By William Mauldin
KA'ANAPALI, Hawaii--High-level efforts here to complete a major
Pacific trade deal looked poised late Friday to end without
resolution amid deep differences over the trade in dairy products,
people involved in the talks said.
U.S. officials had hoped to wrap up the final contours of the
12-nation Trans-Pacific Partnership on Friday. Officials may now
have to extend the Hawaii talks or call for another round of
negotiations in coming weeks or months.
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 dispute has now spread to three
of the other developed economies negotiating the
agreement--Australia, Japan and New Zealand. The gap over dairy has
hindered the ability of trade ministers to reach an agreement on
other divisive issues, including 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, are worried the protective impulse the ministers
showed in Hawaii could limit the scope and impact of the agreement
or continue to sour negotiations. In an extreme case, an impasse
over dairy or 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. The ministers
have also succeeded in narrowing differences on other sensitive
parts of the agreement such as intellectual-property and investment
rules, according to two people familiar with the talks.
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.
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
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 outsized
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 U.S.
trade representative Michael 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. 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.
Canadian Prime Minister Stephen Harper, facing an challenging
election season this year, has said his country should be a part of
the TPP, and other Canadian industries and farm groups are looking
for gains in the trade agreement.
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 will
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