Trans-Pacific Partnership

OTTAWA— The Trans-Pacific Partnership ( TPP ), which would create a free-trade zone among 12 nations around the Pacific, was signed in principal on October 5. The details of the TPP are not anticipated to be released prior to the October 19 federal election, but the Conservatives and the NDP have already lined up on opposing sides of the debate over the trade agreement, while the Liberals have said they are waiting to see the details before passing full judgement on the deal.

Even after the details are released, the TPP is far from being a done deal. The agreement will have to navigate the various governments’ ratification processes before it can come into effect including both the US Senate and the US House of Representatives and pronouncements from both the Republican and Democratic members of those legislative bodies have indicated a rocky road lies ahead for ratification in the agreement’s largest trading economy.

The 12 countries that have signed the draft TPP agreement include Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. Of these signatories, the US is the largest and richest economy, while Vietnam is the poorest. Ratification of the TPP would create the largest trade zone in the world, spanning four continents and more than 800 million people. The combined gross domestic product of the 12 trade-pact countries is estimated at $28.5-trillion and collectively produce 40 percent of the world’s economic output.

If the TPP is ratified, Canada will have 51 countries with which it has a free trade agreement, according to statistics released by the federal government, placing about 60 percent of the world economy within the nation’s free-trade sphere.

As a major global trading nation, Canada will be heavily impacted by the provisions of the TPP whether it is a member or from the outside looking in, but projections of the impact on the daily lives of consumers suggests there will be little impact on consumers, with a couple of notable exceptions. Many of the Canadian import tariff implications will be implemented over the course of years, and in some cases decades.

Moreover, in some areas of the economy, such as dairy and egg marketing boards where TPP countries get duty-free access to 3.25 per cent of Canada’s dairy market and 2.1 per cent of its poultry market—the so-called supply management issue—the amount of change in allowable imports is likely to have very little impact on the day-to-day grocery shopper, and while the amounts promised by the federal government to to protect current dairy, chicken and egg farm revenues from the immediate impact of those access changes—$4.3 billion over 15 years—has shielded those industries in the short to medium term, those industries will eventually have to adjust to the new competition. Dairy Farmers of Canada (DFC) president Wally Smith made it clear that, nationally at least, the dairy industry is not unhappy with the result.

“Let me be clear. The way I see it, those who were watching and expecting the end of supply management, are now being forced to admit that supply management is here to stay,” said Mr. Smith. “I fully expect, as I’m sure you do too, that these critics, inside or outside Canada, will come back in force with all of their arguments as to why supply management is not a good agricultural policy. However, while these critics will try to instill fear in farmers, what I see in this deal is a strong signal that supply management is not going anywhere. This is underlined by the fact that New Zealand’s demand for a renegotiation clause, in the TPP, was rejected by Canada.”

Farmers had made their concerns very clear to the Harper government, holding cow and tractor demonstrations outside Parliament in the lead-up to the TPP announcement.

Ralph Dietrich, Dairy Farmers of Ontario board chair, weighed in noting that “it is important to recognize that DFO has been actively engaged in seeking increased border controls and the government has now announced it will intensify ongoing anti-circumvention measures that will enhance our border controls, including excluding supply managed products from the Duties Relief Program. This will go a long way to protecting lost markets.” The government’s announced measures to assist the industry will close current loopholes in the program that allowed importers to slip a package of sauce into a shipment of chicken to circumvent the limits—measures long sought by both the dairy and poultry industries.

Supply management of the dairy industry has been the target of inaccurate media reports, particularly in Canadian Press reports that compared the price of one-gallon milk prices in the US to the one litre price in Canada. That comparison suggested a much larger discrepancy than actually exists between dairy prices in both markets. When similar-sized containers are compared, the difference between prices in the two markets all but disappears.

But on the beef, pork and grain side of the ledger, the deal looks to be a winner. Western provincial economies may stand to benefit heavily from increased access to the Japanese markets.

Canada’s beleaguered textile and garment industries are looking to take another significant hit from the new trade deal, to the benefit of the TPP’s poorest cousin, Vietnam, whose textile industries are expected to get a huge boost from the elimination of the few remaining tariffs barring imports of cloth and garments from that market.

The North American Free-Trade Agreement (NAFTA), which established that 62.5 percent of a vehicle’s content must be local in order to enjoy tariff protection, will be superseded by the provisions of the TPP, reducing the percentage of a vehicle’s content that must come from Canada in order to avoid import tariffs down to 45 percent.

This has led to concerns over jobs in Canada’s automotive sector, a critical source of high paying jobs that could now be further outsourced to low wage nations with poor employment and safety standards.

Unifor national president Jerry Dias condemned the deal as having a “disastrous impact” for Canada.

“There’s no question, we’re going to lose 20,000 jobs in the auto sector right off the bat,” negotiators for the US secured a better deal with Japan, with tariffs phased out over 25 years.

Prime Minister Harper has countered that the trade deal will increase the number of jobs in Canada, albeit that, as in any trade deal, there will be winners and losers requiring adjustments in the labour force.

The manufacturing sector, aside from its unions, has a mixed reaction to the deal. “Canadian negotiators made a significant, material advance on the automotive parts rules of origin from the proposal they rejected in Maui and these new reasonable terms will have varying effects on Canada’s automotive parts manufacturing,” reads a statement on the TPP from the Automotive Parts Manufacturers Association. “On one hand, prospects to supply vehicle assembly in foreign markets will open for large Canadian suppliers with multinational footprints and access to mobile capital. On the other hand, small and medium sized suppliers to Canada’s vehicle assembly supply chain will face new competitive pressure from large, multinational firms from TPP countries and further abroad.”

