Canada’s Trade Minister Ed Fast is heading to Atlanta, Georgia next week to meet with chief negotiators to hammer out the remaining sticking points holding up the Trans-Pacific Partnership (TPP), a global trade agreement with the potential to reshape the Canadian economy.
Professor Keith Head, HSBC Professor in Asian Commerce at UBC’s Sauder School of Business, explains what Canadians stand to gain or lose, and whether the country should be in a hurry to sign.
Why should Canadians care that TPP negotiations appear to be bogged down?
The TPP will likely benefit Canadian consumers via lower prices and more foreign varieties. In my research on the world car industry with Sciences Po Economics Professor Thierry Mayer, we find that Canadian car buyers will obtain gains of three to seven per cent, depending on the success the TPP has in deepening integration between members.
For businesses, the TPP would expand tariff-free access to a variety of countries where Canadian exporters currently face high tariffs, in particular Malaysia and Vietnam. The agreement would facilitate Canadian exports to Japan, the third-largest economy in the world. If Canada were to drop out of the TPP, Japanese firms would still gain better access to the American and Mexican markets where Canada currently has advantageous access via NAFTA. This would undermine the incentives of Japanese firms to produce in Canada. Finally, the TPP’s investor-state dispute mechanisms may increase confidence for Canadians wishing to do business in less developed countries such as Peru, Malaysia and Vietnam.
Many Canadian dairy farmers aren’t enthusiastic – why?
For a long time the main reluctance seemed to come from concerns of dairy producers in Quebec. They were reportedly worried about new competition from New Zealand’s dairy industry. Their other concern would be if tariffs went down on New Zealand dairy, they might also go down on U.S. dairy, an exception that Canada managed to carve out from its free-trade agreement with the U.S.
Recently the Canadian auto industry has raised red flags – what are their concerns?
This is a new point of contention. The U.S. reportedly agreed to a substantial lowering of the content requirements for imported autos. Instead of requiring more than 60 per cent of the value of parts to be of member origin, as in NAFTA, the Japanese may have been promised a deal where the TPP content could fall as low as 45 per cent. Canadian negotiators were reportedly upset both by the process (side deals being agreed upon without proper consultation) and by the issue itself.
The worry seems to be that Japanese cars made with large amounts of Chinese parts would make life difficult for Canadian workers in the industry. They might even lower the rationale for having Honda and Toyota plants in Ontario.
What does your research reveal about how things might play out for Canadian autoworkers?
Running various trade deal scenarios through our model we find that employment in the Ontario assembly factories could shrink as much as nine per cent or increase by as much as 14 per cent. The reason it’s so hard to pin down a number is that the TPP contains a lot of different measures aimed at deeper integration between members and we don’t have a lot of historical evidence to tell us what each of those measures would do.
Are the concerns of dairy farmers and automakers the most important ones?
While these are the issues that seem to be on Canadian negotiator’s minds, I would argue that the bigger concern ought to be what is being given away in terms of intellectual property rules. Once again the U.S. appears intent on trying to lengthen patent protection, a policy mainly aimed at increasing prices for its pharmaceutical companies. This would not be in Canadian consumer interest and I think it should be resisted. It could also prove harmful to the other members of the TPP. I’ve seen research that the WTO-related strengthening of patent protection caused large transfers from less developed countries (and Canada) to the U.S. Such transfers can wipe out the gains from trade. Furthermore an increasing number of analysts argue that patents are a lousy way to stimulate invention. They should be reined in, not super-charged.
I think the consumer interest in greater access to imported dairy and imported cars is strong. But I would be very happy if we banded together with other countries to resist increases in intellectual property protection.
Top image source: Hubert Yu on Flickr