DIPLOMACY

Milestone Achievements on Trade

Japan and the United States “now have the full concurrence on various issues [concerning Japan-US trade] covering the agricultural, as well as industrial products, and also the digital and e-commerce,” said Motegi Toshimitsu, Minister in charge of TPP and Japan-US Trade Negotiations, following the latest round of discussions in August. What happens next? 

On August 25, 2019, the second day of the G7 Summit 2019 in Biarritz, Japan and the United States reached a general agreement on the Japan-United States Trade Agreement on goods (TAG) in their negotiations and are expected to officially sign the TAG, which accounts for about 30% of the global GDP, at the time of the United Nations General Assembly in late September.

The TAG was negotiated by Motegi Toshimitsu, Minister in charge of TPP and Japan-US Trade Negotiations, and Robert Lighthizer, United States Trade Representative, in line with the Joint Statement of the United States and Japan on September 26, 2018. They came to an agreement on three important areas—agriculture, industrial tariffs and digital trade—and they will speed up the remaining work processes.

One of the important points of the last Joint Statement was that the differences between Japan and the United States’ primary stances were specified. Japan emphasized the importance of free, fair and rules-based trade while the United States emphasized the importance of reciprocal trade and reducing the trade deficit with Japan and other countries (Fig.1).

 

 

The second point of disagreement was the name of the negotiation. Japan supported the TAG name and objected to a bilateral FTA whereas the United States declared support for calling it the United States-Japan Trade Agreement (USJTA) and insisted on a bilateral FTA. Another point was motor vehicles. The motor vehicle industries are so important to Japan that the country stated that, with regard to agricultural, forestry and fishery products, outcomes related to market access as reflected in Japan’s previous economic partnership agreements constitute the maximum level to avoid discussing the topic and insisted on the level of TPP11. Meanwhile, the United States stated that market access outcomes in the motor vehicle sector will be designed to increase production and jobs in the United States in the motor vehicle industries and left room for discussion.

Table 1: Points of the Joint Statement of the United States and Japan on September 26, 2018
Japan United States
Primary stance
  • Importance of free, fair, and rules-based trade
  • Importance of reciprocal trade 
  • Reducing the trade deficit with Japan and other countries
Agreement
  • Entering into negotiations, following the completion of necessary domestic procedures, for a Japan-United States Trade Agreement on goods, as well as on other key areas including services, that can produce early achievements
  • Japan and the United States also intend to have negotiations on other trade and investment items following the completion of the discussions of the agreement mentioned above
  • Japan and the United States will also strengthen cooperation to better protect Japanese and American companies and workers from non-market oriented policies and practices by third countries. They will therefore work closely together, through Japan-United States as well as Japan-United States–European Union cooperation, to promote discussions on World Trade Organization reform and e-commerce and to address unfair trading practices including intellectual property theft, forced technology transfer, trade-distorting industrial subsidies, distortions created by state-owned enterprises, and overcapacity.
Name of the agreement Japan-United States Trade Agreement on goods (TAG) United States-Japan Trade Agreement (USJTA)
Items understood Refrain from taking measures against the spirit of this joint statement during the process of these consultations
With regard to agricultural, forestry, and fishery products, outcomes related to market access as reflected in Japan’s previous economic partnership agreements constitute the maximum level Market access outcomes in the motor vehicle sector will be designed to increase production and jobs in the United States in the motor vehicle industries

In a press conference after the TAG negotiation where Japan and the United States reached a general agreement, President Trump stated, “We’ve been working on a deal with Japan for a long time. It involves agricultural and it involves e-commerce and many other things. It’s a very big transaction, and we’ve agreed in principle. It’s billions and billions of dollars. Tremendous for the farmers. And one of the things that Prime Minister Abe has also agreed to is we have excess corn in various parts of our country, with our farmers, because China did not do what they said they were going to do. And Prime Minister Abe, on behalf of Japan, they’re going to be buying all of that corn. And that’s a very big transaction. They’re going to be buying it from our farmers. So the deal is done in principle.”

