Japan reshuffle suggests import tariffs on the negotiating table

By Anthony Fletcher

- Last updated on GMT

Related tags Japan International trade Free trade

Despite some important concessions, Japan remains unlikely to open
up to the full rigours of the global free market just yet, to the
frustration of western commodity firms.

Junichiro Koizumi's decision to move Shoichi Nakagawa from his position as trade minister to head the agriculture ministry has been seen as a clear signal that the prime minister, who recently won a landslide election victory, wants the two departments to work together better.

This should be in the interests of free trade. The agriculture ministry has traditionally undermined trade ministry efforts to loosen up trade barriers, seeing its mission as protecting Japanese farmers and national food companies.

It remains to be seen therefore whether the more conservative agriculture ministry will become more liberal following the appointment of Nakagawa.

Protectionism is heavily entrenched in Japan. The country has an extensive range of trade barriers, designed to protect local agriculture. Although average tariffs are lower than those in Europe, the country continues to protect sensitive areas such as rice, where tariffs are 700 per cent, as well as sugar, starch and dairy.

Imports outside the tariff rate quotas (TRQs) also face high tariffs. Within some of the quotas, government-owned corporations have the sole right to import, and the imported commodities are resold into Japan's market with a high markup in price.

Japan's border policies even protect certain food processing industries. Strict government control over wheat, rice, dairy, and sugar products encourages processing of foods made from those commodities in Japan. Tariffs on vegetable oils make crushing margins high enough to sustain Japan's soybean and canola crushing industry.

In fact, the food industry accounts for 40 per cent of all tariff peaks, according to an UNCTAD / WTO study. Major products include margarine, canned meat and meat preparations, chewing gum and other sugar confectionary.

But despite such protectionism, Japanese imports of processed foods and beverages have steadily been growing. Japan now imports over 60 per cent of its food intake by calories, according to the ministry of agriculture.

This presents Japan with a dilemma - whether to continue to embrace liberal trade rules or retrench. Perhaps Nakagawa, who will go to Hong Kong next month to attend the WTO summit, has less room for manoeuvre than appearances would suggest.

Both the US and the EU have been constrained in WTO free trade discussions by domestic demands for protectionism. There is no reason to think that Japan, which has a very strong agricultural lobby, will be any different.

Nonetheless, Nakagawa said that Japan was committed to bringing the current Doha round to a successful conclusion.

Japan's agricultural imports have topped over $30 billion in recent years. The country is the second-largest market for US agriculture, accounting for over $8 billion in U.S. exports annually.

The United States is the leading agricultural supplier to Japan. China and the EU-15 are the next-largest suppliers, each with over 12 percent of Japan's agricultural imports. Both Chinese and EU-15 exports to Japan gained market share in the 1990s.

Together, they supplied 20 per cent of imports in 1994 and 26 per cent in 2002.

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