Tax & Accounting Blog

Impact Of The TPP On Agriculture

Blog, Global Trade, ONESOURCE February 12, 2016

What is TPP?

On Oct.5, 2015, the deal for a mega FTA was reached in Atlanta USA.  That is the TTP, Trans-Pacific Strategic Economic Partnership Agreement which includes 12 countries, Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the U.S., and Vietnam and covers the economic size of 3,100 trillion yen at about 40% of the world’s GDP and the market size of 0.8 billion people corresponding to  10% around the world in population.

Coverage rate of FTAs in Japan

The Japanese government has aimed at implementation of strategic commercial relations and economic relationships as part of the Growth Strategy to boost a coverage rate of FTAs in trade amount to 70% by 2018, a large contrast to the 19% of 2013. This strategy was set and is well on its way with 22.3% in 2015. By TPP this will be raised to 37.2%[1].

Rate of tariff elimination

Japan will eliminate tariffs of 8,575 items, representing 95% of all 9,019 agricultural, forestry and fishery (hereinafter noted as AFF) items and industrial items[2] in Tariff Lines and Trade Values level. This rate is the highest and among EPAs (Economic Partnership Agreement) Japan has concluded and which unprecedentedly realizes trade liberalization in a higher level.

Regarding AFF products, 1,885 items corresponding to 81% of 2,328 AFF items are eliminated in tariffs. Most important are the “sensitive items”; rice, wheat and barley, beef and swine, dairy products and sugar and starch. Although the House of Representatives agreed to ensure sensitive items are prioritized to protect them from tariff elimination, the end result of negotiations has these items as high as of 29.7% tariff elimination[3].

Trial calculation on TPP by the government

The Japanese government announced analysis on economic effect by the TPP on Dec.24, 2015, which indicates TPP can generate a rise of 2.6%; about 14 trillion in GDP[4]. 19 agricultural products and 14 forestry and fishery products with tariff rate 10 % and domestic production amount to 1 billion yen[5], it is that the about 130 billion – 210 billion yen in production will be decreased due to lower pricing as a consequence of tariffs eliminated[6]. However, this figure has largely changed from one of the trial calculations the Japanese government had announced in 2013 that GDP will grow in 0.66%, 12 trillion yen and production amount of AFF products will drop in 3 trillion yen.

Why does this matter? The proposed figure from 2013 represented tariff elimination only.  The figures from 2015 were not only tariff elimination, but cost reduction by non-tariff barriers (trade facilitation), trade and investment promotion and an improvement of productivity with those factors.  Importantly here, the figure of 2013 was based on the idea that TPP can generate 2.6% in direct comparison to the case if Japan didn’t’ join the TPP.

After 10 years of TPP the economy of Japan should be   encouraged and the people will see lasting effects.  12 trillion yen can be expected but it doesn’t specify the period for realization.

Impact on AFF products

There is an expectation that the AFF products will possibly receive adverse effects from the TPP.  For example:

Rice: Rice is controlled by state trading. The government purchases rice from successful bidders and sells to domestic consumers. 770,000 tons of rice with Minimum Access (MA) is imported a year and 100,000 tons of it with SBS (Simultaneous Buy and Sell)[7]. The government purchases domestic rice equivalent to the quota for the U.S. and Australia.  Under the TPP this will shorten the stockpiling period to prevent the selling price of domestic rice from falling.

Wheat and Barley: This is also controlled by state trading. The Japanese government sells to millers at the average of the purchase price calculating from past specific periods with annual stable markup as actual duty[8].  The markup is used as a subsidy to bail out agricultural producers[9].  The producers have expressed concern about the possibility of ensuring they receive the subsidy and can continue production if there is a reduction of the markup under the TPP.  They are quite concerned that the selling price of domestic wheat will decline while consumers expect lower selling prices of flour due to the increase of imports from the U.S., Australia and[10].

Beef and swine: The duty rate shall be gradually reduced and the Safeguards Measures will be applied when the specified amount is satisfied in order to prevent the adverse impact on domestic producers.  The government expands and legislates the regulation of subsidy to livestock farmers of beef and swine and increases the ratio to make up a deficit balance from 80% to 90%.  The pig farming subsidy is currently on a 50-50 basis of subsidy from the state and reserve funds from farmers.  Under the TPP it will be changed to 75-25, which means a burden of tax on the people will be increased.

