[CTC] Ministers Fail to Cinch Major Trade Pact

[Arthur Stamoulis]

POLITICO
Ministers Fail to Cinch Major Trade Pact

By Doug Palmer 

7/31/15 5:07 PM EDT
Updated: 7/31/15 11:14 PM EDT
KAANAPALI, Hawaii — Negotiators from the U.S., Canada and 10 Pacific rim nations failed to conclude the biggest trade pact in history because of differences over agricultural and auto markets and U.S. demands for strong protections for a new generation of pharmaceuticals.

U.S. Trade Representative Michael Froman said late Friday evening that while no deal had been reached, all sides had made “significant progress.”

“We’re confident that TPP is within reach,” he said at a closing press conference. “I am very impressed with the work that’s been done.”

But the inability to reach an agreement in Maui complicates President Barack Obama’s effort to rope together nations that produce 40 percent of the world’s economic output, from giants like Japan and the U.S., to developing nations like Peru, Malaysia and Vietnam. A TPP agreement is also key to Obama’s “pivot” to Asia, aimed at anchoring the United States firmly in a region increasingly dominated by China and also at raising labor and environmental standards.

The longer it takes to complete the pact and schedule a vote in Congress, the greater the chance it will become 2016 campaign fodder — with Hillary Clinton and liberal Democratic lawmakers likely facing intense pressure from union and environmental groups to disavow it.

After negotiators delayed a closing press conference by two and a half hours, some remained convinced a deal might still come off.

“I think its a good sign,” said Tami Overby, senior vice president for Asia at the U.S. Chamber of Commerce. “It shows that they’re still negotiating. We’re hopeful.”

Negotiators said they made significant progress on a variety of issues, but some of the thorniest disagreements remained as the sun came up over Maui on Friday morning.

“We are still concentrating on pharma and biologicals,” Mexican Economy Minister Ildefonso Guajardo told reporters before heading into a meeting late this morning with his counterparts from 11 other countries, among them, Canada, Chile, Australia and Japan.

U.S. drug manufacturers say they need 12 years of data protection for new biologic medicines to recoup research and development costs. A group of countries led by Australia insist drug makers should get no more than five years of protection to hasten development of cheaper generic or “biosimilar” drugs, which are more affordable for consumers. Many expected the negotiations to settle around seven or eight years, but an agreement had not been reached.

“That is exactly what we are trying to negotiate,” said Guajardo, when asked if there was consensus yet.

The deal is supposed to link 40 percent of the world’s economic output, including giants like Japan and the U.S. and developing nations like Peru, Malaysia and Vietnam, under rules of business.

But besides snags over intellectual property protection, the talks appeared stalled over several longstanding disagreements, including Canadian dairy market access and Japanese barriers to auto and rice imports.

The failure to complete the deal in Maui would raise questions about the ability to get the agreement through Congress before Obama leaves office in 2017. The recently passed trade promotion authority bill requires the president to notify Congress 90 days before signing a trade agreement.

“It would be a very significant setback if they don’t reach a deal in Maui,” said Gary Hufbauer, a senior fellow at the Peterson Institute for International Economics. “I don’t think it’s fatal, but what I think they would need to do is reach an agreement by mid-August.”

That would still allow Obama to push the agreement through Congress before Iowa and New Hampshire hold their early presidential primaries. If it happened much later than that, Clinton might be forced by opponents such as Sen. Bernie Sanders into a position of opposing the agreement or promising to renegotiate if elected president.

“That would put enormous pressure on the 28 Democrats who voted for trade promotion authority” to withhold their support for the TPP deal, Hufbauer said.

Trade Promotion Authority, also known as fast track legislation, allows Obama to submit trade deals to Congress for a straight up-or-down vote without any amendments. The White House would not even be in a position to finish the TPP pact if Congress had not approved the legislation, which it did only after tough fights in both the House and the Senate.

The timing of the talks — especially those on dairy market access — is also a big problem for Canadian Prime Minister Stephen Harper. Harper faces re-election in October, and Canadian dairy farmers are adamant about maintaining decades-old protections that keep prices — and their profits — stable. An agreement this week would get the issue behind Harper, instead of hanging over his head as the Canadian campaign moves into swing.

American dairy farmers were also reluctant to drop their import barriers unless they gained enough new export opportunities in Canada and Japan to more than compensate.

As a result, dairy market access has been a major stumbling throughout the eight days of talks. Canada’s unwillingness to significantly lift import restrictions dampened U.S. interest in opening its own market and forced New Zealand and Australia, two major dairy exporters, to scale back their hopes.

The outcome of U.S.-Japan auto and rice negotiations also appears to remain up in the air. But both U.S. and Japanese officials say the two sides have significantly narrowed gaps since Japanese Prime Minister Shinzo Abe visited Washington earlier this year and are in striking distance of closing a bilateral deal.

Australia also has pressed for increased access to the U.S. sugar market, something Washington denied in a decade-old bilateral free trade pact because of strong opposition from American industry groups. Australia has asked for a quota to ship at least 750,000 metric tons of additional sugar to the U.S. each year, which American sugar growers say would damage the integrity of their price support program.

The United States also remains in talks with Vietnam to bring the Southeast Asian nation into compliance with new labor obligations. Many Democrats are closely watching that issue, concerned that American companies will shift production to Vietnam to take advantage of lower wages.

The White House has promised the TPP will be the “most progressive trade agreement” in history when it comes to labor and environmental protection, and many Democrats will be heavily scrutinizing the terms of an expected labor action plan with Vietnam to see if Obama has lived up to that pledge.

Negotiators are believed to have reached agreement on environmental rules, which some groups preemptively dismissed as inadequate.

“The TPP’s environment chapter might look nice on the surface but will be hollow on the inside, and history gives us no reason to believe that TPP rules on conservation challenges such as the illegal timber or wildlife trade will ever be enforced,” Sierra Club Executive Director Michael Brune said in a statement.

A source familiar with the text said groups like Sierra Club will probably be unhappy that rules to combat shark finning and illegal logging won’t require countries to explicitly prohibit those activities. The final chapter is also expected to require only that countries “adopt, maintain and implement” just a few of the seven international environmental agreements the U.S. had demanded other countries enforce in previous trade deals.

Adam Behsudi contributed to this report.
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