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TPP talks spark enthusiasm over Japan, but inclusion not without complications

By JERRY HAGSTROM

The excitement that Japan might join the Trans-Pacific Partnership trade negotiations was apparent today at a House Ways and Means Trade Subcommittee hearing, but so were the complications that the inclusion of Japan and differences over agriculture present for an agreement that is already in progress.

The Trans-Pacific Partnership Agreement is an Asia-Pacific regional trade agreement being negotiated among nine partner nations. The United States, Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore, and Vietnam have been working on the TPP since 2009, but trade analysts became much more enthused about the agreement in November when Japan, Mexico and Canada indicated an interest in joining.

House Ways and Means Trade Subcommittee Chairman Kevin Brady, R-Texas, said he is so excited about TPP that he is hoping it can be finished by mid 2012.

But House Ways and Means Trade Subcommittee ranking member Jim McDermott, D-Wash., said the agreement must address the impact state-owned enterprises in these countries would have on the U.S. economy, and that Japan is a prime example of a nation that uses state-owned-enterprises to gain economic advantage.

Deputy U.S. Trade Representative Demetrios Marantis said it is unclear how quickly the negotiations will proceed, and whether Japan would be included in an initial agreement or might be a candidate to join at another point.

Marantis noted that all TPP members must agree to admit new members, and that the Office of the U.S. Trade Representative has invited stakeholders to comment by Jan. 13 on the requests of Canada, Mexico and Japan to join.

Devry Boughner
Devry Boughner
Among those testifying today was Devry Boughner, director of international business relations for Cargill, Inc.

“For U.S. agriculture, the inclusion of Japan in TPP is critical in defining this agreement as commercially-meaningful,” Boughner said.

She noted that 63 U.S. food and agriculture organizations sent Agriculture Secretary Tom Vilsack and U.S. Trade Representative Ron Kirk a letter on Dec. 5, urging the Obama administration “work quickly and closely with Japan to smooth the way for Japan’s full participation in TPP.”

Boughner also said in her prepared remarks that TPP should be a comprehensive undertaking, meaning “the United States must not exclude any agricultural products or seek to effectively exclude textiles or apparel products.” She added that “the agreement must provide adequate time for import-sensitive products and promote mechanisms for adjustment.”

Angela Marshall Hofmann
Angela Marshall Hofmann
Angela Marshall Hofmann, Walmart vice president for global integrated sourcing and trade, also testified.

“The promise of the TPP will only be realized if negotiators are steadfast in their commitment to a ‘21st century’ agreement,” Marshall said.

“For Walmart, this means ensuring there are no product or policy exclusions in the agreement, and that the agreement truly fosters trade among all TPP partners through workable rules of origin for all products,” she said.

“We note, for example, that sugar was excluded from the U.S.-Australia agreement, and as a result, the U.S. was not able to achieve all its goals in the area of investment (investor-state) or pharmaceuticals. We believe that the TPP represents a good opportunity to correct this deviation from the ‘no-exclusions’ policy to which the United States had previously adhered.”

But U.S. sugar and dairy producers, who did not testify today, have expressed concerns about the impact of TPP on their domestic industries.

Jack Roney
Jack Roney
Jack Roney, chief economist for the American Sugar Alliance, which represents cane and beet growers, said in an email that he disagreed with Hofmann’s statement that the United States had to give up certain goals to exclude sugar from the Australian agreement.

A U.S. negotiator told ASA that the United States gave up “nothing” to get sugar excluded, Roney said. He also noted that ASA and other U.S. commodity groups have gone on record urging that market provisions of current free trade agreements including the Australia agreement not be reopened under TPP.

“Current TPP countries produce about 7 million tons of sugar per year,” Roney said. “It's not in America's interest to disrupt a U.S. sugar market that is functioning well and endanger a successful U.S. sugar policy that operates at zero cost to taxpayers.”

Jaime Castaneda
Jaime Castaneda
Jaime Castaneda of the National Milk Producers Federation said in an email that his group’s members “are excited about creating a new regulatory coherence including a [sanitary-phytosanitary] agreement that will facilitate trade among all members.”

“We are also excited about having Japan joining the talks,” Castaneda said.

“However, we remain concerned about [the New Zealand] dairy structure. This is not just about imports, but market power concentration by one company.”

Some years ago, the New Zealand Dairy Board was structured as Fonterra, but U.S. dairy producers say it so dominates the New Zealand dairy industry that it functions like a state-owned enterprise.

Rep. Kevin Brady, R-Texas
Rep. Kevin Brady
In his opening statement, Brady said, “We can finally talk about a new trade initiative, one that will create jobs and increase our competitiveness."

"We must now make the most of this new momentum to seek 21st century solutions to streamline trade, end non-tariff barriers and inter-connect regulations," Brady said. "That is why I want to see the talks finished quickly — mid-year is my goal.”

Rep. Jim McDermott, D-Wash.
Rep. Jim McDermott
McDermott said he is excited about TPP because the Asia Pacific countries account for 40 percent of the global population and together generated 56 percent of global GDP in 2010. Washington state sends nearly 70 percent of its total exports to markets in the Asia-Pacific region, he noted.

But McDermott added that if TPP is to live up to its billing as a 21st century agreement, it will have to “tackle the range of real-world barriers to competition.”

“This means not just tariffs and non-tariff barriers, but also things like unfair competition from state-owned enterprises,” McDermott said.

“This is all the more important when there are countries like Japan that are seeking entry into TPP,” he said. “Japan is notorious for the range of methods it uses to close its markets to foreign competition. This includes special benefits for SOEs such as Japan Post, as well as a host of tariff and non-tariff measures in sectors ranging from agriculture to autos to pharmaceuticals."

McDermott also noted, “Some are skeptical that Japan will really open its markets; skeptics think Japan will continue to use creative methods to keep out foreign goods and services while taking advantage of other countries’ TPP trade concessions. That is clearly an unacceptable situation. We need to make sure we do not end up there if we do agree to Japan’s participation.”

Michael Wessel, a public affairs consultant who has worked for labor unions, testified that Vietnam, Malaysia and Singapore also have state-owned enterprises that should be disciplined.

While Hofmann of Walmart testified that TPP should enhance the efficiency of global supply chains, Wessel said rules of origin “should not result in further globalization of supply chains. Our goal should be to retain and increase jobs here at home.”