WASHINGTON — The Trans-Pacific Partnership negotiations have reached a tipping point, with a few controversial issues holding back completion of one of the largest free trade agreements ever to be negotiated.
Some feel the talks between the U.S. and 11 nations, which hit an impasse in Maui, Hawaii, at the end of last month, could be finalized soon, while advocates are concerned that political headwinds in the U.S. and countries such as Canada and Japan could stall the negotiations until 2016, when they would run headfirst into the U.S. presidential campaign.
The 12 countries involved in the talks — the U.S., Japan, Canada, Mexico, Vietnam, Malaysia, Peru, Singapore, Brunei, Australia, New Zealand and Chile — represent about 40 percent of the world’s gross domestic product.
Most industry officials and academics believe the window for closing a deal is between now and the end of the year, and that negotiators will resolve their differences and seal a deal by then. But the presidential and Congressional elections in the U.S. next year could still complicate final passage.
Under the rules of Trade Promotion Authority, the president must notify Congress when a deal is reached and wait 90 days before signing it. That means if a deal on TPP is not reached until the end of the year, the earliest Congress could begin considering it would be sometime in March, when the primaries are ramping up.
Secretary of State John Kerry, who met with Vietnamese leaders in Hanoi on Friday, said at a news conference that he is optimistic negotiators will reach a deal on TPP by the end of the year.
“I think a lot of progress was made at the last round of talks. I think there are a few remaining issues; we discussed them today. There is one or so with respect to Vietnam, and I think another couple of countries had some issues which they weren’t able to resolve in the final hours but which I am confident will be resolved in the next days,” Kerry said. “And I think we are hoping very much that over the course of the next couple of months, before the end of the year, TPP can be completed.”
“We are very confident about the commitment of countries to this effort, but it’s always difficult to work through one particular sector of an economy or another,” Kerry said. “I’m very, very confident that the TPP is going to boost trade, improve worker standards, improve environment standards, have a consequence of really raising the standards of business for 40 percent of the global economy. And for that reason, I’m absolutely confident that ultimately it is not only going to be agreed to among the nations, but it will be accepted and ratified by the participating countries.”
The TPP is already dividing Republican and Democratic candidates vying for their respective party’s nominations, as campaigning picks up steam in advance of the 2016 presidential election. Most Republican presidential candidates are in favor of it, but the trade deal has divided Democrats and put pressure on the frontrunner, former Secretary of State Hillary Clinton, who has declined to come out for or against the deal.
“A deal will be reached on TPP within this year,” said Phillip Swagel, a professor of international economic policy at the University of Maryland, who noted the outcome in Maui was disappointing. “The eventual U.S. vote will get tangled up with the 2016 election to some degree, but that’s inevitable.”
Swagel said the failure to reach a deal in Hawaii was “part of the ups and downs inherent in an international negotiation with high stakes and many participants” and he said negotiators will hold bilateral discussions to resolve sticking points.
“I still think President Obama will preside over the conclusion — he has a huge incentive to make that happen,” Swagel added.
Speculation abounds over whether certain intransigent countries might potentially be kicked out of the negotiations if the talks drag on without conclusion and appear to be headed for collapse. Canada in particular has reportedly remained steadfast in protecting its domestic dairy market from imports, in the lead up to its own national elections in October, while Japan has fought to protect its market from auto and rice imports.
“It’s not a surprise for Canada and Japan to be in the thick of the disagreements — both countries have difficult domestic interests at stake,” Swagel said. “I expect compromises rather than cutting countries out. If the deal is stuck in 2016, then it will be time to throw some countries overboard, but it’s too soon.”
David Spooner, a partner at Barnes & Thornburg LLP, who was the chief textile and apparel negotiator at the Office of the U.S. Trade Representative from 2002 to 2006, said if negotiators are unable to close a deal, “The U.S. may have to agree to peel some of the countries off and ponder such things as modernizing NAFTA with Canada and Mexico separately.”
Spooner does not believe a deal can be closed this year, adding, “I think chances are high that the next administration will either inherit the negotiations themselves or end up inheriting the task of getting Congressional approval.”
Whatever the speculation, most agree that time is of the essence.
“What I heard coming out of Maui is that folks felt within sight of the finish line on a lot of key issues and might be able to get back and conclude negotiations reasonably quickly,” said David French, senior vice president for government relations at the National Retail Federation. “But I’m not sure that time helps here. We run the risk of all of the various partners deciding they can go back to the strategy of fashioning bilateral agreements rather than embracing multilateral agreements. If you want to do business with a specific country, you might not want to wait for a multilateral agreement to get done.”
Fashion industry officials said progress was made in Maui on the textile chapter. which was surprisingly not singled out as a key sticking point in the headlines, as it has been in past trade deals. The U.S. has proposed a strict yarn-forward rule of origin that requires apparel to be made of fabric and yarns supplied by the U.S. or other TPP partner countries to qualify for duty-free benefits when shipped back to the U.S. American textile producers back that rule, saying they need it to compete, while importers oppose it.
Mexico and Peru have been said to support a yarn-forward rule, while Japan, Vietnam, Malaysia and Australia are said to be looking for more flexibility.
“I feel that significant progress was made in textiles and that if the broader agreement would have been reachable, meaning all areas, including agriculture and autos, it is my view they would have been able to close the textile chapter,” said Augustine Tantillo, president of the National Council of Textile Organizations, who was in Maui to press for keeping the yarn-forward rule and a longer tariff phaseout on sensitive products.
Tantillo said he believes negotiators will reach a deal this year and that one potential scenario places Congressional action in a lame duck session next year to avoid presidential politics.
Hun Quach, vice president for international trade at the Retail Industry Leaders Association, said progress was made on textiles and apparel, but “we would like to see some flexibilities in the rules and we feel like we have an open window to go in and talk to USTR and advocate for additional flexibilities like a cut-and-sew rule.”
She said the biggest outstanding textile and apparel issue is the market access package that includes tariff phaseouts.
Stephen Lamar, executive vice president at the American Apparel & Footwear Association, who was also on hand in Maui, said, “My sense is they made progress throughout the agreement and in this area, as well. It certainly didn’t grab headlines that some other issues like dairy, sugar rice and autos did, but it is outstanding and they still have to resolve whatever differences there are. We have been advocating for sufficient flexibilities and a robust market access package so that our members will be able to take advantage of the agreement on the first day.”