Washington Insider-- Monday

Slamming the Gate on Gate Price Tariffs

Here's a quick monitor of Washington farm and trade policy issues from DTN's well-placed observer.

Global Dairy Exporters Press for Increased Access to Canadian Market

Dairy exporters in Australia, New Zealand and the United States last week called on their respective trade and agriculture officials to make every effort to significantly increase their access to Canada's market as they continue discussions aimed at concluding the Trans-Pacific Partnership (TPP) trade agreement.

Representatives of Canada's highly protected dairy industry did not appear overly concerned about the attention. Yves Leduc, staff director of international trade with the Dairy Farmers of Canada, told the press that U.S. demands for Canada to reform its supply management system to increase access for imports are ironic given that the United States negotiated a free trade agreement with Australia that excludes access to the U.S. sugar market.

Leduc also claimed that the United States has been unwilling to discuss agricultural subsidies in the context of the TPP negotiations. According to Leduc, the U.S. farm bill provides substantial support to the U.S. dairy sector, to the point where Canadian products could not compete on a level playing field in the U.S. market.

Virtually all the 12 countries involved in TTP talks have products that they wish to protect from foreign competition. Until they are convinced that the benefits their exporters would gain under the TTP will exceed the harm caused by increased imports, the negotiations –– and their accompanying bargaining sessions –– will continue.

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U.S. Continues to Run a Large Agricultural Trade Surplus with China

China is a frequent target of U.S. industries and legislators who criticize the country for what they see as unfair trading and investment practices. And China is always at or near the top of the list when it comes to countries suspected of manipulating the value of their currencies to gain a competitive edge in international trade. But China also has become hugely important to the U.S. agricultural sector, as outlined in a recent report by USDA's Economic Research Service.

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Since China became a member of the World Trade Organization in 2001, U.S. exports of agricultural products to China now average nearly $26 billion a year, or about 10 times more than they were in the late 1990s, says ERS. To put this number in perspective, in December USDA forecast total U.S. agricultural exports during fiscal 2015 would be $143.5 billion, meaning that China buys about 18% of all exported U.S. farm products.

According to ERS, during the 2012-13 marketing year the United States accounted for over 24% of China's agricultural imports by value and was its leading supplier of oilseeds, cotton, meat, cereal grains, cattle hides, distillers' dried grains and hay. In fact, agriculture has become one of the few sectors where the United States has a trade surplus with China.

And the bilateral trading relationship appears to be poised for additional growth, which is important for U.S. agricultural producers to keep in mind whenever there are new calls to punish China for its trade policies.

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Washington Insider: Slamming the Gate on Gate Price Tariffs

Within the Trans-Pacific Partnership talks, important negotiations are taking place with Japan over access to its meat and grain markets. At the moment, these are focusing on serious concessions, observers say — and in the process, revealing just how protectionist Japanese agricultural policy has been.

At this time, the United States is pushing Japan hard on its border protections and local producers are complaining. Still, the Japanese pork producers group told the press recently they would be open to a 50% cut to tariffs on pork, suggesting that the remaining tariff would provide significant protection — which is true. The managing director of the Japanese Pork Producers Association said the group could live with cuts to import duties if it helps it to reach an agreement on the Trans-Pacific Partnership.

The director said the group could tolerate a tariff cut from the current max of 482 yen per kilogram ($3.99) to 240 yen ($1.99) per kilogram. A bigger cut than that would be a "fatal blow to Japanese pork producers," he argued. Japan's insistence that key agricultural products like pork, beef, dairy, rice, wheat and sugar be exempt from tariff elimination has been a major sticking point in negotiations, so this movement on pork tariffs is seen as encouraging by observers.

Japan is the world's largest pork importer and relied on imports for 45% of its pork last fiscal year. It bought 744,000 metric tons from TPP members including the United States, Canada, Mexico and Chile — all subject to Japan’s highly interventionist Gate Price system. That system had been negotiated in 1995 under the Uruguay Round to replace its former variable levy system for pork — although critics have charged for years that the new system is much like the old with its highly protectionist, variable levies.

For example, when imported pork, priced at entry, is valued at or above the established price then only the simple tariff is charged (4.3% in the case of fresh, chilled, or frozen meat).

However, if the imports’ unit value below the gate price, the importer must pay the difference as a duty –– in addition to the tariff applied at the gate price value.

In practice, the Gate Price is compared with the average value of the invoice on a shipment of pork, which is usually one or more containers of pork. This allows traders to mix pork cuts so that no additional levy is assessed other than the 4.3% tariff. For example, low-priced cuts can be mixed with high-priced loins until the average value of the shipment is equal to the Gate Price. If imports in a full year exceed the trigger level, the gate price is raised in the first quarter of the next fiscal year.

In practice, almost all pork shipments to Japan are either at or above the Gate Price and are assessed low duties. Still, U.S. pork producers say the system interferes with trade and badly want it ended. They are conditioning their support for a final TPP agreement on the elimination of all tariff and non-tariff barriers to US pork in each of the TPP nations, including Japan. Japanese politicians are strongly resisting elimination of the system while seriously considering very large changes — while arguing for some significant tariffs.

The pork trade with Japan is one example of the important issues being considered in these talks — and suggests the high stakes U.S. producers have in the domestic fight for Trade Promotion Authority and in the international negotiations themselves.

This clearly is a trade policy fight producers should watch carefully as it proceeds, Washington Insider believes.


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