AM16 Seminar: Trade: An Engine of Growth for All by IMF (CC BY-NC-ND 2.0) https://flic.kr/p/MYLDS4

AM16 Seminar: Trade: An Engine of Growth for All by IMF (CC BY-NC-ND 2.0) https://flic.kr/p/MYLDS4

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Freeland on the TPP: Taking the U.S. Out Changes a Delicately Balanced Deal

The Trans Pacific Partnership effectively died with the election of U.S. President Donald Trump, who wasted no time in announcing that the U.S. would not move forward with the agreement. Since the TPP cannot legally take effect without U.S. ratification, the decision to withdraw effectively kills the deal. The remaining TPP countries will meet in Chile next week to discuss what comes next. In advance of that meeting, Foreign Affairs Minister Chrystia Freeland appeared before the Senate on Tuesday and was specifically asked by Senator Joseph Day about the possibility of trying to salvage the agreement.

Freeland’s response:

On the TPP, it’s important for people to understand that that agreement had a very specific architecture. The architecture of the TPP is such that it can only come into force if it is ratified by a minimum of six countries equal to a minimum of 85 per cent of the economic activity covered by the TPP countries. In practice, what that means is the TPP can only come into force if it is ratified by both the U.S. and Japan. So there can be no TPP without U.S. ratification.

It is absolutely the case that some sort of other combination of TPP interested countries could happen. Chile is convening a meeting of TPP countries next week, and Canada will be there. China has been invited and the U.S. has been invited also, so different combinations are being discussed.

But I do want to caution honourable senators from thinking that it would be as simple as just taking the United States out. These agreements are very delicately balanced deals, and everyone makes different concessions based on the concessions they’re getting. If the U.S., with its huge market, is taken out of that picture, then a new calculus would apply to everyone. So reconstituting the TPP11 would be a complicated thing to do.

While Freeland is no longer the Minister of International Trade, her response strikes at the heart of the issue.  The U.S. was an integral part of the TPP and the willingness of countries to compromise on key issues was a function of gaining access to the U.S. market. Without the U.S., the agreement as currently structured makes no sense. I made much the same argument earlier this year:

The need for U.S. and Japanese ratification for the TPP to take effect is no accident. For most of the countries in the TPP, access to those two markets were the reason they were willing to sign in the first place. For example, Canada came late to the TPP negotiations in part because it saw limited value in better access to markets such as Australia, Vietnam, Malaysia, and New Zealand. Trade with those countries is relatively minor and would not justify making significant policy concessions. The decision to join the negotiations was sparked by concern that preferential access to the U.S. would be undermined if Canada was left out of the TPP and by a desire to strike a trade agreement with Japan. Once Japan shifted its focus from bi-lateral discussions to the TPP, Canada pushed for inclusion in the deal. With the U.S. out, one of the foundational arguments for joining the TPP is gone.

Moreover, the TPP text reflects the power of the U.S. in the negotiations. For example, the extension of the term of copyright stems from  a U.S. demand, since many TPP countries have terms that mirror Canada’s life of the author plus 50 years. For Canada to move forward with an agreement that does not offer the benefits of better access to the U.S. market, cannot be enforced (since it cannot take effect), and which involves provisions of little interest to many other TPP members does not make sense.

Canada will attend the meeting in Chile next week, but no one should expect that a “TPP11” is the likely outcome.  Rather, the question is whether to go back to the drawing board with the same partners (less the U.S.) or start from scratch in a series of bi-lateral trade negotiations.  Either way, the TPP in its current form is dead and with Canada facing a significant challenge with the NAFTA renegotiation, it should not be working to revive it.

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