News continues to flow out from last week's meetings between the United States and Japan over the five "sacred" items and automobiles. The last post covered this ground in greater detail, but here's a few more pieces of useful information:
After more than a year of vigorously denying the possibility, it finally looks like Japan and the Americans have agreed to handle some or all of the sacred agricultural issues through tariff rate quotas (TRQs). This is a somewhat complex administrative system that allows a country to import a certain quantitative amount of a good at one, lower, tariff rate. Imports above that quota are charged a different, higher amount. Such schemes are possible for agricultural products.
For pork, indications are that the in quota rate on low-value pork will be lowered from 482 yen (or roughly USD$4) a kilo to 50 yen across a ten year time period. The out of quota rate (for pork in excess of, perhaps, 500,000-600,000 tons) will be charged 100 yen once the agreement is fully phased in. For some context, Japan currently imports 760,000 tons of pork (with more than half of imports from the United States and Canada).
However, as noted in my earlier post, the agreement will also have a snapback provision to allow tariffs to revert to 482 yen if imports surge.
Beef will also be subject to the same TRQ schemes, with the in-quota rate falling from 38.5% to just under 10%.
The primary issue with all these quotas now seems to be the specific provisions for the safeguards. If defined too loosely, they will automatically be applied as imports go up post-TPP. If defined too tightly, the Japanese are worried that they may never meet the criteria and may face crippling competition from American farmers with no remedy available.
In order to increase the leverage the United States has over these sensitive agricultural issues, the five sacreds were always tied to changes in automobiles. The Americans now appear to have promised to drop auto tariffs, but to do so on the same schedule as the longest phase-out period permitted for agricultural products. This keeps the pressure on Japan to implement tariff reductions in the shortest possible time period.
Because Japan was a late entrant into the TPP negotiations, it has been busily conducting bilateral market access talks with the other TPP member countries as well. It looks like Japan is running into some resistance from Vietnam (also rice and autos), New Zealand (dairy), Canada (also dairy), and Malaysia (plywood and timber products). Talks with other member countries where Japan already has existing trade agreements may be going more smoothly, although it is always difficult for governments to agree to additional concessions in the TPP negotiations that were not available in the bilateral talks.
Finally, I would like to close with a shout out to the Japanese media. Although accusations of TPP secrecy have been flowing thick and fast (even from people who ought to know better as I pointed out on January 14), the Japanese media have done a solid job in providing regular updates on the state of the talks.