Keeping the TPP On Course
Negotiations for the Trans-Pacific Partnership have lost momentum and are in danger of stalling completely. Although Japan’s tough stance on rice tariffs has been under scrutiny, the biggest obstacle to this Washington-led initiative may be the political climate within the United States, as the Tokyo Foundation’s Takaaki Asano explains in this Nikkei Business Online interview .
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Prospects for the TPP [Trans-Pacific Partnership] are beginning to look uncertain.
TAKAAKI ASANO: Before the February 25 TPP ministerial meeting, Akira Amari, state minister for economic and fiscal policy, warned that without a breakthrough of some sort, the negotiations could come to a standstill. The February meeting didn’t yield a breakthrough, so people are wondering if the TPP process can get back on course.
The main obstacle seems to be tariff disagreements between Tokyo and Washington.
ASANO: You’ve heard it said that the TPP is at heart a Japan-US free trade agreement. And I agree. That’s why the media has played up tariff talks between Tokyo and the Washington. Now they’re saying that the negotiations have gone badly.
But the real focus of the TPP isn’t tariffs. The problem is that, before an agreement can be concluded and ratified, each of the negotiating parties has to secure political support for it back home. And from this standpoint, agricultural tariffs have emerged as one of the bones of contention in Japan-US negotiations. In Japan, this is inevitably the center of attention, so everyone has been asking whether Japan will successfully defend its five “sacred” farm products [rice, barley and wheat, sugar crops, dairy products, and beef and pork] from foreign imports. But defending these five priority farm products should not be the goal of our participation in the TPP.
The Real Roadblock
What’s the new target date for an agreement?
ASANO: From here on in, the US political calendar is going to be a major factor. The TPP is largely Washington’s initiative, but midterm elections are coming up in November, and an election year is not the best time to seek congressional approval for major free trade initiatives.
Initially, the participating countries had agreed to try to reach an agreement by the end of 2013. In the media, the standard explanation for this was that the White House, under President Barack Obama, felt that a successful conclusion to the negotiations would help the Democratic Party in the midterm elections. But it’s debatable whether concluding an FTA would score political points for the Democrats, given that key elements of the party’s traditional base, such as organized labor, are highly skeptical of such pacts.
Are you saying the TPP could backfire on the Obama administration?
ASANO: It raises challenges for environmental protection and for labor, and these are areas the Democratic Party has championed over the years. If the administration backpedals on those issues, it could alienate the Democratic base and get the party into political trouble. That’s why I think it’s simplistic to interpret Obama’s push for the TPP as part of an election strategy.
This political dynamic is playing out in the president’s bid for Fast Track negotiating authority [trade promotion authority]. Fast Track authority expired in 2007, and it was only in January this year that a bill to renew it finally came before Congress. * Whether or not the bill passes could have a huge impact on the negotiations.
How would the Fast Track bill strengthen the president’s hand?
ASANO: Assuming the parties to the TPP reach and sign an agreement, the pact still has to be approved by Congress. Unless the president has Fast Track authority, Congress has the right to deliberate individual provisions and even force the president to renegotiate them, so the process could drag on and on. Under Fast Track, Congress is only permitted to approve or reject the entire pact as negotiated under the president’s authority.
So, even if all the TPP countries were to reach an agreement, it could still fail to pass Congress.
ASANO: Yes, and in that case, you would have an agreement signed by all 12 countries but impossible to implement because of political opposition in the United States. This would undermine international confidence in Washington’s ability to negotiate agreements in general. To avert such a scenario, the White House needs to acquire Fast Track authority before any agreement comes before Congress.
You say the bill was introduced in January. How long will it take to pass and come into effect?
ASANO: Actually, I don’t think it’s going to pass.
ASANO: As things stand now, at any rate, the chances of its passing before the November midterm elections are very slim.
Why is that?
ASANO: Because it faces opposition not only from Republicans but also from a lot of Democrats.
Because they want to be able to modify the agreement themselves?
ASANO: First of all, they have the interests of their constituencies to consider. But there are other grounds for opposition as well. Some take a kind of fundamentalist position with regard to the powers of Congress, saying that Congress has the authority to regulate commerce, and it shouldn’t just hand that over to the executive branch. Others are willing to hand over authority, provided the bill offers Congress sufficient assurances in return.
What sort of assurances do they want?
