Negotiations have a number of challenges to overcome if they are to finalize a deal.
Expectations were high as trade ministers gathered in Hawaii at the end of July to hammer out final details for the Trans-Pacific Partnership (TPP). The toughest challenges in a negotiation usually arise at the very end, and this round of talks was no exception. As Japanese Prime Minister Shinzo Abe said earlier in July, “It is the last one inch that is the most challenging, of which I am fully aware.” Negotiators tried to walk a fine line between making the difficult concessions necessary to secure an overall pact, while outlining key walk-away positions in order to secure domestic support.
Australian Trade Minister Andrew Robb highlighted food (particularly items such as sugar and dairy), investor state dispute settlement (ISDS), and intellectual property (IP) as key issues for the country. Australia has been fighting for some time to get greater access to the U.S. sugar market. In its bilateral 2005 FTA with Australia, the U.S. maintained its existing restrictions on Australian sugar and has been pushing back on reopening these discussions. At the latest TPP talks in Hawaii, Robb said, “Well I’m not going to sign it without something for the sugar industry.”
Another key issue appears to center on ISDS, a concern which has been highlighted by the Philip Morris lawsuit against Australia seeking compensation for the country’s cigarette packaging rules, which aim to remove company logos. According to Robb, “We won’t move on ISDS unless we’re satisfied that there’s a carve out, an exemption, for public policy matters on health and the environment.”
The final major issue for a number of countries, including Australia, centers around IP, specifically the gap between U.S. demands for pharmaceutical data protection (12 years), and the period sought by countries such as Australia (five years). Data protection ensures that data collected during the development of a medicine is protected and that a third party can’t “free-ride” on the investment made by an innovator to generate the clinical evidence to gain approval for a drug. A number of countries are concerned that increasing the protection period will increase the time to market for generics and result in higher drug costs.
For New Zealand, access to dairy markets such as the U.S., Canada, and Japan is a key concern. Trade Minister Tim Groser of New Zealand said, “Good progress was made this week, but a number of challenging issues remain, including intellectual property and market access for dairy products.” Other countries have concerns about the low cost position of Fonterra, New Zealand’s huge dairy cooperative, which produces 22 billion liters of milk annually.
On the other side of the dairy market access issue, Canada has been singled out for its inflexibility. Canada has historically protected its agricultural sector, in particular commodities such as dairy, eggs and poultry. In its free trade agreement with the U.S., Canada maintained the use of quotas to limit U.S. dairy product imports. A recent letter sent by 21 Congressional members to Gary Doer, Canada’s Ambassador to the U.S., sought significant market access for agricultural products, in particular dairy. The Canadian government on the one hand would like to finalize the agreement in advance of the national elections scheduled for October. But at the same time it is very concerned about giving in on agricultural supply management in an election year, being especially wary of vote-rich Ontario and Quebec, which account for roughly 70 percent of Canadian milk production.
Complications around rules of origin for autos also came into play during the negotiations. Japanese automakers have invested heavily in Thailand, taking advantage of corporate tax incentives, and their efforts have helped make Thailand a significant exporter, with the country projected to export 1.2 million of the 2.2 million cars it produces in 2015. Japanese automakers also source many parts from Thailand, which is not a TPP candidate, and this is seen as an issue by Canada and Mexico, which are key suppliers to the U.S. auto market.
Malaysia, meanwhile, has been very vocal about being able to keep its preferences for state owned enterprises and Bumiputera (ethnic Malays, who receive preferential treatment in the form of affirmative action policies such as quotas for hiring within the civil service and a 30 percent requirement of Bumiputera ownership of domestic companies listed on the stock exchange). Minister of International Trade Mustapa Mohamad said, “The Government has taken a firm stand in the TPP: our Constitution, sovereignty, and core policies such as government procurement, state-owned enterprises and the Bumiputera agenda will be safeguarded.” His statements indicate that the government may be attempting to garner support for TPP among the Malaysian electorate in advance of any deal, while also publicly highlighting to negotiating partners its walk-away position.
While there is much that is in dispute, some countries are also taking steps to address concerns from partner nations. Vietnam, for example, appears to be taking steps to better comply with labor standards in the textiles industry. According to reports in Vietnam, Vietnam’s Ministry of Labor found that 80 percent of enterprises in this industry violated labor practices involving safety, work duration, and rest periods. Approximately 360 textile and apparel operations will be jointly inspected by the ministry and by the International Labor Organization (ILO). Weak labor standards have been criticized during U.S. Senate and Congressional proceedings.
The pressure to finalize the deal is becoming acute ahead of U.S. and Canadian elections. For U.S. policymakers intent on advancing the U.S. pivot to Asia, the stakes are also high as there are ongoing negotiations for a rival trade agreement in Asia, the Regional Comprehensive Economic Partnership (RCEP), which includes China but not the United States. The final negotiations will require nations to carefully weigh their geopolitical interests. It will also require countries to concede sufficiently in order to strike a deal, while at the same time balancing domestic concerns in order to sell the deal to voters.
Shom Sen was the 2014 Jack Wadsworth Fellow at the Asia Society.