Tag Archives: Trans-Pacific Partnership

The TPP and Evel Knievel – Up in the Air

Last night, as part of the Chicago and the World Forum, Ian Bremmer proclaimed that the most important region of the world for US foreign policy was Asia. Further, he said, the most important US undertaking in Asia was the Trans-Pacific Partnership (TPP) trade agreement. At roughly the same time that he was speaking, TPP ministerial negotiations in Singapore were coming up short. The disappointment came on the heels of a successful weekend WTO deal in Bali that had led some to proclaim a Trade Renaissance.

The twelve assembled TPP ministers didn’t admit defeat, of course. They heralded “substantial progress.” In a briefing, USTR Michael Froman said, “If I had to describe the outcome of the meeting, I would say ‘great momentum.’”

No doubt progress was made. But it can be notoriously difficult to figure out just how much. Herewith, some points to consider:

  1. We’ve been here before. We haven’t been at this level of progress, with this set of participants, exactly. But in November 2011, the United States was hosting the APEC meetings in Hawaii, TPP negotiations had been active for almost two years, and there were serious hopes that the agreement among the nine participants would be concluded then and there. Participants knew that beyond those meetings lay a US election and few deadlines that would force tough choices. As it happened, the negotiations could not conclude and the leaders were left praising themselves for good progress.
  2. Are they 65% done? Japan’s Vice Economy Minister just gave that figure as the degree of agreement among TPP participants. But what does that mean? Appropriately cautious, Amb. Froman reminded that “the thing about trade negotiations…is that nothing is agreed to until everything is agreed to.” To see the issue, think of the late daredevil Evel Knievel. He would pull off stunts like jumping his motorcycle over 15 cars parked in a row. To do so, he would rev his motorcycle along a straight-away, ride up a ramp, then, if all went well, fly over the cars and land on the other side. For Knievel, would 65% done mean the straightaway, before he mounted the ramp? It was certainly important for him to pick up speed that way, and that would have been 2/3 of the measured distance. But it would hardly have counted as 2/3 of the difficulty of the task.
  3. Ambition vs. Conclusion. In 2011, there were nine participants in the TPP negotiations. Since then, Canada, Mexico, and Japan all joined, bringing the number to twelve. When Japan joined, one former USTR privately predicted that the negotiations would now not conclude during the Obama presidency. Reportedly, delegations in Singapore were upset with Japan’s limited offers of liberalization. The 2011 delay posed a dilemma, however. As long as the negotiations were to conclude soon, it was reasonable to ask allies like Canada, Mexico, and Japan to wait to join. As the talks dragged on, such a stiff-arm seemed undiplomatic. Further, the three countries’ admission undoubtedly raised the level of ambition of the talks and the potential economic impact of the TPP. But when they were allowed in, the talks became significantly harder to conclude.  Now, as a 2013 deadline passes, S. Korea has expressed interest in joining…
  4. This is level one of two. Robert Putnam helped clarify the difficulty of international negotiations by describing “two-level games.” International negotiators need to reach agreement among themselves, and among critical constituencies at home. So far, the Obama administration has neglected the consensus-building at home on trade. One indication of this is the domestic drumbeat for enforceable measures against ‘currency manipulation.’ There is no indication such measures are on the TPP agenda, nor would the other countries likely accept them.

None of this implies that TPP is a lost cause. However, it does imply that President Obama will need to make TPP a top priority for the new year and devote substantial time to the project if it is to have a chance. Given the centrality of TPP for Asian relations and the centrality of Asia in this administration’s foreign policy, that’s not an unreasonable prioritization.

Global Trade enters Crunch Time

Those who enjoy sports will be familiar with the rhythm of a season. In the period before the first games are played, every squad is filled with ambition and whispers about exciting new players. Then there are the initial games when those hopes are put to the test. Ultimately, one reaches the point in a season when the team must either win a big game or forget thoughts of post-season glory for at least another year.

