October 28, 2014 | By

Can We Take a Hint?

The latest headline in the Japan Times reads: “TPP talks in Sydney end with no breakthrough.” There is a reason people are paying attention to this:
  1. Global growth could receive a boost from new trade opening,
  2. The Trans-Pacific Partnership is a very large trade agreement and is already overdue.
  3. There is an impression that if the United States and Japan could just bridge their differences, the TPP could conclude.
 

The first two bits are right; the third is a very common view, but misses the mark in some important ways.

Here was the article’s statement of the problem:

“The two countries have long been at odds over Japanese tariffs on politically sensitive farm products — rice, wheat, beef and pork, dairy and sugar — and safeguard measures Tokyo seeks to introduce on beef and pork should their imports surge under a TPP agreement. They have also struggled to find common ground on auto trade issues.”

Those issues are real, but there are two important negotiating dynamics that have generally been neglected. First, other countries are using the U.S.-Japan impasse for political cover. Second, Japan is waiting to see if the U.S. can deliver politically.

On the first point, no country wants to be in the uncomfortable position of appearing to be the obstacle to a 12-country agreement. Thus, even if Vietnam and Malaysia are uncomfortable about regulations on state-owned enterprises, or if Australia is unhappy about changes to the treatment of pharmaceuticals, it is easier if they can lay blame on the repeated failure of U.S.-Japan discussions.

So why have there been these repeated failures, including at a summit meeting between President Obama and Prime Minister Abe? It’s hard to get a straight answer in the press, because diplomats are diplomatic.  They are too polite to point fingers at U.S. political foibles. In private, though, some will say that they do not want to move until the Obama administration has Trade Promotion Authority (TPA). I have written before about how this is a key obstacle. 

Previously, the Obama administration has treated TPA as a minor technical concern. Very recently, though, the U.S. Trade Representative took a different stance, suggesting that TPA was a necessary prerequisite. He wrote in Foreign Affairs: “trade promotion authority would give U.S. trading partners the necessary confidence to put their best and final offers on the table.” This was a telling and important switch.

Prime Minister Abe is doubtless well aware of the experience South Korea and Colombia had negotiating with the United States. Those countries concluded trade agreements by mid-2007. Their leaders put sensitive commercial concessions on the table for all to see, and sometimes faced massive protests in response. Yet they were left hanging until the fall of 2011 when the agreements became entangled in domestic politics. By the time the agreements actually passed, the leaders who had negotiated them were gone from office. Prime Minister Abe surely has no desire to relive that experience with concessions on Japan’s “sacred” agricultural sectors. He will wait until he knows the Obama administration can deliver on its promises. 

So we can watch each trade summit, eagerly anticipating a breakthrough, and be surprised and disappointed every time. Or we can realize that until the Obama administration overcomes its inhibitions on trade and wins TPA from Congress, these failures are eminently predictable. 

 

About

Phil Levy is senior fellow on the global economy at The Chicago Council on Global Affairs. Previously he was associate professor of business administration at the University of Virginia’s Darden School of Business. He was formerly a resident scholar at the American Enterprise Institute and taught at Columbia University’s School of International and Public Affairs. From 2003 to 2006, he served first as senior economist for trade for President Bush’s Council of Economic Advisers and then as a member of Secretary of State Rice’s Policy Planning Staff, covering international economic matters. Before working in government, he was a faculty member of Yale University’s Department of Economics for nine years and spent one of those as academic director of Yale’s Center for the Study of Globalization.

His academic writings have appeared in such outlets as The American Economic ReviewEconomic Journal, and theJournal of International Economics. He is a regular contributor to Foreign Policy magazine’s online Shadow Government section and writes on topics including trade policy, economic relations with China, and the European economic crisis. Dr. Levy has testified before the House Committee on Foreign Affairs, the Joint Economic Committee, the House Committee on Ways and Mean, and the US-China Economic and Security Review Commission. He received his PhD in Economics from Stanford University in 1994 and his AB in Economics from the University of Michigan in Ann Arbor in 1988.

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