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WTO/FTA Negotiation and Recent Trend of Rice Market

WTO/FTA Negotiation and Recent Trend of Rice Market. Korea-Japan Joint Workshop, on World Rice Consumption Strategies July 23, 2004. Masaru KAGATSUME Professor Graduate School of Agriculture, Kyoto University, Japan. Abstruct. 1. WTO/FTA negotiation and agreement.

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WTO/FTA Negotiation and Recent Trend of Rice Market

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  1. WTO/FTANegotiation and Recent Trend of Rice Market Korea-Japan Joint Workshop, on World Rice Consumption Strategies July 23, 2004 Masaru KAGATSUME Professor Graduate School of Agriculture, Kyoto University, Japan

  2. Abstruct 1. WTO/FTA negotiation and agreement 2. Reform of Rice Distribution System 3. Situation of Rice Import & Reserve Stock 4. Determining Factors of Rice Demand

  3. 1. WTO/FTA negotiation and agreement Outline of Agricultural Negotiation Result of the Uruguay Round on Rice Agreement Dec 15, 1993 Implementation Jan 1, 1995 (1)Tariffication is not carried out. Tariff equivalent is not set. ( Import Quota system is maintained) (2)State Trade system is maintained (3)Minimum Access is accepted. Following this, the government charges the mark-up through the state trade from the imported rice. ・minimum access quantity 4% equivalent (1995) of the domestic consumption in basis period (1986-1988), increasing to 8% equivalent (2000) < 379 thousand tons milled rice (1995) to 758 thousand tons milled rice (2000) > ・Mark-up Setting based on the gap between selling price and buying price of the imported rice (Thailand Rice) purchased by the government food agency in the basis period (1986-1988). <Specific tax> ( maximum \292/kg ) (4)others ・The simultaneous buying-selling system (SBS) is introduced in order to establish reasonable domestic market evaluation of the imported rice following the minimum access ・The same is applied to the rice processing commodity

  4. Content of rice tariffication in Japan 1.Date of implementation 1999.4.1 • 2.Basic Tariff Equivalence (TE) \402/kg (milled rice, upper grade) • -------------------------------------------------<Calculation Basis>----------------------------------------------- • Base year International Price (A) Domestic Pricre (B) B-A ( average in the 3 (import cif price) (wholesale price) years 1986-88 ) -------------------------------------------------------------------------------------------------------------------------------- 1986 \29/kg \438/kg \409/kg 1987 \31/kg \435/kg \404/kg \402/kg 1988 \37/kg \429/kg \392/kg --------------------------------------------------------------------------------------------------------------------------------- 3.The second tariff rate (over quota rate) 1999 \351.17/kg 2000 \341.00/kg • 4.the minimum access quantity (paddy) • 1999724,000 mt (6.8% of domestic consumption in the base year) <43000mt less than the case of the old special measure> • 2000767,000 mt (7.2% of domestic consumption in the basis year) <85000mt less than the case of the old special measure> • 5.other As for the minimum access import, the current state trade system is maintained. (*) Under the agricultural agreement the basic tariff equivalent has to be reduced 15% for 6 years to 2000.

  5. Shifting into the rice tariffication system in April, 1999 the annual growth rate of the minimum access quantity had reduced by 50% in comparison with the case of continuing the non-tariffication with special measures (i.e. 0.8%/year to 0.4%/year). 1999 767 --- 724 thousand ton ( paddy ) < 682 --- 644 thousand ton ( milled rice) > 2000 852 --- 767 thousand ton ( paddy ) < 758 --- 682 thousand ton ( milled rice) > a) abolishment of licensing of rice trading Licensing system of rice export-import is abolished, following this, the compulsory selling of rice imported through permission to government is abolished b) implementation of payment to government for rice import For rice which is imported under the second (over quota) tariff rate, the government can charge one part of second tariff rate as a payment to the government ( \292/kg ) . This payment to the government from the rice import is appropriated for the imported food administration account of the staple food administration special account. c) implementation of the notification system on rice import-export the rice import-export have to be notified to the government. d) setting the second ( over quota ) tariff rate (1)the basic primary rate( \402/kg ) is set to be tariff equivalent based on the agricultural agreement (2)the second ( over quota ) rate is calculated based on the agreement. The rest of the second rate from which the payment to government is deducted is set to be the preliminary rate. Second rate of which, preliminary rate 1999 \351.17/kg \59.17/kg 2000 \341/kg \49/kg (3) rice can be protected by the special emergency tariff system ( special safeguard system)

  6. The mechanism of the switching to rice tariffication ( old system ) ( after tariffication ) Selling price Import markup second rate (maximum ¥ 292/kg) (¥ 341/kg after 2000.4.1) Buying price (minimum access qty) (minimum access qty) <within TRQ import> <within TRQ import> (at first tariff rate) < over TRQ import > (at second tariff rate ) (*)import markup means the gap between government selling price and buying price

