By U.S. Meat Export Federation Staff
The 11 remaining members of the Trans-Pacific Partnership* recently announced plans to move forward with a modified version of TPP. If this agreement, now known as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, is implemented without the United States as a participant, it will create significant tariff rate advantages for U.S. pork’s major competitors.

The U.S. has free trade agreements in place with several CPTPP countries, but the key exceptions are Japan and Vietnam. In Japan, which is consistently the leading value market for U.S. pork, imports face a rather complicated system of tariffs and “gate price” thresholds that increase the cost of entry into this high-value, highly competitive market. While this has long been a source of frustration for the U.S. industry, there was some consolation in knowing that U.S. pork was on a level playing field with most of Japan’s major pork suppliers — though Mexican and Chilean pork currently enjoy some advantages as a result of those countries’ respective economic partnership agreements with Japan.

Mexico and Chile are now poised to make further market access gains in Japan through the CPTPP — as is Canada, the United States’ main competitor in Japan’s chilled pork market. In addition, the European Union has reached agreement in principle on an economic partnership agreement with Japan that provides similar terms, and this agreement is expected to be finalized soon. When these agreements are ratified and implemented, the United States will be the only major pork supplier to Japan that will not be benefiting from a trade agreement.

Although Japan’s long-standing gate price system for chilled/frozen pork cuts is not eliminated under the CPTPP or the EU-Japan economic partnership agreement, 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 per kilogram to 125 yen per kilogram in Year 1, then to 50 yen per kilogram by Year 10. Japan’s current 4.3% tariff on chilled/frozen cuts will drop by nearly half the first year, with the remaining duty eliminated in 11 years. Japan will also eliminate the trade-distorting quarterly import safeguards and switch to annual safeguards, which allow for import growth.

One of the most important aspects of CPTPP and the EU-Japan economic partnership agreement is that Japan’s duties on all processed pork products will be phased to zero.

“That’s something that Japan has never previously agreed to in any of its bilateral trade agreements, so it’s a huge breakthrough,” explains U.S. Meat Export Federation Economist Erin Borror.

The gate price will remain in place for ham and bacon, but all duties will be eliminated over 10 years and a safeguard mechanism, which allows for market expansion, will terminate in Year 12.

“Japan’s imports of ham and bacon have historically been quite low, due in part to high tariffs,” Borror notes. “So once these agreements are implemented, there is an opportunity for growth in this value-added category.”

Within six years, Japan will also eliminate the 20% duty on ground seasoned pork and other processed pork products not covered by the ham and bacon gate price. A 10% duty on sausages will be eliminated over the same period.

“Japan’s imports of U.S. ground seasoned pork will probably be about $290 million this year, and have been as high as $350 million,” Borror says. “Imports of other processed U.S. products (excluding ham, bacon, sausages and ground seasoned pork) are valued at about $90 million this year and have exceeded $100 million in peak years.”

The EU was not a significant supplier of ground seasoned pork as recently as 2012, but market share has grown to 13% this year and can be expected to continue to expand once the economic partnership agreement is implemented. Canada and Mexico also compete with the United States for Japan’s imports of ground seasoned pork. The United States has also been Japan’s largest supplier of canned hams and other processed pork products, followed by the EU. But if U.S. products remain subject to the 20% duty, erosion of U.S. market share is expected.

Vietnam is a relatively small market for U.S. pork and one that is highly self-sufficient in pork production. But the USMEF sees near-term opportunities for offal exports to Vietnam, with future growth for muscle cuts as the consumer market develops. Through September, this year’s pork/pork variety meat exports to Vietnam totaled 1,303 metric tons valued at $4.2 million — up just 4% in volume from a year ago but 40% higher in value.

For suppliers participating in CPTPP, Vietnam will eliminate its tariffs on pork products, which are currently as high as 34%, in five to 10 years. Tariffs on frozen cuts (currently 15%), and processed pork are eliminated in eight years. The 25% duty on chilled cuts will be eliminated in nine years, and tariffs on chilled and frozen carcasses are eliminated in 10 years. An 8% duty on frozen offal will also be phased to zero.

The EU has completed a free trade agreement with Vietnam, though the agreement has not yet been ratified. Once this free trade agreement is implemented, Vietnam’s tariffs on imports of EU pork will be eliminated on a schedule similar to the CPTPP. Vietnam is already a strong growth market for EU exports, especially since the Russian market closed to EU pork in 2014. Last year EU exports to Vietnam totaled 54,613 mt valued at $66.6 million — up dramatically from the 2013 totals of 3,239 mt valued at $4.3 million. Vietnam is the fourth-largest volume destination for EU pork variety meat, with exports last year reaching 34,782 mt valued at $39.5 million.

*The full list of CPTPP participants is Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.

Data sources: USDA and the Global Trade Atlas