TPP : The Parley in Bali

The TPP trade deal is in deep trouble…
by Gordon Campbell

Necessity is – supposedly – the mother of invention. The political leaders who are gathering in Bali for the APEC meeting are certainly in need of miracles. Believe the hype, and the Trans – Pacific Partnership they will be discussing in Bali is almost a done deal. Allegedly, we’re in the ‘end zone’ now, and all it will take to conclude the TPP is for a few brave politicians to give it one last series of shoves over the finishing line.

That’s really not the case. The more accurate point of view is that the negotiators and trade ministers from the 12 participant countries in the TPP have been in panic mode for the last couple of months and have been meeting virtually around the clock to cobble together a credible case in Bali that the end is in sight – in the hope this might become something of a self-fulfilling prophecy. To get some sense of the procedural panic – in the wake of their September 18-21 meeting in Washington, the chief negotiators scheduled an extra meeting that has been shoe-horned into the Bali proceedings ahead of the ministerial meetings, which are themselves scheduled just ahead of the political leaders meeting at Bali on the TPP that is supposed to assure us punters that hey, all is well. Is this frenetic activity a sign that the deal is almost done – or a mark of desperation about the lack of progress on the intractable items that are still dogging almost every aspect of the deal ? More than ever before, the claims by Prime Minister John Key that New Zealand stands to add $2 billion to $4 billion to its GDP from this deal look like pipe dreams.

Not only is the TPP well behind schedule – see below – but the logjams in key sectors are of such magnitude that (just like the Doha Round of WTO talks it was supposed to supercede) the TPP may never be completed. In a mark of desperation, there has been talk in the Japanese media that the TPP is ‘ready to ascend’ to the political level in search of a resolution.

The trouble with leaving it to political leaders and trade ministers to do the horse-trading ( and then have them send smoke signals back to the negotiating teams) is that the TPP process has been so secretive, the politicians involved cannot claim a mandate to tether their countries to binding deals done on the hoof, and done mainly to sustain a mirage of momentum. Can a New Zealand Prime Minister or Trade Minister for instance, allow this country to trade away its current positions on parallel importing or the patent terms of the pharmaceuticals purchased by Pharmac in return for…say, a pie in the sky promise of greater access to dairy markets phased in over a 20 year period ? No wonder Labour leader David Cunliffe has said that he’d have to see the fine print before lending bipartisan support to what John Key might signal to his negotiators in the wake of a late night horse-trading session with his counterparts in Bali.

To give Key carte blanche would exceed what other countries – Canada and the US – are prepared to do. They insist on seeing the fine print, and parliaments elsewhere ( not to mention the US Congress) demand the right to a clause by clause examination and amendment process prior to a ratification vote. As veteran trade commentator – and former Canadian trade negotiator – Peter Clark [pictured left] told Werewolf in an exclusive interview from his offices in Ottawa, trade pacts such as the TPP “ have no status in Canada until they are ratified by Parliament.”

That’s not how we do it here. In New Zealand, as Auckland University constitutional law expert Bill Hodge told Werewolf last year, treaties such as the TPP take effect here via an executive order in council, and not by a parliamentary vote :

“Treaty making is a heritage, believe it or not, of the royal prerogative,” says Auckland University constitutional law expert law professor Bill Hodge. “ “Indeed in the American Constitution it is expressly given to the President to sign treaties and declare war, but there is a check and balance and they have to be ratified [by Congress]. ” That’s not the case here. “It is a direct lineage of unfettered, totally discretionary royal prerogative to exercise treaty making power overseas, because that’s something the executive does, historically.” Ultimately that ability is based on holding a majority in Parliament. Parliament’s main role will be to subsequently bring laws into alignment with such treaties – whose provisions, Hodge adds, are increasingly being recognised by the courts as forming a part of the notional, common law, even without those provisions being explicitly embedded in domestic law. The level of degree of secrecy surrounding the TPP text and negotiations would….render any informed debate on the TPP in Parliament impossible.

