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The Trans-Pacific Partnership issues in-depth

M.Scott Mahaskey/POLITICO

By Doug Palmer

There are hundreds if not thousands of issues to resolve within the nearly 30 chapters of the proposed Trans-Pacific Partnership pact, which would cover more than 40 percent of world economic output. Here are some that have received the most attention:

Autos — The United States has a 2.5 percent tariff on cars and 25 percent tariff on trucks; Japan has no tariffs on vehicles. However, the American Automobile Policy Council, which represents Ford, General Motors and Fiat Chrysler, says regulatory and tax hurdles effectively make Japan the most protected and closed automotive market in the world. U.S. negotiators have secured a commitment to phase out the 25 percent tariff on trucks over the longest period allowed for any product in the TPP — a way to counter any move by Japan to put long phase-outs of import tariffs on sensitive agricultural products. But for the past two years they have also been engaged in a negotiation aimed at dismantling “non-tariff barriers” that Japan has erected to U.S. auto exports. Japanese automakers produce all of the trucks and 71 percent of the vehicles they sell in the United States at their plants in North America. They argue Detroit-based automakers only have themselves to blame for their lack of success in Japan by offering cars larger than most Japanese consumers prefer. Meanwhile, both U.S. and Japanese automakers have interests in Malaysia, a booming auto market with significant restrictions on imports.

Currency — The White House beat back an effort in Congress to put a provision to require enforceable rules against currency manipulation in a bill to fast-track the passage of trade agreements. Still, the legislation makes addressing the concern a principal U.S. negotiating objective — the first time that has been done. If the TPP fails to include a meaningful currency provision, the pact could be subject to a disapproval resolution stripping away its “fast track” protections, making it open for amendment and subject to filibuster in the Senate. Ohio Sens. Rob Portman, a Republican, and Sherrod Brown, a Democrat, have been out front in calling for enforceable currency rules, as have Democratic lawmakers from Michigan such as Rep. Sander Levin and Sen. Debbie Stabenow.

Dairy — A complicated four-way dance is going on in the dairy negotiations, and right now everyone is waiting for Canada to make its move. U.S. dairy producers were opposed to the agreement when it only included New Zealand, the world’s largest dairy producer, but came around when Canada and Japan, two substantial dairy markets, joined the negotiations. Now, as trade officials head to Maui, it looks like Japan is prepared to strike a deal on dairy products, although some concerns over access to its butter market remain. But so far, Canada has not put a meaningful dairy market offer on the table, leaving U.S. producers to fear they could lose more from the final agreement than they gain. That’s a problem for congressional approval because, as one lobbyist observed, “every senator has a cow in their state.”

Geographical Indications — Many common names for cheese, such as parmesan and asiago, originated in Europe, and in recent free trade agreements, the European Union has tried to lock up rights to use the names for its own producers. The U.S. dairy industry fears that could hurt its exports and wants safeguards against that practice in the TPP. However, some countries such as Canada, which is currently part of the TPP talks, and South Korea, which could join in a second tranche, have already signed free trade pacts with the EU that contain protections for geographic indications.

Government Procurement — Many countries restrict access to their public works contracts, reasoning that domestic firms should be the main beneficiaries of taxpayer-funded projects. The United States allows some “Buy American” preferences for its own companies but generally has an open market and has pushed for more access to foreign government procurement through its free trade agreements. The issue is a sensitive one for Malaysia, which has had government procurement preferences to help ethnic Malays since 1969 and previously walked away from free trade talks with the United States over the issue. Many members of Congress from steel-producing states do not want to see any weakening of Buy American provisions under TPP, while Canada has sought more access to U.S. state and municipal projects funded by federal dollars.

Investor-State Dispute Settlement — Opponents of free trade agreements often point to the investor-state dispute settlement mechanism as one of their concerns. The provisions allows companies to sue host governments for actions that damage their investment. Critics say it undermines the right of governments to regulate in the public interest, while proponents say it is a necessary protection against discriminatory and arbitrary government action. Australia refused to include an ISDS provision its 2005 free trade pact with the United States, possibly because the United States refused to provide more access for Australian sugar. Australia more recently said it would consider the issue on a case-by-case basis and included ISDS in its free trade pact with South Korea but not with Japan, both of which it concluded in 2014. The United State has ISDS in all of its free trade pacts except the one with Australia.

Labor and Environment — Labor groups have been some of the harshest critics of free trade agreements, arguing they keep wages low in the United States by encouraging companies to move production overseas in search of a cheaper workforce. Environmental advocates worry about damage to critical natural resources as result of increased trade. Neither group has been assuaged by the administration’s promises that the TPP will be the “most progressive” trade agreement in history. While final details are still secret, the pact is expected to contain enforceable labor and environmental provisions. However, some lawmakers have urged that countries such as Vietnam be required to comply with labor and environmental provisions of the pact before receiving any of its market access benefits.

