National Newswatch
National Opinion Centre

Last week’s summit between President Barack Obama and Japanese Prime Minister Shinzo Abe has come and gone.  In the advance billing, expectations on trade were deliberately downplayed – no doubt to enhance the value of anything which emerged.

There does appear to have been some movement which is being spun more aggressively by Team Obama than by Japan.  What is a concrete or basic agreement?  Is it as good as an agreement in principle? Claims of “breakthroughs”, “milestones” and “finding the way forward” seem exaggerated and could backfire.

Japan’s minister in charge of TPP issues, Akira Amari has suggested that Trans Pacific Partnership (TPP) discussions are only 70 to 80 percent complete. That the depth of cuts and length of phase-out periods for sensitive agricultural products are still to be decided suggest that there is much to be done.

Much skepticism will be tied to Obama’s ability to deliver what US Trade Representative Michael Froman negotiates. Japan’s Deputy Prime Minister Taro Aso has a good fix on the domestic problems which will delay or prevent U.S. Congressional consideration and passage of any implementing legislation.

The Americans suggest that for the first time Japan has moved in their direction.  In fact, Washington has at least partially relaxed its demands for full liberalization of sensitive agricultural products including dairy, beef, pork, rice and sugar.  It seems that Japan and the USA have identified the “path towards the ultimate resolution” for a number of sensitive agricultural products – without revealing where they expect to emerge.

Throughout the TPP negotiating process there have been numerous examples of uberhype and oversell.  The longer it takes, the more extreme the hype.

Trying to create the impression that Prime Minister Abe has caved to President Obama’s hardball negotiating tactics – that there would be no announcement on mutual security issues without bold moves on trade – seems insensitive to PM Abe’s “face”.

Japan and Australia have negotiated an Economic Partnership Agreement (JAEPA) which sacrificed ambition on sensitive agricultural products to end a seven year negotiation.  Australia’s automotive industry is essentially a thing of the past so this was not the type of impediment to deal-making as it is in North America.  Washington is concerned that JAEPA will dilute TPP members’ ambition for the sake of an early deal – one which would give Australia a head start on exploiting preferences in Japan.  The Canada-Japan EPA negotiations raise similar concerns.

Nor is New Zealand happy with the success of their neighbour in opening up the Japanese markets.  It is easy for New Zealand to be critical. Alone it could never open the Japanese market based on reciprocal liberalization.  The Kiwis must cling to the U.S. effort.

However, the U.S. seems to have recognized the merits of JAEPA, albeit reluctantly and not as flexibly as Australia.  The U.S. must be prepared to show flexibility and mutual accommodation in tempering the excessive ambition in order to close the TPP.  But will Obama’s opponents in Congress and key stakeholders accept “TPP-Lite”?  The National Pork Producers Council (NPPC) “took one for the team” in the U.S.-Korea negotiations (KORUS) – their concessions on pork helped the U.S. auto industry.  Will NPPC be a team player again or will they insist on trying to secure free, full and open access to the Japanese market in the TPP negotiations?

The TPP may never happen – either because of excessive ambition or because Congress may set the bar too high.  If it does happen, there is no guarantee that the U.S. hub and spoke approach will result in the same benefits being extended to all parties on equal terms and conditions.

The folly is not in agreeing to a smaller, earlier harvest.  It is in continuing to press for politically unacceptable and unbalanced agreements.  Ignoring deeply entrenched differences without adequate consideration of the political and economic implications for trading partners dooms negotiations to failure (the WTO has already suffered this fate).  Canada’s interests in free trade negotiations are often largely defensive.  Getting past the post first or at least early means that others must catch up with Canada.

There will likely be much skepticism about the wisdom of convening a Ministerial meeting in May – nor is there any concrete evidence that such a Ministerial could conclude the TPP.  Indeed, the suggestion has been met with considerable doubt.  The impasse between the U.S. and Japan has been blamed for the stalled state of TPP negotiations.  Calling the results of the Summit discussions a “breakthrough’ does not make it one.  There will be considerable persuading needed to bring ministers back to the table.

Clearly the U.S. objectives in agriculture go beyond what Australia was able to secure.  Japan is unlikely to accept the rapid disruption of its sensitive agricultural sectors by subsidized U.S. farm exports.  Japanese farmers have no assurances that the U.S. will discipline its production and trade-distorting financial support.  Indeed, domestic farm subsidies will not be addressed in the TPP.

Fully half of the Members of the House Ways and Means Committee have pressed Obama to secure full liberalization on each of the sensitive items.

The Japanese Parliament has issued a ‘thou shalt not touch’ resolution on dairy, rice, sugar, beef, pork, wheat and barley.  Japan made limited concessions to Australia on beef.  These are probably saleable.  Will Japan be able to go further with Washington?

U.S. stakeholder demands on agriculture, on currency manipulation and discipline on State-Owned Enterprises (SOEs) and access to automotive markets have painted USTR Froman and his team into a corner with Congress.  The currency manipulation disciplines demanded by Congress are clearly not acceptable to Japan, but the Detroit Three is not likely to budge on this any time soon.