  7. Border Protection Measures • Agricultural Protection • rice, wheat, dairy products • IQ into TQ at the UR • Tariff Rate Equivalent • Rice(490%), wheat(210%), barley(190%), butter(330%), SMP(200%), silk(190%), vegetables(3%), fruits(6-20%) • Modality Proposal by Mr Harbinson <tariff rate> <average> <minimum> more than 90% 60% ↓ 45%↓ 15 to 90% 50% ↓ 35%↓ less than 15% 40% ↓ 25% ↓

  8. ２．Reform of Rice Distribution System 1941 Food Control Law 1969 Voluntary Distributed Rice system 1990 Voluntary Distributed Rice Price Formation Organization 1992 New Agricultural Policy New Food Law 2004 Abolishment of Planned Distributed Rice system

  9. Unregistered Collection Traders Unregistered Selling Traders Government Processors Consumers distribution route of unplanned distribution rice under the New Food Law distribution route of planned distribution rice under the New Food Law distribution route under the Food Control Law

  10. Reservation Stock Government Rice Normal Import Imported Rice SBS Import rice distribution flow Government Rice Price Formation Center (trading place) Commodity test (optional) Rice Consumers Rice Producers Private Distribution Rice Notified Traders Shipping Traders Label Regulation Selling Traders Rice Stable Supply Support Organization

  11. 3. Situation of Rice ImportandRice Reserve stock • Rice Import in 2003 fiscal year • ・Rice Import under the Minimum Access system based on the Uruguay Round Agreement since 1995 • ・0.77 million tons of paddy ( SBS import 0.10 million tons) • ・The 0.08 million tons (the twice of usual years ) of glutinous rice were imported to stabilize supply • ・All of the 0.10 million tons of SBS imported rice were sold out through auction although only 0.05 million tons (half of the predicted amounts ) of SBS import rice were sold in the previous year 2002

  12. Rice import in 2004 fiscal year • Until the new agreement in WTO is realized, the Minimum Access import is maintained at the same level of 2000 and so, 0.77 million tons of paddy were imported in 2004. • Also, 0.10 million tons of paddy are imported under the SBS import system through the 4 auctions a year

  13. ・CultivationConversion is not enforced due to the minimum access import rice Demand for the Minimum Access Rice (million tons) • ・try to sell for processing demand at low price which is not enough for domestic rice ・redundant stock is aimed to food aids Import in 2002 0.77 Carry over stock in October 2002 0.95 Rice demand in 2003 0.45 for food aids 0.20 for food 0.04 for processing 0.21 Carry over stock at October 2003 1.27 ( increased by 0.30 from 2002) <Including reservation stock for feed and aids>

  14. Reserve Stock • 1.63 million tons at June 2003 (exceeding optimal reservation level) 0.73million tons at June 2004 • Stock by wholesalers increased to 0.76 at February 2004 <increase by 0.43 from preceding year> • Reserve Stock Policy • Optimum level = 1 million tons by Revolving Reserve method by 0.5 million tons a year not by Set Aside method • from Arbitrary Negotiation (Direct trading) system to Auction trading (bidding) system • decreased due to strong demand by wholesaler • & production decline after August 2003

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  19. 4. Determining Factors of Rice Demand （１）ClusterAnalysis Overall images of price gaps between rice brands distinguished by production area （２）Hedonic Regression Analysis The significance of each variables as the determining factors of price gaps

  20. Table 1 Relation between Price and Taste Evaluation ( Tokyo market ) High Price Rice Low Price Rice

  21. Table 2 Relation between Price and Taste Evaluation ( Osaka market ) High Price Rice Low Price Rice

  22. Table 3 Results of Hedonic Regression Approach ( Tokyo Market ) ( ** : statistically significant at 1% level, * : at 5% level

  23. Table 4 Results of Hedonic Regression Approach ( Osaka Market ) ( ** : statistically significant at 1% level, * : at 5% level )

  24. Table 5. Factors affecting rice price gaps Quality factor Non-Quality factor

  25. ＜Summary＞ 1. Supply of Blended Rice 2. Consistency between WTO & FTA (1)substantially all commodities, (2) not worsening trade conditions to non FTA members (3) complete of liberalization within reasonable period, 3. Type of FTA and Related Issues (1) FTA, Tariff Union, EPA, Common Market, Economic Union,, (2) rule of origin (3)intra-industry trade and inter-industry trade 4. Coordination of MA import & Reserve Stock/Aid Scheme 5. Consistency with Grain Reserve Stock Policy among East Asia

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