By Yoichiro Sato, contributing writer
BEPPU, OITA PREF. – In the bilateral trade negotiations between the United States and Japan, which is nearing its anticipated conclusion and announcement in New York this week, the U.S. seems to have achieved its two key objectives: 1) lower Japanese tariffs on U.S. beef to a parity with members of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP); 2) exclude any automobile sector issues from the negotiations.
U.S. President Donald Trump made good on his campaign pledge to pull the country out of the Trans-Pacific Partnership agreement in 2017 without sending the agreement made by the Obama administration to Congress for ratification. Under the TPP, the U.S. agreed to remove its 2.5 percent tariff on automobile imports — something Japan had eagerly sought.
In a complex multilateral exchange of concessions, Japan agreed to lower its tariffs and increase import quotas on agricultural products, including beef. After the U.S. withdrew from the TPP, Japan quickly worked to salvage the multilateral concessions by all other parties under the CPTPP.
As his visit to Tokyo in late May was approaching, Trump put pressure on Japan in bilateral trade negotiations to restore the would-be benefits to the U.S. farm sectors. Japan currently imposes a 38.5 percent provisional import tariff on U.S. beef. Beef imports by CPTPP members have a lower tariff rate of 26.6 percent. Australia is the main beneficiary of this tariff difference. Without a new trade agreement with Japan, the U.S. tariff disadvantage will grow as the Japanese tariff gradually drops to 9 percent over a 7-year period under the CPTPP.
Japan carefully attempted to deal with an increasing volume of beef imports since the CPTPP took effect to minimize the impact on domestic producers. The assignment of the country-specific quotas for safeguarding against a sudden increase of imports causes conflicting interests among Japan’s trade partners.
Allowing U.S. exporters to compete on par with Australian exporters under a gradually declining tariff rate scheme will likely increase U.S. exports, but at the same time the U.S. demands a high-level “triggering point” for applying a higher safeguard tariff.
On Aug. 1, Japan invoked a safeguard measure against frozen beef imports, raising the tariff rate to 50 percent, but excluding imports from CPTPP members. This was an attempt to keep the beef import level from the U.S. flat amid bilateral negotiations on the safeguard level. On Aug. 22 the Yomiuri Shimbun reported that the U.S. would be allocated roughly half the safeguard quota. The increased allocation for the U.S. will likely cost Australia its share of the quota.
Japan’s government-controlled trade of major grain products is another area where the U.S. has applied pressure to increase its sales. As the U.S. trade war against China resulted in Chinese retaliation on corn imports from the U.S., Japan announced an emergency import of U.S. corn, citing the impact of disease on domestic crops. The U.S. is also expected to enjoy an increased allocation of Japan’s zero-tariff wheat import quota.
The U.S. may accept a nominal negotiation victory for Japan on rice. During the TPP negotiations, Japan agreed to allocate a 70,000-ton quota for zero-tariff rice imports from the U.S. Instead of attempting to salvage this concession, the U.S. is believed to have agreed to drop or reduce the quota.
In reality, Japan has imported more competitive rice from Southeast Asian producers, and the U.S. is not capable of filling such volume due to limited water access and production capacity in California.
Overall, the anticipated bilateral trade agreement grossly favors the U.S., compared to the agreement under the TPP. So far, the biggest missing element in the current negotiation is the automobile sector. The U.S. earlier threatened Japan with the imposition of a 20 percent punitive tariff against auto imports on national security grounds.
While the automobile sector was left to new talks for a comprehensive bilateral trade agreement, the present negotiations are unlikely to commit the U.S. to holding the next round of negotiations without this threat against Japanese automobiles. Trump has already demanded more Japanese auto investments in the U.S. Moreover, U.S. demands for “voluntary” Japanese export restraints have been anticipated by long-time trade watchers who remember such an arrangement back in the 1980s.
Japan has performed poorly in defending its domestic interests in the face of Trump’s skillful negotiation strategy. While cheaper imports benefit domestic consumers, failing to defend trade multilateralism — under which Japan used its negotiation card of agricultural trade liberalization for anticipated gains in the automobile trade and other sectors — allows the U.S. to enjoy the benefit of farm exports without exposing its auto sector to even competition.
The appointment of Toshimitsu Motegi, who led the bilateral trade negotiations, as foreign minister in the reshuffle of Abe’s Cabinet earlier this month is viewed as a reward by his peers in the ruling Liberal Democratic Party for reaching a “successful” conclusion in the trade negotiations. But his success lies in the selling of the poor agreement to the public through clever packaging and timing than through hard-won U.S. concessions.
Yoichiro Sato is a professor at Ritsumeikan Asia Pacific University in Beppu, Oita Prefecture.