Report on Agricultural Trade (Summary)

October 1999
Ministry of Agriculture, Forestry and Fisheries

Chapter I  Trends of the World's Agricultural Trade

（1）Characteristics of Agricultural Trade

1. In the world’s agricultural trade, the share of export volume in the production volume (trading rate) is small, and the structure of the trade is such that a number of exporting countries and regions is small. Therefore, it is essentially unstable, being easily influenced by production or policy changes of certain producing or exporting countries.
2. The world grain consumption has been steadily increasing due to the population increase, particularly in developing countries, and the expansion of meat consumption with income growth. On the other hand, the volume of grain production is greatly affected by the agricultural policy or weather conditions of the major producing countries.
3. In recent years, the supply-demand gap of grain has been easing gradually because of good harvests and other causes, since 1995 and 1996 when the ending stock rate dropped to the lowest level. However, the ending stock rate has been low compared to the past. In addition, there is an increasing possibility of changes in crop conditions from the effect of abnormal weather. So, the food supply in the world is becoming increasingly unstable in the short-term. Also, it is necessary to consider the possibility that the food supply in the world will be hard-pressed in the medium-and long-term, due to the considerable increase in grain demand with the population increase and expanded meat consumption.

（2）Changes in the Structure of Agricultural Trade

1. With regard to imports, the shares of the former USSR and East Europe have decreased due to domestic economic confusions, while the shares of Asia, Africa and South America have increased because of the advancement and diversification of consumer needs with the population increase and economic growth. As for exports, the US, which has reinforced its efforts in export promotion, and South America, which has endeavored to expand agricultural production, have been increasing their shares.
2. By observing the recent trend of grain trade, exports from the US, the EU and Oceania to the former USSR or East-European countries have decreased, and exports from the US and Oceania to Asia or Africa have significantly increased. Developing countries of Asia, Africa, etc., are expected to continue increasing their demand for agricultural products with the rising income level. So, such dependency on developed exporting countries is likely to become even stronger in the future.
3. By observing the trend of agricultural trade balance by region, the bipolarization between export-dependent regions such as North America and Oceania and import-dependent regions such as Asia becomes clear. At the same time, it is apparent that the agricultural trade balance of developing countries in Asia and Africa, is deteriorating.

Chapter II  Current Situation of Japan's Agricultural Trade

（1）Trends in Japan's Agricultural Trade

1. Japan's trade balance has constantly been in surplus since 1981, because exports expanded more than imports, especially for industrial products. Japan's trade structure indicates a great deficit in food and mineral fuels, while it indicates a great surplus in machinery and transportation equipment. Its export and import of each product category is extremely unbalanced compared with other major developed countries.
2. Japan's imports of agricultural products have significantly expanded due to the diversification/advancement of consumer needs under the restricted land conditions, the effect of the long-term yen appreciation, improvement of market accesses, etc. Japan's share of the world's import of agricultural products is also high, ranking first in the world for wheat, corn and meat, and ranking second following the EU for soybeans.
3. Observing the import trend by item, imports of grain and vegetable oil increased considerably from the 1960s to the early 1980s due to the diversification/ advancement of dietary habits with an increase of national income. However, the increase slowed down after that. Meanwhile, imports of meat, vegetables and their prepared products rapidly expanded from the latter 1980s. The shares of processed products and half-processed products have also expanded.
4. Japan's agricultural trade balance has constantly been in considerable deficit, indicating \4.4 trillion in 1998.Japan has been the world's top net importer of agricultural products since 1984. 
5.  Japan depends on more than 80% of the amount of import of major agricultural products such as grains from two countries including the US.Thus, it implements measures to secure stable import by, for example, setting the target annual transaction quantity between major exporting countries.Also, in international conferences etc., Japan claims the importance of stable food supply to exporting countries from the standpoint of a food-importing country.
6. In order to secure stable food imports, it is necessary to promote food diplomacy, establish systems to collect information, and diversify the countries from which food is imported. Meanwhile, it is also necessary to control and operate the stockpile system of major foods, adequately and efficiently.Particularly, in the next round of WTO negotiations, it is important for Japan to actively claim the importance of food security from the standpoint of the world's top net importer of agricultural products.
   
