The latest effort to revive the stalled Trans-Pacific Partnership talks failed earlier this week, and no date has been set to try again. Negotiations began in 2010, with Japan reluctantly joining last year. This arguably made negotiations more difficult but of greater significance. Now, without a clearer path for US President Barack Obama to receive trade promotion authority from Congress, a new major obstacle has emerged.
Japanese Prime Minister Shinzo Abe embraced the TPP for several reasons. Abe and senior Japanese officials initially broke with the best G7 practices by suggesting bilateral targets for the yen, as well as the Nikkei
(INDEXNIKKEI:NI225). However, in response to what seemed like behind-the-scenes pressure, the Abe government then took several remedial steps. These included refraining from such talk going forward; ceasing discussions about buying foreign bonds; naming the most internationally respected of the candidates to head the BOJ; and joining TPP talks.
Abe also seemed to realize that the TPP could be used to help push his domestic reform agenda. Yet Japanese trade negotiators are insisting on carving out agricultural goods -- including rice, wheat, sugar, beef, poultry, and dairy -- from negotiations. Japan is the fourth-largest export market in the US for agricultural produce; Japan's food imports are larger than its auto imports.
Overall, Japan wants to exempt 586 tariff lines (11% of its tariff schedule) from negotiations. This is more than twice what other US free-trade agreements included. It raises questions about the role of trade liberalization in expediting Abe's domestic agenda.
For its part, Japan wants the US to reduce its auto and truck tariffs. Currently the US puts a 2.5% tariff on imported Japanese autos and a 25% tariff on Japanese-made light-truck imports. Japanese vehicle makers have found a workaround: Locate production facilities in the US. In 2013, roughly 70% of Japanese-brand cars sold in the US were made here, while Japanese auto brands as a whole accounted for a little less than 40% of the US auto market.
There are 12 countries participating in the TPP negotiations. Each has its own interests and domestic forces that need to be respected or courted. For example, Vietnam wants greater access to the US textile market, while Australia is pushing for reduced barriers to the US sugar market. Malaysia wants to honor its preference for locally owned companies in awarding government procurement contracts.
That's what negotiations are all about. However, without Obama getting trade promotion authority, many of the countries don't think the US is very serious -- which in turn makes them understandably more reluctant to take on domestic interest groups.
See more from Marc Chandler at his blog Marc to Market.
No positions in stocks mentioned.