Friday, October 24, 2014

No TPP Breakthrough until after the US Midterm Elections

Was there anyone who had been following US politics who thought that there would be a breakthrough at the October round of TPP negotiations between Japan and the US less than a month before the November 3 US mid-term elections? Anything less than total capitulation from the Japanese side and the US meat and dairy industries would have been all over the deal demanding more and the Republicans would have used the issue to bludgeon the already unpopular Obama administration and by association all the Democratic candidates in the meat-and/or-dairy states. That could have killed the deal there and then, or at least forced the parties to go back to renegotiate the deal, which in turn could have caused the negotiations to collapse.

So why all the fuss? Well, they couldn’t just mothball the whole thing until the post-election, lame-duck Congress or, more likely, the new Congress could deal with the matter, could they? The two governments would have looked ridiculous, and, more seriously, invited criticism that they were trying to bypass the electorate, making any eventual deal susceptible to complications in seeking Congressional approval. So the Japanese authorities produced a proposal just for show. Remember, eventual single-digit tariffs was an idea that had been already floated from the Japanese side in an earlier phase of the negotiations if media reports are to be believed. (I’m too lazy to dig up and reference the Japanese media reports.) Everybody is running in place until the midterms go by.

So do I think that there will be a deal? Or more important, will it stick? Yes, and yes, Australia (and to a lesser extent New Zealand) essentially replaced the United States in the Japanese beef market when the mad cow disease scare broke out. U.S. beef has been clawing back much of their market share as Japanese restrictions were relaxed, but not all of it. Now, if there is no TPP deal, US beef will be at a cost disadvantage that will grow over the coming years unless there’s deal in place with TPP. Pork is a somewhat different story because there was no mad pig disease to disrupt trade and the tariff schemes are different, and both stories are more complicated than I’ve made them out to be here, but the conclusion is the same: Any deal is better than no deal for US producers.

Of course no deal will be one hot mess for Abenomics and negative fallout on the Japan-US bilateral relationship and more generally on the geopolitical circumstances of the respective states.(China will love that.) So both sides have a very real stake in cutting a deal. Which is why I believe that there will be a deal—unless one side or other overestimates the other side’s need for a deal and they wind up falling short, possible, but not likely when both sides have spent so much time felling each other out.

Just wanted to get this out because there’s been a lot of posturing going on, and a lot of what I think is misguided commentary building up around that.

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