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Close-up on the signatories of the RCEP: outlook on China-Japan trade of agricultural products

2021-7-21 10:28:59

On November 15, 2020, the Regional Comprehensive Economic Partnership (RCEP) Agreement was officially signed. The RCEP region represents the world’s largest free trade zone, with its total population, economic scale, and trade volume accounting for about 30% of the world’s total. To date, the RCEP has been approved by China, Singapore, Thailand, and Japan and is expected to become effective as of 2022. Both China and Japan are member states of the RCEP as well as important trade partners of agricultural products to each other. What impacts will the RCEP bring to the agricultural products trade between the two countries? What’s the outlook on China-Japan Trade of Agricultural Products after the RCEP Agreement was signed?

Overview of China-Japan Trade of Agricultural products

Japan is a developed country with a dense population. Facing a severe shortage of agricultural resources such as farming land, and high agricultural labor costs, Japan lacks comparative advantages in agriculture on general terms and represents an important market of agricultural imports in the world. In recent years, Japan has maintained more than USD 70 billion worth of imported agricultural products, ranking among the top five importers of agricultural products in the world. The agricultural products imported by Japan mainly includes fish, swine by-products, cattle, poultry, and corn products. Japan has certain advantages in terms of high-end characteristic agricultural products such as processed agricultural products and Wagyu beef, and these products are exported in small quantities.

China and Japan are geographically adjacent and have similar dietary habits. Therefore, China enjoys exceptional conditions for exporting agricultural products to Japan. Since China’s admission into WTO, China-Japan trade of agricultural products has grown rapidly. However, due to the shift of the trade volume from China as a result of free trade agreements between Japan and ASEAN countries such as Thailand and Vietnam, and the impacts of other factors such as technical measures to trade adopted by Japan, China’s agricultural exports to Japan have stagnated. According to China customs data, China’s exports of agricultural products to Japan increased from USD 5.74 billion in 2001 to USD 12.02 billion in 2012, but then declined to USD 10.38 billion in 2019 and further decreased to USD 9.64 billion in 2020. The imports of agricultural products from Japan, although starting from a small volume, has been growing rapidly, increasing from less than USD 300 million in 2001 to USD 1.28 billion in 2020. China mainly exports vegetables, poultry products, fish, shellfish, and mollusks to Japan, and imports aquatic products, alcohol, and puffed food from Japan. Japan is China’s largest destination of agricultural products exports, while China is Japan’s second largest source of agricultural products imports. Hence, the China-Japan trade of agricultural products is of great significance to both sides.

Opening Up of the Chinese and Japanese Agricultural Products Markets under the RCEP

Before the RCEP was concluded, ASEAN member states, New Zealand, Australia, and South Korea had all signed bilateral free trade agreements with China, and Japan was the only exception. After signing the RCEP, China and Japan reached a bilateral tariff reduction arrangement for the first time.

In the past, Japan always implemented high tariff protection for its agriculture, maintaining a relatively low level of agricultural openness under the FTAs it had signed. Under the RCEP, Japan has pledged to cancel the tariffs on more than 1,400 taxable items (accounting for 60% of the total number) for agricultural products from China. Specifically, 717 taxable items are subject to immediate tariff reduction to zero, accounting for 29.3% of the total taxable items for agricultural products, applicable mainly to unroasted coffee, tea, corn, edible sorghum, soybean, sugar cane honey, and chewing gums; 318 taxable items are subject to tariff reduction to zero in 2011, accounting for 13% of the total, applicable mainly to fresh frozen fish, frozen sweet corn, dried mushrooms, pears, peaches, coarse grains, caviare, and canned peas; 373 taxable items are subject to tariff reduction to zero in 2016, accounting for 15.3% of the total, applicable mainly to tomatoes, broccoli, burdock, oranges, cherries, ginseng, canned abalone, canned sea cucumber, biscuits, and garlic powder; five taxable items are subject to tariff reduction to zero in 2021, accounting for 0.2% of the total, applicable mainly to fermented beverages, alcoholic beverages, and animal hides. Except for the above-mentioned taxable items, Japan maintained the existing tariffs on 1,032 sensitive taxable items for agricultural products, accounting for about 40% of the total, applicable mainly to cereals, vegetable oils, dairy products, beef, and pork.

In return, China has promised to gradually cancel the tariffs on 1,273 taxable items for agricultural products from Japan, accounting for 86.6% of the total. Besides, aquatic products, processed foods, and characteristic alcohol from Japan will enjoy zero tariff.

Main Directions for China-Japan Cooperation on Agricultural Trade under the RCEP

Tariff reductions and exemptions under the RCEP may help offset the negative impacts of other free trade agreements on the exports of agricultural products from China to Japan. In addition to tariff cuts, the RCEP includes high-level commitments to rules of origin, trade facilitation, service investment, and non-tariff barriers, providing necessary conditions for expanding and deepening China-Japan cooperation on agricultural trade. Enterprises engaged in agricultural trade may conduct comprehensive analysis and devise their respective development strategies according to their particular conditions and the relevant RCEP rules, so as to make the best of the preferential policies.

First, actively expanding exports of agricultural products to Japan. Tariff reduction and exemption policies offer an immediate “dividend” to trade enterprises. Enterprises engaged in agricultural products trading may develop a profound understanding of the tariff reductions, rules of origin, and other aspects of agricultural products exports to Japan under RCEP, adjust the structure of their exports to Japan accordingly, and launch marketing and promotional campaigns targeting the Japanese market, thus making the best of Japan’s preferential tariffs on agricultural products from China and expanding the agricultural products exports to Japan. Second, expanding the imports of high-end agricultural products from Japan to a moderate scale. Along with the increase of residents’ income level and the upgrading of the consumption structure, China will see an increasing demand for high-end and characteristic agricultural products. Enterprises may take advantage of the RCEP to strengthen communication and connections with Japanese suppliers and bring in high-quality agricultural products from Japan, thus offering more options to domestic consumers and meeting people’s growing needs for a better life. Third, cooperating with Japan on the cross-border agricultural industry chain. Japan boasts a well-developed agricultural products processing industry, offering high-level processing, a rich variety of product categories, and exquisite and fashionable packaging design. Taking the conclusion of the RCEP as an opportunity, China may bring in more outstanding enterprises and technologies for agricultural products processing, testing, packaging, and design from Japan, enhance the quality and efficiency of its agriculture, and explore the RCEP regional market by using its lenient rules of origin.

(Source: CCPIT/ www.chinatradenews.com.cn)