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U.S., Japan Struggle to Reach Bilateral Agreement Seen as Key to TPP Talks

Monday, April 28, 2014
Sandler, Travis & Rosenberg Trade Report

After a week of intensive negotiations, the U.S. and Japan did not make as much progress as they had hoped toward resolving the market access issues that are delaying a bilateral deal seen as crucial to the prospects for finalizing the Trans-Pacific Partnership agreement.

The U.S. and Japan are the two largest economies participating in the TPP talks, and for the past year they have been working to reach an agreement on the concessions they will make to each other as part of the TPP. For the past few months that effort has stalled over the issues of market access for U.S. agricultural products in Japan and Japanese-made automobiles in the U.S. Washington has insisted that Japan lower its tariffs on all agricultural goods but Tokyo has held firm on maintaining protections for beef, pork, dairy, sugar, rice and wheat. The U.S. also wants Japan to take certain measures to make it easier to ship U.S. automobiles to that market, while Japan is pressing the U.S. to more quickly lower its tariffs on cars (2.5%) and light trucks (25%).

Over the past week the two sides accelerated efforts to find a way forward on these issues, conducting nearly round-the-clock negotiations between both chief negotiators and trade ministers. When those efforts were unsuccessful, President Obama and Prime Minister Shinzo Abe dedicated a significant amount of time to trade during a three-day summit this week in Tokyo. Even after that meeting also concluded with no deal, lower level officials continued their discussions, a clear sign of the importance both sides placed on reaching some sort of agreement.

In the end, a joint statement asserted that negotiators had “identified a path forward on important bilateral TPP issues” and that this “key milestone … will inject fresh momentum into the broader [TPP] talks.” There were few additional details, though some press reports referenced “parameters” for how far and how fast tariffs on the agricultural products of most concern to Japan (see above) would be lowered. In addition, officials appeared to disagree on exactly how much was achieved. Both sides have said over the course of the past week that while the differences in their positions are being narrowed they remain “considerable” and there is still a lot of work left to be done. But while one senior U.S. official said there was a “breakthrough” this week, Japanese  Economy Minister Akira Amari told reporters that “the old issues still remain” and “we can’t say there’s a basic agreement.”

Press reports speculate that neither the U.S. nor Japan is apt to make any significant concessions that could move the talks forward in the near future. Although Obama called for both sides to take “bold steps” to “move out of our comfort zones … because ultimately it’s going to deliver a greater good for all people,” he also acknowledged that they both face “political sensitivities” that limit their flexibility. Trade agreements are always controversial among U.S. lawmakers, and their interest in voting on one appears to be even lower ahead of important mid-term elections that could change the balance of power in the Senate. In Japan, Abe’s earlier commitment to take on entrenched agricultural interests as part of broader economic reforms intended to revive a flagging national economy appears to have waned amid political pressures.

In addition, Japanese Finance Minister Taro Aso identified Obama’s lack of trade promotion authority as a key stumbling block. TPA would allow the president to submit a final trade agreement to Congress that could be approved or rejected but not amended, and Aso indicated that Japan is not inclined to put its best offer on the table without the assurance that it could not be picked apart by Congress. However, there has been vocal opposition to TPA among some lawmakers and any congressional action on TPA is unlikely until after the November elections at the earliest, leading Aso to assert that that there will be “no resolution on TPP” until those elections are over. In the meantime, the next full round of TPP negotiations is slated for mid-May in Vietnam.

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