Media  Global Economy  2015.05.14

The TPP Japan-US rice negotiations will not contribute to the national interest, Consumer burden will increase if a zero-tariff import quota is established to maintain the tariffs on rice

English translated version of Webronza on April 21, 2015

US Trade Representative Froman came to Japan on 19 April and engaged in the final stages of the negotiations with Minister in Charge of TPP Amari on 19 and 21 April.

Working-level talks were held just before the ministerial talks conducted during Froman's visit to Japan. Furthermore, Prime Minister Abe is scheduled to visit the United States on 28 April. Given this schedule, it feels like a scenario for reaching a certain "point of compromise" has been written up between the two countries from quite a while back.

Negotiators have often written scenarios that they would then follow, and this style of negotiating in itself should not necessarily be criticised. However, the problem is whether or not the contents will benefit Japan.

Even before Japan joined the TPP negotiations, I had been expecting that the Japan-US negotiations would conclude based on the introduction of a zero-tariff import quota in return for maintaining Japan's tariffs on rice. The reason is simple.

As I wrote in a previous article ('Does rice have no choice but to be euthanized? The prediction about the TPP negotiations that I did not want to get right', Webronza, 25 November 2013), "The tariff on rice, which is the sanctuary of all sanctuaries, must be maintained. However, Japan also needs to deal with the gain to the United States of increasing their rice industry's exports to Japan. Given that Japan will be advocating exceptions in the TPP negotiations, based on the above they will have to establish a zero-tariff import quota for countries participating in the TPP - a TPP quota."

This kind of situation has been repeated in past rice-related negotiations.

Firstly, in the GATT Uruguay Round negotiations, Japan only had to establish a zero-tariff import quota that was 5% of consumption (minimum access) if they decided to turn nontariff barriers such as quantitative restrictions to tariffs, so they expanded this quota to 8% of consumption in order to exempt rice from tariffication.

Since this quota was later found to be excessive, Japan switched to tariffication in 1999 and reduced the quota to 7.2% of consumption (770,000 tonnes). In the WTO Doha Round negotiations that took place after tariffication, Japan adopted the negotiating policy of adding to and expanding the minimum access quota in order to keep the reduction of tariffs on rice low.

However, establishing and expanding the zero-tariff import quota led to reductions in domestic production. As such, the government has been taking measures to ensure that the quota did not have an impact on domestic production through measures such as using the imported rice for livestock feed and aid. They let go of the rice imported under the minimum access quota for next to nothing, so these measures gave rise to a huge fiscal burden (using 500,000 tonnes of rice for aid requires ¥45 billion).

This time the United States is demanding a quota of 215,000 tonnes (175,000 tonnes of rice as a staple food and 40,000 tonnes of rice for processing). Japan responded that they could only accept up to 50 thousand tonnes, and it is reported that tough negotiations are taking place. However, are the two countries really locking horns in tough talks?

As I said in the article 'The difference between the domestic and international prices of rice have disappeared - the environment is starting to be prepared for abolishing acreage reduction' (Webronza, 10 April 2015), the difference between the domestic and international prices of rice has disappeared, so hardly any rice is being imported under the 100,000 tonne import quota for rice as a staple food within the minimum access quota. The United States is demanding the addition of a further 175,000 tonnes to this quota.

The production volume of short-grain rice (Japonica rice) that is imported by Japan from the United States was only 140,000 tonnes in 2013. Furthermore, the production region of California suffered a severe drought and the Governor issued an administrative order that obligates certain facilities to reduce their water usage by 25% compared to 2013. This had a huge impact on agriculture, which accounts for 80% of water usage in the State. They are in no state to increase rice production.

Given the situation in Japan and the US, it is clear that US demands have been padded. On the other hand, Japan's agricultural circles are showing strong resistance to implementing or expanding import quotas when acreage reduction is in place. If rice imported under the minimum access quota cannot be disposed of given the fiscal burden it has been in the past, Japan has no choice but to reduce domestic production.

Considering such circumstances, I speculate that the government is writing a scenario for the domestic audience in which they say, "We pushed down the US demand for a 215,000 tonne quota to 50,000 tonnes, so please commend the efforts made by the government in the negotiations." Of course, the matter will be settled at the meeting between Abe and Obama.

While the negotiations may be based on a script, if the difference between domestic and international prices increases again, rice imports under the minimum access quota will resume and the fiscal burden will increase. This fiscal burden is a complete waste as its sole purpose is to maintain the high domestic price of rice that is realised by maintaining tariffs - in other words, to increase the consumer burden.

Rather than using the taxpayers' money in such a way, the government should abolish acreage reduction and provide direct payments to business farmers who will be affected by the price drop. In this way the consumer burden will disappear because of the price drop, and Japan can realise sound rice farming centred on business farmers.

Herein lies the hint to avoiding the adverse effects of rice negotiations that are not in the national interest, such as those that are currently being held. If acreage reduction is abolished and prices are sufficiently lowered, the difference between domestic and international prices will be resolved or reversed semi-permanently. Even if the TPP involves an import quota for the US, rice will not be imported from the US because Japanese rice is less expensive than US rice.

In fact, if acreage reduction is abolished, the tariff on rice can be abolished and there will be no need to implement an import quota for the United States. If this were the case, Japan would not have suffered so much in the negotiations on cars.

(This article was translated from the Japanese transcript of Mr. Yamashita's column on Webronza on April 21, 2015. It was translated by Professor Aurelia George Mulgan, The University of New South Wales, Canberra.)