By Shamim Adam - Nov 14, 2011 9:02 AM GMT+0700
Nine Asia-Pacific nations including the U.S. outlined a framework for a free trade accord and agreed to accelerate negotiations with the aim of completing an agreement within the next year.
Leaders involved in the Trans-Pacific Partnership trade talks are setting July as a target for reaching an agreement, Malaysian Prime Minister Najib Razak said in Honolulu on Nov. 12. President Barack Obama said the aim is to reach a formal pact in the next 12 months and a U.S. official said there is “no firm deadline.” Negotiators will meet in early December and schedule more discussions then, the leaders said in a statement.
An accord among the Pacific Rim nations would be the first trade deal that Obama signed rather than inherited and the biggest for the U.S. since the North American Free Trade Agreement with Canada and Mexico that took effect in 1994. It would also help the U.S. regain economic influence it has ceded to China in a region that contains sea lanes vital to world commerce, as well as coal, oil and other commodities.
“The Asia Pacific region is absolutely critical to America’s economic growth, we consider it a top priority,” Obama said yesterday at Asia Pacific Economic Cooperation forum. He told business leaders the day before that TPP countries are “trying to create a high-level trade agreement that could potentially be a model not just for countries in the Pacific region but for the world generally.”
Canadian Prime Minister Stephen Harper yesterday said his country is interested in joining the talks and U.S. Trade Representative Ron Kirk said Mexico also wants to participate.
Canada “can easily meet” the criteria to join, Harper said.
Seeking Agreements
Some nations are seeking their own free-trade agreements as the World Trade Organization’s Doha round of global talks remains unfinished after a decade. Japanese Prime Minister Yoshihiko Noda, rebuffing opponents of the trade deal within his own Democratic Party of Japan, said before the APEC summit started that he aims to join the U.S.-led TPP negotiations.
“A one-year timeline is a bit tight but given the impetus of a weak global economy, it can be done if there is political will,” said Irvin Seah, an economist at DBS Group Holdings Ltd in Singapore. “The Doha round has been impeded by layers and layers of bureaucracy and political issues. The TPP will be a boost for trade.”
The current TPP talks involve Australia, Chile, Peru and Singapore, all of which already have separate free-trade agreements with the U.S., as well as Malaysia, New Zealand, Vietnam and Brunei. In addition to tackling traditional trade issues such as tariffs and market access, negotiators at the talks are seeking restrictions on government-owned companies and stricter protections for patents and copyrights.
‘Move Forward’
“There are many relevant countries besides the U.S., and it will become clear what these countries want from Japan as we move forward with our discussions with them,” Noda said on Nov. 12 in Honolulu. “I will make that information clear to the Japanese people as we embark on a national debate” on the TPP.
A dispute between the U.S. and Japan emerged almost immediately. Japan’s Ministry of Foreign Affairs denied a White House statement that Noda told Obama during their Nov. 12 meeting that he is willing to negotiate all his country’s goods and services at the TPP.
“Prime Minister Noda never said this,” the ministry said in a news release. Deputy National Security Adviser Michael Froman told reporters the U.S. “would stand by the statement that we issued earlier.”
Two-Way Trade
Two-way trade between the U.S. and the eight nations in the TPP totaled $171 billion last year, compared with $457 billion with China, $181 billion with Japan and $88 billion with South Korea, according to the U.S. Commerce Department. Taken together, the eight member economies would be America’s fifth largest trading partner, Obama said.
“An APEC agreement on broad outlines may not signify much,” Razeen Sally, director of the Brussels-based European Center for International Political Economy, said by telephone. “It might provide some kind of impetus to the negotiations, but there’s still a long way to go given how disparate the membership is.”
Asia’s growth has boosted earnings for its companies and led to stock market gains that have beaten U.S. equities. The MSCI Asia Pacific Index of stocks has outperformed the Dow Jones Industrial Average seven of the past nine years through 2010.
‘Behind the Eight Ball’
“The United States is behind the eight ball in Asia,” Thomas Donohue, president and chief executive officer of the U.S. Chamber of Commerce, the nation’s largest business lobbying group, said in an e-mailed statement. While the announcement is welcome, “the Chamber urges further substantial progress as quickly as possible. Expanding trade represents one of the best ways to create jobs without raising taxes or increasing the deficit.”
A trade accord such as the TPP may face political hurdles as leaders fight protectionism and sensitive issues in domestic politics. Japan’s largest farm lobby submitted a petition with almost 11.7 million signatures saying the accord would mean the “collapse” of a farm industry that accounts for about one percent of the country’s economy.
‘Political Rebellion’
“The fundamental fact is that no Japanese political party has been able to withstand the political rebellion that the Democrats are facing now,” said Steven R. Reed, a professor of political science at Chuo University in Tokyo.
The TPP would slash tariffs like Japan’s 778 percent duty on rice and open competition in industries including pharmaceuticals. Failure to join a free-trade accord may hinder companies such as Mitsubishi Corp. (8058) and Toyota Motor Corp. (7203) in competing abroad.
Polls show Japanese are divided over the accord. Thirty- four percent of respondents said Japan should join the TPP, 25 percent said it shouldn’t, and 39 percent didn’t know, according to a Mainichi newspaper poll published Nov. 7. The paper surveyed 981 voters and didn’t provide a margin of error.
In Malaysia, reluctance to change policies that give preferential treatment for some state contracts to ethnic Malays and indigenous people were among issues that led to a previous breakdown in negotiations with the U.S. on a free trade pact.
‘Be Flexible’
“There is a need to be flexible in our approach and to be realistic in terms of what can be achieved and accepted, or the buy-in by our local constituencies,” Najib said on Nov. 12, referring to the TPP nations. “The question of sensitivity varies from country to country.”
The U.S.-South Korea free trade pact, initially agreed on by presidents George W. Bush and Roh Moo Hyun more than four years ago, was delayed as their successors Obama and Lee Myung Bak sought wide domestic support for the deal. While Obama signed the agreement into law on Oct. 21 after Congress passed it earlier that month, South Korea’s main opposition Democratic Party has stalled the government’s efforts since June to put the bill to a vote.
China, the world’s second largest economy, has not received an invitation to join discussions on the TPP and would “seriously study” such a request, Assistant Commerce Minister Yu Jianhua said Nov. 11. U.S. Trade Representative Ron Kirk said no nation needed an invitation as it is not a “closed clubhouse.”
To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net
To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net
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