On January 23, 2017, the United States withdrew from the Trans-Pacific Partnership (TPP), calling into question the future of U.S.–Japanese beef trade. As the United States is the largest producer of beef globally and Japan is the top export market for U.S. beef, free trade agreements (FTAs) between these two nations have the potential to impact the global market for beef. Traditionally, the United States has been a champion of multilateral trade since World War II. Contemporary U.S. trade policy has shifted from multilateralism to renegotiating and restructuring smaller agreements. For example, after withdrawing from the TPP, the Trump Administration pursued a bilateral trade deal with Japan to improve U.S. market access to Japan. The U.S.-Japan Trade Agreement (USJTA), signed in October 2019, aims to enhance bilateral trade (Office of the U.S. Trade Representative, 2019a). These nations represent roughly 30% of global gross domestic product. Observers expect the agreement to benefit the U.S. beef industry, as Japanese tariffs will fall from 38.5% to 9% by 2033. This article discusses U.S. beef production and its export markets, the significance of the U.S. withdrawal from the TPP, and the potential effects of the USJTA on the competitiveness of U.S. beef in Japan.
As the largest producer and consumer of beef in the world—accounting for 20% of global production and roughly 21% of global consumption (U.S. Department of Agriculture, 2019e)—the United States plays a vital role in the global marketplace for beef. Cattle production is one of the most important agricultural industries in the United States, accounting for $67.1 billion in cash receipts in 2018, which represented roughly 18% of total cash receipts from agricultural commodities that year (U.S. Department of Agriculture, 2018). In 2019, the United States produced a record-high 12.3 million metric tons of beef (U.S. Department of Agriculture, 2019e). Producing primarily high-quality, grain-fed beef for domestic and export use, the United States is the fourth-largest beef exporting country by volume behind Brazil, Australia, and India (U.S. Department of Agriculture, 2019e). Typically, the United States is a net importer of beef, with Canada, Australia, and New Zealand its top three suppliers. However, the United States was a net exporter of beef from 2010 to 2013 and again in 2018 and 2019. Japan, South Korea, Mexico, Hong Kong, and Canada were the top five export markets of the United States through December 19, 2019 (Figure 1). These markets represented 79.6% of total exports by volume; Japan, the largest consumer of U.S. beef, accounted for 26.4% of that share (U.S. Meat Export Federation, 2019b).
Although U.S. commercial beef production remained relatively constant from 2000 to 2019, the export share of beef production and the real value of beef exports increased during that time. Figure 2 demonstrates the importance of foreign markets to U.S. beef producers and suggests that changes in trade policy can have significant implications for U.S. beef. For example, following three years of double-digit, year-over-year growth in total beef exports and a record-high 1.45 million metric tons of beef exported in 2018, U.S. beef exports were down roughly 4% through December 19, 2019, compared to December 2018 (Chalise et al., 2019; U.S. Meat Export Federation, 2019b). Observers attribute this decline to China’s retaliatory tariffs against the United States and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which widened the tariff rate gap in Japan between U.S. beef and its main competitors (U.S. Meat Export Federation, 2019a). Compared to 2018, beef exports in 2019 declined in four of the top five U.S. beef export destinations. Among the major markets, only South Korea was up year over year (7.1%) (U.S. Meat Export Federation, 2019b). Despite last year’s decline in total beef exports from the previous year, economic forecasts for 2020 have been optimistic (U.S. Department of Agriculture, 2019e).
Although U.S. beef trade with Japan has flourished in recent decades, this success has not always been the case. In 1988, the United States and Japan signed the Beef-Citrus Agreement, which phased out Japan’s restrictive quota system on fresh, chilled, and frozen beef and replaced it with a 70% tariff (Dyck, 1998). Subsequent negotiations in the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) reduced Japan’s beef tariffs from 50% in 1994 to 38.5% in 2000, accompanied by a provision allowing a “snapback” to higher tariff rates in case of surges in imports (Dyck, 1998). This “snapback” provision was part of Japan’s global safeguard on beef imports.
Under the Agreement on Agriculture, a World Trade Organization (WTO) member state may take a safeguard action to protect a specific domestic industry from surges in imports from other member states (WTO, 1994). Japan’s beef special safeguard allowed tariff rates to increase to as high as 50% if beef imports exceed 117% of the quantity imported in the previous fiscal year (Muhammad, Countryman, and Heerman, 2018). In August 2017, the United States triggered the beef special safeguard, increasing the tariff on U.S. frozen beef from 38.5% to 50% from August 1, 2017 to March 31, 2018 (U.S. Department of Agriculture, 2019c). However, effective April 1, 2020, Japan’s beef special safeguard under the WTO will only apply to countries with which Japan does not have an economic partnership agreement (EPA) (U.S. Department of Agriculture, 2019c). Otherwise, Japan’s beef imports will be covered by individual trade agreements with separate safeguard mechanisms, making the WTO safeguards unnecessary (USDA, 2019c).
