Authors: Carlo Dade & Shafak Sajid
The Trans-Pacific Partnership trade agreement (TPP) is much more than the bilateral agreements to which Canadian business and the public have become accustomed. This 12-nation deal is the largest, most complex and potentially most impactful agreement Canada has been a part of, and it effectively updates and upgrades the North American Free Trade Agreement (NAFTA). By expanding the trade pact’s reach to nine new members from across the Pacific, it will also open new regions of Asia for Canadian exporters.¹
Debate in Canada on the risks and opportunities in the agreement have focused on national-level impacts and on sectors that are of particular concern to central Canada, such as dairy and auto manufacturing. Because of those concerns, ratification by the Canadian government cannot be taken for granted. This paper makes an argument for ratification on the basis that the agreement will provide a net benefit overall and create opportunities for western Canada.
Two critical factors stand out.
First is a reality check. If the United States ratifies the agreement, then the TPP will change the trade relationship among our most important trading partners and competitors regardless of what Canada does. We do not face a choice between change and no change. Our choice is about how we best equip ourselves to adapt to change. Do we want to be inside the tent, with input on decisions affecting more than 80 per cent of our trade? Or on the outside, wondering what is happening and how it will affect us?
If the U.S. ratifies the agreement, then Canada faces two immediate scenarios, as demonstrated in Table A.
Second, the agreement is a major advance in international trade architecture that offers unique benefits for Canada, and particularly western Canada, to expand trade.
The agreement will have the following benefits:
Benefit 1: Reduce tariffs for sectors that are important to the West.
Benefit 2: Reduce non-tariff barriers.
Benefit 3: Open trade in services, which is crucial to diversification.
Benefit 4: Keep Canada within an updated and more competitive NAFTA.
Benefit 5: Allow Canada to leapfrog its backlog of bilateral agreements in Asia.
Benefit 6: Build on the success of regional trade agreements, and,
Benefit 7: Create the best opportunity to negotiate deals favourable for Canada.
Canada’s Plan B
There is also a scenario where the agreement dies because the U.S. does not ratify.2 If this happens, then Canada has the potential to salvage some of the agreement’s benefits. It could:
01 Reprogram resources at the Ministry of International Trade to pick up on gains made with Asian countries during TPP negotiations. This would include devoting more resources to negotiating a trade agreement with China.
02 Look to an alliance on this side of the Pacific by forging a smaller version of the TPP.
This pact would incorporate TPP elements into a new regional agreement with the Latin American countries with whom Canada already has trade agreements.
03 Develop partnership facilitation services for Canadian small- and medium-sized enterprise (SME) exporters that would have been part of a TPP implementation strategy.
04 Use the time created by the failure of the TPP to prepare for the likely opening of the U.S. market as that country negotiates other more advanced trade agreements.