Monday, June 18, 2012

Mexico Joins TPP as a "Second-class" Participant; Will Canada Follow? [UPDATE: Looks Like Canada's In]

The big news of the day was that, as has been expected for the last week or so, Mexico has joined the ongoing Trans-Pacific Partnership negotiations.  USTR formally announced the news this morning: 
President Obama announced this morning that the United States and the eight other countries negotiating the Trans-Pacific Partnership (TPP) Agreement have extended an invitation to Mexico to join the TPP negotiations, pending successful conclusion of their domestic procedures. In addition to the United States, the current TPP countries are Australia, Brunei Darussalam, Chile, Malaysia, New Zealand, Peru, Singapore, and Vietnam.

“We are delighted to invite Mexico, our neighbor and second largest export market, to join the TPP negotiations,” said Ambassador Kirk. “Mexico’s interest in the TPP reflects its recognition that the TPP presents the most promising pathway to boosting trade across the Asia Pacific and to encouraging regional trade integration. We look forward to continuing consultations with the Congress and domestic stakeholders as we move forward.”

After Mexico expressed its interest in joining the TPP last November, the United States briefed Mexico about the status of the TPP negotiations and the high standards and objectives that the TPP countries are seeking in the agreement. The United States also discussed with Mexico its ability to negotiate on issues that are a priority for the United States in the TPP. Mexico has assured the United States that it is prepared to conclude a high-standard agreement that will include issues that were not covered in the North American Free Trade Agreement (NAFTA).
Conspicuously missing from today's announcement was any mention of Canada, the other NAFTA signatory that expressed interest in joining the TPP - and has been furiously lobbying for it - at the same time as Mexico back in November 2011 (and shortly after Japan made a similar request).  As I noted back in April, it had become quite clear that the United States was blocking Canada's entry into the TPP, but rumors began swirling last week that the accession of both NAFTA partners was possible during this week's G20 summit, leading some to fearlessly predict that Canada would be joining Mexico in the TPP this week.

Those predictions clearly haven't come true (yet), but after learning the stringent negotiating conditions that the Obama administration demanded Mexico and Canada accept before agreeing to let them join the TPP negotiations, I gotta say that I really can't blame the Canadians for balking.  According to Inside US Trade [$], the Obama administration essentially demanded that the two countries accept "second-class" status in the negotiations before the US government would let them join.  In particular:
Last Friday (June 18), the Obama administration sent a letter to both Canada and Mexico that made clear that the U.S. could support both of them joining the talks if they agreed to at least two conditions. These conditions appear designed to ensure that these potential new entrants do not slow down the pace of the negotiations.

The first condition stipulated that Canada or Mexico would not be able to reopen any agreements that have already been reached among the current nine TPP partners, unless those nine members agreed to revisit something to which they had previously agreed, sources said.

One source said Canada and Mexico would have to agree to this condition without even having seen the negotiating texts in their current states.

In addition, the letter made clear that Mexico or Canada, if they were to join, would not have "veto authority" over closing out chapters in the future. In essence, this means that if the nine original members reached agreement in a chapter, Canada and Mexico would have to go along with it, one source said.

This source said that, in essence, this condition means that Canada and Mexico would be something less than full negotiating partners if they were to join.
The US letter raises concerns on several levels.  Procedurally, it's clear that Canada and Mexico would have less negotiating authority than all other TPP participants with respect to completed and future FTA provisions.  While, as noted below, the TPP's extremely-unfinished state limits the impact of the former issue (even though that had to be agreed sight-unseen!), the latter issue could be significant where, for example, all TPP partners agree on FTA text that would disproportionately benefit themselves and disproportionately harm Mexico or Canada.  Such limitations could not only hamstring Canadian and Mexican negotiators on these and other FTA provisions (kinda hard to demand concessions when everyone knows that you can't really hold up the agreement if you don't get your way), but also create serious political pain at home.  Just how do you explain to domestic constituents that you are absolutely powerless to prevent their pet issues from being on the TPP chopping block?  Would the United States ever agree to such conditions? (Stop laughing.)

On principle, the US demands are just as unpalatable - if not more so.  As noted above, Canada and Mexico requested admission to the TPP more than eight months ago, but the United States is only now agreeing to consider each nation for admission and is using time constraints as the primary reason for imposing onerous negotiating restrictions on each nation.  If the United States had agreed to admit Canada and Mexico back in November when they first requested it, the negotiations would've been far less advanced, and such limitations would have been groundless.  (And it's not like admission to the TPP automatically requires a long, drawn-out process.  For example, Malaysia, which unlike Canada and Mexico does not have an FTA with the United States, requested admission to the ongoing negotiations in 2010 and was admitted very shortly thereafter.)  In short, the United States needlessly delayed Canada's and Mexico's admission for eight months, and then demanded that each country accept "second-class" status because the negotiations were too far along.

Talk about chutzpah.

