Washington Insider -- Friday

ERS Reviews TPP Potential

Here's a quick monitor of Washington farm and trade policy issues from DTN's well-placed observer.

Add Investment Protection to Issues Blocking Transatlantic Trade Deal

European Union Trade Commissioner Karel De Gucht says that the United States might walk away from a proposed Transatlantic Trade and Investment Partnership (TTIP) –– or at the very least show less enthusiasm for the deal –– unless Europe relents on its insistence on keeping investment-protection provisions out of the agreement.

The clause would allow foreign investors to use arbitration panels instead of domestic courts to make claims against a national government when an investment is harmed, for example through expropriation. Some politicians in the EU oppose the clause, known as Investor-State Dispute Settlement, or ISDS, because they believe it limits governments' ability to regulate in the public interest.

"If we don't want ISDS in the agreement with the United Sates, I doubt that the United States is even going to restart the discussions beginning of next year," De Gucht told reporters. "This is practice in international trade."

The TTIP negotiations were launched with a great deal of optimism and the hope of a quick agreement. But as more quirks in the way trade is conducted on either side of the Atlantic become issues, the road forward appears to grow both longer and more difficult.

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U.S. Dairy Exporters Press for Japan to Open its Protected Market

Japan's current dairy import program is operated in a "trade-distorting and inconsistent manner that makes it difficult for U.S. dairy exporters to access the market," the International Dairy Foods Association (IDFA) said as it urged U.S. trade officials to press for changes in the program. IDFA wants U.S. officials to push to replace Japan's current import program with a tariff rate quota system as part of bilateral negotiations with Japan that are continuing as part of the larger Trans-Pacific Partnership (TPP) free trade agreement talks.

Japan's import rules are complex and its trade barriers are difficult to navigate. There are signs that the government there is interested in dismantling some of the protectionist barriers, but Japan's domestic politics are such that any progress toward a more liberalized trade regime will be painfully slow.

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Washington Insider: ERS Reviews TPP Potential

One of the things USDA does better than most is focus a lot of expertise on the effects and consequences of a specific issue. In this case, the agency has estimated the potential economic impact of a free trade deal with 12 countries in the Pacific Rim that includes the United States: the proposed Trans-Pacific Partnership.

The proposal would eliminate all agricultural and nonagricultural tariffs and tariff-rate quotas on the region's agriculture in 2025, the assumed end date of the pact's implementation. Economists at USDA's Economic Research Service compared patterns of production, consumption and trade under a "baseline" with no TPP and under an "agreement" in which the market constraints are removed.

Actually, cutting tariffs is only one of several goals of the negotiations but is certainly an important one, as the research results indicate. For example, they project that the value of intraregional agricultural trade in 2025 under a tariff-rate quota (TRQ) free scenario would be boosted by 6%, or perhaps $8.5 billion (in 2007 U.S. dollars) above baseline values.

For the United States, agricultural exports to the Pacific Rim region are seen growing by 5%, about $3 billion while U.S. agricultural imports from the region grow by a more modest 2% or $1 billion compared with the baseline, ERS estimates.

The report also concluded that, "While each member country will experience growth in both its agricultural imports and exports, Japan and the United States will account for the largest shares of the growth in both intraregional imports and exports."

The United States is expected to provide perhaps one-third of the expansion in intraregional agricultural exports — some $2.8 billion greater under the TPP scenario than in the baseline.

At the same time, Japan is estimated to account for almost 70% of the expansion in intraregional agricultural imports. In fact, the value of Japan's agricultural imports from its TPP partners in 2025 is expected to be about 14% higher than in the baseline.

While the ERS estimates are impressive, it is important to remember that there are powerful interests involved in these sectors in the United States and overseas and that the negotiations are far from complete at this stage.

In a separate report on Japan's Agri-Food Sector, ERS notes that, "Japan's agriculture has been inward oriented and protected by trade barriers from foreign competition. Even though the share of Japan's food consumption provided by Japanese production has gradually fallen, the farm sector remains the second-largest among the countries negotiating the Trans-Pacific Partnership."

However, ERS also notes that Japan's food industry has become increasingly integrated with TPP economies although the TPP share of Japan's agricultural imports has fallen. The proposed agreement could lead to more Japanese imports from TPP partners, likely dominating the total agricultural trade effects of such an agreement, ERS says.

In spite of the potentially large import increases, especially in the rice, beef, and dairy sectors, the proposed agreement would be expected to reduce Japan's output very marginally. The basic strengths of Japanese agricultural production and domestic constraints to the growth of supply in the rest of the TPP countries would be expected to limit many of the consequences of the agreement for Japan.

Nevertheless, ERS thinks U.S. exports would be well positioned to meet Japan's new import demand.

Given the magnitude of the changes implied for the nations negotiating the TPP, it is not surprising that powerful sectors, including those in Japan, are resisting agreement. That is especially true considering the strong anti-trade sentiment across the United States and its inability to pass "fast track" legislation to increase the credibility of any U.S. concessions as the talks proceed.

The ERS reports indicate that the TPP has strong potential benefit for U.S. producers, but also suggests the need for stronger support for more open markets with nearby U.S. neighbors in Canada and Mexico at the same time it works to lead negotiations in the TPP, Washington Insider believes.


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