U.S.-Japan trade deal falls short of abandoned Trans-Pacific pact

But beef and pork producers have made big gains under the bilateral deal

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Washington | Reuters – U.S. President Donald Trump has called his new trade deal with Japan a “phenomenal” victory for U.S. farmers.

But don’t expect America’s Land O’Lakes butter to knock New Zealand’s Anchor or France’s President brands off store shelves in Japan, the world’s third largest economy.

Butter is one of several U.S. dairy products that will not get improved access to Japan’s 127 million consumers under the limited bilateral trade deal signed by Trump and Japanese Prime Minister Shinzo Abe on Sept. 25.

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The deal’s full text has not been released and remains classified, but congressional aides, trade experts and industry groups briefed on it say that it offers worse access to Japan for some U.S. agricultural goods than the Trans-Pacific Partnership (TPP), a now 11-country trade deal that Trump quit on his third day in office in 2017.

U.S. butter, milk powder and evaporated milk, along with some grains, would have competed with other TPP signatories for Japan’s new import quotas under the Pacific Rim deal.

When the United States pulled out, that left more space for brands like Anchor or Australia’s Western Star, and Japan refused to grant new quotas for U.S.-made products in the just-completed U.S. negotiations.

But there are gains that bring U.S. beef, pork and wine exports in line with TPP competitors from Australia, New Zealand and Canada, putting them on the same tariff schedule.

“There are some specific parts of the ag sector that really do benefit from this,” said Matthew Goodman, an Asian economics expert at the Center for Strategic and International Studies in Washington. “More broadly, this is not a highly significant deal from a commercial perspective, as it doesn’t touch the biggest item in bilateral trade, autos and auto parts.”

Left out

The U.S.-Japan agriculture-centered deal is notable for what it leaves out. It does not include the bulk of products that make up the bilateral trading relationship, notably autos from Japan and aircraft, liquefied propane gas and semiconductor manufacturing equipment from the United States.

America’s rice growers won’t benefit from the new bilateral trade deal, as tariffs and quotas on U.S. rice imported to Japan set in the early 1990s remain in place.

Under the TPP, Japan would have accepted 70,000 metric tonnes of American rice per year tariff-free under a U.S.-specific quota, but this was not included in the bilateral deal.

Tim Johnson, president and CEO of the California Rice Commission, said he hoped for a better deal in later phases of U.S.-Japan talks.

Barley also will not get improved access in the trade deal, congressional aides said, as Japan did not expand its TPP-wide quota for the grain used widely in beer production.

Apart from the lack of improved access for butter and milk powder, exact details of cheese provisions in the U.S.-Japan deal are not yet known. TPP would have eliminated Japan’s tariffs of up to 40 per cent on U.S. cheese over 16 years, but dairy industry officials say they eventually expect to be on a par with TPP countries.

“We think it’s probably 80 per cent of what we would have gotten in TPP,” said Michael Dykes, president and CEO of the International Dairy Foods Association.

Similar to TPP

U.S. beef is the major winner in the U.S.-Japan deal and will see Japanese tariffs fall to nine per cent from 38.5 per cent by 2033, on the same schedule as TPP competitors Australia, New Zealand and Canada, according to U.S. and Japanese officials.

The story is the same for U.S. pork exports to Japan, which topped $1.6 billion in 2018, but which now face a significant tariff disadvantage compared to TPP and EU countries. The deal will put U.S. producers on the same tariff reduction schedule as these competitors, with a 20 per cent tariff for seasoned pork dropping to zero within six years.

These concessions may provide some relief for farmers and ranchers in the politically important U.S. Midwest who have been battered by the U.S.-China trade war and have lost market share in Japan to EU and TPP competitors that have lower Japanese tariffs.

U.S. ethanol will essentially see the same tariff reduction schedule as other TPP countries, an industry official said.

And the deal maintains Japan’s zero duty on U.S. corn for animal feed, but grants a quota eliminating a three per cent duty on sweet corn and other types of corn, according to the U.S. Grains Council, an industry group, which said the deal brings most U.S. grains exports “largely back in line with TPP.”

Wheat producers also said they have been told by the Trump administration that tariffs on exports to Japan will drop in line with tariffs on Australian and Canadian wheat.

Japan’s tariffs on U.S. wine will also fall, from 15 per cent to 7.1 per cent on April 1, 2020, basically the same level they would have under the TPP, the Wine Institute said.

But Japanese documents say that no concessions were granted for other types of alcohol.

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