TPP: U.S.-Japan Issues

TPP: U.S.-Japan Issues

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August 23, 2016
TPP: U.S.-Japan Issues
Overview
 Beef: Tariff on fresh, chilled, and frozen beef reduced
The United States and Japan are among the 12 parties to the
from 38.5% to 9% by the 16th year.
proposed Trans-Pacific Partnership (TPP) free trade
agreement (FTA). The agreement would reduce and
 Dairy: Many cheese tariffs (ranging to 40%) eliminated
eliminate tariffs and non-tariff barriers (NTBs) on goods,
within 16 years and whey tariffs within 21 years.
services, and agricultural products. It would also establish
 Fruit and Nuts: Tariffs eliminated on cherries (8.5%)
trade rules and disciplines that expand on commitments at
and apples (17%) over six and 11 years and on almonds
the World Trade Organization (WTO) and address new
“21st
(2.4%), pecans (4.5%), and walnuts (10%) immediately.
century” issues, such as digital trade and state-owned
enterprises. Signed in February 2016, the TPP now awaits
 Pork: Minimum import price lowered from ¥482/Kg to
ratification in each country before it can enter into force.
¥50/Kg, and a 4.3% tariff eliminated, both by year 10.
For the United States and Japan, ratification entails action
by the U.S. Congress and the Japanese Diet (parliament).
 Rice: 50,000 ton country-specific quota established for
The Diet is expected to consider the TPP in the fall of 2016.
U.S. rice rising to 70,000 tons by year 13—Japan
Japanese Prime Minister Shinzo Abe has promoted the
currently has a WTO-wide quota of 682,200 tons.
TPP, and his ruling coalition has a large majority in the
Diet. Observers widely expect that the Diet will pass TPP.
Figure 1. U.S. Trade with Non-FTA TPP Partners
The timeline for possible U.S. congressional consideration
of TPP remains uncertain, but many observers agree that it
is unlikely before the November elections.
Japan’s participation in the TPP has a number of
implications for the United States due to Japan’s economic
and strategic importance. Among U.S. negotiating partners
in the TPP, Japan is the largest economy and largest TPP
member without an existing U.S. FTA (Figure 1). In 2015,
Japan was the fifth-largest overall (goods and services) U.S.
export market ($107.2 billion) and fourth largest source of
U.S. imports ($164.0 billion). Japanese firms are the
second-largest source of U.S. foreign direct investment, and

