After the bruising fight over the United States-Mexico-Canada Agreement (USMCA), Canada’s ratification last week of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), an 11-member trade bloc around the Pacific Rim, finally gives us the modern, 21st-century agreement that business and the country needs. It also moves the country one step further from its debilitating dependence on the United States.
Now that Canada and Australia have become the fifth and sixth members of the pact to ratify the agreement, it will come into effect by the first of next year. That so many countries moved so quickly is itself a story and an indication of how important this pact is.
At its most basic, the CPTPP gives Canadian exporters eventual preferential access in 10 markets that rim the Pacific Ocean including six in Asia, such as Japan, Singapore, Vietnam and Malaysia. Considering that Canada has only one trade agreement in Asia, gaining the equivalent of six new agreements at once is itself a huge win.
This, and its built-in incentives for diversification, makes the CPTPP arguably the most important trade agreement Canada has signed to date; more so than the tentative USMCA.
The gift to Canadian business in the just-renegotiated North American trade pact was to make concessions to simply be able to hold on to what it already had. This also deepens our dependence on the U.S. market and leaves business in a worse position when U.S. President Donald Trump’s next set of demands are tweeted. The CPTPP, on the other hand, opens and links 10 growing economies into one market but with new rules and the ability to build new supply and production chains with new partners. All in an agreement that, unlike the USMCA, will grow as new economies join, as early as next year with some already queued up.
But this agreement is about more than simply moving more corn, canola and cattle. Instead of six separate agreements, each with a different set of rules that work in only one market, the CPTPP is one set of rules for 11 markets. This allows companies to do what they have done in North America – accumulate inputs from any member of the agreement to make products alone or with companies in other member countries to sell anywhere in the areas covered by the pact. This works for larger producers and, importantly, for small business and service firms. For example, the agreement also offers better rules for moving workers, technicians and staff to and from Canada, making it easier to do this with, say, Japan and Malaysia than with the United States, giving Canada an advantage over the United States in building global knowledge businesses.
With 10 economies to start and more to join, the CPTPP gives Canadian companies a business – as opposed to political – reason to diversify and invest time and resources to build supply and production chains outside the United States, but not necessarily outside North America. Since Mexico is a member of both the CPTPP and USMCA, Canadian firms have the ability to source inputs from Mexico and still be able to sell under both the USMCA and CPTPP rules. This should help make supply-chain diversification and meeting content-requirement rules easier for Canadian firms that are still tied to making goods for the U.S. market but want to look farther.
The CPTPP will not replace the United States as Canada’s most important market, but on several fronts, it moves Canada one giant step away from overdependence on the United States.
And speaking of the Americans, a “poetic justice” benefit of the CPTPP is the U.S. absence. Because the Americans helped negotiate the original agreement, countries such as Japan made concessions that Canada never could have gotten negotiating on its own. When Mr. Trump withdrew from the original agreement, he essentially put hard-won U.S. market share in these countries on the table for Canadian firms. Now is the time to collect.
The CPTPP may also help with China, which is reportedly suddenly showing interest in joining. If true, this gives Canada a much-needed and much-better alternative than negotiating one-on-one with Beijing or, worse, negotiating on Team Trump. Negotiating as part of a team with Australia, Japan, Chile, New Zealand and Singapore, countries that want open trade and good agreements, is the way to go.
Canada has a short window to break through the USMCA hangover, raise awareness about the Pacific Rim agreement, retool its trade-assistance services to meet the challenge of helping business not just sell, but build or move supply and production chains, and help small business build partnerships with other small businesses in CPTPP countries such as New Zealand and Australia.
There is a lot of work to be done, but there is also, finally, a lot of opportunity to grow and diversify in a trade agreement.
Carlo Dade is the director of the Trade & Investment Centre at the Canada West Foundation.