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Why Pacific Rim free trade talks fell short of a deal

August 5, 2015, 3:59 PM UTC

Negotiators from 12 Pacific nations recently finished a week of talks in Maui without striking a final agreement on a regional trade deal involving nearly 40% of the world’s economy. While national leaders were undoubtedly disappointed about the Trans-Pacific Partnership, negotiators had already accomplished a lot over the past six years and even more during the last few days — further opening markets for a wide range of goods and services, including financial services, as well as creating new rules to make it difficult for governments to impose new restrictions on foreign trade and investment.

So why did leaders fail to agree on a deal? A thorny issue rested with Canada and Japan over how much in the way of imports of dairy products these countries would allow in from the U.S., Australia and New Zealand. For Australia, a key question was how much of its sugar the United States would be willing to take in. Autos also played a key role in blocking agreement.

Some of the problems stemmed from past “free trade” agreements. Countries, which have been accorded a privileged position in prior agreements, have a strong incentive not to share additional access to a market with others. This is what happened with Mexico with respect to its auto and sugar interests. Mexico, a beneficiary of NAFTA, worried about the U.S. proposing to give Japan freer access to the U.S. auto market and giving Australia a greater share of the U.S. market for its sugar.

Also at issue was the length of time the parties would give to inventors of a biological drug to have exclusive use of their test data (on this, more below).

Protestors picketing outside the hotel at Ka’anapali, Maui, where officials gathered, had their own concerns. They feared that medicines would be less available. Their complaint is about TPP seeking to establish the number of years an inventor of biological medicines (living organism-based pharmaceuticals) can have exclusive use of the data that it creates in order to get regulatory approval of a new drug. During this period of exclusivity, generic drug companies cannot use the inventing company’s data to qualify their version of the drug. The public policy question posed is what level of intellectual property protection is necessary to promote innovation, balanced against availability of ostensibly cheaper generic copies. The TPP negotiators will agree on an appropriate period, but were unable to do so in Maui.

“TPP = Polluters’ Bill of Rights” was what the placards that protestors were holding read, alluding to TPP giving a foreign investor a right to arbitration of a claim that its investment had been expropriated without payment of compensation. The fear is that this private right to arbitration would impair a country’s ability to enforce environmental regulations. It is not clear that this should be a real concern at all. In America, our legal system clearly guarantees due process. The U.S. is not at risk from investor state dispute settlement. The outcome is less sure abroad.

The next few weeks will be taken up with re-thinking final positions in capitals and having intensive bilateral contacts among the parties. There may not be much time for reflection about trying to conclude an agreement soon. There are risks in delay. Canada Prime Minster Stephen Harper faces an election on October 19; the U.S. presidential election season is already under way with primaries early next year and one candidate, Hillary Clinton, has already distanced herself from this endeavor. Bernie Sanders states more simply that he has been against all recent trade agreements and would be against this one. Next year, the Congressional presidential elections will take place here, as well as the election of the Japanese Diet’s Upper House in the summer.

Whether accurate or not, it passes for political wisdom that embarking on trade deals in an election season can be injurious to a candidate’s prospects, not to mention posing dangers for the deal itself. This is especially so because this trade agreement is poorly understood by the public and portrayed (erroneously) as being harmful.

It is cheering that the key TPP participants have articulated a vision that requires negotiators to stretch to reach a more ambitious result. None have given up. None should. Thought is being given for the ministers to reconvene in late August and finish up then. The negotiators are within sight of an extraordinary accomplishment. This agreement is worth the effort.

Alan Wolff practices international trade law with the global firm, Dentons, and is chairman of the National Foreign Trade Council (NFTC). He was a U.S. trade negotiator during the Ford and Carter administrations.