Category Archives: Japan

Food Fraud!

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It isn’t just horse meat in Europe or baby formula in China. You encounter food fraud in nearly every country in the world. China may be the worst exemplar, but there seems to be a worldwide attitude that if you can get away with adding inexpensive ingredients, you should do so, even if it is dangerous to human health. After all, you don’t even know your victims, so why should you care? Take the easy money and don’t worry about some baby thousands of miles away. Here’s a particularly egregious example of the attitude from wheat farmers in China.

"They are all sold to you. We don't eat them."

“They are all sold to you. We don’t eat them.”

Thankfully, some of us do worry. And it may surprise you that the World Trade Organization and its members are among them, though they don’t make the headlines because – to reporters and editors – it looks like boring meetings. And those meetings often concern how to cope with the sudden Draconian safety measures that governments put in a place when their public panics. The media doesn’t want solutions, only new atrocities.

The WTO’s Sanitary and Phytosanitary (SPS) Measures Committee – it’s hard to sound more boring than that – met a couple weeks back and dug into issues that daily impact what we eat and use: materials added to plastics in food and drink containers; fruits; pine and other conifer trees; seed potatoes; shrimp; tequila; pesticides; salmon; “novel foods”; import restrictions caused by port closures; sesame; edible offals; residues of veterinary medicine; and seeds treated with substances that could endanger bees. You can see the breadth of the work. Let’s get into some of the depth.

Everybody is reacting to food safety issues – and some of those reactions are positive. The SPS Committee heard reports about the WTO’s training program for officials of developing countries and “formerly centrally planned” governments about food safety and sanitary trade practices. In 18 years, the WTO has run 10,522 officials through 268 courses. Over time, the training has an impact, as evidenced by a pending World Bank report that worries about developing country exports that may be hurt by higher sanitary and phytosanitary requirements in other developing countries. Even countries far down the economic development ladder are reacting to food safety issues. And that’s usually a good thing, unless health and safety is used simply as an excuse to keep imports out.

The horse meat scandals in Europe were on everybody’s minds. (Horse meat may have been on their stomachs, too, as it is considered normal food, easily found on menus, in much of Switzerland. Fancy a horse fondue?) Rather than the horror-stricken news reports we saw, mostly interviews with worried shoppers in grocery stores, European officials stressed that this was labeling fraud – not a food safety issue. They explained how the fraud came to light, actions taken to prevent similar future frauds, and emphasized that speedy action once the fraud was known showed that a robust food safety system can move quickly and across borders. The focus was on the best practices that came out of the experience.

Japan told the world “not to worry” about radioactive food products that were zapped during the Fukushima disaster. They assured us that radiation levels in food and other Japanese products have returned to well below normal international standards. Their complaint was that a number of countries are still enforcing “temporary” safety restrictions against Japanese exports. Seems that such restrictions always go up quickly – and come down very slowly.

Brazil reported a single case last year of mad cow disease. They are still puzzling where the infection came from, saying it appears to be spontaneous. The cow was rapidly isolated and there were no other cases in the herd. The world is so spooked by mad cow that other countries immediately banned imports of cows or beef products from Brazil. Brazil is asking them to, please, relent.

China raised concerns that Indonesia had closed the port of Jakarta to imports of fruits and vegetables. The Chinese said that Indonesia had added more import licensing requirements for horticultural products and is now requiring inspection and certification by a private company at the port of export. No surprise if Indonesia is nervous about food from China, but the Chinese were joined in their complaints by South Korea, the European Union, Chile, Argentina, Taiwan and Uruguay. Indonesia responded that they had closed Jakarta because the port did not have adequate inspection and quarantine facilities to handle the volume – and pointed out that three other Indonesian ports are available for this trade. They didn’t really address the other restrictions except to tell the world: call us if you have a problem.

