Trans-Pacific Partnership and Japan: Key Outcomes for Agriculture
Secretary Vilsack arrived in Japan today to meet with agricultural counterparts. The United States recently concluded negotiations on the Trans-Pacific Partnership (TPP) with Japan and 10 other nations. Countries in the Trans-Pacific Partnership currently account for up to 42 percent of all U.S. agricultural exports, totaling $63 billion. Thanks to this agreement and its removal of trade barriers, American agricultural exports to the region are poised to expand even further.
Japan as a Market. Japan is already an important market for U.S. agricultural products. In 2014, Japan ranked as our fifth largest market (behind China, Canada, Mexico and the European Union) 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 we have not made progress toward this objective since the World Trade Organization (WTO) agreement in 1995. Japan’s average tariff on agricultural products is 14 percent. (For comparison, the average U.S. agriculture tariff is 5 percent.) Japan’s average hides significant tariff peaks: for many products Japanese tariffs exceed 100 percent and significantly restrict trade.
FTA Negotiations. 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 European Union, 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.
TPP. Under the Trans Pacific Partnership (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. President 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.
TPP delivers benefits for all sectors of U.S. agriculture. New opportunities in Japan account for a significant share of these benefits. Opportunities by product group are summarized below.
Beef: Japan is the United States’ top export market for beef and beef products, with sales totaling $1.6 billion in 2014. The TPP agreement will dramatically reduce tariffs on U.S. beef. Japan will eliminate duties on 74 percent of its beef and beef product imports within 16 years, with substantial cuts to the remaining tariffs.
Japan will reduce its tariff on fresh, chilled, and frozen beef cuts from the current applied tariff of 38.5 percent – which can be as high as 50 percent under WTO rules – to 9 percent in 16 years. Tariffs on beef offal (including livers and tongue), which are currently as high as 21.3 percent, will be eliminated in six to 16 years, in some cases with an immediate 50-percent cut in the tariff rate. Tariffs on processed beef products (including beef jerky and meat extracts), currently as high as 50 percent, will be eliminated in six to 16 years.
Pork: Japan is the top market for U.S. pork and pork products, with exports totaling $1.9 billion in 2014. For those products subject to Japan’s “Gate Price” system, an ad valorem tariff is applied. A variable, specific duty is also charged on imports below a specified threshold, with the intention of bringing the price of Japan’s pork imports up to the higher domestic price. Because Japan is highly protective of its pork industry, in previous bilateral trade agreements it has either excluded pork altogether or provided only minor tariff reductions and very small tariff-rate quotas. Under the TPP agreement, Japan will eliminate tariffs on more than 65 percent of its pork and pork product tariff lines within 11 years and on nearly 80 percent of tariff lines within 16 years. For those products on which the tariffs are not eliminated, the associated tariffs will be significantly reduced.
Japan’s 20-percent tariff on ground seasoned pork and 10-percent tariff on sausages will be eliminated in six years. Japan’s current 4.3-percent tariff on fresh, chilled, and frozen pork cuts will immediately be reduced by 50 percent, with the residual duty eliminated in 10 years. The “Gate Price” system will remain, but Japan will immediately reduce the specific duty on pork cuts from its previous maximum charge of 482 yen per kilogram to 125 yen per kilogram, with a further reduction to 50 yen per kilogram by year 10. This development could open up Japan’s lucrative market for less expensive pork cuts to U.S. exporters.
Poultry and Eggs: The United States exported over $120 million of poultry and poultry products to Japan in 2014. Japan’s tariffs are currently as high as 21.3 percent, or 48 yen per kilogram, whichever is greater (approximately 24.1 percent ad valorem equivalent). Under the TPP agreement, tariffs on all poultry, eggs, and egg products will be eliminated in six to 13 years.
Japan’s 8.5-percent tariff on frozen poultry legs will be eliminated within 11 years. Tariffs on fresh and frozen cuts, as high as 11.9 percent, will be eliminated in six to 11 years. Japan will immediately eliminate the 3 percent tariff on turkey and turkey offal. For egg yolks, the most important category for the United States, tariffs that are as high as 24.1 percent will be eliminated within six years. Japan will immediately eliminate its current 8-percent tariff on egg albumin products, while tariffs on other egg products, as high as 21.3 percent, will be eliminated in 6-13 years. Japan’s 21.3-percent tariff on dried eggs, other than yolks, will immediately be cut to 10.6 percent and eliminated in year 13. Japan’s 17-percent tariff on fresh, chilled, and frozen eggs will immediately be cut to 13.6 percent and eliminated in year 13.
Dairy: Japan is the sixth-largest market for U.S. dairy exports, with shipments valued at $409 million in 2014. Most dairy imports are subject to high tariffs and WTO TRQs, where in-quota tariffs are as high as 35 percent and out-of-quota tariffs are much higher. With the exception of its recent trade agreement with Australia, Japan has excluded dairy products from its previous bilateral trade agreements. Under the TPP agreement, Japan will create new TRQs and reduce tariffs to significantly expand market access for dairy products.
