The U.S. Congress conducted an analysis of the United States.–Japan trade negotiations, which do not rise to the level for a Free Trade Agreement (FTA).
The Trump Administration’s decision to seek a limited scope agreement with Japan, covering only some tariffs and digital trade, was a departure from past U.S. FTA practice, which typically involves a comprehensive negotiation.
Several members of the U.S. Congress, U.S. businesses and other stakeholders strongly advocated for a broader agreement.
The Trump Administration stated that it would address these issues in subsequent negotiations, which it ultimately did not pursue.
The U.S. negotiating objectives, published in 2018 as required by the Trade Promotion Authority (TPA), also suggested that a broader range of topics would be covered, including services, investment and intellectual property.
To note: TPA gives the U.S. executive the power to conduct trade negotiations, and to submit signed agreements to Congress for ratification or disapproval, without modifying their content.
After growing 1.7% in 2021, the Japanese economy would have an increase of 1.7% in 2022 and 1.6% in 2023, according to projections by the International Monetary Fund (IMF).
Analysts questioned the extent to which the U.S.-Japan agreement adheres to Article XXIV of the General Agreement on Tariffs and Trade (GATT) under the World Trade Organization (WTO) that requires FTAs to cover “substantially all trade.”
Some members of Congress have historically questioned other countries’ partial scope agreements, but adherence to Article XXIV has rarely been challenged at the WTO.
Longer term, French credit insurer Coface projects that Japan faces significant structural risks to its long-term growth potential, the most critical being adverse demographic changes.
Coface assesses that limited monetary policy space and fiscal consolidation needs are also major risks.
The IMF expects economic growth in Japan to be more stable at 1.7% in both 2021 and 2022 and 1.6% in 2023, with a downward revision for 2023 from July of 0.1 percentage points.
Mostly, the revisions reflect external factors, with a negative change in the terms of trade (ratio of export to import prices) due to higher energy import prices, as well as lower consumption as price inflation outpaces wage growth.