As Obama Visits TPP Countries, New Obama Administration Report Targets Their Public Interest Policies as “Trade Barriers” to be Eliminated
As President Obama leaves on his Asia tour today to try to paper over the deep divisions that have bewitched the Trans-Pacific Partnership (TPP) negotiations, he will likely refrain from reiterating the criticisms his administration recently levied against the sensitive domestic policies of the TPP governments he will be visiting.
The 2014 National Trade Estimate Report, published earlier this month by the Office of the U.S. Trade Representative (USTR), targets financial, privacy, health, and other public interest policies of each TPP nation as "trade barriers" that the U.S. government seeks to eliminate. The report offers unusual insight into why negotiations over the sweeping, 12-nation deal are contentious and have repeatedly missed deadlines for completion.
The policies of other TPP nations criticized by the 384-page USTR report include New Zealand’s popular health programs to control medicine costs, an Australian law to prevent the offshoring of consumers’ private health data, Japan’s pricing system that reduces the cost of medical devices, Vietnam’s post-crisis regulations requiring banks to hold adequate capital, Peru’s policies favoring generic versions of expensive biologic medicines, Canada’s patent standards requiring that a medicine’s utility should be demonstrated to obtain monopoly patent rights, and Mexico’s “sugary beverage tax” and “junk food tax.”
The Obama administration also targets seven of the 11 TPP partners, including majority-Muslim countries like Malaysia and Brunei, for restricting the importation or sale of alcohol, takes issue with several TPP countries’ restrictions on the importation of tobacco, and laments Vietnam’s restriction on the importation of “a variety of hazardous waste items.”
The Obama administration report calls for some TPP nations to adopt copyright enforcement measures akin to those proposed under the Stop Online Piracy Act (SOPA), which was defeated in the U.S. Congress. For example, the report notes that the Obama administration “has also urged Chile … to amend its Internet service provider liability regime to permit effective action against any act of infringement of copyright and related rights.” The report also criticizes data privacy policies, describing Canadian privacy rules as too “restrictive” and Japan’s Privacy Act as “unnecessarily burdensome.”
The report attacks six TPP nations’ rules requiring foreign takeovers of major domestic firms, including banks, to be vetted by the government. Also listed as “investment barriers” are Malaysia and New Zealand’s requirements that foreign investors obtain permission before acquiring land, and Peru and Mexico’s prohibitions on foreign acquisition of land along their national borders.
The report also critiques government procurement rules in several TPP nations that are similar to the U.S. Buy American policy in giving preference to domestic producers. This includes Malaysia’s bumiputera policies, preferences for domestically produced medicines in Vietnam’s hospitals and Japan’s preferences for local companies when contracting major taxpayer-funded construction projects.
The USTR report further accuses some TPP governments of broad corruption or even incompetence. For example, the report states that two of Peru’s three federal branches of government lack the “impartiality” or “expertise” required to fulfill their responsibilities.
Here are some of the domestic policies in Malaysia and Japan -- the two TPP nations that Obama will soon be visiting -- that the report singles out for criticism:
- The report takes issue with Malaysia’s “extremely high effective tariff rates” on alcohol and its strict licensing policy for the importation of pork – strange “barriers” to highlight in a country where three out of every five people are Muslim. Malaysia’s halal standards for meat have also been targeted as a “barrier” in a companion USTR report on Technical Barriers to Trade (published in 2013, the most recent edition available). USTR is concerned that Malaysia requires “slaughter plants to maintain dedicated halal production facilities and ensure segregated storage and transportation facilities for halal and non-halal products.” Instead, the report suggests that the government should conform its notions of Islamic meat-processing requirements to those established by Codex Alimentarius, an international food standards body at which multinational food corporations play a central role.
- The report notes that while the Malaysian economy is generally open to foreign investment, the government requires that department stores and other businesses “must reserve at least 30 percent of shelf space in their premises for goods and products manufactured by bumiputera-owned small and medium size industries.” While the policy aims to provide greater economic opportunity to historically marginalized ethnic Malays, to USTR the policy is a “services barrier.”
- The report lists as “services barriers” the limits that Malaysia’s central bank imposes on the transaction fees and credit card interest rates that financial firms can charge Malaysian consumers.
- Malaysia’s central bank determines whether foreign banks can do business in the country on the basis of “prudential criteria” and whether the business would be in the “best interests of Malaysia.” USTR calls the latter standard “vague” and “nontransparent” just before specifying the concrete criteria that it entails: “the contribution of the investment to promoting new high value-added economic activities, addressing demand for financial services where there are gaps, enhancing trade and investment linkages, and providing high-skilled employment opportunities.”
