The leaders of Japan and the other 10 remaining countries in the renamed Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) signed off on the sweeping trade pact last Thursday, and many in the U.S. ag sector are worried they’ll suffer from being left out.
It was in January last year that newly elected President Donald Trump followed through with a campaign pledge to pull the U.S. out of the pact back when it was just called the Trans-Pacific Partnership and had a shorter acronym.
Groups like the National Cattlemen’s Beef Association, the American Farm Bureau Federation and the American Soybean Association have been lamenting the action ever since because the treaty was expected to open up billions of dollars in new trade – mostly to Japan – through lower tariffs.
But now that the CPTPP countries have agreed to carry on without the U.S., it’s no longer just a case of losing potential new business with Pacific Rim countries like Japan and Vietnam. Instead, it has become a threat of losing that new market share potential to countries like Australia, New Zealand and Canada – all of whom remained in the free trade agreement.
U.S. beef exporters could see some of the biggest losses because they have the most to lose. Japan is the largest foreign market for U.S. beef even though Japanese tariffs stand at a whopping 38.5 percent. That’s far more than Japanese importers pay for Australian beef, which is at 27 percent and continues to drop thanks to the FTA between the two countries.
Australian beef exports have been held back by recent droughts, but the country is recovering.
“It’s a tough situation for us because that’s our leading export market,” Kent Bacus, NCBA’s international trade director, told Agri-Pulse. “We’ve made significant gains in market share given Australia’s drought, but those gains will be short-lived if we don’t do something to address the tariffs.”
But it’s not just a relatively simple drop in tariffs that U.S. beef exporters would have gotten from Japan under the TPP. Japan maintains two versions of a complex beef import safeguard measure – one based on quarterly imports and one based on yearly imports.
It was the quarterly mechanism that was triggered last summer for frozen beef because of extremely high global imports. Only the countries that did not have a free trade agreement with Japan saw their tariffs rise from 38.5 percent to 50 percent. The U.S., Canada and New Zealand were all affected, but Australia was not.
After the 11-country trade pact is ratified by all of the members – likely sometime next year – the U.S. will be the only country affected by the quarterly safeguard mechanism. Canada and New Zealand are both members of the CPTPP.
“We would be the only major supplier that would be subject to the quarterly safeguard,” a spokesman for the U.S. Meat Export Federation said.
The current safeguard mechanism that was triggered on Aug. 1 expires on April 1, the end of Japan’s fiscal year, and Japanese tariffs on frozen U.S. beef will drop back to 38.5 percent.
It will likely be only a small consolation because next year, after the CPTPP is fully ratified, the U.S. will be one of the last major producing and exporting countries with tariffs that high.
U.S. wheat farmers say they will start seeing damage from new and uneven competition even sooner because the U.S. is not in the trade pact. That’s because making noodles and baking bread is based on combining just the right mix of wheat varieties, many of which vary from country to country. In preparation, Japanese millers will soon start reformulating their products to prepare for cheaper wheat under lower tariffs from other members of the trade agreement.
Japan now buys more than half of the 6 million metric tons of its imported wheat from the U.S., but the U.S. Wheat Associates (USW) and the National Association of Wheat Growers (NAWG) say that could be cut in half after all of the CPTPP countries ratify the pact.
“Once (CPTPP) is ratified, U.S. wheat exports to Japan will be at serious risk,” USW, NAWG and 33 of their affiliated state groups said in a letter to U.S. Trade Representative Robert Lighthizer. “(CPTPP) will reduce the effective tariffs that Japanese flour millers pay for imported Australian and Canadian wheat over nine years from about $150 to about $85 per ton. Effective tariffs on imported U.S. wheat would remain at about $150 per ton.”
The wheat groups are hoping Lighthizer will follow up on Trump’s recent admission that he’s considering allowing the U.S. to rejoin the Pacific Rim trade pact, but the chances of that seem to be diminishing as the U.S. becomes more aggressive in its trade policy. Just last week Trump unveiled a plan to slap 25 percent tariffs on steel imports and 10 percent tariffs on aluminum imports. Canada and Mexico will be exempted, but Japan might end up paying the duties.
“Unfortunately, the agreement among the TPP members will have a devastating impact in rural communities across the wheat belts of the Great Plains and the Northwest, though it will hurt the income of every American farmer growing wheat,” the groups said in the letter to Lighthizer. “The President has promised to negotiate great new deals. American agriculture now counts on that promise and American wheat farmers – facing a calamity they would be hard pressed to overcome – now depend on it.”
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