The Trans-Pacific Partnership (TPP) trade and investment agreement reached by 12 countries on Monday morning looks like a good deal – good, and not quite as big as promised. Both the positives and negatives in the deal appear to be smaller than hoped, or feared.
The broad strokes of the deal are known, though the precise details won't be out for a few days. The TPP will open closed sectors of the Canadian economy, such as dairy, poultry and eggs – but by less than expected. In pharmaceutical patents, an area of concern to Canadians, the TPP's changes to the status quo also appear to be smaller than advertised. And while the agreement, which includes Japan and the United States (but not China), is being sold as the biggest trade deal ever, it is not as revolutionary as all that.
Thanks to three decades of trade liberalization, from the Canada-U.S. Free Trade Agreement to NAFTA to the World Trade Organization, Canada's trade is already largely free. The remaining old-style tariff barriers are few and generally low. The TPP is mostly about taking one more step down that path.
As citizens of one of the world's most trade-dependent countries, Canadians need to be part of major trade and investment agreements for two reasons: fear and opportunity.
The fear is of being left out of deals done by our trading partners, which would put Canadian exporters at a disadvantage. The opportunity is to deliver benefits to Canadian companies and consumers, by making it easier for the former to export, while pushing down the price of imports for the latter. That benefit of free trade – introducing competition for domestic businesses makes things cheaper for consumers – is hardly ever talked about. But it's the most important reason. A trade deal should be judged partly on what it does for Canadian business, but above all on what it does for millions of Canadian consumers.
Which brings us to the part of the TPP that will get a lot of play in the last two weeks of the election: the small opening of Canada's system of supply management for dairy, egg and chicken. At one point there was a fear – for farmers, it was a fear; for consumers, a hope – that supply management would be blown up and replaced by free trade. That's not what's happening. Instead, other TPP countries will get duty-free access to just 3.25 per cent of Canada's dairy market and 2.1 per cent of its poultry market. The rest of the long-closed market apparently remains protected.
Canada's concession on this point will be treated as a "cost," and something Canada "gave up" in return for benefits. And if you are an egg or dairy farmer, yes, a slightly less protected Canadian market will impose costs on you. (That's why Ottawa is promising $4.3-billion in support for affected farmers over the next 15 years.) But for millions of consumers, any opening of the Canadian market, and any reduction in supply management, means lower prices. It's a gain, not a loss. The TPP appears to involve a limited cost for a small number of farmers, and a small benefit for millions of Canadian consumers. We'd call that a net positive.
On pharmaceuticals, in contrast, there may be benefits for the world's major drug manufacturers, in the form of longer patent protection periods. This was opposed by Canada, and by such countries as Australia and New Zealand. Longer patent protection periods drive up drug prices, a huge concern for publicly funded health care systems. A last-minute compromise on drugs was reached – and the result here may be the mirror image of the deal on supply management. Some patent protection periods have been extended, but not by as much as feared. The precise language remains to be revealed, but if the pharma part of the TPP contains negatives for Canadians, these appear to be small.
The deal also further opens up the Canadian car market, with a 6.1 per cent Canadian tariff on imported vehicles to be phased out over five years. As well, the minimum amount of domestic content that must be included in a car will be reduced from the 60 per cent limit under NAFTA.
The TPP makes the car trade a bit freer, but it doesn't appear to do anything about the most distortionary aspect of the business: that governments around the world, particularly the U.S., regularly dangle massive subsidies in front of car plants. The TPP's trade liberalization could even kick off a subsidy war. Canadian governments, namely Ottawa and Ontario, will be pressured to join in.
The trade agreement also takes steps to open up agricultural markets in Asia, which will benefit Canadian farmers, especially of beef, pork and grains. But it doesn't appear to do anything to scale back the huge agricultural subsidies that some countries (led by the U.S.) throw at farmers, and which distort markets.
All the details in the final text remain to be seen, but the preliminary verdict on the TPP should be a mildly positive one. This isn't a radically transformative deal. It isn't a perfect deal. But on balance, it appears to be a good deal.