TRQ). While wheat is imported at a zero tariff, Japan's state-trading entity, the Ministry of Agriculture, Forestry, and Fisheries (MAFF), assesses a "mark-up" of 17 yen per kilogram (equivalent to $150 per tonne) that is charged to the buyer (typically a miller) of the state-purchased wheat. Japan's out-of-quota duty for wheat is 55 yen per kilogram (up to 250% ad valorem equivalent). This TRQ accounts for 90% of Japanese wheat consumption, with the U.S. enjoying a market share of approximately 60% in recent years. Japan excluded wheat from its previous bilateral trade agreements, including with Australia.
Under the TPP agreement, Japan will establish a new 114,000-tonne, country-specific quota (CSQ) for U.S. wheat that grows to 150,000 tonnes in seven years, an action that will create new export opportunities exclusive to U.S. wheat suppliers. Japan will provide duty-free access for feed wheat outside of the current WTO TRQ mechanism, which will have the secondary effect of creating additional space for duty-free imports of food wheat under the WTO quota. For imports under the WTO quota, Japan will reduce its current 17 yen per kilogram mark-up on imported wheat by 45% over nine years, from $150 per tonne to approximately $83 per tonne. This action is expected to lower the cost of imported wheat for Japan's millers and strengthen the market for imported wheat in the years ahead. For processed wheat products such as biscuits, cookies, crackers, and other bread products, Japan will eliminate the existing tariffs, as high as 26%, in six years. For uncooked spaghetti and macaroni, Japan will reduce the existing 30% tariff by 60% over nine years. Japan will establish a new, duty-free CSQ for processed wheat products imported from the U.S., including mixes, doughs, and cake mix, with an initial volume of 10,500 tonnes that expands to 12,000 in six years. Additionally, the U.S. and other TPP partners will have access to four new duty-free TRQs for processed wheat products that initially total 27,600 tonnes and grow to 40,100 tonnes in six years.
Japan is the leading market for U.S. corn exports, with shipments valued at $2.7 billion in 2014. The U.S. exported nearly $180 million of corn products to Japan in 2014 as well.
Under the TPP agreement, new export opportunities for livestock products, including beef, pork, poultry and dairy will expand demand for corn and other feed ingredients by U.S. livestock producers. Specifically for corn, Japan's zero duty on imports of U.S. corn for feed under its existing WTO TRQ will be maintained. Additionally, Japan will immediately eliminate an existing 3% tariff applied to a specific in-quota tariff line for corn other than feed. For starches, Japan will create a new, CSQ for U.S. corn and potato starch, starting at 2,500 tonnes and growing to 3,250 tonnes by year six, and a 200-tonne inulin CSQ that grows to 250 tonnes over 11 years. Additionally, Japan will expand its current WTO starch TRQ by 7,500 tonnes for a number of starches including corn, potato, sago, and cassava.
In 2014, Japan was the second-largest export market for U.S. rice, valued at almost $240 million. As one of Japan's most sensitive agricultural sectors, domestic rice production is supported by high prices and a strictly controlled market. The government of Japan controls all imports under an existing WTO TRQ, with imports outside the quota facing a trade prohibitive tariff level. Japan has excluded rice in all of its prior FTAs. The U.S. consistently accounts for roughly half of Japan's imports under the current 682,000 (milled rice basis) WTO TRQ.
Under the TPP agreement, Japan will establish a new, duty-free CSQ for U.S. rice. The quota will initially be set at 50,000 tonnes, and will grow to 70,000 tonnes in 13 years. Additionally, Japan will make important modifications to its quota administration that are designed to enhance the transparency and the operational efficiency and effectiveness of the new CSQ access for U.S. rice. Japan will immediately eliminate its 12.7% tariff on "other animal feeds, containing rice." Japan also announced its intention to re-designate 60,000 tonnes of medium grain rice currently under its WTO TRQ. This should enhance the ability of the U.S. to compete for this quantity.
Japan is the fifth-largest market for U.S. soybean exports, with shipments valued at $1 billion in 2014. Japan's WTO commitments provide duty-free treatment for soybeans and soybean oilcake imports, while tariffs on other soybean products are as high as 20%.
Japan has not included soybean oil in its previous trade agreements.