The annual meeting of the Asia-Pacific Economic Cooperation (APEC) forum in Hawaii will have something more concrete to focus on than the usual bromides about extending free trade in the region.
Barack Obama, the host, will use the occasion to laud progress in the“trans-Pacific partnership” (TPP), a nascent trade deal aiming to knit together a coalition including the US, Chile, Australia, Vietnam and Malaysia.
If it works, TPP could fill the gap being created by the slow implosion of the multilateral so-called “Doha round”negotiations and create a state of the art trade deal. Derek Scissors, an expert in Asia trade at the Heritage Foundation think-tank in Washington, says: “Given the countries involved, if this becomes a real free trade zone it changes the world economy”.
But Mr Scissors and others warn that given the paucity of detail available, it is hard to judge progress. And the huge complexity of the issues in- volved suggests that, at best, reaching a deal is going to be a long process.
Initial talks between nine participants have covered areas which are increasingly exercising international companies but are often not addressed by trade deals, such as rules governing domestic regulation and the operations of state-owned enterprises.
A US trade official says: “Our goal is to ensure a level playing field for US investors, exporters and workers by negotiating disciplines in the TPP that address the potential distortions to trade and competition that can result from governments providing stateowned enterprises with unfair advantages.”
Karan Bhatia, vice-president for international law at GE and former deputy US trade representative, says of the talks: “They are important efforts to try to get at the new generation of barriers to international trade and investment.”
The long-run aim, experts say, is to create a bloc of sufficient mass to put pressure on China to join and thus subject more of its economy to such disciplines. Mr Bhatia says the idea was to use an initial core group of enthusiastic free-traders “to create a gravitational force that would bring others in”.
Yet the partnership faces a difficult judgment about Japan, whose economic heft would lend great credibility to a final agreement but whose resistance to some forms of trade liberalisation is likely to prolong and complicate the talks.
Yoshihiko Noda, Japanese prime minister, will announce on Thursday his long-awaited decision on whether Japan should try to enter the first round of negotiations, rather than postponing entry to a later date or not at all. His main domestic opposition is Japanese agriculture, which is sheltered behind some of the highest farm tariffs in the industrialised world and whose market has long been eyed hungrily by us and other farm exporters.
But on Tuesday the senior Democratic and Republican congressmen and senators on the trade issue published a joint statement urging caution about allowing Japan to participate. Its inclusion is strongly opposed by the domestically owned US car industry, which has fulminated against its inability to penetrate the Japanese market. Stephen Biegun, vice-president for international government affairs at Ford Motor Company, warns: “From the point of view of the agricultural sector it will be important to open up the Japanese market but the US ran a $60bn bilateral trade deficit last year, of which 70 per cent was autos, and there is no way that ag exports will reach even a fraction of that”.
Mr Biegun says Japanese currency market intervention to hold down the yen, which resumed this summer, is“Japan’s number one trade barrier”.
The domestic US auto industry is ambitiously proposing a remarkable innovation, that the TPP contain restrictions on exchange rate manipulation, with a view to extending such rules across trade deals in the future.
Such demands are unlikely to be met. His strength of opposition suggests that the TPP faces a long struggle if it is ever to come into existence.