Editor’s note: Since this item was published this morning, Beef Central can confirm that Japan has now officially enacted its Safeguard mechanism on US imported frozen beef. The US exceeded its frozen quota limit by 112.9 tonnes. The revised 50pc tariff will apply from August 1.
IT’S LOOKING increasingly likely that Japan will later today formally announce the imposition of its safeguard tariff protection mechanism on some US beef imports.
The Japanese government is expected to make an announcement on the safeguard issue concerning US beef imports sometime today, when it releases official June trade statistics.
But Japanese media has already described the outcome as ‘inevitable’, quoting sources within Japan’s Ministry of Agriculture, Forestry and Fisheries.
Beef Central first raised the prospect of Japan’s Safeguard tariff being triggered on US beef in this article, published back on 20 July. Strangely, US trade media only yesterday started to pay attention to the threat.
Rapid expansion in US exports to Japan this year is the reason behind the safeguard mechanism coming into play.
Frozen beef exports from the US, particularly, look susceptible to triggering Japan’s Safeguard market protection tool. US chilled exports, measured separately, look like falling just below the trigger level, analysts suggested this morning.
Australia potentially faces 22pc tariff advantage over US on frozen
If Safeguard is triggered on US imports to Japan, it has significant implications for Australia’s own beef exports to Japan, our largest export market by volume and value, by lifting our competitiveness.
Under Australia’s beneficial Free Trade Agreement with Japan, tariff rates on Australian chilled and frozen beef have progressively declined over the past three or four years. Since April 1 this year, Australia pays a tariff of 29.9pc on chilled exports and 27.2pc on frozen.
In contrast, the US, which is yet to enter into a trade agreement with Japan, still pays a tariff on both chilled and frozen of 38.5pc. That would jump dramatically, however, if either of the frozen or chilled US tallies hit the trigger point – pushing the tariff on US beef out to 50pc, from now until March 30 next year.
That would represent a massive 22.8pc tariff disadvantage to the US versus Australia for the next eight months, should the safeguard be triggered on frozen beef some time later today.
Japan’s Safeguard tariff is designed to protect the domestic Japanese beef industry from unusually large rises in imported beef volumes. In the case of the US (Australia is treated differently, and much more kindly, under its FTA with Japan) the safeguard is triggered when quarterly frozen/chilled beef import volume exceeds 117pc of the same period a year earlier.
Lower volumes out of Australia caused by reduced kills due to drought, combined with increasingly competitive offers out of the US, and favourable currency movements, has seen a big uplift in US beef exports to Japan this year.
The import quotas are strictly adhered to, meaning Japan has no option than to impose the Safeguard mechanism, should it be triggered, a MAFF official told Japanese media this morning.
Japanese media anticipates that the effect on beef consumption in Japan could be ‘great’ if the safeguard is triggered.
Nikkei said meat trading companies predicted that businesses like national gyudon ‘beef bowl’ chains would start using more Australian beef, as a result. “But Australian prices have been rising as the beef market becomes aware of the import limits. Companies will face a tough management decision,” Nikkei said.
It suggested the amount of frozen beef imported from the US for the April-June quarter had risen by 20pc on the same period a year earlier – well above the Safeguard trigger point.
This is the fourth time Japan has used the safeguard mechanism on US imported beef – the last being frozen beef imported from August 2003 to March 2004.
“Tokyo’s decision will almost certainly spark a backlash in the US, where the livestock industry is concerned about falling behind Australia (in tariff/trade access terms) in the Japanese market,” Nikkei said. “With Washington having withdrawn from the Trans-Pacific Partnership, the move could also raise the pressure to conclude a bilateral free trade agreement.”
How could the US let the safeguard risk develop?
Theories are emerging around the export industry as to how the US has allowed the safeguard tariff threat to get to the critical stage, as it has.
One suggests that while the US was closely monitoring shipments from US beef exporters, with the intention of carefully managing the release of those supplies through the bonded cold storage process, it was larger-than-expected volumes exported by smaller, second-tier exporters including New Zealand, Canada, Nicaragua and EU, where the miscalculation may have occurred. All three are calculated under the same safeguard provision.
Another theory suggested the US had basically ‘ignored’ the rising export volumes going into Japan, in the expectation that a trade agreement would be struck between the countries this year in time to make any safeguard risk ‘null and void.’
When US president Donald Trump pulled out of TPP talks, that left the US industry unexpectedly exposed. Any bilateral trade deal between the two countries will take a very long time to hammer out, a trade analyst said.
“Apparently the US tried desperately to manage the volume towards the end, but underestimated the volumes of beef being shipped by some smaller players,” a trade source said this morning.
Nations that have bilateral free trade agreements with Japan, including Australia, Mexico and Chile, are excluded from any hike in tariffs.
It’s already been anticipated that US exporters may now try to ship more product to Japan in chilled form, to escape the worst of the tariff impact over the next eight months. But if it happens, that in turn could risk triggering the chilled safeguard mechanism in the July-September quarter, contacts suggest.
“The ramifications of the safeguard being invoked I believe are enormous for both Australia and the US beef industries,” independent analyst Simon Quilty told Beef Central this morning.
“It is likely to impact the value of critical beef items such as shortplates/trimming 50’s, rib-eyes, striploins, chuck-rolls and tenderloins – demand for Australian beef I believe is likely to improve and US beef prices are likely to suffer due to this tariff hike. The impact, I believe, is likely to be eventually passed on to cattle prices in both countries,” he said.
Attention will now focus on USDA and Trump administration responses to the development.