Japan Institute for National Fundamentals

　　　　　The Japanese government had tried to keep away from entering negotiations with the United States on a bilateral free trade agreement before a U.S.-Japan summit on September 26, where the two countries agreed to start negotiations on a bilateral trade agreement on goods, or TAG, which would include tariff talks.
　　　　　While the government insists the TAG as different from an FTA, the U.S.-Japan joint statement for the summit indicates that TAG negotiations represent the first step for virtual FTA talks. The government will have to tackle TAG negotiations while taking care not to weaken the centripetal force of the Trans-Pacific Partnership free trade agreement from which the U.S. Trump administration has withdrawn.
　　　　　It is also worthy to note that the joint statement came up with U.S.-Japan and U.S.-Japan-Europe joint actions against China’s unfair trading practices.

A virtual FTA
　　　　　“The United States and Japan will enter into negotiations […] for a United States-Japan Trade Agreement on goods, as well as on other key areas including services, that can produce early achievements,” says Paragraph 3 of the joint statement. Then, Paragraph 4 says, “The United States and Japan also intend to have negotiations on other trade and investment items following the completion of the discussions of the agreement mentioned above.” Paragraph 3 clearly shows the U.S. and Japan enter into a virtual FTA talks rather than a simple negotiation on tariffs on goods. Paragraph 4 even suggests a broader economic partnership agreement covering investment as well.
　　　　　The Trump administration that has branded the TPP as “terrible” is well expected to take advantage of TAG negotiations to exert pressure on Japan to make more concessions than at TPP talks. In an interim bilateral agreement with the U. S. to revise the North American Free Trade Agreement, TPP member Mexico had to accept U.S. demands beyond the TPP standard in regard to market access and rules.
　　　　　If the U.S. at bilateral negotiations with Japan successfully wins greater concessions than at TPP talks by threatening to impose additional tariffs on automobiles, it may weaken the TPP’s centripetal force and affect the expansion of the TPP-covered free economic zone. Furthermore, such development may undermine the TPP’s political pressure on China to comply with free and fair trade rules. At the coming TAG negotiations, Japan should not make any more concessions than at TPP talks.

Coalition against unfair trading practices
　　　　　The U.S.-Japan joint statement included another important agreement that was less conspicuous in Japanese media coverage focusing on the TAG. “We will […] work closely together, through United States-Japan as well as United States-Japan-European Union cooperation, […] to address unfair trading practices including intellectual property theft, forced technology transfer, trade-distorting industrial subsidies, distortions created by state-owned enterprises, and overcapacity,” says the statement’s Paragraph 6, clearly bearing China in mind.
　　　　　The paragraph reflects the fourth trilateral meeting of the trade ministers of the U.S., Japan, and the EU in New York on September 25, where they agreed to their joint WTO reform proposal. The joint statement for the meeting, though refraining from pointing fingers at China, warned against its unfair trading practices and indicated the intention of Japan, the U.S. and the EU to promptly develop a trilateral coalition to fight against such practices.
　　　　　Japanese Prime Minister Shinzo Abe is required to take leadership in putting the coalition into action. In his address to the United Nations General Assembly on September 25, Abe declared “serving as a flag bearer for free trade” as “Japan's mission, rooted in its own history.” The declaration will be put to the test in the future.

Yujiro Oiwa is a Planning Committee Member at the Japan Institute for National Fundamental and Professor at Tokyo International University.