Why is this issue – of when and how the TPP will come into effect – so important ? Because of the politics of ratification. The public should be justifiably outraged that the Opposition – and future governments – will be bound by terms that they had no chance to scutinise meaningfully before the deal was done. This shadow of when the deal gets ratified (and how valid its political mandate may be ) is hanging over the entire TPP process. New Zealand is not the only country that is baulking at buying a pig in a poke. Chile for instance, has an election on November 17, and an opposition led by former President Michelle Bachelet who is far less keen on the TPP than the current government, is expected to win. Chile, one can safely bet, will not be agreeing to this deal before year’s end, or to ratifying it without considering it afresh.

That’s not all. In a September 19 article “ TPP Countries Still Fighting Over Legal Issues Ahead Of Year-End Target” the authoritative Inside US Trade site underlined the point that no consensus exists between the participants on
(a) how a final deal on the TPP would relate to existing bilateral trade pacts. At present, there is only a ill–defined indication that the “ stronger” pact should prevail and
(b) how and when the TPP would come into force. Incredibly, even ratification by the sovereign parliaments of TPP member countries may not suffice for the US. Quote, from Inside US Trade :

On the issue of entry into force the main debate is over whether the agreement will enter into force for a country upon its ratification by the deal, or only after it has submitted a letter [to the US Congress] affirming it has completed the necessary implementation steps….

Such letters would then be considered by Congress, and certified that due compliance has, in fact, occurred. Chile for one, is refusing to abuse its sovereignty by submitting to such humiliating certification – yet until such a process occurs, Inside US Trade notes, Congress seems unwilling to ratify the deal. Unlike minor players like New Zealand which lacks checks and balances before committing to international treaties, Congress has not yet given President Barack Obama the Trade Promotion Authority that he still requires in order to negotiate a binding TPP deal. Much less has it given Obama its automatic approval for whatever commitments he can induce other countries to make. Quite the contrary. Congress is currently of a mood to re-litigate any TPP deal clause by clause, or to vote it down outright. In Bali, the leaders will be celebrating an incomplete deal, where the legal status of many of the commitments that are being talked about is still entirely up in the air.

That is only one small fly in the TPP ointment at present. There are many others. What do we know about the current state of play on this deal? With something as secretive as the TPP, someone was always likely to blow its cover. That helpful someone has turned out to be Alvaro Jana, the director of international economic relations in Chile’s foreign ministry. On August 30, Jana’s interview with the Pulso business magazine in Santiago revealed just how little of substance has actually been resolved. “About a quarter of the chapters,” Jana said, “ are closed.” There’s a Google translation of Jana’s interview here.

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.

Even then, scepticism is merited when it comes to these “almost completed” chapters (where the “technical” details necessary for conclusion have allegedly been done and dusted) and needful of only a “political” decision. Evidence from Japan ( see Inside US Trade, August 29) indicates that in the environment chapter alone there are some 300 “brackets” [signifying areas of disagreement] that remain, and “ a chapter on state-owned enterprises shows that countries have failed to agree to a definition.”

So after three years, the TPP countries can’t yet agree on how to define the nature and scope of the SOEs whose future they are trying to negotiate. Not even the last gasp flurries of activity that have occurred over the past fortnight have changed that picture dramatically. A September 27 article headlined “TPP Work On Key Issues Remains Slow, Resolution By APEC Doubtful” speaks for itself. It talks about “ slow progress” at the September 18-21 meeting of chief negotiators in Washington and raised “serious questions” about the APEC timetable being met. Moreover :

