Jane Kelsey: So near and yet so far for trade deal

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Japan's inflexibility and its agreement with the US leave little room, and little movement, for other nations.

Those who were at the Singapore round of talks are reluctant to divulge their outcome.
Those who were at the Singapore round of talks are reluctant to divulge their outcome.

Negotiations for the Trans-Pacific Partnership agreement (TPP) are entering their fourth year. Each of the 12 governments has spent many millions of dollars hosting and attending meetings and committed years of staff time as officials have toiled over the 29 chapters.

The latest round of talks has just concluded in Singapore, including a four-day meeting of the trade ministers. Far from progressing rapidly towards a final deal, the meeting was dubbed by media and observers, including some industry lobbyists, as at best a disappointment and at worst a failure. Indeed, it now seems even less likely that the commercial gains the National Government says it would require from a TPP can be delivered.

Those who know exactly what happened in Singapore will not tell us. But the following is my informed assessment.

The principal sticking point is agriculture - specifically the market access negotiations between the US and Japan.

It has been widely assumed that the rest of the agreement could fall into line quite rapidly if that standoff can be resolved. But, even if that were true, it could require New Zealand and Australia to swallow a very large rat.

A deal between the US and Japan would not intrinsically benefit New Zealand and Australia. Indeed, any deal on agriculture will inevitably fall below the comprehensive liberalisation they set as their bottom line - and they will have to make politically unpopular commitments in areas like intellectual property, investment, state-owned enterprises and government procurement in return.

The Japanese Government has committed to defending its five "sacred products": rice, grain, pork and beef, sugar, and dairy. Prime Minister Shinzo Abe has promised his own Liberal Democratic Party (LDP) that it will do so, and has reiterated that position on many occasions. There were several members of the Japanese Diet in Singapore monitoring what was happening, including members from the LCP who are critical of the agreement.

These political realities mean that Japan would have huge political problems cutting its tariffs on those products. The US recognises that. The obvious alternative is to use the device of "tariff rate quotas", which allows a certain quantity of imports at a lower tariff rate with a much higher tariff beyond that. Those quotas could apply to the least sensitive lines within each product. Japan could make concessions to the US and retain its tariffs intact.

However, there is a finite amount of imports Japan will be prepared to accept by way of quotas. The US and Japan are treating their negotiations as bilateral, and do not want to share the outcome across all the TPP countries.

If the US is able to claim first dibs on the quotas for Japan, the remaining agricultural exporting countries in the TPP- basically Australia, New Zealand and Canada - would be left to compete for the scraps. Although Australia and New Zealand have consistently rejected the bilateral approach, they have little leverage. Threats to walk away are unlikely to trigger major concessions from either the US or Japan. Canada has its own defensive interests, including in dairy, and may choose not to push either of the big players.

So Australia and New Zealand would be out on a limb. Japan has already said it does not intend to offer Australia any more in the TPP than it has offered in their negotiations for a bilateral free trade agreement. Those talks began in 2007, and effectively remain stalled over agriculture, despite claims they will conclude it in July. New Zealand's agriculture industry is unlikely to settle for the equivalent of Japan's offer to Australia for either meat or dairy.

On the US side, a bilateral deal with Japan could create some room for movement. But the US will also be playing to its domestic constituencies. Elections in the House of Representatives in November will frame any moves it makes on the TPP this year. In addition, the Obama Administration does not have "fast track" authority that would allow it to push the deal through the Congress without it being reopened, and it will certainly not get that authority this year.

The Administration could try to put the TPP directly to the Congress without fast track and dare them to vote it down. That is a high-risk strategy. The greater the concessions a final deal includes in areas like sugar and dairy, the more provocative it will appear to important factions in the Congress. It therefore seems likely that the US might open a token amount of its imports of sugar from Australia and dairy from New Zealand, probably also through quotas. All this is a big "if" and even then the gains would be small.

Meanwhile, the US continues to play hardball on the remaining difficult chapters, principally investment, state-owned enterprises, environment and intellectual property. It chaired most, if not all, the negotiating groups in Singapore, which meant it could control the agenda and the discussion. That is likely to continue post-Singapore, as the negotiators work to line up the dominoes in the expectation that they will eventually fall.

Jane Kelsey is a law professor at the University of Auckland.

- NZ Herald

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