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D'Avignon & Finlayson Op-Ed: The CPTPP represents significant opportunity for the Canadian economy (Vancouver Sun)

As Prime Minister Trudeau and his colleagues digest the outcome of recent discussions with senior Chinese government officials on the possible development of a free trade agreement between Canada and China, they should not lose sight of a more imminent opportunity: completion of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), previously known as the Trans-Pacific Partnership.  Participating in the CPTPP would expand Canada’s existing network of trade and investment agreements, support efforts to diversify our trade, and allow Canadian businesses and workers to secure improved access to growing foreign markets in the Asia-Pacific region.

Unfortunately, the Trudeau government inexplicably has sought to slow down the negotiations aimed at concluding the CPTPP, which has been under development for more than a decade. The other ten signatory nations – the United States dropped out following President Trump’s election – are keen to proceed with the CPTPP.   The Business Council of B.C. strongly urges the Prime Minister and his government to follow suit in early 2018.

The CPTPP is based on high standards, embodying leading-edge practices in the domain of international commercial agreements.  There are chapters dealing with the elimination of tariffs; the reduction of non-tariff barriers to trade; government procurement; the treatment of foreign investors; technical and sanitary rules governing cross-border trade; dispute settlement; and environmental and labour standards – among other topics.

With the United States stepping away from the agreement, there are now 11 CPTPP signatories.  Among them are Canada’s third largest trading partner, Japan, along with rapidly growing Asian economies like Vietnam, Singapore and Malaysia as well as Australia, New Zealand, Chile, Peru, Mexico and Brunei.  Collectively, the 11 participating countries account for more than 15 per cent of the global economy – and for an even larger share of international trade.

In thinking about the CPTPP, it is necessary to recognize how the nature of global commerce has changed over the past 25 years.  For one thing, services now represent a significant and growing slice of cross-border commerce, making up more than one-fifth of the value of global trade in 2015.   Because the prices of traded goods partly reflect the value of service “inputs” used to produce those goods – such as telecommunications, transportation, financial and engineering services – services are even more important than the above figure suggests.  In fact, recent research from the Conference Board of Canada finds that, after analyzing all the linkages among industries, services account for more than 40 per cent of the value of Canada’s international exports.  The expansion of cross-border trade in services has gone hand in hand with steady growth in direct foreign investment flows.   

Therefore, a significant advantage of the CPTPP is that it includes detailed rules on both foreign investment and trade in services.  As a result, the agreement will make it easier for Canadian service providers to participate in and benefit from global supply chains that sell goods and services and invest in business ventures abroad. The CPTPP also provides Canadian businesses with an enhanced capacity to source services from foreign suppliers when it makes economic sense to do so.

For Canada, a major win from the CPTPP is the strengthening of commercial relations with Japan, the world’s third largest economy and one of BC’s oldest trading partners.  Japan is an important market for Canadian agri-food products as well as for Canadian companies in the lumber, mining and metal industries.  In some sectors, current Japanese tariffs make it difficult and costly for Canadian firms to enter the market.  Under the CPTPP, Japanese tariffs on exports of natural resource products and other Canadian goods will be eliminated. 

The CPTPP marks a notable advance in international trade agreements.  Over time, other countries are expected to become part of the agreement as it gradually comes to define the rules governing trade and investment in the Pacific region.  The United States may well return to the table once the Trump era ends.  In the meantime, Canada would gain from preferential access to other CPTPP markets at a time when the United States is sitting on the sidelines.  China could also decide to join once the CPTPP is up and running.

We support the federal government’s move to start talks on a potential trade agreement with China.  However, a bilateral agreement with China will take years to conclude, particularly given the complex issues at stake and the huge role that state-owned enterprises continue to play in China’s economy.  In contrast, the CPTPP is a “done deal,” ready to be implemented by the 11 signatories in 2018 to our benefit.   It is time for Canada to leverage an historic opportunity to improve access to markets across the Asia-Pacific and lend support to an agreement that promises to set the standard for rules-based international trade.     

By Greg D’Avignon, President and Chief Executive Officer, and Jock Finlayson, Executive Vice President and Chief Policy Officer

As published in the Vancouver Sun