Canada: A Post-U.S. TPP? Taking Stock And Looking Ahead

May 2017 may have been a turning point for the Trans Pacific Partnership (TPP) Agreement entering into force. After the U.S. withdrawal from the Agreement in January 2017, the remaining TPP-11 countries openly questioned whether there remained a sufficient foundation to maintain the multi-faceted trade liberalization consensus that took seven years to negotiate, largely under U.S. leadership. After meetings in May 2017, it appears that there is a new willingness among the major economies in the TPP-11 to stay the course without U.S. involvement.

On January 23, 2017, President Donald Trump issued a Presidential Memorandum pulling the U.S. out of the TPP. Under the TPP's current terms requiring ratification by at least six original signatories representing 85 percent of the combined GDP of the original signatories, it cannot enter into force unless the U.S. ratifies it¹—so the U.S. withdrawal means that the remaining 11 TPP partners (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam) must determine if they want to keep the deal alive, and if so, in what form. 

The remaining signatories were initially very pessimistic about the prospects for the TPP without the U.S. However, in recent months there has been a shift in tone from signatory countries, with some optimism for the prospects of proceeding with the remaining TPP-11. Senior trade officials met in Toronto in early May, followed by a meeting between ministers from the TPP-11 countries on the sidelines of the Asia-Pacific Economic Cooperation (APEC) meeting in Hanoi.

At the end of the Hanoi meeting, the TPP-11 issued a joint ministerial statement on May 21 that reaffirmed "the balanced outcome and the strategic and economic significance" of the deal. The ministerial statement announced the TPP-11's intentions to begin a process to determine the possible options to bring the Agreement into force "expeditiously", requiring senior trade officials to complete their assessment of options by the November 2017 APEC Economic Leaders Meeting in Vietnam. Senior trade officials will meet in Japan in July to continue with this work. 

While it is probable that some signatories may seek to use this process to re-open aspects of the negotiated text, key economies—Japan, Australia and New Zealand—have stated their desire, or even the necessity to proceed without re-opening negotiations. This is noteworthy because the final negotiated text of the TPP-12 required controversial compromises from major economies, such as requiring Japan to be more open to agricultural imports by cutting tariffs and increasing import quotas on specific products.

In part, the leadership and support for the TPP-11 now being shown by Japan may reflect a higher-level strategic interest in using the TPP to counter China's leadership in the Regional Comprehensive Economic Partnership (RCEP) process, or to establish a baseline of commitments that will set the standard for bilateral or other plurilateral agreements. Japan has stated that it is not willing to offer anything bilaterally that goes beyond what was negotiated plurilaterally ( Interview with Inside US Trade, subscription required). Japan's attention appears to be directed at TPP-11, rather than a possible U.S.-Japan bilateral treaty, notwithstanding the U.S. expressed desire for bilateral treaty negotiations. 

Although Canada and Mexico have not clearly stated that they are opposed to renegotiation, their ultimate positions on the TPP will likely be shaped by the NAFTA renegotiation process. Ironically, the U.S. has signaled that the TPP offers a starting point for NAFTA discussions, so Canada and Mexico may not want to open up to more compromises by renegotiating TPP. In addition, a study by the Canada West Foundation suggests that Canada and Mexico would gain significantly from a TPP-11 deal without the U.S.: exports to TPP countries would increase 4.7 percent for Canada (vs. 0.36 percent under TPP-12) and 3.12 percent for Mexico (vs. 0.05 percent under TPP-12).

For some signatories, their key strategic priority was the access to the U.S. economy that the TPP promised, which now appears to be off the table. The lack of this significant benefit may jeopardize the willingness of countries, such as Vietnam, to undertake the regulatory changes required by the Agreement, and may dissuade, or at least make it less urgent, for Indonesia and potentially South Korea to consider joining the TPP. South Korea already has bilateral trade agreements with a number of TPP-11 members, and Indonesia's Vice-President, Jusuf Kalla, told media sources that, absent the U.S, Indonesia is less interested in the TPP. By contrast, other regional economies, such as Thailand, have signaled that they remain interested in the value of the TPP and would like to join, subject to the agreement's final consensus about issues that are sensitive for its domestic economy. 

Japan's State Minister of Foreign Affairs, Kentaro Sonoura, has called renegotiation a "Pandora's box" that the TPP-11 should not open given the timeframe they have set to explore options for the Agreement to enter into force ( Interview with Inside US Trade, subscription required). New Zealand's Trade Minister, Todd McClay, described the strategic value of the TPP as being that it establishes a "common set of rules across the Asia-Pacific", which remains important regardless of the shifts in strategic interests among parties due to the U.S. withdrawal ( Interview with Inside US Trade, subscription required).

The TPP-11 are keeping the door open to expand the TPP to allow non-signatory countries to join and also referenced wanting to determine "how to facilitate membership for the original signatories", i.e., including the United States. U.S. Trade Representative Robert Lighthizer clarified that the U.S. is not going to join the TPP, but will be pursuing "a series of bilateral agreements with willing partners" in the Asia-Pacific region. 

Pursuing the TPP without the U.S. is in keeping with the new foreign policy priorities announced by Minister of Foreign Affairs, Chrystia Freeland, in her address to Parliament on June 6. As Minister Freeland put it, "[t]he fact that our friend and ally [the U.S.] has come to question the very worth of its mantle of global leadership, puts into sharper focus the need for the rest of us to set our own clear and sovereign course. For Canada that course must be the renewal, indeed the strengthening, of the postwar multilateral order." Despite indications to the contrary, it appears that order may involve a version of the TPP after all.

Footnote

1 The TPP provides three ways that the Agreement can enter into force, but all require participation by the U.S. The three mechanisms for entry into force are: (i) the TPP comes into force by default 60 days after the date on which all original signatories have ratified it; (ii) if not all original signatories have ratified it within two years, it enters into force 60 days after the expiry of the two year period if at least six of the original signatories representing at least 85 percent of the combined GDP of the original signatories in 2013 have ratified the Agreement; or (iii) if the threshold in (ii) has not been met by the expiry of the two-year period, then the Agreement enters into force 60 days after the threshold is met, whenever that may be. Due to its status as an original signatory and the size of its economy, U.S. ratification would be required for any of these mechanisms to trigger entry into force.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.