Proving once again that good ideas cannot be killed, the Trans-Pacific Partnership (TPP) is ready to move into force as soon as next year. Companies had largely given up on the TPP after the withdrawal of the United States. Now firms will need to scramble to figure out how the agreement matters to their business and what steps they should take to maximize the opportunities and minimize the risks arising from the most important trade agreement in decades. What makes the TPP so relevant is the deep, interlocking nature of the commitments. Unlike other free trade agreements (FTAs), the TPP doesn’t simply open up trade in some goods or partially address services or investment. It manages to better reflect the way that firms actually structure business operations today. It will allow companies to more seamlessly move goods, services, and investments between and across TPP member markets. This benefits not just the biggest firms that have always had advantages of scale, but smaller firms that often struggle to sort out complex rules in trade deals.
The trade ministers from the 11 Trans-Pacific Partnership (TPP) countries will be gathering this weekend in Hanoi to discuss bringing the agreement into force. The Asian Trade Centre and APL Logistics have created a new booklet to highlight some of the specific market access benefits for companies. To see what the TPP with 11 parties delivers in wide range of products, we highlight seafood, wine, plastics, cosmetics and soap, shampoo, wood, furniture, iron and steel and some footwear and textile categories. The product categories were chosen to illustrate the range of different market access commitments made by TPP11 members. Many of these items show tariff cuts from as high as 40% to zero. The TPP continues to offer substantial market access benefits to participating member countries. Firms that operate in and across the TPP will face fewer tariff barriers with lower rates as quickly as the first day of the agreement.
Companies will only use trade agreements like RCEP if they include a range of interlocking requirements that solve multiple problems at once.
I have been told for several years now that if TPP negotiators were stuck in a room with no food and no water, they would rather quickly come to an agreement. We almost had a real-world test of this theory, as TPP chief negotiators and team members were stuck in New York City. Fortunately, the snow was lighter than expected and the experiment ended before stocks of food and water ran out.
So, what are the issues that are holding up conclusion of the TPP? This post will discuss the biggest sticking points—old-school fights over cows, pigs, butter, rice, and pickup trucks.
These kinds of market access issues continue to confound the conclusion of the negotiations.
What is particularly amazing about these topics is how long officials have been wrangling over them. Wendy Cutler, acting deputy USTR, must be one of the world’s most unlucky bureaucrats. She’s been fighting over market access for the same narrow set of products with Japan for what must now have been most of her career. Up until now, she has continued to bash her head against the same implacable forces with little to show for her efforts.
When I started tracking U.S.-Japan trade disputes from the 1980s and 1990s, she was pushing for expanded access for autos, apples, insurance, and construction. All these years later, she is still pushing for access for autos and assorted agricultural products. (In the interest of full disclosure, we have never met and I grant that she is good at her job—the evidence from some specific Japanese agricultural markets notwithstanding.)
The specific context for negotiations has altered over the decades. But the prospects for deep and substantial change have never been brighter. She is currently holed up again with her Japanese counterparts in Washington DC, trying to sort out the bilateral concerns over Japan’s “five sacreds” and autos.
Japan entered the TPP in July 2013. When Japan got in, the signs for negotiations were somewhat ominous. President Obama seems to have thought he had sufficient wiggle room by putting talks over a few key agricultural items and autos onto a separate, bilateral track. This portion of the negotiations could take as long as necessary to resolve, since conclusion of the bilateral portion of the deal need not finish at the same time as the rest of the topics under negotiation.
Prime Minister Abe, for his part, promised to “take special care of” five sectors: rice, wheat, beef/pork, dairy and sugar. These so-called “sacred” sectors were swiftly declared to be off limits for bilateral discussions by Japan’s Diet.
The deal that both sides thought they had mapped out quickly unraveled. First, it is impossible for Japan and the United States to negotiate endlessly (or continue to negotiate for another 30 years) on the five sacreds and autos. The other 10 TPP members need to see what sort of commitments the two players are willing to make. If Japan, for example, is able to exclude or fail to completely open certain sectors like dairy or beef or butter, then other TPP parties will argue that they, likewise, do not need to fully liberalize their own most sensitive sectors. Hence, it matters greatly what Wendy Cutler and her team manage to achieve in dialogue with her Japanese counterparts for the entire TPP negotiations.
Second, while the Japanese were likely to be given significant latitude to have extremely gradual market opening, government officials showed up with more than 500 tariff lines of products that were part of the original “sacred” list. Japan has more than 60 tariff lines devoted to rice--including not just polished rice with current tariffs of more than 777%, but also all sorts of products made with rice.
Again, quite clearly, for the TPP as a whole this laundry list of products was not going to be acceptable. If Japan managed to exclude or minimize its commitments across hundreds of product lines, then every other member would try to do likewise.
Even as the product list was slowly, painfully, peeled back to include a shorter list of products, the timelines for liberalization have remained long and the final outcome is less ambitious than promised.
Following the Japan-Australia FTA, for example, would allow beef tariffs to remain at 19.5% for 18 years. Nikkei just reported that beef tariffs in the TPP will be cut from 38.5% to 20%, with (as yet) unspecified plans to reduce further over time. Such reductions may be significant, but such promises over beef are certainly far from 0 tariffs or a 10 year timeline, as the original levels of ambition specified.
These deviations from high ambition will now likely flow through elsewhere, particularly in market access for agricultural products. Canada wants very much to exclude or minimize openings in its own dairy supply management system. Supply management is a complicated system designed to ensure continued production of dairy and some poultry products in the face of strong competitive pressures from the Americans. Under previous agreements like the North American Free Trade Agreement (NAFTA), the system was not addressed.
If Japan ends up being able to shelter some or all of its sacred agricultural items in the end, then Canada will likely argue for maintaining, in whole or part, the dairy supply system. The Americans will say that they need not open the domestic sugar market to greater competition from TPP parties. Or that the tariff rates on autos into the United States can remain at 2.5% indefinitely.
To get the TPP across the finish line, negotiators need a breakthrough in U.S.-Japan bargaining over autos and the remaining agricultural items. Until this portion of the final agreement is sorted out, the remaining sensitive products elsewhere cannot be properly addressed. Every deviation from high ambition encourages similar swerving by other parties elsewhere.
The stakes are high. But with a little luck, Cutler may finally be listening to a different tune when she presses her Japanese counterparts to open market access. After nearly a lifetime of waiting, it is past time to hear something other than “no.”