Global economy: Who's down with TPP?

Updated on

TAIPEI, Taiwan — New Zealand's down with it. Singapore's down with it. Now the United States, Australia, Peru, Vietnam and Malaysia are getting down with it, too.

Still waiting for word on whether Japan's down with it or not.

There's a new trade bloc on the block, and it's called TPP — short for the Trans-Pacific Partnership. Just a few years ago it was an obscure deal between the "P4," which sounds like an Asian boy-band but actually refers to four small, free-trade loving countries on the Pacific rim: New Zealand, Singapore, Brunei and Chile.

But since the Obama administration publicly embraced it last year as a way to help revive America's zombie-like economy, TPP has shot to stardom. And joined a long list of mind-numbing acronyms.

TPP was a hot topic at the recent APEC meeting in Yokohama, and has been widely lauded as a possible stepping stone to a FTAAP.

That last one may sound like something Bill the Cat would have spat out in the 1980' comic strip Bloom County. But it stands for a Free Trade Area of the Asia Pacific, a "Mother of All Free Trade Deals" that would include the world's top three economies — the U.S, China and Japan — and APEC's 18 other members in one king-sized trade block spanning the Pacific.

Too bad it's not likely to happen in our lifetimes.

"The FTAAP is a hopeless dream at this point," Deborah Elms, a trade expert with the S. Rajaratnam School of International Studies in Singapore, wrote in an email. "I don't see the political will to launch talks on this scale. And, practically, to get the entire 21 member economies to agree to talks on liberalizing trade with one another is just not in the cards."

It's the politics, stupid

Even TPP's prospects are dubious, some analysts say. The problem, as usual, is politics. Domestic politics, to be more specific — in the U.S. and Japan, for starters.

With TPP, Obama's team is headed into a bruising fight to get Americans down with another ambitious trade deal. Republicans are typically more free-trade-minded and likely to support such deals, so you'd think a Republican-controlled House could help.

But Obama's recent failure to re-negotiate a free trade deal with South Korea doesn't bode well. In that case, U.S. auto companies and beef exporters couldn't swallow the terms of the original 2007 deal and pressed for a better one. But so far Seoul isn't biting.

With TPP, it's the U.S. dairy lobby that's gearing up for battle. It threw down a gauntlet in March by marshaling 30 senators from both parties in a show of force against TPP. The reason, the senators said in a letter: Cheap dairy imports from New Zealand threaten U.S. dairy farmers' livelihoods.

Elms, the trade expert, says objections are also likely from U.S. beef and sugar producers, and textile producers who would face cheap competition from Vietnam. She thinks these objections won't be as much of a hurdle as U.S. automakers' concerns over the South Korea deal. But the politics of TPP have others betting against Obama already.

"The net benefits to the U.S. economy are likely to be minimal and the political costs, imposed by dairy exports from New Zealand, substantial," said John Ravenhill, an expert on global trade at Australian National University. "So I would not be optimistic about its chances."

"The TPP at the moment has no significant economy involved with which the U.S. does not already have a trade agreement," said Ravenhill, with the possible exception of Vietnam. If Tokyo gets on board, TPP would become far more important, he said.

But Japan's inclusion would also sharply raise the political stakes — almost certainly sparking a fierce debate in America that would make the 1990s NAFTA fight look like a playground scuffle.

Land of the rising "no"

Which brings us to Japanese politics. Tokyo's center-left government has only expressed vague interest in joining TPP talks, and it's already ignited a firestorm of debate and brought 3,000 farmers onto the streets in protest. Japan's rice and vegetable farmers have long been protected by tariffs as high as 600 to 800 percent, and they like that arrangement just fine, thank you very much.

Prime Minister Naoto Kan has an urban support base that's more likely to back free trade. But the opposition — and some in Kan's own coalition — draw support from rural farming areas. And amid Japan's musical-chairs political leadership, Kan is considered weak.

At his excellent "Observing Japan" blog, Tobias Harris rounds up the politics of TPP in Japan, and says Kan needs to show leadership on the issue. Instead, Tokyo kicked the can down the road, saying it won't make any decision on TPP until next June. "By proceeding cautiously now, did the government simply give its opponents time to mobilize and thus ensure that once again the issue will be postponed?" wrote Harris.

If the politics of TPP look thorny, they're nothing compared to the politics of a wider trans-Pacific deal. Protected agricultural sectors have so far helped prevent a Korea-China deal, a Japan-Korea deal, or an expansion of the ASEAN-China deal to include Korea and Japan.

And any ambitious regional deal will face the same issues that have seen the the current "Doha Round" of global trade talks grind to a halt, said Ravenhill.

"What you have is essentially the same divide as exists in the Doha round, except with a a couple of key players missing — the EU and Brazil," said Ravenhill. "But otherwise you've got the same players with the same attitudes and the same entrenched interests facing off against each other."

In other words, the politics are just as tough. "For economists, the puzzle is why states would ever do anything other than free trade," Harris wrote in his post on TPP, paraphrasing political economist Helen Milner. "For political scientists the puzzle is why states would ever practice anything but protectionism."

"Getting back in the game"

If the politics of these deals are so daunting, why all the rosy talk in Yokohama?

TPP is partly about showing that the U.S. is "back" in Asia. There's a perception that while Asia has been busy inking deals and integrating its economies, Washington's been asleep at the switch.

Now Washington is determined to be a player on economic as well as security issues. TPP "is a bid by the U.S. to keep at bay Asia-initiated economic integration in the region and maintain influence over Asia," Moon Gwang-lip wrote recently in South Korea's Joong Ang Daily. The deal is "being driven primarily by strategic calculations on what is necessary to get back in the game" in Asia, added Ravenhill.

Elms said the TPP drive began at the administration of George W. Bush over worries that Washington was being "locked out" of Asian markets and left out of preferential deals. "Many officials in the U.S. were increasingly concerned about the proliferation of trade agreements at all levels that would have left the United States on the outside," Elms said.

The next TPP talks are in December in New Zealand, and Obama wants big progress by next year's APEC summit in Hawaii. But if he can't sort out the politics, TPP — not to mention FTAAP — may well be DOA.

GlobalPost's coverage of the global economy:

What you need to know about QE2 — in plain English.The world reacts (angrily) to the Fed's QE2Ground truth: global economic crisis