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U.S. staring contest with Japan stretches out Pacific trade pact

U.S. Trade Representative Michael Froman (C) speaks next to Japan's Economics Minister Akira Amari (L) and Singapore's Trade Minister Lim Hn
U.S. Trade Representative Michael Froman (C) speaks next to Japan's Economics Minister Akira Amari (L) and Singapore's Trade Minister Lim Hn

By Krista Hughes

WASHINGTON (Reuters) - A standoff between the United States and Japan is holding up talks on a sweeping Pacific free trade pact and a lack of authority to push an eventual deal through the U.S. Congress without amendment may be undercutting Washington's hand.

After weekend talks in Singapore, including two separate sessions between Japan and the United States, Japanese Economics Minister Akira Amari said "considerable gaps" remained with the United States on bread-and-butter issues like farm tariffs.

Other officials at the Trans-Pacific Partnership (TPP) talks, which aim to create a free trade zone spanning 12 countries and nearly 40 percent of the global economy, noted the impasse between the two biggest economies in the bloc.

"What happens between Japan and the U.S. is pretty key because they are the big players," Australian Trade Minister Andrew Robb told CNBC television, estimating that countries were about 80 percent done on market access issues, which include the tariffs and quotas causing much of the U.S.-Japan tension.

There is talk in trade circles that Japan might leave the talks if it will not drop barriers to imports of farm products such as beef and rice. But the Asian power's entry to the TPP last year was a game changer for many participants given its high-income population and relatively low import penetration.

"Many tried and failed in the past to negotiate a bilateral deal with Japan, so in a sense they are riding the coattails of the United States to get into the Japanese market," said Peterson Institute for International Economics trade analyst Jeffrey Schott.

For his part, Japanese Prime Minister Shinzo Abe needs the trade pact to drive through reforms to kick-start stagnant growth, including deregulation and increased competition. A Peterson study showed the TPP would boost Japan's economy by 2.2 percent by 2025.

U.S. Trade Representative Michael Froman stressed that Canada was also a sticking point in Singapore, but the toughest issue is Japan, which is keen to protect politically powerful farmers and which levies average agriculture tariffs of 16.6 percent.

While Japan is the United States' fourth-biggest trading partner with goods and services flows worth about $280 billion a year, it accounts for only 8 percent of U.S. agricultural exports and 7 percent of services exports.

Trade experts say Japan, although aligned with U.S. interests on new trade issues like intellectual property and investment protections, will not put up its best offers until the White House secures fast-track negotiating power from Congress.

So-called trade promotion authority (TPA) would bar the U.S. Congress from amending trade deals; instead, it would have to simply give the thumbs-up or down.

"Without TPA, I think the level of ambition will be put in question," Luis de la Calle, who helped negotiate the North American Free Trade Agreement (NAFTA) for Mexico, said at an event sponsored by the Brookings Institution and the Economic Club of Minnesota.

"Why would Japan put something on the table that might be reversed by the U.S. Congress?"

FAST TRACK ON SLOW TRACK

The problem for the U.S. administration is that fast-track power is bogged down by domestic political sensitivities ahead of midterm elections in November.

President Barack Obama said last week that he told his Mexican and Canadian counterparts, also TPP partners, that fast-track power would flow from a good TPP. "We'll get this passed if it's a good agreement," he said at a joint news conference in Mexico.

While some trading partners, like Australia, have played down the lack of TPA, others with problems selling the TPP at home - like Japan and Malaysia - would like Obama to make a bigger push to win over Congress, especially trade skeptics within his own party worried about the impact on U.S. jobs.

Democrats cannot afford to spurn big business, the farm lobby or unions - an important support base - before the elections. This complicates the time frame for passing TPA, particularly with Obama planning a trip to Asia in April that might allow some top-level trade lobbying.

"The other side is not going to give the hardest, most sensitive markets up for nothing," said Michael Green, Japan chair at the Center for Strategic and International Studies in Washington and an Asia policy official under President George W. Bush.

"They would never have done it for (President Bill) Clinton and Bush ... without the U.S. president first making the case loud and actively for authority to pass the agreement when they are done."

But it will take a lot to convince critics. Although Republicans, who generally support free trade, have the numbers in the House, Democrats control the upper chamber, and Senate Majority Leader Harry Reid has warned the administration to go slow on TPA. [ID:nL2N0L502K]

A TPA bill introduced in Congress last month is on hold while the new head of the Senate Finance Committee, Ron Wyden, consults with colleagues about its future.

The top Democrat on the House committee responsible for trade, Sander Levin, has put plans for an alternative TPA bill with tougher protection for workers on the back burner for now.

"Addressing the issues and concerns of the people of this country on TPP is the No. 1 item on the agenda now for trade," he said at the release of a study showing how many U.S. jobs could be created by stopping foreign countries from manipulating currencies.

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