US, Japanese Leaders Announce Plans to Negotiate Bilateral Trade Deal

27 September 2018

US President Donald Trump and Japanese Prime Minister Shinzo Abe issued a joint statement from New York on Wednesday 26 September where they announced plans to start formal negotiations for a bilateral trade accord. 

The news came just days after trade negotiators from both sides met on the margins of the 73rd session of the United Nations General Assembly (UNGA) to discuss the possibility of negotiating a free trade agreement. 

“The United States and Japan will enter into negotiations, following the completion of necessary domestic procedures, for a United States–Japan Trade Agreement on goods, as well as on other key areas including services, that can produce early achievements,” said a joint statement released on Wednesday. 

They also confirmed that they plan to hold additional negotiations covering other subject areas once this accord is complete, but without specifying further details besides that they would be related to trade and investment. 

The statement also clarified which “positions” each side had agreed to respect once formal trade talks get underway. 

“For the United States, market access outcomes in the motor vehicle sector will be designed to increase production and jobs in the United States in the motor vehicle industries; and for Japan, with regard to agricultural, forestry, and fishery products, outcomes related to market access as reflected in Japan’s previous economic partnership agreements constitute the maximum level,” the statement explained.

Furthermore, each side agreed that they would not take “measures against the spirit of this joint statement” while the negotiating process is ongoing. 

The announcement comes just days after Abe secured the continued leadership of the Liberal Democratic Party last week domestically, ensuring that he would remain in office through 2021 and be able to continue implementing policy priorities such as his “Abenomics” strategy. Abenomics is aimed at revitalising the Japanese economy and bringing to an end the persistent challenges posed by deflation and an ageing population. (See Bridges Weekly, 20 September 2018

As Abe begins this next chapter, trade watchers will likely be looking to see how the US-Japan trading relationship evolves, along with how the Asian economic giant approaches trade ties with other regional partners and those further afield. Regarding its relationship with the US, key sticking points have been the auto and agricultural sectors, along with the US’ steel and aluminium tariffs on national security grounds, and the prospect of possible tariffs on automobile and auto part imports. 

Bridging the Pacific

The two sides already have in place a forum known as the US-Japan Economic Dialogue, which was launched in 2017 during a meeting between US Vice President Mike Pence and Japanese Deputy Prime Minister Taro Aso in a bid to improve economic and trade cooperation between them. 

Trump has repeatedly criticised Japan’s trade surplus with the US, which stands at US$69 billion, while noting his appreciation for the Japanese leader and his hope of deepening trade ties. The two leaders vowed to improve US-Japan relations earlier in the year, with reports that Japan would look at continued investments in American products such as airplanes and farm products, according to Reuters. Japan was the US’ fourth largest goods trading partner in 2017. 

The US tariffs on steel and aluminium have targeted most trading partners that it imports those metals from, with a few exceptions. Japan did not receive an exemption, however. Japanese negotiators, while advocating for an exemption, have been arguing that they should be excluded from any automobile sector tariffs, if an investigation by the US Commerce Department on the national security implications of global auto imports leads Trump to impose them. 

Should the auto tariffs move ahead, Japan’s economy could suffer to lose as much as 0.1 percent of GDP, or approximately US$5 billion, according to a report by Germany’s ifo Institute and cited by The Diplomat. Japanese vehicles account for almost half of the auto market in the US, according to Statista. 

"National interests will always clash," said the Japanese prime minister in an interview with NHK on 20 September when discussing the US-Japan trading relationship. "I want to defend Japan's national interests to the hilt. For example, on agricultural products I have said I won't go any further than what was offered in [Trans-Pacific Partnership, or TPP]," he articulated. 

Trump withdrew the US from the original TPP in 2017, leaving the remaining 11 countries to negotiate and sign a revised deal known as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which suspended some select TPP provisions but left the bulk of the accord intact. The CPTPP is now at the ratification stage, with officials from signatory countries saying that they hope it can enter into force next year. Without the US’ presence in the CPTPP, how the US will approach regional relationships in the Asia-Pacific has been a key question for trade and foreign policy experts. 

Abenomics goes global 

The future of Abe’s economic strategy will also be in focus going forward, as the Japanese leader looks to advance the third “arrow” of the three-pronged strategy, specifically structural reforms.  

For example, negotiations on a proposed trade deal between Japan and its nearby counterparts China and South Korea could regain some momentum in the next several weeks, having advanced in fits and starts over the past several years. 

“Japan would like to make further efforts to advance negotiations together with counterparts from China and [South Korea],” said Hayashi Kazutaka, a councillor at the Japanese embassy in Beijing, according to South China Morning Post. “Speeding up FTA negotiations would also benefit the three countries together in the face of threats from unilateralism and protectionism,” affirmed Yang Zhengwei, a deputy director general at the Chinese Ministry of Commerce, in comments to the same news outlet. 

Abe also met with Turkish President Recep Tayyip Erdogan on the sidelines of the UNGA on 24 September and agreed to expedite the conclusion of trade negotiations between the two countries which began in 2014.

Japan has actively participated in various trade talks over the last year, including the CPTPP and the Regional Comprehensive Economic Partnership (RCEP). The latter is a planned agreement between Japan and the Association of Southeast Asian Nations (ASEAN), Australia, China, India, South Korea, and New Zealand. The nation recently signed a new economic partnership agreement with the EU, with both sides aiming to ratify next year. 

ICTSD reporting; “China, Japan and South Korea aim to speed up talks on free-trade agreement to counter US tariffs,” SOUTH CHINA MORNING POST, 22 September 2018, “Japan mulls bilateral trade deal with U.S.: Nikkei,” REUTERS, 22 September 2018, “Trump says working with Abe to improve U.S.-Japan trade relations,” REUTERS, 7 June 2018, “Despite close ties, likelihood of U.S. auto tariffs high unless Abe offers concessions to Trump, experts say,” JAPAN TIMES, 24 September 2018, “A Brewing US-Japan Trade War?” THE DIPLOMAT, 7 June 2018, “Japan and Turkey seek early conclusion of free trade accord,” JAPAN TIMES, 25 September 2018; “Abe Vows to Defend Japan's Interests as Trump Meeting Looms,” BLOOMBERG, 21 September 2018.

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