Worldwide: Current Trends And Developments In Canadian Trade Policy - Part II

Part II: Current Negotiations and Prospects

The current and upcoming negotiations being conducted by the Government of Canada are the component parts of the larger strategy to ensure Canadian business can reap the benefits from partnerships with some of the fastest growing economies on the globe.

Comprehensive Economic and Trade agreement with the European Union (CETA):

Launched in 2009, this negotiation should be completed by the end of 2012.

While this negotiation is with a traditional partner, and a developed market (our second largest), there are gains available that not only bring direct bilateral benefit, but situate us well for the next round of negotiations with Asian countries.

It is hugely important for Canada's credibility that we bring this negotiation with a major player to a successful conclusion, something we have not been able to do since the NAFTA. We need to walk into the Asian negotiations with this one "under our belt", proof that we are back in the "big leagues" of trade negotiations.

This is also a "state of the art" agreement, more extensive and ambitious than the NAFTA. It could result in the immediate elimination of tariffs on almost all trade.

Bilaterally,

• there are important gains possible for Canada in several areas, including better market access for meat and fisheries products, services and intermediate manufactured and processed goods.
• we want to secure an effective investor state dispute settlement system, given the extent of Canadian investment in Europe, and vice versa
• the EU's key demand is access to government procurement opportunities at provincial and municipal levels, highlighting the importance of provincial agreement to make this deal a success, which seems to be likely.

The EU is also seeking three improvements in Canada's IP regime for the benefit of European name brand pharmaceutical companies (although US and other companies will also benefit as "free riders")

• of these, I believe toughest for Canada to accept would be patent term restoration for up to 5 years for time spent in testing new drugs in order to get regulatory approval
• hard to predict outcome – depends on what EU gives in return e.g. on agricultural products
• no doubt that enhanced protection generally on IP is in Canada's longer term economic interests

The "final" round of full negotiations was held in Brussels in October 2012. Chief Negotiators and political levels --- and ultimately the leaders of both sides --- can be expected to resolve outstanding matters and set the final package before the end of the year. However, the legal "scrub" will probably hold off ratification for up to a year.

Trans-Pacific Partnership (TPP)

With the conclusion of the CETA, the Trans-Pacific Partnership negotiations will become the Canadian government's major trade policy focus. The government has pulled out all the stops to be admitted to these negotiations, so there is a lot of credibility now resting on their being successful for Canada.

They also will absorb very significant negotiating resources, with 29 working groups, and some catch up to do. In mid-October the government received the texts as currently negotiated and are examining them in order to prepare for the December round in New Zealand

• despite expressions of concern by some stakeholders and commentators, it is unlikely there are any big unpleasant surprises in these texts for the government
• although texts cannot be reopened, the give and take of negotiations will over time allow all parties to make changes here and there

Canada's main objectives in these talks probably cover the waterfront, including:

• improved access in areas of services, agriculture products, inter-mediate products, and government procurement
• better regulatory environments for Canadian investors and businesses in conducting trade and setting up local offices.
• another broader objective is to ensure that a deal is not done between our NAFTA partners USA and Mexico on one hand, and Asia on the other, without Canada being  part of the mix.
• we are also ensuring that we are sitting at the table when new rule making, perhaps transferable back to the WTO, is done
• in that respect, the reported work being done on State Owned Enterprises, driven by the US, could be significant. 

Among our so-called "defensive interests, there was a flurry of media speculation last spring that the price of admission would be an end to our Supply Management System in dairy, poultry, and eggs. It was said that NZ, and Australia (and the USA) were insisting on it, and in advance! While some concessions may be needed in the final deal that would allow more foreign access to our dairy and poultry market, it is not going to result in an end to Supply Management.

The more serious issue was the American demand for improvements in our Intellectual Property regime as a price of entry.  The passage of Canada's Copyright Modernization Act in June obviously was enough to satisfy the United States, at least for now. Were we to agree to some or all of the EU's demands in the pharmaceutical sector under the CETA, we would be under even less pressure. The US is likely to press for improved IP protection on all players in the TPP given the importance of IP to US earnings abroad, and thus to the US economy going forward.

There is one element, however, that overhangs these negotiations and concerns many commentators --- the open admission by the United States that the TPP is part of its evolving strategy for dealing with a "rising" China. China has criticized the TPP as a "containment" move by the United States, and is countering that move by trying to draw Japan and Korea into a competing Northeast Asia regional arrangement. It is not likely that China will join these talks soon. They may never do so.

As for Japan and Korea, we will have to wait and see what they do.  Korea is already starting a bilateral negotiation with Beijing.  Japan is starting an EU negotiation. Both Japan and Korea are more likely to join the TPP than China, and if they do it would make the TPP a very sizable economic grouping.

Bilateral Negotiations in Asia:

There are three bilateral talks that are part of this focus on Asia, two ongoing, one new. And there is the big question mark around China.

a) Korea:

Negotiations with Korea have been underway, on and off, for almost 8 years, including exploratory talks, but over the past year or more have been more or less stalemated.

