U.S. President Donald Trump and Japan's Prime Minister Shinzō Abe signed a preliminary U.S.-Japan trade agreement in New York City on Wednesday, garnering widespread praise from those in the agriculture sector who are anxious to see a deal with the lucrative export destination for U.S. agricultural products.
Agricultural leaders participated in a signing ceremony recognizing the bilateral trade agreement on the sidelines of the U.N. General Assembly meeting.
Under the agreement, Japan will place the same level of agricultural tariffs on U.S. goods as it places on CPTPP countries and the EU. By way of example, the 38.5% tariff on U.S. beef will fall to the 26% placed on beef from Australia, Canada and the EU. Some other foods such as duck, geese, turkey peaches, melons and more would enter duty-free. Once approved and implemented, over 90% of U.S. food and agricultural products imported into Japan will either be duty free or receive preferential tariff access. Under this first-stage initial tariff agreement, Japan will eliminate or reduce tariffs on an additional $7.2b of U.S. food and agricultural products.
The Japanese Parliament is expected to approve the agreement later this fall. It may take effect as early as Jan. 1, 2020. There is no action by the U.S. Congress necessary, as this is not a full trade agreement that involves substantive changes to existing U.S. law.
“Japan is a $12.9 billion business for our agriculture industry. We praise President Trump and [U.S. Trade Representative] Ambassador [Robert] Lighthizer for inking this win to expand access for U.S. producers and signal that we will not cede our market share to global competitors,” National Association of State Departments of Agriculture president and North Dakota agriculture commissioner Doug Goehring said.
Despite steep tariffs, the U.S. exported more than $3.6 billion in beef and pork to Japan last year, according to the North American Meat Institute. “The U.S. will now be better positioned to compete with countries in the Comprehensive & Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the European Union for valuable market share,” Meat Institute chief executive officer Anna Potts said.
U.S. producers sold $2 billion of beef to Japan in 2018, representing one-fourth of total U.S. beef exports and a volume of 330,217 metric tons. U.S. beef sales to Japan could increase 7-10% ($200 million a year), according to a statement from Iowa agriculture secretary Mike Naig, who was on site for the signing.
National Pork Producers Council president David Herring and president-elect Howard "A.V." Roth also joined Trump for the signing. U.S. producers sold $1.6 billion of pork to Japan in 2018, representing a volume of 394,300 metric tons.
"We've seen market share declines in Japan -- historically our largest value export market -- since the start of the year, when international competitors gained more favorable access through new trade agreements. Once implemented, the agreement signed today puts U.S. pork back on a level playing field with our competitors in Japan," Herring said.
Dr. Dermot Hayes, an economist at Iowa State University, estimates that exports to Japan could grow from $1.6 billion in 2018 to more than $2.2 billion over the next 15 years under market access terms included in the agreement.
Japan is one of the largest and most loyal U.S. corn customers, having bought more than $2 billion of U.S. corn in the most recent marketing year, and it is an important market for food and feed barley and sorghum. As a country looking to improve the environmental impact of its fuel, it is an important future market for U.S. ethanol products, the U.S. Grains Council (USGC) said in a statement.
“The details revealed today about the trade agreement between the U.S. and Japan show that this pact would bring commodities the U.S. Grains Council represents largely back in line with the Trans-Pacific Partnership Agreement and put these commodities on equal footing with other current CPTPP countries. This access is welcomed by our members in the U.S. grains production and exports sectors, and we look forward to rapid implementation of the new agreement,” USGC president and CEO Ryan LeGrand said.
Japan is the second-largest purchaser of U.S. corn. Lynn Chrisp, National Corn Growers Assn. president, noted in a statement that the group “has long-advocated for an agreement with Japan, and with many farmers struggling amid challenging times in agriculture, this is very welcome news. While we await further details, it seems this phase one agreement will deliver for corn farmers and build upon our successful partnership with Japan.”
U.S. wheat producers also offered high praise for the tariff agreement that will help again level the playing field for them.
“This agreement puts U.S. wheat back on equal footing with wheat from Canada and Australia that currently have a tariff advantage under a separate trade deal,” said U.S. Wheat Associates chairman Doug Goyings, a Paulding, Ohio, farmer. “We applaud the negotiators from both countries who worked very hard to reach an agreement that is so important to wheat farmers and to their flour milling customers in Japan.”
When the tariff agreement is implemented, Japan’s effective tariff on imported U.S. wheat will drop to the same level Japanese flour millers now pay for Canadian and Australian wheat. Since the CPTPP agreement entered into force last December, market factors have kept U.S. wheat competitive. Without this new agreement, however, U.S. wheat imports would have become less and less cost competitive to the point that Japan’s flour millers would have no other choice but to buy more lower-cost wheat from the CPTPP member countries.
In addition to matching the Canadian and Australian tariff schedule for U.S. wheat, Japan has agreed to open country-specific quotas for U.S. wheat and wheat product imports.
U.S. wheat currently comprises about 50% of all of the wheat Japan imports each year, with a value of more than $600 million on a volume that represents more than 10% of total annual U.S. wheat exports. This generally benefits all U.S. wheat farmers and specifically farmers from the Pacific Northwest to the northern and central Plains states.
Under the agreement, Japan will place the same level of agricultural tariffs on U.S. goods as it places on CPTPP countries and the EU. By way of example, the 38.5% tariff on U.S. beef will fall to the 26% level placed on beef from Australia, Canada and the EU. Some other foods such as duck, geese, turkey peaches, melons and more would enter duty free.
Japan's Parliament is expected to approve the agreement later this fall. It may take effect as early as Jan. 1, 2020. No action by the U.S. Congress is necessary, as this is not a full trade agreement that involves substantive changes to existing U.S. law.
The U.S. exported $270 million in dairy products to Japan in 2018, making it the fifth-largest overseas market, with room for further growth. Per capita consumption of dairy products in Japan has increased 4% per year, and domestic production is unable to keep pace. A level playing field would have allowed the U.S. to triple cheese exports to Japan over a decade. That’s particularly important because Japan is the second-largest net importer of cheese in the world, importing nearly $1.3 billion of cheese in 2018.
"Although full details of the agreement have not been released, we are confident this deal is a step in the right direction and will help to improve our current market position with Japan. If we had done nothing, U.S. dairy would continue to be less competitive in a global marketplace where Japan has implemented trade deals with competitors, including the EU, New Zealand and Australia," International Dairy Foods Assn. (IDFA) president Michael Dykes said. "While early reports indicate this deal does not fully achieve the same tariff rate reductions as those negotiated under the abandoned Trans-Pacific Partnership or the EU-Japan deal, it should deliver those benefits to cheese and whey — two of our largest exports to Japan. The Administration notes that this is the first step of a multi-step process to achieve a more level playing field for American agriculture in Japan, and we hope the next step comes quickly and delivers benefits for all dairy products. IDFA’s aim with the U.S.-Japan deal was to realize the same tariff-rate reductions afforded the EU and competitors through CPTPP, thereby ensuring American producers and processors remain on a level playing field with our competitors. Without a level playing field for U.S. dairy in ever-growing Asian markets, we will continue to cede valuable market share to global competitors.”