President Obama and Japanese Prime Minister Shinzo Abe will tackle a number of issues during Obama’s state visit to Japan, but one issue rises above the rest: whether the two countries can resolve enough of their economic differences to help unlock a broader trade deal across the entire Asia-Pacific region.
The United States and Japan are among a dozen countries that have spent nearly four years negotiating the Trans-Pacific Partnership (TPP), an ambitious effort to create a free-trade zone that would stretch from North and South America to New Zealand and Asia. The nations working on the accord account for 40 percent of the world’s gross domestic product.
Government officials and many experts describe the accord as a way to deepen America’s ties with a dynamic economic region without alienating China. National security adviser Susan E. Rice told reporters Friday that over the next five years, “nearly half of all growth outside the United States is expected to come from Asia.” The trade deal “is a focal point of our effort to establish high standards for trade across the Asia-Pacific and to ensure a level playing field for U.S. businesses and workers,” she added.
Mireya Solis, a Japan expert at the Brookings Institution’s Center for East Asia Policy Studies, said these talks are a way for the United States to rebalance its relationship with Asia, not just in military terms, but in a way “that taps into Asian economic optimism and that [avoids] highlighting China as a main security competitor.” This rebalancing “is actually an inclusive, expansive project,” she said.
An array of details must be worked out among the many countries involved, ranging from what sort of protections intellectual property will enjoy to how to treat state-owned enterprises, which make up a large part of the economy in countries such as Malaysia and Vietnam. But outside experts and government officials think that an agreement between the United States and Japan will provide significant momentum for the talks.
“Both sides recognize they have to get a deal done, because the U.S.-Japan differences on agriculture [are] the main bottleneck for resolving many of the outstanding issues in the TPP,” said Jeffrey Schott, a senior fellow at the Peterson Institute for International Economics.
Two primary areas — agricultural products and automobiles — have been the main sticking points in the countries’ negotiations. The Japanese government has traditionally been reluctant to take on rice and cattle farmers, two important domestic constituencies, and the Japanese auto market is one of the most closed in the world. Only about 6 percent of the autos sold in Japan are foreign.
“Japan does not embrace the model of free trade,” said Steve Biegun, vice president of international government affairs at Ford Motor Co. He said his company and others are worried that the Obama administration is now willing to make “some tawdry trade-offs” just for the sake of getting a deal.
U.S. automakers are particularly concerned because they have been deeply disappointed in the United States-Korea Free Trade Agreement, which passed in 2012. Under that deal, American car manufacturers were supposed to get four years to establish a toehold in South Korea before tariffs dropped significantly, but Biegun said U.S. firms’ modest sales there have increased only 10 to 15 percent in the past two years. There is one Ford dealer in South Korea, he noted, compared with 1,500 dealers selling Korean cars in the United States.
Plenty of congressional Democrats are using the South Korean trade pact as an argument against any broader Asian-Pacific deal. In a conference call with reporters last week, Rep. Rosa L. DeLauro (D-Conn.) noted that while Obama had predicted that the 2012 deal would create 70,000 U.S. jobs from increased exports, “U.S. exports to Korea fell 10 percent in the pact’s first year, and the U.S. trade deficit with Korea exploded. . . . The data is in. It’s irrefutable. We know the impact this trade deal would have on jobs.”
And some lawmakers, as well as U.S. automakers, argue that any agreement would have to include language against currency manipulation.
While it is understandable that some would seek to address the issue of currency rates in the context of trade talks, Schott said, “you could blow up the negotiations, or certainly stall them for a number of years,” by insisting on the provision.
In an interview last week, Commerce Secretary Penny Pritzker said she was optimistic that the president could make headway on some of the remaining issues with the Japanese government during his conversations with Abe, as he has with other world leaders.
“He will have the opportunity to make the case,” she said. “I’ve seen him do it before, and I have confidence in his ability as a negotiator.”
Pritzker added that during her many years negotiating in business, deals that seemed unachievable at certain times often had breakthroughs.
“You know how negotiations go,” she said. “They have their ups and downs, and they tend to look darkest before they get done. Or they’re darkest before they blow up.”
Abe has a powerful incentive to strike a deal with the United States, several experts said, because it would help revamp the agricultural sector and other parts of the Japanese economy.
Douglas Paal, who directs the Asia program at the Carnegie Endowment for International Peace, said Japan’s negotiators have “more flexibility” than they have had in the past because the prime minister “is committed to get TPP to get the domestic reforms he needs to drive the economic growth of the country.”
A senior Japanese government official said that under a best-case scenario, the deal would be done by November. “The question is, are we coming to the final point, or have another mile to go or five miles to go?”
Harlan reported from Seoul. David Nakamura contributed to this report.