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Monday, March 5, 2007

JAPANESE PERSPECTIVES

Japan must eliminate hidden agriculture taxes to progress at Doha


Some new developments may be around the corner in the Doha Round of trade liberalization talks.

The talks, suspended since the stalemate last July, have covered everything from nonfarm trade and market access to service and investment and development since they were launched by the World Trade Organization in November 2001. But the main stumbling block has always been agriculture.

The Doha declaration called on industrialized countries to phase out agricultural subsidies but failed to set out a concrete timetable. Today, negotiators from major powers are deadlocked over what to do with the export subsidies provided by the United States, the European Union subsidies provided to local farmers, and the high tariffs imposed by Japan on importers of agricultural goods -- all because of their respective domestic political considerations.

In addition, developing countries are criticizing the talks for prioritizing the interests of the industrialized nations. A group of 21 less-developed economies led by Brazil, India, China, Argentina, Egypt and South Africa, are calling for a ban on farm subsidies in advanced nations. They are also demanding that the special safeguard mechanism against sudden surges in farm imports -- which is reserved for use by the industrialized countries -- be made available to them all.

At the 2003 WTO ministerial conference in Cancun, Mexico, Group 21 expanded to 23 members after Indonesia and Nigeria joined.

The United States, on the other hand, facing its huge trade deficit with China, became frustrated with Beijing's policies, prompting the United States Trade Representative's office to file a suit with the WTO on Feb. 2 alleging that China's export subsidies violate WTO rules. It was the third time the U.S. had taken WTO action against China (The first two were over semiconductor and auto part disputes).

U.S. Trade Representative Susan Schwab charged that unfair Chinese subsidies are damaging small and medium-size U.S. firms and their workers, and urged Japan and Europe to join the action.

Meanwhile, WTO member countries are shifting emphasis to bilateral and regional free-trade agreements, which are relatively easier to conclude than the multilateral talks. The global organization, which has increased membership to 149 and expanded its areas of negotiation as well, is finding it extremely difficult to build a broad consensus. FTAs began rising rapidly in the mid-1990s and today number more than 150 worldwide.

Still, there is speculation new developments that could get the talks going may be just around the corner.

The United States appears to be changing its position on export subsidies. Behind that is the fact that the trade promotion authority given by Congress to President George W. Bush is set to expire July 1. It is unlikely that Congress, now controlled by the Democrats after their victories in the November midterm elections, will extend that authority, previously referred to as "fast-track authority."

Also, the increase in FTAs has led to a corresponding rise in various tariff rates for individual countries, which has caused delays in customs clearance procedures.

Trading companies also face the rising costs for preparing certificates of origin, which will be necessary for their products to get the preferential tariffs offered under FTAs.

Mutual concessions are essential for the WTO talks to succeed. The biggest problem for Japan, of course, is the extremely high tariffs on imported farm products, mostly notably rice.

Whereas Japanese tariffs on industrial products have dropped to an average of 2.7 percent -- the lowest in the world -- its tariff for those who import rice, by WTO standards, exceeds 700 percent. What's more, the tariff on roots of devil's tongue (used to make the popular gelatin "konnyaku"), is an extraordinarily high 1,700 percent. Needless to say, these high tariffs are designed to protect domestic farmers, but to move the Doha Round forward, Japan needs to consider two things.

First, Japan needs to examine whether its high farm tariffs have helped its farmers improve productivity or raise food self-sufficiency. It is rather difficult to get positive answers. Japan is suffering from a serious shortage of farm workers, which indicates the farming industry is no longer attractive to the younger generation.

Second, the nation should realize it is being forced to pay more for food because of the high tariffs imposed on importers. Consumers in western countries can generally buy grain at international prices, but the Japanese have to buy it at inflated prices because of the hefty tariffs, which are reflected in the prices of basic foodstuffs, such as bread. This is no different than charging a tax, except that it is invisible and has a rate much higher than the 5 percent consumption tax.

Prime Minister Shinzo Abe has made consumer demand-led growth one of the key objectives of his administration. But the truth is that high farm tariffs are effectively indirect taxes that erode consumer buying power.

Both internationally and domestically, it is urgent that Japan reduce tariff rates on farm products.

Teruhiko Mano is a professor at Seigakuin University Graduate School.


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