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Will Canada Screw up a March Pacific Trade Deal?

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Will Canada Screw up a March Pacific Trade Deal?

Japan and Australia are determined to push through a revised TPP in March. Canada is the main stumbling block.

Will Canada Screw up a March Pacific Trade Deal?

Japanese Minister of Economic Revitalization Toshimitsu Motegi speaks during a press conference about the Trans-Pacific Partnership (TPP) held on the sidelines of the Asia-Pacific Economic Cooperation (APEC) Summit in Danang, Vietnam (Nov. 11, 2017).

Credit: AP Photo/Mark Schiefelbein

Canada infamously “screwed everybody” in preventing the signing of a new Asia-Pacific trade deal last November. With Japan and Australia now eyeing a March agreement on the “Comprehensive and Progressive Agreement for Trans-Pacific Partnership” (CPTPP), will Canada screw it up again?

Starting Monday, Tokyo will host a two-day conference of negotiators from the pact’s 11 remaining signatories with the aim of addressing remaining contentious areas, including Canada’s concerns about protecting its cultural goods and services and its auto industry, among other issues.

Japanese Minister of Economic Revitalization Toshimitsu Motegi told reporters Friday that “the negotiations have entered the final phase. I hope to see progress toward the signing and effectuation of the deal.”

Having come close to a deal last November in Vietnam, prospects for a new trade agreement appear to have brightened after recent talks in Tokyo between Japanese Prime Minister Shinzo Abe and Australian Prime Minister Malcolm Turnbull, who have vowed to press ahead with or without recalcitrant members.

Although lacking U.S. participation following U.S. President Donald Trump’s decision to withdraw from the pact, the remaining signatories still represent a sizable economic bloc, comprising Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam.

Speaking in Tokyo on January 18, Turnbull declared that “Prime Minister Abe and I are personally committed to having this deal signed and sealed by March.”

“Our strong preference is for all 11 countries to join the first wave. But our focus is on bringing the new TPP agreement into force as soon as possible with those who are ready to move,” he said.

Significantly, Turnbull left the door open for other participants, including a potential change of heart from Washington.

“Crucially, one of the design features of the TPP is its flexibility as an open platform. I believe its logic — the logic of cooperation — is so compelling, that others will want to be a part of it once it’s up and running. Indeed, that’s what we are seeing already,” he said.

“Importantly, we are consciously setting it up to enable and encourage the United States to dock in should it choose to do so in the future.”

Abe told the Australian Financial Review that he would work with Turnbull on securing a TPP deal, “bearing in mind that [Chilean] President Bachelet will be retiring in March so participating members of TPP will bear that in mind and we will look to see enhanced negotiations.”

The Australian financial daily said both Canada and Mexico had reservations about signing up to the pact, “although it is understood Indonesia and South Korea are keen to join.”

Abe even flagged a strengthened “Quadrilateral Security Dialogue” encompassing Australia, Japan, India, and the United States concerning both regional security and infrastructure issues.

‘Work To Be Done’

But the elephant in the room remains Ottawa and its touted objections to the CPTPP on both cultural and automotive issues.

In pulling out of the signing ceremony last November, Canadian Prime Minister Justin Trudeau cited much “important work still to be done,” including the creation of a “gender rights” chapter, protection of its automotive industry, and rules concerning its protection and promotion of culture.

Under the original TPP, 45 percent of a car imported to Canada must have originated in a TPP member nation, compared to the 62.5 percent regional value content required by the North American Free Trade Agreement (NAFTA).

“It would be hard to resist Trump’s demands for greater American content in autos when Canada (and Mexico, which was also a signatory of TPP12) has allowed Asia to maintain a lower bar,” commented Canada’s CBC News.

“TPP terms as they now exist are not positive to Canadian-based auto parts manufacturing — 100,000 people that work for hundreds of Canadian firms will be happy to read today that their government has chosen to do the difficult work of negotiating in their interests instead of against them,” said Flavio Volpe, president of Canada’s Auto Parts Manufacturing Association.

Despite such concerns, the Business Council of Canada has declared that the revised TPP “could be more beneficial to Canada than the original agreement,” due to its enhanced access to Japan, the world’s third-largest economy, among other Asian economies, with the absence of the United States.

“With the North American free-trade talks in disarray, a revived TPP is vital to Canada’s future trading interests. Canada badly needs this deal,” wrote the Globe and Mail’s John Ibbitson.

Ibbitson pointed to the TPP’s benefits for Canada, including giving Canadian beef producers duty-free access to Japan instead of the 50 percent tariff faced by U.S. farmers. Canada would also win improved access to emerging markets such as Malaysia and Vietnam, along with Mexico, ironically also part of the NAFTA pact that Trump has threatened to withdraw from.

Canada’s openness to a revised CPTPP may not have been aided by Australia’s recent decision to pursue action in the World Trade Organization (WTO) against Canada over wine imports. The move followed lobbying by Australia’s wine industry, which accused Canadian provincial governments of being involved in “discriminatory and protectionist behavior.”

Commenting on Canada’s willingness to sign the deal, a Japanese source told the Nikkei that “we still can’t tell” what Ottawa will do.

“Ottawa is not expected to leave the trade agreement as was previously feared. But if it refuses to sign off unless its demands are met, it would keep other countries from ratifying the deal and could complicate plans to bring it into effect sometime in 2019,” the Japanese financial daily said.

The Nikkei also pointed to issues regarding Vietnam and how much time it will be given to pass laws protecting workers’ rights.

But with a still sizable 14 percent of global gross domestic product on offer with the new pact, the pressure is on negotiators to overcome the remaining barriers to an agreement.

In the meantime, talks continue over the rival Regional Comprehensive Economic Partnership (RCEP), a proposed 16-nation agreement including the ASEAN nations along with Australia, China, India, Japan, New Zealand, and South Korea.

With RCEP negotiations now two years behind schedule, friction between India and China has been identified as another reason for the slow progress of the pact, which is seen driven by ASEAN and China.

Australia’s Turnbull was careful to also include RCEP in his Tokyo speech, commenting that a “high-quality RCEP agreement would improve governance standards and spur reform in member countries.”

“Australia and Japan are also working together in APEC to prepare the ground for the longer-term goal of a free trade area of the Asia Pacific,” he added.

But with the CPTPP now seemingly closest to fruition, negotiators will be sweating over any further stumbling blocks from Canada or elsewhere.

As Ibbitson noted, “until the globalization momentum resumes, the TPP is all we’ve got.” Will Trudeau listen?