In response to this statement, Prime Minister Abe said, “A series of intensive negotiations have been conducted between Minister Motegi Toshimitsu and Ambassador Robert Lighthizer in line with the Japan-US joint statements on September 26 of last year. And by now, we have successfully reached consensus with regard to the core elements of both the agricultural and industrial products of our bilateral consultations on August the 23rd. And I certainly welcome this development.” Abe continued, “I’m very happy that both of our teams have been working on the specific issue in a win-win manner, bringing benefits to both Japan and the United States. And if we are to see the entry into force of this trade agreement, I’m quite sure that there will be the immense positive impact on both the Japanese as well as American economies.”

Agricultural Products

Regarding the “corn” President Trump mentioned, Prime Minister Abe said, “We are now experiencing insect pest on some of the agricultural products. […] We believe that there is a need for us to implement emergency support measures for the Japanese private sector to have the early purchase of the American corn.”

Japan’s emphasis on “in line with the Japan-US joint statements on September 26 of last year” was intended to convey the recognition that the country would negotiate at the level that TPP11 had agreed to and that it had already contributed to the motor vehicle sector and no additional tariffs would be levied.

In his Policy Speech to the 197th Session of the Diet on October 24, 2018, Prime Minister Abe mentioned the joint statements and said, “With regard to agricultural products, the content I promised in previous economic partnership agreements constitute the maximum level. I agreed on this premise with the United States.” In a press conference after the Japan-US Summit in Washington D.C. on April 26, 2019, Abe emphasized that Japanese companies had invested 23 billion dollars in the United States, including the motor vehicle industries, since the beginning of the Trump administration, which has created 43,000 new jobs. This is something Prime Minister Abe has consistently insisted. As noted in the previous issue, according to statistics compiled by the US Department of Commerce (Fig. 2 and 3), both Japanese companies’ investments in the United States and job creation by Japanese companies operating in the United States have grown steadily since 2009.

In the press conference in Washington D.C., Prime Minister Abe said, “I believe that the United States will understand Japan’s contribution” despite the issue of trade balance between the two countries. Abe also suggested to President Trump that they work together to proceed with negotiations in a win-win manner and said, “The president also gave me a significant nod.”

In the latest TAG agreement, Lighthizer said in a delightful and welcoming manner, “It will lead to substantial reductions in tariffs and non-tariff barriers across the board. And I’ll just give you one example: Japan is, by far, our biggest beef market. We sell over $2 billion worth of beef to Japan. And this allows us to do so with lower tariffs and to compete more effectively with people across the board, particularly the TPP countries and Europe.”

Behind Lighthizer’s statement were TPP11 in December 2018 and the fact that the Japan-EU Free Trade Agreement came into force in February 2019.

The enactment of these agreements defined decisive gaps in competition conditions between the United States and its agricultural product export rivals, such as Canada, Australia, New Zealand and the EU, in the Japanese market.

The tariffs on Japanese beef imports were lowered to 26.6% starting from April 2019 and will be reduced to 9% in fourteen years. But the tariffs on US beef remain at 38.5%, already a gap of more than 10%. In fact, market price gaps exist and it is quite natural that consumers buy less expensive beef. The longer the United States spends on trade negotiations with Japan, the larger the tariff gaps will get, which leads to a loss of Japanese consumers. This is also the case with agricultural products, such as wheat, dairy products, and wine. Japan is an important importer of US pork as well as US beef. If US farmers face prolonged sluggish exports to the huge Chinese market due to the US trade policy toward China, it can be foreseen that there will be heavier domestic pressure on President Trump.

The United States hoped to settle the TAG as soon as possible. But Japan had the upcoming House of Councilors election in July just ahead of the negotiations and President Trump made the concession to settle the TAG “immediately after the House of Councilors election.”

Needless to say, Japan can see the effectuation of the two agreements as a victory over US protectionism in the sense that they are an initiator of free trade.