ASANO: The Camp-Baucus bill establishes negotiating objectives and requirements for congressional consultations with the aim of defining the basic direction of future trade agreements and ensuring that Congress has sufficient input. Some members of Congress want stronger language with regard to the negotiating objectives. Politicians with ties to the auto industry are particularly insistent about the need for tough provisions on currency manipulation in the TPP because they claim that Japan and South Korea have manipulated exchange rates to boost exports to the United States. The Camp-Baucus bill contains a directive regarding currency manipulation, but some members of Congress have voiced their opposition on the grounds that the language is too weak.
So, if the Fast Track bill doesn’t pass, how does that affect the prospects for reaching a TPP agreement within the year?
ASANO: Unless the president can secure Fast Track authority, any TPP-related legislation that comes up for deliberation in Congress is going to run into trouble. It’s going to be much harder to get those bills through Congress, and other countries are going to start to question how serious America is about the whole undertaking.
Meanwhile, it’s 2014, and the midterm elections are looming.
ASANO: Well, they’re about six months off now, so there’s still some time. But by September, the election season will be in full swing, and the climate is not going to be conducive to cool-headed debate on free trade agreements. In any case, it seems clear that Obama’s dwindling political capital at home is having an impact on Washington’s dealings abroad, including the TPP negotiations.
On the Cusp of a New Trade Era
So, it sounds unlikely that we’ll be seeing a TPP agreement emerge anytime soon.
ASANO: There’s still a chance. I think it might still be possible to take advantage of Obama’s visit to Japan in April and the meeting of APEC [Asia Pacific Trade Cooperation] trade ministers in May to bring the negotiations to a successful conclusion.
There’s been some talk about South Korea joining the talks, and it’s been suggested that that could cause further delays. What’s your take on that?
ASANO: Well, I do think that an agreement would take longer if South Korea decided to enter the negotiations. But whether it can enter the talks at this point is a different question. All the current participants have to consent before a new party can join in international negotiations of this sort. Japan was a latecomer to the talks, and it had to secure the approval of all the other eleven countries before it could finally take a seat at the table in July last year. South Korea can’t just raise its hand and say, “Me too.” It will have to pass inspection by the current participants.
On the other hand, South Korea already has a bilateral free trade agreement with the United States, so if it did join the TPP negotiations, at least it wouldn’t need to spend a lot of time in tough tariff negotiations with the United States.
But Washington is dissatisfied with the way the US-Korea Free Trade Agreement has been implemented in South Korea since it came into effect two years ago. So, there’s a risk that the United States will drag its feet about letting Seoul join the TPP negotiations.
In the midst of all these delays, mightn’t China decide to throw its hat into the ring as well?
ASANO: It’s true that China is eyeing the TPP with greater interest. But Chinese membership isn’t realistic at this point. In the near term, there’s no way China could sign on to the kind of high-level agreement envisioned by the current participants.
What are the obstacles?
ASANO: Well, I don’t think China could go along with the TPP’s goals for investment liberalization, open and fair competition, or limitations on state-owned enterprises, not to mention the elimination or reduction of tariffs.
But wouldn’t you agree that the TPP comprises a lot of policy reforms that China is going to need to implement anyway in the not-so-distant future?
ASANO: That depends on the direction in which Beijing decides to steer the economy. If it decides to boost economic growth through liberalization, then in the final analysis, it will probably need to implement the measures currently incorporated in the TPP in one form or another. Most experts believe that China reaped big dividends from its acceptance into the World Trade Organization in 2001.
But the TPP is on a different plane?
ASANO: Yes, and I think the Chinese realize it. That’s why they’ve been backing the RCEP [Regional Comprehensive Economic Partnership].
The TPP and the RCEP are both so-called mega-FTAs, agreements that are expected to boost economic dynamism through the integration of two or more existing trade areas. Other mega-FTAs under discussion include a US-EU agreement and a Japan-EU pact. On the basis of this trend, I think it’s fair to say that global trade is about to enter a whole new era.
What’s behind this shift?
ASANO: The simplest explanation is that with WTO negotiations at an impasse, countries have opted for bilateral and regional FTAs as the next-best thing. The Doha Round began in 2001, and there’s still no agreement or breakthrough in sight. Most commentators say that bilateral or regional FTAs are on the rise because it’s become so difficult to reach one global agreement encompassing all the WTO member states.
So, instead of negotiating one big agreement, they’re trying to conclude a lot of smaller ones and weave them together.
