Business | ANALYSIS

Tokyo touts pact with U.S., but trade experts highlight lack of strong commitments

by Satoshi Sugiyama and Reiji Yoshida

Staff Writers

The bilateral trade agreement between Japan and the United States is a “win-win” deal, Prime Minister Shinzo Abe said Wednesday in New York, as U.S. President Donald Trump boasted that American farmers will thrive as tariffs fall.

Japan officials also claimed that Tokyo had avoided a nightmare scenario of a 25 percent tariff on exports of Japanese cars on national security grounds, and the introduction of a numerical export limit for the American market — something Japan’s auto industry has long feared.

But trade experts have expressed mixed reactions, with some arguing that the nation failed to secure a strong commitment from Trump and his trade team, pointing out that the U.S. promises are not made clear in writing.

“They say the trade deal is ‘win-win,’ but my assessment is harsh,” said Masahiko Hosokawa, a former trade ministry official and professor at Chubu University. Japan was completely overmatched, said Hosokawa, in negotiations that were designed by the U.S. side to appeal to Trump voters as he seeks re-election.

“I think the deal is what the U.S. intended it to be,” he said. “Lowering agricultural product tariffs to Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) levels and (the elimination of) auto tariffs should have been agreed as a package. Japan completely gave up on that. … It’s meaningless.”

Shujiro Urata, an economist at Waseda University’s Graduate School of Asia-Pacific Studies, takes a more moderate view. He said the deal was not the “best” for Tokyo but that Japan could have found itself in a worse situation, alluding to the threat of a 25 percent tariff.

“The deal is not the best but not the worst either, and Japan did relatively well compared with other trade deals (between U.S. and other countries),” he said.

The deal slashes Japan’s tariffs on agricultural goods imported from the U.S. to the same level as the CPTPP — the revised Trans-Pacific Partnership that excludes the U.S. — satisfying Trump’s primary demand. Tariffs on U.S. beef will be gradually lowered from 38.5 percent to 9 percent. Tariffs on U.S. pork will be cut from ¥482 per kilogram to ¥50 per kilogram. But under the deal, Japan will not set new quotas for U.S.-grown rice and butter.

The U.S. government estimates that $7 billion worth of agricultural products will become accessible to the market because of the deal.

On Wednesday in New York, Abe and Trump issued a joint statement that says the two countries “will refrain from taking measures against the spirit of these agreements” and “will make efforts for an early solution to other tariff-related issues.” During a news conference the same day, Abe said he and Trump verbally confirmed that those passages referred to Washington’s commitment not to apply additional tariffs on Japanese autos. But no such assurances have appeared in writing so far.

While Tokyo’s diplomats insisted they were confident that the U.S. would follow through based on the “trust” between the two countries, as well as their leaders, experts are not convinced that trust alone can withstand Trump’s well-documented mercurial character.

In fact, U.S. Trade Representative Robert Lighthizer reportedly said Trump doesn’t intend to impose additional tariffs on Japanese autos “at this point,” apparently avoiding a long-term commitment.

On Thursday morning in Tokyo, a high-ranking Foreign Ministry official praised the deal, pointing to the avoidance of massive auto tariffs or quotas. But the official admitted that Japan was without a strong bargaining chip on the auto issue because Washington controls legal regulations for its own market.

“A party that owns a market has advantage” in trade negotiations, said the official, who spoke on condition of anonymity.

During TPP talks, Japan and the U.S. had at one point reached an agreement to gradually phase out tariffs on Japanese cars and auto parts over the course of 25 years.

But Trump pulled the U.S. out of the trade deal in 2017, forcing Japan to enter talks over a bilateral pact. The remaining TPP signatories remained intact, bringing the CPTPP into force last year.

The Japan Agricultural Cooperatives group (JA), once one of the most powerful pressure lobbies in Japan, released a statement Thursday welcoming the fact that Tokyo had avoided the creation of low- or zero-tariff import quotas for rice from the United States, but not referring to Japan’s key compromise — which effectively sacrificed beef and pork producers for the interests of the auto industry.

The muted statement likely reflects the rapidly declining political power of Japanese farmers. The sector now accounts for only 1 percent of the nation’s gross domestic product. Abe’s cabinet has repeatedly threatened to carry out legal reforms to weaken the JA group, such as banning its business operations with non-cooperative member customers.

“The creation of a tariff import quota has been avoided, and we believe it is reassuring for farmers,” said Toru Nakaya, chairman of JA-Zenchu (Central Union of Agricultural Co-operatives), the central lobbying body of the JA group.

Nakaya also asked the government to take “necessary measures” to minimize negative impacts on Japanese farmers.

“The JA group will keep up its utmost efforts to strengthen the agricultural sector of our country,” Nakaya said.

In addition to agriculture, tariffs on Japanese industrial goods exported to the U.S. will be lowered or eliminated — including for steam turbines, as well as musical instruments and bicycles. The countries also established rules on digital trade.

The deal came after an unusually short time frame amid a particularly precarious backdrop for global trade: The U.S. is rewriting major accords, waging a trade war with China and increasingly opting to pursue bilateral deals over regional ones. Japan and the U.S. spent about a year negotiating the deal and just a few weeks finalizing it — a stage that could easily take months.

For Tokyo, securing the initial agreement provides a sense of security thanks to the perception that Japan has managed to tame the U.S. president’s dissatisfaction over trade imbalances and deflect his ire elsewhere.

Trump, for his part, appeared to be desperate to seal the deal due to fears of disenfranchising U.S. farmers, a block of voters integral to his re-election in 2020. Such voters are increasingly feeling the pinch of the intensifying trade war with China.

The trade deal does not need congressional approval, but Japan’s Foreign Ministry has been pressed to submit the pact to the Diet during the extraordinary session scheduled to begin Oct. 4.

Hosokawa, the former trade ministry official, said Japan had succumbed to “empty threats” on the 25 percent national security tariffs on Japanese cars — a move he called a violation of World Trade Organization rules.

Like Europe did when the U.S. imposed tariffs on steel and aluminium imports, Japan should have lodged a complaint with the WTO before taking part in trade negotiations, he said.

“This is a matter dealing with the essentials of Japan’s trade policy,” he stressed.

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