Diet deliberations on the Japan-U.S. trade agreement have started. Since the pact does not need to be approved by the U.S. Congress, the agreement will come into force as early as the beginning of next year if Japan’s Diet approves it. This is one of the focal points of the current Diet session.
A major point of contention is whether the agreement is consistent with international rules. This affects the legitimacy of the agreement.
The rules of the World Trade Organization (WTO) are generally interpreted to indicate that about 90% of tariffs must be eliminated in bilateral trade agreements. The Japanese government says the trade agreement with the U.S. is in line with WTO rules because the U.S. will eliminate 92% of its tariffs and Japan 84%.
What we find hard to understand, however, is the fact that the elimination of tariffs on Japanese automobiles and auto parts is included in the U.S. percentage of tariffs eliminated even though it was decided the tariff removal would be subject to further negotiation. Japan’s export of cars and auto parts to the U.S. accounts for more than 30% of all its exports to that country. If the elimination of car and auto part tariffs is excluded from the calculation of the percentage of U.S. tariffs eliminated, the U.S. is removing only around 60% of its tariffs.
The bilateral trade agreement states: “The elimination of tariffs on cars and auto parts will be subject to further negotiation.” Based on this, Prime Minister Shinzo Abe argues that it is okay to include this prospective tariff elimination in the calculation of the percentage.
No schedule has been set, however, for the next round of negotiations. Even if negotiations were to be held, the Trump administration is unlikely to agree to remove the auto tariffs because it has used the imposition of additional tariffs on Japanese cars as a bargaining chip. Experts on trade issues point out that the inclusion of a statement that further negotiations will be held on the tariffs “does not constitute a U.S. commitment to eliminate the tariffs.”
What is more problematic is that the Japanese government also included the potential U.S. elimination of auto tariffs in its estimate of the economic impact of the agreement. The administration claims that the bilateral agreement will boost the gross domestic product (GDP) by about 4 trillion yen. Suspicions remain that the government included the pending tariff elimination to make the economic impact appear large.
We wonder if this was done because the prime minister claimed the trade agreement was a “win-win for both Japan and the U.S.”
What actually happened in the agreement is that the U.S. postponed its elimination of tariffs on Japanese cars, which was agreed in the Trans-Pacific Partnership (TPP) agreement [before the U.S. withdrew from it], and Japan decided to [immediately] lower tariffs on U.S. beef and pork to the TPP level. In other words, Tokyo compromised more than Washington.
The Japanese government regards the elimination of auto tariffs as a fait accompli. It is inevitable that this will be viewed as an attempt by the administration to make the prime minister’s remarks appear consistent.
Free trade has underpinned Japan’s economic development. Complying with international rules, which form the basis of free trade, is a matter of the highest priority.
The prime minister stressed in his policy speech that “Japan, as a standard-bearer for free trade, will extend across the world rules-based economic zones.” If that is the case, he should present clear evidence that the agreement does not run counter to the rules.