The chief negotiators’ meeting last week did not focus on intellectual property rights (IPR), environmental commitments and rules for state-owned enterprises (SOEs), which officials have previously referred to as the most difficult outstanding areas in the talks along with market access.
Do experienced trade analysts such as Peter Clark believe that the TPP truly is in the “end zone” – or does he regard the recent rush of activity as more a sign of desperation ? Clark : “ I would say it is a sign that it is having difficulty reaching the over optimistic goals announced at the APEC gathering last year. They don’t seem to be any closer. They have all sorts of problems with Malaysia. If you look at Alvaro Jana’s speech, it sets out where the difficulties are. Essentially what has been agreed are half a dozen sectors. They are not the difficult ones. When you talk about things being 80% finished, most trade agreements are 80% boiler plate which are easy to agree. They’re carried over from agreement to agreement. So you have 20 % that is controversial, that they can’t move on. And I’d only give the example of Canada negotiating with the European Union on a comprehensive free trade agreement. We’ve been at that [end zone] stage for two years. As a former negotiator, I chuckle when I see the ‘end game’ references. Every year as they go into the APEC summit, they develop a new definition of victory. I’m anxious to see how they define ‘victory’ this year.”

In yet another sign of stalemate, the US has yet to table its current position on the IP chapter to do with pharmaceutical patents. The Americans have been vacillating on this issue throughout 2013. After other countries (including New Zealand) had rejected its original hardline position in 2012, the US made conciliatory sounds this year – at least until recently, when Big Pharma made it clear it wants the US to stick to the hardline positions set out in the Korea/US bilateral FTA. As yet, the US hasn’t even tabled a position paper. The negotiators were due to discuss the IP pharma patent issues in Mexico City in late September/early October, but here’s most recent indication ( from the September 27 Inside US Trade article mentioned above) of how thoroughly things are bogged down :

Public health group Doctors Without Borders claimed in a Sept. 26 press release that the U.S. was “submitting” a new pharmaceutical IP proposal in Mexico that would offer certain temporary exemptions for four developing countries and provide 12 years of data protection for biologic drugs. But a spokeswoman for the Office of the U.S. Trade Representative said in response that the U.S. is “not submitting” a pharmaceutical IP proposal at the Mexico meeting, which lasts through Oct. 2. “This week, U.S. negotiators are continuing to discuss our existing laws and how we might move together with our TPP partners to ensure both pharmaceutical innovation and access to the resulting medicines,” the spokeswoman said.

Late in 2012, Trade Minister Tim Groser had inexplicably declared himself willing to make concessions around “ transparency “ in Pharmac’s dealings, and those unilateral undertakings could still be dangerous for Pharmac in future, as this article last year in Werewolf spelled out. For now though, Groser has been pledging not to endorse any TPP deal that would do harm to Pharmac in its bargaining position vis a vis Big Pharma.

He may have his work cut out. Here’s how the Washington Trade Daily reported this issue on 23 September :

The United States and Japan are considering making a joint proposal concerning Trans-Pacific Partnership rules on drug patents, making it possible for generic drugs to be sold sooner in developing countries, sources close to the matter said Saturday, Kyodo news service reported…..According to the sources, the joint proposal will call on developed nations like the United States, Japan and Australia [and New Zealand] to extend the period of patent protection for medicinal drugs while allowing shorter periods in developing countries like Malaysia and Vietnam. [Which certainly sounds like the proposal cited above by Doctors Without Borders.]

Washington has been insisting on the patent extension in TPP talks on intellectual property to protect the interest of U.S. drug makers. But emerging economies like Malaysia have voiced concern, contending extended patent protection would delay the availability of less expensive generic drugs. The United States and Japan are apparently opting for easier rules for developing countries, judging that promotion of generic drugs would ultimately benefit the drug industry as a whole…..The United States and Japan seek to discuss the proposal at a TPP ministerial meeting in Bali, Indonesia according to the sources.

This proposed trade-off on pharmaceutical patents between the developed and developing world has also been reported in the Japanese press here. If accepted within the TPP, it would mean that Canadians and New Zealanders would get to pay more for medicines for longer, and have slower access to generics – all in order to subsidise easier access to cheap generics for countries such as Malaysia and Vietnam. (Big Pharma would reap the same profits, whatever. ) This trend for Japan and the US to work out deals between themselves is something discussed further, below.

