Frustration builds in trade talks as Obama heads to Asia
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WASHINGTON, April 23, 2014 - It was about as passive-aggressive as an official press release from the U.S. Trade Representative's office can get.
“We have spent the past several weeks working to narrow gaps with Japan. The round we just completed was focused but difficult,” Michael Froman, the USTR, said after a meeting with his Japanese counterpart. “We have worked to be as creative as possible to address Japan's political sensitivities, while pursuing the overall objective of achieving meaningful access to its market…We look to Japan to make similar efforts.”
“The frustration, particularly within the U.S. delegation, was palpable,” Jordan Schneider, an international trade analyst with the political risk firm Eurasia Group, said of the meeting. “You could see that in that press release. The USTR really did want to be able to conclude a lot of the issues and announce something big in time for the president's visit to Tokyo.”
President Obama, who will be in Japan on Wednesday and Thursday, is entering fraught territory. The country has become the focus of ongoing Trans-Pacific Partnership (TPP) trade negotiations, as Japan and the U.S. - the two most powerful economies in the 12-nation talks - grapple with dismantling trade barriers.
Many Washington observers say the two countries' recent intransigence indicates that little groundbreaking will occur during Obama's summit with Japanese Prime Minister Shinzo Abe. “We're not going to have a TPP by the time they meet,” Tami Overby, vice president at the U.S. Chamber of Commerce, told reporters last week.
One of the biggest obstacles at this point? Agriculture. The U.S. industry currently faces significant barriers to trade in Japan, including so-called megatariffs, extremely high duties that effectively bar imports beyond a set minimum access amount. Foreign rice, for example, faces a 778 percent tariff once it exceeds its 770,000-ton import quota. As a result, the U.S. exported only 350,000 tons of rice to Japan during the 2013 marketing year - a tiny percentage of the total 4.5 million tons shipped overseas.
Reducing those tariff and non-tariff barriers on Japan's so-called five sacred products - rice, wheat, beef and pork, dairy products and sugar - has proven challenging to Abe, whose country contains an aging, but still powerful, agriculture lobby. Though many viewed his 2012 election win as a mandate to negotiate the opening of Japanese markets, Abe and his negotiators have given little ground on agriculture thus far.
“The Japanese continue to stonewall,” Nick Giordano, the National Pork Producers Council's (NPPC) vice president and counsel for international affairs, said of the current state of negotiations.
Recent Japanese media reports indicate that U.S. negotiators may have caved on some agriculture issues, though U.S. industry is quick to point out that those reports have not been confirmed by the USTR. Japanese media indicate U.S. negotiators may allow high tariffs on rice to stay in place. Reports suggest that duties on pork and beef may also continue, with beef at a much lower 10 percent (down from the current 38.5 percent) while pork would be subject to the same graduated tax system, which applies higher tariffs to lower-priced products.
Giordano, who says NPPC has been in constant contact with U.S. trade negotiators, calls those reports “laughable.” Japanese media and analysts “are trying to handicap the final outcome,” he said. “Take [the reports] with a grain of salt.”
Meanwhile, pressure from the agriculture industry is growing. Sixty-three House members this week sent a letter to Froman and Agriculture Secretary Tom Vilsack seeking assurances “that the U.S. will not close TPP negotiations with Japan's participation unless Japan has agreed to eliminate tariff and non-tariff trade barriers. “
A bad deal for agriculture on TPP “could undermine the careful balance of concessions the other 11 economies have achieved,” the lawmakers, led by Reps. Adrian Smith, R-Neb.; Ron Kind, D-Wis.; Vicky Hartzler, R-Mo.; and Jim Costa, D-Calif., wrote. “If Japan is allowed exemptions, other TPP countries could demand similar treatment, and the entire agreement would be at risk of unraveling.”
The situation has gotten so dire, agriculture industry sources say, that some are pushing the U.S. to abandon negotiations with Japan altogether. A “TPP-lite” - a deal that excludes Japan's significant economy - is preferable to one that allows Japan to keep trade barriers in place, they argue.
At the back of most trade observers' minds is a country not part of the TPP negotiations: China. The economic giant will eventually enter into negotiations with the U.S., possibly as part of the TPP, and what happens in this deal will undoubtedly influence the leverage and power of the U.S. as it enters into those talks.
Accordingly, some agriculture groups are stepping up their rhetoric. A number of trade associations, including NPPC, did not sign on to a recent meat and poultry letter thanking the Obama administration for standing firm on negotiations because it simply wasn't aggressive enough, Giordano said.
Still, the timeline for TPP is uncertain. Fast track authority, which would allow the president to make trade deals subject only to an up or down vote from Congress, expired in 2007 and has yet to be renewed. And it's unlikely a TPP deal could be reached without Obama having that power, as countries are unlikely to approve a treaty that could be amended or filibustered by the U.S. Congress.
The politics of fast track, however, are tricky. In a conference call last week, Democratic Reps. Rosa DeLauro of Connecticut, Keith Ellison of Minnesota and Louise Slaughter of New York insisted Congress is wholly uninterested in granting the president deal-making authority.
“The White House basically knows this is over,” Slaughter said. “Fast track is dead.”
But the fact that Democrats are resisting the trade deal may give the administration some leeway.
"Everything the president wants to do at this point (including immigration and tax reform) requires the Republicans to change how they think about some issue,” Eurasia Group's Schneider said. “In terms of major issues that the president can personally push over the top, trade is actually pretty high on that list."
It could be that TPP is a political issue tailor-made for the lame duck session, as Democrats look for a win after what promises to be an eventful, if not turbulent, midterm election. Meanwhile, agriculture negotiators “have got to hang tough,” Giordano said.
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