Japanese investors are the second-largest foreign holders of
Source: U.S. International Trade Commission.
U.S. government debt. Japanese companies are also key
Notes: Trade data only include goods trade, and are from 2015.
links in global supply and production chains. The United
States and Japan are both high-income countries, and U.S
Motor Vehicles
trade with Japan differs considerably from U.S. trade with
Motor vehicles and parts accounted for more than one-third
most other TPP partners without U.S. FTAs, which are
of U.S. goods imports from Japan in 2015. Although Japan
generally not high-income nations, such as Vietnam and
has no auto tariffs (Figure 2), import penetration in the
Malaysia. Japan’s participation has drawn the interest of a
Japanese market is extremely low, which U.S. producers
wide range of U.S. industries.
have attributed to NTBs. U.S.-Japan side letters to the TPP
agreement would establish a special joint dispute resolution
Key U.S.-Japan Provisions in the TPP
process and commit Japan to address certain NTB issues,
but some U.S. industry stakeholders question whether these
Agriculture
provisions would help increase U.S. vehicle exports to
Increased U.S. access to the heavily protected Japanese
Japan. Through the TPP, the United States would phase out
agriculture market, already the largest U.S. export market
its 2.5% auto tariff from years 15 to 25 and eliminate the
for a number of commodities, is projected to be a
25% truck tariff in year 30.
significant benefit to U.S. agriculture producers. Japan
would eliminate tariffs on 82% of its agriculture tariff lines
Some manufacturers and unions are concerned about TPP’s
but shield its most politically sensitive products from
rules of origin (ROOs) for motor vehicles and parts. ROOs
complete liberalization. USDA estimates that over 50% of
determine how much of a product must be made within TPP
U.S. farm product exports (by value) to Japan would be
countries to be eligible for the agreement’s tariff benefits,
immediately duty-free. U.S. agriculture producers largely
affecting the potential use of supply chains extending
support the TPP. Japanese commitments on major U.S.
beyond TPP countries. The TPP’s ROOs would require
exports (for varying years after entry into force) include:
45% value content from TPP countries for vehicles and
35% for parts. These stakeholders note that the North
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TPP: U.S.-Japan Issues
American Free Trade Agreement ROOs are 62.5% for
symbol of U.S. credibility in the region during a time when
vehicles and 60% for parts, although these figures are not
China’s rise and North Korea’s growing nuclear and missile
directly comparable. In addition, some U.S. auto producers
capabilities are testing the international order and
are disappointed that the agreement does not include
challenging U.S. influence. If the TPP increases Japanese
enforceable commitments on currency manipulation, which
economic growth, it could also increase Japan’s ability to
they argue Japan has used to make its exports more
become a more valuable diplomatic partner for the United
competitive.
States. Prime Minister Abe has also cited the TPP as an
important component and driver of his structural economic
Figure 2. Average Tariffs by Product Category
reforms, though many observers say Abe’s promotion of
(Selected TPP Countries)
these reforms has been inadequate.
Japan’s participation in the TPP may also advance the
Obama Administration’s goal of using the TPP to establish
updated trade rules. Japan’s economic significance and
strong trade ties with other regional actors expands the
reach of the rules established in the TPP and has likely
increased neighboring countries’ interest in joining. Japan is
also participating in and potentially could influence the
ongoing Regional Comprehensive Economic Partnership
(RCEP) negotiations, which include China and 15 other
Asia-Pacific countries but not the United States. Some
observers perceive RCEP as a potential alternative to the
TPP in establishing regional trade norms, though others
Source: WTO Tariff Profiles.
argue that the two agreements may be mutually reinforcing
Notes: Most favored nation tariffs. Ag refers to Agriculture.
rather than competing, particularly with seven TPP
countries in both negotiations.
Insurance and Express Delivery
Japan is the world’s second-largest insurance market behind
Implications for Congress
the United States. Japan Post, the Japanese state-owned
As an ally and major trading partner of the United States,
postal service and among its largest banks and insurers, has
Japan’s involvement in the TPP may factor into
been moving toward privatization but remains majority-
congressional consideration of the trade agreement. From a
owned by the government. Historically, U.S. firms have
foreign policy standpoint, although congressional passage
found it difficult to enter certain segments of the Japanese
of the TPP may not fundamentally alter U.S.-Japan
market and have argued that Japan confers preferential
relations, Japanese policymakers could interpret an
treatment on insurance and express delivery subsidiaries of
unsuccessful TPP vote as the United States’ inability to
Japan Post. In the TPP, Japan has agreed to allow
assert leadership and a symbol of declining U.S. influence
competing insurance providers access to the distribution
in the Asia-Pacific region. In economic terms, proponents
network of Japan Post, which includes more than 20,000
highlight the potential benefit to U.S. firms and workers of
branches throughout the country. The TPP would also
gaining additional access to the Japanese market—
require that licensing and other regulations affecting
particularly for agriculture products—and establishing new
insurance providers do not disadvantage private
trading rules in areas such as services and digital trade.
competitors. Regarding express delivery, the TPP would
Opponents stress concerns over potential increased import
require independence between regulators and providers and
competition and its effect on employment, notably in motor
prohibit (1) requiring express delivery providers to offer
vehicle trade with Japan.
universal postal service as a condition of market access, (2)
fees on express delivery providers for the purpose of
More Information
funding other such providers, and (3) cross-subsidization of
For more information, see CRS Report R44489, The Trans-
express delivery by postal monopolies.
Pacific Partnership (TPP): Key Provisions and Issues for
Congress, and CRS Report RL33436, Japan-U.S.
Strategic Implications
Relations: Issues for Congress.
The TPP, the primary economic component of the Obama
Administration’s “rebalancing” of U.S. foreign policy
Brock R. Williams, Analyst in International Trade and
priorities to the Asia-Pacific region, has several strategic
Finance
implications for U.S.-Japan relations and for the geopolitics
Mark E. Manyin, Specialist in Asian Affairs
of East Asia. Few observers believe that the future of the
U.S.-Japan alliance directly depends on the passage of the
Bill Canis, Specialist in Industrial Organization and
TPP, as Japan’s own strategic and political calculations—
Business
including perceptions of threats posed by China—appear to
Mark A. McMinimy, Acting Section Research Manager
be drivers of its moves to deepen strategic cooperation with
Taishu Yamakawa, Research Associate
the United States. Instead, many arguments about the TPP’s
IF10456
strategic importance to U.S.-Japan relations center on the
indirect effects of the agreement. For some, the TPP is a

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TPP: U.S.-Japan Issues

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