US-Japan Trade Deal Opportunities for Small Businesses

A new trade agreement between the US and Japan came into force last year. It slashes tariffs and includes provisions on the market access for certain agricultural and industrial goods and digital trade. SMEs in both countries will benefit.

According to the Japanese government, the deal is estimated to contribute about 4 trillion yen ($36.84 billion) to Japan's gross domestic product, and it will create about 280,000 jobs in Japan. US President Trump called the deal "a huge victory for America's farmers, ranchers, and growers."

Liberalizing market access

The agreement will eliminate or lower tariffs for certain US agricultural products. Of other farm goods, Japan will provide preferential U.S.-specific quotas.

According to the Office of the United States Trade Representative, more than 90 percent of US food and agricultural products imported into Japan will either be duty-free or receive preferential tariff access. Many of these products are exported and imported by medium-sized American farmers and businesses.

Goods include fresh and frozen beef and pork, wheat and wheat products, almonds, walnuts, blueberries, cranberries, sweet corn, grain sorghum, broccoli, and more.
Other products will be subject to staged tariff elimination, such as cheeses, processed pork, poultry, beef offal, ethanol, wine, frozen potatoes, oranges, fresh cherries, egg products, and tomato paste.

On the US-side, there will be tariff elimination or reduction on 42 tariff lines for agricultural imports from Japan, including products such as certain perennial plants and cut flowers, chewing gum, soy sauce, certain machine tools, fasteners, steam turbines, bicycles, bicycle parts, and musical instruments.

US farm groups applauded the deal as they expected to lose market share in Japan if the US wasn't treated on par with top competitors from Canada, Mexico, Australia, and the European Union.

Digital trade agreement

Apart from the agreement on tariffs, the US and Japan have reached a separate agreement on a comprehensive set of digital trade provisions.

Both countries will refrain from imposing customs duties on digital products transmitted electronically, such as videos, music, e-books, software, or games. Also, digital products will not be treated any differently from a tax perspective.
The agreement also facilitates barrier-free cross-border data transfer but prohibits data localization for financial service suppliers and arbitrary access to computer source code and algorithms. The latter is particularly essential to protect software properties.

Small businesses benefit in particular from digital trade, as they often do not have the capital needed to export physical products to Japan. Enabling digital trade is thus a way to support SMEs in both countries directly.

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