   

   Table 1: Changes in Japan's top-10 imported agricultural products (value terms)

   	1960	1970	1980	1990	1995	1998
   1st	wheat	corn	corn	corn	pork	tobacco
   2nd	soybeans	soybeans	soybeans	beef	beef	beef
   3rd	raw sugar	wheat	wheat	alcohol beverages	tobacco	alcohol beverages
   4th	corn	raw sugar	raw sugar	pork	corn	pork
   5th	tallow	grain sorghum	coffee beans	tobacco	alcohol beverages	corn
   6th	rice	bananas	grain sorghum	soybeans	soybeans	soybeans
   7th	copra	tobacco	beef	wheat	wheat	wheat
   8th	milk powder (skimmed)	coffee beans	pork	rapeseed	chicken	coffee beans
   9th	tobacco	tallow	tobacco	chicken	coffee beans	chicken
   10th	bran	ram	alcohol beverages	coffee beans	fresh vegetables	fresh vegetables

    

（2）Past Course of Japan's Agricultural Negotiations

1. Following repeated negotiations extending over almost half a century from the accession to GATT in 1955, Japan's border measures for agricultural products have completely converted to ordinary tariffs after the tariffication of rice and rice products in April 1999. The current tariff levels have also been established through the negotiations.
2. Japan maintains border measures as high as possible for important agricultural products which should be produced domestically. Concerning items for which demand cannot be satisfied by domestic production alone, Japan makes efforts to improve market accesses by abolishing the import restrictions and lowering the tariff rate with due consideration to the requests of foreign countries.
3. Past course of negotiations on agricultural products in main rounds of negotiations

（3）Implementation of the Uruguay Round Agricultural Agreement

1. In the Uruguay Round agricultural agreement, it was agreed to make specific and binding commitments in the following three fields: border measures, support to domestic production and export competition. These commitments are to be realized over a period of six years from 1995 through to the year 2000. Japan has been steadily executing this agreement since 1995 by establishing related domestic laws and ordinances.
2. With regard to border measures, all non-tariff measures such as quantitative restrictions on imports were shifted to tariff measures in principle, and the tariff equivalent (difference between the domestic wholesale price and the import price) was established. The bound rates (including the tariff equivalent) of all agricultural products including those resulting from tarrification are to be reduced by 36% on a simple average basis over the six-year period (at least 15% per item).
3. The “market access opportunities,” set on the basis of import results during the reference period (1986-1988) or of the import quotas, are maintained or expanded for tariff-imposed items.
   For the event that there was more than a certain amount of increase in the import volume or a reduction in the import price, a special safeguard scheme is introduced by which an additional tariff can be imposed without compensation.
4. With regard to rice, taking into account the non-trade-concern, a special tariff measure was adopted by accepting heavier-weighted minimum access opportunities compared to the general tariff imposition.
   From April 1999, it was shifted to the general tariff measure. Because, by doing so during the execution period of the agreement, the increase of the amount of minimum accesses can be reduced to a half, and also, if Japan persists in maintaining the special tariff measure which is only adopted by an extremely small number of countries, it may not be able to gain the support of those countries with which it should coordinate in the next round of the WTO agricultural negotiations.
5. With regard to policies subject to reduction (“yellow” policies) in the support to domestic production, 20% of the total amount of support during the reference period that was calculated by the aggregate measurement of support (AMS) is reduced by the same ratio annually over the implementation period. Japan's AMS (fiscal 1996) is not only lower than the committed level for fiscal 1996, but already 16% lower than the committed level for fiscal 2000.
   

   Table 3:Outline of the Uruguay Round Agreement on Agriculture

   Classification	Measures	Promised implementation method (For six years)
   Border measures	Tariffs	Average 36% reduction on all agricultural products (minimum 15% reduction for each item)
   	Quantitative import restrictions (non-tariff barriers)	In principle, all quantitative import restrictions are converted to tariff equivalents (tariffication) and reduced in line with tariffs.
   Domestic supports	Market price supports, Deficiency payments and others	20% reduction of Aggregate Measure of Support (AMS)
   Export competition	Export subsidies	36% reduction in value and 21% in volume

   (Note) Japan has no policy equivalent to import subsidy.
   
