The United States and Japan signed a new bilateral trade agreement yesterday, a limited deal designed mainly to recover some of the benefits American farmers lost when President Trump pulled out of the Trans-Pacific Partnership his first week in office.
Key Issues & Products Covered
Though the agreement is less comprehensive than many business groups and lawmakers wanted and doesn’t cover certain issues that had been addressed in the TPP, it should provide welcome relief for struggling U.S. agricultural exporters, as Japan agreed to grant nearly the same level of market access they agreed to in the TPP in exchange for the U.S.’s move to cut tariffs on some industrial goods.
U.S. agricultural exports to Japan in 2018 totaled $13 billion, making it the third-largest agricultural export market and underscoring Japan’s importance to U.S. farmers, who in recent years have been competing at a disadvantage since the remaining Pacific Rim countries, including major agricultural exporters such as New Zealand and Canada, went ahead with the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and have already been enjoying preferential tariff treatment in Japan.
Describing it at a press event as “phenomenal,” Trump also called his trade deal with Japan a “huge victory” and “a game changer for our farmers and our ranchers.”
The new deal provides staged reduction of Japanese tariffs for more than $2 billion worth of U.S. beef, pork and wine exports, bringing them in line with TPP competitors from Australia, New Zealand and Canada, putting them on the same tariff schedule. Additionally, the deal will immediately eliminate Japan’s tariffs on U.S. food and agricultural imports valued at $1.3 billion per year, including almonds, blueberries, cranberries, walnuts, sweet corn, lactose, milk albumin, grain sorghum, food supplements, broccoli and prunes. The Office of the U.S. Trade Representative has published a series of fact sheets concerning trade in goods in the following areas: dairy products; pork/pork products; and beef/beef products.
Despite being a win for many in the U.S. farm sector, some producers were disappointed by Japan’s refusal to grant access to the TPP-wide quotas in the bilateral deal for butter, skim milk powder and evaporated milk, along with some grains such as barley and rice.
For its part, the U.S. has agreed to cut rates on many Japanese industrial and agricultural products such as bicycles, musical instruments, Wagyu beef, and soy sauce.
What’s Not Included
Many have observed that the deal is notable for what it leaves out, omitting as it does the bulk of products that account for the $218 billion bilateral trading relationship — specifically, automobiles, auto parts and aircraft components from Japan and aircraft, liquefied propane gas and semiconductor manufacturing equipment from the U.S.
In this regard, Trump characterized the mini-deal with Japan as the first phase of a lengthier negotiation process and expressed hopes for concluding a more comprehensive agreement in the not-too-distant future.
The limited bilateral trade deal also includes market-opening commitments on $40 billion worth of digital trade between the U.S. and Japan, that USTR Robert Lighthizer touted as “the most comprehensive and high-standard trade agreement addressing digital trade barriers ever negotiated.”
Considered an improvement over the TPP on digital economy issues by those familiar with the pact, like the new U.S.-Mexico-Canada agreement it includes stronger rules to prohibit cross-border taxation of digital downloads and data localization requirements than the TPP.
Because the deal’s limited scope shouldn’t require congressional approval, it could possibly enter into force in January, barring any unforeseen legislative hurdle. By the same token, however, this could present difficulties with the World Trade Organization, which only allows bilateral trade agreements that cover “substantially all” trade, a condition this deal clearly doesn’t fulfill.
The Trump administration has attempted to get around the “substantially all” provision by framing the deal as the initial stage of a more comprehensive free trade agreement that will eventually be hammered out, but many experts seriously doubt Trump would be willing to drop tariffs on big ticket items such as cars — which even at 2.5% still amounts to roughly $1 billion per year — something that would be essential under a more broadly inclusive free trade deal.
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