Trade Benefits to All: A Design of the Beef Import Liberalization in Japan

Abstract

Liberalization of trade in agricultural commodities and protection of domestic agriculture are considered two conflicting policy goals. Severe restrictions have been imposed on the imports of agricultural commodities into Japan, resulting in substantial social costs, even though the level of agricultural protection in Japan is not necessarily higher than European Community (EC) countries (Bale and Greenshields, Hayami). The restriction is especially severe for beef where efficiency of domestic production is comparatively low. As a result, the expansion of beef imports has been a major focus in trade negotiations of Japan with Australia, New Zealand, and the United States. In this paper, we argue that the basic premise of the present Japanese beef policy is wrong. As far back as Ricardo, trade liberalization has been shown to result in a net gain to society. Based on this logic, it should be possible to design a policy to achieve the dual goals of trade liberalization and the protection of domestic agriculture by redistributing the gains from trade. Our analysis suggests that a possibility exists for beef imports into Japan to increase several fold, to a level of $1 billion (U.S.) per year; and, at the same time, output and income of domestic producers also could be increased without imposing an additional burden on the government budget.