   

   Table 4: Outline of New Import Systems for Items with Tariff

   Item	Previous border measures	Border measures introduced with tariffication measure
   		Basic framework of border measures	Market access opportunities			Tariff  equivalents (1995-2000)
   			Basic framework of border measures	Applicable tax rate	Import mark-up caps (1995-2000)
   Rice	Quantitative import restrictions	[Beforetariffication] Quantitative import restrictions and State Trading System	379,000t → 758,000t	No tariff	292yen/kg (no reduction)	Tariffication special treatment
   		[After tariffication] State Trading System	(1999-2000) 643,300t → 682,200t	No tariff	292yen/kg (no reduction)	(1999-2000) 351.17yen/kg→341yen/kg
   Wheat And Barley	Quantitative import restrictions	State Trading System	Wheat 5,565,000t→5,740,000t	No tariff	53yen/kg→ 45yen/kg	65yen/kg→ 55yen/kg
   			Barley 1,326,500t→1,369,000t	No tariff	34yen/kg→ 29yen/kg	46yen/kg→ 39yen/kg
   Dairy products	Quantitative import restrictions	State Trading System for some items Tariff quota system for private trades	Livestock Industry Promotion Corporation 137,000t→137,000t (in terms of raw milk)	Skimmed milk powder 25%	358yen/kg→ 304yen/kg	466yen/kg +25% → 396yen/kg +21.3%
   			Private trades (school lunch program, feeds and other) Skimmed milk powder 93,000 t →93,000 t Butter 1,900t→1,900t (Others) 125,000t→125,000t	Butter 35%	950yen/kg→ 806yen/kg	1,159yen/kg +35% → 985yen/kg +29.8%
   Starch	Quantitative import restrictions	Import quota system	157,000t→157,000t	25％		140yen/kg→ 119yen/kg
   Miscella- neous beans	Quantitative import restrictions	Import quota system	120,000t→120,000t	10％		417yen/kg→ 354yen/kg
   Peanuts	Quantitative import restrictions	Import quota system	75,000t→75,000t	10％		726yen/kg→ 617yen/kg
   Elephant's foot (kon- nyaku imo)	Quantitative import restrictions	Import quota system	267t→267t	40％		3,289yen/kg→ 2,796yen/kg
   Raw silk and cocoon	Other import restriction	Raw silk - State Trading System	798t→798t	Raw silk 7.5%		8,209yen/kg →6,978yen/kg
   		Cocoon - Tariff quota system		Cocoon 140yen/kg		2,968yen/kg →2,523yen/kg
   Pork	Differential Duty System	- Conversion to tariff equivalents and 15% reduction of basic import price(482.5yen/kg in 1993 for dressed carcass) - In addition to special safeguard measures, emergency adjustment measures will be introduced to raise break-even price in response to rapid growth of imports. - No access volume established.

   (Notes)
   1. Only representative figure of tax rates, import mark-up and tariff equivalents were shown here if there are more than two within a corresponding classification.
   2. Figures of rice, wheat, dairy products, starch and pork include those of prepared products.
   3. Simultaneous Buy and Sell System (SBS) is adapted to some of imported rice and whey powder.

（4）Counterargument to Major Countries' Report Concerning Japanese Agricultural Trade Policy

1. Report on Foreign Trade Barriers (Office of the US Trade Representative, 1999)
   

   Outline of description on Japanese agricultural policy	Counterargument and comments
   Variety-specific quarantine system of plants: Under the current system, some products are banned from import without sufficient scientific basis.	Plant quarantine is conducted on a scientific basis in order to prevent introduction of pests and diseases from foreign countries.
   Expansion of rice imports: Continuous entry into Japanese market of US rice industry is required even after the introduction of tariffication.	It is of an importance fundamentally, should US wish to expand rice export, that further efforts are made in varieties development of rice in response to demand in Japan's market, and in competitions among exporting countries in terms of qualities and prices of rice.
   Biotechnology (GMO labeling): USTR asks for Japan not to develop any unnecessary and inappropriate rule of labeling for Genetically Modified Organisms, which could disturb the progress of gene recombination technology.	Considering consumer interests, Japan will develop and implement rational, credible and feasible labeling rules.