Export AFF products

The government has pressed forward the strategy of expansion to export AFF products and foods in order to boost export values to 1 trillion yen until 2020 as part of global development of the Japanese cuisine culture and food industry. The key products of the strategy include beef, marine products, processing products, rice, tea, etc.

Japan will have new quotas, new tariff elimination or reductions of tariff on those key products in partner countries; therefore it is expected to increase the exports and to expand consumption in new countries.

Residual agricultural chemicals and food additives

The consumers have strongly expressed concerns and anxiety related to food safety if the standards for food additives and the use of chemicals used on agriculture are relaxed.[11]. However, the government has announced the TPP agreement is not requesting to loosen the individual food safety standards but to revise the current regulations of Japan.  We have yet to see how the standards will be set-up for the partner countries.

With national support, Japanese agriculture should be motivated to export in larger volumes. It is said that HACCP and GAP [12] are less advanced than other countries.

For the TPP to be successful, Japan should also promote HACCP and GAP to facilitate the export of AFF products and foods and conclude all other FTAs under discussion. I expect these strategies would have a much greater positive impact and less cause damage to the Japanese economy once the TPP takes effect.

Gain More Insight On The TPP

Sources

[1] Coverage rate of FTAs http://www.cas.go.jp/jp/tpp/about/index.html

[2] About TPP http://www.meti.go.jp/policy/external_economy/trade/downloadfiles/tpp/151224tppnitsuite.pdf

[3] Outline of TPP Agreement on Agricultural, forestry, and fishery area http://www.cas.go.jp/jp/tpp/kouka/pdf/151224/151224_tpp_bunyabetsu01.pdf

[4] Economic Effect Analysis by TPP Agreement http://www.cas.go.jp/jp/tpp/kouka/pdf/151224/151224_tpp_keizaikoukabunnseki02.pdf

[5] 19 items: rice, wheat, barley, sugar, starch and products thereof, beef, swine, milk and dairy products, azuki beans, peanuts, konjac yam, tea, tomato for processing, citrus, apples, pineapples, poultry, chicken eggs. 14 items: plywood, horse mackerel, sardine, saury, scallop shell, cod, squid, dried squid, bonitos, tuna, wakame sea weed, hijiki

[6]Economic Effect Analysis by TPP Agreement http://www.cas.go.jp/jp/tpp/kouka/pdf/151224/151224_tpp_keizaikoukabunnseki02.pdf

[7] SBS is a method to sell to and buy from the government in joint names of sellers and buyers http://www.maff.go.jp/j/council/seisaku/syokuryo/mugi/08/pdf/data3.pdf#search=’sbs+%E5%A3%B2%E8%B2%B7′

[8] Regulation of purchase and sale of importing wheat http://www.maff.go.jp/j/pr/aff/1210/mf_news_02.html

[9] Measures to stabilize business http://www.maff.go.jp/j/kobetu_ninaite/keiei/pdf/4taisaku-pamph-bunkatsu-5keiei.pdf

[10] Trade Statistics of Japan http://www.customs.go.jp/toukei/info/index.htm

[11] Ministry of Health, Labour and Welfare http://www.mhlw.go.jp/file/06-Seisakujouhou-10500000-Daijinkanboukokusaika/0000108234.pdf#search=’%E6%AE%8B%E7%95%99%E8%BE%B2%E8%96%AC+%E9%A3%9F%E5%93%81%E6%B7%BB%E5%8A%A0%E7%89%A9+tpp

[12] HACCP: Hazard Analysis Critical Control Point is a management system in which food safety is addressed through the analysis and control of biological, chemical, and physical hazards from raw material production, procurement and handling, to manufacturing, distribution and consumption of the finished product. / GAP: Good Agricultural Practice is conducting proper agriculture and production aiming at food safety, environment conservation, work safety, quality improvement etc. http://www.maff.go.jp/j/wpaper/w_maff/h19_h/trend/1/t1_2_1_08.html#ref01

 

 

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