[CTC] U.S., Japan Seek Trade Deal in Advance of Abe Washington Visit

[Arthur Stamoulis]

http://www.bloomberg.com/news/articles/2015-04-01/u-s-japan-seek-trade-deal-in-advance-of-abe-washington-visit


U.S., Japan Seek Trade Deal in Advance of Abe Washington Visit
U.S. and Japanese negotiators are rushing to complete a trade agreement they can unveil during Prime Minister Shinzo Abe’s visit to Washington later this month, something they hope will pave the way for a broader Asia-Pacific pact involving 10 other countries.
An accord between the U.S. and Japan about access to each others’ markets for products such as pork, rice and automobiles would only take effect if incorporated into the Trans-Pacific Partnership, a 12-nation negotiation that Japan joined in 2013. Although all the governments must agree, the U.S. and Japan are by far the largest economies involved.
“Negotiators are meeting around the clock, countries are moving on issues that seem intractable months ago,” Acting Deputy U.S. Trade Representative Wendy Cutler said of the bilateral talks in a March 30 speech in New York. “I’ve been doing this a long time and I sense and feel that we are in the end game.”
The two countries are trying to arrange a meeting of chief negotiators in mid-April, according to a person briefed on the effort. That would position U.S. Trade Representative Michael Froman and Japanese Economy Minister Akira Amari to wrap up the deal in time for Abe’s April 28 visit with President Barack Obama, the person said.
They have narrowed differences over how much Japan will open its heavily protected agricultural sector to imports, a politically sensitive issue in Japan. And they’ve explored ways the U.S. would lower tariffs on auto parts and Japan would ease auto trade barriers as well, people briefed on the talks said.
Domestic Constituencies
Cutler, Froman’s key deputy on the Pacific trade talks, nevertheless signaled the U.S. will be skeptical until a deal is struck. “We are watching to see if Prime Minister Abe is ready to make these decisions affecting important domestic constituencies in his own party,” she told the Japan Society, according to a recording provided by the USTR’s office.
“We are focused on getting the substance right,” she said. “We are not prepared to sacrifice substance to get a deal. My sense is Japan shares this view.”
Trevor Kincaid, a spokesman for Froman, declined to comment on the specifics of the U.S.-Japan talks, and referred to Cutler’s comments. Japan’s embassy in Washington didn’t respond to e-mailed questions on the talks.
Abe won a decisive victory in parliamentary elections in December. That gives him political room to make concessions that would hit Japanese farmers, a central constituency of his Liberal Democratic Party, said Mireya Solis, a senior fellow at the Brookings Institution in Washington.
“He can deliver, and that is something we have not been able to say about a Japanese prime minister in a very long time,” Solis said.
Fast Track
The state visit to Washington gives Abe the sort of high-profile diplomatic opportunity that Japanese leaders value highly, Solis said.
Japan’s agricultural sector, and what the country refers to as the “five sacred commodities” -- rice, wheat, dairy products, beef and pork -- would be central to any agreement.
While Japan has offered concessions, the U.S. also also lowered its original ambitions in this area, a person briefed on the talks said.
For example, the U.S. had sought elimination of a complex Japanese system that raised the price of lower-quality U.S. pork imports, such as pork shoulder. That won’t happen, the person said, but Japan is likely to drop tariffs of about 4 percent on the high-quality cuts of pork, such as loins, where U.S. ranchers are competitive, the person said.
U.S. Beef
Beef producers, another key U.S. exporter, are likely to see a reduction to single digits of the Japanese tariff on beef, currently at 38.5 percent, two people briefed on the talks said.
Negotiators are still working on the fraught question of rice imports. In previous talks, Japan has lowered tariffs but then bought foreign imports and re-exported them as food aid. So, this time, the U.S. is seeking guarantees that Japanese consumers will have the opportunity to purchase U.S. rice, a person briefed on the talks said.
“There are five sacred commodities,” said Paul Drazek, an agricultural trade consultant with DTB Associates in Washington. “And there appears to be momentum for a solution.”
Trade in automobiles, long a bone of contention between the two governments, remains a sticking point.
Auto Parts
