Last updated: April 12, 2013 5:31 pm

US and Japan deal paves way for trade talks

The US and Japan struck a deal paving the way for Asia’s second-largest economy to join the trans-Pacific Partnership trade talks this year, following more than a year of talks on thorny issues such as US access to the Japanese car and insurance markets.

The announcement of the agreement could go some way towards allaying fears that Japan’s late entry into the talks could delay the pace of the TPP negotiations – which aim to slash trade barriers among 11 Pacific nations, from New Zealand to Peru and Vietnam, as well as Canada, Mexico and the US.

Shinzo Abe, prime minister, said Japan hoped to take a “leading role” in the talks to shape a final agreement. The benefits of joining, he said, would reach beyond the economy by strengthening political ties between member countries.

“There are major implications for national security as well,” he said. “I hope to join the talks as soon as possible,” he added, referring to a meeting of negotiating nations that Tokyo officials are pressing to attend in July.

Michael Froman, the top White House official on international economic policy, said Japan’s accession to the TPP fit within Barack Obama’s effort to bolster the US’s ties with its Asian allies.

“When President Obama took office he saw that the US could be more engaged in the Asia-Pacific – and made a strategic decision to increase our strategic and economic presence in the region, “ Mr Froman said on a call with reporters. “TPP has been central to this rebalancing toward Asia,” he added.

Japan’s entry into the TPP has to be approved by all the countries negotiating the deal – and with Friday’s deal the US is giving its green light after what Demetrios Marantis, the acting US trade representative, described as an agreement on a “robust package” of bilateral measures.

Some US industry groups had resisted Japan’s participation, and Washington extracted some preliminary concessions in return for its assent. It will take the maximum time allowed by TPP rules, most likely 10 years, to eliminate tariffs on imported Japanese cars.

The agreement also includes a provision doubling the amount of US car imports that would be allowed into the Japanese market under a special certification programme.

In addition, the US won a promise that Japan would not expand a state-owned life insurance institution until rules governing fair competition in the sector were established through the TPP. US insurers complain that the massive government-backed “Kampo” Japan Post Insurance enjoys unfair state subsidies.

But a whole host of other unresolved trade problems between the US and Japan – including additional car market issues, competition policy, intellectual property and sanitary standards, were pushed to separate bilateral negotiations intended to run parallel to the TPP talks. Mr Marantis said no TPP deal would be reached unless these negotiations were successful at the same time. “We will not close with Japan on TPP unless we are able to close on all of these issues,” Mr Marantis said.

US political reaction to the deal with Japan was mixed. In the Senate, key Democrats and Republicans welcomed the agreement. “This is encouraging news. Japan’s participation in the TPP talks presents an extraordinary opportunity that could open up huge new markets to American goods and services,” said Max Baucus, the chairman of the finance committee.

But in the House of Representatives, both the top Republican and top Democrat on the ways and means committee, which covers trade, come from Michigan, the heart of the US car industry, and were sceptical if not unhappy.

“The bottom line is Japan must address its longstanding tariff and non-tariff barriers to US exports,” said Dave Camp, the panel’s Republican chairman. “ I will not support Japan’s entry into TPP unless we obtain airtight assurances that Japan’s participation in the TPP negotiations will neither diminish the comprehensive and ambitious nature of these negotiations nor delay the goal of concluding the negotiations this year.”

Sandy Levin, the top Democrat, said the deal reached on Friday failed to “provide an adequate basis” for Japan joining the TPP. “The onus should be on Japan to open their market before receiving any benefit through a trade agreement with the US,” Mr Levin said.

Japan would be the second-largest economy in the TPP, and its inclusion would enhance the impact of a deal that backers hope will set standards for trade across the Asia-Pacific region – including perhaps ultimately China, which is not part of the talks.

Mr Abe’s decision to pursue the TPP talks has angered Japanese farmers as well as many members of his own Liberal Democratic party, which has traditionally drawn much of its support from rural areas. They worry that Mr Abe will not be able to keep a promise to shield the heavily-protected agricultural sector – particularly rice farming – from the effects of freer trade.

The public at large is more supportive, however. Some economists believe joining the TPP would add 0.5 per cent to Japan’s annual economic output, by improving access to foreign markets for manufacturers and forcing inefficient domestic industries to become more competitive.

Hiromasa Yonekura, chairman of the influential Keidanren business lobby, welcomed Washington’s support. “A major path to joining the TPP negotiations has opened up,” he said. Other countries including Canada, Australia and New Zealand must also approve Japan’s participation.

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