By Joe Schuele
In late September, President Donald Trump and Japanese Prime Minister Shinzo Abe announced that the United States and Japan will enter negotiations on a trade agreement. On Oct. 17, the Office of the U.S. Trade Representative (USTR) formally notified Congress of the Trump administration’s intent to negotiate a trade agreement with Japan. USTR is also required to publish objectives for these negotiations at least 30 days before formal talks begin.
To say that this came as welcome news for the U.S. beef industry would be a vast understatement. Japan is the largest international market for U.S. beef, and exports in 2018 could exceed $2 billion. But U.S. beef’s success in Japan has been achieved despite a 38.5% import duty – the highest rate U.S. beef faces in any major market.
“Japan is already the leading volume and value market for U.S. beef, and there is tremendous room for further export growth in several market segments,” said U.S. Meat Export Federation (USMEF) President and CEO Dan Halstrom. “But for that to happen, tariff relief is absolutely essential. USMEF commends the Trump administration for its commitment to open trade talks with Japan, and we hope to see rapid progress in these negotiations.”
For many years, the 38.5% duty applied to imports from all of Japan’s foreign beef suppliers. So while the high duty rate inflated the price of imported beef for Japanese importers and consumers, the playing field was somewhat level.
This changed in 2015, when Japan reached an economic partnership agreement (EPA) with Australia – U.S. beef’s most formidable competitor in Japan. The EPA delivered tariff relief for Australian beef – which now faces tariffs of about 27% for frozen product and 29% for chilled. Under the EPA, the duty rate for Australian beef was scheduled to drop to 19.5% by 2031 for frozen beef and to 23.5% by 2028 for chilled beef.
However, Australia is also a participant in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) – sometimes known as “TPP-11.” It is the successor to the Trans-Pacific Partnership (TPP), which counted the United States among its 12 participants until President Trump withdrew from TPP in early 2017.
Under CPTPP, beef supplying countries such as Canada, New Zealand and Mexico will gain significant tariff relief in Japan, and Australia will benefit from even deeper rate cuts than those included in the Japan-Australia EPA. Japan’s tariff rates for chilled and frozen beef will be cut from 38.5% to 27.5% upon implementation, to 26.6% on April 1, then phased down to 9% over 16 years.
Duties on beef variety meat, including tongues and skirts (now 12.8%), will be cut to 6.4% on implementation and to 5.7% on April 1, then phased to zero over 10 to 12 years. Japan will also eliminate tariffs on processed beef products.
How soon will CPTPP be implemented? After the U.S. withdrew from TPP, the language of the agreement was changed to state that CPTPP would enter into force once six of the 11 remaining participants ratified the agreement. Mexico, Japan and Singapore completed ratification procedures earlier this year, and in October legislation to ratify CPTPP was approved by the parliaments of Australia, Canada and New Zealand.
With these three countries having completed their domestic procedures, CPTPP’s 60-day “clock” started on Oct. 30 and the agreement will enter into force Dec. 30, 2018. This is the date on which Japan will make its first round of tariff rate reductions for supplying countries that have ratified CPTPP. The second rate cut will come April 1, when the new Japanese fiscal year begins.
“TPP-11 implementation is racing toward the finish line with Japan and all of its other major beef suppliers on board, so it is urgently important that the United States secures similar terms for U.S. beef,” Halstrom sys.
He added that a U.S.-Japan trade agreement is not only needed in order to protect U.S. beef’s market share, but also to allow the U.S. industry to capitalize on what promises to be a period of strong growth in Japan’s beef consumption. He cited the remarkable growth of the South Korean beef market as an example of what is likely to happen in Japan.
“Starting with the Korea-U.S. FTA in 2012, Korea has reached free trade agreements with each of its major beef suppliers,” Halstrom explains. “Korea’s import duties on U.S. beef have declined from 40% to about 21%. Although U.S. beef still has a duty rate advantage, the rates for beef from Australia, New Zealand and Canada have also dropped significantly.
“When beef is made more affordable and a more diverse range of cuts and products are accessible to a wider range of consumers, they respond in a big way. The prospects for U.S. beef in Japan are very exciting, provided that the U.S.-Japan negotiations achieve a timely outcome.”
Schuele is vice president, communications, with the U.S. Meat Export Federation in Denver, Colo.