Trans-Pacific Partnership: 'Magnificent' progress sets up tough ministerial talks

International Trade Minister Ed Fast meets his U.S. trade counterpart Michael Froman today in Maui, with key political decisions ahead on this second day of talks towards a Trans-Pacific Partnership trade deal for 12 Pacific Rim countries.

Ministerial talks began Tuesday afternoon in Hawaii, following a weekend of very long days for each country's negotiators in an attempt to clear the deck of minor or technical issues.

"They [the officials] have made very good progress in terms of narrowing differences and closing out issues, but there are still, of course, tough political issues that remain to be resolved," Froman said, adding "those final decisions are always the most difficult."

In an interview with Bloomberg News on Wednesday, Prime Minister Stephen Harper said that talks were now "well advanced" and Canada cannot be left out of the final deal. He did not speculate as to when it would conclude.

"The government is at the table making sure it protects the interest, as best we can, of every Canadian industry," he said, adding that Canada is working to achieve his government's commitment to sustain the supply management system for dairy, poultry and egg products.

The scope of the deal is enormous — from copyright law to labour and immigration issues, as well as more standard trade talk of import tariffs and exceptions for sensitive commodities.

If a deal is reached, it will standardize regulations for trade among countries representing 40 per cent of the world's GDP. Other large economies, including India or China, could join later.

"We have already settled literally thousands of issues," said Australia's trade minister Andrew Robb, calling the work done over the last week "magnificent" and the opportunities for his countries and others "transformative."

Not enough 'ambition' on dairy?

The talks are plurilateral — meaning two countries will meet bilaterally and attempt to sort out the major issues between them before taking their positions back to the group as a whole.

In that context, Wednesday's meeting between Fast and Froman is expected to feature some frank talk on final offers. Americans had complained openly prior to the Hawaii gathering that Canada was leaving negotiations in key areas, like the supply-managed farm sectors it hopes to protect, too late in the process.

"The level of ambition for the dairy part of these talks is just not where we need it to be," said New Zealand farm representative Mike Peterson.

Fonterra, which controls 90 per cent of New Zealand's milk production, is an aggressive exporter looking to make inroads in not only Asia but also currently-closed North American markets

While the dairy dispute isn't the only barrier, it is one of the most complex. Australia joins New Zealand in wanting to export to the U.S., Canada and Japan. But for Americans to be able to sell this deal at home, they need to be able to recoup what they'll lose to imports — with new exports to Canada, they suggest. 

"Once Canada makes a credible market access offer, all the other pieces will fall into place," said Jaime Castaneda from the U.S. Dairy Export Council Tuesday.

Bottom line: greater competition

Sugar is also on the short list of highly sensitive commodities. Frustrations about U.S. market access date back to NAFTA and WTO talks, which resulted in losses worth $120 million annually for Canada, according to the Canadian Agri-Food Trade Alliance. TPP offered another run at opening things up. 

"We are dealing with an agreement which looks to have all quotas and tariffs ultimately go to zero," said Australia's Robb. "I think the reality with sugar is that's not going to happen with the United States and other countries with similar issues, but the bottom line is to expose that market to some greater competition."

"I think they can retain their system but still expose the market to greater competition," he said. "Basically we have to get more access."

It's unclear whether what Robb appears to propose with sugar — allowing the U.S. to keep its form of supply management for sugar while expanding imports — could also apply to Canada's sensitive commodities, like dairy products and chicken.

In both cases, domestic interests argue additional imports threaten the industry's long-term viability.

A similar strategy was tried with cheese in Canada's 2013 deal with the European Union, which isn't yet finalized and hasn't been put in place.

Rice remains a similarly-sensitive commodity in the talks, particularly between Japan, Malaysia and the U.S.

Auto exports remain contentious between Japan and the U.S., as is a U.S. demand to extend some pharmaceutical patents to 12 years, which other countries argue drives up health care costs.

Intellectual property proposals also impact talks between the U.S. and Vietnam, where counterfeit products have been an issue. The U.S.-Vietnam textile trade is another key discussion.

Risks of staying out

In an op-ed issued from Hawaii, Brian Innes, the president of the Canadian Agri-Food Trade Alliance who also represents Canada's canola industry, warned that "a substandard deal or Canada not being part of the TPP would handicap economic growth and job creation for at least the next two generations."

Innes outlined Canada's potential risks, including:

• Premium wheat exports to Japan (1.5 to 2 million tonnes annually) at risk.
• Canola exports to Japan (worth $1.2 billion annually) at risk.
• Grains, oilseeds, pulses, and other special crop exports to Japan, Malaysia and Singapore (worth $2.3 billion) at risk.
• Pork exports to Japan, where the value of Canadian pork is higher than elsewhere, could decline by up to 40 per cent.

He also identified opportunities, such as:

• Barley exports increasing by $80 million with tariff-free access.
• If beef's 38 per cent Japanese tariff is lifted, current exports ($100 million) could double or triple, plus more in Vietnam.

"Without a good TPP deal, farmers and processors in Canada will be disadvantaged relative to those in Australia or the U.S.," he wrote. "Why should Canadians accept this?"