April 20, 2017 10:00 am JST

The US and Japan kick off economic talks on different pages

Washington wants an FTA, but Tokyo is less than enthusiastic

KENTARO IWAMOTO and TAKESHI KAWANAMI, Nikkei staff writers

U.S. Vice President Mike Pence, left, and Japanese Deputy Prime Minister Taro Aso meet in Tokyo on April 18. (Photo by Shinya Sawai)

TOKYO/WASHINGTON Japan and the U.S. kicked off high-level economic talks in Tokyo on April 18, with U.S. Vice President Mike Pence, who co-chaired the meeting along with Japanese Deputy Prime Minister and Finance Minister Taro Aso, expressing hope for an eventual bilateral trade pact.

"At some point in the future, there may be a decision made between our nations to take what we have learned in this dialogue and commence formal negotiations for a free trade agreement," Pence told the press after the meeting.

The Japan-U.S. "economic dialogue" -- the idea for which emerged after the inauguration of U.S. President Donald Trump -- is aimed at discussing trade policies and economic cooperation between the world's largest and third-largest economies.

At the inaugural meeting, Aso and Pence established the framework for future talks, which will focus on three areas: trade and investment strategy; cooperation in economic and structural policies; and sectoral cooperation.

A joint statement released after the meeting said the two countries have agreed to tackle various trade issues, including a "bilateral framework for setting high trade and investment standards." However, they still differ on how to approach this goal.

The Trump administration is eager to slash America's trade deficit, and Pence stressed during the Tokyo meeting that the U.S. is interested in expanding economic ties with any country on "a bilateral basis."

Japan, however, is reluctant to go down the FTA path, as negotiations would likely entail significant tariff reductions on imports of politically sensitive goods, such as agricultural products and automobiles. Japan has tried to convey to the U.S. the importance it places on the Trans-Pacific Partnership multilateral trade agreement, but Pence said at the meeting that the TPP is "a thing of the past."

Aso said the focus of both sides is "not only boosting trade and investment between the two countries, but also building high-level and fair rules by Japan and the U.S., and expanding them across the Asia-Pacific." He added that the countries also agreed on the need for "correcting unfair trade practices in the region."

As for cooperation in economic and structural policies, Aso said the two countries will "closely work together through discussion on international economic and financial situations surrounding Japan and the U.S."

Sector-specific cooperation, meanwhile, will include such fields as energy and high-speed railways.

Pence and Aso agreed to hold the second round of talks by the end of this year.

SENSITIVE SECTORS On the morning of the Aso-Pence meeting, Japanese Minister of Economy, Trade and Industry Hiroshige Seko and U.S. Secretary of Commerce Wilbur Ross also met in Tokyo to discuss economic cooperation in such areas as cybersecurity and infrastructure.

Asked if he saw a path toward an FTA, Ross told reporters: "It's a little bit early to say just what form things will take, but we are certainly eager to increase our trade relationship with Japan and to do so in the form of an agreement."

Opening up the Japanese market to U.S. agricultural exports will likely be one of the most heated topics of debate when and if talks move forward.

The Trump administration favors bilateral trade deals, which provide an opportunity for the U.S. to leverage its economic and military might.

During negotiations for the TPP, Japan managed to counter America's clout by banding together with 10 other nations. But Tokyo will find itself in a much weaker position in a one-on-one setting.

At the same time, Trump's withdrawal from the TPP means America loses out on eased tariffs and other favorable provisions. Under an economic partnership agreement signed by Japan and Australia, for example, tariffs on frozen Australian beef will gradually drop to 19.5%. The rate for U.S. imports, meanwhile, will remain at 38.5%. American beef exports to Japan fell more than 10% by volume in 2015.

The U.S. livestock industry is a powerful support base for the Republican Party, which in addition to holding the presidency controls both houses of Congress. The sector is lobbying the administration to cut a free trade deal with Japan.

Robert Lighthizer, Trump's pick for U.S. trade representative, named Japan as "a primary target" for improving access for American farm products. Erasing the $700 billion-plus annual trade deficit is one of Trump's biggest priorities going into the 2018 midterm elections. Work on shrinking trade imbalances with China and Japan is running hand-in-hand with renegotiating the North American Free Trade Agreement, said a Republican insider close to Trump.

Nikkei staff writer Shotaro Tani in Tokyo contributed to this report.

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