Media  Global Economy  2015.02.16

The TPP negotiations are close to an agreement

English translated version of "Business Prospect" on NHK Radio Channel 1 on February 03, 2015

1.It seems that there were new developments in the TPP negotiations.

There were two important developments.
Firstly, the Republican Party, which has a positive attitude towards promoting free trade, won the majority in both the Senate and the House of Representatives as a result of the mid-term election held in the US in November last year. Based on the American Constitution, Congress has the authority to carry out trade negotiations. As such, when the US government wants to conclude negotiations, they get Congress to transfer that authority - in other words, they need to pass the TPA bill in the Congress. The Democratic Obama administration is in fierce competition with the Republicans. However, the Republicans are showing willingness to cooperate with the Obama administration in relation to the TPA bill. Considering the presidential election and Congressional elections next year, the Republicans seem to have judged that it is not good to give the impression of being opposed to free trade.

There is speculation that the TPA bill will be submitted to Congress in February and passed in March. Preparation for next year's presidential election will begin in the second half of this year, so I think that the US government wants to conclude the TPP negotiations during the first half of the year. I think the negotiations will accelerate.

2.What is the second development?

The talks between Japan and the US regarding agricultural products are nearing an agreement. It has been reported that Japan proposed reducing the current 38.5% tariff on beef to 9% over more than ten years. As for pork, the American pork producers' council has been strongly criticising Japan's negotiating stance and claiming that the TPP negotiations should be conducted without Japan if Japan would not abolish their tariffs. However, it was revealed that this organisation sent a letter expressing their understanding that "significant progress has been made" in terms of Japan's proposals regarding market access to Congress on 26 January and then requested Congress promptly pass the TPA bill. The tariff on pork might not be abolished, but it seems that a significant reduction is being negotiated.

As for rice, it is reported that Japan is examining a 50,000 tonne special import quota for American rice in addition to the current 770,000 tonne low-tariff quota, which is called minimum access, in return for maintaining the tariff.

The US Trade Representative has commented that they are nearing an agreement. The Japan-US talks on tariffs in the agricultural area began on 2 February.

3.How do you evaluate these developments?

Since 2012 the yen has weakened by about 50%. Let us look at this in terms of beef. In 2012, ¥100 worth of beef would have been imported for ¥138.5 after the 38.5% tariff had been applied. However, based on the current exchange rate, the price of [the same amount of] beef is about ¥150 before the tariff is imposed. I think that the tariff reduction will have a small impact.

In the US, many of the members of Congress elected from agricultural regions are Republicans, and the most powerful agricultural organisation also supports the Republican Party. Given that the pork industry, which was the most uncompromising in demanding tariff resolution, is satisfied with the current state of negotiations, I think that there was a big step forward towards passing the TPA bill and concluding the TPP negotiations.

In terms of rice, Japan is negotiating to increase the low-tariff import quota so that they can continue to maintain the high tariff. Until now, [the government] has been preventing the area of farmland under acreage reduction from increasing by disposing of the same amount of rice as that imported through minimum access by means such as foreign aid and livestock feed. The government was buying rice at a high price and selling it for a cheap price so they have been bearing a great fiscal burden. Unless they did this, however, domestic production would decrease to compensate for the increase in imported rice, so the food self-sufficiency rate would drop. The special import quota that is currently being examined will increase this fiscal burden even more.

However, the difference between the domestic and international price of rice is shrinking. If [the government] is going to bear a fiscal burden anyway, they should rather abolish the tariff to reduce the price of rice and provide cheap rice to consumers and then provide direct payments to the affected business farmers. This way domestic production will not decrease.

Japan's agricultural policy has been about making consumers pay a high price to protect agriculture. This was unfortunate for the agricultural industry, too. Maintaining a high price meant that high-cost, small-scale farmers continued to farm rice. It became difficult for business farmers who earned their living through farming to achieve scale expansion by consolidating farmland and increasing profits. This situation led to the inefficient state of rice farming we see today, where 70% of farmers in Japan farm rice but only account for 20% of Japan's agriculture.

4.What will happen in future negotiations?

Given the recent progress in the Japan-US talks, which had been hindering progress in the [overall] TPP negotiations, I think that the focus will now shift to issues such as state-owned enterprises and pharmaceutical products. In terms of state-owned enterprises, media reports only seem to focus on how the disparity in competitive conditions between state-owned enterprises and foreign enterprises will be reduced. However, the problem where state-owned enterprises hinder trade is an important issue, too. Japan only needs to pay a 1% tariff when exporting rice to China. However, China's state-owned enterprises have monopolistic control over distribution, so rice that is sold for ¥300 per 1kg in Japan is sold for ¥1,300 per 1kg in Beijing and Shanghai. State-owned enterprises virtually impose tariffs, so we cannot freely export to China. I would like this topic to be properly negotiated considering that the regulations on state-owned enterprises will be applied to China if they join the TPP in the future.

(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 February 03, 2015.It was translated by Professor Aurelia George Mulgan, The University of New South Wales, Canberra.)