US-Japan trade deal vs TPP: Where it falls short, where it exceeds

Donald Trump and Shinzo Abe signed a bilateral trade deal on Sept 25. (AFP pic)

WASHINGTON: US President Donald Trump on Monday called his new trade deal with Japan “a game changer for our farmers and our ranchers.”

But don’t expect America’s Land O’Lakes butter to knock New Zealand’s Anchor or France’s President brands off store shelves in Japan, the world’s third-largest economy.

Butter is one of several US dairy products that will not get improved access to Japan’s 127 million consumers under the limited bilateral trade deal signed by Trump and Japanese Prime Minister Shinzo Abe on Sept 25.

The deal aims to help restore Japanese market share lost by US farmers to competitors in Australia, New Zealand and Canada since Trump pulled the United States out of the Trans-Pacific Partnership (TPP), now an 11-country trade pact, on his third day in office in 2017.

The US-Japan deal’s full text was released on Monday and showed that some agricultural products would get worse access than they would have received under TPP.

US butter, skim milk powder and evaporated milk, along with some grains, would have competed with other TPP signatories for Japan’s new import quotas under the Pacific Rim deal.

When the United States pulled out, that left more space for brands like Anchor or Australia’s Western Star.

But Japan refused to grant the United States access to the TPP-wide quotas in the bilateral deal.

European Union (EU) brands gained similar access in a Japan-EU trade deal launched in February.

But there are gains that bring US beef, pork and wine exports in line with TPP competitors from Australia, New Zealand and Canada, putting them on the same tariff schedule.

“There are some specific parts of the agriculture sector that really do benefit from this,” said Matthew Goodman, an Asian economics expert at the Center for Strategic and International Studies in Washington.

“More broadly, this is not a highly significant deal from a commercial perspective, as it doesn’t touch the biggest item in bilateral trade, autos and auto parts.”

What’s left out

The US-Japan agriculture-centred deal is notable for what it leaves out.

It does not include the bulk of products that make up the bilateral trading relationship, notably autos from Japan and aircraft, liquefied propane gas and semiconductor manufacturing equipment from the United States.

Motor vehicles and parts, by far the largest Japanese export to the United States at US$56 billion in 2018, were left out for a later phase of negotiations.

Abe said Trump agreed not to impose threatened “Section 232” tariffs on Japanese cars and parts on national security grounds.

Japan has no tariffs on cars and trucks from the United States, but US automakers argue that most American cars are kept out by environmental and safety regulations, and Japan’s currency policies that keep the yen low against the dollar.

TPP would have eased Japan’s regulatory barriers, but neither agreement contained any rules to combat currency manipulation, a stated goal of the US Trade Representative’s office.

The United States would have eliminated its 2.5% tariff on cars made in Japan under TPP but it remains in place.

Less than TPP

America’s rice growers won’t benefit from the new bilateral trade deal, as tariffs and quotas on US rice imported to Japan set in the early 1990s remain in place.

Under the TPP, Japan would have accepted 70,000 metric tons of American rice per year tariff-free under a US-specific quota, but this was not included in the bilateral deal.

Tim Johnson, president and CEO of the California Rice Commission, said he hoped for a better deal in later phases of US-Japan talks.

Barley will see improved access to Japan, restoring US-specific quotas and a 45% reduction in Japan’s mark-up on imports the grain widely used in beer brewing, matching TPP competitors.

But the deal does not provide the United States access to Japan’s TPP-wide quota that grows to 65,000 tons annually over nine years.

Similar to TPP

Unlike butter and skim milk powder, cheese, the largest US dairy export to Japan, will see elimination of Japan’s tariffs of up to 40% over 15 years, as it would have done under TPP.

US beef and pork are the major winners in the US-Japan deal.

Beef will see Japanese tariffs falling from 38.5% currently to 9% by 2033, on the same schedule as TPP competitors Australia, New Zealand and Canada.

Pork will see Japanese tariffs eliminated on muscle cuts over 9 years and the 20% tariff on ground seasoned pork eliminated in the deal’s fifth year.

Japan will eliminate its 10% duty on imports of certain US ethanol in 10 years, affecting about US$11 million worth of imports, according to a USTR fact sheet.

The deal maintains Japan’s zero duty on US corn for animal feed but grants a quota eliminating a 3% duty on sweet corn and other types of corn, the USTR said.

Wheat will see a US-specific quota in Japan that will grow to 150,000 metric tonnes over six years, and a 45% reduction in Japan’s markup for wheat imports, matching TPP competitors.

Japan’s tariffs on US wine will also will fall, from 15% to 7.1% on April 1, 2020, basically the same level they would have under the TPP, the Wine Institute said.

But Japanese documents say that no concessions were granted for other types of alcohol.

US bourbon and Tennessee whiskey had won some labelling protections in TPP along with tariff reductions.

Better than TPP

The main improvement over TPP comes from the US-Japan digital trade agreement, say congressional aides and tech industry officials.

They described it as “TPP-Plus” and in line with US goals to set global internet and e-commerce rules.

It includes stronger rules to prohibit cross-border taxation of digital downloads and data localisation requirements than TPP.

Cloud computing and new financial technologies were still new and being developed during the many years TPP was negotiated, so that deal included carve outs that would have allowed some countries to require local housing of financial sector data.

USTR said the deal protects against the forced disclosure of proprietary computer source code and algorithms, demands that it says China frequently makes of US firms.

It also said the deal promotes open access to government-generated data.

Overall, the digital deal is in line with the new US-Mexico-Canada agreement, regarded as an upgrade from TPP on digital economy issues.

Japanese Prime Minister Abe said it reflects Japan’s status as an ally of the United States in trying to set high-standard, open internet rules for the world.