Tuesday, October 06, 2015

Trans-Pacific Partnership probably not a big deal for Canada

The Trans-Pacific Partnership (TPP) trade deal has been signed amid much hoopla, and, as Stephen Harper crows, "Canada will be in". Mr. Harper refers to it as "the largest economic partnership in history", but in reality it is probably not such a big deal for Canada.
Firstly, it was never about Canada. The TPP has always been about America looking to dictate the terms of trade in the Pacific region. US President Barack Obama has been quite upfront about this: "If we don't write the rules, China will write the rules out in that region. We will be shut out." Canada has not been a mover and shaker in this, and is merely responding to circumstances, desperate not to be left out of anything the USA is involved in. If anything, from a Canadian perspective, it will actually water down some of the preferential access to the huge US market we have enjoyed as part of the existing NAFTA trade block, as well as allowing in competition from several less developed countries with much cheaper labour forces.
Secondly, as with all these major pacts, the deal still remains to be ratified by the 12 countries involved before anything concrete comes of it, and this will be a time-consuming process. Ratification is by no means a slam-dunk either. In Canada, the Conservatives are of course behind it; the NDP, in an almost knee-jerk opposite reaction, is vehemently against it (claiming, among other things, that it would result in up to 20,000 jobs in the Canadian automotive sector alone); the Liberals are hedging their bets, as usual, and say they will consider the deal after what Justin Trudeau calls "fulsome and responsible" discussions" (Mr. Trudeau, please look up the meaning of the word "fulsome" - I'm sure that's not what you really mean). The deal is not even a slam-dunk in America, and Obama will have quite a job forcing it through a skeptical Congress, and even through many lawmakers in his own party. Even Democratic nomination front-runner Hilary Clinton has recently come out against the pact.
Thirdly, even if were to be ratified one day, the net effect of the pact for Canada will probably be much smaller than many people believe. The only large Asian economy in the agreement is Japan - China, India and South Korea are conspicuously absent. Most items on the grocery shelves and on high streets are unlikely to be significantly affected, mainly because Canada already has low tariff agreements with many of the countries in the Pacific region anyway, but also because Canada has fought hard to keep some key import protections intact, and because any savings for consumers rely on companies passing on their lower production costs (which is far from certain).
Perhaps the most obvious effect consumers might see may be the elimination of a 6.1% tariff on imported Japanese cars, although even this is to take place over 5 years, and I am not sure that increased road traffic is something we should be promoting anyway. It also makes it easier to use offshore parts in Canadian-built cars. The Harper government has also promised the auto sector a $1 billion sweetener (out of tax-payer's money, of course) to compensate them for any lost business. Ironically enough, this is to be done through the Automotive Innovation Fund, which was originally set up to encourage Canadian vehicle makers conduct research into greener engines, and which the Conservatives, in their inimitable way, have summarily axed.
A lot of ink and milk has already been spilled over the effect of the TPP on the Canadian dairy, egg and poultry industry, but the fact is that only 3.25% of the dairy industry will be exposed to foreign competition under the deal, and even less for eggs (2.2%) and chickens (2.1%). So the net effect on the artificially high prices maintained by Canada's "supply management" system for dairy products is likely to be minimal, even if the dairy industry is being offered a $4.3 billion compensation package by the government for the disruption.
Mr. Harper thinks he has a winning election issue in the TPP, and is already vigorously tub-thumping. Most polling experts, though, are not expecting it to be a major issue in the forthcoming Canadian federal election on October 19th. In fact, all in all, it is a deal, but not necessarily a big deal.

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