TPP Update

President Obama's visit to Asia does not appear to have jump started the free trade talks under the rubric of the Trans-Pacific Partnership.  The US and Japan are not only the two largest countries negotiating, but unlikely the other countries, it is the only one with which the US does not already have a  free trade agreement.  

Both the US and Japan have their own reasons for seeking an agreement.  For the US it is the other leg of the Obama Administration's pivot to Asia.  For Prime Minister Abe, after an initial reluctance, he sees the TPP as helpful for his own domestic reform agenda. 

Last week's negotiations made some progress.  Even though no breakthrough was announced, some reports suggest what could prove to be a framework of an agreement may have been agreed.  There are six sticking points in the negotiations: five agriculture areas and autos.  The apparent basis for compromise is that Japan would retain tariffs in three:  rice, wheat and sugar.  It would expedite the reduction of tariffs in meat and dairy and would ease restrictions on US autos.  

There has been some suggestion that the Abe government itself wanted to downplay the progress for fear of the impact on last week's local election for seat in the Diet.  It was the first election since the retail sales tax was hiked.    As it turned out, the LDP's candidate Kaneko easily won.  The election was called for when the former representative resigned amid accusations of favoritism.  

The prospects of the TPP were also controversial in Malaysia.  Three issues stand out:  limits on supporting state-owned enterprises, labor market regulations, and the investor-state dispute mechanism.  However, there is a fourth issue that is simmering.  It is related to the investor-state dispute mechanism, but is different.  

Malaysia is combating a smoking epidemic and wants to exclude tobacco from the free-trade agreement.  It does not want US tobacco companies from challenging its laws and regulations.  Nearly half of the Malaysian men smoke more than half a pack of cigarettes a day.  Earlier in the negotiations, reports had suggested that the Obama Administration seemed sympathetic to the "safe harbor" approach that would have protected Malaysia's anti-smoking rules. 

However, the US now offers what Malaysia sees as a diluted version that does not prevent tobacco companies from trying to challenge the Malaysian laws, such as the ban on advertising cigarettes, though gives Malaysia a strong defense.  Health care professionals in both countries do not appear satisfied with the middle ground the US negotiators have proposed.  

Earlier this year, 45 state Attorney Generals formally complained to US negotiators that the TPP proposal granted the tobacco companies too much clout.   This is essentially happened under NAFTA as a Canadian cigarette company challenged some US state laws.

There is another round of TPP negotiations planned for mid-May.  There is some hope that an agreement could be reached around the time of the APEC meeting in November.   Leaving aside the precise details, the 800 pound gorilla  in the room remains US Congress refusal to grant Obama trade promotion authority.  No major trade agreement in modern times has been struck without such authority.  The odds of Congress changing its mind (really the Democrat leadership in the Senate) before the election and they might not improve much after the election.