Research Center for International Finance
Policy discussion No. 2014.004, Mar. 21 2014
Expectations in the wake of new TPP talks
YANG PanPan , WANG Yaqi
The Trans-Pacific Partnership (TPP) concluded its latest round of ministerial talks in Singapore in late February, leaving all interested parties concerned about what to expect. Earlier, at the end of last year, discords on market access, reform of state-owned enterprises and intellectual property rights made the effort fruitless.
The Singapore talks marked the first round of such meetings in 2014 and naturally, saw intensive high-level U.S.-Japan preparatory negotiations in a bid to pave the way. But disputes over tariffs on farm produce and automobiles still prevented Tokyo and Washington from reaching substantial agreements. Meanwhile, the United States is facing domestic pressure to assume "quick" authority, leaving other TPP members disturbed.
Due to these uncertainties, there were reservations as to whether the talks would produce any major breakthroughs. The result of the talks was large, predictable differences among the countries involved, especially between the United States and Japan.
Judging from the present progress, the TPP is unlikely to finish its bilateral negotiations in the first half of this year, but its development is likely to center on three aspects.
Concern 1: Differences between the United States and Japan
How Washington and Tokyo would solve their differences was already a focus at the Singapore talks. But like the previous round, trade representatives from both countries repeated their "tit for tat" disputes.
From the U.S. point of view, Japan has not compromised enough to bring down tariffs on farm produce, especially on rice, wheat, beef and pork. Japan's tough stance on farm produce tariffs was even considered a "primary challenge" in the U.S.-TPP bilateral talks. Wendy Cutler, acting deputy U.S. trade representative (USTR), also criticized Japan's protectionism, saying excluding sensitive farm produce from the talks was not consistent with the original objective of the TPP.
But on the other side of the Pacific, Japan said that the U.S. attitude to the automotive trade is the key to a consensus. Japan has required the United States several times to clarify when it will abolish its tariff on imported automobiles.
The two sides have agreed to hold TPP bilateral negotiations in April, in a particular bid to solve issues on imported automobiles, access to insurance market, as well as other non-tariff barrier questions. But there is little hope that both parties are likely to solve such differences once and for all.
Domestic political pressures, reflected by appeals from interest groups are the fundamental causes of such disputes. Barack Obama is facing mid-term elections, while Shinzo Abe still holds deep determination for economic structural reform in Japan. It seems Japan is more likely to compromise. Once the United States and Japan solve their differences, there will be more chance of fixing the TPP this year.
Despite Japan's willingness to concede, it actually assumed a "do or die" stance during the preliminary stage of TPP talks. Other parties' demands that touched upon Japan's bottom line would force the Asian country to quit talks. Even today, quite a few of people in Japan are still against TPP talks.
The good thing is that TPP does not require all interested parties to reach a universal agreement, meaning that if Japan is unable to reach a deal with others, or even quits talks halfway, other countries will still be able to form a treaty without it.
According to online reports by the Japanese media, the U.S. Trade Representative Michael Froman said this January that the Japanese reluctance to compromise would force the United States to urge all other member states to form an 11-nation TPP deal, which would exclude Japan.
Concern 2: The uncertain future of "fast tracking"
Apart from the existing U.S-Japan disagreements, whether the White House will win the Capitol Hill's approval for the fast track of Trade Promotion Authority (TPA) will affect whether the United States will win trust of other member states in the framework.
TPA gives the U.S. government the autonomy to draft free trade deals while limiting the U.S. Congress deliberation; also Capitol Hill has no right to amend established trade acts, but can just vote to pass them.
So far, TPP talks have been conducted under the presupposition that TPA is still valid. But once the talks deepen, such a practice will face increasing challenges because once the government loses TPA, Capitol Hill will be authorized to revise any agreed deals that the United States has reached with others.
Obama has called for bipartisan cooperation on revising TPA. In his State of the Union address delivered on Jan. 28 this year, Obama publicly called for support from lawmakers. But considering the present situation, he is not likely to get the Congress's authorization for a number of reasons.
Previous authorizations were also difficult, due to the suspicion that such authorization was overstepping the Congress' constitutional rights. The pending authorization is far from as simple as the previous ones, which were mostly about traditional sectors. By contrast, TPP consists of all sorts of new trade rules incompatible with old authorizations.
Fast track now amounts to all other nations' touchstone on the U.S. sincerity for TPP, thus Washington's solution to the current issues will influence how the talks will continue.
Concern 3: South Korea's participation in the TPP
South Korea recently announced it would participate in TPP talks by starting bilateral negotiations with existing member states in the framework. Seoul's interest in TPP is like a shot in the arm for the gloomy future of global trade deals. Like Japan, which entered the negotiations last year, all late-comers have to be admitted by all existing members.
South Korea has launched active bilateral talks with all existing member states and held preparatory negotiations with all of them. According to South Korean official, most countries have express acceptance to the newcomer.
Once South Korea becomes an official member, TPP will then represent 41 percent of international GDP and 28 percent of the global trade volume.
Despite Cheongwadae's zeal to join the treaty quickly, there is no possibility it will receive official membership before July, since after all the necessary talks, expected to finish before the end of April, the U.S. Congress will need to review the request for 90 days before the White House accepts South Korea.
Thus, there is reason to believe the TPP is unlikely to become an official treaty in the first half of this year. Apart from that, once South Korea becomes a TPP member, it may also dampen regional economic cooperation in East Asia.
