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Transcript of On-The-Record Conference Call by Deputy National Security Advisor for International Economic Affairs Michael Froman and Acting United States Trade Representative Demetrios Marantis

Transcript of On-The-Record Conference Call by Deputy National Security Advisor for International Economic Affairs Michael Froman and Acting United States Trade Representative Demetrios Marantis on “Toward The Trans Pacific Partnership: U.S. Consultations With Japan”

Via Telephone
Washington, D.C.
April 12, 2013 

9:45 A.M. EDT 

MS. MEAD: Hello, everyone. Thanks for joining our call today. This is Andrea Mead from the Office of the United States Trade Representative. In a minute, you are going to hear from Assistant to the President and Deputy National Security Advisor for International Economic Affairs Michael Froman. You will then hear from our Acting United States Trade Representative Demetrios Marantis. We will then be happy to take your questions. This call is on the record.

And with that, I would like to turn it over to Mr. Froman.

MR. FROMAN: Thanks, Andrea. And thanks, everybody, for joining us. Today is an important day in the Trans-Pacific Partnership negotiations and for the United States' overall strategic priorities. As you all know, when President Obama took office he saw that the U.S. could be more engaged in the Asia Pacific and made a strategic decision to increase our strategic and economic presence in the region.

The TPP has been central to this rebalancing toward Asia and it’s, as you know, a high-standard agreement. It's an agreement that seeks to set high standards for 21st century issues as a way of raising the overall bar for the multilateral trading system. Since we've joined the TPP and given it this impetus, we've been pleased to welcome countries like Canada, Mexico, Malaysia and Vietnam as new entrants to the TPP negotiations.

And today's announcement that we have completed our bilateral work with Japan to be able to go to the next step towards Japan's entry into TPP is an important development for TPP overall. The TPP countries represent a $1.7 trillion trading relationship for us. It's 45 percent of U.S. exports. With Japan, it represents 40 percent of global GDP and one-third of all world trade. Having Japan in TPP and contributing to the high standards of TPP is good for the U.S., it's good for the Trans-Pacific Partnership as a whole, and it's very good for the multilateral trading system itself.

And with that, I'll turn it over to Ambassador Marantis, our Acting U.S. Trade Representative.

MR. MARANTIS: Thank you. Hi, everybody. And, again, thanks for joining today's call. As Mike said, we are very happy to be in a place today where we are announcing that we've successfully completed our bilateral consultations with Japan. As many of you know, we were hard at work with Japan for over a year, and have had extensive consultations and engagement with our Congress and U.S. stakeholders to determine the issues that we wanted to focus on with Japan and to get the feedback that we needed to help guide us in our consultations with Japan.

We're pleased today that we have been able to address four baskets of issues, which I will walk through with you now. The first key area of our bilateral work was in the automotive sector, where we agreed with Japan to a series of measures. One, on tariffs, we agreed that U.S. tariffs on automobiles and trucks would be phased out according to the longest staging period for any product in the TPP negotiations.

We also agreed in the automotive area to expand the use of Japan's PHP system, which is a preferential system for importing cars into Japan. It's essentially a streamlined procedure for importing cars into Japan. Currently, there is a cap of 2,000 vehicles per type of vehicle that are subject to the streamlined import procedure. As a result of our agreement with Japan, that 2,000 number will more than double to 5,000.

We also agreed in the automotive area to a set of parallel auto negotiations that will take place parallel to the TPP. And we will, in those parallel negotiations, address in a manner that is subject to dispute settlement a variety of areas that have been of deep concern to the United States and to U.S. automakers and to U.S. autoworkers for many years that have in large part inhibited our ability to compete on a level playing field in Japan’s market.

And the issues that we’ll address in the parallel negotiations are diverse and range from distribution to financial incentives to standards to transparency. And you can find more details on the specific terms of reference in a document that we have released publicly on USTR’s website today.

I want to stress importantly that these parallel auto negotiations, as I mentioned a bit earlier, are subject to binding dispute settlement procedures and will also include issues on our side relating to safeguards and snapbacks as well. And I can go into more detail on these issues during the Q&A session. So that’s the automotive basket of issues.

The second basket of issues where we reached agreement with Japan is in the area of insurance. As you know, we have had long-standing concerns in the insurance sector with respect to whether or not our companies and private sector companies can compete on a level playing field with Japan Post in Japan’s insurance market.

So what we’ve agreed to today with Japan is the Deputy Prime Minister of Japan, Deputy Prime Minister Asō, has announced that the government of Japan will essentially issue a standstill with respect to two types of insurance products: cancer products as well as stand-alone medical insurance products. And that standstill will stay in place until equivalent conditions of competition are in place in Japan’s market and until Japan’s business -- Japan Post business management system is properly functioning.

