By Carlo Dade, Sharon Zhengyan Sun and Dan Ciuriak
Published in the Financial Post
March 3, 2021
The recent news that the U.K. will formally apply to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) opens up intriguing political and trade policy issues and opportunities for Canada in Asia. Trade agreements are seldom wholly about trade. The real benefit for Canada of the U.K.’s admission to the CPTPP may in fact be political, not economic.
Like many other modern trade agreements — though not NAFTA — the CPTPP includes a clause that allows new members to join. In practice, such clauses are rarely used. Though new entrants do expand an agreement, they can also take more of the bigger pie than they contribute.
On the economic side, this could well be the case with the CPTPP. Modelling of the effects for Canada of the U.K. joining the agreement has not yet been done, but Taiwan’s potential accession holds some clues. An analysis shows significant growth of the CPTPP from Taiwanese accession, but much of the gain is captured by Taiwan itself. The impact on Canada is very marginally negative but essentially a wash.
U.K. accession is also likely to have only a small economic impact on Canada. The two countries have recently put in place the Canada-U.K. Trade Continuity Agreement, while the U.K. already has a trade agreement with Japan, the largest member of the CPTPP. On these grounds, Canada would have little on the economic front to get excited about — and little reason then to consider blocking the U.K.’s accession bid.
And there could be some subtle potential economic benefits to consider. Canadian businesses accustomed to “piggybacking” on supplier relationships and partnerships with larger American companies when entering new markets will benefit from the addition of a major developed, English-speaking economy. The U.K. cannot replace the U.S., but U.K. membership would be a far sight better than having neither country as a partner in the agreement. In some cases, competition between the U.K. and Canada may be offset by the benefits of having more potential companies with which to partner in pursuing opportunities in large Asian markets.
Economics aside, looking at the accession of the world’s sixth largest economy to the CPTPP through a political lens shows where Canada stands to get a real trade win in Asia.
The CPTPP includes 11 countries, but only seven have actually ratified the agreement. It therefore covers only 12 per cent of global GDP and has recently been overshadowed by the much larger, China-dominated Regional Comprehensive Economic Partnership (RCEP) agreement. The RCEP, which represents 15 countries and 29 per cent of global GDP, contains two of Canada’s top three trade partners (China and Japan) and several of its principal competitors for those two markets, including Australia and New Zealand — all in a new group that excludes Canada.
The CPTPP, however, is a more ambitious trade agreement in terms of stronger trade disciplines than the RCEP. It also contains “progressive” trade provisions, which are lacking in RCEP but which are increasingly important for Canada. These tougher rules and progressive elements raise the political cost of the CPTPP compared to RCEP for governments in the region that may want the benefits of trade liberalization but are worried about domestic interest groups.
Canada’s progressive trade aspirations are not uniformly shared in Asia (to put it mildly). India, for example, has refused to entertain discussion on the topic in its trade talks with the EU, and Vietnam flat-out removed progressive elements of the CPTPP when the Americans left the agreement in 2017. For other Asian economies, adding access to a major economy like the U.K. as a trade-off for accepting tougher trade rules makes the CPTPP more attractive and the domestic political price of joining more bearable. The U.K. joining also raises the prospects of a snowball effect that would induce other economies to join — and sign onto these progressive elements, thus advancing Canada’s trade agenda. Clever.
Without denying the potential benefits of working on trade agreements with bilateral partners in Asia, Canada stands a better chance of advancing its overall trade agenda by getting more out of the agreements it already has, starting with the CPTPP. Canada would have less leverage going it alone in Asia, which would lead to weaker trade rules and little headway on its progressive ambitions. Instead, it can look to the well-timed entry of a strong friend and good ally like the U.K. into the CPTPP to bolster each country’s trade position in Asia.
Carlo Dade is director of the Trade & Investment Centre at the Canada West Foundation, where Sharon Zhengyang Sun is a trade policy economist. Dan Ciuriak is director of Ciuriak Consulting and a distinguished fellow at the Asia Pacific Foundation of Canada, as is Ms. Sun.