Business / Economy

Bilateral free trade pact with Japan a possibility, Pence says

by Kazuaki Nagata

Staff Writer

Visiting U.S. Vice President Mike Pence on Tuesday officially opened the door to a bilateral free trade agreement with Japan, saying formal negotiations on such a move are possible.

After Pence and Deputy Prime Minister Taro Aso held the first round of their high-level economic dialogue, Pence said: “Under President Trump’s leadership, the United States seeks stronger and more balanced bilateral trade relationships with every country, including Japan.

“We seek trade that is free. We seek trade that is fair,” he said at a news conference at the Prime Minister’s Office. He added that the Trans-Pacific Partnership is “a thing in the past.”

Following President Donald Trump’s decision to withdraw the U.S. from the TPP, Tokyo and Washington may be moving toward a bilateral pact in line with Trump’s preference against multilateral free trade deals. Earlier Tuesday, Pence said the Trump administration will also review and restyle a 5-year-old free trade agreement with South Korea.

Pence and Aso agreed to seek draft bilateral trade rules in coming talks.

The two countries will continue to discuss “a bilateral framework for setting high trade and investment standards; perspectives on trade and investment initiatives of the United States and Japan in the regional and global trading environment,” they said in a joint statement.

However, asked whether Japan and the U.S. are moving toward deepening this economic dialogue into a bilateral free trade agreement, Pence said there was a chance that they might formally launch such negotiations based on what they will have established under the current framework.

Japan has been reluctant to move toward a Japan-U.S. FTA, since the U.S. would likely press hard for Tokyo to remove trade barriers — including protection on automotive and agriculture markets — in a more aggressive form than had been agreed under the TPP deal.

The Trump administration has adamantly expressed its intention to reduce U.S. trade deficits with other major economies, including China and Japan. The U.S. saw a $68.9 billion trade deficit with Japan last year.

But Japanese officials have countered that Tokyo accounts for a much smaller portion of America’s deficit than in the past, while the imbalance with China is much bigger.

Trump has complained that Japan keeps its currency artificially low, although a Treasury Department report last week did not label Japan a currency manipulator.

He also said last week that the U.S. dollar is getting too strong against major currencies, but Japanese officials who attended the talks said the currency topic was not raised.

While tough trade issues remain between the two nations, Aso stressed the significance of the new economic talks, saying they are a “new page” in Japan-U.S. relations.

“The economic relations between Japan and the United States started with frictions, but it is turning into cooperation now,” Aso said.

He added that the bilateral economic talks are aimed at creating trade and investment rules that will spread globally.

Before the TPP deal collapsed, the rules drafted for the multilateral free trade agreement were expected to set a new standard.

Aso and Pence will meet again sometime this year in the U.S. Tuesday’s joint statement also said that the dialogue “should generate concrete results in the near term,” although it did not specify by when.

Other than discussions on a trade deal, the two countries also agreed to work on investment rules, economic and structural policies and seek cooperation in sectors that can benefit both sides, such as increasing jobs.

Aso mentioned as potential areas of cooperation was high-speed railways and energy.

The economic dialogue between the two nations’ No. 2 leaders is considered highly unusual. However, it is believed Japan and the U.S. want to avoid Abe and Trump going toe to toe on sensitive trade subjects and jeopardize their ties.

Before the Aso-Pence meeting, U.S. Commerce Secretary Wilbur Ross met his counterpart, trade minister Hiroshige Seko, in Tokyo and indicated a willingness for a bilateral free trade deal.

“It’s a little bit too early to say just what forms things will take but we’re certainly eager to increase our trade relationships with Japan and to do so in the form of an agreement,” he said after meeting.

Asked about the U.S. trade deficit with Japan, Ross said, “We made good progress in terms of establishing overall issues and a frame of reference for continuing dialogue.”

Pence’s 10-day tour of Asia is aimed at emphasizing Trump’s goal to boost U.S. trade in the region despite abandoning the 12-nation TPP pact.

Advocates for the TPP, negotiated by former U.S. President Barack Obama and supported by Prime Minister Shinzo Abe, said it would have opened markets for American exports. U.S. business groups supported the deal but U.S. labour unions argued it would hurt American workers.

Trump campaigned for office on an “America First” platform, saying he would boost U.S. manufacturing jobs and shrink the country’s trade deficit with countries like Japan.

Staff writer Tomohiro Osaki contributed to this report; information from Reuters added.