Obama's ambitious trade agenda hits Asian resistance

By Linda Sieg and Rachel Armstrong

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TOKYO/SINGAPORE (Reuters) - America's ambitious trade agenda is running into fierce resistance in Asia, but negotiators say a draft Pacific free-trade deal that papers over some differences may be ready by the time U.S. President Barack Obama visits the region in April.

A central element of Obama's strategic shift towards Asia, the Trans-Pacific Partnership (TPP) could accelerate global economic growth, boost U.S. exports and level the playing field between emerging and rich nations in one of the world's biggest trade pacts, covering about one-third of global trade.

The White House had hoped to complete the deal, which aims to cut tariffs and set common standards on other issues, last year. But that didn't happen and negotiators fly into Singapore on Saturday for three days of talks on the 12-country pact.

Significant challenges remain, including U.S. frustrations over Japanese protection of sensitive agricultural products, such as rice, and U.S. automakers' fears of increased competition from Japan.

At the start of U.S.-Japan working-level talks this week, a Japanese cabinet minister said Tokyo could make concessions on tariffs on some sensitive farm products, but negotiators said big gaps remained between the two sides.

Japanese Prime Minister Shinzo Abe, who took office 14 months ago pledging to revive the world's third-largest economy, has made the trade pact a key part of a growth strategy known as the "Third Arrow" of his "Abenomics" recipe. The other two "Arrows" are hyper-easy monetary policy and fiscal spending.

"Abe has told international society he would go ahead with TPP so he has to make progress," said a Japanese official familiar with the matter. "It is not so easy to accept failure."

While the United States and Japan agree on many issues, they remain at odds over politically sensitive sectors for both countries. Washington has been pressing Tokyo to scrap all tariffs in the five categories of rice, beef and pork, dairy products, wheat and sugar. These include 586 product lines.

Japan wants the United States to set a timeline for scrapping tariffs of 2.5 percent on imports of passenger cars and 25 percent on light trucks.

"The negotiations present extremely high hurdles for Japan, and considerable gaps remain between Japan and the U.S," Economy minister Akira Amari, in charge of Japan's delegation, told reporters on Friday before flying to Singapore. But he said Abe had told him to do his best to reach a deal.

An agreement between the United States and Japan would set the tone for the other countries engaged in the TPP: Australia, Brunei, Chile, Canada, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.
"LITMUS TEST"
The stakes are high for Obama as well. Internationally, he needs to make good on TPP as a key element of his promised "rebalance" of economic and security policy to Asia at a time when many in the region question his commitment to the region.
His planned visit to Asia in April is seen by some experts and negotiators as a target for a preliminary draft deal for TPP that would send a signal Washington wants to add economic substance to a pivot strategy otherwise largely about shifting some military forces to Asia to counter a rising China.
"If the TPP is not realized, it will deal a major blow to the U.S. rebalancing strategy," said Bonnie Glaser, senior associate at the Center for Strategic and International Studies and a consultant for the U.S. government on East Asia.
"A lot of countries are seeing this as a litmus test."

Two New Zealand officials with knowledge of negotiations say an in-principle deal might be unveiled during Obama's April visit but that it would paper over significant differences, leaving those to later.

New Zealand's negotiators, one official said, are adopting a "more realistic" view of the TPP process after Obama faced resistance within his Democratic Party on a proposal to give the White House power to fast-track trade deals - so-called Trade Promotion Authority (TPA) - which would deny U.S. lawmakers the opportunity to amend the pact.

"The worry among the other countries is: 'What if everything we've negotiated on is pointless and we have to re-negotiate it to get it past Congress'?" said Deborah Elms, who has regular talks with TPP negotiators as head of the Temasek Foundation Centre for Trade and Negotiations, a Singapore think tank.

Others said such concerns were overdone. Former White House international economic adviser Matthew Goodman said talk of countries unwilling to seal a deal because Obama lacks fast-track approval was "more of a negotiating tactic" and once a pact was agreed, getting it through Congress would get easier.

Illustrating the challenges, some countries such as Malaysia have little chance of securing a deal due to intense domestic opposition and could ultimately drop out of the pact.

Malaysia's government has faced a debilitating backlash over the TPP both from the political opposition and from powerful traditionalists within the ruling party.

Malaysian Trade Minister Mustapa Mohamed listed at least seven areas where negotiators still have significant concerns, including intellectual property, state-owned enterprises, labor union rights and the environment.

"It's just a matter of time that these issues will have to be dealt with. The issue is when," he said on Thursday. "In a way if you are not part of this, we may miss the boat."

Even if negotiators reach a draft agreement, passage of TPP for many countries could drag on for more than a year. But the pact is at a pivotal juncture.

"I don't know if we are ever going to do this deal or not and if we are going to do it, whether the essential political bits will come together in the next few days, but it has the smell of reaching a moment of truth," said New Zealand Trade Minister Tim Groser.

Some experts worry that a lack of U.S. will to clinch the deal would give China - which is not part of the TPP talks - a chance to fill the vacuum. "The U.S., in particular, we don't think has been as engaged as it might have been," said Bryan Clark, director of trade and international affairs at the Australian Chamber of Commerce and Industry.

China is consolidating its position as the largest trade partner with most Asian countries and its direct investments in the region are surging, albeit from a lower base than Europe, Japan and the United States.

(Additional reporting by Krista Hughes and David Brunnstrom in Washington, Gyles Beckford in Wellington, Matt Siegel in Sydney, and Stuart Grudgings in Kuala Lumpur; Writing by Jason Szep; Editing by Raju Gopalakrishnan)