AJISS-Commentary
The Association of Japanese Institutes of Strategic Studies
NPIRIPS

Nakasone Yasuhiro

The Japan Institute of

Research Institute for

Peace InstituteInternational Affairs

Peace and Security

Editorial Advisory Board:

No. 277

Akio Watanabe (Chair)
Ichiro Fujisaki
Masashi Nishihara
Kenichiro Sasae

23 October 2019

Editorial Committee:
Tsutomu Kikuchi
Fumiaki Kubo
Tsuyoshi Sunohara
Shujiro Urata andYasunori Nakayama

THE JAPAN-US TRADE AGREEMENT:
THE “FIRST-STAGE INITIAL TARIFF
AGREEMENT”
Junichi Sugawara

Editor & Online Publisher:
Kenichiro Sasae
President, JIIA・ On October 7, the "Japan-US TradeAgreement" was signed along with the"Japan-US Digital Trade Agreement". Bothagreements are expected to be approved inJapan's extraordinary Diet session and enter
into force on January 1, 2020.
・ The Japan-US trade agreement, in line with theJapan-US joint statement issued in September
last year, has achieved what both countries had
respectively hoped for the most. On the otherhand, the agreement is "partial" because bothcountries gave priority to an early agreement.
・ The agreement is a “first-stage initial tariffagreement”. Japan and the United States havepledged to reduce or eliminate tariffs on only
about $7.2 billion of each other’s goods. Thesecond stage of negotiations is expected to be
tough for Japan.
The views expressed in this piece are the author’s own and should
not be attributed to The Association of Japanese Institutes ofStrategic Studies.

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The Association of Japanese Institutes of Strategic Studies

On October 7, the “Japan-US Trade Agreement” was signed alongwith the “Japan-US Digital Trade Agreement”. The two agreements are expected
to be approved in Japan’s extraordinary Diet session and take effect on January
1, 2020.
In line with the Japan-US joint statement issued in September lastyear, the Japan-US trade agreement has achieved what both countries had
respectively hoped for most. Japan was able to keep the liberalization ofagricultural products under the agreement at or below the level of liberalization
under the TPP. It was also confirmed that "both nations will refrain from taking
measures against the spirit of these agreements and this Joint Statement”, withthe limitation of “while faithfully implementing these agreements” included in thenewly Japan-US joint statement. The Government of Japan views this as acommitment by the United States not to impose restrictions on imports ofautomobiles and auto parts from Japan under Article 232 of the Trade Expansion
Act of 1962. Contrary to this view, Ambassador Robert Lighthizer said, “at thispoint, it is certainly not our intention, the president's intention, to do anything onautos, on 232s, on Japan.”With regard to beef and pork, the United States was able to get equal
treatment to its competitors in the Japanese market, namely the member statesof the CPTPP (Comprehensive and Progressive Trans-Pacific Partnership, orTPP 11) and the EU. In addition, the United States was able to maintain tariffs on
autos and auto parts and only make commitments on “further negotiations withrespect to the elimination of customs duties.” That is why Prime Minister Shinzo
Abe called the deal "win-win" for both Japan and the United States.
The Japan-US trade agreement was concluded less than six months
after the start of negotiations. Even though the TPP was available as a basis fornegotiations, this speed is unusual, and was probably achieved because theUnited States placed top priority on an early agreement. The entry into force ofthe CPTPP at the end of last year and the Japan-EU EPA on February 1 thisyear placed US exporters at a competitive disadvantage in the Japanese market.
In particular, the MFN tariff rates on beef and pork are virtually applied to theUnited States only. For example, the tariff rate on beef is currently 38.5% for beef
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The Association of Japanese Institutes of Strategic Studies

from the United States but 26.6% for beef from parties to the CPTPP such as
Australia and Canada. The United States was impatient to resolve thisdisadvantageous situation as soon as possible.
It would also have been necessary to provide new export opportunities
to US agricultural producers targeted by China’s retaliatory tariffs due to trade
friction between the United States and China. With the friction with China
prolonged, rapid progress was not made on congressional approval of theUSMCA and, with little progress in trade negotiations with the EU, the UnitedStates apparently hurried up negotiations with Japan as “the lowest-hanging
fruit”.
The Trump administration took the unusual step of avoiding
time-consuming congressional authorization by taking advantage of Article 103(a) of the Bipartisan Congressional Trade Priorities and Accountability Act of2015. In accordance with the Act, the United States promised to eliminate tariffs
on only items with tariffs of 5% or less and halve tariffs on items with tariffs
exceeding 5% under the agreement.
Due to the importance of speed in the negotiations and the legal
requirements of the United States, the agreement covers only a limited numberof items. Japan pledged to reduce or eliminate tariffs on about $7.2 billion ofagricultural products, and the United States on about $7.2 billion for 42
agricultural products (about $43 million) and 199 industrial products (about $7.17billion). As Foreign Minister Toshimitsu Motegi said, “the deal strikes a balance
between agricultural and industrial products”.
According to the Government of Japan, the tariff elimination rates of theagreement are approximately 84% for Japan and 92% for the United States (ona trade value basis). The figure for the US includes the amounts for autos andauto parts. If these amounts are excluded, the US tariff elimination rate would
likely fall below 60%. Article 24 of GATT calls for the elimination of tariffs on“substantially all trade” in regional trade agreements between developed
countries, with a target tariff elimination rate of 90%. It is hard to say that theagreement satisfies this target at this point. If the US will not eliminate tariffs on

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The Association of Japanese Institutes of Strategic Studies

autos and auto parts in future negotiations, the agreement will be inconsistent
with the WTO rule.
The USTR calls the Japan-US trade agreement a “first-stage initial tariffagreement.” The second stage of negotiations is expected to begin as early as
next spring. In the next stage of negotiations, the United States, which is seeking
a comprehensive trade agreement, will present Japan with difficult issues,
including exchange rate clauses, based on the “specific negotiating objectives”
of trade negotiations with Japan compiled by the USTR in December last year.
Now that Japan has given up its biggest cards, beef and pork, there are few
cards left. The second stage of negotiations will be tough for Japan.

Junichi Sugawara is Senior Research Officer at Mizuho Research Institute Ltd.

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