- USTR critiques Malaysian policies that impact the importation of motor vehicles, including the usage of “traffic restrictions and noise standards that affect the usage of large motorcycles.”
- The report critiques Japan’s laws protecting the privacy of citizens’ personal data, calling them “unnecessarily burdensome.” The U.S. government, according to the report, “has urged the Japanese government to reexamine the provisions and application of the Privacy Act, so as to foster appropriate sharing of data…”
- The report expresses disapproval of Japan’s food labeling policy, which “mandates that all ingredients and food additives be listed by name along with content percentages, and include a description of the manufacturing process.” In a time when consumers are demanding ever more information about the products they consume, USTR complains that Japan’s progressive labeling policy is “burdensome” and “risks the release of proprietary information to competitors.”
- USTR critiques Japan’s regulation of nutritional supplements, citing several “barriers” that inhibit U.S. corporations’ sales of vitamins and supplements in Japan. Specifically, the report criticizes “the difficulties associated with using unregistered food additives” in nutritional supplements to be sold to Japanese consumers.
- The report states that U.S. pharmaceutical corporations have “concerns” with “a mechanism to cut prices of medical devices in Japan.” In establishing the price of a given medical device, Japan incorporates the average price of several developed countries, including the United States, to ensure that domestic prices do not grossly exceed those of comparator countries. A number of other countries, such as Canada and Switzerland, use similar calculations to set pharmaceutical prices and control healthcare costs. But USTR takes issue with Japan’s policy, relaying the concern of the U.S. pharmaceutical industry that the cost containment mechanism could inhibit U.S. firms’ sales in Japan.
- USTR calls on “the Japanese government to ensure that all necessary measures are taken to achieve a level playing field between the Japan Post companies and private sector participants in Japan’s banking, insurance, and express delivery markets.” The report states that the U.S. government “welcomed” the decision of Japan’s government last year to impose a moratorium on new cancer insurance coverage from Japan Post. The U.S. government had demanded the moratorium as a condition for endorsing Japan’s entry into the TPP, citing concerns that new cancer insurance coverage from Japan Post would create unfair competition for private, U.S.-based insurance providers. Three months after Japan heeded the U.S. moratorium request, and in the same week that Japan joined the TPP, U.S.-based Aflac Incorporated announced that it had signed a deal with Japan Post that confirmed Aflac as the exclusive provider of cancer insurance in Japan’s state-owned postal offices. USTR’s report cautions Japan that before deciding to end the moratorium and allow Japan Post to offer cancer insurance or other new insurance products, the government should engage in “active solicitation and consideration of private sector views.” The report does not mention a need to solicit views on how continuing to constrain Japan Post’s insurance offerings could affect access to health insurance for Japan’s cancer patients.
- The U.S. government report demands a standard of transparency in Japan’s postal reforms that the U.S. government itself has not been willing to follow in the TPP negotiations. The report calls for “timely and accurate disclosure” of key texts related to Japan’s postal reform, and “public release of meeting agendas, meeting minutes, and other relevant documents.” In contrast, leaks have revealed that the United States and other TPP countries have agreed to keep TPP texts classified until four years after the agreement enters into force or talks collapse.
- According to the report, the U.S. government is “urging the Japanese government to work with foreign universities to find a nationwide solution that grants tax benefits comparable to those provided to Japanese schools.” Why should the government provide foreign universities the same tax breaks and taxpayer-funded subsidies that it offers to Japan’s own schools? According to USTR, meeting this request is necessary for the foreign schools “to continue to provide their unique contributions to Japan’s educational environment.”
- The report states that “the U.S. Government has raised strong concerns” about Japan’s Wood Use Point Program for “promoting the use of domestic Japanese wood products over imported wood products,” while noting that the purpose of the program is “to promote the use of local wood.”
- USTR accuses Japan’s government of using policy advisory groups that are too often “opaque,” noting that “nonmembers are too often not uniformly offered meaningful opportunities to provide input into these groups’ deliberations.” The critique mirrors, nearly word for word, criticisms levied against USTR itself for administering a non-transparent and exclusive official trade advisory system comprised almost entirely of corporate representatives. USTR continues by urging Japan “to ensure that ample and meaningful opportunities are provided for all interested parties, as appropriate, to participate in, and directly provide input to, these councils and groups.” U.S. stakeholder groups have continually made the same recommendation to USTR to open the closed-door trade advisory system, though “meaningful” changes have yet to be seen.