The United States and Japan signed the U.S.-Japan Trade Agreement on October 7, 2019. One of the Trump Administration’s most important goals was to get an early deal with Japan that would enable American farmers, ranchers, and agribusinesses to remain competitive in the face of other countries having preferential tariffs in the Japanese market. This agreement opens markets and will support expansion of U.S. food and agricultural exports, increase farm income, generate more rural economic activity, and promote job growth.
Nationwide, U.S. food and agricultural exports totaled nearly $145 billion in 2018, supporting more than one million American jobs. Global demand for these products is growing but so is competition among suppliers. When implemented by Japan, American farmers, ranchers, and agribusinesses will be able to compete on an even playing field with CP-TPP countries for many of the products that the United States exports into the Japan market.
Japan’s $5.0 trillion economy is the third largest in the world, and a trade agreement between the United States and Japan is of particular importance, since Japan is already the United States’ fourth‐largest agricultural export market.
In the U.S.-Japan Trade Agreement, Japan has committed to provide substantial market access for the United States by either phasing out most tariffs (many immediately), enacting meaningful tariff reductions, or allowing a specific quantity of imports at a lower duty (generally zero) where tariff elimination is not possible. Importantly, the tariff treatment for the products covered in this agreement with the United States will match the tariffs that Japan provides preferentially to countries in the CP-TPP agreement.
President Trump and Prime Minister Abe have agreed that these early outcomes will be followed by further negotiations to address remaining areas of interest to each government. The United States and Japan will continue working to achieve a comprehensive trade agreement that results in a more fair and reciprocal trade and economic relationship.
KEY ELEMENTS OF THE AGREEMENT
The benefits of this agreement will occur through a combination of tariff elimination, tariff reductions, and new country-specific tariff‐rate quotas (CSQs). These benefits will accrue to U.S. farmers and ranchers once the agreement has been implemented.
Out of the $14.1 billion in U.S. food and agricultural products imported by Japan in 2018, $5.2 billion was already duty free. Under this initial tariff agreement, Japan will eliminate or reduce tariffs on an additional $7.2 billion of U.S. food and agricultural products. Over 90 percent of U.S. food and agricultural imports into Japan will either be duty free or receive preferential tariff access once the Agreement is implemented.
Tariff Elimination: Once the agreement is implemented, Japan will provide immediate tariff elimination for U.S. food and agricultural products valued at approximately $1.3 billion, including almonds, blueberries, cranberries, walnuts, sweet corn, lactose, milk albumin, grain sorghum, food supplements, broccoli, and prunes. Another $3.0 billion of U.S. exports will benefit from staged tariff elimination matching access conditions in the CP-TPP agreement. This group includes processed pork, beef offal, frozen poultry, wine, frozen potatoes, oranges, fresh cherries, cheese and whey, ethanol, egg products, and tomato paste.
Tariff Reduction: For products valued at $2.9 billion of current trade, Japan will reduce tariffs in stages, matching the preferential access of CP-TPP countries. Among products benefitting from this enhanced access will be fresh and frozen beef and pork worth over $2 billion in 2018 that matches the preferential access of CP-TPP countries.
CSQs: For some products, preferential market access will be provided through the creation of CSQs, which provide access for a specified quantity of imports from the United States at a preferential tariff rate, generally zero. Japan will provide access through CSQs for products such as wheat and wheat products, malt, glucose, fructose, corn and potato starch, and inulin.
Mark up: Importantly, for all wheat and barley imports, Japan will provide the same reduction to its wheat and barley “mark up” as provided to CP-TPP suppliers. Japan’s imports of U.S. wheat and barley were valued at more than $800 million in 2018.
Safeguards: This agreement provides for the limited use of safeguards. Japan will have safeguards for beef, pork, whey, oranges, and race horses.
LIVESTOCK PRODUCTS
Beef: In 2018, the United States exported $2.1 billion of beef and beef products to Japan. Japan is the United States’ largest export market for beef, based on value. Under this agreement, the United States will obtain market access conditions equal to CP-TPP countries, with tariffs for fresh, chilled, and frozen beef reduced from 38.5 percent to 9 percent in 15 years. Additionally, Japan will eliminate tariffs on processed beef products, including beef jerky and meat extracts, which are as high as 50 percent, in 5‐15 years.
