snapshots

Apr 12, 2019 | 18:56 GMT

4 mins read

Japan, U.S.: Industrial Giants Take the Slow Road to a Trade Deal

(Stratfor)
The Big Picture

Going into 2019, Stratfor forecast that Japan would grant concessions to the United States in the interest of protecting its automotive sector but that this would be contingent on the United States' willingness to accept a less ambitious deal. The two now appear to be heading down this path amid signs that they could pursue a phased deal.

What Happened

Progress on a trade pact between two of the world's largest economies might be just around the corner. On April 11, U.S. Agriculture Secretary Sonny Perdue told reporters that Washington was confident it could strike a "quick agreement" during trade talks with Japan that would focus on initial agriculture concessions by Tokyo. Indeed, Perdue especially noted the disadvantage that U.S. agricultural producers face in entering the Japanese market given that they are not part of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Against such a backdrop, Japanese Economy Minister Toshimitsu Motegi and U.S. Trade Representative Robert Lighthizer will meet April 15-16 for trade talks.

Why It Matters

Perdue's statements suggest that Washington and Tokyo aim to reach a phased deal that begins with smaller, earlier concessions. In such a scenario, Japan could secure some sort of exemption from U.S. auto tariffs while also agreeing to lower trade barriers to U.S. agricultural products it imports in line with other deals with the European Union and CPTPP countries. In the past, agriculture has been a sticking point for Japan, but the government's recent domestic efforts to lay the groundwork for such concessions could make related measures easier to swallow. Subsequently, the countries would take more time on thornier issues such as services, currency manipulation and a clause that complicates a trade deal with China.

Resolving the dispute over agriculture could also help the White House overcome U.S. domestic hurdles. One U.S. barrier to a phased deal has been the country's political divisions, which have made it difficult for U.S. President Donald Trump's administration to secure congressional approval at each stage of the process. However, unilateral Japanese concessions on tariff access for the United States would not require congressional approval.

The potential for progress on agriculture between Washington and Tokyo stands in stark contrast to the parallel talks between the United States and the European Union.

The potential for progress on agriculture between Washington and Tokyo stands in stark contrast to the parallel talks between the United States and the European Union. Although Brussels faces the same automotive tariff threat as Japan, the bloc is encountering resistance from France over lowering barriers to entry for U.S. agricultural products into the union. On April 11, France raised objections to the European Commission's U.S. negotiating mandate. While France cannot block the mandate given to EU negotiators, Paris' pushback means U.S.-EU negotiations may ultimately advance no further than an agreement to eliminate industrial tariffs, rather than include new provisions on agriculture and food standards. As a result, the European Union may have a harder time than Japan in gaining an exemption from U.S. auto tariffs.

Context

Ultimately, Japan's aim is to avoid its biggest fear: Section 232 tariffs on its automotive sector. But to succeed, it must strike a deal with the United States. Trump and Japanese Prime Minister Shinzo Abe agreed to a framework for U.S.-Japan trade talks in September 2018, indicating that a deal could include privileges to the United States on par with what Japan currently grants EU members and CPTPP partners. Since that time, the United States has occasionally hinted that it may push for a more comprehensive deal. Before it does so, however, Washington and Tokyo appear destined to pick some of the low-hanging fruit in their trade relationship.

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