TPP: U.S.-Japan Issues

August 23, 2016

TPP: U.S.-Japan Issues

Overview

The United States and Japan are among the 12 parties to the

proposed Trans-Pacific Partnership (TPP) free trade

agreement (FTA). The agreement would reduce and

eliminate tariffs and non-tariff barriers (NTBs) on goods,

services, and agricultural products. It would also establish

trade rules and disciplines that expand on commitments at

the World Trade Organization (WTO) and address new

“21st century” issues, such as digital trade and state-owned

enterprises. Signed in February 2016, the TPP now awaits

ratification in each country before it can enter into force.

For the United States and Japan, ratification entails action

by the U.S. Congress and the Japanese Diet (parliament).

The Diet is expected to consider the TPP in the fall of 2016.

Japanese Prime Minister Shinzo Abe has promoted the

TPP, and his ruling coalition has a large majority in the

Diet. Observers widely expect that the Diet will pass TPP.

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

U.S. government debt. Japanese companies are also key

links in global supply and production chains. The United

States and Japan are both high-income countries, and U.S

trade with Japan differs considerably from U.S. trade with

most other TPP partners without U.S. FTAs, which are

generally not high-income nations, such as Vietnam and

Malaysia. Japan’s participation has drawn the interest of a

wide range of U.S. industries.

Key U.S.-Japan Provisions in the TPP

Agriculture

Increased U.S. access to the heavily protected Japanese

agriculture market, already the largest U.S. export market

for a number of commodities, is projected to be a

significant benefit to U.S. agriculture producers. Japan

would eliminate tariffs on 82% of its agriculture tariff lines

but shield its most politically sensitive products from

complete liberalization. USDA estimates that over 50% of

U.S. farm product exports (by value) to Japan would be

immediately duty-free. U.S. agriculture producers largely

support the TPP. Japanese commitments on major U.S.

exports (for varying years after entry into force) include:

 Beef: Tariff on fresh, chilled, and frozen beef reduced

from 38.5% to 9% by the 16th year.

 Dairy: Many cheese tariffs (ranging to 40%) eliminated

within 16 years and whey tariffs within 21 years.

 Fruit and Nuts: Tariffs eliminated on cherries (8.5%)

and apples (17%) over six and 11 years and on almonds

(2.4%), pecans (4.5%), and walnuts (10%) immediately.

 Pork: Minimum import price lowered from ¥482/Kg to

¥50/Kg, and a 4.3% tariff eliminated, both by year 10.

 Rice: 50,000 ton country-specific quota established for

U.S. rice rising to 70,000 tons by year 13—Japan

currently has a WTO-wide quota of 682,200 tons.

Figure 1. U.S. Trade with Non-FTA TPP Partners

Source: U.S. International Trade Commission.

Notes: Trade data only include goods trade, and are from 2015.

Motor Vehicles

Motor vehicles and parts accounted for more than one-third

of U.S. goods imports from Japan in 2015. Although Japan

has no auto tariffs (Figure 2), import penetration in the

Japanese market is extremely low, which U.S. producers

have attributed to NTBs. U.S.-Japan side letters to the TPP

agreement would establish a special joint dispute resolution

process and commit Japan to address certain NTB issues,

but some U.S. industry stakeholders question whether these

provisions would help increase U.S. vehicle exports to

Japan. Through the TPP, the United States would phase out

its 2.5% auto tariff from years 15 to 25 and eliminate the

25% truck tariff in year 30.

Some manufacturers and unions are concerned about TPP’s

rules of origin (ROOs) for motor vehicles and parts. ROOs

determine how much of a product must be made within TPP

countries to be eligible for the agreement’s tariff benefits,

affecting the potential use of supply chains extending

beyond TPP countries. The TPP’s ROOs would require

45% value content from TPP countries for vehicles and

35% for parts. These stakeholders note that the North

https://crsreports.congress.gov

TPP: U.S.-Japan Issues

American Free Trade Agreement ROOs are 62.5% for

vehicles and 60% for parts, although these figures are not

directly comparable. In addition, some U.S. auto producers

are disappointed that the agreement does not include

enforceable commitments on currency manipulation, which

they argue Japan has used to make its exports more

competitive.