The global trade agenda is entering an analogous critical stage.  There was a joyous pre-season with calls for new, improved, 21st century trade agreements. There were predictions of fabulous trophies for the successful – hundreds of billions of dollars in economic growth, countless new jobs!

The analogy to sports gets a little strained in one particular dimension, though. Following the progress of trade undertakings like the Trans-Pacific Partnership (TPP), the Trans-Atlantic Trade and Investment Partnership (TTIP) with Europe, or the WTO talks differs from a sports season in that one doesn’t actually get to watch the games. Instead, it’s the equivalent of being kept on the outside of the stadia where the games are played and just hearing the occasional rumor – “That player took a big hit!”; “Someone just made an amazing play!”; “I hear cheering! That has to be a good sign.”

The negotiations themselves are conducted in secrecy – a tradition that has become a sore point with complaints about the lack of transparency. Devotees are left to parse the emanating rumors or to wait for an established deadline, when the players who have been battling out of sight will all emerge beaming and victorious, with their helmets raised above their heads – or they will stagger out looking battered and dejected.

We are just now reaching one such key deadline. Next week, trade luminaries are scheduled to gather in Bali for a World Trade Organization Ministerial meeting. Cheering for a WTO agreement has recently been as fulfilling as backing the Cubs for the World Series. Yet lately there has been legitimate cause for hope. Even though the grand ambitions of the Doha talks, launched in 2001, were stymied years back, there was a recent move afoot to try for a less ambitious package, one that would demonstrate that the WTO was still relevant. Not only that, but there was a new manager. The Brazilian Roberto Azevêdo took over the WTO this fall from the Frenchman Pascal Lamy.

At The Chicago Council’s recent conference on the Frontiers of Economic Integration, former US Trade Representative Susan Schwab highlighted the importance of the Bali meeting, to be held Dec. 3-6. She said that the potential for a modest package was as important as anything that had gone on in global negotiations for the last two decades. She showered Azevêdo with praise, stating that if anyone could pull off the difficult feat of bringing 150 countries together, he had the skills to do it.

But the latest news coming out of the negotiating arena sounds grim. The negotiators involved failed to agree on a text for ministers to take up at the ministerial next week. Azevêdo was quoted as saying that members had “stopped making the tough political calls.”

In the sporting world, a setback like this would invariably be followed by predictions of redoubled effort and renewed hope next season. But the opportunities on the global trading scene are fewer and farther between. Instead of such bromides, Azevêdo warned of dire consequences from a Bali failure, both for the multilateral trading system and the global economy.

It is an inauspicious start for the critical phase of the global trade season. The TPP talks were intended to conclude by the end of this year. Senate Finance Committee Chairman Max Baucus (D-MT) has been saying he would like to get agreement on US trade negotiating authority by the end of this year as well, though past deadlines have already been missed. And the TTIP talks are meant to wrap up before the European Commission turns over in late 2014. Trade fans will be listening, increasingly nervous, for hopeful news. They will take little consolation from suggestions to just “wait for next year.”

Guest Commentary: Japan’s Agriculture and the TPP

As US presidents encounter domestic policy obstacles, they traditionally turn their attention to foreign affairs. At the top of the agenda for the Obama administration has been the conclusion of the Trans-Pacific Partnership talks, scheduled to wrap up this calendar year. The economic potential of the TPP and its degree of difficulty both increased significantly when Japan joined as a full participant this last summer. Not only is there a lengthy history of contentious trade negotiations between the United States and Japan, but there is the long-time sticking point of agricultural trade. If TPP is to succeed, Japan will need to make politically difficult concessions on agricultural liberalization. Below, Yutaka Harada, an expert at the Tokyo Foundation and Waseda University, summarizes his view of why Japan needs the TPP. A fuller version of his analysis can be found here (PDF).

By Yutaka Harada, Tokyo Foundation and Waseda University

Many Japanese industries are perceived to be strong, active, and competitive in the global market, but agriculture is usually considered an exception. For years, the farm sector has sought protection from international competition, subsidies, and favorable government treatment, and it has been largely successful in getting them until now. In spite of these privileges, Japanese agriculture is in a perilous state, and most farmers oppose any movements toward free trade.

