TOKYO/BIARRITZ, France -- Japan and the U.S. reached a broad trade deal Saturday, with Tokyo agreeing to lower its tariffs on American beef and pork to levels set by the Trans-Pacific Partnership while letting Washington maintain its 2.5% levy on Japanese autos for now, Nikkei has learned.
Japanese Prime Minister Shinzo Abe and U.S. President Donald Trump will confirm plans to conclude the talks in late September when the two leaders meet Sunday in Biarritz, France, on the sidelines of the Group of Seven summit. The bilateral pact could take effect this year.
The agreement came after three days of talks between Toshimitsu Motegi, Japan's economic revitalization minister, and U.S. Trade Representative Robert Lighthizer in Washington.
If Abe and Trump sign an agreement in late September, the pact will be put forward for a vote in Japan's parliament in the fall, which will conclude the Japanese side of the ratification process.
In the U.S., congressional approval is not always required for a trade pact. The U.S.-Japan trade agreement thus could take effect within one to two months of Japanese parliamentary approval.
Trump had been asking Japan to cut tariffs on agricultural products. Under the agreement, the 38.5% tariff on imported U.S. beef will be lowered to 9% in phases, according to sources close to the negotiations. Tariffs on low-grade pork are currently at 482 yen ($4.58) per kilogram but will be reduced to 50 yen per kilo. The 4.3% tariff on high-grade pork will eventually be brought to zero.
Japan has already slashed tariffs on pork and beef under the TPP, which took effect in December. If the U.S. and Japan sign a trade pact, the Japanese tariffs on American pork and beef will be immediately lowered to the rates enjoyed by TPP partners. After that the tariffs on U.S. products will be lowered at the same pace as the rates for the TPP trade group. In April, the TPP's tariff rate for beef settled at 26.6%.
Since the U.S. was once part of the TPP, the Japanese government believes lowering the tariffs on U.S. products to the TPP levels would not trigger a backlash from farmers.
For its part, the U.S. will set up a tariff-exempt import quota for up to 3,000 tons of Japanese beef, likely fueling the "wagyu" boom spreading in America.
Japan put off decisions on whether to set quotas for 33 U.S. agricultural products like butter, powdered skim milk and some types of cheese. Such quotas would force Japan to import certain amounts of these products from the U.S. regardless of demand. Japanese farmers fear this would create a wider market opening than called for under the TPP.
Japan also agreed to ease the criteria it uses to invoke emergency import curbs on U.S beef as it does not expect overall import quantities to significantly change; it intends to offset any rise in imports of U.S. beef by adjusting the same criteria it uses for beef from TPP countries like Australia. It expects to enter talks with these countries in the near future.
The U.S. had agreed to abolish tariffs on automobiles in 25 years under the TPP agreed to by then-President Barack Obama. Trump backed out of the pact in his first week of the presidency, after having promised to do so on the campaign trail.
Given that Trump keeps railing against America's yawning auto trade deficit with Japan, Tokyo agreed to put off discussions on U.S. tariffs on vehicle imports.
But Washington did agree to abolish tariffs on some of 400 auto parts and is set to abolish tariffs on a broad range of manufactured goods, other than autos. Exports of Japanese auto parts to the U.S. reached 929.4 billion yen ($8.8 billion) in 2018, roughly 6% of total exports.
Motegi said he and Lighthizer "shared the same direction," adding that "during the negotiations, we managed to maintain Japan's position and protect agriculture."
Trump and Abe initiated the trade talks when they met last September. That the negotiations have been partially concluded in such a short time frame owes to the U.S. needing a victory amid its intensifying trade war with China.
But there is one more hurdle: Japan will close the deal on condition that the U.S. promises not to use section 232 of its Trade Expansion Act to limit or impose further tariffs on imports of Japanese autos.
This leaves the deal at the mercy of the mercurial Trump.