The statement goes on to note that “the 81,000 people employed in the Canadian automotive parts manufacturing sector are fairly evenly split between companies facing new opportunities and those facing new challenges. From this perspective, we will renew our focus on ensuring the viability of all OEM assembly plants in Canada, in partnership with the government and our CAPC partners.”

Dave Ham, owner of Henley Boats of Manitowaning, a manufacturer and exporter of commercial and industrial vessels, was cautiously optimistic about the impact of the TPP, but he noted that the trade deal appears to do little to overturn legislation such as the maritime “Jones Act” that provides non-tariff trade barriers in the US market. Under the Jones Act, vessels plying cargo between US ports must be constructed in the US and operated by US citizens or permanent residents. That act was put in place for the ostensible purposes of protecting national security in the 1920s, but it has been abundantly clear over the past century that protecting jobs has played a larger role in its longevity.

Many such non-tariff trade barriers exist in numerous markets across the globe, where legislation enacted purportedly for health, safety or national security concerns are actually more about protecting domestic job markets and industries.

The news is certainly not all negative for Canadian markets. Canada’s whisky and wine industries will benefit from the TPP, with reductions in tariffs taking place for wine almost immediately in some countries, like Australia, while other markets will be phased in over the course of up to a decade or more.

The pharmaceutical market also stands to benefit from the TPP, as well as the earlier trade agreement with the EU, but this has led to concerns that the poorest of populations will take a heavy hit from extensions and protections of the most expensive drug categories.

“MSF (Doctors Without Borders) expresses its dismay that TPP countries have agreed to United States government and multinational drug company demands that will raise the price of medicines for millions by unnecessarily extending monopolies and further delaying price-lowering generic competition,” reads an announcement from that organization. “The big losers in the TPP are patients and treatment providers in developing countries. Although the text has improved over the initial demands, the TPP will still go down in history as the worst trade agreement for access to medicines in developing countries, which will be forced to change their laws to incorporate abusive intellectual property protections for pharmaceutical companies.”

MSF gives the example of the additional monopoly protection provided for biologic drugs, saying that it “will be a new regime for all TPP developing countries. These countries will pay a heavy price in the decades to come that will be measured in the impact it has on patients.  As the trade agreement now goes back to the national level for countries’ final approval, we urge all governments to carefully consider before they sign on the dotted line whether this is the direction they want to take on access to affordable medicines and the promotion of biomedical innovation. The negative impact of the TPP on public health will be enormous, be felt for years to come and it will not be limited to the current 12 TPP countries, as it is a dangerous blueprint for future agreements.”

It is important to note that, for the Canadian provinces who bear a very large portion of drug costs through programs such as Trillium and its Ontario Works and ODSP supports, the cost escalation could be significant.

Among the industries that stand to benefit significantly under the TPP are the fishing and aquaculture industries. “Canadian exports of fish and seafood products currently face certain impediments to trade, including tariffs of up to 15 percent in Japan and Malaysia, of up to 34 percent in Vietnam and of up to five percent in New Zealand,” notes a statement from the federal government. A number of those tariffs will be eliminated upon the TPP coming into force, while others will be phased out over the course of the next decade.

Japan is the world’s third largest economy and with the largest per capita consumption of fish is a major market for Canada’s fish and shellfish. The fishing and aquaculture industries contributed $2.3 billion to Canada’s GDP in 2014, according to the federal government, and provided some 36,500 jobs in fishing and aquaculture.

The impact on the local aquaculture operations will likely be nominal, according to Northern Ontario Aquaculture Association president Mike Meeker. “I would love to say it was going to be a game changer for us,” he said, “but the truth of the matter is that we have a challenge supplying our own domestic demand and most of our competitors could already import into our market without much trouble.”

The issues facing domestic fish farmers come more from bureaucratic stumbling blocks in provincial and federal legislation and the challenges of a misinformed public. “We would love to expand and take advantages of global opportunities,” said Mr. Meeker. “It might be important to producers in other provinces, but as to what we can expect from the TPP here in Ontario, it is really hard to say right now. Maybe in a few years it will be a different story.”

An important adjunct to the TPP is the elimination of aforementioned non-tariff trade impediments and in this industry the government has had some success. “The TPP contains a chapter on Sanitary and Phytosanitary (SPS) measures that includes provisions on regionalization, equivalence, and science and risk analysis,” notes the federal government. “This is important for Canadian fish and seafood exporters. These provisions will help ensure that market access gains are not undermined by unjustified SPS-related trade restrictions.”

The Chapter provides enhanced transparency, which will help Canadian suppliers better understand the application of each TPP country’s SPS measures. It also establishes a committee where SPS-related issues and concerns can be discussed by experts to facilitate trade and enhance bilateral cooperation, with a view to resolve issues at an early stage. Canadian suppliers will also benefit from enhanced regulatory cooperation and streamlined customs and administration procedures that will save time and money at the border.”

The full details of the draft TPP are expected to be released in early November and, no matter who forms the government following the October 19 federal election, the debate promises to be lively both here and in the US and Mexico.