Japan has made it clear it thinks New Zealand was the key major stumbling block to a successful conclusion of the Trans Pacific Partnership trade deal. Alas, New Zealand proved to be the axle-breaking bump in the road that nobody saw until it was too late to slow down. An August 9 piece in Japan News about the timing of the next round of ministerial talks on the TPP repeats that point:

There was a plan to hold the ministerial meeting after the economic ministers’ meetings of the Association of Southeast Asian Nations (ASEAN), to be held in Malaysia in late August. However, New Zealand did not relax its hard-line stance over other nations’ import quotas for its dairy products, with [Japanese Minister in charge of TPP negotiations Akira]Amari saying the country made excessive demands.

Therefore – and maybe forevermore - Japan will not participate in further ministerial meetings until a broad agreement can be reached by officials beforehand. Such an approach ignores a TPP reality where the divisions still run so deep that only politicians can leap across them. Mere officials would not dare.

The timetable for TPP passage remains very tight. Theoretically, if a broad agreement could (somehow) be reached in early September then the Obama administration could then proceed to fulfil the legislative requirement (under fast track authority) that the US President must give Congress 90 days notice of the contents before it signs a final trade deal, so that an informed ratification vote can take place.

Theoretically again - if all else somehow went swimmingly- an early September agreement on the TPP might still enable an obliging Congress to ratify the deal in early December. If instead – and this seems more likely, given the array of outstanding differences and the lingering rancour after Maui – the broad agreement is not reached until November or later, then the earliest possible Congressional vote would not occur until February, when the 2016 presidential campaign will already be well under way.

A February vote would be tough. Since Obama needs Republican support to pass the TPP, the chances of rounding up enough Republicans willing to hand the Democrats a major victory in election year seem rather slim – even if a Republican-led “ yes” vote was to be spun as evidence that only a sensible, mainstream Republican Party (last seen in the 1950s hey-day of Dwight Eisenhower) can rescue the USA from gridlock. Meanwhile, Hillary Clinton would be faced with either (a) supporting a Democratic President against the wishes of party activists and many Democratic legislators whose support she will need to win the White House or (b) opposing a Democratic President on the main plank of his trade agenda. Either way, Clinton would run the risk of being painted as a traitor, for naked personal gain. Presumably by then, Barack Obama would be being prevailed upon not to put his Party’s leading presidential contender in that position.

In the meantime, other major players are taking a deep breath, contemplating life without the TPP and planning that the sun might still come up, regardless. Over the weekend, an editorial in the influential Japanese business newspaper Yomiuri Shimbun ended with this damning paragraph:

…..The government has reportedly given up on its initial idea of seeking to hold the next ministerial talks by the end of this month. Japan should not solely concentrate on the TPP in its free trade agenda. The government should spend more energy on other ongoing free trade talks with East Asian countries and Europe, which might produce larger economic benefits than the TPP.

To repeat the timing problems: Canada holds an election in October and even if the next TPP ministerial meeting was held in September, Canada would be very unlikely to make concessions affecting its dairy farmers. The problematic US political timetable has already been mentioned. In Japan, the timing is also tricky. The draft TPP deal was expected to be put to an extraordinary session of the Diet [Japan’s Parliament] in the northern autumn. No such luck. Diet business from January to March will be consumed by debate on the fiscal 2016 Budget, thus probably kicking Japan’s agreement to any TPP deal all the way out to the early northern summer of 2016:

“I think the deliberation of the draft agreement is to be held in April or after, and [approval] will be made shortly before the House of Councillors election in summer,” a government source said.

In the meantime, Japan is plainly feeling very aggrieved that its concessions and intercessions have neither been recognised, nor reciprocated by the likes of New Zealand on farm trade, or by the US on medicine patent terms or by Canada and Mexico with regard to the rules of origin threshold for the manufacture of auto parts. Again, the Yomiuri Shimbun editorial is instructive on why Japan might be better advised to cut its losses on the TPP:

Still, the rupture of the talks may not be all bad news for Japan….., Japan appears to have been ready to make major concessions in order to strike a deal, including the creation of a new quota for rice imports as well as cuts to import tariffs on pork and beef…..Japan was reportedly also about to accept unsatisfactory terms for the opening of American car and vehicle parts markets, with the abolition of U.S. tariffs on Japanese cars taking a fairly long time to take effect and conditions for the elimination of tariffs on vehicle parts not matching Japanese demands.

