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Why Canada should forge ahead with the TPP without the United States

Author(s): Riyaz Dattu

June 20, 2017

Our last international trade brief dealt with Global Affairs Canada seeking comments on NAFTA renegotiations, the increased enforcement of U.S. trade laws, a Trade Case Alert pertaining to anti-dumping import duties for gypsum panels shipped to Western Canada, and a Trade Case Alert dealing with a global safeguard investigation into solar panels imported into the U.S. In this brief, we discuss why Canada should forge ahead with the TPP without the U.S., U.S. retailers’ priorities for NAFTA renegotiations, the public comments on NAFTA renegotiations, NAFTA becoming a battleground for trade-related IP obligations, and a Trade Case Alert relating to a Canadian anti-dumping and countervailing investigation being initiated for certain carbon and alloy steel line pipe from Korea. 

We have previously taken the position that Canada would benefit from proceeding with the implementation of the TPP even if the United States remains outside this trade partnership.  With the U.S. administration withdrawing from the TPP by President Trump’s very first executive order signed on January 20, 2017, it appeared that the TPP was dead.  However, in mid-March 2017, at a TPP summit held in Chile, there was sufficient support from the remaining 11 countries to proceed with the TPP without the U.S (TPP-11). The momentum to move forward with the TPP-11 has in recent weeks gained further traction, particularly with Japan taking a leadership position.

Recently, a Canadian public policy think tank, the Canada West Foundation, released a study suggesting that Canada has much to gain from a TPP deal even if the U.S. sits out of the pact. The report, published on June 13, 2017, quantified the economic benefits for the 11 remaining countries in moving forward with the TPP-11. According to the study, while all 11 countries are better off with a TPP than without, Canada and in particular Mexico stand to gain the most from the U.S. withdrawal. Exports to TPP countries under a deal without the U.S. are projected to increase by 4.7% for Canada above a non-TPP baseline by 2035 (compared to 0.36% under a TPP deal with the U.S.).  The study found that Canada's most notable gains under the TPP-11 would be in the agriculture and agri-food sectors because of the relative uncompetitive U.S. position  within the TPP-11 region. In particular, the Canadian beef sector would gain significant advantages in accessing Japan’s market. Overall, Canada’s welfare gains would improve to C$3.4 billion under the TPP-11, compared to C$2.8 billion in a TPP with the U.S.

The study also predicts that businesses looking to invest will be incentivized to relocate production into the TPP-11 region to obtain the benefits of the TPP-11. This is expected to particularly benefit Canadian and Mexican businesses if U.S. companies choose to invest and/or  relocate from the U.S. to Mexico and Canada to obtain the benefits of the TPP-11.

While this study focuses on the TPP, the same benefits may be gained by Canada when the Comprehensive Economic and Trade Agreement (CETA) is implemented, given the absence of a free trade arrangement between the U.S. and the EU and no immediate plans to negotiate such a deal under President Trump, who favours bilateral trade deals.  As we have previously indicated, Canada could find itself in an enviable position of being the hub for trade with Asia, EU and the NAFTA region if the U.S. continues to isolate itself under the banner of protectionism and America First.