Paraguay, supported by Mexico, India, Argentina, Indonesia and Ecuador, bore down on Japan‘s new pesticide standards for sesame, arguing that they are not science-based and require pesticide residue levels far below international norms. Japan replied that it is waiting for scientific reporting from exporting countries before reconsidering its standard. Paraguay tartly responded that it is up to Japan to do the science if they want the restriction. India muttered something about Japan’s arbitrary standards decisions. Are they truly protecting health and safety … or something else?

This gives you a flavor for the SPS Committee’s work. Pragmatic, but there can be a few sparks of heat and venom to keep everybody awake. Some of the other issues taken up:

China’s import conditions related to phthalates
France’s ban on bisphenol a (BPA)
India’s import restrictions on apples, pears and citrus
Turkey’s requirements for importation of sheep meat
Brazil’s measures on shrimp
China’s standard for distilled spirits and alcoholic beverages
EU maximum residue levels of pesticides
China’s quarantine and testing procedures for salmon
EU regulation on novel foods
Viet Nam’s ban on offals
Japan’s restrictions on shrimp due to anti-oxidant residues
Costa Rica rules on veterinary drug residues in meat and meat products
EU rules on plant protection products and treated seeds containing clothianidin, thiamethoxam and imidacloprid

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SPRING BREAK! Posts may be intermittent for a while. I’ve discovered that it is hard to type, or even think, when nearly 3-year-old grand twins are climbing on you.

Japan In The Dock

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Remember when Japan was the chief boogeyman in the world trading system? There was a time when much of the world was convinced that Japan was cheating in its trade relations and alternated with Fortress Europe as the danger of the day in trade talks. Today that role goes to China, though some might add India or Brazil as competitors. But I do have a fondness for the days when Japanese negotiators would keep a straight face while telling us that American rice or beef is bad for Japanese tummies, or European skis would not work on Japanese snow.

Japan’s trade policy today is pretty transparent, though there is still significant protection for agriculture and a few more industries. At least, that appears to be the conclusion of last week’s trade policy review of Japan in the World Trade Organization. For those of you unfamiliar with trade policy reviews, these are (usually) non-confrontational analyses and discussions of a WTO member’s trade regime. The WTO secretariat issues a paper describing the country’s policies, the country responds to that paper, then other members get to ask questions and raise their concerns. The reviews come more frequently for major trading powers than for the small fry of trade. No changes come out of these reviews, but the country in the dock comes away with a clear-eyed view of what everybody else is thinking.

Japan got a lot of sympathy last week for its plight after the triple tsunami/earthquake/nuclear disaster – and congratulations from others that Tokyo did not use the disaster (or the global recession) as an excuse to descend into protectionism. Japan’s last review was in 2011, so there haven’t been many changes. Japan reported new trade agreements with India and Peru, bringing its bilateral agreements to an even dozen. There was criticism, however, that Japan has excluded industries such as agriculture, leather products and footwear from these agreements and that trade barriers in these industries remain high.

Still protected after all these years.

Still protected after all these years.

Tariffs remain an issue. Japan’s average customs duty is high for a developed country, around 6.3%. That is actually an increase in the past two years from an average of 5.8%, largely due to changes in Japan’s system of non-ad valorem duties. (Instead of a 5% duty on the value of the product, the duty might be calculated, say, in yen per kilogram.) Such tariffs tend to concentrate on agricultural products and can be highly protectionist. Japan also maintains import quotas or even outright prohibitions, mostly in agricultural products and fish. And trade in leaf tobacco, opium, rice, wheat and barley, and milk products can only be conducted by state-owned monopolies. I won’t quarrel with the opium, but does Tokyo really need state trading for milk?

Members noted that although Japan’s tariff is low, it remains complex. Products of export interest to developing countries, notably agricultural products, textiles and clothing, leather products and footwear, continue to encounter significant tariff peaks, and state trading.

More positively, Japan hasn’t used countervailing duty or safeguard measures since the last review, and makes only limited use of antidumping cases. Unlike some other major traders I could name. Yes, I’m looking at you, Washington.

