Japan is already the United States’ fifth largest export market for dairy products, with exports over $290 million. Most of Japan’s dairy imports are subject to high tariffs and tariff-rate quotas (TRQs), where in-quota tariffs are as high as 35 percent and out-of-quota tariffs are much higher.
U.S. dairy product exports to Japan face a competitive disadvantage. Major U.S. competitors in the Japanese market, including Australia, Canada, New Zealand, and the EU receive preferential market access treatment under CPTPP and the Japan-EU Economic Partnership Agreement. The U.S. Japan Trade Agreement is necessary for U.S. dairy product exports to remain competitive.
Under this agreement, more than 80 percent of current U.S. dairy exports to Japan will obtain preferential tariff treatment. Cheese is by far the largest category of U.S. dairy products imported into Japan. Japan’s cheese tariffs that are as high as 40 percent will be eliminated in 15 years. This includes tariffs on cream cheese, pizza cheese, powdered and grated cheese, cheddar and many other ripened cheeses. In addition, Japan established a 150 metric ton U.S. country specific quota for processed cheese. Japan’s imports of U.S. cheese are about $156 million or 54 percent of Japan’s total dairy imports from the United States in 2018.
Japan’s imports of U.S. whey products, which totaled about $71 million in 2018, will also benefit tremendously from this agreement. Japan’s tariffs on whey for food use are currently as high as 29.8 percent plus 687 yen per kilogram (660.7 percent ad valorem equivalent). Under this agreement, Japan will create a single U.S. transitional country specific quota (CSQ) for U.S. whey products that will begin at 5,400 metric tons and grow to 9,000 metric tons. In-quota tariffs on most of these products will become duty-free immediately, while the remaining will be duty-free in five years. Over quota tariffs on most products will be eliminated in 5, 15, or 20 years, depending on the type of whey. Japan’s imports of U.S. whey products that will enjoy duty-free access were about $59 million in 2018.
Under this agreement, Japan will immediately eliminate its 8.5 percent tariffs on lactose and lactose syrup and its 2.9 percent tariff on milk albumin that includes whey proteins, which are often used in high-protein supplements. Japan’s imports of U.S. lactose and lactose syrup and milk albumin were worth more than $72 million in 2018. Additionally, Japan will establish a new 750 metric ton global tender within its WTO quota for milk powder with protein content of 35 percent or higher.
Japan has committed to not apply the WPC safeguard in the event there is a domestic shortage of skim milk powder in Japan and/or there is no demonstrable reduction in demand for skim milk powder.
Japan may apply two safeguards for whey products during the tariff transition period and for a limited period beyond. For Years 1 through 4, the safeguard applies only to the quantity imported from the United States. For whey protein concentrate, the safeguard quantities will begin at 1,000 metric tons and grow to 1,100 metric tons in year 4. For whey powder, the safeguard quantities begin at 1,100 metric tons in year 1 and grow to 1,250 metric tons in year 4. From Years 5 until termination, the safeguard trigger is calculated as an aggregate of imports from the United States and CP-TPP countries. For whey protein concentrate, the safeguard quantities begin at 5,889 metric tons in year 5 and grow to 16,250 metric tons in Year 19. Beginning in Year 20, the safeguard quantities grow annually by 1,250 metric tons. For whey powder, the safeguard quantities begin at 6,667 metric tons in year 5 and grow to 11,250 metric tons in year 14. Beginning in Year 15, the safeguard quantities grow annually by 1,000 metric tons.
Japan has also agreed to consult to renegotiate the safeguard trigger volume if the safeguard is implemented in two years in a consecutive three-year period. Under the agreed-upon terms, the safeguard for whey powder could be terminated as early as year 16, while the safeguard on whey protein concentrate (WPC) could be terminated as early as year 22. The safeguard will not apply to whey products imported under the CSQ.
Other U.S. dairy products, such as butter and skim milk powder, will continue to have access to Japan’s market under its WTO TRQs.
