Japan Trade Deal Is Good News for U.S. Food and Agricultural Producers

U.S. food and agricultural producers, who are under pressure from global economic and political tensions, see opportunities in the United States–Japan Trade Agreement that took effect January 1, 2020. The agreement will reduce Japanese tariffs on beef, pork, dairy and other U.S. food and agricultural products by $7.2 billion and make nearly 90 percent of U.S. food and agricultural products imported by Japan tariff-free, according to the United States Trade Representative (USTR).

The new agreement with the U.S.’s fourth-largest trade partner aims to bring Japanese tariffs on American goods in line with Japanese tariffs under other trade agreements. Japan will provide U.S. farmers with the same access to its markets as countries that are members of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CP-TPP). The United States, in turn, will eliminate or reduce tariffs on $40 million in certain agricultural imports from Japan and on some industrial goods.

Yearlong Negotiations

In 2017, the United States withdrew from the Trans-Pacific Partnership (TPP), a 12-country trade agreement that included Japan. Although Japan initially tried to persuade the United States to stay in the TPP, the Trump administration preferred to negotiate a bilateral trade agreement with Japan. In the meantime, Japan negotiated a successor treaty to the TPP, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CP-TPP), which took effect in December 2018, as well as the EU-Japan Economic Partnership Agreement, which took effect in February 2019. U.S. exporters, particularly exporters of agricultural and food products, raised concerns that the new treaties put them at a competitive disadvantage.

In September 2018, Trump and Japan’s Prime Minister Shinzo Abe announced that the United States and Japan would begin trade negotiations, which began in April 2019. Hanging over the negotiations were tensions around threatened U.S. tariffs on Japanese autos and auto parts, as well as tensions over the U.S.-Japan trade deficit in goods, which hit $67.6 billion in 2018.

The two leaders signed a Joint Statement on the deal in September 2019, and representatives from the United States and Japan signed the U.S.-Japan Trade Agreement on October 7, 2019. (The two countries also signed the separate U.S.-Japan Digital Trade Agreement, which prohibits tariffs on $40 billion in digital trade.) Japan’s parliament approved the agreement in December 2019. The Trump administration has cited the president’s tariff proclamation authorities under Trade Promotion Authority as grounds to enter into the agreement without congressional approval, and President Trump issued a proclamation to implement the trade agreement on December 30, 2019.

Tariff Reductions

Under the agreement, Japan will eliminate or lower tariffs, both immediately and in stages, on certain U.S. agricultural products and provide preferential quotas for other goods. Products that will see a tariff reduction include beef, pork, cheese and whey, poultry meat and eggs, fresh fruits, most potato products, processed horticultural products, almonds and other tree nuts, vegetables and wine. Japan will also eliminate in-quota tariffs on corn and peanuts and eliminate tariffs on peanut butter and peanut oils, certain U.S.-processed food products, and certain pet foods.

The agreement will also provide a country-specific quota for wheat and wheat products and will reduce the mark-up on U.S. wheat and barley to match CP-TPP suppliers. Japan will also eliminate its 10 percent duty on imports of certain U.S. ethanol products. Additionally, the agreement will allow Japan the limited use of safeguards, phased out over time, for surges in imports of beef, pork, whey, oranges and racehorses.

The provisions, tariff commitments, and rules of origin of Japan are included in Annex I of the agreement, and the provisions, tariffs commitments, and rules of origin for the United States are included in Annex II.

Ongoing Issue: Automobiles and Auto Parts

Notably, the agreement does not address the ongoing issue of President Trump’s possible imposition of U.S. national security tariffs on Japanese autos and auto parts. Japan is the top supplier of autos to the United States, and autos are the biggest source of the U.S. trade deficit with Japan.

In May 2018, the Trump administration began an investigation into imports of autos and auto parts under Section 232 of the Trade Expansion Act of 1962, which allows the president to impose tariffs if the U.S. Department of Commerce finds that imports of a specific product threaten U.S. national security. The Commerce Department issued its report in February 2019, which concluded that some imports of autos and auto parts were a threat to U.S. national security. Trump concurred in the findings, but delayed a decision on whether to impose tariffs in order to provide time for negotiations over the issue with European Union and Japan. Trump later decided not to impose tariffs, but the issue remained a significant concern for Japanese trade officials.

During negotiations, Japanese negotiators sought assurances that the Trump administration would not impose additional national security tariffs on Japanese autos and auto parts. Members of Japan’s National Diet criticized the deal for not obtaining a written guarantee on the matter as well as for not removing the existing U.S. tariffs of 2.5% on autos and 25% on trucks. Nonetheless, Japanese officials have stated that no additional U.S. tariffs will be imposed on Japanese autos “as long as the agreement is implemented faithfully,” and USTR Robert Lighthizer said after the signing ceremony that “at this point, it is certainly not our intention, the president’s intention, to do anything on autos, on 232s, on Japan.”

Further Negotiations

The two countries intend to begin the next stage of negotiations by the end of April 2020. Further negotiations could result in a comprehensive trade deal that addresses the outstanding issues related to autos and auto parts as well as issues outlined in the December 2018 negotiating objectives that this agreement did not cover, including labor, services, investment, intellectual property and state-owned enterprises. A comprehensive agreement would also ease concerns that the limited trade deal does not abide by World Trade Organization rules, which require that free trade agreements cover “substantially all trade.”

Such an agreement, however, would take much longer to negotiate and would require ongoing political support in both countries. It would also require U.S. congressional approval, which could be increasingly difficult as the 2020 U.S. presidential election approaches.

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