Asia-Pacific heads to hash out trade deal as clock ticks

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Tourists watch Indonesian military helicopters patroling the beach area of Nusa Dua, close to the venue of the Asia-Pacific Economic Cooperation (APEC) summit in Indonesia's resort island of Bali on Sept. 29, 2013. Photographer: Romeo Gacad/AFP/Getty Images

Asia-Pacific leaders will seek momentum on talks for a sweeping 12-nation trade pact when they meet in Bali in coming days, trying to overcome concessions sought by countries that threaten to delay completion further.

President Barack Obama plans to attend the Asia-Pacific Economic Cooperation summit, while cutting short his visit to the region due to the U.S. government's partial shutdown, as he pushes to wrap up the Trans-Pacific Partnership by the end of 2013. The list of demands from parties to the talks, amid pressure to protect key industries, means he'll be hard pressed to show progress, with Moody's Investors Service describing the time line as ambitious given the vested interests involved.

Japan's defense of its farming industry, Malaysia's proposal to keep tobacco control measures out of the deal, and the impact of currency manipulation on markets are among the issues impeding progress on an accord the U.S. calls the cornerstone of its economic policy in the region. At stake for member economies amid an uneven global recovery is the prospect of faster growth as their goods and services find new and bigger markets.

"Each country has its own different views and there will be a way forward, even if it's a struggle," said Hiroshi Imazu, a Japanese ruling party lawmaker who represents an agriculture-heavy constituency on the main northern island of Hokkaido. "If our views are not accepted, we can withdraw," Imazu said in an interview.

"˜Work ahead'

Trade officials from the nations participating in the TPP will meet in Bali this week ahead of the leaders summit. There have been 19 rounds of talks, and they will submit a status report to leaders, who have asked country teams to complete negotiations this year, the U.S. Trade Representative's Office said in September.

"The political will is very high but like any trade agreement there are domestic sectors for and against the deal," said Sanchita Basu Das, a fellow at the Institute of Southeast Asian Studies in Singapore whose research interests include trade policy. "They are about 90 percent done on the TPP, and it's more feasible that we may see something in the first quarter of 2014. I'm not expecting much to come out from this week's meeting."

The free-trade zone would link an area with about $26 trillion in annual economic output. Nations forging the Pacific accord are Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru and Singapore, the U.S. and Vietnam.

The TPP "is a very obvious opportunity," Singapore Finance Minister Tharman Shanmugaratnam said Oct. 2. There is "still some work ahead," he said.

Economic shield

Delays in finalizing the agreement -- the initial target was the Bali summit -- could exacerbate the effects of a slowdown in China and India that is reverberating across the region, with the Asian Development Bank lowering its forecasts for growth this year and next. The road to a "robust and comprehensive" recovery remains bumpy, International Monetary Fund Managing Director Christine Lagarde said this month.

"The TPP will be beneficial when growth is slow," said Eduardo Pedrosa, secretary-general of the Pacific Economic Cooperation Council in Singapore.

All the TPP countries are members of APEC, set up in 1989 to advance free trade and investment in an area that accounts for half of the world's total gross domestic product and 45 percent of global commerce.

TPP gains

The TPP could yield global annual gains of $295 billion by 2025, according to estimates by Peter Petri and Michael Plummer in a June 2012 policy brief published by the Peterson Institute for International Economics.

"Good trade agreements typically force some changes in policy but at the same time open up new commercial opportunities," New Zealand Trade Minister Tim Groser said in a speech at the National Press Club of Japan in Tokyo on Sept. 27. "TPP will be no exception."

In the way of TPP negotiators are millions of small farmers in Japan, who oppose any deal by Prime Minister Shinzo Abe that might undermine protection for meat, wheat, sugar, dairy and other goods like rice, which has a tariff of 778 percent. Japan became the latest nation to join the talks when it formally entered discussions in July.

Eliminating tariffs

Japanese negotiators have offered to eliminate tariffs on 92 percent of products, possibly including some sensitive agricultural goods, the Nikkei newspaper said today without saying where it got the information.

U.S. automakers have expressed concern about Japan's economic policies and said the TPP should include provisions to prevent currency manipulation. The American Automotive Policy Council, an industry group that represents Ford Motor Co., General Motors Co. (GM) and Chrysler Group LLC, has said it won't support the TPP unless it contains a currency provision.

"Failing to address currency manipulation in the TPP would mean U.S. companies and workers will end up paying dearly for expanded trade in the Asia-Pacific region," Scott Paul, president of the Alliance for American Manufacturing, said last month.

Vietnamese Prime Minister Nguyen Tan Dung has said the U.S. will give the nation "differential" treatment in negotiating the accord. Other members should be flexible and take into account the low level of development of Vietnam, Dung said in a Sept. 27 interview.

Malaysian stance

In Malaysia, reluctance to change policies that favor ethnic Malays and indigenous people for some state contracts were among issues that led to a previous breakdown in negotiations with the U.S. on a free trade pact, alongside the U.S.'s decision to review its overall stance on bilateral deals. The Southeast Asian nation said in August it will review the costs and benefits of joining the TPP.

Malaysia won't "sell its soul" for the sake of joining the TPP, Prime Minister Najib Razak said last month.

China, the second-biggest economy among APEC members, is not a member of the TPP. The country may not yet be ready to implement the types of obligations currently negotiated in the accord such as labor laws, increased transparency in economic activities and environmental regulations, Das of the Institute of Southeast Asian Studies said.

Chinese officials last month inaugurated a new free trade zone in Shanghai as the country experiments with loosened capital controls and other reforms to sustain growth. The 11-square-mile area is a testing ground for free-market policies that Premier Li Keqiang has signaled he may later implement more broadly.

Shanghai Zone

"Within the Shanghai Free Trade Zone or other similar arrangements, a more efficient and open business environment could also pave the way to potential access to multilateral trade agreements such as TPP one day," Morgan Stanley economists led by Helen Qiao said in a research note last month.

Even as negotiations on the TPP continue, other challenges are yet to come, Das said.

"All the voices that you hear now are going to be even louder when it comes to the ratification process in the parliament of each country," she said. "That's the crucial time for the TPP."

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