By Ryoko Yamaguchi, editorial staff
“I was opposed to the Trans-Pacific Partnership (TPP) trade pact because I thought it would deal a major blow to my company,” says Rikio Yamaguchi (69). “Rather than being relieved by the departure of the United States from the TPP, though, I am concerned that bilateral negotiations may make the situation even worse than the TPP.”
Yamaguchi has a herd of 60 wagyu cattle in Aso City, Kumamoto Prefecture. Kumamoto Prefecture ranks fourth in the nation for number of beef cattle. Under the TPP, the 38.5% tariffs on beef were to be lowered in stages to 9% in year 16.
Yamaguchi raises Japanese Brown wagyu. It is said that the TPP will have little impact on Japanese Black, choice beef, even if the TPP goes into effect, but Japanese Brown often does not sell at as high a price as Japanese Black because the marbling is not as good as that of Japanese Black.
“Much Japanese Brown beef is not given the highest ranking for meat quality and so my beef competes with U.S. beef. I can’t possibly compete on the cost front,” says Yamaguchi.
Trends among beef-related agricultural organizations in the U.S. are a bit of a worry. Frustrated that the tariff reductions in the TPP will not be achieved, the groups are putting tremendous pressure on the Trump administration.
“Livestock farmers in Japan are talking with each other,” says agricultural journalist Masaru Yamada. “They are concerned that the U.S. will demand that tariffs be eliminated immediately or will make other extreme demands in the bilateral consultations,” says Yamada, who is coauthor of Bokoku no Mitsuyaku: TPP wa naze yugamerareta noka [Secret agreements that ruin the nation: Why the TPP became distorted] (Shinchosha Publishing).
Lobbying intensifying in the United States
“At some point in the past, the U.S. Department of Agriculture made a trial calculation of the impact of the TPP agreement if tariffs were completely eliminated by 2025. According to this estimate, U.S. exports to Japan would make up more than half of the increase in U.S. exports. That has informed the thinking of U.S. agricultural groups, so they are quite frustrated by America’s exit from the TPP,” explains Yamada.
A vociferous beef group, a dairy product export group headed now by the Secretary of Agriculture during the Obama administration, and the California rice community, which is pushing for rice exports to Japan, will seek to expand exports, Yamada anticipates. In the presidential election, most farmers voted for Trump, and the President cannot ignore the demands of agricultural organizations.
Years ago, Japan Agricultural Cooperatives (JA), Diet members pushing for the interests of the agriculture and fisheries industries, and the Ministry of Agriculture, Forestry and Fisheries bound tightly together to form an “iron triangle,” and they used to strongly pressure the government during agricultural negotiations. “The iron triangle exists no longer,” Yamada says. He maintains that it will be hard for the agricultural community to have a major impact on bilateral negotiations.
“Japan has never won multilateral negotiations in the field of agriculture in the past. Minimizing losses has always been the nation’s focus in agricultural talks.”
From his coverage of past negotiations, including the TPP and the Uruguay Round, Yamada asserts that it will be difficult for Japan to take the lead in the bilateral negotiations with the United States. “If the two countries enter bilateral negotiations, the difference in the two countries’ power will have a direct impact, and the U.S. with its ‘America First’ policy will exert a fair amount of pressure on Japan. We can expect rough negotiations,” says Yamada.
University of Tokyo professor Masayoshi Honma says, “If bilateral negotiations are held, President Trump will naturally demand market opening at least on the level of the TPP if not more.”
Will U.S. demands escalate?
According to Professor Honma, the U.S. is eyeing beef and pork as the two items it most wants to export. He says that Japan can expect tariff rates to be lowered more than under the TPP and there is a possibility that the U.S. will additionally ask that the trigger conditions for safeguards be tightened. Safeguards are measures to raise tariffs or limit imports in order to prevent serious damage to domestic industry due to sudden increases in imports. Safeguards were permitted in the basic agreement of the TPP.
“The U.S. may demand that the conditions for the activation of safeguards agreed in the TPP be strengthened,” says Honma.
