hile U.S.-China trade negotiations dominate news cycles, another important trade negotiation took place recently. On April 15th, trade delegates from Japan and the United States conducted a two-day summit to negotiate a new trade agreement. And 12 days before the meeting, the Ronald Reagan Building and International Trade Center held a panel about the future of U.S.—Japan trade relations in which the panelists shared their insights about where these negotiations would go.
Current trade relation between Japan and the United States are not especially positive—as viewed from the American side. After the United States withdrew from the Trans-Pacific Partnership (TPP) in 2017, Japan signed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) in Santiago, Chile, along with 10 other Asia-Pacific countries in March 2018, and the CPTPP went into effect late last year. Japan also signed an economic partnership with the European Union in February this year. When the United States stood still, its competitors benefited greatly from the lower trade barriers in Japan, formerly the 4th largest goods export market for the United States.
U.S. industries have been asking for a trade conversation between the two governments. To deliver the goal effectively, it is important to bridge what the experts say to the public and communicate about the cost-benefit analysis, which is what the World Trade Center (WTC) has been doing all along. Andrew Gelfuso, director of WTC in Washington, DC, spoke to Diplomatic Courier about WTC’s mission in an interview: “We are involved in facilitating trade missions, drafting trade content and publications and we host or promote 300 trade events per year.” He further explained: “By partnering with the Washington International Trade Association (WITA), we bring world-class speakers together to comment on policy and advocate on policy situations.”
Presented by the WTC and in partnership with the WITA, the panel about the future of U.S.—Japan trade relations comprised two sections, looking at the trade from the policy and the industry perspectives respectively. While the first sector was moderated by Ambassador Ira Shapiro, president of Ira Shapiro Global Strategies, the second sector’s moderator was Ambassador Robert Holleyman, the president and CEO of C&M.
The result: several of the issues addressed at the panel were successfully reflected or addressed in the subsequent meeting.
First, success in the negotiations is the result of good groundwork that has been completed beforehand. According to Wendy Cutler, Vice President and Managing Director of the Asia Society Policy Institute (ASPI), although the Free Trade Agreement (FTA) might not be identical to what we agreed with Japan in the TPP, “a lot of good work can find its way in the FTA, so the negotiation should be smooth and quick.”
Cutler explained that a quick meeting is in the interest of both countries. The Trump administration needs to show the public that bilateral agreements are as good as multilateral agreements to justify its move away from the TPP. At the same time, since Japan is in line with the United States in other important areas (such as national security), Prime Minister Abe really strives for agreement on trade issues where the real frictions exist. Daniel Bob, a Visiting Scholar at the Resichauer Center for East Asian Studies at John Hopkins SAIS, added his analysis based on Japan’s domestic situation. He believes that since Abe is highly likely in his last term as prime minister, his power and influence might be weakened to a certain extent, so he might want this agreement to strengthen his domestic support.
The panelists were optimistic about future cooperation opportunities with Japan brought by the technology revolution. Emerging technologies might turn the entire market upside down, and since both Japan and the United States are innovative countries, they are highly prone to harmonize their standards and reach a regulatory coherence.
The panelists agreed that several factors make this negotiation complicated, which is why it took so long for the meeting to happen. According to Daniel Bob, Senior Fellow and Director of Programs at Sasakawa Peace Foundation, since Prime Minister Abe has frequently given speeches on the importance of climate change and on himself being a “free trade fighter,” his words might decrease the possibility to have a direct trade talk with President Trump. What’s more, the United States already has other trade issues to deal with. This bilateral negotiation was expected to happen in January, but it was delayed because of the U.S. focus on trade with China.
The panel stressed the need for prioritizing the negotiation over agricultural goods, which was addressed in the recent meeting. Maria Zieba, director of International Affairs for the National Pork Producers Council who represents 60,000 U.S. pork producers in Washington, DC, believes that the pork sector had gained a great deal from the TPP, which was a good starting point, and the gain could be seen more clearly if the U.S. could stay longer in the agreement. The pork industry has depended on exports so much that it exported over 25% of its production to over 100 countries last year. Under that expansion mode, the pork industry had invested in more packing plants before the United States withdrew from the TPP. When the United States no longer enjoyed Japan’s low trade barriers, the U.S. pork industry lost its largest export market, while its competitors still benefit greatly from it. “It is not only a pork issue. It is rice, beef, and dairy issues too,” she added.
And there are other problems that should be addressed in the next trade negotiations.
First, Japan’s current policy over pharmaceutical devices is very unfriendly to the United States. According to Ambassador Christopher LaFleur, Chairman of the Board at the American Chamber of Commerce in Japan, Japan’s fiscal policy was not able to fund its expensive healthcare system given the increasing need of the aging population. Thus, Japan tried to unilaterally cut drug prices and reimburse healthcare costs, which directly influences U.S. companies in Japan because the U.S. international companies have a 20% share of Japan’s pharmaceutical market and a 25% share of the medical device market.
Elissa Alben, Senior Director and Head of Global Trade Policy team for Pfizer, has a similar opinion from a pharmaceutical industry perspective. She believes that pharmaceutical products are a strength of the United States, but unfortunately, Japan’s recent policies did not respect innovations. And the annual pricing systems, which moved from the previous two-year evaluation, created more uncertainties. These price cuts favor small Japanese productions more. “If U.S. therapists were not able to enter the market, it will be a loss to everyone,” explains Alben.
Second, the automobile sector faces a lot more challenges in exports. As Charles Uthus explains (vice president for International Policy and a member of the Board of Directors of the American Automotive Policy Council), increasing U.S. competitiveness in the auto industry is a priority. Given that 80% of the trade deficit happens in the auto industry, he hopes that the future agreement can change the situation.
Uthus shared his worries for the development of the U.S. auto business in Japan. The 1996 the automobile agreement was disrupted by Japan’s devaluation of yen; the same could happen again. Also, the United States has a problem in establishing distribution networks such as finding dealers in Japan, because Japanese auto businesses do not work this way. When there is not enough supply, the demand cannot be met. Despite the uncertainties, Uthus was still optimistic about U.S. auto business in Japan’s market, and believes the U.S. auto industry is in a better position than it was decades ago.
Third, U.S. negotiators should be cautious about not getting a red light from Japan. Christopher LaFleur explains that Japan would want a win-win solution in which it could see flourishing economic collaborations with the United States. According to Wendy Cutler, Japan would absolutely not accept the deal if it had to unilaterally cut the tariff without the United States doing the same thing. Also, the negotiation would not work if the United States imposed a quota, “which not only does not include growth but also is less than the current trade,” she said.
Despite all this, the panelists were optimistic about future cooperation opportunities with Japan brought by the technology revolution. Emerging technologies might turn the entire market upside down, and since both Japan and the United States are innovative countries, they are highly prone to harmonize their standards and reach a regulatory coherence. By reaching an agreement with Japan, the United States can show the world that “we can do this and this is what we expect from the rest of you,” Maria Zieba said.
Andrew Gelfuso echoes the sentiment, “trade will continue regardless of economic situations, and sometimes a fresh look over some outdated agreements is necessary.” We should be more confident in the trade relationship between Japan and the United States because more opportunities hide in the hardest times. That is especially true when current technologies have the power to overthrow everything agreed before; an entirely new outlook will be necessary.