Another Obama-Abe Summit has come and gone. It’s time to pack up the good china and bring out the boxing gloves. The same pattern led up to this Summit as last year. Overselling hype until the reality of the continuing impasses precluded anything other than a declaration of progress and exhortations for closure of a trade negotiation claimed to be in its “final stages”.
Japanese Prime Minister Shinzō Abe’s comments to the OECD after the 2014 Summit were virtually identical. He said:
“Negotiations are also in their final phase on the Trans-Pacific Partnership Agreement…” and “Japan and the United States will act in co-operation to accelerate negotiations further towards the early conclusion of the negotiations by the 12 participating countries as a whole.”
Sound familiar? This is déjà vu all over again – Groundhog Day for trade negotiators on a grand scale.
The Trans-Pacific Partnership (TPP) negotiations will not be concluded without Congress giving the President Trade Promotion Authority (TPA). TPA will preclude re-negotiation of the deal by Congress, after it is signed. If TPA is delayed much longer there is a real risk that the TPP will go into a deep coma until a new President is elected. Who will champion Obama’s great initiative?
Presidential hopeful Hillary Clinton appears to be in a lose-lose situation over TPP. Clearly, she needs to hedge her position on TPP, or oppose it, playing to support from her base.
Though TPA has been reported out of the key House and Senate Committees, its early passage is looking very iffy. Senator Orrin Hatch (R-Utah), the principal Congressional cheerleader for both TPA and TPP, has said he cannot guarantee passage of TPP in 2015. His main concern for TPA is lining up the 60 votes needed to prevent a filibuster. Senate Minority Leader Harry Reid (D –NY) is determined to ensure Hatch falls short of the magic number.
The TPA legislation will not be discussed in the Senate before next week. It is not on the House agenda for May. Senate Majority Leader Mitch McConnell (R-KY) and Minority Leader Harry Reid (D-NY) are engaged in procedural “chicken”. Senator Reid wants to tie TPA timing to dealing with the Highway Trust Act and the Foreign Intelligence Surveillance Act (FISA), which authorizes data collection and eavesdropping programs for national security purposes. Both are important priorities for the Democrats.
Reid has threatened to find the 41 votes which would put TPA into legislative limbo. McConnell can’t back down to Reid’s threat and has filed a motion for cloture which will be addressed early next week. If Senate Democrats support Reid – and this is a vote on procedure -not a vote on trade, the “clean” Senate Finance Committee version of the TPA Bill could be tied to other inconvenient legislation. This is fair game and normal taking care of business in Washington.
Disciplining Currency Manipulation
Even if McConnell prevails, many proposed amendments are expected when TPA hits the Senate floor. The most serious will be Senator Rob Portman’s (R-OH) proposal to include tough disciplines on currency manipulation. Senator Portman’s initial proposal was defeated during the Senate Finance Committee deliberations. There are provisions in the pending Customs Bill urging the Department of Commerce to do a better job of dealing with currency manipulation in countervailing duty investigations.
The Customs Bill is overloaded with controversial provisions that Senator Hatch, in his capacity as Finance Committee Chairman, did not want included in the TPA Bill. Included are controversial provisions to make trade remedy measures (anti-dumping and countervailing duties) easier to obtain and to enforce. The Customs Bill could fail – leaving Senator Rob Portman (R-OH) and others empty-handed on currency disciplines. Senator Portman is busy lobbying and calling in favours.
Effective disciplines on currency manipulation have strong support. It could be a deal killer for Japan. House Ways and Means Chair Paul Ryan (R-WI) refused to consider Ranking Member Sander Levin’s (D-MI) alternative text on currency manipulation, labelling it “not germane”.
Congressman Levin is not giving up; coming from Michigan, he has no choice but to support the disciplines that the Detroit Three needs and wants. He has been supported by Nancy Pelosi (D-CA) and much of the Democratic Caucus.
The Senate Finance Committee version of the TPA Bill would deny fast track to any country deemed to be soft on preventing human trafficking. Malaysia made the condemned list in 2014, and is expected to repeat in 2015. This is the only difference between the House and Senate versions. Any Senate Bill must be acceptable to the House, where the margin of support for TPA is razor thin.
Chairman Ryan avoided dealing with trafficking in the House version arguing that such disciplines have no place in TPA or trade agreements. Who will want to stand up and be counted in opposing and appearing to favour human trafficking?