Perhaps worse is the fact that, even though the TPP parties have been going at it since late 2009, the negotiations really aren't all that advanced.  And as Greg Rushford recently explained in a must-read piece on the precarious state of the TPP, US negotiating positions are partly to blame for the TPP's slow pace:
Meanwhile, US trade negotiators in the TPP have been playing small ball, acting as if Uncle Sam can continue to get away with just about anything. One veteran trade observer calls the American game: "ad hoc mercantilism." You don't have to look far to see why.

New Zealand is being asked to reform its pharmaceutical-procurement practices (which it really should), while being informed that there will be no talk --- at least before the Nov. 6 U.S. vote --- of giving the Kiwis more access to protected American dairy markets. The U.S. has informed the Australians that Uncle Sam is not interested in talking about increasing Aussie access to U.S. sugar markets. The Canadians are pressed to demonstrate their willingness to dismantle some of their protectionist agriculture schemes as one price of entry into the TPP talks. Can anyone imagine the reaction in Washington, should the Canadians say that to prove their good faith, the Americans should first agree to make the U.S. farm program more market-oriented? But Washington doesn't mind telling Ottawa such things.

There's even talk that Obama has positioned himself to be the anti-smoking advocate, by proposing that cigarettes be excluded from tariff cuts in the TPP --- while the same Obama wants to promote the export of U.S. tobacco leaf, an obvious sop to voters in the politically important battleground states of North Carolina and Virginia. While it's difficult for outsiders to know how serious the president is on tobacco issues, the White House pressures on Vietnam and Malaysia are at least transparent, if embarrassing.

The Vietnamese (and Malaysians) are being bullied --- there's no better word for that --- into accepting a complicated and economically unwise scheme where they would agree to buy American yarn and fabric to make apparel --- if they have any hopes to get around high U.S. tariffs on imported clothing and footwear.

Meanwhile, Obama is demanding that Prime Minister Nguyen Tan Dung reform that Southeast Asian country's state-owned enterprises. The Vietnamese agree that their SOEs need long-overdue reforms to make them more transparent and market-oriented. Still, imagine the political heavy-lifting required to restructure nearly 40 percent of the Vietnamese economy. But while he asks a lot of Hanoi, the American president doesn't like being asked to cut tariffs on clothing that isn't made in America anyway.

Barack Obama was 13-years old when Hanoi won the Vietnam War in 1975. Does the president really understand how determined the Vietnamese can be, when their core interests are involved?Today, Prime Minister Dung has the welfare of more than two million Vietnamese clothing and footwear workers to consider. Many of these people are women who come from poorer parts of the country --- and their prime minister is supposed to sell them out to please the U.S. textile lobby? U.S. Trade Representative Ron Kirk was born in 1954, the year the Vietnamese Communists defeated the French in the battle Dien Bien Phu. Mr. Kirk has said that Vietnam is only a "small country" that will give in to U.S. pressure in the TPP. Perhaps he will be proven right. Still, does the U.S. trade negotiator appreciate that history suggests otherwise?

The U.S. insistence on ad-hoc mercantilism --- making demands upon other countries to summon the political will to open their markets, while stonewalling suggestions the Americans might do more of the same --- explains why the TPP process is nowhere nearly ready to be completed by the end of this year.
Yet the United States is proposing significant procedural conditions on Canada's and Mexico's TPP admission to ensure that the nations "do not slow down the pace of the negotiations."

Seriously, how much slower can they get?

Despite these concerns, Mexico has apparently agreed to the United States' conditions and will now join the ongoing negotiations.  Good for them, although I do wonder whether the pressure of hosting the G20 summit and the mounting expectation that Mexico would join the TPP were just too much for the Calderon government to resist.  On the other hand, the conservative Harper government - and its long history of butting heads with the, ahem, less-conservative Obama administration - has yet to cave to the United States' demands and has instead merely expressed "delight" in being offered a chance to join the talks.  So one of the United States' biggest trading partners and closest allies (and one of the world's better trade liberalization proponents) remains excluded from the only proactive US trade liberalization effort currently ongoing.

"Delightful," indeed.

Certain TPP-watchers, like Canada's Peter Clark, tell me that "it ain't over till it's over," and that Canada could still end up a TPP participant before the G20 adjourns.  Canadian news reports echo Clark's sentiments and suggest that a big Canadian announcement will arrive tomorrow (Tuesday) morning.  I'll believe it when I see it, but there's simply no question that free-market Canada's entry - in any capacity - would be a welcome boost to the flagging negotiations (if only Japan were as close).  But if Harper and Obama leave Cabo San Lucas without any formal TPP announcement, it would be extremely difficult to blame Canada for not wanting to bow to the United States' unreasonable demands.

[UPDATE: The Wall Street Journal tweets Tuesday morning that "Canada's Invitation Into TPP To Be Announced Later Tuesday - Source".  Good.   More to come, I'm sure.]

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