Pacific trade deal may still get done
U.S. withdrawal could work in Canada’s favour
The biggest trade deal in history — the Trans-Pacific Partnership — was assumed to be dead when the United States pulled out last January.
But it has been quietly resurrected by the 11 other signatories, including Canada, and officials in a number of partner countries say an agreement-in-principle could be signed by leaders at the Asia-Pacific Economic Co-operation meeting in Vietnam in November.
Senior officials from the 11 countries met in Tokyo Wednesday, the third such round of talks, and officials from Canada, Japan and New Zealand all expressed optimism a deal could be signed in Vietnam, then sealed and delivered in 2018.
The timing couldn’t be better for Canada’s Liberal government, which has always been ambiguous about its enthusiasm for the TPP.
“We are working actively to re-evaluate and reconsider options for potentially moving forward, following the end of TPP12 talks,” said Joseph Pickerill, communications director for trade minister François-Philippe Champagne.
“We are looking at the implications of whether and how best to proceed to secure a long-term deal with Japan that sets the terms of trade for the Asia-Pacific region.”
That still sounds noncommittal, but behind the scenes the Liberal government is energized — not least because the country’s exports need a jump-start.
The headline economic growth numbers have been strong this year but they are unsustainable unless exports and business investment are maintained. Exports tumbled 4.9 per cent in July, following a near-identical drop in June. Year to date, exports are up 9.4 per cent but the last two months have put a significant dent in that number, including a large drop in agri-food shipments to Japan.
This is the big prize for Canada in the TPP11, as it is now being called — access to the world’s third-largest economy, in advance of American competitors.
Beef is just one example of a Canadian export that would benefit from swift passage of an Asian deal. Japan has just implemented a 50 per cent tariff on beef imports. Product arriving from Mexico and Australia pays much lower duties because those countries have trade deals with Japan.
If Canada ratified the TPP, Canadian producers would likely take market share from U.S. suppliers who would continue to pay the high tariff. Similar conditions would apply for pork, canola and softwood lumber.
If a deal can be reached, Donald Trump will have done Canada a favour by withdrawing — not only because it will offer Canada “first mover advantage” but also because it will give Champagne a stronger negotiating position in re-writing existing chapters.
Canada is now the second-largest economy in the TPP11 and will push to ditch provisions in the original agreement that were offered as concessions to the U.S.
For example, the Americans insisted on longer intellectual property patent terms and stronger copyright regulations than many countries wanted. Canada will now argue for shorter patent terms, in support of its generic drug sector and in an attempt to keep drug costs down.
Canada is also keen to water down the investor state dispute settlement negotiated by the U.S. in the original deal, and bolster the state’s right to regulate in the public interest.
The Liberals are particularly keen to brand any TPP11 deal as part of its “progressive trade” agenda — most likely by strengthening the environmental chapter.
There remains the prospect that by unpicking parts of the existing agreement, the whole thing might unravel. But for the Liberal government, there are good practical and political reasons to drive TPP11 to a swift conclusion.
Low interest rates were intended to encourage an upturn in exports and create conditions for more sustainable growth. Despite a better than expected start to the year, interest rates are now rising, the Canadian dollar is up and growth is forecast to return to more traditional levels.
For a government drifting toward an election, access to new markets in Asia would be like firing the burner in a hot-air balloon.
From a political point of view, this is a government that has fallen into disrepute with just about anyone who believes in free enterprise, thanks to its tax and regulatory reforms.
Against that background, signing a free-trade agreement with Japan, Australia, New Zealand, Chile, Peru, Malaysia, Singapore and others would go a long way to deflating the notion that Justin Trudeau wants to turn the country into one big government department.