Canada’s invitation to join the Trans-Pacific Partnership represents an entrée into what might become the world’s most important trade pact.
The key to winning any benefits for Canadian business, however, depends on what the multinational trade pact can achieve.
One thing is certain – Canada desperately needed a seat at the table.
For Canadian industries such as the struggling manufacturing sector or even the more sure-footed financial services industry, an exclusion from the TPP could have prevented Canadian companies from being competitive with global rivals.
Just as important, if Canada had failed to win an invitation to the negotiations, consumers and businesses might have missed out on the opportunity to gain access to tariff-free goods and services from fast-growing Asian economies.
As it stands now, the TPP remains in its infancy. Its nine current members – the original four (Brunei, Chile, New Zealand and Singapore) as well as the five later entrants (Australia, Peru, Malaysia, the United States and Vietnam) – have yet to conclude any major agreements.
“Joining the TPP is important for Canada in terms of what the TPP could become,” said Don Campbell, an adviser with Davis LLP and a former deputy minister for trade and foreign affairs.
With the failure of the Doha round of the World Trade Organization free-trade talks in 2008, the TPP stands as the most likely vehicle for a global deal that would reduce country-specific protectionist measures and subsidies, which would increase international trade.
Now that Mexico has been invited and Japan has signalled a strong interest in joining, the TPP might one day make other deals such as the North American free-trade agreement, irrelevant.
“It’s huge. Huge. It’s going to just roll up NAFTA and improve on it. If we’re not in it, we get isolated,” said Michael Robinson, a lawyer with Fasken Martineau Du Moulin LLP, who served as an adviser to Canada on negotiations for both the Canada-U.S. free-trade deal and NAFTA. “It’s not so much that the TPP is so much more wonderful and better. It’s that the WTO is crashing out. It can’t move forward,” he added.
China, Japan and South Korea, meanwhile, have begun negotiating their own multilateral free trade agreement. The United States has moved aggressively in Asia, securing trade deals with Singapore and, most recently, South Korea. Canada needs to join the TPP simply to keep pace with its largest trading partner.
The Trans-Pacific pact represents an opportunity to further tap the large, fast-growing economies that served as a stimulus to much of the world during the global financial crisis. Should China eventually join, the TPP would represent largely unfettered access to a market of about two billion people with rising incomes, said Glen Hodgson, senior vice-president and chief economist at the Conference Board.
For Canadian banks and big insurance companies such as Sun Life and Manulife, that would mean more customers in places where they can charge lucrative premiums. Meanwhile, even as manufacturers would face greater competition from lower-cost countries in Asia, their input costs would shrink if they could offshore some of the production in their value chains.
“We’re going to get more and more Chinese and Malaysian inputs going into our various manufacturing processes, which will potentially squeeze out some Canadian suppliers but also probably make it easier – for those companies that are assembling in Canada or creating other value in Canada – to stay here,” Mr. Hodgson said.
“If they can reduce their production costs by importing more inputs from Asia at a lower cost per unit, that increases their profitability and their chances of actually staying in Canada.”
Mr. Hodgson noted, there will be other, less visible benefits – what economists call the “value added.” For example, he said, Bay Street firms involved in mining-related deals could benefit from easier access to Asian markets for both Canadian mine production as well as investment capital for foreign projects.
“Fundamentally, it’s about Canadian firms of all types being able to access a much bigger market without barriers,” Mr. Hodgson said. “What it really means is that businesses in Canada now have to think in a really global space, and think about their business as a global business – not just making things in North America to sell to North Americans.”
A host of other factors that govern how business is carried out also serve as benefits from a trade deal.
“What is really going to be important here are more the rules of the game – things like procurement, investment, intellectual property protection, treatment of services, even labour mobility if we can get there. Now we’re at the table where we can actually be a part of negotiating these things,” said Jay Myers, president and chief executive officer of Canadian Manufacturers & Exporters.
Canada has no bilateral free trade agreements in Asia. A deal with India, which is its most likely free-trade partner in the region, is years away. Canada has begun early-stage bilateral talks with Japan on a free-trade deal. However, the potential inclusion of Japan in the TPP would represent a much faster path to free trade with the world’s third-largest economy.
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