Opposing a Free Trade Agreement requires much more than a signature before it its presented to Congress. The U.S. International Trade Commission is required to conduct a 105 day study to assess the implications. This will not be a rubber stamp. And the Administration must give Congress 60 days notice before signing. Some of this can be done concurrently but it is time consuming and Congress will need to consider the USITC findings.
The uncertainties about timely passage of the TPA and the schedule leading up to a vote on TPP are not lost on Japan and other TPP participants. Canada has refused to engage on key issues without it. This is sound judgement based on the “do not buy a pig in a poke” principle. In the Transatlantic Trade and Investment Partnership (TTIP) negotiations, the E.U. is complaining that the TPA debate is delaying their negotiations.
Closure on TPP is not at hand. The TPP Ministerial meeting scheduled for May 25-26 in Guam is supposed to finalize the TPP negotiations. This will not happen without TPA. Or even with it. There is still too much to be done.
“Final phase”, like frequent claims of being in the “end game”, are seriously overselling the state of play. Even plans for the Ministerial are tied to TPA passage. Don’t hold your breath. Serious differences on substance in TPP remain, in addition to the procedural road blocks of guiding TPA through Congress. There will be difficulties with President Obama’s desire for enforceable obligations on labour and the environment. Imposing and enforcing U.S. standards and making them enforceable will not be an easy sell. Will climate change be added to Washington’s list of concerns with Canada?
Among the undecided TPP issues are intellectual property (pharma patents) and investment. Differences over trade in services and investment, as well as disciplines on state-owned enterprises, are deep.
Continuing talks on non-conforming measures (NCMs) are not benign. NCMs are not just another acronym in trade negotiators’ alphabet soup. They are exclusions for sensitive products and politically difficult issues. Everyone has them: Malaysia, Vietnam and Japan have the longest lists. Negotiations about exclusion are not easy; they are time consuming. Remember how long it took to finish CETA. (Is CETA really finished or are the Investor State Dispute Settlement negotiations still alive and unwell?)
A major NCM ask for Singapore is that its state investment company (Temasek Holdings) should be fully excluded from disciplines on state-owned enterprises. The USA, Japan, Australia and perhaps even Canada will object.
Australia has not accepted and is not likely to accept unrestricted Investor State Dispute Settlement. Carving out tobacco from the TPP might help – but that will be a very hard sell in the U.S.
Several countries want to exclude new (currently non-existent) services from the scope of negotiations on services. Japan is among the demandeurs on this issue. This does not sit well with the USA. Automotive and auto parts tariffs are still an issue between the USA and Japan. The Detroit Three and their unions will not likely budge on market access without disciplines on currency manipulation.
Reports from Japan suggest that the U.S. has insisted on 200,000 tonnes annual access for rice, but Japan is firm on just 50,000 tonnes. Do some Japanese consider U.S. rice is better suited to feeding livestock? There is certainly a strong preference in Japan for locally grown rice. Will that remain if prices fall to international levels? Japanese farmers claim, correctly, that U.S. rice production is heavily subsidized. Arguably, much U.S. rice production could not exist without heavily subsidized irrigation water and the subsidized power to run irrigation pumping systems. The gap on market access will not easily be bridged.
When the Japan–U.S. bilateral is concluded, how will the other TPP participants (the Gang of Ten) react? They could find that after the U.S. gets its “due” on access for “sensitive” agricultural products, the cupboard will be bare or that the phase out period for prohibitive tariffs is less favourable for them than it is for the U.S. There are no friends in trade negotiations.
The Obama Administration wants to close the TPP soon. President Obama is shifting his agreement from protecting world trade rules against China to publicly browbeating and condemning members of his own party for resisting the deal. President Obama’s desperate search for a legacy on trade is not a priority for Congress and for Democrats in general.
Legislators who must balance constituent interests are far more cautious on timing. Those concerned about re-election will be stubbornly resistant. One should pay more attention to Senators Reid, Hatch and Wyden and Congressmen Ryan and Levin than to Administration spin. Congress holds the keys to timing and passage of the TPA.
TPA should be passed. It is important to the U.S. and its trading partners. The WTO is not a viable alternative. It appears to be stuck, notwithstanding extensive efforts to inject reality into the impasse. TPP and TTIP are important. TTIP is key to improving Canada’s ability to meet EU origin requirements in CETA.
Unfortunately, in Washington, all politics are local.
Peter Clark, president of Grey, Clark, Shih and Associates, is one of Canada’s leading international trade strategists. His clients in Canada and around the world include governments, corporations and trade associations. He is a frequent media commentator and columnist.