Legislation to provide the Obama Administration with Trade Promotion Authority (TPA) has been delayed by new Senate Finance Committee Chair Ron Wyden (D-Oregon).  Senator Wyden wants a process which is more transparent and supportive of American interests.

Reports from Washington suggest there are not enough votes in Congress to pass a TPA bill.  Senator Harry Reid (D-Nevada) has said he will not table one.  Republican Senator Orrin Hatch of Utah wants to see the TPP completed before TPA is granted.  Hatch wants Congress to be more directly involved in the negotiations.

Will stakeholders and their supporters in Congress be satisfied with a bird in the hand rather than waiting for a very elusive bird in the bush which may never be captured?

Without Trade Promotion Authority there can be little confidence for Canada, Japan and the others that the U.S. negotiators will be able to deliver because of the very real risk of Congressional review and revision.  Why would Japan’s Prime Minister Abe risk the political damage of important concessions to the USA if there is still a risk that Congress could derail or try to re-negotiation the TPP?

 

Other players have issues too

Much of the agenda in any trade negotiation, up to 80 percent, is uncontroversial boilerplate.  These elements of the text are relatively easy to address by repeating what has been done in earlier agreements.  The real negotiations are about exclusions and new issues.  As noted when Canada joined the Trans Pacific Partnership (TPP) negotiations, all participants have sensitivities which do not lend themselves to either complete or very rapid liberalization.

Other countries also have sensitive issues.  There has been little progress on the entrenched issues since Canada gained access to the table.  The Trans Pacific Partnership appears to have lost in mid-2013 what little momentum it had.  Many of the outstanding issues are catalogued in the Annual USTR Trade Barriers Report (the Public Citizen report catalogues these barriers).

As analyst Gordon Campbell reported in the Werewolf in October 2013:

“Six out of 26 chapters were completed by Jana’s reckoning, as at the end of August. (Other observers count 29 chapters, but never mind.) The completed chapters cited by Jana are the easy ones: regulatory coherence, competitiveness, development, temporary entry of business persons, cooperation, and small- and medium-sized enterprises. Two others, he says – the chapter on the administration of the agreement, and telecommunications — are practically closed. Seven more are “parked” – which means that they have been set aside until the deadlocked issues can be resolved in the wake of horse-trading between the political leaders and trade ministers of the countries involved.”

All of this point to reluctance on the part of Ministers to be drawn into the fray before there is a real chance of success and acceptance of the deal as negotiated by Congress.

 

The way forward for Canada

Canada is too often put on the defensive in its trade negotiation program.  A bilateral agreement with Japan – including a provision for most favoured nation treatment among TPP members – will benefit Canada.

Canada does not produce rice – and does not threaten Japanese dairy producers.  Japanese auto manufacturers have made important contributions to the Canadian economy and could make further investments.

Not too long ago, the Japanese-owned assemblers in Canada also opposed free trade between Canada and Korea (CKFTA).

The Japan Automotive Manufacturers Association (JAMA) – which originally opposed the CKFTA – now urges “Canada to direct its full resources towards the swift completion of the economic partnership agreement with Japan”.

Canada should strive to secure an agreement with Japan on the Australian model.  Accelerating negotiation of the Canada-Japan Economic Partnership Agreement will be more beneficial for Canada than waiting for the TPP.

Australia has prudently woven into the JAEPA a most favoured nation (MFN) provision which will ensure that they too will receive the same deal as the USA, if Washington eventually concludes a better deal on beef, dairy and other sensitive items.  JAEPA is a good start.  Australia will secure the benefits of better treatment as a result of a TPP deal or a Japan-USA bilateral.

Going it alone with Japan is necessary because the U.S. is treating the TPP as a hub-and-spoke agreement – negotiating its own market access deals with each of the other players on a one on one basis.  There is no guarantee that the same treatment the U.S grants or receives will be extended to other participants.  Indeed, the U.S. may try to ensure that some concessions are not.

What are the risks for Canada in placing all of its eggs in the TPP basket?  First, the TPP is not in an end game.  The most optimistic, credible estimates of completion are in 2015.  Australia wisely did not wait.  JAEPA demonstrates that mutual accommodation on a less ambitious basis is a more expeditious option.

Second, Canada’s exporters cannot afford to be continuously playing catch up with those who have already achieved preferences in a given market.  Canadian pork producers and processors have an important interest in securing the same access to Japan as Australia, Chile and Mexico have gained.  It appears Japanese pork producers would embrace such an initiative. To them Canada in a bilateral FTA would be like a White Knight.

The TPP without Japan has little value for Canada.  It will be better for Canada to shape its Economic Partnership Agreement with Japan as soon as possible on it own terms, and not in a residual position to the United States.

 

Peter Clark, a former Canadian trade negotiator, is president of Grey, Clark, Shih and Associates Ltd., an Ottawa-based international trade consultancy. He is a frequent media commentator and appears regularly before Parliamentary Committees, analyzing trade and commercial policy issues.

The views, opinions and analyses expressed in the articles on National Newswatch are those of the contributor(s) and do not necessarily reflect the views or opinions of the publishers.
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