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U.S. method of intimidation for new NAFTA deal leaves roots of trouble

The Yomiuri ShimbunBrandishing punitive measures to force others to accept its own nation’s demands — will the United States be further encouraged to engage in such selfish behavior?

The remnants of the roots of trouble for future trade negotiations come from this agreement.

The United States, Canada and Mexico have agreed to revise the North American Free Trade Agreement.

Under the new deal, conditions for zero tariffs will become more stringent in the automotive sector, which was a major focus of the negotiations. The component procurement percentage within the trade zone will be raised from 62.5 percent to 75 percent.

If the free trade system in North America had collapsed after a breakdown of negotiations, there could have been the risk of trade stagnation and market turmoil. The new deal could be welcomed as far as the worst-case scenario has been averted.

The problem is that the United States forced concessions by threatening to impose punitive tariffs on imported vehicles. In an effort to increase production and employment in the United States, Washington has become more inclined toward managed trade by controlling its trading partners.

In the new deal, a de facto quantitative restriction on export to the United States will be introduced. If more than a certain number of passenger cars are exported to the United States from Canada and Mexico, zero tariffs will be replaced by high tariffs.

A foreign exchange provision will also be established. Under the provision, the countries will refrain themselves from currency devaluation, including foreign exchange intervention, aimed at promoting their exports.

Canada and Mexico had opposed revising NAFTA, but changed their stance to compromise. They seem to have wanted to avoid sanctions on automobiles because car manufacturing is their key industry.

Japan must remain steadfast

It is concerning whether the United States will take a similarly high-handed approach in negotiations with other countries, as it gets a taste of success in the latest trade deal.

Japan and the United States are scheduled to start new trade negotiations as early as next year to conclude a trade agreement on goods. At a summit meeting in September, the leaders of the two countries agreed to put sanctions against Japanese vehicles on hold.

However, concerns that Washington might threaten additional sanctions again after it becomes dissatisfied with the talks cannot be erased. There are also risks that the country could push for introducing quantitative restrictions and currency provisions.

So far, the United States has been engaged in trade negotiations by at times adopting a method of intimidating opponents. This stance of the administration of U.S. President Donald Trump seems to have gone too far, threatening free trade by violating international rules. If Japan is forced to accept a foreign exchange provision, that could tie its hands over currency and monetary policies.

First and foremost, it is important to tenaciously explain the harmful effects of protectionism. Japan needs to safeguard its national interests by firmly fending off unreasonable demands.

Japanese automakers have made inroads in Canada and Mexico as bases for exports to the United States, receiving benefits including a cheaper labor force. If the new trade agreement comes into force, their production costs will rise and the business environment will become tougher.

Each automaker is urged to reconstruct its business strategy such as by revising parts supply networks and investment plans.

(From The Yomiuri Shimbun, Oct. 6, 2018)Speech



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