Temporary failures won’t halt march of TPP trade talks

Reuters

Japan's Economics Minister Akira Amari (L) shares a light hearted response with a journalist, next to U.S. Trade Representative Michael Froman, at the end of a four-day Trans-Pacific Partnership (TPP) Ministerial meeting in Singapore Feb. 25, 2014

There has been a great deal of anxiety generated by the fact that the recent Trans-Pacific Partnership (TPP) Ministerial Meeting in Singapore ended without a successful conclusion, or even a statement that there was an agreement "in principle." This moves the strategic calendar forward to two events: US President Barack Obama's trip to Asia in April, and, ironically given China's non-participation in the TPP talks, an APEC Trade Ministers' Meeting in Qingdao this May.

From the outset, the key trade-offs in the TPP negotiations juxtaposed 21st century issues such as rules for state-owned enterprises (SOEs), intellectual property protection, services, investment, government procurement, health and safety, regulatory coherence against more traditional 20th century barriers to trade in sectors such as textiles, clothes, shoes, cotton, rice, sugar, wheat, beef and pork, among others. 

Though much attention has been devoted to the TPP's 21st century agenda and the daring novelty of including such "behind the border" issues in a trade agreement, it turns out that the most difficult obstacles to a successful TPP are the old-fashioned market access challenges listed above.

Symbolically, the press has focused on the standoff between the US and Japan, with Japanese negotiators during the Singapore meeting refusing to compromise on liberalizing "sensitive" sectors such as rice, beef, pork, sugar and wheat. 

But Japan is not alone in holding onto outdated market access protection: The US is guilty of dangerously refusing to compromise on textiles, clothes, shoes and sugar, Canada on dairy products, and Mexico on giving up current preferences from the North American Free Trade Agreement.

What has been overlooked, however, in the instant judgments on the Singapore meeting, is the fact that negotiators signaled a cautious optimism that on the 21st century issues, "landing zones," or compromises and workarounds, were in sight on intellectual property, SOEs, labor and environmental rules, and on investor-state arbitration. While this enthusiasm may vanish in the endgame negotiations, it contrasts greatly with the tensions over market access issues.

As matters stand at this juncture, a successful path forward will hinge substantially on a meeting between Obama and Japanese Prime Minister Shinzo Abe in April: The political difficulties and complications demand decisions by both heads of state. 

The key to a substantive success demands that all, or most of the "sensitive" sectors, are dealt with in the agreement, accompanied by long lead times, whether in rice, beef, and pork for Japan, and textiles, sugar and autos for the US. And both countries will have to expand any liberalization to include other TPP nations: sugar and beef for Australia, rice for Malaysia and Vietnam, and shoes and clothes for Vietnam.    

A successful Obama-Abe set of compromises in Tokyo will set off a scramble to achieve the outlines for at least a "statement of agreement in principle" for most, if not all, of the 21st century chapters of the TPP, with the goal of making a major announcement in Qingdao. While a stretch, this scenario is not impossible.

Where does this leave China, which has stated an interest in joining the TPP at some point in the future? 

The good news is that for China the almost intractable market access issues that defied solution for so long in the TPP negotiations do not present large adjustment challenges or huge changes in current trade policy. But should TPP nations reach substantial agreement on new 21st century regulatory rules of the toad, Beijing will have to face up to major internal reforms, whether on SOEs, services, government procurement, intellectual property protection, or regulatory due process.

Hopefully, at that point China's top leaders will seize the opportunity to utilize TPP negotiations as a potent outside lever to create a new growth model for economic success in coming decades.

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