Obama, Japan's Abe Under Pressure To Salvage Pacific Trade Pact

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(Reuters) -- A meeting between U.S. President Barack Obama and Japanese Prime Minister Shinzo Abe this week in Tokyo may not seal one of the world's biggest trade pacts, but it could give it a much-needed boost.

A central element of Obama's strategic "pivot" towards Asia, the Trans-Pacific Partnership would connect a dozen Asia-Pacific economies by eliminating trade barriers and harmonizing regulations in a pact covering two-fifths of the world economy and a third of all global trade.

After four years of talks and missed deadlines, negotiators from several TPP countries say they hope Thursday's summit will lay the groundwork for tough concessions, including a possible easing in Japan's protectionist stance on beef, sugar, dairy and wheat — a step that could breathe into the struggling TPP.

"Hopefully this will provide some clarity about the level of ambition we can expect in a hopefully successful TPP," New Zealand Trade Minister Tim Groser said.

The White House had hoped to complete the deal last year but has faced disagreements over barriers such as Japanese import duties on agricultural products. Tokyo is fighting to maintain import tariffs in five agricultural categories: rice, wheat, dairy, sugar, and beef and pork products.

Washington, meanwhile, has sought ways to protect U.S. carmakers from their Japanese rivals.

Experts are looking for signs of concessions, especially from Japan, given its staunch protection of its agriculture. Under one optimistic scenario, the leaders could announce they expect concrete outcomes soon, perhaps next month, when TPP negotiators meet in Vietnam.

A senior U.S. official said the summit would likely produce a statement giving a nudge for the negotiations to move to the next stage, a view shared by some industry groups.

"I think it will be something artfully worded to say we have made significant progress and our negotiators continue to work on this with a goal of concluding," said James Fatheree, senior director for Japan and Korea at the U.S. Chamber of Commerce in Washington and president of the U.S.-Japan Business Council.

High Stakes

The stakes are high for both Obama and Abe.

Failure to unveil a significant advance could stall the ambitious pact, undermining the trade-policy arm of Obama's so-called "pivot" of U.S. military, diplomatic and trade resources to the Asia-Pacific region.

An agreement between the United States and Japan is crucial for setting the tone for other countries engaged in the TPP: Australia, Brunei, Chile, Canada, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.

An official from a developing country involved in the negotiations said failure to move talks forward during Obama's trip would make it difficult to clinch a TPP deal.

"We all want to be optimistic about reaching a deal, but the reality is on the basis of the declarations made by officials from one country or the other, there are still important differences to be resolved," the official said.

Some countries such as Malaysia are still a long way from signing up to a TPP pact. "We are not ready and I think some of the other countries are also not ready," Paul Low, a minister in the Malaysian Prime Minister's Department, was quoted as saying by The Edge financial daily.

Failure would also hurt Abe's 'Third Arrow" plan to kick-start Japanese economic growth through structural reforms.

"It would probably be worse for Obama because he would be seen as not able to deliver, whereas Abe would be seen as defending national interests," said Aurelia George Mulgan, Japanese politics professor at Australia's University of New South Wales. "However, internationally, failure could be bad because the ‘Third Arrow' looks even floppier."

Concessions?

TPP partners have no official deadline for completing the talks or making progress on key areas. Experts say an open-ended time frame is unlikely to motivate Japan.

"My experience is that they are often intractable until the last minute," said one former U.S. negotiator who has dealt with Japan in previous trade rounds. "What motivates negotiators, particularly Japanese trade officials, to resolve seemingly intractable disputes is a credible deadline."

U.S.-Japan talks have intensified in the run-up to the summit and are likely to continue through Wednesday. Japanese media have floated one possible outcome: Japan will be allowed to maintain tariffs on rice and wheat in exchange for a larger import quota for U.S. producers. Tariffs on beef would be cut over time, likely to around 9 percent, reports said.

Officials on both sides refuse to confirm details and warn against focusing too much on individual parts of what will be a delicately balanced final agreement between the 12 countries.

"Any agreement will be very complicated and it will involve a complex and holistic agreement," Japanese Cabinet Councilor Kazuhisa Shibuya told reporters on Monday.

The senior U.S. official, who declined to be identified, cautioned that it would take some months to translate a final TPP agreement into a proposal for lawmakers. But judging from the Japanese leaks, progress seems likely at least on beef.

Yukio Okamoto, a former diplomat and adviser to two Japanese prime ministers, said farmers could receive subsidies to make up for lower tariff protection.

"Of course there is opposition in the Diet (parliament) but the Japanese government should not make that a pretext not to advance, because what awaits is our being excluded from this free, prosperous market in the Pacific," he said in Washington.

U.S. beef and pork lobby groups are urging the White House to insist on complete tariff elimination, warning they may oppose the TPP if it does not go far enough.

"The U.S. needs to stick to its principles and work out something that both countries can support, but something that's not going to jeopardize our future," National Cattlemen's Beef Association senior official Kent Bacus said.

The United States should publicly question Japan's membership of the TPP if the country does not open up, said Nick Giordano, vice president of the National Pork Producers Council.

"The only area for compromise is the duration of time in which tariffs are eliminated, that's it," he said.

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