Japan’s WTO beef safeguard will no longer be applicable to U.S. beef. Instead, U.S. fresh, chilled, and frozen beef will be subject to an annual U.S.-specific safeguard, which will begin at 242,000 metric tons, and will grow 4,860 metric tons per year beginning in Year 3 through Year 9. Growth in Years 10 through 14 will be 2,420 metric tons, and beginning in Year 15, the growth will return to 4,840 metric tons. If triggered, the safeguard duty would be equivalent to the safeguard duty that a CP-TPP country would pay if it triggers the CP-TPP safeguard. Japan would cease applying any safeguard if the safeguard is not triggered for four consecutive fiscal years after year 14.
Unique to this agreement, Japan and the United States will consult to agree on adjusting the conditions for the safeguard trigger level under two scenarios. First, Japan and the United States will consult in year 4 of the agreement should Japan negotiate modifications to the safeguard measure with CP-TPP countries. Second, Japan agrees to consult if the safeguard is ever triggered to adjust the applicable safeguard trigger level to a higher level. The consultation mechanism is elaborated in a side letter.
The United States has agreed to enter into a side letter that the United States will change its WTO beef tariff-rate quota (TRQ) country allocations to eliminate Japan’s 200 metric tons country specific allocation and increase the “other countries or areas” allocation to 65,005 metric tons. Such action will allow Japan to compete against other countries for access to the “other countries or areas” quota allocation.
Pork: In 2018, the United States exported $1.6 billion of pork and pork products to Japan. Japan is the United States’ largest export market for pork, based on value. Under this agreement, the United States will obtain market access conditions equal to the CP-TPP agreement. Tariffs on muscle cuts will be eliminated over 9 years, and tariffs on processed pork products, such as the 20 percent tariff on ground seasoned pork, will be phased down to zero in Year 5. Certain fresh and frozen pork products will continue to be subject to Japan’s gate price mechanism, but the maximum gate price duty will decline to 50 yen per kilogram by Year 9. This development could open up Japan's lucrative market for less expensive pork cuts to U.S. exporters.
Japan’s WTO pork safeguard will no longer be applicable to U.S. pork. Instead, Japan will maintain a safeguard mechanism, similar to the one in CP-TPP, for fresh, chilled and frozen pork. For the first three years, fresh, chilled, and frozen pork cuts will be subject to a U.S.-specific safeguard that will allow for temporary duty increases when imports rise above a specified trigger level. For Years 4 through 10, Japan may apply a safeguard for pork imports above a threshold price if the quantity of pork imports from the United States exceeds a trigger level. For imports below the threshold price, the safeguard will be applied if an aggregate volume of U.S. and CP-TPP quantities exceed a certain volume. The safeguard will be terminated at the end of year 10. Japan has also agreed to renegotiate the safeguard trigger volume if the safeguard is implemented in two years in a consecutive three-year period. Japan may apply a quantity-based safeguard for U.S. processed pork as well in Years 1 through 10, similar to the safeguard measure in CP-TPP.
Poultry and Egg Products: Japan’s import tariffs on certain poultry meat, eggs, and egg products will be eliminated in 5 to 10 years, depending on the product. Japan’s 8.5 percent tariff on frozen chicken legs will be phased out over 10 years. Japan’s 3 percent tariff on turkey will be eliminated immediately. Japan’s current 8 percent tariff on egg albumin products will be eliminated immediately. Japan’s imports of U.S. poultry and egg products covered in this agreement were more than $83 million in 2018.
Dairy Products: Japan is already the United States’ fifth largest export market for dairy products, with exports of over $290 million. Under this agreement, Japan’s 40 percent cheese tariffs will be eliminated in 15 years, with whey duties eliminated in 5 to 20 years, depending on the type. A transitional U.S. CSQ will be established for 9,000 metric tons of whey products, and U.S. processed cheese will have a 150 metric ton permanent CSQ.
