(Bloomberg) -- Japan’s powerful lower house of parliament approved Tuesday a trade pact with the U.S. that opens the country’s markets to American beef and other agricultural products, as Prime Minister Shinzo Abe seeks to stave off new tariffs on carmakers.
With the U.S. pressing for the agreement to come into force Jan. 1, the measure now heads to the less powerful upper house, where it’s expected to win passage before the current session ends on Dec. 9, thanks to Abe’s coalition majority.
The threat of punitive tariffs on the exports of cars and car parts, a $50 billion-a-year sector that is a cornerstone of the Japanese economy, pushed Abe to accept bilateral trade talks with the U.S. after he failed to persuade President Donald Trump to return to a Pacific regional pact he had rejected.
Trump, who faces re-election next year, was eager to make a deal with Japan to appease U.S. farmers who have been largely shut out of the Chinese market as a result of his trade war with Beijing. American agricultural producers, also reeling from bad weather and low commodity prices, are a core component of Trump’s political base.
The deal has nevertheless been criticized by opposition Japanese politicians, who say it gives away Tokyo’s bargaining chips without a written guarantee that Trump won’t impose so-called national security tariffs as high as 25% on Japan’s auto sector.
Abe has said Trump gave assurances about not imposing fresh tariffs when they met in New York in September.
Under the current deal, Japan is set to lower or abolish tariffs on U.S. beef, pork, wheat and wine, while maintaining protection for its rice farmers. The U.S. will remove duties on Japanese exports of some industrial parts.
A second pact that was approved simultaneously aims to provide a legal foundation for smooth digital trade between the world’s largest and third-largest economies. It bans either country from imposing tariffs on digital products distributed electronically, such as software and games.
Japan’s Cabinet Secretariat calculated the bilateral deal will bolster its real gross domestic product by 0.8%, but its calculations were based on the assumption that existing tariffs on Japanese car exports to the U.S. would be removed. Domestic agricultural production is set to fall by between 60 billion-110 billion yen ($552 million-$1 billion), according to the same calculations.
The two sides are set to enter preliminary talks on a second round of trade negotiations after the deal goes into force, with Japan saying it still hopes to get existing car tariffs removed.