Figure 2. Average Tariffs by Product Category

(Selected TPP Countries)

Source: WTO Tariff Profiles.

Notes: Most favored nation tariffs. Ag refers to Agriculture.

Insurance and Express Delivery

Japan is the world’s second-largest insurance market behind

the United States. Japan Post, the Japanese state-owned

postal service and among its largest banks and insurers, has

been moving toward privatization but remains majorityowned by the government. Historically, U.S. firms have

found it difficult to enter certain segments of the Japanese

market and have argued that Japan confers preferential

treatment on insurance and express delivery subsidiaries of

Japan Post. In the TPP, Japan has agreed to allow

competing insurance providers access to the distribution

network of Japan Post, which includes more than 20,000

branches throughout the country. The TPP would also

require that licensing and other regulations affecting

insurance providers do not disadvantage private

competitors. Regarding express delivery, the TPP would

require independence between regulators and providers and

prohibit (1) requiring express delivery providers to offer

universal postal service as a condition of market access, (2)

fees on express delivery providers for the purpose of

funding other such providers, and (3) cross-subsidization of

express delivery by postal monopolies.

Strategic Implications

The TPP, the primary economic component of the Obama

Administration’s “rebalancing” of U.S. foreign policy

priorities to the Asia-Pacific region, has several strategic

implications for U.S.-Japan relations and for the geopolitics

of East Asia. Few observers believe that the future of the

U.S.-Japan alliance directly depends on the passage of the

TPP, as Japan’s own strategic and political calculations—

including perceptions of threats posed by China—appear to

be drivers of its moves to deepen strategic cooperation with

the United States. Instead, many arguments about the TPP’s

strategic importance to U.S.-Japan relations center on the

indirect effects of the agreement. For some, the TPP is a

symbol of U.S. credibility in the region during a time when

China’s rise and North Korea’s growing nuclear and missile

capabilities are testing the international order and

challenging U.S. influence. If the TPP increases Japanese

economic growth, it could also increase Japan’s ability to

become a more valuable diplomatic partner for the United

States. Prime Minister Abe has also cited the TPP as an

important component and driver of his structural economic

reforms, though many observers say Abe’s promotion of

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

argue that the two agreements may be mutually reinforcing

rather than competing, particularly with seven TPP

countries in both negotiations.

Implications for Congress

As an ally and major trading partner of the United States,

Japan’s involvement in the TPP may factor into

congressional consideration of the trade agreement. From a

foreign policy standpoint, although congressional passage

of the TPP may not fundamentally alter U.S.-Japan

relations, Japanese policymakers could interpret an

unsuccessful TPP vote as the United States’ inability to

assert leadership and a symbol of declining U.S. influence

in the Asia-Pacific region. In economic terms, proponents

highlight the potential benefit to U.S. firms and workers of

gaining additional access to the Japanese market—

particularly for agriculture products—and establishing new

trading rules in areas such as services and digital trade.

Opponents stress concerns over potential increased import

competition and its effect on employment, notably in motor

vehicle trade with Japan.

More Information

For more information, see CRS Report R44489, The TransPacific Partnership (TPP): Key Provisions and Issues for

Congress, and CRS Report RL33436, Japan-U.S.

Relations: Issues for Congress.

Brock R. Williams, Analyst in International Trade and

Finance

Mark E. Manyin, Specialist in Asian Affairs

Bill Canis, Specialist in Industrial Organization and

Business

Mark A. McMinimy, Acting Section Research Manager

Taishu Yamakawa, Research Associate

https://crsreports.congress.gov

IF10456

TPP: U.S.-Japan Issues

Disclaimer

This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to

congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress.

Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has

been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the

United States Government, are not subject to copyright protection in the United States. Any CRS Report may be

reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include

copyrighted images or material from a third party, you may need to obtain the permission of the copyright holder if you

wish to copy or otherwise use copyrighted material.

https://crsreports.congress.gov | IF10456 · VERSION 3 · NEW