Japan, US Pledge to Step Up Economic, Trade Cooperation

19 October 2017

Japanese Deputy Prime Minister Tarō Asō and US Vice President Mike Pence concluded their second bilateral “economic dialogue” on Monday 16 October, amid continued speculation over whether the two sides may eventually agree to formal negotiations for a free trade deal.

While US officials have been pushing to start bilateral trade negotiations, no announcement of an agreement to start talks emerged this week.

“Fostering strong domestic demand-driven growth and fair trade practices can expand trade and foreign direct investment between our two countries that contribute to economic growth and job creation and result in more balanced trade,” read a joint press release issued on the heels of Monday’s meeting.

Officials also noted continued efforts to develop “more effective enforcement activities against unfair trade practices by third countries, as well as identify new areas of common interest for promoting high trade and investment standards.”

The economic dialogue format rests on forging “a common strategy on trade and investment rules and issues to ensure a free and fair trade relationship between our two nations,” Pence told reporters afterward, joined by Treasury Secretary Steven Mnuchin, Secretary of Commerce Wilbur Ross, and US Trade Representative Robert Lighthizer.

The dialogue marks one month before Trump’s trip to Asia, which includes a stop in Japan. The US leader will have a meeting with Japanese Prime Minister Shinzo Abe, which looks set to broach the topics of trade and economic integration.

Conceptualised in an earlier meeting between Trump and Abe in February, the dialogue aims to advance economic, trade, and investment ties between the world’s largest and third-largest economies. The inaugural round was held in Tokyo in April. (See Bridges Weekly, 16 February 2017 and 27 April 2017)

Trade gap, possible bilateral deal

On Monday, Washington officials renewed calls to negotiate a bilateral free trade agreement with Tokyo, which could cover nearly one-third of the global economy and a shared population of nearly 500 million people.

US administration officials say it would yield a more balanced trade relationship, citing a US$69 billion trade surplus that the Asian island nation ran with the North American country last year, owing to a large extent to imports of Japanese autos and electronics.

Japan has pointed to these figures as failing to account for the vast volumes of investment flows creating new employment opportunities in the US. The economic dialogue presents a venue for Japan to further advance investment cooperation, including in energy and infrastructure.

While no announcement was made on elaborating a potential US-Japan accord, talks yielded other breakthroughs in facilitating bilateral trade in certain goods.

Japan agreed to streamline noise and emissions testing procedures for US car exports and to ease restrictions on American potatoes. The US in turn welcomed the lifting of trade restrictions on Japanese persimmons.

Pence also took the opportunity to raise Washington’s concern about Tokyo’s use of emergency tariffs on imported frozen beef, including from the US, though no agreement was announced. The measure, invoked in August, raises the tariff rate from 38.5 percent to 50 percent and was intended to act as a safeguard mechanism to protect Japanese farmers in response to a sudden rise in beef imports.

Trump has repeatedly said that he prefers negotiating bilateral trade deals as opposed to taking a regional or multilateral negotiating approach, choosing to withdraw from the Trans-Pacific Partnership (TPP) soon after assuming office. (See Bridges Weekly, 9 February 2017)

Japan is the largest economy remaining in the deal and is participating in “TPP-11” negotiations to advance the original accord now that the US has withdrawn. (See Bridges Weekly, 20 July 2017 and 28 September 2017)

The original agreement would have covered almost 40 percent of global GDP and over a quarter of world trade when counting the US. The remaining signatories include Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, Peru, New Zealand, Singapore, and Vietnam. (See Bridges Weekly, 8 October 2015)

Washington is eager to strengthen bilateral ties with Japan, and the earlier accord did include agreements to improve agricultural and automobile market access to Japan, including side deals between the US and Japan on the subject.

Election coming up

Meanwhile, Abe looks set to secure a victory for his ruling coalition as Japan gears up for general elections to fill the lower house of the Diet within days. His Liberal Democratic Party (LDP), together with its coalition ally Komeito, is being challenged by the Party of Hope, recently established by Tokyo Governor Yuriko Koike. Koike once served as defence minister under Abe when he was Prime Minister from 2006-2007.

"Economically, the world is making a big move while Japan's presence is gradually declining," Koike told journalists upon announcing her party, the very same day that Abe dissolved the Diet in September.

Koike has spoken of diverting from the course of heavy public spending and monetary easing characteristic of “Abenomics,” the current leader’s three-pronged economic strategy which also includes structural reforms.

Abe called the snap elections last month, originally not scheduled until next year, promising to ensure stability. Polls published by Japanese news organisations suggest that the centre-right ruling coalition is poised to win almost 300 of the available 465 seats, a solid majority.

ICTSD reporting; “Aso and Pence seek common ground on trade while jointly condemning Pyongyang,” KYODO, 17 October 2017; “U.S., Japan fail to bridge gap on trade in economic talks,” REUTERS, 16 October 2017; “U.S. Pushes ‘Fair Trade’ as Economic Talks With Japan Advance,” BLOOMBERG, 16 October 2017; “Japan’s general election: all you need to know,” THE GUARDIAN, 16 October 2017; “Japan’s PM calls snap election,” AL JAZEERA, 25 September 2017. 

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