Japan will immediately eliminate its 8.5 percent tariffs on lactose and lactose syrup and its 2.9 percent tariff on milk albumin that includes whey proteins, which are often used in high-protein supplements. Japan’s imports of U.S. lactose and lactose syrup and milk albumin were worth more than $72 million in 2018. Additionally, Japan will establish a new 750 metric ton global tender within its WTO TRQ for milk powder with protein content of 35 percent or higher.
Japan may apply two safeguards for whey products during the tariff transition period and for a limited period beyond. For Years 1 through 4, the safeguard quantity is for U.S. product only. From Years 5 until termination, the safeguard trigger is calculated as an aggregate of U.S. and CP-TPP countries shipments. Japan has also agreed to consult to renegotiate the safeguard trigger volume if the safeguard is implemented in two years in a consecutive three-year period. Under the agreed-upon terms, the safeguard for whey powder could be terminated as early as year 16, while the safeguard on whey protein concentrate (WPC) could be terminated as early as year 22. The safeguard will not apply to whey products imported under the CSQ. Japan has committed to not apply the WPC safeguard in the event there is a domestic shortage of skim milk powder in Japan and/or there is no demonstrable reduction in demand for skim milk powder.
HORTICULTURAL PRODUCTS
Fresh Fruits: Japanese imports of U.S. fresh fruits covered under agreement were $224 million. Japan will eliminate duties on many U.S. fruits, including fresh cherries, blueberries, raspberries, blackberries, oranges, kiwi, cranberries, peaches, nectarines, apples, and figs. Japan’s tariff on raspberries, blackberries, kiwi, cranberries, peaches, and nectarines will be immediately eliminated. Japan’s 8.5 percent tariff for fresh cherry imports will be eliminated in five years, while Japan’s 17 percent tariff on fresh applies will be eliminated in 10 years.
Japan will eliminate tariffs of up to 32 percent on U.S. oranges imported during the period of April through November in 5 years, while the tariff on U.S. oranges imported December through March will be eliminated in 7 years. Japanese orange imports from the United States in 2018 totaled $71 million. Japan’s tariff on lemons is already fixed at zero.
Japan may employ a safeguard mechanism on U.S. oranges, similar to CP-TPP, for the months of December through March that is not expected to impact trade. The safeguard trigger volume in year one will be 35,150 metric tons, which will grow to 44,650 metric tons by 2024. The safeguard will end on April 1, 2025. Japan has also agreed to renegotiate the safeguard trigger volume if the safeguard is implemented in two years of any consecutive three-year period. During the most recent December through March period, the volume of Japan’s imports of U.S. oranges was about 20,000 metric tons.
Potatoes and Potato Products: Japan imported more than $400 million of U.S. potato and potato products in 2018. In this agreement, Japan will eliminate tariffs on most potato products, including immediate elimination of the 4.3 percent tariff on fresh potatoes, and elimination of the 8.5 percent tariff on frozen French fries over three years. Japan will also phase out the current 20 percent on dehydrated potatoes in five years.
Processed Horticultural Products: Japan will eliminate tariffs ranging from 10 to 34 percent for $281 million of U.S. processed horticultural products. Japan will immediately eliminate its 10 percent tariff on prepared sweet corn and its 7.2 percent tariff on carrot juice over five years. Japan will immediately eliminate its 19.1 percent tariff on grape juice and its 16 percent tariff on tomato paste over 5 years. Japan will immediately eliminate its tariff on 3.2 percent tariff on essential oils and its 2.4 percent tariff on dried prunes. Japan will also eliminate duties ranging from 6 percent to 46.8 percent on a wide range of canned fruit.
Tree Nuts: Japan will eliminate tariffs ranging up to 16.8 percent for $454 million of U.S. tree nuts. Japan will immediately eliminate its 2.4 percent tariff on almonds worth more than $243 million 2018. Japan’s 10 percent walnut tariff will also be eliminated immediately, providing improved access for $161 million of walnut imports from the United States. Japan will also immediately eliminate its 6 percent tariff on hazelnuts and its 4.5 percent tariff on pecans.