Enforcement of product standards was once a primary non-tariff barrier in Japan. I remember Japanese negotiators swearing that telephones had to be a different size in Japan because Japanese heads are different than those in the United States. Thankfully, we seem to be getting past that. Today, 54% of Japan’s product standards are in tune with accepted international norms, up from 46% four years ago. There is still a long way to go and WTO members advised Tokyo that urgent progress is needed to internationalize standards on food additives, pharmaceuticals and medical devices.

Tokyo has gradually been moving from agricultural production subsidies to income support for its farmers, but protection for agriculture products remains a constant refrain from Japan’s trading partners. There are still sizable subsidies for modernization of Japan’s voracious fishing fleets.

Members encouraged Japan to continue reforms to enhance competition in energy and services sectors. They encouraged Japan to ensure a level playing field in its major services markets, particularly insurance, telecommunications, and medical and health services. In this context, Members also raised concerns about whether the recent revision of legislation regarding Japan Post will ensure a level playing field for the insurance market.

Other WTO members criticized Japan for not being sufficiently open to inbound foreign direct investment, which remains below OECD averages and likely impedes Japan’s economic growth. Similar concerns were voiced about a lack of transparent foreign access to Japanese government procurement contracts.

“We try to avoid China”

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I am a sucker for data, so I was jubilant when I received the results in Washington last week of a survey of experienced American exporters about the trade barriers they face in foreign markets. The survey was done by the Department of Commerce and canvassed about 400 exporting companies about the most bothersome trade barriers they have run into over the last five years. Some of the respondents, like me, are consultants who responded in behalf of their clients. Companies of all sizes were included, but most were small firms, though with considerable experience. The survey did not address the experiences of new exporters, who might be more inclined to let a foreign barrier stop them in their tracks.

The trade barriers that excited the most complaints were the pedestrian ones of customs barriers and disagreements about customs classification (seen by a bit over 15% of the respondents), or product standards testing, labeling or certification requirements (also about 15%). About 12% of the companies complained about excessive or unfair government requirements and fees (I am surprised this isn’t higher). Rules of origin issues come in at about 8%. The headline issues of bribery and corruption were mentioned by 6.5%, closely followed by government procurement barriers (6%) and intellectual property concerns (5.8%). Import licensing requirements and having to compete with state-owned companies both came in at over 5%. Fewer than 2% of the responding companies said they hadn’t run into any significant barriers.

Another BRIC in the Wall?

Where were you most likely to hit a road block? China, hands down. Taking your products to China is a risky business, cited by 17% of the respondents. The next most likely country to do you wrong was deemed to be Brazil (12%), followed by Russia and India at 8%. Gives BRIC a whole new meaning, doesn’t it! South Korea was next up (6%), accompanied by the European Union (as a whole), France and Germany (individually), and Mexico – all at 5%.

Most of these markets tend to specialize in the types of barrier they use. The EU, Germany, France, China and Japan all like to stop imports by using standards restrictions. Brazil is especially prone to use tariffs, customs classification and other barriers at the borders, though Russia, India, China and South Korea aren’t shy about this. China seems particularly tight on invoking rules of origin to keep products out. China and India were the most often criticized for their government procurement restrictions. It won’t surprise you that these two are also top of the list for intellectual property violations. Excessive fees and bureaucratic restrictions also feature Brazil, China and Russia. It is China and Brazil yet again for imposing import licensing requirements. China, Russia, India and Mexico lead the way on corruption. (I was pleased to see only one complaint about bribery in Indonesia.) Notice that China appears in almost every category, employing the full arsenal of trade restrictions.

To their credit, the exporters didn’t usually let the trade barriers stop them. Some handled the issue themselves, while others sought help from the foreign government or from the U.S. government, but most succeeded in doing business. Almost all, however, noted that they could have done a lot more business without having to run the barrier gauntlet. The countries where companies were most likely to give up were, of course, China (8 out of 42 that reported barriers), Brazil (3 out of 33), and the European Union (3 out of 23). Small sample, but intriguing.

