In 2020 the United States entered into two different trade agreements. The United States and China “Phase One” trade deal (“Phase One”) reduces some U.S. tariffs on Chinese goods and requires China to purchase certain amounts of American agricultural goods. The U.S.-Japan trade deal focuses on reducing Japanese tariffs for certain U.S. agricultural products. Below are more detailed accounts as to how each trade agreement affects agricultural trade.
What is the China Phase One Agreement?
On January 15, 2020, the U.S. and China officially entered into the Phase One agreement. Phase One is the first agreement in what is expected to be a series of agreements focusing on various aspects of reform for the Chinese economy. The Phase One agreement includes commitments by China to purchase additional U.S. goods and services over the next two years, including large purchases of U.S. agricultural, food, and fishery products. Specifically, China has committed to increasing its purchases of U.S. agricultural products to an annual total of at least $40 billion worth of imported U.S. food, agricultural, and seafood products.
According to the Office of the U.S. Trade Representative, the Agriculture Chapter in the Phase One agreement addresses structural barriers, not tariffs, that limit U.S. exports to China. These include non-tariff barriers to U.S. agriculture and seafood products, which are mostly regulatory and technical barriers such as age limits on cattle. Phase One covers a wide range of agricultural products, including beef, poultry, seafood, rice, dairy, horticultural products, feed, and feed additives.
Since 2012, the U.S. and China have had rising tensions regarding trade. Between 2018 and 2019, the trade dispute escalated, which caused retaliation through the use of tariffs. According to a study done by Oxford Economics, before COVID-19, the trade dispute with China cost the U.S. about 245,000 jobs and $108 billion in lost gross domestic product (“GDP”). The retaliatory measures directly affected the U.S. agricultural sector by decreasing exports to China in 2018 and 2019. For example, in 2018 agricultural exports to China fell by 53%. In 2017, just before the trade dispute with China, U.S. agricultural products had a 19% market share which then dropped to 10% by 2019. While the Phase One agreement does not specifically address the retaliatory tariffs or the trade dispute, it does provide a path to further discussions between the U.S. and China.
Changes Under the Agreement for Agricultural Products
Chapter 3 of the Phase One agreement includes changes that China will make to allow the U.S. greater market access. This includes reopening their markets to U.S. poultry meat, partially eliminating a ban imposed in late 2014, and broadening the list of pork and beef products that are eligible for importation. In 2012, China effectively banned processed meat and poultry products due to China’s own registration requirements. However, through the Phase One agreement, China agreed to recognize the oversight of U.S. processed meat by USDA’s Food Safety and Inspection Service. This had the practical effect of eliminating the registration requirements that created the ban in the first place.
China has not allowed the importation of live cattle from the U.S. for breeding since 2003 due to bovine spongiform encephalopathy, the first case in the U.S. being a cow in Washington State. Since it was first detected in Washington State, there have only been six cases of BSE identified in the U.S. Under the Phase One agreement, China has agreed to technical discussions with the U.S. to help allow market access once again to live cattle for breeding. U.S. rice also gained market access under the Phase One agreement. China authorized the importation of U.S. rice as long as the facility is approved by USDA’s Animal and Plant Health Inspection Service. Also, under the agreement, China is allowing 26 new aquatic species and the streamlining of the registration of seafood facilities and products.
The finalization of phytosanitary protocols required in the agreement for certain U.S. fruit and vegetable products will help to expand access for U.S. fresh fruits and vegetables such as potatoes, California nectarines, blueberries, barley, and alfalfa hay pellets and cubes, just to name a few. China is also opening its market for goat and sheep’s milk products and committed to streamlining its timelines and procedures for registering U.S. facilities and products for milk and dairy powder.
