Trans-Pacific Partnership at a critical juncture

Frazzled nerves are beginning to emerge in the Trans-Pacific Partnership (TPP) negotiations as they draw closer to a conclusion.   That’s not surprising, for TPP is one of the most ambitious trade negotiations ever conducted.   If successful it will add enormously to global trade and global economic growth.

 TPP was high on the agenda of President Obama as he visited Japan a couple of weeks ago.  Having two chiefs of state weigh in on a trade negotiation is in itself a bit frightening!  It certainly made the other ten chiefs of state nervous, fearing that the benefits of any agreement reached by the two giants, the U.S. and Japan, might not necessarily be extended to them.  Trade negotiations are typically the purview of trade ministers, with only limited personal involvement from chiefs of state.   That provoked queries to U.S. Trade Representative Michael Froman as to just what happened in Japan, meaning “Did you make anywhere near as much progress as you said you did?” 

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Trade ministers from the other ten countries are also asking just what the U.S. game plan is.  In particular they’d like to know whether the U.S. is continuing to demand that all Japanese tariffs go to zero over time, or whether reports from Tokyo that the U.S. softened that demand are true.   Major U.S. stakeholder groups, particularly our agricultural exporters, are asking the same question. 

Whenever there is uncertainty, worst case scenarios are postulated.  That can lead to gridlock, as other countries hold their cards awaiting the outcome of the U.S. Japan “mini negotiation” on trade in autos and agricultural products.  It also leads to impatience and frustration among stakeholder groups.  Some U.S. agricultural groups have, for example, suggested that Japan simply be dropped out of TPP if it is unwilling to phase out all of its agricultural tariffs.  And Canada, with both offensive and defensive objectives in TPP, has put its offensive strategy (beef, dairy, wheat, canola) on hold while hiding behind Japan from a defensive standpoint (poultry and dairy in particular).

With everybody now being nervous, perhaps this is a good time to take a “big picture” look at what has already been achieved, where the negotiations now stand (putting spin aside), and where they might now proceed and at what pace.

TPP was designed as a “21st century free trade agreement,” (more accurately, a preferential trade agreement) and it merits that description.  The breadth of its agenda is beyond that of any major trade negotiation ever conducted, and great progress has already been made on subjects such as environmental rules, worker rights, intellectual property, state owned enterprises, trade facilitation, and others.  Negotiators can’t talk about what has already been accomplished because they operate under “nothing is agreed until everything is agreed” rules.  But huge progress has been made in each of those areas.

Where the more traditional negotiating subjects (tariffs and non-tariff barriers) are concerned, participants harvest first the low hanging fruit.  But the risk of that strategy is that it can imply progress where little progress has occurred.  In TPP it persuaded negotiators to suggest that the negotiations might conclude in 2013, which was unrealistic.   Failure to meet that tentative deadline generated lots of frustration, with the U.S, getting much of the blame.

Fortunately, we’re now back on track.  The message emerging from the Obama/Abe meeting is that TPP is ready to confront the really tough issues.  The “end game” is approaching, and at least the U.S. and Japan can now see a potential “landing zone” on the most challenging issues.  That is encouraging, and the other eight countries need now to accelerate their own negotiations with both the U.S. and Japan. 

A 2014 conclusion is improbable, for there is still much to do.  Progress on the most difficult issues is always time consuming.  But the negotiators need to work harder than ever, with the objective of finishing late this year if at all possible – otherwise, early next year.  Other nations have their own political calendars, but for us here in the U.S. dealing with controversial trade matters in a presidential election year is not a desirable strategy!  So the sooner we get this historic agreement finished the better. 

TPP is not the Doha Round, the latter being a huge disappointment after more than a decade of negotiations.  There is far more momentum in TPP, more than enough to bring about a successful outcome for all 10 countries.  But, here in the U.S. there are two stumbling blocks about which we should be mindful.  One is the need for Trade Promotion Authority, or “fast track.”   No other nation hamstrings its negotiators the way we do, even though the skill level of our negotiating team is unparalleled.  Congress needs to correct that situation, early next year if not before. 

A second concern is that we or others may hold the negotiations hostage to unrealistic demands.  We’re not going to get everything we want under TPP, and neither is anyone else.  We should continue to press the Japanese to bring all their tariffs to zero over time, but that is not likely to happen in.  (We may, in fact, be unwilling to bring all of our own tariffs to zero over time.)   In the absence of that occurring, the argument that we should pick up our marbles and go home, or that we should ask that Japan be excluded from the final agreement, is just nonsense.  Shooting ourselves in the foot is not a rewarding experience.  A much better approach was offered recently by New Zealand Trade Minister Tim Groser who opined that negotiators should deliver a trade liberalizing outcome equivalent to phasing out all tariffs.  That implies using liberalizing tariff rate quotas on products where tariffs are not to go to zero.   Ambassador Froman came to essentially that same conclusion when he suggested recently that the final package should achieve meaningful, improved, early, ongoing commercially relevant market access.   During my era President Reagan made the same point in noting that three quarters of a loaf is always better than no loaf at all. 

With a little pragmatism and good judgment over the next few months TPP can become a reality.  We Americans will be among its principal beneficiaries.

Yeutter is a senior adviser at Hogan Lovells to the international trade and investment and the food and agriculture practices. He served as USTR from 1985 to 1988 under President Reagan, and was USDA Secretary from 1989 to 1993 under President George H.W. Bush.