Currency manipulation at issue in Pacific free-trade talks
WASHINGTON — The Obama administration is racing to finish negotiations on a Pacific free-trade pact by year’s end, but it’s running up against a potentially major obstacle at home.
A bipartisan majority in the Senate this week sent a letter pressing the administration to address “foreign currency manipulation” in its talks with Japan and 10 other participating nations in the so-called Trans-Pacific Partnership.
The Senate letter didn’t mention any country. But there has been an outcry in congressional and business circles, particularly the auto industry, over Japan’s much-weakened currency. The yen has fallen more than 25% against the dollar since last October when Japanese officials began focusing on a devaluation to stimulate economic growth. A weaker currency can boost that country’s exports by making its goods cheaper in foreign markets.
“Currency manipulation can negate or greatly reduce the benefits of a free-trade agreement and may have a devastating impact on American companies and workers,” said the letter, signed by 60 senators, led by Lindsey Graham (R-S.C.) and Debbie Stabenow (D-Mich.).
U.S. Trade Representative Michael Froman told reporters Thursday that negotiators have yet to take up currency issues, and it wasn’t clear that he would be prepared to bring it up formally when trade ministers meet in Indonesia next month.
“We’re having conversations with [domestic] stakeholders, with Congress and outside to determine how best to proceed,” Froman said, adding that the administration was sticking to its goal of concluding negotiations this year.
Japan, as well as Malaysia and Singapore, is likely to balk at including a currency provision in the agreement, said Clyde Prestowitz, an Asia economy specialist and former trade negotiator in the Reagan administration. Other participating nations include Vietnam, Australia, Canada and Mexico.
“I think he’s between a rock and a hard place,” Prestowitz said of Froman. With so many in Congress concerned about the currency — House members sent a similar letter in June — “his hand has really been forced,” he said.
Obama has made trade a priority in his effort to grow a slowly recovering American economy, and the administration is pursuing a separate free-trade deal with the European Union.
The Asia-Pacific effort is part of the president’s strategy to strengthen America’s influence in that region, which is revolving much more around China. The aim is to forge a comprehensive agreement that not only removes tariffs but also addresses intellectual property, state subsidies and other indirect barriers to more-open and fair trade.
For years U.S. concerns about foreign currency values have focused on China, but more recently the attention has shifted to Japanese Prime Minister Shinzo Abe. Elected late last year, Abe has made a big push to spur economic growth and free the nation from the grip of deflation.
Abe and his officials have fought off criticisms that they’ve deliberately tried to weaken the yen. They contend that Japan’s currency is freely traded in international markets and that its fall was a byproduct of central bank policies aimed at strengthening the economy — in much the same way that the Federal Reserve’s flooding of cash into the American financial system earlier on had driven down the value of the dollar.
“We are not controlling the exchange rate,” Abe’s chief economic minister, Akira Amari, said in an interview with The Times this summer. “I don’t think in [Trans-Pacific Partnership] negotiations that exchange rates are going to be a major topic.”
But analysts say it’s unlikely that the Obama administration can avoid the issue, given the broad support for action in Congress and among some major American businesses. Top U.S. automakers have long complained about the lack of access to Japan’s market, and the depreciation of the yen has only intensified their feelings that Japan is engaged in unfair play.
“A lot of things have been addressed, but the biggest issue on the table is currency manipulation,” said Matt Blunt, former Missouri governor and president of the American Automotive Policy Council, which represents domestic auto manufacturers’ interests.
At this point, few would say that the currency matter stands as a potential deal breaker, but it could easily help push the trade talks into next year.
Even though a majority in the Senate agrees there’s a need for a provision on currency, there’s little consensus on what that measure should be, said Jeffrey Schott, a senior fellow at the Peterson Institute for International Economics.
Froman and other trade negotiators already had their work cut out for them to meet the year-end target. Japan, which entered the talks only this summer, has just started talks with other countries on market access, and there’s been a cloud of uncertainty over President Obama’s lack of so-called fast-track authority to send a trade deal that Congress can vote for or against but not amend or filibuster.
“Adding an entirely new issue so close to the end of the negotiations will obviously result in demands for other changes and for the United States to make other concessions,” Schott said. “And that will, if anything, lengthen the international process.”
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