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TPP’s Agricultural Trade Provisions

The greatest impact of the Trans-Pacific Partnership (TPP) was expected to be in Japan and Vietnam, because the U.S. already has free trade agreements with Canada, Mexico, Australia, Peru, Chile and Singapore, and duties on beef and pork are already zero for New Zealand and Malaysia. Market access highlights, with additional notes from USMEF’s analysis of the agreement, are as follows:

Beef

Japan’s tariffs for chilled/frozen beef will be cut from 38.5 percent to 9 percent in 16 years, and will be subject to an annual TPP-wide safeguard instead of the current WTO safeguards. The TPP safeguard is not expected to be trade-restrictive unless there are unexpected surges in imports. Additionally, Japan will eliminate tariffs on processed beef products, including beef jerky and meat extracts, which are now as high as 50 percent, in 6 to 16 years. Duties on beef variety meat, including tongues and skirts (now 12.8 percent) will also be phased to zero.

U.S. beef entering Japan is currently at a significant disadvantage compared to Australian beef, our largest competitor. The Japan-Australia Economic Partnership Agreement was implemented in January 2015, and tariffs are now at 28.5 percent for imports of frozen Australian beef and 31.5 percent for chilled. Japan is the leading market for U.S. beef and beef variety meat exports, with shipments in 2014 totaling 241,129 metric tons (mt) valued at $1.6 billion. Through August 2015, exports were down 9 percent year-over-year in volume and 11 percent lower in value.

Vietnam’s beef import tariffs will be eliminated in three to eight years. The current duty rate for chilled/frozen muscle cuts is 20 percent and the rate for offal is 15 percent. Last year U.S. beef and beef variety meat exports to Vietnam were just 2,869 mt valued at $22.1 million. The pace has improved in 2015, with totals through the first eight months of the year reaching 2,444 mt valued at $19.8 million.

Through a free trade agreement with the ASEAN region, Australia and New Zealand already have reduced tariffs for beef entering Vietnam, with all duties set for elimination by 2018 and 2019, respectively. Helped by their current tariff advantages, their exports have grown significantly, with combined value exceeding $20 million through August 2015, up 56 percent from last year’s pace.

Tariffs on beef and beef products entering the United States, which currently are as high as 26.4 percent for out-of-quota imports, will be eliminated in 15 years or less. U.S. imports of beef from Canada, Mexico and Australia are already duty-free through NAFTA and the Australia-U.S. FTA’s tariff rate quota, so New Zealand will be the primary beneficiary.

Pork

Although Japan’s longstanding “gate price” system for chilled/frozen pork cuts is not eliminated, the ad valorem duty will be removed and the maximum price for product entering below the gate price will be phased down over 10 years – from 482 yen/kg to 125 yen/kg in year 1, then to 50 yen/kg by year 10. Japan’s current 4.3 percent tariff on chilled/frozen cuts will drop by nearly half the first year, with the remaining duty eliminated in 11 years. Japan will maintain import safeguards on these cuts, but the safeguards allow for import growth. Last year Japan’s chilled/frozen pork imports from the U.S. totaled 276,033 mt valued at $1.48 billion.

Another significant aspect of the agreement is that Japan’s duties on all processed pork products will be phased to zero. Within six years, Japan will eliminate the 20 percent duty on ground seasoned pork and other processed pork products not covered by the ham and bacon gate price. A 10 percent duty on sausages will also be eliminated over the same period. Last year Japan’s imports of U.S. ground seasoned pork totaled nearly 100,000 mt, valued at more than $350 million. Imports of other processed U.S. products excluding ham, bacon and sausages were nearly 20,000 mt, valued at more than $100 million. Imports of U.S. sausages were 10,700 mt, valued at nearly $60 million.

A gate price will also remain in place for ham and bacon, but duties will be eliminated over 10 years and a safeguard mechanism, which allows for market expansion, will terminate in year 12. Japan’s annual imports of U.S. ham and bacon have been less than 2,500 mt, due in part to high tariffs, so USMEF expects growth in this value-added category.

Japan’s largest non-TPP pork supplier is the European Union, which does not yet have a free trade agreement with Japan. However, the two sides are in the final stages of FTA negotiations. The EU has completed an FTA with Vietnam, with implementation expected in 2017.

Under TPP, Vietnam will eliminate tariffs on pork products, currently ranging up to 34 percent, in 5 to 10 years. Tariffs on frozen cuts (currently 15 percent), and processed pork are eliminated in eight years. The 25 percent duty on chilled cuts will be eliminated in nine years, and tariffs on chilled and frozen carcasses in 10 years. An 8 percent duty on frozen offal will also be phased to zero.

Vietnam is highly self-sufficient in pork production and has a history of imposing restrictive import regulations. But USMEF sees near-term opportunities for offal exports to Vietnam, with future growth for muscle cuts as the consumer market develops. Last year U.S. pork and pork variety meat exports to Vietnam totaled just 992 mt valued at $2.2 million, but these totals have already been surpassed in the first eight months of 2015 (1,029 mt valued at $2.6 million).

Access for U.S. pork entering Australia is currently limited to processed products and fresh/frozen pork shipped directly to an approved cooking facility for further processing. New Zealand has similar restrictions in place, but recently opened the market to fresh/frozen U.S. pork in retail-ready packages of less than 3 kg. While the U.S. continues to seek better access to these markets, relief from these restrictions is not included in TPP.

The United States will eliminate tariffs on imported pork and pork products, which are currently as high as 6.4 percent, in 5 to 10 years. But this should not have a significant impact on U.S. imports, because imports from Canada, Mexico and Chile are already duty-free. The other significant supplier of imported pork is the European Union, which is not a part of TPP.

The full report is available on the USDA website, with sanitary and phytosanitary measures briefly addressed on page 2. Implementation timing for TPP remains uncertain, as the agreement must be ratified by the governments of the participating countries, each subject to its own political process. Taking this into account, the agreement may not be implemented until 2018.