Trans-Pacific Trade Talks Face U.S. Election Deadline (Investor's Business Daily)

August 6, 2015


Malaysia's Minister of International Trade and Industry Mustapa Mohamed, U.S. Trade Representative Michael Froman and Japan's Economic and Fiscal...

Malaysia’s Minister of International Trade and Industry Mustapa Mohamed, U.S. Trade Representative Michael Froman and Japan’s Economic and Fiscal… View Enlarged Image

Grand plans to seal the Trans-Pacific Partnership trade deal last week, linking together 40% of global trade and 800 million consumers, were tripped up by Canadian cows and American sugar cane.

The risk is that the deal, which would be positive for the U.S. economy and geopolitical influence, could slip through its grasp after this setback to negotiations, dealt by protected industries with outsized political stature relative to their economic scale.

The Peterson Institute for International Economics estimates that the 12-nation trade deal would raise U.S. incomes, on net, by $77 billion a year, growing relatively high-paying export-related jobs by 650,000, though at the cost of some manufacturing jobs.

On top of the economic gains, it would draw major Asia-Pacific countries other than China closer to the U.S. On the other hand, if the five-year-long TPP negotiation remains stymied, China may fill the vacuum, as it’s already doing to some degree with its plan for a $100 billion Asian Infrastructure Bank.

“At this point it’s a race against the clock,” said Bill Watson, trade policy analyst at the Cato Institute. “If they don’t finish it by the end of this year, it could fall to the next president to finish it.”

Waiting For Hillary

That year-end timeline effectively means that all 12 nations must sign off on the deal in the next two weeks or so to have any hope of it coming to a vote in Congress before the Christmas recess. The timing reflects terms of trade promotion authority granted to President Obama that are meant to ensure a full and transparent debate before lawmakers cast their votes.

Once the calendar slips to 2016, presidential nominating battles, particularly on the Democratic side, cloud the outlook. Front-runner Hillary Clinton, who has refused to take a position on the trade deal, would face mounting pressure to help defeat it as the early contests in Iowa and New Hampshire approach.

The growing uncertainty due to U.S. politics likely means that leaders from the other 11 nations will be even more reluctant to make concessions if they can’t reach a deal by midmonth.

Doing so would ensure that they face a political cost for offering to take away protections to favored industries, even if the political fruits from finalizing a deal remain out of reach.

Political Delay

U.S. politics explains why so much of the hard bargaining was left until the 11th hour. Contentious issues over the auto, dairy, sugar and drug industries, among others, were left until the end because there was little incentive for countries to give ground until Congress approved the TPP that allows for an up-or-down vote without amendment, Watson said.

Many seemingly separate issues are intertwined because countries tie concessions in one area to a payoff in another.

For example, the U.S. refusal to grant more than a modest increase in Australian sugar imports may explain why the Aussies haven’t yielded over the length of market protection for biologic medicine, reportedly sticking to five years vs. the 12 that U.S. drugmakers seek.

Still, Peterson Institute senior fellow Jeffrey Schott is optimistic that a deal will get done, characterizing the talks as now being “inside the five-yard line.”

He added: “The last few yards getting it over the goal line is when you have the fiercest resistance. … (Yet) the risk that the talks could drift for quite some time” may give the participants the sense of urgency needed to reach an accord.

Window Could Close

While the TPP might still be doable in 2017, the possibility of a Democratic-controlled Senate and other hard-to-predict circumstances might mean that the window will shut in a more permanent way, Schott said.

Schott doesn’t expect a perfect deal. He thinks import quotas may remain on dairy, rice and sugar in Canada, Japan and the U.S., and the quotas could go higher than they are now.

The TPP would bind the U.S. and 11 other nations in a trade partnership that goes far beyond lowering tariffs on the goods sector that is the typical focus of bilateral deals. It would also cover rules for intellectual property and market access for service firms, both big pluses for U.S. companies.

Rules Of The Road

Finally, the TPP would extend environmental and labor regulations with which participating nations must comply. That’s among the reasons Obama has described the agreement as an effort to establish rules of the road for international trade.

He’s warned trade-skeptical Democrats that if the U.S. backs out, China will end up setting the rules.

Yet U.S. deal opponents are skeptical that nations such as Vietnam and Malaysia will be held accountable.

“The TPP deal is expected to provide a significant boost to Vietnam’s growth rate and exports when tariffs for U.S.-bound garments drop to zero,” Global Insight chief Asia-Pacific economist Rajiv Biswas wrote last week.

One of the remaining sticking points is over rules that would require state-owned enterprises, which account for a large share of economic activity in some TPP countries, to compete on a level playing field with the private sector. On a similar note, the U.S. government would open its procurement to TPP countries, effectively waiving “Buy American” policies.