TPP and the Political Economy of U.S.-Japan Trade Negotiations

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Japan may no longer be the economic threat it once was, but tensions with the United States still prevail over trade, most notably in pushing forward with the Trans-Pacific Partnership agreement. While a successful conclusion to the 12-member nation trade pact would reap in great rewards for the global economy, the politics of trade in both Washington and Tokyo present formidable barriers that will likely take several years to overcome. What is the outlook for TPP as China’s importance as a Japanese trading partner continues to grow on the one hand, and Beijing pushes for alternative regional trade frameworks on the other? Does Japanese Prime Minister Shinzo Abe have the political will and capital to push forward with the sectoral reforms that will be required as a member nation of the TPP? This report discusses the challenges ahead for TPP to become a reality, written by Monterey Institute for International Studies’ Robert Rogowsky, who was formerly chief economist at the U.S. International Trade Commission, and Gary Horlick, a partner at the law offices of Gary W. Horlick and former head of the U.S. Department of Commerce Import Administration.
  By Robert A. Rogowsky and Gary Horlick TPP AND THE POLITICAL ECONOMY OF U.S.-JAPAN TRADE NEGOTIATIONS  TPP AND THE POLITICAL ECONOMY OF U.S.-JAPAN TRADE NEGOTIATIONS  1   TPP AND THE POLITICAL ECONOMY OF U.S.-JAPAN TRADE NEGOTIATIONS 1 T he world is awash in trade negoaons. The 12-member Trans-Pacic Partnership is the most important of them all, with vast economic potenal as it could set new standards for commercial integraon. The geopolical benets to a successful TPP are perhaps even more important. The key is whether a few of the large TPP countries can negoate a balanced package. Why TPP and Why Now? The proposed free trade agreement between Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam aims to be a comprehensive, high-standard and ambious free trade pact. The TPP sets new standards by bringing to the bargaining table 21st century issues such as regulatory coherence and administrave transparency, value-chains, e-commerce, and state-owned enterprise, as well as labor, environment, and intellectual property. Early ambions were to reach 98 to 99 percent trade liberalizaon rate for taris. In addion to ambious liberalizaon, member countries have placed on themselves aggressive deadlines. Each year since 2011, they have opmiscally tasked themselves to nish that year. This year is no excepon, and the same opmism may be repeated in 2015. It may be repeated again in 2016. Successful regional trade negoaons ulmately must agglomerate numerous bilateral negoaons over the most sensive issues, any of which could be make-or-break issues for the overall agreement. For TPP in the summer of 2014, aenon is focused on the negoaon between the United States and Japan over what agriculture products can be excluded, limited or oered special compensatory protecon mechanisms. Success at this stage means opening Japan’s ve so-called sacred agriculture markets: rice, sugar, wheat and barley, dairy, beef and pork. The United States, supported by most member countries, has pushed for all commodies to be included for liberalizaon within phase-out periods of no more than 20 years. Japan insists that such a scenario is polically impossible and  TPP AND THE POLITICAL ECONOMY OF U.S.-JAPAN TRADE NEGOTIATIONS  2 could force Japan to withdraw from the TPP. Indeed, there is talk both in Washington and in Tokyo of proceeding without Japan. This paper assesses the likelihood and ming of an agreement between the United States and Japan that would sasfy other TPP members and, in turn, lead to serious progress on the trade negoaons. In parcular, specic problem areas will be examined, and the polics behind the posions, the probabilies of resoluon, and, nally, possible compromises that might lead to agreement. There are reasons to be opmisc that a robust trade agreement can be reached. It is clear, however, that despite the heroic eorts to complete a deal, and the great benets to come from a successful TPP agreement, the polics of trade in both the United States and Japan pose formidable barriers that are likely to require several years to overcome. The Polics of U.S. Trade Trade polics in the United States are complex. As TPP negoaons drill down into specic issues and commodies, policy gets less complex but more dicult. The usual good cop (Execuve)/bad cop (Congress) taccs are intensifying: the negoators are pleading for recognion of the benets of a trade agreement; Congress is adamantly demanding more, and then more. Industries seeking to open Japanese markets are pressing negoators hard, and quietly signaling that they recognize realisc goals. Organized special interests that want to avoid liberalizaon or at least delay negoaons are coalescing and becoming more formidable. Diculty in negoaons means delay.Delay presents a substanal polical problem in the United States, given that 2014 is a mid-term elecon year. Trade liberalizaon is not a popular topic in elecon years. Trade liberalizaon, typically a target for Democrats and the le, is also unpopular on the right. Recent polls show that Democrats are more supporve than Republicans of both a free trade agreement with Europe (60 percent to 44 percent) as well as a free trade agreement with Japan and other countries around the Pacic (59 percent to 49 percent). 