Secretary of Agriculture Tom Vilsack arrived in Japan Nov. 19 to meet with agricultural counterparts. The U.S. recently concluded negotiations on the Trans-Pacific Partnership (TPP) with Japan and 10 other nations. Countries in the TPP currently account for up to 42 percent of all U.S. agricultural exports, totaling $63 billion. Thanks to this agreement and its removal of trade barriers, American agricultural exports to the region are poised to expand even further.

Japan as a market

Japan is already an important market for U.S. agricultural products. In 2014, Japan ranked as our fifth largest market (behind China, Canada, Mexico and the European Union), accounting for more than $13 billion in U.S. agricultural exports. With a population of 127 million, high per capita income, an affinity for U.S. products and a well-developed marketing infrastructure, Japan is an attractive market for U.S. exporters.

The total food and drink market in Japan is valued at more than $650 billion.

Reducing tariffs in Japan has been a long-held U.S. trade policy objective, and we have not made progress toward this objective since the World Trade Organization (WTO) agreement in 1995. Japan's average tariff on agricultural products is 14 percent. (For comparison, the average U.S. agriculture tariff is 5 percent.) Japan's average hides significant tariff peaks: For many products, Japanese tariffs exceed 100 percent and significantly restrict trade.

Free trade agreement negotiations

Japan has concluded free trade agreements with a number of other countries, including key U.S. competitors such as Chile, India, Indonesia, Mexico, Thailand, Vietnam and Australia. In addition to the TPP, Japan is in the process of negotiating agreements with the EU, Canada and China. In these negotiations, Japan has agreed to tariff reductions on many agricultural products, putting U.S. exporters at a disadvantage. Japan has largely (but not completely) excluded from market opening its most import-sensitive products, such as rice, pork, dairy, beef, wheat and sugar.

TPP

Under the TPP agreement, most agricultural tariffs in Japan will be eliminated. Tariff phase-outs vary by product: Some tariffs will be eliminated immediately when the agreement comes into force; others will be phased out over a period of years. Tariff elimination will place U.S. exports on a level playing field in Japan with respect to Japanese and third-country products, and well ahead of non-TPP competitors. The TPP will also significantly improve access opportunities for the most sensitive products in Japan through a mixture of tariff cuts and expansion of access under tariff rate quotas (TRQs).

President Obama has notified the U.S. Congress of his intention to sign the TPP agreement after the legal text has been thoroughly reviewed and approved by each TPP country. The agreement will be eligible for a congressional vote, under provisions of Trade Promotion Authority, in 2016.

The TPP delivers benefits for all sectors of U.S. agriculture. New opportunities in Japan account for a significant share of these benefits. Opportunities for U.S. dairy are summarized below.

Dairy

Japan is the sixth-largest market for U.S. dairy exports, with shipments valued at $409 million in 2014. Most dairy imports are subject to high tariffs and WTO TRQs, where in-quota tariffs are as high as 35 percent and out-of-quota tariffs are much higher. With the exception of its recent trade agreement with Australia, Japan has excluded dairy products from its previous bilateral trade agreements. Under the TPP agreement, Japan will create new TRQs and reduce tariffs to significantly expand market access for dairy products.

Under the TPP agreement, many of Japan's cheese tariffs, currently ranging up to 40 percent, will be eliminated in 16 years. This includes tariffs on cream cheese, pizza cheese, powdered and grated cheese (parmesan), cheddar and many other ripened cheeses.

All whey tariffs will be eliminated in 21 years or less, resulting in full liberalization of Japan's whey market. Tariffs on whey for food use are as high as 660.7 percent. These tariffs will be eliminated in 21 years. Japan will establish transitional CSQs for U.S. exports of mineral concentrated whey, prepared infant formula and whey permeate that total a combined 5,000 tons in year one and increase to 9,000 tons by year 11.

Japan will immediately eliminate its 8.5-percent tariffs on lactose and lactose syrup, and its 2.9-percent tariff on milk albumin that includes whey proteins, which are often used in high-protein supplements.

Tariffs on whipped cream, frozen yogurt and various dairy- and cocoa-containing food preparations, as high as 29.8 percent, will fall to zero in six to 11 years.

Tariffs on ice cream, yogurt, blue cheese and whole milk powder, as high as 35 percent, will be reduced 50 to 90 percent, to duty levels ranging from 3 percent to just under 10 percent.

For butter and milk powder, Japan will create two TPP-wide TRQs of 3,188 tons each. Over five years, both of these TRQs will grow to 3,719 tons.

For evaporated milk, Japan will establish a 1,500-ton, duty-free TRQ, which will grow to 4,750 tons in six years, and for condensed milk, a duty-free TRQ of 750 tons. Both TRQs will be available to all TPP partners.  PD

—From USDA news release