Is the TPP a big deal for Canada?
Last week, Canada’s international trade minister signed the Trans-Pacific Partnership (TPP) agreement. While the agreement must be ratified by Parliament, the signing is a significant step towards Canada joining a new multi-regional free trade area that currently accounts for some 40 per cent of world trade.
The TPP agreement encompassing 12 Pacific Rim countries is thousands of pages long with some 30 chapters plus annexes. Consequently, the full impacts of the agreement are difficult to forecast, and the Canadian government is still studying the potential economic effects.
Since the TPP does not displace the North American Free Trade Agreement (NAFTA) or any other trade agreement that Canada has signed or implemented, including its free trade agreement with the European Union, the overall economic impacts of the TPP on Canada are likely to be modest, at least over the foreseeable future.
For example, Canada’s main NAFTA partner, the United States, accounted for almost 77 per cent of Canada’s exports in 2015. If Canada’s two major EU trading partners, the United Kingdom and Germany, as well as Canada’s other NAFTA partner, Mexico, are included with the U.S., almost 81 per cent of Canada’s exports in 2015 were sent to countries with which Canada has already implemented or signed free trade agreements. The U.S. and the three other countries also accounted for the bulk (around 74 per cent) of Canada’s imports in 2015.
Notwithstanding Canada’s concentrated trade with existing free trade partners, the TPP promises to expand market opportunities significantly for Canadian businesses in several industrial sectors. It will also contribute to higher real incomes in Canada by reducing the price of imports in other industrial sectors. For example, it will essentially eliminate high tariff barriers on forestry and wood products in several TPP countries, particularly Japan and Vietnam. It will also improve market access substantially for Canadian agricultural products in Asia, especially for beef and pork products.
Market opportunities will also improve for Canadian exports of services. At the same time, improved foreign access to Canada’s currently highly protected dairy and poultry sectors will lower costs of these products for Canadian consumers. Textile prices should also decrease with increased imports from Asia. The gradual elimination of tariffs will promote some consolidation in those domestic industries. Whether and how the Canadian government will compensate producers for financial losses associated with increased imports is unclear at present.
From Canada’s perspective, there are some disappointing features of the agreement. One is that it does not bring any new discipline to the U.S. use of countervailing duties and related measures that have vexed Canadian exporters and trade officials for decades. Another is that the agreement failed to promote any significant re-alignment of standards in regulatory areas such as approval for new pharmaceuticals. Differences in national regulations are a prominent non-tariff barrier to trade. On the other hand, the agreement will remove significant barriers to Canadian firms selling products and services to foreign governments, which has been an issue for Canadian firms trying to sell products to U.S. federal and state governments and agencies.
The TPP has some innovative features including sections dealing with cross-border transfers of data and electronic commerce. It could also turn out to be a much bigger deal economically in the future for Canada and other signatory countries if and when China accedes to the agreement. On the other hand, it will effectively become no deal at all if the U.S. Congress fails to approve the agreement which, at this point in time, seems more likely than approval.