Overview

On October 7, 2019, after six months of formal negotiations, the United States and Japan signed two agreements intended to liberalize bilateral trade. One, the U.S.-Japan Trade Agreement (USJTA), provides for limited tariff reductions and quota expansions to improve market access. The other, the U.S.-Japan Digital Trade Agreement, includes commitments pertaining to digital aspects of international commerce, such as crossborder data flows. These agreements constitute what the Trump and Abe Administrations envision as stage one of a broader trade liberalization negotiation, which the two leaders first announced in September 2018. The two sides have stated their intent to continue negotiations on a more comprehensive deal after these agreements enter into force. Congress has an interest in U.S.-Japan trade agreement negotiations given congressional authority to regulate foreign commerce and the agreements' potential effects on the U.S. economy and constituents. USJTA is to reduce or eliminate tariffs on agriculture and some industrial goods, covering approximately $14.4 billion ($7.2 billion each of U.S. imports and exports) or 5% of bilateral trade. The United States is to reduce or eliminate tariffs on a small number (241) of mostly industrial goods, while Japan is to reduce or eliminate tariffs on roughly 600 agricultural tariff lines and expand preferential tariff-rate quotas for a limited number of U.S. products. The United States framed the digital trade commitments as gold standard, with commitments on nondiscriminatory treatment of digital products, and prohibition of data localization barriers and restrictions on cross-border data flows, among other provisions. The stage one agreement excludes most other goods from tariff liberalization and does not cover market access for services, rules beyond digital trade, or nontariff barriers. Notably, the agreement does not cover trade in autos, an industry accounting for one-third of U.S. imports from Japan. Japan's decision to participate in bilateral talks came after President Donald Trump threatened to impose additional auto tariffs on Japan, based on national security concerns. Prior to the Trump Administration, the United States negotiated free trade agreements (FTAs) that removed virtually all tariffs between the parties and covered a broad range of trade-related rules and disciplines in one comprehensive negotiation, driven in significant part by congressionally mandated U.S. negotiating objectives. Nontariff issues often require implementing legislation by Congress to take effect, and Congress has typically considered implementing legislation for past U.S. FTAs through expedited procedures under Trade Promotion Authority (TPA). The Trump Administration, however, plans to put the stage one agreements with Japan into effect without action by Congress. The Administration plans to use delegated tariff authorities in TPA to proclaim the USJTA market access provisions, while the U.S.-Japan Digital Trade Agreement does not appear to require changes to U.S. law and is being treated as an Executive Agreement. Japan's Diet (the national legislature) ratified the pact in December 2019. The Administration expects the agreements to take effect in early 2020, with negotiations on the second stage of commitments to begin within four months.

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