As a 10-day meeting of chief negotiators for the Trans-Pacific Partnership (TPP) free trade agreement in Hanoi, Vietnam, wound down, the outcome was about as expected. Options were narrowed, outstanding issues were further clarified and draft texts were prepared based on the options, but no breakthroughs were achieved that would drive the talks to conclusion. The chief negotiators are tentatively planning to meet again in mid-to-late October.
The October meeting is consistent with the plan set out at the May ministerial meeting and the July negotiators meeting in Canada. Technical working groups would likely be included in the October meeting to work out more details, but that has not been decided. Trade minister would meet shortly after that meeting to begin making political decisions. The hardest political decisions would be made by government leaders meeting sometime after the November 10-11 Asia-Pacific Economic Cooperation (APEC) leaders meeting in Beijing. The rapid timetable would leave a lot of details to be worked out after the government leaders meeting.
All of this is predicated on the U.S. and Japan meeting their commitments to disclose the results of their agricultural market access discussions in October. Japan substantially lowering or removing tariffs on five sensitive agricultural products – rice, wheat, beef and pork, dairy products and sugar – continues to be the critical issue. Japanese tariffs on U.S. automobiles also remain an issue. The two sides just complete three days of talks on autos. The standard refrain on autos and agriculture is steady progress has been made, but no agreement has been reached. Two days of talks on agriculture in Tokyo were just concluded without a breakthrough.
Japanese Prime Minister Shinzo Abe recently shuffled his cabinet and made a key change for agriculture. He named Koya Nishikawa as the new Minister of Agriculture, Forestry and Fisheries (MAFF). He has been serving as chairman of the Liberal Democratic Party (the ruling party) TPP Affairs Committee after being handpicked by Mr. Abe for the post. He has been a supporter of agricultural interests within the party, but knows that Japan needs to join FTAs if its industrial companies are to be competitive in world markets. Nishikawa will remain involved in the TPP Committee. His challenge is to find a middle way between the agricultural protectionists and those who support entry into the TPP. Despite his interest in working out an agreement, he remains sound on the political fundamentals and is not afraid of confrontations with negotiators from other countries.
Minister Nishikawa is the best the U.S. could hope for as the head of MAFF at this point in the negotiations. It appears he will not support totally free trade, no surprise there. The question is will the U.S. offer terms of an agreement that he can get his party to support. Mr. Abe and his party will probably need one more round of soul searching before they can live with what the U.S. and other TPP partners put on the table.
Pork producers in the other TPP countries are not making life easy for Prime Minister Abe and Minister Nishikawa. Pork producers groups in Australia, Canada, Chile, Mexico, and the U.S. recently said in an open letter to people interested in the talks, “All tariffs and other market access barriers, such as the Gate Price on pork in Japan, must be eliminated by the end of the negotiated transition period. All transition periods must have commercially meaningful timeframes, which should be short and not back-loaded.” This leaves some room for a deal.
The gate price system operates as a variable levy under which pork imports below the reference price of 526 yen per kilogram are taxed to bring the price up to the minimum price. In a modern, 21st century trade agreement there is no place for policies that do not allow for changes in export prices to be reflected in domestic markets. That is a general principle that should apply to all types of product. With the gate price gone, the negotiators have a classic case of how to provide immediate, meaningful additional market access while having a transition period for pork producers in Japan to adjust to lower import tariffs. Reasonable people will disagree with the shape of the adjustment curve, but not over the need for a curve if a deal is to be achieved.
While additional work can be completed across the wide range of issues in the agreement, the major push toward closure cannot occur until the U.S. and Japan agree on automobiles and agricultural products. Some analysts are beginning to speculate that the October date will not be met. The Obama Administration may choose to not make a firm commitment before the early November elections. That would conflict with intentions of concluding an agreement in early November, but that was never a realistic goal.
According to Bloomberg News, Barbara Weisel, U.S. trade representative for Southeast Asia and the Pacific said at the conclusion of the talks, “There has been important progress made this week. We have spent successive rounds trying to narrow the gaps.” She said progress was made on sanitary standards in agriculture. The meeting of the negotiators was worthwhile because many details needed to be worked out. The next meeting also will be worthwhile, but it would be more so with a U.S.-Japan agreement on autos and agriculture. The next meeting is probably the last useful meeting without a U.S.-Japan agreement. The ball is clearly on their court. When the U.S. and Japan reach agreement that will set off a mad scramble by other countries making other offers they have held until they saw what the U.S. and Japan were willing to do.
U.S. analysts are already looking ahead to the 2016 presidential election. If the TPP talks are not concluded in the first half of 2015, there probably will not be enough time to work it through Congress. If there is not a U.S.-Japan agreement on autos and agriculture by the end of the year, the TPP will have to move forward without Japan or without autos and agriculture. Or wait until 2017 to try again.