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No gain from Japan-U.S. trade talks

At the Japan-U.S. summit held on April 26, Prime Minister Shinzo Abe was pressed by President Donald Trump to reach a deal in trade negotiations before the end of May. Nobuhiro Suzuki, a graduate school professor at the University of Tokyo, contributed a story to the Akahata to discuss the risk of negotiations.

 

By Nobuhiro Suzuki, a graduate school professor at the University of Tokyo

 

It had been well-anticipated that Prime Minister would become a “moth flying into the flame” when he met with President Trump in the U.S. at the end of April. The U.S. is losing market share in Japan, as the Trans-Pacific Partnership pact (TPP 11), which the U.S. is not a member of, and the economic partnership between Japan and the European Union came into force and Japan-bound shipments of their livestock products have grown rapidly. The U.S. had been ramping up pressure on Japan to demand the realization of a Japan-U.S. free trade agreement (FTA).

 

As anticipated, Prime Minister Abe was pressed to conclude Japan-U.S. trade negotiations “before President Trump’s visit to Japan in May.” It’s like he traveled all the way to the U.S. to clarify the acceleration of “negotiations from which Japan will gain nothing but lose” and was pressed to make infinite concessions in agriculture and other fields after being threatened with an auto and currency clause.

 

Import growth beyond expectations

 

For the U.S. to make up for lost ground, it will become inevitable to cut tariffs on U.S. farm produce in the Japan-U.S. FTA talks at a pace faster than during  the TPP the tariff deal agreed at in TPP talks. Prime Minister Abe might have thought that it would be safe to say “Japan will not go beyond what was agreed at the TPP” due to the upcoming Upper House race at home, but this scenario may collapse, as the situation is increasingly turning tense.

 

According to a Nikkei Shimbun article dated May 8, Prime Minister Abe reportedly told President Trump that “May is not a feasible option as Japan is scheduled to hold elections this summer and it is not possible to make a deal before that” and promised that “we will make sure to give shape [to trade negotiations] by next year’s presidential election.” This made clear that he had asked the U.S. side “not to disclose this for a while” by promising to “do anything” and brought to light his betrayal to the public.

 

The tariff reductions through the enforcement of the TPP 11 and the Japan-EU EPA indicate growth potential for Japan’s imports. For example, Japan’s imports of pork, wine and cheese jumped on the year by 60%, 40% and 30%, respectively, in February after the Japan-EU EPA came into force, whereas imports of these products from the U.S. fell. Japan’s beef imports also jumped in January after the TPP 11 was enforced (by 40% from a year earlier). The growth was also significant in April when the second-year tariff was introduced.

 

The substantial hike in imports was a temporal phenomenon as importers shifted their procurement to after the tariff reduction was put into force. Therefore it is necessary to keep a close eye on how things will develop. But if a 1% cut in imported prices substantially contributes to stimulating demand for imports, it could cause a huge impact beyond expectations at an early stage. That possibility must be taken into well consideration when studying what measures to be taken.

 

Comprehensive FTA

 

This is the source of the U.S. irritation and that anxiety is growing stronger. The country finds it necessary to rush to regain “lost ground” from the member nations of the TPP 11 and the EU by ramping up its exports to Japan. Because of this, it had little choice but to propose a direction of negotiating tariffs on agricultural products in advance at the inaugural Japan-U.S. trade talks.

 

Japan, on its part, made arbitrary changes to the Japan-U.S. joint statement and an address by Vice President Mike Pence to claim that that what it is negotiating with the U.S. is “not an FTA but a Trade Agreement on Goods (TAG).” Meanwhile, the U.S. side announced in its “summary of specific negotiating objectives” that what will be negotiated with Japan is a comprehensive FTA that covers 22 fields and named it the U.S.-Japan Trade Agreement (USJTA). The case of the parties involved calling their negotiations by a different name is unprecedented. Whatever it is called, the fact that Japan has entered negotiations with the U.S. though it had previously said it won’t can’t be denied. 

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