Updated April 18, 2022
U.S.-Japan Trade Agreement Negotiations
Overview
insurance. Japanese FDI stock in the United States totaled
In October 2019, the United States and Japan signed two
$648 billion in 2020, with manufacturing the largest share.
agreements to liberalize bilateral trade. The U.S.-Japan
The size of the bilateral goods trade deficit, which at $56
Trade Agreement (USJTA) provides for limited tariff
billion was the fourth-largest U.S. deficit in 2021, has at
reductions and quota expansions to improve market access.
times been a source of tension, with some observers arguing
The U.S.-Japan Digital Trade Agreement covers rules on
that the imbalance stems in part from various nontariff
the digital aspects of international commerce. The trade
barriers in the Japanese market. Such concerns arguably
deals, which took effect in January 2020, without formal
peaked in the 1980s and 1990s, dissipating over the past
action by Congress, constituted what the Trump and Abe
two decades in the face of Japan’s domestic economic
Administrations described as “stage one” of a broader U.S.-
challenges, major Japanese investment in the United States,
Japan trade agreement, but further talks did not materialize.
and a shift in U.S. focus to concerns over trade with China.
The Trump Administration used delegated tariff authorities
Figure 1. Top U.S. Trade Partners, 2021
in the 2015 grant of Trade Promotion Authority (TPA, P.L.
114-26 now expired) to proclaim the USJTA provisions,
while the digital trade agreement, which did not require
changes to U.S. law, was treated as an Executive
Agreement. The Biden Administration has not pursued
further bilateral trade talks with Japan, despite urging from
some stakeholders to resume negotiation on issues left out
of the initial agreements (e.g., auto trade and services).
As the fifth-largest U.S. trade partner, Japan has been a
priority for U.S. trade negotiations, especially as recent
Japanese free trade agreements (FTAs) with the European
Union (EU) and other major partners lower Japan’s tariffs
on imports from several countries, placing U.S. exporters at
Source: CRS with data from Bureau of Economic Analysis (BEA).
a disadvantage. Some Members of Congress have called for
the Biden Administration to consider joining the
Japan’s FTAs with Other Major Markets
Comprehensive and Progressive Agreement for Trans-
In recent years, Japan has concluded several major FTAs
Pacific Partnership (CPTPP), of which Japan is a member.
that exclude the United States, with potential implications
CPTPP took shape among the 11 remaining members of the
for U.S. stakeholders. The Japan-led CPTPP, for example,
proposed TPP after President Trump withdrew the U.S.
entered into force for Japan at the end of 2018. The EU and
signature from TPP in 2017. The Administration has stated
Japan also entered into an FTA in early 2019: these two
it is not currently interested in joining, but announced plans
trading partners accounted for about 25% of total U.S. trade
for an Indo-Pacific Economic Framework (IPEF),
in 2021. In 2022, the Regional Comprehensive Economic
presumably to include Japan, which would address limited
Partnership (RCEP) trade agreement, entered into force,
trade issues (e.g., the digital economy, agriculture, trade
which lowers certain trade barriers among Japan and 14
facilitation, labor, the environment, transparency, and
other Asian members, including China. U.S. exporters raise
competition policy), but not market access through tariff
concerns that Japan’s reduced tariffs and nontariff barriers
reduction and elimination. In November 2021, the
on imports from CPTPP, EU, and RCEP countries, threaten
Administration also launched the U.S.-Japan Partnership on
U.S. export competitiveness for some products—Japan’s
Trade, to advance collaboration and engagement on
tariff reductions for certain agricultural goods in the USJTA
common areas of interest and address specific trade issues.
help alleviate some concerns. New rules in the FTAs have
Bilateral Trade and Economic Relations
also led to concerns that they may not reflect U.S. priorities.
E-commerce provisions in the EU-Japan FTA, for example,
The world’s third-largest economy, Japan is the fifth-largest
do not cover the free flow of data, unlike the U.S.-Mexico-
U.S. trade partner, fourth-largest U.S. investment partner,
Canada Agreement (USMCA). Meanwhile, CPTPP also
and largest foreign holder of U.S. government debt. In
suspended 22, largely U.S.-priority, provisions from the
2021, U.S. exports to Japan totaled $112 billion ($76 billion
original TPP text. For more, see CRS In Focus IF12078.
in goods and $37 billion in services). U.S. imports totaled
$168 billion, with goods accounting for the bulk of imports
Scope of U.S.-Japan Negotiations
($136 billion), most notably motor vehicles and parts. The
The Trump Administration’s decision to pursue a limited-
stock of U.S. foreign direct investment (FDI) in Japan was
scope agreement with Japan, covering only some tariffs and
valued at $132 billion in 2020, concentrated in finance and
digital trade, was a departure from past U.S. FTA practice,
https://crsreports.congress.gov
U.S.-Japan Trade Agreement Negotiations
which typically involves one comprehensive negotiation.
reduction of U.S. passenger auto and light truck tariffs
Several Members of Congress, U.S. businesses, and other
(currently 2.5% and 25%, respectively), would likely be a
stakeholders strongly advocated for a more comprehensive
Japanese goal in any future trade talks. Japan has no auto
deal. U.S. negotiating objectives, released in December
tariffs, but imports few U.S.-made autos ($2.1 billion in
2018, as required by TPA, also suggested a broader range
2021). Japan argues that this reflects U.S. producers’ failure
of issues would be covered, including services, investment,
to cater to Japanese tastes, while U.S. industry argues the
intellectual property, and state-owned enterprises. The
low volume of exports stems from nontariff barriers,
Trump Administration stated it would address such issues
including discriminatory regulatory treatment, which would
in later negotiations, which it ultimately did not pursue. The
likely be a U.S. focus in future talks. While Japan buys few
Biden Administration has yet to resume the trade talks.