The TPP—considered one of the most comprehensive FTAs in the world (Mukhopadhyay and Thomassin, 2018)—was the centerpiece of President Obama’s strategic pivot to Asia (McBride and Chatzky, 2019). Negotiators of the TPP sought to lower nontariff and tariff barriers to trade and to establish dispute settlement mechanisms that would allow TPP countries to adjudicate conflicts outside of the WTO. Many believed that this agreement would help level the global playing field and increase U.S. trade competitiveness relative to countries like China (White House, 2016). In particular, the U.S. beef industry favored the TPP because it would lower Japan’s historically high import tariffs on beef (Thomson and Westman, 2016), decreasing tariffs from 38.5% to 9% over the span of 16 years (Office of the U.S. Trade Representative, 2015). The TPP was not without critics, however, as it drew fire from politicians across the ideological spectrum. Although the TPP became a contentious topic in the 2016 election season, meaningful debate on the substance of the agreement was virtually absent (Clausing, 2019).
President Trump, on his third day in office, withdrew the United States from the TPP. Politicians from the left and right backed this decision, though the response was not universal (Glass, 2019). Economists and trade experts feared that the United States would lose significantly to foreign competition, due to the United States not receiving the same tariff reductions. For example, Marcus Noland of the Peterson Institute of International Economics argued that the U.S. withdrawal from the TPP amounts to a self-inflicted wound. He stated that the withdrawal “not only denies the United States the economic benefits that the agreement would have brought, but sends a signal to Asia of U.S. abdication of leadership in the face of a rising China” (Noland, 2018, p. 266).
Following the U.S. withdrawal from the TPP, the remaining 11 nations proceeded with negotiations and formed the CPTPP. The new group suspended 22, largely U.S.-priority, provisions from the original TPP text. When the CPTPP went into effect in December 2018, tariffs on chilled and frozen beef imports to Japan fell from 38.5% to 27.5% (Williams, Cimino-Isaacs, and Regmi, 2019), putting the United States at a competitive disadvantage. Compounding the potential increased competition from CPTPP countries, Japan entered into an EPA with the European Union (EU) in February 2019, which would reduce Japanese tariffs and nontariff barriers on imports from EU countries, particularly on agricultural products. Regarding beef, the EU–Japan EPA would allow the EU to increase its beef exports to Japan substantially, and tariffs on beef would fall from 38.5% to 9% over 15 years (European Commission, 2018). Under the respective agreements, CPTPP and EU beef suppliers also transitioned from quarterly safeguards that trigger 50% snapback tariffs to an annual safeguard with 38.5% snapback tariffs that decline over time (U.S. Meat Export Federation, 2018). When the CPTPP and EU–Japan EPA entered into force, the United States became the only major beef supplier subject to Japan’s WTO beef safeguard and a 50% snapback rate. Kevin Kester, then president of the National Cattlemen’s Beef Association, noted in late 2018 that the U.S. beef industry was at risk of losing significant market share in Japan unless the United States took immediate action to restore access (Nickel, 2019).
Kaneko, Sieg, and Polansek (2019) reported that the absence of the United States from the CPTPP disadvantaged U.S. beef exports in 2019. In the first 10 months following the implementation of the EPA, EU meat exports to Japan increased by 12% from the previous year, while frozen beef exports more than tripled (European Commission, 2020). Regarding CPTPP countries, Japanese beef imports from Australia, Canada, New Zealand, and Mexico, competitors of the United States, surged to 33,000 metric tons in January 2019, up 56% from the previous year (Cislo, 2019). While January 2019 beef imports from the United States increased 4% from the prior year, exports of U.S. beef to Japan were down 10% in both volume and value by December compared to 2018 (U.S. Meat Export Federation, 2019b). These correlated events are not proof that the U.S. withdrawal from the TPP, coupled with Japan’s FTAs with other major markets, caused the decline in U.S. beef exports. However, these shifts were likely significant contributors to the fall.
|Tariff Level (%)|
After withdrawing from the TPP, the United States began negotiating a bilateral trade agreement with Japan in early 2019. On October 7, 2019, the two nations agreed on the terms of the agreement that spans $55 billion in commerce, including agricultural commodities. For context, U.S. agricultural exports to Japan totaled $12.9 billion in 2018, making Japan the fourth-largest U.S. agriculture market (Cimino-Isaacs and Williams, 2019). Under the USJTA, Japan agreed to reduce or eliminate tariffs on $7.2 billion of U.S. agricultural exports to Japan (Office of the U.S. Trade Representative, 2019a). The Office of the U.S. Trade Representative expects the USJTA, which took effect on January 1, 2020, to lead to “substantial” market access for U.S. farmers and ranchers, explicitly benefiting agricultural exports such as beef, pork, wheat, cheese, and wine (Office of the U.S. Trade Representative, 2019b).
