Canada Chases the TPP Holy Grail

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Canada Chases the TPP Holy Grail

The Canadian government has been a late convert to the benefits of the Trans-Pacific Partnership. But will it be willing to make the changes necessary to fit in?

Canadian Prime Minister Stephen Harper’s proclamation at the APEC Leaders meeting in Honolulu last November of Canada’s formal expression of interest in joining the Trans-Pacific Partnership (TPP) trade talks marked a stunning reversal of Canadian policy. Up to that point, Canada had feigned disdain for the TPP, and publicly stated that it wouldn’t agree to join a negotiation where it would have to agree to a priori conditions.

Canada had been asleep at the switch when the TPP, which had begun life modestly as a grouping of just four small economies (New Zealand, Chile and Singapore, joined at the last moment by Brunei), expanded its membership at the APEC summit in Peru in 2008. The TPP had limited traction until the administration of George W. Bush, looking for an initiative to take on the trade front in the face of a hostile Congress, latched on to the TPP as a possible vehicle to promote trade liberalization, potentially leading to a future Free Trade Area of the Asia Pacific (FTAAP). Once the United States was on board, Peru, Australia and Vietnam all enthusiastically signed on through unilateral declarations. Malaysia expressed cautious interest and was eventually admitted. Canada, still mired in a minority government that hadn’t yet bought into the realization that Canada’s future lies as much, or more, in Asia rather than across the Atlantic or exclusively in North America, did nothing.

Over the past couple of years, though, the TPP has started to gain momentum. With the reaffirmation of U.S. commitment by the Obama administration, negotiations started in earnest in 2009, leading to a declaration in Honolulu in November 2011 at the APEC Summit that the TPP leaders had achieved the broad outlines of an “ambitious 21st Century agreement.” They expressed the hope that the agreement will be completed by the end of this year.

As the TPP started to move toward reality, and as Canadian trade relations with Asia continued to mark time (Canada has signed a number of free trade agreements in recent years, but none with an Asian economy), Canadian officials started to realize that they were on the outside looking in. They quietly started to sound out the United States on the possibility of Canada joining the negotiations, but it’s fair to say that Canadian participation wasn’t a U.S. priority.

First, there was the issue that adding participants would complicate a negotiation that was already challenging, given the varied economic interests of the participants, ranging from fully developed economies like Australia and New Zealand to emerging, state-directed economies like Vietnam. Second, there were some very real concerns regarding Canada’s willingness to make a positive contribution to achieving the kind of ambitious outcome the U.S. was seeking. Canadian intellectual property rights (IPR) laws were notoriously lax, and several attempts to update them had gone nowhere. Canada has also always been keen on carving out a wide exception for a broadly-defined range of “cultural industries.”

This is something not designed to appeal to important interests in the U.S. and, perhaps of more importance to New Zealand than the United States, Canada clung to an outdated supply-management system for dairy, eggs and poultry, the effect of which was to more or less seal off the Canadian market for these products (with the exception of specialty items that couldn’t be produced in Canada). In short, Canada wasn’t really welcome at the table, although no one wanted to say so publicly, and Canada didn’t want to run the risk of a rebuff by asking publicly.

Fast forward to Honolulu. Japan had let it be known prior to the APEC summit that it would be interested in joining the TPP talks. This would be a quantitative game changer, not only because of the importance of the Japanese economy, but also because of the opportunity to get Japan to adopt trade disciplines that it had traditionally rejected. Japan’s not so subtle profession of interest offered an opportunity for Canada (and Mexico). It would be difficult for the U.S. to embrace Japan yet rebuff Canada, a NAFTA partner and its largest trading partner. Moreover, Obama had to give Harper some bad news in Honolulu. He said he would be deferring a decision on the Keystone XL pipeline, which was supposed to bring Alberta bitumen to the markets in the U.S. southeast. Perhaps to sugar coat this bitter pill, the Obama cleared the way for Canada’s expression of TPP interest by “welcoming” Canadian (and Mexican) interest in participation – while reiterating the high standards expected of TPP participants.

Since then, Canadian officials have gone into overdrive. Trade Minister Ed Fast has just visited Malaysia, Singapore and Brunei to drum up support for Canadian participation, and plans to visit all TPP countries. Malaysia has given its approval for Canada (and Mexico) to participate, provided they agree to sign on to what has been agreed so far. Canadian officials have met their U.S. counterparts in Washington, where U.S. officials reported on input received from U.S. industry in response to a Federal Register notice soliciting comments on Canadian participation. Stakeholder comments included a range of sector-specific issues including comprehensive market access for goods, investment, intellectual property rights, insurance, and telecommunications, among others, in addition to cross-sectoral issues such as regulatory cooperation. Canadian officials underscored the Canadian government’s readiness to engage with the United States on a range of issues going forward. Trade Minister Fast claimed that, “More than 91 percent of the submissions supported Canada’s membership in the TPP.”

Indeed, it makes economic sense for Canada, the fourth-largest economy in APEC, to be part of the TPP, but whether Canada is truly prepared to adopt the so-called “dress code” of the TPP, and be ready to agree to a comprehensive, bold and far reaching agreement (including behind-the-border measures, investment, IPR and no sectoral exclusions) remains to be seen. The Harper government is close to finally enacting new copyright legislation, and has indicated that it wants to review and liberalize Canada’s investment restrictions, particularly in the sensitive telecommunications sector. Whether it’s prepared to tackle the disproportionately influential dairy and poultry lobby is another question, but the TPP might be the incentive needed to bring about a needed reform of some public policy positions in Canada.

All of the negotiating partners have defensive interests, and as with any agreement there will be give-and-take, so Canada needs to climb on board fast. There’s no question that the addition of three new entrants part way through the negotiating process won’t simplify the tasks of the negotiators. Despite that difficulty, Canada wants in – badly. It has concluded that it’s better to get inside the tent part way through the process than to wait on the outside and have no ability to shape the outcome.

Whether the other partners will be sufficiently convinced that adding Canada will be a net benefit remains to be seen. In the meantime, Canada continues its active chase of the TPP “holy grail,” hoping to be able to take a deep draught from that elusive cup. 

Hugh L. Stephens is a former senior official in the Canadian Department of Foreign Affairs and International Trade. He is currently Principal of Trans-Pacific Connections/TPC Consulting, based in Vancouver, BC, Canada (www.tpconnections.com).