Japan and the United States reported significant progress after marathon talks that continued until early Tuesday morning on a proposed Pacific Rim free trade pact that’s seen as crucial to counter China’s growing economic influence.
Negotiation sources say Tokyo and Washington are rushing to conclude the 12-nation Trans-Pacific Partnership initiative, especially after more than 50 countries, including U.S. allies in Europe, recently applied to join the China-led Asian Infrastructure Investment Bank.
Both the United States and Japan remain cautious about the new development bank, which could end up rivaling existing institutions led by the two countries, calling on China to meet global standards on governance and debt sustainability.
For U.S. President Barack Obama, the TPP, which does not include China, has been central to his strategic shift toward Asia.
Obama has warned that any failure to agree on the TPP, which would create a massive free trade zone covering some 40 percent of global economic output, may cause the United States to lag behind China in helping set rules and standards for economic activity in the fast-growing region.
Obama sees trade negotiations as a “competition with China in crafting international rules,” Tatsuhiko Yoshizaki, chief economist of Sojitz Research Institute, said in a report.
“So if the TPP cannot be realized, that would mean the United States has lost two games in a row in its diplomacy with China following the AIIB,” Yoshizaki said.
However, the clock is ticking to reach a TPP agreement early this year, before the United States enters campaign mode for the 2016 presidential election in earnest.
“The United States is pressed for time. It has become more positive than ever in concluding the TPP,” a Japanese government source said.
Washington is “eager to first conclude a U.S.-Japan deal (that is seen as vital for the broader 12-country agreement) and then urge the other members to compromise” on their sensitive issues such as intellectual property protection and reforms of state-owned companies in emerging economies to ensure fair competition for foreign firms, the source said.
The two long days of meetings between U.S. Trade Representative Michael Froman and Economic and Fiscal Policy Minister Akira Amari that began Sunday came in the run-up to a summit between Abe and Obama in Washington on April 28, where the TPP will be a key agenda item.
Amari told reporters after the meeting with Froman in Tokyo that they have moved “substantially” closer together over the biggest outstanding issues of agricultural imports and auto trade.
Froman also hailed the progress made during the marathon talks, saying it will “contribute important momentum to the broader TPP talks.”
However, Amari admitted that they failed to resolve all remaining issues this time, and more efforts are needed to reach a bilateral agreement. Amari said he may meet Froman again if necessary, but did not mention any specific time frame.
The outlook for the TPP is also unclear amid uncertainties about when a so-called trade promotion authority (TPA) bill will pass the U.S. Congress, which would grant Obama power to negotiate trade deals by only asking U.S. lawmakers for an up-or-down vote without amendment to the deals.
Failure to grant fast-track authority will make last-minute bargaining tough, discouraging many members from showing their cards without making sure the negotiations will be concluded before long.
Japan, New Zealand and other negotiating members have made it clear that the TPA is a prerequisite before reaching a final agreement.
“The president and his Cabinet is working on a bipartisan basis with Congress to get it done quickly,” Froman said, but some experts expect the bill’s passage to take months.
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