CPTPP Creates Opportunities for Animal Protein Exports to Japan

The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) entered into force on December 30, 2018 after it was ratified by Mexico, Japan, Singapore, New Zealand, Canada, Australia, and Vietnam. The combined animal protein trade value (exports and imports) of these countries with each other was USD 27.2bn (2017), representing 24% of their total animal protein trade (31% in volume terms) with global trading partners.

Japan is the largest importer of animal protein products within CPTPP (see Table 1) and offers the biggest opportunity for CPTPP exporters. Japan’s USD 10.1bn animal protein imports from CPTPP countries account for 36% of its global animal protein imports, which are expected to expand gradually, given limited opportunities to expand domestic production, with Japan’s consumption growing.

Thailand has also expressed interest in joining the CPTPP (with a formal request to be submitted if approved by its cabinet in March 2019), and so have Taiwan, South Korea, and the UK. If realized, Thailand’s participation would boost animal protein trade within CPTPP by USD 5.1bn. Thai animal protein exports to Japan alone accounted for USD 3.0bn. For Malaysia, which also has an exportable poultry surplus, delayed ratification would mean a lost opportunity in terms of improved access to the Japanese market.

Our assessment suggests better tariff schedules under CPTPP:

Aside from valid sanitary and phytosanitary (SPS) issues, non-tariff measures are a significant downside in animal protein trade. However, CPTPP’s self-certifications makes this trade block more cost-efficient compared to other FTAs. Unlike the ATIGA, which requires 40% regional value for intra-ASEAN free trade, CPTPP’s rules of origin specify that the value of non-originating materials may not exceed 10% of the value of goods cover under CPTPP. However, preferential tariffs can be claimed based on a certificate of origin completed by an approved exporter, producer, or importer. At least five years of record-keeping are required for verification of this self-certification.

CPTPP ‘Year 1’ tariff cuts came into effect on December 30, 2018. ‘Year 2’ tariff cuts followed on January 1, 2019 (except for Vietnam, whose ‘Year 2’ tariff cut came into effect on January 14, 2019). For Japan, ‘Year 2’ will commence on April 1, 2019.

For example, Japan’s tariff rate for fresh and chilled beef will be lowered by 11% to 27.5% in the first year, followed by 0.9% cuts in subsequent years. Tariffs for bovine and swine edible offal are cut by 6.4% and 4.3%, respectively, in the first year, also followed by 0.9% in subsequent years. For Canada, tariffs for prepared meals are pegged at 11% throughout, from 169.5%, a reduction of no less than CAD 3.76, to 6.18/kg. F or Mexican poultry, tariffs are cut from 234% to 0% in ‘Year 1’.

Animal protein producers in Vietnam, Mexico, Australia, and New Zealand are positioned to gain compared to existing FTAs. Combined, their exports of animal protein products to other CPTPP countries are worth USD 7.2bn – 57% of which go to Japan. In theory, exporters outside CPTPP member states could consider setting up operations within CPTPP to gain access, but this depends on incremental benefits.

Vietnam would benefit from increased investments in its animal protein supply chain to secure new markets in Japan. To address SPS issues, Vietnamese producers should strive to improve the domestic infrastructure to strengthen biosecurity and to secure relevant international certifications. Furthermore, better management of feed raw material costs are vital in maintaining cost competitiveness versus other exporters outside CPTPP.