By Carlo Dade & Hugh Stephens
In the Hill Times
July 5, 2017
Given that more than three-quarters of Canada’s trade is with its North American neighbours, upcoming North American Free Trade Agreement (NAFTA) negotiations must be a top priority for the government.
But they cannot be the only priority.
As important as NAFTA talks are, they are still largely about trying to preserve, not add to, Canadian trade objectives. Successful negotiations would arguably mean that Canada remains stuck in its dependence on a U.S. market that has gone from unfriendly under Barack Obama’s administration to openly hostile under President Donald Trump. Yes, Canada needs NAFTA, but it also needs other options and it needs them now—not in a decade from now, which is how long an agreement with China will likely take.
This is why the Trans-Pacific Partnership (TPP) agreement roaring back to life, despite the U.S. withdrawal from the treaty, is so important for Canada, and why making it become a reality must be the other top trade priority for this government.
The new TPP is a reaction to the Trump administration’s attempt to force countries into bilateral talks, where instead of negotiating it can simply dictate terms. In response, the 11 remaining signatories, including Canada’s other NAFTA partner, Mexico, have been scrambling to find a way to implement the TPP without the U.S. This can be done by simply amending the clause that requires U.S. ratification before the pact can come into effect. The remaining parties can then provisionally enact the agreement and put pressure back on the U.S.
A new study from the Canada West Foundation that models the economic gains and losses of a TPP11 shows that all remaining 11 countries realize economic gains from a TPP—even without the U.S. In fact, relative to the remaining 11, Canada stands to gain even more. The U.S., on the other hand, would see a projected gain in exports turn into a $4.1-billion loss by exiting the agreement.
For those who assumed that U.S. withdrawal equalled loss of any benefits, this itself is major news: our modelling reveals that each signatory is still better off in the deal than not.
For Canada, it’s an even better story.
We saw what happened when the U.S. and Australia signed trade agreements with Korea ahead of Canada; our competitors took market share, our key exports to Korea plummeted, and we remain disadvantaged in that market today, even after signing our own agreement.
The access that Canada would have under a TPP11 is better than anything it could ever negotiate on its own. Japan and others opened their markets based on gaining access to the U.S. With the Americans gone, it becomes an even better deal for Canada.
Finally, U.S. firms wanting to take advantage of a TPP11 would have to move production from the U.S. into a TPP11 country, meaning potentially even more job and export growth in Canada and Mexico.
Finally, entering NAFTA negotiations with a TPP11 in hand would give Canada and Mexico leverage, since their firms would have TPP trade benefits outside of NAFTA, but U.S. firms would not. The Americans would be forced to start the negotiations playing catch-up.
The Trudeau government has been coy about its support for the TPP, which was reluctantly negotiated by Stephen Harper’s government. But the rise of Trump and the opportunities on the table for Canada matter more than partisan politics of the past. Now is the time to close the deal that finally opens up Asia for us while staking out a strong position for the next stage of NAFTA.
Carlo Dade is the director of the Trade & Investment Centre at the Canada West Foundation and co-author of The Art of the Trade Deal: Quantifying the Benefits of a TPP without the United States. Hugh Stephens is a distinguished fellow at the Asia Pacific Foundation of Canada.