On the insurance side, we’ve also agreed with Japan to address the level playing field issues both in the context of the overall TPP negotiations, and also in a set of parallel negotiations that will flesh this out further. So that’s insurance.

The third basket of issues that we have agreed to today with Japan has to do with non-tariff measures. As you know, there have been longstanding concerns about non-tariff measures into Japan’s market. And in addition to what we’re doing on the automotive side, we have agreed that there are other non-tariff measures in Japan that are both cross-cutting and sector-specific that we will need to address. And we will do so in a series of parallel bilateral negotiations that will address NTMs on a broad range of subjects ranging from express delivery to government procurements to intellectual property and to certain sanitary and phytosanitary measures as well.

The last basket of issues has to do with Japan’s readiness to live up to the high standards that we’re negotiating in the TPP agreement. As you know, with Canada, with Mexico, with Malaysia, it’s very important for us to have assurances that Japan and any new TPP entrant is prepared to live up to what we’re trying to do in the TPP, and that is to conclude a comprehensive, high-standard 21st century agreement.

You may recall that when Prime Minister Abe was in Washington a few weeks ago, he and President Obama issued a joint statement in which Japan committed that should it join the TPP it will commit to the high-standards mission that we are seeking to achieve in the TPP, and will seek to conclude a comprehensive agreement with all goods on the table.

We have also, in our bilateral consultations with Japan, had more detailed discussions about the various issues under negotiation in the TPP, and have been assured that Japan will and is prepared to meet the high standards that we’re negotiating.

So based on our ability to address those four baskets of issues, we have become comfortable with joining a consensus of among the other TPP members to welcome Japan into the TPP. Now, you should know that in terms of next steps, the next steps are for all of the TPP countries to decide by consensus whether to bring Japan in.

Today’s announcement is only about the United States. As with Canada and Mexico and Malaysia and Vietnam, the decision to admit a new country has to be on the basis of a consensus of all 11 TPP countries. And I understand that there’s still more work to do with some of the other countries, but we are today announcing that we are done and that we are prepared to welcome Japan in to the TPP and join a consensus when it emerges among the 11 TPP countries.

So this is a really important day in terms of our bilateral trade and investment relationship with Japan. As Mike Froman mentioned at the beginning of our talk, having our fourth-largest goods trading partner and the third-largest economy join TPP will be very significant and will enhance the economic significance, and will help us realize the vision of TPP as being the most promising pathway to achieve a free trade area in the Asia Pacific.

So with that, let us turn it over to questions from you.

Q My question is on parallel non-tariff barrier negotiations. Now, these should be concluded by the conclusion of the TPP, presumably by the end of the year? And also, is it the intent to integrate what the U.S. and Japan has agreed to on this into the TPP, or would it be a TPP-plus?

MR. MARANTIS: Hey, it’s Demetrios. So the idea here is with respect to the non-tariff measures like insurance, like intellectual property, like standards, we’ve released a list -- a factsheet on non-tariff measures on our website in case you don't have that.

The idea is that we would conclude these in parallel to our market-access negotiations in the TPP. They're not part of the market-access negotiations, they are parallel to that. And we will -- the idea that we’ve agreed with Japan is that they will operate under the same timeframe that we are operating in the general TPP negotiations.

Q Hi, this is Brian Wingfield with Bloomberg News. I'm wondering if either of you can talk a little bit about the types of discussions that you've had with the U.S. automotive sector, what type of buy-in have you been getting from them. And they have been pretty vocal about their opposition to Japan joining unless the auto market is more open. What are you going to do to try to win their support?

MR. MARANTIS: I can't speak for the reaction of others, but I can tell you that throughout the process of our bilateral consultations with Japan, we have done so in very close consultation with all of our stakeholders. You may recall that when we started this process, we issued a federal register notice and received over 100 comments from stakeholders across the spectrum, including the auto sector and others. And those are the comments and the consultations that we've had subsequent to that that helped guide us to the agreement that we've been able to reach with Japan today.

MR. FROMAN: And let me -- maybe I would just add that we take the concerns of the U.S. auto industry extremely seriously. We think they are well founded. And we think the agreements that have been reached today is an important step forward towards addressing them, but we will need to ensure that we continue to make progress in the negotiations that Demetrios described to ultimately address the issues that the auto industry has raised. 

Q Hi, it's Howard from the Washington Post. Just two things, one kind of procedural just to accurately describe what's happened here. Is this kind of clearing away some of the bilateral underbrush so that it doesn’t clog up the larger negotiations? And then, secondly, on the auto sector -- this lift of this preferential approval thing from 2,000 to 5,000, does that translate directly into exports from the U.S. to Japan? And why is there a preferential system at all? Why not just ask them to lift that and treat everybody equally? 

