Experience says Canada will bow to TPP pressures
National trade policy has always been based on the needs of business
Canada will almost certainly join the truncated Trans-Pacific Partnership trade and investment agreement. It will do so in spite of Prime Minister Justin Trudeau’s coy insistence that he is in no hurry to sign the 11-nation pact.
It will do so in large part because that’s what Canadian business wants.
This is not a conspiracy theory. It is just the way things work.
Canada has always based its trade policy on the needs of business. John A. Macdonald’s 19th century National Policy of protective tariffs was instituted to meet businessmen’s demands for what they called a “living profit.”
In the 1970s, when Canadian businesses persuaded Ottawa that they were being overwhelmed by American corporate takeovers, Canada dabbled briefly with economic nationalism and foreign investment controls.
But by the 1980s, big business wanted something different. It told a royal commission studying the Canadian economy that it needed access to the big U.S. market.
The royal commission recommended that Canada take a “leap of faith” into free trade with the U.S. And it did.
Now business wants to crack the Asian market.
Last week, the Business Council of Canada, which is made up of the CEOs of 150 of the country’s largest firms, scolded the government for dragging its feet on the TPP.
Council head John Manley, a former Liberal cabinet minister, said Trudeau’s delay in agreeing to the TPP put at risk Canada’s participation in the scheme.
Manley, just back from a trip to Tokyo, said that there are already hints that the other 10 countries – Brunei, Malaysia, Vietnam, Japan, Mexico, Peru, Chile, Singapore, Australia and New Zealand – might go ahead without Canada.
The approval of only six participating countries is needed to set the pact – now formally known as the Comprehensive and Progressive Trans-Pacific Partnership - in motion.
The TPP began life as an attempt to forge a free-trade zone among small economies bordering the Pacific. Then the U.S. joined in and suddenly the deal became much more important.
Canada joined the talks to avoid being left out. And finally Japan joined, which made membership in the club a real prize. By 2015, the 12 had hammered out a deal.
But Donald Trump didn’t like the TPP. One of his first actions as U.S. president was to have his country drop out. That left Japan trying to hold the truncated deal together. The Japanese strategy was to try and keep the deal, as written, intact in order to avoid lengthy renegotiations.
Under this strategy, the participants might agree to “suspend” controversial elements that had been put in specifically to appease the U.S.
But they would not reopen negotiations on anything else.
In particular, Japan didn’t want to renegotiate measures dealing with auto manufacturing that would allow it to source up to 70 per cent of its parts from cheap-labour countries outside the TPP zone.
That was too much for Canada’s auto parts industry, which pushed for a lower figure.
All of this is background to Trudeau’s decision earlier this month in Vietnam to withhold Canada’s approval from a new TPP deal.
Ottawa says it is holding out for language that would allow it to better protect Canadian culture. It also wants unspecified changes related to autos.
Who will give on this? My guess is that ultimately Canada will.
The business lobby for joining this new trade deal is just too powerful for the government to ignore. The business council includes the heads of Ford Canada, General Motors Canada and the auto parts giant Magna.
As well, the spectre of the North American Free Trade
“But Donald Trump didn’t like the TPP. One of his first actions as U.S. president was to have his country drop out. That left Japan trying to hold the truncated deal together. The Japanese strategy was to try and keep the deal, as written, intact in order to avoid lengthy renegotiations. “
Agreement between Canada, the U.S and Mexico falling apart has added a sense of urgency.
This is not to say that the TPP is a good deal. Its labour standards are weak and hard to enforce. Some of the more egregious patent and intellectual property elements have been suspended. But they are due
to snap back into place if and when the U.S. changes its mind again and decides to rejoin.
But it is a deal that business wants. If history is any guide, Trudeau’s government will eventually comply.