[CTC] TPP Deal Nearly In Reach, But Likely To Fall Short Over Dairy, Drug IP

[Arthur Stamoulis]

IUST: Daily News

TPP Deal Nearly In Reach, But Likely To Fall Short Over Dairy, Drug IP

Posted: July 31, 2015 
LAHAINA, Hawaii – With less than 12 hours to go before an informal deadline for the conclusion of the Trans-Pacific Partnership (TPP) ministerial here, countries are close to a deal after solving a wide range of long-stalled rules issues, but still seem to face gaps on the most sensitive issues of market access for dairy and sugar as well as intellectual property (IP) protection for drugs, sources said.

Some negotiators privately downplayed the chances for an agreement to come together by the closing press conference slated for 1:30 p.m. local time on Friday (July 31), saying the most likely scenario was some sort of announcement of substantial progress and a commitment to work out the final outstanding issues in the near term.

Another source involved in the negotiations was slightly more optimistic, saying the odds of a deal are still 50-50. This source said the U.S. is putting lots of pressure on other countries to close, but is also showing flexibility itself. However, he said that in order to get the deal across the finish line, the U.S. needed to scale back demands on IP and give more on market access, while Japan needs to beef up its market access offer.

But sources cited a handful of other difficult issues that are also unlikely to be resolved here, including automotive rule of origin, which is a problem for Mexico, and state-owned enterprises for Malaysia. The latter country also faces broader challenges in TPP as the prime minister is facing domestic scrutiny due to a corruption scandal.

Ministers were not working overnight to try and bridge the gaps. After holding a plenary sessions Thursday night on geographical indications (GIs), they recessed until 9 a.m. Friday morning. Sources held open the possibility that lower-level negotiators would work through the weekend here, with some saying they may stay even longer.

Sources here insist that claims of progress at the ministerial are backed up by results. Negotiators here have substantially closed four or five difficult chapters, including investment, government procurement, electronic commerce and environment, they said. One source said environment was largely closed prior to the round here and that some countries did not even send their lead negotiators on this issue, although the U.S. did.

Some of the chapters finished here, such as investment, are “substantially closed,” which means a few issues will await resolution until the market access outcome is clear. For instance, Australia has conditioned its willingness to accept the investor-state dispute settlement (ISDS) mechanism on getting a strong market access outcome for its sugar and dairy exports.

In the investment chapter, sources said TPP countries had resolved the two major outstanding issues, which were capital controls and the application of ISDS to public infrastructure contracts known as investment agreements. Chile was sensitive on the former and Mexico on the latter, but sources signaled compromises had been reached that were acceptable to both of them.

There is also movement here on the longstanding sticking point <http://insidetrade.com/node/149119> of textiles and apparel. Sources said the U.S. and Vietnam have been holding bilateral discussions in which the U.S. has offered flexibility on market access and potentially rules of origin, although one source stressed that U.S. concessions in one area of the textiles talks have been balanced with Vietnamese concessions in others. The U.S. and Vietnam have then vetted their understandings with Peru and Mexico, according to these sources.

The prospects of reaching a dairy deal here seem bleak after the U.S., Australia and New Zealand deemed insufficient Canada's initial offer, the U.S. pulled back a previous dairy offer to Australia, and New Zealand continued to complain that the U.S., Canada and Japan have failed to make sufficiently good offers. John Wilson, chairman of Fonterra, New Zealand's major dairy cooperative, arrived here on Thursday to push for a better dairy deal.

If a dairy deal cannot be reached here, it would likely set off a flurry of bilateral meetings between the major players in the coming weeks to try to hammer out a deal, sources said. TPP ministers would not likely meet again until the dairy issues was worked out.

TPP countries also seemed poised to make progress on the thorny issue of GIs. Trade ministers discussed the issue in a plenary meeting Thursday evening and gave direction to their chief negotiators on how to resolve it. The chief negotiators then met into the late hours of the evening, although the outcome of the discussion was unclear.

The U.S., Australia and New Zealand have proposed rules in the IP chapter that would require countries to, among other things, maintain a process that allows for applications for GI protection to be rejected or canceled under certain circumstances. But TPP countries have long been at odds over whether international agreements between TPP countries and other parties such as the European Union would be excluded from having to comply with these GI rules, and if so, what would be the scope of such an exception.

Another area in which negotiators are making progress is rules of origin, specifically on the issue of cumulation. Going into this week, TPP countries had already agreed in principle to allow regional cumulation for all products, which would allow one country to include components or inputs from another TPP country into a final good and still be considered an originating product.

But negotiators had disagreed over how to handle situations where one TPP country imposes different tariff levels for the same product on different TPP countries. Now TPP countries have nearly agreed that, in such circumstances, the higher duty would be applied to the imports.

If TPP countries cannot reach a deal here, they will likely issue a joint statement acknowledging the progress on a number of chapters, and outlining the few issues that remain unresolved. Some negotiators have indicated ministers may try to sell such an outcome as a substantial conclusion of the negotiations, with the caveat that some countries need to go back to their capitals to confirm their commitments.

TPP countries are already facing time pressure to conclude the talks so that a final agreement can be considered by Congress before the U.S. presidential election heats up in 2016. Some sources identified the end of January as the cutoff date since that is when the primaries begin.

Other sources here held out the possibility that Congress might not approve a TPP deal until after the November election during the lame-duck session. They noted there is precedent for doing so since both the North American Free Trade Agreement and the Uruguay Round trade deal were passed during a lame duck.

But perhaps a more immediate event putting pressure on negotiators is the Canadian national election slated for October 19. Press reports in Canada suggest Prime Minister Stephen Harper could formally start the campaign period as early as Sunday.

Canadian stakeholders said they doubted Harper wants to strike a TPP deal during the campaign period, as it is customary for the ruling party to avoid any major decisions during that period that could bind a future government, with the exception of national emergencies.


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