NPPC on the TPP

The National Pork Producers Council thanks U.S. trade officials for diligently working to achieve an outcome in the Trans-Pacific Partnership (TPP) negotiations that would benefit all sectors of our nation’s economy, including agriculture. At the same time, we must also express our deep disappointment in Japan’s continuing rejection of the fundamental terms of a successful TPP agreement, as agreed upon by leaders of all participating TPP nations prior to Japan’s entry into the negotiations last year.

Japan continues to demand exemptions from tariff elimination for an unprecedented number of agricultural products. Its negotiators have declared that products such as pork, dairy, beef, wheat, barley, sugar and rice are “sacred” and cannot be opened to free trade in the TPP. Japan has employed this or similar arguments in all of its prior free trade agreements, so it is not surprising that some in the United States might accept this as reality, submit to Japan’s demand and accept the crumbs from its table.

Acquiescing to Japan’s demand would represent a radical departure from past U.S. trade policy, which has held to the principle that free trade agreements must cover virtually all trade between the parties. The exemptions from tariff elimination demanded by Japan would be more than all of the tariff line exemptions contained in the previous 17 FTAs combined the United States has implemented this century. Pork never has been excluded from tariff elimination in a U.S. free trade agreement.

It also would diminish the overall outcome in the TPP since negotiators from the other 11 participating nations will not want to explain to producers of sensitive products in their countries why they are not being provided similar exemptions. Furthermore, exemptions, whether in agriculture or in other sectors, will become normative in the TPP and will be taken for granted by future acceding nations when TPP expands. Moreover, the outcome on rules and other areas of the TPP negotiation undoubtedly will be affected by Japan’s market access package. Every nation will examine the overall package and will have to balance its obligations with the concessions it receives.

In addition to prompting the unraveling of the TPP as a “gold standard” agreement, submitting to Japan’s demand will signal to the European Union that the same — or more likely a bigger — basket of U.S. products can be exempted from full tariff liberalization in the Transatlantic Trade and Investment Partnership (TTIP) talks and that this will be acceptable to the United States.

Creating a precedent in the TPP that shelters the agriculture sector from competition and, therefore, puts upward pressure on global food prices has national security implications. Governments rise and fall based on the price of food. The correlation between political unrest and food prices is axiomatic. The protectionist farmers in Japan are not thinking about the global security implications of adding three billion people to the world’s population in the next 30 years. But someone better be thinking about this. What may be politically appealing today may be catastrophic tomorrow.

The United States should not accept an offer from Japan that is anything less than what it has demanded of, and received from, its other FTA partners, including many developing countries. Most of those nations had, and continue to have, serious sensitivities in agriculture, and they must wonder why Japan, one of the most advanced nations on Earth, is more deserving of such privileged treatment. The TPP, as with other FTAs, should not be about whether to move to free trade in virtually all products but how and when.

The U.S. pork industry has benefitted enormously from prior trade agreements, which are the major reason U.S. pork exports have quadrupled since 2000. The TPP could result in even greater gains for U.S. pork, but Japan is the key. It must be willing to phase out its tariffs over a reasonable transition period and abolish its trade-distorting Gate Price system. The difference between Japan’s offer as reported in the Japanese press and the elimination of the Gate Price and tariffs on pork is eye popping. When the impact on all the “sacred” agriculture products is added, both in Japan and in future FTAs, the loss of exports and jobs in the United States is staggering.

There is a long history of fraud and criminal activity related to the Gate Price — with some Japanese importers inflating invoices to prices above the Gate Price to minimize import duties – which has been well documented in the Japanese press. We find it odd (to say the least) that anyone in the Japanese government would defend a system that generates fraud and criminal behavior. More than 20 years of fraudulent activity demonstrates that the system is unworkable.

In the United States, some may countenance Japan’s demand since an agreement between the two countries, even with significant exemptions by Japan, would be a net plus for the United States. Japan no doubt is hoping that the United States will buy into the idea that “meaningful market access” should be the metric in evaluating its market access package. We should not. Had the United States been willing to accept half a loaf in past FTA negotiations, U.S. exports would be much lower and its FTAs would look more like the FTAs of Japan and the European Union. But the deal being offered by Japan is not even a half loaf for U.S. pork and the other “sacred” commodities. The U.S. trade policy metric that has governed all past U.S. FTAs must continue to govern the TPP negotiation: elimination of tariffs. 

The tail is wagging the dog in Japan. A small protectionist group of farmers is holding hostage a 12-nation regional trade negotiation. It is incumbent on others in Japan to overcome the opposition of this small group of farmers, which is keeping Japanese food prices among the highest in the world. Economic studies show that Japan will benefit tremendously from the TPP. Among other things, consumers will spend less of their income on food. The politics of trade — and food in particular — are always difficult. Korea and other past U.S. FTA partners, many of which were developing nations, had sensitivities in agriculture equal to or greater than those in Japan.

Multilateral trade negotiations in the World Trade Organization are on life support. The United States has the unprecedented opportunity to set the bar high on a regional FTA that has the potential to become the platform for global trade liberalization for the next 30 years. Japan should not expect the United States to hand the keys to the bus to a bunch of protectionist farmers who want the United States to depart from its longstanding approach to trade policy and to create a precedent that will diminish U.S. exports and jobs for the next 30 years. 

Finally, Japan needs to understand that the U.S. Congress must approve any FTA and that members have no stomach for extending special treatment to Japan and accepting a TPP deal that has a substandard market access package from Japan and that would be a step back from the high-standard deals recently implemented with Colombia, Korea and Panama. 

The solution is very simple: Japan must be held to the same high standard as all other U.S. FTA partners. The ball has been, and continues to be, in Japan’s court. Either Japan will agree to do what all other TPP nations are prepared to do — eliminate tariffs on virtually all products — or the standoff will continue. If Japan continues to refuse, the United States and the other TPP countries should close the negotiation without Japan.

Before we undermine longstanding U.S. trade policy, before we see an unraveling of the TPP and before we face accepting future FTAs on similar terms, the talks with Japan in the TPP should be suspended and an agreement with the other TPP nations sent to Congress. Japan, when it is ready, can be invited to begin negotiations again with a second group of nations from the Americas and Asia.

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