By Carlo Dade
In Policy Options
December 4, 2017
The news trickling out of the APEC Summit in Vietnam on November 10 was confusing. Was the Trans-Pacific Partnership moving ahead, did Prime Minister Justin Trudeau sabotage efforts to revive it, or was it being “re-revived” after all? Only now is the smoke lifting, as the extent of the damage to Canada’s trading reputation in Asia and the potential losses to western Canada’s export-based economy are revealed.
As the remaining Trans-Pacific Partnership 11 countries (TPP11) prepare to move on, without not just the US but, according to rumblings coming out of Asia, possibly also Canada, the costs of the Trudeau government’s shenanigans on the world stage are becoming clear. The first cost is losing out on the immediate economic gains from a rapid coming into effect of a revised Trans-Pacific Partnership agreement without the US. The second is the reputational damage caused by Trudeau’s decision to play coy on the deal, stand up his fellow heads of state, and torpedo Canada’s best and only chance to catch up in the Asian trade race. And all for what? To protect a few narrow domestic interests from a trade agreement — the TPP — that in fact offers better terms for the dairy and auto sectors than what’s currently on the table in NAFTA?
Here are five take-aways that tally the disaster Trudeau left behind in Asia, and what they mean for Canadians.
Canada lost big time
First, the dollars-and-cents facts of the deal. Economic modelling done for the Canada West Foundation makes it clear that Canada would do better under TPP11 than under an agreement that includes the Americans. This modelling merely quantifies what is common sense. Gaining tariff and other advantages over the Americans in Japan, Vietnam and other markets will lead to trade diversion, as Asian importers switch to cheaper Canadian goods, and US exporters possibly move production to Canada to take advantage of TPP11 benefits (we have seen this in the past, but this time it would be accelerated). Persistent commentary that TPP11 was not a good deal is demonstrably false.
It would entail some losses for Canada; every trade negotiation involves some give and take (only in Donald Trump’s world are trade agreements winner-take-all). The modelling clearly shows that the losses to Canada would have been minimal and the gains substantial. Potential losses on intellectual property and investor-state dispute mechanisms are hypothetical and would not materialize immediately, meaning that Canada would have time to adjust. On balance, based on quantifiable measures, the agreement would be a clear win.
There is also the opportunity cost. Canada has nothing presently underway or in the near term (within this decade) to replace the TPP11. If it fails, the losses will be with us for a long time. The longer we delay, the more we lose by not realizing the gains that the agreement would offer. And it is unclear from Trudeau’s actions in Vietnam if he will ever be pleased by the outcome of the negotiations, or whether he’ll simply wear out the other signatories’ patience. Several governments have privately said that they intend to move ahead early in 2018, with or without Canada, because, after having made numerous concessions, they cannot figure out what Canada wants.
Canada cannot get a better deal
From the outset of the TPP negotiations Canada scored big, because we joined a group of nations that were willing to make concessions to gain the “prize” of access to the US market. Canada also stood to benefit from the advantages that would flow from a new trade bloc with one set of rules for 12 economies. This is significant, and it now stands as a major competitive advantage over the US, which is seeking to advance a series of disjointed bilateral agreements requiring separate paperwork for each country. Under TPP11, Canadian exporters would have one set of paperwork for 10 economies, from which they could use inputs from any economy to sell to the others, something not available to US firms under the Trump administration’s approach.
But the more immediate benefit for Canada is that the concessions that Asian countries ceded to gain access to the US market were largely left in place after the Americans dropped out, which gives Canada the best of both worlds. We got better access to Asian markets than we could ever hope to negotiate on our own (would any country make the same concessions to gain access only to Canada?). And, now the US has pulled out, Canada would not have to worry about competitors gaining better access to the American market. The possibility of replicating this outcome under any bilateral scenario is inconceivable.
Under the Trudeau government’s “progressive” trade agenda, it is hard to see Canada getting a better deal than what was achieved under the TPP. In addition to the leverage for countries to make concessions to get larger gains, there was the negotiating power of having countries like Australia, Chile, New Zealand, and the US (under Barack Obama’s administration) also pushing for those progressive trade elements. The Obama administration is not coming back, and if Canada goes the bilateral route, there will be no one sitting at the table with us pushing those progressive trade measures in Asia.
Trying to push for more progressive elements in the current agreement is probably a nonstarter, given that countries are already annoyed that Canada, along with Mexico, gets the lion’s share of benefits under TPP11. To add further demands would be the definition of “pushing one’s luck” and would not be a good idea. This is especially true when the asks seem to be designed purely for domestic optics rather than for substance. The gender chapter in the recently updated Canada-Chile agreement is a good example of this approach. There is nothing of substance in it; it is a disservice to Canada’s trade agenda, and it is, arguably, a betrayal of what would be a true gender equality agenda. The government’s dismissiveness toward quantifiable economic returns and its focus on issues that are important to narrow domestic constituencies are leading observers to note that Canada’s trade strategy may be more about how it appears back home (and catering to narrow special interests in the lead-up to the next election) than about advancing trade gains for the entire country.
There will be long-term damage to our efforts to open Asian markets
Trudeau’s undercutting of Japanese Prime Minister Shinzo Abe and Canada’s trade minister at the APEC summit will harm future efforts to negotiate in Asia. Even though he took measures to limit embarrassing Abe by scheduling a last-minute sidebar meeting, acting so late was problematic, for two reasons.
First, Trudeau let Japan go ahead with preparations when he could have provided a much earlier heads-up that there were problems, instead of waiting until everyone else was ready to go ahead. Second, his reasons for not going ahead were vague and could have been resolved much earlier; now they have left the other TPP countries confused. There was consensus to move ahead among the leading economies and Canada’s allies. Part of this consensus was Canada’s International Trade Minister François-Philippe Champagne, who was undercut literally at the last minute by Trudeau.