Vegetables: Japan will eliminate tariffs on $147 million of current imports of vegetables from the United States. In this agreement, Japan will immediately eliminate its 10.6 percent tariff on frozen sweet corn and its 3 percent tariff on broccoli, celery, and cabbage. Additionally, Japan’s current 10 percent tariff on azuki, kidney, white pea, and other beans within its WTO dried leguminous vegetables TRQ will be eliminated immediately.
GRAINS, OILSEEDS, AND PRODUCTS
Barley and Barley Products: Japan will reduce the mark up for imported barley by 45 percent over eight years, matching the same levels as CP-TPP suppliers. Japan will also establish a new CSQ for imports of U.S. unroasted malt, starting at 22,400 tons and growing to 32,000 tons in year 5, along with a new roasted malt CSQ, which starts at 735 tons growing to 1,050 tons by year 10.
Corn: Japan’s duty on imports of U.S. corn for feed will be maintained at zero under its existing WTO TRQ. Additionally, Japan will immediately eliminate an existing 3 percent tariff applied to a specific in‐quota tariff line for corn other than feed. For starches, Japan will create a new 2,650‐ton CSQ for U.S. corn and potato starch, growing to 3,250 tons by year five of the agreement, and a 205‐ton inulin CSQ that grows to 250 tons in year 10.
Peanuts: Japan imported about $36 million of U.S. peanuts and peanut products in 2018, including $5 million of U.S. peanut butter. Japan maintains a 75,000‐ton WTO TRQ for peanuts, which has an out‐of‐quota duty of 617 yen per kilogram (approximately 593‐737 percent ad valorem equivalent). Japan will immediately eliminate the 10 percent in‐quota tariff. Japan will also eliminate its 12 percent tariff on U.S. peanut butter over five years. Peanut oil tariffs, currently as high as 10.4 yen/kg (approximately 5.6 percent ad valorem equivalent), will be eliminated in 10 years. Similarly, tariffs for prepared and preserved peanuts, currently as high as 23.8 percent, will be eliminated in eight years.
Wheat: Japan’s imports of U.S. wheat were valued at $793 million in 2018. Japan is the United States’ largest export market for wheat, based on value. In this agreement, Japan will provide a duty-free CSQ for wheat that grows from 120,000 metric tons to 150,000 metric tons over six years. Importantly, Japan will reduce its markup on imported U.S. wheat by 45 percent over eight years, matching the same levels for CP-TPP suppliers. Additionally, Japan will provide a duty-free CSQ for U.S. wheat-related products such as mixes, doughs and cake mixes that will increase from 10,800 metric tons metric tons to 12,000 metric tons over 5 years.
For processed wheat products such as biscuits, cookies, crackers and other bread products, which face import tariffs as high as 26 percent, Japan will eliminate existing tariffs in five years. For uncooked spaghetti and macaroni, Japan will reduce the existing 30 yen/kg tariff by 60 percent over eight years.
OTHER PRODUCTS
Processed Products: Japan will be providing preferential duty access on approximately $419 million of U.S. processed food products. For example, Japan’s 15 percent tariff on food preps items that contain dairy products will be eliminated over 7 years. Japan will immediately eliminate its 12.5 percent tariff on food supplements for vitamins. Similarly, Japan’s 7.2 percent tariff on certain sauces will be eliminated immediately.
Ethanol: Japan will eliminate its 10 percent duty on imports of certain U.S. ethanol. Japan’s imports of U.S. ethanol classified under that tariff line are currently around $11 million.
Alcoholic Beverages: Japan will eliminate tariffs for nearly all wine products consistent with the CP-TPP agreement, which were worth approximately $129 million in 2018.
Pet Food: Japan will eliminate tariffs on four pet food tariff lines, either immediately or over 5 years benefiting approximately $113 million of U.S. pet food products. Two rice-containing pet food lines worth about $29 million will remain at MFN rates (12.8 percent and 36 yen/kg).
