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Jock Finlayson: Everything you wanted to know about the TPP

(but were afraid to ask)

By Jock Finlayson

Back in June, Canada entered into talks aimed at concluding what some experts believe may eventually become the world’s most exciting modern trade agreement, the Trans-Pacific Partnership (TPP).

Why does Canada want to be part of the TPP?

Primarily for two reasons:

1) A striking feature of Canada’s trade structure is that our main commercial partners and export markets tend to be relatively slow-growing developed economies, which helps explain why Canada’s share of world exports fell by more than one-third between 2000 and 2010. Many of the world’s fastest-growing economies are in Asia, but today (apart from Japan) Asian markets receive only a small percentage of Canadian exports. The TPP can assist Canada in developing new offshore markets for its goods and services.

2) There is also a defensive motivation for Canada to be in the TPP. If the U.S. - which joined in 2008 - were the only North American member of the bloc, it would enjoy a significant competitive advantage, helping it to attract investments from companies that want to operate in North America and also do business in the wider Asia-Pacific region.

The TPP, which began in the early 2000s, currently consists of Brunei, New Zealand, Singapore and Chile, Australia, Malaysia, Peru, Vietnam and the United States. Canada and Mexico were both invited to join in June, and Japan has also expressed an interest and may be added within the next year. Two other big Pacific economies - China and South Korea - are not yet participating, although some analysts believe they are likely to join if the current TPP talks produce an actual agreement.

But even the current list of TPP partners represents a significant economic trading bloc. If Canada and Mexico are included, the TPP members are home to 660 million people and generate more than $20 trillion of annual economic activity. A formal TPP free trade accord among only the current participants could yield an increase in global income in the vicinity of $300 billion per year. If China, South Korea and other countries eventually sign on, the potential world-wide economic gains could rise to almost $2 trillion.

While Canada currently does $600 billion worth of merchandise trade (imports and exports) with the TPP nations (albeit the lion’s share of this is with the U.S.), the prospect of reaching a trade agreement that encompasses much of the Asia-Pacific region offers considerable upside potential. According to a recent study by the Peterson Institute for International Economics, even a “small” TPP agreement covering 13 countries would result in a $10 billion increase in Canada’s GDP by 2025. A larger agreement involving 21 Asia-Pacific countries would boost the figure to $26 billion.

One could argue that joining the TPP is superfluous, because Canada already has trade agreements with the U.S. and Mexico under NAFTA. But the TPP is expected to deepen and further liberalize trade between NAFTA members by covering issues that the original scheme didn’t comprehensively address, such as financial services, telecommunications, intellectual property and government procurement.

Other benefits for Canada of joining the TPP include protection from illegal use of intellectual property, whether in the form of technology or services; rules to allow Canadian service providers - such as financial institutions and professional services firms - to establish operations and do business in TPP members’ markets on a non-discriminatory basis; improved investment conditions and a common set of rules governing foreign direct investment. Plus, for big commodity producers such as Australia and Canada, the TPP should provide better and more assured access to Asia-Pacific markets for primary and processed resource-based goods.

The most difficult issue facing Canada because of its presence at the TPP table relates to its tradition of protecting its domestic dairy, poultry and egg production industries through “supply management,” which has long tarnished Canada’s reputation as a proponent of trade liberalization. But by deciding to sign on to the TPP, the Canadian government effectively agreed to put existing supply management regimes on the table as part of the overall negotiations.

Canada’s trading and wider economic interests are increasingly shifting toward the Asia-Pacific. Being part of the TPP is an important step in ensuring that Canada is positioned to take advantage of all of the opportunities the region offers.

As published in Troy Media

Jock Finlayson is Executive Vice President of the Business Council of British Columbia.