July 14, 2017

TPP, THE TRADE DEAL TRUMP KILLED, IS BACK IN TALKS WITHOUT U.S.

[At a meeting in Hakone, a resort town south of Tokyo, Japan led trade negotiators from the 11 countries — including Australia, Canada, Malaysia and Vietnam — in discussions about reviving rules that would improve labor conditions and increase protections for intellectual property in some countries, while opening more markets to free trade in agricultural products and digital services around the region.]

By Motoko Rich
Prime Minister Shinzo Abe of Japan and President Trump at the Group of 20 summit
meeting in Hamburg, Germany, last week. Mr. Trump pulled the United States
out of the Trans-Pacific Partnership, a proposed free-trade agreement with
Japan and 10 other countries, on his first full weekday in office.
Credit Stephen Crowley/The New York Times
TOKYO — When President Trump pulled out of his predecessor’s signature trade deal on his first full weekday in office, the 11 other countries that had negotiated the pact were left wondering if years of work had just gone down the drain.

This week, those countries indicated that they wanted to press ahead with the so-called Trans-Pacific Partnership, or TPP, a sweeping multinational trade agreement that had originally been sold as a way to tether the United States more closely to East Asia and to create an economic bloc capable of standing against an increasingly muscular China.

At a meeting in Hakone, a resort town south of Tokyo, Japan led trade negotiators from the 11 countries — including Australia, Canada, Malaysia and Vietnam — in discussions about reviving rules that would improve labor conditions and increase protections for intellectual property in some countries, while opening more markets to free trade in agricultural products and digital services around the region.

Japan’s effort to salvage the deal reflects a growing recognition that countries that have previously counted on American leadership will have to forge ahead on their own.

In Japan, officials are particularly eager to pre-empt China’s attempt to forge a rival trade pact, the Regional Comprehensive Economic Partnership. That deal would bring together 16 countries, including the ones in the TPP, albeit under considerably less stringent rules.

Kazuyoshi Umemoto, Japan’s chief negotiator, told reporters that the group of 11 “achieved mutual understanding on a path forward” without the United States.

“We need a new international agreement,” Mr. Umemoto said. “I think we have reached a rough picture of what it will be like.”

Momentum for such deals has built in recent weeks, as big American allies have pledged their commitment to globalization.

On the eve of the Group of 20 summit meeting in Hamburg, Germany, last week, Japan and the European Union announced the outlines of a broad agreement that would create a trading bloc encompassing $20 trillion in combined economic output. The deal was announced as the United States appeared increasingly isolated on issues like free trade and the environment.

President Trump has repeatedly made clear his antipathy toward free trade, vowing to protect American workers and rebalance trade deficits with other countries. On Wednesday, the United States trade representative, Robert E. Lighthizer, sent a letter to the South Korean government saying that the administration was eager to revise a trade agreement between the two countries that has been in force for five years.

If Japan and the 10 other signatories are to keep the TPP alive, they would need, at the very least, to revise a clause that says the deal will come into effect only when ratified by six countries representing 85 percent of the combined economic value of the 12 original members. Without the United States, that threshold cannot be reached.

Japan, which has the largest economy among the remaining trade partners, is pushing to preserve most of the ambitious rules that negotiators originally hammered out, as are Australia and New Zealand.

“The hope, of course, of Japan is to maintain the status quo of the already agreed framework, including the details,” said Tomohiko Taniguchi, a foreign policy adviser to Prime Minister Shinzo Abe.

While optimistic that Japan could lead the group toward consensus, Mr. Taniguchi, who referred to the remaining TPP countries as the “Ocean’s 11,” acknowledged that the discussions would be challenging.

“Negotiations, once started, could turn in all sorts of different directions,” he said. “It’s a gathering of 11, after all, self-centered, even selfish countries. All sorts of negotiations are likely happening.”

Developing countries such as Malaysia and Vietnam may want to renegotiate some of the tougher requirements that they accepted in exchange for the promise of access to American markets.

The agreement, for example, requires developing nations to reform child-labor laws as well as to improve the transparency of state-owned companies, and it permits drug makers in the large economies to extend patent protection on many pharmaceuticals that the smaller countries want to manufacture. Some of the developing countries may protest that such requirements are too onerous without the incentive of being able to export to American consumers.

“The problem is, when you take the United States out, the United States is two-thirds of the TPP,” said Jeffrey Wilson, a research fellow at the Perth U.S.-Asia Center at the University of Western Australia. For developing countries being asked to make expensive overhauls, Mr. Wilson said, “What is the point of the deal anymore?”

Japan’s goal is to preserve as much of the original deal as possible in the hope that the United States will eventually rejoin.

“We should welcome the United States when the United States decides to come back at some time in the future,” said Ichiro Fujisaki, a former Japanese ambassador to Washington.

Some observers see those hopes as naïve. “I think it’s simply wishful thinking that the Trump administration will change its mind about the TPP,” said Takuji Okubo, managing director and chief economist at Japan Macro Advisors. “So long as he remains the president, I don’t think he will actually make that turnaround.”

Others suggested that advisers to Mr. Trump might try to change his mind once he sees how difficult it can be to negotiate bilateral trade agreements. But in that case, they say, the 11 remaining countries should not alter the TPP.

“If they try to renegotiate the rules or lower the standards, it will make it harder for the U.S. to rejoin the agreement down the road,” said Bruce H. Andrews, deputy secretary of the Commerce Department in the Obama administration and now a managing director at Rock Creek Global Advisors, a consulting firm.

And there is another reason the TPP countries should maintain the tough trade rules, Mr. Andrews said: to push China toward reform.

“If TPP had gone into force, the Chinese, by necessity, would eventually have wanted to be part of it to enjoy its benefits,” Mr. Andrews said. “In order to get into TPP, China would have had to do some serious economic reform and open their market from their current closed state. If TPP does not go forward as the model, China will likely get better terms from other countries without having to open its market.”

In Japan, Mr. Abe has his own political reasons for wanting to push ahead with the TPP. Mr. Abe expended considerable political capital for the deal, going up against farmers who have traditionally supported his Liberal Democratic Party. The agreement would require Japan’s closed agricultural sector to accept imports of rice, pork and other products.

Mr. Abe has also recently been dogged by influence-peddling scandals, and his party suffered a resounding defeat in a recent local election in Tokyo. By agreeing to the trade deal with the European Union last week, he was able to score a quick victory.

“I think it’s important to keep that momentum,” said Jun Saito, a senior research fellow at the Japan Center for Economic Research.

Japan has indicated that it wants to secure an agreement between the remaining 11 countries in the Trans-Pacific Partnership by November, when many of them will gather at a summit meeting in Vietnam.

Most analysts say any agreement is unlikely to be completed that quickly. Still, said Shumpei Takemori, a professor of economics at Keio University, the reopening of negotiations allows Japan and its allies to “show the U.S. administration that we have alternatives.”

Follow Motoko Rich on Twitter @MotokoRich.

Makiko Inoue contributed reporting.