Joshua Brown is a consulting manager and the Singapore country lead for Tractus Asia, a management consultancy for clients in emerging Asia.
The Trans-Pacific Partnership is the most significant and encompassing trade agreement yet contemplated. The 12 countries represent nearly 40 per cent of global gross domestic product.
There will be winners and losers but, if ratified, Canada will be better for it. Improvements to conditions for trade in goods and services promised by the agreement will awaken ever more Canadian multinationals to the advantages of shifting operations around the globe and make them more competitive internationally. Crucially, it will help level the playing field for small and medium-sized Canadian manufacturers venturing abroad for the first time.
The agreement aggressively tackles tariff and non-tariff barriers but, perhaps more importantly, provides a wide and deep set of rules for fair play.
Granted, the TPP will also accelerate the natural pace of production offshoring and outsourcing. Many players will say the agreement is a threat to Canadian jobs. But the most ominous threat is that of lost competitiveness should Canada fail to join a deal ratified by its current signatories.
Despite warnings from Canada's manufacturing sector about the prospective, sudden loss of jobs to cheaper production locations, manufacturing outsourcing and offshoring won't happen overnight. Canadian employment in manufacturing declined at a gradual rate of 0.7 per cent a year between 1995 and 2014; the TPP will not dramatically accelerate that.
Sophisticated industrial supply chains are relatively inelastic. Automotive parts manufacturers and final assembly factories of global car makers, for example, do not site production capacity investments on a whim. Companies do not make multimillion-dollar investment decisions based on local content requirements or import tariffs alone.
Canada's manufacturing base is not solely borne of protectionist policies. The country has solid advanced-manufacturing fundamentals and a skilled work force. Changing tariff schemes will have a major impact, though – particularly on cost-sensitive, low-value-added industries such as textiles and garments.
Vietnam, a TPP signatory, stands to gain the most, with about 28.4 per cent more exports by 2025 with TPP than without. Apparel and footwear could see exports increase by 45.9 per cent.
Malaysia also stands to benefit. The country's manufacturing value proposition is helped by skilled and relatively low-cost labour availability, excellent industrial infrastructure and its high ranking – 18th of 189 economies – on the World Bank's Ease of Doing Business Index.
Our Canadian advanced manufacturing clients, meanwhile, consistently cite trade agreements and tariff barriers as among the least important factors in deciding where to invest in new facilities.
For the types of manufacturing Canada is seeking to attract and retain, quality of infrastructure, access to skilled talent, proximity to customers and suppliers, and ease of doing business are far more important.
When we asked our top Canadian automotive parts manufacturing clients, none said they expect the TPP to dramatically affect where they make their products. They are already manufacturing in Canada and around the globe.
Indeed, many leading Canadian companies will take advantage of newly opened markets, reduced or eliminated restrictions on foreign ownership and manufacturing, and service delivery cost and quality improvements offered by some TPP economies.
Low-value-added, cost-driven and labour-intensive work will be the first to go. Despite occasional talk about on-shoring, this type of low-value, commoditized work has been moving offshore for decades.
Supply-chain disintegration has helped top-performing Canadian companies draw on the strength of intermediate goods producers around the world. The TPP improves conditions for companies already working to optimize global supply chains and produce where it makes the most sense – these companies are focused on building and defending core competencies not easily replicated overseas.
Innovative, value-creation work will remain in Canada. Lower local content requirements and reduced tariff and non-tariff barriers do not substantially change Canada's fundamental value proposition. This remains an excellent place to create and bring to market new products and services.
The TPP introduces new market access for Canadian companies in key markets and varied industries such as professional services, beef and pork production, and industrial machinery exports. Exporters traditionally reluctant to reduce their dependence on the U.S. market will need to focus on achieving sales growth in new international markets as Canada's historical NAFTA tariff advantages are diluted by the TPP.
Pursuing an emerging-market strategy in some TPP economies will require exporters to understand where best to make their product and how location decisions permit advantageous access to large and fast-growing markets in the bloc.
Failing to embrace the TPP is a far more risky proposition than taking it on. Companies in labour-intensive, commoditized manufacturing that drag their feet on outsourcing and offshoring risk losing their competitive edge as producers in Asia continue to drive down market prices. Those who neglect to address the deal's new export opportunities are leaving a lot on the table.
The TPP is a complex agreement. Canadian enterprise will have to contemplate not only how its ratification would affect them but how it would affect suppliers, customers and competitors.
Instead of shying away, Canadian companies should be working to understand how they can use it to achieve cost and quality leadership through enhanced global supply-chain management and access to new markets. The deal is more opportunity than threat.