What’s Really Impeding Progress in the TPP?

Japan and the United States have undertaken a series of high-level negotiations over the past several weeks in an effort to reach a bilateral agreement that could lead to completion of the 12-country Trans-Pacific Partnership (TPP). Japanese Minister of State for Economic and Fiscal Policy, Akira Amari, has met with U.S. Trade Representative Michael Froman both in Tokyo and Washington in an effort to resolve differences prior to President Obama’s visit to Japan this week. Reports indicate that the talks have made some progress.  However, large gaps remain that are expected to preclude any breakthrough announcement when the president meets on April 24 with Japanese Prime Minister Shinzo Abe.

The stated obstacles to concluding the talks have been Japanese reluctance to eliminate tariffs on sensitive agricultural products – beef, dairy, pork, rice, sugar and wheat – and U.S. reluctance to eliminate the 2.5 percent tariff on automobile imports and the 25 percent tariff on light trucks. Each side is very much in the right to ask the other to change these protectionist policies. They have the effect of stifling comparative advantage. They reduce economic welfare by raising consumer costs while curtailing opportunities for efficient producers to make export sales. Ending these trade restrictions would not only help the country requesting the changes, but would also help the economy of the country making the change. What’s not to like about this deal?

Stepping back from the details of the requests and offers, the real problems facing each country are the underlying political realities. Japanese farmers strongly resist reductions in the level of support they receive from tariff protection, and have done so consistently for decades. Those farmers also have been consistent and dedicated supporters of Prime Minister Abe’s Liberal Democratic Party (LDP). If Japan’s agricultural community becomes sufficiently unhappy with the Abe administration, it is entirely possible that his government could fall. Nonetheless, Prime Minister Abe seems willing to push agricultural policy in the direction of reform. He knows that updating Japan’s agricultural policies is an essential condition for becoming a member of the TPP.

Political considerations in the United States are somewhat different. Yes, the automobile industry would give up tariff protection on imports from Japan. But the reality is that a 2.5 percent duty isn’t all that high in the first place, and the protective effect of the 25-percent duty on light trucks has been undermined significantly by Japanese firms’ investments in U.S. manufacturing facilities. A whole lot of “Japanese” vehicles already are built in the United States. Nonetheless, the U.S. auto industry and its workers are not enamored of tariff reductions, and the Obama administration no doubt keeps this in mind.

The real reason for the impasse is lack of fast-track negotiating authority (also known as Trade Promotion Authority, or TPA) that would allow the TPP agreement to be submitted to Congress for an up-or-down vote. Fast-track arrangements that prohibit amendments have been used for congressional consideration of trade agreements since the Trade Act of 1974. This process was developed in response to the failure of Congress in the 1960s to adopt key provisions of the Kennedy Round agreement dealing with customs valuation and antidumping procedures. The Kennedy Round’s tariff reductions were approved, but there had been no prior congressional commitments to limit amendments, so it wasn’t possible to find the votes needed to pass the controversial provisions. Any controversial parts of a TPP agreement that conceivably could be presented to Congress in the absence of fast track also would prove difficult (impossible?) to enact. Frankly, TPP may have a hard time being approved by the current Congress even if fast track already was in place.

What’s more, opposition to passage of fast-track authority is very broad and deep within the president’s Democratic Party. Anti-fast-track forces include not only organized labor and many left-leaning civil-society organizations, but also Senate Majority Leader Harry Reid, House Minority Leader Nancy Pelosi, and many fellow Democrats in Congress. Although the Obama administration supports the concept of fast track, it has not yet endorsed a specific legislative proposal. It is noteworthy that the administration chose not to support the bipartisan approach introduced in January this year by then-chairman of the Senate Finance Committee Max Baucus (D-MT), Ranking Member of Senate Finance Orrin Hatch (R-UT), and House Ways and Means Chairman Dave Camp (R-MI). The new Finance Committee chairman, Sen. Ron Wyden (D-OR), has indicated that he is considering how or whether to propose fast-track legislation, but appears to be on a timetable that would delay introduction of any bill until at least after the November 2014 election.

The administration has given no indications that it is making progress in overcoming Democratic resistance to fast track; recent objections by members of Congress timed to coincide with the president’s Asian trip suggest that the administration may be losing ground. The April 21 op-ed in the Los Angeles Times by Reps. George Miller (D-CA), Rosa DeLauro (D-CT), and Louise Slaughter (D-NY) amounts to a kick in the pants as the president sets off on his diplomatic mission. (It makes one wonder what these Democrats would be saying if the president was a Republican rather than a member of their own party.) There is no precedent from the administration’s first five years in office in which the White House pushed back effectively against such strong objections from key parts of its political base. It seems unlikely they will find a way to do so with fast track, especially since this could be seen as favoring Republicans over Democrats. That meaningful progress toward trade liberalization could be put on hold at least until a new administration takes office in 2017 is reason for concern.

Japanese officials no doubt have been paying close attention to U.S. trade politics. Prime Minister Abe can see that United States is not in a terribly strong position to push TPP to a completely trade-liberalizing conclusion. But President Obama is coming to Tokyo and it’s necessary to do something. Should Japan go ahead and commit to eliminate agricultural tariffs before the United States even has fast-track authority? Does the United States really want to conclude an agreement at this point when U.S. negotiators appear to have only limited credibility and leverage, or have the recent rounds of bilateral TPP talks just been for show? If Japan takes the plunge and agrees to painful cuts now, what happens if it becomes clear following the November election that their U.S. partners are not able to move forward?  Will the future of the Abe government be at risk?

The net result is that Prime Minister Abe appears to have backed away from what may have been his intention to pursue a truly far-reaching reform of Japan’s agricultural policies.  He can’t afford to put everything on the table when he can see that the U.S. side simply isn’t in a position to deliver.

It is unfortunate that a presidential trip to Japan – certain to raise expectations – has come at a time when the United States has relatively little negotiating leverage. Pressure to achieve a deal apparently has led U.S negotiators to agree that Japan would be allowed to maintain a significant degree of agricultural tariff protection. Even though the TPP talks might not be concluded for several years (if ever), important ground now has been lost. It will likely be impossible to reclaim a position of greater liberalization later in the course of the negotiations. It also is unclear whether the other 11 nations involved in TPP will be willing or able to keep the process going for several years in hopes that the United States eventually will get its act together. Perhaps soon it may be time to think about how to maintain the hope for a broad Pacific trade agreement that might be achieved at some point further in the future.