On June 19, 2012, at the Group of 20 Summit in Los Cabos, Mexico, Canadian Prime Minister Stephen Harper formally announced that Canada had been invited, along with Mexico, to join the Trans-Pacific Partnership (TPP). Japan has also indicated that it is interested in joining the TPP but has not yet been invited. Membership in the TPP represents a major boon for Canadian trade in the Asia-Pacific region and will open up new business opportunities for Canadian investors.
The TPP was formed in 2005 by New Zealand, Chile, Brunei and Singapore, and has grown to include the United States, Australia, Malaysia and Peru. These countries collectively account for 28% of the global gross domestic product (GDP), making the TPP the largest trading block in the world. Currently, the TPP member states are in the process of negotiating a free trade agreement to govern their trading relationship.
Although Canada initially declined an offer to join the TPP in 2005, it has pursued membership with increased vigour in recent years as Canadian officials have sought to strengthen economic ties to East Asian markets. Since Canada would be joining the TPP negotiations mid-process, Canadian officials have insisted that Canada be admitted into the TPP as a full and equal partner in future negotiations. However, Canada's first formal request to join the TPP at the Asia-Pacific Economic Cooperation forum in Hawaii in 2011 was met with opposition from some current member states, who expressed concerns regarding Canada's agricultural supply management, intellectual property and foreign investment policies. These concerns were partly eased by Prime Minister Harper's statement that Canada would keep nothing off the table during TPP negotiations.
The TPP has been described as a "dynamic" trade agreement with the potential to expand to include a large portion of the APEC states and is expected to include chapters on foreign investment and investor protection, government procurement, intellectual property, technical and food safety standards, services, and rules of origin. In this regard, the TPP proposes to address a far broader range of issues than previous free-trade agreements.
Reactions within the TPP community to Canada and Mexico's invitation have been mixed, with farmers in the U.S., Australia and New Zealand insisting that Canada remove the supply management quotas and tariffs protecting its poultry and dairy industries. Although the Canadian agricultural sector has staunchly opposed eliminating supply management, Canadian food-processing companies have been supportive of the suggestion, as it would allow them to acquire ingredients at reduced prices for use in products for export to Asian markets. Other observers have suggested that the TPP will provide Canada, the U.S., and Mexico with an opportunity to reopen many of the topics that went unresolved in the North American Free Trade Agreement (NAFTA) negotiations and modernize elements of their existing trade relationship such as supply-chain management, rules of origin and manufacturing integration without having to go through the difficulties of reopening NAFTA.
Implications for Canadian Businesses
Membership in the TPP may enhance the ability of Canadian businesses to access underserviced foreign markets, provide increased predictability and stability for investors, and deepen existing trade relationships. TPP member states represent markets with a combined GDP of more than US$1.8-trillion. Canada currently has free-trade agreements with the U.S., Mexico, Peru and Chile. However, Canada may stand to gain considerably though the TPP by liberalizing and expanding its trading relationships with the remaining member states, such as Singapore and Malaysia. Forecasts suggest that membership in the TPP could increase Canadian income by close to C$10-billion and Canadian exports by more than C$15-billion by 2025. The TPP may also provide valuable efficiency gains for Canadian businesses through increased supply chain integration and lower compliance costs achieved through the streamlining of regulatory and customs procedures among member states.
Although the terms of the TPP agreement are still being negotiated, the inclusion of Canada, the U.S. and Mexico in the TPP suggests there may be some overlap in coverage with NAFTA. However, as the range of issues to be included in the TPP will likely be broader than NAFTA, the TPP has the potential to significantly influence trade between Canada, the U.S. and Mexico. For example, some observers suggest that the U.S. could use the TPP negotiations to seek changes to the foreign-ownership rules regulating the Canadian telecommunications market.
Supply Management and Intellectual Property
Admission to the TPP would open new markets but may require Canada to address elements of its supply management systems in the dairy and poultry industries that have traditionally enabled producers to maintain higher prices through a combination of supply quotas and tariff barriers. Although the Canadian government has asserted that no conditions were placed on its entry into the TPP, New Zealand and the U.S. have been critical of the use of supply management in the Canadian dairy and poultry industries, leading some to suggest that Canada may have indicated it is willing to negotiate on supply management to gain its recent offer.
Canada's intellectual property regime was also considered a potential barrier to Canada's entry into the TPP. However, these concerns may have been mitigated or addressed by the Canadian Parliament's enactment of Bill C-11, which contains comprehensive changes to the Copyright Act.
Before Canada and Mexico can formally join the TPP negotiations, the invitation must be ratified by each TPP member state. As a result, Canada and Mexico will not be involved in the July 2012 TPP negotiations in San Diego. However, the Office of the U.S. Trade Representative has suggested that Canada and Mexico may receive observer status in the TPP during the 90-day waiting period required for the U.S. administration to consult with Congress regarding its negotiating objectives.
If the current TPP members ratify the memberships of Canada and Mexico, the market represented by the TPP members will expand to a total of 658 million people and a combined GDP of close to C$20.5-trillion.
It remains to be seen what impact Canada's entrance will have on the negotiations overall. Both Canada and Mexico have reportedly agreed with the TPP parties that they will not be entitled to revisit chapters that have previously been approved through a consensus of the member states. According to reports, the only fully closed-out chapter deals with small- and medium-sized enterprises. However, other chapters could be closed before the two North American countries formally join the TPP.
Canadian companies and their in-house counsel may consider it prudent to pay close attention to these negotiations to determine the entry points for strategic interventions with the Canadian government.
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