TPP: All Cards On The Table

A reluctant Japan may be all that’s keeping the Trans Pacific Partnership Trade deal on life support
by Gordon Campbell

From the outset, the omens weren’t good for this month’s attempt in Singapore to complete the Trans Pacific Partnership trade deal. On the eve of negotiations Akira Amari, Japan’s experienced and influential chief negotiator was diagnosed with tongue cancer, and was replaced by Yasutoshi Nishimura, a junior Minister widely seen as lacking the necessary authority to cut a deal on access to Japan’s farm and automobile markets.

Meanwhile in Chile, the mid-December re-election of former President Michelle Bachelet has long promised to install a government even less enthusiastic about the TPP than its predecessor – which had already been vocal about how little the deal offered to Chile beyond its existing bilateral FTAs, and whose chief negotiator Alvaro Jana had blown the lid of secrecy off the TPP in late August, by citing in public the lack of progress on the TPP’s main provisions.

To no-one‘s surprise, the Singapore talks failed to achieve a resolution, thus kicking the negotiations onwards into 2014, where any deal will inevitably get entangled in the politicking around the midterm US elections in November. The extent of the impasses cited by Jana was further confirmed in early December by leaks to the Huffington Post of two official documents : a summary table of the points of agreement (few) and the points still contention ( many) among all the participating countries, and a highly pessimistic quasi-official commentary about the previous TPP round in Salt Lake City. The TPP table is available here and a useful table/ explanatory notes on its IP and copyright provisions by the Canadian IP expert Michael Geist is available here. The Salt Lake City memo is available here.

While the Singapore gathering did not succeed in closing the deal, some dramatic attempts were made to induce the US to relax its position. As the Washington Trade Daily reported on 6 December :

One of the factors slowing down the [TPP] talks is the lack of progress in bilateral discussions between the United States and new entrant Japan over market access issues. A senior Japanese trade official told reporters that there are some very big issues on agricultural and automobile market access demanded by the United States. The United States must show more flexibility, said Japanese Vice Minister Yasutoshi Nishimura.

For now, the US seems willing and able to budge only after Japan has made the concessions on market access that the US – and other participants – appear to regard as necessary to justify the concessions being asked of them. Yet Japan for now, feels unwilling – or for domestic political reasons feels incapable – of moving “ one millimetre” as Nishimura put it in the press conference cited above, where he called for greater US flexibility. Throughout the entire TPP process, the US has managed its negotiations with other countries via a “ wheel and spoke” approach whereby it engages bilaterally with each participant, and then brings each raft of demands and potential trade-offs back to the hub. If anything, this approach may need to be intensified. Because if there is to be a way forward on the TPP, it will require the US and Japan to engage bilaterally to achieve breathing space for Japan to offer the market access concessions – to the US, Australia, Canada and New Zealand in particular – that would cause all the other dominoes to fall into place.

Easier said than done. In Singapore, the December 10 joint statement signalled that ministers had used small group meetings to identify potential “landing zones” that were reported back to all 12 countries. Yet as the authoritative ( and paywalled) Inside Trade site reported on December 12, these “ landing zones” should be treated as incentives to horse trade, and not as solid commitments :

…At a concluding press conference here, Australian Trade Minister Andrew Robb and New Zealand Trade Minister Tim Groser made clear that these potential compromises on TPP rules are only possible options, and that ministers had not actually agreed on any of them. Robb and Groser also strongly signaled that the willingness of their two countries to agree to these proposed compromises on the TPP rules will depend on whether other parties can commit to providing additional market access for exports from Australia and New Zealand.

Such tactics can be seen in two lights. One, they can be taken as an alarming sign of an Australasian willingness to give ground in contentious areas such as IP rights, investor-state dispute mechanisms and pharmaceutical patents in exchange for greater farm market access to Japan and the US. Less drastically, the tactic can also be seen as an incentive to the Americans to give the necessary ground to the Japanese, in order to get Japan down off the fence. At this point, the TPP is playing out like a variant of pass the parcel – if Australia/NZ offer the US on IP what it needs to placate US business lobbies, then maybe the US can give Japan what it needs to satisfy its domestic critics, and the subsequent gains in farm access can then be used by Australia/NZ to justify their original concessions ! Or as Groser put it in the Inside Trade report :

Groser said that ministers have not agreed in “a final sense on anything,” because that is not the way this negotiation is being handled. “What we’re doing is we’re reaching a common understanding about … the right space for us to reach an agreement,” he said. “We’ll draw these linkages together at the absolute end of this negotiation.”

Right. And if those linkages further down the chain can’t be made – over to you, Japan and the US – then presumably, things go back to square one. Unfortunately, while any Australasian concessions on IP and pharmaceuticals would take immediate effect, any farm market access “gains” in prospect for Australia and New Zealand seem likely to be highly conditional and phased in over a decade or more, to placate domestic critics in both Japan and the US.

