Canada takes U.S.-Japan trade deal in stride

The recently signed agreement mirrors the Comprehensive and Progressive Agreement for Trans-Pacific Partnership

Canadian agriculture officials do not feel threatened by a new tariff agreement signed between the United States and Japan.

The new pact mirrors the agricultural tariff reduction commitments contained in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), of which Canada is a member, implemented on Dec. 30, 2018.

Canadian and Australian wheat farmers were hoping the CPTPP would give them a leg up on their American counterparts because they would be facing lower tariffs into the world’s most lucrative wheat market.

But that hasn’t happened.

U.S. wheat sales to Japan are 1.26 million tonnes between June 1 and Sept. 19, compared to 1.33 million tonnes the same period a year ago.

Cam Dahl, president of Cereals Canada, isn’t sure why Canada hasn’t been able to capitalize on the tariff rate advantage into its third largest wheat market.

“It doesn’t always work out,” he said.

By contrast, Canada’s beef sector has reaped the rewards of preferential tariffs into the Japanese market.

Tariffs on Canadian beef have fallen to 26.6 percent from 38.5 percent and will eventually drop to nine percent. The U.S. is still paying 38.5 percent until its new agreement kicks in.

Canadian beef sales to Japan were $195 million during the first half of 2019, a 60 percent increase over the same period a year ago.

“It has certainly been beneficial,” said Fawn Jackson, senior manager of government and international relations with the Canadian Cattlemen’s Association.

“Not only for our growth into the Japanese market but also a diversification option for us given certain challenges in China.”

Jackson does not know when tariffs on U.S. beef exports will drop but she doesn’t see that development as a big threat.

“For us it’s also important that the U.S. gets access into the Japanese market because our markets are so integral to one another,” she said.

“When beef moves off of North America it benefits North America.”

Representatives from Canada’s pork sector were unavailable to comment because they were on a trip to China.

U.S. Wheat Associates has some theories on why U.S. farmers did not lose much market share to Canada and Australia.

It says consecutive Australian droughts have made wheat from that export competitor more expensive than U.S. wheat despite the Australian tariff advantage into Japan.

There are “scarcely any substitutes” for U.S. soft white wheat, so that class hasn’t been impacted by the tariff differential.

And Japanese millers have kept their traditional product and blending formulations intact despite Canadian red spring wheat being favourably priced compared to its U.S. counterpart.

“Reformulation would be both expensive and undesirable for their bakery customers’ end products,” USW president Vince Peterson said in an email.

He said another CPTPP tariff reduction would have “severely tested” Japanese miller preferences for maintaining formulations versus using the less expensive wheat.

“It was very important to fix this right now and I think the fact that we were working toward that gave the Japanese mills some additional courage to hang in there with higher U.S. prices on HRS, hoping that a resolution was in sight,” said Peterson.

“They were right.”

Dahl said just as Canada didn’t gain a significant advantage over the U.S. through the CPTPP, the signing of the U.S.-Japan pact won’t have any negative impact on Canadian wheat exports.

“Japan is just a really good customer. They have been a steady purchaser of Canadian quality wheat,” he said.

“I expect Canadian shipments to Japan to remain at their historic levels.”

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