Pharmaceuticals — This issue pits Washington’s desire to provide profit incentives for American pharmaceutical companies to develop new drugs against critics who say overly restrictive patent and clinical test data protections drive up the price of generic medicines and potentially limit the ability of countries to define their own national intellectual property standards. Recent U.S. free trade agreements with Colombia, Peru, Panama and South Korea have provided five years of “data exclusivity” for patent holders. Another protection, known as patent linkage, was made voluntary for the three Latin American countries but mandatory for South Korea. It requires regulators to check for potential patent violations before approving a new generic drug for manufacturing. The United States has been pushing for 12 years of data protection for “biologic” drugs, the same as contained in the 2010 Affordable Care Act, but is alone on that position. Both Canada and Japan provide eight years of data protection for biologics in their own laws while five years is the norm for many other countries. The advocacy group Médecins Sans Frontières has warned 12 years of data exclusivity for biologics would “limit access to medicines for at least half a billion people,” but Senate Finance Committee Chairman Orrin Hatch has pushed hard for the lengthy term.

Pork — When Japan sought to exclude a long list of “sacrosanct” agricultural commodities from complete tariff elimination under the pact, no one screamed their opposition louder than the National Pork Producers Council. A year later, the group’s efforts seem to have to worked, and the pork industry appears largely satisfied with the Japanese market access package as final negotiations near, although officials have some remaining concerns that they say need to be addressed in Maui. U.S. pork producers are also excited about the deal with Vietnam, a fast-growing country of 90 million people where rising incomes are expected to boost meat consumption in future years. Iowa and North Carolina are the top pork-producing states, but production is spread throughout the Midwest and reaches as far south as Texas.

Rice — Japanese consumers eat more than 130 pounds of rice each year, about four times U.S. levels, but very little comes from outside the country. Because rice cultivation is so closely associated with the national identity, the government uses a combination of strict quotas and high tariffs to ensure picturesque rice paddies remain in the Japanese landscape. U.S. rice producers still hope for expanded export opportunities, but if the United States is stingy with Australia on sugar it’s harder to press Japan on rice. Arkansas is the biggest rice producing state, with sizeable production in Louisiana, Texas and California.

State-owned enterprises — Companies directly or indirectly owned by governments play an increasingly large role in international trade and often are dominant players in their own markets. Japan Post, a state-owned conglomerate that operates a wide variety of businesses, including post offices, banks and an insurance division, ranks 23rd on Fortune magazine’s list of the 500 largest companies in the world. SOEs are responsible for an estimated 40 percent of Vietnam’s economic output and also play major roles in Malaysia and Singapore’s economies. TPP countries appeared to have largely agreed on a set of rules to “level the playing field” between state-owned and private firms, but a debate continues over which SOEs would be excluded from the disciplines.

Sugar — The U.S. government supports domestic sugar prices by restricting imports but typically has given free-trade partners some additional access to the United States. Not so with Australia, which got nothing on sugar in the free trade deal it struck in 2004. U.S. Trade Representative Michael Froman has hinted the U.S. would provide some additional access this time around but in a way that would not jeopardize the sugar program, which benefits sugarcane farmers in Florida and Louisiana and sugarbeet growers in Michigan, Wisconsin, North Dakota, Nebraska, Montana, Wyoming, Idaho and Washington.

Tobacco — With U.S. cigarette consumption continuing to fall, American tobacco companies are eager for new markets to sell their cancer sticks, coffin nails or lung busters, as they are known on the street. Many anti-smoking groups argue tobacco should not even be included in free trade agreements, while farm and business groups counter that excluding any legal product sets a bad precedent. The issue gained prominence after Philip Morris used a bilateral investment treaty between Hong Kong and Australia to sue for damages stemming from Australia’s “plain packaging” law, which replaced familiar cigarette trademarks with graphic images of cancer victims. U.S. trade officials proposed to address the issue within the TPP by agreeing that measures taken to protect human, animal or plant life or health would not violate the agreement as long as they not disguised trade barriers. Washington also proposed requiring any TPP country to first consult with its TPP partners before challenging any tobacco control measure as a violation of the trade pact. Neither anti-smoking nor business groups were happy with the compromise. Malaysia countered with a proposal that would exempt tobacco-control measures from being challenged under TPP.

Textiles and Footwear — The United States imported $82 billion worth of apparel in 2014, including about $30 billion from China. Vietnam was second with more than $9 billion in sales to the United States and would be in a good position to grab market share from China under TPP pact because of tariff elimination. However, strict “rules-of-origin” are expected to limit Vietnam’s gains by requiring that any clothing be wholly assembled within the TPP countries to qualify for duty-free treatment under that pact. That means Vietnam could not import fabric from a third country, such as China, and use it to make clothing that qualifies for duty-free treatment. Some exceptions to that rule, in terms of a list of apparel products that are in “short supply” in the United States, are expected. Still, a significant loosening of the so-called “yarn forward” rule of origin poses problems for clothing manufacturers in TPP countries Peru and Mexico, who have adapted to the standard. Meanwhile, Boston-based shoe manufacturer New Balance also is worried about increased imports from Vietnam under the pact and has fought to maintain duties on a number of products lines it assembles at its facilities in Maine.

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