Japan, US eye Trans-Pacific Partnership penalty system

Japan, US eye Trans-Pacific Partnership penalty system
U.S. President Barack Obama shakes hands with Japan's Prime Minister Shinzo Abe (R) at a joint news conference at the Akasaka Palace in Tokyo April 24, 2014.

Japan and the United States have entered the final stages of opinion coordination regarding the Trans-Pacific Partnership (TPP) free trade agreement, aiming to introduce a system of invoking penalties if either country fails to implement accords in automobile trade that are to be decided in bilateral talks, according to sources.

If a violation occurs, Japan and the United States will be able to raise tariffs on certain categories to levels used before TPP talks. The United States is aiming to do so for automobiles and Japan is eyeing farm products.

The penalty system is under discussion as part of efforts to raise the effectiveness of the TPP agreement.

Penalties can mainly be invoked in two cases: if the United States does not abolish tariffs on cars and auto parts imported from Japan by the end of a predetermined period, and if Japan does not meet safety and environmental standards on car models chosen by the US side, after the two sides agree on the details of these measures.

On Jan. 28, the Japanese and US sides resumed working-level talks in Washington.

It was agreed that the United States will abolish tariffs on cars and auto parts imported from Japan. Tariffs are currently 2.5 per cent on Japanese cars and most auto parts.

Talks are now focused on the amount of time needed until the United States completes the abolition of the tariffs.

Japan-US negotiations hold the key to all of the processes regarding TPP talks. The United States has demanded that a violation, for example in the automobile field, means the penalty system can only be introduced in that same field.

But Japan has already abolished import tariffs on American cars, so the nation is arguing that it should be allowed to raise tariffs on farm products to previous levels.

Given negotiations are approaching a decisive stage, the US side changed its stance and accepted the demand.

The two countries are set to speed up talks involving practical points of the penalty system, including the specific farm products that would have their tariffs raised as well as the length of time the penalties would be enforced.

Auto parts 'critical issue'

The main focus in the automobile field regarding the Japan-US TPP talks is whether Japan can manage to make the United States promise to immediately abolish tariffs on Japanese auto parts. Most of the tariff rates currently stand at 2.5 per cent.

The development of talks in the automobile field will also affect discussions over farm product tariffs that started Monday in Washington.

The annual value of passenger car exports from Japan to the United States totaled about ¥3.56 trillion in 2014.

But a 2013 Japan-US written accord, which allowed Japan to join TPP talks, stipulates that the United States will abolish tariffs on Japanese cars "through gradual reductions over the longest possible period of time" as part of the TPP agreement.

For example, if the period is 10 years or longer, the United States has until the end of the term to complete the abolition of the tariffs. There is almost no room for negotiation regarding this point.

A source involved with negotiations therefore believes auto parts will be a "critical issue" for Japan.

The total annual value of auto parts exports from Japan to the United States stood at about ¥880 billion in 2014. The Japanese are therefore demanding that auto parts tariffs be abolished immediately when the TPP agreement comes into effect.

Since Toyota Motor Corp. and other domestic automakers manufacturing cars inside the United States also import auto parts from Japan, the outcome is expected to have a significant impact.

The Japanese side is insisting that the abolition of tariffs will also benefit the United States, as Japanese-made auto parts are used by US makers, including General Motors Co.

But the US automobile industry wields strong influence over the US government and Congress, thus straining opinion coordination over the issue.

The US side has demanded approval of US standards of safety and environmental regulations in Japan to increase US exports of cars to the nation, but the point remains inconclusive.

In exchange for abolishing tariffs on auto parts, the US side is demanding that Japan lower tariffs on farm products further.

Sources say the talks are treading a tightrope, but believe the two sides are inching closer toward a possible compromise.

In April last year, the two countries effectively agreed that tariffs on beef and pork will largely be lowered, and rice and dairy products will be given more special import quotas - meaning the products can be imported to Japan tariff-free or at lower tariff rates.

For example, the tariff rate on beef, which is now 38.5 per cent, will gradually be lowered to "over 9 per cent" within about 10 years.

During subsequent talks, disputes arose over the conditions under which Japan can invoke a so-called safeguard measure, allowing the nation to raise tariffs again if beef and pork imports from the United States rapidly increase.

Sources claim the two sides are approaching an agreement that maximum tariff rates, which would be raised under the safeguard measure, will gradually be lowered in 10 to 15 years.

Negotiations have yet to tackle issues involving rice. The Japanese side has begun considering the expansion of rice imports from the United States for consumption as a staple food item.

But a source involved with the talks says rice is a "political issue." A conclusion will likely be reached at a ministerial meeting between Japan and the United States.

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