2. Canada's International Market Access Priorities (Department of Foreign Affairs and International Trade, 1999)
   

   Outline of description on Japanese agricultural policy	Counterargument and comments
   Elimination of tariffs on canola oils (cooking oils) Although, as the result of the Uruguay Round (UR) negotiations, the tariffs on canola oils were drastically reduced, they still limit imports, thus, making Japanese oilseeds crushers more advantageous than crushers overseas.	Japan is not in a position to accept further tariff reduction, since we are committed to drastically reducing tariffs of agricultural products by the year 2000 (36 percent reduction from the base rate).

3. General Characteristics of Working Paper on Trade with Japan and Trade Policy :Japan (EU Committee, 1999)
   

   Outline of description on Japanese agricultural policy	Counterargument and comments
   Import system of pork: Japanese emergency tariff measures for pork caused severe market dislocation. As long as the said measure is effective, pork from EU is eliminated from Japanese market.	Emergency tariff measures are consistent with the WTO Agreement. What is important is the steady implementation of the UR Agreement, and there is no further plan to review this. The said measures are applied equally to any exporting countries.
   Quarantine system of animals and plants: Japan does not recognize the existence of an EU single market and does not yet apply regionalism.	At present, it is important for experts on both sides to exchange opinions on regionalism.

4. Trade Negotiations, Trade Outcomes and Objectives Statement (Department of Foreign Affairs and Trade of Australia, 1999)
   

   Outline of description on Japanese agricultural policy	Counterargument and comments
   Rice: Australia asks Japan to review import periods, pricing, distribution of rice. Thanks to improved distribution, Japanese consumers may now obtain new rice twice a year.	Bidding periods and volumes of minimum access rice are determined for systematic import in consideration of domestic demand and supply as well as needs, not in terms of the harvest time in the southern hemisphere.

5. Review of Trade Policy Evaluation System: Japan (World Trade Organization, 1998)
   

   Questions by Country concerning Agriculture	Japanese Response
   Deregulation: Most agricultural items are excluded from deregulation items(EU, Korea)	Abolition of government rice resale duty and expansion of quarantine services are implemented. Thus, such an allegation is unjustifiable.
   Tariff: Japanese tariff on agricultural products is still higher.(Hong Kong, Canada, New Zealand, U.S., Australia, Indonesia)	Secondary tariff was established based on price differences between domestic and overseas market during the base period, according to the result of the UR Agreement. As for other items not subject to tariffication, required tariff reductions are also steadily being implemented according to the UR Agreement.

Chapter III  Agricultural Product Trade Policies in Major Countries and their Problems

（1）The United States 

1. The main agricultural policies of the United States are implemented based on the Federal Agriculture Improvement and Reform Act of 1996 that has liberalized planting and introduced a Production Flexibility Contract Payment system, abolishing production adjustment and the deficiency payment system. Nonrecourse Marketing Assistance loan system remains, under which farmers can obtain loan at the commodity loan rate level based on a moving average of past market prices from the Commodity Credit Corporation, pledging the crop itself as collateral. With regard to trade barriers, import quantitative restriction measures and the surcharge system have all been shifted to a tariffication system in accordance with the UR agreement. 
2.  Overview of individual trade policies and problems

（2）Canada 

1. Agricultural policy is under the joint jurisdiction of the federal and provincial governments in Canada. Specifically, the governments implement management stabilization measures (safety net) such as the Net Income Stabilization Account (NISA) and crop insurance, and grains are exported through the Canadian Wheat Board (CWB). As for cross-border measures, import quantitative restriction measures on wheat, beef, dairy products, etc. were all shifted to tariffication.
2. Overview of individual trade policies and problems

（3）The European Union

1. The European Union implements such policies as market intervention, imposition of tariffs and direct payments. In addition, it also implements measures for farmers in less-favored areas and agri-environmental measures.
2. Overview of individual trade policy and problems

