Media  Global Economy  2015.01.14

TPP and Japanese rice

English translated version of "Business Prospect" on NHK Radio Channel 1 on November 11, 2014

1.There were reports that the USA is demanding Japan to increase the quota for the imports of rice.

In Japan, there were some reports which say that such a demand is outrageous when the TPP participants have been trying to bring the negotiations to a conclusion by the end of this year.

However such a demand was always expected if Japan insisted on the maintenance of tariff on rice. The nations participating in the TPP negotiations are deliberating the abolishment of tariffs on most items with as few exceptions as possible. In response to this, Japan is demanding various exemptions on items such as rice, wheat, sugar, dairy products, beef and pork, from the abolition of tariffs.

In trade negotiations, quid pro quo or compensation is always demanded when a nation demands exceptions. So surely Japan must have expected a demand for the increase in rice quota if they resisted the abolition of the tariff.

2.What were trade negotiations like in the past?

Rice was always a big issue in Japanese agricultural negotiations. In the GATT Uruguay Round negotiations, which I participated in, the biggest political issue for Japan was "tariffication." Specifically that all non-tariff measures, for example quantitative import restrictions, had to be replaced by tariff only measures. At that time in Japan, not only rice but many other items such as wheat and dairy products were subject to quantitative import restrictions limiting imports to a certain quantity. In the negotiations, only a small number of countries, including Japan, were in favour of exemptions from tarrification. Japan demanded exceptions on many items right up to the final stage of the negotiations but in the end, only rice was accepted and only after Japan agreed to compensate exporting countries.

In the case of non-tariff measures such as quantitative import restrictions being abolished and replaced by tariffication, a plan to implement an import tariff rate quota with little or no in-quota tariff amounting to 5% of total consumption was introduced. This is called minimum market access. The method of tariffication was to convert the difference in domestic price of a good and the international price at the beginning of the negotiations, namely 1986-88 into a tariff equivalent. However, the difference in two prices was very wide at that time making it inconceivable to import goods while paying the excessively high tariff decided during the tariffication. Because of this, "minimum access" which is an import quota set at a lower tariff, was established to allow a certain level of imports.

The compensation agreed to exempt rice from tariffication was an increase in the minimum access from 5% of total consumption to 8%. This meant that Japan was required to accept a higher level of imports.

However, in 1999 the Japanese government who could not continue to tolerate minimum access shifted their preference to tariffication and decided to restrict the increase of minimum access. However the minimum access had increased to 7.2% of total consumption whereas it was just 5% at the time of Japan's refusal to allow the tarrification of rice. As the result of tariffication in the aforementioned method, the tariff of 341 yen per kilogram is much higher than the current Japanese domestic price of rice: 200 yen per kilogram. Even if the imported rice was free, it would be much more expensive than domestically produced rice after paying the customs duty. This means that tariffs could effectively protect Japanese rice. Japan had had to pay a high price for the exemption of rice for tariffication, in spite of this being unnecessary.

The Japanese cabinet agreed that minimum access rice would not reduce the demand for domestic rice, which is the country's staple food. Imported rice has been avoided for use of direct human consumption. When it is directed for direct consumption, the government buys more domestic rice than minimum access rice directed for direct consumption and disposed of it and most of minimum access rice for overseas aid or for livestock feed. This demands a lot of financial burden. Moreover as rice has to be kept until requested to be disposed of for overseas aid or livestock feed, often for a long time, it becomes susceptible to mould as was seen Stained Rice Incident of 2008.

In the Doha Round of WTO negotiations, the Japanese attitude was that they did not mind if minimum access increases if they could avoid a huge reduction of the tariff. In short, Japan has resigned itself to the situation that the compensation is always demanded when exemptions are requested. This is the same in the TPP negotiations.

3.What is the specific demand from the USA?

The current amount for minimum market access is 770 thousand tons. Japan imports most of this to process into rice crackers or animal feed. However, within this amount a separate quota of 100 thousand tons is allocated for direct consumption. Regarding this quota, imports from the USA recently account for the largest part. It is reported that the USA is proposing the expansion of this quota and thus the increase in imports from the USA. However I think it would be possible for them to demand a new quota in the TPP separate from the 770 thousand tons allowed by the minimum access amount. So, I think the USA is showing restraint with its demands.

4.The midterm elections in the USA have finished. How do you suppose the TPP negotiations will go from now on?

The Republican Party holds a majority in both upper and lower houses in the US Congress. The Republican Party widely opposes the Obama government, but has a cooperative attitude concerning free trade. It favours free trade. The new US Congress which has the authority on trade negotiations under the US Constitution is likely to approve a bill to shift the authority of trade negotiations to the US government. In response to this, the negotiations will speed up next year, but I think there is a possibility that the US government directed by the Congress dominated by free traders will strongly demand the abolition of tariffs on agricultural products. The time may come for the Abe government to make a huge political decision.

(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 November 11, 2014.)