On Thursday last week United States Trade Representative, Katherine Tai and US Secretary of Agriculture, Tom Vilsack, announced that the US and Japan had reached an agreement to increase the beef safeguard trigger level under the US-Japan Trade Agreement.
This is a major win for the US as it will greatly enhance their ability to increase their relative share of beef exports to Japan.
This is of particular concern to Australia as the Japanese beef market is essentially a two horse affair between Australia and the US with significantly smaller quantities from other countries such as Canada, New Zealand and Mexico.
For a short while Australia enjoyed a tariff advantage in this market.
Within weeks of coming to power, President Trump withdrew the US from the Trans Pacific Partnership trade-deal negotiations but that deal went on to conclusion without the US as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and entered into force in December 2018.
The CPTPP countries that exported beef to Japan immediately benefitted from a phase down in tariff from around 40 per cent to 9pc over 15 years but all product from the US continued to attract the higher-end tariffs.
The Trump administration subsequently negotiated a bilateral deal with Japan (US-Japan Trade Agreement or USJTA) which contained similar tariff reductions to CPTPP and this deal entered into force in January 2020.
But while the CPTPP deal had a safeguard of 601,800 tonnes in 2020, the USJTA deal provided for a year one safeguard of 242,000t.
Thus the larger CPTPP safeguard largely benefitted Australia while the US was constrained by snapback tariff provisions set at a much lower safeguard level.
However, at the time of the USJTA negotiations, there was an awareness that the safeguard level could be problematic. In each of the five years leading up to the deal, US beef exports to Japan exceeded 242,000t.
The deal, therefore, contained a provision that the US and Japan would consult to adjust the trigger level higher if the safeguard was triggered.
The upshot of this in the immediate term would appear to be a greatly increased safeguard trigger volume for the US giving it scope to increase its beef exports to Japan without risk of snapback tariffs.- Ken Wilcock
Not surprisingly on March 17, 2021, Japan customs announced that imports of US beef had surpassed the annual trigger safeguard volume and as a result tariffs on US beef would increase from 25.8pc to 38.5pc for a period of 30 days beginning March 18.
No doubt this also triggered the consultation provisions within the deal with the result being last week's announcement.
While both governments have yet to finalise the text of the revised agreement and complete their respective domestic procedures, what has been announced is that the agreement going forward will include a new three-trigger mechanism whereby all three triggers must be hit in order for Japan to implement the safeguard and impose a higher tariff.
The three triggers are:
The upshot of this in the immediate term would appear to be a greatly increased safeguard trigger volume for the US giving it scope to increase its beef exports to Japan without risk of snapback tariffs.
This is particularly so at the present time because of Australia's comparatively low level of beef exports to Japan.
Last year Australia exported 233,000t, down from 315,000t in 2018 and the trend is continuing in a downward direction at a rate of 13pc so far this year.
On April 1, the CPTPP safeguard will increase to 637,200t.
In 2021 according to MLA's current market snapshot, the aggregate of US and CPTPP exports to Japan was around 580,000t.
The combination therefore of Australia's current diminishing trade level and the increase in CPTPP safeguard would appear to give the US an opportunity to increase its beef exports to Japan by around 80,000t before triggering safeguard under the new trigger mechanisms.
Agriculture Secretary Vilsack said, "It (the new safeguard mechanism) allows for greater market-based growth in US beef exports to Japan and reduces the probability of higher Japanese tariffs being imposed on US goods."
The important thing to note however is that Australia's safeguard and tariff snapback provisions under CPTPP are not automatically disadvantaged because of the gains that have accrued to the US.
The changes that have been announced relate to USJTA not CPTPP.
The provisions under CPTPP as they relate to Australia and other member countries who export beef to Japan are unchanged.
Enough cattle coming through with the short weeks ahead saw some grid adjustment this week in southern Queensland establishing a spread of 810-825 cents a kilogram on four-tooth ox and 750-765c/kg on cow.
In the south meanwhile, grass-fed bullocks remain elusive in the saleyards and Monday's Wagga Wagga report showed why.
Only two decks of bullocks around 670kg were recorded in a total yarding of 3200 head but notably there were 270 heavy steers around 540kg.
The steers averaged 522.6c/kg for $2836 while the bullocks averaged 445.3c/kg for $2987. Keeping them the better part of another year for just an extra $150 would seem to lack appeal.
Latest news from Steiner in the US is the reversal of the strong positive trend in imported lean-beef price that has prevailed up until a couple of weeks ago.
Indicator 90CL has come off 6 cents a pound to US306c/lb (FOB US East Coast) in the last two weeks.
Supply side factors seem to be the cause.
Further deterioration in drought conditions particularly in Texas, Kansas and the high plains is continuing to drive high levels of domestic cow and bull slaughter.
This combined with an influx of Brazilian product in the first quarter and a seasonal step-up in NZ product in March appear to have steadied prices for the time being.
Sign up for our newsletter to stay up to date.