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U.S. and Japan Reach Trade Agreement in Principle at G-7 Summit

At the recent G-7 summit in Biarritz, France, the United States and Japan announced a trade agreement “in principle” covering aspects of agricultural trade, digital trade and industrial product tariffs. The two countries had held several negotiating rounds since issuing a joint statement on 26 September 2018. White House officials had indicated that President Trump hoped an agreement with Japan would support his claim that a bi-lateral approach to trade negotiations will lead to greater success. 

U.S. Trade Representative Robert Lighthizer said at a G-7 press conference with Japan that the agreement will open up additional export markets for U.S. products worth US$7 billion. He claimed that Japan will open its market to imports of U.S. agricultural products, including corn, beef, pork, wheat, dairy products, wine and ethanol. Lighthizer referred to the agreement as “very good news for our farmers and ranchers” and described its digital trade provisions as setting a new international “gold standard.”

Regarding industrial tariffs, the agreement will not phase out current U.S. tariffs of 2.5 percent on auto vehicle and parts imports, as repeatedly requested by Japan. Lighthizer said that “there are a series of industrial tariffs that are being reduced” but “auto tariffs are not in that group.” On the other hand, the agreement is expected to preclude, at least for now, the imposition of additional tariffs under Section 232 on Japan’s auto and auto parts exports to the United States, as threatened repeatedly by the Trump administration. In his press briefing, Trump did not address the possibility of Section 232 tariffs at some future date and Japanese commentators have expressed concern about this uncertainty.

Trump claimed at the Biarritz press conference that Japan plans to buy “hundreds of millions of dollars of corn” but Japanese Prime Minister Shinzo Abe did not appear to specifically agree on that point. Abe also said that the two sides “have successfully reached consensus with regard to the core elements related to agricultural and industrial trade” but “still have some remaining work that has to be done at the working level, to finalize the wording and content in the deal”. Japanese commenters have indicated in this regard that certain substantive issues are yet to be resolved.

Senate Finance Committee Chairman Chuck Grassley claimed that the agreement would “make up for about ninety percent of what we lost when the president pulled us out of TPP, except in dairy.” He also said that he did not think the agreement would require congressional action, although such action would normally be required is U.S. tariffs are reduced as Lighthizer seemed to indicate. The U.S. National Pork Producers Council and Senate Agriculture Committee Chairman Pat Roberts (Republican-Kansas) also welcomed news of the agreement, noting that it will put American agriculture back on a level playing field with the 11 CPTPP-member nations.

While the U.S. Chamber of Commerce also welcomed the news, it nonetheless urged the Trump administration to strike a more comprehensive agreement with Japan to cover issues such as services trade, regulatory barriers and intellectual property protection. The 12-nation Trans-Pacific Partnership had covered these issues with Japan but the United States withdrew from that deal on Trump’s third day in office.

Content provided by Picture: HKTDC Research
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