There was a final question that tried to get at how many companies had not even tried to do business in a market because they were already aware of a deal-killing trade barrier. A huge 29% of the responding exporters said they had not gone to China because of its trade restrictions. 10% said the same about Germany! And 9% had stayed away from Brazil and Mexico.

Respondents were encouraged to comment, which produced a few gems. While most argued that India is tough to do business in, others made the point that you can’t consider India as a single market; if you pick the right state, you can do very nicely, thank you. One company, presumably with tech products, complained that the worst trade barrier they see is America’s own export licensing requirements. Individual companies commented that they refuse to do business in China, India or Italy (!). Another picked out eastern African markets as being good business, while different companies said they avoid Kenya, Nigeria, Ghana, Venezuela and the Middle East. Customs barriers in Italy and Turkey were hit, as were unexplained cargo seizures by customs agents in Russia, Belarus and Kazakhstan.

Protectionism is alive and well.

Jingoism In The Air

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Jingoism is the way to go at sea these days. Just look at the disputes between Japan and South Korea, between Japan, China and Taiwan, between China and Vietnam, China and the Philippines, and China and anybody else in the South China Sea. But today’s post is concerned with jingoism in a fight among U.S. airlines.

You see, Delta Airlines is ending its service between Detroit and Tokyo’s Haneda international airport at the end of the month. Awarded the route in 2010, Delta says it just didn’t prove to be attractive to either Japanese or Americans. I attended a conference about a year ago in downtown Detroit and there didn’t seem to be much going on, except for my conference – so I’m not too surprised at the lack of excitement. Fine airport, though.

Delta failed to convince the U.S. Department of Transportation to simply let it substitute another U.S. city for Detroit. DOT opened the Haneda landing slot up for bid and has received proposals from Delta, Hawaiian, American and United. Delta has proposed a Seattle-Haneda run, United has opted for San Francisco-Haneda, and American proposes Los Angeles-Haneda. Hawaiian, which already has a Honolulu-Haneda route, has argued for flights between Haneda and Kona.

Hawaiian at Haneda (photo: Mark Tang)

Hawaiian’s proposal, obviously, would promote Japanese tourism to the Big Island. Hawaiian made the mistake of thinking that promoting tourism to the United States might be a good thing, but they didn’t count on the jingoistic reactions of Delta and United who appear to object to the number of Japanese citizens who would travel on such a route. (DOT’s process begins with each airline telling why its proposal is good, but then they get a chance to badmouth the other fellow’s bid.)

Unlike Hawaiian, Delta will use this limited Haneda opportunity to serve U.S. citizens and businesses, rather than transport Japa­nese tourists …
~ Delta Airlines filing, September 14, 2012

Economic development generated by foreign tourists traveling to the U.S. is an affirmative public interest factor, and not the strike against Hawaiian’s application that the other applicants seek to characterize it as.
~ Hawaiian Airlines response

Hawaiian’s proposal will benefit virtually no U.S. consumers.
~ United Airlines chiming in

American seems to be staying out of the gutter. There are very good reasons why this slot at Haneda could go to one of the West Coast cities, especially Seattle, which currently has no direct flights to Haneda. It seems strange that United and Delta object to international tourism when they seem to make plenty of money carrying non-U.S. tourists themselves on other routes. Or have they begun to turn away non-U.S. passengers? Didn’t think so.

Hawaii Seems Old

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The 2012 Hawaii Tourism Conference was held August 23 and 24 in Honolulu. This is one of the occasions on which the Hawaii Tourism Authority (HTA) exposes some of its marketing plans for the coming year. I was off-island, so I missed the nuances, but HTA nicely put most of the PowerPoints online so you can get some idea of what was discussed and what the trends are. Marketing budgets, jealously guarded, were not revealed, so we can only guess at HTA’s priorities for 2013.