In spite of opposition from powerful agricultural lobbies though, the Japanese government has decided to join the Trans-Pacific Partnership (TPP).

The State of Japanese Agriculture

At a glance, the situation of Japanese agriculture seems absurd. The average age of Japanese famers is 65.8. Fields and rice paddies that have been abandoned and are no longer cultivated total 400,000 hectares (Japan’s arable land is 4.5 million hectares), while another 1,100,000 hectares lie unused owing to the government policy of reducing rice cultivation acreage. Japanese agriculture is in a state of collapse.

Potential for Growth

Despite such dire conditions, there are some areas with potential for growth. Looking at the shares of sales by farm scale, we see that in the case of broilers (chicken), farms with sales of more than 10 million yen (100,000 dollars) accounted for 98% of total sales. Similarly, the shares claimed by farms with sales of more than 10 million yen were 97% or higher for eggs, pork, and milk cows.

By contrast, the shares of 10-million-yen-plus farms were 39%, 51%, and 63% for fruits, rice, and vegetables, respectively. Relatively low shares were also seen for beef, wheat, flowers, beans, and potatoes.

The figures suggest that large farms were dominant for those agricultural products that lend themselves to large-scale production. There is less economy of scale for fruits, vegetables, and flowers. There is considerable potential economies of scale for rice, wheat, beans, and potatoes, but such potential is not realized at present.

Wrong Policies

Why has Japanese agriculture been unable to develop? One possible culprit is government policy that has discouraged farmers from taking advantage of economies of scale.

One might even say that the goal of Japanese agricultural policy has not been to develop agriculture but to maintain the number of farming households, which have tended to vote for the ruling Liberal Democratic Party.

This policy might have been meaningful when the Japan Socialist Party (now the Social Democratic Party) was strong, especially among urban voters, and there was a possibility that the JSP could knock the LDP from power, but such a possibility disappeared many years ago.

What Can Be Done?

In order to correct the shortcomings of Japan’s agricultural policy, it is important to have an understanding of the distorted system of protection for agricultural products. Tariff rates for flowers are zero, those for vegetables range from 3% to 9%, and those for fruits are between 10% and 20%. By contrast, tariffs are extremely high for rice, tapioca starch, butter, sugar, wheat, potato starch, and skimmed milk, being from around 200% to 800%.

Additionally, many unprotected agricultural sectors have been growing while heavily protected ones have not. Sales of vegetables, fruits, and flowers are 2.1 trillion yen, 0.7 trillion yen, and 0.3 trillion yen, respectively. Sales of rice, meanwhile, are only 1.8 trillion yen, with sales in unprotected sectors now being larger than in protected ones. Unprotected sectors are those that can stand on their own feet, increase sales, and make profits, while the protected sectors have been losing sales and continue to depend on protection from the government.

Farm Sector Depends on Japan’s Overall Prosperity

The average agricultural income of Japanese farms is only 0.5 million yen per year. Half a million yen is only about 5,000 dollars. Obviously, this is not enough to live on in modern-day Japan.

Then, how do they live? The average income from side jobs is 1.9 million yen and average pension revenue is 2.1 million yen. Total income, including from agriculture, is 4.5 million yen. This is how they survive.

The figures suggest that for the average farmer, the most important consideration in making a living is to secure a steady income from a side job and to receive pension benefits. Getting a stable side job will become easier if the Japanese economy is growing, and for this, Japan’s best option would be to open its doors wider to the global market and to seek further trade liberalization.

And what are the most important considerations in receiving pension benefits? Since benefits are paid from the contributions of the working-age population, then it follows that Japan needs to be prosperous with many job opportunities. For this, too, Japan should seek liberalized global trade. In short, Japan needs the TPP to ensure its own prosperity.

