The Japanese government has indicated serious interest in joining the ongoing negotiations of nine countries in the Trans-Pacific Partnership (TPP), including the U.S. and Australia, to draft a high quality free trade agreement (FTA). Japanese governments have avoided discussions on FTA with countries with agricultural export industries because of its highly protected agriculture. If Japan is to reach an agreement, major changes will be required in Japanese agricultural policies and exporting countries may also have to adjust their expectations.

The Organization for Economic Cooperation and Development (OECD) estimates for 2010 the Japanese government subsidized 49 percent of the farm value of production, more than twice the average of 18 percent for all OECD countries. For comparison, the EU was at 22 percent, the U.S. 9 percent and Australia 3 percent. Most of Japanese agriculture is protected by tariffs and production subsidies.

Despite import protections and subsidies, on a calories-consumed basis Japan annually imports 60 percent of its food, valued at $50 billion per year, and is the worlds third largest importer after the U.S. and the EU. Imports from the U.S. were $11.8 billion in 2010, the fourth largest market for the U.S., and including transportation costs totaled $14 billion, over 25 percent of Japanese food imports.

On a value basis Japan is the worlds largest meat importer, accounting for about 20 percent of its total agricultural imports. Japan has an import tariff of only 4.3 percent for fresh, chilled and frozen pork; 8.5 percent for offal and salted, dried and smoked products; 10 percent for sausages and 21.3 percent for other products. A gate price system (negotiated in the WTO Uruguay Round) imposes a minimum price on pork imports that limits imports and holds Japanese hog prices at roughly twice the U.S. price. Beef imports have a tariff of 38.5 percent, but U.S. beef must come from cattle 20 months of age or younger because of concerns about BSE. The U.S. and Japanese governments are in talks about increasing this to 30 months.

Japan was the worlds third largest importer of dairy products in 2010 after Russia and China, but has large domestic production heavily managed by government policies. Dairy products without tariff rate quotas (TRQ) generally have tariffs of 20-40 percent. Most dairy products are subject to TRQ, including one multi-product TRQ reserved for a state trading enterprise, the Agriculture and Livestock Industries Corporation (ALIC). Over-quota tariffs are equivalent to 50-500 percent.

Except for rice, imports provide 85 percent to almost 100 percent of the supply of food grains and feed grains. Wheat and barley have TRQs, but only the Food Department of the Ministry of Agriculture, Food and Fisheries (MAFF) has the right to import under the TRQs and may add a markup on resale. Japan is required to have minimum TRQs under WTO agreements, but MAFF surveys users to determine needs and imports adequate amounts. Tariffs for whole grain wheat and barley are zero, while processed products have a 25 percent tariff. Over quota tariffs are in monetary terms, not percentage, and are large enough to prevent imports.

Rice is the only product that the Japanese government pays farmers not to grow by diverting paddy land to other crops. Under WTO rules, Japan is required to import 682,000 metric tons of rice and products per year under a TRQ, and MAFF has the sole authority to purchase imported rice. Over-quota rice can be imported privately, but it has a tariff of $2,800 per ton.

The tariff on soybeans and other oilseeds, except peanuts, is permanently bound at zero. Crude and refined soybean oils have tariffs of about $100 per ton to protect the processing industry. Tariffs on imported soy-based foods include 7.2 percent on soy sauce and 10.6 percent on tofu.

According to ERS estimates, fruit in Japan was a $10 billion wholesale market in 2009, with $450 million coming from the U.S., 10 percent of U.S. fruit exports. Most fresh products have tariffs of 10-20 percent with frozen products at 12 percent. Some higher seasonal tariffs also apply. Sanitary and phytosanitary (SPS) issues are significant for many fruit products.

Unraveling all of these programs to be consistent with a TPP FTA will not be an easy process. Wholesalers and retailers also need to streamline their industries. The U.S. government has worked for years jointly with the Japanese government to reduce regulations in food supply chains, but much is yet to be done. If the goal were fully free trade, sensitive products could be handled with 15-year transitions as occurred for the U.S. and Mexico under NAFTA. At the end of the transitions, all quotas and tariff were reduced to zero. There is no indication that the nine countries or Japan are seriously considering a truly free trade approach for agricultural products.

The alternative to free trade is to work through the tariffs and other import restraints product by product. Consideration should be given to the amount of agricultural products already imported by Japan. It is trade dependent for a varied, high quality diet and that will not change regardless of trading rules. Tariffs are lowest on products where this is little domestic supply. Reducing tariffs and quotas to zero where there is little domestic competition is a logical place to start. Politically sensitive products, like rice, will need much more flexibility.

The hardest bargaining will be on SPS issues. Removing tariffs and quotas means nothing if SPS issues restrict access. Standards from Codex and similar international standards-setting organizations should help provide solutions.

There is no precedent for negotiating wholesale changes in a countrys agricultural policies as part of a FTA. The process of change in trade policies could be aided by the Japanese government acknowledging that their own consumers are paying a high price for protectionist policies that increase food costs. Export oriented countries will be frustrated by the slow process, but opening up the Japanese market will likely prompt other countries to reconsider their trade policies.

Ross Korves is an Economic Policy Analyst with Truth About Trade and Technology