September 26, 2018 / 6:45 PM / in 22 days

Japan dodges U.S. auto tariffs, for now, as Trump and Abe agree on trade talks

NEW YORK (Reuters) - U.S. President Donald Trump and Japanese Prime Minister Shinzo Abe agreed on Wednesday to start trade talks in an arrangement that, for now, protects Japanese automakers from further tariffs, seen as a major threat to the export-dependent economy.

The two countries said in a joint statement the talks “will respect positions of the other government”, drawing lines on autos and Japan’s agriculture sector.

Trump has made clear he is unhappy with Japan’s $69 billion trade surplus with the United States - nearly two-thirds of it from auto exports - and wants a two-way agreement to address it.

Tokyo pushed back on a straight bilateral Free Trade Agreement (FTA) that Washington had sought. The latest framework appeared designed to allow both parties to save face: Abe avoids the worst-case scenario of an imminent 25 percent tariff on cars, while Trump claims victory for getting Japan to a two-way negotiating table.

“This was something that, for various reasons over the years, Japan was unwilling to do and now they are willing to do,” Trump said at a summit with Abe in New York on the sidelines of the U.N. General Assembly.

“We’re going to have a really great relationship, better than ever before on trade,” he said.

Wednesday’s statement said a deal governing the auto sector would be written to boost production and jobs in the United States.

Tokyo had worried that Trump could demand a reduction in auto imports from Japan or that he could impose steep tariffs on such imports on national security grounds.

While economists saw the agreement as a positive outcome for Japan for now, they noted what would ultimately be agreed upon was still unknown.

“If you just look at what was agreed this time, Japan did extremely well,” said Junichi Sugawara, senior research officer at Mizuho Research Institute.

“But at the end of the day, this is just the entry-way into any final agreement and we have to remember that there is a possibility that (Japan) could be hurt very badly in the end,” he said.

U.S. President Donald Trump laughs with Japan's Prime Minister Shinzo Abe during a bilateral meeting on the sidelines of the 73rd session of the United Nations General Assembly in New York, U.S., September 26, 2018. REUTERS/Carlos Barria

Shares of Subaru Corp (7270.T) and Mazda Motor Corp (7261.T), two of the most export-reliant Japanese automakers, rose 3 percent and 1.2 percent respectively, outperforming a slightly weaker Tokyo market .TOPX.

CARS AND FARMS

Abe told a news conference after his meeting with Trump that the Japanese auto sector had announced $20 billion in new investments in the United States since Trump took office, a move that would create 37,000 jobs.

Those contributions to the U.S. economy were built on the spirit of free trade, Abe said, and any measures to restrict trade would be harmful.

“We must by no means turn back the clock. In fact, we need to be more active in trade investments to build on this relationship,” he said.

Abe said that, under the latest arrangement, the United States would not impose additional tariffs on the auto sector while the trade talks were underway.

Japan’s politically important farm sector would also be protected from access that goes beyond what had been agreed under the Trans-Pacific Partnership agreement that Trump abandoned in 2017.

Abe stressed that the new framework would be a Trade Agreement on Goods (TAG), not a more wide-ranging FTA that included investments and services that Japan had resisted.

Still, U.S. Trade Representative Robert Lighthizer told reporters he was aiming for a full free trade deal requiring approval by Congress under the “fast track” trade negotiating authority law.

The law requires Congress to be notified 90 days before negotiations can begin, and Lighthizer said he would start consultations with lawmakers on Thursday.

Lighthizer said the talks would be tackled in two “tranches”, with hopes for an “early harvest” from the initial talks on reductions to tariffs and non-tariff trade barriers in goods.

He declined to specify when an imbalance in autos trade would be addressed but acknowledged autos were a key goods area.

Separately on Tuesday, top trade officials from Japan, the United States and the European Union agreed to cooperate on steps aimed at reining in China’s “non-market” economic policies, such as those aimed at technology transfers and subsidies in the form of state bank loans to state-owned enterprises. They agreed to cooperate on reforms to World Trade Organization rules.

Reporting by Steve Holland and David Lawder; Additional reporting by David Brunnstrom, David Shepardson, Kaori Kaneko, Linda Sieg; Writing by Chang-Ran Kim; Editing by James Dalgleish and Sam Holmes

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