Guest Commentary: Importance of Strict Currency Manipulation Rules in TPP

By Former Governor of Missouri Matt Blunt, President of the American Automotive Policy Council

The fate of the Trans-Pacific Partnership (TPP) may be decided over the next few months, possibly even before the end of the year. TPP has the potential to be the most important trade pact since NAFTA and could create thousands of jobs in the United States, boosting exports and the overall economy. Regrettably, these benefits are in jeopardy unless the agreement includes strong and enforceable currency disciplines.

From an automotive perspective, currency manipulation both subsidizes our competitors’ exports to the US and around the world, and puts US exports at an equal cost disadvantage. The Peterson Institute estimates that foreign currency manipulation has resulted in a loss of 1-5 million jobs in the United States, and an increase of between $200-500 million in the US trade deficit.

Japan has a long history of intervening in its currency markets to sustain its export-driven economy. Japan’s inclusion in the TPP makes it vital that the TPP include a strong and enforceable currency discipline.

There is growing support for addressing this 21st century trade barrier. A broad, bipartisan majority of the US Congress has called for strict currency manipulation rules in the TPP. One letter signed by 230 US House members and another signed by 60 US Senators called for a high standard agreement that includes strong and enforceable currency disciplines. As a broad swath of America’s elected officials have acknowledged, trade is key to our future economic growth, but it needs to be done right.

Everyone agrees, the Trans-Pacific Partnership could be an economic boon throughout the Pacific Rim. However, the negotiating members must ensure that currency manipulation rules are in place and enforced. Otherwise, years of work and negotiations will not deliver on the economic growth that will benefit us all.

TPP: United we stand, divided…

Bloomberg just reported on a dire assessment of the prospects for the Trans-Pacific Partnership trade agreement. An analysis by the Asian Development Bank said that the TPP “risks collapsing and producing a series of bilateral deals if the 12 nations involved cannot reach agreement…” The report based this concern on the apparent lack of movement in recent talks and on the launch of bilateral discussions between the United States and Japan under the auspices of the TPP.

It can be very difficult to tell just how much peril the TPP is in, given that the discussions take place behind closed doors. Nor is it uncommon to have bilateral talks before reaching a broader deal. But the failure of the Obama administration to win trade negotiating authority and public statements from participating countries like Malaysia suggest that there could be real cause for concern.

It would be very problematic to dissolve the TPP into a series of bilaterals. I have written before about the challenges of a “lite” agreement that fell short of the more ambitious goals participants have set. Among the problems with doing this in the TPP context: Critics who lambasted the Bush administration for pursuing puny trade accords with Panama and Oman could be accused of hypocrisy if they were left trumpeting bilateral liberalization with Bahrain. People have been known to live through accusations of hypocrisy, though.

There are two more serious problems with a piecemeal TPP approach. First, it likely makes a difficult political task in the United States harder, not easier. Trade votes have been politically divisive in the last couple decades; sequential conclusions would mean repeated votes. More troubling – and mystifying – is the tendency for trade opponents to focus more intensely on countries when they are involved in bilateral or trilateral agreements than when they are part of larger accords. For example, there was no particular outcry when Mexico joined the GATT in 1986, even though that was the point at which the United States committed to low tariffs toward Mexico. There were substantially greater objections less than a decade later when Mexico joined the United States in NAFTA. A similar story was repeated with Colombia – GATT in 1981, controversial entry into a bilateral FTA in 2011. For TPP, that history has implications for Vietnam.

Even more important, a fragmented TPP would fail at its overarching goal of setting the standards for a 21st century trade agreement. The United States already has bilateral deals with many of the participants; the point was to knit those together and come up with new approaches that others would have to follow on issues such as services liberalization, intellectual property protection, and the treatment of state-owned enterprises. It is relatively straightforward to apply different tariffs on different countries; it is much harder to apply different standards depending on the trading partner.

None of this is meant to downplay the serious challenges of reaching agreement among 12 countries across a broad negotiating agenda. The pressure is mounting, as those countries have set a goal of completing the agreement this year. But a move to break the agreement up into bilaterals would be tantamount to failure.