Monday, June 23, 2014

The Dynamics of Multilevel TPP Negotiations

Eric Chiou

          International trade negotiations have been characterized by a model of so-called "two-level game." This model highlights a challenging predicament in which a chief negotiator faces pressures from both external trading counterparts and domestic interest groups when undertaking international trade pact negotiations.

          Nevertheless, it is noteworthy that the complexity and development of Trans-Pacific Partnership (TPP) negotiations among 12 members may have gone beyond the traditional two-level game model and can be depicted as a new form of "multilevel game." The latest TPP development regarding the US-Japan trade talks provides an intriguing case to illustrate the characteristics of this newly emerging trade negotiation.

          To boost momentum to TPP trade talks and to reassure its allies in Asia, US President Barack Obama paid a week-long visit to Asia by visiting Japan, South Korea, Malaysia, and the Philippines in April. Many believe that this trip signaled US determination to implement its "pivot-to-Asia" policy with concrete action.

          In addition to strengthening strategic alliances with its existing allies, on economic front, the most important task for Obama was to increase impetus on TPP talks with Japan. Nevertheless, it seemed that Obama had failed to achieve this goal, since in the US-Japan Joint Declaration in April, it only stated that the two "have identified a path forward on important bilateral TPP issues," and that "this marks a key milestone in the TPP negotiations."

          Since the US began taking a lead in TPP talks in 2009, the complexity and intricacy of this multilateral negotiation process have been broadly recognized, given its wide range of coverage on various issues. Thus, even after more than 20 rounds of negotiations, there is no explicit sign to see the conclusion of TPP treaty.

          For the United States, TPP serves as a multi-functional tool to achieve its national interests. Strategically, it plays a crucial economic element in support of US pivot-to-Asia policy, for bolstering US economic involvement and relevance in the region. Economically, TPP is viewed as an effective policy instrument to accomplish Obama's economic objectives of creating more US jobs, boosting US exports, and eventually stimulating its economic growth.

          However, Japan's entry to TPP has dramatically increased difficulties in TPP negotiations. Furthermore, TPP negotiation has transcended the traditional sense of multilateral trade talks, since TPP allows its members to settle their differences via bilateral negotiations, while undertaking multilateral talks simultaneously. These features imply that a chief negotiator in each TPP member has to adroitly make an accurate assessment of ongoing multifaceted negotiations and aptly utilize leverage to boost bargaining power for maximizing profits while minimizing costs on both bilateral and multilateral negotiation tables.

          In other words, this chief negotiator is also forced to engage battles on both domestic and external fronts. On the one hand, the negotiators might want to transform domestic opposition against the trade deal into bargaining chips for asking few concessions from other negotiating counterparts. On the other hand, they might also want to strategically translate external pressures on opening domestic market during the negotiation process into positive momentum on undertaking critical economic reforms.

          As a result, the TPP negotiations have been undertaken through this multi-level, intertwined, and dynamic interaction. For example, on the USJapan bilateral trade talk, Washington's primary goal has been persuading Japan to open up its market for American agricultural products, while Tokyo has persisted in protecting five sensitive agriculture categories intact from foreign competition, including beef and pork, dairy products, sugar, rice, wheat and barley.

          To break up Japan's resistance, the US Trade Representative (USTR) has utilized multiple strategies. The chief of USTR, Michael Froman, argued that all TPP members expected Japan to allow market access on agricultural products, in order to move TPP negotiation forward. On domestic front, several US Congressmen across the aisle signed on a letter to USTR and the US Department of Agriculture, urging them not to make a TPP deal with Japan, if the latter refuses to eliminate tariffs and non-tariff barriers on agricultural goods.

          Moreover, Obama and US senior trade officials announced on different occasions that any breakthrough in TPP negotiations will send a positive signal to Congress on granting the Trade Promotion Authority (TRA) to the Obama administration. In other words, Washington has tried to transform its domestic discord on TPP into pressure on other TPP members, especially Japan, to obtain more concessions. Finally, Washington has attempted to take this window of opportunity through Obama's visit to finalize this trade deal with Japan by imposing political and diplomatic pressures. Nonetheless, it has failed.

          Facing mounting pressures from Washington, Japan has strived to set a bottom line for its tolerable concession by concluding the Australia-Japan Economic Partnership Agreement (EPA) in early April. Tokyo's strategy is to provide Australia, a US competitor on agricultural products, with an early and acceptable range of market access to Japan, in order to persuade Washington to consent to its terms as Australia did. By doing so, Tokyo intended to sabotage a possible coalition gathered by TPP agricultural exporting members to jointly push Japan for more comprehensive market access on a multilateral TPP negotiation table. The strategy of "divide and conquest" gives Japan with more leeway to focus on demands from the US and New Zealand, respectively, while not severely damaging the core political support of Abe's ruling party.

          As for Australia, its strategy is to get "two bites of the cherry" by negotiating with Japan through a bilateral EPA and a multilateral TPP. In other words, signing an EPA with Japan does not mean that Australia has submitted its right to request Japan for additional market access in TPP negotiation. Furthermore, it is reported that the Australia-Japan EPA also covers a most-favored nation (MFN) clause for cheese products, which would ensure Australia to obtain the same treatment, if Japan provides more access to other counterparts in the same sector in future trade treaties.

          Additionally, the formation of Australia-Japan EPA is partly derived from Canberra's political calculation. Despite Japan's rejection to expand agricultural market access in the EPA, Australia's assent to Japan's terms might be attributed to following reasons. First, the Abbott administration has been eager to make tangible achievement in distinction with the former Labor Party government. Second, the Abbott administration has publicly declared its policy objectives of concluding free trade agreements with South Korea, Japan, and China by the end of 2014. Hence, it is crucial for Australia to sign an EPA with Japan before the deadline. Finally, Australia-Japan EPA provides Australia's agricultural products with a first mover advantage in Japanese market, favoring Australia's products over others while not sabotaging its future claims for more market access from Japan.

          The above case on US-Japan agricultural goods negotiation shows the intricacy and complexity of ongoing TTP negotiations. The dynamic process of TPP talks, coupled with both bilateral and multilateral bargaining approaches, requires relevant negotiating members to devote enormous time and resources to vigilantly observe other counterparts' each step, in order to generate sagacious and foresighted decisions. Undeniably, the demanding features of TPP process have posed a critical challenge to existing TPP members and significantly raised the level of uncertainty regarding the future success of TPP.

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