President-Elect Donald Trump has ended any further speculation about the future of the Trans Pacific Partnership by announcing that he plans to formally withdraw from the agreement on his first day in office. I’ve written extensively about why ratification for Canada would be a mistake and argued last week in the Globe that Canada should use the death of the TPP as an opportunity to re-examine its approach to trade agreement negotiations including working toward greater transparency, focusing on tariff reduction rather than regulations, and dropping controversial ISDS provisions.
The need for Canada to wait on the U.S. has been readily apparent for months. As currently structured, the TPP cannot take effect without the U.S. since entering into force requires ratification by at least six signatories who represent at least 85 percent of the GDP of the countries in the original deal. That provision effectively gives both the U.S. and Japan veto power. With the U.S. pulling out, the agreement will not enter into force no matter what Canada (or anyone else) does.
The central role of the U.S. in the TPP is no accident. For most TPP countries, access to the U.S. market was the primary reason for entering into the agreement and as Japanese Prime Minister Shinzo Abe said over the weekend, “the TPP would be meaningless without the United States.” Indeed, the reason Canada, Japan, and Mexico all joined the TPP talks late was that without a clear commitment from the U.S., the agreement was of limited value.
For Canada, access to the Japanese market was attractive, but this was a defensive agreement driven by fears of losing preferential Canadian access to the U.S. market. Indeed, the most vocal TPP supporters regularly pointed to the North American market as a crucial reason to support the TPP. For example, Perrin Beatty, President of the Canadian Chamber of Commerce said it would “inconceivable” for Canada to walk away from TPP if the U.S. and Mexico ratified the deal. Beatty also told the Standing Committee on International Trade that “having the deal go ahead with our NAFTA partners of Mexico and the United States in, while we remain outside, would be catastrophic for Canada.”
Similarly, Brian Kingston of the Business Council of Canada told the Standing Committee on International Trade:
“Failure to take part in a trade agreement with such important trading partners would be disastrous for Canadian companies integrated into North American supply chains. Whereas NAFTA has given Canada a leg up on global competition by building a strong North American platform, being left out of the TPP would see the erosion of that advantage to participant countries. Signing on ensures that Canada maintains strong relations with our North American partners.”
In fact, Prime Minister Justin Trudeau acknowledged last month that it would be hard for Canada to turn its back on an agreement that included the U.S.
Despite the fact that the TPP cannot take effect without the U.S., there has been some desperate commentary urging the Canadian government to move ahead with the TPP without the U.S. on board. Gerry Ritz, the Conservative MP and former Agriculture Minister says Canada doesn’t need the U.S. to be part of the TPP. Yesterday in the House of Commons he stated that “as they pull back on the TPP, there is no reason to believe that we cannot join the other six countries that are gung-ho guaranteed to move forward on it, that we cannot join them and rewrite TPP without the Americans. Let us get it done.”
Yet as Lawrence Herman noted over the summer that “a trade deal without the United States would be a vastly diminished proposition.” Canada paid a heavy price for joining for the TPP: ratification would require reforms to intellectual property laws that go beyond international requirements, limitations on cultural policies, restrictions on local regulations, and implementation of investor-state dispute settlement rules that do not even meet the CETA standard. Paying those costs without any gains from an enforceable treaty makes no sense whatsoever.
The TPP was crafted as a trade agreement with the U.S. squarely at the centre. With the U.S. out, further trade agreements in the region must go back to the drawing board, with the opportunity to remove contentious U.S. demands on IP, ISDS, and other issues. Instead, a new agreement, negotiated with the transparency that was missing from the TPP process, would open the door to increased trade without many of the regulatory demands and dispute settlement rules inserted largely at the behest of the U.S. delegation.