1   Compounding the problem, if negoaons connue past early 2015, TPP risks being caught in the beginning of what will certainly be a heated 2016 presidenal elecon. An elecon, especially in the early stages-- the primary elecons to select the nal candidate for each party—could hamper progress on TPP. Primaries are generally more ideological than general elecons in the United States and can be substanally more an-trade. Moreover, opponents of TPP will come from mulple fronts: those on the le and on the right who oppose trade liberalizaon and those who are upset that not enough market opening is being achieved. Not surprisingly, powerful agricultural interests are leading both camps.Can TPP beat the looming polical deadline? It will be dicult. Even a successful negoaon between the United States and Japan on agriculture would, as United States Trade Representave (USTR) Michael Froman has indicated, only lead to a new stage of the TPP negoaons in which the other 10 TPP countries would engage with Japan on their own market access issues. Meanwhile, U.S. ocials have said that concluding market access talks with Japan will clear the way for them to negoate agriculture problems with Canada. This next stage of agricultural negoaons, if reached, could also take considerable me.Polical pressure is growing inside Washington to force more eecve opening of Japan’s agriculture markets. U.S. negoators have hinted that they  TPP AND THE POLITICAL ECONOMY OF U.S.-JAPAN TRADE NEGOTIATIONS  3   TPP AND THE POLITICAL ECONOMY OF U.S.-JAPAN TRADE NEGOTIATIONS 3 do not believe they can get a beer deal from Japan, at least on beef and pork. In December, a broad coalion of U.S. agricultural groups sent a strongly worded leer to the USTR recommending that they consider moving forward to a conclusion of the TPP without Japan if Japan did not open its market across a range of farm products. A joint statement on May 28 by ve major agricultural associaons expressed their displeasure with statements by Japanese TPP negoator Akira Amari at the May 2014 ministerial that his country would not abolish taris on the ve sensive sectors. That same message has been reinforced by the American Farm Bureau Federaon, U.S. Wheat Associates, and the Naonal Oilseeds Processors Associaon. These leers are bluntly worded signals to U.S. negoators and to Japan that: 1. Important and inuenal agricultural interests will put increasing pressure on USTR not to agree to a TPP without opening Japan at least on beef and pork, 2. Strong pressure will be applied to Congress to resist Trade Promoon Authority (TPA) as a way to stop a TPP agreement without more liberalizaon, and 3. A high-level dialogue will commence in Washington to consider TPA approving TPP without Japan. Even a credible discussion of TPA authorizing TPP without Japan—especially in an elecon year in the United States—could become a reality and, in turn, a potenally embarrassing process for Prime Minister Abe. At the same me, U.S. dairy industry groups concede that they do not expect full Allowing Japan to protect key agriculture would set a bad precedent for the current TPP talks, for negoaons with the European Union, and for future TPP parcipants like China. tari eliminaon. They have called on the administraon to secure “comprehensive” and “meaningful market access” in Japan and Canada through TPP. 2  The USA Rice Federaon press release in April stated that it does not expect to get substanally reduced specic tari levels, but are looking for overall market access to Japan. The federaon has called for more to be done without specifying publically what level of market access would be sasfying.The next level of polical problem for U.S. negoators is that the Congressional Democrac leadership has made clear it will not consider Trade Promoon Authority (TPA) in the near term. In November 2013, 151 Members of the House of Representaves sent a leer to the President opposing TPA. The inuenal Republican Senator Charles Grassley (Iowa) expressed a growing senment in Washington that, while a successfully completed TPP would be best with Japan and appropriate agricultural liberalizaon, it could be concluded without Japan. New Zealand’s Prime Minister, during a trip to Washington, suggested that a TPP agreement without Japan is a disnct possibility.Further, it is gaining acceptance in Washington that allowing Japan to protect key agriculture would set a bad precedent for the current TPP talks (notably with Canada), for negoaons with the European Union, and for future TPP parcipants like China. House Ways and Means Subcommiee on Trade Chairman Devin Nunes (R-CA) and Rep. Aaron Schock (R-IL), a member of the Ways and Means
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