Japan in Their Own Words (JITOW)/日本からの意見

Japan-US Trade Talks Must Avoid Reverting to Voluntary Export Restraints
WATANABE Yorizumi / Professor, Keio University

March 12, 2019
On October 16, 2018, US President Donald Trump notified Congress that he intends to negotiate a US-Japan Trade Agreement (USJTA). He can begin talks within ninety days of this notice, and the deadline is approaching.

The US Trade Representative (USTR) announced its “Summary of Specific Negotiating Objectives” for the USJTA in December 2018, which stated that while Japan is the fourth largest export market for US goods, the United States has run up a considerable trade deficit that has led to a chronic trade imbalance. The USTR claims that exports in the automobile, agriculture and services sectors In particular have been blocked by multiple tariff and non-tariff barriers for decades.

Based on this premise, the USTR will pursue its stated objective of achieving “a fairer, more balanced trade.” In short, this implies that the primary focus of US negotiations will be on reducing Japan’s trade surplus.

The United States sought to resolve its trade deficits with South Korea, Canada and Mexico last year by revising the terms of its Free Trade Agreement with the respective countries. These agreements strongly favor managed trade, as seen in the adoption of quotas for automobile exports to the United States. The Japanese side must face up to the challenge of addressing this US bias for managed trade.

In the Summary mentioned above, the USTR cited 22 items, from trade in goods to currency, and defined the objectives of its negotiations for each item, while maintaining the underlying principle of “America First.”

The United States wants to see results. And they are particularly keen to correct the imbalance in the trade of livestock such as beef and pork, as well as automobiles. In the case of beef, Japan has pledged a tariff of 38.5 percent under the World Trade Organization (WTO), while tariffs on beef imported from Australia haves been gradually declining due to Japan’s Economic Partnership Agreement (EPA) with the country, and is already below 30 percent. Australian beef is beginning to gain a greater share of the Japanese market than beef imported from the United States, which does not benefit from an EPA.

Similar trends have also emerged in areas such as milk products and wine. And once the EPA between Japan and the European Union comes into force in February, tariffs on wine made in the EU will be abolished with immediate effect, which may place American wine at a disadvantage in the Japanese market. Had the United States remained in the Trans-Pacific Partnership Agreement (TPP), tariffs were scheduled to be progressively reduced to as low as 9 percent over a period of 16 years in the case of beef. However, having abandoned the TPP, the United States can no longer look forward to such a future.

For this reason, the US side may seek a sweeping resolution to its disadvantageous tariff situation by confronting Japan with tough demands. Japan has no choice but to patiently persuade the United States that returning to the TPP is in its best interests.

In the area of automobiles, the US side is expected to demand a reduction in Japanese exports. Yet, under current WTO rules, quantitative restrictions on exports constitute a violation of Article 11 of the General Agreement on Tariffs and Trade (GATT). If it gives in to US pressure for quotas, Japan will be held in violation of WTO rules. Such an outcome must be avoided if Japan is to maintain its position of compliance with the WTO.

Trade relations between Japan and the United States have remained relatively calm following the establishment of the WTO in 1995. It was in that year that bilateral trade frictions over automobiles were settled. At the time, the US side had threatened to impose sanctions if Japan failed to meet the quantitative targets set by the United States. In response, Japan took a resolute stand by signaling its willingness to file for mediation by the newly established WTO.

Since it joined the GATT in 1955, Japan had never brought a suit against the United States to settle a dispute. From cotton textiles to automobiles, each time trade frictions flared up and brought strong protectionist pressure from the United States, Japan had always responded with voluntary export restrictions. Given such precedence, the US side was surprised by this change in Japan, but from 1995 onwards, it became the established common sense that trade disputes between the two countries would be settled at the WTO according to its rules.

Trump is not the first President to pursue an “America First” trade policy. President Ronald Reagan, who was elected in 1980, is another example. In his time, the United States was under the heavy weight of the “twin deficits” in its budget and current account balances, and was experiencing serious trade frictions with Japan. The Reagan administration hinted at introducing export restrictions on automobiles and semiconductors as a means to apply pressure on Japan.

It was around that time that Prime Minister Nakasone Yasuhiro cultivated the “Ron-Yasu” friendship with President Reagan, and his administration took on the challenge of starting a new round of multilateral trade negotiations known as the GATT talks. The new round was launched during the Japan-US summit meeting of 1984 and went on to embrace the European Community, culminating in the Uruguay Round that lasted from 1986 to 1994. Let us hope that the upcoming Japan-US negotiations will include a mechanism similar in the breadth of its vision.

Despite the support offered by President Trump, General Motors Co. has announced the closure of seven factories including those in the United States. Likewise, Harley-Davidson Motor Co. has said it plans to relocate its production base for models exported to the European market outside the United States. Thus, there are growing indications of inconsistencies within the protectionist trade policies of the Trump administration. Rather than seeking an easy compromise, Japan should formulate a negotiation strategy aimed at effectively drawing the United States back into the TPP.

Yorizumi Watanabe is a professor at Keio University. This is a summary of an article that first appeared in the Nihon Keizai Shimbun newspaper on January 15 2019.
The English-Speaking Union of Japan

日米通商交渉—輸出自主規制 復活避けよ
渡邊 頼純 / 慶応義塾大学教授

2019年 3月 12日














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English Speaking Union of Japan > Japan in Their Own Words (JITOW) > Japan-US Trade Talks Must Avoid Reverting to Voluntary Export Restraints