New Agriculture Trade Pacts Will Help Some of America’s Biggest Competitors
WASHINGTON (Dow Jones) — After seeing exports to China tumble, U.S. farmers and ranchers are now bracing for more losses in their next-biggest Asian market: Japan.
On Dec. 30, Tokyo will begin cutting tariffs and easing quotas on products sold by some of American agriculture’s biggest competitors — including Canada, Australia, New Zealand and Chile — as part of the new 11-member Comprehensive and Progressive Agreement for Trans-Pacific Partnership.
The U.S. was originally part of that bloc, but President Trump pulled out last year, saying the agreement would have harmed American manufacturers and workers by loosening restrictions on U.S. imports of autos and auto parts, and intensifying competition with low-wage Asian nations.
Tokyo will follow up on Feb. 1 by implementing the European Union-Japan Economic Partnership Agreement offering similar breaks for the 28-country bloc’s agricultural products, aiding American rivals in France, Spain, Italy and the Netherlands.
Japan, unlike China, isn’t moving to block U.S. goods by retaliating for Trump administration tariffs. Instead, it’s doing the opposite, accelerating an ambitious market-opening agenda with more than three dozen countries spanning the globe — excluding the U.S. — that have unified to demonstrate to a skeptical Washington the advantages of free trade, and the costs of shunning it.
But the effect will be similar. Japan’s new free-trade push “threatens to cut into U.S. market share and depress profits for U.S. agricultural exporters by granting preferential access to … international competitors,” the Trump administration’s Agriculture Department warned in a May report.
At a recent public hearing, a coalition of U.S. agriculture interests sounded a similar alarm.
“Japan is our largest, most reliable and valuable market,” buying about half its imported wheat from Americans, said Vince Peterson, head of U.S. Wheat Associates. “But today we face an imminent collapse,” he warned, as competitors will soon be able to sell their products at an effective tariff rate nearly 10% below those facing U.S. growers.
He reminded officials that the U.S. “has not sold one kernel of wheat” to China for months because of the trade fight with Beijing.
The U.S. Meat Export Federation estimated that, combined, Japan’s new trade agreements will cause annual losses in beef and pork exports of more than $1 billion within five years.
Administration officials say they aim to rectify that emerging disparity by laying the groundwork to negotiate America’s own free-trade agreement with Japan, one that would offer similar access. The public hearing was called to consider objectives for those coming talks. The administration released those goals Friday, including a pledge to “secure comprehensive market access for U.S. agricultural goods” through sharp tariff cuts.
But those negotiations aren’t scheduled to start for weeks — likely after both the Pacific and Europe pacts take effect — and could get bogged down over sensitive issues unrelated to agriculture, including Mr. Trump’s demands that Japan find ways to cut its persistent automotive trade surplus, to accept new curbs regulating alleged currency manipulation, and even to scale back its whaling.
A spokesman for Mr. Trump’s trade representative declined to comment.
A quick agreement between the U.S. and Japan would limit the losses to American producers, since many of the tariff cuts for Pacific and European rivals will get phased in over years. But some tariffs will drop immediately, giving competitors a quick advantage, especially for beef and pork, the two largest American agricultural exports to Japan.
By April 1, exporters from the EU and TPP will face a 26.6% Japanese tariff for chilled and frozen beef, compared with a 38.5% tariff for Americans, while paying a 13.3% duty on prepared pork, versus 20% for Americans.
Some producers say they’re already losing business as a result. Kevin Smith, a vice president at Seaboard Foods LP, a Kansas-based pork producer, said his company is “already seeing a decline” as longtime customers “develop new supply chains so they can be fully prepared to take advantage of the tariff reduction opportunities.”
U.S. farmers are particularly concerned because Japan has been one of their biggest, and most stable, export markets. American producers are the largest food exporters to Japan, with 25% market share, ahead of the EU’s 13%. Japan imported $11.9 billion in American agricultural products in 2017, making it their fourth-largest foreign market, after China, Canada and Mexico.
And Japan was the only one of those four countries that didn’t impose new curbs this year on American farm products in retaliation for Trump administration tariffs on their exports of steel, aluminum and other goods. Exports of U.S. farm products subject to retaliatory tariffs were down 74% in October compared with a year earlier, according to Tariffs Hurt the Heartland, a lobbying coalition of manufacturing, farming and technology groups.
“Given the problems we are facing in other major markets like Mexico and China because of retaliatory tariffs, Japan takes on an even greater importance for our industry,” Smithfield Foods Inc. wrote in a comment filed to the administration’s trade office.
There’s an irony in American producers missing out on Japan’s newly aggressive opening of its long-protected agricultural market. The U.S. has for decades been at the forefront of prodding Tokyo to let in more farm imports. And U.S. companies worked assiduously to alter and expand the Japanese market for Western-style products, helping educate consumers and shift demand from seafood to red meats, and from rice to other grains.
President Obama pushed Prime Minister Shinzo Abe to enter TPP in 2013, and his negotiators held extensive bilateral talks with Japan to hash out agricultural concessions before signing the full 12-nation multilateral deal in February 2016. TPP then became a template for Japan’s European agreement, a pact both sides said they rushed to complete in 2017 to demonstrate they still supported advancing free trade when the U.S. was pulling back.
“The United States was the driving force in the TPP in opening agricultural markets in Japan,” says Barbara Weisel, the chief American negotiator of the pact, who retired from the U.S. trade representative’s office last year. “Foreign businesses will reap the benefits of the access the U.S. negotiated, while U.S. firms are left standing on the sidelines.”
President Trump has argued that, overall, TPP would have harmed the American economy, and that he could replicate and enhance any U.S. gains from TPP by striking better bilateral deals with individual members.
But for access to Japan’s agriculture market, Mr. Trump pledged to Mr. Abe in September that he would limit American demands in a bilateral trade deal to concessions already made in the TPP and Europe deals.
Most American farm groups say they are fine with that — as long as Mr. Trump can strike a deal very quickly, especially for the products where competitors will see immediate tariff cuts.
Arguing for swift negotiation, Dan Halstrom, president of the meat exporters group, told administration officials: “It is easy to lose customers that have been cultivated over decades, but much more difficult to win them back once they are lost.”