Details on car tariffs fuzzy as US, Japan head for trade deal

US President Donald Trump and Japanese Prime Minister Shinzo Abe expected to sign an agreement later this month.

U.S. President Donald Trump and Japan''s Prime Minister Shinzo Abe meet with family members of people abducted by North Korea, at Akasaka Palace in Tokyo, Japan May 27, 2019. REUTERS/Jonathan Ernst
Japan is expected to cut tariffs on US beef, pork and wine but the US has yet to make concessions on automotive tariffs [File: Jonathan Ernst/Reuters]

United States President Donald Trump has said Washington and Tokyo have reached an initial trade deal that he and Japanese Prime Minister Shinzo Abe are expected to sign in New York later this month.

Top Japanese officials, however, said a deal had yet to be clinched.

Full details of the agreement have not been disclosed. Below are some key elements that are known – and unknown – about the pending agreement.

US tariffs on cars

Trump’s announcement has left unanswered questions over whether the agreement would deliver Japan one of the main prizes of its negotiations: A US pledge not to impose national security tariffs of up to 25 percent on Japanese vehicles and car parts under Section 232 of US trade law.

Japanese Minister of Foreign Affairs Toshimitsu Motegi, who is in charge of talks with US Trade Representative Robert Lighthizer, told a news conference he wanted to reconfirm at the final stage of talks that the tariffs would not be imposed.

Japanese officials have said that under a September 2018 agreement, the US would not impose added car tariffs while trade talks were under way.

Japanese car exports account for about two-thirds of the US trade deficit with Japan and the added tariffs would deal a blow to the country’s trade-reliant economy.

A preliminary deal announced on August 25 included reduced US tariffs on unspecified industrial products but Lighthizer said these did not include cars. Tokyo has sought the removal of a US 2.5 percent tariff on cars and car parts.

Beef and pork

Japan is expected to agree to cut tariffs on imports of US beef and pork to within levels granted to signatories of the multilateral Trans-Pacific Partnership (TPP) pact, officials have said.

That would allow Trump to please US farmers ahead of next year’s presidential election. The farmers had been disadvantaged in Japan’s market after the US withdrew from TPP after Trump took office in 2017.

It would also let Abe keep a pledge to domestic producers. Washington will make it easier for Japan to increase US-bound beef exports by scrapping a 200-tonne annual low-tariff quota, affording Japan the same beef trade status as Australia, New Zealand and Canada, Japanese media reported.

Japan-bound corn purchases

In announcing the initial agreement last month, Trump referenced to Japan’s decision to front-load planned purchases of US feed corn imports to cope with damage to its crop from an armyworm infestation.

However, Japanese officials said the country’s total feed corn imports would not increase under the deal, which simply front-loads three months’ worth of roughly 2.75 million tonnes of imports. Private companies have the final say in how much feed corn they import.

Wine, rice

Lighthizer said last month that wheat, dairy products, wine and ethanol would also benefit from the deal.

Japan has agreed to phase out tariffs on US wine imports over five to seven years, about the same as the eight-year TPP timeframe, media said, potentially cutting the cost of US wine by about 13 percent for wine distributors.

However, the amount of US rice that will be allowed to enter Japan tariff-free under the bilateral deal would be much less than the 70,000 metric tonnes accepted under the TPP, the Mainichi newspaper said.

Currency devaluation

Japanese Minister of Finance Taro Aso said that a currency provision aimed at preventing competitive devaluation would not be included in the final deal.

That demand by US legislators would tie Japan’s ability to intervene in currency markets should the yen spike and threaten the country’s export-reliant economy.

Digital trade

US technology industry officials say they expect a digital trade agreement with Japan to be closely aligned with provisions in the new US-Mexico-Canada Agreement (USMCA), which follow the US model for internet development.

Those provisions aim to ensure the free flow of data across borders without taxation, prohibit data server localisation requirements and limit governments’ ability to demand companies disclose their source code.

Source: Reuters