Many government officials have said that if the problem with US pork imports is not resolved, the nation’s attempt to join the Trans-Pacific Partnership (TPP) could hit a snag. Looking at the Japanese experience, during talks with the US, pork was listed as one of five major sensitive agricultural products. This solved the issue, and it is something that Taiwan could learn from.
Here are three suggestions:
First, create a system to track the origin of products. Taiwan has a ban on the import of US pork containing ractopamine, a stance that faces opposition in Washington. Japan solved this problem in 2004 by setting standards for ractopamine residue in beef and pork based on UN usage evaluation data. Tokyo allowed the import of US pork with ractopamine residue at the same time as the Japanese government banned the use of ractopamine in its domestic livestock sector. In addition, Japan has clear and unambiguous regulations regarding food source labeling, thus offering consumers a clear choice so that those who worry about the effects of ractopamine can safely buy Japanese pork without any residue of the substance.
Second, the TPP framework allows for high import tariffs on US pork imports, as well as defensive measures. Ideally, the TPP is a highly deregulated free-trade agreement and there should be no tariffs on any trade in goods. However, countries have different political concerns and the outcome of the TPP talks was that each nation should be allowed a small number of tariff exceptions. Japan included pork imports among those exceptions, paving the way for high tariffs on such imports.
As to the level of any tariffs that Taiwan would be able to exact on pork imports, that would depend on how successful representatives are at future negotiations.
Looking at the outcome of the Japanese talks, import tariffs on pork priced at less than ¥64.53 (US$0.52) per kilogram is to fall from ¥482 to ¥50 over a 10-year-period. Although this is a significant cut, a tariff of ¥50 on one kilogram of imported pork priced at ¥64.53 is still equal to a 77 percent import tariff. However, the import tariff for all pork priced at ¥500 per kilogram or less will be ¥50 per kilogram, so actual import tariffs will be lower than 77 percent.
In addition, the TPP framework allows the importing country to initiate what the trade deal calls “safeguards” to protect domestic industries from the impact of increasing imports. This means that when there is a rapid increase in US pork imports, leading to concern of heavy losses or other effects on the Japanese pork industry, Tokyo can temporarily implement an urgent increase in the import tariff to reduce imports and help producers there adjust the industrial structure.
Third, agricultural subsidies should be implemented to increase the industry’s competitiveness. Although the TPP framework does not allow agricultural export subsidies, it has nothing specific to say about subsidies used to adjust the industrial structure of the agricultural industry. This is also the area where Japanese agricultural authorities are concentrating their efforts.
The main reason that Japan’s pig industry is less competitive than the US’ is because of feed. The cost of feed makes up about 60 percent of the total production cost for a pig farmer, and Japanese pig farmers are almost completely reliant on imported corn feed. This is also the reason production costs in Japan are twice that of US competitors, although its economy of scale matches that of the US pork industry.
If the Japanese government were to directly subsidize pig farmers, that could draw a strong reaction from competitors in the US. To enable Japanese pig farmers to compete with their US competitors, Tokyo is providing cheap rice feed by converting paddies to grow high-yield rice varieties to produce twice as much rice as regular varieties. Last year, the market price for rice feed was ¥19 per kilogram, while the market price for imported corn was ¥30 per kilogram.
As a sign of the effort the Japanese government directs to its rice feed policy, rice feed farmers only earn 10 percent of their income from selling rice feed, while the remaining 90 percent consists of government subsidies dedicated to rice feed.
Using Japan as a reference, Taiwan could perhaps adopt the following methods as it tries to resolve the US pork import problem. The first step should be to create a food source labeling system so that anyone who does not want to consume ractopamine can buy domestically produced pork and other products that do not contain ractopamine residue. That would minimize the opposition from consumer organizations.
Next, the program rewarding the fallowing of rice paddies should be changed to a program that rewards feed production so that valuable farmland that is lying fallow can be used to produce suitable feed crops. On one hand, this would provide the domestic livestock sector with competitively priced feed and enable them to compete with imports, while on the other hand, it would improve the domestic situation with fallow farmland and Taiwan’s deteriorating land situation.
Finally, suitable import tariffs should be negotiated to allow pig farmers to compete with imported pork with the help of cheap domestic feed.
Japanese pork farmers are only capable of providing between 50 percent and 60 percent of the pork on the Japanese market. The rest of the supply is filled by imported pork. Once Taiwan enters the TPP, pig farmers might also be able to benefit from the Japanese market. Although Taiwan is still designated as a foot-and-mouth disease area, Japan is already allowing pork imports from parts of Brazil, another country with the disease.
Judging from the Brazilian example, bringing Taiwanese pork back to Japan is not merely a dream, but a matter of effort on the part of the government and farmers.
Guo Yung-hsing is an associate professor in the Department of International Trade at National Taichung University of Science and Technology.
Translated by Perry Svensson
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