By Max Fisher, Director of Economics and Government Relations
The Office of the U.S. Trade Representative (USTR) recently released its negotiating objectives for a U.S.-Japan trade agreement, as the United States and Japan are expected to begin discussions early this year.
USTR said its goal in the negotiations with Japan is to address both tariff and non-tariff barriers and to achieve fairer, more balanced trade. For trade in agricultural goods, USTR outlined the following objectives:
- Secure comprehensive market access for U.S. agricultural goods in Japan by reducing or eliminating tariffs.
- Provide reasonable adjustment periods for U.S. import-sensitive agricultural products, engaging in close consultation with Congress on such products before initiating tariff-reduction negotiations.
- Eliminate practices that unfairly decrease U.S. market access opportunities or distort agricultural markets to the detriment of the United States.
- Promote greater regulatory compatibility to reduce burdens associated with unnecessary differences in regulations and standards, including through regulatory cooperation when appropriate.
- Establish specific commitments for trade in products developed through agricultural biotechnologies – including transparency and management of low-level presence issues – and establishing a mechanism for exchange of information and enhanced cooperation on agricultural biotechnologies.
USTR’s negotiating objectives for sanitary and phytosanitary (SPS) measures would provide for enforceable and robust SPS commitments that build upon World Trade Organization rights and obligations, including with respect to science-based measures, good regulatory practice, import checks, equivalence, regionalization, certification and risk analysis. In addition, the negotiating objectives include a NGFA and North American Export Grain Association (NAEGA) priority – the establishment of a mechanism to remove expeditiously unwarranted non-tariff barriers that block the export of U.S. food and agricultural products. The negotiating objectives also address other important items for agricultural trade, such as the removal of technical barriers to trade and the promotion of good regulatory practices.
The NGFA and NAEGA previously communicated with the Trump administration to highlight the importance of the Japanese market to U.S. agriculture. Japan was the fourth-largest export market for U.S. agricultural products in 2017, with exports valued at $12 billion.
In the joint statement following their summit meeting in New York, N.Y., on Sept. 26, President Donald Trump and Prime Minister Shinzo Abe committed to expanding “trade and investment between the United States and Japan in a mutually beneficial manner, including through further concrete steps, as well as to realize free, fair, and open development of the global economy.” However, in that same statement, Mr. Abe also promised maximum agriculture, forestry and fisheries outcomes with the United States that only reflect “previous economic partnership agreements” such as those Japan agreed to under the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) trade accord.
In a Nov. 26 statement submitted to USTR, NGFA and NAEGA expressed their belief that, as a strong and longtime ally, treaty and trade partner, the United States should not accept agriculture, forestry and fisheries trade outcomes from Japan that are limited in scope. Instead, the two organizations urged USTR to work with Japan to pursue additional market access and integration that is proportionate to and reflects the close relationship the two countries have built and enjoyed over the last 70 years.
NGFA and NAEGA also stated that an agreement with Japan should expand all current U.S. agricultural market access – to include and exceed all offsetting competitive advantages provided to other countries through the European Union (EU)-Japan Economic Partnership Agreement and the CPTPP – while incorporating modernization provisions adopted in the U.S.-Mexico-Canada Trade Agreement to address the challenges of 21st century global trade.
In coming years, U.S. competitors in the European Union, Australia and Canada will gain preferential market access to the Japanese market that exceeds what currently is granted to the United States under World Trade Organization rules. For example, CPTPP countries will gain several key concessions, including a 45 percent reduction in Japan’s Ministry of Agriculture, Forestry and Fisheries (MAFF) tariff markups by year nine of the agreement’s implementation.
This would have the following impacts on U.S. grain products:
- Wheat: The CPTPP agreement gives Canada a 40,000 metric ton (MT) country-specific quota (CSQ) and Australia a 38,000 MT CSQ for wheat. Imports within these quotas are duty free. In addition, MAFF markups for wheat imports under these CSQs also will decline by a further 50 percent by year nine of implementation, except for Western White, Dark Northern Spring, Hard Red Winter Wheat, Canadian Western Red and Australian Standard White wheat. In fact, according to the U.S. Department of Agriculture, Japanese flour millers estimate after CPTPP is implemented, they will pay an $85/MT effective import tariff for Australian and Canadian wheat. By comparison, the effective import tariff for U.S. wheat would remain at $150/MT. Because of this price differential, it is anticipated that the Japanese milling industry will reduce average annual total imports of U.S. western white, dark northern spring and hard red winter wheat by more than half ― from about 3.1 million MT to 1.35 million MT or less.
- Barley: CPTPP countries have access to an additional quota for food barley that will grow to 65,000 MT per year by year nine of implementation. In addition, in-quota MAFF markups will decline by 45 percent.
Further, under the EU-Japan Economic Partnership Agreement, the United States is set to lose additional market share relative to EU competitors in wheat, barley, and oilseeds and derived products.
Given these evolving realities that U.S. agricultural exporters will confront when trying to access Japanese markets in the near future, NAEGA and NGFA urged USTR to address the following market-access issues relative to Japanese market tariffs and quotas:
- Improve market access for all grains and oilseeds. In particular, this should include expanded duty-free access for U.S. wheat that will level the playing field for U.S. imports and reduce import duties on U.S. corn and sorghum.
- Reduce the MAFF markup for all imported U.S. grains and oilseeds to equal or exceed all competitive advantages provided to other countries through the EU-Japan Economic Partnership Agreement and the CPTPP.
Importantly, NGFA and NAEGA also have urged USTR to secure agreement from Japan at the earliest stage possible – and before negotiations conclude – to provide market access and tariff treatment for U.S. agricultural products that are comparable to what Japan will be granting to America’s foreign competitors under the CPTPP and the EU-Japan Economic Partnership Agreement to avert an imminent loss of U.S. market share. Once eroded or lost – even temporarily – history repeatedly has shown that U.S. market share is never completely recovered, NGFA and NAEGA noted in their joint statement to USTR.