By R. Bruce Striegler
Speaking of the proposed free trade Controversial Trans-Pacific Partnership; negotiations continue to liberalize trade between a dozen Pacific Rim countries agreement called the Trans-Pacific Partnership (TPP) at the Group of 20 summit in Mexico in June 2012, Stephen Harper said, “Opening new markets and creating new business opportunities leads to jobs, growth and long-term prosperity for all Canadians. A TPP agreement will enhance trade in the Asia-Pacific region and will provide greater economic opportunity for Canadians and Canadian businesses.” He noted “This is a further example of our determination to diversify our exports and to create jobs, growth and long-term prosperity for Canadian families.”
But today, the impression one may get from published reports is that Canada is far from fully engaged in these talks. The basic principle agreed upon by all countries invited to join TPP is that everything is on the table, sensitive or not. For the Canadian government, the main sticking point seems to be around supply management, the protectionist regime that tightly regulates prices and production of dairy, poultry and eggs. In addition, as with the trade agreement Canada negotiated with Europe, the Comprehensive Economic and Trade Agreement (CETA), the Trans-Pacific Partnership has raised provincial fears that removing trade protection on pharmaceuticals would increase health care costs. The Canadian government rejected the European Union’s demands on that front, instead creating a mechanism that compensates brand-name pharmaceutical companies for lost time during the regulatory process.
Caitlin Workman, spokesperson for the Department of Foreign Affairs, Trade and Development (DFATD) disputes the notion of Canadian non-involvement, saying, “Negotiations are ongoing at the officials’ level. Canada is a committed and constructive partner at the negotiating table, and we continue to work with all of our TPP partners to conclude an ambitious agreement that will create jobs and prosperity across the country.” Ms. Workman notes that TPP officials last met in Maryland from April 23-26, where discussions were held on market access, intellectual property, rules of origin, investment and textiles, among others. “Negotiators met in plurilateral, bilateral and small group formats with the objective of advancing remaining text and market access issues. The next TPP officials’ meeting will take place from May 14-25, 2015 in Guam.”
We asked Perrin Beatty, President and CEO of the Canadian Chamber of Commerce for his views about the Trans-Pacific Partnership. “From our perspective, the TPP is a top priority for Canada. It will provide new access to high-growth markets across the Pacific region, including long-standing trade partners like Japan.” He continued, saying that the removal of tariffs, opening up of key services sectors and the improved certainty of the policy climate in the area will make it easier for Canadian companies to expand in that region.
Mr. Beatty continued, observing that the TPP will set new rules and standards which will form a foundation for the next wave of trade agreements in the Pacific. “Trade has evolved considerably in the past few decades, meaning we need updated rules to deal with developments in e-commerce, intellectual property, state-owned enterprises and regulatory cooperation,” Pointing out that both of Canada’s NAFTA partners are at the TPP table, Beatty says, “Canadian companies have integrated their supply chains with those of partners in other countries across the continent, it is critical that we be part of the end deal.”
TPP opposed by public in every nation, political opposition within the U.S.
Up until very recently, the prospect of this trade deal becoming a reality has been hampered by the lack of U.S. presidential fast-track trade approval, a legislative nicety that gives the President the ability to negotiate trade agreements without fear that Congress will derail that agreement through later amendments. That authority was denied in a Congressional vote in mid-May, and currently Senate and Congressional leaders continue to negotiate.
The Trans-Pacific Partnership has provoked widespread opposition from the public, unions and those who believe any international trade agreement is a threat, in all twelve countries involved in the negotiations (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam.) TPP is perceived and condemned by many as a U.S.-led attempt to penetrate and dominate the economies of the Asia-Pacific region. The agreement was not, however, a U.S.-conceived treaty, nor at the time was the U.S. even a party to the proposed agreement. When negotiations were initially launched on the sidelines of the summit of the Asia-Pacific Economic Cooperation (APEC) forum in 2002, it was a tripartite affair involving New Zealand, Chile and Singapore.
Professor Kurt Hübner, Jean Monnet Chair for European Integration and Global Political Economy, Institute for European Studies in the Department of Political Science at the University of British Columbia, focuses his research on the interplay of institutions and capital accumulation on a national and international level. He has authored and edited 15 books and a substantial number of articles. We asked Professor Hübner whether or not there are benefits to Canada joining TPP, and he responded that, first, one needed to understand the principle of comparative advantage.
Increased market access the goal of liberalized trade agreements
“If you accept this principle you will see net benefits, but comparative advantage also implies there are always going to be sectors that lose. There’s no reason to liberalize trade if everybody is already winning. There must be losers as well, it’s a dynamic kind of thing. In an ideal world, the gains of the winners are larger than the losses of the losers.” He says it is natural that there is resistance from some business sectors who fear they will be on the losing side.
“That’s a part of the game, that’s exactly what one would hope for, that’s the whole economic principle, since the time of David Ricardo.” Ricardo was an influential late-eighteenth century economist whose theory of comparative advantage even today remains the cornerstone of the argument in favour of international free trade. (His economic philosophy suggests that a nation should concentrate its resources solely in industries where it is most internationally competitive and trade with other countries to obtain products no longer produced nationally. In essence, Ricardo promoted the idea of extreme industry specialization by nations, to the point of dismantling internationally competitive and otherwise profitable industries.)
Professor Hübner adds that one example of a Canadian industry sector whose voice is perhaps louder than its real economic prominence is the dairy industry. “It’s an issue that the industry is not widely distributed across Canada, (but is a regional industry concentrated in Ontario and Quebec) which, combined with its very protectionist views, is a problem. Our federal government must find ways to deal with this. Supply management is a very protectionist way of organizing an industry, and we’re talking about sensitivities in Canada in political terms.”