If a deal had been struck at the Hawaii talks, there would inevitably have emerged a large gap between what benefits Japanese consumers would gain and what losses could be incurred by this country’s farmers. The Abe administration should use the latest turn of events at the TPP negotiations to re-assess what Japan stands to gain and lose from the talks…

For now, we have the absurd retention of secrecy about the substance of the talks. This is grotesque. For purely political reasons, the public has been kept in the dark. Meanwhile, none of the negotiators and no-one in the corporate boxes on the sidelines at Maui has been left in any doubt about the details of what was on the table. In the US, Freedom of Information requests have revealed the cosy collusion between TPP negotiators and major corporates:

Exchanges between officials and industry cover just about any topic affecting the TPP that came up during the period, such as expansion of the TPP to include Japan and other countries, a transparency agreement among negotiating countries, a public statement by USTR about access to medicines, Canada and culture, US patent reform, IPR and environmental information, software patentability, relations with the European Union, other trade agreements and international developments, and as expected numerous consultations [occurred] over elements of the draft treaty text.

For instance, General Electric Aviation division representative Tanuja Garde asks, “On trade secrets, can you share the language you tabled or discuss by phone?” To which the USTR official Probir Mehta answers, “Let’s chat; How about sometime Monday?”

Elsewhere, Garde writes to Mehta: “I heard about what was tabled in Dallas – great job. Have you briefed the Chamber? [referring to the US Chamber of Commerce, an industry association] Mehta replies: “Thanks Tanuja – actually the thanks go to you and Joe!” [referring to USTR official Joe Whitlock] We’ve briefed the US Chamber led TPP IP Task Force last week.”

A number of other big companies are included in discussions on trade secrets, such as DuPont, Corning, Microsoft and Qualcomm. In another example, Entertainment Software Association (ESA) Vice President Stevan Mitchell provides a draft ESA analysis on technological protection measures (TPM) in the negotiation. The USTR reply is, “Are you free next week for lunch at some point?”

Similarly, if we could all afford the circa $NZ2,000 annual subscription to the well-connected US Inside Trade publication, we’d know pretty much everything about the dairy deals that New Zealand rejected in Maui. Roughly, here’s the gist of what Inside Trade reported on August 6th. Reportedly, Canada had tabled a market access offer that would create several new tariff-rate quotas (TRQs) on dairy products (and poultry) open to all participating countries wishing to compete for them. Just how Canada was proposing to administer this access scramble to ensure it was implemented in a non-protectionist fashion was left unspecified.

There had also been a conversion problem. Reportedly, Canada – and for its part on dairy, also Japan - had floated the idea of a single TPP-wide TRQ covering a broad range of dairy products including milk, butter and cheese. The proposed TRQ, which was expressed in liquid milk equivalent, would have been phased into full volume over a transition period.

Unfortunately for New Zealand, pitching the TRQ in terms of ( relatively low value) liquid milk tends to put the US ( Canada’s only viable source) at the head of the queue, and at the expense of more valuable dairy items dear to New Zealand, such as butter and cheese. Amusingly, Inside Trade proceeded to cite the China/NZ free trade deal back at New Zealand, and not in a good way. “The China-New Zealand free trade agreement sets the conversion factor for one ton of butter at 7.55 tons of liquid milk equivalent and one ton of cheese at 6.14 tons of liquid milk equivalent. If similar factors were adopted in the TPP, that could mean that fewer amounts of those high-value products could be shipped to Canada if the U.S. were able to fill a large portion of the quota with liquid milk exports…”

Where does Japan figure in all this? Well, Japan reportedly operates a TRQ of 137,020 tons of liquid milk equivalent under the World Trade Organization that covers a wide range of milk powder, milk fat and whey products. Our dairy exporters – and those from almost every other country – object to the protectionist way that Japan's Agriculture and Livestock Industries Corporation (ALIC) administers both the tendering process and the pricing mechanism for this TRQ. According to Inside Trade: “ The price at which ALIC buys these imports is significantly lower than the price at which it resells them on the Japanese market. ALIC keeps that margin and uses it to support Japanese dairy farming, according to industry sources. Dairy exporters have argued that new access Japan grants for dairy under TPP should not be administered by ALIC.”

