Media  Global Economy  2014.12.04

TPP negotiations and "safeguards"

English translated version of "Business Prospect" on NHK Radio Channel 1 on October 14, 2014

1.I often hear the word "safeguard" on the news in connection to the TPP negotiations. Could you explain it?

A safeguard is a measure taken to save domestic industries which suffer when the imports from foreign countries suddenly increase. At present, Japan and the US are negotiating over how much they should lower customs duty on Japanese beef and pork under the TPP. The US who wants to increase beef and pork exports to Japan is requesting a considerable decrease in customs duties. In TPP negotiations there is a push for the abolition, not reduction of customs duties, so perhaps the Japanese government may feel a reduction is unavoidable. However, in that case, Japanese domestic industry may suffer when imports suddenly increase. Japan and the US have been discussing possible measures to avoid this negative effect, namely a "safeguard."

2.What kind of safeguards exist?

Actually, there are several kinds of safeguard. The most typical one is the measure accepted in the GATT which is the predecessor of the World Trade Organization. The conditions to take this measure were made more specific in the WTO agreement. When this safeguard measure is taken, an investigation has to be carried out and the damage to the domestic industry has to be recognized as serious enough to warrant a safeguard. Also, once a safeguard measure is taken, it may not be applied to the same product for a certain period of time. As can be seen from this, the conditions for a safeguard to be put into effect are strict. However, under a safeguard customs duty on these products can be raised above the upper limit decided under the WTO agreement. For example the customs duty of a certain product could be raised to 20% even though an agreement or a commitment has been made under the WTO agreement not to exceed 10% for this particular product. Moreover, not only an increase in customs duty but also quantitative import restriction is allowed. Of course, if higher rate of customs duty is applied, the exporting country will be at a disadvantage. Accordingly the importing country is required to offer some compensation. In a case where the importing country can not offer any compensation, the exporting country is allowed to implement measures such as raising the customs duty of another item, in order to compensate.

Under the Agreement on Agriculture, made during the Uruguay Round negotiations, there is a safeguard applied only to certain agricultural products whose non-tariff measures were converted into a tariff at the negotiations. It was agreed during the negotiations that any measures to restrict imports, such as an import quota that restricts imports in excess of a certain quantity, would not be allowed and that all non-tariff restrictive measures had to be replaced by customs duties. This is called tariffication. Some of you may remember that there was objection to tariffication in Japanese agricultural circles from 1990 to 1993. Import restrictions that had been imposed on rice, wheat and dairy products were converted into a tariff in Japan. Concerning these items, an increase in customs duty is permitted without any investigation on damage to domestic industry when imports exceed a certain quantity or the price of imports become lower than a certain level. However, under this safeguard importing countries are not allowed to restrict the volume of imports. Also exporting counties are not allowed to take any measures to compensate. This is called the "special safeguard."

In the GATT Uruguay Round negotiations, Japan and the US agreed bilaterally that customs duty imposed on beef and pork can be raised to the upper limit decided under the WTO agreement when imports of pork and beef to Japan exceed a certain amount. Specifically, in the case of beef, the customs duty, which is 38.5%, can automatically be raised to 50% when the amount of imports becomes more than 117% compared to the same period the year before. The difference from the two safeguards previously mentioned is that the customs duty cannot be raised more than the upper limit agreed under the WTO agreement. There are some books and essays which call this the "special safeguard," but this is a mistake.

3.What kind of safeguards have been considered in the present TPP negotiations?

Basically the kind of safeguard which is similar in legal-terms to the one Japan and the US agreed in the Uruguay Round negotiations. However the current customs duty of 38.5% is going to be lowered and the upper limit will be set at 38.5% when the customs duty is triggered by the safeguard. There are some reports which claim that the US is demanding a lower limit, for example 30%. Also, concerning the agreed level of imports necessary to trigger the safeguard, there are reports that the US is demanding a level of around four hundred thousand tons - the same amount as before the decrease of exports to Japan caused by the BSE outbreak - while Japan is demanding two to three hundred thousand tons in order to activate the safeguard easily.

4.The negotiations between Japan and the US which were held in the end of this September ended in a stalemate.

In the US, Congress holds authority in trade negotiations. If the Republican Party, which promotes free trade, holds a majority in both the Senate and the House of Representatives as the result of the midterm election next November, there will be a higher possibility that the TPA Bill, which shifts the authority of the trade negotiations from Congress to the US government, will be concluded. In that case, the TPP negotiations will move forward quickly. At the same time, if the Republican Party holds a majority, demands in Congress for an abolition of customs duty rather than a reduction will increase. I think the Japanese government has been trying to reach an agreement about the reduction of the customs duty before this situation is realized in the US. However, even if they can reach an agreement, it will be after the midterm election before it can be approved by Congress. Additionally the US government will not be able to persuade Congress unless they can win concessions regarding liberalization of trade. The Japanese government's enthusiasm for concluding negotiations before the midterm election seems to have been in vain. I think the TPP negotiations will reach their key stage at the beginning of the new year after the TPA is concluded.

(This article was translated from the Japanese transcript of Mr. Yamashita's speech in the "Business Prospect" session of the radio program "First in the Morning News" broadcast by NHK Radio Channel1 on October 14, 2014.)