[CTC] Election Cycles Cloud Future of Trade Talks

[Arthur Stamoulis]

http://www.wsj.com/articles/election-cycles-cloud-future-of-trade-talks-1438557860

Election Cycles Cloud Future of Trade Talks

The U.S. and 11 other Pacific nations face a mix of thorny issues
complicated by political campaign seasons in America and Canada

WILLIAM MAULDIN and PAUL VIEIRA
Aug. 2, 2015 7:24 p.m. ET

The U.S. and 11 other Pacific nations trying to hammer out a sweeping trade
agreement notched progress in high-level talks in Hawaii but now face a
renewed mix of thorny issues complicated by election seasons in the U.S.
and Canada.

A snowballing dairy fight threatened to derail the deal last week as top
ministers also grappled with an economically larger issue on how
automobiles can be produced and traded within the proposed trade bloc. That
disagreement pits Japan against the countries of the North American Free
Trade Agreement.

In the U.S., current and former officials concede that it is now unlikely
the TPP can be completed and voted on in Congress this year as the Obama
administration hoped, before the peak of a presidential campaign that is
already highlighting objections to the deal from unions, environmental
groups and some conservatives.

Meanwhile, Canada, the third-largest economy in the group after the U.S.
and Japan,embarked on an 11-week election season Sunday that could make it
hard for Prime Minister Stephen Harper’s government to agree on opening up
the country’s protected dairy markets to more imports from the U.S. and New
Zealand. Ministers’ inability to clinch a deal in Hawaii means the Canadian
government takes on a high-stakes balancing act and the country’s dairy
farmers will face more uncertainty about their fate under the Pacific deal,
called the Trans-Pacific Partnership, or TPP.

“The fact that they didn’t get anything done this week is a big problem for
everybody,” said Wally Smith, president of the Dairy Farmers of Canada,
before flying out of the Hawaiian island of Maui late Saturday.

Canada’s Prime Minister Dissolves Parliament, Kicking Off Election Campaign

Officials reported significant progress toward a deal and said they closed
the gap on environmental rules aimed at leveling the playing field for
Vietnam and other developing economies in the bloc and also narrowed
outstanding differences on a range of issues such as investment rules.

“The issues are not intractable and there remains a real determination to
conclude the TPP among all parties,” said Australia’s minister for trade
and investment, Andrew Robb. “The resolve remains to get this done.”

Still, the continuing auto and dairy disputes prevented the trade ministers
from coming to an understanding on the most divisive issues in the TPP,
including labor standards and how long name-brand biologic drugs would be
protected against generic imitators.

The cars fight pits the countries that signed Nafta more than two decades
ago—the U.S., Canada and Mexico—against Japan, whose car industry uses a
broad supply chain, sourcing parts from Thailand and other countries not
involved in the TPP talks. The Nafta rules require that cars have over
three-fifths of their content originating in North America in order to
cross the borders duty free. But Japan’s auto makers want to be able to
source a greater proportion of parts outside the TPP under the bloc’s rules
of origin.

Mexico, which is emerging as a global automotive leader, will continue to
fight for its interests on automobiles, said Ildefonso Guajardo, Mexico’s
economy minister, at the closing news conference on Maui.

“It’s a major issue,” said Rep. Sander Levin of Michigan, who observed the
talks as the top Democrat on the House committee that oversees trade. Mr.
Levin, along with the Detroit auto makers and a host of other lawmakers, is
calling for the TPP to crack down on currency manipulation.

The Treasury Department is working with other finance ministers in the bloc
on ways to expose and deter the practice, which critics of the TPP say
could wipe away any U.S. gains from lower tariffs under the agreement.

In the dairy dispute, officials involved in the talks said they’re
exploring ways to persuade Japan and Canada, which have high barriers
protecting their dairy farmers, to accept more of particular milk products
from New Zealand, where dairy is the main export and political priority,
and the U.S., which is a rising dairy exporter with its own barriers at the
border.

Japan has recently faced shortages of butter, creating an opening for
officials from other countries to negotiate more shipments, while the U.S.
is in a good position to move liquid milk to Canada’s population just north
of the border.

Participants in the talks expect to meet again in late August or September,
but no time or place has been set.

The timing of any deal may well depend on the political winds in Canada,
where Mr. Harper dissolved the parliament Sunday and kicked off a campaign.

Mr. Harper’s Conservatives trail the left-leaning New Democratic Party,
whose leader in recent weeks has visited dairy farms in the vote-rich
province of Ontario to emphasize the need to maintain Canada’s dairy
protections, known as the supply-management system.

Mr. Harper has said Canada won’t be left out of a TPP deal. But if the
Conservatives lose the election on Oct. 19, “then all bets are off about
Canada and the TPP,” since the new parliament would need to ratify the
trade agreement, said Adam Taylor, a former aide to Canada Trade Minister
Ed Fast and director at Ensight Canada, an Ottawa-based lobbying firm.

While the dairy lobby has campaigned against changes to the
supply-management program, a coalition representing Canadian grain and
livestock producers has pushed aggressively for Canada to help conclude the
TPP, given the potential to tap faster-growing Asian markets. The grain
growers and cattle ranchers are concentrated in western Canada, a bastion
of Conservative support.

Even with an election in the background, Canada’s TPP negotiating team can
still work behind the scenes to resolve the dairy barriers and auto
supply-chain rules. The government continues to operate and the executive
branch can, if required, issue policy directives.

—Robb M. Stewart contributed to this article.

Write to William Mauldin at william.mauldin at wsj.com and Paul Vieira
atpaul.vieira at wsj.com
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