Does this bar brawl sound like anything the officials involved can tidily fix anytime soon? It gets even worse. Even on the brink of the Maui talks breaking up, the dairy offer from Canada had been rejected by everyone, and the US then withdrew on offer on dairy it had made to Australia – apparently for fear that New Zealand would demand something similar – while “New Zealand continued to complain that the U.S., Canada and Japan have failed to make sufficiently good offers.” As Inside Trade concludes: “Australian dairy producers do not have a commercial interest in shipping to Canada. Therefore, the main importance of a Canadian offer to Australia is that it is far-reaching enough to convince the U.S. to open its market to additional dairy imports from other TPP countries.”

I mention this dairy fracas in some detail in order to indicate how deeply divided the parties remain. Expecting officials to conjure up a solution on dairy acceptable to all countries in the next few weeks would seem optimistic, to the point of delusion. Similarly yawning gaps exist between Japan and the US position over the level of rice imports to which Japan will expose its farmers ; on medicine patent terms: zero to five years, five years with extensions to eight years, or twelve years? ; and on auto parts rules of origin, where Canada and Mexico rejected in Maui the cosy bilateral deal that had been struck by the US and Japan.

And that’s not all, folks. As US Assistant Trade representative Barbara Weisel made clear in a briefing on August 6 to Congressional staff, Peru and Mexico were cool in Maui to the bilateral deal worked out between Vietnam and the US on textiles. Labour standards were also not yet agreed:

On labor, Weisel during the briefing confirmed that the U.S. is [still] negotiating “consistency plans” with Vietnam, Mexico, Malaysia and Brunei to bring them in line with the International Labor Organization standards that they will have to uphold as part of the TPP labor chapter, but said these were not quite done, according to congressional sources.

Staff for House Ways & Means Chairman Paul Ryan (R-WI) made clear that he believes the model for these consistency plans should be the U.S.-Colombia labor action plan, which was completely separate from the bilateral free trade agreement although it was politically linked, sources said. But staff for Ways & Means Democrats emphasized during the briefing that they do not agree the Colombia plan should be the model….and want the TPP labor consistency plans incorporated into the text of the agreement.

On medicines, Weisel believed other TPP countries had simply not grasped how important this issue was to the US:

She said TPP countries that currently have zero or five years of data exclusivity for biologics were very resistant to moving off of their positions in Maui, and that it was her sense that these countries did not realize how serious the U.S. was in its position until this round, sources said. The U.S. is pressing for 12 years of data exclusivity for biologics in TPP, but Australia is refusing to go beyond the five years contained in its current law. TPP negotiators in Maui were working on a compromise on the data exclusivity period for biologic drugs that would set a base period of five years of data exclusivity for biologics, but provide an extension of three years under certain circumstances.

Does anyone really think all these bridges can be crossed by early September? Even if the TPP ministers tried to declare victory and announced a ‘broad agreement’, the US Congress would baulk at endorsing any agreement where the relevant details have yet to be decided. The Japanese are being urged to re-assess whether the TPP really is worth any further effort. At the very least, Trade Minister Tim Groser should be coming clean with the details of what remains in contention. What is the balance of costs and gains on the TPP currently looking like for New Zealand?

For example: it is simply not good enough for Groser to insist that people won’t be paying more across the counter for medicines under the TPP….This does not address the already conceded extra costs that the TPP will impose on Pharmac, the health budget and the availability of medicines. Where does the government stand on this? Does it really think it can win enough on dairy to justify these added costs? Or…given the plight of our dairy farmers does it think that any hope at all of progress on this front is good news, politically?

TPP Theme

And here’s a song Groser has no doubt often times sung to his pals in the corporate sector ….

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