While Canada debates the hand it was dealt in the United States-Mexico-Canada Agreement (USMCA) – the new NAFTA – a sudden, quiet development out of China is a reminder that Canada has options when it comes to trade.
This week, the news out of China is that Beijing is looking to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) as a hedge against U.S. attempts to isolate the Asian superpower. Whether it’s a negotiating ploy or a serious overture, the move to join the colossal multilateral trade agreement – the resurrected version of a deal that Donald Trump promptly backed out of when he became U.S. President – is a clear signal for the Canadian government and the country’s private sector that, almost 25 years after the North American free-trade agreement was created, the world is a different place and Canada is no longer as beholden to the United States.
The USMCA is in fact only one of three NAFTA-like agreements to which Canada is a party, the other two being the Canada-European Union Comprehensive Economic and Trade Agreement (CETA) and the soon-to-be-ratified CPTPP.
In each of the three multilateral trade deals, Canadian firms have one set of rules to enable not only buying and selling in other markets, but also building supply and production chains to take full advantage of specializations within each market to assemble goods and services and sell seamlessly to the entire amalgamated collection of markets in the agreement. This was the initial breakthrough of the first NAFTA agreement.
But newer agreements such as CETA and the CPTPP have built on and improved upon the original NAFTA model. The renegotiated North American treaty, on the other hand, brings only minor tweaks to the original agreement, essentially maintaining the status quo. As such, by staying still in a world where others are advancing, it is a step backward in ambition and liberalization. Think of CETA and the CPTPP as Windows 10 and the USMCA as updating from Windows 95 to Windows 97. The Wall Street Journal has been even less kind, calling the new agreement worse than the original.
But having three "NAFTAs” gives Canada options for better trade arrangements and also for engaging with China.
The USMCA contains language meant to pressure Canada into a U.S.-Canada-Mexico alliance on negotiating with China. Part of the rationale for Canada accepting this is a lesson it learned from negotiating the CPTPP: Canada does better in trade negotiations with larger economies if it negotiates as part of a bloc containing other larger economies. In the original Trans-Pacific Partnership negotiations, when the United States was part of the talks, Canada got a better deal out of Japan than it ever could have gotten on its own. The United States has a number of reasons to want North America to negotiate together, particularly because negotiating with China as a bloc is better for everyone.
The Americans are correct, but what they have missed is that, unlike the United States, Canada and Mexico have those “other NAFTAs,” including the CPTPP, which is a better entrée into a trade agreement with China. China, of course, has not been a fan of the CPTPP and would have to make serious concessions to join, but what looked inconceivable now seems possible thanks to escalating U.S. hostility and blatant attempts to isolate China.
China joining the CPTPP should not run afoul of language in the USMCA – it would be neither a bilateral negotiation nor a new negotiation, as Canada is on track to ratify the CPTPP before ratifying the new North American agreement. If the United States had wanted to prevent this, there should have been specific language in the USMCA.
Regardless, for Canada, a CPTPP that includes China would produce a better, more ambitious and modern trade arrangement than anything the current U.S. administration would negotiate. Negotiating alongside global leaders in getting good trade deals such as Singapore, New Zealand and Chile will get Canadian businesses a better deal with China than negotiating alongside the Trump administration. And by next year, the CPTPP should grow to include at least South Korea, Colombia and Thailand, which, added to the economic weight of Japan, Canada, Mexico and Australia, will make an even better negotiating bloc. This path to engage China has obvious difficulties, but it is attractive.
Having three NAFTA-style agreements gives Canada options. Business and government need to look at the entire table and think about how to play the hand we have been dealt.
Carlo Dade is the director of the Trade & Investment Centre at the Canada West Foundation.