Rice, milk and cars stand in way of historic trade pact
Top trade officials from 12 countries scattered around the Asia-Pacific region will descend on the island of Maui for a week of meetings starting Friday.
By	Doug Palmer
Updated 7/27/15, 3:35 PM CET
The Obama administration is closer than ever on a breakthrough on the biggest trade deal in world history. But years of delicate negotiating could be undone by Canadian milk. Or Japanese rice. Or U.S. pharmaceutical patents.
Top trade officials from 12 countries scattered around the Asia-Pacific region have descended on the island of Maui for a week of meetings, where they will sit in hotel conference rooms negotiating a free trade zone that would cover about 40 percent of world economic output
And while they could leave with a breakthrough deal, the talks could just as easily be blown up by petty and not-so-petty grievances over everything from cheese labels to auto tariffs.
The administration sees the Trans Pacific Partnership as a major part of President Barack Obama's legacy, and his top trade representative, Michael Froman has visited four countries and met with most of the others in Washington, D.C., over the past several weeks urging them to be prepared to close the deal. The Republican Congress has already given Obama special trade promotion authority, which would allow him to push through the deal with a simple majority vote.
But time is short, and there's no guarantee of an agreement.
Canada wants to protect its dairy and poultry producers and Japan, its rice farmers. American drug companies want other countries to adopt strong U.S. protections on a blockbuster new class of medicines called biologics, and U.S. automakers oppose giving Japan more market access. Canada and Malaysia are particular concerns because of difficult domestic politics that could make it more difficult for them to close in Maui, even if other countries are ready.
If talks slip into next year, election-year politics could destroy any momentum and relegate the pact to another administration.
"I think there's limited time to try to conclude a deal," said Tami Overby, senior vice president for Asia at the U.S. Chamber of Commerce. "I think there is a political drop-dead date. I don't know what that date is and I won't speculate on it. … But I do think there is one out there, and I think probably the administration is very focused on that and has worked backward."
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The breathless pace is possible only because of the so-called "fast-track" bill, strongly opposed by most Democrats, labor, environmental and health-care activists who are critical of the trade deal.
"The administration has indicated they want to wrap up negotiations in this round," Rep. Rosa DeLauro, a staunch opponent of the agreement, told reporters. "My colleagues and I are here to say that is altogether too fast a schedule. … The agreement itself is riddled with problems. Congress, industry, advocates still have enormous concerns which the administration has done little or nothing to resolve."
Timelines built into the new trade promotion authority law require Obama to give Congress 90 days' notice before signing any trade deal and to make the agreement public 60 days before signing. So the transpacific pact must be completed soon for Congress to vote on it before Christmas, the administration's best-case scenario.
Still, U.S. trade officials have never closed a deal quite as complex as the TPP, which aims to establish the rules of trade for the 21st century and anchor the United States securely in the fastest-growing economic region of the world rather than cede it to an ever-more-dominant China.
"It's going to be some of the most interesting negotiations in diplomatic history," said John Corrigan, who tracks the talks for the U.S.-ASEAN Business Council, a group of companies active in the Southeast Asia region. "Certainly the most important trade deal in global commercial history, the most complex and the most forward-looking.
The proposed pact would update the North American Free Trade Agreement between the United States, Canada and Mexico and expand it to nine other countries that range widely in terms of economic development and political systems but share a desire for closer trade ties: These include two that fought bitter wars against the United States in the 20th century — Japan and Vietnam — as well as Australia, New Zealand, Chile, Peru, Malaysia, Singapore and Brunei.
Even before the deal's details have been released, the TPP has stirred NAFTA-sized opposition, with labor, environmental and other activist groups preparing to fight the agreement, which could be headed to Congress for a straight up-or-down vote by the end of this year or early 2016 — just as the presidential primary season is getting underway.
Obama has promised the TPP will be the "most progressive trade deal in history" in terms of raising labor and environmental standards, especially in less-developed TPP countries like Malaysia, Vietnam and Mexico. But opponents are skeptical it will make much of difference in those areas and say it will simply encourage more jobs to move overseas.
"The 'most progressive trade agreement' isn't much of a standard in our point of view," AFL-CIO President Richard Trumka told POLITICO this week. "It can be better than the others, but still not good enough. … Bad trade agreements lower wages. Bad trade agreements take jobs away."
Meanwhile, Congress is closely watching the final negotiations, demanding a pact that opens markets and expands protections for U.S. intellectual property while not harming politically important constituencies.
"I think [Froman] understands the hot spots for the people who support opening up markets and where he needs to go in order to get votes," Rep. Pat Tiberi, chairman of the House Ways and Means Committee's Trade Subcommittee. "I think he clearly understands that he can't just come back with whatever" and win congressional approval.