Japan, no surprise, remains Hawaii’s top international source for tourists. Hawaii attracted a bit over 1.2 million visitors from Japan in 2011, who stayed an average of six nights, and spent $289 a day. Good, but not much change from 2010. The trend for 2012 is up from that, but there are some disquieting factors. Hawaii’s Japanese customers are getting older as their population ages, and the fewer numbers of young people don’t seem all that interested in travel. And when they do travel, it is often to closer destinations in Asia, especially South Korea.

More than in most markets, it is women who tend to make the decisions when it comes to travel. Research in Japan indicates that women make 70% of the decisions on how to use leisure time. Also, young single women have long been targeted as a dynamic growth sector since they often make future decisions on where to travel. But they are now less interested in travel and, when they do think about it, Hawaii is no longer at the top of their hit parade. Japan Travel Bureau surveyed various population segments last year and found that Hawaii is only the third most desirable destination for single women, 9.8% of whom yearn for the Land of Aloha (more want to go to France or Italy). Hawaii remains the most desirable destination for ALL other population groups, chosen as #1 ichiban by single men (15.7%), young married men (29.1%), young married women (27.2%), older married men (19.8%) and older married women (13.2%). “Older” means over 40.

Is this active enough?

HTA says they are responding by targeting first-time travelers from so-called second tier cities, such as Fukuoka and Sapporo that now have direct flights to Hawaii. Most direct flights from Japan touch down at Honolulu and HTA is somewhat concerned that increased hotel congestion in Waikiki may put Japanese visitors off. In response, HTA wants to move Japanese visitors out to the neighbor islands as quickly as possible. HTA’s marketing, sensibly, will be targeted at younger first-time visitors to try to get their interest up, active senior travelers who have not previously focused on Hawaii (assuming it is only shopping and beaches), and repeat visitors among women in their 20s to 40s who tend to make the travel decisions.

HTA is targeting two million Japanese visitors by 2016.

Thundering Herd

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The stampede begins

We’ve seen this movie. The announcement this week that mad cow disease has once again – after six years – been found in a U.S. cow is about to ignite a stampede of trade restrictions on U.S. beef and possibly dairy products. The facts aren’t really that important. Just because the infected cow was in California’s dairy herd and not in contact with beef production means nothing. Nor do the World Health Organization studies that prove that bovine spongiform encephalitis cannot be transmitted to humans via dairy products. It is emotion that rules and this lone dead cow provides irresistable opportunity for polticians to be seen “protecting” their consituents. Combine that with the opportunity to really protect constituents who make large campaign contributions and you have the conditions for a stampede to implement trade restrictions against American beef.

It will take a few days to start running, but countries can move quickly on such things. They have a free hand to impose trade restrictions for “health and safety” reasons and can sort out later, often for years, whether or not those reasons are fitting or factually-based. While they do that, of course, trade dies. But that is often the objective.

It begins. In South Korea, where local farmers grab any chance to exclude American beef, two large, scared retailers pulled U.S. beef products from their shelves before most Koreans or Americans had even heard about the BSE case. There are already reports from Japan of possibly tightening barriers to American beef. Japan has been edging toward loosening its embargo on U.S. beef after nearly a decade of negotiation. This was an embargo put in force in 2003 that shut down the largest export market in the world for U.S. beef, worth $1.6 billion in 2001. Until this week, American ranchers had hopes of recovering the market. Those thoughts just went out the window.

Taiwan says it is “monitoring the situation”. Singapore, a rare bastion of rationality, has announced that it will not impose new measures, that its existing inspection system is up to the task.

Watch this space. I foresee tough times for getting an American steak in much of the world.