U.S. cars, Japanese FDI in U.S. production facilities is
sizable and supports 170,000 U.S. jobs, according to BEA.
Analysts have questioned the extent to which the limited
U.S.-Japan deal adheres to Article XXIV of the General
Prior to the USJTA negotiations, the Trump Administration
Agreement on Tariffs and Trade (GATT) under the WTO
considered imposing additional tariffs on Japanese auto
that requires FTAs cover “substantially all trade.” Some
imports using national-security-related authorities under
Members of Congress have historically taken issue with
Section 232 of the Trade Expansion Act of 1962. The U.S.
other countries’ partial scope agreements, but adherence to
threat was a key motivation for Japan to enter into trade
Art. XXIV has rarely been challenged at the WTO.
negotiations, but abated with the signing of the USJTA.
2020 Trade Agreement Provisions
Services. The United States has a bilateral services trade
The agreements cover some trade in industrial goods and
surplus, and Japan is a major market for U.S. service
agriculture and cross-border digital trade. Neither includes a
providers. For example, the Japanese insurance market is
dispute settlement mechanism. See CRS Report R46140,
the second largest in the world behind the U.S. market,
“Stage One” U.S.-Japan Trade Agreements.
accounting for about a quarter of all U.S. foreign affiliate
U.S.-Japan Trade Agreement (USJTA)
sales in the industry. Historically, U.S. firms have found it
difficult to enter segments of the Japanese market and argue
The USJTA tariff commitments cover about 5% of bilateral
that Japan confers preferential treatment on insurance and
trade. The United States agreed to reduce or eliminate 241
express delivery subsidiaries of Japan Post, the state-owned
tariffs on mostly industrial goods, including machine tools,
postal service and one of Japan’s largest banks and insurers.
fasteners, steam turbines, bicycles and parts, and musical
Several CPTPP provisions were designed to address such
instruments, and certain niche agricultural products, such as
concerns, and crafting similar rules in future talks may be a
green tea. The United States will also expand its global
negotiating priority for the United States.
tariff-rate quota for beef imports. Japan agreed to reduce or
eliminate tariffs on about 600 agricultural tariff lines (e.g.,
Currency. Some U.S. stakeholders argue that commitments
beef, pork, and cheese), and expand preferential tariff-rate
on currency should be a priority in future talks, as exchange
quotas for a limited number of U.S. products (e.g., wheat).
rates have a significant effect on trade flows. A weaker yen
Opening Japan’s highly protected agriculture market and
makes imports from Japan cheaper, while increasing the
reaching parity with exporters from Japan’s FTA partners is
cost of U.S. exports. Japan has not intervened directly in
a major priority for the U.S. agriculture sector, as Japan is
foreign exchange markets since 2011, but is on the Treasury
the fourth-largest U.S. agriculture market. While U.S.
Department’s currency monitoring list. USMCA includes
industry generally supported the USJTA, some sectors (e.g.,
the first-ever U.S. FTA commitments on exchange rates and
dairy and rice) expressed concerns over lack of new market
could serve as a template for provisions in future FTAs.
access or attention to other issues, such as geographical
Issues for Congress
indications (GIs) and sanitary and phytosanitary standards
The 2020 partial-scope U.S.-Japan trade agreements and
(SPS), areas typically covered in comprehensive FTAs.
uncertain prospects for future U.S.-Japan negotiations raise
U.S.-Japan Digital Trade Agreement
a number of questions for Congress, including:
On digital trade, an area in which the two countries have
What role should Congress play in limited agreements?
broadly similar goals and approaches, U.S. trade officials
How have the 2020 agreements affected U.S. firms’
described the agreement as “comprehensive and high
competitiveness in the Japanese market and what
standard,” in line with rules in the USMCA. Provisions
Japanese barriers remain a challenge for U.S. firms?
include requirements for nondiscriminatory treatment, and
How has deferment of talks toward a comprehensive
commitments to prohibit or limit data localization,
bilateral FTA affected U.S. economic interests?
restrictions on cross-border data flows, and transfer of
How would the Biden Administration’s proposed IPEF
source code or algorithms as conditions of market access.
address U.S. trade issues with Japan?
Potential Provisions in Future Talks
Should the U.S. consider participation in the CPTPP or
Most aspects of the trade relationship were not addressed in
other regional deals, to address bilateral trade concerns?
the 2020 agreements. Some priority issues, which may be a
focus in any future talks, include the following.
Cathleen D. Cimino-Isaacs, Analyst in International Trade
and Finance
Motor Vehicles. Trade in motor vehicles is a longstanding
Brock R. Williams, Specialist in International Trade and
area of bilateral tension. Autos and auto parts account for
Finance
more than one-third of U.S. imports from Japan, and a
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U.S.-Japan Trade Agreement Negotiations
IF11120
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https://crsreports.congress.gov | IF11120 · VERSION 15 · UPDATED