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US, Japan Trade Negotiators Close to Striking Key Deal

FILE - U.S. Trade Representative Michael Froman (R) speaks with Japan's Economics Minister Akira Amari as they take their seats before a news conference with other pacific rim ministers to conclude the Trans-Pacific Partnership (TPP) Ministerial meeting i

Progress on a 12-nation trade agreement has been hindered because the United States and Japan have not been able to reach agreement in two critical market sectors.

The two nations figure prominently among ten others working on an agreement that would create a so-called free trade zone comprised of 40 percent of the world's economy. The Trans-Pacific Partnership (TPP), the leading trade policy initiative of the Obama administration, has been four years in the making and it hinges on Tokyo and Washington sorting out their key differences. Six days of critical talks between Japanese and American officials began Monday in New York.

Hopes for significant progress this week

Japan's top negotiator, Koji Tsuruoka, told reporters he expects major progress can be made this week.

U.S. Trade Representative Michael Froman said he is also optimistic. "We are not done yet but I feel confident that we are making good progress and we can close out a positive package soon," he told the Senate Committee on Finance on Tuesday.

Noting the teams have been holed up in a hotel in snow-blanketed New York City, Deborah Elms, the executive director of the Asia Trade Center in Singapore, said she expects the two sides this week will finalize everything except the political decisions that will be required in Tokyo and Washington.

“But you can get quite close to the end. And then when the ministers meet, which is currently scheduled for March, they can do the final sign-off on the agreement and then you’re essentially finished,” she said.

Other nations are closely watching the trade talks

Besides the New York session, working-level TPP talks between Japanese and American officials are set to begin Wednesday in Washington. The Japanese are looking to time an announcement to a possible Washington visit in May by Japanese Prime Minister Shinzo Abe.

The ten other countries in the first round of the TPP negotiations are carefully watching to see what Tokyo gets from Washington or “gets away with,” said Elms. “And what that does is it signals to everybody else: well, then I either have to be very bold myself or I don’t have to be so ambitious.”

It is obvious a breakthrough is imminent, according to veteran Asia trade talks watcher Chris Nelson, senior vice president of Samuels International Associates.

“Behind the curtains that you and I are trying to look behind, things have happened in the agriculture area between the U.S. and Japan," said Nelson. "In some ways that’s not surprising because people like me have been told for months that actually a deal is very close.”

There has been compromise by both sides

The Nihon Keizai Shimbun, the largest financial daily in Tokyo (to which officials there frequently leak information) reports Japan will agree to boost its tariff-free quota for imported rice and import "tens of thousands" of tons of additional rice from the United States. However, Japan reportedly will keep its existing rice tariffs. A possible victory for American rice farmers would appear to come at the expense of U.S. automakers. According to the Japanese financial daily, American negotiators, in exchange, are to drop their demand that Japan ease its rules on car imports. Currently there is an annual quota of 5,000 cars per "vehicle type" for U.S. automakers.

Detroit's automakers have also been pushing for the pact to include language prohibiting currency manipulation. They are worried that Japan and other countries could move to deliberately weaken their currencies to undermine U.S. vehicle production.

"We can compete against anyone anywhere -- but we can't compete against the Bank of Japan," Ford Motor Co. group Vice President Ziad Ojakli was quoted by the Detroit News. "All we're looking for is the internationally accepted principles [on currency.]"

During the recent parliamentary election campaign, Prime Minister Abe promised farmers in Hokkaido that he would negotiate with the United States "in a way that farmers do not suffer a loss.” But he also told a British magazine that he would "subdue the farmers' opposition after the election to reach a TPP agreement.”

These mixed messages suggest that Abe and his staff think they have gained greater negotiating freedom and that they may be able to put together an agreement with a more flexible stance given the stabilization of the government base, according to Professor Aurelia George Mulgan at the University of New South Wales in Australia. "Abe has no intention of driving a whole lot of Japanese farmers to the wall," she said. "He wants Japanese agriculture to be a growth industry and knows that it can’t withstand international competition in the short term."

The prime minister, according to George Mulgan, is "pro-agriculture and pro-farmers" but is against the powerful Japan Agriculture cooperatives' central organizations "that are sucking the life out of both the local cooperatives and the Japanese agricultural sector." Mulgan predicts "any TPP agreement will leave many protections in place, whilst offering sufficient concessions to satisfy the United States."

A trade pact of worldwide importance and reach

Asia Trade Center Executive Director Elms characterizes the 12-nation TPP as being of a scope and including sectors way beyond previous trade treaties. She said the impact will be substantial on business along the Pacific Rim. “Businesses will increasingly either locate or re-locate production and facilities and so forth in TPP countries to take advantage of benefits," said Elms. "And countries that don’t follow similar kinds of policies will be at a strong disadvantage.”

In addition to the United States and Japan, the other TPP countries are Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. Others are lining up for a second round, most notably South Korea, according to veteran foreign affairs analyst Chris Nelson in Washington.

“The Koreans have decided if the Japanese are successfully going to be in this deal we want to be in. That’s very important because Korea is a huge and important economy," said Nelson. "The second thing is it’s now been clear for the last two or three months the Chinese have reconsidered on TPP and they also are seriously thinking about maybe we do need to join this.”

Elms, who has consulted on trade issues for several Asian governments, including Singapore, agrees that Chinese officials are no longer as hostile and negative towards this trade pact as they were when talks were initiated six years ago. “Although it’s true that the TPP might push them in slightly more ambitious directions than they might want to go on their own the general direction, in other words in the favor of more competitive enterprises, is the same goal that the Chinese government currently has,” she said.

Important political backing for TPP but questions remain

President Obama, in his State of the Union address on January 20, urged Congress to approve "fast track" authority for big trade agreements. That would allow only a "yes" or "no" vote on such pacts, without lawmakers being allowed to modify them. In recent days, such influential sectors of American agriculture as pork and beef have endorsed the fast track.

Some advocacy organizations on both sides of the Pacific have expressed concern about how the TPP is being drafted. They argue there has been little transparency concerning the talks, which will impact numerous industries, and there is no way to gauge how severe the outcome could be for workers and consumers in countries that will be party to the pact.

Among the skeptics is Clyde Prestowitz, a veteran former U.S. official involved in numerous trade negotiations and now president of the Economic Strategy Institute. In comments this week published in the Nelson Report newsletter, Prestowitz contended that "over the last 35 years, the U.S. has brought China into the World Trade Organization and concluded many free-trade agreements, including one with South Korea three years ago. In advance of each, U.S. leaders promised the deals would create high-paying jobs, reduce the trade deficit, increase GDP and raise living standards. But none of these came true. In fact, the U.S. non-oil trade deficit continued to grow, millions of jobs were offshored and mean household income has hardly risen since 2000. And economists overwhelmingly agree that rising U.S. income inequality is being driven in part by international trade."

Japan and South Korea "remain among the most closed economies and the closure derives not so much from tariffs and classical trade barriers as from things like currency manipulation, weak anti-trust, exclusive dealing arrangements, and so forth," according to Prestowitz.

Proponents contend TPP will create jobs and give consumers more choice at better prices.