Domestic Politics and International Trade
ASANO: During international trade negotiations, each government has to either accommodate or override demands from various economic sectors, and when that happens, national politics inevitably comes into play. Along with an open and honest national conversation about the economic benefits and costs of any given free trade agreement, we need more coverage of the political dynamics behind international trade negotiations.
You mean the wheeling and dealing behind the scenes?
ASANO: I’m not talking about exposing backroom dealings so much as focusing more on the political and economic realities that shape each government’s negotiating position.
For example, how does domestic politics affect negotiations regarding specific sectors that various countries have traditionally regarded as off-limits where free trade is concerned? You hear a lot about Japanese protection of agricultural products, particularly rice. But Canada is equally adamant about maintaining its poultry supply management system, and America’s refusal to open its sugar market is a major source of frustration to Australia.
Where sugar is concerned, there’s no strong consensus among Americans for protecting domestic sugar producers, so you would think it would be possible to overturn the status quo through strong political leadership. But the Obama administration doesn’t have much political leverage at this point. If the Americans seem inflexible on sugar at the bargaining table, it might reflect the White House’s lack of political capital at home.
By contrast, it seems to me that the Abe administration is in relatively good position to persuade or override the farm lobby and its allies.
But regardless of Tokyo’s actual negotiating position, the stereotype of the Japanese as diehard protectionists is so firmly entrenched that we could end up getting blamed anyway if the TPP talks fail.
You think Japan might be made the scapegoat if the negotiations break down?
ASANO: Between these preconceptions and the impulse to lay the blame elsewhere, I do worry that people will blame any breakdown on Japan’s intransigence. The best defense against that is an active public diplomacy campaign, both before and after the fact.
Momentum and the Search for Common Ground
ASANO: The TPP is more than a commitment among a group of countries to reduce or lower tariffs. It also has great potential as a new framework for economic dialogue, and our first goal should be to launch that framework and make the most of it. Granted, APEC already exists is a regional economic forum, but I think East Asia and the Asia-Pacific could benefit from having other frameworks for wide-ranging exchange of opinion on the economic order. In this sense, the TPP negotiations represent a historic opportunity, one that we should capitalize on.
All the more reason to avoid a deadlock.
ASANO: When countries are at loggerheads and negotiations enter a holding pattern, there’s always a danger that the talks will lose momentum and fizzle out completely. This is what Japanese commentators mean when they speculate on the Doha-ka [“Doha-ization”] of the TPP talks.
Well, then, let me rephrase the question I asked before. Do you think it’s possible for an agreement to be reached during the first half of 2014?
ASANO: Leaving aside bilateral tariff negotiations, the positions of the participating countries seem to be converging on most of the major issues. So, I do think it’s possible. But it’s not going to happen either through unilateral concessions from Japan or through unilateral concessions by America and the other participants.
Which means that an agreement has to be reached before the end of summer, when America’s midterm election season begins.
ASANO: I think it’s important to set a target date, partly in consideration of US politics and partly in order to maintain some momentum, which is always essential to the success of negotiations. On the other hand, since any agreement has to be ratified at the domestic level, it’s also important to maintain close dialogue between the administration and the legislature during the negotiations. If the negotiating parties get carried away by momentum and neglect that angle, any agreement they come up with is likely to be meaningless.
It sounds awfully tricky finding common ground among all those interests.
ASANO: The Tokyo Foundation project on Agricultural Policy in a Globalizing World analyzed the agricultural trade negotiations of the Uruguay Round of the GATT [General Agreement on Tariffs and Trade, the WTO’s predecessor] and the measures implemented in conjunction with that agreement, reached in 1993. One of the conclusions was that Tokyo slipped in the negotiations because it was overly influenced by domestic opposition to the tariffication of rice. In a last-minute deal with Washington, it agreed to accept “minimum access” rice imports as an alternative. But paradoxically, the impact on the domestic market was greater than it would have been had it accepted tariffication. I hope that Japan puts that lesson to good use this time around.
From what I can gather, our top agriculture officials today have learned this lesson, so it could be that Japanese farm policy is approaching a turning point. If the Japanese government could successfully convey this new domestic dynamic to the international community without compromising its bargaining position, it would be a big step toward enhancing Japan’s image and reducing the risk of a public-relations defeat.
The article was translated by the Tokyo Foundation with permission from Nikkei Business Online .
* The Bipartisan Congressional Trade Priorities Act of 2014, introduced by Democratic Senator Max Baucus and GOP Representative Dave Camp. Commonly referred to as the Camp-Baucus bill.