Experts' Views Diverge on How US-Japan Talks Could Be Resolved

American farmers are losing market share in Japan as Canada and Australia get the benefit of lower tariffs through the Trans-Pacific Partnership and European producers also get benefits through their region's free trade agreement with Japan.

U.S. Trade Representative Robert Lighthizer has told Congress that he'll be looking for a trade deal with Japan to develop in phases, with agriculture coming first. President Donald Trump has said there will be a trade announcement with Japan "very, very soon" (see 1905280027).

Japan experts in the U.S. disagree on how quickly such an agreement could come, and what it might entail. Some believe that Japan is so dependent on U.S. security guarantees -- and so afraid of the possibility of 25 percent tariffs on imported cars -- that it will grant TPP-equivalent market access to American agriculture without getting any tariff reductions in return. They think Japan's concession will just depend on a promise that if Section 232 auto or auto parts tariffs come, Japan will be spared.

Professor Saori Katada from the University of Southern California's School of International Relations has that perspective. "What they can get now with the U.S. is really quite irrelevant," she said in a telephone interview.

She thinks talks will accelerate once the Japanese parliamentary elections conclude at the end of July. "I think the sweet spot will be hit pretty quickly," she said. She said of both sides, "I think they will take the speed over the quality or depth."

Japan would have received the immediate elimination of 2.5 percent tariffs on many auto parts when the U.S. was in the TPP, and would have gotten a slow phase-out of the 2.5 percent tariff on cars and 25 percent tariff on trucks.

Mireya Solis, Philip Knight Chair in Japan Studies at the Brookings Institution, thinks Japan will need similar concessions from the U.S. to be willing to give the U.S. the level of agricultural market access it would have been entitled to in the TPP. She said the tariff reductions on cars and trucks aren't as important to Japan as those on auto parts. "What I hear from people is the U.S. side has not yet given signals that they’re willing to reciprocate," she said. And, she said, the U.S. complains about the trade deficit with Japan -- and most of that deficit is because of U.S. imports of Japanese autos and auto parts.

Still, she said, if the U.S. were willing to eliminate tariffs on Japanese auto parts, there would be room for a narrow agriculture-for-autos deal that could be done quickly. "If no tariff elimination on our part is to be considered, that calls for protracted negotiations," she said.

In her view, if Japan were to give an agricultural concession without anything in return except escaping Section 232 tariffs, it "would be very, very difficult to justify to the Japanese public."

Jennifer Hillman, a Georgetown Law professor and former World Trade Organization appellate body panelist, said in a talk July 17 that Japan and the U.S. are not on the same page in their trade talks. "The question is whether Japan is going to make the same commitments that are in the [TPP] when the commitments it will receive from the U.S. are far less than what they would have gotten if we'd just stayed in the TPP," she said. "I'm not particularly optimistic you're going to see any agreement ... anytime soon."

But there is a deadline hanging over the talks, which is mid-November, when Trump said he would re-evaluate putting tariffs on imported cars and car parts.

"Around November if no significant progress has been made in talks, he could go ahead and increase the tariffs," Solis said. "That’s what everyone would like to avoid."

That's not the only complication on timing. Solis noted that in 2020, Japan and the U.S. will begin talking about how much Japan pays toward the cost of U.S. military bases on its territory. "You certainly would like to avoid trade talks that are not going anywhere at the same time," Solis said. "Even though Japan is the most generous host in terms of the cost of the troops, nevertheless every time you sit down with the president you can expect there are complaints about free riding."

Katada said not only does Japan feel it did not have enough leverage to resist bilateral talks -- it had wanted the U.S. to rejoin TPP -- she said she also thinks that its auto companies are not as aggressive in pushing for what they want as U.S. firms are. "Overall, my research on Japanese politics shows those who stand to gain are not as active in pushing as were those who stand to lose."

For that reason, she thinks the main danger to the talks is if the U.S. is too aggressive in pushing for more agriculture access than what was given in TPP. Even though agriculture does not have the same political power it once did in Japan, she said its position is still quite strong.

Another question of what is on the table in the talks is the status of Japanese steel exports. A lobbyist for a Japanese firm said that because some Japanese steelmakers have operations in the U.S. and in Japan, they are not united in asking for relief.

Katada agreed, saying, "I don't think they are screaming bloody murder like some countries are" over the steel tariffs.

Solis said of removing steel tariffs: "I don’t see that as a first order priority. Japan has moved to work for exemptions on those tariffs. For the most part the damage has not been severe."

Although Katada believes Japan has less leverage in these talks, she said that the U.S. also has some pressure. Because the U.S.-China trade talks are not going well, "my read of it is Trump needs a policy win, regardless, with Japan."

The fast-track procedure has not been followed with the U.S.-Japan trade talks, which means whatever deal is reached must be possible without changing U.S. law.

Solis said officials in Tokyo are aware of this, and have noted that fast-track authority, in Section 103b, allows the president to reduce tariffs by up to 5 percentage points without a vote in Congress. While that could present some advantages, from the Japanese perspective -- congressional ratification is always slow and difficult -- it also presents problems, she said.

"We live in a world now where the president changes terms very quickly and there would be very little assurance they would last for long," she said, if the tariff changes were made through an executive order. She said that officials in Tokyo -- "And I think every capital in the world" -- made note of Trump's threat to impose 5 percent tariffs on all Mexican imports over migration.

She said that Japan is looking for "the minimum that can be done to minimize the tariff threat."