In sum – and however rosily this fragmented and hotly contested landscape is portrayed – this is not a deal that is headed for closure anytime soon – no matter how much at Bali, the TPP spinmeisters try to claim that so much has been achieved, and that a deal is glimmering just beyond the horizon. This pressure to foster a sense of momentum and imminent closure probably means that, in Bali, the TPP leaders will announce an agreement in principle, or that a certain portion of the deal has been completed. That is what the 2013 definition of ‘victory’ will sound like. There’s good reason to believe otherwise when only between a quarter and a half of the deal has been resolved at best, and when significant disagreements exist in all of the difficult TPP chapters.

Why the need to portray the rate of progress in such a misleading fashion? Domestic politics in the US are partly to blame. US President Barack Obama, without consulting his allies, had announced that a deal would be concluded “in principle” ( whatever that means) at the Bali conference. Obama has Congressional mid-term elections looming next year. To have a chance of steering the deal through Congress in 2014, Obama needs to have a draft deal agreed by year’s end, 2013. ( Keep in mind that he still – incredibly – lacks that Trade Promotion Authority to conclude the TPP deal, which crucially, would give him the power to force the finished deal to a straight ‘up and down’ vote in Congress, without his opponents being able to pick the deal apart, clause by clause. ) A hard road awaits him. As Clark says, even Obama’s own Democrats are not particularly keen on free trade. Nor, since they got shafted by Bill Clinton over NAFTA, are the US trade unions. “For new trade agreements, Obama has to rely on the Republicans – and a few of his own people – to try and get this thing through. Its not easy. The Republicans don’t want to give him a legacy. They don’t want to give him any wins. They don’t want to give him any power. In my experience [ when it comes to ratifying trade deals] Congress always extracts a price.”

It is this political time-clock in the US that is dictating the panic – sorry, the momentum – in Bali. Probably, to no avail. “ I don’t see this [deal] closing in time to avoid the [US] elections,” Clark says. The focus on the midterms will have already begun in the second quarter of 2014. Beyond that : ”They won’t have anyone in Congress to focus on it in the second half of next year.” 2015 looks to Clark like being a more realistic finish date for the TPP , if it is ever to be finished at all.

Uh oh, the currency manipulation problem. Amidst the ‘momentum” that the Americans are said to be putting behind the TPP, one issue has emerged in recent months that at best, will sour the mood of a Congress towards a TPP deal on which it is already disinclined to cut Obama any favours. At worst, this new issue may kill the TPP altogether. In recent months, a letter to the Obama administration has been circulating in the Senate, a letter that demands that the US should include disciplines within the TPP – enforceable by investor-state dispute mechanisms – that would prevent member countries from manipulating their currencies to boost their exports.

The immediate target of this gambit is Japan, which the “Big Three” of the US auto industry accuse of fiddling with their currency in order to make Japanese car imports more attractive to US motorists. If made part of the TPP, such measures would mean that New Zealand could be sued if the Reserve Bank acceded to calls by the Greens for the RB to manage a decline in the currency to assist our exports. If such measures had already been in place, they would have outlawed the currency moves that Malaysia successfully made to negate the worst effects of the Asian financial crisis of the late 1990s.

So far the Senate letter has attracted 60 signatories, with more than half of them from the highly influential banking, finance and foreign relations Senate committees. Even so, Werewolf suggested to Clark, can’t this issue be resolved bilaterally between the US and Japan, and kept out of the TPP arena entirely – especially since the TPP negotiators have already drawn their wagons in a circle and refused to put currency manipulation up for discussion ?

