The Trans-Pacific Partnership (TPP) trade talks are back on track after a meeting in late February of trade ministers and heads of delegations. Key issues are yet to be settled, but areas of compromise surfaced in important areas. President Obama will be in Asia in late April when politicians could take stock on moving toward completion of the talks.
A key change came when the U.S. government indicated interest in being flexible on dispute settlement on sanitary and phytosanitary (SPS) issues. The shift came from outright opposition to a formal dispute settlement system to willingness to consider it depending on the final outcome of the SPS negotiations. Inside U.S. Trade reported that the Office of the U.S. Trade Representative (USTR) said in an email, “After considerable consultation with U.S. regulatory agencies, stakeholders and Congress, the United States is willing to consider dispute settlement for the TPP SPS chapter provided that TPP countries are able to reach an agreement on the chapter.”
The government was at odds with many U.S. agricultural and food processor groups who fully support an enforceable SPS chapter in the TPP agreement. Some U.S. regulators feared that their decisions on food safety would be subject to legal challenges by other countries. The U.S. would be willing to accept dispute settlement for some obligations, but not all of them. SPS obligations on science and risk analysis and equivalency have been noted as likely exceptions. The U.S. is still pursuing SPS disciplines that go beyond WTO enforcement.
Other issues have also moved forward. While some members wanted to take a hard stand against all state-owned enterprises (SOE), particularly with China maybe joining someday, others have some domestic SOEs that are considered important. Those that serve primarily domestic markets include financial services, telecommunications, health, education, express delivery, and distribution services. Malaysia was particularly appreciative of the shift in positions. U.S. business groups have been critical of SOE and may have trouble with a compromise.
The official statement by the Ministers and Heads of Delegations after the meeting ended on February 25 noted, “While some issues remain, we have charted a path forward to resolve them in the context of a comprehensive and balanced outcome.” Progress was also made on market access issues and the group committed to continuing to work toward completing an ambitious package for market access.
Agriculture is one of those areas where market access remains a front and center issue. Eliminating all market access barriers was a major goal when the TPP consisted only of Brunei, Chile, New Zealand and Singapore. That became unrealistic as the group grew, particularly when Japan joined. A substantial reduction in barriers remains a goal for most countries, but Japan has gone in the other direction of wanting to exclude groups of commodities – beef and pork; dairy; sugar; rice; and wheat and barley – completely from the process. The U.S. is driving the hardest bargain on beef, pork and dairy products. The U.S. does not export sugar and recognizes the Japanese sensitivities on rice. The U.S. already has a large share of the Japanese wheat market, though the market is far from free from government intervention.
Talks on auto and agricultural trade barriers in Washington between the U.S. and Japan recently were reported by the Wall Street Journal. Granting greater market access for agricultural products will not be easy for the Japanese to resolve. Those issues will only be dealt with after negotiations have been suspended and revived a few times. There should be no expectation that these will be resolved in 2014. The U.S. negotiators should remain firm in seeking real market reforms.
Dairy also remains an issue for Canada with their supply management program that restricts imports to protect high domestic milk prices. It was one if the last issues resolved in the EU-Canada free trade agreement. Canada also has a supply management program for young chicken meat which requires import controls.
USTR Michael Frohman has said that U.S. negotiators have made progress with Vietnam and Malaysia on agricultural tariff reductions. Rates of 20 percent, 40 percent and 50 percent tariffs will be reduced and then eliminated.
The U.S. has a market access issue of its own to resolve – sugar. Mexico is the only country with unlimited access to the U.S. sugar market, granted under NAFTA. The U.S. government runs a supply management program and achieves its price objectives by limiting imports through a multilateral tariff-rate quota negotiated in the Uruguay Round of GATT in the late-1980s and early-1990s. Australia is pushing for additional quota access; something it did not get in the U.S.-Australia FTA. Australia has teamed up with New Zealand and Canada, minor sugar producers, to also push for increased sugar access in Japan and Mexico.
With this movement in the TPP at the heads of delegations and ministry level, the question is what role can President Obama play in the process when he is in Asia next month? This will not be the time to conclude the talks, but the President could provide political pressure to wrap-up most of the discussions so negotiators and minsters can work on the most intractable issue like pork and beef access to Japan.
The President will travel to Japan, the Republic of Korea, Malaysia and the Philippines in late April. When the White House announced the trip, it said the TPP talks would be on the agenda in Japan. Working out an understanding with Japan in advance is fundamental to moving the negotiations to conclusion. Malaysia is also a TPP member and the President will get a view of the concerns of a rapidly growing developing country. The Republic of Korea has considered joining the TPP.
The biggest challenge will be to keep the momentum going while difficult issues are addressed. President Obama can help the process along, but he cannot drive the process alone. Each country has to see that it has much to lose by waiting for others to act.