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International relations

With Trump vote in mind, Japan yields on beef but protects its rice

Motegi and Lighthizer to finalize trade deal details ahead of next week's summit

Japanese Prime Minister Shinzo Abe, left, who is also president of the ruling Liberal Democratic Party, eats rice from local supporters in Fukushima during the 2017 lower house election campaign.   © Reuters

TOKYO/NEW YORK -- Japan will not offer the U.S. tariff exemptions for rice in their soon-to-be-signed trade deal, Nikkei has learned.

The exemptions would have been granted under the Trans-Pacific Partnership trade agreement, and the decision not to offer them this time marks a different approach by Tokyo than for beef.

Japan is ready to compromise on beef, reflecting political considerations on both sides as the clock ticks toward a final bilateral trade deal.

Foreign Minister Toshimitsu Motegi, who has led Japan's negotiating team, will work out the remaining details on the home turf of U.S. Trade Representative Robert Lighthizer. President Donald Trump and Prime Minister Shinzo Abe are set to sign the deal this coming Wednesday in New York on the sidelines of the United Nations General Assembly.

Tokyo's calculations seem closely aligned with the American electoral map. Tokyo is driving a harder bargain on rice than it did with the TPP, which Washington withdrew from after Trump took office. The U.S. would have been able to export up to 70,000 tons a year of rice tariff-free under the TPP, but Japan does not plan to include a zero-tariff allowance in this trade deal.

For Trump, seeking a second term in the 2020 election, there is more to gain from low-tariff beef exports to Japan than from rice, which will likely make the trade-off easier to accept.

Most U.S. rice production is concentrated in the South -- home to Republican leader Trump's key support base. But short-grain rice, the most commonly consumed type in Japan, is almost exclusively grown in the heavily Democratic-leaning state of California.

U.S. President Donald Trump holds up "Make Our Farmers Great Again!" caps as he departs from the White House in 2018.   © Reuters

Japan is the top export market for the state's rice, according to the Rice Growers Association of California. Yet the industry's size relative to the state's economy, coupled with a liberal political atmosphere in California that is unlikely to shift in 2020, makes its rice exports to Japan low on Trump's agenda.

Meanwhile, Trump in 2016 won eight of the 10 states with the most cattle -- among them Texas, which alone accounts for 13% of the country's cattle inventories.

Motegi, along with new Agriculture Minister Taku Eto and Trade Minister Isshu Sugawara, met Friday to confirm Tokyo's approach to the last few days of negotiations. The two countries reached an accord on the broad outlines of a deal in late August, with an eye toward signing a final version at this month's meeting.

The tougher terms for rice, a politically sensitive crop, aim to get Japanese farmers on board with substantial tariff cuts elsewhere.

The deal is expected to roughly follow the TPP terms on beef and pork on Japan's side. The current 38.5% duty on U.S. beef would be lowered in phases to 9% in April 2033 for about 90% of imports. The tariff on low-grade pork would fall to 50 yen (46 cents) per kilogram from the current 482 yen, with the 4.3% levy on higher-quality pork being phased out.

Washington, meanwhile, is seen expanding its low-tariff allowance for imports of Japanese beef. The current system includes a separate quota for Japanese beef, letting in 200 tons per year with a duty of 4.4 cents per kilogram. Under the new deal, Japan will be added to a broader framework alongside Australia and other trading partners, which permits a total of 64,000 tons in imports per year at the same rate.

"We could export more than 3,000 tons a year with nearly all of it in the low-tariff allowance," a Japanese source familiar with the discussions said.

One of Tokyo's main concerns at this point is putting to rest fears about Trump's long-standing threats to impose tariffs on auto imports from Japan and elsewhere on national security grounds. Such a move could do real damage to the nation's auto industry.

"At a summit in September last year, Prime Minister Shinzo Abe received direct assurance from President Trump that there will be no additional tariffs on Japanese automobiles," Motegi told Nikkei on Wednesday. "I hope to reconfirm this at the final negotiations for a bilateral trade deal."

At last September's summit, the two sides said in a joint statement that they would "refrain from taking measures against the spirit of" the document. The Japanese side intends to seek another such pledge at the upcoming meeting.

The language may largely resemble the previous statement, setting limits rather than shielding Japan from tariffs indefinitely.

Tokyo has also asserted that it will not accept auto export caps like those included in the revamped North American Free Trade Agreement and is urging Washington to make clear in some way that it will not take such steps with Japan.

Negotiations are expected to continue on the removal of U.S. tariffs on auto parts. The current deal is believed to scrap duties on a wide range of other industrial goods.

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