Media  Global Economy  2015.08.27

The TPP negotiations will not drift; an agreement will be reached in August "The only two remaining issues and the US's Asia-Pacific strategy"

English translated version of Webronza on August 4, 2015

The TPP negotiations did not reach a substantial conclusion during the cabinet meeting. Another meeting is scheduled in August, but the prevailing view seems to be that an agreement is unlikely to be made in a short period of time regarding issues that could not be resolved after numerous meetings.

Furthermore, based on the scheduled defined by the TPA law, through which US Congress gave the federal government authority regarding trade negotiations, even if an agreement is reached in August US Congress will not approve the TPP agreement until next year, when the presidential election is scheduled to take place. When that happens, it will be difficult to gain Congressional approval because of the Democrats' and Republicans' ulterior motives relating to the election.

This is because Republicans who supported the TPA may oppose the agreement to stop it from becoming the Democratic Obama administration's achievement. The countries participating in the TPP negotiations understand this situation, so they will not make an effort to conclude the negotiations in August. When that happens, the TPP negotiations will not resume until the American administration that succeeds the Obama administration establishes their policy for trade negotiations. In other words, the TPP negotiations will drift.

It is true that interviews with people who participated in the TPP cabinet meeting give the above impression.

However, during the cabinet meeting unresolved issues were narrowed down to two problems.

One is the confrontation regarding the protection period for bio-pharmaceutical development data between the US, which wants the protection period to be 12 years, and other countries that want the protection period to be five years. As the US has high technological skills relating to bio-pharmaceutical products, they want a long protection period for the benefit of their domestic pharmaceutical industry. On the other hand, other countries want to keep their medical costs low by developing cheap generic pharmaceutical products. Since they cannot develop generic products during the data protection period, these countries are demanding as short a protection period as possible. As for Japan's pharmaceutical industry, it is not competitive when it comes to bio-pharmaceutical products.

The other issue is New Zealand's demand for tariff abolition or the establishment of a large tariff-free import quota for dairy products. Minister Amari has criticised that New Zealand is making unreasonable demands, but the TPP was supposed to be aiming to realise a high-level agreement that involved tariff abolition without exceptions [seiiki]. The reason why the level of the agreement has dropped is because Japan did not agree to abolish all tariffs on agricultural products. Furthermore, participating countries were waiting for the Japan-US talks on agricultural products and cars to make progress, so Japan's and the US's criticisms that [New Zealand] should not make unreasonable claims at the last minute are misdirected.

The question is this: are these hurdles that cannot be cleared? While New Zealand is in the right in terms of dairy products, it is difficult for a country that is not a major power to stick with their claims once a general trend has become established. For example, in the GATT Uruguay Round negotiations Canada resisted the tariffication of dairy products and chicken until the end, but their ambassador announced that they would accept tariffication in the final meeting. We can say that in the end the situation depends on whether the US can concede in regard to the protection period for bio-pharmaceutical product development data.

It is true that the US's pharmaceutical industry has strong political power. They conduct powerful lobbying activities, and some members of Congress claim that they will oppose the TPP unless a sufficient protection period can be secured. US Trade Representative Froman, who wanted to gain Congressional approval, could not concede in regard to this matter. When we look at the TPP cabinet meeting, it seems that the US has no room to concede. If that is the case, then the meeting in August will be pointless.

However, the ministers who were gathered at the cabinet meeting were those in charge of trade. They can only make political judgements that are within the scope of trade negotiations. There is a body in the US that makes political judgements at a higher level - the White House.

The Obama administration, which has not been able to achieve as much as they expected in seven years, is desperate to create a legacy that will be handed down to future generations. The TPP was one of the major projects in this regard. As such the Obama administration has been desperately engaging in related activities; for example the President himself persuaded the Democrats who were opposed to the TPA bill so that it could pass Congress.

However, if the TPP negotiations cannot reach an agreement in August, it will be impossible to establish the TPP while the Obama administration is still in office. If they need to reach an agreement in August no matter what the cost, then they will have no choice but to concede in regard to the protection period for bio-pharmaceutical product development data.

Of course, some Republicans might oppose such concessions, making it difficult to gain Congressional approval. However, the TPP agreement cannot even be submitted to Congress unless an agreement can be reached in the negotiations. As long as the agreement can be submitted to Congress, [the Obama administration] might be able to win supporting votes through manoeuvring behind the scenes. For example, Republicans who are elected from agricultural states would support the TPP even if the US were to concede in regard to bio-pharmaceutical products. We can call this a "here-goes-nothing" tactic. The Obama administration was opposed to a long data protection period anyway, because they want to keep medical costs low.

There is another issue that the White House needs to consider. The Obama administration promoted the policy that emphasised the Asia-Pacific region (rebalancing). Furthermore, when congressional deliberation for the TPA bill was underway President Obama himself said, "If the TPP cannot be established China will write the rules in Asia-Pacific region. Is that acceptable?"

This is probably not mere rhetoric. The US suffered the humiliating experience where many of their allies including the UK joined the AIIB led by China. Unless the TPP can be established, the US's influence in the Asia-Pacific region may drastically decline.

Even if Congressional approval does not happen until next year, there is still quite some time until the presidential election in November. There is no reason to say gaining approval in December this year is acceptable but gaining approval in January next year is not.

Following the TPP cabinet meeting in July, the American government may make a political judgement at a level above US Trade Representative Froman. If that happens, the TPP negotiations will accelerate towards a conclusion. While the level of the TPP has become quite low for Japan as well - the US's tariff on Japanese cars will only be abolished in 20 years' time, while the tariff on Korean cars will be abolished next year - it is better than nothing, as there are benefits such as the liberalisation of government procurement in some countries.

(This article was translated from the Japanese transcript of Mr. Yamashita's column on Webronza on August 4, 2015. It was translated by Professor Aurelia George Mulgan, The University of New South Wales, Canberra.)