The Rest Of The Story

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The mainstream American press is often fascinated with trade disputes, especially if they are between the United States and some other perceived big power. There was a time that any little disagreement between the United States and Japan was worthy of the front page (or at least high up in the business section). Today, you are likely to see reporting on any kind of trade fight between Washington and Beijing, and most tiffs between the European Union and the United States. Maybe not a disagreement, say, between Washington and Kuala Lumpur or Nairobi. What you will almost never see is a report on a trade dispute that has been successfully and amicably resolved. That’s good news – and modern journalism abhors good news.

At the other extreme are the annual reports of U.S. Government agencies to the Congress on what they have accomplished in the past year. The good news is all there, but a reporter under deadline isn’t likely to take the time to figure it out. Springtime, however, is the season of good news for U.S. trade policy, simply because many of the annual reports to Congress come due about now. Having odd tastes, I actually glance at such reports and am now in a position to report to you on trade problems that were actually resolved during the past year. I draw on reports recently filed by the Office of the U.S. Trade Representative on technical barriers to trade and on barriers to food and agriculture exports. Be warned, you are about to be exposed to good trade news:

Telecommunications equipment testing. Both the United States and Mexico have complex product standards for telecom equipment, but neither recognized the ability of labs on the other side of the border to test products to their national standard. Before the end of 2012 you will be able to take your product to a U.S. testing lab (the same one you might use for U.S. tests) and ask them to test it according to the Mexican standard – and Mexico will recognize the result. It works the other way, too.

Phthalates in toys. I’m not sure what a phthalate is, but it’s bad. Argentina thinks so, too, and established tough standards for the phthalate content of toys and other children’s products. Washington got upset when we discovered that all the testing of imports had to be done in one overworked Argentine lab – and that Argentine products weren’t being tested at all. Buenos Aires simply assumed that Argentine toymakers are morally superior and wouldn’t put those evil phthalates in the toys. Washington pointed these things out and Argentina has now decided that foreign labs can, indeed, test for phthalates. I don’t know what they are doing with their own manufacturers.

You can still drink bourbon here. (photo: Gryffindor)

Selling bourbon in Vietnam. Vietnam proposed last year to ban sales of distilled spirits that contained more than a certain amount of nasty things called aldehydes. That’s OK, except that the Vietnamese set the permitted aldehydes at such a low level that American whiskeys would have been excluded from the market. You see, aldehydes are a natural by-product of the distilling process and there is no scientific proof that they cause health problems in the concentrations found in your favorite bourbon. Washington talked it over with Hanoi, and Vietnam agreed that their proposed aldehyde standard was a little much and withdrew it. You can still get a bourbon and water at the Metropole Hotel bar in Hanoi.

Organic foods. Brussels and Washington actually agreed to recognize that a food deemed organic on one side of the Atlantic would be considered organic on the other side. Read all about it!.

Selling beef to Arabs. After several years of talking, Washington convinced the United Arab Emirates to remove the UAE’s restrictions on importing American beef products. This was one of the hangovers from the old scare about bovine spongiform encephalopathy (BSE).

Selling chickens to everybody. Washington convinced China to allow in chickens from Pennsylvania and Texas that had previously been banned during bird flu scares. Ghana decided that it could accept U.S. testing for polychlorinated biphenyl and dioxin in the poultry products they were buying from America. In another bird flu hangover, Kuwait decided it could again accept frozen and chilled U.S. poultry, and also lifted its ban on live fowl, hatching eggs, and one‐day old chicks from Missouri and Minnesota. And Taiwan decided that American poultry products no longer carry bird flu and could be allowed onto the island.

And, finally, fruits. South Korea and Japan both reached the conclusion that they could rely on U.S. testing for pesticide residues. Seoul is now allowing American cherries, blueberries and citrus fruits to enter the market. Japan has decided that its citizens can safely eat American citrus, strawberries, cherries and celery. Don’t know what happened to blueberries in Tokyo.

You generally only hear about disputes like these when they are getting started – when they are still “bad news”. It apparently isn’t news when they are resolved, but, as Paul Harvey used to say on American radio, that’s “the rest of the story“.