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US-Japan Rift Halts TPP Negotiations; Final Agreement Unlikely This Year

After weeks of projecting confidence regarding an imminent settlement to the Trans-Pacific Partnership (TPP) negotiations, participating nations are now suddenly pessimistic about the prospects of a final consensus emerging before the end of the year. And the reason for the surge of cynicism is a gathering contretemps between the U.S. and Japan over agricultural reform.

Assembled in Singapore for a four-day session of intense conferencing, the U.S. and Japan found themselves at loggerheads over the possibility of comprehensive tariff cuts, a goal largely frustrated by the thorny issue of agricultural protectionism.

Japan has resisted fully liberalizing its agricultural sector, insistently nominating five product areas as “sacred,” which means effectively taken off the table for negotiation. Problematically, beef and rice are among the areas the U.S. has been equally insistent are, at the very least, open to the possibility of future revision.

The reverberations from this impasse have been significant, now halting the entirety of the negotiation process. Smaller nations have been exchanging concessions regarding intellectual property, regulatory reform, foreign investment and infrastructural improvements for additional access to both American and Japanese markets. However, that greater access is widely understood as contingent upon the prior opening of markets between the U.S. and Japan. And now a series of smaller arrangements have been imperiled by the stalled talks between the two industrial leaders. Australia is demanding increased access to the U.S. sugar market. Vietnam wants to eliminate trade barriers that saddle its exports with additional costs. Malaysia is anxious about its access to Western medicines. Brunei wants to protect its state-run enterprises. And the potential inclusion of South Korea and China into the mix, both of which have recently expressed an interest in inclusion late in the game, has only further muddied the waters.

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According to U.S. Trade Representative Michael Froman, these previous points of agreement, or “landing zones,” had been handed off from minister level authorities to lower-level bureaucrats for the sake of hammering out technical details, a sign that major ideological divides had been bridged. The U.S. had secured a reasonably impressive measure of consensus on controversial issues like intellectual property protections, the role of state-owned enterprises and rules of origin. The U.S. has also been jockeying for agreement on a special tribunal established to allow signatory nations to challenge violations of TPP rules outside the jurisdiction of their own courts.

Officials present at the diplomatic sessions in Singapore have generally reported a mood that has vacillated between adverserial and forlorn. Japan’s Deputy Economy Minister, Yasutoshi Nishimura, complained, “I don’t know how far we will get tomorrow night as there are still many points of contention. The gulf with the U.S. has yet to be closed.” A U.S business representative, speaking anonymously, concurred, saying the distance between the U.S. and Japan “makes it hard to believe we’re going to get a significant breakthrough here.” Celeste Drake, a trade expert at the AFL-CIO, said, “The ministers actually seem to be warning people that they may not reach a conclusion by the 10th.”

And many participants have been attempting to read the proverbial tea leaves, scouring the sessions for clues of what lies ahead. Much has been made of the fact that Japan’s Economy Minister, Akira Amari, recently sidelined due to health concerns, was replaced by a vice minister rather than a senior minister, apparently a sign of Japan’s lack of confidence in the current round of talks. Others believe the recent WTO brokered agreement in Bali, the first fruit produced by the otherwise rotten tree that is the Doha talks which began in 2001, is evidence of the promise of forthcoming progress.

Other experts have focused on Japanese Prime Minister Abe, who some say has backed down from his earlier commitment to aggressive domestic reforms. When Japan joined the TPP talks in March, Abe impressed U.S. officials with wringing rhetoric about overhauling Japan’s infamously protectionist agricultural policies, leading some to believe Japan’s inclusion in the negotiations would expedite a grand settlement. One U.S. official said, “We were excited and heartened by the leadership that Prime Minister Abe showed in joining the TPP. We are looking forward to the follow through needed to bring TPP to success.”

However, U.S. enthusiasm regarding Abe’s devotion to reform has waned, especially after Japan’s Parliament recently passed considerably weakened versions of the bold restructuring he previously championed. From the perspective of U.S. trade leaders, Abe capitulated when confronted with political pressure, caving into Japan’s powerful farm lobby, choosing to appease popular will rather than affect difficult changes.

Japanese leaders, however, espouse a contradictory narrative that implicates President Obama’s diminished political power as the principal cause of TPP inertia. Beleaguered by scandals and locked in endless partisan dispute, Japanese authorities worry that Obama no longer has the power to confidently promise congressional approval of whatever promises he makes. This concern has only been exacerbated by intense disagreement among U.S. legislators over Obama’s executive trade promotion powers, colloquially dubbed “fast tracking authority,” or his power to expedite trade-related treaties through the process of congressional review.

Froman continues to express optimism regarding the possibility that the U.S. and Japan will soon broker a rapprochement, while also conceding that such an arrangement is crucial to the TPP negotiations as a whole. He said, “ We are hopeful that Japan is able to come to the table prepared to achieve the kind of outcome that is expected as part of the TPP. Resolving the U.S.-Japan market access questions will be critical to the success of the TPP.”

But there are ominous signs that a consensus will remain elusive. Nishimura plaintively admitted, “On our side, there are certain things that we cannot compromise on due to parliamentary resolution. We have explained this many times to the U.S. and have asked for their flexibility.” From the perspective of Japanese trade authorities, they have already made a bevy of significant concessions, easing once tight restrictions on U.S. beef imports, permitting the U.S. to temporarily maintain tariffs on Japanese auto imports and limiting the kinds of services Japan’s state-run health care industry can offer in the international market.

Now, some experts are predicting that March is the soonest a comprehensive consensus can reasonably be expected to form. According to Junichi Sugwara, an analyst with the Mizuho Research Institute: “Japan has apparently concluded it’s not time to offer its best deal.”