【Focus】 Bumpy road ahead for domestic agriculture industry (Oct. 7, 2015)


TPP agreement: five key items


Takanori Okabe, Satomi Tamai and Hayato Niki – Atlanta

Under the Trans-Pacific Partnership free-trade agreement, Japan accepted large cuts in tariffs and establishment of new import quotas for some of the sensitive agricultural products such as rice and beef. The government has negotiated with the aim of avoiding sharp increases in imports through maintaining government-controlled trading systems and introducing safeguard measures. However, it is unclear whether they are effective enough to prevent damage to the domestic farm industry. Here are what Japan has agreed upon under the TPP talks concerning the five key agricultural items. <Rice> Tariff-free quotas set for U.S. and Australia Rice has been exempted from all the previous economic partnership agreements (EPAs) Japan has signed with other countries. But under the TPP agreement, Japan will establish tariff-free import quotas for the United States and Australia outside the minimum access scheme, with the total yearly amount scheduled to reach 78,400 tons over 13 years. The government says that it has managed to avoid uncontrolled surge of imports by maintaining government control on rice trading and a high tariff of JPY341 per kg for imports outside the quotas. Moreover, imports under the special quotas will be made through simultaneous buy and sell (SBS) tenders, which means Japan will not be required to import the maximum amount if there are no tenders. Still, the government’s decision to expand rice imports will certainly face harsh opposition from domestic rice farmers who have been making efforts to solve the problem of oversupply in the rice market by shifting to production of rice for livestock feed. To support farmers, the government plans to take such measures as increasing the amount of purchase for government stockpiling. Prime Minister Shinzo Abe said at a press conference on Tuesday, Oct. 6, that the government will prevent the total amount of rice in the market from increasing. Japan also agreed to boost imports of U.S. rice within the minimum access quota. Out of the annual quota of 770,000 tons, the government decided to allocate 60,000 tons to be imported under SBS tenders specifically for medium grain rice used for processing. This will automatically lead to an increase in imports of U.S. rice, as U.S-made products account for most of medium grain rice imports. <Beef> Measures to prevent import surges believed to have little effect Japan will incrementally lower its tariff on beef imported from all the other TPP member nations from 38.5 percent to 9 percent over 16 years. The government hopes to mitigate the impact of tariff reduction by introducing safeguard measures, but it would be rather difficult to implement them. Moreover, the safeguard measures will be abolished if they are not used for four years after the 16-year period. Tariffs on beef imports will be slashed also under the Japan-Australia EPA, but only to 19.5 percent over 18 years for frozen beef and to 23.5 percent over 15 years for chilled beef. Tariff cuts under the TPP agreement are much larger. The two agreements differ greatly also in terms of conditions for implementing safeguard measures. Under the Japan-Australia EPA, Japan can apply safeguard measures if imports of Australian beef exceeds the level of imports in recent years, but the TPP agreement sets the maximum level of Japan’s imports from other member nations at 590,000 tons at the time when it takes effect, which is 10 percent higher than the amount of imports marked in recent years. The 738,000 tons level set for the 16th year is about the same as the amount imported in the peak year of 2000. The possibility of Japan using safeguard measures is considerably low. Even if Japan decides to implement safeguard measures, it can temporarily hike the tariff back to only 18 percent on the 15th year, which could have little effect to curb a surge in beef imports. After the 16th year, the tariff rate which Japan can implement as a safeguard measure will be reduced by 1 percentage point every year, and the system itself will be abolished if it is not implemented for four years. <Pork> Gate price system maintained Japan will maintain its gate price system of levying different tariffs according to the price of imported pork, and the gate price of JPY524 per kg. It will largely reduce tariffs on pork imports from all the other TPP member nations, but it believes importers will continue conducting the so-called “combination imports,” in which they report imports of cheap pork and high-priced pork in a package to minimize the tariff burden. Japan will slash its JPY482 per kg specific duty on low-priced pork incrementally to JPY50 over 10 years, while reducing its 4.3 percent ad valorem tariff on high-priced pork imports to zero over the same period. The government will keep its gate price system of setting a gate price between the two tariffs, although its range will be narrowed down. This means even after tariffs are cut under the TPP agreement, the best way for importers to minimize the tariff burden will still be to import combination of high and low-priced pork at prices close to the gate price. At the same time, some importers might try to benefit from lowered tariff rates by importing different types of pork separately. The government plans to prevent surge in imports by introducing safeguard measures, but the measures will be abolished in the 12th year after the agreement takes effect. <Wheat> Markup reduced The government says it successfully managed to maintain its control over wheat trading and out-of-quota tariffs. However, it will cut the markup on wholesale wheat prices – viewed as an effective tariff since the government is the sole importer of wheat in Japan – by 45 percent over nine years. The markup is currently around JPY17 per kg. Revenues from the markup amounts to some JPY80 billion a year, and the funds are used to provide large direct payments to domestic wheat producers. If the markup is reduced, it would bring about not only drops in domestic wheat prices but also a shortage of state funds to support farmers. Japan will also newly establish quotas for wheat from the U.S., Canada and Australia to be imported through SBS tenders. The quotas will total 192,000 tons when the TPP agreement takes effect, and will be expanded to 253,000 tons over seven years. Japan has never set import quotas for wheat under previous EPAs. As for barley, the government will also reduce the markup and create an import quota amounting to 60,000 tons. <Butter, powdered skim milk> New low-tariff quota set Butter and powdered skim milk are the dairy products that Japan wants to protect the most. Because uncontrolled surge of imports in such products would directly influence the supply and demand of raw milk, Japan has exempted them from all the previous EPAs. Under the TPP agreement, Japan maintained the government-controlled trading system and out-of-quota tariffs for butter and powdered skim milk. However, amid constant butter shortage, Japan agreed to establish low-tariff import quotas for private trading firms to import the two products. The total amount will be 60,000 tons (milk equivalent volume), and will be increased to 70,000 tons over six years. The amount is lower than the additional imports Japan made to cope with the recent shortage of butter, but if the supply shortfalls persist in the future, the government might be urged to further expand its import quotas. The tariffs within the quota will be slashed over 11 years and it will become more advantageous to import under the quota rather than through the so-called “current access” commitments controlled by the government. <Sugar> Revenues from adjustment charges likely to decline Japan will maintain the current sugar price adjustment system for raw sugar, processed sugar and starch. Under the system, the government determines the appropriate sugar prices and collects adjustment charges on imported raw sugar when the average import price is lower than the government’s target price. The system is aimed at closing the gap between domestic and import prices, while obtaining funds to support domestic producers. Meanwhile, a low-tariff import quota will be set for each of the sugar-containing products such as chocolate and cocoa preparations, totaling 96,000 tons. Since sugar-containing products are not included in the government’s sugar price adjustment scheme, increases in imports of such products would lead to a decline in revenues from adjustment charges and also to a possible drop in demand for domestically-produced sugar. <Others> As for adzuki beans and kidney beans, which are important parts of Hokkaido’s crop rotation, the government will abolish out-of-quota tariffs while maintaining tariffs within the quota. It will eliminate import duties on chicken, eggs, orange juice and apples in stages over 11 years or more. Tariffs on wine will also be abolished incrementally. (Oct. 7, 2015)

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