Democrats Complain That Japan Phase 1 Deal Neglects Congress

When the Ways and Means Trade Subcommittee held a hearing on the U.S.-Japan mini-deal, the Office of the U.S. Trade Representative declined to send anyone to testify. Rep. Ron Kind, D-Wis., one of the biggest boosters of free trade in the Democratic caucus, said that absence represents “the disdain the current administration has" for Congress, and its role in setting trade policy. He predicted that "this will have serious ramifications for the next time" Congress has a vote on fast-track authority.

Kind, who represents a dairy farming district, complained that the level of quotas offered to U.S. butter and skim milk powders is lower than what they would have gotten under the Trans-Pacific Partnership. Witness Darci Vetter, who negotiated agriculture for TPP, said that U.S. dairy decided a global tariff rate quota would allow for more sales than a country-by-country level. But because of that choice, Japan is not now willing to offer as large a TRQ on a bilateral basis in these politically sensitive products.

The Nov. 20 hearing had three themes -- the holes in the mini-deal, the ways that a phased deal likely violates both fast-track and World Trade Organization rules, and, from Republicans, how the big win for farmers is more important to focus on than the fact that the deal is not comprehensive.

In terms of holes in the deal, Vetter pointed to rice, lamb, poultry, the dairy products highlighted by Kind, and horticultural goods. But even more importantly, she said, the deal does not address non-tariff barriers, such as non-science-based sanitary and phytosanitary regulations.

Matthew Goodman, an Asia expert at the Center for Strategic and International Studies, said, "this mini-deal leaves a lot on the table," even beyond the agriculture carve-outs. He said it's questionable whether it follows fast-track law, and whether it conforms to the World Trade Organization's rule that in order to lower tariffs for only some trading partners, that break must be part of a deal that affects "substantially all the trade" between the countries. Goodman said there may be wiggle room in the WTO rule because Japan and the U.S. say they are having staged negotiations toward a comprehensive deal. But, he said, "frankly, I'm skeptical either side will make it a priority next year."

Trade Subcommittee Chairman Earl Blumenauer, D-Ore., told Goodman that this is the first time he's seen the USTR notify Congress it is seeking a comprehensive trade deal, "and return with one that doesn't fulfill most of the objectives." He also complained that even as USTR warned the deal might be accomplished in stages, he would do so only in consultation with Congress. "Those consultations never happened," he said. In a brief interview after the hearing, he said that he still hasn't seen the text of the deal, even as Japan's parliament is voting on it.

Goodman said that one of the reasons he doesn't have hope that the two countries will reach a comprehensive deal is that even in the TPP, there were some issues on which they didn't agree. And, he said, Japan would still prefer that the U.S. rejoin the TPP. "This is suboptimal," he said. "It's better to do this in one bite."

Kind agreed, and said that even if there is progress on another phase, Japan won't be interested in adding any more agricultural concessions. "They just won't," he said. He said leaving the TPP was one of the administration's greatest strategic mistakes.

Rep. Tom Rice, R-S.C., said he agrees that a more comprehensive agreement would have been preferable, but he welcomes all advances that open markets. "We can bemoan TPP," he said. "I suspect that very few of the folks on the other side of the aisle would have voted for TPP," and he added that he thinks that would still be true today.

Rep. Jason Smith, R-Mo., was even stronger in his praise for the deal, saying that he was surprised by the negative tone of committee Democrats, and noting that 30 agriculture groups sent a letter saying they strongly support the Japan deal, including all the major dairy groups. Smith, who said rice is important to his district, asked Vetter if Japan would bend on market access for that commodity in the next round of negotiations.

Vetter said she's not in the negotiating rooms, but that in TPP, the amount of tariff reduction the U.S. was willing to give in autos was strongly related to how generous they were willing to be on rice. She called it the most sacred of Japan's "six sacred products."

Blumenauer said in a brief interview after the hearing that he's concerned that when negotiators "take what I described as not just low-hanging fruit, but stuff they just picked up off the ground, and call it good," Japan moves on, and this may be the high-water mark of free trade between the world's largest and third-largest economies.

Autos and auto parts were not part of the mini-deal, and United Auto Workers legislative director Josh Nassar highlighted the political pressures that would make concessions difficult in phase two. Nassar said that lowering the 25 percent tariff on imported trucks for Japan would lead Japan to close some of its truck assembly plants in the U.S. over time, and he criticized Japanese attitudes toward unions in the U.S. He called for quotas on Japanese auto imports as the only way to narrow the trade deficit in autos.

Rep. Don Beyer, D-Va., whose family owns car dealerships, questioned whether the trade deficit in autos could be closed without starting another trade war. Beyer, like many Democrats, criticized USTR for declining to send anyone to appear at the hearing. "You'd think if you were proud of what you'd done, you'd be willing to come and talk to us about it," he said.

Blumenauer, in a brief interview after the hearing, said that the Trade Subcommittee will be looking to have hearings or form working groups on legislation, and he said he wouldn't be surprised if the proposal from Rep. Stephanie Murphy, D-Fla., to give Congress a veto on Section 301 tariffs "got some attention." He also noted Kind's interest in saving the WTO, as the appellate body is about to collapse.

In the next renewal of fast-track, the committee will prioritize a way to tighten up fast-track to prevent a lack of consultation in the future, he said.