By Carlo Dade and Deborah Elms
In the Globe and Mail
March 14, 2017
This week’s meeting in Chile of signatories to the Trans-Pacific Partnership (TPP) agreement is the first major global response to U.S. President Donald Trump’s “America First” trade agenda, announced most forcefully by his withdrawal of the United States from the TPP.
For Canada, which has only one other trade agreement with an Asian economy and was banking on the TPP to get a real foothold across the Pacific, this meeting will be more crucial than for any other attendee in Chile.
The meeting is also critical for the Trudeau government to reframe Asian perceptions of Canada as engaged and focused on the region. Ottawa still needs to demonstrate that it has learned from the mistakes of the previous government, which failed to grasp the importance of the TPP and dismissively declined to join the negotiations when it first had the chance.
The summit in Chile will test how the 11 other signatories to the agreement want to respond to Mr. Trump’s walking away: give up, go home and wait to deal with Mr. Trump one-on-one; or, forge ahead without the United States, on “TPP 11.”
Moving ahead without the United States is technically feasible – strike the sentence in Chapter 30 section 2 of the agreement that requires that a minimum of six signatories representing a combined 85-per-cent GDP ratify the agreement for it to come into force, and put all sections that deal specifically with the United States in abeyance for now.
Whether the political will can be summoned among the 11 remaining participants to do so is a more complicated question.
Before the election of Mr. Trump, forging ahead on the TPP without the United States would have been met with bewilderment, or derision. If the TPP had cratered under Barack Obama, or if Hillary Clinton had been elected rather than Mr. Trump, most countries would have accepted losing the TPP for a chance at bilateral negotiations with the United States. But the sudden, unimagined prospect of a protectionist Mr. Trump across the negotiating table makes bilateral talks look frightening. Going ahead with the TPP without the United States suddenly look like the best option.
For Canada and other countries that already have bilateral agreements with the United States, the calculation is slightly different. There is a sudden need for leverage if, as with the North American free-trade agreement, the United States calls for renegotiation of these agreements.
Further, besides the Trump disincentive, the TPP would also still provide significant benefits for the parties, even without the U.S. Firms would gain new market access, consumers would receive additional products and services at better prices, and there would be improvements in labour and environment protections in the TPP compared with past agreements.
Under TPP11, Canada would have preferential access to markets that the U.S. companies find attractive, including Malaysia, Vietnam and Japan. Even if Mr. Trump were able to negotiate individual bilateral agreements with these countries, Canada would still be in a better position with one set of rules for a group of 10 markets around the Pacific. This would give Canadian firms an ability to join new, larger supply and production chains – something that would be difficult for the Americans with a hodgepodge of agreements, each with different rules.
U.S. firms looking to access – let alone be competitive in – TPP markets would have to think hard before making the attempt, or perhaps move operations to countries that are part of the deal. For U.S. firms that want to also stay close to home, that means relocating to Mexico to save on labour costs, or to Canada for an English-language environment. Both options would also avoid being subject to any U.S. border-adjustment taxes.
Realizing these and similar opportunities for Canada and Canadian firms means thinking creatively about what is possible when trade ministers gather in Chile this week.
Canada simply cannot afford to repeat past mistakes in pan-Pacific trade. The previous government at first dismissed the TPP and then had to fight with the Americans to get admitted – on terms that the Americans dictated.
The irony of the U.S. withdrawal from the TPP is that positions are reversed and this opens opportunities for Canada around the Pacific.
By signing on early to go to Chile, this government has indicated that it gets this. But the real test is how it does at the meetings. Given that trade negotiations with China will be long and have yet to start, the meeting in Chile is the only opportunity, in the near term, to advance Canada’s Asian trade ambitions.
Carlo Dade is Director of the Trade & Investment Centre at the Canada West Foundation. Dr. Deborah Elms is the Executive Director of the Asian Trade Centre in Singapore.