TPP success will require more give, less take

  • National Newswatch

Trade expert Peter Clark was in Lahaina, Hawaii, for the recent talks at the Trans Pacific Partnership Ministerial meeting.  He is continuing to provide updates on the state of negotiations as the clock ticks toward the 'deadline' for an agreement.

Canada is playing an important role in the TPP negotiations.  I never doubted this, but the frustration and anger at Maui – and the shock and after shock of the missed opportunity – has shed unprecedented light on the issues.The TPP is important and can be completed – but this must happen soon. Alan Wolff, Chair of the US National Foreign Trade Council, published an excellent overview in Fortune Magazine.  Mr. Wolff has been involved in trade negotiations since the Uruguay Round and as Deputy USTR and General Counsel negotiated important agreements and was very much involved in drafting US trade legislation. His is sound analysis and reasoned comment – not hyperbole.Agriculture is at a critical impasse over a relatively small portion of overall TPP trade. Access to Canada is not the only target.  Mexico, the USA and Japan are also reluctant to accept New Zealand's demands. Canada is actively engaged in the closing efforts on the whole range of TPP issues  – carrying its weight and contributing.  No more  hollow threats of ex-communication.The US, at least in part, will insist on concessions from OZ and New Zealand in the Intellectual Property negotiations in return for concessions in agriculture.  Japan has painted Kiwi demands on dairy as extortionate.  Sorry Tim Groser - the floodgates will not likely open.U.S. rice export demands are still a sticking point for Japan, which should be settled North of  100,000 tonnes.  Heavily subsidized California rice farmers will moan - but without subsidized irrigation systems and cheap water, could they exist, let alone produce enough to export?Mexico is vigilant in protecting its interests.  Concerns about a threat to Mexican auto exports to the US were the real showstopper at Maui.Insulating the Mexican domestic dairy market and safeguarding its sugar exports to the USA are key concerns for Mexico. Concessions on these issues would have only downsides and no benefits.Reports, not confirmed by Canada, suggest there have been two offers on market access for dairy products– the latest providing some degree of market access for a range of country-specific tariff rate quotas. Larry Herman suggests the genie has been released from the bottle.The flash point in the automotive negotiations at Maui came as a shock.  The US fumbled the ball with the end-zone in sight.  Now the US and Japan  must now cope with combined Mexican-Canadian opposition.  The secret deal must unravel to keep peace in NAFTA and free up the TTP logjam.Rules of origin (ROO) are very important – they keep free riders from benefitting without contributing. Toyota, it appears, wanted to source parts for sales to the US from its supply chain in Thailand.  While this is an immediate concern, Thailand is in line to join the TPP.The North American Automobile market is expected to remain flat for the foreseeable future.  There will be little growth to share.  Relying on Thailand (or China)  for parts and sub–assemblies for up to 60 percent  content would raise greater concerns for autowokers and North American parts producers.Why this risk would elude US negotiators is a mystery.  A mystery almost as deep as why Washington would not consult Mexico and Canada about potential Japanese inroads into the US market at their expense – a unilateral dilution of NAFTA benefits.  This is what happens when making the deal for the sake of the deal becomes the goal.The Globe and Mail's Steven Chase reports that Japan was concerned about NAFTA partner reactions and was assured there was no problem.  Not great due diligence.  Abysmal institutional memory and incredibly poor judgement.  Luckily the fumble was near the opposing goal line and not deep in the US end.But let's not fire the coach and general manager, yet.  It has been US Ambassador Froman's determination which has brought the negotiations to where they are – which is, indeed, a long way.  And reaching agreement with Japan on the rest of the deal has been an impressive achievement.Washington is telling Canada and Australia there will be no more access to its sugar market.  This is normal, expected pressure on Australia to compromise on its non-negotiable issues – mainly intellectual property, data protection on biologic (derived from human organisms), pharmaceutical patents and Investor State Dispute Settlement.US sugar producers are irritated that Canada has prohibitive anti-dumping and countervailing duties in force on refined sugar from the US and EU. These so-called trade remedy duties have been in place for 20 years.  The US industry view is 'enough is enough – get rid of the trade remedies'.This clearly shapes US industry attitudes – but trade remedies will not be addressed in the TPP Agreement.  The US may not be the most frequent user of anti-dumping and countervailing duties – but it is certainly among the most enthusiastic (with Canada running neck and neck or marginally behind).That Canada produces minimal amounts of sugar from Canadian sugar beets – grown in Alberta and more recently in Ontario – poses another ROO issue.  Canada's sugar refining industry is very heavily based on duty-free imports of raw cane sugar (much of it from Australia).Mexico is concerned about adverse effects of additional preferential originating imports from Canada on its NAFTA exports to the USA – already subject to a trade remedies suspension agreement – with volume limits and floor prices for refined and raw sugar.Some US refiners want raw sugar imports from other countries under TPP to offset alleged over-floor pricing from Mexico.  There are reports of refined Mexican sugar being imported as raws.  This has not been proven – but Inside U.S. Trade reports USDA discussed this at a Sweetener Conference in Pueblo, New Mexico earlier this week.With all this noise and lobbying, prospects for increased exports of sugar and sugar-containing products from Canada seem gloomy.  The Canadian industry hoisted on its own petard – the trade remedies measures.Most of these issues can be resolved within President Obama's tight time frame.As for data exclusivity on biologic pharmaceuticals (based on living organisms), the negotiators appeared to be headed for a saw-off of eight years at Maui.  I expect that will be the landing zone.New Zealand and Australia balked at participating on biologics because of market access concerns.  Upsetting Mexico and Canada on automotive rules of origin created a kerfuffle which ensured the negotiations would not close at Maui.  These are disputes about numbers and time – they  will be resolved leaving  all parties unhappy.My clock on early conclusion of the TPP counts back from August 18, which cannot be done if Ministers wait for the ASEAN meeting in Kuala Lumpur. Singapore or somewhere in the US seem to be better venues for a more timely meeting.With serious and enlightened compromises, proper reality checks, due diligence and no more surprises, the deal can be done.  Catalyzing the necessary rapid progress is largely up to Japan and the USA – other participants look to them for leadership.Australia will deal.  They are bloody minded but pragmatic and will extract as much as they can.And, despite the bluster, don't expect New Zealand to throw the baby  out with the bathwater.Peter Clark, president of Grey, Clark, Shih and Associates, is one of Canada's leading international trade strategists. His clients in Canada and around the world include governments, corporations and trade associations. He is a frequent media commentator and columnist.  Follow him on Twitter at @jpclark14