October 23, 2013 | By

Guest Commentary: The TPP – Big Stakes for Canada

While the Trans-Pacific Partnership started small last decade, the trade agreement has grown rapidly. One recent growth spurt came when Canada and Mexico joined just over a year ago. Below, one of our expert panelists for next week's conference, Hugh Stephens, a veteran Canadian diplomat and trade expert, discusses Canada's interest in the TPP and what is at stake in the negotiations. An extended version of his analysis can also be found here (PDF).

By Hugh Stephens, Executive in Residence, Asia Pacific Foundation of Canada

Will the TPP, which has dragged on for about 4 years and 19 negotiating rounds, be DOA when it arrives at the doors of Congress? If so, that will be a profound disappointment for New Zealand, which sees the TPP as its best hope to get access to the US market but also to others, especially Canada, which has gone to rather extraordinary lengths to be finally invited to join the TPP club. It took some considerable effort for Canada to pry its way into the talks in June of 2012 (it actually joined the negotiations in September of that year after the completion of Congressional review of its interest), after having initially rebuffed the invitation to join the TPP’s predecessor, the P4. When Canada did finally decide to play catch-up and seek to join the TPP negotiations, it found that the welcome mat was missing. In particular, the US Administration was not helpful; discouraging at best, obstructionist at worst.

It may seem strange that the US was cool to the admittance of its NAFTA partner and the largest single market for US goods, the 10th or 11th largest economy in the world according to most measures. But initially at least Canada was seen as an additional complication to completion of the TPP, a “difficult” negotiating partner that brought its own baggage (such as a less than robust IPR regime, a traditional antipathy to the interests of the brand-name pharmaceutical manufacturers, a penchant for protecting so-called “cultural industries”, and other trade issues that did not align with US interests) that might have resonated with some of the other TPP countries. Canada mounted a counter-offensive, both in Washington and in the Asia Pacific region, cultivating US industries and companies concerned about the integrity of the North American supply chain, as well as making direct approaches to other TPP players, none of whom (with the possible exception of New Zealand that has opposed Canada’s supply management policies in dairy for many years) had any particular reason to oppose Canadian entry. In the end, Canada got its wishes, in part because of the desire of Mexico to also join the TPP and illogicality of splitting NAFTA.

What accounts for Canada’s change of heart from disinterested bystander to ardent advocate? It lies in part with the Conservative government of Stephen Harper awakening to the reality of Canada’s vulnerability to its excessive dependence on the US market combined with the aggressive growth of economies in Asia. A succession of minority governments had left policy-making in Canada focused heavily on Canadian domestic politics, necessary for political survival. With the winning of a majority in 2011, the Conservatives put their trade and jobs platform into high gear. A key component was trade liberalization, both with Europe (Canada and the EU have just announced the preliminary conclusion of the CETA—the Canada-EU Trade Agreement) and Asia. The TPP was the best vehicle available to Canada to establish a trade foothold in Asia, given the lack of progress of bilateral trade negotiations with Singapore, Korea, Thailand and India. The addition of Japan, long anticipated, was another key element in the Canadian calculus since even though Canada and Japan have embarked on bilateral talks, the TPP might conclude first and Canada cannot afford to let the US gain the advantage as it had with Korea. And if the US was going to negotiate improved access to its market, Canada had better be at the table to protect its NAFTA access.

Looking beyond the tactical advantage of being inside rather than outside the TPP negotiating tent, Canada has been creating its own “pivot” to Asia. Although it has a long history of engagement with Asia, these links had been allowed to atrophy in recent years. Canada wants back in—to the EAS, to other regional fora, and to be a part of the regional trade architecture. The TPP may or may not be a stepping stone to a wider Free Trade Area of the Asia Pacific (which is where the true economic gains will come) but Canada does not want to take the chance of being excluded from the game. The TPP is both a short term tactical move and a longer term strategic play. If, after all the effort, the TPP gets sidetracked because of a standoff between the Obama Administration and Congress, there will be some very frustrated policy-makers not only north of the Canada-US border, but in other TPP capitals as well.

About

Phil Levy is senior fellow on the global economy at The Chicago Council on Global Affairs. Previously he was associate professor of business administration at the University of Virginia’s Darden School of Business. He was formerly a resident scholar at the American Enterprise Institute and taught at Columbia University’s School of International and Public Affairs. From 2003 to 2006, he served first as senior economist for trade for President Bush’s Council of Economic Advisers and then as a member of Secretary of State Rice’s Policy Planning Staff, covering international economic matters. Before working in government, he was a faculty member of Yale University’s Department of Economics for nine years and spent one of those as academic director of Yale’s Center for the Study of Globalization.

His academic writings have appeared in such outlets as The American Economic ReviewEconomic Journal, and theJournal of International Economics. He is a regular contributor to Foreign Policy magazine’s online Shadow Government section and writes on topics including trade policy, economic relations with China, and the European economic crisis. Dr. Levy has testified before the House Committee on Foreign Affairs, the Joint Economic Committee, the House Committee on Ways and Mean, and the US-China Economic and Security Review Commission. He received his PhD in Economics from Stanford University in 1994 and his AB in Economics from the University of Michigan in Ann Arbor in 1988.

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