The agricultural trade world got a teaser of—hopefully—better things to come.
On Sunday, Aug. 25, President Donald Trump and Japanese Prime Minister Shinz? Abe made a joint announcement of an agreement in principle on a long-awaited bilateral trade agreement. The two leaders made the announcement while attending the 2019 Group of Seven (G7) international economic meeting in Biarritz, France.
In the joint meeting, the two leaders and their respective trade officials—U.S. Trade Representative Robert Lighthizer and Toshimitsu Motegi, Japan’s Minister for Economy, Trade, and Industry—wrapped up “a series of intensive negotiations” that began last year.
“We’ve been working on a deal with Japan for a long time,” explained Trump following the meeting.
“It involves agricultural and it involves e-commerce and many other things. It’s a very big transaction, and we’ve agreed in principle.”
There were very few details given about the agreement, other than it covers agriculture, industrial tariffs, and digital trade, according to Lighthizer. However, he did provide an example of how the agreement might help.
“It will lead to substantial reductions in tariffs and non-tariff barriers across the board. And I’ll just give you one example: Japan is, by far, our biggest beef market. We sell over $2 billion worth of beef to Japan. And this allow us to do with lower tariffs and to compete more effectively with people across the board, particularly the TPP countries and Europe.”
Currently, the U.S. faces a 38.5 percent tariff on beef exported to Japan. This compares to the current 26.6 percent tariff faced by many of our beef competitors that are involved in the Trans-Pacific Partnership (TPP). Their tariffs will eventually fall to 9 percent. Though the U.S. had been at the forefront of the TPP, Trump pulled the U.S. out of the then-developing deal shortly after taking office in 2017.
Both Trump and Abe noted that they plan to sign a bilateral agreement sometime later this month during the United Nations General Assembly meeting.
“We still have some remaining work that has to be done at the working level, namely finalizing the wording of the trade agreement and also finalizing the content of the agreement itself,” noted Abe, but he added that he and Trump are eager to get things done quickly.
For this, many ag industry groups expressed thanks.
“Today is an exciting day for America’s cattlemen and cattlewomen,” said National Cattlemen’s Beef Association (NCBA) President Jennifer Houston in the group’s official response to the announcement. She called the agreement in principle “another great victory for the U.S. beef industry.”
“Removing the massive 38.5 percent tariff on U.S. beef will level the playing field in Japan, and we are very thankful to President Trump and his trade team for continuing to fight on behalf of America’s ranching families.”
Similarly, U.S. Meat Export Federation (USMEF) President and CEO Dan Halstrom applauded the prioritization of trade negotiations with Japan.
“This announcement is tremendous news for U.S. farmers and ranchers, and for everyone in the red meat supply chain, because it will level the playing field for U.S. pork and beef in the world’s most competitive red meat import market,” he said in USMEF’s official response to the news.
“Favorable access to Japan is a major win, not only for the U.S. red meat industry but for all of U.S. agriculture and for our nation’s rural economy.”
Few details
Despite the warm reception from industry, the joint announcement didn’t offer many details on the agreement.
“It’s a framework essentially saying that the U.S. and Japan are going to try to enter into an agreement and they’re really going to try to focus on agriculture,” summarized Kent Bacus, NCBA’s senior director of international trade and market access, during a recent Beltway Beef podcast.
“That doesn’t mean that the deal is done. There are still some final details that will have to be fleshed out. They’re going to have to try to work through some issues,” he explained, adding that what all the two countries are going to continue working on is not known.
He stressed the need for a level playing field with our global beef competitors; Australia, New Zealand, Canada, and Mexico where Japan is concerned. Beef exports going into Japan from those countries currently have a tariff rate advantage over U.S. beef.
“So if we don’t do anything soon, we’re going to see that gap grow,” Bacus said, though he added that the current global beef situation has shielded the U.S. from feeling a lot of it. Australia is facing beef shortages and supplies are tight elsewhere, and there is large beef demand from China as African Swine Fever severely damages the country’s pork supplies.
“However, that might not always be the case,” he cautioned. “So, we want to level that playing field, bring our tariff into line with those other countries, or at least give us a fighting chance.”
Though the details are unclear at this point, Bacus said there is a possibility the eventual U.S.-Japan bilateral trade agreement will be an executive action, meaning it could bypass Congress.
“I don’t really know how this is all going to play out, but the exciting news is it is a priority for the Trump administration and for Prime Minister Abe in Japan, and both sides want to see this implemented as soon as possible.”
Corn curiosity
One detail about the agreement in practice that was offered, then seemingly walked back, during the announcement between Trump and Abe is on whether Japan will be buying the U.S.’ “excess corn.”
“And one of the things that Prime Minister Abe has also agreed to is we have excess corn in various parts of our country, with our farmers, because China did not do what they said they were going to do. And Prime Minister Abe, on behalf of Japan, they’re going to be buying all of that corn. And that’s a very big transaction. They’re going to be buying it from our farmers,” said Trump immediately after announcing the agreement in principle.
However, shortly thereafter and following initial statements by Abe, Trump suggested that some of the continuing efforts at finalizing the agreement should include Japan agreeing to buy “all that corn,” suggesting that it hadn’t yet been finalized as previously stated. Abe responded to this by describing it in the uncertain terms of “potential” and “possibility.”
“So, with regard to the potential purchase of American corn, in Japan we are now experiencing [insect] pest on some of the agricultural products,” Abe said, via interpreter.
He explained that the Japanese private sector does need to buy a “certain amount” of additional corn as a result, and that the government may need to “implement emergency support measures” for the private sector.
“So that’s why, against such backdrop, I do think that there is a possibility for us to cooperate to address this issue.”
English-language versions of Japanese news media have variously noted Abe’s hedging language in the face of Trump’s assertions, but some also claimed the deal will be happening with a few additional details.
A report from NHK/the Japanese Broadcasting Corporation last Tuesday cited unnamed Japanese government officials as saying Japanese companies will buy an additional 2.5 million tons of corn for animal feed, roughly 25 percent more than the country typically imports. Japanese government announcements accessible to WLJ did not include any additional information on any of the trade talks. — Kerry Halladay, WLJ editor