Under the USJTA, Japan accelerated and adjusted its tariff reduction schedule so that imports of affected U.S. agricultural products will receive the same level of market access as imports from CPTPP countries (Williams, Cimino-Isaacs, and Regmi, 2019) (see Table 1). For example, the USJTA lowers Japanese tariffs on U.S. chilled and frozen beef imports to 26.6% in 2019 and 9% in 2033, whereas CPTPP lowers Japanese tariffs on chilled and frozen beef imports from member countries to 27.5% in 2018, 26.6% in 2019, and 9% in 2033 (Williams, Cimino-Isaacs, and Regmi, 2019). Due to delays in USJTA negotiations Japan granted preferential market access treatment under CPTPP in 2018 and 2019 to major U.S. competitors in the Japanese market, including Australia, Canada, and New Zealand.
The USJTA provides a safeguard measure for Japan in the form of increased tariffs if U.S. beef exports exceed specified thresholds. Under the USJTA, U.S. beef products face a volume-based, country-specific safeguard with a lower maximum tariff (U.S. Department of Agriculture, 2019c). If U.S. export volume exceeds the 242,000-metric-ton safeguard, Japan will increase tariffs on certain U.S. beef exports and maintain them for the remainder of that year. The safeguard volume will then grow 1%–2% each year if exports exceed the safeguard volume in the year prior (U.S. Department of Agriculture, 2019f). The safeguard tariff starts at 38.5% and declines over time (U.S. Department of Agriculture, 2019f). However, the USJTA contains a side letter on beef that provides for certain consultation requirements, whereby Japan and the United States may modify safeguard levels (Office of the U.S. Trade Representative, 2019c).
With the USJTA in place, the United States has reached parity with CPTPP and EU countries regarding beef exports to Japan. Whether the outcome for the U.S. beef industry will differ significantly from what would have occurred had the United States not withdrawn from the TPP is still up for debate. Although U.S. beef trade groups anticipate economic gains from the new bilateral agreement between the United States and Japan, the USJTA may not have as large of an impact as they had hoped. For example, the United States exported 401,653 metric tons of beef to Japan in 2018 (U.S. Department of Agriculture, 2019d). This amount exceeds the USJTA’s safeguard level of 242,000 metric tons set for Japanese imports of U.S. beef (Office of the U.S. Trade Representative, 2019b). Once triggered, a higher tariff rate occurs. Because exports already exceed the safeguard level, Kaneko, Sieg, and Polansek (2019) cautioned that, for now, the deal might not significantly boost U.S. beef exports to Japan. However, the agreement at least supports U.S. access to the Japanese market.
The USJTA may affect Japan’s beef imports from other trading partners, which include U.S. competitors and CPTPP countries, but the extent is unclear. While the CPTPP and the EU–Japan EPA may lead to a diversification of beef imported to Japan, tariffs are not the only factors that influence the volume of beef imported into Japan from a given country. Consumer preferences and quality also come into play. In particular, U.S. beef exports to Japan are primarily from grain-fed cattle, whereas Australian beef is mostly grass-fed (Obara, McConnell, and Dyck, 2010). Grain-fed beef has more marbling than grass-fed beef, and Japanese consumers prefer well-marbled beef for traditional dishes because of its tenderness and flavor (USDA, 2013). These preferences and production methods may shape trade relationships beyond the policies.
FTAs aside, the U.S. beef industry stands to gain from a global decline in meat supplies due to an outbreak of African swine fever (ASF) in Asia. The dramatic drop in pork production due to ASF has driven beef imports in general to record highs in China, while also increasing beef imports to South Korea and Vietnam. Further, the Office of Agricultural Affairs in Canberra forecasts that Australian beef production will decline in 2020 by 11% from 2019 and exports will fall by 15% due to drought in key production areas in Australia (U.S. Department of Agriculture, 2019b). As Australia struggles to maintain its market due to drought and increased demand in China, the United States should be able to expand its market share in Japan, South Korea, and Taiwan.
However, the COVID-19 pandemic generates uncertainty and overshadows expectations for accelerated U.S. exports and expansion into these ASF-impacted markets. The USDA projected U.S. beef production and exports to increase in 2020 by nearly 3% and 6%, respectively. The USDA has since revised its forecasts marginally lower as the spread of COVID-19 significantly impacts the U.S. beef supply chain and suppresses global demand for beef (U.S. Department of Agriculture, 2020b). Although U.S. beef exports may rebound by almost 9% in 2021 compared to this year (U.S. Department of Agriculture, 2020a), this improvement may not be solely attributable to the USJTA, as other extrinsic factors are in play.
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