Japan, US Reach Deal to Increase Market Access; Status of Section 232 Tariffs Still Unclear
A recently reached U.S.-Japan free trade deal makes up 90 percent of the losses farmers experienced because the U.S. dropped out of the Trans-Pacific Partnership, said Senate Finance Committee Chairman Chuck Grassley, R-Iowa, during a Sept. 17 call with reporters. "I haven’t seen anything on paper, but according to [the Office of the U.S. Trade Representative], it puts us on this level playing field with our trading partners," he said.
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The deal, announced by the White House on Sept. 16, is an “initial trade agreement” to address tariff barriers and digital trade, the first step toward a “comprehensive free trade agreement” the two sides hope to reach. Japanese officials were cautious about the prospects of the trade deal, according to the Associated Press, with a chief government spokesperson saying Sept. 17 the two sides are still finalizing details. The deal could be signed later this month during the United Nations General Assembly, which opened its 74th Session on Sept. 17. The agreement does not require a vote from Congress under fast track.
According to Japanese press accounts cited by Reuters, Japan will lower its 15 percent tariff on wine within five to seven years; will buy $370 million worth of corn, and will lower tariffs on beef from 38.5 percent to 9 percent by 2033.
It's not clear what U.S. industrial tariffs will be lowered for Japanese goods in exchange for the lower agricultural tariffs in Japan. At a press conference at the G-7, USTR Robert Lighthizer said, "There are a series of industrial tariffs that are being reduced. Auto tariffs are not in that group."
Japan hopes to avoid Section 232 tariffs on its auto parts as part of the final agreement. "At the finishing stage, we plan to reconfirm that [Section] 232 won’t be imposed,” Foreign Minister Toshimitsu Motegi, Japan’s lead negotiator, said at a press conference in Tokyo Sept. 17.
Whether U.S. negotiators have made assurances to that effect is unclear, trade experts said during an event held that same day in Washington.
While former assistant U.S. trade representative Barbara Weisel said she is waiting for more details to assess the benefits for each side -- pointing to the White House’s omission of the Section 232 tariffs as a key factor -- Shujiro Urata, an Asia-Pacific studies economics professor at Waseda University, said Japan likely agreed to the deal in hopes that it reduces Japan's chances of being hit with the auto tariffs. Japan may feel “a bit relieved” because of the deal, Urata said, but should not assume it is safe yet.
“I’m not quite sure what Mr. Trump or U.S. authorities promised. I haven’t seen that in writing, so it’s very possible that the Japanese’s wishful thinking will not be realized,” Urata said, speaking during a Sept. 17 panel hosted by the Brookings Institution. “That’s what I’m quite a bit afraid of.”
The Section 232 tariffs were likely at the center of the negotiations, Urata said, and Japan may have offered increased market access for U.S. agricultural exporters in exchange for protection from the tariffs. But it appears Japan caved on its offer while not receiving formal assurances from the U.S., Urata said.
“The U.S. got what they wanted, but Japan didn’t get what they wanted,” Urata said. “I think [Japan’s] view is that Mr. Trump used this threat very well. Unless Japan entered into negotiations, the U.S. may have invoked this Section 232.”
While Weisel said it was notable that the Section 232 tariffs were not mentioned by the White House, she stressed the specifics of the deal are still unclear. The initial deal includes two “key elements,” she said: a market access arrangement in which Japan accepts more U.S. agricultural exports while the U.S. imports more Japanese industrial goods, and a digital trade agreement similar to the digital trade provisions in the U.S.-Mexico-Canada Agreement.
She also said the White House’s announcement, in which it said the two sides are planning “further negotiations,” indicates the U.S. and Japan are still far apart on broader issues. ”Clearly the U.S. feels there is more work to do to reach a fair trade agreement with Japan,” Weisel said during the panel.
Even though it appears the U.S. has not yet formally excluded Japan from auto tariffs, there are reasons for Japan to be optimistic, Weisel said. A smaller initial deal benefits Japan, she said. The country has not been eager to sign a “comprehensive” bilateral agreement with the U.S. because it is hoping the U.S. rejoins the Trans-Pacific Partnership after withdrawing in 2017.
“In that regard, negotiating a limited agreement that did not touch on most of the rules that were in TPP might be considered somewhat of a victory,” Weisel said. But that could quickly change depending on the amount of market access Japan conceded to the U.S.
“As to the market access that was negotiated, I have questions,” Weisel said. “I will reserve judgment until we see the full contents of the market access package and how and whether the agreement deals with the 232 issue.”
Urata said the deal took longer than he expected, saying the Section 232 tariffs likely stalled negotiations. “Japan didn’t get [protection from the tariffs]. So maybe this is one of the contentious issues they discussed and took them longer than what I thought,” he said. “So Japan, in my view, is not so happy.”