Good luck with that. “If we were just dealing with Japan,” Clark replied, “ I think it could probably be addressed bilaterally with Japan but the pressure that’s coming from Congress is for a broader clause, looking forward to a time when China might be included in the agreement..If it were already there, [China] would have to cope with it. The automotive industry is pushing for Japan, but to the minds of many, China is the big target. ”

And if the TPP negotiators do push back and and fence off the issue of currency manipulation, wouldn’t this be likely to sour the mood of Congress if and when it gets to approve the TPP next year, should the final deal lack such a provision ? “Oh that’s right,” Clark says. “ If the deal doesn’t have it, it will make it even more difficult to get a divided Congress to approve the deal.”

Given these headaches, no wonder the TPP’s boosters are willing to take whatever comfort they can find. That explains why progress on the pact is being shouted to the skies since (a) this serves the tactical purpose of isolating those countries whose stubborn resistance is spoiling the TPP party and (b) if you announce a deal is almost settled and needful of only a shove across the line by far-sighted political leaders, then a self-fulfilling prophecy hopefully kicks in. It also creates a political climate that makes the political concessions and cave-ins look less like the carnage that will be needed in reality, to achieve any substantive TPP by year‘s end.

Despite the insistence by Key and NZ Trade Minister Tim Groser that the TPP will be a “comprehensive” deal with a “single schedule” in which all provisions will apply equally to all participating countries, it has been clear for some time that the US and Japan – a late entrant to the TPP – have been pursuing separate “bilateral” deals on the sidelines that give more favourable terms to each other than to the rest of the TPP participants. Here’s recent evidence, from an 18 September story in the Japan Times.

Indeed, such bilateralism is the inevitable outcome of the “hub and spoke” way in which the US has pursued its talks with all the participating countries. The US uses these talks to discern the wish-lists and the no go areas, and then tailors its tactics with and against each country accordingly. Japan has five agricultural areas – rice, wheat, beef and pork, dairy products and sweetening resources such as sugarcane and beets – that are subject to protective tariffs and on which it has shown no sign of willingness to budge. As such, its hard to see that the claim to a “comprehensive…single schedule TPP ( all for one , one for all !) will be anything more than semantic – given that for countries such as New Zealand, many of the gains from the TPP (to our dairy industry for instance) appear likely to be postponed for decades into the never never, in return for our immediate concessions on other fronts.

Right now, the US and Japan appear to be doing bilateral deals on tariff reduction that are more generous than those available to other countries. – and Australia and its sugar industry will almost certainly seek to do likewise once the Abbott government is bedded in. Is that move to bilateralism, Werewolf asked Clark, now a solid trend within the TPP ? Apparently so. “Its the way the US operates. The Japanese asked me what my reaction was to the US wanting to negotiate bilaterally with Japan. Well, Canada is negotiating bilaterally with Japan as well. So at one level I wasn’t surprised at all. There are countries that are prepared to give more to the United States than they are prepared to give to others. There are issues that the US may be prepared to give to some countries, but not to others. That’s going to shape the TPP negotiations. This is not a WTO type of negotiation. This is an old style, 1960s. 1950s, GATT negotiation. It is a series of bilaterals with the US at the hub. They don’t necessarily want to share.”

O-kay. So when people like Tim Groser insist that the TPP has to be a ‘no exceptions’ ( all for one, one for all !) deal, he’s really just being King Canute – and uttering empty rhetoric in the face of an unpleasant reality ? Clark : “I don’t want to be negative about Minister Groser. I think that somebody has to push for it, otherwise the benefits from the TPP for anyone other than the United States are going to be minimal, and those other countries will be marginalised. It may seem like a futile effort – and it may well be one. But somebody has to push for it.”

Right. But surely, isn’t the main reason Groser is having to stress it is because some other countries don‘t appear to be playing from the same rule book ? “Well no, they’re not,” Clark concludes. “ That’s become quite clear.”

