Japanese Prime Minister Shinzo Abe's visit to Mar-a-Lago did not yield much on trade. Tokyo and Washington stuck to their positions, with President Donald Trump continuing to press Japan to enter bilateral negotiations, reportedly promising an exclusion from steel tariffs in return.
Abe, in turn, made clear his view that the Trans-Pacific Partnership is the best way to strengthen economic ties between the two countries and to set shared rules for trade across the Asia-Pacific region.
Papering over these differences, they agreed to "intensify talks" between U.S. Trade Representative Robert Lighthizer and Economy Minister Toshimitsu Motegi in an effort to square this circle.
At first blush, the Japanese and American approaches seem incompatible. But with creativity and flexibility a middle ground could be found. The two sides should not get hung up on the labels of "bilateral" and "multilateral." They should focus instead on the nitty-gritty substance of their differences, especially in autos and agriculture.
An agreement would not only calm economic tensions between two important allies but also put them in a much better position to deal with the other challenges they face, not least the North Korea crisis.
A latecomer to TPP, Japan has now become its strongest advocate. In joining the original negotiations with the U.S. and 10 other countries in 2013, Abe took on Japan's powerful farming interests by opening the country's protected agricultural market. Abe later doubled down on TPP, leading the charge to conclude negotiations among the remaining countries after the U.S. withdrawal.
TPP-11, as the agreement among the 11 remaining countries is known, is now on track to come into effect in early 2019 once six of the countries complete domestic approval procedures. This is a priority for Japan, which is preparing for Diet deliberations this session on the agreement. Announcing bilateral negotiations between the U.S. and Japan could affect the ratification process in Japan and other countries.
Conversely, the Trump administration has expressed a strong preference for bilateral trade deals. This is based on the belief that in a one-on-one negotiation, the world's largest economy would have more leverage, resulting in a better deal for its companies and workers. So far, there haven't been any takers. Announcing bilateral negotiations with Japan would give credibility to the administration's strategy. It would also provide an important market opening opportunity for U.S. farmers, who find themselves in the crosshairs of potential U.S.-China tit-for-tat retaliation.
To break this impasse, Lighthizer and Motegi should first focus on substance over style. That is, put aside the "multilateral" versus "bilateral" debate, and have a candid discussion of their respective priorities, expectations, and constraints in a potential trade negotiation. As the demandeur, the U.S. should clarify what it would look to Japan to do beyond the commitments already made in TPP, recognizing that Japan's bandwidth to make significant changes is limited.
Addressing barriers in the agriculture and automotive sectors is the key to any agreement, and those two issues should be tackled first by ministers. For Abe, agriculture remains the most sensitive trade issue facing his government. For Trump, the auto sector is likely to be the priority, as it contributes heavily to the U.S. trade deficit with Japan.
On agriculture, the Trump administration, with backing from Congress and agricultural stakeholders, should assure Japan that it will not seek further concessions on market access that go beyond TPP commitments. This will require Lighthizer to hold extensive consultations with Congress and the agricultural community. While certain segments of the U.S. agricultural sector were not entirely pleased with the original TPP deal, they may be now prepared to stand down in the light of the impending TPP-11 and E.U.-Japan deals, which will make American agricultural exports less competitive in this important market.
In return, Japan should signal its willingness to do more on automotive market access, particularly around non-tariff issues like standards, which have impeded access to the Japanese market for many years. Japan should also be prepared to listen to U.S. requests on automotive rules of origin, in an effort to see whether the methodology being negotiated in the North American Free Trade Agreement (NAFTA) negotiations for measuring regional value content can serve as a basis for adjusting TPP rules.
Only after each side has a clearer understanding of the other's priorities, expectations and constraints, and if they still believe there is a solid basis for moving forward, should they turn to the "form" issue of which approach is best suited - whether that's a multilateral, bilateral or hybrid approach.
This work will take time. The Trump administration is, no doubt, impatient to move quickly, but that would be a mistake. As strong security allies and economic partners, it serves neither side to rush into negotiations that are certain to fail or go on indefinitely. That would be a serious blow to efforts to promote high-standard rules in the region and perhaps inflame tensions between Tokyo and Washington just when they need to cooperate in dealing with other economic and political issues.
Wendy Cutler is vice president at the Asia Society Policy Institute and a former negotiator in the Office of the U.S. Trade Representative.