Media  Global Economy  2017.12.13

Trump Is Not Calling for a Japan-US FTA: Washington Seems to Be at Its Wit's End. Tokyo Just Needs to Sit Tight.

The article was originally posted on Webronza on November 22, 2017

Reporting from Washington, D.C.

I'm writing this article in a hotel in Washington, D.C. I am staying in this city to exchange views with some American experts on trade. I have come to the US to speak at this year's Japan-US Science Forum to be held at Harvard University. I thought a short stay here would be a good opportunity to recover from my jet lag as well.

These trade experts are not trade officials within the executive branch of the US. You can talk to them, but you cannot extract anything important from them. They just repeat the official views. I know this well from my own experience when I worked for the Japanese government. To make matters worse, government officials under the Trump administration may not even know much about the trade policies of the White House--the nerve center of the executive branch.

I exchange views with those who keep a measure of distance from the executive branch, have the capacity to objectively analyze the actions of Mr. Trump's administration, and can exert an influence on it at the same time. I am referring specifically to brilliant researchers at some think tanks among others, as well as researchers at the Congressional Research Service (CRS).

Think tanks and CRS play a crucial role.

Researchers at think tanks in the US do not analyze policies just for the sake of analysis. They exert a great influence on the administration.

Under the US Constitution, the power to conduct trade negotiations rests with Congress, not with the executive branch. Congress authorizes the executive branch to engage in trade talks. In the process, Congress attaches many conditions. With a clearer separation of powers than in Japan, Congress has stronger legislative powers. It thus takes charge of trade talks under the Constitution. Working exclusively for Congress, CRS plays a vital role in trade policy formulation.

Legislators and their staff study the analyses made by researchers at think tanks and CRS in shaping US trade policies.

This has been the first opportunity for me to meet with such researchers for the first time since Mr. Trump took office. The think tank researchers I met said that they have little idea what Mr. Trump is really thinking about or planning to do. They said that Mr. Trump appears to play it by ear and that what he says seems to lack consistency or substance. They cited a number of cases where he says he will make an important announcement but fails to deliver. Yet, talking to them and CRS researchers has given me some ideas about what Mr. Trump and people around him want to avoid.

Mr. Trump has not analyzed trade pacts.

First and foremost, I learned that Mr. Trump does not seem to have analyzed which part of the Trans-Pacific Partnership (TPP) or the North American Free Trade Agreement (NAFTA) has hurt US interests.

Mr. Trump is hinting at withdrawing from NAFTA. But one of the people I made contact with said that the US would be most hurt without NAFTA. She argued that tariffs committed by the US to all countries in the world under the World Trade Organization (WTO) rules are lower than those committed by Canada and Mexico, whose tariffs are kept low under NAFTA.

Another person told me that Mr. Trump's withdrawal from NAFTA would draw a vehement protest from the US business community, which has refrained from making its stance on trade clear to put the tax reform first. A strong protest would also come from Congress, which cannot afford to disregard the agenda of the business community, he said. He added that he has no idea what Mr. Trump specifically meant by stating his commitment to a free and open Asia-Pacific region during his recent tour in Asia.

"Will Japan Answer a US Call for an FTA?"

What these people wanted to know the most about Japan-US trade relations was whether Japan will respond favorably if the US calls for a bilateral free trade agreement (Japan-US FTA). I answered their question like this: Mr. Abe would definitely not accept a Japan-US FTA. Agricultural interests in Japan are afraid that Japan may be forced to make further concessions than under the TPP. The Abe administration has been advocating a TPP 11 to dispel such concerns, based on the assumption that the US will return to the TPP.

I added: US trade negotiators and their staff are tied up working on NAFTA renegotiations and the US-Korea FTA and seeking measures against China under Section 301 of the Trade Act. Even if the Japanese government acquiesced, the negotiations would not start until later or progress smoothly. The Trump administration might come to an end while negotiations are underway. Japan could play for time.

The Trump administration shies away from a pact that will bind the US.

The next question they asked was whether it would be possible for Japan to reduce its tariff on US beef or expand import (tariff) quotas of rice and dairy products to the TPP levels, leaving FTA negotiations aside.

What they implied was that the US side is not saying that a Japan-US FTA is necessary, as the Japanese government seems to believe. They expressed doubt about the media report that the US demanded such a pact in the recent meeting between Japanese Deputy Prime Minister Taro Aso and US Vice President Mike Pence. They said that the US side is only referring to a bilateral deal.

In short, they were suggesting that the Trump administration does not want a pact that will bind the US, like NAFTA and the US-Korea FTA; it wants to unilaterally call on Japan and other trade partners to do what will reduce US trade deficits. That desire was most likely behind Mr. Trump's statement that Japan should buy more arms from the US during his recent visit to Japan. The desire can be fulfilled without an FTA. The point of their second question was whether the same thing can be done with tariffs or other trade measures.

I answered that it cannot be done from a legal perspective. An FTA allows for lower tariffs as an exception to the principle of most-favored-nation treatment--a principle of applying the same tariffs to any nation that has made commitments under the WTO rules. Apart from this exception, it is prohibited by law to unilaterally apply lower tariffs to the US alone. Any bill that would allow such an action would not pass in the Japanese Diet. Under the WTO's most-favored-nation principle, such a lower tariff must be applied also to Brazil and Argentina, or any other country for that matter. Agricultural interests in Japan would not accept such an action. The same holds true for tariff-rate quotas.

Hearing my argument, one of them said discontentedly that Tokyo is clever. I argued back, saying that the question is not whether Tokyo is clever or not. I maintained that such an inconvenience would not have arisen in the first place if the US had not pulled out of the TPP. Other people nodded in agreement.

Washington seems to have run out of options. Tokyo just needs to maintain its composure and say, "why not rejoin the TPP?"

(This article was translated from the Japanese transcript of Dr. Yamashita's column in "Webronza" on November 22, 2017.)