（4）Australia

1. In agricultural policy in Australia, the federal government is in charge of international negotiations, quarantine of foods at the time of import or export, taxation and measures to cope with droughts. State governments are in charge of other policies. As to cross-border measures, all import measures have been shifted to tariffication. But measures on exports of wheat, rice and sugar remain solely controlled by public corporations or boards.
2. Overview of individual trade policies and problems

（5）Problematic trade policies in other foreign countries 

In the Czech Republic an export permit is required to export wheat, etc. Its issuance is determined based on forecasts of amount of production and domestic demand. Therefore, it can be restrictive, in that an issuance quota for export permits may be applied in cases of serious supply shortage or market confusions. Hungary's corn export system gives rise to a similar problem.

（6）Cases of agricultural trade conflicts between foreign countries 

1. US-EU dispute over hormone-treated beef

2. US-EU Banana Conflict

3. US-Australia/New Zealand conflict over lamb imports

4. Genetically Modified Plants

Chapter IV   Proposals of Japan on the Upcoming WTO Negotiations

1. The Japanese Government accepted the agreement on agriculture reached at the Uruguay Round negotiations and has made utmost efforts toward its implementation. 
2.  The Japanese Government considers that the existing WTO agreements are reasonable to a certain extent, but also that it is not sufficient in terms of fair and equitable trade rules for both food importing and exporting countries, as well as for developed and developing countries.
3. The next agricultural negotiations under the WTO, which begins in early 2000, is extremely important, in the sense that the direction of world agricultural trade rules for the 21st century will thereby be fixed. It is also extremely important to achieve results in the negotiations that fully reflect Japan's ideas, such as stable food supply based on the expansion of domestic agricultural production, as called for in the recently enacted Food/Agriculture/Farming Village Basic Law, and demonstration of the multi-functional role of agriculture and farming villages. It is also important to address new problems such as food safety, including that of genetically modified organisms.
4. In view of the above, it is important to redress the balance of rights and obligations between exporting and importing countries, and promote the smooth conversion to market-oriented policies by individual countries, including Japan, while maintaining the basic framework of the existing WTO agreements. It is necessary to make thorough examination based on the past experiences of implementing the agreement.
5. In respect of this, the Ministry of Agriculture, Forestry and Fisheries intensively explained "Fundamental Position of Japan on the Upcoming WTO Negotiations on Agriculture, Forestry and Fishery," drawn up in late April 1999, at meetings with consumer and business groups and provided information to the public through its Internet homepage. Various discussions are also being held in the Diet.
6. Based on the discussions, the Ministry drew up "Proposal of Japan on the Upcoming WTO Negotiations" in late June 1999 and submitted this to the WTO. The ministry will continue to provide explanations and information to parties concerned, and, based on discussions in various sectors, will take part in the negotiations while making efforts to form a national consensus.

Proposal of Japan on the Upcoming WTO Negotiations Negotiations on Agriculture

Objectives

1. The objectives for the next agricultural negotiations are to establish a set of rules and disciplines that are genuinely fair and equitable for both food importing and exporting countries, as well as for developed and developing countries, and which allow a coexistence of the various types of agriculture among Members.
2. The following should be ensured in such rules and disciplines:

Main points to be addressed

3. In pursuing these objectives, WTO Members should agree to:

4. Special consideration should be paid to developing country Members in accordance with their situations and needs, in order to, among others, facilitate a smooth implementation of their obligations under the WTO rules and to achieve food security.
5. WTO Members should actively address such new issues as the treatment of genetically modified organisms (GMOs).
   

Forums for negotiations

7. An independent group for agricultural negotiations should be set up in the next WTO trade negotiations in light of the particular characteristics of agriculture, which requires WTO Members to consider a wide range of issues, such as domestic support, border measures and export rules, in a comprehensive manner. Negotiations on those issues should be pursued comprehensively and effectively in such a group.
8. An appropriate forum should be established to address new issues, including GMOs, from a broad perspective. Work in such a forum should include an analysis of the current situation, identification of the questions to be dealt with, as well as the relationship between such questions and the existing WTO rules and disciplines.

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