MR. MARANTIS: Hey, Howard. It's Demetrios. 

Q Hi. 

MR. MARANTIS: So let me start with your question on the PHP system -- and we can provide you with more details on this should you need it. 

Basically, there are two ways of getting cars into Japan currently. There is a "type approval system" and there is a PHP, the preferential handling policy system, which is a more streamlined way of getting cars into Japan. Our auto companies have used the PHP system to their benefit, but it is capped at only 2,000 vehicles per type. 

And so what we've done today is we've agreed with Japan to increase that cap from 2,000 to 5,000. We’ve also agreed that, as part of the NTM negotiations, that we will work on making further improvements to the PHP system so that it works in as streamlined a way as possible. 

And, Howard, remind me what your first question was.

Q Just to -- it’s kind of procedural -- just to understand what’s happened here and whether this is kind of clearing away -- I mean, I’m terming it underbrush -- sort of bilaterally between the two countries so that if those types of issues don’t unnecessarily clog up the broader negotiation. 

MR. MARANTIS: Right. It’s more than that, Howard. From the beginning of when Japan expressed an interest in joining the TPP, as I mentioned to a previous -- in an answer to a previous question, we had done a call for comment on what are the issues that we would need to address in order to be comfortable with Japan joining the TPP. And that included a number of things. One was having assurances from Japan that they were prepared to meet the high standards that we’re negotiating, but we’ve been also -- we were also very clear with Japan from the get-go that in order to be comfortable and have confidence in Japan’s ability to meet the high standards of the TPP agreement, that there were longstanding issues of concern that we needed to address. And two that were really out there the most were the automotive and the insurance issues. 

Q Hi. Two issues that you mentioned in your non-tariff measures that I’d like to talk about, please. Investments: You talk about this would somehow increase opportunities for M&A into Japan. Would you be able to expand on that by strengthening the role of truly independent directors? And then also address the issue on competition policy; you talked about issues of, say, procedural fairness in the sort of pre-decision and appeals process. 

MR. MARANTIS: Sure. You mentioned some of the key NTMs that we will be negotiating with Japan as part of our parallel NTM negotiations. These are issues that came up -- competition, investment, and the others that are in our factsheet -- in the consultations that we’ve had over the course of the past 14 months. And we will be happy to provide you further details on the investment and competition policy issues following this call. We’ll get back. 

Q Okay, thank you very much. 

Q Yes, hi, it’s Adam Behsudi from Inside U.S. Trade. I just wanted to clarify that there will be -- I’m interpreting there will be two sets of parallel negotiations, one for NTMs in general and one for autos. And also, I just wanted to sort of better understand this -- whether or not the results of these parallel negotiations will be bound to the TPP agreement writ large. Will these be sort of merged back into the larger agreement, and then sort of extended on a NTM basis, if you will, to the other TPP members? And when you talk about enforcement, dispute settlement, is it going to be subject to retaliation on market access that Japan committed to in the broader TPP negotiations? How will that work, that enforcement element of this? 

MR. MARANTIS: Sure. It’s a good question. So yes, you’re correct. There are two separate sets of parallel, bilateral negotiations. One will be with respect to motor vehicle trade, and the second will be with respect to non-tariff measures. Let me talk about autos first. 

So you’ll see in the Terms of Reference document that we released on our website that the results of our parallel, bilateral auto talks will be subject to dispute settlement as well as an accelerated dispute settlement procedure that will allow for the re-imposition of MFN tariffs, which we call affectionately a “snap back”. And so the results will be binding and subject to dispute settlement. 

On non-tariff measures, which will be a separate, bilateral, parallel track, the results of these will also be binding. But because the issues are so different and because they cover so many different sectors, there will likely be different ways in which we memorialize our outcomes on these. Some may be done with changes to Japan’s laws. Others may be done through exchanges of letters, for example. And there may be other ways that we haven’t yet thought about on how we’ll memorialize the results in the various sectors that we’ve listed in our NTM factsheet. 

So there is a difference between the results in the automotive sector, which is one single sector, versus how we will memorialize the results on the NTMs, which cover a whole variety of sectors. But it’s important to note that, with respect to autos and NTMs, the timing for concluding those negotiations is linked to the TPP timing. So we will have to conclude all of these at the same time. 

Q In terms of dispute settlement, is it going to be sort of a separate dispute settlement process that’s separate from the TPP dispute settlement process in applying to just these parallel -- the results of these parallel negotiations? Or will they be subject to a broader dispute settlement within TPP? 

MR. MARANTIS: So, for autos -- so you’ll see this in the terms of reference -- the results of our auto negotiation will be part of, essentially, our market access schedule that we negotiate with Japan, meaning that it will be subject to TPP’s dispute settlement procedures. 

