McLARTY TRADE UPDATE: US, Japan conclude talks without agreement on scope

April 17, 2019

KEY POINTS:

Following a bilateral agreement to launch trade talks last September, USTR Lighthizer and Economic Revitalization Minister Motegi met April 15-16 in Washington to discuss the scope of a US-Japan Trade Agreement.
Despite the broad US negotiating objectives released last December, USTR appears set on pursuing a deal with a narrower scope to provide faster relief to American farmers. However, Congress may find it difficult to support a deal that excludes key constitutent interests such as medical device/pharmaceutical pricing, financial services, etc.
After the second day of talks, USTR stated the discussions covered “goods, including agriculture,” and digital trade, while Minister Motegi told reporters no agreement had been reached on individual issues, noting Japan’s desire for “win-win results.”
Minister Motegi and his team are set to return to Washington next Thursday to continue talks ahead of Prime Minister Abe’s meeting with President Trump on Friday.

USTR Lighthizer and Japanese Economic Revitalization Minister Motegi concluded a two-day meeting in Washington yesterday, marking the first step toward substantive negotiations for a US-Japan Trade Agreement. The high-level sessions focused on defining scope for the talks. Despite the broad negotiating objectives submitted to Congress last December, USTR appears focused on a quick and narrow deal, aimed at providing quick relief to US farmers rather than a comprehensive FTA preferred by many in Congress and the broader US business community.

In a terse press release issued after the talks, USTR noted the discussions covered “goods, including agriculture,” and digital trade – an issue that came as a surprise but presents an opportunity for close cooperation given the allies’ shared views on the subject. A possible complication could be USTR’s lean toward the USMCA vs. the CPTPP digital chapter. USTR did not mention progress/discussion on other areas, raising concerns that key issues for the broader business community could be pushed to the second stage of negotiations or left behind altogether.

While autos were not mentioned in its release, USTR noted it had “raised” the US “very large” trade deficit with Japan, an overwhelming majority of which is made up of autos/parts. Minister Motegi reportedly stressed Japan’s opposition to any US demand for auto quotas and the need for currency to be taken up by Finance/Treasury officials, not trade negotiators.

The Japanese media has focused on Japan’s “success” in getting the US to respect its position that agricultural concessions made to CPTPP and EU partners constitute its “maximum” limit. Unclear is how quotas allocated under CPTPP would be impacted by a deal with the United States, plus any deal would need to be politically viable for Prime Minister Abe, particularly ahead of the Upper House Diet elections in July.

What’s Next?

Following an inconclusive two-day session, Minister Motegi and his team are set to return to Washington next Thursday to continue talks ahead of Prime Minister Abe’s meeting with President Trump. Trade and North Korea are expected to feature prominently in the US-Japan summit on Friday. Trump and Abe are reportedly scheduled to meet again in Japan in late May and in June for the G-20 summit. We understand that USTR and the Japanese would welcome a trade deliverable at the summit. However, the content will drive the timing, and the content remains unclear. We expect more substantive announcements to be made following next week’s meetings.