The details of the Trump administration’s trade agreements with Japan have unfolded in stages. First was the announcement at the G7 meeting in August that the United States and Japan had reach an agreement. Then came further details in a joint statement and fact sheets on the sidelines of the United Nations General Assembly in September. Finally, on October 7, President Trump and the Japanese Ambassador to the U.S. signed the U.S.-Japan Trade Agreement on agricultural exports and a Digital Trade Agreement. This post offers several observations on the structure and other elements of the agreements.
The trade package is comprised of a four-page agreement on agricultural tariffs with two annexes, one for each country’s tariff commitments, as well as five side letters, and a Digital Trade Agreement with another side letter. The inclusion of commitments on specific issues in side letters reflects the reliance in the revision of the U.S.-Korea Free Trade Agreement (KORUS FTA) on exchanges of letters for various elements of that agreement.
Each of the two agreements with Japan stands on its own, without any reference to the other. Both provide that either party can cancel the agreement by providing written notice of the termination, which would be effective in four months.The tariff agreement provides for consultations within 30 days of a request by either party “regarding any matter that might affect the operation or interpretation of this Agreement, with a view to arriving at a mutually satisfactory resolution of the matter within 60 days.” There is no indication that the consultations provision would apply to commitments made in the side letters. However, one side letter provides for consultations between the parties relating to Japan’s application of certain agricultural safeguards under the WTO.
The U.S. Trade Representative noted that the U.S.-Japan Digital Trade Agreement parallels the U.S.-Mexico-Canada Agreement (USMCA) “as the most comprehensive and high-standard trade agreement addressing digital trade barriers ever negotiated.” However, in contrast to the USMCA, the U.S.-Japan agreement does not include a dispute settlement mechanism – not even a consultations provision, even though it includes a number of substantive commitments.
The U.S.-Japan agreement prohibits duties on digital products distributed electronically, such as e-books and music, and data localization requirements that restrict where data can be stored and processed. It also commits the parties to ensure that data can be transferred across borders by all suppliers, to protect against forced disclosure of proprietary computer source code and algorithms, and to permit the use of electronic authentication and electronic signatures.
The commitments in the two main agreements are amplified with side letters. It is unclear why some of the commitments in the side letters were not incorporated into the agreements. For example, in a side letter on beef, the U.S. commits to eliminate immediately after entry into force of the agreement its 200 metric ton country specific tariff-rate quota (TRQ) for Japan and increase the “other countries or areas” quota to 65,005 metric tons; those changes will allow Japan to compete with other countries for access to that quota allocation. Other side letters contain Japan’s commitments relating to its WTO TRQ “for designated dairy products for general use” and its application of agricultural safeguards.
In the side letter to the Digital Trade Agreement, the parties agreed that Japan does not need to change its existing legal system, including laws, regulations and judicial decisions, governing the liability of interactive computer services suppliers, in order to comply with the agreement’s article on Interactive Computer Services. In the KORUS FTA revision, a similar provision is incorporated in an annex to the agreement.
The parties aim to implement the agreements by January 1, 2020. That would mean that U.S. suppliers will be two years behind their competitors from Australia, Canada and other parties to the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), which was implemented at the end of December 2018, without the U.S. Since it entered into force, the CPTPP has seen two tranches of tariff reductions. The loss of agricultural markets to CPTPP suppliers was a primary motivation for the U.S.’s pursuit of negotiations with Japan.
The agreements do not address bilateral trade in auto and auto parts, such as the 2.5% U.S. tariff. The U.S. annex to the tariff agreement only provides that: “Customs duties on automobile and auto parts will be subject to further negotiations with respect to the elimination of customs duties.” As noted previously, the package does not include any commitment by the Trump administration to not impose auto tariffs on Japan on national security grounds. However, according to the Japanese prime minister, he has the assurance of President Trump that Japan will not be subject to such tariffs.
Jean Heilman Grier
October 15, 2019