On one hand the Koreans are seeking major improvements in access for automobiles and auto parts: this has been a non-starter for Canada.  On the other, Canada has been seeking access for Canadian beef, pork and other products, such as canola oil, on the same terms as has been given to the United States in their agreement with Korea, which is now in effect. The Koreans have apparently said this will not happen.

While other issues are in play, unless these important twin hurdles can be overcome in the coming few months, the window of opportunity will have passed for both sides:

• Canada will certainly now move on with its other trade agenda negotiations
• and the Koreans have turned to talks with China as their next big prize after the US and EU deals they have completed.

A permanent break in the negotiations will be unfortunate for Canada, since Korea is a major market for Canada in Asia, and Canadian businesses see the access Korea could give them to Asian value chains that pass through Korea. For Korea, Canada is a significant source of supply of resource products of many kinds, and a destination for investment and manufactured goods.  Overall, this deal is needed to re-invigorate our trade and economic ties and take them to a new barrier-free level.

b) Japan:

The start of negotiations next month in Tokyo on a Canada Japan Economic Partnership Agreement (EPA) may give us the chance to do with Japan, what we cannot do with Korea. (Indeed doing a deal that privileges Japan over Korea in the Canadian marketplace may get some attention in Seoul.)

Our offensive interests there --- agricultural products, access to domestic services markets, regulatory improvements, and so on, are very much like the discussions we have had in Seoul.  Japan is a major player in the Asian economy and access point to the region's value chains, where Canadians need to be.

The Japanese have their list of demands and will certainly demand that we move to zero tariffs on autos and automotive parts.

This is a negotiation that has been a long time in the making, but we have always been stymied by those in Japan's government who were reluctant to abandon Tokyo's WTO-only trade policy.

Bilateral approaches are a well established practice in Japan. Indeed, our main challenge will be to keep their attention in face of the major negotiation they are about to launch with the European Union.  We have to strike a quick and early deal with Tokyo.

c) India:

The bilateral negotiation with India has been underway with since 2009. It has a narrower agenda that our other negotiations, limited mainly to good and services (nothing for example on government procurement or IP).

Still, it has been going slowly as the two sides work through the issues. In addition, the Indian side seems to be been distracted by recent economic issues and political push backs to the reform programs of PM Singh. Recently, however, the Indian government has re-discovered its reform "mojo", and this, together with the upcoming visit of the Prime Minister Harper should serve to boost Indian engagement in our negotiations.

Talks resume in November in Delhi, and it is likely that both sides will be coming to the table with new material.

For Canada, the objectives are as usual, heavily weighted to the agriculture sector, where barriers are significant and often arbitrarily set even for products Indians want and need. We also want to get Canadian businesses access to local opportunities in such areas as financial services.

Indian demands cover a number of areas, but one of particular interest is in access for business and skilled professionals assigned to work in Canada by Indian companies, such as those in the IT business.

d) China:

For many countries, the biggest prize of all is a bilateral agreement with China.  Some have been successful (New Zealand), but others have been at it for some time (Australia).

During Prime Minister Harpers' visit to China earlier this year the Chinese invited Canada to join in an "FTA" negotiation.  The government is undoubtedly considering its options carefully.

A Complementarities Study, completed by the two sides over the past year, came out this summer. It points to a number of areas where both sides could gain from a bilateral deal.

For Canada, the "wins" would include

• agriculture
• infrastructure, transportation and aerospace
• services of many kinds
• even textiles

This is a huge growing market, the "beating heart" of Asian growth, and destined to be the world's number one economy over the coming years. The rewards would be substantial from a well-negotiated broad agreement where we bring all of our strengths to the table.

But there are other factors to bear in mind

• this agreement is likely to take years to complete, some say a decade or more
• China will be a formidable negotiating partner and enjoys a huge size advantage (but so did the USA in the 1980's)
• Finally, the current negotiations I have mentioned, even with CETA concluded, are drawing off significant resources and there are doubts we can handle this major negotiation with current staff and experience

Conclusion:

Canada's trade policy has moved into high gear after almost two decades of on and off advances with smaller countries, and until recently, with little result.

We are returning to the "big leagues" of trade negotiating, and with a "win" on the CETA, we can move on confidently to some important new challenges.

We are focusing on the high growth economies of the emerging world where Canada's hopes for regaining dynamic trade growth lie; Japan is an exception, but is a major economy and is in Asia.

Canada is moving away from traditional trade agreements or FTA's and seeking more complex trade and economic arrangements that join investment, competition policy, IP and all other areas relevant to Canadian success in today's global economy.  These broader types of negotiations allow us to bring more leverage to the table.

The road ahead will be tough for Canada's negotiators, but there is little choice if Canadian businesses are to take advantage of the opportunities represented by emerging markets, and are to have access to the global value chains where Canadian products and services should find ready demand.

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