Under the TPP agreement, many of Japan’s cheese tariffs, currently ranging up to 40 percent, will be eliminated in 16 years. This includes tariffs on cream cheese, pizza cheese, powdered and grated cheese (parmesan), cheddar and many other ripened cheeses. All whey tariffs will be eliminated in 21 years or less, resulting in full liberalization of Japan’s whey market. Tariffs on whey for food use are as high as 660.7 percent. These tariffs will be eliminated in 21 years. Japan will establish transitional CSQs for U.S. exports of mineral concentrated whey, prepared infant formula, and whey permeate that total a combined 5,000 tons in year one and increase to 9,000 tons by year 11. Japan will immediately eliminate its 8.5-percent tariffs on lactose and lactose syrup and its 2.9-percent tariff on milk albumin that includes whey proteins, which are often used in high-protein supplements. Tariffs on whipped cream, frozen yogurt, and various dairy- and cocoa-containing food preparations, as high as 29.8 percent, will fall to zero in six to 11 years. Tariffs on ice cream, yogurt, blue cheese, and whole milk powder, as high as 35 percent, will be reduced 50 to 90 percent, to duty levels ranging from 3 percent to just under 10 percent. For butter and milk powder, Japan will create two TPP-wide TRQs of 3,188 tons each. Over five years, both of these TRQs will grow to 3,719 tons. For evaporated milk, Japan will establish a 1,500-ton, duty-free TRQ, which will grow to 4,750 tons in six years, and for condensed milk, a duty-free TRQ of 750 tons. Both TRQs will be available to all TPP partners.
Fruit: Japan is the fifth-largest market for U.S. fruits and nuts (including prepared products and juices), with shipments valued at over $1 billion in 2014. Japan’s tariff on fruits and nuts are as high as 68 percent. They will be eliminated for all products of interest to the United States.
The 8.5-percent tariff on fresh cherry imports will be cut in half as soon as the agreement enters into force, and then eliminated in six years. The 17-percent tariff for fresh apples will immediately fall by 25 percent and be eliminated in 11 years. The 4.8-percent tariff on fresh pears will be eliminated immediately. The 32-percent tariff on oranges will be eliminated over eight years. Japan’s 43-percent tariff on orange juice will be eliminated in 11 years. The 30-percent tariff on grapefruit juice will be eliminated in eight years. The 6-percent tariff on lemon juice and 12-percent tariff on lime juice will be eliminated immediately. The 10-percent tariff on grapefruit will be eliminated in six years. For other fresh fruits, tariffs are as high as 17 percent. They will be immediately eliminated for many products, including grapes, avocados, strawberries, raspberries, blueberries, cranberries, kiwifruit, watermelon, pomegranates, and papaya. Tariffs for the vast majority of other fresh fruit products will be eliminated in 11 years. The 2.4-percent tariff on shelled and in-shell almonds will be eliminated immediately, as will the 10-percent tariff on shelled and in-shell walnuts, and the 4.5-percent tariff on pecans. The tariff on pistachios will be locked in at zero. Tariffs on processed fruit products are currently as high as 21.3 percent. They will be immediately eliminated for many products including grape juice, prune juice, dried cranberries, essential citrus fruit oils, dried plums, raisins, and fruit cocktail. Tariffs on a wide range of other processed fruit products will be eliminated over periods ranging up to 11 years.
Vegetables and pulses: Japan is the second-largest market for U.S. vegetables (including prepared products), with shipments valued at over $680 million in 2014. Japan’s tariffs on vegetables and pulses are as high as 1,000-percent out-of-quota. They will be eliminated for all products of interest to the United States.
Tariffs will be eliminated immediately on many products, including fresh/chilled broccoli, frozen sweet corn, fresh tomatoes, fresh celery, fresh asparagus, cabbage, lettuce, chickpeas, garlic, and shallots. The 6-percent tariff on fresh sweet corn will be eliminated in four years. For fresh onions, the 8.5-percent and price-based variable tariffs will be eliminated in six years. Tariffs, currently as high as 17 percent, on vegetable juices and canned and other prepared vegetable products including canned and prepared sweet corn, tomatoes, and pickles will be eliminated immediately. The tariffs on carrot juice, tomato paste, and tomato juice, ranging from 7.2 to 29.8 percent, will be eliminated in six years. The 21.3-percent tariff on tomato ketchup and 17-percent tariff on tomato sauces will be eliminated in 11 years. Japan will immediately eliminate its current 10-percent tariff on adzuki, kidney, white pea, and other beans within its WTO dried leguminous vegetables tariff-rate quota. The 13.6-percent tariff on dried peas, beans, and lentils will be eliminated in 11 years.
Potatoes: Japan is an important market for U.S. potatoes and potato products, which will benefit significantly from the TPP agreement. The United States enjoys a 78 percent share of the Japanese market, with imports totaling more than $400 million in 2014.
