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CME: US-Japan Agreement to Lend Itself to More Favorable Access on Ag Front

28 August 2019

US - Trade once again splashed the headlines last weekend. The US and Japan agreed in principle to key pieces of a trade deal which is expected to boost agriculture exports to Japan. Japan purchases about $14 billion in US agricultural products and this agreement will lend itself to more favorable access on the Ag front, according to Steiner Consulting Group, DLR Division, Inc.

Japan is a major destination for US pork and beef. In 2018 Japan bought $1.5 billion in pork muscle cuts and $1.8 billion in beef. Poultry totaled $35 million and edible offal exported to Japan was $370 million. Under the agreement, the tariff on US beef would be lowered from 38.5 percent to 9 percent in phases, while the tariff on high-grade pork will move from 4.3 percent to zero over a period of time. Tariffs on lower grade pork are also expected to be reduced.

Japan took 28 percent of US beef exports in 2018 and 21 percent of pork exports by volume. It was the number one destination for beef last year, and the 2nd largest destination for US pork exports. The reduction of tariffs is significant as the newly minted Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) agreement, that the US was not part of, substantially reduced tariffs for US competitors.

CPTPP went into effect in December 2018. Should the US-Japan agreement become signed, US beef and pork tariffs will immediately be reduced to the level as CPTPP partners and step down at the same rate as CPTPP partners. A trade pact with the US and Japan will allow the US to be highly competitive in the Japanese marketplace despite not being part of CPTPP.

So far this year trade volumes of beef and pork to Japan have lagged behind last year. At mid-year, US beef exports to Japan are down 6 percent on a volume basis, while pork exports are down 4 percent.

In other trade news, China announced Friday as of 1 September it will raise tariffs on US agricultural goods including a 10 percent rate hike on US pork and beef. US pork is already facing a 62 percent tariff on frozen pork and chilled pork faced duties between 45-70 percent.

Frozen beef tariffs were at 37 percent. These rates are as of June 2019. The new round of increases also comes at a time when China is speeding up its purchases of protein. Despite these very high tariffs exports of beef and pork to China have increased this year. US pork exports to mainland China from the US are up 90 percent January through June. US beef exports are up 5 percent in that same timeframe.

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