Supposing the TPP had gone into force, how much of an impact would it have had on Japanese agriculture? In December 2015 after the agreement on the TPP negotiations had been reached, the government made a trial calculation of the impact of the TPP if it were to go into force. It announced that agriculture would see a decline of between 130 billion yen and 210 billion yen in production. Less than three years earlier in March 2013, however, the government estimated that production would decline by about 3 trillion yen if tariffs on all agricultural products were eliminated.
Even granting that the prerequisite conditions differed, why is it that there was such a difference in the figures? First, the 2015 calculation takes into account the impact of domestic countermeasures that would be taken. It is not known at this point, however, how successful the government’s TPP countermeasures would have been. So the figures can be considered rather arbitrary. The 2013 calculation aimed to show how great the damage of the TPP would be and so the results are arbitrary as well. With the U.S. departure from the TPP, the TPP will not be put into effect so the actual impact remains unknown.
Tariff reductions are a trend in agriculture now, too
If the bilateral economic dialogue gets underway and agriculture is raised as a topic for economic negotiations, there will be opposition once again from Japan’s agricultural community.
“It is no longer possible to say that agricultural products are an exception and none of the related tariffs can be lowered. With globalization, the trend of reducing and eliminating tariffs will not change,” comments Professor Honma.
The World Trade Organization (WTO), which was launched in 1995, agreed to eliminate import restrictions, including quotas, on agricultural products and to create tariffs. Now the WTO is working out avenues forward to reduce tariffs. About 81% of tariffs on agricultural products have been eliminated in the nations participating in the TPP (excluding Japan, the average in the 11 other countries is 98.5%). Japan has eliminated a much lower percentage of the tariffs on its agricultural products. Japan will not be allowed to maintain high tariffs forever.
“Most tariffs on non-agricultural products have been eliminated through the WTO and the General Agreement on Tariffs and Trade (GATT), which is the predecessor of the WTO. In this sense, agriculture is one lap behind and so is now front and center,” said Professor Honma.
Japan’s agricultural policy has been to support domestic farmers by forcing up domestic prices on agricultural products through high tariffs. Japan’s 778% tariff on [imported] rice reveals this plainly. Even some rice farmers are questioning the current tariff system. Akita Prefecture is the nation’s third largest producer of rice. Toshikazu Shindo (49) has a 9 hectare farm, mainly rice, in Yurihonjo City in the southern section of the prefecture. “Personally, I think it would be okay to eliminate the tariff on rice. Japan would just need to introduce domestic policies that would enable farmers to make a living,” he says.
Domestic issues should be handled before talking about foreign pressure
“Japan has surplus rice so the idea of not allowing in foreign rice makes good sense,” says Shindo, showing an understanding of the movement to oppose the lowering of tariffs. At the same time, he questions the approach of putting up unqualified opposition to tariff decreases while shelving domestic issues. “I think it would be more constructive to address the issue of the rice surplus in Japan.”
Demand for rice is decreasing at a pace of 80,000 tons a year, but production volume is not lowered so the rice surplus grows. Shindo says Japan should resolve domestic issues before talking about foreign pressure.
Not just rice, but domestic agriculture overall faces a variety of problems, including the aging of farmers, the lack of successors, and production inefficiency. Even without outside pressure to lower tariffs, agriculture faces a crisis. Professor Honma says that time should be spent on raising the competitiveness of domestic farming while adeptly handling foreign demand for market opening.
“The WTO has agreed to move in the direction of lowering tariffs, and the position of not opening the rice market and not lowering tariffs can’t be sustained forever,” says Honma. “Japan should work out how to ‘completely remove tariffs on agricultural products in 20 years’ and then create a new vision for agriculture based on that.”
With the lowering and elimination of tariffs, Japan’s agricultural products will compete with foreign products. This can be addressed by raising production efficiency, entering foreign markets through exports, and offering farmers income compensation. If Japan quickly creates and implements a long-term vision, it is possible to strengthen domestic agriculture, Honma maintains.
“To fulfill the future vision for agriculture, we are now considering the work schedule of what we need to do by calculating backward from the goal. For this, we need to skillfully use economic negotiations, including the TPP,” says Honma.