Canola sector hopeful Japan will eliminate vegetable oil tariffs

Australia signs deal | Canada hopes to negotiate similar deal to end 10 percent tariff

There are encouraging signs that a major Canadian canola customer could soon eliminate a longstanding trade irritant.

On April 7, Japan and Australia concluded a free trade agreement that includes a clause to phase out a punitive tariff on vegetable oil over the next 10 years.

Brian Innes, market access manager with the Canola Council of Canada, said it is a “significant development” that gives him hope a similar clause will be included in trade pacts Canada is negotiating with Japan.

“We see it as a positive sign that the vegetable oil market in Japan will eliminate market access barriers,” he said.

Japan has a 10 percent tariff on vegetable oil, which typically amounts to $120 to $140 per tonne of imported product.

“It has been a major market access irritant for the Canadian canola industry for some time,” said Innes.

“It essentially prohibits us from exporting any canola oil to Japan.”

Japan bought 9,800 tonnes of Canadian canola oil last year compared to 2.23 million tonnes of canola seed.

Innes said the council views the ongoing trade negotiations as a way to eliminate the tariff and boost sales of canola oil to a market where it is already the top selling vegetable oil by a wide margin.

Canada and Japan are in the midst of negotiating a bilateral free trade agreement. The two parties are also part of the Trans-Pacific Partnership free trade negotiations.

Innes hopes the vegetable oil tariff will be eliminated in those agreements because there appears to be a new willingness in Japan to reform its heavily protected agricultural sector.

“The prime minister has a mandate to modernize the Japanese economy, and eliminating tariffs on sensitive products that have been protected is part of that,” he said.

Soybean and canola oil face higher tariffs than palm oil, which is why imports of palm oil have grown significantly over the past 20 years. Canola oil could displace some palm oil if the tariffs were eliminated.

Innes said Japan could start importing more protein from Australia and other countries as it signs more free trade agreements. It means it may be more beneficial to import canola oil instead of bringing in seed because there wouldn’t be as big a market for meal to supply the domestic livestock industry.

Creating new markets for canola oil is important, given all the new crush capacity in Western Canada. Processors are expected to crush 7.6 million tonnes of seed in 2014-15.

Removal of the oil tariff for Australia doesn’t mean the same clause will be included in any agreement signed with Canada.

“It’s not a guarantee that this happens, by any means. All negotiations are negotiations,” said Innes.

He hopes those negotiations wrap up soon because Australia will have a distinct advantage once its free trade agreement with Japan is implemented.

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