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Why are the TPP Negotiations Struggling? Shifting focus from the US to Asia| Hayato Ishii Senior Feature Writer/Editorial Writer Kyodo News [Date of Issue: 30/September/2015 No.0247-0984]

Date of Issue: 30/September/2015

Why are the TPP Negotiations Struggling?
Shifting focus from the US to Asia

Hayato Ishii
Senior Feature Writer / Editorial Writer
Kyodo News

The TPP negotiations are already adrift. Even if 12 nations reach a agreement in principle before the end of the year, achieving a final agreement will remain fraught. The strategy of Japan and the US leading the negotiations needs to be revisited, shifting the focus to China, Korea and the Asian region.

The failure to conclude a agreement in principle at the latest round of ministerial talks in the Trans-Pacific Partnership (TPP) negotiations (12-country negotiations including Japan and the US) which took place in Maui, Hawaii at the end of July 2015 was a reminder of the difficulty of plurilateral negotiations.

TPP ministerial meetings seeking a agreement in principle have failed four times already, with the aims of the TPP diffusing further each time. Where newspapers around Japan have reported the negotiations as being on "the verge of coming adrift", they would be better viewed as already adrift.

Even if another round of talks is held and a agreement in principle reached before the end of 2015, a mountain of issues still stand in the way of producing a final agreement, while it is also unclear how smoothly the ratification process will proceed back home in the various participating countries.

The Abe administration's trade strategy has been based on the idea of a domino effect, whereby Japan and the US lead the TPP negotiations to an early conclusion which will then serve as a catalyst for the successive conclusion of mega free trade areas (FTAs) like the European Union (EU) and East Asia's Regional Comprehensive Economic Partnership (RCEP). However, the time has come to rework that strategy. Before that can be achieved, we first need to examine why the TPP negotiations are making such slow progress.

Obama administration hamstrung

All the countries in the TPP negotiations have pro-American administrations, seating at the table none of those emerging economies such as India and Brazil and developing economies in Africa and elsewhere that continue to oppose the US in the World Trade Organization (WTO) Doha round. Not even China and Russia, which are both members of the Asia-Pacific Economic Cooperation (APEC) forum, sit among them. In other words, these are negotiations "among friends", and in Honolulu in November 2011, the nine initial countries adopted the Trans-Pacific Partnership Leaders Statement, affirming that they would aim to reach agreement "as rapidly as possible".

Subsequently, however, the Obama administration's base weakened further than expected, with the fall 2013 standoff with Congress over fiscal issues forcing the temporary closure of federal government institutions. That October, President Obama was unable to attend both the APEC and TPP summits, and the TPP negotiations began to derail.

The mid-term elections in November 2014 saw the opposition Republicans seize the majority in both the Senate and Congress, skewing power heavily in their favor. President Obama has been unable to win over the labor unions which are part of the support base for the incumbent Democrats, while the Republicans with their strong ties to business control both houses of Congress. Pinned down both right and left, the Obama administration has no flexibility to negotiate, and to the extent that this situation remains unchanged, the likelihood of a substantive final agreement is remote.

Liberalization levels remain in flux

Canada, Mexico and Japan joining the negotiations also brought about a dramatic shift in the negotiating agenda. All three export automobiles. Mexico in particular has been working proactively to encourage foreign auto manufacturers to set up there ever since conclusion of the North American Free Trade Agreement (NAFTA), and now stands as the world's fourth largest car exporter. Where automobiles were barely discussed by the initial nine negotiating parties, the arrival of these three new members has taken the issue right to the top of the agenda.

Discussion at the Maui talks at the end of July on the threshold for Trans-Pacific Partnership duty-free auto content apparently saw a standoff between Japan, which wants the percentage set at less than 50 percent, and Mexico, which is insisting on at least 60 percent, with no viable compromise emerging. The difficulty with this issue is that it can't be resolved by simply averaging the two figures. Given that the current threshold under NAFTA is 62.5 percent, Mexico simply cannot accept the 50 percent compromise suggested by the US. Such an outcome would force Mexico into competition with cheap car parts from Thailand and China, rendering its participation in the TPP meaningless.

Local procurement rates raise the fundamental question of the level of "purity" in trade and investment liberalization to which an agreement should aspire. New Zealand's call in Maui for a return to the starting point of tariff elimination is essentially the same issue. When there were only nine countries at the table, they focused on principles—increasing the number of tariff-free products to at least 95 percent, on the basis of tariff lines for example. However, once Japan joined the party, the focus shifted to market access for individual products such as beef and sugar, turning the negotiations into what one negotiator has described as "business talks devoid of philosophy or principle". The level of TPP liberalization could equally be described as the level of exclusion—how high the barrier will be between countries inside and outside the region-and that's what should have been established as the starting point for the negotiations. Rushing to lock in a agreement in principle has effectively deferred the establishment of the TPP's ultimate goals.

Negotiating technicalities also problematic

The TPP has no permanent institutional equivalent to the WTO Secretariat, nor a Director-General. The US Trade Representative Michael Froman has continued to act as the de facto chair, with the US conducting bilateral consultations with other countries. This has stirred dissatisfaction and distrust among other parties to the negotiations, who complain that the US is misrepresenting to countries what they have actually agreed on. They say that Froman is deceitful, with the cards that the US puts on the table being only for show. In other words, the only person who understands the whole picture is Froman, but Froman isn't trusted.

During the Uruguay Round, WTO Director-General Peter Sutherland and his team talked with the negotiating parties in deepest confidence and then presented compromise proposals, but here there is no such process. In the absence of a facilitator, neutral compromises are hard to come by.

Japanese government too bears responsibility

The Abe administration has described its TPP aims in the context of containing China's maritime expansion, but Australia, New Zealand, Singapore and other countries with close ties to China have not once adopted a hostile stance on China, on the economic front at least.

Even the United States, which Obama has said must "write the rules", has never called for China's exclusion from the TPP. Conversely, the US is looking for China too to be brought into the TPP fold in the future. Japan is the only one of the 12 negotiating countries to draw a direct link between the TPP and security policy, and this is complicating the negotiations.

Future prospects

Given this situation, avoiding an implosion in the TPP negotiations will require either allowing a number of countries to pull out of the negotiations or taking pharmaceuticals and other difficult issues off the main table. In other words, the negotiations need to be less ambitious. However, at this stage, with the TPP losing its shine as the model 21st-century trade and investment agreement originally envisioned, the agreement is unlikely to be able to offer much of a domino effect.

The current priority on the US/Japan-centric TPP needs to be revisited, shifting the focus instead to Asia and the China-Korea FTA negotiations and RCEP negotiations and seriously considering positioning as the ultimate goal a return to the WTO where the central principles are non-discrimination and most-favored-nation treatment.

(This article was written on 3 September 2015. The views expressed are those of the author and have no relation whatsoever to the institution with which the author is affiliated.)

(original article : Japanese)
(For the Japanese version of this article)

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