Chapter 6: Expanding Trade
Although the changes outlined above are important, what has received more attention is the Expanding Trade Chapter of the Phase One agreement. The Expanding Trade chapter includes commitments by China to purchase U.S. goods and services between January 1, 2020, and December 31, 2021. The Phase One agreement uses 2017 as a baseline amount to set the amount. China has agreed to exceed the baseline amount by at least $200 billion in four broad categories combined: agriculture, energy, manufacturing, and services. For the agriculture category, China has agreed to import at least $80 billion in U.S. agricultural, food, and fishery products by the end of 2021. The breakdown by year is that China agreed to purchase no less than $12.5 billion in additional imports above the 2017 baseline in 2020 and no less than $19.5 billion above the baseline in 2021. While the exact baseline amount is not indicated in the agreement, the implied baseline is about $24 billion based on the $80 billion that China has committed to purchasing agricultural goods over the two years.
If China satisfied these commitments, it would have represented around a 150% annual increase when compared to 2019 agricultural exports. However, China has not met its commitments, partially due to the COVID-19 pandemic. In 2020, the U.S. exported $26.4 billion worth of agricultural goods to China, making China about $10 billion away from its committed spending for 2020.
What is the U.S.-Japan Trade Agreement?
On January 1, 2020, the United States and Japan entered into the U.S.-Japan Trade Agreement (“USJTA”). The USJTA provides for limited tariff reductions and quota expansions to increase U.S. access to Japan’s market, and the agreement covers mostly agricultural products.
Japan’s Trade Agreements
The U.S. and Japan previously negotiated agricultural market access provisions during the negotiations of the Trans-Pacific Partnership (“TPP”), a 2016 agreement between 12 Pacific-facing nations that the United States ultimately did not ratify. Instead, those provisions were put into an agreement that the remaining TPP countries agreed upon, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (“CPTPP”), which went into force for Japan on December 30, 2018.
In addition to the CPTPP, Japan ratified another preferential trading agreement in 2019, the Japan-European Union Economic Partnership Agreement (“JEEPA”). Both agreements, the CPTPP and the JEEPA, are comprehensive in scope and decreased Japan’s barriers to agricultural imports from member countries of the European Union (“EU”) and the CPTPP participants. This is significant because it placed U.S. exporters at a disadvantage for agricultural trade with Japan. The USJTA was necessary in order for U.S. producers to compete effectively with other countries that already had preferential trading agreements with Japan.
Under USJTA, Japan agreed to reduce or eliminate tariffs and provide preferential quotas for certain U.S. agricultural products. The USJTA was entered into in order to allow U.S. agricultural products being exported to Japan to receive the same level of market access as imports from the CPTPP countries. Japan also agreed to improve access to U.S. meat products, fruit, vegetables, most grains, dairy, and processed products. Tariffs were reduced for meat products, both fresh and frozen beef and pork. Tariffs were immediately eliminated for almonds, grain sorghum, sweet corn, blueberries, cranberries, walnuts, broccoli, and prunes. Other tariffs will be eliminated in stages, including frozen poultry, cheese and whey, processed pork, egg products, oranges, along with some other products not listed here. Finally, products like wheat, malt, glucose, corn starch, and potato starch will be benefiting from the creation of country-specific quotas which provide access for a specified quantity of imports from the U.S. at a preferential tariff rate.
The USJTA is narrower in scope than either the CPTPP or JEEPA as it focuses primarily on agricultural products. The agricultural provisions of the USJTA address only market access and border controls such as tariffs and quotas. There are no non-tariff measures, such as those included in the China Phase One agreement. As a result, the USJTA does not have provisions on the trade of organic products, sanitary and phytosanitary measures, technical barriers to trade, agricultural biotechnology, and geographical indications as seen in other trade agreements such as the United States-Mexico-Canada Agreement and the China Phase One agreement. As a result, U.S. agricultural exporters may continue to be disadvantaged in the Japanese market against those from the CPTPP countries or the EU because of the broader scope of their agreements.
Both China and Japan are important markets for U.S. farmers and ranchers, and they are the 3rd and 4th largest U.S. agricultural export markets, respectively. Thus, the Phase One agreement and the USJTA were both necessary to gain and maintain market access in ways that continued to benefit U.S. agricultural producers.
For the full text of the Phase One agreement, click here.
For the full text of the USJTA, click here.
For more National Agricultural Law Center resources on international trade, click here.