The final agreement could have 30 chapters covering an almost uncountable number of issues in areas including tariffs on farm products and manufactured goods, barriers to cross-border services trade, labor and environmental protections and the controversial intersection of drug patents and access to medicines. That's bigger and more comprehensive than NAFTA, which had 22 chapters, and the more recent U.S.-South Korea pact, which had 24.
New areas include an attempt to promote trade by reducing differences in government regulations, a focus on helping small- and medium-sized companies take better advantage of the agreement and other initiatives aimed at promoting regional supply chains and improving economic development and governance in the pact's poorer countries.
Much of the tough bargaining in Maui will be over market access for agricultural and manufactured goods, with Japanese and Canadian import barriers in the spotlight, although the United States has sensitive sectors — such as sugar, autos, apparel and footwear — that it's under pressure to shield.
Heading into the meeting, Japan was offering only minimal new market access for rice — a commodity closely associated with the Japanese national identity — but has come a long ways towards satisfying the demands of U.S. dairy, beef and pork producers to open its heavily protected market to those products.
That has shifted the attention to Canada, which supports its dairy and poultry producers through a supply-management program that restricts imports — a system left untouched by both the 1989 U.S-Canada Free Trade Agreement and the NAFTA pact, which took effect in January 1994.
Now, Canada's reluctance to open its dairy market is causing heartburn for U.S. dairy producers, who say they can't support the TPP agreement unless they get greater sales opportunities in Canada and Japan than the deal would require them to give up to New Zealand, the world's largest dairy exporter.
"We understand the difficulties of Canada, but we have expressed very clearly that we need to see meaningful access from Canada, otherwise it's going to be very difficult for us to support an agreement," said Jaime Castaneda, senior vice president for trade at the National Milk Producers Federation.
The hard political situation facing Canadian Prime Minister Stephen Harper, who is up for re-election in October, has prompted speculation that Canadian negotiators may not be part of any deal reached in Maui and could wait until a later date to sign onto the pact. However, U.S. officials have indicated they would like to close the agreement with the United States' biggest trade partner still on board.
Meanwhile, Malaysian Prime Minister Najib Razak faces accusations of possible corruption stemming from his government's control of a sovereign wealth fund, which has weakened his political standing just as TPP negotiators are striving to reach a deal.
Malaysia is being asked to make a number of difficult reforms to state-owned enterprises, its financial services sector and government procurement, where ethnic Malays known as the bumiputera or "sons of the land," have enjoyed preferential access to public works contracts since 1969.
"Right now, [Najib's] fighting for his political survival, which is probably going to make it difficult for him to agree with the terms of the TPP if it goes through very quickly in Hawaii," said Murray Hiebert, a senior fellow at the Center for Strategic and International Studies, a foreign policy think tank.
Malaysia could take a pause in the negotiations and try to close at a later date as part of a second tranche of countries, which could include South Korea, the Philippines and Taiwan, he said.
Another Southeast nation, Vietnam, appears prepared to strike the deal and take on tough reforms of its labor regime and state-run economy, assuming it gets enough additional access in the United States for its clothing and shoe exports. Big U.S. retailers are in Vietnam's camp. But the White House has to walk a fine line with U.S. textile producers, who are are wary of the increased competition and continue to have strong support in Congress despite their diminished number.
"We're going to this TPP round to support what we think is the most logical approach to this," said Augustine Tantillo, president of the National Council of Textile Organizations. "That is to come out with an agreement that fairly balances the interests of all parties, including manufacturers and workers, and not get caught in how much more money can a retailer glean out of this by squeezing the production and manufacturing segment of the industry."
The U.S. is also in a defensive crouch when it comes to autos, where Detroit-based manufacturers like Ford and General Motors worry about losing more market share to Japanese brands if the United States sheds it 2.5 percent tariff on cars and 25 percent tariff on pickup trucks. The U.S. companies say they could oppose TPP unless it includes rules against currency manipulation and forces Japan to dismantle "non-tariff barriers" that block American vehicle sales there.
"Clearly, we see Japan as a closed automotive market with sort of a symbiotic relationship between government and industry that results in policies that make it difficult for us to sell in Japanese markets," said Matt Blunt, president of the American Automotive Policy Council. "We've yet to really see anything that indicates there is a commercially meaningful breakthrough on any of the technical barriers that exist in Japan."
In another sensitive area, Australia is pushing for more access to the U.S. sugar market, and the White House is weighing how much it can give in that sector versus how many votes it will lose in Congress if it offers too much.
"They're doing that calculation on everything," the Chamber's Overby said. "And with this chessboard being as complicated as it is, there are probably two or three people in USTR and the White House who know those moving parts and make those decisions."
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