For all involved, more than tokenism is required. Reportedly, the US did not make fresh offers in Singapore in those areas it regards as import-sensitive – and therefore politically sensitive – because of the oncoming midterm elections back home. Such areas include : sugar, dairy, clothing and footwear. Clothing and footwear market access – and reasonable rules of origin – are crucial to Vietnam, and US flexibility in those areas will effectively determine whether Vietnam gives ground in the SOE chapter on how state-owned enterprises should operate, an area where developed countries sense fresh opportunities for their service industries. Australia for its part, made it clear that the Abbott government is now willing to agree to investor-state dispute settlement mechanisms (ISDS) within the TPP, provided it gets better farm (ie sugar) market access :

“In all of these chapters we have in large part found landing zones. In other words, we are close to decisions without finalizing the decisions,” [Australian Trade Minister Andrew Robb] said……” As I said before, our preparedness to consider ISDS, which is opposed in many quarters in Australia … is conditional on the market access and some other conditions.”

Unfortunately, some of these “ gains” may be more symbolic than substantive. For example : for years, Australia has been pressing the U.S. in vain to expand its market access for Australian agricultural products, including sugar. Yet at a press briefing in Singapore, US Trade Representative Michael Froman hinted that the U.S. may now be more open to negotiating market access with Australia. If so, such a concession seems likely to be only a symbolic victory, given that Australian sugar’s current level of access to U.S. markets – set under a WTO round tariff-rate quota – is not being filled right now, simply because the price of sugar in the US is too low to be profitable for Australia’s sugar exporters. In other words, giving ground to Australia within the TPP on sugar access may cost the US little or nothing for now, while in return Australia would cease to be a hold-out against the TPP’s inclusion of investor-state dispute mechanisms, whereby foreign investors can sue for compensation if member countries pass laws that mean the investors lose money. (Within the TPP, New Zealand has already accepted the investor-state mechanisms.)

This readiness of Australia and New Zealand to offer incentives for others to pick and choose between has been a recurring feature of the TPP process to date. Before the Auckland round in December 2012 for instance, Groser unilaterally announced New Zealand’s acceptance of greater transparency rules for Pharmac, without winning any visible gains in return. Since then Groser has stoutly insisted that Pharmac’s future ( and the cost of medicines) will not be traded away. Yet as Werewolf pointed out in an article called “ The Neutering of Pharmac” a year ago, the transparency rules themselves pose a threat to Pharmac’s current operations, and operational costs. By exposing Pharmac decisions to wider legal challenge in the name of “transparency” the pharmaceutical industry may well achieve outcomes not markedly dissimilar to what a bald TPP commitment on patent duration and generics would deliver them.

The US political realities will hang over the entire TPP process in 2014 like a storm cloud. The trouble ahead is not merely due to the likelihood of obstructionism by Republicans keen to deny Barack Obama a victory on the eve of the midterm elections – although that is certainly a factor. Nor is it merely the spectre of strong and mounting opposition to the TPP within the Democratic Party, though that is also a prospect that will be weighing on Obama’s campaign strategists – does he really want to trigger a divisive and very public battle among the same groups he needs to advance the party cause in November ?

The more pressing reality is that Obama lacks the “ fast track’ Trade Promotion Authority (TPA) that he needs if he is to get any completed TPP deal through Congress. TPA powers would enable him to ratify the deal via a straight “ up and down” vote in Congress. Otherwise, Congress will get to pick the deal apart, clause by clause. For obvious reasons, Congress is usually loath to give away its scrutiny role and grant TPA powers to a sitting President. George W. Bush barely won TPA in 2002, by a scant few votes. Bill Clinton tried twice to win TPA powers, and failed both times. Right now, staunch right wing Republican defenders of the constitutional duty of Congress to scrutinise the business of US government are being joined in opposition to TPA by significant elements in the Democratic Party, who regard the TPP as likely to cause significant job losses among the party’s support base.

In essence, if Obama is going to win TPA powers, he will require significant support from elements of the Republican Party. That seems unlikely. In Japan, the government of Shinzo Abe can read these signs that suggest Obama will be facing a real uphill slog in 2014 to win TPA powers, and thus pass any completed TPP deal intact. Why then, the Japanese are probably reasoning, should we expend a whole lot of political capital and goodwill battling our farm and auto lobbies – in order to pass a trade deal on which the Americans almost certainly cannot deliver ?

In the meantime, everyone – including the Key government in New Zealand and the Abbott government in Australia – continue to go through the TPP motions. For now, it does look more like zombie politics than a feasible deal.