Trade troubles just keep coming this summer.
Tariffs jumped from 38.5 percent to 50 percent on frozen beef going into Japan last Tuesday. This was the first time in 14 years that Japan’s so-called “safeguard” tariff was implemented. Unless it is overturned, the increased tariff will last until April 2018. This new development puts the U.S. at an even greater disadvantage behind Australia when it comes to beef trade to Japan.
Beef coming into Japan has a 38.5 percent tariff unless the exporting country has a trade agreement with Japan. Australia, which supplies over half of Japan’s frozen beef imports, currently enjoys a 27.2 percent tariff as a result of the Japan-Australia Economic Partnership Agreement (JAEPA). The JAEPA was negotiated in 2014 during the U.S.’ Trans-Pacific Partnership talks with Japan. JAEPA went into effect in January 2015.
To add to the complexity of the beef trade with Japan, the country has a moving quota for beef imports. The import volume of a financial quarter can be up to 17 percent larger than the volume of the same quarter the year before. If imports exceed that level, the higher “emergency” safeguard tariff is implemented until the beginning of the next fiscal year. Japanese fiscal years begin in April.
The U.S. Meat Export Federation (USMEF) reports imports of frozen beef into Japan for its first quarter (April 1-June 31) exceeded safeguard levels by 113 metric tons. Export increases from both the U.S. and Australia during April through June accounted for the increase. Additionally, relatively low imports during April-June 2016 made the first-quarter safeguard trigger point lower than it might have been.
The U.S. supplies roughly 35 percent of Japan’s total frozen beef imports, the largest source after Australia. Other countries that supply frozen beef to Japan include New Zealand, Canada, and Mexico, but their volumes are relatively low. New Zealand and Canada will also suffer the 50 percent tariff. Tariffs on Mexican frozen beef will remain at 30.8 percent due to an economic partnership agreement with Japan.
Numerous beef and agricultural groups expressed disappointment and concern over the move.
“I am concerned that an increase in Japan’s tariff on frozen beef imports will impede U.S. beef sales and is likely to increase the United States’ overall trade deficit with Japan,” said Secretary of Agriculture Sonny Perdue. “This would harm our important bilateral trade relationship with Japan on agricultural products.”
“NCBA opposes artificial barriers like these because they unfairly distort the market and punish both producers and consumers,” commented Craig Uden, National Cattlemen’s Beef Association president, in the group’s statement.
“Nobody wins in this situation. Our producers lose access, and beef becomes a lot more expensive for Japanese consumers. We hope the Trump administration and Congress realize that this unfortunate development underscores the urgent need for a bilateral trade agreement with Japan absent the Trans-Pacific Partnership.”
Japanese fast food
USMEF echoed similar concerns over the impact the tariff will have on both American producers and Japanese customers, but focused very specifically on what sector of Japan’s industry will be impacted.
“It will be especially difficult for the gyudon beef bowl restaurants that rely heavily on Choice U.S. short plate as a primary ingredient,” noted USMEF President and CEO Philip Seng.
Gyudon is an especially popular fast-food-style meal in Japan. It consists of shaved beef simmered together with onions laid over usually rice, but sometimes noodles.
According to data from the Global Trade Atlas and the Agriculture and Livestock Industries Corporation of Japan, compiled by USMEF, 93.5 percent of the frozen beef the U.S. exports to Japan this year has consisted of brisket short plate items. By comparison, brisket and short plate items made up only 14.4 percent of Australia’s exports of frozen beef to Japan.
Short plate items are the most popular in gyudon, but brisket is also used. Frozen is said to be preferred to chilled due to storage and shelf life.
“This sector endured a tremendous setback when U.S. beef was absent from the Japanese market due to BSE, and was finally enjoying robust growth due to greater availability of U.S. beef and strong consumer demand,” Seng continued.
A USMEF factsheet on the short plate trade with Japan noted that the country “has a clear preference for U.S. short plate over Australian brisket/short plate. Even though imports from Australia essentially tripled while imports of U.S. beef were still facing BSE-related restrictions, Japan’s total brisket/plate imports from Australia at their 2012 peak of 54,000 metric tons (mt) were less than half of the volume imported from the U.S. in 2003 (125,000 mt).
“USMEF will work with its partners in Japan to mitigate the impact of the safeguard as much as possible,” Seng said elsewhere in his response to the tariff. “We will also continue to pursue all opportunities to address the safeguard situation by encouraging the U.S. and Japanese governments to reach a mutually beneficial resolution to this issue.”
A frozen future?
Though long-term impacts are unclear, the immediate outcome of the increased tariff will be U.S. frozen beef becoming more expensive to Japanese importers. This comes with the potential of declining demand from Japanese customers. This is during a time where U.S. production is expected to increase—making access to our top export market by value important—as is our closest competition.
“Meat and Livestock Australia (MLA) recently raised its production and export forecasts for this year, and thus Australia will be poised to capitalize on the duty differential, although their product is generally less preferred and it is unable to supply the large volume of Choice grade short plate embraced by the Japanese foodservice sector,” reported USMEF.
While the group said it is possible that other Asian importers may absorb excess U.S. frozen short plate supply if Japan slows its imports, it did not sound hopeful.
“Japan is by far the dominant market for U.S. short plate, so any slowdown in Japan’s imports is going to have an effect in the U.S. market (including on 50 percent trim) as well as across Asia.
What the longer-term future will hold is uncertain at this point. Perdue, NCBA, and USMEF all made comments about efforts to address the situation. Reports on the increased tariff from Japanese newspaper Kyodo note repeatedly that the move will likely stoke conflict in coming trade discussions with the White House.
USDA and the Office of the U.S. Trade Representative did not respond to WLJ’s questions regarding how the tariff increase might be addressed or how it might impact ongoing trade agreement discussions with Japan. — Kerry Halladay, WLJ editor
