National Grain and Feed Association, By Max Fisher, Vice President of Economics and Government Relations https://www.ngfa.org/newsletter/japan-approves-phase-one-trade-agreement-with-u-s/
After Japan’s legislative body ratified “phase one” of the U.S.-Japan trade agreement on Dec. 3, the deal is expected to take effect on Jan. 1, 2020.
U.S. Trade Representative Robert Lighthizer commended Japan’s “quick action” to approve the trade agreement, and said he expects President Donald Trump to sign the implementing proclamation for the United States next week. “The positive results the United States and Japan will gain from these agreements would not be possible without the strong leadership of President Trump and Prime Minister Abe,” Lighthizer said. “Now, U.S. farmers and ranchers will have significantly improved access to Japan’s market, and America’s leadership in the growing digital economy will continue to flourish to the benefit of all our workers.”
Under the agreement, Japan will cut its tariffs and mark-ups on many U.S. agricultural products, notably beef, pork, wheat and barley. Importantly, U.S. agriculture no longer will be disadvantaged on exports to Japan compared to competitor countries that are part of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and the Japan-European Union Economic Partnership Agreement.
In return, Japan received reductions in U.S. tariffs on certain manufactured goods, not including automobile or auto-parts sectors. In addition, there is a separate agreement between the countries on digital trade.
Lighthizer announced that the U.S. and Japan will begin consultations early next year on further negotiations on a broader “stage-two” trade agreement.
The following are specific elements of the trade agreement that apply to select U.S. agricultural commodities:
- Corn: The duty for corn for feed will remain zero, while an existing 3 percent tariff applied to a specific in-quota tariff line for corn other than feed will be eliminated.
- Soybeans: Japan’s tariff on soybeans and soybean oilcake will remain zero and its 4.2-percent tariff on soybean meal will be eliminated. Almost all of the soybean oilcake/meal that Japan purchases is traded under the oilcake harmonized system code that has a zero tariff.
Almost all of Japan’s soybean oil demand currently is satisfied by its soybean crushers, which primarily crush imported U.S. soybeans. This could change under the agreement because Japan will eliminate one-third of its duty (13.2 yen per kilogram; approximately 20.8-percent ad valorem equivalent) on U.S. soybean oil upon entry into force of the agreement and the remainder of the duty will be eliminated in four annual stages beginning on April 1 of year two. By April 1 of year five, the duty on U.S. soybean oil will be eliminated. The reduction and ultimately the elimination of the duty on U.S. soybean oil presumably will make the United States more competitive in Japan’s food oil market, but there is a risk of reduction in U.S. soybean exports if Japan’s crushing industry becomes less competitive as a result of the reduction in soybean oil prices in Japan.
Currently, palm oil comprises most of Japan’s food oil imports. In 2018/19, Japan purchased 836,000 metric tons of palm oil. Japan’s tariff on palm oil is 3.5 percent, considerably lower than its tariff on soybean oil that is approximately 20.8-percent ad valorem equivalent. The duty reduction and ultimate elimination of the tariff could be expected to make U.S. soybean oil more competitive with palm oil in Japan’s food oil market.
- Distillers Dried Grains with Solubles (DDGS): The duty for distillers dried grains will remain zero.
- Wheat: Japan continues its 5.74-million-metric-ton duty-free tariff-rate quota for wheat and its mark-up is reduced from a maximum of 45.2 yen per kilogram to 15.3 yen/kg in year one to a final cap of 9.4 yen. Japan will have a new country-specific quota exclusively for U.S. wheat, which starts at 114,000 tons in year two and increases to 150,000 tons over a seven-year period.
- Barley: Japan will maintain a 1.37-million-metric-ton tariff-rate quota for barley. There is zero tariff for the quota, but the maximum import mark-up is 7.2 yen per kilogram. Under the agreement, the maximum mark-up will be reduced to 4.4 yen. Japan will retain its import-prohibitive barley-for-feed tariff of 39 yen per kilogram for imports outside of the 1.37 million metric ton tariff-rate quota.
- Grain Sorghum: The tariffs that currently are as high as 3 percent will be eliminated.
- Ethanol: Japan will eliminate the 10 percent tariff on over 90 percent undenatured ethanol in 10 years, but will not eliminate its 27.2 percent tariff on over 90 percent denatured ethanol.
- Rice: Japan maintains a 767,000-metric-ton tariff-rate quota with a zero duty. Imports outside of the tariff-rate quota will be subject to duties equaling nearly 800 percent.
- Canola: The tariff on canola and canola oilcake will remain zero and the 4.2-percent tariff on canola meal will be eliminated. Japan’s duty on canola oil ranges from 10.9-yen-per-kilogram to 13.2-yen-per kilogram, or approximately 17.2- to 20.8-percent ad valorem equivalent and is unchanged by the agreement.
- Sunflower Seed: Sunflower seed and sunflower oilcake will continue to enter Japan duty-free, and the 4.2-percent tariff on sunflower meal will be eliminated. Japan’s duty on sunflower oil ranges from 8.5 yen per kilogram to 10.4 yen per kilogram, or approximately 13.4- to 16.4-percent ad valorem equivalent. Japan will eliminate one-third of its duty on U.S. sunflower oil upon entry into force of the agreement and the remainder of the duty will be eliminated in four annual stages beginning on April 1 of year two. By April 1 of year five, the duty on U.S. sunflower oil will be eliminated.
- Beef: Tariffs for fresh, chilled, and frozen beef will be reduced from 38.5 percent to 9 percent in 15 years. In addition, Japan will eliminate tariffs on processed beef products, including beef jerky and meat extracts, which currently are as high as 50 percent, in five to 15 years.
Japan’s World Trade Organization beef safeguard no longer will apply to U.S. beef. Instead, U.S. fresh, chilled and frozen beef will be subject to an annual U.S.-specific safeguard, which will begin at 242,000 metric tons, and increase 4,860 metric tons per year beginning in year three through year nine. The increase in years 10 to 14 will be 2,420 metric tons, and beginning in year 15, the increase will return to 4,840 metric tons.
- Pork: Tariffs on muscle cuts will be eliminated over nine years, and tariffs on processed pork products, such as the 20 percent tariff on ground seasoned pork, will be phased down to zero in year five. Certain fresh and frozen pork products will continue to be subject to Japan’s gate-price mechanism, but the maximum gate-price duty will decline from 482 yen to 50 yen per kilogram by year nine.
In addition, Japan’s World Trade organization pork safeguard no longer will apply to U.S. pork. Instead, Japan will create a new transitional safeguard mechanism. For the first three years, fresh, chilled and frozen pork cuts will be subject to a U.S.-specific safeguard that will allow for temporary duty increases when imports from the United States exceed 112 percent of the largest import volumes in the preceding three years. For years four through five, Japan may apply a safeguard for pork imports above a threshold price if the quantity of pork imports from the United States exceeds 116 percent of the largest import volumes in the preceding three years.
- Poultry: Japan’s import tariffs on certain poultry meat, eggs and egg products will be eliminated in five to 10 years, depending upon the product. Japan’s 8.5 percent tariff on frozen chicken legs will be phased out over 10 years. Japan’s 3 percent tariff on turkey will be eliminated immediately. Japan’s current 8 percent tariff on egg albumin products will be eliminated immediately.
- Dairy: Japan’s 40 percent cheese tariffs will be eliminated in 15 years, with whey duties eliminated in five to 20 years, depending upon the type, and safeguards could be triggered. A transitional U.S. country-specific quota will be established for 9,000 metric tons of whey products, and U.S. processed cheese will have a 150-metric-ton permanent country specific quota.