Before formal talks even started, Japan agreed that U.S. tariffs of 2.5 percent on autos and 25 percent on light trucks would be eliminated on the same schedule as the longest phaseout in the TPP agreement. Since some tariffs could take 10 or 15 years to eliminate, the wait could be substantial.
Now, a sticking point has emerged over whether tariffs on auto parts would decline at the same pace as those on autos, two people briefed on the talks said. The U.S. raised the demand last fall.
Since then, the U.S. hasn’t pressed the issue, the people said. It has suggested a so-called safeguard mechanism that would impose tariffs if there were a sudden jump in Japanese parts imports, the person said.
Cutler said the U.S. is focused on restrictions other than tariffs in Japan, since Japan has no tariffs on vehicle imports. But she said safety standards that hit foreign cars more than domestic vehicles, also make the Japanese market tough to penetrate.
“Just because you don’t have tariffs doesn’t mean your market is open or accessible,” Cutler said.
The auto industry has a strong following in Congress, as do the United Auto Workers, with about 390,000 members. Cutler said Japan has acknowledged this political reality.
“Frankly, we are making good progress, and the Japanese are working with us cooperatively in this area, recognizing that a strong autos deal is necessary for the United States if the TPP deal is to be passed by Congress,” Cutler said.
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Shanghai Traders Make Trillion-Yuan Stock Bet Backed by Debt
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8:23 PM EDT 
April 1, 2015
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Shanghai traders now have more than 1 trillion yuan ($161 billion) of borrowed cash riding on the world’s highest-flying stock market.
The outstanding balance of margin debt <http://www.bloomberg.com/news/articles/2015-04-01/%5Cwww.sse.com.cn%5Cmarket%5Cdealingdata%5Coverview%5Cmargin%5C> on the Shanghai Stock Exchange surpassed the trillion-yuan mark for the first time on Wednesday, a nearly fourfold jump from just 12 months ago. The city’s benchmark index has surged 86 percent during that time, more than any of the world’s major stock gauges.
While the extra buying power that comes from leverage has fueled the Shanghai Composite Index’s rally, it’s also sending equity volatility to five-year highs and may accelerate losses if a market reversal forces traders to sell. Margin debt has increased even after regulators suspended three of the nation’s biggest brokers from adding new accounts in January and said securities firms shouldn’t lend to investors with less than 500,000 yuan.
“It’s like a two-edged sword,” said Wu Kan, a money manager at Dragon Life Insurance Co. in Shanghai, which oversees about $3.3 billion. “When the market starts a correction or falls, it will increase the magnitude of declines.”
In a margin trade, investors use their own money for just a portion of their stock purchase, borrowing the rest from a brokerage. The loans are backed by the investors’ equity holdings, meaning that they may be compelled to sell when prices fall to repay their debt. The Shanghai Composite rose 0.4 percent at the close on Thursday.
Bubble Concern
Chinese investors have been piling into the stock market after the central bank cut interest rates twice since November and authorities from the China Securities Regulatory Commission to central bank Governor Zhou Xiaochuan endorsed the flow of funds into equities. Traders have opened 2.8 million new stock accounts in just the past two weeks, almost on par with Chicago’s entire population.
The outstanding balance of the margin debt on China’s smaller exchange in Shenzhen was 502.5 billion yuan on April 1. That puts the combined figure for China’s two main bourses at the equivalent of about $242 billion. In the U.S., which has a stock market almost four times the size of China’s, margin debt on the New York Stock Exchange was about $465 billion at the end of February.
For BNP Paribas SA economist Richard Iley, the surge in Chinese margin purchases is among signs of a bubble fueled by individual investors. More than two-thirds of new investors have never attended or graduated from high school, according to a survey by China’s Southwestern University of Finance and Economics.
“Leverage cannot rise forever,” Iley wrote in a report last month. “The more the stock of margin debt climbs, the greater the risk of a disorderly unwinding of leveraged positions once net redemptions begin to accelerate.”
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