By Noboru Hatakeyama, director of Institute for International Trade and Investment
The Trade Agreement on Goods (TAG) that Japan and the U.S. have agreed to negotiate is ambiguous even though the Japanese government has explained that it is different from a free trade agreement (FTA) that encompasses investment rules and the service industries. If the two countries will be negotiating on investment and the services eventually, the government needs to switch to calling this an FTA at an early date.
The U.S. once proposed concluding an FTA with Japan in 1988 and this proposal was studied by the Japanese government. There is no need to reject a bilateral FTA outright. While attention needs to be paid to the broader coverage of an FTA today, compared to some 30 years ago, Japan should proceed with negotiations for a bilateral FTA in a businesslike manner in parallel with the TPP.
Rational arguments are of utmost importance in trade talks. It has been agreed this time that the U.S. will “respect” Japan’s position that it will not reduce tariffs on agricultural, forestry, and fishery products beyond the level under the TPP agreement. However, the U.S. is bound to make demands sooner or later as long as there is room for further reduction. Japan’s overall import liberalization rate under the TPP, both in terms of number of items and trade volume, is 95%, the lowest among the TPP members, which mostly have a liberalization rate of 100%. It cannot possibly boast of being the “standard-bearer of free trade” with this. In that sense, theoretically, it is logical for the U.S. to press for further concessions in the agricultural sector in the forthcoming negotiations.
On the other hand, it is not an exaggeration to say that Japan has the most open auto market in the world. Japan abolished the 6.4% tariff on autos in 1978. Non-tariff barriers claimed by the Trump administration do not exist, so it is absurd to make further demands for opening up the auto market. A market that is 100% open cannot possibly be opened any further. Japan must firmly reject such demand based on rational arguments because “it is not possible to do the impossible.” For example, if the U.S. claims that Japan’s safety regulations constitute a non-tariff barrier and demands deregulation, Japan can actually turn around and propose that the two countries tighten regulations from the standpoint of protecting the consumers. If Japan stands firm on principles, the U.S. may even compromise and keep its auto tariff at the present 2.5%.
Japan must absolutely refuse to accept an increase in auto tariffs and numerical controls that the Trump administration is threatening to introduce. While the two countries have confirmed that “import restrictions will not be invoked while negotiations are going on,” the auto industry will remain anxious. The U.S.’s tariff increase must never be accepted. This situation with the caveat “while the negotiations are going on” is not good because it would seem that Japan will accept higher tariffs after the negotiations are over. The talks can be terminated anytime, so this is a precarious state.
In the past, the U.S. has taken pride in being the world leader in trade, nuclear issues, and other areas. However, since President Donald Trump came to power, he has unabashedly declared an “America First” policy. The U.S. has elected a president who has abandoned any intent to play an international role and who devotes himself to winning popular favor. Other countries which used to respect the U.S. are now displaying their own egoism. This is truly unfortunate.
While Prime Minister Shinzo Abe seems to get along with Trump, that alone is insufficient. Since Trump is an irrational person who holds absolute power, people around him are unable to tell him what is right. If Japan wants to play the role of a world leader in free trade, it must absolutely stand firm on principles in the trade talks. It needs to assert its position unambiguously based on rational arguments when necessary. (Slightly abridged)