Choosing his words, Perrin Beatty says, “Trade liberalization means some domestic industries will need to compete more aggressively to succeed. However, we have seen how competition can be a force for innovation and productivity improvements, and we are confident that our businesses are better-served by the increased access to markets.” He points out that in any trade negotiations, there are trade-offs. “The reality is that every country has its sensitivities and industries it wants to defend. When looking at something like this, we have to carefully weigh whether the benefits of an agreement are higher than the costs. We also need to make sure that companies and their workers have the resources and timelines necessary to adjust to a new competitive dynamic.”
Foreign Affairs, Trade and Development spokesperson Caitlin Workman says, “Our government will continue to promote Canadian trade interests across all sectors of our economy, including those subject to supply management. Canada makes no apologies for ensuring that any deal reached is in our best interests.” She notes that the Canadian goal is to secure balanced outcomes that benefit all sectors of the economy, across all regions of the country. In unambiguous terms, Ms. Workman says, “The Government’s commitment to our supply managed sector has not prevented us from concluding ambitious free trade agreements, such as the Canada-European Union Trade Agreement and the Canada-South Korea Free Trade Agreement. As always, we will only sign a trade agreement if it significantly benefits Canadian businesses, workers and their families.”
CETA – the Canadian-European trade agreement may show the way
Professor Hübner notes that in his experience, cases such as the dairy industry require governments to think of changes over a longer term. “Transition periods and possible compensation issues all must be taken into account. I don’t think there is anything you can expect immediately. Moving towards trade liberalization can be a slow process.” He continues, saying that Canada and its dairy industry have counterparts in the other countries negotiating the TPP. “The rice industry in Japan might be a good example. Rice is seen as a ‘cultural’ product, a key product, so they are defending this market sector. Like Canadian dairy consumers, Japanese rice buyers end up paying a higher price. From a consumers perspective liberalization of the sector would be good.”
“We can get some sense of how things may unfold by looking at CETA. There we have seen, not a total liberalization of supply management, but there are little holes here and there, quotas have been increased and this kind of thing. TPP may end up in a new kind of compromise, where supply management will no longer be as strict as it was. It all depends on the kind of negotiations from Ottawa.” Hübner notes that TPP is not only about getting rid of protectionist measures. “TPP is a new 21st century agreement, like others in the making, about regulatory practices, standardization, public procurement, which is a big thing, and a few other trade practices.”
The Chamber’s Mr. Beatty adds that the supply management system is complex and is an integral part of many farmers’ business models. “Any potential reform of Canada’s supply management frameworks would have to be the product of extensive consultations, and would have to include measures to compensate quota-holders and to help the affected industries get on a new competitive footing. This is cannot be done overnight. It requires a great deal of thought and consideration, and certainly sufficient time.”
Responding to a question as to whether there may be something in the American agenda that, directly or indirectly, could be harmful to Canada, Perrin Beatty says, “Canada and the U.S. share very similar interests in the TPP. Both countries want an agreement that respects the integrated nature of our two economies, and generally agree on what rules a market economy needs to function effectively and efficiently.” Nonetheless, he adds that it is important for Canada to ensure that TPP gives Canadian products and services equivalent treatment to those coming from the United States. “We don’t want to see separate arrangements emerge between sub-groups of countries.”
Will the Trans-Pacific Partnership be a “game changer” or a bust?
Canadian companies have often found themselves a casualty of “Buy American” provisions when it comes to bidding on lucrative infrastructure projects funded by the U.S. Federal Highway Administration in states or municipalities. DFATD’s Caitlin Workman declares, “Buy America provisions deny Canadian and American companies and communities the clear benefits that arise from our integrated supply chain and our commitment to freer and more open trade.”
As Ms. Workman alludes, these restrictive trade provisions also impact American interests, for example the Alaska Marine Highway System’s attempt to build a new ferry terminal in Prince Rupert, British Columbia. The Alaska ferry operator’s terminal construction centered on “Buy America” requirements for steel, iron and other manufactured products. When Canada challenged the U.S., the ferry operator cancelled its plans for the new terminal.
We asked Perrin Beatty whether TPP might mitigate or prevent these kinds of clashes. “The negotiations on the TPP are still ongoing, so it is difficult to tell what will be in the final agreement. While protectionist procurement rules in the United States, notably at the state level, have been a top priority for the Canadian Chamber of Commerce and our members, it may be difficult for the U.S. to open up in this area to such a large number of countries. We remain hopeful, but are also asking Canada, Mexico and the United States to work separately to reach a narrower agreement on government procurement.”
“It would be a game-changer if the government can effect changes in procurement policies,” says Professor Hübner. But he cautions that while the Canadian government does have a kind of trade liberalization strategy, it is unclear whether or not it has a strategy to upgrade the productive skills or technological abilities of the Canadian workforce. “We’re running a structural trade deficit and with these agreements we shouldn’t expect that that will change all of a sudden. In addition to trade deals, we need a strategy to improve our competitiveness.”
“In my experience,” says Perrin Beatty, “Trade negotiations are still negotiations. You don’t give things up unless you know what you’re getting in exchange.” He says Canada is starting to show a willingness to discuss the sensitive issues with other parties to the talks, adding that Canada is not the only country with defensive concerns. “The others also need to show their cards. You need to see what’s on the table before you start making tough decisions like this. I am confident that Canada will follow through with the negotiations. Walking away at this point is not an option.”