Beyond embarrassing Abe by disrupting his highly choreographed moment in the leadership spotlight, Trudeau’s actions have led some Asian nations to question who speaks for Canada on trade issues, and Australia to question how reliable a partner Canada is in Asia. The anger in the region is understandable: governments spent valuable political capital and took electoral risks back home to push the agreement, only to watch the Canadian Prime Minister waltz in and yank the rug out from under them at the last minute. Trudeau had close to nine months of TPP11 negotiations to raise issues, and he had plenty of time leading up to the APEC meeting to alert his allies and avoid embarrassing anyone. Waiting until after his trade minister had agreed to a deal and every other leader was exposed to announce his objections looks like a political stunt; the type of stunt that Donald Trump would pull.
Chief among the reasons for the other countries to go ahead with the TPP, despite receiving fewer economic benefits without the US in the pact, is to contain Donald Trump and his winner-take-all trade strategy. By withdrawing from the TPP, Trump was attempting to increase pressure on countries in Asia to negotiate one-on-one with his administration. As they watch the soap opera that has become the NAFTA negotiations, the Asian countries are desperate to avoid winding up in Canada’s ? or, worse, Mexico’s ? seat across from American trade negotiators, nor do they want to see other countries in that position. This partially explains why other TPP countries are willing to let Canada and Mexico get away with getting a better deal in TPP11 while they get a worse deal (but still retain some positive gains). These countries have sacrificed on two fronts, only to see Trudeau, whose nation is getting the best deal, throw them under the bus.
In this light, one can understand why former staunch allies of Canada are now saying things like “Trudeau screwed us all.” The epithet “Judas of Da Nang” ascribed to Trudeau may last for years to come in Asia and western Canada, especially if TPP11 eventually fails, after being so close to success.
The prime minister appears to be investing his hopes of “getting a better deal in Asia” in the opening of talks with the Association of Southeast Asian Nations (ASEAN). Yet reportedly part of the reason for his eleventh-hour aversion to going ahead with the Japanese-led TPP11 summit was because Malaysia and Vietnam wanted to water down labour and environmental provisions. The two countries are, of course, members of APEC, and can be fairly considered representative of the bloc as a whole. An APEC meeting would seem not to be the best forum to try and push a “progressive” trade agenda, but it might appeal to a Liberal government seeking something it can brand as a “new” initiative, as opposed to the TPP, which was initiated, under duress, by the previous government.
Canada needs to push ahead on all fronts in Asia, and the government is to be applauded for beginning what will be a long and drawn-out process of negotiations. But should the TPP11 talks fail, it is hard to envision any scenario under which an Abe-led Japanese government would resume bilateral negotiations with Canada, and if he did not, it would deprive Canada of the second-largest prize in Asia, after China. This reluctance would be good news for Australia, Mexico, Chile and other nations that compete with Canada, as well as for American exporters who would no longer have to worry about losing market share to Canada.
A failed TPP11 would also weaken Canada’s hand in negotiating with China. Canada currently has only one trade agreement in Asia, with Korea, and if ASEAN refuses to entertain talk of a “progressive” trade deal, Canada will be left with no realistic prospect of any other negotiations except those with China, which will take close to a decade to bear fruit. The bottom line for Canada in Asia is that we need the region more than the region or any Asian country needs us. China is well aware of this imbalance.
There will be damage to NAFTA
The idea that anything agreed to in the TPP imposes conditions on Canada and Mexico in the NAFTA negotiations is risible. If the Americans want something that was in the TPP included in NAFTA, then they have to make an offer. Simply because Canada and Mexico agree to something in one trade deal does not mean that they have to make the same concessions, outside of tariffs, in another negotiation. If the Americans want TPP provisions on copyright or intellectual property in NAFTA, they have to offer something in exchange. When the Americans left the TPP, they left those provisions behind. And with the US not part of the agreement, any damage to Canada from these provisions will be lessened, if not eliminated.
Had Canada not equivocated in going ahead with the TPP11, Canadian companies would have had access to the IP and copyright provisions that US companies wanted. This would have helped Japanese negotiators drive home to US interests the costs of walking away from win-win multilateral agreements. This message was severely undercut by Trudeau’s actions. In fact, by almost scuttling the agreement, Trudeau came within a hair’s breadth of handing Donald Trump the single biggest trade and foreign policy win of his term so far.
On autos, there is also a strong and obvious case to be made that rules of origin and content under TPP11 are far better than what the Trump administration has on offer in the NAFTA talks. This sounds like a win for Canada.
There will be long-term damage to western Canada’s influence on trade policy
Opposition to TPP11, mostly from central Canada, was strong and well organized. There were very few counter-arguments from western Canada and those sectors of the economy that would have benefited most. Agricultural export associations were active in drafting letters and lobbying the government, as was the Canada West Foundation. The foundation has also spent significant time, effort and resources on economic modelling, outreach to MPs and op-eds across western Canada. But, this outreach was ineffective in mobilizing the grassroots, compared with the efforts groups like Unifor, the dairy industry and academia opposing the deal. The status and importance of the TPP were not subjects of conversation at constituency barbecues over the summer out west. Most western MPs seem to have been unaware that the TPP was still alive and that Canada was still participating in negotiations. Worse, government MPs were saying this summer that they were “told by Canadian government officials the global trade deal is basically dead now that the United States has pulled out.” This despite evidence in local papers to the contrary.
The take-away from Trudeau’s actions at the APEC Summit is clear: there is no political cost to the government in Ottawa in taking money out of the pockets of westerners, farmers and commodity exporters. Of all the bad news that emerged from Vietnam, this may be the worst.