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U.S. President Donald Trump, left, and Chinese President Xi Jinping meet on the sidelines of last month's Group of 20 summit in Hamburg, Germany.   © Reuters
International relations

Japanese beef buyers may get frozen out by tariff hike

Protectionist measure also could cause friction in Japan-US economic dialogue

TSUKASA HADANO and MAKOTO NAKATOGAWA, Nikkei staff writers | China

TOKYO -- Japan's newly imposed emergency tariff on frozen American beef has raised a question about the wisdom of hanging on to a relic of a bygone trade framework when securing enough beef to meet domestic demand could become a challenge amid the tightening global supply.

Japanese imports of U.S. beef abruptly skyrocketed around mid-May. The safeguard tariff was triggered as food companies such as beef-bowl chain operators made big purchases of frozen American beef, a government source with knowledge of the situation said.

Stubbornly high Australian beef prices, stemming from a drought, played a role. But China was the main factor.

Newfound rivals

Beijing announced plans May 11 to resume imports of U.S. beef for the first time in 14 years, ending a ban imposed in response to an outbreak of mad cow disease. It was the first big success to come out of an agreement at a U.S.-China summit in early April that paved the way for the start of a bilateral economic dialogue and the execution of a 100-day action plan for correcting trade imbalances.

Fearing that a rush of Chinese buying would send prices soaring, Japanese companies scrambled to get their hands on American beef first. This boosted imports of frozen U.S. beef by 20% on the year in the April-June quarter, breaching the 17% threshold at which the safeguard mechanism automatically kicks in.

The duty was raised from 38.5% to 50% on Aug. 1 and will remain in effect until the end of March. The change already has affected prices for some products.

In the Uruguay Round of talks on the General Agreement on Tariffs and Trade in the 1990s, Japan agreed to reduce its beef duty in exchange for the ability to hike the levy as an emergency measure to rein in sudden import surges.

But more than two decades later, new risks present themselves. Japanese food companies worry that even if they want to import American beef, they could lose out to Chinese rivals able to offer higher prices.

Tightening markets

China's beef imports ballooned from just 10,000 tons in 2004 to 780,000 tons in 2014 -- making the country one of the world's top buyers -- and the inflow is expected to surge again to 1.51 million tons in 2024, Japanese government data shows. Japan's annual beef imports, by contrast, have hovered in the 500,000-ton range.

Beef has become less of a buyer's market, and exporting countries are gaining the upper hand.

As negotiations on a Japan-Australia economic partnership agreement entered the home stretch in March 2014, the two sides butted heads over beef tariffs. Japanese ruling-party lawmakers affiliated with farm interests were reluctant to touch the duty. But Barnaby Joyce, Australia's agriculture minister, noted that Aussie farmers had no need to bend over backward to export to Japan's market, since China would be happy to wrangle as much Australian beef as it could.

This trend goes beyond beef. China was a pork exporter in 2004, but the nation imported 780,000 tons of the meat in 2014 and is expected to bring in 1.28 million tons in 2024. Global demand for cereal crops is swelling as well, from 1.85 billion tons in 2000 to a projected 2.8 billion tons in 2025.

Time to reconsider?

Steps must be taken not only to make Japanese agriculture more competitive, but also to secure the country's access to global markets. In this light, safeguard tariffs may not be a good fit.

The government has made little progress on discussing how the measure should look in the future. "Logically speaking, if we are to revise the safeguard, we have to raise the tariffs back again," recently appointed agriculture Minister Ken Saito told local media this month.

President Donald Trump's campaign against trade deficits has focused largely on China and Japan. The latter may have made matters worse by raising trade barriers further. The safeguard tariff could become a sticking point at the U.S.-Japan economic dialogue set for October.

China, by contrast, has opened its doors wider. U.S. Agriculture Secretary Sonny Perdue, visiting China on June 30 to mark the lifting of the beef ban, thanked Beijing on behalf of the Trump administration for its efforts.

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