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Deeper Analysis on Potential Pacific Trade Pact: Japan

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(Editor’s note: this is the fourth in this series by Gary Baise, a noted agriculture policy/environmental stewardship expert who lives here in Virginia.)

The Trans Pacific Partnership (TPP) sets forth each nation’s tariff commitments. It is argued by many in agriculture that TPP is a good deal and needs all of our support. Others are more critical. The annex sections dealing with Japan appear to be fodder for those who have concern about the fairness of TPP regarding the United States. The section on rice, for example, does not appear to be great.

While Canada has four chapters regarding tariff eliminations and tariff rate quotas and Chile has two, there are eight such chapters related to Japan. Among the eight chapters is Japan’s listing of its tariff schedule that numbers 1,133 pages. (HUGE!) The level of detail is mind boggling. It can be read from the Japanese schedule there are certain areas where it imposes substantial tariffs on the product. Certain meats presently have a 50% base rate tariff and in year 1 of the agreement, if ratified, the tariff on Cheek meat and head meat would drop from 50% to 39% and tariffs on such products would last not for 20 years. Even after 20 years a 9% tariff would apply to the product.

There are tens of products where the remarks column refers the reader back to the general notes of the tariff schedule. Japan’s general notes to Annex 2-D does indicate that many products will come into the country duty free. A person has to examine the 1,100 pages to determine when the product will be duty free. Certain products under category B4 are eliminated in 4 years and others in 6 years. As pointed out earlier, some tariffs are not eliminated for 20 years.

Under Section N of Japan’s tariff schedule, there is language which on its face appears indecipherable. To give you a flavor I will quote the language. It states “Customs duties on originating goods provided for in the items in staging category JPB8…shall be eliminated as follows: i) the customs duties shall be reduced to 10 percent ad valorem per liter, on the date of entry into force of this agreement for Japan;”. This type of language goes on for 2.5 pages covering products through 10 years. Maybe this language is helpful for American products, but the complexity and obtuseness makes it not readily apparent that this is a transparent deal. There is nothing I can find to date about currency manipulation which can also have a major impact on prices.

Japan has added an Appendix B-1 Agricultural Safeguard Measures. This is a 25-page document. This appendix sets out “the originating agricultural goods that may be subject to agricultural safeguard measures under paragraph 5 of the General Notes of the Tariff Schedule of Japan.” This appendix  identifies agricultural products that may be subjected to safeguard measures. It describes how Japan may apply agricultural safeguard measures and increase the rate of customs duties on each agricultural product. In addition, the document claims for certain agricultural products it can limit the number of metric tons coming into Japan for at least 10 years beginning in year 11 running through year 15. It can grant small increases in the number of tons of whatever agricultural product is listed in a category. Rice is an example.

Japan’s Appendix A on page 40, Section C describes the quota quantity of rice from the United States, which will be allowed in duty free. Rice – a staple in the Japanese diet – is a contentious issue. In year 1, the U.S. is able to export 50,000 metric tons of rice to Japan, and in year 15 that amount increases to 70 metric tons. The amount of rice produced in Japan according to rice statistics in 2014 equaled 8,345,000 metric tons.

I suppose U.S. rice growers should be happy with this quantity of rice to be exported because Australia is limited to 6,000 metric tons and by year 15 can export 8,400 metric tons to Japan. Something is better than nothing, but this opening created by TPP appears fairly insignificant. In the negotiations, U.S. rice producers had sought to export 165,000 metric tons of rice to Japan. The results fell well short of that goal. Promoters of TPP argue that in 15 years the U.S. will reduce its current 11% tariffs on rice imported products to 0%. This appears to be a pretty steep price to pay to get a mere 50,000-70,000 tons into Japan in 15 years.

It appears a new negotiator is needed.

(This article first ran in Farm Futures on September 20, 2016)

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