Japan Trade

Abe, Trump reach trade deal, Japan exempt from higher auto tariffs

26, Sep. 2019

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By Noriyuki Suzuki

NEW YORK, Kyodo - Japanese Prime Minister Shinzo Abe and U.S. President Donald Trump reached a bilateral trade agreement on Wednesday to cut tariffs on farm and industrial products in a deal hailed by both as mutually beneficial.

In a reprieve for Japanese automakers, Abe secured an assurance from Trump that Japan will remain exempt from higher U.S. auto tariffs. The promise was made at the time of the agreement during a bilateral meeting on the sidelines of the U.N. General Assembly in New York.

“Japanese tariffs will now be significantly lower or eliminated entirely for U.S. beef, pork, wheat, cheese, corn, wine, and so much more,” Trump said at the outset of the meeting alongside Abe, adding that the agreement will open new markets for about $7 billion in American agricultural products.

Trump claimed a “huge victory” for American farmers and ranchers but indicated that talks will continue for a “comprehensive” deal. With his “America First” policy agenda, Trump has sought to reduce his country's trade deficits and forge bilateral agreements toward “fair and reciprocal” trade.

But Japan is viewed as having made more concessions than the United States amid the U.S. threat of higher tariffs on Japanese auto imports, a critical issue for the export-reliant economy. Under the latest deal, the United States will keep its current tariffs on automobiles and auto parts from Japan.

“When the pact enters into force, there is no doubt that Japanese investments will increase and both of our economies will grow,” Abe said.

“I'm confident that it will be something of a win-win for both countries,” he said as both sides sought to defend their respective national interests during the negotiations.

After domestic procedures are completed, the accord is expected to enter into force on Jan. 1, U.S. Trade Representative Robert Lighthizer said.

Reduced taxes on U.S. beef and pork are expected to benefit American farmers who feel disadvantaged compared with foreign rivals due to multiparty frameworks, including the revised Trans-Pacific Partnership free trade pact that has been attacked by Trump.

Japanese consumers, meanwhile, would gain access to potentially cheaper U.S. meat, wheat, wine and other products imported under the trade deal.

Under the agreement, Japan will immediately lower its tariff on U.S. beef imports from 38.5 percent as is currently charged to 26.6 percent, setting the rate on par with Australia and others that joined the revised TPP pact. The tariff on U.S. beef imports will likely be further reduced in stages to 9 percent.

Auto tariffs were in the spotlight as the United States, citing national security reasons, had threatened to impose higher tariffs on Japanese auto imports. At issue was whether Japan would win an exemption from Section 232 of the U.S. Trade Expansion Act and put it into writing.

“Prime Minister Abe confirmed with President Trump that additional tariffs will not be imposed on Japanese cars and auto parts,” Japan's top negotiator Toshimitsu Motegi said at a press conference.

A joint statement signed by Abe and Trump said the two countries will “refrain from taking measures against the spirit of these agreements (on goods and digital trade)” as long as they are faithfully implemented.

However, the U.S. decision not to cut auto tariffs is a potential setback for Japan's auto industry, the backbone of the country's economy. The United States will maintain its current 2.5 percent tariff on U.S.-bound Japanese vehicles and auto parts.

The two countries will carry out further negotiations over cars and auto parts, according to the Japanese government.

Since Abe and Trump agreed a year ago to launch bilateral talks, Japan has maintained it would not commit to bigger concessions than those already made in existing free trade agreements, such as the revised 11-member TPP, as it fought to protect the interests of domestic farmers.

Japan appears to have won U.S. concessions on rice, a politically sensitive area for the country.

Tokyo will not offer Washington a tariff-free quota for American rice of up to 70,000 tons a year, which the administration of former U.S. President Barack Obama had secured when it signed the original TPP with Japan and 10 other regional economies in 2016.

Trump withdrew the United States from the TPP in 2017, citing his preference for bilateral trade deals.

The new agreement also paves the way for more Japanese beef to enter the U.S. market by removing the current low-tariff quota set at 200 tons a year. Japanese beef will be included in a larger quota combined with other nations and set at 65,000 tons annually.

(Miya Tanaka contributed to this report.)

Gist of the Japan-U.S. agreement on trade

The following is the gist of a bilateral trade agreement reached by the United States and Japan on Wednesday.

-- Japan to eliminate or reduce tariffs on $7.2 billion worth of U.S. food and agricultural products.

-- Japan to reduce or eliminate tariffs to around the same level as seen in the Trans-Pacific Partnership pact, of which Washington was a signatory, for U.S. beef, pork, wheat, some dairy products and wine. The United States withdrew from the TPP under President Donald Trump.

-- Japan not to offer the United States a tariff-free rice quota of up to 70,000 tons a year as it had originally agreed in the TPP.

-- The United States to increase its low-tariff quota for Japanese beef from the current 200 tons per year.

-- The United States to maintain its current 2.5 percent tariff on Japanese cars and auto parts.

-- Japan to be exempted from being slapped with higher auto tariffs on national security grounds.

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