Lighthizer said, “This will open up markets to over $7 billion of those products. In the agriculture area, it will be a major benefit for beef, pork, wheat, dairy products, wine, ethanol, and a variety of other products.” This is practically a US declaration of victory.

Regarding concerns about US tariffs on Japanese motor vehicles and the introduction of numerical regulations, President Trump said that there would be no change. It is unknown what will happen to the motor vehicle sector until the two countries sign an agreement. In particular, motor vehicles, 4,568.4 billion yen (30.2%), and motor vehicle parts, 961.4 billion yen (6.4%.), constitute significant shares of the 68.9 billion dollar US trade deficit with Japan. But in the negotiation process, Motegi and Lighthizer agreed on not applying additional tariffs based on the Joint Statement’s understanding that they “refrain from taking measures against the spirit of this joint statement during the process of these consultations” and reached a general agreement. But some point out the possibility of the US setting aside tariffs on motor vehicles as a negotiating tool.

Significance “Cannot Be Overemphasized”

President Trump has a word in Prime Minister Abe’s ear, August 26, 2019. East Asia needs a lot of dialogue about issues other than just the economy. OFFICIAL WHITE HOUSE PHOTO BY SHEALAGH CRAIGHEAD

If the agreement is signed at the end of September, the TAG negotiation will have been settled within six months of the first meeting in April 2019, following Trump’s announcement of withdrawal from the TPP when he was inaugurated as President in January 2017 and an agreement to start the TAG negotiations in September 2018.

Following this, Japan will gear up for an early settlement of the RCEP negotiation. Prime Minister Abe is determined that Japan will take a strong leadership role in the formulation of global rules in the new era and be a standard-bearer for free trade, declaring that the country will advance a free and fair international economic order in cooperation with other Asian countries, such as China and India.

Originally, when Japan came to a temporary agreement under the Obama administration, Prime Minister Abe emphasized the significance of the TPP, stating “The TPP Agreement will create a free, fair and open international economic system in the Asia-Pacific region with countries that share the fundamental values of freedom, democracy, fundamental human rights and the rule of law and drastically strengthen the rule of law in economic aspects.” His way of thinking was consistent before and after that time. In the Joint Statement of the United States and Japan on September 26, 2018 as well, he said, “Japan and the United States will also strengthen cooperation to better protect Japanese and American companies and workers from non-market oriented policies and practices by third countries” (Table 1).

In a press conference on August 25 after the general agreement, prompted to speak by President Trump, Motegi stated, “The United States is the largest economy in the world, whereas Japan is also ranked third in terms of the total GDP. And also, among the free economies, we are the very first and the second largest economies. And with this milestone of achievements we now have the full concurrence on various issues covering the agricultural, as well as industrial products, and also the digital and e-commerce.” Motegi also expressed his gratitude to President Trump, “The significance of this achievement cannot be over-emphasized. And I’m very happy to share this important achievement with you.”

Although the United States withdrew from the TPP, the negotiations resulted in the TPP11, involving about 13% of global GDP and about 500 million people. If the United States had not withdrawn from the TPP, TPP11 would have constituted an economic zone encompassing about 40% of global GDP and 800 million people.

The United States launched its fourth batch of sanctions against China on September 1. Japan and South Korea are experiencing great turmoil over trade management. North Korea continues its provocations through missile launches, speeches, and other behaviors. In addition, we have issues related to the South and East China Seas. October of this year will mark the 70th anniversary of the founding of the People’s Republic of China. It is also necessary to carefully watch the developing Hong Kong situation and the Taiwan presidential election in 2020. East Asia needs a lot of dialogue about issues other than economy.

Now that the United States has agreed on a TAG that has the same philosophy and level as TPP11, it is time for the country to consider a multi framework deal instead of a bilateral deal.

SANO Kentaro is a freelance writer.

This article first appeared in the September/October 2019 issue of the Japan Journal.

 

 

 

 

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