HAWAII - Negotiators failed to strike an agreement in the latest round of talks over the Trans-Pacific Partnership free trade pact because New Zealand adopted an unexpected hard-line stance in pressing its demand for more dairy exports at the last minute, observers say.
New Zealand's uncompromising attitude apparently dashed hopes by Japan, the United States and other TPP countries for an end to the multilateral negotiations. They were convinced that New Zealand could somehow be persuaded to give in as TPP ministerial negotiators nearly reached an accord.
On the third day of the latest meeting on Thursday evening, Friday afternoon Japan time, a Japanese negotiator in Hawaii telephoned the Prime Minister's Office to say that there are "no longer any hopes that a broad agreement can be reached." The news sent shock waves throughout the Prime Minister's Office, given that the TPP negotiators were at a critical stage in their efforts to reach a broad agreement.
Japanese negotiators had envisaged a scenario in which the ministers would first pave the way to an agreement at their general meeting over intellectual property, the biggest area of disagreement. The 12 ministers would then confirm the expected broad agreement at their general meeting on Friday morning, the last day of the latest round of talks, after repeating bilateral talks all night on tariffs and general meetings.
The most serious sticking point over intellectual property was the data protection period of biologic medicine, which allows pharmaceutical makers of such products exclusive rights to sell them.
The United States insisted the period should be 12 years, while Australia, New Zealand and emerging countries insisted the period would be up to five years - but the two sides gradually moved closer to a compromise.
Yet when ministers met on Thursday at 5 p.m., talks only lasted for about an hour and proceedings were not resumed later on after New Zealand had strongly insisted to the other participants, mainly Japan and the United States, that the countries should increase imports of dairy products from New Zealand.
A pessimistic mood quickly spread among the other negotiators, many of whom were aware that New Zealand had openly insisted it would not compromise over the medicine issue if its demand was not met for increased dairy product imports by other participating countries.
New Zealand reportedly proposed demands that were hard to swallow, suggesting the country had no intentions to reach an agreement in the latest talks.
"The mood quickly waned among the participating countries to search for a point of compromise over the medicine issue," a source involved in the talks said.
New Zealand's uncompromising demand stems from the fact that dairy products account for about 30 per cent of the country's total export value as a key sector supporting its economy.
Japan's export business is symbolized by the automobile industry, which accounts for about 15 per cent of the nation's export value. New Zealand's reliance on diary products is not only higher compared to Japan, but also in general terms.
China is the largest importer of New Zealand's dairy products. A source in the New Zealand government said that the country "wants to increase exports to countries with large markets, such as the United States, Japan and Canada."
With a population of roughly 4.2 million, New Zealand has achieved economic growth by promoting free trade and expanding its exports. The country has also insisted in TPP talks of the necessity to thoroughly abolish trade tariffs, prompting Japanese negotiators to see New Zealand as "a fundamentalist nation."
Japan and the United States also misjudged New Zealand's pride as a founding-member country of TPP talks, an initiative born from the "P4" Trans-Pacific Strategic Economic Partnership Agreement signed by New Zealand, Singapore, Chile and Brunei in 2006.
At a joint press conference after the meeting, New Zealand Trade Minister Tim Groser was asked whether the country intended to walk away from the TPP talks. He replied that New Zealand had initiated the TPP talks, so he was "not emotionally in the space of wanting to leave the party," and that "We will not be pushed out of this agreement."
A source in the US government said New Zealand would come around when the entire process as a whole moves closer to compromise but added the expectations of Japan, the United States and other participating countries were unceremoniously betrayed.