The Trans-Pacific Partnership (TPP) is an ambitious free trade agreement that has been in negotiations since 2010 among 12 countries, namely: Canada, the United States, Australia, Brunei Darussalam, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. Collectively, these nations represent approximately 40 per cent of the world’s gross domestic product (GDP) (roughly C$28.5-trillion), one-third of all international trade and over 775 million consumers. If ratified and implemented by all participating states, it will continue the trend toward lowering barriers to international trade and increasing access for Canadian exporters. If the TPP is ratified, Canada will have achieved free trade agreements with countries representing approximately 60 per cent of the world's economy and will have gained preferential access to markets containing more than 1.3 billion consumers.
Free trade agreements typically result in tariff reductions and the TPP is no exception. Canada's efforts in the TPP in this regard focussed on obtaining tariff reductions from high duty jurisdictions of Japan, Vietnam, and Malaysia. The TPP, however, goes much further than tariff reductions, and addresses:
- Intellectual property rights
- Investor protection
- Investor-state dispute settlement
- Technical barriers to trade
- Sanitary and phytosanitary measures
- The environment
- Government procurement
- The treatment of state-owned enterprises
- Trade in services
- Increasing market access for certain agricultural products that are subject to import controls, such as Canada's import controls on dairy products, Japan's import controls on rice, and the U.S.' import controls on sugar
This broad-based approach to trade is similar to the Comprehensive Economic and Trade Agreement between Canada and the European Union, which has been concluded but not yet implemented.
While the draft text of the TPP has not been released to the public, those following the negotiations have had no difficulty in identifying the major points of disagreement, which have been discussed extensively in the media, likely due to the fact that recent negotiations have been taking place in the shadow of a federal election in Canada. Some of the principal points of contention have been the treatment of agricultural goods, rules of origin for autos, and the biologics (the period in which pharmaceutical companies are granted data and marketing exclusivities). These groups of goods are of strategic importance to Canada and to the larger TPP trading partners, Japan, the U.S., and Australia.
Assuming that the TPP is ratified by each of the 12 nations, Canadian businesses have the opportunity, during the ratification process, to reflect and prepare for opportunities and challenges that they or their industry may face. Among the actions that businesses should consider are:
- Educating themselves regarding the laws of those jurisdictions in which they have an interest
- Understanding that regime's laws concerning their product
- Identifying distributors with whom they wish to partner
- Identifying potential customers
- Understanding supply chain management for the appropriate jurisdiction
- For importers, exploring sourcing strategies to eliminate or reduce duty costs
- Focusing on operational efficiencies to ensure global competitiveness
- If a company's primary market is the U.S., being prepared for increased competition
- If expanding the company’s business is a possibility, knowing how it will be carried out, and when
Among the countries in the TPP, the country that may provide the greatest opportunity for Canada is Japan. Japan has the third largest GDP in the world and is Canada's fifth largest trading partner, representing approximately two per cent of Canada's total trade (approximately C$20 billion in 2014). While Japan has been criticized for its trade barriers in its effort to protect its economy, the initial indications are that the TPP will, in addition to reducing Japanese tariffs, provide greater access for Canada's service industry to various sectors of the Japanese economy.
There is much work left to do before the TPP is implemented. As the joint statement issued at the conclusion of the negotiations notes, the “negotiators will continue technical work to prepare a complete text for public release, including the legal review, translation, and drafting and verification of the text.” Thereafter, each of the 12 parties to the TPP will need to complete its domestic ratification process before the agreement can be implemented. Once the result of Canada's federal election on October 19 is known, we will have a better understanding of the challenges that ratification of the TPP in Canada may face.
The TPP is historic in terms of the numbers of participants, the scope of its subject matter, and the percentage of world trade that it covers. The TPP could be a seminal event in terms of future trade negotiations, whether multilateral, plurilateral, or bilateral. In order to have any impact, however, the parties to the TPP must prioritize its implementation so that exporters and importers can begin to benefit from the increased market access and other provisions that the TPP provides.