The Japanese government has been considering for 18 months whether to join 11 other countries in negotiations for a Trans-Pacific Partnership Free Trade Agreement (TTP-FTA). New Japanese Prime Minister Shinzo Abe received assurances from President Obama last week that they would not be required to unilaterally give up all tariffs as a precondition to joining the talks. This should make it easier to convince government leaders to support joining, but has left other participants wondering if Mr. Abe is serious about changing policies for agricultural products.
The statement by the two Presidents at the close of their White House meeting said that, “…should Japan participate in the TPP negotiations, all goods would be subject to negotiation…” That is consistent with the November 2011 TPP Leaders outline for the agreement including, “…Comprehensive market access: to eliminate tariffs and other barriers to goods and services trade and investment…” The outline seemed to be straight forward that tariffs would be eliminated over time, maybe ten years, but the language of the two Presidents leaves that more ambiguous.
This is an awkward time for the U.S. and Japan. Japan has not officially asked to join the negotiations and the U.S. has not indicated it would support Japan joining the talks. The November 2011 Leadership statement invited other countries to join and Canada and Mexico did in the summer of 2012 after gaining approval from each of the existing nine countries. The joint statement from the White House said, “While progress has been made in these consultations, more work remains to be done, including addressing outstanding concerns with respect to the automotive and insurance sectors, addressing other non-tariff measures, and completing work regarding meeting the high TPP standards.”
As the world’s third largest importers of food after the U.S. and EU, Japan buys food from most of the TPP countries. On a calories-consumed basis Japan annually imports 60 percent of the food eaten by its 128 million people. Japan uses tariff and nontariff barriers to restrict imports for raw agricultural products and further processed foods. The WTO just completed its quadrennial Trade Policy Review of Japan in February. The WTO Secretariat’s report prepared for the review shows why Japan’s trading partners want wholesale changes in agricultural policies.
According to the Organization for Economic Cooperation and Development estimates cited in the WTO report, Japan’s government support for agriculture was equal to 1.1 percent of its GDP in 2006-08. Most of that support is in price supports which combined with production restrictions result in consumers paying about 71 percent more for food than they would based on world market prices.
The average applied tariff for agriculture was 17.5 percent for fiscal year FY 2012 compared with an overall average of 6.3 percent, with dairy products, vegetables, sugar and cereals having the highest rates. Non-ad valorem (fixed amount) tariffs are often more than more moderate percentage (ad valorem) tariffs. Dairy products are included in a category that has simple average tariffs of 56 percent with the top tariff of 410 percent. Eighty four percent of the tariff lines in that category are considered tariff peaks at more than three times the simple average of overall applied tariff rates, and 61 percent have non-ad valorem tariffs. Sugar and sugar confectionaries have an average tariff of 42 percent, a maximum tariff of 219 percent, 69 percent of the lines are tariff peaks and 59 percent of lines have non-ad valorem tariffs.
Other products with high tariffs include vegetables at 34 percent, milling industry products like malt, starches, and wheat gluten at 31 percent, preparations of cereals, flour, starch or milk’ products at 26 percent, cocoa at 24 percent and cereals at 22 percent. Price and volume based special safeguards are used on imported products when import volumes increase too rapidly or market prices are depressed by imports. Price support for pork is provided through a gate price system where the Agriculture and Livestock Industries Corporation buys when wholesale prices are below the “lower stabilization price” and releases stocks when prices exceed the “upper stabilization price”. Beef has a simple 38.5 percent ad valorem tariff on the imported value.
Rice still accounts for 25 percent of agricultural production. The government uses supply-demand adjustment measures to set a volume cap for production and government purchase and selling prices for rice are determined by tender. A rice diversion program pays farmers to use rice paddies for purposes other than growing rice.
Making changes all at once in these programs and many more would not be politically or administratively possible. Prime Minister Abe was asking President Obama to acknowledge that reality. That collection of market controls was developed over the last 60 years and will not be undone overnight. But allowing that complex of regulations to last more than a few years under some type of transition would betray the high standards 21-century free trade agreement goal that the eleven countries of TPP in November 2011 set out to achieve.
Japan joining the talks would definitely slow down the negotiating process. At the November 2011 Leaders meeting, optimists had hope to have an agreement by the end of 2012. That deadline has since slipped to the end of 2013 and would certainly move to 2014 or later unless Japan automatically accepted much of the work already completed. The desire of the Prime Minister to win a majority in elections this July for the upper house of Japan’s legislature will probably delay the decision making process to join the TPP-FTA negotiations.
The status quo in Japanese agriculture will not yield easily. It has resisted pressure from the U.S. and other trading countries both inside the GATT and WTO negotiations and in one-on-one regulatory reform efforts. Every time Mr. Abe asked for a little more flexibility, Mr. Obama should agree only if another large chunk of agricultural programs are wiped out in return. While farmers and ranchers from the U.S., Australia, New Zealand, Chile and Malaysia will gain markets, the biggest beneficiaries will be Japanese consumers who are paying 71 percent more than they should for the food they eat each day.
Ross Korves is an Economic Policy Analyst with Truth About Trade & Technology (www.truthabouttrade.org). Follow us: @TruthAboutTrade on Twitter | Truth About Trade & Technology on Facebook.