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EU-Japan trade agreement worries U.S. ag groups

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The EU-Japan Economic Partnership Agreement announced last week will give the EU a significant competitive edge over U.S. dairy and meat exports.

The European Commission last week called the new Economic Partnership Agreement with Japan “the most important bilateral agreement ever concluded by the EU,” saying it will remove the vast majority of duties and open the Japanese market to key agricultural exports.

American Farm Bureau economist Veronica Nigh said the agreement is a significant threat to U.S. agricultural exports to Japan, which consistently ranks as the fourth-largest market for the U.S. Japan imported $11 billion in agricultural goods from the U.S. in 2016.

In her analysis of the agreement, she said Japan continues to maintain high tariffs on agricultural goods, especially compared to other developed countries.

“Reductions in these tariffs will certainly mean greater sales for the country able to reach and ratify a trade agreement,” she said.

That’s why U.S. agriculture celebrated the completion of the TPP in February 2016 and mourned the U.S. withdrawal in January. The EU recognized the U.S. withdrawal from TPP as an opportunity, and its negotiations with Japan went into hyper-drive, she said.

The agreement “likely means that we will lose market share in an important market — that’s what tends to happen when you’re outside looking in on a bilateral FTA,” she said.

It could lead to significant erosion of U.S. market share for pork, beef, cheese, processed foods and wine. The EU already has a strong presence in Japanese markets, which a significant tariff advantage will only increase, she said.

Dairy impact

The agreement includes better access for EU cheeses and other dairy products, such as milk powders and butter, said Shawna Morris, vice president of trade policy for National Milk Producers Council.

“This agreement is a fresh reminder of how critical it is that we get in the game as well,” she said.

The EU is negotiating with other countries as well, and the other major dairy supply countries of the world are also actively pursuing free trade agreements for their countries.

It’s critical the U.S. do the same, she said. Japan is a sizable market for U.S. dairy and the third largest for U.S. cheese.

U.S. dairy sales to Japan were $205.7 million in 2016, down 25 percent from 2015, according to the U.S. Dairy Export Council.

The European Commission said the agreement with Japan will scrap duties on EU hard cheeses and ensure the protection in Japan of more than 200 geographic indicators.

The U.S. dairy industry is always concerned about geographic indicators, which the EW uses to protect common food names such as parmesan or feta cheese to restrict competition.

However, Japan has been setting a pretty good example with its system on geographic indicators, she said. It requires an application be submitted, reviewed and opened for public comment, evidence and arguments before the government makes a decision.

“To our knowledge, on the GI side of things, it’s at the beginning, not the end, of the process,” she said.

The Consortium for Common Food Names, for which she is the senior director, participates in such processes, she said.

The EU is also negotiating a deal on GIs with Mexico and concluded one with Canada last year, said Beth Hughes, director of international affairs for the International Dairy Foods Association.

“We still need to see the details, but we are concerned about which common food names will be affected and how that will impact U.S. cheese exports to Japan,” she said.

The EU-Japan bilateral agreement could be an “ominous portent” for U.S. dairy exports to Japan, she said. The agreement enhances the EU as a competitor to U.S. dairy in Japan now and in the future.

In the bigger picture, USDA projects U.S. milk production to grow 23 percent over the next 10 years. Given that U.S. exports today account for 15 percent of production, there needs to be export opportunities for approximately 80 billion pounds of milk over the next 10 years, she said.

“Bilateral agreements, especially in the Asia-Pacific region, are critical if we are to attain our future export potential and continue to support American jobs,” she said.

Meat matters

National Pork Producers Council is also concerned and has renewed its request that the Trump administration begin negotiations on a trade deal with Japan.

“The United States must quickly finalize a trade deal with Japan if it wants to maintain that important market, said Ken Maschhoff, NPPC president, in a press release.

“We can’t stand by while countries around the world negotiate agreements that give them a competitive advantage over American products,” he said.

Japan is the highest-value market for U.S. pork, importing $1.56 billion in 2016 and 26 percent of U.S. production. Those exports added more than $50 per head to the average value of all hogs marketed in the U.S.

“Producers are very dependent on exports … we can’t afford to lose exports in our No. 1 market,” Maschhoff said.

The EU is an aggressive and formidable competitor in the Japanese pork market and is the second-largest supplier after the U.S.

European exporters stand to gain a significant advantage through the tariff reductions negotiated in the agreement with Japan, the U.S. Meat Exported Federation said in a statement to Capital Press.

Japan is clearly moving forward in reducing agricultural trade barriers for other suppliers, USMEF stated.

The U.S. also shipped $1.51 billion in beef to Japan in 2016. Although the EU isn’t currently a major beef supplier to Japan, it has become a factor in Japan’s imports of tongues and other varietal meats.

Through the agreement, duties on EU beef variety meats will be slashed initially and phased to zero over the next 11 to 13 years, putting the U.S. at a significant disadvantage. Duties on EU chilled and frozen beef cuts, currently at 38.5 percent, will initially be cut about 10 percent and phased down to 9 percent over 15 years.

“Meanwhile, U.S. beef continues to pay 38.5 percent duty and remains subject to Japan’s quarterly beef safeguards,” USMEF said.

The safeguards are triggered when Japan’s beef imports during a particular quarter exceed a predetermined threshold. When that happens, the 38.5 percent tariff on imported beef can be raised to 50 percent and remain at the higher rate until the end of March, when the Japanese fiscal year ends, said Joe Schuele, USMEF vice president of communications.

Australia gained partial relief from that system through its economic partnership agreement with Japan. It is expected that the EU will gain similar relief through the new agreement, as will other TPP participants such as Canada and New Zealand, if and when TPP takes effect, he said.

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