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TPP prospects excite U.S. farm groups

Thursday, March 5, 2015

When the George W. Bush administration first proposed that the United States join the P-5 trade negotiations—later dubbed the Trans Pacific Partnership (TPP)—back in 2008, most U.S. farm groups greeted that announcement with a yawn.

As initially configured, the proposed TPP partners consisted either of countries with which the United States already had trade agreements (Chile and Singapore) or really small new markets (New Zealand, 4.2 million people, and Brunei, 388,000 people). So farm groups didn’t see the proposed Free Trade Agreement (FTA) as offering much in the way of new market opportunities. The main U.S. farm groups to weigh in on the merits of the original TPP effort were from the dairy industry, expressing strong concerns about giving unfettered access to the U.S. market to New Zealand dairy product exports.

Over the next few years, additional countries joined the negotiations, which modestly increased the interest of U.S. farm groups. Some were countries with which the United States already had FTAs, such as Australia, Peru, Mexico and Canada. But a few represented new market opportunities, like Vietnam and Malaysia. However, the decision by Prime Minister Abe in July 2013 to bring Japan into TPP raised the stakes immensely.

In his presentation at a December 2014 conference in Washington, D.C., Nick Giordano, trade counsel for the National Pork Producers Council (NPPC), referred to Japan’s entry into TPP negotiations as a “game changer.” Giordano views it as the most important development in international trade policy since the 1944 Bretton Woods conference which helped to establish the institutional structure for international trade and finance—the World Bank, International Monetary Fund (IMF), and the General Agreement on Tariffs and Trade (GATT).

As of the end of 2014, the United States has completed FTAs with 20 different countries. In recent years, the agricultural imports of those countries have totaled about $63 billion annually. If the TPP deal is completed within the next year or so, it would add agricultural market opportunities with new FTA partners totaling nearly $50 billion annually in one fell swoop. Improved market access would likely phase in gradually for the more politically sensitive products.

The biggest obstacle to completion of TPP is Japan’s reluctance to open their market to more export competition. The best known example is Japan’s rice market, where they continue to impose out-of-quota tariffs of nearly 800% and try to keep out of domestic consumption channels any rice imported under modest quotas established under the Uruguay Round. Japan has also identified a list of other “sacred” food products—including wheat, beef, pork, diary and sugar-containing products—for which they want to continue high tariffs or other forms of protection. Even with their highly protective trade system, Japan is already the United States’ fourth largest agricultural export destination at about $13 billion annually, behind only China, Canada and Mexico.

Canada’s unwillingness to provide access to its supply-controlled commodity markets for dairy, poultry and egg products, which are closed off under the terms of NAFTA, is also a major sticking point in TPP agricultural negotiations as the process enters its final stages. On several occasions during December 2014, Agriculture Secretary Tom Vilsack indicated he thought it more likely that Canada would be left out of a final TPP deal than Japan.

As Giordano noted, it is very important that U.S. negotiators make TPP the best possible agreement at the start, because major Asian powers like China and India have already expressed an interest in joining the TPP grouping at a later date. If the currently stalled Doha Round is ever formally abandoned, the TPP would then become the best game in town. In recent weeks, Ambassador Michael Froman, the U.S. Trade Representative, has indicated during Congressional hearings that a TPP deal is nearing completion. Stay tuned.


Stephanie Mercier Stephanie Mercier (smercier@farmjournalfoundation.org)
Farm Journal Foundation @samara333

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The views and opinions expressed in AgChllenge2050 blog posts are solely the opinions of the authors, and not those of Farm Foundation, NFP.