New trade pact with Japan taking shape
White House officials are telling the U.S. ag sector that they are going to win big in the miniature trade pact announced Aug. 25 after presidents Donald Trump and Shinzo Abe met on the sidelines of the annual G7 summit, but many details haven't ...
White House officials are telling the U.S. ag sector that they are going to win big in the miniature trade pact announced Aug. 25 after presidents Donald Trump and Shinzo Abe met on the sidelines of the annual G7 summit, but many details haven't yet been nailed down, government and industry sources tell Agri-Pulse.
America's farmers are going to be "very happy" with the deal, which will contain tariff cuts that resemble the increased access to Japan's market in the former Trans-Pacific Partnership, one government official said.
Commodity organizations want to make sure their producers will be able to compete on a level playing field with other suppliers in Australia, Canada, New Zealand and the European Union.
The Trump administration held a conference call on the Japan pact for leaders of the U.S. ag sector recently, but many hung up disappointed after getting vague assurances and virtually no details.
"Everyone is nervous because no one knows anything," one industry source told Agri-Pulse.
"Nobody is providing specifics," another source said. "They're talking in general terms."
Will Japan cut tariffs to the same degree it promised under TPP? Will Japan accelerate the schedule for those tariff decreases to match the schedule for countries that stayed in the TPP (now retitled the Comprehensive and Progressive Agreement for Trans-Pacific Partnership)?
Ted McKinney, USDA's trade undersecretary, told members of the National Farmers Union on Monday, Sept. 9, the plan is for both countries to implement the new trade pact by around Jan. 1, immediately bringing down Japanese tariffs on a wide array of U.S. ag commodities.
McKinney said that 70% to 90% of the agreement is complete.
The U.S. isn't going to get everything it wants in the pact, McKinney told NFU members, but he named some U.S. commodities that will get tariff cuts: beef, pork, ethanol, distiller's grains and soymeal.
McKinney confirmed that Congress won't have to ratify the pact, but Japan's legislature will. Still, he said he expects on Jan. 1 "we will go live on the agreement and that way tariffs would come down in some margin equivalent to other countries" in the Trans-Pacific Partnership, which the U.S. pulled out of two years ago.
Looking for details
Trump and Abe are both expected to attend the opening of the 74th United Nations General Assembly session later this month. It's then that both countries are hoping to finalize the pact. Between now and then, U.S. ag leaders are hoping to get some details.
"We believe it is important that the United States and Japan reach a deal that will create a level playing field for U.S. dairy after having pulled out of the original Trans-Pacific Partnership," International Dairy Foods Association President and CEO Michael Dykes said. "As more details of the agreement become clear, IDFA will continue to determine the impact on the dairy industry."
The stakes are high for dairy. Japan is the third largest foreign market for U.S. dairy, but the industry is worried it's already losing some of that market because the U.S. pulled out of TPP. Japan and the EU kicked off a new free trade agreement on Feb. 1, about a month after Japan and 10 other Pacific Rim countries implemented the CPTPP. Japan cut tariffs in both of those pacts, improving access for dairy, beef, wheat, pork, wine, fruits and vegetables. The U.S. was left out.
Japan buys roughly $300 million of cheese, whey, lactose and skim milk powder per year, but the EU and countries like Australia and New Zealand - with newly reduced tariffs - are looking to take some of that business away.
The U.S. Dairy Export Council estimates that if U.S. exporters don't get on equal footing with their foreign competitors, U.S. dairy exports will drop by $90 million over the next five years.
Optimism for wheat, beef
Even with so little information coming out, some groups are optimistic.
"We don't think there's any reason we'd get less than even footing with our competitors in Canada and Australia," said Steve Mercer, a spokesman for the U.S. Wheat Associates.
If the Trump administration does come through for U.S. wheat, it will be a major relief for the sector. The U.S. sells about 3 million metric tons of wheat to Japan yearly, but the U.S. grain is getting more expensive. Japan has already cut tariffs twice on wheat from Europe and CPTPP countries. As of April 1, U.S. wheat became about $20 per ton - roughly 55 cents per bushel - more expensive than wheat from Australia, Canada and elsewhere.
U.S. cattle ranchers are also optimistic about the deal with Japan - the largest foreign market for U.S. beef - and they are counting on it to put them back on a level playing field with other exporters from countries like Australia.
"Even though Japan is our biggest export market, we still face a 38.5% tariff, and unfortunately our competitors have a leg up on us," says Kent Bacus, director of international trade and market access for the National Cattlemen's Beef Association. "Australia, New Zealand, Canada and Mexico - their tariff is only 26.6% and it's phasing down to 9%. So, if we don't do anything soon, we're going to see that gap grow."
The Japan FTA is being done in phases, and this one is merely the first, concentrating on ag, e-commerce and industrial tariffs.
But the first phase isn't even done yet, and the U.S. ag sector won't likely rest until it is.
"This is very exciting news, but it doesn't mean the deal is done," Bacus said.