The latest effort to revive the stalled Trans-Pacific Partnership talks failed at the start of the week and no date has been set to try again. Negotiations began in 2010, but reluctantly, Japan joined last year. This arguably made negotiations more difficult, but of greater significance. However, without a clearer path for US President Obama to receive "Trade Promotion Authority" from Congress, a new and significant obstacle has emerged.
Japanese Prime Minister Abe embraced the TPP for three general reasons. First, initially Abe and senior Japanese officials broke with the best G7 practices by suggesting bilateral targets for the yen, as well as the Nikkei. In response to what seems like behind the scenes pressure, the Abe government took several remedial steps. These included refraining from such talk going forward; cease talk of buying foreign bonds, name the most internationally respected of the candidates to head the BOJ, and join TPP talks.
Abe also seemed to realize that TPP could be used to help push his domestic reform agenda. Yet, the Japanese trade negotiators are insisting on carving out agricultural goods from negotiations, such as rice, wheat, sugar, beef, poultry and dairy. Japan is the US' fourth largest export market for agricultural produce and Japan's food imports are larger than its auto imports.
Overall, Japan wants to exempt 586 tariff lines (11% of its tariff schedule) from negotiations. This is more than twice what other US free trade agreements included. This raises questions about the role of trade liberalization to expedite Abe's domestic agenda.
For its part, Japan wants the US to reduce its auto and truck tariffs. Currently the US puts a 2.5% tariff on imported Japanese autos and 25% tariff on Japanese-made light-truck imports. Japanese vehicle makers have found a work around: Locate production facilities in the US. In 2013, roughly 70% of the Japanese brand cars sold in the US were made there, while Japanese brands accounted for a little less than 40% of the US auto market.
There are 12 countries participating in the negotiations. Each has their own interests and domestic forces that need respecting or courting. Vietnam wants greater access to the US textile market, while Australia is pushing for reduced barriers to the US sugar market. Malaysia wants to keep its preference for locally-owned companies in awarding government procurement contracts.
That is what negotiations are all about. However, without Obama getting "Trade Promotion Authority", many of the countries do not think the US is very serious. In turn, that makes them understandably more reluctant to take on domestic interest groups.
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