Raft of Issues Threaten Near-Term TPP Conclusion, Following Ministerial

“There are a lot of open areas. The ministers are talking about landing zones in a lot of areas,” said Scott Miller, Scholl chair in international business at the Center for Strategic and International Studies. “[State-Owned Enterprises] and intellectual property (IP) have not been concluded. U.S. concessions on sensitive products also have not been concluded.” U.S. lawmakers and industry officials have pressed USTR to address Vietnamese SOEs, along with other nations (see 13092702). The WikiLeaks November disclosure of a TPP IP chapter revealed substantial disagreement, said advocacy groups (see 13111323). In a Feb. 25 conference call with reporters, USTR Michael Froman said the Singapore ministerial yielded progress on SOEs, but did not elaborate.

The Obama administration, including Froman, publicly targeted the end of 2013 for conclusion of the negotiations, but that effort collapsed during the last TPP ministerial in December (see 13121110). An ambitious agreement, however, is paramount to timely conclusion of negotiations, said Froman during the Feb. 25 conference call. But some TPP proponents, including international partners, are eyeing President Barack Obama’s Asia tour in April as an event that could force action (see 14021222). “Just when you think it’s all going to fall apart, governments make decisions and compromises happen,” said Matt Priest, president of Footwear Distributors and Retailers of America. “The goal communicated to us is April is the target date. But there’s lots of swirling around in Congress with Trade Promotion Authority (TPA) and the midterms. There’s lots of moving parts.” The two primary FDRA priorities in TPP, tariff elimination for U.S. footwear imports and dismantling Japanese tariff rate quotas on leather footwear, are not resolved yet, said Priest.

The U.S.-Japanese row over five sensitive Japanese agricultural products, along with tariff and non-tariff auto barriers, have recently all but eclipsed contentious issues such as "yarn forward" rules of origin for Vietnamese manufacturing. The U.S. textile industry supports strict U.S. rules of origin, but industry officials and analysts say Vietnamese negotiators insist on more flexibility (see 13082011). “The U.S. is reserving action on rules of origin for apparel, for instance,” said Miller. “That being said, progress with Japan on core market access liberalization would be meaningful.”

The Japanese are resisting U.S. pressure to concede comprehensive market access liberalization in five key agricultural sectors, including rice, meat, wheat, dairy and sugar. “It is a significant issue. We’ve had a number of meetings on that issue bilaterally with Japan,” said Froman during the conference call. “The ministers are engaged, myself and my counterpart Mr. Amari and the engagement we’re having is constructive. We’re giving direction to our teams, but there are gaps that remain.” The Feb. 15 summit Froman held with Japanese Minister of State for Economic and Fiscal Policy Akira Amari yielded progress, according to the USTR chief (see 14021803).

Moreover, U.S. efforts to dismantle Japanese auto regulatory barriers face resistance in the Japanese public and government (see 14013130). “With the issues that are known to be unresolved, U.S. negotiators think talking about them will help make progress. The U.S. is interested in getting media pressure on Japan to portray them as an impediment, so the U.S. doesn’t take the blame in the end for any failures,” said Cato Institute trade policy analyst William Watson. “I’m not sure what that says for resolution on other issues. Negotiations continue on SOEs and other areas. We have found that some areas are being resolved. I expect there to be a big trade-off with the issues that are left to this late in the game. These agreements always end with a big trade-off in the closing moments.”

The U.S. beef producing industry, however, stands to gain significantly from decreased Japanese tariffs, said Jeremy Russell, director of communications and government relations at the North American Meat Association. U.S. beef exports are currently subject to a 38.5 percent Japanese tariff rate, according to Japanese media (here), which reports Japan is edging towards concessions. “There are a lot of different products in TPP negotiations. I don’t know if agriculture is the most contentious. But we are very interested in preventing Japan from undermining these negotiations,” said Russell. “It’s a critical component of these negotiations that Japanese tariff elimination is included. That’s what free trade all about.” The USTR will likely provide industry feedback on progress made during the ministerial in the coming days and weeks, said industry executives.

The U.S. should refuse to conclude TPP negotiations until Japan makes sufficient market access concessions, said a group of bipartisan senators in a Feb. 21 letter to USTR Froman (see 14022409). The Japanese are demanding tariff exemptions for 586 agricultural tariff lines, roughly 11 percent of its tariff schedule, said the National Pork Producers' Council President (NPPC) in a Feb. 22 post (here). The U.S. has only permitted 233 tariff lines to be exempted in 17 existing free-trade agreements, said the NPPC.

The U.S. may also choose to discontinue negotiations with Japan in the TPP framework if sufficient concessions are not made, said Froman on Feb. 18 (see 14021902). The Japanese inclusion in TPP is a significant incentive for the U.S., however, said industry officials and analysts, and dismissal is not realistic. “That’s just pure spin. They like to make these threats that they will drop the whole thing if their demands aren’t met. It’s standard practice in negotiations,” said Watson. “Removing Japan would be seen as a failure on the administration’s part. Countries are knocking down the door to get in, so why would you be kicking a country out? If they can’t keep Japan in, that would be a failure. The threats are just spin.” The Japanese economy is the fourth largest globally, and the second to the U.S. among TPP partners. The other 11 TPP countries admitted Japan only seven months ago (see 13072601).

The Feb. 21 Senate letter also criticizes Canada's lack of will to eliminate tariffs on agriculture. The U.S. and Canada did not reach compromise on agriculture market access during the Singapore ministerial, said Froman on the conference call. “Many of these are longstanding issues. U.S.-Canadian agriculture didn’t get resolved in NAFTA,” said Miller. “The fact that these areas are sensitive is not news. And the fact that these are sensitive areas as we are approaching the conclusion of negotiations is not news.”

The recent publicity surrounding the U.S. Japan market access dispute is “obscuring the broader reality” that there are systematic divides between TPP negotiating teams, said director of Public Citizen's Global Trade Watch Lori Wallach in a recent statement. The U.S. is failing to build support for strict intellectual property protections for medicines, among other negotiations areas, said Wallach. “U.S. proposals for enforceable labor and environmental standards and disciplines on state owned enterprise face continuing opposition from other TPP nations, but the absence of such terms would make U.S. congressional approval of the TPP improbable,” said Wallach (here). “U.S. negotiators have not even raised the demand from 60 U.S. Senators and 230 Representatives that TPP must include enforceable disciplines against currency manipulation, yet a TPP without this will be dead on arrival in Congress.”

Although a deal was not struck in Singapore, the 12 participant nations touted progress and pledged continued commitment on market access. “While some issues remain, we have charted a path forward to resolve them in the context of a comprehensive and balanced outcome,” they said in a statement (here). “Through extensive bilateral meetings, we have also made progress on market access, which is an important part of our remaining work, and we will continue working toward completion of an ambitious package across all market access areas.”

Aside from well-publicized areas of current and historic disagreement, fundamental, more obscure differences continue to exist among TPP partners, according to coverage of the negotiations. Twenty-one of 29 TPP chapters have unresolved areas, said Malaysian International Trade and Industry Minister Datuk Seri Mustapa Mohamed prior to the Singapore ministerial (see 14022109). The U.S. must also secure TPA prior to concluding TPP negotiations, said the Malaysian minister. “There’s still the wild card of TPA. Foreign negotiators are talking about the problem of a lack of TPA,” said Watson. “We’re not going to see TPA this year, however. It’s possible it will happen during lame duck. But 2015 is the real target.” The legislation faces stiff resistance throughout Democratic congressional ranks, notably in the leadership of both chambers (see 14021307). -- Brian Dabbs