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U.S. Intends to Enter Into Trade Talks Next Year With Japan, EU, UK

Posted October 19, 2018


With negotiations over a new North American trade deal largely settled, the Trump administration this week turned its attention to addressing outstanding policy issues with other key U.S. trading partners as it launched an ambitious fast-track process for separate trade deals to expand business with three markets whose combined trade in goods and services with the U.S. tops $1.5 trillion.

On October 16, the Trump administration formally notified Congress of planned trade talks with Japan, the European Union and the United Kingdom in letters required by the 2015 Trade Promotion Authority (TPA also sometimes called “Fast-Track”).

The notification allows talks to begin within 90 days (January 14, 2019), although the Office of the U.S. Trade Representative notes that any proposed talks with the UK would only begin after “Brexit” from the European Union takes place, which is expected to happen at the end of March 2019.

TPA also requires the administration to publish trade objectives for the deals 30 days ahead of the new negotiations, which puts the likely release date sometime around mid-December.

Until then, the letters submitted to Congress will have to suffice for providing an indication of the scope of the talks being considered and the areas of concern that the administration is seeking to favorably resolve. Although short on specifics – all three state the aim “is to address both tariff and non-tariff barriers and achieve free, fair, and reciprocal trade” – the letters do manage to offer some hints about possible U.S. objectives in the talks.

Japan

In one of his letters concerning Japan, USTR Robert Lighthizer states it “is an important, but still too often underperforming, market for U.S. exporters of goods,” noting that “U.S. exporters in key sectors such as automobiles, agriculture, and services have been challenged by multiple tariffs and non-tariff barriers for decades,” which has resulted in “chronic U.S. trade imbalances with Japan.”

The negotiations with Japan could happen “in stages as appropriate,” Lighthizer suggests. Since taking office, the Trump administration has pushed hard for a comprehensive bilateral free trade deal with Japan, but Tokyo has been reluctant to agree, instead urging the U.S. to rejoin the updated Trans-Pacific Partnership.

A joint announcement made last month between the U.S. and Japan clearly stated U.S. expectations that a deal would increase automobile production and jobs domestically and that Japan would not go past its previous deals on opening its “sensitive” market to agricultural imports.

From this it appears the U.S. will be looking to build from a bilaterally negotiated side deal in the TPP talks which had made unprecedented openings to Japan’s agricultural market and can also be expected to push the government of Shinzo Abe even harder to make more concessions on two-way automotive trade.

European Union

EU and U.S. officials have been engaged in “talks about talks” since July, following a meeting when Trump and European Commission President Jean-Claude Juncker headed off an escalating clash over threatened U.S. automotive tariffs by agreeing to negotiate the elimination of all remaining tariffs on industrial goods, including cars, and could also include efforts to more closely align regulatory standards for the sake of greater supply chain efficiency.

Despite the proposed discussions over what Trump hailed at the time as “a breakthrough agreement” appearing to breathe new life into the comprehensive Transatlantic Trade and Investment Partnership that started and stalled under the previous administration, both sides have denied this being the case. Under pressure from Washington “to get very rapid results,” European Trade Commissioner Cecilia Malmström has indicated the aim now is to achieve “a more limited trade agreement.”

Trump has repeatedly claimed that American farmers, ranchers and manufacturers are being treated unfairly by the EU, that he worryingly characterized as a “foe” in the world, and recently described as being “possibly just as bad as China” when it comes to trade, bitterly complaining “it’s terrible what they do to us.” More generally, Trump objects to the EU’s overall trade surplus with the United States; which currently stands at $151 billion in 2017, according to the USTR.

While the administration’s notification allows it to initiate negotiations on a new bilateral trade and investment deal with the EU as soon as early next year, the European Commission has so far shown little interest in return. Indeed, it has yet to secure the needed mandate that must be endorsed by a consensus of EU member states prior to engaging in formal negotiations with the United States.

Complicating matters, French President Emmanuel Macron has adamantly stated his belief that the EU should not negotiate trade deals with countries that are not members of the Paris Climate Accord. Given the Trump administration has strongly disavowed the global climate treaty, this contentious issue could end up throwing a spanner in works for any of Washington’s broader EU trade ambitions.

United Kingdom

Although bilateral free trade talks cannot begin with the United Kingdom until such time as it leaves the EU, in his letter to Congress, Lighthizer highlighted that U.S. and British officials have been meeting under the auspices of a trade “working group” since 2017 in order to prepare for Brexit.

Designed “to provide commercial continuity for UK and U.S. businesses, workers, and consumers,” that prepatory work has been geared toward establishing the groundwork for formal trade talks but also, supposedly, having as much of the pre-existing regulatory framework and administrative procedures ready to be deployed almost immediately after the UK splits from Brussels.

Unlike like other markets being targeted, the UK actually has a modest trade surplus of $14.2 with the U.S. on a total volume of trade worth $232 billion. Accordingly, the White House says in this case it is looking to achieve an “ambitious” agreement that would remove tariff and non-tariff barriers on goods and services and develop “cutting edge obligations for emerging sectors.”

Standing in the way of these lofty goals, however, are various regulations stubbornly restricting the flow of U.S. agricultural exports. Setting the tone for what can be expected in the post-Brexit trade talks, Trump this week demanded that the Conservative government of Theresa May scrap what he blasted as “unjustified” food and agricultural standards before it can sign a free trade deal with the United States. The statement is sure to galvanize opposition to a deal from free trade opponents that have long been critical of U.S. food hygiene standards and farming practices.