Q And the NTM talks -- those results will be subject to their own dispute settlement? 

MR. MARANTIS: No, no -- I’m sorry, say that again. On autos? 

Q On NTMs, on the other track -- the other set of negotiations. 

MR. MARANTIS: So, as I mentioned, the way we’re going to memorialize the NTMs are going to be different depending on the subject matter. So, as I said before, they could be subject to a change of law or a change of regulation in Japan, or an exchange of letters. That’s something that we’re going to have to determine as we address each of the separate NTMs on the list. 

Q David Shepardson, Detroit News. Hi, thanks for having the call. On the auto issue, what do you make of the argument that the auto companies have said that prior free trade agreements in the ‘80s and ‘90s did not open the Japanese market to U.S. (inaudible)? And that because it’s the most closed market, that Japan should have done more before letting them into the talks? 

MR. MARANTIS: We have an amazing opportunity in the context of TPP to address in a manner that is subject to dispute settlement issues that have been longstanding and that have been of deep concern to the U.S. government and to the auto industry and to autoworkers for many years. 

And we have through the terms of reference that Japan has agreed to, we have listed many of the key non-tariff measures that have inhibited access to Japan’s market for many years. And for the first time ever we have the opportunity to negotiate a resolution of these issues in a way that is subject to a binding and enforceable dispute settlement. 

Q This is Sam Gilston with Washington Tariff and Trade Letter. On the list of areas that you’ve put in your factsheet, the one that seems to be missing is agriculture. Why isn’t there an agreement on how to deal with agriculture, particularly since Mr. Abe said that he was going to defend the rights of the Japanese farmers and not markets? The second question -- unfortunately, I’ve been covering U.S.-Japan negotiations too long perhaps, having gone through maybe 10 or 20 bilateral negotiations and initiatives that was supposed to open the Japanese market. Why do you think this is going to be different? And if you can't reach a bilateral agreement on these parallel issues, is that going to hold up the TPP? I mean, how do you reconcile at the end of the day, since history has shown that it’s tough to negotiate with the Japanese, what happens when you can't reach -- the two parallel lines don't meet at the end of the TPP and Japanese negotiations? 

MR. MARANTIS: So on your first question on agriculture, recall that when Prime Minister Abe was here in February, he and President Obama issued a joint statement that made it very clear that should Japan join, all goods would be subject to negotiation and Japan would join the other TPP countries in negotiating a comprehensive, high-standard, 21st century agreement. Japan made that very clear when it was here back in February. 

Let me also just point you to the NTM factsheet, which also has certain SPS NTMs that we will address with Japan during our NTM negotiations. And these relate to food additives and issues related to gelatin and collagen for human consumption. So there is a mention of Ag issues in the SPS context in the NTM list. 

But, more broadly, Sam, you raised a really good question with respect to timing. And we are going to have the TPP negotiations and then, in parallel, a set of auto negotiations and a set of NTM negotiations. And these will all proceed with respect to the same timing, meaning that we will not close with Japan on TPP unless we are able to close on all of these issues -- the auto issues, the NTM issues and TPP. And that's an understanding that has been made very clear to our counterparts in Japan. 

Q So that means the whole TPP is blocked if you can't reach an agreement with Japan? 

MR. MARANTIS: That means that we have a lot of work to do with Japan in the areas of autos, NTMs and on our market access negotiations generally with TPP. And we will close all of those at the same time. 

MS. MEAD: So we have time for one more question, so we'll take the last question. 

Q Hi. It’s Doug Palmer with Reuters. Thanks for doing this. I guess I just wondered -- so when would you expect to formally notify Congress of your intent to begin negotiations? Do you think that you'll be able to do that in time for Japan to participate in the July round? And then I guess my last question -- and I think you've already answered it -- so these parallel sets of negotiation, you're not anticipating that that would lead to a separate agreement that would have to be approved by Congress -- I mean, separate from the TPP agreement? 

MR. MARANTIS: So, Doug, on your first question, it's premature to really speculate about timing. We are done with Japan, but there are other TPP countries that have to finish their own bilateral consultations with Japan. And then we will have to reach a consensus among all 11 TPP members to invite Japan to be part of TPP. So we've completed our steps, but there are other steps that need to be completed as well. 

On your second question, the auto agreements -- or the auto negotiations, as you'll see in the terms of reference, will be part of our market access schedule with Japan. And so they will be -- that will be integrated into the TPP market access schedule. On non-tariff measures, we will be addressing each one of the various NTMs that are included on the list, and we'll determine outcomes depending on the particular NTM that we're seeking to address. 

MS. MEAD: And that’s all we have time for today. Thank you so much for joining our call today. If there are any other questions, feel free to contact USTR's press office directly. 

END 10:17 A.M. EDT