By William Mauldin
High-level efforts to complete a major Pacific trade agreement
ended Friday without resolution amid deep differences over trade in
dairy and other products.
U.S. and other officials had hoped to wrap up the final contours
of the 12-nation Trans-Pacific Partnership this week. Officials in
a statement said they made "significant progress" and would work
further on a deal, without specifying a future meeting.
"The sad thing is, it's 98% concluded," Australia's trade
minister, Andrew Robb, said as ministers prepared to leave on
Friday.
U.S. and Canadian officials have quarreled in recent months
about ways to use the agreement to open up Canada's highly
protected dairy industry, but the public dispute this week spread
to three of the other developed economies negotiating the
agreement--Australia, Japan and New Zealand.
"We can see clearly that there are one or two really hard
issues, and one of them is dairy," New Zealand's trade minister,
Tim Groser, said at a news conference Friday.
The gap over dairy, as well as disagreements about trade in
automobiles, hindered the efforts of ministers to reach an accord
on other issues, such as labor rules and the level of
intellectual-property protection for pharmaceuticals, a priority
for Washington.
"All the focus on dairy misses the other major issues that are
outstanding," said Rep. Sander Levin of Michigan, the top Democrat
on the House committee that oversees trade. Mr. Levin, who attended
the Hawaii gathering, conceded that dairy is still "damn
important."
Some backers of free trade, led by business associations and
many farm groups, worry that the protective impulse the ministers
showed in Hawaii could limit the scope and impact of the agreement
or continue to weigh on negotiations. In an extreme case, an
impasse over dairy and other sensitive issues could drag the talks
out indefinitely or sap the political will to complete them.
But so far, the leaders of the two biggest economies in the
group, President Barack Obama and Japanese Prime Minister Shinzo
Abe, have expressed determination to seal the deal.
Top officials have made progress on other fronts. They finished
the part of the agreement that would raise environmental standards
in Vietnam, Malaysia and the other countries in the bloc, a key
priority for Democrats and the Obama administration, according to
two people familiar with the talks. The ministers also succeeded in
narrowing differences on other sensitive parts of the agreement
such as intellectual property, including rules for geographically
linked food names, said Michael Froman, the U.S. trade
representative.
Mr. Obama is seeking to clinch the Pacific trade pact as soon as
possible, despite the complications of the presidential election
season, to maximize the odds of getting the deal through Congress
in the remainder of his term.
Mr. Obama narrowly succeeded in winning congressional approval
in June for so-called fast-track legislation, meant to expedite the
closure and final vote on the deal, and many Democrats and
left-leaning groups oppose the TPP in current form.
"It's good news for people and the planet that no deal was done
at this final do-or-die meeting given the TPP's threats to jobs,
wages, safe food, affordable medicines and more," said Lori Wallach
of government watchdog group Public Citizen.
While those involved in the talks knew the dairy issue had
thorny political implications in the countries involved, few
expected the previously isolated issue to sour the broader TPP
agreement, which the Obama administration hopes will put pressure
on China to adopt U.S.-favored trading rules. Dairy accounts for a
small part of the total economic output of the countries
negotiating the TPP, but the industry's farmers have outsize
political influence in the developed countries wrangling over the
issue.
For Canada, tariffs that restrict imports are especially
important to the country's supply-management program, which
protects dairy farmers there. "We have a lot of anxiety," said Yves
Leduc, vice president of trade for the Dairy Farmers of Canada.
But New Zealand, a founding member of the TPP talks, doesn't
want to sign a trade agreement that doesn't include the ability to
ship more dairy products, its biggest export.
The U.S., which is emerging as a major exporter of dairy
products, wants to keep some of its own barriers at the border to
protect against an influx of milk products from New Zealand and
Australia that could hurt less-competitive dairy farmers in key
states, according to people following the talks.
"Some of these key countries have a public position, which
doesn't make much sense," said Andrew Hoggard, chairman of the
Federated Farmers of New Zealand, a farm-industry group. "We would
hope that the Americans will show strong leadership and stand with
New Zealand and Australia in looking for a comprehensive deal for
dairy."
Nearly everyone who was asked about the talks said the dairy
issue was clouding the gathering and limiting progress in other
sensitive areas. Still, some officials and business groups pointed
to progress on other issues and said the dairy gridlock could be
cleared in coming days or weeks.
Before the Hawaii talks began, several U.S. lawmakers urged Mr.
Froman to work on finishing the TPP without Canada if Ottawa wasn't
ready to open up some of its dairy market to U.S. producers. This
week, New Zealand officials angrily rejected what they interpreted
as Japan's suggestion that the country, after pushing for less
restricted dairy trade, could be excluded from the talks, an
official said.
Participants said moving ahead without Canada also doesn't make
much sense, since its economy is deeply entwined with the U.S.
through existing free-trade agreements and because trade
negotiators have been relying on Canada to accept milk exports from
others in the group.
"Canada has been and will continue to be a committed and
constructive partner at the negotiating table," said a spokesman
for Canada's trade minister.
Officials from other countries say Canada was slow to enter
serious discussions about opening up dairy. Agreeing to allow more
dairy imports could cost the conservative government key seats in
Ontario and Quebec.
Meanwhile, New Zealand officials are annoyed that the U.S. is
pressing them to sign on to rules that could boost long-term
protections for biologic drugs, potentially raising the price of
medicine in its health system, without helping it achieve
sought-after gains in dairy exports, according to people briefed on
the discussions.
Mr. Froman's team is working hard to finish a deal that would
attract broad support without alienating too many U.S. lawmakers,
already deeply divided over Mr. Obama's trade policy.
"This is going to be a nail-biter, and we're going to need every
single vote," said Tami Overby, senior vice president for Asia at
the U.S. Chamber of Commerce.
Write to William Mauldin at william.mauldin@wsj.com