What’s the Deal? Trans-Pacific Partnership

On October 5, the Trans-Pacific Partnership (TPP) exploded into the mainstream of the federal election campaign. With the announcement from Atlanta that a deal had been concluded after five days of negotiation, Canada joined 11 other Asia-Pacific region nations in forming the world’s largest trading bloc and deepened its relationship in the fast-growing Asia-Pacific region while expanding its relationships with the Americas.

What’s in the TPP for Canadians?

At a high level, TPP secures preferential access to the economies of the TPP’s member states, reduces or eliminates tariffs and other barriers to trade across a wide variety of sectors, and enhances access in the services sector.  Canada’s position within the TPP also situates Canada uniquely as the only G-7 country in the world with trade deals with the United States, Europe and the Asia-Pacific region. Overall, the impact of TPP is a benefit to the Canadian economy.

Heading into the Atlanta ministerial meeting, three key sectors remained on the negotiating table and held significant political sensitivity for Canada:

  • Automobiles: Under TPP, only 40-45% of the net cost of vehicle must be from TPP countries for tariff-free imports, reduced from 62.5% under NAFTA.
  • Agriculture: Canada’s supply managed agriculture sectors are opening up a small share of the market – 3.25% of Canada’s dairy market and approximately 2% of the egg and poultry markets – while keeping the supply management system intact (with $4.3 billion in support programs announced for Canadian producers).
  • Pharmaceuticals: Eight years data protection for biologics appears to be the ultimate outcome via one of two routes: eight years of data exclusivity or five years of data exclusivity plus other elements of the regulatory regime that allow for protection beyond that.

While sectors like these have been high profile and received much attention, there is much of the TPP that remains unknown. Provisions on intellectual property, investor-state dispute settlement and sub-national government procurement could have significant impact on the Canadian economy.  Only short overviews of these issues are available in the Canadian and American technical summaries. In the absence of a full text, the extent of that impact is not yet fully known and the technical summaries of the agreement made available by member governments fall short of providing the full picture of TPP.

It is anticipated that the full text of the agreement will be released in the coming weeks, but is not likely to be released before Election Day. With over thirty chapters, the TPP impacts many sectors and issues which have not yet been fully scrutinized. Ratification of the agreement by national governments is required to implement the TPP.

What is the reaction to TPP?

With the election campaign moving into its last days, the question to party leaders is what they will do with the agreement. The Conservatives are firmly behind the deal they’ve negotiated and would move forward with ratifying and implementing the agreement.

Tom Mulcair, on the other hand, said today that the NDP would not be bound by the TPP, criticizing the lack of transparency around the deal and saying that it sacrificed farming families and jobs in the auto sector.

Liberal Leader Justin Trudeau fell in the middle of the spectrum, saying that a Liberal government would review the agreement to determine its impact on the Canadian economy, while reiterating that his party is pro-trade.

Mulcair called for the government to release the full text of the TPP agreement prior to the election – a highly unlikely timeline given the coordination of the 12 member countries.  In the absence of a final text, it may come down to which side of the argument resonates most with Canadian voters.

News of the TPP conclusion has activated both pro- and anti-free trade elements of the political and economic worlds. Today, Trade Minister Ed Fast’s Twitter account lit up with support for TPP from trade associations representing a broad cross-section of the Canadian economy.

On the other side of the fence, Unifor was quick to call TPP a job killer, estimating 20,000 Canadian auto jobs are at risk, and expressing concern with other impacts of TPP on the prices of pharmaceuticals, anti-democratic investor-state dispute courts and major concessions on dairy and poultry marketing boards.

At a provincial level, Saskatchewan Premier Brad Wall was quick to highlight the opportunities that TPP posed for increasing exports and growth in the province’s agricultural sector. In Ontario, a joint statement from the Ministers of Economic Development, Employment and Infrastructure and Agriculture, Food and Rural Affairs, expressed support for some elements of TPP, but was critical of concessions in the auto sector and in supply management.

In Quebec, the provincial government responded positively that TPP will strengthen Quebec’s competitiveness, highlighting positives for the provinces’ agri-food sector, particularly pork, maple syrup and cranberries.  In contrast, Quebec’s dairy producers are skeptical about the deal, particularly following concessions on dairy first made in the Canada-EU CETA agreement.

What does the TPP mean for the Canadian election?

The flip side of the equation is how Canadians view TPP within the context of deciding how to vote.  Will Canadians view TPP as an opportunity for lower consumer prices and increased economic growth?  Or will it be seen as a job-killer, shipping Canadian jobs offshore to lower-cost economies.

An old maxim is that all politics is local. When considering whether TPP will impact the outcome of the election, the local impact needs to be considered.  The auto sector is heavily concentrated in southern Ontario.  Half of Canada’s dairy producers are in Quebec.  When it comes to impact, there are only a handful of ridings where the direct impact of TPP may drive the ballot question for voters and whether those voters are motivated to get out to vote on that issue.

On a Canada-wide scale, perhaps the more pertinent question is whether Canadians understand TPP. If the electorate doesn’t understand the agreement and what it means for the economy, will it drive their vote? Not likely. But if the battle for public opinion driven by political and non-government stakeholders goes into overdrive in the last days of the campaign, Election 2015 has potential to motivate voters and turn this into Canada’s second free trade election.

The TPP after October 19

The general path forward for TPP is to finalize the treaty for signature, followed by ratification in national parliaments and finally implementation, a process which under normal circumstances would take about two years.  However, with the possibility that the October 19th election may not return a majority government could cause this path forward to take unexpected twists and turns, delaying Canadian ratification. To provide perspective, Canada has been waiting nearly two years for legislation to ratify the Canada-EU CETA, and the timeline continues to extend.

South of the border, the U.S. Presidential election remains on the horizon in November 2016. Faced with swift condemnation from upstart Democratic nominee Bernie Sanders and a lukewarm (at best) response from Democrats, including Hilary Clinton, President Obama will likely find the TPP a tough sell before the end date of his administration.

Across the Pacific, Japan will see the agreement go through both of its houses of parliament. It has been reported that the Diet is considering extra sessions to deal with TPP before the start of the session next year, when it would be relegated to second priority behind budget talks.

In sum, reaching a deal on TPP marks the end of the long journey on negotiation, but just the start of a potentially rocky journey to making TPP a reality.