the Trans-Pacific Partnership

By Doug Palmer

WASHINGTON | Thu Nov 29, 2012 1:05am EST

(Reuters) - U.S.-led talks on a free-trade pact in the Asia-Pacific region are entering a potential make-or-break stage, putting pressure on President Barack Obama and other leaders to sacrifice sensitive domestic interests for a big deal to boost growth.

The 11 countries involved in the Trans-Pacific Partnership, or TPP, talks meet next week in Auckland, New Zealand, for the 15th round since negotiations were launched in March 2010.

With Obama now re-elected, U.S. negotiators have more freedom to deal with demands for the United States to open its sugar, dairy, clothing, footwear and other markets to more imports without worrying about hurting the president at the polls.



"I think the feeling (among TPP countries) was that the United States was negotiating in good faith ... but everyone knew that it wasn't getting done before the election," said Ernest Bower, director of Southeast Asia studies at the Center for Strategic and International Studies in Washington.

While the TPP talks are set to mark their third anniversary in March, there is no formal deadline for a deal.

But TPP leaders will be in Bali for the annual Asia Pacific Economic Cooperation summit in early October, creating a powerful incentive for negotiators to reach a deal by then.

"I think there's a deal in 2013 or it's dead, because I don't think the Asian countries will wait around longer than that," Bower said.

The Asia-Pacific region, which includes almost any country with a Pacific shore, contains many of the world's biggest and fastest-growing economies. The region's middle class is expected to swell to 1.75 billion people by 2020 from 525 million in 2009, according to one estimate.

With the center of global economic activity moving increasingly to the East, U.S. companies are worried about being shut out of preferential trading arrangements in the region at a time of increasingly fierce competition.

"The U.S.'s exports to Asia are growing, but its share of the market in virtually every country in the region is going down. It is missing out on opportunities," New Zealand's ambassador to the United States, Mike Moore, said recently.

This month, China, Japan, South Korea, India and 12 other countries - including six members of the TPP talks - formally launched negotiations on a separate Asia-Pacific free-trade agreement, known as the Regional Comprehensive Economic Partnership, or RCEP, that does not include the United States.

The TPP talks have a big jump on the RCEP negotiations. But after more than 2 1/2 years, it is time for the TPP negotiators to begin making the tough final trade-offs needed to reach a deal, said Tami Overby, vice president for Asia at the U.S. Chamber of Commerce.

"It's post-election and we're at the part where hard things need to be done. From all our conversations with U.S. negotiators, they're well aware (of that) and everybody has been working incredibly hard to ensure the December round is as productive as it can possibly be," Overby said.

BIG U.S. DEMANDS

While the United States is on the defensive on some issues, it also is making demands in areas like rules for state-owned enterprises, intellectual property rights protection and reform of trade-restricting government regulations that will require other countries to make tough choices, Overby said.

Washington is also pushing for enforceable provisions to protect workers' rights and the environment, a tough sell for developing countries that fear those measures could be used by other TPP members to block their exports.

The RCEP raises the possibility that other countries could drift away from the TPP talks if the United States does not make good market-opening offers in exchange for its challenging demands, Overby said.

For now, interest in the TPP remains strong, with Thailand announcing during Obama's visit this month that it would like to join the negotiations, which now include the United States, Australia, New Zealand, Peru, Chile, Singapore, Malaysia, Vietnam and Brunei.

Canada and Mexico recently joined the talks and will be participating in the negotiations for the first time in Auckland. Japan also continues to toy with joining. Prime Minister Yoshihiko Noda has vowed to move ahead if he wins an uphill battle for re-election on December 16.

The United States already has free-trade pacts with six of the 10 other TPP countries, so some of its biggest new export opportunities would come from Vietnam and Malaysia, which do not currently have trade deals with Washington.

But reaching a deal with Vietnam, a major clothing and footwear exporter, would require the United States to open some of its most heavily protected sectors to increased competition.

"It's among the two or three most important political-level issues that needs to be resolved in the negotiations," said Jay Eizenstat, a former U.S. trade official now in private law practice at McDermott, Will & Emory.

Given the potential gains for other U.S. manufacturers, farmers and services providers, it was in the United States' interest to offer meaningful concessions on footwear and clothing to secure a deal, he said.

(Reporting by Doug Palmer; Editing by Tim Ahmann and Peter Cooney)