Trump, Abe to Discuss Potential Bilateral Deal and TPP at Washington Summit

2 February 2017

US President Donald Trump has announced plans to meet with Japanese Prime Minister Shinzo Abe in Washington to discuss trade and security matters in what will be the first face-to-face talks between the leaders since Trump took office last month.

The leaders had earlier met informally in New York in November. The upcoming meeting, to be held on 10 February, will consider opportunities for closer economic ties, including possibilities for a bilateral trade deal between the two nations and what may come next for the Trans-Pacific Partnership (TPP), a 12-nation trade and investment pact in the Asia-Pacific from which Trump formally withdrew last week. (See Bridges Weekly, 17 November 2016)

The enactment of the agreement in its current form was contingent on US and Japanese ratification, as the first and second largest economies involved respectively. According to the agreement’s provisions, all signatories have a two-year window from the February 2016 signing date to ratify the accord. (See Bridges Weekly, 11 February 2016)

Otherwise, the pact must be ratified by at least six of the participants, accounting for 85 percent of the signatories’ total GDP, in order to enter into force. The US makes up 60 percent of the aggregate GDP.

In a phone call last week, the two leaders “committed to deepen the bilateral trade and investment relationship,” according to a White House press statement. However, the precise nature of this relationship remains to be defined.

TPP versus bilateral talks

While the trade agenda under the Trump administration is only beginning to take shape, the new President did call in his inaugural address for an “America First” policy approach that would protect domestic workers and industries, and has said repeatedly that he prefers bilateral trade negotiations over those with multiple countries. (See Bridges Weekly, 26 January 2017)

“The president will continue to negotiate new, better trade agreements that will bring jobs back, increase American wages, and reduce our trade deficit,” Sean Spicer, White House Press Secretary and Communications Director, was quoted as saying in the Japan Times.

Meanwhile, Abe, a determined advocate for the TPP in Japan, has indicated that he will continue to try to convince Trump of the merits of the Pacific Rim deal, but will not eliminate bilateral talks as an option either.

"Japan will continue to stress to the US the importance of the TPP but it is not totally unfeasible for talks on EPA [Economic Partnership Agreement] and FTA [Free Trade Agreement]" to take place, the Japanese prime minister told parliamentary officials, according to comments reported by Reuters.

"I believe President Trump understands the importance of free and fair trade, so I'd like to pursue his understanding on the strategic and economic importance of the TPP trade pact," he added.

Japan ultimately ratified the TPP in December 2016 and notified New Zealand, the designated depositary of the agreement, of the completion of its domestic ratification procedures last month. (See Bridges Weekly, 15 December 2016)

The decision came after months of debate about potential negative impacts, including on the Japanese agricultural sector, which has long been a significantly sensitive area for the Asian economy when it comes to negotiating new trade deals.

A press release from the Japanese Ministry of Foreign Affairs reaffirms this commitment. “Japan intends to continue to tenaciously encourage other original signatories to promptly complete their domestic procedures toward the entry into force of the TPP Agreement, in light of the significance of the TPP,” said the ministry. The press release was dated 20 January, the day that Trump took office.

Automobiles

Any bilateral talks would need to take into account Japan’s automobile market, which Trump claimed last week was allegedly carrying out “unfair” practices.

While Japan exported 1.6 million cars to the US in 2015, American automobiles made up less than one percent of the share of Japanese car sales over the same period.

Abe and senior trade officials have emphasised that there are no barriers facing American cars, but instead not enough effort has been made to adapt vehicles to Japanese consumers.

"It’s not only President Trump, but US officials at all levels often bring this up," Abe told domestic parliamentarians, according to comments reported by Bloomberg.

"I tell them, if you go outside, you will realise that there are quite a lot of European cars, but no American cars and there are reasons for that. There are no dealers, they don’t exhibit at the Tokyo Motor Show and they don’t advertise on the television or in newspapers," he continued during his remarks on 31 January.

"Makers from some countries make an effort by switching the steering wheel to the other side," he said. "If there is a misunderstanding about this, I will of course explain it to the US side."

Improving access to both sides’ respective automobile markets has long been a point of discussion between the two trading giants. When Japan sought formal entry into the TPP talks in 2013, receiving the US’ sign-off required various commitments on the subject.

This 2013 deal included phasing out US tariffs on Japanese car imports on a timeframe equivalent to that of the longest staging period for any other given product that was subject to the TPP negotiations.

It also required commitments by Japan to increase the number of US car imports allowed under a fast-tracked Japanese system, along with the establishment of a bilateral negotiating track on non-tariff measures involving cars that would take place concurrently with the broader TPP talks and would be incorporated into the final outcome. Other non-tariff measures not related to automobiles were also flagged as negotiating areas to be dealt with under the TPP. (See Bridges Weekly, 18 April 2013)

Within the TPP talks, the two sides ultimately agreed an annex specific to the handling of motor vehicle trade. Whether the outcomes of this annex could be carried over into a future US-Japan bilateral trade deal has not yet been made clear.

Toyota, which also came under fire by Trump for shifting production of its Corolla sedan to Mexico, has announced plans to invest US$10 billion in its US operations in the next five years, just as in the previous five years.

Ahead of the February summit, Abe has scheduled meetings with the heads of Toyota and Keidanren, the latter of which is a major business federation in Japan. 

ICTSD reporting; “Japan’s PM says will keep seeking Trump’s understanding on TPP,” REUTERS, 23 January 2017; “Japan’s Abe, Automakers Scramble to Draft Response to Trump,” FORTUNE, 30 January 2017; “Abe Pushes Back After Trump Attacks Japan Car Sales as ‘Unfair’,” BLOOMBERG, 30 January 2017; “Japan PM Abe prepares US trade offer ahead of Trump meeting,” RT, 30 January 2017; “Japanese Prime Minister Shinzo Abe is still pitching Trump on TPP,” REUTERS, 23 January 2017; “Abe Open to Bilateral Trade Deal With U.S. After Trump Exits TPP,” BLOOMBERG, 26 January 2017; “U.S. formally notifies TPP members of departure from trade deal,” KYODO, 31 January 2017.

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