Washington Insider -- Friday

Japan Obsolete Butter Trade Policies

Here's a quick monitor of Washington farm and trade policy issues from DTN's well-placed observer.

EU, U.S. Prepare for 10th Round of TTIP Talks

European Union and U.S. negotiators will meet in Brussels next week for the 10th round of Transatlantic Trade and Investment Partnership (TTIP) negotiations, with much of the focus on market access offers on agricultural trade and services.

The European trade deal aims to be a comprehensive agreement covering not just trade, but also investment and regulatory cooperation. A key aspect of the investment talks, the investor-state dispute settlement mechanism, remains a controversial issue, both in the United States and Europe. The worry on both sides of the Atlantic is that the agreement might give companies the ability to seek arbitration panels –– rather than domestic courts –– to make claims against a national government when an investment is harmed.

Such provisions exist in other trade agreements, inserted as a safeguard against expropriation of a company's assets by a foreign government. However, the concern is that unless the provision is carefully worded, it would permit companies to seek arbitration for actions taken by government in the public interest, such as requiring warning labels on cigarette packages. Thus any provision that proposes to address the investor dispute issue will be closely watched as the negotiations continue.


Codex Goes Another Year Without Setting Global Standard Dairy Hormone Use

The global food standards-setting body, the Codex Alimentarius Commission, has once again resisted calls to set a global standard for the dairy growth hormone bovine somatotrophin (rBST) after European Union representatives again blocked the move. The EU fought the proposal due to concerns over animal welfare and health.

At its annual meeting in Geneva earlier this week Codex considered a request to set maximum residue limits for bovine somatotrophin (rBST), a product widely used in both North and South America to boost milk yield from dairy cows. If Codex were to set a standard, it would equate to de facto recognition that concerns over the safety of rBST are unfounded.

The lack of consensus on the issue effectively means the adoption process stays at the same stage it has been at for more than 15 years, which should have been more than enough time to determine whether rBST is safe. Codex can be expected to examine issue again next year, likely with a similar outcome.


Washington Insider: Japan Obsolete Butter Trade Policies

Central planning is the gift that keeps on giving for the Wall Street Journal, which is having great fun these days with the Japanese trade policies for butter — especially its import restrictions that are continuing in the face of severe shortages from domestic production declines. The Journal notes that almost every conceivable cuisine is available in Japan, but that a shortage of butter recently has left supermarket shelves bare, while many bakers have been forced to resort to margarine.

The Journal notes that Prime Minister Shinzo Abe promised to strengthen Japan's economy and military but has delivered on only part of that policy. Japan's trading partners see butter as a symbol of a market that could benefit from trade. "The Japanese dairy industry has been in a long-term decline," said Robert Pettit, trade policy manager at Dairy Australia, the country's national body for the industry. "Free trade would offer a shot in the arm. It reinvigorates an industry."

But even for Abe, who has championed deregulation and the benefits of the 12-nation Trans-Pacific Partnership (TPP), the butter situation is a problem. This is due at least partly to the fact that he pledged to protect dairy products along with other "sacred" items such as beef and pork in trade negotiations. U.S.-Japan talks on TPP are set to resume soon and representatives of all 12 nations will meet later this month. Observers expect the butter issue will be on the table, though it isn't yet clear how hard Tokyo's trading partners will push for concessions.

Japan's butter tariffs make it virtually impossible for private importers to buy from foreign producers. A government-affiliated agency imports a set quota from overseas annually. Japan says it maintains a state trading system "because it is important to achieve stable supply and demand" for dairy products. Critics note that it is not working well.

When butter supply was forecast to run short again this year, the government ordered a record 10,000-ton emergency shipment. This was the fifth year in the past eight the government has ordered such measures.

At the same time, the tight controls and price increases haven't stimulated production, either. A decade ago, there were 27,700 dairy farms in Japan. Now there are 17,700, the Journal says and milk production has declined 14% over the past two decades.

Agriculture ministry officials think the answer is to make farms more profitable and farmers' work easier. In an initiative unveiled this year, the government plans to help dairy farmers buy robots and other equipment to increase production.

And there is plenty of blame to go around. Officials in Japan worry that the growing demand for dairy products in the Middle East and Asia means that there won't be enough imports for Japan even if it wanted to open its borders.

Cooperative officials and some chefs blame coverage by Japan's domestic media which has encouraged consumers to hoard. In addition, the shortage is seen as having limited effects on the food supply because Japanese butter consumption is relatively low averaging just 584 grams (20.6 ounces) annually. In comparison, Americans eat more than four times that amount, the Journal says.

Well, central planning has failed so reliably that it is hardly news any more. But pulling back many of those obsolete rules is a prominent part of the TPP negotiations. Japan, in spite of its dependence on global market access has long been deeply protectionist of parts of its agriculture a system that is now under pressure even from within.

So, the Journal is right in its inference that the TPP talks have far-reaching potential. Thus they also are especially important for agriculture and should be watched closely by producers as then proceed, Washington Insider believes.

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