Under the TPP agreement, the current 3-percent tariff on seed potatoes and 4.3-percent tariff on fresh/chilled potatoes (other than seed) will be eliminated immediately. The 8.5-percent tariff on frozen whole potatoes will be eliminated in six years. The 20-percent tariff on dehydrated potato flakes, granules, and pellets will be eliminated in six years. The 20-percent duty on flour, meal, and powder will be eliminated in 11 years. Japan’s imports of frozen French fries from the United States totaled nearly $201 million in 2014. Under the agreement, Japan will eliminate its 8.5-percent duty in four years. In addition, the 9-percent tariff on “other prepared/preserved frozen potatoes” will be eliminated in six years.
Wheat: 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-ton WTO 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 ton) 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 percent ad valorem equivalent). This TRQ accounts for 90 percent of Japanese wheat consumption, with the United States enjoying a market share of approximately 60 percent 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-ton, CSQ for U.S. wheat that grows to 150,000 tons 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 percent over nine years, from $150 per ton to approximately $83 per ton. 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 percent, in six years. For uncooked spaghetti and macaroni, Japan will reduce the existing 30-percent tariff by 60 percent over nine years. Japan will establish a new, duty-free CSQ for processed wheat products imported from the United States, including mixes, doughs, and cake mix, with an initial volume of 10,500 tons that expands to 12,000 in six years. Additionally, the United States and other TPP partners will have access to four new duty-free TRQs for processed wheat products that initially total 27,600 tons and grow to 40,100 tons in six years.
Barley: Japan is the world’s third-largest barley importer. Japan’s 2014 barley imports totaled $362 million, of which more than $43 million came from the United States. Japan currently maintains a 1.37- million-ton WTO TRQ for barley and processed barley. This includes barley for feed, which is imported duty-free within the TRQ.
Under the TPP agreement, Japan will immediately eliminate its barley for feed tariff of 255 percent. Japan will create a new 25,000-ton, TPP-wide TRQ for barley not for feed that grows to 65,000 tons in nine years. Japan will reduce the mark-up on barley imports under the TRQ by 45 percent in nine years. Japan will also create two additional TPP-wide TRQs for barley flour, groats, pellet, and food preparation products, which will grow to 615 tons. Japan will establish a new CSQ for imports of U.S. unroasted malt, starting at 20,000 and growing to 32,000 tons in six years. Also, a new roasted malt CSQ for the United States will be created that starts at 700 tons and grows to 1,050 tons by year 11.
Corn: Japan is the leading market for U.S. corn exports, with shipments valued at $2.7 billion in 2014. The United States 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-percent 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 tons and growing to 3,250 tons by year six, and a 200-ton inulin CSQ that grows to 250 tons over 11 years. Additionally, Japan will expand its current WTO starch TRQ by 7,500 tons for a number of starches including corn, potato, sago, and cassava.
Rice: 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 United States 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 tons, and will grow to 70,000 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-percent tariff on “other animal feeds, containing rice.” Japan also announced its intention to re-designate 60,000 tons of medium grain rice currently under its WTO TRQ. This should enhance the ability of the United States to compete for this quantity.
Soybeans: 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 oil-cake imports, while tariffs on other soybean products are as high as 20 percent.
Japan has not included soybean oil in its previous trade agreements.
Under the TPP agreement, new export opportunities for livestock products, including beef, pork, poultry and dairy will expand demand for soybeans and other feed ingredients by U.S. livestock producers. Tariffs on soybean products such as soybean oil, as high as 21-percent, will be eliminated in six years. Japan will immediately eliminate its 4.2-percent tariff on soybean meal.
Peanuts: Japan has excluded peanuts from its previous free-trade agreements. Japan’s imports of U.S. peanuts and peanut products reached $26 million in 2014. Japan maintains a 75,000-ton WTO TRQ for peanuts, with an out-of-quota duty of approximately 600 percent.
Under the TPP agreement, Japan will eliminate the 10-percent in-quota tariff on peanuts immediately and will eliminate the over-quota tariff in eight years. The duty for peanuts for oil extraction will remain at zero under the TPP agreement. Peanut oil tariffs, as high as 6 percent, will be eliminated in 11 years. Tariffs on prepared and preserved peanuts, as high as 24 percent, will be eliminated in eight years. Peanut butter tariffs, as high as 12 percent, will be eliminated in six years.
Tobacco: U.S. tobacco exports to Japan totaled more than $260 million in 2014. Under the TPP agreement, Japan will eliminate all tariffs on tobacco, currently as high as 30 percent, in 11 years.
Cotton: Japan imported $62 million of U.S. cotton in 2014. Under the TPP agreement, all of Japan’s tariffs on cotton will remain at zero percent.
Processed Products: In 2014, the United States exported $2.6 billion of processed products to Japan.
Under the TPP agreement, Japan will immediately eliminate tariffs, as high as 26 percent, on numerous processed products, including flavored waters without sugar, mineral and aerated waters, vegetable proteins, roasted coffee, essential oils, planting seeds, and many spices. Tariffs on sauces and flavored waters with sugar added, as high as 13.4 percent, will be eliminated in four years. Tariffs, as high as 40 percent, will be eliminated in eight years or less for a range of products, including cookies, crackers, biscuits, nutritional supplements, carrot juice, and tomato paste. Tariffs, as high as 34 percent, will be eliminated in 11 years on other rice products such as breakfast cereals, infant formula, and other food preparatory items.