One advantage of having big countries – Canada, Japan – join the TPP process midstream is that their media don’t accept the blanket of secrecy that dutiful small players such as New Zealand have been keen to observe – even if that secrecy is largely to our own detriment. Again, the Japanese media have shed light on the battle plan that has emerged from the dizzying round of intersessional meetings of the TPP negotiators that have been taking place, pre-Bali. Here’s a report from Japan’s Jiji Press, dated 23 September, on what to expect:

The top negotiators have decided to divide talks at the next TPP ministerial meeting, to be held on the Indonesian island of Bali, into two areas—talks on intractable issues and those that can be resolved through political efforts. The difficult areas include issues disputed between the United States and emerging countries, such as intellectual property, the environment and policy on state-owned enterprises. On the less contentious issues, member states will continue unofficial discussions until early October so that common ground can be found at the ministerial meeting.

Alongside the current meeting, Japan has been holding bilateral negotiations with the United States and other countries on the elimination and reduction of tariffs. However, Japan plans to make no suggestion for now on the treatment of five key agricultural categories, such as rice, putting off negotiations on these items until at least October.

And to repeat : in those bilateral talks with the US, Japan has been offering the US a better deal. The plan to split the talks along the lines mentioned by Jiji – tough issues over here, completed or nearly completed chapters over there – would be fine and dandy if the former didn’t occupy so much of the territory. In Clark’s view, is there deadlock on only a few residual issues, or do they exist in many of the chapters? ‘They exist in everything that’s not closed. They even still have problems as to which agreement is going to apply. Is the TPP going to take precedence over all the other bilaterals? Which the Vienna Convention says it should. Or will it not ?” That point of priority status hasn’t yet been resolved by the negotiators, as Inside US Trade pointed out in its September reports on the legal status of the deal. “ So will there be a hodge-podge of exclusions ? “

Groser would certainly hope not. In context, all this makes the little victories that New Zealand has been crowing about this year – such as this endorsement of the TPP process from major US agricultural lobbies – look like very small beer indeed, especially when at the same time, more US farm subsidies are cheerfully being piled onto the gravy train.

The letter of endorsement has been touted by Groser as a big switcharound in the US position compared to the opposition that the same industry lobbies were voicing back in 2010, but Clark is underwhelmed by the news. “ Is it the dairy interests or the dairy farmers ? They’re two different groups. The dairy processors are always looking for open markets. The dairy farmers? Generally not. Except for New Zealand dairy farmers.” Politically speaking, the US farmer lobbies may well carry more weight. Especially since the newfound interest in the TPP by the US industry lobbies has been driven by Japan joining the deal , raising the prospect of cracking open the Japanese agricultural markets – which is a pipe dream that Prime Minister Shenzo Abe may well be not only unwilling, but unable, to deliver on.

Finally – and karmically – the “ end zone” rhetoric has come back to bite the Americans. It seems to have woken up the US business lobbies to the need to stiffen the backs of their negotiators to ensure that the interests of the lobbies driving the TPP are met in full – at the very time when the negotiators have been trying to tread lightly and reassure countries such as Malaysia that the US has been listening to their concerns, and taking them on board. This collision of hardline US agendas and softline US tactics has been played out most dramatically in the dispute over the regulation of tobacco ( see the separate story in this issue of Werewolf.)

The same lobby-driven hardening of the US position is evident in the IP issues over pharmaceuticals, in the contentious discussions on state owned enterprises and generally, across the whole spectrum of the negotiations. Clark agrees. “ [US Trade Representative] Mike Froman has been telling US stakeholders that they are going to have to put a serious amount of water in their wine, when it comes to their demands. I haven’t seen any indication that anybody has agreed with him on that. Business associations are pushing them, to try and get the deal done, so that they can get some of the things they want.”

The optimistic TPP spin is regarded as such. A happy face has become de rigeur. “People I talk to in the US are smiling,” Clark concludes, “ and giving lip service to the talk that its done, or that it has nearly been done. But the reality is that its in trouble.”