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Obama’s Asia Free Trade Agreement Gains Momentum as Japan, Canada Sign On

President Barack Obama’s push to expand an Asia-Pacific trade accord gained momentum at a summit in Honolulu with agreements from Japan and Canada to join what would be the largest American trade deal.

Obama said nine Asia-Pacific nations aim to reach a Trans- Pacific Partnership accord within a year in what would be the biggest U.S. pact since the 1994 North American Free Trade Agreement. Japanese leader Yoshihiko Noda and Canadian premier Stephen Harper told the Asia Pacific Economic Cooperation summit they will join the talks, which may help the U.S. regain influence lost to China in a region that’s leading global growth.

Expanding the accord to add the world’s third and 10th- biggest economies may face political hurdles as leaders fight protectionism at home. Noda faces domestic opposition to the prospect of reducing a 778 percent tariff on rice, and delayed his announcement a day to placate members of his own party.

“Countries that want free trade are looking for a way forward, especially with Asia where the growth is,” said Tai Hui, head of Southeast Asian economic research at Standard Chartered Plc in Singapore. “This is a positive gesture against protectionism. The sticky issues will be agriculture and labor- intensive industries.”

The sensitivity of the issue was highlighted by a rift over what Noda told Obama in a Nov. 12 meeting. Japan denied a White House account that Noda told the president he is willing to negotiate all his country’s goods and services at the TPP.

‘Very Difficult’

“This is really about Japan and the U.S. and what the future shape of Asia-Pacific trade will look like,” said Jun Okumura, a former Japanese trade ministry official and a consultant at the Eurasia Group in Tokyo. “It’s going to be a very difficult negotiation.”

Speaking at APEC on Nov. 12, Malaysian Prime Minister Najib Razak said the nine countries are setting July as a target for an agreement, while a U.S. official said there is “no firm deadline.” Negotiators will meet in early December and schedule more discussions then, the leaders said in a statement.

“The Asia Pacific region is absolutely critical to America’s economic growth, we consider it a top priority,” Obama said yesterday at the summit. He told business leaders the day before that TPP countries are “trying to create a high-level trade agreement that could potentially be a model not just for countries in the Pacific region but for the world generally.”

Asia’s growth has boosted earnings for its companies and led to stock market gains that have beaten U.S. equities. The MSCI Asia Pacific Index of stocks has outperformed the Dow Jones Industrial Average seven of the past nine years through 2010.

‘Easily Meet’

Harper yesterday said his country is interested in joining the talks and “can easily meet” the criteria to do so. U.S. Trade Representative Ron Kirk said Mexico also wants to participate.

Noda faces opposition within his Democratic Party of Japan that a free trade agreement would damage the country’s agriculture industry, which accounts for about one percent of the economy. Failure to join may hinder Japanese companies such as Mitsubishi Corp. (8058) and Toyota Motor Corp. (7203) in competing abroad.

After the White House released an account of the bilateral summit saying Obama welcomed Noda’s statement “that he would put all goods, as well as services, on the negotiating table,” Japan’s Ministry of Foreign Affairs put out a statement saying “Prime Minister Noda never said this” during the meeting.

Market Access

The current talks involve Australia, Chile, Peru and Singapore, all of which already have separate free-trade agreements with the U.S., as well as Malaysia, New Zealand, Vietnam and Brunei. In addition to tackling traditional trade issues such as tariffs and market access, negotiators at the talks are seeking restrictions on government-owned companies and stricter protections for patents and copyrights.

Some nations are seeking their own free-trade agreements as the World Trade Organization’s Doha round of global talks remains unfinished after a decade.

“A one-year timeline is a bit tight but given the impetus of a weak global economy, it can be done if there is political will,” said Irvin Seah, an economist at DBS Group Holdings Ltd in Singapore. “The Doha round has been impeded by layers and layers of bureaucracy and political issues. The TPP will be a boost for trade.”

Two-way trade between the U.S. and the eight nations in the TPP totaled $171 billion last year, compared with $457 billion with China, $181 billion with Japan and $88 billion with South Korea, according to the U.S. Commerce Department. Taken together, the eight member economies would be America’s fifth largest trading partner, Obama said.

Some Impetus

“An APEC agreement on broad outlines may not signify much,” Razeen Sally, director of the Brussels-based European Center for International Political Economy, said by telephone. “It might provide some kind of impetus to the negotiations, but there’s still a long way to go given how disparate the membership is.”

Thomas Donohue, president and chief executive officer of the U.S. Chamber of Commerce, the nation’s largest business lobbying group, said in an e-mailed statement that while the announcement is welcome, “the Chamber urges further substantial progress as quickly as possible.”

In Malaysia, reluctance to change policies that give preferential treatment for some state contracts to ethnic Malays and indigenous people were among issues that led to a previous breakdown in negotiations with the U.S. on a free trade pact.

‘Flexible’

“There is a need to be flexible in our approach and to be realistic in terms of what can be achieved and accepted, or the buy-in by our local constituencies,” Najib said on Nov. 12, referring to the TPP nations. “The question of sensitivity varies from country to country.”

The U.S.-South Korea free trade pact, initially agreed on by presidents George W. Bush and Roh Moo Hyun more than four years ago, was delayed as their successors Obama and Lee Myung Bak sought wide domestic support for the deal. While Obama signed the agreement into law on Oct. 21 after Congress passed it earlier that month, South Korea’s main opposition Democratic Party has stalled a vote on the bill since June.

China, the world’s second largest economy, has not received an invitation to join discussions on the TPP and would “seriously study” such a request, Assistant Commerce Minister Yu Jianhua said Nov. 11. Kirk said no nation needed an invitation as it is not a “closed clubhouse.”

To contact the reporter on this story: Shamim Adam in Honolulu at sadam2@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net

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